Generation Gaps

Every generation has gaps to bridge with the next.

Sometimes, these gaps are self-inflicted. The greatest generation experienced economic depression and suffering they didn’t want their children – the baby boomers – to ever experience. Boomers, knowing what they were up to in their youth, kept Gen-X/Gen-Y-ers on a short leash. The absence of an experience in a child's life can cause them to react in unexpected ways (e.g., the 1960s). It also creates a gap between parent (who has an experience) and child (who does not). It's a bit like government policy: no matter how well intentioned, the law of unintended consequences prevails.

Some gaps result from technical or societal advances. Consider that a generation ago, we didn’t have mobile phones, web browsers, instant messenger, or Twitter. Those of us who grew up without them have a pre- and post-context into which these things arrived; that is, we lived before they were available, and we lived after they were available.

The experience of not having something and then having it is significantly different from not knowing what it means to not have something in the first place. Living without instant access to complex market data, detailed sports stats, comprehensive weather, and global news and opinion is simply foreign to the children we’re raising today. Similarly, our children don't understand the inability to be in continuous (if low bandwidth) communication with a network of friends anywhere they happen to be at the moment.

The presence of something like wireless communications at the time our children arrived on the scene gives it a prominance in their lives that we don't ascribe to it. We see it as evolutionary from the context we know; they see it as a permanent part of the landscape.

One consequence is that our children’s context for how they interact with each other is mechanically different from ours. And this is our gap to bridge. Having that pre- and post- context may limit how much we can appreciate how young people come to grips with these things: they engage something like Twitter with less life experience than we have, but with greater creativity and unteathered thought than we do. That, in turn, makes it difficult for us as parents to truly understand the impact these will have on their values, on their ways of communicating and interacting, of learning about things, on their emotions and reactions, and on their interpretation of the world.

The old adage that “the more things change, the more they stay the same” has stood the test of time. Media come and go: as one generation mourns the death of newspapers, yet another will lament the death of television, and yet another will be crushed by the obsolence of internet search in favor of something else. But we mustn't confuse media for message. It’s up to us as parents to understand the basics and richness of human interaction, and help our children come to grips with it, whatever the media du jour happens to be.

Societal norms of politeness and behavior reflect the available technology at the time, a veneer over our core being. Our needs to interact with each other, indeed the social fabric of our society, follows age old needs and desires that no technology will replace, or define.

Shaping the Future

My daughter spends the same amount of time each week in jazz and ballet lessons. The other week, she said that she enjoyed jazz more than ballet. This was obvious from her performance at her recital the other day: while not a slouch at either, her jazz dance was noticeably better than her ballet, evident from the fullness of the dance moves to the expression on her face.

She’s going to face a lot of this as she grows up. She’ll like one academic subject more than another. She’ll like some jobs more than others. Life is filled with things we’d prefer not to do, but that we're obliged to do. Not surprisingly, we tend to show less resistance and make more investment in those things that we enjoy. Our results typically reflect this.

As she grows, there are three things I hope to help her figure out.

• What do you enjoy doing?
• How can you make a living at it?
• Where do you want to live?

Once she enters the work force, she’ll spend a disproportionate amount of her waking hours in a variety of different jobs, hopefully in a definable career. If she’s not just holding down a job, but doing something that energizes and motivates her, she’s going to be a much happier person.

“Where” she lives will be just as important to her happiness as “what” she spends her time doing. Although a cratering global economy will restrain mobility for some years to come, generally speaking there are opportunities to live and work in a lot of different places worldwide. If we're good at what we do, we can create opportunities for ourselves anywhere in the world where there is demand. To a great extent, it's our choice to restrain ourselves geographically.

I can help her, but ultimately this is her voyage of discovery. I hope she finds things she enjoys doing, that give her runway to learn as well as opportunity to contribute. I hope she can define career opportunities for herself that leverage these areas of interest. And I hope she is able to see enough of the world first-hand to decide where she'll be happiest living.

If she does, she'll shape a fantastic future for herself.

Extraordinary Accomplishments

The NASA-Marshall Space Flight Center in Huntsville, Alabama is testimony to the fact that when a lot of really bright people come together to focus on a challenge, they can do extraordinary things. For example:

• The F-1 rocket engine puts out 1.5 million pounds of thrust. That’s a fair bit of power. When NASA took possession of the F-1 in the 1950’s, it was the most powerful engine ever developed, and at the time, nobody had built a vehicle you could bolt it to. Eventually, somebody at NASA built such a vehicle. And I’m sure there was no small amount of pride when some smart guy at NASA rang up the nice folks at Rocketdyne to say: “I’ll be needing 5 of those F-1s – at a time.”


• Somebody figured out a way to safely produce 7.5 million pounds of thrust for 2 minutes 30 seconds (getting all of 14,000 gallons to the mile!), and do so as the first stage of three to escape the Earth’s gravity.


• Once in space, somebody figured out that the Service Module could separate, turn around, and dock with the Lunar Excursion Module, back it out, and then turn around again toward the moon – all while travelling at 17,000 miles per hour.


• Of course, a lot of people had worked out all kinds of little things, like the barbecue roll to keep the spacecraft from overheating, the thousands of component parts necessary to create a sustainable personal atmosphere (a space suit), not to mention a collapsible battery operated lunar rover.

For the people involved in a project like this, it’s probably all in a day’s work. From the outside looking in, it’s stunning.

You really begin to appreciate the magnitude and complexity of everything that goes into space exploration when you try to explain just a few of these things to a 6 year old child.

Perhaps nothing captures it better than the comparison of two rockets. In one part of the museum, there’s a display of Dr. Robert Goddard’s first rocket, which went only about 41 feet into the sky. That’s not all that high, and in fact at the time he launched his rocket there were fireworks that could go far higher. But Dr. Goddard realized that his experiment was a success. If he had a more fuel, more thrust, and a more stable combustion chamber, he reckoned he could build a rocket that would break free of the Earth.

In Huntsville, you can pretty easily go from looking at a replica of Dr. Goddard’s rocket to looking at the Saturn V rocket. More fuel. More thrust. More stable combustion container. At 363 feet, it stands taller than Dr. Goddard’s first rocket flew into the sky. And it made it all the way to the moon, many times. Dream realized.

But the important lesson to teach a child in this isn’t just that “all the cool kids go to space camp.” It's that when really bright people are given the opportunity to concentrate their efforts, they’re able to do extraordinary things. Like make it possible to travel in space.

While not all of us grow up to be rocket scientists, we can each of us move the needle on our profession or our pastimes in our own modest ways. But it’s up to us to make that possible. We can’t hold other people (e.g., employers or family members) responsible for creating that environment for us. We enable ourselves.

We stand a far better chance of reaching our potential if we’re free of constraints, distractions, and self-inflicted limitations. If we don't live beyond our means, mortgaging our future through massive amounts of household debt, if we don't fall victim to debilitating addictions to drugs or alcohol, if we’ve not wasted our time in pursuit of entertainment and possessions but invested in acquiring knowledge and developing our talents, we can focus our energies – working alone, or better still, in communities – and achieve truly extraordinary things.

By teaching our children to pursue not just their individual identity but also their individual freedom, we give them the tools they need to enable themselves to maximize their experience of life.

Intelligence and Integrity

“Here only a natural order of nobility is recognized, and its motto, without coat of arms or boast of hearaldry, is ‘Intelligence and Integrity.’”
William H. Whyte, Jr., in The Organization Man citing Henry Clews, in 50 Years on Wall Street

More often than not, we’re not as smart as we think we are. We misjudge risks, or create Rube Goldberg solutions to the simplest of problems. While intellectual failures are humbling, they’re also learning opportunities. Of course, we learn only if we’re not so full of hubris that we deny responsibility, and also that we possess sufficient situational awareness to recognize when our approach to a solution is perhaps excessively complex. Still, though, like Wile E. Coyote, we can dust ourselves off and go back to the ol’ drawing board when we commit an error of intelligence.

But failing a test of integrity is another matter. Society is founded on basic trust: there is an expectation that the person the other side of a business agreement will fulfill their obligations, just as there is an expectation that each person will honour their contract with society to not violate the law. We can assign a risk factor that a certain number of “defaults” will occur, but that rate of default is, historically, very low. This gives society a basic integrity. Integrity is crucial, because it levels the playing field so that intelligence rises to the top.

However, when there is high counterparty risk at the most fundamental of levels, society fails to function. As a result, we make adjustments, so that the basic trust we would normally extend is not misplaced. For example, as consumer products expanded, we’ve seen increasingly sophisticated product packaging to prevent tampering and theft (thus increasing confidence in the integrity of the basic consumer purchase). Similarly, as more people travel, we’re subjected to all kinds of inspection and interrogation to ensure safety of travel (thus not discouraging people from travelling). And the increase in technology has been accompanied by its own set of threats, ranging from theft to outright destruction of our data, and counter-measures such as phishing filters and virus protection, to make it viable to use this technology.

Today, we face a global financial meltdown. Much of the wealth destruction we’ve experienced was caused by a failure of intelligence: inadequate risk models, incomplete accounting rules, lazy efforts by investment professionals, and many other things have created a loss of wealth which the world won’t recover any time soon. But there is also a lapse of integrity, with everything from falsified documentation supplied in mortgage applicastions, to fraudulent investment schemes (most famously that of Bernie Madoff). The total wealth destruction caused by the blatantly malicious is no small sum. No doubt that financial services will undergo the same phenomenon as consumer products, travel and technology as they come to grips with different means of reducing the opportunity for malice.

The bonds of trust are constantly under siege, in all walks of life. This means no small number of people dedicate their life’s energy not to advancing the knowledge of the world, or enhancing the quality of life, but to preventing one person from injuring or exploiting another. Entire industries exist to ensure the success of the most basic of transactions.

In a world that rewards “now” (e.g., book revenue for commission now, get cash flow to pay the bills now, etc.) the equation behind many transactions is distorted. Somebody may aggressively book revenue because it pays the bills, even if that revenue systemically destroys the capability of the firm to execute (e.g., a firm contracts for work that is unattractive to highly talented employees, who simply quit). Knowing that a firm with which you do business is focused on revenue at the expense of capability is something that would materially affect your willingness to do business with them, because a company gutted of talent is a less capable business partner.

Compounding the “now” mentality, the rise of relativism has made it possible for people to justify nearly any behavior, while the expansion of our “we’re all winners” culture has made us less able to deal with our own shortcomings.

What this means is that for anything in which we engage, we must always be wary of the motivations of counterparties (and in many electronic transactions, an “uninvited party.”) We must look not just at the transaction itself, but at the motivation behind the transaction. In short, we may trust, but we must also verify.

In a trusting world, we can all focus our intelligence to advance the greater good. In an untrusting world, we must allocate a great deal of our intelligence to watching our back. An investment may be highly rated or highly recommended, but it’s up to the buyer to be satisfied with the rationale behind that endorsement. Indeed, lots of people had the opportunity to invest with Madoff or buy structured credit securities backed by all kinds of strange instruments, but refused because they didn’t fully understand how the numbers worked.

Children are naturally trusting. They will extend trust to those around them. But we have to teach them to take nothing for granted. They must not only understand the context of a situation, but have sufficient insight into human behaviour so that they recognize the potential for malice. They must similarly be prepared to subject themselves to the same level of scrutiny to anybody with whom they do business.

As the great moderation gives way to a period of volatility and fear, integrity makes a person a bright light in a storm, and therefore an attractive counterparty for all kinds of situations, commercial and otherwise. It means extending that integrity only to worthy counterparties, and that can mean some very difficult decisions. However, if we behave in a trustworthy way, and if we surround ourselves with people who are trustworthy, our intelligence is largely the determining factor in our path through life.

Needing to navigate a tapestry of duplicitous relativists is not best use of our life’s energy. Better that our children learn how to position themselves so they can concentrate on the value that they can bring into the world.

Facing Life's Certainties with Dignity

For a six year old girl, death is perhaps just the absence of somebody in this world, that there is somebody who will be missed. Of course, even for a child, an encounter with death isn't so selfish: for a child with the gift of faith, there is an expectation that the deceased - especially one so spiritually pragmatic - has simply moved on to a better place.

Death is not simply a change of state. There is much to be learned by the event of death itself. Indeed, a graceful death is a poignant event. I hope that she recognizes how life's other certainty (death) can be faced down with dignity. Not pride, not hubris, not escapism, but the dignity of one who says, "I did what I did. I love who I love. I am who I am. I am ready."

And, perhaps, there is a strong lesson that dignity and poise are conspicuous by their absence in life artificially supported. Prolonging life can be a function of fear. Fear is understandable: none of us really knows what lies beyond. But there is a difference between uncertainty and denial, and denial isn't helpful, especially as it puts pressure on a broader community (e.g., family) to share in the denial of an inevitability experienced by billions of people who have come before. This imposition is outright irresponsible: many lives are subserviated to propogate a falsehood clung to by a few.

This (perhaps tastelessly) puts life's first certainty (taxes) into perspective. A budget deficit in excess of 12% of GDP artificially prolongs a lifestyle. In actual fact, it means that one generation's lifestyle will be borne substantially by another. Such an act lacks not just dignity and poise, but honour. Many future generations will be subserviated to propogate a falsehood.

We each of us bear both of life's certainties: we have a fiduciary obligation to our government, and we must someday meet our maker. If we face these responsibly, neither need be burdensome. May we conduct ourselves honourably in both, not passing a spirit of denial to our children, but teaching them a sense of responsibility.

When Reassurance Meets Reality

In recent months, we've witnessed wealth destruction on a massive scale. In the coming months, there are likely to be a great many bankruptcies and liquidations, both household and commercial. While unfortunate, many are the result of questionable decisions, principally in the form of debt willfully issued by borrowers and underwritten by lenders. This was done in large part because asset values were expected to rise indefinately, while risks to future income streams were not fully appreciated. With unviable (or simply irrelevant) businesses finally called to a reckoning, unemployment is increasing, and deflation is the force du jour. This means cash flows are evaporating and valuations are declining. At the moment, a bottom has not yet been identified, meaning uncertainty prevails, and with it we have unprecedented volatility, an absence of individual economic freedom, and a lack of economic confidence. We have lost our unprecedented propsperty and are in free fall; all we can say with certainty right now is that we're in transition.

In his 31 January column in the Financial Times, Harry Eyres writes: "...if we are wise, we must surely question what it was about our apparent wellness that contributed to and led up to the crisis. Was the crisis really nothing to do with us, with the way we were living - was it an overwhelming catastrophe emanating from outside of us, sent by some angry deity such as Poseidon, the god of earthquakes and tsunamis?"

Might we, through our apparent wellness, have contributed to our current situation? Yes, of course we did, for reasons which go beyond this simple blog entry. One characteristic of our "apparent wellness" is worth calling out: the "we're all winners!" societal norm we adopted is not sustainable. Bankruptcy, while perhaps necessary and healthy for the economy, is not a hallmark of success. Clearly, not everybody is a winner.

Perhaps in addition to creating asset bubbles, we've created a "self-worth" bubble. We've interfered with our societal synapses: the "we're all winners!" messaging has made us into an entitled society. Our "everybody gets a trophy" ceremonies have inflated our perception of what we're truely capable of delivering despite overwhelming evidence to the contrary. Ditching the trappings of false performance and learning to contend with the reality of limitation will be a systemic shock, but a very positive one that will go a long way to restoring the synapses that created such tremendous human achievement in the first place. Human accomplishments have been bred from many factors, including talent, fortitude and no small amount of luck, but not entitlement. Not once.

It will be interesting to see how our societal psyche comes to grips with economic reality. We no longer have the luxury of maintaining the illusion of entitlement. The issue isn't that any person lacks worth, but that each person must earnestly and honestly accept where his or her talents lie and do not lie. Trophies, slogans, and emotions will not sustainably overcome a shortage of talent in an increasingly competitive global economy. This is not to say that we mustn't encourage risk, only that we need to encourage responsible risk. Anything else is speculative at best, irrational at worst.

And the last thing we need now is another bubble fueled by misplaced confidence in our ability to do things that we simply cannot.

Filtering Bias from Fact

News organizations have long had a reputation for biased reporting. As news outlets become increasingly ideologically polarized, bias has become more acute. To distill the facts of a situation, the consumer has to be skeptical as to the completeness and even the accuracy of any given report. He or she must also be aggressive in seeking out alternative reports to piece together the full set of facts and draw informed conclusions.

This takes time, but is easy to do because technology makes it easier to access different sources of news and perspective. But while the demand side of news has never been so democratic, it’s also never been so easily distorted. As consumers, we can choose to seek the comfort of “reinforcement” under the aegis of seeking “truth” by subscribing solely to ideologically aligned sources of news/information/opinion. We can just as easily choose to completely ignore outlets that are unaligned with our worldview. Consider how this could impact our interpretation of the current state of global economics: depending who you listen to, either capitalism has completely collapsed, or it’s time to buy equities. Exclusive focus on one perspective or another because it reinforces your opinions or satiates your fears puts you at risk to miss the complete picture.

There are many important lessons to teach our children in all of this. Three stand out.

One is that it is important to teach our children to look for the “story behind the story:” what is the motivation behind the choice of facts that are presented in any story by any news organization. Some years ago, a major US airline on the brink of bankruptcy was seeking concessions from its unionized workforce. In every story covering the situation, one US newspaper always made sure to point out that the labor union’s own investment bankers were advising the union to accept the terms, while another US newspaper always mentioned the executive compensation packages. Each was an important piece of data in the full picture, yet one newspaper had a completely different worldview than the other. The point is to understand the motivation behind what it is that each news source elects to include – and exclude. Filtering through this requires time, patience and balance.

Another is that our children have to expect that the people with whom they interact may not be working from the same set of data (and I use that term loosely) in any given situation. Whether engaging in debate, negotiation or just casual conversation, the fundamental facts may be highly suspect. There is no doubt that in the history of time, challenging "facts" has led to all kinds of breakthroughs and revelations. Less dramatically, challenging facts and assumptions was a contributing factor as to why many people elected not to invest with Madoff, or not to invest in opaque securities.

Finally, while our children need to be open-minded to new facts and opinions and need to be ready to acknowledge when they’re wrong, they also need to have the courage of their own convictions in any given situation. As John Kenneth Galbraith said, “The conventional view serves to protect us from the painful job of thinking.” It’s easy to get carried away by momentum and emotion. Precious few had a good year in the markets in 2008, but for those who did it wasn’t entirely accidental. Many (such as John Paulson) identified the signs and implications of a deteriorating credit market and found plenty of willing counterparties for their positions. (Granted, the signs were there for a long time and getting the timing right always requires luck, but taking the positions in the first place was no accident.) Sustaining contrarian thinking in the face of overwhelming conventional enthusiasm is difficult. It requires one to have fundamental objectivity – and tremendous inner confidence in the integrity of one’s objectivity.

The best way to prepare our children for whatever lies ahead is not to impart ideological dogma, but critical thinking and critical analysis. If we do this honestly, of course, we’ll quickly realize that we each have our own biases. We must be willing to acknowledge that we each have our own motivations and so shall our children. Learning to distinguish between the two within ourselves is no easy task.

It also gives us an opportunity to return the repetitive questioning, challenging them with "why? why? why?" with each answer they give.