with Xander Duykers (Economics Student, Samford University)

Perhaps you’ve wondered what banks are for, exactly. Perhaps you’ve also heard it said that you shouldn’t lend money to family members and close friends. For a humorous example showing exactly why, look no further than the classic National Lampoon’s Vacation series.

The main character in the series is family man Clark Griswold, played by Chevy Chase. He works hard so that his family can have nice things. The “nice thing” in the series’ first installment is a vacation to Walley World. During their trip, Clark and the family take a brief detour to visit cousins Catherine and Eddie in Kansas. During this visit, Cousin Eddie reveals that he has been laid off and hits up Clark for a loan: “Could you, maybe, spare a little extra cash?” However, as Clark reaches for his wallet, asking “How much do you need?”, Eddie reveals that the “little extra” he needs is $52,000 for his mortgage.

The scene highlights the importance of financial intermediaries. Intermediaries like banks minimize the risk of borrowing and are essential for large-scale investment. These financial intermediaries operate through modes of indirect finance.

Lenders and borrowers benefit from indirect finance. Lenders are able to measure trustworthiness by looking at borrowers’ credit scores. Lenders also reduce other transaction costs in the market for loanable funds, and lower transaction costs means more lending. Borrowers benefit because they can get capital from a single lender in a single location.

Without the bridge that financial intermediaries provide, transaction costs associated with borrowing are too high, and the markets then encounter the Cousin Eddie Problem.

This problem is evident in the movie as Eddie is seeks to get loans directly. Because Clark is only able to spare about $500, Eddie will be forced to find the rest of the $52,000 he seeks elsewhere. Assembling that much in small loans is likely to be prohibitively costly. The scene also highlights one of the most important risks one incurs when lending to friends and family. Because of their personal relationship, Clark feels obligated to help Eddie even though Clark does not trust him and cannot repossess any of Eddie’s property if he defaults on the loan. Even if he had the power to do so, it’s difficult to enforce loan terms directly. It is especially easy to be forgiving and indulgent toward friends and family, which might not always be the best thing we can do for them.

Financial intermediaries and Indirect modes of financing solve the Cousin Eddie Problem by evaluating risk and trustworthiness and by creating an emotional buffer between borrowers and lenders. This increases overall trust in financial intermediation and makes more loanable funds available than there would be otherwise. Perhaps it’s something Clark should think about if he’s looking to finance his next trip to Walley World.

You would think that the best way to criticize a field of science would be from the outside. After all, those within the field may be blinded by the prevailing orthodoxy, and thus be unable to see the weaknesses in the mainstream models.

Actually, the opposite is true. There are lots of excellent heterodox critiques of economics, but almost all are provided by economists. I presume this is true of other fields as well.  If a problem were obvious enough to be spotted by outsiders, chances are it would already be the subject of dispute within the field.  An anthropologist named David Graeber provides an excellent example of what goes wrong when you don’t understand the field you are criticizing.  Here is the intro to his piece in the New York Review of Books:

There is a growing feeling, among those who have the responsibility of managing large economies, that the discipline of economics is no longer fit for purpose. It is beginning to look like a science designed to solve problems that no longer exist.

A good example is the obsession with inflation. Economists still teach their students that the primary economic role of government—many would insist, its only really proper economic role—is to guarantee price stability. We must be constantly vigilant over the dangers of inflation. For governments to simply print money is therefore inherently sinful. If, however, inflation is kept at bay through the coordinated action of government and central bankers, the market should find its “natural rate of unemployment,” and investors, taking advantage of clear price signals, should be able to ensure healthy growth.

All the economics textbooks that I’m aware of, including those written by free market “ideologues” like me, are full of examples of the various ways that government might play a productive role in the economy, including regulation of monopolies, environmental regulation, intellectual property rights, support for basic research, income redistribution, etc.  Most economists are well to the left of me, and probably spend as much or more time on those issues than I do—and when teaching EC101 I spent a lot of time on the case for government involvement in the economy.

Hardly any economists believe that it is sinful for the government to print money.  Most agree that the money supply should be adjusted to reflect changes in the demand for money.

It’s not a good sign when you write a very long article telling readers that economics is bunk, which starts off with a series of assertions about economic that are wildly inaccurate.  Unfortunately, it gets even worse.  For instance, Graeber talks about the reality of “magic money trees” a myth I exposed in my previous post.  Then he suggests that little is left of the British welfare state:

It was center-left New Labour that presided over the pre-crash bubble, and voters’ throw-the-bastards-out reaction brought a series of Conservative governments that soon discovered that a rhetoric of austerity—the Churchillian evocation of common sacrifice for the public good—played well with the British public, allowing them to win broad popular acceptance for policies designed to pare down what little remained of the British welfare state and redistribute resources upward, toward the rich.

Actually, government spending in the UK (mostly entitlements) is just under 40% of GDP.   As in most countries it is countercyclical, but there is no long-term trend downwards:

Economists, for obvious reasons, can’t be completely oblivious to the role of banks, but they have spent much of the twentieth century arguing about what actually happens when someone applies for a loan.

I’ve spent most of my life studying monetary economics, and I was completely unaware that economists had spent most of the 20th century arguing about what happens when someone applies for a loan:

One school insists that banks transfer existing funds from their reserves, another that they produce new money, but only on the basis of a multiplier effect (so that your car loan can still be seen as ultimately rooted in some retired grandmother’s pension fund).

Here he is conflating two unrelated issues, whether the money multiplier is a useful concept and whether the funds for borrowers come out of saving.  The money multiplier is the ratio of the change in the broad money supply (including bank deposits) to the change in the monetary base (cash plus bank reserves.)  That’s all.  No one thinks it is constant.  When people start talking about how economists are “wrong” about the money multiplier, I suggest you stop reading.

Only a minority—mostly heterodox economists, post-Keynesians, and modern money theorists—uphold what is called the “credit creation theory of banking”: that bankers simply wave a magic wand and make the money appear, secure in the confidence that even if they hand a client a credit for $1 million, ultimately the recipient will put it back in the bank again, so that, across the system as a whole, credits and debts will cancel out. Rather than loans being based in deposits, in this view, deposits themselves were the result of loans.

The one thing it never seemed to occur to anyone to do was to get a job at a bank, and find out what actually happens when someone asks to borrow money. In 2014 a German economist named Richard Werner did exactly that, and discovered that, in fact, loan officers do not check their existing funds, reserves, or anything else. They simply create money out of thin air, or, as he preferred to put it, “fairy dust.”

So now we’ve gone from magic money trees to fairy dust.  I feel like I’m in a Philip Pullman novel.  This is a nice example of what’s called the “fallacy of composition”, the distinction between the individual case and the aggregate.  An individual can unilaterally change all sorts of economic variables.  If I decide to retire tomorrow, then employment falls, GDP falls, saving declines, etc.  But that does not mean that a theory of the determination of aggregate employment, GDP, etc., should try to explain those variables by analyzing changes in the public preference for working.  Instead, both left and right wing economists focus on the underlying drivers of employment.  Keynesians might emphasize aggregate demand whereas conservative economists might emphasize how government programs and taxes impact incentives.  Hardly anyone thinks that employment fell in 2009 because lots of people suddenly wanted more leisure time.

Similarly, an individual banker can make a decision that causes aggregate loans and deposits to be a bit higher than before she made that decision, but this does not mean that bankers determine the aggregate money supply, at least in any meaningful sense.  Bankers respond to macroeconomic conditions such as changes in the monetary base, interest rates, capital requirements, reserve requirements, loan regulations, etc.

An auto executive will not consult the data on global oil production when deciding how many cars to build.  But if the oil industry were not producing petroleum, then very few cars would be built.

Historically, the feeling that bullion actually is money tends to mark periods of generalized violence, mass slavery, and predatory standing armies

Hmmm . . . does “tends to mark” suggest “causation” or just “correlation”?  I ask because I also believe that “bullion actually is money”.

There’s lots more criticism of behavioral assumptions such as self-interest and rationality.  Most good economists understand that these are merely approximations of reality, useful for some purposes but not others.

This is a must-see, shockingly great speech from comedian Sacha Baron Cohen — its both timely and brilliant.

Some of his insights:

-Facebook would have let Hitler buy anti-Semitic ads
-Racism, Hate & Bigotry are not the names of Steve Miller’s Labradoodles.
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ADL International Leadership Award Presented to Sacha Baron Cohen at Never Is Now 2019

Sources: Daily Beast, transcript.

Sacha Baron Cohen is the well-deserved recipient of ADL’s International Leadership Award, which goes to exceptional individuals who combine professional success with a profound personal commitment to community involvement and to crossing borders and barriers with a message of diversity and equal opportunity.

Over 100 years ago Supreme Court Justice Louis Brandeis wrote: “Sunlight is said to be the best disinfectant.” Through his alter egos, many of whom represent anti-Semites, racists and neo-Nazis, Baron Cohen shines a piercing light on people’s ignorance and biases.

Thank you, Jonathan, for your very kind words. Thank you, ADL, for this recognition and your work in fighting racism, hate and bigotry. And to be clear, when I say “racism, hate and bigotry” I’m not referring to the names of Stephen Miller’s Labradoodles.

Now, I realize that some of you may be thinking, what the hell is a comedian doing speaking at a conference like this! I certainly am. I’ve spent most of the past two decades in character. In fact, this is the first time that I have ever stood up and given a speech as my least popular character, Sacha Baron Cohen. And I have to confess, it is terrifying.

I realize that my presence here may also be unexpected for another reason. At times, some critics have said my comedy risks reinforcing old stereotypes.

The truth is, I’ve been passionate about challenging bigotry and intolerance throughout my life. As a teenager in the UK, I marched against the fascist National Front and to abolish Apartheid. As an undergraduate, I traveled around America and wrote my thesis about the civil rights movement, with the help of the archives of the ADL. And as a comedian, I’ve tried to use my characters to get people to let down their guard and reveal what they actually believe, including their own prejudice.

Now, I’m not going to claim that everything I’ve done has been for a higher purpose. Yes, some of my comedy, OK probably half my comedy, has been absolutely juvenile and the other half completely puerile. I admit, there was nothing particularly enlightening about me—as Borat from Kazakhstan, the first fake news journalist—running through a conference of mortgage brokers when I was completely naked.

But when Borat was able to get an entire bar in Arizona to sing “Throw the Jew down the well,” it did reveal people’s indifference to anti-Semitism. When—as Bruno, the gay fashion reporter from Austria—I started kissing a man in a cage fight in Arkansas, nearly starting a riot, it showed the violent potential of homophobia. And when—disguised as an ultra-woke developer—I proposed building a mosque in one rural community, prompting a resident to proudly admit, “I am racist, against Muslims”—it showed the acceptance of Islamophobia.

That’s why I appreciate the opportunity to be here with you. Today around the world, demagogues appeal to our worst instincts. Conspiracy theories once confined to the fringe are going mainstream. It’s as if the Age of Reason—the era of evidential argument—is ending, and now knowledge is delegitimized and scientific consensus is dismissed. Democracy, which depends on shared truths, is in retreat, and autocracy, which depends on shared lies, is on the march. Hate crimes are surging, as are murderous attacks on religious and ethnic minorities.

What do all these dangerous trends have in common? I’m just a comedian and an actor, not a scholar. But one thing is pretty clear to me. All this hate and violence is being facilitated by a handful of internet companies that amount to the greatest propaganda machine in history.

The greatest propaganda machine in history.

Think about it. Facebook, YouTube and Google, Twitter and others—they reach billions of people. The algorithms these platforms depend on deliberately amplify the type of content that keeps users engaged—stories that appeal to our baser instincts and that trigger outrage and fear. It’s why YouTube recommended videos by the conspiracist Alex Jones billions of times. It’s why fake news outperforms real news, because studies show that lies spread faster than truth. And it’s no surprise that the greatest propaganda machine in history has spread the oldest conspiracy theory in history—the lie that Jews are somehow dangerous. As one headline put it, “Just Think What Goebbels Could Have Done with Facebook.”

On the internet, everything can appear equally legitimate. Breitbart resembles the BBC. The fictitious Protocols of the Elders of Zion look as valid as an ADL report. And the rantings of a lunatic seem as credible as the findings of a Nobel Prize winner. We have lost, it seems, a shared sense of the basic facts upon which democracy depends.

When I, as the wanna-be-gansta Ali G, asked the astronaut Buzz Aldrin “what woz it like to walk on de sun?” the joke worked, because we, the audience, shared the same facts. If you believe the moon landing was a hoax, the joke was not funny.

When Borat got that bar in Arizona to agree that “Jews control everybody’s money and never give it back,” the joke worked because the audience shared the fact that the depiction of Jews as miserly is a conspiracy theory originating in the Middle Ages.

But when, thanks to social media, conspiracies take hold, it’s easier for hate groups to recruit, easier for foreign intelligence agencies to interfere in our elections, and easier for a country like Myanmar to commit genocide against the Rohingya.

It’s actually quite shocking how easy it is to turn conspiracy thinking into violence. In my last show Who is America?, I found an educated, normal guy who had held down a good job, but who, on social media, repeated many of the conspiracy theories that President Trump, using Twitter, has spread more than 1,700 times to his 67 million followers. The President even tweeted that he was considering designating Antifa—anti-fascists who march against the far right—as a terror organization.

So, disguised as an Israel anti-terrorism expert, Colonel Erran Morad, I told my interviewee that, at the Women’s March in San Francisco, Antifa were plotting to put hormones into babies’ diapers in order to “make them transgender.” And he believed it.

I instructed him to plant small devices on three innocent people at the march and explained that when he pushed a button, he’d trigger an explosion that would kill them all. They weren’t real explosives, of course, but he thought they were. I wanted to see—would he actually do it?

The answer was yes. He pushed the button and thought he had actually killed three human beings. Voltaire was right, “those who can make you believe absurdities, can make you commit atrocities.” And social media lets authoritarians push absurdities to billions of people.

In their defense, these social media companies have taken some steps to reduce hate and conspiracies on their platforms, but these steps have been mostly superficial.

I’m speaking up today because I believe that our pluralistic democracies are on a precipice and that the next twelve months, and the role of social media, could be determinant. British voters will go to the polls while online conspiracists promote the despicable theory of “great replacement” that white Christians are being deliberately replaced by Muslim immigrants. Americans will vote for president while trolls and bots perpetuate the disgusting lie of a “Hispanic invasion.” And after years of YouTube videos calling climate change a “hoax,” the United States is on track, a year from now, to formally withdraw from the Paris Accords. A sewer of bigotry and vile conspiracy theories that threatens democracy and our planet—this cannot possibly be what the creators of the internet had in mind.

I believe it’s time for a fundamental rethink of social media and how it spreads hate, conspiracies and lies. Last month, however, Mark Zuckerberg of Facebook delivered a major speech that, not surprisingly, warned against new laws and regulations on companies like his. Well, some of these arguments are simply absurd. Let’s count the ways.

First, Zuckerberg tried to portray this whole issue as “choices…around free expression.” That is ludicrous. This is not about limiting anyone’s free speech. This is about giving people, including some of the most reprehensible people on earth, the biggest platform in history to reach a third of the planet. Freedom of speech is not freedom of reach. Sadly, there will always be racists, misogynists, anti-Semites and child abusers. But I think we could all agree that we should not be giving bigots and pedophiles a free platform to amplify their views and target their victims.

Second, Zuckerberg claimed that new limits on what’s posted on social media would be to “pull back on free expression.” This is utter nonsense. The First Amendment says that “Congress shall make no law” abridging freedom of speech, however, this does not apply to private businesses like Facebook. We’re not asking these companies to determine the boundaries of free speech across society. We just want them to be responsible on their platforms.

If a neo-Nazi comes goose-stepping into a restaurant and starts threatening other customers and saying he wants kill Jews, would the owner of the restaurant be required to serve him an elegant eight-course meal? Of course not! The restaurant owner has every legal right and a moral obligation to kick the Nazi out, and so do these internet companies.

Third, Zuckerberg seemed to equate regulation of companies like his to the actions of “the most repressive societies.” Incredible. This, from one of the six people who decide what information so much of the world sees. Zuckerberg at Facebook, Sundar Pichai at Google, at its parent company Alphabet, Larry Page and Sergey Brin, Brin’s ex-sister-in-law, Susan Wojcicki at YouTube and Jack Dorsey at Twitter.

The Silicon Six—all billionaires, all Americans—who care more about boosting their share price than about protecting democracy. This is ideological imperialism—six unelected individuals in Silicon Valley imposing their vision on the rest of the world, unaccountable to any government and acting like they’re above the reach of law. It’s like we’re living in the Roman Empire, and Mark Zuckerberg is Caesar. At least that would explain his haircut.

Here’s an idea. Instead of letting the Silicon Six decide the fate of the world, let our elected representatives, voted for by the people, of every democracy in the world, have at least some say.

Fourth, Zuckerberg speaks of welcoming a “diversity of ideas,” and last year he gave us an example. He said that he found posts denying the Holocaust “deeply offensive,” but he didn’t think Facebook should take them down “because I think there are things that different people get wrong.” At this very moment, there are still Holocaust deniers on Facebook, and Google still takes you to the most repulsive Holocaust denial sites with a simple click. One of the heads of Google once told me, incredibly, that these sites just show “both sides” of the issue. This is madness.

To quote Edward R. Murrow, one “cannot accept that there are, on every story, two equal and logical sides to an argument.” We have millions of pieces of evidence for the Holocaust—it is an historical fact. And denying it is not some random opinion. Those who deny the Holocaust aim to encourage another one.

Still, Zuckerberg says that “people should decide what is credible, not tech companies.” But at a time when two-thirds of millennials say they haven’t even heard of Auschwitz, how are they supposed to know what’s “credible?” How are they supposed to know that the lie is a lie?

There is such a thing as objective truth. Facts do exist. And if these internet companies really want to make a difference, they should hire enough monitors to actually monitor, work closely with groups like the ADL, insist on facts and purge these lies and conspiracies from their platforms.

Fifth, when discussing the difficulty of removing content, Zuckerberg asked “where do you draw the line?” Yes, drawing the line can be difficult. But here’s what he’s really saying: removing more of these lies and conspiracies is just too expensive.

These are the richest companies in the world, and they have the best engineers in the world. They could fix these problems if they wanted to. Twitter could deploy an algorithm to remove more white supremacist hate speech, but they reportedly haven’t because it would eject some very prominent politicians from their platform. Maybe that’s not a bad thing! The truth is, these companies won’t fundamentally change because their entire business model relies on generating more engagement, and nothing generates more engagement than lies, fear and outrage.

It’s time to finally call these companies what they really are—the largest publishers in history. And here’s an idea for them: abide by basic standards and practices just like newspapers, magazines and TV news do every day. We have standards and practices in television and the movies; there are certain things we cannot say or do. In England, I was told that Ali G could not curse when he appeared before 9pm. Here in the U.S., the Motion Picture Association of America regulates and rates what we see. I’ve had scenes in my movies cut or reduced to abide by those standards. If there are standards and practices for what cinemas and television channels can show, then surely companies that publish material to billions of people should have to abide by basic standards and practices too.

Take the issue of political ads. Fortunately, Twitter finally banned them, and Google is making changes, too. But if you pay them, Facebook will run any “political” ad you want, even if it’s a lie. And they’ll even help you micro-target those lies to their users for maximum effect. Under this twisted logic, if Facebook were around in the 1930s, it would have allowed Hitler to post 30-second ads on his “solution” to the “Jewish problem.” So here’s a good standard and practice: Facebook, start fact-checking political ads before you run them, stop micro-targeted lies immediately, and when the ads are false, give back the money and don’t publish them.

Here’s another good practice: slow down. Every single post doesn’t need to be published immediately. Oscar Wilde once said that “we live in an age when unnecessary things are our only necessities.” But is having every thought or video posted instantly online, even if it is racist or criminal or murderous, really a necessity? Of course not!

The shooter who massacred Muslims in New Zealand live streamed his atrocity on Facebook where it then spread across the internet and was viewed likely millions of times. It was a snuff film, brought to you by social media. Why can’t we have more of a delay so this trauma-inducing filth can be caught and stopped before it’s posted in the first place?

Finally, Zuckerberg said that social media companies should “live up to their responsibilities,” but he’s totally silent about what should happen when they don’t. By now it’s pretty clear, they cannot be trusted to regulate themselves. As with the Industrial Revolution, it’s time for regulation and legislation to curb the greed of these high-tech robber barons.

In every other industry, a company can be held liable when their product is defective. When engines explode or seatbelts malfunction, car companies recall tens of thousands of vehicles, at a cost of billions of dollars. It only seems fair to say to Facebook, YouTube and Twitter: your product is defective, you are obliged to fix it, no matter how much it costs and no matter how many moderators you need to employ.

In every other industry, you can be sued for the harm you cause. Publishers can be sued for libel, people can be sued for defamation. I’ve been sued many times! I’m being sued right now by someone whose name I won’t mention because he might sue me again! But social media companies are largely protected from liability for the content their users post—no matter how indecent it is—by Section 230 of, get ready for it, the Communications Decency Act. Absurd!

Fortunately, Internet companies can now be held responsible for pedophiles who use their sites to target children. I say, let’s also hold these companies responsible for those who use their sites to advocate for the mass murder of children because of their race or religion. And maybe fines are not enough. Maybe it’s time to tell Mark Zuckerberg and the CEOs of these companies: you already allowed one foreign power to interfere in our elections, you already facilitated one genocide in Myanmar, do it again and you go to jail.

In the end, it all comes down to what kind of world we want. In his speech, Zuckerberg said that one of his main goals is to “uphold as wide a definition of freedom of expression as possible.” Yet our freedoms are not only an end in themselves, they’re also the means to another end—as you say here in the U.S., the right to life, liberty and the pursuit of happiness. But today these rights are threatened by hate, conspiracies and lies.

Allow me to leave you with a suggestion for a different aim for society. The ultimate aim of society should be to make sure that people are not targeted, not harassed and not murdered because of who they are, where they come from, who they love or how they pray

If we make that our aim—if we prioritize truth over lies, tolerance over prejudice, empathy over indifference and experts over ignoramuses—then maybe, just maybe, we can stop the greatest propaganda machine in history, we can save democracy, we can still have a place for free speech and free expression, and, most importantly, my jokes will still work.

Thank you all very much.

Popular discussions in the US often celebrate the entrepreneurial accomplishments of immigrants, especially in the technology sector. It is not difficult to see why. Examples of immigrant entrepreneurs such as Sergey Brin (Google) and Elon Musk (Tesla) and their sometimes dazzling accomplishments are regular features in the news. While some may posit that immigrants to the US are a self-selected population who are predisposed to entrepreneurship and willing to take big risks, researchers are only beginning to explore whether the perception of immigrant technology entrepreneurship matches reality (Hunt 2011, Kahn et al. 2017, Kerr and Kerr 2016, Kerr and Lincoln 2010).

Recent research appears to lend support to the widely held belief that immigrants are particularly entrepreneurial, finding that foreign scientists and engineers are more likely than their US native counterparts to found high-growth incorporated companies (Kahn et al. 2017, Kerr and Kerr 2016, Kerr 2019). At the same time, there are rising concerns in both the popular press (Gaskell 2019) and scholarly work (Kerr 2019, Roach and Skrentny 2019) that US immigration policies limit foreign students’ opportunities to start companies or to work for technology startups. This may be particularly problematic in engineering and computer science, where as many as half of recent graduates from US universities are foreign-born and require a work visa to remain in the US either as founder or as startup employees.

To explore this tension, we use unique longitudinal data to provide a comprehensive picture of the entrepreneurial characteristics and intentions of US and foreign-born science and engineering PhDs while in graduate school, as well as their early career outcomes after graduation (see Roach et al. 2019 for full details). Although much of the entrepreneurship literature focuses on founding, startups also rely critically on the human capital of high-skilled workers, especially in technology-intensive settings (Baron et al. 2001, Campbell et al. 2012, Hsu 2009). As such, we study entrepreneurial preferences and outcomes with respect to both founding and joining startups as employees.

The survey

We surveyed over 5,600 STEM PhD students at 39 US research universities in 2010 or 2013. We distinguished between foreign and native PhD students through a survey question that asked whether the respondent was a US citizen at the time of the survey. PhD students who were US citizens were classified as native, while non-US citizens were classified as foreign. Approximately 34% of our sample are foreign PhD students. Although differences among foreign nationalities are of interest in their own right, in this column we combine them into a single foreign category and refer readers to the full paper for analyses by nationality.

Entrepreneurial preferences

We first compared native and foreign PhDs students across a range of characteristics typically associated with entrepreneurship. An empirical challenge facing many studies of entrepreneurship is observing characteristics prior to engagement in entrepreneurship, making it difficult to determine if individuals with certain characteristics are more likely to become entrepreneurs or whether entrepreneurship shapes individuals’ characteristics. By observing individuals during graduate school and prior to participation in entrepreneurship, we are able to provide novel insights into whether foreign-born scientists and engineers differ from US natives in characteristics believed to predict entrepreneurship. We measured different preferences and traits through a series of survey questions.

We performed a series of analyses that regressed entrepreneurial characteristics onto foreign nationality (US citizens are the omitted category) controlling for degree field and university fixed effects (n=5,669). As illustrated in Figure 1, relative to US citizens, foreign PhD students are significantly more risk tolerant, report a greater importance of autonomy and financial income, as well as a higher interest in commercialisation activities. In addition, we find that foreign PhD students have a higher self-assessed ability than natives. Many of these differences are systematically correlated with entrepreneurial interests, consistent with the notion that factors such as risk aversion and interest in commercialisation are drivers of intentions to become a founder or join a startup as an employee (Roach and Sauermann 2015).

Figure 1 Differences between foreign-born PhD students and US natives with respect to entrepreneurial characteristics during graduate school

Note: *** p < 0.001, ** p < 0.01, * p < 0.05.

We further explored whether native and foreign-born PhD students differ in their preferences to participate in entrepreneurship by either founding or joining a startup in their future careers. To measure ex ante stated career preferences, we asked respondents in the first wave of the survey about founding plans (founder intentions = 1 if respondents indicated that they “definitely will start my own company”), as well as the attractiveness of working in a startup (joiner preference = 1 if this career is rated “attractive” or “extremely attractive”).

Figure 2 shows shares of PhD students with founder intentions and joiner preferences among foreign and native PhD students. Overall, approximately 21% of foreign PhD students express founder intentions during graduate school, compared to about 10% of native PhD students. Similarly, 49% of foreign PhD students express a preference for joining a startup as an employee compared to approximately 41% of native PhD students. Regression analyses controlling for degree field and university fixed effects show that these differences are statistically significant.

Figure 2 Share of PhD students with preferences for founding their own company or joining a startup as an employee after graduation

Entrepreneurial outcomes

To obtain comprehensive data on employment outcomes, we surveyed respondents again in 2013 and 2016 after they graduated and transitioned to fulltime industry employment.  We supplemented this survey data with career profile data from LinkedIn and Google searches. Specific employment outcomes are for respondents working in the US only – graduates who are working outside the US or whose current status was undetermined are not included. To identify whether PhDs were employed in a startup or an established firm, we rely upon survey and LinkedIn data on employer age and number of employees. We code startups (i.e. young and small firms) as any employer that is five years or younger and has 100 or fewer employees at the time the employee started working at the company. All other employers are coded as “established” firms.

Among the 2,318 PhDs in our sample who entered employment in US industrial R&D occupations between 2010-2016, approximately 6.3% of native PhDs were founders compared to 4.6% of foreign PhDs. Even larger differences were observed among employees, with 14.3% of natives being early-stage startup employees compared to 7.4% of foreign PhDs. Thus, foreign graduates were around 30% less likely to become founders and almost 50% less likely to join startups as employees. Regression analyses controlling for degree field fixed effects show that these differences are significant. These regressions also show that stated career preferences during graduate school are a strong predictor of employment outcomes.

Figure 3 Share of PhDs employed in industry after graduation who founded their own company or work in a startup

The preferences-outcomes gap 

Our analyses of ex ante entrepreneurial preferences and entrepreneurial outcomes reveals a surprising gap. While foreign students were considerably more likely than natives to express founding plans or an attraction to the startup work environment, they are considerably less likely to actually enter those entrepreneurial careers after graduation. Given that prior studies have found that later in their career foreign-born scientists and engineers are more likely than natives to transition to entrepreneurship (Hunt 2011, Kahn, et al. 2017, Kerr and Kerr 2016), this raises the paradox of why they are less likely to engage in entrepreneurship after graduation. One possibility is that foreign students likely face barriers or institutional constraints in the labour market that prevent them from realising their entrepreneurial aspirations. For example, although foreign PhDs can start their own companies after graduation based on their F-1 OPT, many may instead work in established firms to first obtain permanent residency before starting a company. In addition, recent research has shown that US immigration policies likely deter foreign PhDs from working in technology startups after graduation, and they instead work in large firms in order to secure a work visa to remain in the US (Roach and Skrentny 2019). Thus, current US visa policies may both dampen the founding of new companies and constrain startups’ access to a significant share of the science and engineering workforce.

Of course, non-entrepreneurial careers are not ‘inferior’, and foreign graduates who take jobs in established firms or academia can also make important contributions to innovation and economic growth (Stephan and Levin 2007). Given the potential of STEM PhDs to contribute to high-growth technology entrepreneurship, however, our results raise the concern that significant entrepreneurial human capital remains unexploited. As such, our results suggest important benefits from understanding and mitigating the barriers foreign students face in the (entrepreneurial) labour market. The US is currently facing growing competition from other countries in attracting foreign students and keeping highly educated graduates – improving labour market flexibility and supporting immigrant entrepreneurship may be one important mechanism to counteract this development.

References

Baron, J N, M T Hannan, and M D Burton (2001), “Labor pains: change in organizational models and employee turnover in young, high-tech firms”, American Journal of Sociology, 106 (4), 960-1012.

Campbell, B A, M Ganco, A M Franco, and R Agarwal (2012), “Who leaves, where to, and why worry? employee mobility, entrepreneurship and effects on source firm performance”, Strategic Management Journal, 33, 65-87.

Gaskell, A (2019), The Broken Talent Pipeline For Foreign-Born Scientists.

Hsu, D H (2009), Technology-Based Entrepreneurship, Wiley-Blackwell.

Hunt, J (2011), “Which Immigrants Are Most Innovative and Entrepreneurial? Distinctions by Entry Visa”, Journal of Labor Economics, 29 (3), 417-457.

Kahn, S, G La Mattina, and M J MacGarvie (2017), ““Misfits”, “stars”, and immigrant entrepreneurship”, Small Business Economics, 49 (3), 533-557.

Kerr, S P, and W R Kerr (2016), Immigrant Entrepreneurship.

Kerr, W R (2019), The Gift of Global Talent Stanford Business, Books, Stanford, CA.

Kerr, W R, and W F Lincoln (2010), “The Supply Side of Innovation: H-1B Visa Reforms and U.S. Ethnic Invention”, Journal of Labor Economics, 28 (3), 473-508.

Roach, M, and H Sauermann (2015), “Founder or Joiner? The role of preferences and context in shaping different entrepreneurial interests”, Management Science, 61 (9), 2160-2184.

Roach, M, and J Skrentny (2019), “Why Foreign STEM PhDs are Unlikely to Work for US Technology Startups”, Proceedings of the National Academy of Sciences, 116 (24), 16805-16810.

Roach, M, H Sauermann, and J Skrentny (2019), “Are Foreign STEM Ph.D.s More Entrepreneurial? Entrepreneurial Characteristics, Preferences, and Employment Outcomes of Native and Foreign Science and Engineering Ph.D. Students”, in The Roles of Immigrants and Foreign Students in U.S. Science, Innovation, and Entrepreneurship, NBER.

Stephan, P, and S Levin (2007), Foreign scholars in US science: Contributions and costs, University of Wisconsin Press, Madison.

By Julie Dermansky, a multimedia reporter and artist based in New Orleans. She is an affiliate scholar at Rutgers University’s Center for the Study of Genocide and Human Rights. Originally published at DeSmogBlog.

For Beaver County, just northwest of Pittsburgh, the construction of Royal Dutch Shell’s towering new plastics factory overshadows the closure of the Bruce Mansfield Power Plant, the state’s largest coal power station, located along the same stretch of Ohio River in western Pennsylvania.

The juxtaposition of these two projects, in which one powerful fossil fuel supply rises as the other falls, reflects the broader pattern of changing energy sources in America. A growing chorus agrees the expansion of the natural gas industry, which feeds plastics and petrochemical plants like Shell’s, is moving the U.S. in the wrong direction to prevent catastrophic impacts from climate change.

A Global Mismatch: Climate Plans vs. Fossil Fuel Plans

Scientists have warned that if the world doesn’t limit global temperature increase to 2.7º F (1.5º C) above preindustrial levels, called for in the 2015 Paris Agreement, we won’t be able to prevent the most severe effects of global warming.

A November 20 report from the United Nations Environment Program assesses the gap between Paris Agreement climate goals and countries’ planned production of fossil fuels. The report states that “the world is on track to produce about 50 percent more fossil fuels in 2030 than would be consistent with limiting warming to 2°C and 120 percent more than would be consistent with limiting warming to 1.5°C.”

While coal is the biggest driver, according to the report, “Oil and gas are also on track to exceed carbon budgets, as countries continue to invest in fossil fuel infrastructure that ‘locks in’ oil and gas use.”

The shale gas industry has been building demand for fossil fuels from its fracked oil and gas wells by promoting turning its products into plastics and petrochemicals.

DeSmog’s Sharon Kelly has created a field guide to the petrochemical and plastic industry and reported on the climate impacts of building a new petrochemical corridor in America’s Rust Belt and expanding the existing corridor, and Louisiana’s Cancer Alley, on the Gulf Coast.

At the forefront of this buildout, the Shell Petrochemical Complex under construction in Beaver County is designed to take ethane from the region’s natural gas fields and transform it into polyethylene, a plastic used in consumer products like food packaging and car parts.

Climate and Air Pollution Concerns for the Ohio River Valley

At a packed November 6 public meeting at the Beaver Library, residents from Beaver County and Pittsburgh’s greater metropolitan area expressed growing concerns about how the Shell plant could degrade the area’s already compromised air quality and affect public health.

Matt Mehalik, executive director of the advocacy group Breathe Project, presented a slide show about the plant and the buildout of the petrochemical industry in the Ohio River Valley. He labeled the Shell plant’s annual permitted 2.2 million tons of carbon dioxide emissions “a disaster from a climate perspective.” He then pointed to the Cheswick Power Plant, another old coal station 18 miles northeast of Pittsburgh, as a comparable carbon polluter.

Climate pollution isn’t the only concern for a region which has received an ‘F’ grade for high ozone days (the main component of smog) and particulate pollution in the American Lung Association’s 2019 State of the Air report.

Shell’s plastics plant could be joined by similar plants proposed nearby, including PTT Global Chemical’s in Belmont County, Ohio, which would also affect regional air quality. And rumors that ExxonMobil has been searching in Beaver County for a suitable location to build a petrochemical plant like Shell’s have many worried that the area will become too polluted to live in.

Fossil-Fueled Plastics Production

These petrochemical complexes are also known as “cracker plants” or “ethane crackers” because they heat up the natural gas liquid ethane in order to “crack” it into ethylene and can further refine that into the polyethylene pellets called “nurdles” used to manufacture plastic products. Cracker plants run on feedstock produced by fracked gas wells that are already plentiful in Pennsylvania.

According to the Breathe Project, a single petrochemical plant would require industry to open more than 1,000 new well pads every 3 to 5 years to supply feedstock for plastic manufacturing. And some Pennsylvania residents are already up in arms about polluted air, soil, and water issues created by the fracking industry statewide since the fracking boom began in 2008.

“We are locking into place an infrastructure with natural gas-fired power plants that will guarantee that our carbon emissions will go up over time,” Mehalik warned. “It is exactly the wrong time for that to happen — that is when the window actually to stop runaway climate change will close.” He pointed out that while the state’s carbon footprint started going down due to closing coal power plants, those gains are being offset by new natural gas-fired power plants and a growing petrochemical industry.

This month saw the country’s two biggest coal power plants shut down, Pennsylvania’s 2.7 gigawatt (GW) Bruce Mansfield Plant and Arizona’s 2.25 GW Navajo Generating Station. The closures have major climate implications. Their combined carbon dioxide emissions between 2010 and 2015 were nearly equivalent over that same time to the 15 GW of coal plants that closed in 2015, according to E&E News.

From Coal and Nuclear to Natural Gas?

Meanwhile, community members in Shippingport, a small neighborhood sandwiched between the Bruce Mansfield Power Plant„ and the Beaver Valley Nuclear Power Station, slated to close in 2021, worry about the natural gas industry looking to take over their small town. Both the coal and nuclear plants are owned by FirstEnergy Solutions.

While I was taking photographs of the homes between the two plants, William Green, the former Borough Manager for Shippingport, told me people in his small community of about 250 worry that Shell is planning to buy both FirstEnergy plants, as well as the entire town. He said that there is talk that the plants could be converted into natural gas power plants.

At the November 6 community meeting in the town of Beaver, Mehalik asserted that replacing coal plants with natural gas plants won’t save us from climate catastrophe and that when natural gas is converted into feedstocks to produce plastics, it generates enormous carbon dioxide emissions.

“Petrochemical industry expansion is completely contradictory to the principles of addressing climate change, improving air quality, protecting water, and pursuing a sustainable and resilient community approach to regional development.” A November 20 press statement from the Breathe Project stated, “Turning any region into a massive petrochemical hub is a huge step in the wrong direction on climate change when we should be investing in clean energy, not fracking and plastics.”

What Louisiana and Pennsylvania Have in Common

Environmental advocates and activists have been trying to stop the growth of the petrochemical industry in Louisiana for the same reason. The proposed Formosa petrochemical complex in St. James, Louisiana, would generate enormous greenhouse gas emissions in the process of converting natural gas into the feedstocks to produce plastics.

If permitted, it will be able to emit 13.6 million tons of carbon dioxide per year, the equivalent of three coal-fired power plants, Corinne Van Dalen, an attorney with Earthjustice working with community members to stop the plant, told Rolling Stone. Among 219 currently proposed oil and gas projects in the U.S., the Environmental Integrity Project found that the Formosa plant would release the most carbon dioxide, by a wide margin.

Environmentalists in Pennsylvania and Louisiana, both shale-rich states, have to contend with industry capture of regulators and politicians. Fossil fuel industry projects are approved despite concerns raised about insufficient environmental impact studies or climate impacts. Concerned citizens in both states have accused regulators of serving industries’ needs instead of protecting people and the environment.

Pittsburgh Mayor Bill Peduto tapped into that sentiment at the city’s Climate Action Summit on October 30 when he expressed his opposition to new petrochemical industry development. “We do not have to become the petrochemical/plastics center of the United States,” he declared to hundreds of attendees at the summit. His comments continue to ripple through western Pennsylvania.

A group of bipartisan elected official in western Pennsylvania counties issued a statement on November 20 in support of natural gas and petrochemical development in the region, dismissing the mayor. “So, while Mayor Peduto may speak for one city, we speak for the rest of this region,” the officials wrote. “To those in the natural gas and petrochemical industries, hear us when we say: Western Pennsylvania is open for business.”

Members of the Breathe Coalition have rallied in defense of the mayor for opposing the petrochemical buildout. “We would rather see such support go to jobs and projects that promote health, extend lives, and support frontline communities,” Mehalik wrote in a November 20 Breathe Coalition press release. “We know that through innovation, we can create jobs, grow the economy, clean up our communities, and protect our health. We support leaders who commit to doing this.”

BREAKING NEWS: Michigan passes law ending cages for hens; first Midwestern state to do so A Humane World

Cryptoqueen: How this woman scammed the world, then vanished BBC. Former McKinsey consultant takes the punters for $4 billion with “OneCoin” cryptocurrency scheme. “The total worth of the cryptocurrency market has fallen to $139.7 billion – a staggering 80-percent-plus downswing compared to a $819 billion market cap in January 2018.” So 4 / 139.7 = 0.02863278453829635 or 2.9%. That’s impressive. As Yves has always said: Crypocurrencies are “prosecution futures” (2017). And, of course, Companies House! See our own RIchard Smith here (also 2017).

Private equity comes under fire in Washington FT. A week after the hearing? For a decidedly less rosy take, see Yves’ contemporaneous reporting here.

Data Enrichment, People Data Labs and Another 622M Email Addresses Troy Hunt

Driverless car groups look past the engineering challenge FT. I’ll bet they do.

Amazon files lawsuit contesting Pentagon’s $10 billion cloud contract to Microsoft Reuters (Re Silc).

Former PG&E employee says he was fired after wildfire safety complaints San Francisco Chronicle

A Solar ‘Breakthrough’ Won’t Solve Cement’s Carbon Problem Wired. But it would ameliorate them.

Burger King is running out of zesty sauce because of climate change TreeHugger (Re Silc).

Ecommerce sites’ mobile templates hide information that shoppers use to save money Boing Boing

Why Lifesaving Drugs May Be Missing on Your Next Flight NYT. “Citing chronic drug shortages, however, the Federal Aviation Administration has granted airlines exemptions that permit passenger planes to fly without a complete medical kit if the airlines say they cannot replenish the drugs.”

Brexit

UK’s Johnson pitches ‘Christmas present’ Brexit push in manifesto Daily Mail

The End of the United Kingdom May Be Nearing Bloomberg

Do Not Despair of This Election Craig Murray

How the Leader of the OAS Became a Right-Wing Hawk—And Paved the Way for Bolivia’s Coup In These Times

Imposing Control Through Fire and Blood (interview) Álvaro García Linera, Tribune

Syraqistan

Despite threats, Iraq’s medical volunteers keep protests alive Al Jazeera

Turkey Cracks Down on Cyanide Sale After Mass Killings, Suicides Bloomberg. In this country, we prescribe oxycontin for deaths of despair, not cyanide!

India

How Hindu Nationalism Came to Rule Jacobin

Intimations of an Ending Arundhati Roy, Caravan

Joyous scenes as Bougainville independence vote starts Japan Times

Halal certification bodies clear up confusion over Christmas greetings on food Jakarta Post

Game of Thrones in Malaysia The Interpeter

Where the Carbon Flows: Singapore’s Emissions in a Global Context New Naratif

China?

Hong Kong District Council election: Polls open amid high security, as protesters vow to win at ballot box Hong Kong Free Press. From the piece, ballots are hand-marked. I am not sure that they are hand-counted in public. From this image, it looks like it.

Factbox: What Hong Kong voters say about district council elections Reuters

Hong Kong’s piano man changes his tune to protest anthem Reuters

* * *

Defecting Chinese spy offers information trove to Australian government The Age but China says alleged spy in Australia is a fraudster FT

Donald Trump’s America Can’t Fight Xi Jinping’s China James Palmer, Foreign Policy

In South Korea, Chinese and Korean students are clashing over Hong Kong protests SCMP

Impeachment

A Split Decision From Congress Will Leave Voters With Final Say on Trump NYT. Quelle horreur….

A snapshot from Wisconsin highlights Democrats’ challenges on impeachment WaPo

Here is What the Horowitz Report Should Conclude Larry Johnson, Sic Semper Tyrannis

The First Glimpse into Horowitz’s FISA-Abuse Report Andrew McCarthy, National Review

John Bolton announces his next move will be Pac amid calls to testify Guardian. Perhaps Bolton considers the House beneath him.

Impeachment bombshell: Col. Mustard testimony puts Trump in the library with candlestick Duffel Blog (JT McPhee).

2020

Fighting Words Ryan Grim, The Intercept. “Warren is not just glomming onto a movement, but hoping to reorient it from a broad force of resistance to Trump into a fighting force for economic justice.”

Pennsylvania To Spend $3M To Study Possible Link Between Fracking And Spike In Childhood Cancer KDKA

Evers signs bill making it a felony to trespass on pipelines WAOW. A Democrat.

Floods could be leaking pollution from Superfund sites in Charleston area. Post and Courier

Our Famously Free Press

The death knell for local newspapers? It’s perilously close. Margaret Sullivan, WaPo

Health Care

Ralph Nader: American Seniors Are Being Duped Truthdig. Medicare Advantage, a Bush-era neoliberal infestation, supported by Democrats, now a new line of defense against #MedicareForAll, via loss aversion.

Sports Desk

How NBA executive Jeff David stole $13 million from the Sacramento Kings ESPN

Class Warfare

How America’s Elites Lost Their Grip Time

When a deep red town’s only grocery closed, city hall opened its own store. Just don’t call it ‘socialism.’ WaPo

LA Has More Vacant Homes Than Homeless People, Report Finds LAist (JB4049).

Attacks on scholars worldwide raise concern Nature

Modern Monetary Theory: A Tool for the Global South? (interview) Fadhel Kaboub, Rosa Luxemburg Stiftung

Antidote du jour (via):

“A herd of elephants marched 12 hours to the house of Lawrence Anthony after he died – the man who saved them. They stayed there silent for two days. Exactly one year after his death, to the day, the herd marched to his house again.”

Bonus antidote:

A mother cougar with two very playful not so small kittens pass by our trail camera. Along with @WildlifeLeague and @JohnEMarriott we set up a series of cameras to document interesting cougar behavior for our wild cat project. Watch for surprise ending! #cougar #trailcam pic.twitter.com/ssm0nUiuRs

— Jeff Wirth (@itsjeffwirth) November 21, 2019

See yesterday’s Links and Antidote du Jour here.

By Lambert Strether of Corrente

The augmentation of the complexity and intensity of the field of intelligent life –Ursula Le Guin, The Left Hand of Darkness

Yes, it may be snowing and bitterly cold where you are — or, alternatively, you may be getting that miserable kind of rain that happens slightly above freezing where big drops somehow get under the hood of your anorak — and it’s certainly still more and more depressingly dark day by day — the winter solstice, when the light turns upward, is still almost a month away, falling on December 22 this year — but you can still fight back against the cold and the dark: You can order seed catalogs![1] And then, you can plan your garden!

Most of what follows is from email that alert reader pq threw over the transom, and which I’ve lightly edited. I found it really inspiring (and also wildly ambitious by my standards; I’ve been w-a-a-y more incremental, mostly because it took me awhile to figure out what I really wanted. Tomatoes were, of course, my gateway plant, but I ended up abandoning vegetables entirely in favor of flowers). The photos are also by pq; I had asked for a photo, and this was pq’s response:

[pq:] I don’t think the NC community’s expert gardeners are going to be very impressed with any single photo. The awesomeness is in the evolution of a neglected, left-for-dead side yard of a rental building into a living, breathing space with butterflies, bees, fat earthworms, and toads, not to mention flowering plants. The space is about 11 x 38.5 ft. The garden idea started forming when a friend gave me some root divisions of bleeding heart last fall. I needed a place to put them and asked the landlord if I could plant them along the fence.

Here is the “neglected, left-for-dead side yard”:

Here are the bleeding hearts that started it all:

[pq:] When they came up huge and luxurious in the spring, I asked if I could put more plants along the fence. I dug a border of about a foot and a half and began yanking out weeds. The root systems were impressive. They had grown so thick and entangled that they effectively had formed an impermeable barrier under which nothing could survive. They even were suffocating themselves. There were no earthworms. I became obsessed with weeding. Hours at a time, day after day.

I have never been obsessed with weeding; I am a lazy gardener. But I do like a project of turning a patch of nothing into soil by ripping out useless roots.

[pq:] Then I began turning the soil. The ground along the fence had benefited some from years of accumulated leaf deposits, but starting about two feet out, I hit hard clay. And rocks! In some areas, whole layers of what looked like river rock, mixed with shale and some weird composite stuff. When I mentioned it to the landlord, he knew all about it. The previous owner (his father-in-law) had built a deck, with a big stone staircase, but the deck was rotting into structural supports of the building and threatening to bring down the entire house (built in 1901). My landlord got a crew together, tore out the deck and staircase, and installed a new support beam. And guess what they did with all that rock?

As I unearthed rocks, I separated them into piles according to size and shape and began thinking about what I could do with all this free landscaping material.

The sorted rocks:

[pq:] I had to have a path through the garden, not only to tend the plants, but to allow my downstairs neighbor to access the garbage dumpster. Initially, I thought I’d get some mulch and make a path like in a photo sent in by an NC reader. But as the rock piles grew, it was a logical conclusion that they were meant for the garden path. Configuring them was another story, though. I ended up spending more of the summer and early fall laying rocks than anything else.

This is the permaculture principle of using what comes to hand. In my first couple of years, I put in a number of rock borders. Then over time, as rocks will do, they sank into the soil and disappeared! It was always a pleasure, when digging to create something new, to discover one of my rocks. Then I could repurpose!

[pq:] I did have lots of plants, though. I got many of them for free, some from neighbors, some from the roadside, including milkweeds. I regularly visited the rescue plant section at the back of Lowe’s garden center[2]. I also started some from seed, found in the 25-cent bin at Dollar General. I think I sent you some photos of the “wall” of nasturtiums and morning glories that I trained to climb the ugly chain-link fence separating our yard from the run-down side of the property next door. For all practical purposes, that was my “first-year” garden.

The wall of morning glories and mastershalums:

[pq:] As summer ended, I faced two major challenges: 1) to build the soil, with no money; and 2) to get it all done before the first freeze. You actually provided my soil solution with your “sheeting” linkI couldn’t follow it 100 percent, as I already had some plants in the ground (being broke doesn’t help), but I had some good sources of material. I collected all the suitable cardboard my neighbors put in the recycling bins. Starting in September, leaves were free for the raking. I had a little manure and organic fertilizer from last year’s container gardening. My landlords, thrilled that they no longer had to maintain the side yard, brought me a big bin of sawdust mulch, which they get ridiculously cheap from a sawmill just outside the village. As I said, not really the “right” way to do sheeting, but much of the soil is already vastly improved since spring. Before the weather turned cold, I had to be careful not to step on all the earthworms! A fleet of bumblebees were still busy at work while I was raking leaves in late September.

(See NC here on “sheet mulch”.) I would urge that worms are the best possible soil amendment; if you didn’t have worms, and now you do, that’s a great victory. With worms and the leaves and the sawdust, I bet pq’s soil will get all nice and soft and crumbly — even, given time, the clay.

[pq:] I was struggling to stay ahead of the weather…. And then we got that blast of arctic air and the ground was frozen solid for more than a week. I may be able to work a little in the next few days, but at this point, I’m pretty much resigned to pausing until spring. Writing about it will be my winter “garden project.” I’ve attached a few photos, just to give you an idea. I never took a real “before” shot, because I did a lot of work before realizing there WAS a before. In early June, before I started, the downstairs neighbor came through with a weed whacker. That was the last time. From then on, I was the One Weed-Whacker; there were no other weed-whackers before me.

Here is a look up the garden path:

[pq:] Anyway, thank you for asking! This garden was beyond therapeutic; it saved my life. And you and the NC “Garden Club” unknowingly had a hand in it.

* * *

pq also included the plan of the garden:

I found that touching, because I remember finding my father’s plan for a garden in the side yard, pinned to the wall of his workshop. He had the beds all laid out, but never got to it. I never did make a plan (and his plan would not have been mine).

I don’t know of I can add much to pq’s account, save to ask you to share your own experiences of gardening — or to consider starting your own, if you are in a position to do so. Something to look forward to. So order up your seed catalogs and make a plan

NOTES

[1] From experience, I recommend Johnny’s Seeds and Fedco in Maine. They have excellent seeds and they are both co-ops (fruits of the back-to-the-land movement in the Sixties). I would bet there are other companies around the country with seeds that are best for your particular region.

[2] I understand the economics, but garden centers also spread disease. Be careful! I never had any bugs in my garden at all when I grew exclusively from seed. This is vegetables; flowers may be less susceptible.

The recent rise of nationalism in many parts of the world has been associated with a return of the doctrine “might makes right”, a view that dominated international affairs throughout most of human history. After the two world wars, however, this doctrine began to go out of favor. The Kellogg-Briand Pact, the League of Nations, the United Nations, NATO, the European Union, etc., were all signs of an increasing perception that big countries should not invade and annex small countries. While wars continued to be fairly common, most were civil wars. With a few exceptions such as Argentina’s attack on the Falklands and Iraq’s attacks on Iran and Kuwait, wars of conquest became much rarer than prior to 1945.

Even today, wars of conquest are rare, but “might makes right” seems to be making a comeback. Russia attacked Ukraine and annexed part of its territory. Even if you believe the Crimea never should have been part of the Ukraine, these sorts of disputes were not supposed to be settled with the use of force. Elsewhere, leaders in China, India and Turkey have pursued an increasingly muscular and nationalistic foreign policy, albeit not as aggressively as Russia.

What about the US?

1. The official policy of the US is still to oppose might makes right (we still have sanctions on Russia), but our current president seems increasingly sympathetic to the doctrine. Thus while US policy opposes Russian actions in the Ukraine, President Trump is known to be more sympathetic to the Russian position. Trump remarked to aides that Ukraine is not a real country.  (Actually, it is.) In his public statements, Trump’s comments about foreign dictators are much more complimentary than his statements about democratically elected leaders of our allies.

2. The Trump administration recently reversed a long-standing US policy of opposing Israeli policies that involve forcibly taking land from Arabs on the West Bank. I don’t mean to suggest that Israel is the only villain here; perhaps the Arabs are even more to blame. Nonetheless, this policy change is revealing as an indication that might makes right is how the Trump administration views the world. It represents a dangerous precedent, no matter how just the Israeli position:

By declaring earlier this week that the United States does not consider Israeli settlements in the West Bank illegal—and thereby recognizing some form of Israeli sovereignty over the occupied territory—President Donald Trump’s administration not only undercut over 50 years of U.S. foreign policy, it also undermined the basis for the United States’ objection to Russia’s land grab in Crimea, China’s absorption of Tibet in the 1950s and current designs on the South China Sea, and any future move by either to extend their borders to places where they can assert—even a flimsy—historic or ethnic rationale.

That the entire episode contradicts the United Nations Charter, of which the United States was a co-author, is hardly surprising at this point: For Trump, the U.N. may well be merely another skyscraper in Manhattan that would look better with his name on top. To the rest of the world, however, the decision will mark the final collapse of Pax Americana, the overly simplistic but still valid idea that U.S. military, economic, and diplomatic power has helped the world avoid a third world war through a combination of deterring revanchism, selective intervention, and global economic and diplomatic institution-building.

3. After WWII, there was a widely shared conviction that war crimes were unacceptable. The US punished a number of soldiers who committed war crimes in Vietnam, Iraq, and elsewhere. Now President Trump is preventing the military from punishing war criminals. This is an indication that Trump believes that powerful countries such as the US are “above the law”. I.e., war crimes only apply to our enemies, who are always weaker than us and thus unable to prosecute American soldiers.

One way to think about recent history is that we are now far enough away from WWII that we’ve forgotten its lessons. The style of today’s nationalists is very similar to those of the 1930s.  (I emphasize “style”, as the actual policies are obviously nowhere near as bad.)  There is the repeated use of the “big lie”, the demonization of “fake news”, the demonization of foreigners and minorities, dark theories of a “deep state” controlled by international cosmopolitan elements, a masculine-oriented view of society where women are encouraged to return to more traditional roles, frequent “jokes” about violence against the media or one’s political opponents, conflating policy disagreements with treason.  I encourage people to read a political history of the 1930s; you’ll be shocked at the number of similarities to today.  Indeed some of these might also make the left uncomfortable, such as the abuses of power by FDR.

Henry Kissinger is of the WWII generation, and he is concerned that we are repeating the mistakes of the past:

“China is a major economic country, and so are we. And so we are bound to step on each other’s toes all over the world, in the sense of being conscious of the purposes of the other,” Kissinger said. “Therefore, if conflict is permitted to develop unconstrained, the outcome could be even worse than it was in Europe,” he said, referring to World War I.

Today, the great powers have nuclear weapons, and hence a repeat of the two world wars is unlikely.  Nonetheless, there is a risk of accidents or miscalculation leading to catastrophe.  A world of “might makes right” makes that risk somewhat greater.  More likely, the great powers will flex their power over weaker nations and/or unpopular minorities within their country.  We may look back on the 1990s as a Golden Age.

Oddly, a blockbuster leak based on classified Chinese government documents confirm charges that large-scale prison camps in the Xinjiang region use extreme regimentation and torture to turn its Muslim population, the Uighur, into the functional equivalent of Han Chinese, is not getting prominent play in most Western newspapers even though the number incarcerated may exceed one million. Nevertheless “most viewed” tallies show these China Cable revelations are getting traction.

The leaked official documents, of which the centerpiece is a nine-page operating manual from 2017, when the prison camps were opening, were leaked to the International Consortium of Investigative Journalists, which in turn shared them with 17 partners, many of whom did further digging. . The main document plus four shorter, later “bulletins” describe the policies for the prison camps. From the ICIJ overview:

The China Cables,…include a classified list of guidelines, personally approved by the region’s top security chief, that effectively serves as a manual for operating the camps now holding hundreds of thousands of Muslim Uighurs and other minorities. The leak also features previously undisclosed intelligence briefings that reveal, in the government’s own words, how Chinese police are guided by a massive data collection and analysis system that uses artificial intelligence to select entire categories of Xinjiang residents for detention….

The China Cables reveal how the system is able to amass vast amounts of intimate personal data through warrantless manual searches, facial recognition cameras, and other means to identify candidates for detention, flagging for investigation hundreds of thousands merely for using certain popular mobile phone apps. The documents detail explicit directives to arrest Uighurs with foreign citizenship and to track Xinjiang Uighurs living abroad, some of whom have been deported back to China by authoritarian governments. Among those implicated as taking part in the global dragnet: China’s embassies and consulates.

Former inmates now living abroad also state that Chinese officials would interrogate Uighur family members separately and intensively, including children, and would require the families accept “relatives” that would participate in family activities as well as take the children away for hours at a time. Refusing these “relatives” would lead to incarceration. Escapees also report torture, daily sexual abuse of women, and forced surgeries and drug use.

Needless to say, Chinese officials vigorously dispute these accounts. China’s ambassador to the UK called the reports “pure fabrication and fake news” and insisted the camps were voluntary educational and training centers. The Chinese ambassador to Ireland, by contrast, fell short of a denial:

The Chinese ambassador to Ireland, He Xiangdong, was asked to comment in advance of the publication of the China Cables. He was told the documents showed that people are being held against their will in harsh conditions, and that “ideological transformation” is necessary before a person is released.

“The issue Xinjiang faces is not about ethnicity, religion or human rights,” he said in a statement. “Rather, it is about fighting violence, terrorism and separatism.”

Thanks to the preventive counter-terrorism and de-radicalisation efforts, “including establishing vocational education and training centers,” Xinjiang, a place that once suffered gravely from terrorism, hasn’t seen a single violent, terrorist incident over the past three years, the ambassador said.

“We will continue to handle our domestic affairs well. We will continue to implement our Xinjiang policy and ensure Xinjiang’s sound development.”

I take these leaks at face value because not only have human rights advocates been describing large-scale detention of Uighurs for the better part of two years, I have also heard about them from credible sources when I am not at all plugged into China. Because these contacts have and in come cases continue to operate in China, accounts like this are against their commercial interest. They come from individuals who have visited the Xinjiang region and depict the surveillance and oppression of the Uighur as well known. One called out McKinsey for signaling its support of the camps. From a contact:

That region has gotten lots of recent press because of the oppression of the Uighur minority. It’s worse than most press describe. It’s a police state like the storm troopers of Star Wars. Last fall [2018] McKinsey held its annual senior partner meeting in the desert near Kashgar. For that to have been done was, to me, a clear signal to the Chinese government of McKinsey’s tacit approval of their actions there. It was appalling. No other part of China, including Tibet, is even remotely as oppressive.

We’ll summarize the disclosures and the related reporting, but for one-stop shopping for more detail, the Irish Times has done a phenomenal job, with an in-depth account as its lead story today and eight additional reports (their video also provides a fine overview).

Background

Xinjiang has a substantial population of largely Muslim Uighurs, who speak their own language and have lived in the region for a millennium, by virtue of being on the old “silk road” trade route to the Middle East. It has become strategically important to China now by being the central axis of China’s “Belt and Road” initiative:

The Uighurs are the fourth largest ethnic group in China, totaling roughly 11 million. Tensions between the Uighurs and the Han Chinese escalated after violence in 2009 and again in 2014.

From a report in February at Business Insider:

People in Xinjiang are watched by tens of thousands of facial recognition cameras, and surveillance apps on their phones. An estimated 2 million of them are locked in internment camps where people are physically and psychologically abused….

China has accused militant Uighurs of being terrorists and inciting violence across the country since at least the early 2000s, as many Uighur separatists left China for places like Afghanistan and Syria to become fighters.

But its campaign of repression only stepped up in the past two years, under the rule of Chen Quanguo, a Communist Party secretary who previously designed the program of intensive surveillance in Tibet.

Normal people in Xinjiang have found themselves disappeared or detained in internment camps for flimsy reasons, like setting their clocks to a different time zone or communicating with people in other countries, even their relatives.

Rushan Abbas, a Uighur activist in Virginia, told Business Insider: “This has everything to do with the Xi Jinping’s signature project, the Belt and Road Initiative, because the Uighur land is in the heart of the most key point of Xi Jinping’s signature project.”

In 2017, the crackdown began. Large-scale detentions began, with people and even families disappearing. Reporters, academics, and human rights campaigners identified the recent construction of large facilities:

In 2018, China could no longer deny the existence of these camps but asserted they were voluntary “vocational training centers.”

Every major city in the Xinjiang area has at least one “center,” identified from satellie images via their guard towers and razor wire perimeters, with over 100 located.

Intensive Surveillance and Pre-Crime

The ICIJ report confirms these accounts and provides more detail. A tweetstorm by the lead reporter Bethany Allen-Ebrahimian (worth reading in full) describes the Chinese pre-crime system:

These secret intelligence briefings reveal the scope and ambition of the government’s AI-powered policing platform, which purports to predict crimes based on computer-generated findings alone. The result? Arrest by algorithm.

— B. Allen-Ebrahimian (@BethanyAllenEbr) November 24, 2019

From Quartz’s recap:

Four separate bulletins reveal how the government uses a mass data collection program to identify people it deems to be potential extremists. Its data sources include checkpoints, facial-recognition CCTV cameras, spyware that some Uighurs have had forcibly installed on their phones, and “Wi-Fi sniffers,” according to Human Rights Watch. It has also been monitoring an app called Zapya, which was developed by a Beijing-based company, has 450 million users worldwide, and is very popular with Muslims, ICIJ reports.

Authorities then use artificial intelligence to comb through that data and suggest people to detain, ICIJ reports. One bulletin reports that over seven days in June 2017, 15,683 Xinjiang residents who had been flagged by technology were rounded up and put in internment camps.

As the ICIJ reports points out:

Perhaps even more significant than the actual data collected are the grinding psychological effects of living under such a system. With batteries of facial-recognition cameras on street corners, endless checkpoints and webs of informants, IJOP [the Integrated Joint Operations Platform ] generates a sense of an omniscient, omnipresent state that can peer into the most intimate aspects of daily life. As neighbors disappear based on the workings of unknown algorithms, Xinjiang lives in a perpetual state of terror..

Maya Wang, senior China researcher at Human Rights Watch, said IJOP’s purpose extends far beyond identifying candidates for detention. Its purpose is to screen an entire population for behavior and beliefs that the government views with suspicion, including signs of strong attachment to the Muslim faith or Uighur identity. “It’s a background check mechanism, with the possibility of monitoring people everywhere,” Wang said.

China is particularly aggressive about targeting Uighurs living abroad. Again from the ICIJ:

Ominously, Bulletin No. 2 points to the role of China’s embassies and consulates in collecting information for IJOP, which is then used to generate names for investigation and detention. It cites an IJOP-generated list of 4,341 people found to have applied for visas and other documents at Chinese consulates or who applied for “replacements of valid identification at our Chinese embassies or consulates abroad.” The bulletin includes instructions for those people to be investigated and arrested “the moment they cross the border” back into China.

News organizations have already reported that camp inmate populations included some foreign nationals. Now Bulletin No. 2 shows that their presence in the camps was not accidental but rather an explicit policy objective…

The bulletin directed officials to find and investigate as many of them as possible, without apparent concern for any diplomatic fallout that might result from placing foreign citizens in extrajudicial internment camps.

Indoctrination and Torture

As we indicated, the Irish Times has done impressive additional reporting. It main article shows excerpts from the source documents in Chinese, which then morph into the English translation and back. It is particularly strong on the abuses in the camps and the chilling effect on communication. For instance:

“Dormitory doors, corridor doors, and floor doors must be double-locked, and must be locked immediately after being opened and closed.”

“Strictly manage and control student activities to prevent escapes during class, eating periods, toilet breaks, bath time, medical treatment, family visits, etc.”

The quotes are from instructions issued by a top security official in the Xinjiang province of China, where since 2017 more than a million people from Uighur and other ethnic minority groups are being kept in camps….

The Irish Times’ experts viewed the aim of the “education” as the eradication of the Uighur identity:

Alexander Dukalskis, an assistant professor in UCD’s school of politics and international relations, and a specialist on Asian politics, reviewed the Zhu document [the nine-page memorandum] for The Irish Times.

“This is about enforcing another language on a minority group as part of stamping out their independent culture. The document doesn’t mention teaching maths, or science – it focuses on language and ideology. It is about wiping out their language so as to control their culture and enforce political loyalty.”

The ultimate aim, according to Dukalskis, is to destroy any possibility of serious opposition to the government in Xinjiang by Uighurs, forever.

“This sounds exaggerated, but there is really no other way to put it. The strategy is to eliminate dissent, enforce loyalty to the Chinese Communist Party, via indoctrination camps and other coercive methods, and to stamp out the independent practice of Islam and Uighur culture.”

Under the heading ideological education, Zhu instructed party colleagues to “promote the repentance and confession of the students for them to understand deeply the illegal, criminal and dangerous nature of their past behaviour”.

Experts also see the documents as confirming first-hand accounts of torture:

Adrian Zenz, a recognised authority on what is happening in Xinjiang, told the ICIJ he believes the reference in the instructions to not allowing “abnormal deaths” has to do with torture.

The telegram does not mention torture, “but the fact that it mentions the avoidance of abnormal deaths, in my opinion, is an indication that [the camp system] is using forms of physical force on people that, however, is not supposed to kill them.”

People are being put in chain-suits, are being made stand in certain positions, and are being beaten, said Zenz. Other harsher forms of torture are being meted out in prisons and detention centres.

In October a former detainee, Sayragul Sauytbay, a muslim of Kazakh descent who has been granted asylum in Sweden, told Israeli newspaper Haaretz that some inmates were made sit on a chair of nails. “I saw people return from that room covered in blood. Some came back without fingernails.”

Conscript Labor

The fact that China is using forced Uighur labor is not news. From the New York Times last December:

China has defied an international outcry against the vast internment program in Xinjiang, which holds Muslims and forces them to renounce religious piety and pledge loyalty to the party. The emerging labor program underlines the government’s determination to continue operating the camps despite calls from United Nations human rights officials, the United States and other governments to close them…..

Serikzhan Bilash, a founder of Atajurt Kazakh Human Rights, an organization in Kazakhstan that helps ethnic Kazakhs who have left neighboring Xinjiang, said he had interviewed relatives of 10 inmates who had told their families that they were made to work in factories after undergoing indoctrination in the camps.

They mostly made clothes, and they called their employers “black factories,” because of the low wages and tough conditions, he said.

From July in Business Insider, China is running forced labour camps in the remote province of Xinjiang — and retailers like Ikea, Target, Cotton On, Jeanswest and H&M are embroiled in the scandal, based on a report on Australia’s weekly documentary show, Four Corners:

The investigation by the public broadcaster has uncovered instances of detained Uighurs being funnelled from so-called re-education camps to involuntary labour in factories in Xinjiang.

The report names six retailers operating in Australia that source cotton from the troubled region — Target, Cotton On, Jeanswest, Dangerfield, Ikea and H&M.

The Chinese party line on the “re-education” is that the detainees learn new skills so they can pursue vocations other than farming. While the documents did not directly describe forced labor, the bulletins describe policies consistent with them, like making sure the “graduates” find employment and ““not leave the line of sight for one year” after leaving a camp.

With human rights abuses, even a large accumulation of eye-witness accounts regularly fails to galvanize public opinion. After all, the plural of anecdote is not data. However, documents that experts deem to be genuine are another matter. But what happens next is anyone’s guess. China is certain not to modify its program to secure a region it regards as critical, since the government has never cared much about human cost, particularly of the non-Han. But confirmation of such large scale abuses should give prospective allies pause.

Answering the question that won me the Ig Nobel prize: Are cats liquid? The Conversation. From 2017, still germane.

Coal Power Seen Falling by Record, Helping Emissions Growth Slow Bloomberg

IEEFA update: Moody’s adjusts ExxonMobil credit outlook to negative IEEFA

Brexit

United Kingdom — 2019 general election Politico. The polls.

Boris Johnson sets out vision for post-Brexit Britain FT

Tory pledge to recruit 50,000 new nurses exposed as ‘fake’ after Boris Johnson unveils manifesto Independent

Don’t even think of handing Jeremy Corbyn the keys to Number 10, says ex-MI6 chief SIR RICHARD DEARLOVE who claims Labour leader’s radical past portrays the truth about him Daily Mail

The risks to sterling after the UK general election FT

The Manifesto of Sardines. “Dear populists, the party is over. You have awakened us” (Google translate) HuffPo (DJG). DJG comments:

This a new civic movement that has arisen very quickly. It has produced much ferment in the North and in Sicily, which is one of the reasons that I am following it. The Sicilians for centuries were passive-aggressive politically, voting in clowns like Berlusconi and wondering at the bad results. Lately, Matteo Salvini and insults from the Lega have concentrated their minds. I have never seen such demonstrations.

And all of sudden, the 5 Stars are making noises about being okay with an alliance with the left—which means that Roberto Fico may be the man to watch (he’s the chair of the lower house, which is comparable to Speaker of the House).

So the fears of Italy going the way of Orban and the Hungarians aren’t quite accurate.

What will follow current events likely isn’t going to be dire.

Bolivia approves new elections excluding Evo Morales Deutsche Welle. Reading between the lines, however, MAS supporters in the country cut off the food supply for the cities.

Syraqistan

New sexed-up dossier furore: Explosive leaked email claims that UN watchdog’s report into alleged poison gas attack by Assad was doctored – so was it to justify British and American missile strikes on Syria? Daily Mail

Netanyahu’s Long and Illustrious Career Is Coming to a Sad and Shameful End Haaretz

Using Iraq and Lebanon uprisings to attack Iran will lead to disaster Middle East Eye

China?

Hong Kong elections: tsunami of disaffection washes over city as pro-Beijing camp left reeling by record turnout and overwhelming defeat South China Morning Post. The results:

Hong Kong, 452/452 seats counted.

District Council political camps:

Pro-Beijing: 59 (-239)

Pro-democracy: 388 (+262)

Unaligned: 5 (-2)#HongKongElections pic.twitter.com/qT58xwLFnC

— Asia Elects (@AsiaElects) November 25, 2019

Yes, hand-marked paper ballots, hand-counted in publiic:

Counting starts. A heated debate outside for residents so eager to come in and monitor the process pic.twitter.com/QvHJSLqnCD

— Galileo Cheng (@galileocheng) November 24, 2019

Just imagine if digital had been involved (as in Bolivia).

A cautionary note: HK uses “first past the post”:

Every reason to celebrate, but after counting nearly 2 million votes, the ratio between pro-democracy and pro-establishment camp is still around 6:4. Public opinion is not as much of a landslide as the clean sweep of seats seems to show. #DistrictCouncilElections #DemocracyForHK

— Alex Lam 林偉聰 (@lwcalex) November 24, 2019

They have demands:

Flash mob in central HK chanting ‘5 Demands, not one less’, after opposition’s stunning victory in local elections. pic.twitter.com/yEd9t7swjL

— Jonathan Head (@pakhead) November 25, 2019

Universal suffrage as contemplated in the Basic Law is a demand; independence is not.

Less than a rumor, not quite a story:

so according to state media contacts, Beijing genuinely thought they were going to win big in the elections today, to the point of having pre-written the stories

— James Palmer (@BeijingPalmer) November 25, 2019

Sounds like our own political class in 2016. Not reassuring.

* * *

Trump’s trade war is hurting China’s economy, but it’s giving Beijing an opportunity it never dreamed of Business Insider

China’s Rare-Earth Boost Threatens U.S., Australia Growth Plans Bloomberg

Canada’s use of Huawei 5G would hamper its access to U.S. intelligence: U.S. official Reuters (Re Silc).

Climate change: How China moved from leader to laggard FT

China’s High-Speed Railway To Reach 35,000 Km By Year-End Xinhua

The Influence of Railways on Military Operations in the Russo-German War 1941–1945 History of Military Logistics. For train fans and military history buffs alike. From the conclusion:

Railways were the heart of the Russo-German War because they provided the vital link between the economic and manpower capacity of the home country and the forces in the field, and in a country as large as the Soviet Union, they provided the operational level movement needed by the military forces. Geography and terrain defined the layout of the railway network, and the size of forces and the large distances involved meant that railways were the only practical option to support military operations. So inevitably offensive directions followed the railway tracks as much as the terrain.

The STAVKA and GKO realized this, militarized the railways, and put them at the heart of their operations, matching their operations to the available railway capacity. Credit must also be given to the NKPS, who in the period 1930–1938 created a world-class railway by re-writing the rule book and utilizing a low-capital approach to deliver high-traffic capacity.

Impeachment

Impeachment, the Comedy Vanity Fair

Gordon Sondland’s Impeachment Testimony for the Ages The New Yorker

Inside Gordon Sondland’s pay-to-play power grab Axios

America Hasn’t Always Supported Ukraine Like This Defense One

White House review turns up emails showing extensive effort to justify Trump’s decision to block Ukraine military aid WaPo

First on CNN: Giuliani’s associates boasted of US government ties, Ukraine gas executive says CNN

The transnationalist US foreign-policy elite in exile? A comparative network analysis of the Trump administration (PDF) E. Bastiaan van Apeldoorn, Bastiaan van Apeldoorn, and Naná De Graaff Global Networks. From page 16:

The policy planning network (established by think tanks, research institutes, foundations and the likes) is a key part of the foreign-policy elite…

Indeed, a key finding on the networks of the three previous administrations was that the overwhelming majority of foreign-policy/strategy makers had affiliations with the policy planning network prior to their appointments – 26 and 25 respectively in the case of Clinton and Obama, and 22 in the case of the Bush administration. They held 209, 211 and 162 ties respectively to a total of slightly more than 300 policy planning bodies…. Moreover, we found that, around two-thirds of them (as of 2013, when these data were collected, naturally fewer for Obama), returned to the policy planning network after their stint in government (van Apeldoorn and de Graaff 2016: 78–9). At the top of the American foreign-policy elite there is thus a significant overlap between the policy planning elite and the policy making elite (which is hardly accounted for in the literature discussed in the introduction to this special issue). At least, that used to be the case until the Trump presidency.

As Table 3 shows, the network of Trump’s foreign-policy makers clearly diverges from this pattern. This is not only in terms of the number of foreign-policy makers with previous ties to a policy planning body, which is significantly lower than for his predecessors, though still more than 50 per cent, but particularly in terms of the number of those ties, which with 39 in total is only a fraction of those for Obama (133) and Bush (131).

Biggest Revelations From The Anonymous Trump Official’s New Book The Onion

Trump Transition

New Homeland Security Asylum Rule Allows Removal to Central American Countries That Have Signed Agreements With the U.S. LawFare

Supreme Court says Ginsburg released from hospital Associated Press

Pentagon chief fires Navy secretary over SEAL controversy Associated Press. But:

There are now 3 versions of Spencer firing:
TRUMP: Navy treated Gallagher badly + cost overruns
ESPER: Spencer sidestepped DOD, made secret proposal to WH to allow Gallagher to retire w/ Trident pin
SPENCER: Resigned because he couldn’t obey Trump order on Gallagher https://t.co/p72PJ3GZoo

— Jeremy Diamond (@JDiamond1) November 24, 2019

Of course, there is this: Navy Secretary to Trump: ‘Fire Me’ If $13B Aircraft Carrier Doesn’t Get Fixed (Daily Beast, January 8, 2019) v. USS Ford Will Set Sail With Only 2 Out of 11 Weapon Elevators (Popular Mechanics, Oct 12, 2019) along with The Navy reportedly asked Carnival Cruise Lines for help with its ongoing aircraft carrier maintenance issues (Task and Purpose, November 3, 2019). Carnival Cruise Lines!!! Perhaps all parties have agreed that the real reason for Spencer’s defenestration must remain undiscussed (“not in front of the children”). And I do believe that Carnival Cruise is still offering their “Cruise to Nowhere.” The average cruise ship takes 3,000, and the entire Pentagon houses 23,000 people, so that would be a tidy little contract for Carnival.

Doctors demand “urgent” medical intervention to save Julian Assange’s life WSWS (CT).

2020

Bloomberg places at least $37 million in television advertising over next two weeks Bloomberg. Ka-ching.

Democrats in Disarray

The Lucrative Liberal Business of Killing Health Care Reform The New Republic. “If Bernie Sanders or Elizabeth Warren wants to pass Medicare for All; if Biden or Pete Buttigieg wants to implement his public option, they will have to go around not just health-industry lobbyists and their money but a whole city of careerist worms whose children’s college funds and extravagant lifestyles depend on money scraped from the [Partnership for America’s Health Care Future’s] vaults.” And that’s being generous to Warren, whose artificial dependencies in her “pay-for” and “transition” plans (immigration reform and two bills, one public option, the second #MedicareForAll) seem designed to give these “careerist worms” as many bites at the apple as they need.

Clinton Foundation cash flow continues to drop years after 2016 election loss Open Secrets. Odd.

The US wants to bury SC’s plutonium stockpile forever. Its new home isn’t sure it wants it. Post and Courier

Nearly half of New Orleans’ all-charter district schools got D or F grades; What happens next? Times-Picayune

Public defenders ordered to violate ethics to keep defendants moving through court Kansas City Star

Puerto Rico

Puerto Rico’s Next Big Crisis Is Water HuffPo

Health Care

Paging Dr. Robot: Artificial intelligence moves into care Medical Xpress

Black Injustice Tipping Point

Michigan 8-year-old gets photo shoot after being denied school picture for her hair extensions CNN

Imperial Collapse Watch

In Future Wars, the U.S. Military Will Have Nowhere to Hide Foreign Policy

Class Warfare

It’s Not the Greed—It’s the Inequality Adam Serwer, The Atlantic

Just like in Mexico, the U.S. wealth gap is massive and dangerous if we don’t turn the tide USA Today

Branko Milanović – Revolution Number 9. Why the World is in Uproar Right Now Brave New Europe

Web inventor has an ambitious plan to take back the net CTV News

Antidote du jour (via):

See yesterday’s Links and Antidote du Jour here.

The transcript from this week’s MiB: Ilana Weinstein of The IDW Group, is below.

You can stream/download the full conversation, including the podcast extras on Apple iTunes, Overcast, Spotify, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

~~~

VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: This weekend on the podcast, I have an extra special guest and this was a master class in what is going on in the alternative space.

Ilana Weinstein is uniquely situated to understand hedge funds, venture capital, private equity, the demands of scaling a billion-dollar firm into a $40 billion firm, who was moving around from firm to firm, who are the most talented people in the space, what is going on with outflows from hedge funds and why. I don’t know how to describe this except to say this is absolutely an incredible discussion from a person uniquely situated in a one-off vantage point to understand exactly what’s taking place in the space.

So, with no further ado, my conversation with Ilana Weinstein.

VOICE-OVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My special guest this week is Ilana Weinstein. She is the Founder and CEO of the IDW Group, a leading boutique for hedge funds, private equity and family offices in search of top investment talent.

Previously, she worked at such august firms as Goldman Sachs and the Boston Consulting Group. She got her undergraduate degree from the University of Pennsylvania and her MBA from Harvard. Ilana Weinstein, welcome to Bloomberg Radio and I add that because I’ve seen you on Bloomberg TV many times but I don’t recall ever hearing you on Bloomberg Radio.

ILANA WEINSTEIN, FOUNDER, CEO, IDW GROUP: This is my first time, Barry.

RITHOLTZ: So, you’ve been in the asset management industry for more than two decades. How did you end up on the recruiting side?

WEINSTEIN: The short answer is I was really young and I was still trying to figure out what I wanted to be when I grew up literally. I’d gone to HBS after a year at Goldman. So, I literally went from Penn from my dorm room to my parents’ home, worked to Goldman for a year and then went to HBS.

And just to go back and answer your question, I ended up going to the Boston Consulting Group really because I felt I needed to get a post-MBA to my MBA. I wanted to figure out what path I wanted to take, what sorts of problems I wanted to solve, what industries were interesting to me.

And this is in the — I was in my late 20s, this is in the mid-90s. So, the dot com because that’s of course what we call it back then.

RITHOLTZ: Right.

WEINSTEIN: The dot com bubble was just bubbling and within a year and a half, my entire class of MBAs at BCG, the class I entered with, was gone. So, I was literally — they’d all gone to California to seek their — start the next whatever.

RITHOLTZ: Give me a big fat sluggish stock options and a stock that just goes up by 10 percent a day and everybody jumped at it.

WEINSTEIN: And done. Right. You can imagine how that ended for most of them.

RITHOLTZ: It depends on if they knew when to hit the bid or not. If they were smart and took off some risks, not too bad. The people who didn’t?

WEINSTEIN: So, they’d gone to try to start dot com companies and I — that wasn’t my gig. I wasn’t — I realized I didn’t really — I’d learned a lot at BCG. I didn’t want to be a management consultant as a career path and I still was figuring out what do I want to do.

And before I committed to any particular pathway, I figured I would jump into another milieu where I could learn again more about companies and functions and just figure out where I wanted to commit to. And so, I joined a large recruiting firm thinking that would give me a purview and as it turned out, I was really good at it ..

RITHOLTZ: Right.

WEINSTEIN: … and I fell into — I quickly joined their financial services practice and that’s how I ended up in recruiting.

RITHOLTZ: And so, you ended up focusing a little further along in your career on hedge funds, private equity, family offices.

WEINSTEIN: So, what happened was after about a year or two there, the dot com bubble burst and there — this was this big search firm I was at, their financial services practice was really focused more on investment banking, equities, traditional asset management, sort of what I’ll call older school businesses compared to what I really fell into and started to focus on, which was back in the late ’90s, early 2000 as you’ll remember, these were the — this is what was fueling the sell side, this is where the action was.

It was the prop groups and it was these new first-of-their-kind-type financial products. It was called — so, it was credit correlation, asset swaps, it wasn’t even called credit derivatives back then.

RITHOLTZ: Right.

WEINSTEIN: Highly structured first of their kind derivatives types of transactions. That’s what we were focused on for the sell side clients that I was working with and that’s where the juice was.

And all of a sudden, I developed my own business which was on fire within this big firm and it just became obvious after a few years to me to really try to do this on my own given I was acting effectively independently within a larger construct which was having issues at that time.

RITHOLTZ: So, let’s talk also about the timing. As you were explaining that, I began to think about the timing. If we go back 20, 25 years, what were there, 200, 400 hedge funds? Today, there is 11,000. Your timing into that ramp-up could not have been any better.

WEINSTEIN: It was perfect, Barry, right? I planned it perfectly.

RITHOLTZ: Right. I mean, so, all these — Goldman Sachs is infamous for saying to a group of traders who they smell might be itching the head out, hey, why don’t you guys go set up a hedge fund, we’ll get you capital, will prime broker for you and will steer some potential clients to you, and that’s how they built an immense prime brokerage business. How much was the Goldman Sachs’ connection helpful or as you as an analyst …

WEINSTEIN: It had not …

RITHOLTZ: … really is a different …

WEINSTEIN: I was literally just understand — I started at Goldman in the middle of my senior year Penn. I mean, I — because I just was — I don’t know, I was stupid. I was like working — I just — I got through all my classes. I didn’t have enough fun in college …

RITHOLTZ: Right.

WEINSTEIN: … is the bottom line.

RITHOLTZ: It sounds it.

WEINSTEIN: Making up for — trying to make up for a lost time now.

RITHOLTZ: Okay.

WEINSTEIN: But I was finished with my classes. I started middle of my senior year and I was out within literally a year to HBS. So, think about it, I was — I hadn’t even graduated from college. So, this was — it wasn’t — that was not what really kind of what really jumpstarted my business.

What it was however, you are correct in signaling the sell side as a driver of hedge fund talent because back then, it was the prop groups that were the precursors to hedge funds.

RITHOLTZ: Right.

WEINSTEIN: It was these, again, high-octane — and these were the guys who got paid the most on the sell side at that time, right?

RITHOLTZ: And even still felt like they weren’t capturing as much of their P&L as they wanted.

WEINSTEIN: Well, it — within a sell side contacts, they were doing as well as they possibly could.

RITHOLTZ: Right.

WEINSTEIN: Back then, you could be a superstar prop trader and earning 20, 30, 40 million bucks a year with which doesn’t happen anymore.

RITHOLTZ: Come on. Right.

WEINSTEIN: You could be — you could be earning more certainly than the CEO. But their buddies were leaving, many of whom were Goldman partners or just were — just like, again, high-octane prop traders from Credit Suisse, from Deutsche Bank, from Morgan Stanley, from JPMorgan, and they were setting up shop.

And remember back then, you could start with 50 and scale to a billion …

RITHOLTZ: Quickly.

WEINSTEIN: … very quickly.

RITHOLTZ: Yes. Yes.

WEINSTEIN: And so — and all of a sudden, there’s no headwinds from any other part of the bank, there’s no cap at all in terms of how you get paid, you can do whatever you want. And if you’re an entrepreneurial person who is a great investment professional and that’s your passion and that’s what you want to do, why be part of a bank? There was no headwinds to getting into this business and scaling if you could produce the goods. And back then, you could do that a lot more easily.

RITHOLTZ: Quite fascinating. Let’s talk a little bit, Ilana, about how your business works. Do hedge funds and family offices come to you looking for slots to fill? Are the traders and fund managers reaching out to you? What is the structure like?

WEINSTEIN: So, let me back up and tell you which I’m actually quite proud of. We’ve been in business for almost 17 years, 17 this February. Most of our clients, we’ve been working with practically, if not since the beginning, certainly, within the first few years of inception of IDW.

So, what that means is we’re — we really know their business, we’ve helped them build their business and, yes, they are coming to us for specific assignments whether it’s — and the common thread being they’re all senior people who can move the needle, whether it’s someone to do via TMT PM for equities, someone to run in emerging markets business, someone to build and run distress.

But at the same time, and this goes back perhaps to my BCG background, I really — our role — my firm’s role is to also be an advisor to them as well as to the market. So, it’s –I’ll give two assignments we’re working on today and the genesis of it. Each one is arguably for one of the biggest and most sophisticated hedge funds in the world.

One, I started talking with the founder at the end of the summer about a new business he wants to build. He runs a $40 billion hedge fund, super successful, and he wants to create something wholly other than what he does today.

So, we’re helping him find somebody who could oversee that and build that. That’s a very sophisticated person …

RITHOLTZ: For sure.

WEINSTEIN: … who’s not — this isn’t someone looking for a job. This is somebody who has actually had great success with what they’ve done in the past and this is kind of an interesting maybe Chapter 2. And as successful as they’ve been, it’s an opportunity for even greater wealth creation.

The second example I’ll give you is another client that is almost as big and, again, these are two of the most successful hedge funds in the world. Very forward-thinking guys. This is a client we’ve worked with for a long time.

I came to him and I said to him, there — I see an arb in the market right now. There is a universe of people who are really talented and are staying where they are not because they’re happy but because a better option doesn’t exist and if you created this, I think you could capture that alpha, right, this group of individuals that have been phenomenal P&L generators even in the last few years where it’s been very difficult. He’s now building that business.

So, it’s both working on discrete assignments for our clients as well as coming to them with advice about where to take their — how to take their funds forward.

RITHOLTZ: That’s fascinating. So, if someone comes to you and they’re looking to fill a specific role, what is your thought process like when you’re trying to say who do I know that might be a good fit for this or if I don’t know anybody in particular who comes to mind, how do you go about creating a pool of applicants that could fill that role?

WEINSTEIN: Well, after, again, almost two decades doing this, we typically …

RITHOLTZ: You know most of the players today.

WEINSTEIN: We kind of know — I’m not going to go so far as to say we have the answer before we begin although that is often correct. Like actually formally begin the search.

RITHOLTZ: Like someone says something you like, I know — in the back of your head, I have just the person.

WEINSTEIN: Well, we’ve done so much work in every conceivable asset class. So, many times that when we start something, it’s rarely truly brand new. What it can be — because certain strategies are more cyclical than others.

So, for example, when we did the — here’s a good example, when we did the head of emerging markets for one of our clients, he asked me how much work we’ve done in EM and I told him we had done a fair bit of work this is going back a few years but because it’s a cyclical strategy not for a while.

RITHOLTZ: Right.

WEINSTEIN: So, there, what we did is we threw a lasso over the universe sort of as we knew it from when we last left off and when that strategy was last en vogue and it was a pretty sizable universe.

But — and this was a global search as well, right, because it’s a head of emerging markets, it’s — the person could sit here or could sit in London and we just dived in. And we build a tapestry of who the best people are, which is both by meeting people that we already know to be good, but even if we have no idea, the reality is we’re doing so much work in other areas whether it’s credit, rates, macro.

And if we’re doing work in a multi-strat and we have the credit candidates or the equities candidates in play, they will also have perspective on who is good in EM, right, whether it’s at their firm or they may know someone that they respect in another firm. And the common theme is these are people — we’re reaching out to people who have — who we view as best in class and talented people tend to recommend other talented people. So, we very quickly form a picture of who the best people are.

And the other thing, Barry, is just good old-fashioned hard work. When we do a search, any search, we’re typically going through maybe 200, 300 people even though I know the answer is within 10 to 15 of those. We just want to make sure we’re leaving no stone unturned and also building our own depth and breadth of knowledge.

RITHOLTZ: So, when you make a final recommendation to a firm, I imagine this varies from firm to firms. Do some firm say, find me the guy and I’ll hire them, or do firm say, give me your best, I don’t know, three choices and will interview? What’s the range like?

WEINSTEIN: It’s really — it’s usually iterative because again there is a best three choices in its basest form which is people who are — who can generate — who are the people who can generate consistent P&L over time that meet with our — with — that meet with our investing — our investment parameters.

But your version of who those best three people are may be different than someone else’s. Part of it is cultural fit.

RITHOLTZ: That was my next question literally.

WEINSTEIN: Part of it is just how flexible you, as a founder, are going to be with respect to giving them. You may say you’re going to give them a fair degree of — a lot of autonomy but they may need more than what you’re willing to give them.

They — and then there were just nuances. They may — you may say you’re open to somebody who runs in a manner that’s quite that concentrated and volatile but their version of concentration and volatility may be too much for you.

So, there’s a lot of nuances where we, you and I, need to iterate on truly who the best, quote, “three” are and the way we work is I’m not going to — we’re not going to throw 50 — we’re going to do the work of meeting all the people but we’re going to have you meet let’s call it 15 to 20.

RITHOLTZ: That many.

WEINSTEIN: Yes. And they want, too, as well because we’re talking about really good people and they’re going to learn something.

RITHOLTZ: Right.

WEINSTEIN: They’re going to learn how other funds are set up. They’re going to learn how other — how — they’re going to get ideas from these people, right? They’re may be — let’s say it’s a long-short equity search. There may be things that the candidates are in that are actually helpful for the founder to know about.

So, if I told you that a search is a portal to meeting the top 15, 20 people in your universe, you would take every one of those meetings. That’s a good use of your time.

RITHOLTZ: So, this isn’t just I need a guy to do this, get me somebody.

WEINSTEIN: No.

RITHOLTZ: This is a whole big holistic process that’s really a two-way street with a lot of exchange of information and ideas.

WEINSTEIN: That is the only way we work and it’s — and I will tell you, we’re doing a search right now where the founder was candid with me. He may not even end up hiring someone. He just sees an opportunity that he may, may being the operative word, want to capitalize upon and wants to meet the smartest people who do this out there and then let’s iterate on what makes sense.

So, that’s not that different than BCG where I had to sort of help a CEO draw a conclusion on whether to enter a market …

RITHOLTZ: Right.

WEINSTEIN: … and the way we went about that was through competitive benchmarking and speaking to other really smart people who sat in competitive companies and would help us to help him figure it out.

RITHOLTZ: So, here’s the obvious business question, typically, headhunting and recruitment firms get paid when the hirer is placed. If someone says you, hey, I may or may not hire this person but do all this work, you have to set up a different sort of …

WEINSTEIN: No. No.

RITHOLTZ: … consulting relationship?

WEINSTEIN: We are retained firm. We don’t do any work without …

RITHOLTZ: Got you.

WEINSTEIN: … without being retained ….

RITHOLTZ: So, it’s a very different structure than the old school …

WEINSTEIN: No. We are at the risk of being totally immodest, I will tell you, for a variety of reasons. I don’t think we look like anybody else. The most prominent one of which is our — the level we work at and the access to the people that we have.

So, it’s — yes, there were discrete roles that founders need to fill, yes, we are hired to complete those searches, but they tend to be really important searches that will move the needle for the fund. And if it’s a fund, that’s — let’s call it somewhere between 10 and 40 billion, that’s a really important person.

RITHOLTZ: Sure.

WEINSTEIN: And it’s not about who’s looking for a job, it’s not about who’s available, it’s — that’s not how we comment things. If you think of a Venn diagram, one bubble being best in class and there are very few people in any asset class I put into that bubble that are really that good, again, there’s all the work we do to make sure we’re leaving no stone unturned, but I really have a firm view on who is best in class.

My firm does before we start any search. That’s why I say we sort of know the answer but we just want it — we do all the work to make sure we’re not missing anybody.

The second bubble is people who were disenfranchised, miserable, looking for jobs. If there’s an overlap and these days, for a variety of reasons, we can get into, there’s probably more of an overlap than ever before.

RITHOLTZ: Right.

WEINSTEIN: That’s a happy coincidence. It makes our job a little bit easier. All we care about is that first bubble. And really talented people who are — who have accomplished something special, this would not be an unusual profile of a candidate, somebody who oversees $5 billion where they sit today has had triple digit P&L every year for the last specifically …

RITHOLTZ: Triple digit.

WEINSTEIN: Yes.

RITHOLTZ: Not even double digit.

WEINSTEIN: No. No. No. Triple digit …

RITHOLTZ: This is a rockstar.

WEINSTEIN: This is an actual candidate.

RITHOLTZ: Yes.

WEINSTEIN: And this isn’t an outlier. This is — like this is everyday what we do. So, 5 billion, triple digit P&L, and the last four years have been really, really difficult. So, that’s quite an accomplishment, right? Much tougher environment …

RITHOLTZ: Sure.

WEINSTEIN: … which we can talk about. And compensation for him has typically been between 20 and 30 a year. He’s not looking for a job and he’s in a great firm by the way …

RITHOLTZ: Right.

WEINSTEIN: … which is not at all facing the issues other firms are facing. He’s coming in to talk to me and my team because he wants to understand given what we do, given all the smart people we meet and the clients we have and everything we see across the entire hedge fund landscape. In my — what do you think about the structure of where I’m sitting? What is — what else exists out there? Here’s what I’ve built. Do I take my bag of tricks and do something different and then what does different look like? What’s your compensation look like for me?

It’s an advisory meeting and in that, it is our job to understand everything about his firm before he walks in which we know why. We know because we’ve met plenty of other people at that firm …

RITHOLTZ: Right.

WEINSTEIN: … constantly and also understand what all his other options look like. S, we have to have deep intelligence on all the other funds that he could theoretically think about and then have a point of view on which of our clients could make sense.

And there are times — there isn’t — although it’s rare, there isn’t something else because our clients tend to be very innovative and creative to attract someone like that. There were times he should stay exactly where he’s at. But more often than not, we can set something up that is structurally superior to where he is even at that level. That’s a very different dynamic than somebody who like — needs a job.

RITHOLTZ: Quite fascinating. Let’s jump into something you alluded to earlier. The past decade has not been especially kind to most hedge funds. A lot of them have been struggling.

First question, from your unique vantage point, why is that? And second, what can they do to turn things around?

WEINSTEIN: Okay. So, I don’t know that it’s been the past decade. I think it’s more from 2015 on.

RITHOLTZ: Okay.

WEINSTEIN: Okay. So …

RITHOLTZ: We could …

WEINSTEIN: Yes.

RITHOLTZ: That’s a whole longer discussion?

WEINSTEIN: That’s a whole longer discussion we can talk. But …

RITHOLTZ: But it’s certainly been tough.

WEINSTEIN: It’s been a very, very tough environment. But I — but let’s talk about what’s going on and we’ll get to timing. And let’s juxtapose it to when I started which we talked about earlier which was 2003. That’s when I started my firm.

Five hundred billion of assets under management, 3.000 hedge funds. As you said, Barry, now, there’s 11,000 hedge funds and 3.5 trillion …

RITHOLTZ: Amazing.

WEINSTEIN: … of AUM.

RITHOLTZ: Yes.

WEINSTEIN: A lot of that growth actually came post-crisis. At the time of — 2008 was 1.4 trillion, now, it’s 3.5. That’s a lot of growth actually in the last 10 years.

RITHOLTZ: Now, is that organic growth of assets or is that just capital flowing?

WEINSTEIN: Capital flowing in literally especially post-crisis, right? That’s when you saw the shift, right, and that’s also — you mentioned earlier we do, which we do, work to find investment talent for the hedge fund industry.

But we also do work to find — and this is when this started, was in 2008, we have a very meaty practice looking at noninvestment talent across functions like president, COO, head of marketing …

RITHOLTZ: Meaning, the noninvestment …

WEINSTEIN: Yes.

RITHOLTZ: … administrator side …

WEINSTEIN: Yes. But …

RITHOLTZ: … operation side.

WEINSTEIN: Well, yes. But senior. But what would — what really drove that was post-crisis. You saw all the shift from fund to funds and high net worth, LPs to institutional LPs.

RITHOLTZ: Right.

WEINSTEIN: Because they realized that had they invested in a hedge fund, they would have done much better than buying the market, right? Most hedge funds were down — they were down but they were down half as much as the S&P …

RITHOLTZ: That’s right.

WEINSTEIN: … on average.

RITHOLTZ: That’s about right. Yes.

WEINSTEIN: So, institutions said, well, wait a second, this is like — this is an asset class that we should be investing in. And so, all of a sudden, hedge funds had to look — they had to grow up, right? It was no …

RITHOLTZ: Meaning legal compliance, accounting …

WEINSTEIN: All of that stuff. Right.

RITHOLTZ: … operations, trading.

WEINSTEIN: So, we were suddenly …

RITHOLTZ: They couldn’t just be a fly-by-night sort of a couple of guys working …

WEINSTEIN: Which is what it was.

RITHOLTZ: Right.

WEINSTEIN: Right. So, we were brought in. All these founders that we did work for on the investing side said, wait a second, my head of marketing isn’t going to cut it anymore, my COO isn’t getting cut, so we had to revamp these funds …

RITHOLTZ: That’s interesting.

WEINSTEIN: … and make them institutional, right? So, they would be attractive to institutional piece. So, what happened is you saw all this institutional money pouring into the — and — pouring into the hedge fund world and institutional LPs were also far less sophisticated back then about hedge funds because it was a new asset class to them.

So, what …

RITHOLTZ: Right.

WEINSTEIN: So, we’re — so, what happened? So, we went — so, you had this huge growth of funds, tremendous amount of capital pouring into the industry, technology became much more sophisticated, right, think about technology in 2003 to today.

So, today, everyone has access to the same information. That’s why it’s so — that’s why scale is so important in this business to have the ability, to have data science and quant and a machine internally that can turn that data into alpha signals.

Very few funds do that successfully but it gives their people a tremendous leg up if they do create that in-house. So, everyone has access to the same data. Information is much more transparent.

RITHOLTZ: Right.

WEINSTEIN: Also, since 2003 to date, you have the platforms. When I say the platforms, I talk about the multi-managers like Citadel and …

RITHOLTZ: Right.

WEINSTEIN: … Point72 and Millennium and Balyasny. These guys exploded.

RITHOLTZ: Right.

WEINSTEIN: They got so much bigger. You have all these PMs now sitting at these shops. And so, many more eyes and ears at conferences and behind a shorting model that can suss out underperformance.

So, if management says something squishy at a conference, it used to have three to six months for that underperformance to get priced fully.

RITHOLTZ: Right.

WEINSTEIN: Now, that happens in two days.

RITHOLTZ: Amazing.

WEINSTEIN: So, the window of efficiency, right, for performance has gotten much smaller and LPs, as I said, have gotten much more sophisticated. And so, with all of this, returns have come down because the industry is so much more crowded.

And liquidity, right, mutual funds and retail have shrunk. So, there’s far less liquidity now than there was back then. Fewer companies are going public, right?

With increased regulation and scrutiny, CEOs are like, I don’t want to go public with my tech company. I can just go the — go to what, to big tech private equity firm and get funded that way. I don’t have to subject myself to this.

So, for all of those reasons, it’s become far more difficult to generate alpha and what you see literally the last good year for most of these funds, and when I say most, one other sort of clarification point, we talked about 11,000 hedge funds, most of them are single manager funds. They’re not multi-managers …

RITHOLTZ: Right.

WEINSTEIN: … and they’re not multi-strats although — so, the actual number of hedge funds, the individual hedge funds tend to be single manager funds.

RITHOLTZ: Meaning 6,000, 8,000, what sort of number is …

WEINSTEIN: Probably. Yes. I mean, I don’t know the exact number but that’s the majority of funds just because in order to be — think about it, there aren’t — who — there’s not that many other funds you can name that are multi-managers.

RITHOLTZ: Right.

WEINSTEIN: Right. And in terms of multi-strats, those would be funds like Davidson Kempner, GoldenTree, Angelo Gordon. These are behemoths that are in multiple strategies and managing 30 billion or whatever it is dollars.

There aren’t that many funds that look like that. Most funds are actually quite small. Most hedge funds are — I think the two thirds of hedge funds are 250 million or less.

RITHOLTZ: Wow.

WEINSTEIN: So, this is like a cottage industry of two-bit players for the most part but …

RITHOLTZ: Wait, I have to jump in and ask you this question because you said something previously that you just reminded me of which is it’s a myth that being a hedge fund manager is the route to personal riches. I’m paraphrasing somewhat but you’ve said that previously, your explanation of this that the vast majority of hedge funds are single manager funds with a couple hundred million dollars, is that what underlies that statement?

Quote, you told the “Wall Street Journal,” “the biggest myth about working out a hedge fund it is a quick way to earn great riches.” Is that what’s underlying that?

WEINSTEIN: That’s absolutely part of what’s underlying that and the other piece, which I was getting to that’s underlying that, is now the difficulty of generating alpha. So, returns have come — so, yes, most funds are small, they’re inconsequential. You’re not going to make a lot of money managing like a couple hundred million …

RITHOLTZ: Right.

WEINSTEIN: … and many of them are even smaller than that and they’re not going to exist, most of these guys in — or they’ll just be Okay managing a little bit of money and that’s …

RITHOLTZ: Money along.

WEINSTEIN: … that’s a different business model. That’s not what you and I are talking about, right?

RITHOLTZ: Fascinating.

WEINSTEIN: That’s not our client base and that’s typically — and those small guys, they’re lucky if they’re in our office because what we’re doing with them is we’re popping them into bigger funds.

RITHOLTZ: Right.

WEINSTEIN: We do a lot of acquisition of hedge funds as well. So, they’ll get gobbled up by the bigger players if they’re any good and they should be thankful for that because they’ll have now a lot more capital resources and artillery, for lack of a better word, to be successful.

RITHOLTZ: Are they being gobbled up because of their alpha generation or is it because of their assets or it was more of an acqui-hire?

WEINSTEIN: A fund like Citadel doesn’t need the assets of a $250 million fund.

RITHOLTZ: Right.

WEINSTEIN: Far front. That $250 million fund needs Citadel because they can’t grow, they don’t have scale, they can’t compete for resources, talent capital, they are inconsequential.

However, if they’ve had good returns, that’s a great place for them to be because now they can scale that business.

RITHOLTZ: So, that becomes an acqui-hire, is that a fair tech term to use?

WEINSTEIN: Acqui-hire?

RITHOLTZ: Yes. It’s an acquisition where effectively you’re hiring …

WEINSTEIN: Yes. That’s exactly what it is. So, there’s a lot of that that we do as well. But let me, because this is important point, come back to why — to where we are today, Okay, because we are in a very different place today than we were when this industry first started, when we — when IDW first started.

So, when you look at returns for most funds, again, single manager funds, it’s like you look at ’15, ’16, ’17 and ’18, the last four full years. It’s really bad.

RITHOLTZ: Debacle.

WEINSTEIN: If you add up the cumulative return, it’s a sea of red.

RITHOLTZ: Right.

WEINSTEIN: And pointing to this …

RITHOLTZ: Not even positive. Negative returns.

WEINSTEIN: For a great number of them. Yes. It’s like if you add them up, it’s basically flat to down.

RITHOLTZ: Wow.

WEINSTEIN: And, look, I think it’s just — again, it’s a more difficult environment, it’s harder to generate alpha.

RITHOLTZ: Sure.

WEINSTEIN: And also, if — when returns come down, when we’re talking about fees, if returns come down, it’s very difficult to justify that 2-and-20 fee structure. I’ll give you a discrete example.

If I’m a fund that historically generated in the good old days 25 to 40 percent returns and by the way, these guys …

RITHOLTZ: Those were the good old days.

WEINSTEIN: … love to quote inception to date returns …

RITHOLTZ: Right.

WEINSTEIN: … which is like nonsense. I mean, you have to — they have to say that’s great. Now, let’s talk about 2015 onwards.

RITHOLTZ: Right.

WEINSTEIN: Okay. And then they’re like, go quiet. It’s not good. So, if you look at the returns of these funds, again, very bad for the last four years and you look at asset flows in the industry. They are reflective of what is going on.

The total amount of net outflows in 2018 was 37 billion. Do you know where were at to date in terms of net outflows?

RITHOLTZ: For 2019.

WEINSTEIN: Yes.

RITHOLTZ: Go ahead.

WEINSTEIN: Over 60 billion.

RITHOLTZ: Wow.

WEINSTEIN: And 2018 was a year we saw a lot of big funds shutdown, right? We saw Highfields chose to shut down. Tourbillon shutdown. Criterion, Ivory, Folger Hill, Glenhill, Threebase, I mean, I can go on and on and on.

RITHOLTZ: Right.

WEINSTEIN: And yet, we are 50 percent higher this year than last year in terms of net outflows to the industry. So, LPs are pretty disappointed in terms of where things are at.

And so, back to my example, if I’m a fund which returned let’s say — let’s just say, I know it’s up higher, but let’s say the S&P is up 15 percent and I’m a fund, a long-short equity fund that runs 50 percent net long. That means 50 percent of my return one could get, an LP could get than from just buying the S&P

RITHOLTZ: Right.

WEINSTEIN: And let’s say I’m up in line with the S&P this year. So, 50 percent is beta, right? 50 percent of my return …

RITHOLTZ: Well, but when you’re a long-short, your risk parameters are very different and …

WEINSTEIN: No. But if I’m running net 50 percent long …

RITHOLTZ: Okay.

WEINSTEIN: … that means that 50 percent is correlates to the S&P.

RITHOLTZ: Yes.

WEINSTEIN: That’s what that means.

RITHOLTZ: Okay.

WEINSTEIN: So, 50 percent is beta and 50 percent is outlook. So, if I’m 15 and the S&P is up 15 percent, only 7.5 percent is alpha yet I’m charging two and 20 …

RITHOLTZ: Right.

WEINSTEIN: … and that 20 percent is on both alpha and beta. So, 20 percent of 15 percent is three percent. Three plus two is five. I’m charging five percent on AUM.

Five percent divided by 7.5 percent, just follow me with the math and your listeners can sort of …

RITHOLTZ: They can keep up.

WEINSTEIN: Yes. I’m sure they can. Kind of work this out for themselves.

RITHOLTZ: It’s a mathy group.

WEINSTEIN: It’s a mathy group. That means two thirds of the alpha by that equation is going to me, the hedge manager …

RITHOLTZ: To the manager. Yes.

WEINSTEIN: … and one third to the LPs. That’s not a winning construct.

RITHOLTZ: That’s not sustainable.

WEINSTEIN: But then you have hedge funds like the multi-managers where it’s all alpha. Everything they generate is alpha. It’s uncorrelated. It’s low volatility. That’s why — and so, that’s a totally defensible business model.

And jumping on to another subject, the startup environment, while so few funds can scale and we have so — we have more closures than startups these days, the exception to that rule are funds that splinter off from the successful multi-managers.

That’s why we saw ExodusPoint have the biggest launch in hedge fund history last year at 8 billion. That’s why this year, you see Woodline and Candlestick to Citadel’s spin-outs launch with anywhere — somewhere between one and three billion. Candlestick I think was between one and two and will be — and Woodline is between two and three.

These are exceptions that proved the rule and also shine the light on the efficiency of this — of the hedge fund universe. You have hedge funds that are struggling to come up with the fee structure that can address the lack of value creation and then you have funds like Element that are charging two and 40. Again, it’s efficiency.

RITHOLTZ: Our last — I mean, you discussed all sorts of really fascinating things. I wanted to circle back to in particular about the shifts and where institutions are putting their money and the fee structure.

So, let’s start with the fees. One of the things I’ve seen that’s been kind of interesting and you explained earlier why institutions hate to pay alpha prices for beta is the rise of a so-called fulcrum fee where there is a very modest fee on assets and the actual profit sharing fee, the typical two and 20 part of the fee, is not on what the S&P provides but only on the excess performance.

So, it might be, instead of two and 20, 25 basis points and 30. What do you think of those sorts of fee structures? Do they have any longevity?

WEINSTEIN: I think that we need to move to a model which is closer for — if you’re — if funds are going to charge what they charge whatever — which is sizable, we need to move to a structure where LPs are paying for alpha. That’s the bottom line.

So, whether it is they lower their fees or they just charge on alpha, that has to be where the industry is going and/or here’s another thought, there are hedge funds which really, and this is true of a lot of the single manager long-short equity cubs — long-short equity funds whether Tiger Cubs or related, some of these guys are really best at generating long alpha.

They’re really not that good on the short side and if you look closely at the composition of their return, the shorts are actually volatility enhancers and alpha detractors. But they have to short because they’re hedge funds, right?

RITHOLTZ: Right.

WEINSTEIN: They can’t two and 20 without — with just having a long-only model.

RITHOLTZ: And it’s very hard to short when the market has, at least for the first half of this bull market, just rampaged straight up from ’09 to let’s call it 2015.

WEINSTEIN: It’s just — it’s not they’re — they’re not — it’s not what they do best. There are — and they’re also not set up to do it as well as the multi-managers that have much broader and deeper resources to help these guys be successful with respect to managing factor volatility and coming up with single name alpha shorts.

So, the best thing these more concentrated directional managers could do would be to say, Okay, I’m best at generating long alpha, therefore, let me set myself up in a way where I — maybe they create an alternative long-only fund where — and I think this is the way of — this is how a lot of these funds are going to go.

I mean, you recently saw in the last year Soroban really converted most of their assets to long-only. And so, the idea being, if I’m best at generating long alpha and I’m not that good at managing short-term volatility and coming up with alpha shorts — alpha generating single name shorts but I need two to three or four years to let my thesis play out, then you know what, maybe you just charge on alpha at the end of that time period.

And so, you have duration …

RITHOLTZ: That’s a very different structure.

WEINSTEIN: And it’s a totally different structure but that’s the point you, need to figure out what you’re best at. It’s so hard now to generate consistent alpha. And you need to figure out what structure is going to enable you to be competitive and that may mean locking up capital for a longer period of time and charging less or just charging on alpha.

But the idea that one-size-fits-all when it comes to fees, no matter what your investing style is or how much beta you employ, is ridiculous. The guy charging two — it’s the same fee structure for the guy running net 30 and running net 60. So, I think there should be a hurdle with respect to how much is alpha and how much is beta.

RITHOLTZ: You mentioned how many of hedge fund closings that were in 2018. Typically, when a fund shuts down, does that money leave the space or does it just rotate to a different hedge fund at least from an institutional perspective?

WEINSTEIN: Well, given the trend line I shared with you earlier which is we have now 60 billion of net outflows to the industry, that’s net outflows. I think money is actually leaving the industry. That’s where I think things are going.

And so, it could go to another fund but the problem is there are so few good options. It doesn’t want to go to another fund that has had the same meh or crappy performance.

RITHOLTZ: Right.

WEINSTEIN: A lot of the better funds candidly are closed.

RITHOLTZ: Right.

WEINSTEIN: That’s the truth.

RITHOLTZ: Yes. For sure.

WEINSTEIN: And that’s why you see when guys splinter off from the funds that are closed and LPs are salivating for access, too. They’re the ones that scale overnight and they’re only so many of those.

So, that’s why I think we’re seeing the aggregate amount of net outflows and also the trend line. The thing on the trend line is the only other year in hedge fund history where we had four consecutive quarters of net outflows was 2008 to 2009.

RITHOLTZ: Really? That’s amazing.

WEINSTEIN: We’re probably — Q1 2019 was the only other time in hedge fund history we saw four consecutive quarters and that was — and Q1 2019, this year, we have 15 billion of net outflows. We’re now at 60 something. So, I guarantee you, we’re now on our sixth quarter of net outflows.

RITHOLTZ: Wow.

WEINSTEIN: That is first time ever in hedge fund history.

RITHOLTZ: Wow. That’s amazing. So, the — I don’t want to call it the flavor of the month, it’s a little too glib. But it’s clear that private equity is the shiny new thing. Lots of money seems to be flowing in that direction. Is that who is the beneficiary of the outflows from hedge funds as if you’re an institution and you know you’re expected returns for equity is going to be five or six percent and bonds are yielding less than two percent and alternatives are promising eight, nine, 10 percent, do these outflows end up going to private equity?

WEINSTEIN: They do. But interestingly — and it’s true that in the last four or five years, while hedge funds have suffered because the returns have come down and for most of them, fees have had to readjust or in the process of readjusting, private equity was — had the hot hand because rates were low and it was easier to buy companies.

I think that — but it’s — but I think what we’re seeing now is the merging of public and private. You see private equity firms trying to get into the public markets. You see hedge funds developing their private investing expertise. And so, I think each one is trying to capitalize upon the other’s revenue stream.

RITHOLTZ: That’s quite interesting. One of the things I read about you that I thought was pretty amusing, there was an event or gala that you helped put together earlier this year and one of the coproducers of the gala was Stevie Cohen of now Point72 and he discussed what a challenge it’s been for so many hedge funds and basically said, no one’s winning the hedge fund game, there’s this recruitment process where people go from one fund to another to another and the only one who wins is you. He kind of dragged you a little bit.

WEINSTEIN: No. No. No. It was — no, just to be clear, the gala was in honor of me.

RITHOLTZ: Okay.

WEINSTEIN: I was being honored. So, we …

RITHOLTZ: So, it’s a little bit of roasting taking place.

WEINSTEIN: There’s a little bit of roasting. I think — I hope I think it was — he was introducing me. I was the honoree. So, I think it was mentioned …

RITHOLTZ: So, it’s good nature and Okay.

WEINSTEIN: But it’s also a …

RITHOLTZ: Because when you read it, it’s like, wow, Stevie Cohen is really dragging Ilana.

WEINSTEIN: No.

RITHOLTZ: But it’s nothing like that.

WEINSTEIN: I don’t think it was seen that way. I think his point was there is a war for talent because they’re so little of it, right?

RITHOLTZ: Right.

WEINSTEIN: They’re only — I said it myself, there are only so many people I put in that first bubble of best in class in each asset class.

RITHOLTZ: Right.

WEINSTEIN: That is true and you see it with the returns of funds. There’s only so many funds that are performing and only so many people within those funds.

RITHOLTZ: P&Ls don’t lie.

WEINSTEIN: P&L doesn’t lie. That’s what I love about this industry. It’s real time. It’s mark to market. You know where you stand at all times.

But — and we — so, that is true, there’s an intense competition to attract the best. It is also true we tend to be in the mix of it. But the other thing that’s true is as much as there are only so many good people, there are also so — there are only so many places those people are going to be attracted to.

And Steve runs a great shop, Point72 is one of them. Other places like Citadel, Millennium, Davidson Kempner, GoldenTree, there are places that have built something unique and are going to be able to do something special to attract talent and make them more successful because of the very fact that they are on those a– t those funds or on those platforms.

And that’s what creates a symbiotic relationship between talent and the best places that exist and myself. At the end of the day, we, IDW, have been very deliberate about who we choose to work with. I mean, I’m not going to name names but there plenty …

RITHOLTZ: You just did.

WEINSTEIN: No. No. No. In terms of the ones we choose not to work with.

RITHOLTZ: Okay.

WEINSTEIN: But because we need — as good as I’d like to think we are, at the end of the day, the people we are dealing with on the talent side, they are very sophisticated, they are very smart and they’re not going to go someplace that isn’t a market step-up from where they are today with a pathway that is unique and nor would I feel good about trying to convince them to do that.

So, I have tremendous conviction around the — I have to have tremendous conviction around what — around our clients and what they built and what they can provide for talent. And so, again, I think it was a joke. But at the end of the day, there are only so many places that also talent really wants to go.

RITHOLTZ: Can you stick around a bit? I have so many more questions.

WEINSTEIN: Sure.

RITHOLTZ: We have been speaking with Ilana Weinstein. She is the Founder and CEO of the IDW Group, a leading boutique for hedge funds, family offices and private equity searching out top talent.

If you enjoy this conversation, well, be sure and come back for the podcast after this where we keep the tape rolling and continue discussing all things hedge fund and alternatives. You can find that at iTunes, Google podcast, Stitcher, Spotify, wherever you find our podcasts are sold.

We love your comments, feedback, and suggestions. Write to us at MIBpodcast@Bloomberg.net Give us a review on Apple iTunes. Check out my weekly column on Bloomberg.com. Follow me on Twitter @Ritholtz. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.

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Welcome to the podcast. Ilana, thank you so much for doing this. I’ve been looking forward to this. You really are somebody who is maybe in one of the most unique spots in the entire alternative space.

You see everything. You know everybody. Your perspective as to what’s going on in hedge funds, private equity, and maybe not quite as much venture capital but I know that’s certainly an area that is not outside your observations.

Is unique too strong a word? I don’t think anybody else has the vantage point that you do about what’s going on in the industry.

WEINSTEIN: I mean, yes, it’s completely accurate because …

RITHOLTZ: I mean, I hope that doesn’t sound like a blowing smoke or anything.

WEINSTEIN: No. No. No. It’s accurate precisely because what we do every day is meet with the most talented people in the industry not because they’re looking for jobs but because they want our perspective and it’s a virtuous loop.

If all you do is meet with really smart people that are best in class, you build a picture, a composite of what is driving the industry and what the opportunity set is and where it’s going. And so, we have — so, we have insight into what is going on at every single fund, who is making money, how lumpy the pool of talent is, how precarious each fund is, like what situation they’re in.

Like, I mean, I often say, if LPs knew what we know, they’d be pulling capital left, right and center and reallocating to the places that we tell them to.

I have a very clear sense as does my team on what’s what. And I don’t think anyone else does because the level we’re recruiting at, both in terms of breath and just the sheer talent that we have coming in the door across every asset class and every geography I think is second to none.

And it does give us insight into what to look for and what differentiates the BS from the non-BS, the good from the great. There is — there are really specific things we’re looking for.

RITHOLTZ: So, let me ask you a little bit about something related to that. When I look at different funds and I’ve spoken to a lot of people from a lot of different funds, very different personalities who founded them, who are running them, the corporate cultures seem to vary dramatically. Oaktree Capital, very different than Bridgewater, very different than Point72, how important, when you are looking to match somebody for a very senior position is that corporate culture?

WEINSTEIN: It’s definitely important, but I don’t know that there’s a — is much variability as you as you might think.

RITHOLTZ: Am I overemphasizing Bridgewater because it’s such a unique …

WEINSTEIN: I mean. Yes. That’s sort of an outlier into itself.

RITHOLTZ: Okay.

WEINSTEIN: Right. So, let’s just stick to …

RITHOLTZ: And by the way, full disclosure, I’ve had Ray on three times, I love him, I’m fascinated by him, he’s a brilliant guy. Some people find him quirky, I just find him really fascinating. But there can be no doubt that Bridgewater is not the typical …

WEINSTEIN: Right. So …

RITHOLTZ: … corporate culture.

WEINSTEIN: So, let’s put that sort of to the side. I think the biggest differentiators are how much it’s — look, no one wants to work in a jerky culture. So, and neither do I want to work with jerky founders. That’s not …

RITHOLTZ: Right.

WEINSTEIN: … amusing intentionally and a nicer word.

RITHOLTZ: The no …

WEINSTEIN: The real one I’m thinking — yes. Exactly.

RITHOLTZ: The no A-hole rule.

WEINSTEIN: Exactly.

RITHOLTZ: … is what everybody refers to.

WEINSTEIN: Right. That’s really what — right. So, that’s consistent. That’s not …

RITHOLTZ: Right.

WEINSTEIN: And people — and at the end of the day, what’s really interesting to me is there are certain founders who our dear clients and friends of mine who — there’s this perception that they are like big bad wolf and really just tough and make crazy decisions like I can be there one day and blown out the next.

And the reality is, these are some of the most measured, down-to-earth, and I will say it, good people I know, but they also have great commercial instincts and are not afraid to make tough decisions. And if you’re really talented, you want to be in an environment where you can shine and aren’t going to be dragged down by a bunch of deadwood around you …

RITHOLTZ: Right.

WEINSTEIN: … where your compensation gets netted every year because the a founder is just like too wimpy to make tough decisions. So …

RITHOLTZ: So, let me push back on you a little bit. There — I won’t even say the funds because we’ll see if you have a sense of what I’m talking about. There are funds where people get hired at and they know from the day they’re hired, I will eventually be fired for either good cause or not because that’s the way this manager operates. Is that a fair assessment about some funds?

WEINSTEIN: No. I don’t — I mean, I don’t — there may be funds that fall in that category, that’s not my client base. It’s really not.

There are — I come back to there are — I think the best founders are also great business builders and when they look at their investment talent, they don’t view it differently than a portfolio. They double down on the winners and they cut their losers.

And and that’s what I want if I am a talented investment professional because the biggest issue in this industry from talent’s perspective is not compensation deflation, it’s if a fund does poorly and I did poorly, it’s a pay-for-performance industry.

RITHOLTZ: Sure.

WEINSTEIN: I get that I’m not going to get paid and I’m Okay with that. The biggest issue is when I sit at a fund and this is not exceptional, what I’m telling you. This is par for the course. I sit at a fund that is 8 billion of AUM or 10 billion, Okay? These are big funds and I am one of two or three people that consistently drive P&L every single year.

And remember, the last three or four years have been really tough, present year excluded. But again, a lot of beta in the returns for this year and also snap back from being down last year, right? Just riding the market back up.

So, you look for those — the last four years excluding this year and even this year, I am the — I am one of two or three primary P&L drivers at a fund which has sizable assets and what are the other people doing? Year after year, they’re not pulling their weight, they’re not really contributing, and I’m getting netted because the founder has to take from my pocket to pay them.

RITHOLTZ: Right.

WEINSTEIN: So …

RITHOLTZ: Those guys have to head out the door after that.

WEINSTEIN: Right. So, this idea of, like, I have job security but at the end of the day, well — of course, you do. You’re the star within the fund and the bigger question is why did the other people have job security? They should be — look, a funder has a fiduciary duty to his LPs to be retiring and retaining the best people and part of retaining them is getting rid of the ones that aren’t performing and making room for better people.

RITHOLTZ: Am I hearing you say that people in hedge funds are cutthroat and you’re suggesting some of them aren’t cutthroat enough then or say, less emotionally, less inflammatory. There are a lot of funds that simply aren’t acting as a meritocracy?

WEINSTEIN: I think that founders are often very loath to make tough decisions and we can call that not acting as a meritocracy or not being cutthroat or just candidly being wimps. I think that there is an element of the optics of, ooh, what are LPs going to think if I fire these three people?

LPs would be very smart when they do their older operational due diligence if I was an LP, here’s what I would be asking. I’d want to know …

RITHOLTZ: That’s a question I have for you, by the way.

WEINSTEIN: Yes. Okay. Let’s …

RITHOLTZ: What — so, let me ask you the question. What should LPs be doing and what aren’t they doing today?

WEINSTEIN: So …

RITHOLTZ: And everybody knows LPs limited partners, not the fund managers or the actual general partnership.

WEINSTEIN: I think that they should — they should find out from the founder. And it’s hard because if it’s a single manager fund, the founder at the end of the day, is the ultimate decisionmaker …

RITHOLTZ: Right.

WEINSTEIN: … of what goes in to the portfolio and how the portfolio is constructed. But ask him. And I’m going to long/short equities, one, because it’s 40 percent of the hedge fund universe, and two, just to be illustrative, it’s an easy example to understand. Ask him, Okay, where did your winners come from this year? In what industry?

Was it industrials? Was TM? Was it healthcare? It was healthcare. What about last year? What drove P&L? Again, it was healthcare and industrials, what about the year before? What about the year before? What about the year before?

And we get that at the end of the day, the founder, again, is the ultimate decisionmaker. But again, just behind the scenes, that’s more gray than you — those people have tremendous influence if they’re senior and they’re good on the on the portfolio.

So, LPs should also be asking where did — where were your biggest losers? And you’re going to see patterns across the biggest winners and across the biggest losers. And then, they should be asking the founder, what are doing about getting rid of the guys who are covering the three sectors that actually have been a net drain on P&L? What you doing about developing the three sector heads that have generated the most P&L? How do you manage paying those guys we you have — to when you have these other guys that you have to pay?

RITHOLTZ: Right.

WEINSTEIN: Like these are the tough questions that founders really need to be held accountable for and also LP should be looking at who left. Were those people that were P&L generators to the fund or were those people that were — that were pushed out, right, because they didn’t do well? And if what they’re seeing is a trend line of the best people leaving and they have to figure out a way to get at that, we know that because we’re interviewing these people and we see the composite of the entire P&L of the fund and who did what.

If the best people are leaving, you should be pulling capital and if the — and if the people who did not make money are the ones who are leaving and being managed out, then you should deploy because that’s a founder who understands how to manage his team and his managing them, again, like a portfolio, unemotionally and making decisions in their best interest.

RITHOLTZ: So, you’re really answering a question I was about to ask you which is what should founders do to retain their best people? And what you’re effectively saying is pay and bonus the high performers and cut loose the people or the nonperformers?

WEINSTEIN: And I’ll go one further. I think that founders need to be willing to go to zero for themselves in times where they don’t have much of a performance fee and that has been true for the last four years. Even this year, a lot of funds may be doing better but they have a high watermark from the previous year or group of years.

RITHOLTZ: Meaning that what you took as a profit, as a the 20 percent profit distribution, once we fall off of those market highs, you don’t take another profit distribution till you get back over that …

WEINSTEIN: Yes. If you lost money last year, you first have to make that back up before you start to get paid, right?

RITHOLTZ: Right.

WEINSTEIN: So, if I’m a guy who, for the last three or four years has generated tremendous P&L for the firm and there are guys who come in to meet with us who literally are 100 percent of the P&L of the fund or 150 percent of the P&L of the fund …

RITHOLTZ: Meaning other people are a drag on the returns.

WEINSTEIN: Exactly. If the founder would be wise to go in to his pocket, go into his management fee and pay that person, right, so that they …

RITHOLTZ: That’s what they need to do to retain them.

WEINSTEIN: That’s what they need to do and also be clear about how they’re coming up with the number. For many of these guys, if they’re not sitting at a multi-manager which is formulaic or they don’t have — even if they have points in the fund, a lot of the times, how — there’s a jump ball which is discretionary.

If they don’t — if the absolute number is disappointing because times are not good and there isn’t much of a performance fee and also assets have dwindled so the management fee is smaller, founders need to give people insight into how they’re coming up with the numbers. So, it’s not this black box.

They — again, it comes back to running a business, not just managing the P&L, and that’s a mind shift for a lot of founders because they grew up but they know best is investing, right? Not managing people. They need to manage their fund like a business, not — because — not like a kleptocracy which is how a lot of these guys view it. That work bit.

RITHOLTZ: A kleptocracy. So, let me flip the question from what founders need to do to retain their best pp to some of those best people, that talent. What are they looking for? What makes them decide not only that I’m ready to move but I’m going to go there or here. What — what are they looking for?

WEINSTEIN: So, the most important — so the things they are looking for haven’t changed. They’re just more difficult today to come by. They’re looking for stability, right? When you see funds like big funds, back in — we started with Eton Park and Perry going out of business and then all the others I mentioned last year and there’ll be more to come, that means that there’s no more Terra Firma under their feet.

And by the way, you even look at funds that are still — that are big, that are well-known names, they’re still existing today. It may be interesting for your listeners to look at the AUM drops of these funds. GreenLlight, Okay? And this is, by the way, I’m going back to not circa 2003 or 2000 — look, say, right before the crisis, 2007 or …

RITHOLTZ: Twenty-thirteen.

WEINSTEIN: I’m talking about in the last few years, so this is how precipitous the AUM drops were, GreenLight was 12 billion, now it’s three sub 3 billion. Corvex was 7 billion, now it’s 2 billion. Discovery was 15 billion, now it’s 3 billion. Fir Tree was 13 billion, now it’s 5 billion. Scopia, a year ago, one year ago, 2018, was almost 7 billion. You know what it is today? Under 2 billion.

RITHOLTZ: Wow.

WEINSTEIN: So, these are, again, like only so many funds even get into the billion-dollar territory, right? So, these are the — these are the sort of the bigger names, the bigger guys, and they are a shell of their former selves. So, stability is like very hard to come by these days. And you may think, oh, that’s a well-known fund, that’s stable. Nuh-uh, not the case.

The second thing that’s really important is netting which we talked about, not being in a construct where you’re not going to continuously get netted, right?

RITHOLTZ: I mean, by netted, you mean your payment is a little bit of a kibbutz where you’re not necessarily winning all of your P&L like it’s spreading around to the whole organization?

WEINSTEIN: As a guy just said to me the other day and I love this phrase and I told him I’m going to steel it, he said I feel like labor arbitrage. That’s what’s going on …

RITHOLTZ: In other words, you’re a high-performer, they’re a low performer and everybody …

WEINSTEIN: I’m generating all these P&L.A. No one else around here is pulling their weight, and every year, I’m paid a fraction of what I should be paid. So …

RITHOLTZ: That’s a guy ripe to be moving on.

WEINSTEIN: A 100 percent.

RITHOLTZ: Yes.

WEINSTEIN: A 100 percent.

RITHOLTZ: And does management not understand the frustration of a high performer? Like, we are not talking about a low octane sort of people work on an hourly basis. This is — these are people who are willing to live and die on eating what they kill and it’s a really aggressive industry. It sounds like some firms are sort of trying to soften it and make it more of a group kumbaya thing.

WEINSTEIN: Yes. I think there’s a — look, there’s a lot of inertia in this industry. We saw this with LPs, too. This pace of net outflows is only just picking up now. For a long time, LPs were sort of just hoping things would get better.

RITHOLTZ: Well, the consultants always say to them, hey, this is an off year, just …

WEINSTEIN: Right.

RITHOLTZ: … give them another two or three years and we’ll be fine and after 10 years of hearing that, people finally figured out. It ain’t going to be fine.

WEINSTEIN: Right. You’re right.

So, I think there’s an element of hoping that things change, hoping that the performance gets better, and you know you have to understand, these senior people that we’re speaking to have been where they been for — in many cases, over a decade. They’ve a real relationship with the founder, they helped build the fund, they are partners where they’re sitting.

So, it’s not as transactional as one might think and I — and they feel loyal, they feel embedded. But at a certain point, the chickens do come home to roost and I think we’re kind of at that tipping point. We really are at a tipping point in the industry, both with respect to frustration on the part of talent, frustration on the part of LPs, and I think that it’s — the shakeout is it’s happening we see we see money leaving the industry and the guys who figured it out are the absolute clear winners.

And they’re going to gobble up the best talent and that’s — they represent stability, they don’t net their talent. And the other few things just to answer your question, are that these guys do best of the winners, talent also — what you asked me what talent is looking for, they want to be made better, they want to improve.

So, in an environment where returns are so hard to come by, how can I be better at shorting? How can I better at managing volatility? What — how do I improve? And the best places which are typically that have really sophisticated technology and data and risk management are the best multi-managers, they give these guys an unbelievable feedback loop.

So, they say to them, listen, let’s look at your P&L.A. You are — a lot of it came from — it’s actually not like a lot of it came from beta or came from factor exposure, that’s not repeatable. So, giving them transparency into how they make money sets them up for better success in the future and there are very few places that have the same tools and resources as some of the guys that I mentioned.

RITHOLTZ: All the big scalable giant shops that that are not afraid to spend their money.

WEINSTEIN: The ones — but that’s the last part of your sentence is key. There are funds — it’s amazing how few funds you scale to their competitive advantage. There’s a fund I’m thinking of which is north of 20 billion.

RITHOLTZ: Right.

WEINSTEIN: They have nothing internally. They basically …

RITHOLTZ: Really?

WEINSTEIN: No. They have two people that manage half the AUM. Those two people, literally, have like two people underneath them.

RITHOLTZ: Wow.

WEINSTEIN: And there’s no infrastructure. There’s no …

RITHOLTZ: That’s shocking.

WEINSTEIN: I think there’s like five data scientists at the entire firm. There’s no real — they haven’t built the fund in a way which bestows competitive advantage on its people and the problem with that construct is if the two golden geese leave the fund, there’s no interest — there’s nothing there.

RITHOLTZ: No, they’re there after that.

WEINSTEIN: Yes.

RITHOLTZ: So, you hinted at something earlier, I want to get explicit about regarding partnerships. How should these firms be thinking about succession planning, not just if the founder is hit by a buy but what happens when they retire? What happens when they want to spend more time away from the office? What should firms be doing about that?

WEINSTEIN: Well, the industry is still relatively young, so we haven’t had that much succession that’s gone on, right? So, the same way — I’m still running IDW and I’d like to think I’m still young, right?

RITHOLTZ: You are.

WEINSTEIN: Thank you. Many of these funds that started about the same time, there’s no succession going on. These guys are in their 40s, right?

WEINSTEIN: But for — but there are some that have done it successfully and I think we can look to them for how to do this. One, it can’t just be one founder and his brain that LPs are investing in, right? And in — and like a bunch of investment analyst around him.

They have to feel like there is an infrastructure there which will continue to do as well with or without him and I think there are two models that lend themselves to it. One is the multi-manager construct where there are multiple PMs, right, that have autonomy and are managing capital and there’s also sophisticated risk management in-house to help them be as successful as possible.

That’s not the founder every day walking the floor …

RITHOLTZ: Right.

WEINSTEIN: Making sure these guys are thinking about the world in the right way. And sifting through their ideas and saying this is interesting, this isn’t, let’s size this, let’s short that, this is — this is the car that sort of runs on its own. And then the other model would be the multi-strategy model and we saw this very recently with Tom Kempner stepping down, name on the door, Davidson Kempner, one of the original founders, and turned over the reins to Tony Yosellof.

And they did not miss a beat. And the reason they were able to do this is it’s a real partnership with 14 engaged partners, decision-making is done in unison. This is — that’s not like partnership — a lot of hedge funds partnership is a nice thing to put on the business card, but at the end of the day, it’s still this short of …

RITHOLTZ: There’s a managing partner and that’s it.

WEINSTEIN: It’s — exactly. So, this is — this operates kind of like, I think it was modeled in some ways after the old Goldman Sachs partnership. It really — it’s a group of engaged people who make the important investing and operating decisions for the firm and when they — when Tony moved up, they very wisely took two of their people, of that group of 14, and made them co-deputy managing partners signaling to LPs there’s already a plan in place …

RITHOLTZ: Right.

WEINSTEIN: … when and if Tony retires. And the place operates, again, in a way where the strength of the firm and its secret sauce is not just one guy at the top.

RITHOLTZ: So, I have to ask you a question because you and I are both talking about this guy and that guy, guys, guys, guys, what is to be said — I’m going to mansplain the lack of women in hedge funds to you would be pretty hilarious — why are there such a lack of women in the industry? Generally speaking, it’s true in finance. But it is really acute in hedge funds. Why is that and is that ever going to change in our lifetimes?

WEINSTEIN: I have thought about this question a lot. So, there are couple of things. One is there is a Catch 22 at work where, look, people are attracted to industries and into roles where they see people like themselves having success.

RITHOLTZ: Has to be a role model somewhere.

WEINSTEIN: Right. There isn’t right now. So …

RITHOLTZ: Are there any high-profile women hedge fund managers?

WEINSTEIN: There is …

RITHOLTZ: A handful but it’s just a handful.

WEINSTEIN: Really hardly any.

There’s Leda Braga who spun out of BlueCrest and there is Dawn Fitzpatrick who’s the CIO of Soros but those are really the only two that come to mind that run scale businesses. And Dawn didn’t found Soros, right?

RITHOLTZ: Right.

WEINSTEIN: That’s — so, that’s a different …

RITHOLTZ: Some guy named Soros, right?

WEINSTEIN: I think so. Yes. Like General Custer’s white horse.

RITHOLTZ: Right.

WEINSTEIN: Well, what color was that? So, there are women, quote-unquote, air quotes running funds but they’re two-bit players. Like they don’t — they just — it’s not — they don’t matter.

RITHOLTZ: They’re not big, influential funds.

WEINSTEIN: No. And so — and again, think about the fact that back in ’16, 10 percent of the AUM which was around 2.9 trillion back then was controlled. So, 10 percent of hedge funds controlled 90 percent of AUM.

RITHOLTZ: Right.

WEINSTEIN: So, that’s even smaller now.

RITHOLTZ: It is very much a fat head, long tail. It is not a normal distribution.

WEINSTEIN: Right.

RITHOLTZ: So, back to women. So, they don’t really have role models. Two, again, the industry is fairly young when you compare it to finance like investment banking or you compare it to consulting or you compare it to medicine, those are all industries that have been around much longer. So, they’ve had more of a chance to catch up for — make it for women to — have a bigger percentage.

RITHOLTZ: But when we look at things like law and medicine and consulting, women are 40 plus percent. When we look at finance, there’s been a lot of gains in the past decade.

But it’s still really tilted towards the male side. I can name two dozen chief economists, market strategist. I mean, there’s tons of women in very visible places today that didn’t exist 20 years ago, but finance is still notorious.

WEINSTEIN: It’s still so much better than the hedge fund industry. It really is — we’re getting there.

RITHOLTZ: That’s where I was going. The hedge fund industry …

WEINSTEIN: So, let’s talk about …

RITHOLTZ: … that the hedge fund industry is worse than finance …

WEINSTEIN: It is so …

RITHOLTZ: … and finance is bad.

WEINSTEIN: Right.

RITHOLTZ: That’s my mansplaining about the lack of women and I always find my — I always laugh at myself when I’m like are you mansplaining this to her? She knows more about this stuff than you ever will.

WEINSTEIN: No, I mean, but it’s true. There are so few women.

So, we need to do a better job of pulling women in earlier and explaining to them that this is an industry that is not just hospitable to women, we are dying for women. It is rare that I do a search where the client, at some point, does not say to me we’d love for the successful candidate to be a woman. And the — but the problem is, we have a fiduciary duty to hire the best person, not the best woman.

RITHOLTZ: Right.

WEINSTEIN: And so, by the time we get involved which is really at the most senior end of the industry, if you think about a mountain, if at the base, there are so few …

RITHOLTZ: It’s that pool. You start out …

WEINSTEIN: It’s a pool. It gets …

RITHOLTZ: … that’s 95 percent. Right.

WEINSTEIN: And then by the time we get there …

RITHOLTZ: Statistically, it’s the odds are very much against it.

WEINSTEIN: Right. And so, I think that that — that’s the issue as well as the fac that there’s something about the P&L and the volatility of the P&L that is — it’s you can’t control it. Even in private equity …

RITHOLTZ: Right.

WEINSTEIN: …. you have more control than you do in the public markets. You have tenure money, you have full information …

RITHOLTZ: Right.

WEINSTEIN: … you’re one of eight on a deal team. Trump tweet something the portfolio isn’t going to go haywire.

RITHOLTZ: You’re not mark-to-market. Tick by tick …

WEINSTEIN: You’re not mark-to-market.

RITHOLTZ: … that’s a huge advantage.

WEINSTEIN: So, here, you can be the darling of the industry one moment and be out of business the next. And that is not — that also can be scary. So, I don’t know — I don’t know if that is less appealing to women, but maybe that factors in to it as well.

RITHOLTZ: That’s quite fascinating.

WEINSTEIN: So, in in terms of coming — trying to bring women into the industry earlier on, last week — and I am trying to — I’m doing what I can. Last week, I actually went out to the University of Michigan to be the keynote speaker for the — their undergraduate investment conference which is like the …

RITHOLTZ: Go Blue.

WEINSTEIN: … conference for — exactly — for undergrads.

And, really, to signal to them that this is an industry that wants women and try to encourage all these undergrads to come if they’re interested, like this is a — this is a — this is an industry that is salivating for talent and it is totally meritocratic and if you’re talented, nobody cares if you’re a man, woman, or otherwise. It’s just — this is like — it’s that’s — say — that’s what the focus is on.

And one of the women toward the end, when we had the Q&A, asked me the question of what can women do? How do we become more fearless? How do we go for it? How do we set ourselves up to be more successful in life?

And I answered the question in terms of just having that — you may not have the confidence early on, but that comes with success and building it overtime and just sort of not you going for it. That’s the bottom line.

But I — what bothered me about the question is I do think that there is sometimes a little bit of orientation of like how do we — how can we be — how can we set ourselves up better for success? How can we be more, as she put it, fearless? Why are we coming at the world as though we have a handicap? Everybody’s scared when they’re young. Everybody is scared to make a mistake.

But you just — whether you’re a man or a woman, you have to sort of buck up and as I said, go for it. And this idea that because we’re female, we’re somehow disadvantaged by our very nature pisses me off. And I sort of said that to her.

I said, there’s like this sort of cotton-padded idea that you need special handling or there’s something about you that we need to treat differently. Why?

RITHOLTZ: Right.

WEINSTEIN: I mean, as long as we’re all being good actors and behaving correctly, why should we — why we need sort of a different way of treating you? I don’t understand.

RITHOLTZ: Well, that as-long-as is a loaded phrase because I recall the early days in my career on the trading desk, it was horrific. It was …

WEINSTEIN: But that can’t go on anymore and it doesn’t. You see Kent — what happened with Ken Fisher’s comments.

RITHOLTZ: Right.

WEINSTEIN: Right. So, it’s not …

RITHOLTZ: And by the way …

WEINSTEIN: … good business. It’s not good business. It’s not going to lead to a successful outcome and a come-back-to. At the end of the day, there is so few talented people. If that person happens to be a woman, there is no hedge fund manager in his right mind that will do anything to make the environment inhospitable to her, not to mention that you can’t get away with that stuff anymore.

RITHOLTZ: So, the world has changed completely.

WEINSTEIN: I don’t know if it’s changed completely. I’m — again, like, we just saw with Fisher, there are still people who act out of turn. But in an industry that is measured minute to minute and you’re only as good as your last P&L, you cannot do things which are going to scare away the very people that can have a real impact on your business. It’s just — it’s so — there’s so much clarity in terms of who the winners and losers are and to have half the population not be a source of talent is insanity and there’s no hedge fund manager that would think that way.

RITHOLTZ: And when we …

WEINSTEIN: That’s going to be successful.

RITHOLTZ: When we the academic studies on male versus female mutual fund managers, the data shows that the women tend to do better than the men. The women don’t have the same ego issues, they certainly don’t suffer from the test — what some people call testosterone poisoning, that they are more measured and less aggressive in a negative way than the male fund managers.

So, the data even supports female fund managers can outperform male fund managers …

WEINSTEIN: Totally.

RITHOLTZ: … without any change to who they are, what they do.

WEINSTEIN: Totally. It’s funny. I had drinks with a woman that — I’m not going to name her — but I was so pleased when she did end up being the successful candidate for search we did a year ago. Very successful PM, one of the few who ran a lot of capital where she was. She ran 2 billion, now she’s running 4 billion, has a real team underneath her.

And we were talking about somebody that she recently had to let go and it was just so — I had such a smile playing on my face as she was describing how emotional he was.

RITHOLTZ: Right.

WEINSTEIN: And he wasn’t making rational decisions and he was constantly complaining about where his P&L was at. And she’s like, I know where your P&L is at. I’m watching it. Get it with it and fix it.

And so, it — anyway, it’s just a sort of sidebar on there is no difference …

RITHOLTZ: He’s by the emotional men …

WEINSTEIN: I mean, really?

RITHOLTZ: How can we ever trust them?

WEINSTEIN: How can I — exactly. What I have to deal with. Yes.

RITHOLTZ: But you know, that is a genuine perception issue and the reality is how — so this was a question I didn’t get to, but I wanted to ask, you have said the people best suited for this industry are the ones who remain cool under pressure. That’s a quote of yours which certainly is — who’s going to argue with that. How can you identify that in a sort of casual conversation until you see them under pressure? How do you know how they’re going to react?

WEINSTEIN: Well, it’s less about the person — how they act, so to speak. It’s more about the outcome. So, what I’m looking …

RITHOLTZ: in other words, the decision’s not necessarily …

WEINSTEIN: Well, I’m looking at consistent P&L overtime and whether you do that by standing on your head or crossing your fingers and toes and screaming or whatever the case may be, if you can generate particularly in the last for or five years were he’s been so difficult, and there’s not been this tailwind to performance, if you can generate consistent P&L overtime, that to me says you are somebody who possesses a whole bunch of other qualities which come with that.

You’re somebody who is flexible and humble. You are — you’re not so wedded to your positions that you can’t take new inputs and shift on a dime where you need to. You — and so, looking at P&L over a period of time gives me insight as well as some of the what makes some people vulnerable which is the founder is often more volatile than they are and that, again, am I talking about behavior, although that comes with it sometime. If you’re …

RITHOLTZ: You mean decision-making?

WEINSTEIN: I mean decision-making. It’s a guy who comes in to my office and says, this happened two years ago, he sat at a large hedge fund, he was responsible for a big for chunk of it and even though he was doing well, the fund was not. And he had — he was the most robust short — had the most robust short book within the fund which was not the founder strength or skillset.

And the founder came in over the top, took off all his alpha-generating shorts, put on Index shorts, raised a lot of this guy’s P&L.

RITHOLTZ: Right.

WEINSTEIN: So, it’s that …

RITHOLTZ: We’ve all seen that.

WEINSTEIN: Right.

RITHOLTZ: We’ve all witnessed that elsewhere.

WEINSTEIN: So, enough of that kind of stuff happening is it’s the differentiation between the founder acting out of sort of panic and emotion and not really understanding what’s going on and this guy pointing to consistent P&L and where he’s gotten tripped up is when he’s been overridden by somebody who isn’t taking a more measured approach.

RITHOLTZ: Can we assume that guy is no longer of the fund?

WEINSTEIN: We can.

RITHOLTZ: I have a million more questions for you, but I know I don’t have you all day. So, why don’t I go to some of my favorite questions. This hasn’t been too painful, have it?

WEINSTEIN: It’s been a lot of fun.

RITHOLTZ: I’m so glad you’ve said that.

So, let’s jump — and I don’t know if you’re going to be able to answer this question because you were born in Brooklyn and moved to Manhattan. But let me ask you the question, what was the first car you ever owned, year, make, and model?

WEINSTEIN: Okay, Barry …

RITHOLTZ: You don’t drive?

WEINSTEIN: You got it.

RITHOLTZ: I was the — you were the first person — I’ve been waiting for someone to say that to me.

WEINSTEIN: Well, there you go.

RITHOLTZ: Either — and I was expecting like a millennial to say, oh, I Uber or I …

WEINSTEIN: Right. See, I’m ahead of my time.

RITHOLTZ: You are. So, you never owned a car?

WEINSTEIN: Never owned a car. Never drove a car. I took a few …

RITHOLTZ: Really?

WEINSTEIN: I took a few lessons like 10 years ago and I was just like, this is a waste of time. I’m never going to create the muscle memory to know how to do this. I’ll probably kill someone or myself, so let’s …

RITHOLTZ: If we get you on a track, it’s a lot of fun.

WEINSTEIN: Okay.

RITHOLTZ: You’d be surprised.

WEINSTEIN: Can we do like the — what do you call them, the bumper cars or the …

RITHOLTZ: Sure.

WEINSTEIN: Okay.

RITHOLTZ: So, now , those bumpers are all electric. There’s a place called RPM, there’s a bunch of them around. There’s on in Farmingdale. And it’s just the most amount of fun you can have.

WEINSTEIN: I would love that.

RITHOLTZ: It’s a blast.

WEINSTEIN: I should do that with my 15-year-old who tells me in stark contrast to myself, he’s going to have his learners permit when he’s 16 which I’m terrified of, but …

RITHOLTZ: It’s such a different whole generational thing …

WEINSTEIN: … hell bent on having that happen.

RITHOLTZ: … pre-Internet if you lived outside of a major city, a car represented freedom. Now, everybody’s plugged into everything …

WEINSTEIN: I read that. Yes.

RITHOLTZ: … it’s just such a different — so, let’s talk a little bit about you. What’s the most important thing we don’t know about Ilana Weinstein? Although, I think you may have just revealed it.

WEINSTEIN: I think you — I may have just revealed it.

RITHOLTZ: That you never have driven a car. I’ve never driven a car. Yes.

WEINSTEIN: And you know what? Everyone in this industry knows me is like a very — which is true to the point no-nonsense, say-it-like-it-is businesswoman, all true. But, Barry, I do have a soft and gooey center.

RITHOLTZ: Right. I don’t believe that.

WEINSTEIN: It’s true.

RITHOLTZ: What is your soft and gooey center?

WEINSTEIN: Like what? What’s — it’s — meaning what?

RITHOLTZ: So, what is — what is your — so, maybe, this is the thing we don’t know about you. What — you work in a tough industry, male-dominated, very (inaudible), very competitive, what are you soft and gooey about? And you brought this up, not me.

WEINSTEIN: Yes. I mean, it’s just more — it’s my alter ego non-work persona. It’s — you have to have a yin and a yang.

RITHOLTZ: Okay. That’s fair.

WEINSTEIN: And my yang or ying or whatever you want to — whatever the opposite one is that we’re referring to — it’s just you have to enjoy life and that’s a big part of who I am.

RITHOLTZ: Fair enough.

Who are your mentors? Who has influenced your career?

WEINSTEIN: Well, it might be a clichéd answer, but my parents are tremendous mentors. My mom, in particular, even though she was a stay-at-home mom, she is an incredibly bright woman who kind of managed the family, I’d say in some way similarly to a — how a CEO manages his best employees but with lots of love, very — but very no-nonsense, very kind of like the advice I gave this girl at U of M, like get up and go for it. Stop whining, just get it done.

And that gave me — and forcing — and that made me strong and creates wins and then it creates real confidence.

Other mentors were just — I have cultivated great relationships, great relationships with my clients who’ve given me great advice along the way. I mean, everywhere I’ve worked, I’ve just — I’ve had the good fortune of finding great people who I learned a lot from.

RITHOLTZ: Quite interesting. Tell us about your favorite books. What do you like to read when you’re not out recruiting talent?

WEINSTEIN: I love books by — and I think there are some commonality between them. I love Jon Krakauer, Tom Wolfe, Michael Lewis. They all write real stories that are almost read-like thrillers. And Tom Wolfe is fiction but he’s really writing about moments in time that are real.

RITHOLTZ: Right. “Bonfire of the Vanities” was …

WEINSTEIN: Yes. I mean, that’s …

RITHOLTZ: … loosely based on facts.

WEINSTEIN: Right. Even “I Am Charlotte Simmons” is based on real life — do you know that book?

RITHOLTZ: No, I don’t.

WEINSTEIN: It’s great. It’s — I read it a few years ago. It’s a woman’s — young woman’s travails and experience at undergrad. I think it’s — it’s meant to be a big tens type school and everything she goes through. It’s a very thick book.

But I thought it was so on point in terms of what the undergraduate experience is like. I’m sure based on characters that he knew well, maybe in his own family.

RITHOLTZ: Sure. Give us some more book titles. You mentioned a number of authors. I have to think the “Big Short” is right in your sweet spot.

WEINSTEIN: Love. Love. In fact, it’s funny you bring that up. I was on a long flight a few weeks ago and I didn’t reread the book but I did see the movie again. And I actually called a number of my clients and said you have to watch this again. And I made my son watch it again.

It’s so good and I’ve so much respect for how Michael Lewis did that, how he — it’s just it’s so many — it’s a tough subject to understand for a layperson.

RITHOLTZ: Right.

WEINSTEIN: He totally explained it well and he takes these stories and builds these — not builds, they were — but brings to life these characters that were interesting and esoteric and dynamic in their own ways and contrarians. And then there’s this — that’s why I call it a thriller, like how is it — how is it all going to come together and how did they figured this out and how did they all sort of end up interweaving. and tells a story which is so multidimensional.

I just thought it’s brilliant.

RITHOLTZ: That is the Michael Lewis formula. Find an esoteric, quirky outsider and weave a narrative, not from the center, but from the people on the periphery who identify in a contrarian basis — wait, what does everybody seem to misunderstand and then the next level is how can we capitalize on it?

WEINSTEIN: And you know what? You just described what we do.

RITHOLTZ: What you do …

WEINSTEIN: What I do.

RITHOLTZ: As a headhunter?

WEINSTEIN: What I do as a headhunter.

RITHOLTZ: Right.

WEINSTEIN: It’s finding the people who see who see something — who can come at things differently, who are able to generate alpha consistently overtime in spite of everyone else, and what did they — and what does that mean in terms of where they can be most successful and where the industry is going.

RITHOLTZ: Give me one more book title because I’m curious as to what else you read and then I’m going to share two with you.

WEINSTEIN: Okay.

RITHOLTZ: I’m going to bet you probably — well, one of them hasn’t come out yet, but one of them, I wonder if you read. Give me on more title.

WEINSTEIN: So, I’m in the middle of one right now which is not something I normally read but someone sent it to me and I’m actually really into it. It’s called “Hacking Darwin.” Have you read this?

RITHOLTZ: I’m family with it. I haven’t read it yet.

WEINSTEIN: So, it’s written by this technology futurist.

RITHOLTZ: Right.

WEINSTEIN: And it’s all real stuff which is amazing. And these kind of — the premise being we can hack the genetic code the same way you can hack a computer which we know. We can you do things now with the genetic code to make people healthier, to make them smarter. And it’s just — I’m only midway through it, but it’s both the ethical challenges inherent in that as well as the socioeconomic challenges.

We decide some things not at the goal but another country decides it is, does that create sort of a superior population to us? There’s so much in it that I think is interesting and its written in a way that a non-medical person like myself can totally understand.

RITHOLTZ: Jamie Metzl …

WEINSTEIN: Yes.

RITHOLTZ: … is the author.

WEINSTEIN: Yes.

RITHOLTZ: Courtesy of Google.

So, the two books I have to ask you about because you kind of described them both. One is “The Spider Network” by I think it’s David Entrust (ph) about the LIBOR manipulation scandal. Same sort of thing where it’s a financial book but it reads like a thriller and all the characters are odd and interesting.

WEINSTEIN: I’m totally going to read that.

RITHOLTZ: Yes. That’s it. And then the new Greg Zuckerman book on renaissance Technologies and Jim Simons, the man who — I’m trying to remember what the title is, “The Man who Solved the Markets.” Another one that read like a thriller and how do we figure out — we figure out commodities and futures, how we apply that and figure out the equities? Really a fascinating — that’s such a unknown entity and there’s so little public information on Renaissance. The Jim Simons book is really quite fascinating.

WEINSTEIN: Thank you. I’m totally picking those two up.

RITHOLTZ: Can I tell you I know who that — the Simons book is just going to crazy only because it’s a black box. No one knows what goes on. And post-election, everything that happened with the Simons partner who had such an impact on of the Trump candidacy, that’s the — I just see that book is blowing up.

I could be completely wrong and when I’m interested in, very often other people aren’t. But I think you would — you, especially, would really appreciate both of those.

WEINSTEIN: Don. I’m totally reading them.

RITHOLTZ: Next question. Tell us about a time you failed and what you learn from the experience?

WEINSTEIN: So, I’m going to site something that happened early on in my career, like, inconsequential looking back. But I remember it because it was so scary and crazy at the time. And this was my first — this is my first job. I was at Goldman and I had done this analysis and submitted it and I got pulled into the partner’s office who ran my division.

And he started reaming me out, like totally carrying on and screaming and yelling and I’m sitting there white-knuckled, grabbing the chair, wondering what the heck did I do?

RITHOLTZ: Right.

WEINSTEIN: I worked so hard on this. Like — well, how did I screw this up so badly? And I just — my head was exploding. I was listening to him. I said — I don’t understand. What -because it had been submitted to some other partner that was more senior than him.

RITHOLTZ: Right.

WEINSTEIN: So, I can’t make this up. I had left off the middle initial of the partner who is the ultimate recipient of this analysis.

RITHOLTZ: Right.

WEINSTEIN: I had left off — I think it was an A. I remember it to this day. I don’t remember his name but I remember the middle initial, it was an A. And it was so insane …

RITHOLTZ: Wait, wait. That’s what he was upset about?

WEINSTEIN: This guy had — his higher up had reamed him out because I, attention to detail, she left off my middle initial. So …

RITHOLTZ: Yes. I can’t see why didn’t stay there more than a couple of months.

WEINSTEIN: Yes. Exactly.

RITHOLTZ: Right.

WEINSTEIN: But …

RITHOLTZ: That is just shocking.

WEINSTEIN: It’s crazy. I know.

RITHOLTZ: Right.

WEINSTEIN: But you know, what I ended up doing was calling the guy who was the middle initial A guy and asking to meet with him. And we ended up having lunch. And as it turns out, he wasn’t nearly as upset as I think the guy who called me in to his office who was just having a bad day or …

RITHOLTZ: Right.

WEINSTEIN: … whatever the case was. But it taught me about dealing with things head-on and not letting someone else speak for me.

RITHOLTZ: Right.

WEINSTEIN: And defusing the situation, again, by just having a candid conversation, sort of person to person. And so, it was — I don’t know. It stuck with me because I — it was a ballsy move but it ended up Okay as a result.

RITHOLTZ: Quite interesting. What do you do for fun? What do you do when you’re not up to your elbows in the hedge fund industry?

WEINSTEIN: So I discovered my inner athlete in the last few years. Growing up in New York, I don’t know, I didn’t — like I went to Stuyvesant. It wasn’t — like I was a big sports person. I took ballet.

RITHOLTZ: Right.

WEINSTEIN: That was about as athletic as I was.

So, I found that I love cycling. I go on all these cycling trips now. Like all over the world.

RITHOLTZ: Really? I have a buddy who does that. They have a chase van and they …

WEINSTEIN: Exactly.

RITHOLTZ: … went through Italy, they went through …

WEINSTEIN: Totally. I do this in style. I’m not like — I mean, so there is a van that follows us. We stay in phenomenal places. We eat crazy, copious amounts of food because we can. We’re cycling 50-60 miles a day.

RITHOLTZ: Right. You go through 10,000 calories a day. It’s easy.

WEINSTEIN: And it’s great .

RITHOLTZ: Yes.

WEINSTEIN: You see stuff you would never say as a tourist. You really and — and we pick places that are just — that are like they’re beautiful to cycle.

RITHOLTZ: Where have you — give us a few names.

WEINSTEIN: God.

RITHOLTZ: A few locations.

WEINSTEIN: Provence, Croatia, I other parts of France like Il de Re which is off the coast of La Rochelle. It’s kind of like the Hamptons of the Paris. Costa Rica.

RITHOLTZ: So, really in a …

WEINSTEIN: All over.

RITHOLTZ: … mix of places.

WEINSTEIN: Yes.

RITHOLTZ: That sounds fascinating.

Let me ask you this question about the industry. What are you most optimistic and most pessimistic about the world of finance?

WEINSTEIN: So, I think that this shakeout is going to be for the better because I really think the industry has gotten tagged with the poor performance of the majority of hedge funds.

RITHOLTZ: Right.

WEINSTEIN: And if they go away, then I think what we’re left with are the guys that are actually really delivering on a business model that works for LPs. And so, I’m — as much as this is a painful moment in time for a lot of funds, I think the shakeout will happen the way it’s supposed to.

RITHOLTZ: Before we get to the pessimistic — I meant to quote you something from Jim Chanos.

WEINSTEIN: Okay.

RITHOLTZ: Who said 30 years ago, there were 100 hedge funds. They all created alpha. Now, this 11,000 hedge funds and it’s those same hundred that are creating the alpha.

Is that a fair statement or is he …

WEINSTEIN: No, I don’t think that’s true or you wouldn’t see funds again like Eton Perry and — I mean, sorry, Eton Park and Perry going out of business or Highfields closing its doors or Blue Ridge closing its doors. Those two were, by choice. The first two were not sure they were.

And again, all those funds that I mentioned that are now shells of their former selves, right, we talked about the AUM drops of funds like GreenLight and Corvex and Discovery and Fir Tree. So, those — that’s not indicative of funds that have delivered great performance for the past four or five years. Again, this year excluded.

RITHOLTZ: Got you.

WEINSTEIN: So, I don’t agree with that. I think now, what is the differentiator are really funds that had set up an infrastructure that bestows competitive advantage to their people.

RITHOLTZ: Got it. So, what’s sort of advice would you give to a recent college grad who is interested in going into finance?

WEINSTEIN: I think they need to — they need to understand whether it’s finance, whether it’s investment banking, or it’s going directly to a hedge fund or really my advice would be no different to whether it’s consulting anything, they need to be prepared to work harder than everybody else if they want to differentiate themselves.

And I tell this to my son all the time. Everyone thinks they work hard. The truth is, as you and I know, Barry most people don’t actually work that hard. And I think particularly with millennials, they — I don’t think people these days, we interview young kids from Goldman even to join our firm, to my firm, they’re not working the way I used to work when I was a Goldman.

And so, I — working hard, that hard and being that overprepared in the beginning is what will set you up for success because you’ll be ready for unexpected questions. It sets up a work ethic which I think just serves you well in life.

And I — that’s the ethos I live by still to this day. It’s the ethos of my firm. It’s just — it’s being paranoid that you’re missing something and making sure that every last stone is uncovered.

RITHOLTZ: I’ve read certain coaches say that given the choice between hard work and talent, I’ll take the hard work. Quite interesting.

And our final question. What do you know about the world of alternatives and talents and recruitment today that you wish you knew 20 plus years ago?

WEINSTEIN: So, I think there’s a special cocktail of art and science that goes in to what makes the best people. And when I look at the people, I thought were good 15, 20 years ago, when I see them now, a lot of these people, I’m like what was I thinking? It’s just what — so, our judgement has certainly become a lot more refined as we’ve seen people evolve through different markets but there are certain things that are common traits is what we’ve distilled from that I know now, that I wish I knew then.

So, those fall into two categories, science and art. On the science front, what we’re looking for is a defined process. We’re looking for people who come at things through systematic research — through systematic independent research, not through talking to their hedge fund buddies. We’re looking for velocity of ideas.

I want somebody who’s constantly thinking out of the box and coming up with things regardless of how tough it may be. I want somebody who can run a scale business, being able to deploy $10 million is different than 100 is different than a billion. For our clients, I need the guy who can deploy $1 billion successfully and generate consistent alpha overtime.

And that goes to my last point on science, I want somebody who can be effective in different kinds of markets, isn’t just a one-trick pony. So, that’s on — that’s a tall order. That’s on the science front.

But you can have people who have great science and no art and can’t really generate P&L. And on the — and art is — it’s a I think it’s a little bit know it when you see it, certainly for us, and I’m not sure how much of it can really be taught. I don’t think you learn this stuff at Wharton or it’s hard to — they just — it’s — there’s a DNA composition to it.

And it comes to passion. I know it when I see it. I know somebody who’s really into their subject matter.

RITHOLTZ: Right.

WEINSTEIN: You can’t fake that. Intensity, an intense desire to learn and grow. We spoke about this earlier. Humility — arrogance is a killer in this industry.

RITHOLTZ: Sure.

WEINSTEIN: It’s what kills performance. You have to be willing to pivot and come at things differently and evolve. And I think — but I do think the art can be made better. If you’re somewhere that can make the signs better and gives you the tools to refine your process and comment research more effectively, then you can — you can have more confidence in terms of relying on things like your non-intellectual judgment and your willingness to take risk and be wrong.

So, I do think there — all those pieces fit together and it’s about being somewhere which can really help you develop the right foundation.

RITHOLTZ: Quite fascinating. Thank you, Ilana, for being so generous with your time.

We have been speaking with Ilana Weinstein of IDW group. If you enjoy this conversation, well, be sure and look up an inch or down an inch on Apple iTunes and you could see any of the previous 300 or so such conversations we’ve had over the past five years.

We love your comments, feedback, and suggestions. Write to us @MIBpodcast@Bloomberg.net. If you’re still here, this deepens the conversation, then you must’ve enjoyed it. Give us a lovely review on Apple iTunes.

Check out my weekly column on Bloomberg.com. Sign up for my daily reads at ritholtz.com.

I would be remiss if I did not thank the crack staff that helps put this conversation together each week. Michael Boyle is my producer. Atika Valbrun is our project manager. Michael Batnick is my head of research. I’m Barry Ritholz, you’ve been listening to Masters in Business on Bloomberg Radio.

VOICE-OVER: At FedEx, trade is their business. With more than 450,000 team members moving 15 million shipments daily FedEx, helps people small businesses, and enterprises around the globe look for better ways to connect and make a difference. Visit FedEx.com/trade to learn more.

Source: Bruce Mehlman

The internet has been Balkanized.

There is no longer one single web as originally imagined by Vint Cerf and others. Rather, thanks to government controls, there are several distinct versions of the internet: China has its own Internet; Iran has its one, as does North Korea. Cuba, Russia, Sri Lanka (even France) are all in on the action. Any country where a threat exists from, facts, news, history, really any non-official information as to most of the world operates has a problem with a free and open web.

I was reminded of this growing split via Bruce Mehlman; I like the analytical framework that he has assembled for thinking about this: The 3 dominant visions for the internet comes from three distinct regions: Europe, China, & USA.

The Europeans want to protect people, both from the internet and via its usage. China wants and needs to control its citizens, lest they wrest away not only the web but power and state control. The United States operates from the belief that the internet cam empower people to engage in commerce, debate, politics, etc. Disruption, change, experimentation is ubiquitous. The wild west is an apt metaphor.

My bias is towards a 90% wide open net envisioned by the USA, with a 10% slug of European style privacy and data protections.  The two philosophies are not mutually exclusive . .  .

See Also:

Welcome to the Splinternet (Scott Malcomson, December 22, 2015)

How Iran Turned Off the Internet

The Splinternet Is Growing (John Roberts, May 29, 2019)

What the North Korean internet really looks like (Saira Asher, 21 September 2016)

How socially distant are two groups?  One of sociologists top measures is simply the rate of intermarriage.  Since college graduates almost never marry high school dropouts, the two groups are probably extremely socially disconnected.  When intermarriage rates rise, similarly, sociologists naturally infer that caste barriers are coming down.

When people bemoan the cultural divide between natives and immigrants, then, looking at intermarriage rates is a good place to start.  I reproduce recent National Academy of Sciences data on this point below.  But before you look, ask yourself: “What do I expect to see?”

So what do you think?

It has been an extremely difficult environment for the hedge fund world. Alpha has become increasingly elusive, and most funds are not only under-performing, they are flat to negative recently.

Those people who can consistently generate alpha are highly sought after.  This has resulted in a full blown “war for talent”

So says Ilana Weinstein, founder and CEO of The IDW Group, a leading consulting & hiring boutique for hedge funds, private equity and family offices in search of top investment talent. IDW works with firms such as Citadel, Millenium, Point 72, and other highly-rated, sophisticated shops.

Weinstein launched IDW in 2003, when there were 3,000 hedge funds managing $500 billion; today, there are over 11,000 hedge funds managing $3.5 trillion.  However, about two thirds of these funds have assets of $250 million or less.

Weinstein also calls it a myth that “the quickest way to achieve wealth is to launch a hedge fund.” She suggests the shakeout in hedge funds will continue: “Its like a cottage industry of two bit players;” most of whom will either just get by or not exist in a few years.

In our Masters in Business conversation, she explains why “Scale” is so important in the hedge fund world — data sciences and quant are the path to alpha, and not many few firms can afford access to that sort of talent.

Her favorite books can be seen here; A transcript of our conversation will be available here.

You can stream/download the full conversation, including the podcast extras on Apple iTunes, Overcast, Spotify, Google, Bloomberg, and Stitcher. All of our earlier podcasts on your favorite pod hosts can be found here.

Next week, we speak with Joe Ricketts, founder of TD Ameritrade, whose family trust owns the Chicago Cubs. He is the author of The Harder You Work, the Luckier You Get: An Entrepreneur’s Memoir

China recently announced that it will beef up its intellectual property rights enforcement:

China said on Sunday it would seek to improve protections for intellectual property rights, including raising the upper limits for compensation for rights infringements. . . .

The document said that by 2022, China should be making progress in issues that have affected intellectual property rights enforcement, such as low compensation, high costs, and the difficulty of proof. By 2025, there should be a better system of protection in place.

This will justifiably be regarded as a success in President Trump’s trade war with China.  There are, however, a few caveats to consider:

1. President Trump will no longer be in office in 2025.

2.  The people who will trumpet this as a big success are the same people who tell us that China can never be trusted to live up to its agreements.  (That’s not necessarily my view, but it is the view of many trade hawks.)

3.  This a big win for Bill Gates, who will now become even richer.  Meanwhile Trump’s economic policies (especially the fiscal policy train wreck) are making the trade deficit even bigger, which hurts Ohio workers making auto parts:

And America’s manufacturing growth is slowing sharply:

I do believe that this is a modest success in the trade war.  But looking at the bigger picture, it’s far from clear that we are achieving anything of major significance.

For decades, liberals have called for government action to correct the excesses of the free market: progressive taxation; public health insurance; unemployment insurance; Social Security; and health, safety, and environmental regulations. The 2020 campaign — featuring proposals for higher taxes on the wealthy, Medicare-for-all, and the Green New Deal — is no exception.

But some of the candidates, Sen. Elizabeth Warren in particular, are taking a fundamentally different approach. Rather than compensating citizens for the unfortunate side effects of markets, they seek to reshape the markets themselves.

Warren’s latest idea, the “Stop Wall Street Looting Act,” is a perfect case in point. She seeks to rewrite the rules to constrain private equity firms from simply selling off assets and laying off workers in companies they invest in, and to press them to deliver more value to middle-class consumers and the economy as a whole.

This concept, which I call “marketcraft,” makes market governance a core function of government comparable to statecraft, the art of diplomacy. Governments are the architect of markets: They not only lay the foundation for markets with the rule of law and property rights, but also establish corporations, the institutions at the heart of the capitalist economy.

They foster stock markets via limited liability, disclosure requirements, and trading rules. They promote competition via antitrust policy and pro-competitive regulation. And they define the core commodity of the digital age — information — via intellectual property rights.

Thinking of government in this way opens us up to a profound rethinking of policymaking, one that is both less radical than democratic socialism — because it embraces capitalism — and more radical, because it seeks to transform capitalism from its roots.

This perspective abandons the pretense that markets are free or natural in favor of a more realistic view: The alternative to government action is not free markets, but real-world markets riddled with imbalances of power, collusion, and fraud.

Rather than trying to correct the results of these imbalances after the fact, the government should not be shy about reshaping these markets to make them work better, through measures like corporate governance, financial regulation, labor practices, and antitrust enforcement.

The New Deal was marketcraft in action

Both left and right misunderstand how governments craft markets.

Those on the right tend to argue that the government should “leave” things to the market. Yet such laissez-faire is not only undesirable — it is impossible. Modern economies rest on the foundation of government regulation. The real choices are not about whether the government should intervene in the economy but about how the government should structure markets from the outset.

Many on the left are equally confused, but in a different way. They are suspicious of market solutions because they view these solutions as undemocratic and threatening to their values. But governments can craft markets to promote whatever policy goals they choose, including progressive goals such as economic equality or environmental protection.

The recent proposals to reform marketcraft have historical precedent, beginning with the ideas of the early-20th-century Progressive movement. Proactive marketcraft became national policy under the New Deal in the 1930s. The Banking Act of 1933 separated commercial from investment banking and created the federal deposit insurance system. The Securities Act of 1933 mandated financial information disclosure, and the Securities Exchange Act of 1934 created the Securities and Exchange Commission. The National Labor Relations Act of 1935 guaranteed collective bargaining rights and prohibited employer practices that would undermine them.

These reforms enabled financial markets to deliver more value to the economy at less risk, and gave workers more bargaining power vis-à-vis their employers.

After World War II, though, liberals focused less on marketcraft and more on Keynesian macroeconomic policies, welfare services, social regulation, and equal rights amid strong economic growth. Economic thinkers such as Friedrich Hayek and Milton Friedman claimed government intervention undermines free markets. Their arguments gained popular appeal after the stagflation of the 1970s provided the opening for President Ronald Reagan and others to put these ideas into practice by loosening financial regulation, attacking union power, and easing antitrust enforcement.

Reagan’s overhauls were not really about “deregulation” in the literal sense of reducing regulation, but rather a reorientation of market rules to benefit the wealthy and powerful. The neoliberal ideology that views government as an obstacle to the free market rather than as the architect of markets became so pervasive that progressives internalized some of its core precepts even as they battled the resulting policies — proposing remedies for specific “market failures” rather than a more fundamental transformation of markets.

The Democratic Party even took a partial neoliberal turn under the administration of President Bill Clinton, which enacted NAFTA and decided not to regulate financial derivatives.

Market governance and inequality

To illustrate how the marketcraft approach differs from the more traditional liberal policy agenda, consider economic inequality, a defining challenge of our time.

As Thomas Piketty demonstrated in his magisterial work Capital in the Twenty-First Century, the United States since 1980 has experienced a historically unprecedented boom in the incomes of the top 1 percent of wage earners, mostly corporate executives, and especially the top 0.1 percent. Meanwhile, most Americans have gained little or nothing from the substantial productivity gains over this period. Piketty focuses particularly on tax policy in explaining this surge in inequality and in proposing remedies.

But failed marketcraft is at the heart of both the boom for the 1 percent and the stagnation for the rest, and better marketcraft will be essential to reversing these trends.

US executive compensation has soared as corporate governance shifted toward the shareholder model, under which managers are supposed to maximize financial returns for shareholders and not to reward stakeholders such as workers or customers. Legal and regulatory adjustments encouraged the business practices at the heart of this trend, such as stock options and share buybacks, which have not only boosted shareholder returns but also propelled skyrocketing executive pay at the cost of wages and investment.

Meanwhile, financial liberalization and lax enforcement have contributed to outsize profits and pay packages in the financial sector, which has taken up a growing share of the economy in recent decades without delivering greater value to household investors.

Changes in labor regulation and employer practices help explain the lack of gains for lower and middle-class workers. President Ronald Reagan cracked down on public sector unions and appointed more business-friendly representatives to the National Labor Relations Board (NLRB). State governments passed “right to work” laws that undermined union power by prohibiting mandatory union dues. Employers grew more combative in fighting unions, hiring specialized consultants to help them decertify the organizations. And Democrats failed in attempts to pass legislation to preserve union strength throughout this period.

The increase in market concentration across many sectors of the economy has boosted inequality by raising the gap in corporate returns and executive compensation between the superstar firms and all others, and undercut wages because dominant firms do not have to compete as much for workers. Laws governing intellectual property rights have contributed to economic inequality, as firms in sectors that rely heavily on intellectual property, such as high tech and pharmaceuticals, have garnered especially high profits and executive pay.

The more standard liberal approach would compensate for inequalities that emerge from market competition with redistribution via the tax system and social services.

The marketcraft approach would shift the focus to “predistribution” — the market rules that generate the inequality in the first place. The government could recalibrate rules in these areas to give workers a more powerful voice in corporations; to press financial institutions to deliver more value for the economy and fewer rents to themselves; to shift the balance of power between employers and workers; and to constrain market power to the benefit of workers and consumers. That would not undermine American capitalism but revitalize it.

Among the Democratic candidates for president, Warren has gone the furthest with this agenda. She proposes corporate governance reform to give labor representatives a voice on corporate boards and to constrain executives from manipulating financial returns to maximize their income from stock options. She supports labor reforms to shift bargaining power from employers to workers. She advocates more aggressive antitrust enforcement to constrain the market and political power of dominant firms. And she backs regulation to impede finance executives from seizing outsize rents for themselves and their firms, and to protect consumers from fraud.

To be clear, this isn’t a case against any of the other essential elements of a progressive agenda, such as a more equitable tax system, universal health insurance, and public investment in education and infrastructure. We need all of those things.

But progressives should embrace the reordering of capitalism as their priority. Instead of tolerating a rigged market system and then compensating workers or consumers for injustices through tax and welfare policies, a turn to marketcraft would empower them to earn fair wages and to pay fair prices from the outset.

Cross-posted from Vox

By Lambert Strether of Corrente.

Trade

“Killing NAFTA Softly” [Portside]. “But a revised NAFTA had to be approved by the House, which unfortunately for Trump now has a Democratic majority. And the deal that Trump devised was a stinker. It added a couple modestly decent provisions, like wiping out the pro-corporate investor-state dispute settlement (ISDS) process, which allows companies to sue nations that change laws in ways presumed to violate trade deals for expected future profits. But its protections for labor were far too weak. And it continued some odious provisions such as sweetheart provisions for the drug industry…. So there commenced prolonged negotiations between a House working group headed by Ways and Means Chairman Richard Neal, the most influential corporate Democrat in the House, and Trump’s top trade negotiator, Robert Lighthizer, on how to improve the draft agreement. Both dearly want a deal. … Two members of the working group have confirmed to me that nothing will be approved unless Trumka signs off on it. And despite a lot of posturing by Neal that a deal is just around the corner, Trumka isn’t budging…. The reality is that Bustos, Neal, and other corporate Democrats are using the supposed need for freshmen to be able to vote for a NAFTA deal as camouflage for the real game—namely, corporate Democrats voting with House Republicans to hand corporate America (and Trump) a victory.” • It’s very good that ISDS is dead, though I suppose if NAFTA dies, ISDS dies with it!

Politics

“But what is government itself, but the greatest of all reflections on human nature?” –James Madison, Federalist 51

“They had one weapon left and both knew it: treachery.” –Frank Herbert, Dune

Here is a second counter for the Iowa Caucus, which is obviously just around the corner:

* * *

2020

Alert reader dk (not to be confused with DK) is in the process of developing the following interactive chart.

Here is (are) the latest Dem Primary Polling as of 11/25/2019, 12:00 PM EST. Biden leads, Sanders strong second, Warren third, Buttigieg third tier.

Here, the latest national results unchanged since 11/22:

The debate was 11/20. In five days, not one single national poll? WTF?

As readers know, RCP seems to add a good lashing of secret sauce to its results in terms of the polls it aggregate and chooses not to aggregate, so it may, perhaps, be most useful for constructing a narrative:

Note Warren’s trajectory (in brown). dk does not use secret sauce, and so I thought I’d compare the two over the same time period for grins:

(I very unscientifically fiddled with the settings to make the curves look the same.) Warren’s trajectory is the same, although she never actually challenges Biden, unlike RCP.

I think dk has started a really neat project, and in the near future we’ll seek your feedback (within reason) for the tool “live.”

* * *

Buttigieg (D)(1): “Is Pete Buttigieg Just a Shill for Corporations and the Donor Class?” [Common Dreams]. “Buttigieg has become one of the biggest recipients of contributions from the health care, financial services, and big tech industries. Under the proposals advanced by Senators Elizabeth Warren and Bernie Sanders, Buttigieg’s big money donors are the ones who would have to pay higher taxes to support things like free college tuition and universal health care. In Buttigieg, they’ve found a candidate to speak up for their interests. Buttigieg is the second-largest recipient of contributions from the health care industry, after only Donald Trump. Buttigieg donors include the chief corporate affairs officer at Pfizer, the president of Astex Pharmaceuticals, a state lobbyist for Biogen, a vice president of public policy at Novartis, and the deputy vice president at the nation’s largest pharmaceutical trade association, PhRMA, plus lawyer for AbbVie, Johnson & Johnson, and Merck.” • And much, much more.

Warren (D)(1): “‘I’m going to make sure I got it right’: What Elizabeth Warren told charter activists after protest at Atlanta event” [Chalkbeat]. “In the conversation with Warren, [“parent activist” Sarah Carpenter] emphasized her personal experience. ‘Charter schools saved my grandbaby because every school in my community was failing,’ she said. At one point, Carpenter said that she had heard that Warren sent her own children to private school, perhaps alluding to a recent article in the New York Post. Warren responded, ‘No, my children went to public schools.. Asked to clarify [for this story], a campaign aide said, ‘Elizabeth’s daughter went to public school. Her son went to public school until 5th grade.’ This appears to align with the Post article, which found evidence that Warren’s son attended a Texas private school in 5th grade.” • Oops. How could Warren not have been prepared for this question by staff?

The thing about the private school question to Elizabeth Warren is that Democratic candidates have been asked that cycle after cycle. Warren was unprepared for a perpetual question, and solved this by fibbing.

This is from 2007:https://t.co/2lsRca7C2F pic.twitter.com/5pKOp7IHqa

— Zaid Jilani (@ZaidJilani) November 23, 2019

“I’m just a player in the game,” freezing at the podium, now this. It looks like the Warren campaign needs to wrap their candidate in tissue paper, like Joe Biden.

* * *

Oh good (excuse the heated language, check the image):

Heads up: Corporate Dem astroturfer group & Neocon Fascist troll brigade ShareBlue has changed its name to The American Independent.
David Brock still in charge of the parent company, new Corporate shill named as CEO.
Disinfo propaganda not expected to change. pic.twitter.com/Y6eYKtAp47

— Ian56 (@Ian56789) November 23, 2019

I can’t think why Brock would choose to rebrand…

Impeachment

“‘It Is Hard To Read This as Anything But a Warning’: New Polling Suggests Democrats’ Impeachment Push Could Alienate Key Voters” [Vanity Fair]. “Three important factors are driving the views of Independents. The first is that, in their view, impeachment distracts from issues they care about. … [A]mong the 11 issues that Politico and Morning Consult tested, impeachment ranked last, well below the deficit at 74%, health care at 72%, and infrastructure at 70%. The second factor is the view among Independents that impeachment reflects the agenda of the political establishment and the media…. By massive margins, Independents say that the impeachment issue is “more important to politicians than it is to me” (62% to 22%) and “more important to the media than it is to me” (61% to 23%). It is hard to read this as anything but a warning to the Democratic leadership and candidates: Stop talking about issues that matter to you, not to me. Impeachment proceedings are viewed as bread and circuses for the anti-Trump crowd in Washington and the media—or, as Stanford political science professor Morris Fiorina described it to me, ‘entertainment and confirmation.’ That’s a dangerous perception as Democrats approach one of the most consequential and fraught elections of our times. Third, as other reporting has suggested, Independents suffer from scandal fatigue and overall confusion. They agreed with the statement “[It is] difficult to tell all the investigations in Washington apart” by a roughly two-to-one margin. (Even Democrats concur by a substantial, if somewhat smaller, margin).”

Realignment and Legitimacy

“Hand-marked Paper Ballots: How this Tried-and-True Method Makes Us More Secure” [Commercial Appeal]. • As they just did in Hong Kong!

Health Care

“The Army Built to Fight ‘Medicare for All’” [Politico]. “With the images of that Sanders [#MedicareForAll] event replaying in his head, [Chip Kahn, the CEO of the Federation of American Hospitals] made a phone call — and then, over the next few weeks, another and another. Those calls would lead to a series of secretive meetings in downtown D.C. where officials from every part of the health care industry — from insurance companies to hospital giants, drugmakers and even, for a time, doctors — would forge an alliance united to ensure that Sanders’ promises never became reality. Out of their pact grew an influence operation known today as the Partnership for America’s Health Care Future, a multimillion-dollar cooperative designed to overwhelm not just the swelling Medicare for All movement, but every single Democratic proposal that would significantly expand the government’s role in health care.” • And despite Jayapal’s accepting Warren’s recent equivocations on #MedicareForAll, her proposal for hospital capital budgeting is more radical than Sanders. So never pre-compromise. More: “He also has experience taking down ambitious plans for health care reform. As executive vice president of the Health Insurance Association of America — then the insurance industry’s main trade group — he was a driving force behind the “Harry and Louise” TV ads that played a key role in tanking Bill Clinton’s health care package in 1993 and setting the standard for a generation of hard-hitting special interest campaigns that have shaped policy debates ever since.” • Kahn’s killed an awful lot of people for money, hasn’t he?

Stats Watch

Chicago Fed National Activity Index. October 2019: “Declines in production components led the national activity index sharply lower in October” [Econoday]. “Of the 85 individual indicators making up the index, only 27 made positive contributions in October. Improvement versus the previous month was registered in 34 indicators, while 49 indicators deteriorated and two were unchanged. Of the indicators that improved, 20 made negative contributions.”

Dallas Fed Manufacturing Survey, November 2019: “Texas manufacturing activity continued to contract but at a slower pace in November” [Econoday]. “Nearly all measures of manufacturing activity showed negative readings suggesting contraction versus October. Shipments led weakness…. Expectations regarding future business conditions remained positive and were slightly more optimistic than in October.”

Banking: “A Dead Doctor, the Trauma of Sexual Abuse, and a Bank in Denial” [Bloomberg]. “The suit has drawn one of the world’s top banks into a reckoning over sexual abuse and who should pay for it. Barclays has defended itself in court by saying it isn’t responsible for whatever the doctor might have done because he wasn’t an employee…. The fight isn’t only about what happened decades ago in that house in Newcastle, or even who knew about it. It’s also about this: When do corporations have to take responsibility for the people who work for them? The answer could reverberate through today’s gig economy.

Capital: “Capital investment by U.S. companies is slowing and that could slim down supply chain pipelines in the coming years. Many of the biggest U.S. companies are moderating their spending on equipment and other capital investment” [Wall Street Journal]. “The pullback began as trade tensions escalated last fall, leaving companies unsure about the impact of trade restrictions on their supply chains. It has continued amid signs of slowing global growth… Capital spending by S&P 500 companies rose just 0.8% in the third quarter, and investment would have contracted but for a handful of big players. Some projects may only be delayed but others will never be completed, putting a long-term hole in economic growth.” • Not what you want to see in a capitalist economy (though possibly reducing carbon). One more reason for a Green New Deal and a national industrial policy.

Shipping: “The shipping industry’s search for a common thread in a recent spate of ship fires suggests there are big gaps in the handling of dangerous goods in ocean transport. A new study shows a large share of potentially hazardous shipments on container ships were mislabeled, improperly handled and carried other safety risks” [Wall Street Journal]. “The survey by the independent National Cargo Bureau was undertaken at the urging of Maersk Line, which was hit by a catastrophic fire on its Maersk Honam vessel in 2018, one of the biggest in an unusual series of fires that have crippled large cargo vessels in the past two years.”

Tech: “We lose money on repairs, sobs penniless Apple, even though we charge y’all a fortune” [The Register]. “That’s right, it may charge you $329 for a screen replacement that costs $100 everywhere else. Or $80 for a battery than costs $30 across the street. Or even $475 to replace a single key at an Apple store. But poor old Apple is making a loss every time. Which is, of course, nonsense, though it’s interesting to explore how Apple can make the claim with a straight face. And the answer is creative accounting…. Even accounting for Apple’s BS however, how does it justify the claim that it is actually losing money on its repair business, despite charging multiples of what every other repair business does? Easy: it counts its own ridiculous repair costs as what customers would have paid had they not taken out its over-price warranty. So if a customer pay $199 for AppleCare+ for their iPhone XS Max and brings it in to replace the screen, paying just $29 instead of the $329 out-of-warranty costs, Apple reckons it has just lost $101 – because that’s what the customer would have paid if they didn’t have a warranty. Of course that completely ignores the fact that it costs Apple nowhere near $329 to replace the screen of a iPhone XS Max.”

* * *

Today’s Fear & Greed Index: 68 Greed (previous close: 69, Greed) [CNN]. One week ago: 83 (Extreme Greed). (0 is Extreme Fear; 100 is Extreme Greed). Last updated Nov 25 at 12:41pm.

Rapture Index: Closes unchanged [Rapture Ready]. Record High, October 10, 2016: 189. Current: 181. Remember that bringing on the rapture is a good thing. I wonder when, in 2020, the index will start flirting with 190 again. So far, the latest impeachment push hasn’t affected the Index.

The Biosphere

“Heat-Loving Microbes, Once Dormant, Thrive Over Decades-Old Fire” [Quanta]. “The coal-seam fire at Centralia provides researchers with the perfect opportunity to test a new idea known as a microbial seed bank: that commonly overlooked dormant individuals make up a vast reservoir of biodiversity, ready to spring to life when environmental conditions change…. Regardless of how the microbial populations changed, Shade and Tobin hypothesized that Centralia’s microbial seed bank was what allowed the system to respond to the temperature surge from the fire and return to its initial state. A further study in PLOS ONE showed that the seed bank may also have allowed the soil to respond to increased levels of arsenic and other heavy metals that the fire released. To Esteban, that’s the entire point of the seed bank…. A seed bank means that ecosystem function will never stop. Even if conditions change, the ecosystem can keep going,” she said.” • Again, we know virtually nothing about soil!

“‘Running out of room’: How old turf fields raise potential environmental, health concerns” [York Daily Record (CR)]. “Used artificial turf is expected to produce 1 million to 4 million tons of waste in the next 10 years, and it has nowhere to go, according to solid waste industry analysts. [Larry] Minnich, the Cleona mayor, soon learned that the problem in his borough of about 2,100 people was similar to what communities were grappling with across the country — tons of worn-out, artificial school fields that municipal dumps won’t accept and a growing, unregulated, cottage industry of vacant land owners taking the waste. Turf fields installed in waves a decade ago are reaching the end of their lifespan and need to be replaced, according to an industry trade association. Despite being touted as a completely recyclable alternative to grass, there are no companies in the U.S. that can completely recycle them, according to a trade association president…. The fields frequently end up in empty lots, backyards, in public spaces and on private land. Sometimes, they are given permission to be there. In some cases, they have been dumped illegally by contractors paid to remove them.” • Classic.

“Why Detroit Residents Pushed Back Against Tree-Planting” [CityLab]. “Detroiters were refusing city-sponsored ‘free trees.’ A researcher found out the problem: She was the first person to ask them if they wanted them.” • Excellent article.

Water

“High Plains Farmers Race to Save the Ogallala Aquifer” [Civil Eats]. “It’s well-documented that the Ogallala Aquifer… is rapidly depleting…. The massive, 174,000-square-mile underground reservoir spans eight landlocked states in the Great Plains, from South Dakota to Texas. Along with being a critical source of drinking water, the aquifer supports one-fifth of all wheat, corn, cotton, and cattle in the United States. Irrigation technology, such as center pivot irrigation, patented in 1952, once helped transform the Great Plains into an agricultural oasis; flat land stretched over a seemingly endless reserve of groundwater at farmers’ disposal… Without the Ogallala, agriculture in the breadbasket of the U.S., at least as it is currently practiced, cannot continue. Yet there’s also reason to hope. … [Chris Grotegut] adopted a permaculture practice known as pasture cropping, or intermixing crops with grassland pasture. This method helps him keep more roots in the ground, building the health of the soil. And as the soil grows richer in organic matter, it can also hold more water…. After an initial loss of profits while transitioning from conventional row crops, Grotegut has seen his profits rise, due to saving on the cost of pumping groundwater and land maintenance.” • For you gardeners, horticulturalists, and permaculturists, this is a very exciting must read.

Our Famously Free Press

“Damaged newspapers, damaged civic life: How the gutting of local newsrooms has led to a less-informed public” [Nieman Labs]. “One thing a more robust newsroom allowed was coverage of a particular issue over a broader sweep of its lifespan. Someone dedicated solely to covering city hall, for instance, might hear about a budding legislative idea from a city staffer early on, then see it through as it makes its way (or doesn’t) toward a real bill and, eventually, its impacts on the community. With fewer resources, though, reporters are more likely to report on an issue only when it reaches a public state of prominence — by which time the city’s plans may have already been shaped without much public input. That also limits the newspaper’s ability to influence the civic agenda, for better or worse.” • A very good review.

Take that, Alden Capital:

Many newspapers made the grave mistake of abandoning their editorial cartoonists. Kirk Anderson, formerly of the St. Paul Pioneer Press, was one of the best – but now he does great work for our #AldenExposed campaign. Here are a few of the cartoons he’s done for @dfmworkers. pic.twitter.com/mLDcReveEe

— Darren Carroll (@darrendcarroll) November 24, 2019

Groves of Academe

From the University and College Union, London, thread:

You’ll get nothing from me for the next 8 days except #UCUstrike. I’ll explain why I and thousands of other university staff are striking here. Long thread, because there are a lot of grievances. /1

— Lee Jones is on #UCUstrike (@DrLeeJones) November 25, 2019

Class Warfare

“It’s not thanks to capitalism that we’re living longer, but progressive politics” [Guardian]. “Serfdom was a brutal system that generated extraordinary human misery, yes. But it wasn’t capitalism that put an end to it. As the historian Silvia Federici demonstrates, a series of successful peasant rebellions across Europe in the 14th and 15th centuries overthrew feudal lords and gave peasants more control over their own land and resources. The fruits of this revolution were astonishing in terms of wellbeing. Wages doubled and nutrition improved. It was a period of dramatic social progress by the standards of the time. Then the backlash happened. Upset at the growing power of peasants and workers, and angry about rising wages, a nascent capitalist class organised a counter-revolution. They began enclosing the commons and forcing peasants off the land, with the explicit intention of driving down the cost of wages. With subsistence economies destroyed, people had no choice but to work for pennies simply in order to survive.” • Hmm.

Squillionaire philanthropy thread (dk):

US billionaires philanthropic giving:

– Gates, Buffett: annual giving ~3%–4% of their wealth

– Other top 20 billionaires: ~0.3% of their wealth. Like a tiny, tiny wealth tax

I made a table for you
👇👇👇 pic.twitter.com/Uvtpn685lS

— Gabriel Zucman (@gabriel_zucman) November 24, 2019

News of the Wired

“K-Pop artist Goo Hara found dead at home aged 28” [BBC]. • Two in a month; very sad. Motown had similar problems, back in the day.

“The taxonomy of whining” [The Week]. “[T]hese guttural kid noises, which at times fuse with actual language, can reveal more about their mood and needs than words alone. For instance, if my four or six year old tell me they’re hungry, and that statement is accompanied by a kind of drilling groan that makes my brain feel like it’s slowly being fed into a cheese grater, then I know it’s probably just boredom. They do not, in fact, need a fourth serving of Cheddar Bunnies.”

This is, I believe, a parody:

Barbie: Appreciating Asset Boxed Set$TSLA $TSLAQ pic.twitter.com/HS1icMKqV5

— Kenneth Dredd (@KennethDredd) May 3, 2019

Gearing up for Thanksgiving:

Boyfriend made this for my family’s Thanksgiving last year. It’s a bologna cake with ranch cream cheese icing. It was pretty good. pic.twitter.com/uNLblLvI9n

— HOMODEMON🏳️‍🌈💀 (@jaymesPRS) November 23, 2019

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Readers, feel free to contact me at lambert [UNDERSCORE] strether [DOT] corrente [AT] yahoo [DOT] com, with (a) links, and even better (b) sources I should curate regularly, (c) how to send me a check if you are allergic to PayPal, and (d) to find out how to send me images of plants. Vegetables are fine! Fungi and coral are deemed to be honorary plants! If you want your handle to appear as a credit, please place it at the start of your mail in parentheses: (thus). Otherwise, I will anonymize by using your initials. See the previous Water Cooler (with plant) here. Today’s plant (PF):

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Readers: Water Cooler is a standalone entity not covered by the annual NC fundraiser. So if you see a link you especially like, or an item you wouldn’t see anywhere else, please do not hesitate to express your appreciation in tangible form. Remember, a tip jar is for tipping! Regular positive feedback both makes me feel good and lets me know I’m on the right track with coverage. When I get no donations for five or ten days I get worried. More tangibly, a constant trickle of donations helps me with expenses, and I factor in that trickle when setting fundraising goals:

Here is the screen that will appear, which I have helpfully annotated.

If you hate PayPal, you can email me at lambert [UNDERSCORE] strether [DOT] corrente [AT] yahoo [DOT] com, and I will give you directions on how to send a check. Thank you!

By Lambert Strether of Corrente

We at NC have no particular love for Google: They’ve downranked us, because we’re small (i.e., not “authoritative”), but also presumably because our links aggregation features compete with their pathetic and poorly sourced News feature[1]. And Yasha Levine asks a good question: “If the Internet is truly such a revolutionary break from the past, why are companies like Google in bed with cops and spies?” Nevertheless, blogging — just to lift the curtain a little, here — is all about production, and so if Google is the best for production, well, not everybody’s hands are always clean. But as Google search became increasingly crapified — losing its memory, and refusing to find material I am 100% sure exists, because I wrote it, without coaxing — and Google’s UI/UX became increasingly ugly and instrusive, a tipping point was bound to come, where Google was no longer the best, at least for me. I think that tipping point has now arrived.

So I am shifting to a European search engine called Qwant, on grounds of user experience, freedom from Google’s algorithm, and most importantly, privacy (I know we have a lot of DuckDuckGo (DDG) users here, and I’ll discuss that platform briefly in context as we go along.) A little bit about Qwant the company:

Qwant is a European web search engine, launched in July 2013 and operated from Paris. It’s the only EU-based search engine with its own indexing engine. It claims not to employ user tracking and doesn’t personalize search results in order to avoid trapping users in a filter bubble…. The website processes well over 10 million search requests per day and over 50 million individual users a month worldwide… As of March 2019, Qwant is the 41st most visited website in France and the 879th most visited website in the world.

Qwant’s business model:

Like Google, Qwant monetizes searches by serving ads alongside results. But unlike Google these are contextual ads, meaning they are based on general location plus the substance of the search itself; rather than targeted ads which entail persistent tracking and profiling of Internet users in order to inform the choice of ad (hence feeling like ads are stalking you around the Internet).

Serving contextual ads is a choice that lets Qwant offer a credible privacy pledge that Mountain View simply can’t match.

Yet up until 2006 Google also served contextual ads, as [Tristan Nitot, VP of advocacy]points out, before its slide into privacy-hostile microtargeting. “It’s a good old idea,” he argues of contextual ads. “We’re using it. We think it really is a valuable idea.”

There’s a lot about today’s Internet that we could roll back, and further back than 2006, too. With that, let’s look at the platform.

User Experience

Let’s start with the results page. Here’s Google:

Notice that my search results — Google thinks I’m in the Netherlands because of my VPN, which I am not turning off — aren’t even visible at the top of the page, which is taken up links that assume, in essence, that I’m at Google because it’s a shopping site, followed by a bunch of useless questions that I’d ask for myself if I wanted answers to them. Contrast Qwant:

Look! My search results! (Plus, that link to Indian Affairs at bottom right is really neat; maybe if Google weren’t trying so hard to sell me, it would give me a similar result.) Now, DDG has a clear results page too, even if it does have an ad on the top driving down the real results, but here is a feature Qwant has that nobody else has:

See that “ncl”, and the URL for NC as a dropdown? I have a use case, that I perform literally hundreds of times a day, where I need to search NC to avoid duplicate content (here, a post or link on “liquid cats”). It gets really, really old typing in the NC URL over and over again (or copying and pasting it from somewhere), so it’s really great that Qwant’s search box allows me to use the Mac’s text macro facility, where typing “ncl” expands to the URL. Blogging is production, remember>> I can’t do that in Google (or DDG either):

Google hijacks the search box for its stupid auto-completion dropdown.

European Privacy Law

In the United States, privacy law is a dead letter. Not so in Europe:

Qwant is a French search engine. As such it is governed by the European privacy law GDPR (General Data Privacy Regulation). This regulation puts users in control of their data and how it’s used.

From Qwant’s Privacy page:

We don’t use any cookie nor any tracking device that may allow us to track your browsing habits or to establish your profile. You are of course entitled to the rights provided by the EU General Data Protection Regulation (“GDPR”), but we also forbid ourselves from collecting an important amount of data that others collect, which are useless to provide you with the services you need.

When you use Qwant as a search engine, we don’t put any cookie on your browser that may allow us or others to recognize you or to follow you everywhere on the Internet. We don’t use any tracking device (pixel, fingerprinting…). We don’t collect and we don’t store any history or your searches. When you search, your query is instantly anonymized by being dissociated from your IP address, in accordance with what the French data controller advices. Long story short, what you are doing with Qwant is part of your privacy and we don’t want to know.

What the GDPR can do:

Qwant is governed by the European General Data Protection Regulation (GDPR), which grants specific rights related to your personal data when processed by Qwant:

• right to access, rectify, delete data under the conditions set forth by the regulation;
• right the oppose the processing under the conditions set forth by the regulation;
• right to limit the processing of personal data under the conditions set forth by the regulation;
• right to data portability;
• right to make a claim before a control authority;

This is an advantage over DDG, located as it is in the United States[2]. Qwant has also released its source code:

To be transparent, Qwant has released its source code so third-parties, like the French National Data Protection Body (CNIL), can certify its non-tracking policies and see it’s not collecting data it’s also shared their code with white-hat hackers for security reviews. This year, the company hope to open source its algorithms to ensure anyone can verify its privacy practices.

I’d like to see Google do that!

No Filter Bubble

In an interview, Eli Pariser of MoveOn describes a “filter bubble” (the interviewer: “Did you know that Google takes into account 57 individual data points before serving you the results you searched for?”) Pariser:

Your filter bubble is the personal universe of information that you live in online — unique and constructed just for you by the array of personalized filters that now power the web. Facebook contributes things to read and friends’ status updates, Google personally tailors your search queries, and Yahoo News and Google News tailor your news. It’s a comfortable place, the filter bubble — by definition, it’s populated by the things that most compel you to click. But it’s also a real problem: the set of things we’re likely to click on (sex, gossip, things that are highly personally relevant) isn’t the same as the set of things we need to know.

[T]here’s not much need for a better mousetrap, because the standard trap does incredibly well, killing mice 90% of the time.

The reason is simple: Mice always run the same route, often several times a day. Put a trap along that route, and it’s very likely that the mouse will find it and become ensnared.

(Note that Google’s filter bubble applies to logged-out and incognito users.) Obviously, if Qwant doesn’t build a profile on me, it can’t put a filter bubble round me, so I get organic search results instead of whatever brain parasites Google has in mind for me.

Conclusion

It’s been a long time since I’ve written a software review! If Qwant doesn’t work out for me, I’ll come back and do a post mortem!

APPENDIX: Support for Qwant

Most browsers make you select your default search engine from a dropdown. Safari does not support Qwant. Opera (which I use for its VPN) does not, although here is a workaround I installed sucessfully. I tested Firefox, Brave, and Vivaldi: They support Qwant. I don’t know about Chrome, naturally.

NOTES

[1] Hilariously, Google News is “fact-checked” by the organs of state security:

Polygraph.info “is a fact-checking website produced by Voice of America (VOA)​ and Radio Free Europe/Radio Liberty.”

[2] I read the GDPR definition of “data subject” as applying to me, even though I’m not located in the EU or an EU citizen: “A data subject is any person whose personal data is being collected, held or processed.” I would welcome clarification from an experts on EU privacy law in the commentariat. Regardless, I would rather work with a platform designed for GDPR compliance, than one that is not.

Political debates on the post-2020 EU Budget have called into question the justification of Cohesion Policy as an EU-level policy.  The (possible) departure of the UK – a net contributor to the EU budget – from the EU, together with mounting pressures from nationalistic and Eurosceptic parties in many member states, has forced a reconsideration of the value added of all EU policies. This debate has peaked with the proposal to renationalise Cohesion Policy in order to “drop some pan-European policies and ‘do less more efficiently’”, as European Commission President Jean-Claude Juncker put it (Beesley 2017).

While Cohesion Policy has survived the perilous waters of the new EU budgetary cycle, two fundamental questions remain unanswered. 

• Has it produced a positive EU-wide impact on beneficiary regions over and above what would have happened without the policy? 
• Do all member states benefit from it, or are regional impacts persistently diversified along national lines?

If positive EU-wide impacts are simply not there, then the evidence would support the critical views on the value added of the policy. Conversely, if pan-European effects do emerge but beneficiary regions gain only in some countries (and not in others), this would suggest that the policy per se does work, and that differences in priorities, implementation, and administration across member states fundamentally change the final outcome.

Most of the existing studies that employ counterfactual techniques in order to identify the impacts of Cohesion Policy conclude that the policy has a positive effect on growth and employment (see Crescenzi and Giua 2017 for a complete review). These same studies also suggest that the positive effects are contingent upon a number of local and policy conditions (such as the absorptive capacity of funds; see Becker et al. 2013). However, all of this evidence is only valid for the EU as a whole, with no insights into the country-specific nature of the estimated impacts; they tell us nothing about the heterogeneity of estimated impacts across countries, or the possible composition effects masked by EU-wide ‘average’ estimates.

Our recent paper (Crescenzi and Giua 2019) aims to fill this gap by applying counterfactual methods to estimate how economic the impacts of Cohesion Policy vary across countries, unveiling if (and to what extent) the regions of some member states benefit from the policy persistently more than others. We rely on a spatial regression discontinuity design (RDD), leveraging as thresholds for the treatment the spatial boundaries (policy-change boundaries) between Objective 1 regions (treated) and non-Objective 1 regions (non-treated). Following this approach, different thresholds can be identified in each country with Objective 1 and non-Objective 1 regions. This allows us to construct different counterfactual scenarios in different countries and to reproduce the same identification strategy in each country while preserving EU-wide comparability of the results. Using this RDD approach, we compare economic outcomes (economic growth and employment) of the treated and non-treated NUTS3 regions for each country, matched according to their geographical coordinates (Figure 1). 

In contrast to existing RDD studies that could only estimate a single EU-wide ‘impact’ coefficient (leveraging the eligibility threshold of a regional GDP below 75% of the EU average GDP) or single-country studies that offer hard-to-compare estimates (e.g. Barone et al. 2016 and Giua 2017 on Italy; Criscuolo et al. 2019 and Di Cataldo 2017 on the UK), our innovative spatial RDD approach allows us to ‘unpack’ the aggregate impact of Cohesion Policy and estimate individual fully comparable coefficients for Germany, Italy, Spain, and the UK both before and after the Great Recession. By using the spatial RDD to net out the estimations from any confounding factors influencing the policy’s impact within a country, any differences in the estimated coefficients across member states can be ascribed to country-specific aspects related to national-level – as opposed to regional – specificities in quality of governance and/or implementation models.

Figure 1 Country-specific counterfactual scenarios

Source: Authors’ elaboration on Eurostat and European Commission data.
Note: Treated NUTS-3 regions (belonging to Objective 1 regions according to the 2000-2006 Cohesion Policy eligibility criteria) in red. Counterfactual NUTS-3 regions in green.

Cohesion Policy has exerted a positive and significant EU-wide impact on both regional economic growth and employment. The positive impact on regional employment has survived the Great Recession and supported less developed regions in the recovery period. However, the positive effects are not evenly distributed across the regions of all member states, with a large part of the regional growth bonus from Cohesion Policy concentrated in Germany and impacts on regional employment largely confined to the UK. The picture for Southern European member states is much less rosy. Italian beneficiary regions experienced better employment performance, but this effect ended with the Great Recession. Conversely, Spanish beneficiary regions only benefited from Cohesion Policy in terms of better growth performance during the recovery phase after the Great Recession, with no relief for structural unemployment problems.

Although the Barca Report (Barca 2009) recentred the debate on Cohesion Policy around the importance of highly localised factors conditioning success and failure, these results show that macro-national factors remain central. Macro-institutional conditions and models of intervention make more of a difference, in terms of impacts, than the diversity of local conditions. Early strategic decisions – such as the early focus on innovation in Germany or on skills in the UK – have significant long-term consequences and are better taken at the national level with more complete information and foresight capabilities as well as more effective coordination. However, while the predicaments of the Barca Report (and the adoption of a bottom-up approach) have resulted in a stronger role (and greater independence) being given to individual regions in the selection of the tools and the implementation of the policy, the same is not true for member states. 

Would giving more flexibility and autonomy to the member states reinforce the economic impacts of Cohesion Policy? Our findings suggest that both models of intervention and economic impacts are already highly heterogeneous across countries. A nation-based approach – with better adaptation of the policy to the needs and overarching objectives of each individual member state – might be the best complement (and indeed, a much-needed counterbalance) to the current place-based approach. More national-level adaptability and autonomy might be the best response to the calls for re-nationalisation of key EU policies. While in the post-Brexit Europe territorial cohesion remains an EU-wide public good – requiring EU-wide coordination and financial solidarity – the most effective (and politically viable) approach to its achievement might be premised on a stronger role being (re)assigned to member states. Some national models of intervention are indeed effective and impactful, while others are not. Where performance is more disappointing, member states should take full responsibility and be empowered to act accordingly. This would also counteract the ‘blame Brussels’ rhetoric that has dominated the campaign for the 2019 European elections in many countries.  

Member states cannot blame ‘Brussels’ (and its rules) if they see limited impacts in their less developed regions; this often reflects inappropriate national-level strategic choices. Conversely, there is a lot to learn from other member states on how to use the flexibility allowed for by Brussels in order to improve impact. The relevance of national-level impact heterogeneity  (that persists over and above any other confounding factor ‘netted out’ by our spatial RDD strategy) suggests that members states can be given more freedom to choose how to invest Cohesion Policy money in exchange for more accountability (i.e. stopping blaming either their regional governments or Brussels for their own national choices), more transparent evidence-based strategic decisions, and robust evaluation procedures. 

References

Barca, F (2009), An agenda for a reformed Cohesion Policy, Independent Report prepared at the request of Danuta Hubner, Commissioner for Regional Policy.

Barone G, F David, and G de Blasio (2016), “Boulevard of broken dreams. The end of EU funding (1997: Abruzzi, Italy),” Regional Science and Urban Economics 60(C): 31-38.

Becker, S O, P H Egger and M von Ehrlich (2013), “Absorptive capacity and the growth and investment effects of regional transfers: A regression discontinuity design with heterogeneous treatment effects”, American Economic Journal 5(4): 29–77.

Beesley, A (2017), “Juncker edges away from principle of ever closer union”, Financial Times, 1 March.

Criscuolo, C, R Martin, H G Overman and J Van Reenen (2019), “Some causal effects of an industrial policy”, American Economic Review 109(1): 48–85.

Crescenzi, R and M Giua (2017), “Different approaches to the analysis of the EU Cohesion Policy. Leveraging complementarities for evidence-based policy learning”, in J Bachtler, P Berkowitz, S Hardy and T Muravska (eds), EU Cohesion Policy. Reassessing performance and direction, Routledge: 21–32.

Crescenzi, R and M Giua (2019), “One or many Cohesion Policies of the European Union? On the differential economic impacts of Cohesion Policy across member states”, Regional Studies, forthcoming (advanced access).  

Di Cataldo, M (2017), “The impact of EU objective 1 funds on regional development: Evidence from the U.K. and the prospect of Brexit”, Journal of Regional Science 57(5): 814–839.

Giua, M (2017), “Spatial discontinuity for the impact assessment of the EU Regional policy. The case of the Italian Objective 1 regions”, Journal of Regional Science 57(1): 109-131.

Migration to Western countries has steadily increased over the past few decades, representing one of the most contentious political and socioeconomic phenomena these countries face. The very nature of migratory inflows has also been transformed, giving rise to the perception that current immigrants are culturally more distant than those of past eras. Anti-immigrant sentiments appear widespread, and voters’ attitudes reveal substantial support for restrictive immigration policies. 

These tensions seem motivated in large part by the perception that immigration imposes cultural externalities on the native population and that immigrants integrate slowly if at all. In fact, sizeable adverse labour market and welfare effects are far from well-documented (Bisin and Zanella 2017). As cultural boundaries are increasingly salient, the successful integration of minorities represents a crucial issue for the future of Western societies (Harder et al. 2018, Abramitzky et al. 2019). 

In recent work (Bisin and Tura 2019), we study the cultural integration of immigrant minorities. We interpret cultural integration as an equilibrium phenomenon – the result of a demand for integration on the part of immigrants and a supply, in the form of cultural acceptance, on the part of native populations. We focus specifically on the role of the family in the process of cultural integration of new generations. The family has a pivotal function in this process as the first and possibly the most significant place where values, attitudes, and beliefs are transmitted from parents to children. 

This approach allows us to uncover the crucial mechanisms that may contribute to slowing down immigrants’ integration, to evaluate the dynamics of cultural integration for future generations, and to assess the integration response to counterfactual immigration policies.

More specifically, we estimate a structural model of marital matching along cultural lines and intra-household decisions, exploring in detail the roles of fertility and cultural socialisation in the integration process. Parents care about socialising their children and are endowed with technologies to transmit their own cultural-ethnic traits to children (Bisin and Verdier 2000, 2001). Importantly, socialisation incentives and technologies vary between homogamous and heterogamous marriages. Moreover, socialisation behaviour depends on the distribution of the population across ethnic groups at the local level. As a consequence, the model implies a systematic dependence of fertility, socialisation, and divorce patterns across both household ethnic characteristics and geographical regions. 

We estimate the parameters of the model, exploiting variability across marital matches and regions, and we use restricted administrative Italian data on the universe of marriages, births, and separations over two decades (1995-2012). We measure cultural-ethnic transmission with language socialisation, proxied by the (self-reported) language spoken at home with the family. 

The main parameters of interest in the model are the cultural intolerance parameters –  that is, the (psychological) value a parent obtains from socialising a child to his/her own ethnic identity, relative to having a child with a distinctly other cultural-ethnic identity. Cultural intolerances represent a measure of the strength of the preferences for socialisation of a specific ethnic group and hence, a measure of the strength of its resistance to cultural integration. 

Figure 1 graphs the estimated cultural intolerance of minorities with respect to the native population (Panel A).  Strong preferences towards socialisation of children appear common across cultural-ethnic groups, but particularly so for parents from North Africa or the Middle East, whose estimated intolerance is about seven times as high as the one of the EU15, followed by sub-Saharan Africa and East Asia migrants’ minorities. As reported in Panel B, we also estimate the highest cultural intolerance of the Italian majority towards immigrants originating from sub-Saharan Africa, North Africa, and the Middle East (three times as high as that towards immigrants from the EU15).

Figure 1 Cultural intolerance parameters

a) Migrants towards natives                         

(b) Natives towards migrants

Notes: This figure reports parameter estimates for the cultural intolerance of migrants versus natives (Panel A) and natives versus migrants (Panel B) for all cultural-ethnic minorities from Europe-EU15, Other Europe, North Africa/Middle East, Sub-Saharan Africa, East Asia, Latin America.

The substantial amount of heterogeneity in cultural intolerances we estimate across cultural-ethnic groups imply potentially significantly different patterns of integration across minorities. In this respect, we investigate the long-run dynamics of cultural integration of minorities, simulating our model of marital matching and intra-household choices over successive generations. Results have to be interpreted in light of the strong assumption that parameters are invariant over time. It is also important to note that the notion of integration we must adopt, given our data, refers to the practice of speaking Italian at home (i.e. we say that a minority is ‘integrated’ when their descendants speak Italian at home). 

Figure 2 Long-run dynamics of cultural traits

Notes: This figure shows the long-run dynamics of the distribution of cultural traits in the population for minority groups over successive generations. The share of each cultural-ethnic group over the total population is indexed to 1 in t=0.

Despite cultural intolerance estimates that highlight strong preferences among immigrants for maintaining their cultural identity, in the long run, all cultural-ethnic minorities are simulated to converge to the Italian majority along the language dimension, as depicted in Figure 2. Indeed, 75% of immigrants integrate into the native culture over the period of a generation – in other words, 75% of the second-generation immigrants are simulated to speak Italian at home with their children. However, the pace of convergence is heterogeneous across cultural-ethnic groups. We find that the EU15 and ‘Other Europe’ minorities converge almost completely to the native culture in a single generation (similar to the North Africa/Middle-East minority), while a significantly slower convergence rate is simulated for the Latin America minority. Their integration process does not start before the second generation, and after four generations, only 70% of immigrants from Latin America are culturally integrated. A slower convergence rate also characterises the East Asia and sub-Saharan Africa minorities. 

Intolerance parameters are not the only determinants of the dynamics of integration of different cultural-ethnic groups. Indeed, higher fertility and homogamy rates prove to be fundamental socialisation mechanisms that assist in slowing down the cultural integration of some immigrant minorities. A strong estimated selection into homogamous marriages for sub-Saharan Africa migrants, for instance, allows them to sustain their cultural heterogeneity by accessing superior direct socialisation technologies. On the other hand, estimated fertility rates are particularly high for East Asia minorities, a fundamental factor behind their integration patterns. Finally, the relative success of the Latin America migrants in securing their cultural distinctiveness over time is due, in large part, to their unique ability to socialise children in heterogamous marriages with the native-born population.

Figure 3 Long-run dynamics of cultural traits with Italians fully tolerant

Notes: This figure shows the long-run dynamics of the distribution of cultural traits in the population for minority groups over successive generations assuming complete tolerance of the Italian majority towards minorities. The share of each cultural-ethnic group over the total population is indexed to 1 in t=0.

The relative speed of the cultural integration of immigrants is also relevant given the cultural intolerance of Italians and the strength of their own cultural transmission preferences. This effect is somewhat surprising in its sign. In principle, a native population that is more accepting of the cultural traits and beliefs of immigrants might make their cultural integration easier and faster; for instance, by fostering heterogamous marriages. But the opposite holds true: when we simulate our model by counterfactually assuming a higher willingness of the majority to welcome cultural dissimilarities, we obtain, on average, a reduction in the dynamics of integration of minorities towards Italian culture on the order of 15% over the period of a generation. Results are reported in Figure 3.  The ability of minorities to maintain their cultural identity in this counterfactual scenario is due to three mechanisms: 

1. a large increase in demand for intermarriages with the native population and a parallel lower demand for homogamous marriages previously motivated by a parental socialisation premium; 
2. a sizable increase in fertility rates in intermarriages with the native population, as the socialisation quality of children is higher;
3. higher socialisation rates for marriages with native-born Italians due to the higher acceptance of cultural differences among the native-born in these cases. 

Finally, we investigate the integration response to potential open-border immigration policies by simulating an exogenous rise in migration inflows. Specifically, we double the number of second-generation minorities, overweighting minorities from North Africa, the Middle East, sub-Saharan Africa, and East Asia. As can be seen from Figure 4, the effects are varied, with some minorities accentuating their successful transmission of cultural values dramatically. While North Africa/Middle East immigrants reduce integration by only 4 percentage points by the third generation, the response of East Asia and Sub-Saharan Africa minorities ranges from a 20-point to a 60-point reduction in integration, significantly slowing down the process of cultural integration.

Figure 4 Long-run dynamics with compositional increase in migration inflows

Notes: This figure shows the long-run dynamics of the distribution of cultural traits in the population for minority groups over successive generations. The solid line represents the dynamics at the baseline, while the dashed line represents the dynamics after raising the share of second-generation North Africa/Middle East, Sub-Saharan Africa, and East Asia minorities. The share of each cultural-ethnic group over the total population is indexed to 1 in t=0.

These findings have implications for the design of immigration policies capable of moving the conversation beyond well-meaning, across-the-board integration policies on the one hand and restrictive, closed-borders policies on the other. In this respect, our findings – that higher socialisation rates in marriages between immigrants and the native population encourages a higher acceptance of minority cultures on the part of the native population, allowing immigrants to better maintain their cultural traits – deserve careful attention.  

References

Abramitzky, R, L Boustan and K Eriksson (2019), “Do Immigrants Assimilate More Slowly Today Than in the Past?”, American Economic Review: Insights (forthcoming).

Bisin, A and G Tura (2019), “Marriage, Fertility, and Cultural Integration in Italy”, NBER Working Paper 26303.

Bisin, A and T Verdier (2000), “Beyond The Melting Pot: Cultural Transmission, Marriage, and The Evolution of Ethnic and Religious Traits”, Quarterly Journal of Economics 115(3): 955–988.

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