Archive for May, 2008

Human Capital:Our Most Valuable Asset

Friday, May 30th, 2008

It is with great dismay we watch one of the Wall Street giants take a tumble today.  In just over a year Bear Stearns Cos. went from a market capitalization valued at $25 billion down to its fire sale value of $1.4 billion.  What is even more disconcerting is that 7000 of its employees will be searching for new jobs according to the WSJ.  Despite the massive loss of financial capital the more pressing concern for these former employees is what to do in the short-term. 

In Charles Wheelan’s book, Naked Economics, he defines human capital as, “…the sum total of skills embodied within an individual: education, intelligence, charisma, creativity, work experience, entrepreneurial vigor, and even the ability to throw a baseball fast.”  Well, there probably will not be any Bear Stearns employees fighting for a position in the baseball draft but this disruption will release an enormous amount of human capital.  There will be tough times for many in the coming months but ultimately this is a group of people who will rally back and use this experience to their benefit as well as ours.  It is the most painful but necessary part of what Joseph Schumpeter described as creative destruction.  Out with the old and in with the new as some would say. 

While we have gotten use to to layoffs and mass reductions in the workforce as a blue collar phenomenon the 21st century has demonstrated a predilection for those of the white collar type.  At the level of the individual there are very few people who ever considered losing their job as a good thing regardless of their job description.  My heart goes out to these fine people.  Some may have been directly involved in the practices that led to the downfall of Bear Stearns but most were not.  All is not lost though as they still possess their most valuable asset: human capital.

The Cornerman

Thursday, May 29th, 2008

Years ago as a child I asked my father for money in order to buy some ice cream.  He said he would give it to me but I had to promise to memorize something he was going to tell me.  It seemed like a fairly straight forward deal so I agreed.  He then said, “always remember to make sure your cornerman is in your corner.”  He made me repeat it back to him so I did but I must have looked a little puzzled when I did it.  At the time I wasn’t really sure what he meant by that comment so I asked him, “so why must you always make sure your cornerman is in your corner?”  As he handed me a dollar bill he said quite simply, “because sometimes he isn’t.”  I was seven years old at the time but I never forgot that message even though it took me a few years to fully understand its meaning.

 My father, much like his father, was a boxer in his youth.  He trained as a teenager in a gym his father owned on the near north side of Chicago back in the 1920’s and 1930’s.  My grandfather trained local youths in the sport of boxing.  The gym not only supplemented his income but served as a front for his real source of income, a saloon known as the “Shamrock Verein”.  It was there he taught my father the importance of the cornerman.  In boxing the cornerman is your trainer and coach.  When you enter the ring against your opponent it is this trusted individual who supports, advises and watches out for you.  Your cornerman can make or break you in a close match.  Sometimes, as you may have guessed, your cornerman is not always in your corner.

There are two main reasons why your cornerman may not be “in your corner”.  The first is that they may not be competent enough to be there in the first place.  They may lack adequate experience and be providing poor advise.  It doesn’t take more than a couple of ass-kickings to figure out if this is the reason.  If everyone your cornerman trains gets beat then the problem is most likely the cornerman.  There is another reason why the cornerman may not be in your corner.  This one is more subtle and dangerous.  That is because your cornerman has sold you out.  He has either bet against you or at the very least his interests are not aligned with yours.  (This is referred to as the principal-agent problem.)  The problem is one of asymmetric information and the solution is one of aligning incentives so that both boxer and cornerman approach the ring with the same goal.

Everyone needs a cornerman.  It could be your coach, trainer, agent, consultant, financial advisor, priest, minister, rabbi, physician, mentor, attorney, or anyone who assists and guides you in life.  It doesn’t matter if they get paid for it or they volunteer.  Part of their best interest must include your best interest for them to be granted this trusted position.  So heed these words, “always remember to make sure your corner man is in your corner.”

My New Site

Wednesday, May 28th, 2008

So I finally made the leap.  It’s now official.  After being under “construction” for years my new website is open for blogging.  My previous blog was at TransformingCrisis.blogspot.com.  The primary focus of that blog was to describe what I saw as some of the reasons for our current healthcare crisis.  As much as I love discussing this topic there is so much more I also love to write about.  I will continue to comment on this subject but will open it up to a more diverse range of topics.  Bear with me as I navigate the new format.