Liars and Outliers (42 page)

(12)
The company, Innovative Marketing, and its CEO James M. Reno, were eventually
able to bargain down
their $1.8 million judgment to a measly $17,000 in back taxes and $100,000 in forfeitures. Given that their scam was alleged to be in the vicinity of $100 million, they definitely came out ahead.

(13)
In April 2011, a Congressional committee report revealed that between 2005 and 2009, the 14 leading
hydraulic fracturing
companies in the United States used over 2,500 hydraulic fracturing products containing 750 compounds, more than 650 of which were known or possible human carcinogens, substances regulated under the Safe Drinking Water Act, or hazardous air pollutants.

(14)
The
company's arguments
were basically 1) we think it's safe, and 2) those chemicals are trade secrets.

(15)
The same dynamic
explains why many large projects fail when management adds more people to them.

(16)
There are two basic ways to increase Coase's ceiling. The first is to decrease the cost of internal organizational tasks. The second is to decrease the cost of building a hierarchical organization of organizations. Technology aids in both of those: travel technology to allow people to move around, communications technology to allow better coordination and cooperation, and information technology to allow information to move around the organization. The fact that all of these technologies have vastly improved in the past few decades is why organizations are growing in size.

(17)
Senator Bernie Sanders
actually had a reasonable point when he said that any company that is too big to fail is also too big to exist.

(18)
The people who use sites like Google and Facebook are not those companies’ customers. They are the products that those companies sell to their customers. In general: if you're not paying for it, then you're the product. Sometimes you're the product even if you are paying for it. This isn't new with the Internet. Radio and television programs were traditionally distributed for free, and the audience was the product sold to advertisers. Newspapers are priced far below production costs, with the difference made up by readers being sold to advertisers.

(19)
For example, many large chemical companies use hazardous substances like phosgene, methyl isocyanate, and ethylene oxide in their plants, but don't ship them between locations. They minimize the amounts that are stored as process intermediates. In rare cases of extremely hazardous materials, no significant amounts are stored; instead, they are only present in pipes connecting the reactors that make them with the reactors that consume them.

(20)
For individuals, this is called being judgment-proof, and generally involves minimizing assets. Corporations can achieve the same thing with subsidiaries, so that liability falls on a corporate shell with no assets.

Chapter 14

(1)
And by those no longer in power. Some systems of societal pressures can be hard to get rid of once they're in place.

(2)
This quote, attributed to Louis XIV of France, translates as “The state, it's me.” More colloquially, “I am the state.” Or in the terms of this book: “As ruler of this country, what is in my interest is necessarily in society's interest.”

(3)
In general, terrorism is an
ineffective tactic
to advance a political agenda. Political scientist Max Abrams analyzed the political motivations of 28 terrorist groups—the complete list of “foreign terrorist organizations” designated by the U.S. Department of State since 2001. He listed 42 policy objectives of those groups, and found that they only achieved them 7% of the time.

(4)
This isn't to say that we have a good intuition about what level of security is reasonable. A strict cost/benefit analysis of most airline security measures demonstrates that they don't make much sense. But of course, security trade-offs are subjective and have a strong psychological component. There are several aspects of terrorism that cause us to exaggerate the threat. I'll talk about them in Chapter 15, but basically, we feel less secure than we actually are. So we want more societal pressure than would make strict economic sense.

(5)
If you do the math, more people have died because they chose to drive instead of fly than the terrorists killed on 9/11.

(6)
This
isn't just theoretical
. There is evidence that these considerations affect policy.

Chapter 15

(1)
Of course, there's a lot more to the trade-off of paying taxes than free riding. The tax rates might be so high that it is impossible for someone to survive if he pays his taxes. The taxes might be used to fund an immoral government. And it's possible for the system to collapse even if everyone pays their taxes; the government might allocate the money badly. The former Soviet Union serves as a nice example of this.

(2)
Those of you who have
studied systems dynamics
will recognize this diagram as a combination of two systems archetypes: Fixes that Fail, and Limits to Success.

(3)
Traditional examples of
experiential goods
include vacations, college educations, therapists, and management consulting. This is opposed to something like a desk chair or a can of Coke, where you pretty much know what you're getting before you buy it. Other experiential goods are restaurant dinners, fine art, home improvements, and a move to a new city. Even things that are pretty much commoditized have aspects of experience: a new car, a big-screen television, or a pet gerbil. We know from psychology that people tend to overestimate how much happier they expect a big purchase to make them. Security systems suffer from this same psychological problem; even if people knew exactly how much security a system would give them, they couldn't predict how much safer that additional security would make them feel.

(4)
Ben Franklin said
: “Those who would give up essential liberty to purchase a little safety deserve neither liberty nor safety.”

(5)
It's
also human nature
to not consider, or at least not consider with sufficient weight, the possibility of unintended consequences.

(6)
To take one example, criminals can threaten store owners and steal money from them. Lone criminals generally use guns for this purpose, although they have other ways. Criminal organizations are far more efficient. They can run protection rackets, where they extort money from store owners by threat of violence. They can make far more money this way, often without ever brandishing weapons or even making overt threats. “Nice store you have here” can go a long way if you have a good enough reputation.

(7)
There was a
major political backlash
in the UK against trash monitoring technologies.

(8)
In Europe,
life-cycle management
laws are beginning to reduce the amount of trash generated by forcing manufacturers of automobiles to pay for disposal of their products when they are eventually junked.

(9)
The Innocence Project
, which works to exonerate convicted felons using DNA evidence, has found that approximately 25% of the 273 people they exonerated in the past 20 years confessed to crimes they didn't commit.

(10)
Cheating on test scores
in response to the No Child Left Behind Act also happened in Chicago, Atlanta, across Pennsylvania, and probably elsewhere in the U.S. as well.
One teacher described
the societal pressure to ensure cooperation with the group of teachers: “It's easy to lose your moral compass when you are constantly being bullied.”

(11)
In
The Dilbert Principle
,
Scott Adams wrote:

A manager wants to find and fix software bugs more quickly. He offers an incentive plan: $20 for each bug the Quality Assurance people find and $20 for each bug the programmers fix. (These are the same programmers who create the bugs.) Result: An underground economy in “bugs” springs up instantly. The plan is rethought after one employee nets $1,700 the first week.

(12)
It's
18 years if
you count from 1994, when banks were first allowed to engage in interstate banking (yes, no banks operated in multiple states before then); 15, if you count from the Fed's relaxation of Glass-Steagall restrictions; 12, if you count from the repeal of Glass-Steagall.

(13)
Not accepting the dilemma as claimed is common among many defectors, including pot smokers, music pirates, and people who count cards at casinos.

(14)
The
potential failure
from widespread defection is great. Alexis de Tocqueville said: “The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.”

(15)
I believe that the modern representative democracy is outdated as a political institution. I like to say that it's the best form of government that the mid-18th century could produce. Think about it: because both travel and communications were hard, local groups had to pick one of their own to go all the way to the capital and help make laws in the group's name. Now that travel and communications are easy, there's probably a better system.

Chapter 16

(1)
It would be interesting to chart, as a function of historical time, how much damage an armed group of ten men could do in society before they were subdued. The amount would be pretty stable until the invention of gunpowder, and then would grow continuously until today. Future advances in chemical, nuclear, and biological weapon capabilities will increase that number even more in the future.

(2)
I don't mean to compare now with ten years ago, or even thirty years ago. I mean to compare it with 100 years ago, 500 years ago, and 1,000 years ago. If you drew a graph, it would be jagged, but over the long term, the rate of technological change has been steadily increasing.

What might be different today is that the rate of change might never again slow down. Not only is the rate of change increasing, but the rate of the rate of change is accelerating as well. Future shock is affecting more of us and more aspects of our lives. The endgame may be
the singularity
—which plenty of other people have written and spoken about—but what do we do between now and then? The singularity does answer the question of what comes next for societal pressure. After moral, reputational, institutional, and security pressures comes group mind—technologically-enhanced moral pressure—à la the Borg on
Star Trek
. I don't advocate this as a research direction, but it would give us a huge advantage over the leafcutter ants.

(3)
I don't just mean security against criminals and spies, I also mean security
against the government
. Over the decades, countries have developed social security systems that prevent law enforcement from abusing the power society delegates to them. In the U.S., these include the warrant process, rules of evidence, search and seizure rules, rules of interrogation, rules prohibiting self-incrimination, and so on. When our communications and writings were on paper, the police would need to demonstrate probable cause and receive a warrant from a judge. Today, our communications and writings are on commercial networks: Facebook, Google Docs, our e-mail providers, and so on. In many cases, the police can simply ask the companies for that data: with no probable cause, without a warrant, and without you even knowing.

(4)
Clay Shirky writes
extensively about these types of organizations.

(5)
The difference is obvious when you look at SafeHouse, a copycat version of WikiLeaks run by the
Wall Street Journal
. Its
terms of service
state that SafeHouse “reserve[s] the right to disclose any information about you to law enforcement authorities or to a requesting third party, without notice, in order to comply with any applicable laws and/or requests under legal process….” The
Wall Street Journal
can't do otherwise; the costs of defecting are just too great.

(6)
This is a simplification of something
Lord Kelvin said
:

I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely in your thoughts advanced to the state of Science, whatever the matter may be.

(7)
Or, as Lord Acton said over 100 years ago: “Power tends to corrupt, and absolute power corrupts absolutely.”

Chapter 17

(1)
In some ways, this is similar to Kierkegaard's
leap of faith
, the non-logical acceptance of belief required for most religions.

(2)
The
World Values Survey
measures impersonal trust in about 70 different countries by asking the question: “Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?” The Scandinavian countries reported the highest level of trust (60% in Norway, Sweden, and Denmark believe most people can be trusted), while countries like Peru, Turkey, Rwanda, and Trinidad and Tobago reported the lowest. The United States ranked towards the higher end. The Gallup World Poll also measures trust by asking three questions: whether it was likely that a neighbor, a stranger, or the police would return to the owner a lost wallet with the money and valuables intact. Again, the
results differ widely
by country, and the perceived trustworthiness of neighbors, strangers, and the police differ as well.

All of these surveys collect data on what people say, not what they do. I have not found any study that actually tested these wallet numbers, but
Reader's Digest
tried something similar
with cell phones. Researchers left cell phones unattended in conspicuous places in cities around the world. They then called the phones to see if anyone would answer and return them to their owners. Return rates varied wildly in different cities: Ljubljana won with a 97% return rate, while New York had an 80% return rate, Sydney a 60% return rate, and Singapore a 53% return rate. Hong Kong placed last with a 42% return rate. In a more controlled
laboratory experiment
with people from six different world cultures, researchers found significant differences in the level of trust displayed, especially when there was the potential for punishment.