Investment and Finance

Death by HR: How Affirmative Action is Crippling America
Locked Cogs: Death by HR

Locked Cogs: Death by HR

I’m starting a new series of posts on a new book tracing the decline of competence in organizations due to affirmative action hiring, and how it is leading to economic stagnation and declining growth for everyone.

It’s a new Age of Incompetence, with deadwood managers at the heart of our government and regulated institutions like banks and hospitals leading to costly failures and decay in performance of their functions. From the mortgage meltdown that brought down the world’s economy in 2008, to the disastrous launch of the healthcare.gov website for Obamacare, major segments of business and government in the US have grown more expensive and less competent over the past few decades. Billions of dollars of waste in government contracts for IT projects, weapons systems, and service failures at the VA are in the news every day. Public schools are widely seen as mediocre, and in the poorest urban districts they are failing to provide a decent education for the students who need good schools the most. Costs for regulated services like schools, colleges, medical insurance, drugs, courts, prisons, and infrastructure like roads and bridges rise far faster than inflation, while times to complete major projects stretch out to decades, and many fail completely and are cancelled after billions have been spent.

We will trace the factors that have hobbled growth and damaged organizational competence. From overregulation to HR departments that actively sabotage the hiring of the best candidates for jobs, bureaucratic mindsets and by-the-book mediocrities placed in positions of responsibility are crippling the organizations affected.

Silicon Valley and the tech industries are the next targets. If you’re a manager at a tech company, we’ll suggest some ways to protect your people from HR and its emphasis on credentials and affirmative action over the best fit for a position. Corporate leaders need to be sure their HR departments are managed to prevent infiltration by staff more interested in correct politics than winning products. And we’ll show why appeasement of diversity activists is a dangerous strategy that may make your organization a target for further extortionate demands.

The idea for this book came from the author’s personal experience seeking a mortgage from Chase Bank in 2012. I owned a large house free and clear which I was selling, and was trying to get a mortgage for a much smaller and cheaper house because rates were so low—2.75% on a 15-year fixed mortgage. Given that I had much more than the amount of the mortgage in stocks and cash, plus a more valuable house for sale with no mortgage, I assumed it would not be so difficult. But the amount of paperwork required was enormous, with every detail of every account documented multiple times. Unexplained, lengthy delays took months. This was true everywhere in the country, as every lender had to sell to one of the government buyers — Fannie, Freddie, or VA, which were the ultimate funding for nearly all mortgages being made, and where crackdowns on the low-documentation (“liar”) loans and sub-prime loans had led to an overreaction.

After months of drama and repetitive responses to their information requests, the loan was funded just in time to complete the purchase of the house. All seemed well, but I got a letter one week later demanding proof of insurance, which had already been provided to the bank and approved by Fannie Mae in the packaged-up loan. I had been working with a executive-level expeditor (one key sign of problems is that Chase had to set up an office of expeditors just below upper management to force its own bureaucracy to make reasonable decisions), so I got him on the phone, and he set up a conference call with a VP in their servicing division, a woman with an uneducated accent who stonewalled — “That’s just how we do it, Sir.” No amount of talking would get her to concede that Chase’s approval and sale of the loan to Fannie Mae was ipso facto evidence that insurance coverage on the house had already been proven as of a few weeks earlier. Both I and the expeditor gave up on her and I never heard from them after that. While it’s true that the VP title at a bank is handed out to thousands of managers, her complete lack of interest in common-sense solutions to prevent waste and customer anger was a sign that efficiency and customer satisfaction were of little concern to her.

I started to investigate and discovered that a generation of affirmative action policies has placed mediocrities at major decision points in most large companies, government agencies, and highly-regulated institutions like schools and hospitals. A small percentage of deadwood can be routed around, but over time feedback effects from the generalized lack of accountability and lowered standards for performance cripple the institution. We see this in the failures and extreme cost overruns of almost all large government projects and a tolerance for incompetence so long as policy manuals are followed to the letter. This effect is largest in government and education, but also visible in larger companies where HR departments are staffed by progressive sorts who believe in correcting non-progressive thoughts. In high tech, women and minorities dominate HR in part because companies wanted to balance their male-and-Asian-heavy engineering staff to make their numbers look better, but now are just realizing they’ve created an internal enemy to product quality and excellence in staffing engineering teams. (A corporate manager comments: “How do you know HR is lying? Their lips are moving…”)

The diversity activists want group identity to replace competence and merit in hiring — or they want to collect contributions and consulting fees to harass some other organization instead of yours. Whether your company satisfies them by dumbing down your teams or pays them off, you will find it harder to compete when hobbled by their demands.

From Healthcare.gov to the VA, billions of dollars of tax money are being wasted by governments more concerned with politics and the skin color and sex of the work force than competence. The last engines of growth, tech companies, are under pressure to hire based on diversity rather than performance. It’s time to say no to mediocrity.

Death by HR: How Affirmative Action Cripples OrganizationsDeath by HR: How Affirmative Action Cripples Organizations

[From Death by HR: How Affirmative Action Cripples Organizations,  available now in Kindle and trade paperback.]

The first review is in: by Elmer T. Jones, author of The Employment Game. Here’s the condensed version; view the entire review here.

Corporate HR Scrambles to Halt Publication of “Death by HR”

Nobody gets a job through HR. The purpose of HR is to protect their parent organization against lawsuits for running afoul of the government’s diversity extortion bureaus. HR kills companies by blanketing industry with onerous gender and race labor compliance rules and forcing companies to hire useless HR staff to process the associated paperwork… a tour de force… carefully explains to CEOs how HR poisons their companies and what steps they may take to marginalize this threat… It is time to turn the tide against this madness, and Death by HR is an important research tool… All CEOs should read this book. If you are a mere worker drone but care about your company, you should forward an anonymous copy to him.

 

More reading on other topics:

Jane Jacobs’ Monstrous Hybrids: Guardians vs Commerce
The Great Progressive Stagnation vs. Dynamism
Death by HR: How Affirmative Action is Crippling America
Death by HR: The End of Merit in Civil Service
Corrupt Feedback Loops: Public Employee Unions
Death by HR: History and Practice of Affirmative Action and the EEOC
Civil Service: Woodrow Wilson’s Progressive Dream
Bootleggers and Baptists
Corrupt Feedback Loops: Justice Dept. Extortion
Corrupt Feedback Loops, Goldman Sachs: More Justice Dept. Extortion
Death by HR: The Birth and Evolution of the HR Department
Death by HR: The Simple Model of Project Labor
Levellers and Redistributionists: The Feudal Underpinnings of Socialism
Sons of Liberty vs. National Front
Trump World: Looking Backward
Minimum Wage: The Parable of the Ladder
Selective Outrage
Culture Wars: Co-Existence Through Limited Government
Social Justice Warriors, Jihadists, and Neo-Nazis: Constructed Identities
Tuitions Inflated, Product Degraded, Student Debts Unsustainable
The Morality of Glamour

On Affirmative Action and Social Policy:

Affirmative Action: Chinese, Indian-Origin Citizens in Malaysia Oppressed
Affirmative Action: Caste Reservation in India
Diversity Hires: Pressure on High Tech<a
Title IX Totalitarianism is Gender-Neutral
Public Schools in Poor Districts: For Control Not Education
Real-Life “Hunger Games”: Soft Oppression Destroys the Poor
The Social Decay of Black Neighborhoods (And Yours!)
Child Welfare Ideas: Every Child Gets a Government Guardian!
“Income Inequality” Propaganda is Just Disguised Materialism

The greatest hits from SubstrateWars.com (Science Fiction topics):

Fear is the Mindkiller
Mirror Neurons and Irene Gallo
YA Dystopias vs Heinlein et al: Social Justice Warriors Strike Again
Selective Outrage
Sons of Liberty vs. National Front
“Tomorrowland”: Tragic Misfire
The Death of “Wired”: Hugo Awards Edition
Hugos, Sad Puppies 3, and Direct Knowledge
Selective Outrage and Angry Tribes
Men of Honor vs Victim Culture
SFF, Hugos, Curating the Best
“Why Aren’t There More Women Futurists?”
Science Fiction Fandom and SJW warfare

More reading on the military:

US Military: From No Standing Armies to Permanent Global Power
US Military: The Desegregation Experience
The VA Scandals: Death by Bureaucracy

Notes on Politics and Bureaucracy
Red Queen: The Substrate Wars

Red Queen: The Substrate Wars

[This is from an appendix to Red Queen: The Substrate Wars.]

What is fascism?

From Wikipedia, where the definition focuses on the 1930s fascisms seen in Italy, Germany, and Spain:

Fascists sought to unify their nation through an authoritarian state that promoted the mass mobilization of the national community and were characterized by having leadership that initiated a revolutionary political movement aiming to reorganize the nation along principles according to fascist ideology.

The Wikipedia definition goes on to list other characteristics, notably that fascism of that day “replaced socialism’s focus on class conflict with a focus on conflict between nations and races.”

As Mark Twain noted, “History doesn’t repeat itself, but it does rhyme.” The fascism of Substrate Wars is built on exploiting tribal divisions, but not between states so as much as between races and the sexes, and between an anointed class of academic and government-class progressives (“the Clerisy”) and the private economy. The scapegoating of some groups and relentless attacks on them as manipulators who are harming the oppressed and stealing from the common people is aimed at different groups, but the basic mechanism remains.

We see this today in schizophrenic demonization of the wealthy “one-percenters” at the same time there is continuing support by many of the same politicians of Wall Street’s artificially high share of the economy. The Federal Reserve’s efforts to limit the stock market crash of 2000 and the 9/11 panic produced a real estate bubble and ensuing debt crisis, but instead of reforming the systemic problems that caused the crash and paying down the bad debts, the world’s central banks and politicians have tried to artificially reflate the economy with even more debt, and as of this writing the US debt has climbed to $18 trillion. When actuarially sound and realistic accounting is applied to pension and Medicare obligations of state and federal governments, future taxes to pay the debts down at more realistic interest rates would have to rise to over 50% of incomes, closing on 100% in some states, a level so high it would depress actual tax revenues collected. Meaning some sort of debt repudiation—either hyperinflating it away or default—is likely.

And in the US, the two parties are deeply entrenched in local and state politics and election supervision, and the law is written to discourage any new parties or independent candidates. The increasing partisan warfare has set people of good will who largely agree on most matters against each other, with the worst behavior of each party presented as entertainment to partisans of the other. The hatred and obsessive preoccupation with demonization of the other party disguises an important fact: if it were not for that party you hate so much, full of stupid, evil, and ignorant people you disdain, your party would become as corrupt as it is in those states where one party dominates. And the chances of governments run by one party investigating and reforming themselves are low. Some pundits admire China, where one party rules and Gets Things Done; but corruption is an enormous problem there, and will likely bring them down eventually. So, partisans, be grateful for those jerks in the other party—they keep your people honest.

I have many friends who work for government agencies—teachers, scientists, managers. They tell me they work hard and do valuable work, and I know they are conscientious and well-meaning. But when they spend much of their time in meetings and fighting other parts of the bureaucracy; when they write thousands of pages of reports and laws that no one reads; when their function is not essential to defense, law enforcement, or some other core function only government can handle, it’s a tax-funded, permanent bureaucracy that squeezes out private alternatives and ensures that competition can never improve efficiency. I salute my hard-working friends who are public servants—but most of their time is actually spent serving the interests of the state and not the people.

In the sectors of the economy that aren’t run or heavily regulated by governments, efficiencies constantly increase as competition and innovation combine. In sectors run by politicized regulation or directly by governments, innovation is very slow and relative costs of services continue to rise. Examples: education, medical services, defense, social services. Student loan debt is breaking the backs of young people; college administrators are higher-paid than ever, and there are more of them. Hospitals expand and merge and pay administrators huge salaries while charging astronomical fees for simple services. Military contracting is padded and turned into pork for Congressional districts. The space shuttle boosters blew up because they had to be made in segments to allow the contracts to be spread across districts. These are all consequences of politicized decisionmaking processes.

A notable example is universal public schooling. No one thinks education is a bad idea, and local public and private schools competed in the US until the mid-1800s. Then states began to take more control, aiming to raise standards and make the curriculum more uniform, on a Prussian model which viewed children as raw material to be molded into good workers and citizens with allegiance to the state.

The public education system evolved, and local control was reduced. Families found themselves taxed heavily to pay for the public system, which was “free” to them, and naturally chose not to pay twice to get education that was more directly tailored to their children’s needs or family desires. Thus an important link between parental concern and schools was broken—schools, like all other institutions, ultimately serve the concerns of those who fund them, not their clients. In many school districts now, parents are given lip service but opposed whenever they try to support reforms.

And schools beholden to politicians and unions of their workers can be both expensive and truly awful. The worst result of this is that children are now learning very little history, economics, or science, and rigor has suffered. The least damaging solution is vouchers—give every student the money now being spent on their education to spend on any school their parents deem fit that passes reasonable standards. Public schools would have to compete with private and charter schools, and all would benefit—except possibly overpaid public school administrators. Resistance to this idea is fierce, of course.

So that was a key mistake which allowed the population to be programmed with the idea that more government is the solution for every problem. Fixing it will take time, and the system will most likely crash before rebooting.

And as recent graduates of this political indoctrination system have taken most of the positions in government, academia, and mass media, the commitment to truth has suffered. An entire society has been dumbed down.

The Curriculum of Freedom
The Library

The Library

I’ve put up a permanent page with suggested readings on how to think about economic and political questions. Just a start so far:

While I went to some great schools like MIT, I was primarily self-educated. Anyone can pick up the ability to think through problems independently and do the research needed on the Internet, but it helps to have a base of organized knowledge to give yourself a head start on your individual contribution to the world’s knowledge. A great book on a subject area will allow you to quickly reach the level of understanding needed to start your own research; then a bit of reading on the more recent research results available online will catch you up to the current edge of the field and where you can contribute.

If you or someone you love want to have a deeper understanding of how the world works, these books are a great way to start. I’ve read all of them and guarantee that reading them will boost your understanding of what you may have learned in school, where textbooks are watered-down, homogenized committee efforts and subject to political bias.

Many of these authors are prolific and have written more than one book amplifying their thoughts. If one turns you on to a topic, you may want to go on and read others they’ve written. I’ll be filling in my take on each book later, but for now you can read the Amazon description to get an idea.

Low-Cost Robo-Financial Advisors
Robotic Financial Advisors

Robotic Financial Advisors

My last career was as a financial advisor. I gave up my registration when I retired, so I give away advice, which I guarantee is worth what you pay for it!

There is such a thing as a great financial advisor who more than repays their fees in tailoring your portfolio to your future needs, risk tolerance, and tax situation. But these people are rare: many have migrated to managing hedge funds, and the good ones still in individual practice tend to be hard to find or only accept clients with very high net worth (upwards of $500K.)

So what is a middle-class person to do? You can roll your own low-cost strategy which beats 80% of advisors and managed funds by using low-fee index funds from a company like Vanguard– often one for global stocks and one for bonds. You set your preferred volatility level by choosing, for example 70% stocks and 30% bonds. Then you forget it — and once a year or so on a set date, rebalance by transferring as needed to maintain those percentages. This generally bumps up return slightly over a static strategy without a lot of trading or effort.

The Wall Street Journal has a story by Liz Moyer on new online services that do simple investment management for you at much lower cost than personal advisors (full story may be behind a paywall):

The Internet has threatened the livelihood of travel agents, video-store clerks and mail carriers. Now high-tech startups are aiming to put another profession on the endangered list: financial adviser.

A new breed of online advisers is using computer models available on their websites to tailor portfolios of inexpensive exchange-traded funds for individual investors and offering to manage those investments automatically.

The firms promise to save customers money by charging low management fees and avoiding pricey investment products. By contrast, traditional advisers and brokers develop personal relationships with clients but sometimes impose hefty management and investment fees.

The online advisers can be a good option for investors who want low-cost advice about the appropriate mix of stocks and bonds to buy and hold for the long term, and who are content to monitor their investments on a home computer or a mobile app.

Sachin Rekhi, who is 30 years old and lives in Menlo Park, Calif., was wined and dined by advisers from Wall Street banks after selling his software company. But he concluded he could get what he wanted from Wealthfront, the largest of the online startups in terms of assets.

“I wasn’t getting access to anything special from the traditional wealth advisers, and they were going to invest my money the same way,” says Mr. Rekhi, who opened an account with the Palo Alto, Calif.-based firm in 2012.

…

But “robo-advisers,” as they are sometimes derisively known, aren’t for everyone. Investors who prefer to hear a familiar, reassuring voice when markets gyrate may feel cast adrift. And those who face complicated tax or estate-planning issues may need to seek separate advice from a professional.

The firms—which also include Betterment, Personal Capital, FutureAdvisor, SigFig Wealth Management and Motif Investing—also can vary significantly in the amount of hands-on assistance they provide and in the services they offer.

Online advisers collect basic information from investors about how much risk they want to take and what they are investing for. The firms then use the information to create portfolios intended to match those profiles and goals, and often adjust those portfolios automatically in an effort to boost returns or curtail volatility.

…

Most online advisers were formed by veterans of large tech firms, and employees of tech firms are often a target audience. Together the online advisers, which manage $4 billion in assets, represent a tiny fraction of the estimated $17 trillion wealth-management market, according to Aite Group, a consulting firm based in Boston.

But they are growing fast, and have attracted high-profile backers. Wealthfront surpassed $1 billion in assets under management in June, about 2½ years after launching its website, and manages $1.25 billion now. Its chief investment officer is Burton Malkiel, whose book “A Random Walk Down Wall Street” is widely regarded as a classic by advocates of index investing.

Betterment, which is based in New York and manages $740 million, received a $32 million infusion in April from Citigroup’s C -0.12% Citi Ventures, Globespan Capital Partners and Northwestern Mutual Capital. In May, J.P. Morgan Chase, JPM -0.04% Goldman Sachs Group GS +0.12% and other investors put $35 million into Motif Investing, a San Mateo, Calif.-based firm whose board members include Sallie Krawcheck, a former Wall Street executive, and onetime Securities and Exchange Commission Chairman Arthur Levitt.

Low fees are central to the pitch. Investors often pay around 0.40% to 0.50% of assets annually—or $40 to $50 on a $10,000 portfolio—based on a typical management fee of about 0.25% of assets and ETF fees of 0.1% to 0.25%. By contrast, traditional advisers often charge 1% or more of assets, and sometimes recommend higher-priced investments that can further erode returns.

Online advisers often accept clients with relatively small amounts to invest, though some target investors with $100,000 or more in assets. The firms can appeal to a younger tech-savvy generation. Adam Nash, Wealthfront’s chief executive, says 60% of the firm’s clients are under 35, and 90% are under 50.

…

All three firms do most of the heavy lifting on an investor’s behalf. Bo Lu, a former Microsoft engineer who co-founded FutureAdvisor, got the idea for his website from fellow engineers who had money to invest but not enough to attract the attention of traditional advisers.

“They all wanted accounts of a million or a half-million [dollars] and we had, like, $8,000 to invest. We decided to build it ourselves.”

…

If stocks or bonds rally or drop significantly, Betterment automatically adjusts his account back to his baseline asset allocation, typically by directing dividends and new deposits into underweighted assets. The tactic, known as “rebalancing,” essentially pushes investors to buy assets that are relatively inexpensive, which can boost returns in the long run.

In addition, Betterment automatically sells some investments that have lost money to offset gains in other investments, which can limit his taxes on overall gains.

Wealthfront, too, automatically rebalances accounts with more than $10,000, and customers with at least $100,000 invested in taxable accounts also get automatic tax-loss harvesting. FutureAdvisor, which launched last year and manages about $200 million in assets, also provides both services.

Betterment and Wealthfront don’t charge investors for trading costs incurred while rebalancing. FutureAdvisor says investors may incur trading costs due to rebalancing, but that it only rebalances if the benefits for the investor outweigh the expense.

This stuff is hardly rocket science — which is why rocket scientists cleaned up by going into the investment field in the 90s. Automating portfolio managament isn’t tough — what’s hard to manage is client expectations; clients who aren’t ready to ignore gyrations in portfolio value and stay the course may need all the human support they can get. Otherwise they will trade out on declines and in on highs, and do worse than the market over time — as most do investors in stock mutual funds.