Archive for the Uncategorized Category

CHILD INVENTORY MANAGEMENT

Formal education is a funny thing.  When you are young, a good education seems extraordinarily important, admittedly to no small extent because everyone tells you that.  But it also seems important in and of itself at the time because it is during the formal part of your education that you are learning in a very deliberate fashion, complete with exams and grading to tell you how well or badly you are doing at it.  You are learning for the sake of learning, and you and others are measuring your progress.

Once you have demonstrated enough capability in your selected field of study, they give you a degree or some other sort of certification, and you are off to start a career.  And for the first few years of that career, it is often just the nuggets of knowledge that you managed to retain from your formal education that anchors you sufficiently to begin to be able to stand fast in the face of the whirlwind of demands placed upon you by whatever role it is that you have chosen.

But after a very few years, a funny thing happens.  The on-the-job experiences and learning that you have accumulated become far more relevant to your ability to contribute and lead in your chosen work.  And twenty years out, it is rare if ever that one consciously retrieves anything that they learned in their years of formal education in any kind of instrumental fashion to execute or even frame your thoughts about, well, anything, which is why it is both surprising and heartening when that does happen.

My wife is a Social Worker who worked for the Children’s Aid Society for over 30 years.  My daughter is A Ph. D. candidate at U of T in Social Work as well, so it is not surprising that Child Welfare is a more common topic for family discussions than Structured Finance.  As you can imagine, I am at a severe disadvantage in terms of the requisite educational qualification to have anything of value to say in discussions around Child Welfare policy, but I do my best not to let that dissuade me from participating.  And just the other day, I recalled a nugget of learning from my first year MBA courses of nearly 40 years ago that was very helpful in framing the challenges that confound any society in establishing sound Child Welfare policy.

It was, of all things, something that I recalled from the inventory management module of my Operations Management course, the part about optimizing “Stock Out” risk.  Stock out risk is the risk that a vendor loses a sale because of insufficient inventory.  When the topic is first raised with first year MBAs, the initial thought is that you simply devise a model for demand based on historical sales figures for a particular product and ensure that the business maintains sufficient inventory so that in all of the modeled scenarios there is never a “Stock Out”.  However, young MBAs are quickly taught that it is not so simple.  It is profitability that managers are seeking to maximize, not sales.  Unsold inventory represents an investment of capital, and capital has a cost, either in the form of an interest rate for borrowed capital or a required return in case of equity capital.  It is entirely possible, and indeed most likely, that the inventory level required to ensure zero Stock Out risk is not the profitability-maximizing strategy given the cost of capital.  Optimizing inventory management in order to maximize profitability will almost invariably require accepting some level of Stock Out risk and thereby foregoing potential sales to avoid over-stocking.

So why was I thinking about Stock Out risk in a discussion of Child Welfare policy?  Because the topic was the historical high rates of apprehension of children at risk that separates them from birth families, both temporarily and too often permanently, that is increasingly recognized as having devastating long term impacts on birth families and apprehended children.  And how are apprehension polices determined?  To a large extent by applying a zero-tolerance standard with respect to the likelihood of serious harm to or even death of a child left in the care of challenged caregiver.  We understandably impose a standard that lowers “Stock Out” risk with respect to any single child to zero, ignoring the social cost to thousands of children and families of disrupting family relationships, however fraught they might be.

It is of course a much different consideration to countenance a lost sale than it is to losing even one child.  But it is important to understand what it is we are doing in the context of Child Welfare policies.  Zero risk tolerance policies provide protection against the risk of a small number of catastrophic outcomes in return for the certainty of very large number of disrupted families and personal traumas.  Sadly, there is no simple formula for optimizing this trade-off; there is no social accounting “bottom line” calculation that we can point to.  But at the very least all engaged in the debate must acknowledge and accept the trade-off, even if we cannot quantify offsetting social costs as easily as we can the cost of capital in over-stocking a business’ inventory.

I now await a no less appropriate Social Work theory-based perspective on residential mortgage expected loss-given-default calculations from my wife and daughter.

IMPLICIT QUOS AND THE BANALITY OF CORRUPTION

“There was no quid pro quo!  Read the transcript!”

So declares the Orange Eminence, with indignant nods from his apologists.  Of course, even that defence ignores the reality that no one has yet seen a true transcript of the July 25th call between Donald Trump and Ukrainian President Volodymyr Zelensky, but it should not surprise anyone if an actual transcript did not include any explicit “quid pro quo” proposition.  The most damaging corruption is rarely if ever so blatant.  It is almost always insidious to the point of banality.  I doubt that even Harvey Weinstein ever explicitly promised a specific role to any actress in return for her tolerance of if not acquiescence to his sexual demands.

It has taken an inordinately long time, but as a society we have finally moved beyond the need to demonstrate explicit quid pro quos to conclude that an individual has committed an actionable breach of trust. In the context of social and economic transactions between parties involving large disparities in economic power, the individual holding the power advantage is not entitled to request or even accept from the other party benefits that accrue to that individual rather than to the corporate or political entity that the individual in greater power represents.  No reasonable person interpreting the accepted facts surrounding the negotiations that culminated in the Trump-Zelensky phone call could possibly deny that President Trump asked a “favour” of Zelensky at a time when he had blocked the payment to Ukraine of US$400 million of military aid that had been approved by the US Congress.  The only determination left to be made upon which any reasonable persons could differ in concluding that a criminal breach of trust has occurred is whether the “favour’ asked of Zelensky would have been of benefit to President Trump personally, or to the benefit of the United States government and its people.

Interestingly, little of the umbrage taken by Trump supporters have focused on this question.  The defenders seem instead to fall into one of two camps: those that argue that there was no explicit quid pro quo, and those that argue that even if there was, it is not a breach that is of sufficient gravity to justify removal from office.  It seems that even Trump’s staunchest supporters are conceding that the requested announcement by Zelensky of enquiries into the activities of the Bidens and allegations of Ukrainian involvement in the hack of the DNC servers in 2016 would offer no material benefit to the US people.  No wonder. The 2016 hack has already been the subject of the Mueller report which concluded that it had been engineered by Russian malefactors, and if there was to be an investigation of Joe Biden’s role in his son Hunter obtaining a lucrative appointment to the Board of Ukrainian energy company Burisma, it could and should be carried out by the US Justice Department, who is reported to have already reviewed the matter and concluded that it warranted no further action.

So the defence of Trump falls to the argument that this naked exercise of corruption is not of sufficient materiality to merit removal from office.  Given that the comparable unsolicited attempt by Russian-based actors to influence the US political process in 2016 was deemed sufficiently material to merit a Department of Justice investigation, it is difficult to see how anyone could conclude that an attempt by a sitting President to solicit such interference could be anything other than gravely material.  But is it sufficient grounds for removal from office?

Removal from office by impeachment is permitted under the US Constitution for “treason, bribery and other high crimes and misdemeanours”.  These terms are not further defined, and there have been no removals from office by impeachment to provide any precedents to further clarify what constitutes an impeachable offence.  Nonetheless, constitutional scholars generally agree that a betrayal of the “public trust” is what characterizes grounds for impeachment.  And what trust did the US public place in Donald Trump?  He is coarse and corrupt in all things, both intentionally and inadvertently, and has always been so.  It is not unreasonable to argue that his conduct in his dealing with Ukraine, like all of his questionable conduct to date, is not outside of what the electorate could reasonably have expected of him when they elected him.  The public, one could argue, had no reasonable basis to trust that the would behave otherwise.

Whether they are explicit in acknowledging it or not, I suspect that this will be justification that Senate Republicans cling to when they ultimately and inevitably acquit President Trump.  A small price to pay to make America great again.

THERE IS NO DEBATE: WE NEED COMPULSORY VOTING

There has been much consternation about the small number of leaders’ debates in the run-up to next week’s federal election.  There were only two that included all six of the Party leaders, one in French and one in English.  While there had been only two that included all party leaders in 2015, there had been a total of five that included the leaders of the three major parties.  Many were and are incensed at the paucity of opportunities to see the leaders debating head-to-head this time around.

They needn’t be.  I watched both debates.  They were awful.  They were disappointing.    They were uninspired.  They were uninformative.  They were disheartening.  And it wasn’t just the format.  The largely inaudible cacophony of the English debate was avoided in most part in the French language debate by both the firm hand of a single moderator and the segregation of the leaders into groups of three in addressing questions.  However, even with more order, and even where the questions posed to the leaders managed to rise above the usual opportunities for insipid virtue signalling, the substance of the answers offered by the leaders lacked nuance or insight that would allow a truly undecided voter to draw any basis for differentiation.

The most commonly asserted reason for the seeming poor quality of the choices that we are offered is the nasty nature of politics today.  It seemed that politicians used to migrate from successful careers in law, business or academia later in their career, bringing with them adult experience in an area of achievement other than politics.  Today, experience brings with it history, and history can include contradictions, lessons learned and unguarded moments that can be used, both fairly and unfairly, to distract from then current personal convictions and policy positions.  So instead we end up with career politicians, whose actions and personas have been constructed since adolescence, at least in theory, in anticipation of the unforgiving gaze of politics.  It is undeniable and patently evident that polls and focus groups have filled the void left by the lack of relevant experience in establishing policy priorities.

Add to this reality the advent of Big Data.  All political parties now have access to data that they believe allows them to stratify the electorate and identify with pinpoint accuracy those voters whose support they can be certain of and those who are truly available to be swayed by a political campaign.  And all, it seems, have concluded that the size of the former far outstrips the latter.  Accordingly, campaigns have come to be far more an exercise in rallying the decided voters to the polls than swaying the undecided or, heaven forbid, changing the minds of the least ardent supporters of an opposing party.  So, debates are exercises in polemic posturing, without respect for or admission of the complexities of any of the issues before the electorate.

While there is no quick fix that will bring leaders with broader experience back to politics, there is at least one measure than might go some way in curbing the inclination of party leaders to preach only to the converted.  And that measure is compulsory voting.

In proposing compulsory voting, I am not suggesting that we make abstaining from voting punishable by fines or imprisonment.  We extend a carrot, not a stick.  Citizens of voting age are made eligible for a meaningful but not extravagant refundable tax credit on their federal and provincial tax returns on the basis of each election held in that taxation year in which the voting data shows they voted.  They can exercise their vote as solemnly or frivolously as they like; they can spoil their ballot if they so choose.  But if they show up at the polling station and receive a ballot, they get the credit.

So how would compulsory voting improve the quality of election debates and the tone of political discourse generally?  By eliminating the incentive for parties to use the campaign as a tool to get out the vote, they will be more inclined to use it as an opportunity to bring undecideds and more weakly attached voters to their camps.  And to do so, their pitches would necessarily be more nuanced, more respectful of contrary viewpoints, and generally more thoughtful.

And maybe, just maybe, some young man or woman of substance and conviction will in the not so distant future watch an election debate and see a respectful and insightful exchange of ideas in which they would someday like to participate.