From The Street...
Tuesday, July 29, 2003
What I am reading
Books include The Short History of Nearly Everything, by Bill Bryson, a readable-by-civilians history of science.
The Sainted Mamoo used to say "Someday They Will Look Back on These Times as Barbaric”. Seeing how little we really know about the basics of most everything (the Universe, the history of the Earth, animal species development, bacteria, human behavior, more) – and how only recently we discovered amazing things that completely reversed/negated previous “Scientific Wisdom” – it is clear She Was Right Again.
The Bond Book – Just starting to understand how they work as the bond market now crashes; interest rates go up, bond prices go down. Hmm… Recent advice has been when gold was $340 on July 17th, to buy gold. When it got above that price, buy more. It is up 30% since then…Hmm…
I thoroughly enjoy The Daily Reckoning, Mogambo Guru, Gildertech, David Isenberg’s Smart newsletter, John Mauldin’s weekly newsletter, the Drudge Report, Lucianne Goldberg, Victor David Hanson’s stuff on National Review on line, the Weekly Standard, and the American Spectator on line.
I listen to internet feeds of Rush Limbaugh live, iTunes Radio classical stations, and Chicago Cub games on MLB.com - The graphical descriptions of Gameday on that site (free, I think) while listening to WGN audio (pay) are better than TV and, of course, better than being there.
My Foodie interests get worked over with recipies and how to videos from America’s Test Kitchen, www.epicurious.com, FoodTV.com, and www.recipesource.com. And video clips of Lidia doing Her Own Bolognese…
France and the US…not so different?
Bill Bonner, of the Daily Reckoning, now lives in France
and recently, in a non-political, non-polemic way, has been…
“…comparing America and France. Our point has been that
the two nations are not nearly as far apart as they think:
In France, a much larger percentage of the GDP is spent by
the government than in the U.S. - 53% compared to 32%. But
the difference is smaller than it appears, because in
France, health and education are almost exclusively run by
the government, and workers in these industries are on the
government payroll. Government also has a big position in
the transportation industry in France. The trains, the
metro... even some trucking business is done by state
employees.
And here we run into one of those delicious little
confusions that keep life interesting. The average person
in France would say that health and schooling are 'free' in
France, but expensive in America. Whereas the average
intellectual in America would say that they are 'free' in
America but state-monopolies in France. In both cases, the
word 'free' makes them sound like a good thing. But in both
usages, it would be a complete lie. For in France, the
services are hardly free; they are paid for by taxpayers.
Nor are they free in America, in the American sense; both
health and education have so many government strings
attached that they resemble state-run industries. Just talk
to a doctor or to a school teacher. You will find few
differences between one in Paris, France and one in Paris,
Texas. Both take the guff of centralized bureaucrats and do
as they are told.
And which system is better? Your editors have tried both.
We have sent our children to French schools and American
ones. "The hospital here was much better than the one in
Baltimore," says Addison, whose wife just had a baby in
Paris. "But it was the American Hospital."
We see differences, but no clear winners. Maybe the U.S.
health system is more advanced, but the French live longer.
When the costs of health care and education are added to
government spending in America, the resulting percentage of
GDP is within a few percentage points of the French total.
Americans spend about 14% of their GDP on health. They
spend nearly another 3% or so on post-secondary education.
They don't spend much on train tickets, because the trains
in America don't trundle anywhere Americans want to go.
Government debt in America is 70% of GDP. In France, it is
60%. Private debt, by contrast, is 162% of GDP in America.
We don't know how much it is in France, the number seems
impossible to find, but we'll bet it's a lot lower. The
French don't even have credit cards; they use debit cards.
And the idea of refinancing a mortgage in France is almost
absurd.
On one side of the Atlantic, the newspapers rant about the
'ruthlessness' of American capitalism. On the other, the
papers rag about the 'rigidity' of French socialism. But on
both sides of the great oceans, throughout the entire 20th
century, the high tides of central planning, paper money,
debt and social-welfare promises slapped the shore in the
same corrosive way. The maligned ideas of German
intellectuals and French philosophers drifted across the
North Atlantic in a matter of weeks. Soon, both continents
were drenched in politics... until every sod in the nation
depended on the runoff of money from Paris or Washington,
and was ready to vote for whichever clod promised more.
Almost no matter where you are in the modern world, for
every transaction, there is a tax. For every act, there is
a regulation. And for every idea held by the masses, there
is a massive fraud.
"It's the whole system of social protection put in place by
Bismarck at the end of the 19th century that we have to
take a look at," professor Peter Losche of the University
of Göttingen was quoted in Le Monde, explaining why the
whole shebang is doomed.
"If we change nothing, it will be necessary to pay 2/3rds
of our salaries in order to support the [government's]
health, retirement and unemployment systems."
And thus we come back to the printing press in Washington's
basement and America's unique situation at the debut of the
21st century. It is the Dollar Standard that separates the
U.S. from France, and gives Americans an immeasurable boost
towards ruination. While California and France are being
forced to come to terms - honestly or dishonestly - with
their predicaments, the U.S. still has the world's reserve
currency.
Americans have had the rest of the planet bamboozled; the
foreigners sent them nearly $2 billion worth of goods and
services, every day, even though Americans couldn't afford
them and had nothing to give in return except little pieces
of green paper. The poor huns, frogs and wogs... it cost the
U.S. Bureau of Printing and Engraving less than a penny to
produce a dollar bill, but the foreigners took it as though
it were worth a hundred of them.
The dollar undergirded all of America's good fortune. Upon
it rested the whole hullabaloo - the lopsided trade, its
effervescent markets, its national and private debt. An
entire generation of Americans had come of age with the
strong dollar. They took it for granted that the strong
dollar, like the Rolling Stones, was neither cyclical nor
circumstantial, but eternal.
The American dollar broke records. There was nothing else
like it in the world. There was nothing like it in history.
It seemed even to defy God Himself. For God had planted his
own 'money' in the Earth, scattering a bit on the surface
and more deep down, where it was hard to get out. For
thousands of years, ever since there was money, gold had
served as money. And who complained about it? The yellow
metal couldn't be bribed, flattered, seduced, or
flimflammed. Nor did it interrupt dinner with moronic,
self-serving announcements. It said nothing. It went
nowhere. It held no press conferences and no opinions. For
centuries, it just sat there, as quiet and serviceable as a
graveyard.
But since 1971, Americans seemed to have no use for it;
they had invented something better.
Men had previously appreciated gold because it was hard to
come by - in fact, the world's supply of it increased
almost in exact proportion to the growth in the world's
other goods and services. In the time of Christ, a Roman
could buy a respectable suit of clothes for about an ounce
of gold coin. So could an American 2000 years later.
But the dollar was an improvement on gold, they believed,
for precisely the opposite reason: because they could
create an infinite quantity of them. In effect, Americans
thought the dollar gave them a line of credit that was
inexhaustible... and a credit card that never had to be paid
off.
America has become "the world's mouth," said a source
quoted by James Grant - the ultimate consumer, ready to eat
up the world's excess production like a fat man going to
work on a pile of cream puffs.
"We can pay off anybody by running a printing press," said
Thomas Gale Moore, a member of the president's Council of
Economic Advisers. He was speaking in the late '80s, just
about the time the U.S. net international investment
position slipped below the waterline separating debtor from
creditor. In the beginning of the great boom in 1980, the
U.S. enjoyed a net positive investment position of about 7%
of GDP. By the end of the century, the nation was soaked in
debt, with a net negative position equal to 25% of GDP.
"Frankly," Moore continued, with Bernanke-like candor,
"it's not clear to me how bad that is."
Here at the Daily Reckoning, it is not clear to us either.
But give us time. Our hunch is that the cracks in this
Dollar Standard system are spreading. Within another 10
years or so, the whole thing may fall apart.
Already, dollars spent by Americans end up stimulating
economic development - not in the homeland, but abroad.
Overseas competitors, with much lower labor costs, little
debt and few of Bismarck's promises to keep, become more
and more able competitors with every dollar spent.
Meanwhile, Americans sink deeper and deeper into the debts
they thought they'd never have to pay.
But every bill gets paid somehow. If not by the
borrower... then by the lender.
Bill Bonner”
China earns 2-1/2%
From The Daily Reckoning
-----------------------------------
Next to exterminating male members of the Hussein line, the
Bush administration has made economic recovery a top
priority. To that end, it has given the nation a tax cut,
expected to provide an economic stimulus equivalent to 1.6%
of GDP.
Too bad so much of the stimulating is done overseas,
particularly in China.
For if an American consumer has an extra dollar in his
pocket, about 2 and a half cents of it will end up in
Chinese hands. That may not seem like a lot of money, but
it is more than the return from money market funds, more
than the inflation rate, more than twice the Fed funds
rate... and more than $200 billion dollars a year.
And the Chinese know how to get even more money; they just
have to build more factories, hire more people and produce
more and better goods - all the things that the tax cut was
supposed to stimulate in America.
Likewise, lower interest rates were supposed to stimulate a
recovery in America. What they have actually stimulated is
mortgage refinancing... which permitted Americans to spend
more... which allowed them to buy more goods from
China... which put more money in Chinese hands, stimulating
their businessmen to compete even more with U.S.
enterprises... !
Foodie Days...
I’m back in Chicago for a short while, and reliving foodie memories of my youth. Even ethnic neighborhood food has become almost ubiquitous around the US. The six varieties of frozen Johnsonville (Wisconsin) brats in cases at WalMart in Arkansas compare pretty favorably to “real” homemade fresh brats from a small Wisconsin butcher. But authentic Italian, Kosher, Greek and Chinese food is just nowhere to be found at retail or in restaurants in NW Arkansas.
Revisiting my earlier life neighborhoods in the southwestern Chicago suburbs, I quickly OD on White Castles, Fried Perch, Italian Beef Sandwiches, and such. Then several visits to Czech restaurants for Svechkova, Breaded Pork, and Dumplings and Cabbage. And then a visit to a Real Italian Deli for goodies unknown in Arkansas, like pancetta and dry salami and Arborio rice for risotto, and Fresh Mozzarella; all practically unknown south of St. Louis.
And wine stores the size of small Wal-Marts. Madrone. Stuff I bought for $19 in Hong Kong in 1987 is now “featured” at $199. But some old favorites, seldom seen stuff and a few bargains. Amazing selections.
And in Chicago’s Cermak Road Chinatown – REAL Szechwan stuff from a guy from Chengdu who laughingly understands most of my rusty Mandarin. Ton Ton Mien, spicy peanut hot-sauced noodles, to die for.
Bull Shoals is a good market for restaurants – a buyer’s market. The two drive-ins are openly for sale, and the pizza place rumored to be. The next-door town has three failed boarded-up places, with fading Catfish/BBQ/home cooking signs covered by Real Estate Agent phone numbers.
You can go home again, at least to eat…
Friday, July 18, 2003
Getting Fired...
I've been fired and I've resigned but most times the result was somewhere in between. Taking a quote from a recent apologia and refilling the blanks is instructive. Could even happen to the nicest of ladies who might use this excuse for getting canned:
"...it came at a time when I, coming in as the change agent to raise the creative metabolism of the company to make it more performance-oriented, was increasing demands on the staff at the same time that for budgetary reasons we were not expanding the staff as fast as we should be and I should have been quicker to recognize that I was more and more putting tremendous work pressures on this staff, which responded wonderfully. I worked them too hard and didn't rest them enough...the young engineers in the department felt that I had pushed the expectation level too high for effective performance. That's probably my saddest moment as President."
Two things sprang to mind, an image of the sad and confused plantation owner porch-rocking with a Julip musing about his exhausted, underpaid, and rebellious slaves, and the cowboy wisdom - "The first thing to do when you get somewhere is take care of the horse you rode in on". Having failed to take care of those she rode in on, she was destined for an even rougher ride toward this Eldorado of "competitive excellence."
Monday, July 14, 2003
Fishing...
I finally found a friend with a boat and some experience in fishing in the Lake.
"How about 5am...I like to go fish for a few hours and then go take a nap...". J, the barber, has been here for eighteen years and is on wife number four. I like experience. I lack experience. In all these areas.
"Well, sunrise isn't until 602 today" I offered. "Don't want to trip in the dark and drown getting the boat off, haha". We compromised and at 545 we put off in the emerging dawn from the marina in a simple outboard aluminum fishing boat; complete with his box of lures and hooks and a couple of rods and reels and my two dozen night crawlers.
The Lake is beautiful. The pink sunrise in the east is offset on the western horizon by the steeing Full Moon. Little wind. High Clouds keep the heat from the rising sun subdued. Fish are (really) jumping as we troll the first of several areas. No people, boats, buildings – nothing but limestone cliffs and caves and forest right down to the shore.
“Fish here like shale. Don’t go wasting your money on minnows. Lures that look and act like shale work. But you gotta catch them yourself; they don’t sell shale. Must be a trillion shale in this Lake.” Also not getting much attention were my night crawlers, kernels of corn and marshmallows…
In true Sportsman fashion, we Released All We Caught. Translated that means we caught one smallmouth bass, not long enough to keep. Tired a bunch of places…sitting still…then trolling silently with an amazing little 3 HP electric motor. No fish, but a priceless morning…
“Ya know, guys who fish a lot, they catch their limit maybe one time in ten…”. The old 80/20 rule. Like Good Golf. Like Most Everything: Do a lot of it and You Get Good.
J. and Wife #4 have cleaned houses, carried out groceries, and done most everything to get by here, coming down from Michigan 18 years ago. “First social security check arrives Wednesday” he says with a grin. He sells pipes and cuts hair about 20 hours a week.
Lotsa worms left over. “You could go down to the pier with those and go for pan fish,” he explains kindly. “Use about a #6 hook, with a lead weight and a bobber about 5 feet up.”
“Best thing I ever did was coming down here..should have done it long ago”.
I am defrosting pork chops for the grill tonight. I wonder how long the worms will last in the vegetable crisper…
Sunday, July 13, 2003
Euros no longer kissing, much less cousins...
We are less like the Euros....thank God. We work more. More of us work. We're more productive. Centralization does not work well here any more; in Euro, it is all the rage. Brussels fellas are setting specs and rules on all sorts of cultural and commercial processes and practises.
This from TCS.
============================
Kissing Cousins No More
by Christian D. de Fouloy [ 07/10/2003 ]
In a great variety of areas -- foreign policy, demography, religion, economics -- Americans and Europeans are growing apart.
Some Europeans complain that the U.S. is increasingly heading off on its own without them. They are right. America's psychic link with Europe is dissolving rapidly. There are 32 million people living in the U.S. who were born abroad, and very few of these new Americans are from Europe. They come from Asia, Central and South America, the Near East and the Caribbean. America is becoming a cosmic nation comprised of all peoples rather than just an offshoot of Europe.
Since the end of the Cold War, Americans have felt less intertwined with Europeans, and at least as interested in China, Mexico, India and the Middle East as in Europe. Americans believe that those relationships will grow in importance while Europe will slowly fade in the rear-view mirror, its greatest accomplishments behind it.
The U.S. will never be hostile to Europe: there are too many links of kinship and shared purpose for that. But commonalities between America and Europe are disappearing and the feelings of solidarity that were so strong during World War II and the Cold War are now fading.
In the U.S., the main focus has been to reduce centralism and the size of government. In the 1980s, U.S. federal spending was 24 percent of GDP. Today, it is 19 percent. That is only half or two-thirds the level in most EU states, where levels have been rising not falling.
The U.S. has undergone an even more profound decentralizing revolution outside of government. Many private corporations and organizations have broken themselves into smaller governing units to avoid stultification. Firms such as Cisco, Southwest Airlines, Amgen, Microsoft, Nucor -- most of them beginning as tiny businesses unconstrained by bureaucracy -- have used their decision-making freedom to outflank older champions. Sitting high on current lists of the richest Americans are at least a couple dozen billionaires who made their fortunes in companies that didn't even exist 25 years ago. In Europe, hardly any of the top companies are recent start-ups.
It isn't just differing policies that are splitting the EU from the U.S. It is also sheer competition. The very idea of forming a United States of Europe comes in large measure to keep up with America. Today, much of the psychological drive for Euro-nationalism is provided by anti-Americanism. The view of many European leaders is that whatever diminishes the stature of the U.S. is of benefit to Europe. Europe is not begging to differ in particulars but beginning to diverge in fundamentals.
Conventionally, we have thought of Europeans as having about the same standard of living as Americans. This is less and less true. For the EU as a whole, GDP per capita is presently less than two-thirds of U.S. levels. America's poorest sub-groups now have higher average income levels than the typical European.
What's behind this? For one thing, Americans work harder. Some 72 percent of the U.S. population is at work compared to only 58 percent in the EU. And U.S. workers are more productive: An EU worker currently produces 73 cents worth of output for every dollar produced by an American.
The locomotive of Europe is the German economy, which has been in a serious mess for more than a decade. Germany's annual growth rate over the past 10 years has been a limp 1.4 percent. Among the major industrial nations, only Japan has done worse. The German labor market has become one of the most inflexible and uncompetitive in the world, which is why unemployment has been stuck at 9-10 percent for years.
German sclerosis is one reason the collective European economy is growing at 1 percent, while the U.S. -- despite the blows it has absorbed over the last two years -- is close to 3 percent.
Over the long haul, these sorts of disparities add up to crunching economic divergences. Since 1970, America has produced 57 million new jobs. The EU nations, with an even bigger combined population, have produced 5 million (most of them with government). A startling 40 percent of the unemployed in Europe have been out of work for more than a year compared to only 6 percent in the US.
Indeed, it is clear that the U.S. makes very different economic choices with different results. Michael Gove in the Times of London noted last year that the "anti-American alliance" resents U.S. economic success because it reminds them that their preferred cocktails of protectionism, state regulation, subsidy and intervention constrict growth. America's practical success is a standing rebuke to their abstract beliefs.
Just 100 years ago, the U.S. was a modest nation of 76 million people. Germany and Poland combined had more citizens than America. Europe was the undeniable world centre of science, military power, arts and intellectual innovation of all sorts.
Today the respective positions are very different. The U.S. now produces 30 percent of global GDP; as recently as the late 1980s, the figure was just 22 percent. Fully half of all Internet traffic takes place in America. Three quarters of all Nobel laureates in science, medicine and economics have lived and worked in the U.S. in recent decades.
Given the very different population trends on either side of the Atlantic, America's lead will only widen.
It's quite possible that in coming decades, the EU could simply lock up. Pressures toward centralization and state bureaucracy, the sheer cumbersomeness of its political mechanisms, the wide cultural gaps papered over by the Union could eventually lead to a meltdown.
To American eyes, the most striking aspect of the EU is its undemocratic nature. Relatively few of the EU's important decisions are currently made by democratically accountable officials. On front after front, bureaucrats are deciding how everyday Europeans will live. Many Europeans, in a way Americans find impossible to understand, are willing to let their elites lead them by the nose. There is a kind of mentality under which the elites are allowed to make important national judgments for them. In France, Germany and the institutions of the EU, elites take major political decisions and impose them on the voters without consulting them.
What happens to such a system of governance if things go wrong and popular unrest bubbles up is not clear. Among other effects a weakened Europe is likely to grow more resentful toward America. In the years to come, it will be China, India, Mexico, Indonesia, Brazil, Vietnam, the Arab World and Turkey that the U.S. will have to huddle with most earnestly at international conclaves, not Europe.
Frankly, those are not the circumstances most Americans would prefer. By rights, Europe and America ought to remain close cousins. But Europe's current choices in political, economics, social and family life and moral reasoning unmistakably suggest that a less familial relationship is emerging.
Christian D. de Fouloy is a Senior Research Fellow at the European Enterprise Institute (EEI).
Copyright © 2003 Tech Central Station Europe - www.techcentralstation.be
Bill James Baseball Basics...
Much of Billy Beane's work is based on legendary Bill James, who came up with many unique insights into baseball and "revolutionized' sabremetrics...the science of baseball statistics.
Some extracts from Baseball1.com
==============
Extracted from The Bill James Baseball Abstract 1988
Ballantine Books, New York
Copyright 1988 by Bill James
"What I wanted to write about... is a very basic question. Of all the studies I have done over the last 12 years, what have I learned? What is the relevance of sabermetric knowledge to the decision making process of a team? If I were employed by a major-league team, what are the basic things that I know from the research I have done which would be of use to me in helping that team?"
Minor league batting statistics will predict major league batting performance with essentially the same reliability as previous major league statistics.
Talent in baseball is not normally distributed. It is a pyramid. For every player who is 10 percent above the average player, there are probably twenty players who are 10 pecent below average.
What a player hits in one ballpark may be radically different from what he would hit in another.
Ballplayers, as a group, reach their peak value much earlier and decline much more rapidly than people believe.
Players taken in the June draft coming out of college (or with at least two years of college) perform dramatically better than players drafted out of high school.
The chance of getting a good player with a high draft pick is substantial enough that it is clearly a disastrous strategy to give up a first round draft choice to sign a mediocre free agent. (see note #1)
A power pitcher has a dramatically higher expectation for future wins than does a finesse picther of the same age and ability.
Single season won-lost records have almost no value as an indicator of a pitcher's contribution to a team.
The largest variable determining how many runs a team will score is how many times they get their leadoff man on base.
A great deal of what is perceived as being pitching is in fact defense.
True shortage of talent almost never occurs at the left end of the defensive spectrum. (see note #2)
Rightward shifts along the defensive spectrum almost never work. (see note #2)
Our idea of what makes a team good on artificial turf is not supported by any research.
When a team improves sharply one season they will almost always decline in the next.
The platoon differential is real and virtually universal
Notes:
Major league teams still must surrender choices in the amateur draft in exchange for signing free agents.
The defensive spectrum looks like this:
[ - - 1B - LF - RF - 3B - CF - 2B - SS - C - - ]
with the basic premise being that positions at the right end of
the spectrum are more difficult than the positions at the left
end of the spectrum. Players can generally move from right
to left along the specturm successfully during their careers.
=============================
Monday, July 07, 2003
Moneyball by Michael Lewis is a great book. Here is a review -
====================
Michael Lewis's book on baseball may be the best book ever written on business.
by Mark Gerson
07/07/2003, Volume 008, Issue 42
Moneyball
The Art of Winning an Unfair Game
by Michael Lewis
W.W. Norton, 288 pp., $24.95
AFTER BEGINNING his career on Wall Street, Michael Lewis turned to writing and focused his ironic sensibility on the world of commerce. His memoir of the bond-trading business, "Liar's Poker," has become a Wall Street classic--and rightly so. But his most recent book, "Moneyball," is the best business book Lewis has written. It may be the best business book anyone has written.
Focusing on Billy Beane, the general manager of the Oakland Athletics baseball team, "Moneyball" tells the story of how someone considers his business in an entirely different way from his competitors--and achieves consistently outsized returns.
Of course, the fact that Beane works in baseball helps make "Moneyball" so compelling, but anyone in business can derive lessons from the book. The central question asked and answered in "Moneyball" is, How can the Oakland A's consistently be at the bottom of the league in payroll and at the top of the league in performance?
One answer is, essentially, luck. That's the answer of Commissioner Bud Selig and the blue-ribbon panel (with George Will, Paul Volker, George Mitchell, and Richard Levin) he commissioned to study the issue of payroll parity. Given the abundance of baseball information and its transparent distribution to countless participants and observers, the market for baseball players should be perfectly efficient--which means, absent luck, teams that can afford to sign the most expensive players will win, and teams that cannot afford expensive players will lose. The solution is payroll parity, which can be achieved through a mechanism like a salary cap or a tax on high-spending teams.
But perhaps the market isn't as efficient as we think. According to Billy Beane, most of the criteria baseball people use to identify a valuable player are overrated or simply wrong. And most of the criteria they should use are underrated or simply ignored. Beane's competition uses a combination of conventional wisdom, sentiment, and superstition, allowing Beane to get the players that he wants for low prices and to trade the players that he does not want for high prices. As Paul DePodesta, Beane's twenty-eight-year-old Harvard-educated protégé, says, "What gets me really excited about a guy is when he has warts, and everyone knows he has warts, and the warts just don't matter."
Most general managers are excited by great high-school athletes; Beane won't look at them because high-school competition is too variable for its statistics to be meaningful. Conventional wisdom holds that it is important a prospect "look like" a baseball player; Beane, who tells his scouts they aren't "selling jeans," believes players who can get on base come in all sizes. Conventional wisdom holds that good "closers"--the pitchers who finish games for teams--are worth millions of dollars. Beane's analysis has not uncovered anything remarkable in retiring the final three batters for a team that's ahead. So he has twice had pitchers accumulate many saves, become regarded as outstanding closers, and traded them to teams who valued this contribution a lot more than he does.
Most baseball people believe in "manufacturing runs" through bunting, base stealing, and the hit and run. Beane believes that staying on base is the important thing. His analysis shows that stealing bases only contributes to a team's "expected run value" when it is done successfully 70 percent of the time--which only very rare players can do. So Beane will trade a fast player for a guy who can get a walk. Working the count for a walk might not be conventionally regarded as a glorious activity, but it is a beautiful thing to Billy Beane, who says, "Baseball is a game of attrition. And what's being attrited is pitchers' arms." No wonder Oakland A's pitcher Tim Hudson referred recently to a thirteen-pitch duel that ended in a home run as "the best at-bat I've ever seen."
And who is often best at working a count? Beane has determined that the last skill to disappear is the ability to get a walk--so he will happily use older and cheaper players whom other teams have discarded. Sure, they are slower as fielders, Beane concedes, but there is a greater variance in on-base percentage than in fielding--making the difference between getting on first base and not getting on first base greater than making a defensive play and missing it.
Part of Beane's success comes from his identification of discrepancies between how conventional wisdom regards statistics and how he, through careful mathematical analysis, regards them. The other part comes from his invention of entirely new statistics that reveal previously unknown truths about the game. For instance, Beane and DePodesta ask how the term "double" can fairly describe both an unfieldable shot against the wall and a blooper to left that a less forgiving scorekeeper might have considered an error on the outfielder. According to Beane and DePodesta, it can't. They consider instead the alleged double as a hit at a certain velocity and trajectory to a particular point on the field. They then examine ten years of balls hit at the same velocity to the same point, which yields a much better idea of the "expected run value" of the hit than the lazy classification of "double" allows.
Beane and DePodesta learned about valuing hits from former derivative traders, and they learned about evaluating pitchers from Voros McCracken, an unemployed paralegal living with his parents at age twenty-eight. McCracken, a fantasy-baseball player who was active in sabermetrics websites, was intrigued when someone in an Internet discussion group said that it was impossible to distinguish pitching from defense. After all, a pitcher's earned run average--the conventional statistic for evaluating pitchers--doesn't (aside from errors) account for the fielding that can allow or prevent runs. So the world needed a new number, and McCracken provided it in an essay on baseballprospectus.com. He flushed out the fielding from pitching statistics by dividing hits and earned runs (for which fielders are partially responsible) by walks, strikeouts, and home runs (for which fielders are not responsible). Examining the numbers for 1999, McCracken determined that the five best pitchers were Randy Johnson, Kevin Brown, Pedro Martinez, Greg Maddux, and Mike Mussina--which, as the obviously right result, suggested the theory worked. And the practice worked for Billy Beane. On its basis, he snagged the pitcher Chad Bradford, who, because of his unconventional delivery and his slow fastball, was not highly valued by any other team.
Why would Billy Beane give Michael Lewis such access and thus allow his secrets to be shared with his competitors? Lewis doesn't say, but there are a couple of possible answers. The first is that other teams are already beginning to get it. Boston Red Sox owner John Henry, who made a fortune off inefficiencies in the commodities market, tried to hire Billy Beane away from the A's and did hire Voros McCracken as a pitching analyst and Theo Epstein, a twenty-eight-year-old Yale graduate, as his general manager.
Still, baseball's conventional wisdom is so deeply embedded that it is unlikely to be swayed merely by the truths in "Moneyball" that challenge it. The sports section in the New York Times retains the ultimately meaningless batting average as its first and most prominently displayed statistic--and doesn't list the leaders in slugging percentage or on-base percentage.
At the end of the 2002 season, several players on the A's questioned the strategy that brought them to the playoffs against all conventional wisdom. Joe Morgan, arguably the greatest second baseman ever to play, said that it was not surprising the A's lost to the Twins in the playoffs, because Beane's team didn't manufacture runs and insisted on depending on walks and home runs. In answer, DePodesta showed how the A's scored an average of 0.6 runs more per game in that playoff than they did during the regular season. The problem was that the A's' ace Tim Hudson had two terrible outings. As a dejected Beane reflected, "My sh--t doesn't work in the playoffs. My job is to get us to the playoffs. What happens after that is the f--ing luck." Beane's strategy succeeded in its intention: to generate the 800-820 runs and give up 650-670 runs for a total of 95 wins, so as to make the playoffs. It is a long-term strategy, with no solution to the playoffs' short-term vicissitudes. Luck, as Branch Rickey said, may be the residue of design--but it's still luck, and it persists.
I bought copies of "Moneyball" for around twenty of my company's employees. Anyone in business who sees how Beane has won so many games with so little money will be either inspired or frightened. If the market for baseball players is not efficient, then no industry can be safely considered efficient. And inefficient markets create opportunities for people who think in new ways. Billy Beane is a baseball genius, but it doesn't take a genius to follow his example and start asking the right questions. Is the employee who made a good first impression genuinely performing better than his peers? How much is that product line that gets such good press actually contributing? Is that popular "brand-building" campaign really generating a lot of cash? How and why does our company actually make money? Do our compensation and promotion policies correspond precisely with that answer? What is the return on the cost of the baseball season tickets our company has?
Perhaps that last question explains why Bud Selig is not a Billy Beane devotee.
Mark Gerson is CEO of the Gerson Lehrman Group, a New York-based investment research firm.
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