What Daniel Davies Learned In Business School

Now as readers of this blog are surely well aware, the Privateers have said many things that are untrue or designed to mislead. But as I noted earlier today all these little fibs and deceptions aren't merely incidental. Let's quote Frank Luntz, privatization strategist-in-chief, once again:

If Americans think you want to protect and enhance their retirement security, they'll back you. If they think you want to reduce their benefits, for ANY reason, they'll oppose you.

Now suffice it to say that while honest privateers have what they think are good reason for favoring benefit reductions (namely, this is the only way to forestall tax increases that they regard as intolerable) they do, in fact, want to reduce benefits. According to privatization's strategic maestro, the only way to accomplish this is to lie about it. Perhaps "lie" is too harsh. But the plan is to mislead. Which is a good time to revisit Daniel Davies' One Minute MBA: Avoiding Projects Pursued By Morons 101 explaining how he foresaw what so many liberal hawks did not, to wit: that the Bush administration would fuck everything up in Iraq. Key excerpts:

Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.

Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies' point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren't, really, all that fantastic. . . .

Fibbers' forecasts are worthless. Case after miserable case after bloody case we went through, I tell you, all of which had this moral. Not only that people who want a project will tend to make innacurate projections about the possible outcomes of that project, but about the futility of attempts to "shade" downward a fundamentally dishonest set of predictions. If you have doubts about the integrity of a forecaster, you can't use their forecasts at all. Not even as a "starting point". By the way, I would just love to get hold of a few of the quantitative numbers from documents prepared to support the war and give them a quick run through Benford's Law. . . .

The Vital Importance of Audit. Emphasised over and over again. Brealey and Myers has a section on this, in which they remind callow students that like backing-up one's computer files, this is a lesson that everyone seems to have to learn the hard way. Basically, it's been shown time and again and again; companies which do not audit completed projects in order to see how accurate the original projections were, tend to get exactly the forecasts and projects that they deserve. Companies which have a culture where there are no consequences for making dishonest forecasts, get the projects they deserve. Companies which allocate blank cheques to management teams with a proven record of failure and mendacity, get what they deserve.

Daniel also picked up this important tidbit in accounting class:

[T]he difference between "making a definite single false claim with provable intent to deceive" and "creating a very false impression and allowing it to remain without correcting it" is not one that you should rely upon to keep you out of jail.

That's really all I have to say about that. Summing it up, however, if privatization's so great, why do its advocates deem it vitally important to lie about its crucial provisions in order to make it work? And, granted the details of policymaking are important, why would you think that a bunch of liars would do a good job of getting the details right?