What’s an Engineer Got That a Banker Doesn’t?
We had the crash of 1929 and then the Depression. We had the crash of 2008 followed by who knows what. The reasons for what happened reach far and wide, but “mark-to-market” accounting rules have been postulated by many financial experts as responsible for a fair amount of the blame. Mark-to-market, designed in the 19th century for and by commodity traders, is not a new concept. Put to use in other businesses (notably the banks) in the early 1930s, it was subsequently repealed by President Roosevelt in the late ’30s because economists had figured out it was a culprit in prolonging the Depression. However, the Financial Accounting Standards Board reinstituted the rule in 2007 and the rest is history. Did they learn anything from the previous experience? One would have to say no. Oh, and they just relaxed the rule a few weeks ago, after having wiped out trillions of dollars of investor worth.
What explains the rapid evolution of technology as opposed to finance and social development? Do engineers come from a different gene pool? Do they have better reading skills? Do they eat more veggies or add Wheaties to their diet at an earlier age? If we do figure out why technology progresses faster can we apply those lessons to financial and social issues? Or are we stuck with Ponzi schemes forever?
Perhaps first and foremost, technological problems lend themselves to getting a right answer. And it is easy to figure out when an answer is right because the objective measure is usually straightforward. In the case of DRAM integration, it was how many hours can it run without an error. Three hours was a wrong answer, while 300,000 was the right one. End of story. It is great to be able to say that technique “x” is correct and “y” is a failure. Meanwhile, we as a species still debate socialism vs. capitalism, mark-to-market rules, executive pay, proper tax rates, etc.
Second, the marketplace is completely unforgiving of bad products. The failure mechanism is a natural occurrence; people just stop buying the product. The manufacturer can either correct the deficiencies or go out of business. That turns out to be a very powerful incentive to get it right. In the natural course of technological evolution, products go from being innovative to rejected by the marketplace. It is unlikely that buggy whips will reappear in great numbers anytime soon. But why did mark-to-market accounting reappear after its highly unsuccessful debut in the ’30s?
The third difference is the way we transfer knowledge from one generation of practitioner to another. There is the written word consisting of books, learned journals, application notes, etc. This method is common to everyone. However, technologists have two huge advantages. First, in the case of documents, successful technologies and products have strict revision control, which means that changes as to why and what is done to either enhance the product or fix a bug are recorded. By creating documentation of the changes, the engineer has some confidence that what he is looking at actually represents something that works. Contrast that to the TARP and budget bills recently passed by Congress where many of the members admitted voting for them without ever having read them. There is also the issue of physical reality. When you design a new system using a released set of parts, you can hook them up incorrectly. But what you cannot do is alter the insides of those parts and negate the work of those who came before you. There is not a whole lot of room for interpretation. Contrast that with the U.S. Constitution, a document subject to judicial interpretation and very much affected by the temperament and mindset of a judge.
In 1929, cars were unreliable and belched all sorts of noxious fumes into the atmosphere. Computers did not exist. Airplanes were slow and unsafe. Movies had just recently gotten sound. TV and FM radio did not exist. The iPod and cell phone were misspellings. DNA was just three letters and genetics non-existent. The stock market crashed and we were on our way to a depression.
In 2009, cars are reliable and produce little noxious gases. There are billions of computers in the world, especially when you count the ones in cars, thermostats, cell phones, etc. Airplanes are fast, safe, and affordable. Home entertainment centers have surround sound and quality so good you think you are in the movie theater. TV is digital and FM is everywhere. Close to 200 million iPods billions of cell phones have been sold. The human genome has been sequenced multiple times, and the stock market crashed. Many argue that we are headed for a deep recession, if not depression. It seems more than obvious to me that we need to import some of the methods of knowledge transfer from the technologists into the rest of our life structures.
Personally, I think this is a daunting task. First, we need consensus on what works and what does not. Just one week ago, the U.S. was surveyed as to which system is better: socialism or capitalism. Capitalism won by 5%. So if we cannot get a consensus on such a fundamental issue, how do we expect agreement on anything else? Members of Congress enjoy their membership. And because of this, they will do things that enhance their chances for reelection, whether or not they are good for the country as a whole. Apparently, reading bills prior to voting on them is asking too much. We need to revamp our laws and legal system to reduce the number of laws subject to interpretation. Even though Sarbanes-Oxley passed, it has had documented detrimental effects on new company formation. It has also seemingly failed to curtail illegal business acts. More laws will not fix these issues. A rewrite, in combination with careful revision tracking, is in order.
I fully realize that many of the problems we face as a society are far more difficult than the DRAM design problem, but we must start down a different path to address the key issues of today. A well-known definition of insanity is doing the same thing over and over and expecting different results. We really need to change the way we enact policy and the way we write laws and regulations, because we are clearly doing many of the same things over and over. Otherwise, in the year 2089, the occupants of a mission to Mars, when told that the stock market just crashed, will need to head back to earth immediately to answer a margin call. This lends a whole new meaning to the well-known definition of insanity.
First step to fix the problem is simple.
Mandate teaching of mathematics (algebra, geometry, trigonometric, calculus), physics, biology, chemistry, electronics, computer science, geography, technology in public schools, beginning as early as possible.
I mean, how many lawyers, politicians, journalists, bankers have endured such intellect-defining courses in high school or college?
Mr. Friedel:
I think you failed to properly emphasize the fact that it is sometimes not possible to get a consensus on the definition of “failure”. A computer showing only a blue screen and an error message is obviously not working, a fact instantly recognized by everybody without exception. Not even Microsoft can spin that one into a feature rather than a bug. Ditto a car stalled on the freeway, a silent iPod, a bridge that fell down, or just about any other engineering project you can name.
Social issues are not so clear cut. Industrious, hard-working people do best under capitalism. Lazy slackers do best under communism. Therefore, if a capitalist project enriches an industrious individual and not a layabout, then the successful worker will consider the project an obvious success while the unsuccessful slacker will consider it an obvious failure. So, what do you change and who changes it?
In other words, “success”, in the social arena, is often defined by the ideas of the majority. The current majority in the U.S. today simply does not define “success” or “failure” as do you and I.
In essence, they encapsulated the knowledge in concrete (silicon to be exact) so that no one could redesign it incorrectly. Essentially, they passed the knowledge from one generation of engineer to another in a way impossible to ignore. In less than 20 years time, DRAM interface went from a major design problem to a non-issue.
I think you speak here of something like the US constitution. Oh, wait, I guess there are work arounds to that particular design feature. Sorry.
I’m afraid PC and leftist politics has now invaded science. I watch the “Science” program Nova on PBS, and when science conflicts with the politically correct, they go PC. The scientific method is now: look at the politics (especially of those who control grants) and work back. See anything involving “The Science” of global warming. The personal has become political and that will soon be true of Science and Engineering as well. They will have us all chasing our tails for the very best “scientific reasons.”
Unfortunately, the PC cheese dip we put on our political chips does not need to be palatable — at least when you force others to eat it.
Just one week ago, the U.S. was surveyed as to which system is better: socialism or capitalism. Capitalism won by 5%. So if we cannot get a consensus on such a fundamental issue, how do we expect agreement on anything else?
Socialism is actually “feudalism with right people in charge.” And it is all the right people — our future Dukes and Dukettes — who obscure and distort the record of “socialist endeavors.” This has turned the irony of “unintended consequence” into a world historical force.
Great piece,we need more people like this so maybe we can break the lemmings out of their stupidity.
My solution to the financial problems is to eliminate money.As a society we no longer need it.
And you know what will happen? Those courses will be watered down to enable those students to pass.
The engineering mind is different from the normal human mind. “Normal people” rarely understand the importance of things like putting complex safeguards into a system to enable the system to solve its problems without outside intervention. No better proof of this is the way that many conservatives insist that “criminals have too many rights.” Arguments like that show that the average person not only has no clue as to how easily a system can break down, but how catastrophic the failure often is.
I will say this, though. If you wanted to reform the legal profession, all you would have to do is require lawyers to take a serious major, not “pre-law” or political science. Either that or collaborate with Computer Science or Software Engineering to bring in professors to teach a curriculum on systematic analysis and design that would be required for getting one’s JD.
Revisiting mark-to-market was akin to gettin rid of unleaded gas and going to regular. All the cars would run for a while, be given time they would stop running. Add to that the relaxation of lending requirements by Congress (you can’t understand the value of credit when you ignore it every day in your job as controller of the federal purse) in order to satisfy groups like ACORN and you have a very combustible toxic mix.
To say I went boom is an understatement. And what has Congress done with purse since, spent and spent some more.
The roman empire started failing when the technology to maintain the size was shown to be inadequate. The first plagues sealed the deal (medical technology.) The depression started when technology wasn’t able to keep up; stuff was on paper and the response time was too slow. The bubble had much of the same problem. Despite the fact that records could be viewed quickly the sheer volume was decisive. Banks were being allowed to string together composite “products” that were mutating too quickly to be analysed objectively. The next round of analysis/governing software systems will deal better with volume and will likely include some realtime AI techniques and a scoring system that will let the oversight bodies better zero in on questionable practices.
In a sense whether banking or mars probes it’s all the same problem; that is, developing technological ability to the point where problems are solved in the design and mechanisms are added for the unknown…. e.g. a mars probe might be created with assumptions for drive wheels but these are found to be wrong. A wide enough hardware design spec and a radio allows it to be reprogrammed and tested in situ, usually solving the unknowns well enough to continue the mission. Banking seems more daunting only in that there are trillions of transactions: the overall problem is scale, not philosophy.
#2 has a valid point.
The non-producers always blame the successful
for their problems instead of looking at
themselves.
In reality the unproductive and wasteful have
in most cases the same logic as blaming a
reliable Toyota for being responsible for a
broken down Yugo.
The problem is that we listen to them.
Almost didn’t get past the first paragraph but I’m glad I did.
A thought provoking article. Unfortunately the problem cannot be addressed in the manner an engineer would appreciate. It is a moral problem. A complete lack of morality amongst the bankers, lawyers, captains of industry and politicians of this nation. (and half the populace as well)
The Founders knew their Constitution would not curtail an immoral leadership. Nor a foolish populace. Success would require honorable people and individual responsibility. Two things we seem to have run out of.
The world’s most successful form of government is a brutal dictatorship. We have thousands of years worth of proof. Some of them ran very well for decades and off an on for centuries. The latest and greatest, China, (a military junta) is eating up the planet.
Free market capitalistic, democratic republicanism was an experiment. It has failed. It took two hundred plus years but it degenerated into oligarchical piracy. The nations debt equals its GDP. That’s bankrupt. And we are. Bankrupt. Spiritually and financially.
After spending my adult life in the manufacturing arena,
I’d like to answer the question posed in your article’s title.
An engineer posesses two things: a passion for accurate information and a realization of the concept of limits.
Anyone familiar with computers knows about GIGO or “garbage in, garbage out”. A result based on false data is useless.
The laws of physics are limits beyond which you cannot go.
I agree with your statement “We need to revamp our laws and legal system to reduce the number of laws subject to interpretation.” Not that I’m anti-lawyer, but it seems that the laws that are written by lawyers are purposely vague and open to sometimes absurd interpretation in order for the lawyers to remain employed in the never-ending swirl of confusion that those vague laws create. I submit that if engineers created laws, we’d be better able to see the spirit of the law as a set of rules for the proper functioning of society.
BackwardsBoy is right. I’ve spend 30 years as an engineer. You’ll find that there are the immutable laws of physics that you absolutely cannot break. My wife wants to know why I don’t dress better when I go to work. I’m anything but a slob but I refuse to wear a coat and tie in order to “look professional”. The reason is that the circuit I’m designing doesn’t care.
In the law, no matter what you do, EVERYTHING is mutable.
The problem is the absence of the idea of statistical throughput. If you consider a factory making nails, activity is the work that goes into making the nails, such as materials management, supply chain, and the factory work. Output is the box of 100 nails being sold. Throughput is the fact that 87 of those nails worked and 13 bent or shattered on contact. Now the challenge is to tweak the factory activity to create 100 good nails.
So it is in society. It is focused on activity, rarely output, and never throughput. For instance, take poverty. We measure it now as quintiles and we don’t add government transfers to any quintile or tax payments subtracted from any quintile. This gives us a total disparity between top and bottom quintiles of 12 to 15:1. Measured with these transfers in the disparity is really 4:1. Measuring only activity keeps the war on poverty going. Measuring throughput would say redistributionists policies apparently have achieved their goal of near equality. Other examples abound.
Not just JDs but almost all soft science and non-science would benefit from advanced math, biology, microbiology, chemistry and, most of all, statistics. These courses should be required for anyone in Congress.
To the point at hand, the problem was not a failure to pass on lessons. With respect to Madoff, that was simply a failure to implement known lessons – if the return is too perfect, you better do more due diligence on the investment. Some people did and avoided the problem.
With respect to the market crash as far as it was caused by MBS instruments, the problem was a change in underlying facts. The MBS instruments were put together assuming mortgages and borrowers were the same as those in the 60′s through 80′s. At those times because of the requirements to get a mortgage and the attitude of borrowers towards default, mortgages were some of the safest investments around. Both the mortgages and the attitudes of borrowers
changed in the 90′s, but MBS assumed they did not. The failure to regularly re-examine those underlying assumptions led to our current problems. (Some would say Congress insisted lenders ignore what any re-examination would have revealed.) Again, some people avoided the problem, but Congress is insisting they share in the liability anyways.
The legal authorities can require people and businesses to act contrary to lessons learned, but only so long before the system breaks. Watch alternative energy – at some point the cost of subsidizing all of it will break the system.
Engineers see the physical laws that govern their world as nonnegotiable thus not as “living documents”.
Socialites, including many engineers, see the moral laws that govern our hearts, individually and corporately, as always up for grabs. Have you ever told a lie? Me too. What’s that make us? Liars. Have you ever stolen or taken anything that does not belong to you? Me too. What does that make us? Thieves. The heart of humanity to not follow the moral law is always the problem. Although, when disaster comes most of us will humble ourselves and do the right thing. 9/11 was a good example of Americans showing humility after devastation. Sadly it only lasted about two weeks and then we went back to our old self indulgent lives. It is important to note that our Senators and Congressman are only a reflection of many of us. After all we keep putting them there.
What then is the solution? Solomon said it best. “Now all has been heard; here is the conclusion of the matter: Fear God and keep his commandments, for this is the whole duty of man. For God will bring every deed into judgment, including every hidden thing, whether it is good or evil.”
Have a great day!
I would suggest that the U.S. Constitution was meant to be the knowledge transfer instrument for the nation. Though perhaps “experimental” at the time, it distilled what the founders thought worked, excised from government what they thought didn’t work, and put in self correcting mechanisms to keep things on course and allow for improvement based on new experience.
“Strict revision control” was emplaced by the constitutional ammendment process – changes are hard to make by design and changes equally hard to undo. Items that make it though the process are very likely to be worthwhile additions (well, granted prohibition was not a good idea when tried in the real world – but a lesson was learned nonetheless).
The constitution was not meant to be “interpreted” at all – if the people think it needs changes, then see ammendment process above. The courts role is to check on legislative and executive actions to see if they exceed constiitutional limits.
National government had a specific set of responsibilties – AND NOTING MORE. Alternatives, experiments etc. can be caried out by States, localitities, and individuals in all the areas not specifically delegated to national government. If a consensus view of the states and citizens is that they want to delegate to the national government some new responsibility, then go to ammendment process above.
It really is an elegant system…until you don’t follow it.
I appreciate it as an application of engineering practices to politics; such a shame politics corrupted its engineering brilliance.
The god of engineers is efficiency. The god of politicians is inefficiency. The god of bankers is profit by the penny. As the cop said, look for the motive.
It’s simple really.
In enginering and similar disciplines things are black and white, an answer is right or wrong.
In business and social environments however there is an old maxim, managing people is like herding cats.
One of the early comments in the thread says the answer is to madate teaching of sciences. It illustrates the problem perfectly. Pupils can be made to sit through science and mathematics lessons but will only absorb the information if it interests them.
Interesting post. Another difference: in engineering, the silicon (or the metal, as they case may be) doesn’t have a will of its own and consciously try to thwart you (although I’m sure it often seems that way!)…whereas originators of Ponzi schemes, for example, can develop new ways of presenting them which in some cases thwart the cautionary things that people have learned.
Also, engineering knowledge can be encapsulated to a greater degree than anyone has succeeded in doing with social/political/moral knowledge. There are plenty of engineers who design circuits using DRAM chips without having any significant understanding of the internals of these chips.
An engineer that lies and makes decisions based on bribery is quickly shown the door. His peers makes sure of it.
A politician or bureaucrat that lies and makes decisions based on bribery can keep his job forever. His peers make sure of it.
It’s not difficult to understand. If we had a media and public that held politicians to their promises the way my clients hold me to my performance criteria we would have an altogether different society. I’m not holding my breath waiting for it as it seems that the public acts more on emotion than fact and analysis.
The banking system worked quite well after the great depression because congress passed Glass Steagal to prevent banks from creating the credit bubble as in the 1920′s. Banks were regulated and not allowed to run amok issuing derivatives and credit willy nilly.
In 1999 congress and President Clinton repealed glass steagal as well as pass the “futures modernization act” which gave banks the ability to issue and rate their own credit, and market the credit thru securities houses they could now purchase.
These two legislative acts gave banks the power they had in the 1920′s; create and issue credit and create unsustainable credit bubble. it took less than a decade for banks to destroy credit markets, just as they did in the 1920′s.
Bill N: Success in academe in my country seems to be “avoiding meetings and work.” You just have to show enough tenacity and industry to get into a tenured position, after which it’s “do the minimum,” especially since those who show a willingness to work get everyone else’s work.
AL: Economics needs to be taught as well, and not just a week’s worth in junior high. The idea that trade isn’t a zero-sum game is quite important.
What explains the rapid evolution of technology as opposed to finance and social development?
Answer: politicians
Remember: don’t waste a perfectly good crisis. Millions are unemployed, thousands lost their houses, who cares? Billions are printed and redirected to the pockets of the right people, e.g. a Senator’s husband is awarded a no bid contract to profit from the selling of foreclosed houses. Billions more are directed to an organization known to sign up Snow White and Pluto to vote. Millions are “contributed” to politicians’ re-election coffers, billions worth of porks are earmarked to their contributors. The stink that keeps attacking your olfactory senses is from those rotten porks.
If the crisis did not exist, someone would have invented it to profit from it. As a matter of fact, someone did invent the crisis and profited from it big time. Heard of Freddie, Fannie, Angelou, Barney, Dodd …?
That explains why “Most Americans Say Bailouts Were Bad Idea, Political Class Disagrees”.
http://www.rasmussenreports.com/public_content/business/federal_bailout/most_americans_say_bailouts_were_bad_idea_political_class_disagrees
Re requiring teaching of mathematics: What #5 Mike T. said. In fact, I’d go further and suggest that it was the requiring of the teaching of mathematics that sowed the seeds of the destruction of mathematical knowledge. Let me explain.
When you require math be taught in school, somebody has to teach it. It takes a certain amount of time to “turn over” a new generation of teachers, and only a certain percentage of those taught will turn out to be able to teach math successfully. If you try to increase the percentage of those becoming new math teachers beyond that percentage, you end up introducing unsuccessful teachers to the system. Unsuccessful teachers impede the passage of math knowledge on to their students, even though on paper it looks like they’re perpetuating it. If this keeps up, mathematics teaching grinds to a halt, because the students of unsuccessful teachers propagate through the system. The “watering down” that we see is a reaction to the prevalence of unsuccessful teachers.
And so we see gym teachers and English teachers and every other kind of teacher drafted to teach mathematics. It’s so common nowadays that it’s a stereotype. Fully half of math classes at the secondary level are now being taught “out of subject,” that is by a person with neither a major, minor, or certificate in mathematics. We are now at the point where if we drafted every domestic graduate with a Bachelor’s in math to teach for a few years, we still would not be able to fill all the empty spots. And the curriculum has been watered so far down that the latest generation of teachers doesn’t even know they’ve been cheated.
So while I’d dearly love to see all students *learn* more economics, I’d be wary of *requiring* it to be taught. Especially seeing as how there are so few people qualified to teach it.
The problem is not that the knowledge isn’t passed on, it is that there are incentives for people to willfully ignore the knowledge, and to convince others that this time, it will be different, usually for short term monetary gain and long term political power. Add to that the fact there are some things that people just want to believe in. And trust me, scientists and engineers are just as prone to this, outside of their area of expertise, as are others. Some problems the human race may just be stuck with forever.
I thought it was an excellent read, thanks for sharing.
#17) Ian Thorpe
In engineering and similar disciplines things are black and white, an answer is right or wrong.
Mostly correct, but there are often many correct answers for an engineering design.However, there are fewer optimal design solutions: getting optimal output/performance at minimal cost in materials/ money: or some such balance. Some answers are more correct than others.
Thus the term “engineering judgment.” That also means that engineers are well practiced in making decisions.
While an politician will propose some change not yet tested in the real world that he hopeswill work in the real world, an engineer will first test to see what works, before loosing it on the real world. Hopey-changey: not the engineer’s style.
But will the engineer’s approach work in business? Yes: look at all the CEOs who are trained engineers. Will the engineer’s approach work in politics? Unfortunately, at the Presidential level, the only example we have of an engineer is Herbert Hoover. While he was successful at a project of bringing emergency food to Europe after WW1, and as Commerce Secretary, his record as President does not appear to be as successful.
Science deals with the material world governed by physical laws.
Politics deals with the world governed by self-interests.
Religion has more to offer than politics, which explains why the left want to erase religions.
My bets are with science.
Are there still Political-science majors?
I don’t think the problem is an intelligence or experience or process difference between engineers or bankers like the article suggests. It is more simply a personality difference. Engineers are typically introverts and proud of making or fixing things. As long as work in an interesting job and make enough money to buy toys, they are satisfied. Bankers (and politicians) are aware of status and “bling”. They want to be able to flash cash/fancy house(s)/Rolex to show their success. They are greedy and want more income/wealth/bling than they can possibly use. Therefore the greed and corruption of bankers and politicians got us into this mess. Get rid of the career politicians and the problem is solved.
Gringo said “Unfortunately, at the Presidential level, the only example we have of an engineer is Herbert Hoover”. Even more unfortunately the “other” example of an engineer president is Jimmy Carter. He claimed to be an engineer based on his Navy nuclear experience and USNA degree. However, the USNA didn’t grant accredited engineering degrees until after Carter graduated. I repect his accomplishments as a nuclear naval officer. I still think he was the worst president ever and his poor decisions still haunt us today.
Ayn Rand solved the design problem. Now the difficulty is how to get management to adopt it, especially when far too many of the employees are either stuck in the Middle Ages or running around with axes smashing the machinery.
ben, President Carter was never a nuclear officer. He dropped out of nuclear power school and the Navy after his father’s death. The only subs he ever served on were diesel powered.
Interesting premise, great comments.
My own career encompasses thirty years in engineering and science, with a decade of that as an educator.
My opinion is that the mathematical training that is a prerequisite for engineering routinely equips you with a set of intellectual templates that business and law graduates cannot even dimly perceive. The training in physical science equips you with a knowledge of the constraints and opportunities that nature presents. The things we want our things to be — safe, reliable, durable, efficient, effective, and on and on — are formulated precisely and rigorously as part of the paradigm of innovation. And finally, most accredited engineering schools teach engineering ethics as a mandatory part of the curriculum.
You will not find many, if any, of these virtues in a business or law curriculum. I’m doubtful that very many business professors bother informing their students about the connection between net present value and the Laplace transform. There is no such thing as a code of ethics for businessmen (except for accountants!) — or politicians.
I think many of the commenters here make good points about the moral vacuum of business and politics, though I am more sympathetic to productive businessmen than destructive politicians. I am less sanguine about the prospect of educating these folks — my own direct experience is that many folks crash out of engineering programs precisely because they cannot handle the mathematics. They head to the business school, and if they can’t work a calculator, they head to psychology. That’s just the way it is, different people have different aptitudes and the kind of person that likes rigor and innovation will likely not do well in law school, where there are at least two sides to every issue and precedent is more important than innovation.
So, hey, enjoy your iPod and your anti-lock brakes. But don’t expect too much from your politicians.
BBB