I discounted much of what was happening on the Occupy Wall Street rallies and its sister rallies in other cities.  The movement seemed shallow and unserious. Many of the marchers just sound like idiots: it was hard to find any intelligent comments from any of them.

Yes, it is easy to demonize rich people; it has been a fodder for politics and social movements for ages.  It is much easier to label a demon than to make a serious effort to understand the problem.  Large corporations are evil….. except of course large corporations like the New York Times which gives voice to such opposition. Perhaps Whole Foods is OK because they sell organic shoes and lots of lettuce. Speilberg is ok because he makes movies about evil rich people. I guess Apple, the world’s largest capitalized corporation,  is acceptable because they just have cool products.  Google, Facebook, Northface, Fender instruments and other corporation that make stuff we like are surely just the exceptions.

It should be no surprise that when Wall Street and the money industry is demonized that Anti-Semitism is not far away. Jews may be the only ethnic group that have been criticized for being both Communistic and Capitalistic.  When the mindless embrace conspiracy over substance anti-Semitism seems to thrive.

Pajama’s Media published  More Anti-Semitism at Occupy Los Angeles.  It includes episodes from rallies other than Los Angeles as well.  I recommend you view the videos at the end. The anti-Semitism is beyond blatant. Also note my recent post  Which Rich, which featured a placard of  Goldman CEO Lloyd Blankfein with his severed head on a pike.

This is not to conclude that all the protesters hold such views, but it does indicate that modern anti-Semitism has found a much larger welcome mat on the left side of the political spectrum. Noted leftist feminist Phyllis Chesler noted this years ago in her book, The New Anti-Semitism.   If a fraction of the these outrageous displays had been found at the Tea Party rallies (which were much larger) the airwaves would have been saturated with the images and  the movement would have never gotten off the ground.

George Will comments that the OWS movement is a gift to the GOP. Read his article, Conservatives Should Hope OWS Endures at Investor’s Business Daily. It provides a face for the left that the GOP can easily capitalize on.  Herman Cain’s direct and daring response to the OWS crowd may have been a major source that propelled his campaign in the last few weeks.

I am hesitant to add to the many fine words sure to be written about Steve Jobs and his life but here are my immediate thoughts.

Steve Jobs embodied the absolute best that is America.  He created a new idea in Spartan conditions that challenged the biggest established companies in the field.  He failed and rebounded and used his failures to advance even further.   He created a new industry with the iPod, iPhone and other devices.  He revolutionized the distribution of music, communication and information.  Business writer Edward DeBono used the term ‘Surpetition’  to describe the creation of new field as compared to the competition within a given field.

It is a credit to Steve Jobs as a business leader that Apple’s share price is up the day after he died.  He did not just create a company, he created a culture.

Jobs defied the academic business models. He created because he could.  He was not a slave to the market, he was its master.  He was not a linear thinker; he was willing to be foolish and willing to fail.  He was the epitome of the individual seeking his own dreams, and we all benefitted enormously from his ideas.  My iPad, iPod and iMacs are mine but the ideas are all his.  He was the Howard Rourk from Ayn Rand’s The Fountainhead.

It is the Steve Jobs of the world that improve our lives and create real change.  Politicos talk about change, but it is the thinkers, creators, and the people who make things that bring the change we want and value.

The debates in the class war classifies wealth in the extremes.  We hear about Wall Street billionaires and the unemployed but we miss the vast majority in the middle.

We sometimes refer to them as the working wealthy.  Most small business owners are in more common businesses such as service providers, welding shops, dry cleaners, small restaurants, auto repair shops, and retail stores.  This is a far distance from great innovators such as Apple and Facebook.

Most small businesses compete in a game of inches.  They compete with many similar businesses and face many uncertainties.  When extending credit we note how many potential customers are a single truck wreck or a divorce away from bankruptcy.

In a game of inches you get little credit for doing things right but you face stiff penalties for doing anything wrong.  A single workmen’s comp case, an EPA law suit, a sudden rise in health insurance cost or property and casualty insurance, a jump in fuel prices, a change in the bank’s credit policy, a single customer’s default, or any number of unexpected and unplanned events can mean the difference between profit and loss, survival and bankruptcy.

These friction costs are well known to business owners.  The government is often the biggest source of these friction costs.  Not only does the prospect of higher taxes threaten a small businesses future, but increased regulation can have just as big an impact.  Even worse is the fact that the laws and regulations you must abide by change so much that you can never measure the impact or benefit because so few have any confidence that the rules in place will remain in place.  Tax cuts are passed with expiration dates, reducing any long term impact, but onerous regulations remain forever and just grow in number and complexity.

We are seeing doctors leave private practice to become hospital employees as the friction costs drive them from their businesses.  The burdens of business ownership keep people from going out on their own and cause an increasing number to close. Most of these will never reopen.

A business owner with a Subchapter–S organization (a common structure) may make a taxable income of $250,000, making him wealthy in the arbitrary eyes of the  president, but that does not mean he received $250,000 in cash compensation.  He may have drawn a salary of $100,000 and the other $150,000 which is reported as TAXABLE profit was reinvested in accounts receivable, inventory or capital equipment. A 30% tax on $250,000 is 75% of the actual cash he draws as salary in this example.  The means that growth either requires extraordinary profits that few have, increasing debt, or paltry cash returns for many businesses.

Job growth is weak because friction costs are high.  It is really that simple.

We mortals pride ourselves as rational beings, but we act emotionally. We get attached to previous positions, and will discount or filter evidence rather than change our minds. We read the news for confirmation rather than information.  We are so inundated with information that we rely on emotional instincts to make quick decisions.

Our first instincts are emotional and we tend to then, and only then, rationalize our first decisions. I call this emotional rationalism. Marketers understand this very well.

When you add risk into our thought process we can become even more irrational. Risk is probability plus outrage or fear. Thus the chance of a 911 attack may be small but the outrage of that act may lead us to take extreme measures to prevent such an occurrence from happening again. We spend far more political capital to prevent gun deaths than deaths from swimming pools, which are far more common.

The Age of Reason did not stop wars and hatred; it just changed the institutions that expressed them. Anti-Semitism of the church simply became anti-Semitism in the halls of education and government. Hatred towards those who opposed established faith became even more bitter when it was applied to those who opposed established norms of reason.

Academic credentialism, as distinct from intellectual depth, is not immune to emotional rationalism. Academics will become attached to their theories even when they conflict with the realities of the world they attempt to explain. The world of experience will translate to the world of theory much better than the reverse. Once someone gets a theory in their head it is hard to get them to see the world objectively again.

Thus academics descended on Wall Street with sophisticated models to explain investment behavior. Long Term Capital, a hedge fund from the 1990’s was held in awe because of two PhD Nobel Prize winning economists on its board. Its first few years showed impressive results and helped it attract billions of dollars of capital. But Long Term Capital made bets on Russian bonds and went from a net worth of billions to bankrupt in a matter of a few months. In typical academic fashion the quants explained that the move on Russian bonds was a ‘25 standard deviation event’, so far outside the realm of a rational model that it could not be predicted.

A 25 standard deviation event is a way of saying the odds of this were as remote as getting hit by a meteor while playing the back nine at Augusta National. It is another way of saying that no rational person could be expected to have foreseen this. This is what happens when theory trumps experience. Our world is filled with the outcomes of ‘25 standard deviation events’.

But these same theories brought down a bigger house of cards only ten years later. Debt pools were assembled that were so complicated that when the underlying assets such as a mass of very crappy mortgages collapsed, the credit markets froze because nobody could figure out what any of these pools were worth. The reason these toxic assets are so hard to clean up is because our brightest accounting and financial minds cannot figure out what they are worth.

We still fail to understand the principles of probability and how our emotions filter and distort our reality. As Nassim Taleb notes in his book by the same name we are “fooled by randomness.”

We can discern the various probabilities of a specific outcome of a roll of a pair of dice, because the universe of outcomes is clearly limited and knowable. The same is true of guessing the chance of any combination of cards from one or multiple decks. Cards and dice are a world on known unknowns.

But making bets on the outcomes in the world of global finance is something wholly different. There is no limit to the combinations and outcome of hundreds of national policies, billions of investors, with millions of financial products, subject to the fears and exuberance brought by wars, inflation, and old fashion human greed. This is the world of infinite possibilities, the world of unknown unknowns. This is a world better served by a philosophical understanding of risk embedded in a world of experience than a delusional faith in theoretical models proposed by credentialed academics.

Yet we have still failed to understand this fundamental reason for our recent credit collapse and we are making the very same mistakes, only this time in the government sector. We still swoon for the sound of intelligence over experience.

A car ‘czar’ brags that he has no experience in the automobile business, but “business is business”. Steve Jobs at Apple was replaced by an executive from the soft drink business; Jobs was brought back- you can now Google the story on your iPhone.

In a subject as massive and as filled with unknown unknowns as global climates we are making bets with familiar delusional certainty and even declaring that the “debate is over”. I may not know which end of the test tube the cork goes into, but I would feel a bit better about reordering our entire economy and social structure based on a fifty year climate prediction if we could predict the weather next week.

Many blame the financial collapse on greed and capitalism, but these flaws have been with us forever.  As Thomas Sowell noted, blaming the financial collapse on greed is like blaming a plane crash on gravity; it is true but not a very useful description.

With some months to now reflect and study the causes of the credit collapse, we cannot hide the central role the government played in the disaster. Had Fannie Mae not guaranteed the crappy mortgages they could not have been assembled into vehicles earning AAA ratings and become acceptable to global investors on such a grand scale. We have been fleeced at the gaming table but the casino owners , the dealers, and the pit boss were all government bureaucrats. They just reserved the high roller tables for Wall Street.

As we watch and hope the government will reform the excess of Wall Street, we should be more concerned who will reform the excesses of government. We should ask how they plan to solve a problem by repeating the very same mistakes that caused it.

I feel like a dinosaur whenever I use my simple LG flip phone.  I am surrounded by iPhones and Blackberries and the growing inability of anyone to have an eye to eye conversation for thirty seconds without checking their hi-tech appendage.

I do respect the technology, but I find the constant interruption and stream distracting and inefficient.  It breaks focus.

Still the change it is bringing is significant. In the August 22 edition of New Scientist  they note that users downloaded over 1.5 BILLION apps on the iPhone alone in the first year of the iPhone App Store.  Over 64,500 NEW apps were added in the first year and 169 non-gaming apps are loaded every DAY. 1/3 of the users say that “apps have changed my life”, and app users spend 22% less time at a computer.

Like so much new technology we wonder how we ever lived without it.  We no longer find a need and fill it; we discover what we can do and then do it.

It is a poor picture of progress to do more efficiently that which does not need to be done at all. But I cannot deny the seduction.