Three problems that college football and American economic policy have in common

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As the college football season gets in full swing, controversies are already swirling as to who is the best team in the country. While such disagreements tend to inhere in every sports league from youth soccer to pro baseball, NCAA football has a uniquely acute case. Along with changing leaves and Halloween festivities, it seems that college football rankings scandals are one of the perennial features of autumn's dawn as another team claims a denial of due process.

So why is the system so uniquely inefficient?

As any college football fan will tell you, the first reason is that college football lacks a true playoff system. Unlike professional football and every other major college sport, there is no tournament system for establishing a champion at the end of the season. Instead, college football's top teams are determined by an awkward and arbitrary human ranking system, where coaches and professional football critics rank each team according to their esteemed opinion.

This problem is generally exacerbated by the second major problem, which is the advent of a computer ranking system called the Bowl Championship Series (BCS). The BCS was invented to help alleviate Problem 1. Its strategy is to create a complicated mathematical formula -combining human polls along with various "objective" computer-generated evaluations - to determine the best teams in the country.

The problem is it doesn't work. Instead of quelling disagreement, the BCS has amplified it. By this point, every college football fan hates the system. My own team, the University of Miami Hurricanes, were denied a spot in the 2000 national championship game because a team we beat, Florida State, was ranked higher in the BCS. The problem has become so bad that even President Obama said that he wanted to change the system.

Now the President's interest in correcting these unique inefficiencies is noble and greatly appreciated by this frustrated college football fan. But I would rather he address the unique inefficiencies that plague our government policy, because the rules of the economic playing field need to be changed as well.

In my view, the there are 3 major problems that college football and American economic policy have in common:

1) Emphasis on theoretical analysis instead of raw competition

The problem with college football rankings (especially the BCS) is that they inevitably must rank teams by factors other than actual competition. As there are over 100 major college football programs, and each team generally only plays 10-11 games in a season, the generation of the Top 25 teams inevitably means comparing teams that have never met on the field.

Not surprisingly, this comparative system ends up with bizarre results. According to current polls, for example, Penn State is ranked higher than the Iowa team that just beat them, and Oregon is ranked lower than the California team that they shellacked over the past weekend.

Government policy - especially the stimulus package - ranks projects with a similarly flawed methodology. Because one can't compare a specific project with every other possible use of that money, one must rely on arbitrary comparisons. It's one thing to say that a given road construction project would improve more people's lives than another road construction project. But how does one compare a road construction project to a private office building complex, for example? You can't, unless you let people choose for themselves in every possible situation. (This would never happen, of course, since would violate the stimulus package's fundamental premise that government can spend the money better than the people can.)

In a perfect college football system, rankings would be determined by competition on the field of play. Likewise, in a perfect economy, project funding would be determined by competition in the open marketplace.

The reason is the same in both cases: competition is the wellspring of value. Let it play out.

2) Valuing effort over skill

In the Myth of the Rational Voter, economist Brian Caplan coined what he called the "make-work" bias, which he defined as "tendency to underestimate the economic benefits of conserving labor." One could also redefine it as the tendency to overestimate the benefits of working hard. Caplan sees the make-work bias skewing voter preference toward inefficient and misguided government programs.

While the make-work bias is very pervasive in the human rankings system, it is also at the core of the BCS rankings system.

For example, the BCS ranks teams higher according to their margin of victory. While that's undoubtedly important in demonstrating a team's competitive capacity, it also can be misleading just by itself. As a single statistic, it fails to take into account any injuries or personnel changes a team may have incurred; it also fails to take into account intangibles like home field advantage or a team's momentum by virtue of the previous week's games. Teams are rewarded for running up the score rather than, say, overcoming adversity by coming back from a large deficit.

If the BCS has fallen for work-effort bias, the recent stimulus package suffers from a terminal case of it. The package was designed to minimize one number - the unemployment rate - without regard for the complexities behind it. The policy was wholly designed to "create jobs", whether or not the jobs would last, were cost effective, or were even needed in today's economy. But while one may be able to create a job by paying someone to hammer away at concrete, there's no saying that person couldn't be doing something better somewhere else. We don't need more jobs for every worker. We need more quality jobs and more skilled workers. There's a big difference.

The make-work bias is a dangerous fallacy. Rewarding the University of Florida for beating up on the equivalent of junior college football squads is no more defensible than rewarding the construction of a bridge to nowhere. Unfortunately, we're currently doing both.

3) Heeding past calculations over present reality

The BCS is rightly derided for its excessively quantitative rankings of Byzantine complexity. While there is no doubting the comprehensiveness of those calculations, the fact is that as noted in the aforementioned examples, the BCS spits out a result that is rife with absurdity.

The stimulus package suffered from a similar fate, thanks to its like-minded allegiance to quantitative factors. In order to find the most promising stimulus projects, the government consulted number-crunching economists, who evaluated a project according to its "Keynesian multiplier".

The "multiplier" is an amorphous concept referring to a project's ability to stimulate additional economic activity. This figure is generally calculated by reference to past performance data, an reasonable approach that satisfies professors but actually enlightens few. Transformative growth comes from spontaneous entrepreneurship, unpredictable trends and black swan innovations. Just because a specific industry created a lot of jobs in the past doesn't mean it will continue to do so in the future. Fast-growing industries are where job growth happens, but they are also the most difficult to predict.

Much like a BCS analysis, the value of Keynesian analysis can be summed up by removing the middle letter in the acronym. Also just like the BCS, it succumbs to too much egg-head calculation, and not enough break-neck competition.

What the Wright Brothers can teach us about how to develop clean energy in the 21st century

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Can the right government investment unleash a technological revolution?

President Obama believes so, and his plans to unleash a clean energy future are on the top of the domestic priority list. According to the White House website, the President has a "comprehensive plan to chart a new energy future...[and create] millions of new jobs that can’t be shipped overseas." Next to health care reform, the clean energy future appears to be a White House priority.

Sounds pretty awesome. But all hope aside, what is the likelihood of this plan actually succeeding? To answer that, it helps to look at the past experience of transformative technological advancements.

On a trip this summer to North Carolina, I stopped by the Wright Brothers memorial, and learned a little bit about arguably the most transformative technological advancement of our time: the airplane.

While finding out some interesting details about how the Wright Flyer got off the ground, I learned some important lessons for government policy. As school children, we're all taught about the Wright Brothers' gutsy experimentation on the sands of Kitty Hawk. We're told to heed the lessons of perseverance and ambition. While this is all true, there are also some important lessons for our current political leadership.

So without further adieu, here are the three things that the Wright Brothers can teach the White House about clean energy investment:

1) You can't predict the inventor

While President Obama's policy seeks to channel government investment to our best and brightest researchers, it's worth remembering the best and brightest researchers couldn't, for the life of them, figure out how to fly.

By the turn of the 20th century, the most brilliant and accomplished minds in the world had given their best effort to figuring out the problem of flight. These eminences included Leonardo da Vinci, Sir George Cayley, among the inventors of the internal-combustion engine, Sir Charles Parsons, the inventor of the turbine steam engine, Alexander Graham Bell, the inventor of the telephone, Thomas Edison, and scores of others. They all failed. Some of them, like flight pioneer Otto Lilienthal, even died trying.

It wasn't just those deep minds who attempted flight, but also those with deep pockets. Sir Hiram Maxim, the renowned (and extremely wealthy) inventor of the machine gun and the mouse trap, put $100,000 of his own money into an unsuccessful effort to develop powered flight. As they still do today, the French government funded a similarly unsuccessful scheme with their citizens' tax dollars.

Enter the Wright Brothers, amateur bicycle shop owners from Ohio. With no background in aeronautical engineering, surely these weekend hackers could have nothing to add to such a crowded field of brilliant inventors and cash-flush investors, right? After all, their entire experience in the industry came from a childhood fascination with kites and gliders.

The Wright Brothers might have been the biggest underdogs in history. Why should they have even bothered? They definitely wouldn't have the experience to get a government contract, even if one was available at the time.

But like all journeys into the unknown, solutions come from unlikely places.

2) You can't predict the invention

The Wright Brothers succeeded where the aforementioned brilliant minds failed simply because they were outsiders willing to challenge tradition and the established scientific consensus. While the mainstream researchers had all made the same initial assumptions and calculations, the Wright Brothers were willing to question everything.

For example, the experimental gliders of the time had rigid wing structures which caused them to fly in a rather erratic and unpredictable manner. No one seemed to be able to solve this quandary, and in the face of it, some scientists even devoted their time to proving the impossibility of manned flight.

But while at home, playing with a simple cardboard box, Wilbur Wright hit upon a solution. By noting how the edges of the box flexed and bent according to his manipulations, Wilbur thought of designing a plane with flexible wing structure, allowing modifications similar to how birds can modify their wings in flight. Buoyed by this new idea, Wrights built a model based on the new structure, and in the late 1800s, the initial unmanned tests had worked successfully.

But manned flight - powered by an engine and supporting the weight of a human being - still was another matter. While developing and testing this model to support the weight of a manned flight, the brothers relied on established air pressure data for the day. But as the brothers found out, the data tables (called Lilienthal tables, after the aforementioned flight pioneer) were incorrect, and disagreed substantially with the empirical results from the Wrights' new flyer.

Were the Wright Brothers crazy, or was the entire scientific establishment dead wrong? It turns out it was the latter. and the brothers took this void as an opportunity. They began making their own air pressure measurements to discover the relevant data for their flight, and rebuilt their flying machine in accordance with their own new specifications. The rest is history.

Their modification was not quite on the level of modifying Newton's laws, but it was pretty close. Through radical revisions of mainstream aeronautical science, these amateur bicycle shop owners changed the course of human history. No government investment would have been capable of supporting the type of revolution that the Wright Brothers achieved. It's rebellion, not conformity, that sparks human progress.

3) Government will miss the innovation

After their successful first flight, the patriotic Wright Brothers hoped earnestly that their new flying machine would be put to good use by the U.S. Government. Yet despite their amazing achievements, the brothers couldn't even convince their elected leaders to take a chance on the new invention.

In 1905, the U.S. War Department (forerunner of the Department of Defense) respectfully declined the Wrights' offer to demonstrate the new flying technology, informing the brothers that the Government would not be interested in the technology until it had been "brought to the stage of practical operation." (Three subsequent letters failed to convince our leaders that the Wright Flyer indeed had been brought to the stage of practical operation over the hills of Kitty Hawk. Oh, well.)

It wasn't until 1908 - half a decade after the Kitty Hawk flight - that the War Department finally made a contract with the Wrights for an airplane. Remember this the next time the President promises to invest in clean energy or advanced medical technology.

Despite great effort, brilliant minds and deep pockets were not enough to solve the vexing problems of flight. No large investment or government contract would have substituted for the elbow grease and experimentation that occurred on those sandy hills of Kitty Hawk; nor will it substitute for the elbow grease and experimentation that will lead our nation into a clean energy future.

The reason man did not fly until 1903 was not because of lack of effort, lack of government funding, lack of research data, or lack of money generally. Man did not fly because the mainstream consensus was incorrect, and it was only corrected by passionate amateurs willing to test their ideas under the curing heat of market failure.

Forget top-down legislation. When you empower entrepreneurial freedom, you can find the Wright solution for any dilemma.

What Bruce Lee can teach us about the President's health care reform plan

Watching President Obama's speech last week on health care, I thought a lot about Bruce Lee.  Okay, that sounds like a non sequitur.  Why should professional fighter Bruce Lee have anything to teach us a complex policy issue?  But that misses the point.

Bruce Lee's ideas - through his martial art and life philosophy Jeet Kune Do - have always applied more broadly than fighting techniques.  He used his empirical experience to develop the most effective mindset to deal and adapt to any new situation involving adversity, uncertainty, and risk, whether or not the situation was an actual fight.  Lee held a degree in philosophy from the University of Washington, and this broader impact of his ideas are most under appreciated, yet have never had more relevance and import than now.

In fact, Bruce Lee's ideas are dedicated to the same goal that our government policy is: finding the most effective and proven techniques.  So in that sense, he can teach us quite a bit.  The question of "what works?" is at the core of Bruce Lee's approach as well as Barack Obama's.  When in his inaugural address the President said "the question isn't whether government is too big or too small, but whether it works,"  he was channelling the same pragmatism as Bruce Lee.

When it comes to health care, however, the similarities end.  Lee recognized the importance of adaptability, individualization, and freedom, values disappointingly underrepresented in the President's health proposals.

Lee rejected "static" patterns and techniques that he saw at the core of the classical martial arts tradition.  He realized that just because a technique might work in one situation did not mean it would work in every situation, and that one must not be bogged down with these questionable roadmaps.  He was a firm believer in adapting one's approach to the unique environment, putting it simply, "the highest technique is no technique."

"The more complicated and restricted the method," Lee wrote, "the less the opportunity for expression of one's original sense of freedom. Though they play an important role in the early stage, techniques should not be too mechanical, complex or restrictive. If we cling blindly to them, we shall eventually become bound by their limitations."

Lee believed that adaptation required openness, and that rigid rules had no place in the dynamic context of fighting.  The consummate philosopher, Lee thought the lesson was universal, arguing a definite path could only guide something "static, fixed, [and] dead", but not "anything that is moving and living."

The President's plan to reform health care is doomed by static approaches - mandated coverage, community pooling, a heavily regulated exchange, and a public option - which only make the problem worse.

The tyranny of static restrictions is already ravaging American health care, as rigid rules and imposing barriers to entry crush aspiring innovators.  In New York City, for example, a doctor named John Muney began offering uninsured New Yorkers unlimited medical care - everything from mammograms to mole removal - for $90 a month and a $10 co-pay.   This great idea was ordered to shut down by the state's insurance regulator, who argued that the good doctor was operating as an insurer without a license.  Amazingly, this is a regulator trying to protect patients and consumers, but it falls victim to the rigidity of its approach.

More often than not, health care innovations are shut down before anyone gets to benefit at all. The FDA's approval process for lifesaving drugs costs billions and takes decades before anyone can be helped.  In many states, new additions to health care facilities - from new hospital wings to entrepreneurial ventures - must first be given a so-called "certificate of need" by an independent board of medical experts.  Of course, these experts also happen to often also be competing doctors in the community, and are keen to squelch new entry into the marketplace.

These static restrictions are hindering health care evolution.   A sculptor "doesn't keep adding clay to his subject," Lee observes, but rather "keeps chiseling away at the inessentials until the truth of its creation is revealed."  Innovation requires discarding what doesn't work in order to find what does.

More options work better than a single public option.  To break through the rigid barriers that restrain health care innovation, adaptive and flexible approaches should be the order of the day.  Policies that empower freedom of choice - such as decoupling the employer-based insurance system, freeing individuals to choose their own health care providers, and allowing providers to freely compete and offer new services - should be encouraged.

There's no reason why specialized insurers could not offer quality services for a unique group of people, as is the case in any other market.  One could imaging young people's insurers, women's insurers, elderly insurers, and insurers for various professions, all offering high quality services for a special market.  Moreover, some people need better dieting or exercise habits, others need preventative check-ups, others need alternative medicine, and others need high-tech procedures.  As Lee believed, personalized approaches are the best teaching methods.

In his speech, the President talked about Geisinger Health Clinic in Pennsylvania, where they've discovered effective best practices, such as evaluating all doctors and nurses based on a patient's whole experience.  Through these practices, Geisinger offers exceptionally high quality and value for patients. Geisinger discovered these best practices by traveling around the country, evaluating procedures, and selecting the most effective techniques for their own use.

In his speech, the President seemed to imply that his public option would be able to do the same thing.  The crux of his health care initiatives involve finding these effective methods and universalizing them.

But Geisinger's CEO argues that public policy can't find a magic "formula or template for all of the reform."  A public option can never emulate Geisinger or any other high achievers, because it will always be a slave to its static limitations.  We must allow free entry of the aspiring innovators trying to be next Geisinger.  Trial-and-error always works better than command-and-control.

President Obama's ambitious attempt to remake American health care is flawed in its static rule-making approach.  The solution to health care requires freedom and openness, not bureaucracy and more rules.  In the end, the best advice for the President comes from the most famous Bruce Lee quote of all:

"Be like water making its way through cracks. Do not be assertive, but adjust to the object, and you shall find a way round or through it.  If nothing within you stays rigid, outward things will disclose themselves.  Empty your mind; be formless... Be water, my friend."