top of page

Good Reading -- July 2010

I'd like to think that all of these emails are worthwhile, but I think this edition is extra packed with goodness.

Happy Friday.


  • Is This the Short List to Succeed Buffett? Bruce Greenwald was recently quoted with the following little nugget: "Warren Buffett says that when he retires, there are three people he would like to manage his money. First is Seth Klarman of the Baupost is Greg Alexander. Third is Li Lu. He happens to manage all of Charlie Munger’s money."

  • First of all, I have no idea if Buffett actually said/says that. It came from this recording of Greenwald introducing Li Lu at a recent lecture at Columbia. Greenwald isn't on Berkshire's BoD so I doubt Buffett has ever said anything to him in an official capacity, although Greenwald has presumably been in plenty of situations to personally hear these comments in some other context, and he's specific in noting that Buffett made these comments "two years ago." It's also possible that Buffett was speaking rhetorically about investors he finds capable enough to theoretically manage Buffett's personal money rather than actual CIO candidates -- that scenario seems more likely to me.

  • In any case, this triumvirate of investing all-stars would make sense as CIO candidates. Klarman is an obvious choice, but I doubt he'd want to do it. I honestly don't know much about Greg Alexander other than he's had an excellent and long-lived career at the highly regarded Ruane, Cunniff. He would certainly be a sensible and logical pick given that background. But I actually think Li Lu is the most likely. The speculation has been building* and I think his background and profile are exactly what Buffett/Munger would want. I've been compiling some interesting stuff from Li Lu -- email me if you're interested.

*At 2010 Berkshire meeting, when asked about the use of leverage to boost returns, Charlie boasted that one of the CIO candidates used no leverage and made returns of about 200% last year, to which Buffett quipped, “that certainly narrows it down.” Many to believe that the only person they could have been talking about was Li Lu. He was also the driving force or at least the spark behind Berkshire's BYD investment.


Li Lu on Charlie Munger:

"When Charlie thinks about things, he starts by inverting. To understand how to be happy in life, Charlie will study how to make life miserable; to examine how business[es] become big and strong, Charlie first studies how businesses decline and die; most people care more about how to succeed in the stock market, Charlie is most concerned about why most have failed in the stock market. Charlie constantly collects and researches the notable failures in each and every type of people, business, government, and academia, and arranges the causes of failures into a decision-making checklist for making the right decisions. Because of this, he has avoided major mistakes in his decision making in his life and in his career. The importance of this on the performance of Buffett and Berkshire Hathaway over the past 50 years cannot be emphasized enough."


  • Being Wrong: Adventures in the Margin of Error by Kathryn Schulz. I haven't read this new release, although I plan to shortly. I came across it on the author's blog, The Wrong Stuff, where she interviews some famous failures in fields as diverse as financial speculation, mountaineering, journalism, and criminal justice. This one with a pilot and astronaut turned safety expert is a good example. As often noted by Charlie Munger, there is a lot to be learned from the failure of others.


  1. "The Value of Seth Klarman" -- nothing particularly new, but still a worthwhile profile.

  2. "Forbes on Warren Buffett" -- nothing new here either, but a nice anthology.


  1. "What Would You Do With an Extra Hour? Americans are Spending More Time Watching TV and Sleeping as Unemployment Rises" -- Cheerful article reinforcing the notion that unemployment is wasteful in more ways than just the purely economical.

  2. "Secret of AA: After 75 Years, We Don't Know How it Works" -- Fascinating article about the history of Alcoholics Anonymous (here and pasted in full below) referenced by David Brooks, who astutely links it to business/organizational behavior, social policy, and individual cognition and behavior. "The first that we should get used to the idea that we will fail most of the time. AA has stood the test of time. There are millions of people who fervently believed that its 12-step process saved their lives. Yet the majority, even a vast majority, of the people who enroll in the program do not succeed in it. People are idiosyncratic. There is no single program that successfully transforms most people most of the time. The second implication is that we should get over the notion that we will someday crack the behavior code — that we will someday find a scientific method that will allow us to predict behavior and design reliable social programs."

  3. "Discovering the Virtues of a Wandering Mind" -- Interesting discussion of research on cognition as it relates to creativity, insight, and decision-making.

  4. "The SEC's Russian Roulette" -- Wow. Just when I think the SEC can't get any more incompetent, I read something like this. Small wonder that frauds like Madoff can persist for years when the SEC fails to even read the listing applications of these foreign, zero-revenue shell companies (aka, Petri dishes for fraud). And let's not even mention the failure to investigate a blatantly obvious pump-and-dump scheme. I also love the lame "we don't have the proper authority" and the "we can only pass it along to the enforcement division" excuses. Oh, how I loathe the SEC...

  5. "The Trouble with Intuition" -- Lots of interesting implications here in a a pseudo-rebuttal to Malcolm Gladwell's bestseller "Blink." The article is best summarized with in the last paragraph: "Intuition is not always wrong, but neither is it a shortcut around the hard work of logical analysis and rational choice. The trouble with intuition is that while intuitive modes of thought are easier to use than analytical modes, they are poorly adapted to many circumstances and decisions we face in the modern world. If we follow our gut instincts, we will talk on the telephone while we drive, have too much trust in eyewitnesses, and believe we know what causes what -- in health care, finance, politics, and every domain -- without even realizing that we haven't considered the right evidence, let alone come to the right conclusions."

  6. "Factory Jobs Return, but Employers Find Skills Shortage" - Unfortunately this article is mostly anecdotal. But it does highlight, accurately I think, two very important and discouraging issues. First, many low-skill jobs eliminated in the past several years are simply never coming back. And second, there is a shockingly wide gap between the skills that millions of applicants have and the skills that most employers now require.

  7. "Obama's CEO Problem -- and Ours" - I am not endorsing this entire editorial, but I think there are a couple of very worthwhile points. First, there is a massive amount of cash on corporate balance sheets. Fiscally, our cities/states and country are a train wreck, but our many of our large companies have delevered, pushed out maturities with new low cost debt, and are in relatively decent financial shape, particularly from a liquidity standpoint. (Note that this comment does not necessarily pertain to equity valuations.) But beyond a healthy dose of caution, so many companies are carrying "excess" cash because of the extreme uncertainty spewing out of Washington. Nobody knows what trick the government will pull next. Policy will never be perfect, but it should aim to at least be consistent. And just as the hard line Keynesians (e.g., Paul Krugman) seem to ignore the simple issue of consumer/producer confidence in favor of the false precision of their economic models and doctrines, all this idle cash proves the often negative side and unintended consequences of government intervention.

  8. "America Needs a Growth Strategy" -- A little over the top at times, but still an excellent and brief encapsulation of some of the major economic and societal problems facing the U.S. right now.

What Would You Do With an Extra Hour?

Americans Are Spending More Time Watching TV and Sleeping as Unemployment Rises, Survey Finds


Rising unemployment has left Americans with more spare time on their hands. But those free hours are largely being frittered away, a new government survey finds.

The average American aged 15 or older spent three hours, 11 minutes a day working in 2009, according to the American Time Use Survey released by the Labor Department on Tuesday. That's 17 minutes less time a day engaged in work than in 2007, before the recession hit. While 17 minutes might not seem a lot, when it's averaged over the entire population, including employed people, those who have lost a job and retirees, it represents a significant amount.

What did people do with that extra time? Mainly they slept and watched TV. Time spent in front of the television rose by 12 minutes, to two hours, 49 minutes a day in the two years through 2009. Sleep was the next big gainer, increasing by six minutes to eight hours, 40 minutes a day.

The data also show what Americans aren't doing with their extra time: There was virtually no change between 2007 and 2009 in the time devoted to volunteering, religious activities, exercise or education. In sum, time people might have used productively is instead being squandered, says University of Texas economist Daniel Hamermesh.

"It's not like we're using the recession to build our skills—the skills are depreciating," says Mr. Hamermesh. "It's a waste."

The government survey, conducted annually since 2003, is based on data gathered by the Census Bureau from households that are selected to represent a range of demographic characteristics. One member of each participating household is asked to keep a time-use diary on a predetermined day of the week and then report how they spent their time via a telephone interview. In 2009, approximately 13,100 people were interviewed.

The unemployment rate rose to 10% at the end of 2009 from 5% two years earlier, while the U.S. economy lost 8.4 million jobs in that period. Today, unemployment stands at 9.7%.

32: The number of additional minutes a day men spend watching TV than women do

The government data are providing researchers with their first in-depth glimpse of how an economic downturn affects the way people spend their time. The findings are challenging some established ideas about how people behave when confronted with joblessness.

Many economists had surmised, for example, that people who had lost their jobs, or whose work hours had been reduced, would engage in activities they previously might have paid someone else to do, like cooking meals, cleaning or fixing up the house.

But the data suggest that hasn't happened. Time spent on household activities, in the kitchen and yard, for instance, averaged one hour, 48 minutes a day last year, down slightly from one hour, 50 minutes in 2007.

There are exceptions, of course. Philip Sexton, of Goldsboro, N.C., says he now works 40 hours a week at his job as an auto repairman, down from the 56 to 67 hours a week he used to put in.

In his free time, "I come home and cut the grass, run and do some church business...see my mom, she's 82 years old, pay bills," the 57-year-old says. "Before, I never had time to do it except on weekends."

Among people who weren't employed, which includes retirees as well as those who have lost their jobs, the amount of time spent watching television on weekdays rose 10 minutes to three hours, 44 minutes. The time those people spent playing sports or exercising on weekdays was virtually unchanged at 22 minutes a day. And they spent less time reading.

"The exact kinds of behavior that you want people who are out of work to engage in, these are the hardest things to do," says Sarah Burgard, a sociologist at the University of Michigan who studies the effects of job insecurity and unemployment on health. Losing one's job often can bring on feelings of depression and anxiety, keeping people from helping themselves, she says.

While some experts had hypothesized that job losses during the recession have been so pervasive that people would feel less shame over being unemployed, the time-use survey suggests that may not have been so, says Ms. Burgard. Indeed, people who weren't employed spent a little less time socializing in 2009 than they did in 2007.

"It's really hard to walk into the bowling alley or the Elks Club and your friend asks you, 'Did you get a job?' " she says.

The survey also shows that more people are working from home, a reflection of how many people have turned to consulting and other at-home work in the face of a weak job market. Of the country's estimated 108 million people who worked full- or part-time on an average day, some 23.9 million, or 23.6% of the total, worked at home last year. In 2007, 19.9% of all workers worked from home.

Behavior by men and women also varied. Television—which ranks after sleep and work as the activity Americans devote the most time to—remains a larger draw among men than among women.

Men spent an average of three hours, six minutes a day watching TV in 2009, compared with two hours, 34 minutes for women.

Women spent a total of three hours, 10 minutes doing chores like housework, childcare and caring for older family members. That compares with one hour, 53 minutes men devoted to these tasks.

Write to Justin Lahart at

Secret of AA: After 75 Years, We Don’t Know How It Works

  • By Brendan I. Koerner

  • June 23, 2010 |

  • 12:00 am |

  • Wired July 2010

Some 1.2 million people belong to one of AA's 55,000 meeting groups in the US. Photo: Christian Stoll

The church will be closed tomorrow, and the drunks are freaking out. An elderly lady in a prim white blouse has just delivered the bad news, with deep apologies: A major blizzard is scheduled to wallop Manhattan tonight, and up to a foot of snow will cover the ground by dawn. The church, located on the Upper West Side, can’t ask its staff to risk a dangerous commute. Unfortunately, that means it must cancel the Alcoholics Anonymous meeting held daily in the basement.

A worried murmur ripples through the room. “Wha… what are we supposed to do?” asks a woman in her mid-twenties with smudged black eyeliner. She’s in rough shape, having emerged from a multiday alcohol-and-cocaine bender that morning. “The snow, it’s going to close everything,” she says, her cigarette-addled voice tinged with panic. “Everything!” She’s on the verge of tears.

A mustachioed man in skintight jeans stands and reads off the number for a hotline that provides up-to-the-minute meeting schedules. He assures his fellow alcoholics that some groups will still convene tomorrow despite the weather. Anyone who needs an AA fix will be able to get one, though it may require an icy trek across the city.

That won’t be a problem for a thickset man in a baggy beige sweat suit. “Doesn’t matter how much snow we get—a foot, 10 feet piled up in front of the door,” he says. “I will leave my apartment tomorrow and go find a meeting.”

He clasps his hands together and draws them to his heart: “You understand me? I need this.” Daily meetings, the man says, are all that prevent him from winding up dead in the gutter, shoes gone because he sold them for booze or crack. And he hasn’t had a drink in more than a decade.

The resolve is striking, though not entirely surprising. AA has been inspiring this sort of ardent devotion for 75 years. It was in June 1935, amid the gloom of the Great Depression, that a failed stockbroker and reformed lush named Bill Wilson founded the organization after meeting God in a hospital room. He codified his method in the 12 steps, the rules at the heart of AA. Entirely lacking in medical training, Wilson created the steps by cribbing ideas from religion and philosophy, then massaging them into a pithy list with a structure inspired by the Bible.

The 200-word instruction set has since become the cornerstone of addiction treatment in this country, where an estimated 23 million people grapple with severe alcohol or drug abuse—more than twice the number of Americans afflicted with cancer. Some 1.2 million people belong to one of AA’s 55,000 meeting groups in the US, while countless others embark on the steps at one of the nation’s 11,000 professional treatment centers. Anyone who seeks help in curbing a drug or alcohol problem is bound to encounter Wilson’s system on the road to recovery.

It’s all quite an achievement for a onetime broken-down drunk. And Wilson’s success is even more impressive when you consider that AA and its steps have become ubiquitous despite the fact that no one is quite sure how—or, for that matter, how well—they work. The organization is notoriously difficult to study, thanks to its insistence on anonymity and its fluid membership. And AA’s method, which requires “surrender” to a vaguely defined “higher power,” involves the kind of spiritual revelations that neuroscientists have only begun to explore.

What we do know, however, is that despite all we’ve learned over the past few decades about psychology, neurology, and human behavior, contemporary medicine has yet to devise anything that works markedly better. “In my 20 years of treating addicts, I’ve never seen anything else that comes close to the 12 steps,” says Drew Pinsky, the addiction-medicine specialist who hosts VH1’s Celebrity Rehab. “In my world, if someone says they don’t want to do the 12 steps, I know they aren’t going to get better.”

Wilson may have operated on intuition, but somehow he managed to tap into mechanisms that counter the complex psychological and neurological processes through which addiction wreaks havoc. And while AA’s ability to accomplish this remarkable feat is not yet understood, modern research into behavior dynamics and neuroscience is beginning to provide some tantalizing clues.

One thing is certain, though: AA doesn’t work for everybody. In fact, it doesn’t work for the vast majority of people who try it. And understanding more about who it does help, and why, is likely our best shot at finally developing a system that improves on Wilson’s amateur scheme for living without the bottle.

AA doesn't work for everybody, but when it does, it can be transformative. Members receive tokens to mark periods of sobriety, from 24 hours to one month to 55 years. Photo: Todd Tankersley

AA originated on the worst night of Bill Wilson’s life. It was December 14, 1934, and Wilson was drying out at Towns Hospital, a ritzy Manhattan detox center. He’d been there three times before, but he’d always returned to drinking soon after he was released. The 39-year-old had spent his entire adult life chasing the ecstasy he had felt upon tasting his first cocktail some 17 years earlier. That quest destroyed his career, landed him deeply in debt, and convinced doctors that he was destined for institutionalization.

Wilson had been quite a mess when he checked in the day before, so the attending physician, William Silkworth, subjected him to a detox regimen known as the Belladonna Cure—hourly infusions of a hallucinogenic drug made from a poisonous plant. The drug was coursing through Wilson’s system when he received a visit from an old drinking buddy, Ebby Thacher, who had recently found religion and given up alcohol. Thacher pleaded with Wilson to do likewise. “Realize you are licked, admit it, and get willing to turn your life over to God,” Thacher counseled his desperate friend. Wilson, a confirmed agnostic, gagged at the thought of asking a supernatural being for help.

But later, as he writhed in his hospital bed, still heavily under the influence of belladonna, Wilson decided to give God a try. “If there is a God, let Him show Himself!” he cried out. “I am ready to do anything. Anything!”

What happened next is an essential piece of AA lore: A white light filled Wilson’s hospital room, and God revealed himself to the shattered stockbroker. “It seemed to me, in the mind’s eye, that I was on a mountain and that a wind not of air but of spirit was blowing,” he later said. “And then it burst upon me that I was a free man.” Wilson would never drink again.

At that time, the conventional wisdom was that alcoholics simply lacked moral fortitude. The best science could offer was detoxification with an array of purgatives, followed by earnest pleas for the drinker to think of his loved ones. When this approach failed, alcoholics were often consigned to bleak state hospitals. But having come back from the edge himself, Wilson refused to believe his fellow inebriates were hopeless. He resolved to save them by teaching them to surrender to God, exactly as Thacher had taught him.

Following Thacher’s lead, Wilson joined the Oxford Group, a Christian movement that was in vogue among wealthy mainstream Protestants. Headed by a an ex-YMCA missionary named Frank Buchman, who stirred controversy with his lavish lifestyle and attempts to convert Adolf Hitler, the Oxford Group combined religion with pop psychology, stressing that all people can achieve happiness through moral improvement. To help reach this goal, the organization’s members were encouraged to meet in private homes so they could study devotional literature together and share their inmost thoughts.

In May 1935, while on an extended business trip to Akron, Ohio, Wilson began attending Oxford Group meetings at the home of a local industrialist. It was through the group that he met a surgeon and closet alcoholic named Robert Smith. For weeks, Wilson urged the oft-soused doctor to admit that only God could eliminate his compulsion to drink. Finally, on June 10, 1935, Smith (known to millions today as Dr. Bob) gave in. The date of Dr. Bob’s surrender became the official founding date of Alcoholics Anonymous.

In its earliest days, AA existed within the confines of the Oxford Group, offering special meetings for members who wished to end their dependence on alcohol. But Wilson and his followers quickly broke away, in large part because Wilson dreamed of creating a truly mass movement, not one confined to the elites Buchman targeted. To spread his message of salvation, Wilson started writing what would become AA’s sacred text: Alcoholics Anonymous, now better known as the Big Book.

The core of AA is found in chapter five, entitled “How It Works.” It is here that Wilson lists the 12 steps, which he first scrawled out in pencil in 1939. Wilson settled on the number 12 because there were 12 apostles.

In writing the steps, Wilson drew on the Oxford Group’s precepts and borrowed heavily from William James’ classic The Varieties of Religious Experience, which Wilson read shortly after his belladonna-fueled revelation at Towns Hospital. He was deeply affected by an observation that James made regarding alcoholism: that the only cure for the affliction is “religiomania.” The steps were thus designed to induce an intense commitment, because Wilson wanted his system to be every bit as habit-forming as booze.

The first steps famously ask members to admit their powerlessness over alcohol and to appeal to a higher power for help. Members are then required to enumerate their faults, share them with their meeting group, apologize to those they’ve wronged, and engage in regular prayer or meditation. Finally, the last step makes AA a lifelong duty: “Having had a spiritual awakening as the result of these steps, we tried to carry this message to alcoholics and to practice these principles in all our affairs.” This requirement guarantees not only that current members will find new recruits but that they can never truly “graduate” from the program.

Aside from the steps, AA has one other cardinal rule: anonymity. Wilson was adamant that the anonymous component of AA be taken seriously, not because of the social stigma associated with alcoholism, but rather to protect the nascent organization from ridicule. He explained the logic in a letter to a friend:

[In the past], alcoholics who talked too much on public platforms were likely to become inflated and get drunk again. Our principle of anonymity, so far as the general public is concerned, partly corrects this difficulty by preventing any individual receiving a lot of newspaper or magazine publicity, then collapsing and discrediting AA.

AA boomed in the early 1940s, aided by a glowing Saturday Evening Post profile and the public admission by a Cleveland Indians catcher, Rollie Hemsley, that joining the organization had done wonders for his game. Wilson and the founding members were not quite prepared for the sudden success. “You had really crazy things going on,” says William L. White, author of Slaying the Dragon: The History of Addiction Treatment and Recovery in America. “Some AA groups were preparing to run AA hospitals, and there was this whole question of whether they should have paid AA missionaries. You even had some reports of AA groups drinking beers at their meetings.”

The growing pains spurred Wilson to write AA’s governing principles, known as the 12 traditions. At a time when fraternal orders and churches with strict hierarchies dominated American social life, Wilson opted for something revolutionary: deliberate organizational chaos. He permitted each group to set its own rules, as long as they didn’t conflict with the traditions or the steps. Charging a fee was forbidden, as was the use of the AA brand to endorse anything that might generate revenue. “If you look at this on paper, it seems like it could never work,” White says. “It’s basically anarchy.” But this loose structure actually helped AA flourish. Not only could anyone start an AA group at any time, but they could tailor each meeting to suit regional or local tastes. And by condemning itself to poverty, AA maintained a posture of moral legitimacy.

Despite the decision to forbid members from receiving pay for AA-related activity, it had no problem letting professional institutions integrate the 12 steps into their treatment programs. AA did not object when Hazelden, a Minnesota facility founded in 1947 as “a sanatorium for curable alcoholics of the professional class,” made the steps the foundation of its treatment model. Nor did AA try to stop the proliferation of steps-centered addiction groups from adopting the Anonymous name: Narcotics Anonymous, Gamblers Anonymous, Overeaters Anonymous. No money ever changed hands—the steps essentially served as open source code that anyone was free to build upon, adding whatever features they wished. (Food Addicts Anonymous, for example, requires its members to weigh their meals.)

By the early 1950s, as AA membership reached 100,000, Wilson began to step back from his invention. Deeply depressed and an incorrigible chain smoker, he would go on to experiment with LSD before dying from emphysema in 1971. By that point, AA had become ingrained in American culture; even people who’d never touched a drop of liquor could name at least a few of the steps.

“For nearly 30 years, I have been saying Alcoholics Anonymous is the most effective self-help group in the world,” advice columnist Ann Landers wrote in 1986. “The good accomplished by this fellowship is inestimable … God bless AA.”

There’s no doubt that when AA works, it can be transformative. But what aspect of the program deserves most of the credit? Is it the act of surrendering to a higher power? The making of amends to people a drinker has wronged? The simple admission that you have a problem? Stunningly, even the most highly regarded AA experts have no idea. “These are questions we’ve been trying to answer for, golly, 30 or 40 years now,” says Lee Ann Kaskutas, senior scientist at the Alcohol Research Group in Emeryville, California. “We can’t find anything that completely holds water.”

The problem is so vexing, in fact, that addiction professionals have largely accepted that AA itself will always be an enigma. But research in other fields—primarily behavior change and neurology—offers some insight into what exactly is happening in those church basements.

To begin with, there is evidence that a big part of AA’s effectiveness may have nothing to do with the actual steps. It may derive from something more fundamental: the power of the group. Psychologists have long known that one of the best ways to change human behavior is to gather people with similar problems into groups, rather than treat them individually. The first to note this phenomenon was Joseph Pratt, a Boston physician who started organizing weekly meetings of tubercular patients in 1905. These groups were intended to teach members better health habits, but Pratt quickly realized they were also effective at lifting emotional spirits, by giving patients the chance to share their tales of hardship. (“In a common disease, they have a bond,” he would later observe.) More than 70 years later, after a review of nearly 200 articles on group therapy, a pair of Stanford University researchers pinpointed why the approach works so well: “Members find the group to be a compelling emotional experience; they develop close bonds with the other members and are deeply influenced by their acceptance and feedback.”

Researchers continue to be surprised by just how powerful this effect is. For example, a study published last year in the journal Behavior Therapy concluded that group therapy is highly effective in treating post-traumatic stress disorder: 88.3 percent of the study’s subjects who underwent group therapy no longer exhibited PTSD symptoms after completing their sessions, versus just 31.3 percent of those who received minimal one-on-one interaction.

The importance of this is reflected by the fact that the more deeply AA members commit to the group, rather than just the program, the better they fare. According to J. Scott Tonigan, a research professor at the University of New Mexico’s Center on Alcoholism, Substance Abuse, and Addictions, numerous studies show that AA members who become involved in activities like sponsorship—becoming a mentor to someone just starting out—are more likely to stay sober than those who simply attend meetings.

Addiction-medicine specialists often raise the concern that AA meetings aren’t led by professionals. But there is evidence that this may actually help foster a sense of intimacy between members, since the fundamental AA relationship is between fellow alcoholics rather than between alcoholics and the therapist. These close social bonds allow members to slowly learn how to connect to others without the lubricating effects of alcohol. In a study published last year in Alcoholism Treatment Quarterly, Tonigan found that “participation in AA is associated with an increased sense of security, comfort, and mutuality in close relationships.”

And close relationships, it turns out, have an even more profound effect on us than previously thought. A 2007 study of a Boston-area community, for example, found that a person’s odds of becoming obese increase by 71 percent if they have a same-sex friend who is also obese. (Wired covered the study in more detail in “The Buddy System,” issue 17.10.) And in April, a paper published in Annals of Internal Medicine concluded that a person is 50 percent more likely to be a heavy drinker if a friend or relative is a boozehound. Even if an alcoholic’s nonsober friends are outwardly supportive, simply being around people for whom drinking remains the norm can nudge someone into relapse. It is much safer to become immersed in AA’s culture, where activities such as studying the Big Book supplant hanging out with old acquaintances who tipple.

As for the steps themselves, there is evidence that the act of public confession—enshrined in the fifth step—plays an especially crucial role in the recovery process. When AA members stand up and share their emotionally searing tales of lost weekends, ruined relationships, and other liquor-fueled low points, they develop new levels of self-awareness. And that process may help reinvigorate the prefrontal cortex, a part of the brain that is gravely weakened by alcohol abuse.

To understand the prefrontal cortex’s role in both addiction and recovery, you first need to understand how alcohol affects the brain. Booze works its magic in an area called the mesolimbic pathway—the reward system. When we experience something pleasurable, like a fine meal or good sex, this pathway squirts out dopamine, a neurotransmitter that creates a feeling of bliss. This is how we learn to pursue behaviors that benefit us, our families, and our species.

When alcohol hits the mesolimbic pathway, it triggers the rapid release of dopamine, thereby creating a pleasurable high. For most people, that buzz simply isn’t momentous enough to become the focal point of their lives. Or if it is, they are able to control their desire to chase it with reckless abandon. But others aren’t so fortunate: Whether by virtue of genes that make them unusually sensitive to dopamine’s effects, or circumstances that lead them to seek chemical solace, they cannot resist the siren call of booze.

Once an alcoholic starts drinking heavily, the mesolimbic pathway responds by cutting down its production of dopamine. Alcohol also messes with the balance between two other neurotransmitters: GABA and glutamate. Alcohol spurs the release of more GABA, which inhibits neural activity, and clamps down on glutamate, which stimulates the brain. Combined with a shortage of dopamine, this makes the reward system increasingly lethargic, so it becomes harder and harder to rouse into action. That’s why long-term boozers must knock back seven or eight whiskeys just to feel “normal.” And why little else in life brings hardcore alcoholics pleasure of any kind.

As dependence grows, alcoholics also lose the ability to properly regulate their behavior. This regulation is the responsibility of the prefrontal cortex, which is charged with keeping the rest of the brain apprised of the consequences of harmful actions. But mind-altering substances slowly rob the cortex of so-called synaptic plasticity, which makes it harder for neurons to communicate with one another. When this happens, alcoholics become less likely to stop drinking, since their prefrontal cortex cannot effectively warn of the dangers of bad habits.

This is why even though some people may be fully cognizant of the problems that result from drinking, they don’t do anything to avoid them. “They’ll say, ‘Oh, my family is falling apart, I’ve been arrested twice,’” says Peter Kalivas, a neuroscientist at the Medical University of South Carolina in Charleston. “They can list all of these negative consequences, but they can’t take that information and manhandle their habits.”

The loss of synaptic plasticity is thought to be a major reason why more than 90 percent of recovering alcoholics relapse at some point. The newly sober are constantly bombarded with sensory cues that their brain associates with their pleasurable habit. Because the synapses in their prefrontal cortex are still damaged, they have a tough time resisting the urges created by these triggers. Any small reminder of their former life—the scent of stale beer, the clink of toasting glasses—is enough to knock them off the wagon.

AA, it seems, helps neutralize the power of these sensory cues by whipping the prefrontal cortex back into shape. Publicly revealing one’s deepest flaws and hearing others do likewise forces a person to confront the terrible consequences of their alcoholism—something that is very difficult to do all alone. This, in turn, prods the impaired prefrontal cortex into resuming its regulatory mission. “The brain is designed to respond to experiences,” says Steven Grant, chief of the clinical neuroscience branch of the National Institute on Drug Abuse. “I have no doubt that these therapeutic processes change the brain.” And the more that critical part of the brain is compelled to operate as designed, the more it springs back to its pre-addiction state. While it’s on the mend, AA functions as a temporary replacement—a prefrontal cortex made up of a cast of fellow drunks in a church basement, rather than neurons and synapses.

Finally, the 12 steps address another major risk factor for relapse: stress. Recovering alcoholics are often burdened by memories of the nasty things they did while wasted. When they bump into old acquaintances they mistreated, the guilt can become overwhelming. The resulting stress causes their brains to secrete a hormone that releases corticotropin, which has been shown to cause relapse in alcohol-dependent lab rats.

AA addresses this risk with the eighth and ninth steps, which require alcoholics to make amends to people they’ve wronged. This can alleviate feelings of guilt and in turn limit the stress that may undermine a person’s fragile sobriety.

Bill W., as Wilson is known today, didn’t know the first thing about corticotropin-releasing hormone or the prefrontal cortex, of course. His only aim was to harness spirituality in the hopes of giving fellow alcoholics the strength to overcome their disease. But in developing a system to lead drunks to God, he accidentally created something that deeply affects the brain—a system that has now lasted for three-quarters of a century and shows no signs of disappearing.

But how effective is AA? That seemingly simple question has proven maddeningly hard to answer. Ask an addiction researcher a straightforward question about AA’s success rate and you’ll invariably get a distressingly vague answer. Despite thousands of studies conducted over the decades, no one has yet satisfactorily explained why some succeed in AA while others don’t, or even what percentage of alcoholics who try the steps will eventually become sober as a result.

A big part of the problem, of course, is AA’s strict anonymity policy, which makes it difficult for researchers to track members over months and years. It is also challenging to collect data from chronic substance abusers, a population that’s prone to lying. But researchers are most stymied by the fact that AA’s efficacy cannot be tested in a randomized experiment, the scientific gold standard.

“If you try to randomly assign people to AA, you have a problem, because AA is free and is available all over the place,” says Alcohol Research Group’s Kaskutas. “Plus, some people will just hate it, and you can’t force them to keep going.” In other words, given the organization’s open-door membership policy, it would be nearly impossible for researchers to prevent people in a control group from sneaking off to an AA meeting and thereby tainting the data. On the other hand, many subjects would inevitably loathe AA and drop out of the study altogether.

Another research quandary is how to account for the selection effect. AA is known for doing a better job of retaining drinkers who’ve hit rock bottom than those who still have a ways to fall. But having totally destroyed their lives, the most desperate alcoholics may already be committed to sobriety before ever setting foot inside a church basement. If so, it might be their personal commitment, rather than AA, that is ultimately responsible for their ability to quit.

As a result of these complications, AA research tends to come to wildly divergent conclusions, often depending on an investigator’s biases. The group’s “cure rate” has been estimated at anywhere from 75 percent to 5 percent, extremes that seem far-fetched. Even the most widely cited (and carefully conducted) studies are often marred by obvious flaws. A 1999 meta-analysis of 21 existing studies, for example, concluded that AA members actually fared worse than drinkers who received no treatment at all. The authors acknowledged, however, that many of the subjects were coerced into attending AA by court order. Such forced attendees have little shot at benefiting from any sort of therapy—it’s widely agreed that a sincere desire to stop drinking is a mandatory prerequisite for getting sober.

Yet a growing body of evidence suggests that while AA is certainly no miracle cure, people who become deeply involved in the program usually do well over the long haul. In a 2006 study, for example, two Stanford psychiatrists chronicled the fates of 628 alcoholics they managed to track over a 16-year period. They concluded that subjects who attended AA meetings frequently were more likely to be sober than those who merely dabbled in the organization. The University of New Mexico’s Tonigan says the relationship between first-year attendance and long-term sobriety is small but valid: In the language of statistics, the correlation is around 0.3, which is right on the borderline between weak and modest (0 meaning no relationship, and 1.0 being a perfect one-to-one relationship).

“I’ve been involved in a couple of meta-analyses of AA, which collapse the findings across many studies,” Tonigan says. “They generally all come to the same conclusion, which is that AA is beneficial for many but not all individuals, and that the benefit is modest but significant … I think that is, scientifically speaking, a very valid statement.”

That statement is also supported by the results of a landmark study that examined how the steps perform when taught in clinical settings as opposed to church basements. Between 1989 and 1997, a multisite study called Project Match randomly assigned more than 1,700 alcoholics to one of three popular therapies used at professional treatment centers. The first was called 12-step facilitation, in which a licensed therapist guides patients through Bill Wilson’s method. The second was cognitive behavioral therapy, which trains alcoholics to identify the situations that spur them to drink, so they can avoid tempting circumstances. And the last was motivational enhancement therapy, a one-on-one interviewing process designed to sharpen a person’s reasons for getting sober.

Project Match ultimately concluded that all three of these therapies were more or less equally effective at reducing alcohol intake among subjects. But 12-step facilitation clearly beat the competition in two important respects: It was more effective for alcoholics without other psychiatric problems, and it did a better job of inspiring total abstinence as opposed to a mere reduction in drinking. The steps, in other words, actually worked slightly better than therapies of more recent vintage, which were devised by medical professionals rather than an alcoholic stockbroker.

AA is still far from ideal. The sad fact remains that the program’s failures vastly outnumber its success stories. According to Tonigan, upwards of 70 percent of people who pass through AA will never make it to their one-year anniversary, and relapse is common even among regular attendees. This raises an important question: Are there ways to improve Wilson’s aging system?

AA is obviously not about to overhaul its 75-year-old formula. But there are a few alterations that would almost certainly make the program work for more people, starting with better quality control. Since no central body regulates the day-to-day operations of local groups, some meetings are dominated by ornery old-timers who delight in belittling newcomers. Others are prowled by men looking to introduce nubile newcomers to the “13th step”—AA slang for sexual exploitation. Finding a way to impose some basic oversight of such bad behavior would likely reduce the dropout rate.

Some AA groups would also do well to shed their resistance to medication. There is nothing in the Big Book that forbids the use of prescription drugs, but there are plenty of meetings where such pharmaceutical aids are frowned upon. Perhaps this sentiment made sense back in AA’s formative years, when a variety of snake oils were touted as alcoholism cures. But today there are several medications that have been proven to decrease the odds of relapse. One such drug, acamprosate, restores a healthy balance between glutamate and GABA, two of the neurotransmitters that get out of whack in the brains of alcoholics. Naltrexone, commonly used to treat heroin addiction, appears effective at preventing relapse by alcoholics who possess a certain genetic variant related to an important mu-opioid receptor. Both can be valuable aids in the recovery process.

But the best way to bolster AA’s success rate may be to increase the personalization of addiction medicine. “We’re starting to get an inkling that something about the initial state of the brain prior to therapy may be predictive as to whether that therapy will be a success,” says Grant of the National Institute on Drug Abuse. In other words, certain brains may be primed to respond well to some therapies and less so to others.

NIDA and other government agencies are currently funding several studies that aim to use neural imaging technology to observe how various therapies affect addicted brains. One alcoholic might have a mesolimbic pathway that normalizes quickly after receiving a certain type of therapy, for example, while another will still suffer from dopamine disregulation despite receiving the same care. The hope is that these studies will reveal whether neurobiology can be used to predict a person’s odds of benefitting from one treatment over another. Perhaps there is one sort of mind that is cut out for the cognitive behavioral approach and another that can be helped only by the 12 steps.

A person’s openness to the concept of spiritual rebirth, as determined by their neural makeup, could indicate whether they’ll embrace the steps. Last September, researchers from the National Institutes of Health found that people who claimed to enjoy “an intimate relationship with God” possess bigger-than-average right middle temporal cortices. And a Swedish study from 2003 suggests that people with fewer serotonin receptors may be more open to spiritual experiences.

For the moment, though, there is no way to predict who will be transformed by AA. And often, the people who become Wilson’s most passionate disciples are those you’d least expect. “I always thought I was too smart for AA,” a bespectacled, Nordic-looking man named Gary shared at a meeting in Hell’s Kitchen this past winter. “I’m a classical musician, a math and statistics geek. I was the biggest agnostic you ever met. But I just wrecked my life with alcohol and drugs and codependent relationships.”

And now, after more than four years in the program? “I know God exists,” he says. “I’m so happy I found AA.”

Maybe one day we’ll discover that there’s a quirk in Gary’s genetic makeup that made his prefrontal cortex particularly susceptible to the 12 steps. But all that really matters now is that he’s sober.

Contributing editor Brendan I. Koerner ( wrote about the pathogen UG99 in issue 18.03.

Discovering the Virtues of a Wandering Mind


At long last, the doodling daydreamer is getting some respect.

In the past, daydreaming was often considered a failure of mental discipline, or worse. Freud labeled it infantile and neurotic. Psychology textbooks warned it could lead to psychosis. Neuroscientists complained that the rogue bursts of activity on brain scans kept interfering with their studies of more important mental functions.

But now that researchers have been analyzing those stray thoughts, they’ve found daydreaming to be remarkably common — and often quite useful. A wandering mind can protect you from immediate perils and keep you on course toward long-term goals. Sometimes daydreaming is counterproductive, but sometimes it fosters creativity and helps you solve problems.

Consider, for instance, these three words: eye, gown, basket. Can you think of another word that relates to all three? If not, don’t worry for now. By the time we get back to discussing the scientific significance of this puzzle, the answer might occur to you through the “incubation effect” as your mind wanders from the text of this article — and, yes, your mind is probably going to wander, no matter how brilliant the rest of this column is.

Mind wandering, as psychologists define it, is a subcategory of daydreaming, which is the broad term for all stray thoughts and fantasies, including those moments you deliberately set aside to imagine yourself winning the lottery or accepting the Nobel. But when you’re trying to accomplish one thing and lapse into “task-unrelated thoughts,” that’s mind wandering.

During waking hours, people’s minds seem to wander about 30 percent of the time, according to estimates by psychologists who have interrupted people throughout the day to ask what they’re thinking. If you’re driving down a straight, empty highway, your mind might be wandering three-quarters of the time, according to two of the leading researchers, Jonathan Schooler and Jonathan Smallwood of the University of California, Santa Barbara.

“People assume mind wandering is a bad thing, but if we couldn’t do it during a boring task, life would be horrible,” Dr. Smallwood says. “Imagine if you couldn’t escape mentally from a traffic jam.”

You’d be stuck contemplating the mass of idling cars, a mental exercise that is much less pleasant than dreaming about a beach and much less useful than mulling what to do once you get off the road. There’s an evolutionary advantage to the brain’s system of mind wandering, says Eric Klinger, a psychologist at the University of Minnesota and one of the pioneers of the field.

“While a person is occupied with one task, this system keeps the individual’s larger agenda fresher in mind,” Dr. Klinger writes in the “Handbook of Imagination and Mental Simulation”. “It thus serves as a kind of reminder mechanism, thereby increasing the likelihood that the other goal pursuits will remain intact and not get lost in the shuffle of pursuing many goals.”

Of course, it’s often hard to know which agenda is most evolutionarily adaptive at any moment. If, during a professor’s lecture, students start checking out peers of the opposite sex sitting nearby, are their brains missing out on vital knowledge or working on the more important agenda of finding a mate? Depends on the lecture.

But mind wandering clearly seems to be a dubious strategy, if, for example, you’re tailgating a driver who suddenly brakes. Or, to cite activities that have actually been studied in the laboratory, when you’re sitting by yourself reading “War and Peace” or “Sense and Sensibility.”

If your mind is elsewhere while your eyes are scanning Tolstoy’s or Austen’s words, you’re wasting your own time. You’d be better off putting down the book and doing something more enjoyable or productive than “mindless reading,” as researchers call it.

Yet when people sit down in a laboratory with nothing on the agenda except to read a novel and report whenever their mind wanders, in the course of a half hour they typically report one to three episodes. And those are just the lapses they themselves notice, thanks to their wandering brains being in a state of “meta-awareness,” as it’s called by Dr. Schooler,

He, and other researchers have also studied the many other occasions when readers aren’t aware of their own wandering minds, a condition known in the psychological literature as “zoning out.” (For once, a good bit of technical jargon.) When experimenters sporadically interrupted people reading to ask if their minds were on the text at that moment, about 10 percent of the time people replied that their thoughts were elsewhere — but they hadn’t been aware of the wandering until being asked about it.

“It’s daunting to think that we’re slipping in and out so frequently and we never notice that we were gone,” Dr. Schooler says. “We have this intuition that the one thing we should know is what’s going on in our minds: I think, therefore I am. It’s the last bastion of what we know, and yet we don’t even know that so well.”

The frequency of zoning out more than doubled in reading experiments involving smokers who craved a cigarette and in people who were given a vodka cocktail before taking on “War and Peace.” Besides increasing the amount of mind wandering, the people made alcohol less likely to notice when their minds wandered from Tolstoy’s text.

In another reading experiment, researchers mangled a series of consecutive sentences by switching the position of two of nouns in each one — the way that “alcohol” and “people” were switched in the last sentence of the previous paragraph. In the laboratory experiment, even though the readers were told to look for sections of gibberish somewhere in the story, only half of them spotted it right away. The rest typically read right through the first mangled sentence and kept going through several more before noticing anything amiss.

To measure mind wandering more directly, Dr. Schooler and two psychologists at the University of Pittsburgh, Erik D. Reichle and Andrew Reineberg, used a machine that tracked the movements of people’s eyes while reading “Sense and Sensibility” on a computer screen. It’s probably just as well that Jane Austen is not around to see the experiment’s results, which are to appear in a forthcoming issue of Psychological Science.

By comparing the eye movements with the prose on the screen, the experimenters could tell if someone was slowing to understand complex phrases or simply scanning without comprehension. They found that when people’s mind wandered, the episode could last as long as two minutes.

Where exactly does the mind go during those moments? By observing people at rest during brain scans, neuroscientists have identified a “default network” that is active when people’s minds are especially free to wander. When people do take up a task, the brain’s executive network lights up to issue commands, and the default network is often suppressed.

But during some episodes of mind wandering, both networks are firing simultaneously, according to a study led by Kalina Christoff of the University of British Columbia. Why both networks are active is up for debate. One school theorizes that the executive network is working to control the stray thoughts and put the mind back on task.

Another school of psychologists, which includes the Santa Barbara researchers, theorizes that both networks are working on agendas beyond the immediate task. That theory could help explain why studies have found that people prone to mind wandering also score higher on tests of creativity, like the word-association puzzle mentioned earlier. Perhaps, by putting both of the brain networks to work simultaneously, these people are more likely to realize that the word that relates to eye, gown and basket is ball, as in eyeball, ball gown and basketball.

To encourage this creative process, Dr. Schooler says, it may help if you go jogging, take a walk, do some knitting or just sit around doodling, because relatively undemanding tasks seem to free your mind to wander productively. But you also want to be able to catch yourself at the Eureka moment.

“For creativity you need your mind to wander,” Dr. Schooler says, “but you also need to be able to notice that you’re mind wandering and catch the idea when you have it. If Archimedes had come up with a solution in the bathtub but didn’t notice he’d had the idea, what good would it have done him?”

The SEC's Russian Roulette

IPOs From Ukraine and Russia Were Cleared, With Few Questions Asked


On Jan. 6, 2009, Ukragro Corp. of Zhitomir, Ukraine, made an initial filing with the Securities and Exchange Commission to sell stock to the public. Its sole employee and owner was a 79-year-old massage therapist.

The company had no revenue, $100 in assets and planned to open a string of health spas. Public records on file at the SEC show that the agency asked no questions and the application cleared through the commission eight days later.

Over the past two years, eight other start-ups reviewed by the SEC have been similarly headed by people in Ukraine or Russia, with no revenue or operations and minimal assets. Business plans ranged from renting bicycles in Kiev to selling cars in Siberia. All used the same small Seattle law firm, Dean Law Corp., to help with their initial SEC filings. The SEC cleared them to sell stock, in most cases without asking a single question, according to the public records at the agency.

The SEC declined to comment on its reviews of individual companies. John Nester, a SEC spokesman, said the agency's chairman, Mary Schapiro, has been "aggressively pursuing enforcement actions" and "is changing the direction and culture of the agency." Ms. Schapiro, for example, has formed a new division with broad powers to identify risky market practices, such as the trading of complex derivatives, and is trying to secure more resources.

In an email response to questions, Faiyaz Dean said his law firm's involvement with the companies "ended after our limited engagement of providing a legal opinion for their registration statements. Other than this, we are bound by attorney-client privilege and cannot answer any further questions."

The ease with which these companies—known as corporate "shells" because they didn't yet have operations—sailed through the SEC raises questions among some observers about the agency's ability to police the market for small-company stocks. Given that the shell companies "appeared to have little or no business results or experience," their filings should have been carefully reviewed for evidence of possible fraud, said Joel Seligman, president of the University of Rochester and author of a history of the SEC.

Instead, many of the filings passed through the SEC without being read, according to a person familiar with the matter.

The SEC has come under scrutiny for its failure to rein in financial practices that contributed to the 2008 stock-market collapse and to unearth Bernard Madoff's Ponzi scheme.

Last month, Republicans on the House Oversight and Government Reform committee issued a report titled "The SEC: Designed for Failure," which argued, among other things, that the SEC wasn't adequately sifting through corporate disclosure documents for evidence of possible misdeeds.

The SEC "is not delivering the level of oversight investors need so they can have confidence in what they are buying," said Rep. Darrell Issa of California, the committee's ranking Republican.

So far, the SEC's reform drive hasn't touched the division that reviews company filings, such as Ukragro's. The unit, called corporation finance, has some 300 reviewers who pore over millions of pages annually. It aims to give an initial read of each filing within 30 days to decide how thorough a review is needed, SEC officials said.

Meredith Cross, head of the corporation-finance division, said the SEC has limited powers when it comes to blocking an initial public offering of stock—no matter how flimsy a company may look on paper. As long as a company is deemed to have adequately disclosed its risks to investors, the SEC is required to stand aside, Ms. Cross said. Vetting firms for shady practices also sometimes bumps up against the division's other mandate of helping companies get to market and find capital, said some current and former agency officials.

The SEC's Ms. Cross said her division has resumed reviewing all IPO filings. But under the SEC's mandate, "we are not investigating for fraud in our reviews," she said, though it can make referrals to the enforcement division.

In a statement, the SEC said it has begun asking new shell companies how they plan to meet federal requirements for preparing audited financial statements. The agency said it also is looking more closely at the role of outside auditors at such companies.

After Ukragro cleared the SEC, the shell company changed its name in September to Windsor Park Forex Inc. before it was acquired in January by Ron Ruskowsky, who became president and controlling shareholder. He changed the company's name again, to Amarok Resources Inc., relocated it to California and refocused its business to prospecting for gold in Nevada and elsewhere. It still hasn't reported revenue and has yet to strike gold but has announced raising $2 million in private stock placements.

Its stock has gone from pennies a share to as high as $2.75 a share, giving the company a market value of nearly $200 million. It currently trades at about $1.30 a share on the OTC Bulletin Board under the symbol AMOK.

Mr. Ruskowsky said he had nothing to do with the company's previous management. He said that in order to bring to market what he views as a promising gold-mining prospect, he purchased the Ukragro shell, which is permissible, without really looking into its past. Since Ukragro had passed through the SEC, Mr. Ruskowsky said he assumed "it should be clean."

Stuart Allen, a retired SEC investigator who still keeps an eye out for suspicious-looking promotions, said that when he read the Ukragro filing, he wondered how a 79-year-old massage therapist in Zhitomir, Maria Yahodka, came to incorporate the company in Nevada, and hire a law firm in Seattle and an accounting firm in Houston. An official at the accounting firm declined to discuss its dealings with Ukragro.

A man who answered the Ukrainian phone number on Ukragro's filing said Ms. Yahodka was unavailable.

Mr. Allen ran the name of the law firm, Dean Law Corp., through public databases. He found that several of the similar small companies also had used the firm recently. Mr. Allen said that as an SEC investigator, when he saw seemingly disparate small companies using the same accountants or lawyers, he would become suspicious that a single stock promoter might secretly control the firms. If that were the case, the companies would be required to disclose such a connection, he said, adding he doesn't know if that is the case with these companies.

In January, as part of Mr. Ruskowsky's purchase of the company, it declared a 60-for-1 stock split, which he said was a way to create more publicly traded shares.

In February, the company announced that it had acquired an interest in a Nevada gold-mining claim via a middleman from a Canadian company run by Mr. Ruskowsky's father. In a Canadian securities filing, the father's company said it had held the claim since 1989 and "has not yet been able to identify any known body of commercial grade mineralization."

Earlier this year, a publication called Intelligent Investor Report issued a "buy" recommendation on Amarok, saying the company had "proven gold deposits" and predicting the stock price "could soon be flying past $15 a share!" A small-type disclaimer said the report was a "paid advertising issue" financed with $335,000 spent by an Amarok shareholder. The report's editor and publisher, Jarret Wollstein, said his piece didn't say that any gold deposits were at commercial-grade levels.

Mr. Ruskowsky said he had nothing to do with that report and never heard of the shareholder who supposedly financed it. While he said he is hopeful of eventually finding commercial quantities of gold, the company hasn't yet but is currently drilling on the Nevada project.

Write to John R. Emshwiller at and Kara Scannell at

The Trouble With Intuition

Figure © Daniel Simons

When subjects were shown a video and told to count the number of times a basketball was passed, half of the viewers failed to notice a research assistant in a gorilla suit strolling through the scene.

By Daniel J. Simons and Christopher F. Chabris

"How do I love thee? Let me count the ways." Those lines by Elizabeth Barrett Browning, written while she was being courted by Robert Browning, and among the most famous in all of poetry, open one of 44 of her love poems that are collectively known as Sonnets From the Portuguese. The Sonnets were first published in book form in 1850, as part of the second edition of her collected poems. At least that's what poetry scholars and bibliophiles thought for several decades until Thomas J. Wise announced that he had discovered a previously unknown earlier printing.

Wise was a celebrated British collector of rare books and manuscripts in the late 19th and early 20th centuries; the catalog of his private library filled 11 volumes. In 1885 an author named W.C. Bennett showed Wise several copies of a 47-page, privately printed pamphlet of the Sonnets dated 1847 and marked "not for publication." Private printings of literature were not unusual in that era. What was unusual was the discovery of a previously unknown collection of such important poetry that predated the first known public printing. Wise immediately recognized the rarity and value of the pamphlets, and bought one for £10 (about $1,200 today). Over the ensuing years, Wise discovered other previously unknown collections of minor works by major authors, including some by Alfred Tennyson, Charles Dickens, and Robert Louis Stevenson. Collectors and libraries snapped up those volumes, and Wise's fame and wealth grew.

At first glance, Wise's items seemed authentic, especially to a buyer considering just one pamphlet at a time. Each one fit nicely with the rest of its author's body of work. For example, the date of Browning's private printing of the Sonnets corresponded with a gap of four years between when the poems were finished and when they were officially published. The pamphlets also appeared to be authentic in format and typography—just how an expert would expect them to look and feel. Although the steady stream of new discoveries by Wise did raise isolated suspicions that something might be amiss, the pamphlets he distributed were broadly respected as genuine for decades.

Some 45 years after Wise found the private edition of the Sonnets, two British book dealers, named John Carter and Graham Pollard, decided to investigate his finds. They re-examined the Browning volume and identified eight reasons why its existence was inconsistent with typical practices of the era. For example, none of the copies had been inscribed by the author, none were trimmed and bound in the customary way, and the Brownings never mentioned the special private printing in any letters, memoirs, or other documents.

The array of circumstantial evidence was impressive, but not conclusive. Carter and Pollard found their smoking gun with scientific analysis. First they documented the fact that all paper used for printing before the 1860s was created from rags, straw, or a strawlike material called esparto. Carter and Pollard then examined one of Wise's Sonnets pamphlets under a microscope and found that the paper was made from chemically treated wood pulp, a technique that wasn't used in Britain until the 1870s. The 1847 edition had to be a fake. The two dealers proved that nearly half of the other Wise pamphlets they examined were also fraudulent, and published their findings in a 412-page book. Wise denied the charges until he died, in 1937, but subsequent investigations confirmed Carter and Pollard's work. Today Wise is celebrated as one of the greatest forgers of all time.

If you have read Malcolm Gladwell's 2005 book, Blink, which is subtitled The Power of Thinking Without Thinking, this tale might seem familiar. Blink begins with a similar story, about an ancient Greek statue known as a kouros, that was offered to the Getty Museum, in Los Angeles. The curators believed the kouros to be genuine, and, relying on scientific tests of its authenticity, they bought it for nearly $10-million. But other art historians, upon first viewing the statue, instantly thought that it was hinky. The former director of the Metropolitan Museum of Art said his first reaction was "fresh"—as in, too fresh-looking to be so old. A Greek archaeologist "saw the statue and immediately felt cold." According to Gladwell, those experts' intuitions proved correct, and the initial scientific tests that authenticated the statue turned out to have been faulty.

Gladwell uses the kouros forgery to launch his case for the surprising power of intuitive snap judgments and instinctive gut feelings, which he calls "rapid cognition." As he puts it, "there can be as much value in the blink of an eye as in months of rational analysis." Gladwell goes on to argue that rapid intuitions often outperform rational analyses, and that excessive thinking can lead us to mistakenly second-guess what we know in our gut to be true. Is that conclusion merited? In the case of Wise's pamphlets, the top experts and collectors of the time trusted in their authenticity, but their rapid judgments were wrong, and only painstaking systematic analysis, which integrated multiple types of information from a variety of sources, uncovered the truth. And even for the kouros, expert intuition was divided: The Getty's curators must have initially thought the statue looked authentic, or they wouldn't have considered buying it in the first place. In fact, some experts still believe the kouros to be authentic, and the Getty today labels it "Greek, about 530 B.C., or modern forgery."

Cases in which forgeries that intuitively appear real but later are discovered through analysis to be frauds are fairly common in the art world. Many of the master forger Han van Meegeren's paintings hung in galleries around the world before scientific analysis showed that they were not authentic Vermeers. Indeed, the skill of the forger is precisely in creating works that appear at first glance, even to experts, to be genuine, and that can be exposed as fakes only through lengthy, expensive study. Like Wise's pamphlets, the infamous "Hitler Diaries" were declared authentic and made public in the 1980s before paper-testing proved that they had been created after the end of World War II.

Gladwell's message in Blink has been interpreted by some readers as a broad license to rely on intuition and dispense with analysis, which can lead to flawed decisions. In his book, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System From Crisis—and Themselves (Viking, 2009), the New York Times journalist Andrew Ross Sorkin notes that the former Lehman Brothers president Joseph Gregory was a devotee of Blink who even hired Gladwell to lecture his employees "on trusting their instincts when making difficult decisions." (Gregory was removed from power as his firm circled the bankruptcy drain in 2008.)

Intuition means different things to different people. To some it refers to a sudden flash of insight, or even the spiritual experience of discovering a previously hidden truth. In its more mundane form, intuition refers to a way of knowing and deciding that is distinct from and complements logical analysis. The psychologist Daniel Kahneman nicely contrasts the two: "Intuitive thinking is perception-like, rapid, effortless. ... Deliberate thinking is reasoning-like, critical, and analytic; it is also slow, effortful, controlled, and rule-governed." Intuition can help us make good decisions without expending the time and effort needed to calculate the optimal decision, but shortcuts sometimes lead to dead ends. Kahneman received the Nobel Memorial Prize in Economic Science in 2002 for his work with the late Amos Tversky that showed how people often rely on intuitive heuristics (rules of thumb) rather than rational analysis, and how those mental shortcuts often lead us to make decisions that are systematically biased and suboptimal.

Gerd Gigerenzer, director of the Max Planck Institute for Human Development and author of Gut Feelings: The Intelligence of the Unconscious (Viking, 2007), takes a more benign view of intuition: Intuitive heuristics are often well adapted to the environments in which the human mind evolved, and they yield surprisingly good results even in the modern world. For example, he argues, choosing to invest in companies based on whether you recognize their names can produce reasonably good returns. The same holds for picking which tennis player is likely to win a match. Recognition is a prime example of intuitive, rapid, effortless cognition. Gigerenzer's book jacket describes his research as a "major source for Malcolm Gladwell's Blink," but the popular veneration of intuitive decision-making that sprang from Blink and similar works lacks the nuance of Gigerenzer's claims or those of other experimental psychologists who have studied the strengths and limits of intuition.

The idea that hunches can outperform reason is neither unique nor original to Malcolm Gladwell, of course. Most students and professors have long believed that, when in doubt, test-takers should stick with their first answers and "go with their gut." But data show that test-takers are more than twice as likely to change an incorrect answer to a correct one than vice versa.

Intuition does have its uses, but it should not be exalted above analysis. Intuition can't be beat when we are deciding which ice cream we like more, which songs are catchier, which politician is most charismatic. The essence of those examples is the absence of any objective standard of quality—there's no method of analysis that will decisively determine which supermodel is more attractive or which orchestra audition was superior. The key to successful decision making is knowing when to trust your intuition and when to be wary of it. And that's a message that has been drowned out in the recent celebration of intuition, gut feelings, and rapid cognition.

There is, moreover, one class of intuitions that consistently leads us astray—dangerously astray. These intuitions are stubbornly resistant to analysis, and it is exactly these intuitions that we shouldn't trust. Unfortunately, they are also the intuitions that we find the most compelling: mistaken intuitions about how our own minds work.

We met in the late 1990s at Harvard University, where Dan was a new psychology professor and Chris was a graduate student. As part of an undergraduate laboratory course Dan was teaching, we decided to re-examine some landmark studies the cognitive psychologist Ulric Neisser conducted in the 1970s. In one of those experiments, observers counted the number of times a group of three people wearing white shirts passed a basketball to one another while ignoring three people wearing black shirts who were also passing a ball. In the middle of the video, a woman carrying an open umbrella walked through the scene. Surprisingly, many of the observers didn't notice her. Some psychologists assumed that this failure was a side effect of the unusual video displays Neisser used—the players and the umbrella woman were all partially transparent and looked ghostly, making them somewhat harder to see. As a class project, we decided to test whether people could miss something that was opaque and fully visible.

We filmed the basketball-passing game with a single camera and, like Neisser, we had a female research assistant stroll through the game with an open umbrella. We also made a version in which we replaced the umbrella woman with a woman in a full-body gorilla suit, even having her stop in the middle of the game, turn toward the camera, thump her chest, and exit on the other side of the display nine seconds later. People might miss a woman, we thought, but they would definitely see a gorilla.

We were wrong. Fifty percent of the subjects in our study failed to notice the gorilla! Later research by others, with equipment that tracks subjects' eye movements, showed that people can miss the gorilla even when they look right at it. We were stunned, and so were the subjects themselves. When they viewed the video a second time without counting the passes, they often expressed shock: "I missed that?!" A few even accused us of sneakily replacing the "first tape" with a "second tape" that had a gorilla added in.

The finding that people fail to notice unexpected events when their attention is otherwise engaged is interesting. What is doubly intriguing is the mismatch between what we notice and what we think we will notice. In a separate study, Daniel Levin, of Vanderbilt University, and Bonnie Angelone, of Rowan University, read subjects a brief description of the gorilla experiment and asked them whether they would see the gorilla. Ninety percent said yes. Intuition told those research subjects (and us) that unexpected and distinctive events should draw attention, but our gorilla experiment revealed that intuition to be wrong. There are many cases in which this type of intuition—a strong belief about how our own minds work—can be consistently, persistently, and even dangerously wrong.

The existence of this class of faulty intuitions would just be an academic curiosity if it did not have such significant practical consequences. If you believe you will notice unexpected events regardless of how much of your attention is devoted to other tasks, you won't be vigilant enough for possible risks. Consider talking or texting on a cellphone while driving. Most people who do this believe, or act as though they believe, that as long as they keep their eyes on the road, they will notice anything important that happens, like a car suddenly braking or a child chasing a ball into the street. Cellphones, however, impair our driving not because holding one takes a hand off the wheel, but because holding a conversation with someone we can't see—and often can't even hear well—uses up a considerable amount of our finite capacity for paying attention.

Flawed intuitions about the mind extend to virtually every other domain of cognition. Consider eyewitness memory. In the vast majority of cases in which DNA evidence exonerated a death-row inmate, the original conviction was based largely on the testimony of a confident eyewitness with a vivid memory of the crime. Jurors (and everyone else) tend to intuitively trust that when people are certain, they are likely to be right. Almost all of us have precise memories of how we heard about the attacks of 9/11 or, if we're old enough, the Challenger explosion or President John F. Kennedy's assassination. But you should not be certain that your detailed memories of those events are accurate. Study after study has shown that memories of important events like those are no more accurate than run-of-the-mill memories. They are more vivid, and we are therefore more confident about their accuracy, but that confidence is largely an illusion.

Other intuitions about the mind's workings fail in the same way. For example, it's easy to fall prey to the belief that you understand complex systems better than you really do. This instinct played a role in the financial crisis, especially among investors who bought newfangled mortgage-related bonds whose risks they did not truly appreciate.

The most troublesome aspect of intuition may be the misleading role it plays in how we perceive patterns and identify causal relationships. When two events occur in close temporal proximity, and the first one plausibly could have caused the second one, we tend to infer that this is what must have happened. A tendency to jump to that conclusion is not a bad "default setting" for the human mind, especially in light of the circumstances in which it evolved. In a nonindustrialized society, with no computers, Internet, Google, or even public libraries to access information, the only ways to infer cause and effect were personal experiences and the stories told by others. If a friend ate berries from a particular bush and soon became sick, you might wisely avoid those berries yourself. But your friend's illness might have had nothing to do with the berries.

To determine whether two events are truly associated, we must consider how frequently each one occurs by itself, and how frequently they occur together. With just one or a few anecdotes, that's impossible, so it pays to err on the side of caution when inferring the existence of an association from a small number of examples. Verifying the existence of a genuine association becomes trivial, though, when we can rely on the accumulated experience of hundreds, thousands, or even millions of people. We can decide which car to buy based on the compiled ratings in Consumer Reports rather than on the rantings of a disgruntled owner who happens to be a cousin (or on the manufacturer's slick ad campaign). We can rely on accumulated data, but too often we don't. Why not? Because our intuitions respond to vivid stories, not abstract statistics.

Imagine that your 2-year-old child is diagnosed with an ear infection. Your pediatrician prescribes an antibiotic and, within 48 hours, your child feels better and the infection is gone. Did the antibiotic work? There is no evidence that it did. The infection might have resolved on its own without antibiotics. The first step in demonstrating the efficacy of a drug is to see whether taking it leads to greater improvements than not taking it. To do that, you would first need to show that improvement rates are higher for people who receive the drug than for those who do not. Showing that association is a necessary first step, but it still does not show that the drug caused the improvement. A crucial second step is to randomly assign some patients to receive the antibiotic for their ear infections and others to receive a placebo. Only if the antibiotic group healed faster than the placebo group could you conclude that the antibiotic caused the improvement.

Compared with epidemiological studies and clinical trials, anecdotes—with their lack of control groups—look downright pitiful. Yet we rely on anecdotal causal reasoning all the time, without even realizing the giant leaps of logic we are making. In a recent issue of The New Yorker, John Cassidy writes about U.S. Treasury Secretary Timothy Geithner's efforts to combat the financial crisis. "It is inarguable," writes Cassidy, "that Geithner's stabilization plan has proved more effective than many observers expected, this one included." It's easy for even a highly educated reader to pass over a sentence like that one and miss its unjustified inference about causation. The problem lies with the word "effective." How do we know what effect Geithner's plan had? History gives us a sample size of only one—in essence, a very long anecdote. We know what financial conditions were before the plan and what they are now (in each case, only to the extent that we can measure them reliably—another pitfall in assessing causality), but how do we know that things wouldn't have improved on their own had the plan never been adopted? Perhaps they would have improved even more without Geithner's intervention, or much less. The "data" are consistent with all of those possibilities, but Cassidy and most of his readers are drawn to the most intuitive conclusion: that Geithner's 2009 plan caused the improvements seen in 2010.

We are not naïvely arguing that people should trust only double-blind studies with random assignment when inferring cause. If a man points a loaded gun at us, we don't doubt the outcome of his pulling the trigger, and we won't wait to be shown a peer-reviewed journal article about the appropriate controlled experiment before we start running. There is a plausible and well-established mechanism by which bullets fired from a gun kill people. In simple situations like that, we can safely generalize from a set of principles (Newtonian mechanics) that are well understood and that do involve causal tests that long ago proved the principles correct. In the Geithner example, though, and in many, many other situations, there is no simple analogy with well-understood causal relationships. For complex systems like the global economy, human physiology, or the human mind itself, inferring cause from single examples is not logically justified, because we do not have a complete enough understanding of the internal workings of the system.

Take the case of the perceived link between childhood vaccinations and autism. Nowadays children receive several vaccines before age 2, and autism is often diagnosed in 2- and 3-year-olds. When a child is diagnosed with autism, parents naturally and understandably seek possible causes. Vaccination involves the introduction of unusual foreign substances (dead viruses, attenuated live viruses, and preservative chemicals) into the body, so it's easy to imagine that those things could profoundly affect a child's behavior. But more than a dozen large-scale epidemiological studies, involving hundreds of thousands of subjects, have shown that children who were vaccinated are no more likely to be diagnosed with autism than are children who were not vaccinated. In other words, there is no association between vaccination and autism. And in the absence of an association, there cannot be a causal link.

Many people who believe that vaccination can cause autism are aware of those data. But the intuitive cause-detector in our minds is driven by stories, not statistics, and once a compelling story leads us to ascribe an effect to a cause, we can hold to that belief as stubbornly as when we trust in our ability to talk on a phone while driving—or to spot a person wearing a gorilla suit. In a way, intuition and statistics are like oil and water: They can easily coexist in our minds without ever interacting. That's one reason some in the media continue to treat the vaccine-autism link as a "controversy"—the emotional stories of parents have a constant tug on our beliefs because their effects can't be wiped away by knowing the statistics, no matter how solid they are.

Malcolm Gladwell is regarded as an exceptional science writer in part because of the effective way he uses stories. But it's not just that Gladwell is a better storyteller than his peers. He deploys his stories—anecdotes, really—as part of a compelling rhetorical strategy. Gladwell surrounds his arguments with examples that suggest an association, letting his readers infer the causal relationships he wants to convey. In Blink, he begins his argument with a case in which intuition revealed the kouros fraud, and readers conclude for themselves that putting more trust in their intuition can make them better thinkers. Indeed, experiments have shown that the more mental work readers have to do to infer a cause from a set of facts, the more memorable the causal inference will be. Gladwell, like most good writers, is a master of letting readers "discover" his argument rather than hitting them over the head with it.

There is nothing wrong with using Gladwell's rhetorical technique, as long as the examples are truly illustrative of a valid causal relationship. Charities do this when they highlight the plight of a single individual, with a name and a face, rather than the numerical magnitude of a problem: The stories bring in more money than the statistics. The danger comes from the fact that we promiscuously infer cause from such positive anecdotes in the absence of proper evidence, or even in the face of contradictory evidence. Most people aren't inveterate skeptics vigilantly testing each anecdote to make sure it is representative of an overall pattern.

The actress Jenny McCarthy has used her celebrity to promote proposed cures for autism, such as a special diet she designed for her own autistic son. She often talks about the thousands of parents who have let her know that her regimen helped their children. McCarthy believes, and wants her audience to believe, that those parents have made a valid inference about the effects of the diet. The accumulation of examples in which a possible cause and effect co-occur, no matter how emotionally compelling, provides no evidence of a true association. In McCarthy's case, parents who tried her cure and had no success are unlikely to write to her. Parents who didn't try the cure at all are even less likely to drop her a note reporting that their children got better without trying it—especially if they are among the millions of parents who have never even heard of her proposal.

To know whether intuition should trump analysis, we need more than case studies of initial impressions that were later vindicated. What we need to know is how often experts intuitively identify a forgery despite preliminary scientific analysis suggesting that it was genuine (the kouros case), and how often experts intuitively believe a piece to be genuine only to be proven wrong (the Thomas J. Wise forgeries). Conversely, how often do experts make the mistake of intuiting a forgery when scientific analysis later proves the work to be authentic? Without comparing how frequently intuitions outperform analysis for both genuine and fake items, there is no way to draw general lessons about the power of intuition.

The kouros example is effective because it capitalizes on our tendency to generalize from a single positive association, leading to the conclusion that intuition trumps reason. But in this case, a bit of thought would show that conclusion to be unlikely, even within the confined realm of art fakery. Think about how often experts throughout history have been duped by forgers because intuition told them that they were looking at the real thing. It is ironic that Gladwell (knowingly or not) exploits one of the greatest weaknesses of intuition—our tendency to blithely infer cause from anecdotes—in making his case for intuition's extraordinary power.

Intuition is not always wrong, but neither is it a shortcut around the hard work of logical analysis and rational choice. The trouble with intuition is that while intuitive modes of thought are easier to use than analytical modes, they are poorly adapted to many circumstances and decisions we face in the modern world. If we follow our gut instincts, we will talk on the telephone while we drive, have too much trust in eyewitnesses, and believe we know what causes what—in health care, finance, politics, and every other domain—without even realizing that we haven't considered the right evidence, let alone come to the right conclusions.

Factory Jobs Return, but Employers Find Skills Shortage


BEDFORD, Ohio — Factory owners have been adding jobs slowly but steadily since the beginning of the year, giving a lift to the fragile economic recovery. And because they laid off so many workers — more than two million since the end of 2007 — manufacturers now have a vast pool of people to choose from.

Yet some of these employers complain that they cannot fill their openings.

Plenty of people are applying for the jobs. The problem, the companies say, is a mismatch between the kind of skilled workers needed and the ranks of the unemployed.

Economists expect that Friday’s government employment report will show that manufacturers continued adding jobs last month, although the overall picture is likely to be bleak. With the government dismissing Census workers, more jobs might have been cut than added in June.

And concerns are growing that the recovery could be teetering, with some fresh signs of softer demand this week. A central index of consumer confidence dropped sharply in June, while auto sales declined from the previous month.

Pending home sales plunged by 30 percent in May from April as tax credits for home buyers expired. Fretting that global growth is slowing, investors have driven stock indexes in the United States down to their levels of last October, for losses as great as 8 percent for 2010.

As unlikely as it would seem against this backdrop, manufacturers who want to expand find that hiring is not always easy. During the recession, domestic manufacturers appear to have accelerated the long-term move toward greater automation, laying off more of their lowest-skilled workers and replacing them with cheaper labor abroad.

Now they are looking to hire people who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker.

Makers of innovative products like advanced medical devices and wind turbines are among those growing quickly and looking to hire, and they too need higher skills.

“That’s where you’re seeing the pain point,” said Baiju R. Shah, chief executive of BioEnterprise, a nonprofit group in Cleveland trying to turn the region into a center for medical innovation. “The people that are out of work just don’t match the types of jobs that are here, open and growing.”

The increasing emphasis on more advanced skills raises policy questions about how to help low-skilled job seekers who are being turned away at the factory door and increasingly becoming the long-term unemployed. This week, the Senate reconsidered but declined to extend unemployment benefits, after earlier extensions raised the maximum to 99 weeks.

The Obama administration has advocated further stimulus measures, which the Senate rejected, and has allocated more money for training. Still, officials say more robust job creation is the real solution.

But a number of manufacturers say that even if demand surges, they will never bring back many of the lower-skilled jobs, and that training is not yet delivering the skilled employees they need.

Here in this suburb of Cleveland, supervisors at Ben Venue Laboratories, a contract drug maker for pharmaceutical companies, have reviewed 3,600 job applications this year and found only 47 people to hire at $13 to $15 an hour, or about $31,000 a year.

The going rate for entry-level manufacturing workers in the area, according to Cleveland State University, is $10 to $12 an hour, but more skilled workers earn $15 to $20 an hour.

All candidates at Ben Venue must pass a basic skills test showing they can read and understand math at a ninth-grade level. A significant portion of recent applicants failed, and the company has been disappointed by the quality of graduates from local training programs. It is now struggling to fill 100 positions.

“You would think in tough economic times that you would have your pick of people,” said Thomas J. Murphy, chief executive of Ben Venue.

How many more people would be hired if manufacturers could find qualified candidates is hard to say. Since January, they have added 126,000 jobs, or about 6 percent of those slashed during the recession. The number may understate activity somewhat, as many factories have turned to temporary workers.

Christina D. Romer, chairwoman of the Council of Economic Advisers, said the skills shortages reported by employers stem largely from a long-term structural shift in manufacturing, which should not be confused with the recent downturn. “I do think that manufacturing can come back to what it was before the recession,” she said.

Automakers, for example, have been ramping up and mainly filling slots with people laid off a year or two ago.

Manufacturers who profess to being shorthanded say they have retooled the way they make products, calling for higher-skilled employees. “It’s not just what is being made,” said David Autor, an economist at the Massachusetts Institute of Technology, “but to the degree that you make it at all, you make it differently.”

In a survey last year of 779 industrial companies by the National Association of Manufacturers, the Manufacturing Institute and Deloitte, the accounting and consulting firm, 32 percent of companies reported “moderate to serious” skills shortages. Sixty-three percent of life science companies, and 45 percent of energy firms cited such shortages.

In the Cleveland area, historically a center of metalworking and rubber production, more than 40,000 manufacturing workers lost their jobs in the recession, a 21 percent decline, according to an analysis of employment data by Cleveland State University. Since the beginning of the year, the region has added 4,500 positions.

Employers say they are looking for aptitude as much as specific skills. “We are trying to find people with the right mindset and intelligence,” said Mr. Murphy.

Ben Venue has recruited about half its new factory hires from outside the pool of former manufacturing workers. Zachary Flyer, a 32-year-old Army veteran, had been laid off from a law firm filing room when he applied at the drug maker last summer.

He spent four months this year learning how to operate a 400-square-foot freeze dryer that helps preserve vials of medicine. Monitoring vacuum pressure and temperatures on a color-coded computer screen with flashing numbers, Mr. Flyer said last month that he preferred his new work to the law firm, where he had spent seven years.

“I like jobs that are more hands-on, as opposed to watching paperwork all day,” he said.

Local leaders worry that the skills shortage now will be exacerbated once baby boomers start retiring. In Ohio, officials project that about 30 percent of the state’s manufacturing workers will be eligible for retirement by 2016.

“The new worker of tomorrow is in about sixth grade,” said John Gajewski, executive director of the advanced manufacturing, engineering and apprenticeship program at Cuyahoga Community College in downtown Cleveland. “And they need training to move into manufacturing.”

At Astro Manufacturing and Design, a maker of parts and devices for the aerospace, medical and military industries, Rich Peterson, vice president for business development, recently gave a tour to a group of eighth graders.

He showed off surgical simulators and torpedo parts, saying he wanted them to see the “cool” things the company makes. By the end of the tour, more than a third of the students said they might consider working at a place like Astro, which is based in Eastlake and has five plants in the Cleveland area.

For now, the company urgently needs six machinists to run what are known as computer numerical control — or CNC — machines. An outside recruiter has reviewed 50 résumés in the last month and come up empty.

The jobs, which would pay $18 to $23 an hour, require considerable technical skill. On an afternoon last month, Christopher Debruycker, 34, was running such a machine, the size and shape of a camper van parked on the factory floor.

Mr. Debruycker, who has been an operator for 15 years, had programmed the machine to carve an intricate part for a flight simulator out of a block of aluminum, and he monitored its progress on a control pad with an array of buttons.

“We need 10 more people like him,” Mr. Peterson said.

David Maxwell contributed reporting.

Obama's CEO problem -- and ours

By Fareed Zakaria Monday, July 5, 2010; A13

The American economy is sputtering and we are running out of options. Interest rates can't go any lower. Another burst of government spending -- whether a good or bad idea -- looks politically impossible. Can anything protect us from the dangers of stagnation or a double dip? Actually, there is a second stimulus that could have a dramatic effect on the economy -- even more so than government spending. And it won't add to the deficit.

The Federal Reserve recently reported that America's 500 largest nonfinancial companies have accumulated an astonishing $1.8 trillion of cash on their balance sheets. By any calculation (for example, as a percentage of assets), this is higher than it has been in almost half a century. Yet most corporations are not spending this money on new plants, equipment or workers. Were they to loosen their purse strings, hundreds of billions of dollars would start pouring through the economy. These investments would probably have greater effect and staying power than a government stimulus.

To be clear: There is a strong case for a temporary and targeted government stimulus. Consumers and companies are being very cautious about spending. Right now, government spending is keeping the economy afloat. Without a second stimulus, state and local governments will have to slash spending and raise taxes, which will produce a downward spiral of higher unemployment, slower growth, lower tax revenue and a larger deficit. Joel Klein, the New York City schools chancellor, told me that when the stimulus money runs out at the end of this year, he will be forced to lay off 5,000 teachers. Multiply that example a thousand times to get a sense of what 2011 could look like.

But government spending can only be a bridge to private-sector investment. The key to a sustainable recovery and robust economic growth is to get companies investing in America. So why are they reluctant, despite having mounds of cash? I put this question to a series of business leaders, all of whom were expansive on the topic yet did not want to be quoted by name, for fear of offending people in Washington.

Economic uncertainty was the primary cause of their caution. "We've just been through a tsunami and that produces caution," one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly. Jeffrey Immelt, chief executive of General Electric, complained Friday that government was not in sync with entrepreneurs. The Business Roundtable, which had supported the Obama administration, has begun to complain about the myriad laws and regulations being cooked up in Washington.

One CEO told me, "Almost every agency we deal with has announced some expansion of its authority, which naturally makes me concerned about what's in store for us for the future." Another pointed out that between the health-care bill, financial reform and possibly cap-and-trade, his company had lawyers working day and night to figure out the implications of all these new regulations. Lobbyists have been delighted by all this activity. "[Obama] exaggerates our power, but he increases demand for our services," superlobbyist Tony Podesta told the New York Times.

Most of the business leaders I spoke to had voted for Barack Obama. They still admire him. Those who had met him thought he was unusually smart. But all think he is, at his core, anti-business. When I asked for specifics, they pointed to the fact that Obama has no business executives in his Cabinet, that he rarely consults with CEOs (except for photo ops), that he has almost no private-sector experience, that he's made clear he thinks government and nonprofit work are superior to the private sector. It all added up to a profound sense of distrust.

Some of this is a product of chance. The economic crisis forced the government to expand its authority in dozens of areas, from finance to automobiles. But precisely because of these circumstances, Obama needs to outline a growth and competitiveness agenda that is compelling to the business community. This might sound like psychology more than economics, and the populist left will surely scream that the last thing we need to do is pander to business. But the first thing we need is for these people to start spending their money -- soon. As a leading New York businessman who publicly supported Obama during the campaign told me, "their perception is our reality."

Fareed Zakaria is editor of Newsweek International. His e-mail address is

America needs a growth strategy

By Michael Spence

Published: July 8 2010 21:53 | Last updated: July 8 2010 21:53

As the International Monetary Fund warned on Thursday, America’s economy shows worrying signs of weakness. Worse, and in common with other developed countries, it also lacks a credible strategy for longer-term growth. Without such a strategy, a strong global recovery is unlikely.

The structural evolution of the US economy over the past 15 years has been driven by excess consumption, enabled by debt-fuelled asset inflation. The crisis put a stop to this, but structural deficiencies remain. America’s export sector is too small and underdeveloped. The financial sector became outsized, and is down-sizing.

A pattern of underinvestment in infrastructure has left the economy less competitive than it should be. Energy pricing issues have been ignored, causing underinvestment in urban infrastructure and transport. Theeducation system has widespread problems with efficiency and effectiveness. Elsewhere, state budgets are in distress as a result of insufficiently conservative budget policies.

Even with a fiscal strategy that balances short-term stimulus and longer- term stability, America must still address the composition and size of expenditures, investments and revenues. To finance growth-supporting long-term investments, domestic private consumption has to shrink. This means higher taxes. In addition, existing government expenditure must be shifted away from consumption and towards investment, meaning fewer government services. Restoring fiscal balance in a way that supports longer-term growth will therefore be painful.

But even that is not enough. The real issue is employment: not just stubbornly high unemployment, but a bigger problem described recently in a thoughtful article by Andy Grove, the long-time chief executive of Intel. He argued that manufacturing is vanishing in the US, a trend that must be reversed. The question is how.

There is little doubt that America’s social contract is starting to break. It had on one side an open, flexible economy, and on the other the promise of employment and rising incomes for the motivated and diligent. It is the second part that is unravelling.

Incomes in the middle-income range for most Americans have stagnated for more than 20 years. Manufacturing jobs are moving offshore. Globally the set of goods and services that is tradable is expanding, but the US and other advanced countries are not competing successfully for an adequate share of the tradable sector.

The employment effects of these trends over the past 15 years have been masked by excess consumption and the overdevelopment of sectors such as finance and real estate. The latter are now set to shrink, as multinational companies grow where they have access to high-growth emerging markets in Asia and Latin America. Such companies will locate their operations where market and supply chain opportunities lie. In the tradable sector, in manufacturing and in a growing group of services, that means outside advanced countries.

The availability of low-cost, disciplined labour forces in developing countries reduces the incentive for these companies to invest in technologies that enhance labour productivity in the tradable sectors of the advanced economies. As a result, the evolving composition of advanced economies is increasingly weighted towards the non-tradable sector, combined with a set of high-end tradable services where both human capital and proximity matter. The rest of the tradable sector is shrinking.

The shrinkage creates problems. Over-specialisation could threaten independence and national security. Spillovers between R&D, product development and manufacturing will be lost if manufacturers leave. Employment will stagnate. Income distribution will move adversely and the social contract will erode further.

Solutions to these problems are not easy to find. The unequal distribution of income can be dealt with through the tax system, although this does not attack the underlying problem. Protectionism could alter the pattern of out-migration of manufacturing, but only by imposing costs on domestic consumers and risking the breakdown of the open global economy model.

To avoid an outbreak of protectionism, there has to be an alternative. President Barack Obama’s new export council, announced on Wednesday, is a step in the right direction. But a bolder move is needed: a broad public-private partnership to invest in the development of technology in parts of the tradable sector where there are opportunities to make advanced countries competitive. The goal must be to create capital-intensive jobs that have labour productivity levels consistent with advanced country incomes.

Would this damage developing countries? Clearly not. The US (or even developed economies combined) does not have hundreds of millions to employ. A targeted programme would leave the vast majority of labour-intensive manufacturing right where it is now: in the developing world. With new credible growth strategies in America (and other advanced countries) developing countries may even be willing to play an important complementary role in restoring global demand through, for example, the reduction of excess savings.

We are already on a lengthy and bumpy road to a new normal. That is unavoidable. The risk is that without a new direction in American economic policy, the new normal may be as unpleasant as the journey.

The writer received the 2001 Nobel memorial prize in economics and chairs the Commission on Growth and Development

Featured Posts
Recent Posts
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
bottom of page