Advice for People With Problems

For advice to be useful or constructive, it has to make sense within the point of view of the person receiving it. It does not help to suggest an action a person can’t or wouldn’t want to do.

My sophomore macroeconomics professor gave a real-world example of this. If the president of a company hires you to tell him how to overhaul his company, your recommendations cannot include firing the president. Even if that is what needs to be done, the recommendation you offer has to point toward actions the president might actually consider.

There is a branch of economics that deals with these issues, especially on a national level. In the field of economic development, the question is not whether a country would be better off adding ten universities and a thousand factories, but what it can realistically accomplish next starting from where it is.

On an individual level, there is the old cure for insomnia: “What you need is a good night’s sleep.” That’s a joke, of course, but lots of well-meaning lifestyle advice is given in the same manner. The advice is not helpful because it is based on the assumption that the problem doesn’t exist.

Running, for example, could be a way to lose weight, but this is not a strategy for people who are too heavy to run for more than a few minutes at a time. They need a form of exercise that puts less stress on their already stressed bodies, at least at first.

A friend told me another example. An expert suggested that eating flax seeds would help reduce inflammation, but cautioned that one should eat “only freshly ground flax seeds.” This might be true in some scientific sense, but to expect a person who has an inflammatory lifestyle to muster the energy to get a grinder and learn how to grind flax seeds, and then to do so every morning before going off to work, is missing the point. A person who has a general problem with inflammation — as many people do because of the inflammatory effects of the western diet — doesn’t have the energy to take on such a big initiative. A program of action that is simple enough to do is more important than having it be ideal in a theoretical sense. Better advice about flax seeds would be to buy commercial flaxseed meal and store it in the freezer. This way, you get some of the benefits of flax seeds, and it’s something you can actually do. After a few years of anti-inflammatory initiatives like flaxseed meal, you might find that you have the energy to grind flax seeds every day, but that level of energy has to come first.

Magazine articles with advice on clutter often make the same mistake. One suggestion I read recently: a designated spot to put today’s mail so that you can find it later when you have time to go through it. This might be a good strategy for someone who is already pretty well organized, but it won’t work for the people who really have a problem with clutter. The nature of clutter is that the spaces are filled. They don’t have any spare spaces that can be designated for one purpose or another. Being better organized might be the ultimate outcome, but they have to start out by having less stuff.

The traditional advice for shy people is equally useless. “Get out there and mingle,” “Go to more parties,” “Just be yourself” — the strategies that work so well for people who can’t imagine being shy may not help people who actually have a problem with shyness.

We all know people who are ready to dispense advice at the drop of a hat. They have a solution for everyone. But good advice is harder than it seems. The downfall of most advice that is supposed to solve a problem is that the problem keeps the advice from working. Anyone can argue against a problem. It takes a disciplined imagination to look inside a problem and find the way out.

This Week in Bank Failures

Tonight’s failed bank is located in Georgia. The ironically-named Integrity Bank is a “small” bank with offices in five towns that recently had $1.1 billion in assets. Accounts have been transferred to Regions Bank. Regions Bank is paying a 1 percent premium for $34 million in assets.

Integrity Bank was based in Alpharetta, Georgia, and its closure comes 11 months after the failure of cross-town rival NetBank.

Integrity Bank was unable to raise more capital after declining real estate prices hurt its loan portfolio. In particular, according to The Wall Street Journal, one real estate developer defaulted on $83 million in construction loans. The decline in real estate values in Georgia occurred more than a year before it hit nationally. According to Bloomberg, the holding company’s stock value had declined from $2 at the beginning of the year to 4 cents today.

In an interview published in The Wall Street Journal this week, the FDIC suggested that it would shortly start borrowing money from the Treasury. The money is expected to be paid back after the FDIC sells off the assets it acquires in bank failures. The FDIC says it has gone through about a third of its reserves in the 10 bank failures so far this year. Economists expect as many as 100 to 200 bank failures in the coming year, probably including a few of the largest banks, so the FDIC will need more funds from the Treasury soon.

The timing of this closure, on a holiday weekend, assured that there would be almost no national news coverage. The timing also suggests that the FDIC has many more banks to close in the coming weeks and cannot afford to take a weekend off, even for a national holiday.

New Orleans Island

Three years after Katrina, another hurricane is headed for New Orleans.

Tropical Storm Gustav, which will surely be a hurricane again tomorrow night or the next day, is expected to pass the western tip of Cuba Saturday night. It isn’t really possible to predict the movements of a hurricane any farther in advance than that, but the most likely track would have it narrowly miss New Orleans Monday night, following in the footsteps of Katrina.

Every time a hurricane approaches the Gulf of Mexico, people in New Orleans are losing sleep. The city closest to the center of the gulf, it is especially vulnerable to hurricanes. It is just a matter of time before it gets hit again.

And we don’t know how many more hits it can take. The same geological forces that dropped the city itself below sea level are taking away the delta land that protects it from the waves. Every hour the sea takes the roots out from under a tree somewhere in the delta, in an area where the water is too deep for a new tree to grow. When a hurricane hits, a million trees can go down at once. For political reasons, the maps aren’t being redrawn very quickly, but if you compare the pre-Katrina and post-Rita satellite images of the Louisiana coast, you can see that those two events took away vast areas of land.

The city at the mouth of the Mississippi is turning into an island.

One estimate among geologists (famously broadcast on 60 Minutes in 2005, but not news to scientists who have been following this issue) is that around 2100 what remains of the delta will be submerged and the sea will reach New Orleans. Experts disagree about the current rate of subsidence, but there is no debate that most of the city is several meters lower than it was 500 years ago, and whether the ground is sinking at 1 millimeter a year, or 2, it is a problem.

Most of New Orleans could be submerged too — its current sea walls and levees aren’t built to stand up to the waves of the sea. They can handle a Category 1 hurricane only because they don’t face the open sea. Engineers disagree about whether they are fit to stand against a Category 2 hurricane. If Gustav keeps to its forecast, they may get to find out.

Massive sea walls could be built around the city to keep the waves out. Engineers from The Netherlands say it could be done, but it could cost so much, it would be hard to justify in terms of real estate value.

The walls, if they were built, would separate the city from the Mississippi River. So it really wouldn’t be the same city.

On the other hand, there are those who do not want to see New Orleans rebuilt. Such a battle against nature, they say, can only be costly, risky, and futile. And some argue that New Orleans is not “American enough” to justify a national effort to save it.

In my opinion, though, the distinctive character of New Orleans is precisely the reason we cannot afford to lose it. For it to succeed, though, it may have to succeed as an island — which means moving it above sea level. The widely offered suggestion of raising much of the city about two meters above sea level makes sense to me. Doing that across the whole city would cost a fortune, of course — $10 to 40 billion just to deliver the fill, and besides, there aren’t enough highways to carry all the trucks it would take. But compare that to the cost of responding and rebuilding after just one disaster, and the relative cost doesn’t seem disproportionate.

And we’re not talking about blanketing the whole city with a layer of fill all at once. Some neighborhoods, of course, are well above sea level, weren’t flooded, and don’t need to be raised. Many blocks are too historic to be torn down or buried. But there are also areas that will work much better if they are lifted up.

It could make a big difference someday to have hospitals, the electric power supply, and major through streets above sea level. I would also want to build up the sides of the canals with level land a city block wide — then I wouldn’t worry so much about the canal walls.

I am only guessing here, but the point is that some places are more important than others and that you can get a lot of the benefit from being above sea level even if it’s just a fraction of the city, and it’s something that can be done bit by bit. Lots of the homes being rebuilt are on stilts. That’s a move in the right direction. It protects the individual home from flooding, and it’s a necessary step if the street may be raised in a few years. It’s worth thinking big if that’s going to keep New Orleans going into the next century.

This Week in Bank Failures

It’s become almost like clockwork. On Friday night, after the network news is over, you can check the FDIC web site to see which, if any, banks closed this week.

Tonight it was Columbian Bank of Topeka, Kansas. With less than a billion dollars in assets, it is considered a small bank, but was recently the 17th largest bank in Kansas. Its nine locations, most in Topeka, have been taken over by Citizens Bank of Chillicothe, Missouri.

The failure is blamed on a run of bad loans and a general decline in business at the bank, probably partly related to the recession.

As notable as the bank failure itself is the muted nature of the news coverage. The story is being dutifully reported, but I had to go to the Kansas City Star to find a news site that is treating it as a top story. This is in keeping with the axiom in news reporting that when something just keeps happening, it eventually isn’t very newsy anymore.

EBay Pushes Sellers to Fix Prices

For those who thought eBay was kidding about its transition from auction engine to retail integrator, yesterday’s announcement of 30-day fixed-price listings should tell them it’s really happening.

The 7-day duration of a listing was a vestige of eBay’s auction days. An auction has to last for a limited time because only the bids placed in the last hour mean anything (and for many eBay auctions, just the last 30 seconds). But how many stores are open for only 7 days? Extending the duration of fixed-price listings from 7 to 30 days makes a lot of sense.

But this change is more than it appears on the surface. Most 7-day eBay listings go unsold. With 7-day listings, a typical item might be listed 5 to 10 times before it sells — giving eBay the biggest chunk of its fees, but creating lots of meaningless work for sellers. With 30-day listings, the same item is likely to sell the first or second time it is listed — fewer fees for eBay, but a lot less work for the seller.

To simplify things still more, eBay will no longer charge extra listing fees for high-value or multiple items in a listing. This will also greatly reduce the number of listings.

With eBay’s current fee structure, a seller offering 1,000 rolls of masking tape has an incentive to list each roll separately. Some sellers use programs to automatically create 10 or 20 nearly identical listings every day. With the new listing fees, a seller can save a fortune in listing fees by creating just one listing every 30 days. A specialized seller selling a moderate volume of a few items (this was the core eBay seller until eBay started to push them out two years ago) will save several thousand dollars a year.

This is not just a nice, long overdue price cut for sellers on eBay, who have been hit with fee increases year after year for the past ten years. It also means that auction sellers can no longer compete with fixed-price sellers. With lower costs, fixed-price sellers can sell at lower prices and squeeze out auction sellers of the same items. The auction format is still available but now makes sense only for unusual items whose market value cannot easily be determined.

It is the buyers who ultimately pay to keep eBay going, and eBay is looking out for the buyers in making this change. The inconvenience of the auction format is one reason so many buyers have left eBay. Getting to bid on perfectly ordinary items was a novelty in 1998, but customers are no longer entertained just by bidding. A bidder goes through all of the motions required to buy an item, perhaps several times, usually without actually getting to buy anything. The time and effort goes to waste, and the losing bidders can get the impression that they are being used, especially if, as so often happens, the winning bid is placed within the last five seconds of the auction or if (before the eBay rule change of two years ago) the seller cancels the auction in the final minute. Most items sold on eBay have well-known market values, so it is simpler for everyone if the seller sets the price and waits for someone to buy.

To the people who manage the money at eBay, this fee change might seem crazy. The listing fees were the easy part of its marketplace revenue, money eBay collected for doing nothing, and nearly all that revenue will be going away. But eBay has little choice. Sellers will not keep paying listing fees over and over again for items that are slow to sell. To speed up its marketplace, eBay needs to bring buyers back. Buyers will come back only when there is something to buy, so eBay needs to drum up better listings from sellers, and it needs to do it now. Many of the people who tried to do their Christmas shopping on eBay last year were so disappointed by the spotty selection and difficult purchasing process that they swore never to go back. They will be back again this year, of course, but if the eBay marketplace does not make a better impression this time, they may go away again and never come back.

To get more listings, of course, eBay will have to bring sellers back, and cutting fees may not be enough. EBay policies still prevent or discourage its “Main Street” members from setting prices for items. Small and medium-sized sellers still pay higher fees than the largest sellers, making it hard for them to compete. At the same time it is cutting its listing fees, eBay is introducing big increases in its transaction fees, based on the value of items sold, and this increase has led more than a few sellers today to say they are pulling out. Then there is the issue of the estimated 200,000 former eBay sellers, the heart of the old eBay auction marketplace, who eBay has banned for reasons that remain a mystery. Even if eBay were to apologize and waive startup fees, an action that would run completely against its corporate culture, it it hard to imagine that the old eBay sellers would come running back.

EBay does not seem to mind shedding its many small sellers, but will surely have to cut deals with more big companies to get new merchandise on its site. That, of course, is what retail integrators traditionally do, and if eBay is determined to succeed as a retail integrator, it will have to prove it can succeed at cutting deals with billion-dollar sellers.