Diminishing Returns
Marvin had been a killer economics student. He had been an engineer who transferred into economics the moment he had finished hearing his fist macroeconomic lecture. He had not gone to one of those progressive high schools that offered courses that went beyond the basic reading, writing and arithmetic courses offered in every high school in the country. None of this Advanced Placement curriculum nonsense. And certainly nothing approximating an economics course. Given that his high school was run by Brothers of the Holy Cross, he’s not sure that any of the brothers were up to teaching something as “vocational” as economics. He wasn’t sure any of them had lived outside the cloistered word of their order. Of course that was silly, they were not a monastery and South Bend was not on the dark side of the moon.
After taking every economics course of any substance on the roster, Marvin decided that he would prefer to go the practicum route rather than the academic route. That meant going on to business school rather than graduate school in economics. That was an easy path since in those days of the mid-1970’s, business schools were not so competitive if you were not trying to go to Harvard, Wharton or Stanford. Marvin had no need for the ego boost offered by those schools so he attended a next-tier school where he could exempt out of most of the first year courses (microeconomics, macroeconomics, financial accounting, statistics, quantitative science and finance). He took all the exams and was advanced almost completely into a second year curriculum. He finagled the rest and was able to get out of school with an MBA in finance in one year. During that time he even got to teach economics to hospitality undergraduate students. Coming up with conceptual examples in the hotel business to show off economic concepts was certainly interesting. He was raring to go even further.
Banking was the perfect forum for practicing economics. Marvin supposed that working at the New York Federal Reserve Bank might be more focused on practicing economics as an art, but he also knew that would be so bureaucratic that he might never get to hands-on economics. Note that working at just any Federal Reserve Bank (there are twelve) would not necessarily be like working at the New York Fed since New York was where the real instrument of monetary policy was put into practice through what are called open market operations. That was buying and selling government bonds for the US Treasury and thereby creating or sopping up liquidity. Fascinating stuff to an economics geek like Marvin.
But Marvin went to work for a money center bank, which was the next best thing. The hot area for most bankers was to work in the corporate lending arena. It was considered the hottest ticket for young bankers. But Marvin wasn’t interested in hot tickets. He chose to work in the financial institutions group. He felt dealing with other banks might be the next best thing to being at the Fed. He was smart enough to get that posting and got assigned randomly to the New England territory.
On Marvin’s first solo flight into the territory to call on banks, he went to Burlington, Vermont. His big meeting with the bank’s oldest client in town was at the Chittendon Trust Company, an old-line Trust Bank in a conservative Yankee city. He was their guest for lunch. There were no bank products and services that Marvin did not completely understand. He could talk about any of them and felt totally prepared. Then, the very first question, asked by the friendly president of the bank, was what Marvin’s bank thought of the economy. Marvin was caught totally flat-footed. He had prepared for everything except that question. He felt particularly sheepish since economics was his thing and yet he had not bothered to prepare a point of view on the economy. He would never let that happen again.
Marvin spent the 1980’s working two big problems, interest rate risk and sovereign debt risk. One involved designing entirely new products to solve a big economic problem regarding companies’ debt by giving them an ability to hedge their interest rate risk. The other involved looking for a balance between counties’ inflationary concerns and their need for hard currency…a totally macroeconomic concept. Both were right up Marvin’s alley.
It couldn’t get better than that, but it did. In the 1990’s Marvin went from running a big pension business (something he would go on to teach about to future business school students) to running a series of bigger and bigger investment management businesses. Nothing could be more central to economic policy in the late part of the century than the issues revolving around investment management. Marvin had found his way to the vortex of economic life as we know it and he couldn’t have been happier.
At this point in his career, Marvin had moved away from banking after too many years in the maelstrom. It was all great,but he needed a quieter existence. He took a position teaching at his old alma mater. There he became a Clinical Professor of Management. It all sounded very CSI-like. He loved it. He used all his stories about business, finance and economics. He only quit after ten years because he felt the students needed newer stories.
So Marvin started running small businesses, which he thought might be the true essence of both capitalism and economics at the same time. In his current job, his staff was mostly in Europe while he was in New York. That meant he would get in early, as was his habit anyway, and be on the email and phone until after lunch time. By that time, the European staff was heading home and Marvin was worn out. It was there that a Marvin found his most profound connection to economics. He had never really internalized an economic concept as thoroughly as he did now. He found that the best thing he could do every day between 3pm and 5pm was to go home and do nothing. That’s right, nothing at all. No calls and no emails. This was a case of needing to know when to go pencil down. After a certain point in each day, anything he did would actually do more harm than good for the company.
Marvin was an experienced manager who understood the harm to accountability of micromanagement. But he was also enough of a trained and disciplined economist to understand the Law of Diminishing Returns when it bit him in the ass.