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Paving at Ten


Ross M. Miller
Miller Risk Advisors
October 10, 2011

Paving Wall Street was conceived in late January of 1999 in a hotel room on a comfortable sofa in Beaver Creek, Colorado. Only it was not called Paving Wall Street then. In the first and briefest outline of the book, where the book's title should have gone, all it said was "Need a Catchy Title!" Paving was known simply as "the smart markets book" for a while until I came up with the working title of Market Maelstroms. I liked my working title, and still do, but the publisher (John Wiley & Sons) did not. They wanted Recreating Capitalism, but I do not view the world in terms of any "isms" and disliked the dual meanings of the word "recreating." The only way to convince them at the eleventh hour not to go with Recreating Capitalism (possibly over my dead body) was to come up with something (at about three-in-the-morning) they liked better, and Paving Wall Street was it.

I was in Beaver Creek to attend a junk bond conference hosted by Salomon Brothers. The conference was essentially one long roadshow in the shadow of the ski slopes. Coming at the parabolic phase of the Internet bubble, the sexiest companies at the conference were those that were involved in laying optical fiber in the watery depths between the continents. Global Crossing was the big name in the field, but Tyco International did the actual work of getting the cable down to the ocean floor. I learned just how easy it was to increase the bandwidth of the fiber through multiplexing, which would ultimately lead to a massive glut of fiber capacity and the literal sea of "dark fiber" that would help bring down Enron and led to another chapter of my life. A day or so into the conference I came down with a bad cold and so my time was split between being miserable on my hotel room's bed and on its sofa. While on the sofa, I wrote the first outline for what would become Paving Wall Street in what I recall to be just a matter of minutes. Here it is:

My original idea for the book was that I would write about the things in economics that I especially dug and I would try to communicate them to my readers in a way that they would dig them, too. I had planned to work on the book immediately on my return from Beaver Creek; however, before the gel had dried on my outline I got a call from a client with whom I thought I had wound things down only to learn that they had been wound back up. It would be six months until I would have much more than the scant single-page outline for the book. The second, thoroughly hashed out, outline for Paving (not reproduced here) looks very much like the final product; indeed, the cutesy names for many of the chapters and sections came directly from that second outline. What started as a bunch of things I like about economics turned into a more coherent book about experimental finance that managed to shoehorn my favorite topics into the general discussion.

I wrote Paving using my standard writing strategy of creating masses of raw material (usually in a single writing jag from 8am to noon every weekday) and then mercilessly cut and shaped the material until I got a book of reasonable size. This process required an uneconomically large number of drafts, but produced a final product that I could (almost) live with. What this all means, however, is that if there is ever a second edition of the book, I can simply rescue all of the material that ended up on the cutting room floor and create the author's cut of the book, just as films have their directors' cuts. For example, Paving originally had a good deal about Richard Feynman, with whom I had the occasional chat when I was a Caltech sophomore. (More on that at some later date.) Consider, for example, what I wrote about the famous two-slit experiment that figures critically in his lectures:

Here is my golf version of the two-slit experiment, which is technically incorrect, but gets the point across more dramatically than the way physicists explain it. 

Consider two golfers at two different golf courses, for example, Tiger Woods at Winged Foot in Westchester County, New York (down the road from all the Connecticut hedge funds) and Sergio Garcia at Valderrama in Sotogrande, Spain (not far from Gibraltar, another home for hedge funds). Imagine that both of them are pitching golf balls at a flag at the center of a putting green. Since they are both exceptional golfers, the balls form a nice dispersion pattern centered on the flag.

Now let's shrink the golf balls so that they are extremely small-down to the size of subatomic particles like electrons. What the two-slit experiment tells us is that if we observe Tiger and Sergio while they hit the tiny golf balls everything is normal and the golf balls remain neatly dispersed around each flag. On the other hand, if we turn our backs and do not observe who hit which ball, some of the tiny golf balls will end up in the Atlantic Ocean between New York and Spain. Indeed, as much as it goes against any reasonable notion of reality, we live in a universe where events at the subatomic level are so mysterious that events like "golf balls" materializing out of nowhere are just the way things work.

When I switch into editor mode, I become aware that there is a limited amount that I can get away with. As much as I liked (and still like) my admittedly flaky take on the two-slit experiment, including it in Paving would have cost me too many "chips" for a book that is supposed to be about finance. (Publishers work based on virtual chips; editors get chips to do what they want to do occasionally and so do authors.) There was also a fair bit of venting in various drafts of Paving that were fun to write, but never would have (nor should have) gotten past my editors, so I preemptively spiked them. (I did, however, manage to get some golf content past the editor of the Journal of Economic Behavior and Organization a few years later in a more serious setting.)

As Paving approaches its tenth year in English, let us just say that it has seen better days in the US (for now). In Korea, however, it is a newborn. Published in Korean just three weeks ago, Paving came strong out of the gate. It goes by the Vernon Smith commemorative paperback title, Experimental Economics, there. I don't know what the Korean subtitle is, but it translates as: "Visible Hand Dominate the Market." Coupled with the perplexing reviews translated from the Korean, I have to wonder what is in the Korean translation. It has certainly occurred to me that the translator may have taking extreme liberties with the book. It also makes me wonder about the Chinese and Japanese translations of the book that came out years ago to much less fanfare. I knew Paving would be difficult to translate and tried to write it so that it would survive the jump to Romance languages (my late mother was big into Romance languages and spent much of her youth prior to my arrival as a translator for the United Nations), but Asian languages are a whole other bag (I wonder how that cliché translates into Korean).

Despite (or even because of) the ongoing collapse of the global financial system, Paving has aged well. Some reviewers were put off by the pessimistic and dystopian aspects of the book (and its final chapter, in particular). In light of recent events, it is clear that I was insufficiently pessimistic. The problems of the past ten years mean that Wall Street needs a lot more than paving. Next month, I will continue that train of thought by examining how the future changes our view of the past.

Copyright 2011 by Miller Risk Advisors. Permission granted to forward by electronic means and to excerpt or broadcast 250 words or less provided a citation is made to