In the ever-evolving landscape of the modern world, our ability to navigate the complexity of new situations is becoming increasingly crucial. 

Traditionally, we have relied on knowledge, the accumulation of information and understanding based on past experiences, to guide our decisions. 

Especially scientific knowledge has been created by pioneers, and then stored and taught for ever in Universities.

Universities are often viewed as repositories of knowledge, where wisdom from past generations is preserved, studied, and passed on to the next generation. 

They are spaces for intellectual exploration and discovery, where students are guided by experts in their field to gain a deep understanding of existing knowledge.

Additionally, universities play a crucial role in creating new knowledge through research. Professors, researchers, and students contribute to their fields by conducting studies, performing experiments, and producing scholarly work that pushes the boundaries of what is known.

In essence, the traditional definition of universities centers around the preservation, transmission, and creation of knowledge. This involves both teaching students what is already known and facilitating the discovery of new knowledge.

But this paradigm is flawed or at dysfunctional in the modern world  so I propose a new concept, that of Nowledge, Knowledge without the K.

For two years I struggled with about 200 case studies at the Harvard Business School MBA, 50 years ago.

Every business case was a description of a situation, from 30 to 50 variables were presented, cash flow, number of employees, competitors,  interest rates etc, and we had to find the problem and a possible solution.

The case method as this form of teaching is named, was a paradigm shift for me, used to tackle 2 variables at a time, such as supply and demand, unemployment and interest rates, studied profusely in Economics.

The Phillips Curve is an economic concept developed by A.W. Phillips stating that inflation and unemployment have a stable and inverse relationship. 

Two variables are being proposed, the 48 remaining are considered fixed for the study of the problem.

“Ceteris paribus” is a Latin phrase that translates to “all other things being equal.” 

It’s a concept widely used in economics to simplify the analysis of the relationship between different variables. 

By assuming that all factors remain constant (ceteris paribus), economists can isolate and examine the effect of changing a single variable without worrying about the potential effects of changes in other variables.

Now you know why Economics has failed miserably in the modern world.     In Adam Smiths most variables remained fixed for a pretty long time.

However, real-world economies are highly complex and interconnected, with many variables changing simultaneously. 

So while “ceteris paribus” is a useful tool for developing theoretical models and understanding basic economic principles, its assumptions don’t often hold in the real world.

Economists still use this simplification because It allows for simpler modeling and clearer explanations of economic phenomena, even though it’s understood that the simplified models may not fully capture real-world complexity. Hence, it indeed makes sense as a theoretical construct, though with the caveat of its limitations.

According to the Phillips Curve, when unemployment is high, wages increase at a slower rate, leading to lower inflation. 

Conversely, when unemployment is low, wages increase faster, which can lead to higher inflation.

The curve is typically depicted with inflation on the y-axis and unemployment on the x-axis. The downward slope of the curve indicates the inverse relationship between the two variables.

However, this theory has been challenged in recent decades, particularly during the 1970s when many countries experienced “stagflation” – a situation of high inflation and high unemployment, contrary to what the Phillips Curve would predict. 

Since then, economists have developed more nuanced views of the relationship between inflation and unemployment, often incorporating expectations and other factors into their models.

The first thing we learned with the Case Method, that looking up past literature or “economic models” would be useless.

No past science has ever dealt with 50 variables at the same time, as most managers today have to deal with.

For the first time in our lives we could not rely on books. Even if 50 variables sciences existed, never would the same set of individual values would ever replicate again, so no “science” can be effectively stored.

Only the thinking process could be stored, not the “science”.

Retaining the Science, in this case the Phillips Curve for now 50 years is the problem we’re are facing today. There are 49 other variables involved.

The concept of Nowledge os a term coined to represent the creation and immediate discarding of information tailored to unique situations.

Discarding is the key word. Students should be taught that history never repeats itself, that every problem starts a new.

The Value of Past Knowledge

Knowledge, acquired over time, has been the foundation for understanding our world and its complexities up to know.

This accumulated wisdom was supposed to allows us to make informed decisions, predict outcomes, and understand the consequences of our actions. 

It is the bedrock on which civilizations have been built and progressed. 

However, relying solely on past knowledge could limit our ability to adapt to new and unique situations. If at all.

The Emergence of Nowledge

Nowledge represents a shift from the traditional understanding of knowledge. 

This concept is about the generation of information for a specific problem at hand, only to discard it immediately after use. 

In an era of unprecedented change Nowledge offers a way to swiftly adapt to evolving situations. 

It emphasizes the value of present-moment problem-solving over the application of past experiences.

For 2 years we learned to juggle 50 variables at a time, something none of use were prepared to do with our bachelors degree.

Just the idea that there may be up to 50 variables in a given problem was new to us. 

The idea that every problem may involve let us assume 5 interest groups, each with their 10 variables to consider was novel to us.

In the 1980 the underveloped countries around the world all defaulted on what became “the global debt problem”. 

The economic verdict at the time was that the American Banks and Bankers were to blame, and that their interest rates were the problem. 

No one thought that Standard & Poors, Auditors, the Fed, the IRS, American Pension Funds, Bankers Laywers, Banks Depositors, had special interests involved.

Or that the use of nominal interest rates as a variable and not real interest rates could be the problem.

Blockbuster, the movie rental company, is a prime example of an over-reliance on past knowledge. 

Even as the world was moving towards digital streaming, Blockbuster clung to its brick-and-mortar video rental business model. 

Their reliance on past knowledge and lack of adaptation led to their eventual downfall. 

Nowledge’ Example: On the other hand, Uber and Lyft exemplify ‘nowledge’. 

They didn’t apply the traditional knowledge of taxi service operations; instead, they created a new solution for a modern problem: making use of idle personal vehicles for public transportation, managed through a digital platform.

The Case Method

Basically the Case Method does not use science and the term we know it to find solutions.

Not once did we rush to Bakers Library to research books that offered at least partial solution to that Case.

“Everything in the world is new”. We learned to use the scientific method and not past science.

Who are the players, who will be against, who will be neutral, who can be neutralised given the appropriate incentive.

What are the variables that each player uses for their own decision making? What are their decision making rules? Are there divisions in the players involved.

I subsequently worked for the Brazilian government negotiated our Debt Problem, proposing a real interest rate debt structure, predefined, that attracted over funded US Pension Funds.

A totally different strategy from other countries that saw banks as the culprit, demanding lower nominal interest rates.

We were proposing a win win solutions, which the US Treasury ended adopting for himself, the TIPS.

Treasury Inflation-Protected Securities (TIPS) are a type of U.S. Treasury bond designed to help investors protect against inflation. 

Introduced in the U.S. in 1997, TIPS are backed by the U.S. government, making them a very low-risk investment, ideal for over funded Pension Funds.

The principal value of TIPS adjusts with inflation as measured by the Consumer Price Index (CPI). When inflation rises, the principal amount of TIPS increases. If there’s deflation, the principal decreases.

At maturity, investors are paid the adjusted principal or real and not deflated  principal. 

This provides assurance that investors will not lose their initial investment even in a deflationary environment.

TIPS can be a valuable part of a diversified investment portfolio, especially for those who are concerned about the risk of inflation eroding the value of their investments. 

Another catch in the Case Method, is that Harvard Business School did not supply all of 50 variables. Just as in the real world.

The Limitations of Knowledge and ‘Nowledge

While ‘nowledge’ promotes adaptability, an over-reliance on it might risk devaluing the wealth of insights available from past knowledge. Conversely, clinging too tightly to past knowledge can stifle innovation and inhibit the flexibility needed in the face of new challenges. Therefore, it’s important to strike a balance between the two.

Striking a Balance

A more nuanced approach would involve retaining past knowledge as a foundation while fostering the generation of ‘nowledge’ for novel situations. This would combine the strengths of both approaches: the depth of understanding provided by knowledge and the adaptive problem-solving capacity of ‘nowledge’. This balance would promote innovation without completely detaching from past wisdom.

**Conclusion**

As we navigate an ever-changing world, the harmonious interplay between traditional knowledge and the innovative concept of ‘nowledge’ could equip us with a more adaptable problem-solving toolset. By recognizing the value in both, we can build a more resilient approach to meeting future challenges. This balanced approach allows us to lean on the wisdom of the past while remaining adaptable to the present, leading us towards a more prepared and versatile future.

In both these realms, you can see the value of a balanced approach—leveraging past knowledge when useful but being ready to generate ‘nowledge’ to adapt to unique situations.

Your idea appears to touch on several established concepts from different fields, even though the term “nowledge” is unique to your invention. Here are a few areas and associated literature that could be seen as precursors or related to your idea:

1. Knowledge Management: This field studies how organizations create, use, and manage knowledge. While the emphasis tends to be on retaining and reusing knowledge, there’s an understanding that not all knowledge is equally useful in all situations. Notable work in this field includes “Working Knowledge” by Thomas Davenport and Laurence Prusak.

2. Agile Methodologies: Originating in software development but now applied in many fields, agile methodologies value responding to change over following a plan, which aligns with your concept of ‘nowledge’. You might find the original “Agile Manifesto” and related literature interesting.

3. Just-in-Time Learning: This is an educational philosophy that focuses on learning on an as-needed basis. It contrasts with traditional education, which attempts to teach a broad base of knowledge in advance of its use. Marc Rosenberg’s “Beyond E-Learning: Approaches and Technologies to Enhance Organizational Knowledge, Learning, and Performance” discusses this.

4. Complexity Science. Complexity science studies how relationships between parts give rise to the collective behaviors of a system and how the system interacts and forms relationships with its environment. Concepts like emergence, adaptation, and systems thinking could be relevant to your idea. Melanie Mitchell’s “Complexity: A Guided Tour” is a comprehensive introduction.

5. Design Thinking

This approach to problem-solving values empathy, experimentation, and iteration, which can involve creating and then discarding many possible solutions to a problem. Tim Brown’s “Change by Design: How Design Thinking Transforms Organizations and Inspires Innovation” provides a thorough exploration.

While none of these works directly espouse your concept of ‘nowledge’, they all touch on related ideas of adaptability, the temporary utility of certain knowledge, and the need to respond to ever-changing circumstances.

O post The Concept of Nowledge’: Knowledge Without The K apareceu primeiro em Stephen Kanitz.

Firstly, Brazil has been accumulating problems over the last 50 years without solving them (the Social Security deficit, for example) and a good part of the population is increasingly worried and desperate about the lack of perspectives and future.

Hence the polarization and the vehemence of that polarization.

Second, this polarization is expressed more on social networks, where everyone feels entitled to an “opinion” without preparation or knowledge for it.

Third, we have the problem of fake news, which people accept without verifying the source, and without that source being reliable.

One of the solutions is to bring this polarization into the Think Tanks.

Where both or all sides can express themselves without retaliation or reputational destruction.

Today, moderate intellectuals are afraid to participate in these popular discussions because they can be labeled, just because they were based on evidence.

Our challenge is to show society that Think Tanks are a reliable source.

That Think Tanks will never be extremists, that they manage to unite diverse opinions in an acceptable synthesis.

For this we will need to make some adaptations.

In addition to surveys, we will need to occasionally edit “Opinion Papers”, when necessary.

Think Tanks are not yet known in Brazil, most do not know what they do.

Issuing Opinion Papers, based on evidence, with moderate, inclusive and didactic language, can make them known as safe sources of information.

We at Thinkers-Brasil.org propose to help our Think Tanks to become known here and abroad.

Stephen Kanitz

O post Think Tanks as “Safe Places” apareceu primeiro em Stephen Kanitz.

ChatGPT was created by OpenAI, a company founded by Elon Musk, Sam Altman and other investors.

The algorithm answers questions asked of it, and we came up with this one:

“What questions should we ask when interviewing Think Tanks directors?”

This is precisely what thinkers-brasil.org has been doing this past year, based on a series of our questions.

See what ChatGPT replied:

1- What is the think tank’s mission and focus?

2- How does the think tank generate and disseminate its research and ideas?

3- Can you discuss some of the think tank’s most significant achievements or impacts?

4-How is the think tank funded and what is its organizational structure?

5- How does the think tank work with policymakers and other stakeholders to implement its ideas?

6- How does the think tank guarantee the independence and objectivity of its research?

7- Can you discuss any current or future research initiatives or projects?

8- How does the think tank keep up with and adapt to changes in the political landscape?

9- How does the think tank involve experts and scholars from different fields and perspectives in its research and analysis?

10- How does the think tank measure its impact and effectiveness?

Absolutely incredible! Google only compares the words you type, and returns sites that contain the same words, no more than that.

The OpenAI.com Artificial Intelligence tool understands what you asked, and presents a very extensive list of answers.

We incorporated two questions suggested by ChatGPT into our questionnaire.

If you have a question, send it to thinkers-brasil.org at stephen.k@thinkers-brasil.org and we will send you the answer.

Next week I’ll illustrate how OpenAI can help Think Tanks with their research.

Stephen Kanitz

(Image generated by Night Café Studio – Artificial intelligence on 12/22/2022)

O post Artificial Intelligence and the Future of Think Tanks apareceu primeiro em Stephen Kanitz.

Evidence-based policies, with scientific rigor, and a non-partisan vision.

Think Tanks now have a big challenge to face:

1. Show society that our mission is precisely to criticize public policies for their shortcomings and propose solutions

2. Always based on evidence

3. Always listening to all sides involved

4. Always making it clear that we are non-partisan

Here we face some problems.

The function of a Think Tank is not clear to the majority of the population and politicians.

Many Think Tanks do not develop their own evidence, or are not well known enough.

Others don’t bother to be non-partisan, which we know reduces their credibility and audience.

Conclusion.

Criticism of public policies is necessary in a democracy, which increases our responsibility as centers of research and knowledge production.

The time to show the importance of our sector is now.

It is time to propose credible public policies, no matter how critical we are.

Stephen Kanitz

O post Think Tanks and the Freedom to Criticize apareceu primeiro em Stephen Kanitz.

The answer to “who are the best experts on X subject” should be a Think Tank, not a single individual. We use this definition in choosing what we consider to be an almost Think Tank.

A Think Tank should also be a source of human resources for government positions, with the assurance that they will have a place to return when the government in question ends.

The private sector public sector exchange that this structure offers is extremely beneficial for both.

Stephen Kanitz

O post The Functions of a Think Tank apareceu primeiro em Stephen Kanitz.

The American Banking System is one of the most regulated industries in America.

Since 1935 banks have had to deal with regulations that no other industry has come near by.

Due to these Banking Regulations set up as early as 1935, banks have over the years lost interest in lending per se, and have been forced to enter all other types of financial markets, such as derivative service fees, equity deals anything but straight plain-vanilla loans.
As a consequence banks have also lost interest in credit analysis, and America as a nation has lost its credit intelligence, whose effects can be seen today.
Credit intelligence can be found in only two or three companies such as Moody’s, Fitch and Standard & and Poor’s, and even that is contested today.
In the 70’s courses like Management of Lending, such as those given by Charlie Williams of Harvard Business School were oversubscribed. Today such course no longer exists at Harvard.
Credit training was once considered an important step in a young man’s career, so much so that four Presidents of the United States started out as trainees at Dunn & Bradstreet, Lincoln, Grant, Cleveland and McKinley.
They learnt the Five C’s of credit analysis formula: Character, Conditions, Cash Flow, Capacity and Collateral – which became a subtle art. Today credit is given by quantitative formulas, based on one single variable Collateral.
Because of the banking bankrupcies due to the 1929 crash, banking regulations were devised setting up minimal capital requirements. They established capital adequacy ratios in order to prohibit banks from lending more than four to 12 times their capital plus retained earnings.
The latest versions of these capital adequacy ratios are now worldwide, embedded in the Basel I and Basel 2 agreements.
But the bank regulators of that time, did a poor regulating job, by creating rules that would not stand up the test of time.
There is a flagrant mistake in this rule, which would slowly destroy world banking lending capacity over the next seventy years.
Regulators did not take into account future inflation.
An inflation that over the next seventy years would slowly erode the capital base on which the banking systems rest. A 4% inflation rate multiplied by 12 reduces banks lending capacity by 48% of their capital base. In a single year!
Basically what regulators did, was to establish lending limits tied to the following ludicrous and dysfunctional banking rule.
Banks ought to be limited in their lending to 12 times their inflation-eroded capital.
In years of especially high inflation, banks were required to recall many of the loans outstanding in order to comply with this ludicrous banking regulation.
In years of low high inflation, retained earnings would allow them to maintain their current loans outstanding and even increase them, but always losing market share.
With today’s capital base worldwide at around $200 billion, factor in a 4% inflation multiplied by 12, and you will discover that banks worldwide will be constrained to reduce loans outstanding to the order of $2 trillion in 2009 and 2010.
That will be on top of the estimated $200 billion write-offs, which will also be multiplied by 12, reducing loans outstanding an additional $2 trillion in order to comply with bank regulations.
Now answer this question: was this crisis caused by corporate greed and management bonuses, or by faulty legislation?
Are we in the face of a credit crunch, illiquidity, or is there a regulation forcing banks to withhold credit?
It is frightening to realise that academics such as Milton Friedman, John Maynard Keynes and John Kenneth Galbraith all of who wrote extensively about 1929 and banking regulation, should have overlooked such a simple regulatory mistake with such an impact on banks lending ability.
Which also applies to subsequent Nobel Prize winners, any one of which would never agree to tax brackets not adjusted to inflation from time to time.
Unfortunately, none of them are versed in accounting, in countries where inflation was double digit.
Granted that inflation rates were low, and retained earnings of banks were high at the time, banks were allowed to grow though not at full speed. But in 1982 when inflation in the United States reached 20% over a two-year period the effects were devastating.
Every single American bank had to recall practically 200% of their capital base, mainly from underdeveloped countries setting off one of those graders financial crises in the Third World.
Instead of changing banking regulations and allowing banks to adjust their capital bases to inflation, most economists once again blamed the Banks, as in 1929, accusing them of having overextended themselves once again.
More bank regulations were called for, instead of correcting what must have been the most ridiculous and incoherent rule in economic history.
Forcing banks to erode their accounting capital base rather than reflecting the effects of inflation has slowly and inexorably destroyed the worlds’ banks lending capacity year after year. Instead of a world debt crisis and IMF bailouts with stringent and recessionary economic policies for over indebted countries, had banks been allowed at that time to lend their inflation adjusted capital, they would have solved the debt problems on their own.
Not only were they prohibited from lending to Third World countries in order to maintain their debt level in real terms, banks were also forced to make bad debt provisions depleting even more their lending base.
Once again banks are required to make provisions and write-offs for having lent to poor people compounding once again the current financial crisis.
Just as we are doing today, economists in 1986 demanded even more stringent bank regulations, which became the Basel I and Basel II agreements. Rather than adjusting capital base to inflation, banks were compelled by these agreements to calculate risk-adjusted capital base eroded every year by the current rate of inflation.
Capital adequacy rules were originally designed to strengthen banks, but oddly enough, leading economists have totally failed to see that they have slowly and inexorably destroyed banking and lending capacity each year.
No wonder that banks have lost interest in credit analysis and prefer all sorts of off-balance sheet derivatives.
Constrained by government, banks found various ways to circumvent these operational limitations.
Banks threw away their five C’s of credit measurement, foregoing the analysis of Character, for example. Banks closed down their credit departments and slowly shifted from being a lending institution to becoming wholesalers of financial derivatives and asset-backed securities.
Credit departments were slowly replaced by complicated economic models which, only now Alan Greenspan realizes were based on insufficient quantitative data. But he misses the point: there will never be sufficient data to be able to substitute the individualized scrutiny of a credit committee.
Banks have slowly lost their lending capacity to “financiers” like Mike Milken, whose far from being financial whizzes, were the beneficiaries of a banking regulations that allowed them a field day.
Constrained as a lending institution, the deterioration of our banking system gave rise to an equity-based economy. Companies were not allowed anymore to leverage, and had to depend on volatile and expensive equity market.
This effectively crowded out small and medium companies from cheap financing, and paved the way for the big globalized corporations that have the power nowadays, producing in India and China to reduce costs.
We have slowly destroyed our credit intelligence, substituting it for credit ratings issued by three relatively small companies, which clearly are overwhelmed and are not prepared to do the job they have been forced to do.
None of the measures to correct this financial crisis has addressed the fact that the capital adequacy ratios and the accounting data are totally incorrect.
The consolidated net equity of the banking system has been totally eroded by seventy years of US inflation, giving the impression that banks do not have enough capital to meet their credit demands.
Bear Stearns was sold for $200 million, and no one realized that only it´s central office building alone is worth more than $1.5 billion, but due to inflation this current value does not appear in it´s books.
What we see is another blame it on the banks movement, which will only destroy even more our banking system; will deplete even more our credit intelligence; will reduce even more the ability of small and medium companies in securing cheap loans supervised by a competent and experienced credit committee within full-fledged banking institutions, making loans the old fashioned way.

O post The End of Banking apareceu primeiro em Stephen Kanitz.

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