Book Chat

Megan McArdle

The Bloomberg View columnist is “bullish about America.”

By 3.13.14

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Megan McArdle's The Up Side of Down is an enlightening and entertaining book about why we can't always win and why that’s okay. I spoke with the blogging pioneer and former correspondent for the Economist and the Atlantic, about bankruptcy in Denmark, the history of Viagra, and why she’s optimistic about the United States.

Matthew Walther: What was the genesis of this book?

Megan McArdle: I thought about writing it for a long time before I went ahead and did it. I’m a journalist because I had a job in a management consulting firm and it didn’t pan out. I spent two years wandering around in the wilderness trying to figure out what I wanted to do with my life. Ultimately I realized that I really loved writing about economics and public policy. The first job I got was at the Economist and the first thing I wrote about was bankruptcy reform. Consumer advocates were saying that this was going to be a disaster, people were going to starve in the streets. Bankers were saying that people were cheating and the system needed to be fixed. The answer that I came up with was that neither of these sides was quite right. The great thing about the American bankruptcy system, I learned, is that it doesn’t try to shield you from failure or try, on the other hand, to make failure catastrophic. 

MW: So it all started with bankruptcy, the ultimate failure?

MM: Right. I went down to Memphis which is the bankruptcy capital of the world. I wanted to find out how much abuse there was. There is a provision somewhere that banned serial bankruptcy filings. It was designed to combat, say, people who move into an expensive apartment, wait ninety years for the city government to evict them, and then as soon as the eviction notice comes, file chapter 13, and stop the proceedings. But even this isn’t being enforced. I asked one of the judges, and she said she wasn’t enforcing it because no one is complaining. Creditors are happy.

MW: To most of us bankruptcy sounds really scary.

MM: Well, we tend to focus on the moral hazard that’s inherent in things like bankruptcy and any kind of social insurance—unemployment insurance, for example—and the temptation people will have to abuse the system. A lot of what looks like abuse is people making stupid decisions.

MW: But doesn’t this kind of abuse cost us money?

MM Not nearly as much as trying to work all of the abuse out of the system. If you try to make sure that you never give someone a false positive in terms of bankruptcy relief, what you end up with is a lot of false negatives, which means you deny people who deserve it and would probably benefit from it. With bankruptcy the balance we’ve found is actually pretty good. There’s a social stigma there, so most people struggle to pay their debts as long as they can and when they finally get to that point, then it is there for them and it is shockingly easy. I was expecting to find weeping mothers, but it’s actually like traffic court. It’s a whole lot of nothing. The judge says, “Okay, next, sign the paper,” and they move on.

MW: Is America’s bankruptcy system typical?

MM: Not at all. People don’t realize just how lenient ours is. In Scandinavia they can just deny you discharge if they think you frivolously spent the money. I interviewed a Danish entrepreneur who has been struggling with the same debt for ten years and it’s the same size that it was when he incurred this debt ten years ago. He made some bad decisions and he is quite open about that—I should have done this, I didn’t, I regret that, looked like a good decision at the time, turned out it wasn’t—but you’ve got this guy who is a really talented photographer, started a business, employed six people, incurred some reverses, and now has spent the last ten years just struggling and struggling with his debt. People are really valuable so we should want them to move on. This businessman who should be creating value is now stuck struggling with his debt and has no idea how he is ever going to get out of it, is worried about losing his house. It’s really destructive.

MW: And what you discovered about bankruptcy in America was reflected in your own experience?

MM: Yes. Well, not my own experience of bankruptcy. But looking back at my own life I saw how other kinds of failure had made certain things possible for me. They were possible because I was able to move on and do things completely differently. America has a genius for this kind of thing.

MW: Are you just saying that lots of people who succeed have failed previously? Or do we have to fail first in order to succeed?

MM: Well, success is so random. It is more about luck than we would like to think. That’s not to say that hard work and planning aren’t involved. You need to be doing the right things, but even if you do all the right things you can get the wrong outcome. There are some things that you just have to learn by trying and failing, especially when you are doing something that no one has ever done before. Look at successful movies: everyone thought Titanic was going to be a colossal failure, but then it turned out to make the most money of any movie in all time. When you read classic business success stories there is always a guy with his arms crossed  staring boldly on the cover of a magazine, and you learn about all the brilliant things he did. But most entrepreneurs fail. There’s a lot of serendipity.

MW: And sometimes perceived failures actually turn out to be successes, right?

MM: Yes. So Post-It notes were originally glue that didn’t work. It turned out that glue that kind of worked was really useful. Viagra started out as a cardiovascular drug that didn’t do what they wanted it to do but turned out to have a side effect. Someone said, “Oh…Well, we can use that!”

MW: These are great stories. How do you strike the right balance between amusing anecdotes—the kindergarteners who outsmart engineers, the highway that brought Colonel Sanders the customers he needed—and, say, unemployment statistics, especially for general readers who don’t enjoy reading information-dense prose?

MM: It’s tricky. You want to reach people outside certain really narrow fields. But most people don’t learn from data. They learn from stories. On the other hand I wanted the book to be data-driven because you can tell lots of interesting stories that sound great but aren’t really true.

MW: Do you think the mix is right in your book?

MM: One person who reviewed it said, “I was expecting Twelve Ways to Change Your Life Through Failure and this is just full of boring social science.” Another reviewer said “I opened it and was like ‘Ewww, economics. Gross!’ I didn’t want that and then I read it and I was like ‘Oh, this is really interesting.’” The second reviewer is the reader that I want to reach, the kind of reader I’ve always reached as a journalist. People who are interested in these things but don’t necessarily have four semesters of economics.

MW: Speaking of college, what do you think about America’s education system? Some people would argue that we’re letting smart kids down by not allowing them to fail early on.

MM: I was one of those kids. I totally skated for a long time and then was not prepared when things got hard. We protect kids from failure. I’m hearing stories about parents who unironically show up to their kids’ grad school interview or job interview—interviews for the police force even. Do they think their kids are getting hired? Not a good idea.

MW: The schools are complicit too, right?

MM: You can see why. If Junior doesn’t get an A, his parents show up to scream. The parents are so worried about the kid getting into college that they cannot afford to have anything less than perfection on the transcript. It’s a huge disservice to kids who get the idea that success is about finding work easy instead of about struggling with challenges and overcoming them. When you get to the big leagues as, say, a writer, every writer who is writing professionally is someone who was really good in a high-school English class. But it’s no longer enough to have been the best kid in your high-school English class. I got some really terrible grades back in high school. And then I had to figure out how to get myself into a good school. You have to be able to take up challenges, not do so well, and figure it out. We don’t let kids do nearly enough of that anymore. We don’t let them screw up in really big ways. Elite kids are being encased in bubble wrap, and they can’t fail, while poor kids can’t get their perfect ten. It’s two ways of being crazy. The whole system is broken, and I don’t know what to do about it. But at least I am standing up and saying that it’s broken. That is a lot of what the book is about: when something isn’t working, you have to admit it.

MW: On the whole I get the sense that you are optimistic about America.

MM: I am fundamentally bullish about America. We are the richest country in the world. We have so many cultural resources: exploration, entrepreneurship, living life on the frontier, and going out and trying something and seeing whether it works and that is great about us. We aren’t as great at, say, microprecision as the Germans are, but we do think outside the box, which is an amazing strength. We try a lot of new stuff, and most of it doesn’t work, but we are good at handling the stuff when it doesn’t work. I do worry that our credentialing system is starting to look a lot like those in other countries, where you take a pass-fail exam when you’re eighteen and the shape of your whole life is determined. The important thing is not that you get a 4.0 at Stanford. The important thing is whether you have demonstrated that you have what it takes now.

MW: What are you worried about?

MM: The quit rate, which is going down.

MW: “Quit rate”: Is that what it sounds like?

MM: Yeah. The quit rate is the measure of how many people leave their job for any reason. People aren’t leaving their jobs, and not just it’s too risky to go do poetry in Colorado for a summer and then go and try to find another job. They aren’t leaving their jobs for new jobs because they don’t want to take a chance that that job won’t work out and they will be out of the labor market again.

MW: So we’re back to the importance of failure again.

MM: Exactly. I see this decline in our ability to handle failure and risk and it really worries me. I think we absolutely have the mojo to turn that around, but we need to focus on it and talk about why we aren’t taking risk and why we are setting up this Mandarin credential system instead of allowing people to flunk out and come back and flunk out and come back and eventually at the age of twenty-eight figure out what they want to be for the rest of their lives. This was always a real strength of the U.S. educational system. Now it looks like we’re trying to become Korea instead and that’s really upsetting to me. I mean Korea is great at being Korea, but we are great at being America. We should build on what we are great at.

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About the Author

Matthew Walther is assistant editor of The American Spectator. His work has also appeared in the Spectator (London), National Review, the American Conservative, the Weekly Standard, the Daily Beast, the Salisbury Review (where he writes the quarterly "Letter From America" column), First ThingsTouchstoneProspect, Quadrant, the Millions, the Washington Times, and other publications. He lives with his wife, Lydia, in Alexandria, Virginia.