Trump In The Shark Tank

This post is by Jeff Carter from Points and Figures

Click here to view on the original site: Original Post

If you made a startup analogy to the Presidential campaign, right now we are in the pitch phase.  Each candidate is pitching the sharks-and you are one of the sharks.

I have been watching it with interest because we haven’t seen anything like it in American politics before.  Scott Adams blog has been insightful, and I would encourage you to read it if you want to understand Trump.  The rest of the candidates are really easy to figure out.

Understanding why people are supporting Trump is just as enlightening as figuring out the phenomena of Trump.  When Democrats criticize Trump, I think you have to discount their opinion 100%.  They weren’t voting for any Republican.

The people I see that criticize him the most from the Republican side of the aisle are either risk averse, or they are high income earners with college degrees.

Trump is the classic hire”.  When I was getting my MBA at Chicago Booth, one of the classes I took was taught by Professor Michael Gibbs.  He is a labor economist and has co-authored a book with Stanford economist Ed Lazear on management that I highly recommend called Personnel Economics in Practice.

Early in the book they explain a groundbreaking theory called “The Risky Hire” which I blogged about a long time ago.  Let’s try to put Trump into The Risky Hire equation.

First, what kind of jobs require a riskier hire?  Jobs that require new ideas, innovation, and creativity.  The Risky Hire works great in places where the environment is changing and you need someone to think and develop new approaches to the problem. Where you can assess their fit and talent relatively quickly. And, look for a person with a very interesting track record of success, creativity, possibly even changing fields and taking some risks.  This certainly describes Trump.  It describes no other candidate in the race, even the ones that dropped out.

Presidential campaigns always try to sell themselves on new ideas to problems.  Obama was highly successful at that and so was Reagan.  Both were very different from typical Presidential candidates.  Obama had little experience and was African American.  Reagan had been an actor, a pitchman, and a governor.  I think that we can agree there are not a lot of new ideas coming from any of the candidates except Trump right now.  Bernie is socialism, Hillary is more of the same, Kasich is more of the same, Cruz is some of the same with more emphasis on conservative social issues.

This isn’t the year to run on social issues on either side of the aisle.

Now the tricky part.  This is the internal calculation that every voter is doing.  How do you quantify each candidate?  If you go back and read my initial blogpost, I show an equation that the book uses to calculate expected returns.

Creating that equation is dangerously hard to pinpoint with someone like Trump.  One thing that Venture Capital investors often miss is the ability for a business to create a new market that wasn’t there before.  Their own confirmation biases stop them from seeing it.  Why would Starbucks be successful?  You could already buy coffee and Starbucks was doing it at twice the price of an existing cup.  Why would AirBnb be successful?  There were already hotels and sights like VRBO.

Trump could create an entirely new market that doesn’t exist.  When it comes to polls, they often look backward.  They poll likely voters.  They use data from other elections to project into the future.  But, what if the electorate is made up of people that are entirely new?  In 1948, pollsters totally missed.  Why?  They polled people that had phones and those people were largely Republican. I think pollsters might be missing something today when they poll Trump head to head with Clinton.

What’s the probability for failure or success?  Scott Adams doesn’t quantify it but says,

So how risky would “more of the same” be?

Budget-wise, we are probably on the road to ruin. The more-of-the-same president is unlikely to stop the special interests and big money players from bloating the budget to the point of crushing debt.

Nor would we have any reason to expect the economy to have any extra zip under a more-of-the-same scenario. So no matter how bad you think Trump might be for the economy, the more-of-the-same alternative is probably a pathway to crushing debts and financial doom.

And once the economy dies, we all die. So as risks go, “more of the same” might be the highest risk of all. The only way we would escape economic doom under the more-of-the-same scenario is for some unpredictable future event to change our direction in a positive way. Is that likely?

Trump, on the other hand, is an unpredictable future event that can change just about anything, as we have already learned. So in terms of economic risk, Clinton is a path to probable budget doom whereas Trump can go either way.

Trump represents a real call option for many Americans.  In the math that makes up the theory behind The Risky Hire, the costs for letting an employee go are low.  This is the problem with Trump, the costs for failure are pretty high.  The costs to let him go are also very high.  Impeachment or resignation are high cost.  Waiting 4 years has a cost as well.  If you worry about that, you won’t vote for Trump.  If you think things have gone really well the last 8 years, you also won’t vote for Trump.  If you are a social issues first voter, you probably won’t take a chance on Trump.

On the flip side, if he does well, he will probably do much better than anyone expects.  If you are an American that has been browbeaten and told that your values are wrong, or that the way you lead your life is wrong, or that you are not a real American, you probably are willing to take a chance on Trump.  If you are a devout Christian, and feel like your values have been trampled, you might take a chance on Trump.  If you are a small businessperson that has seen tough economic times, you probably will take a chance on Trump.  If you think the government has been bought and paid for and people don’t have a chance, you are probably willing to take a chance on Trump. If you are an American that has been hurt economically over the last 8 years you are willing to take a chance on Trump.

If Trump wins or loses, it’s going to be by a landslide.  I don’t think any of the political parties saw it coming.  I also think the more they do to stop it, the stronger Trump momentum gets.  Republicans need to be very careful at their convention.  Very careful.  Right now, they have a tin ear.