Knecht & Lawrence: Ron’s Lesson about the World for Daughter Karyn

Ron Knecht, Nevada’s State Controller

(Ron Knecht & Geoffrey Lawrence) – We teach our children key lessons to prepare them for life.  So, recently, Ron explained to daughter Karyn another episode of: How the World Works.

Long ago, in addition to his full-time job, Ron took on part-time gigs as an expert witness in utility regulation for public-interest, consumer, environmental and senior-citizen groups.  He testified on nuclear power economics, rate setting, alternative energy, etc.

All these subjects had in common that in each case he needed to create one or more large spreadsheets with, typically, 15 columns and 35 rows of numbers.  Each spreadsheet started with a number in the upper left corner that Ron provided.  Then, other cells were filled in using formulas to compute the entries down each column.

Geoffrey Lawrence, Nevada’s Assistant State Controller

Today, of course, many people use personal computer programs to do such work.  But since Ron was born shortly after the fall of Rome, computer spreadsheets had not yet been invented.  Instead, he employed part-time assistants for this work.  He specified the formulas for each column, and he provided the assistants hand calculators (then the latest technology) to do the computations plus large sheets of ledger paper on which to record the results.

Each calculation depended on the calculations made before it and each number had to be exactly correct, or the mistakes would undermine the clients’ case by leading to erroneous or unsupported conclusions.  So, this was a challenge.

Ron solved it by having two people start at the same time to create separate copies of each spreadsheet and then stopping every ten minutes to check their results against the other’s.  If the numbers matched, they pressed forward.  If not, they checked each cell until they found where their numbers first differed.  Then they decided which of the two numbers was right, corrected the other sheet, and continued on for another ten minutes to another check.

As you can imagine, this procedure took a lot of the assistants’ time and Ron’s.  So, even at the very low public-interest rates he charged the clients, it was expensive.  Then, of course, the more than 500 numbers had to be typed (no word processing in those days) onto an exhibit to be attached to his testimony, with each typed number checked for accuracy.

These spreadsheets that provided key results to support his analyses and recommendations always depended on a number of assumptions and input values.  Any analyst would want to create a number of such spreadsheets to test the effects of different input values and assumptions on the conclusions and recommendations.  But the time and cost of each spreadsheet rendered that impossible for him.

The wealthy parties on the other side of the case, of course, had mainframe computers.  So, they could not only check the one or two cases Ron ran but also the many he wanted to run but couldn’t.  This gave the other side an advantage in cross-examining him and in making their case.

Then somebody invented the personal-computer spreadsheet, allowing people to do the first case quickly and accurately and then to test even more quickly as many sensitivity cases as desired.  This was democratizing: It gave the little folks a fighting chance against the large powerful interests, saved many dollars in the cost of mounting a case, and improved the product.

Moreover, millions of people and businesses used spreadsheets for many other purposes.  So, multiply similar individual item savings by many millions of customers and many spreadsheets daily for each customer — and it’s clear that those who invented and improved spreadsheets saved people and businesses many billions of dollars.

Here’s the lesson: Those spreadsheet developers got rich by delivering great value to many people and sharing via their product sales in the huge total value they delivered to others.  Capitalism is a positive-sum game.

That is, in a market economy, people accumulate income and wealth by delivering value to others.  Contrary to progressives and statist liberals, successful capitalists don’t become wealthy by preying upon the poor and others.  Socialism, government, redistribution and other coercive collectivist systems involve predatory behavior.

So, mostly, a person’s wealth in a market system reflects the good s/he has done for others, not the extent to which s/he has exploited them.

Ron Knecht is Nevada’s State Controller.  Geoffrey Lawrence is Nevada’s Assistant State Controller.