Sunday, October 23, 2011

Chit Chat with Europeans and the Marginal Return on Investment

An old friend sends an email he titles "Chit Chat with Europeans" in which he writes:

At a conference in Hamburg there was a pleasant reception at the US Consulate General's, [except for the] overly rigorous American security which the Canadian and New Zealand diplomats thought was funny.

Yes. Laughter as an anti-dote to insanity. I confess sometimes I want to sneak up on the scores of overly earnest American security screeners and suddenly yell ‘boo!” or “nail-clipper!” or “liquid container greater than 3.4oz!”...or, worst of all, "anarchist hacker!"

Whoever thought security screening would become America’s dominant jobs strategy?* If one million dollars buys us security, then one hundred million dollars will buy us even more, right? At some point in the security business, the marginal return on investment has to click in.

Unfortunately when I go online to find out how to calculate the marginal return on investment, I get this:

Q=(2x)³•(3y)²•(8z)² =4608•x³•y²•z²
Px
Py
Pz
Profit=∏=TR-TC
TR=PQ
TC=xPx+yPy+zPz
For simple model without discounting and Δx→0 we can assume:
ROI = (TR-TC)/TC = ∏/TC = TR/TC -1
MROIx=∂ROI/∂x

I have no idea what this means. That’s likely because I’m a product of the American educational system, as is most everyone else in the county which, I suppose, means there’s hardly anyone who can calculate the marginal return on investment. They simply don’t know that spending another 100 million dollars on security doesn’t buy you 100 million dollars more in security. Otherwise they’d stop. Wouldn’t they? Can someone translate that calculation into plain English and send it to the Department of Homeland Security?** Please.

*Why else would there be 158 academic institutions offering degrees in security: http://www.gradschools.com/search-programs/security-management

**You can see DHS Budget in Brief (183 pages!) here: http://www.dhs.gov/xlibrary/assets/budget-bib-fy2012.pdf