Tag: wealth

The Power of Broke

Yesterday I listened to an episode of the James Altucher Podcast with FUBU founder and Shark Tank star Daymond John.  It was awesome.

John talked about his new book, “The Power of Broke”.  What a great title.  The subtitle is, “How empty pockets, a tight budget, and a hunger for success can become your greatest competitive advantage.”  The concept is as straightforward as it sounds.  Being broke is an advantage in many ways.  The power of broke is the power you harness because you have to.  It’s the creativity you employ when you can’t buy your way to the next step.

I’ve written before about the advantages of being broke (with a much lamer title, “Your Lack of Income Can Be An Asset“).  While I focused on the freedom and flexibility to experiment and the low cost of failure, John talked in the podcast more about the clearer decision making and enhanced hustle when options are constrained.

One particularly poignant example was when he was selling hats on the streets of Queens.  LL Cool J would come to the neighborhood frequently, and John would stalk and harass and beg him to wear his hats.  He finally did, and it resulted in an explosion in demand.  John said if he had $500,000 to spend at that time he would have spent it all…on getting LL Cool J to wear his hats.  Because he didn’t have the money, he found a way to do it without.

One of my all-time favorite TED talks is called “Embrace the Shake“.  It’s about how creativity can often be unleashed if you give yourself constraints.  An artist who lost his ability to do his favorite technique was forced to find other ways.  He eventually began a series of experiments in creating art with ridiculously tight constraints.  He could only use paper cups and ink, for example.  The results were as much about what it did to his mindset as about the art he produced.

If you launch a startup with no money, you’ll figure out how to move forward with no money.  If you raise $1 million in venture capital, you’ll figure out how to move forward spending $1 million.  The activities you engage in may even be the same.  Or worse, the money blinds you to problems with your model or assumptions and creates a lag in the feedback loop.  Test small and quick, fail small and quick.  Money often makes that harder.

This is obviously not about any kind of moral superiority to poverty.  It’s not about pretending fewer resources always provide an advantage over more.  It’s about a powerful mindset shift that occurs when incentives and desires are tightly connected.  When you don’t have a backup plan or the ability to give up after the first setback or buy your way into the next step, you have something most of your larger, better funded competitors don’t.  You have the power of broke.

Since it’s a mindset, you can employ it even if you are rich, but it’s definitely harder.  Take advantage of the time you have now as a young upstart and get every drop out of the power of broke.

Doing Work You Love and Being Happy Are Not Necessarily the Same Thing

Would you believe me if I told you that people can be happy doing work they hate?

Everyone wants to be happy.  Well, there is actually some debate about what people want and whether the word “happy” is the the most accurate.  Call it utility, or fulfillment, or flow, or bliss, or the good life, or anything else you like.  I’m going to use the word ‘happy’ to describe an existence that maximizes those moments when you feel proud and thrilled to be alive, and minimizes those where you feel the opposite.  Just give me some definitional generosity, or substitute your preferred word that defines what it is you seek.

Now, most people also think that they want to do work that they love.  That is, they want the way in which they procure the resources needed for survival and material pleasure to be an activity that is inherently interesting and fulfilling.  They do not merely want the hunt to be done for the meat, but they want to enjoy it for its own pleasures.  At least that’s what they’ll tell you.

You might be lying

I think a great many people are lying to themselves and others about what they actually want.  A lot of people want to be the type of person who seeks meaning in their work, but they actually care a lot more about just finding a way to get the resources needed to relax more.  Doing work you love is harder than doing work you can tolerate.  I don’t think that’s a bad thing.  There is nothing morally superior or inherently noble about wanting to do work that you love, and there is nothing bad about wanting to just get the money you need to work as little as possible.  These are personal preferences, and either approach can lead to a happy life.  Of course, lack of self-knowledge or dishonesty with oneself about which approach you prefer can lead to unhappiness just as easily.

In other words, doing work you love is not the secret ingredient needed to be happy.  At least not for everyone.

There are people who can never be happy unless they are doing work they love.  For them, it doesn’t even matter if they make a lot of money at it.  If those people chase money and status over fulfilling work, they’ll be miserable.

There are also people who can never be happy unless they have a large amount of money, free time, leisure, and a minimum of stress.  For them, it doesn’t even matter much what kind of work they do, as long as it yields them enough money in a small enough amount of time to do what they really love.  If those people chase a meaningful career with all the material and time sacrifices that requires, they’ll be miserable.

Who are you?

The key to happiness is to discover which type of person you are, be honest with yourself and others about what you find, and have the courage to live it.

Let me illustrate this with a matrix.  I love a good 2×2 matrix.  It’s been awhile since the last one I made (in what is still one of my favorite posts), so I decided to conjure up a new one.  My graphic design skills are once again on full display.  You’re welcome for the visual feast.

Doing Work You Love and Being Happy

Let’s walk through each of the four quadrants one by one.  See if you can recognize people in your life who fit them.

Oh, and notice in particular the fact that the amount of money earned is not the relevant factor in any of the quadrants.  You can have rich, poor, or anything in between in any of them.

“I love my work and I’m happy”

The upper left quadrant represents those people who have gone all-in to find work that makes them feel alive every day.  They may be billionaire tech company founders who live and breath their company, or penniless beach bums who spend all day on the waves and scrape together just enough money giving lessons for a burger and a brew.  I know people so passionately obsessed with their work that they’d rather be doing it than anything else.  Depending upon what that work is, they may be very wealthy or very poor.  They don’t much care.  They care about their craft, and so long as they’re doing it, life is good.

“I hate my work and I’m happy”

The upper right quadrant is where people who have accepted the fact that work is not for them hang out.  They’ve also come to grips with the fact that the things they actually do love require a good bit of money and time, and work is required to get it.  They configure their lives to do the minimum amount of drudgery to get the maximum payoff.  I know business owners who have no interest in their industry, or salespeople who would just as unhappily sell something totally different.  They just found a niche where they can get what they need.

They sometimes live the Four Hour Workweek life, and truly put in almost no time to keep the income stream going.  Those with a longer time horizon and ability to defer gratification may put in a lot more hours upfront and endure a high degree of boredom for the payoff of evenings, weekends, or retirement.  I know people who I don’t think would ever find happiness in any kind of work.  They want leisure.  But they’ve made their peace with this fact and put all their energy into being true to that reality, instead of unhappily chasing an illusive form of work they’d love, or feeling guilty for their material desires.

“I love my work and I’m unhappy”

Ah yes, the martyr.  The people in the lower left quadrant are probably the hardest for me to be around.  They self-righteously remind everyone about how they opted not to “sell-out”, but then never stop bitching about the costs they incurred for doing so.  The truth is, these are people who would be happier seeking money instead of work they think the world will see as meaningful.  This is the jazz artist who gets angry every time the Grammy’s come along and some blonde pop star takes home the hardware.  This is the adjunct professor who chose an obscure academic discipline with almost no chance of good money but never stops yelling about the injustice in the fact that no one values what they do enough to pay them big bucks.

The funny thing is, this is a phenomenon found almost exclusively in rich countries.  The unhappy work purists are typically quite wealthy by world standards, but they can never stop comparing themselves to the richest of the rich.  This obsessive tendency to compare reveals their true preference for material wealth over career fulfillment.  They’d be a lot happier if they were simply honest with themselves and, as my friend Jason Brennan suggests, got a job at Gieco.

“I hate my work and I’m unhappy”

Opposite of the previous category, those in the lower right quadrant believe themselves to be made happiest by money, status, and “normalcy”.  But they are wrong about their true desires.  These people chose the best school, the best major, the best internship, and the job with the best title at the consulting firm because everyone around them egged them on the whole way.  Surely a great job, nice house, respectable resume, and good income will lead to happiness, right?  In their case, wrong.

They find themselves hating their work and not really enjoying the material benefits it brings either.  Their weekends are just as dull as the workweek.  As they keep ratcheting up the career ladder they also ratchet up their lifestyle, hoping that the next level and a new car will bring happiness.  It doesn’t.  But because their material quality of life escalates with their income, they feel trapped.  If they happen to realize that they never cared much for money and status as much as meaning in their work, it seems too late.  How could they give up $180,000 a year to start a band or become a chef?  They might lose their marriage, and surely their social standing.

Knowledge and Honesty

Again, every quadrant has examples of both rich and poor within it.  The two happy categories include rich and poor as well as those who love their work and those who hate it.  The key is not finding the one true path that works for everyone.  The key is finding out who you really are.  Then not being ashamed of what you find and not lying to yourself about it.

Self-knowledge and self-honesty.

Finally, after discovering and being truthful about what makes you happy, go do it.  It’s worth all the costs.

————————————

For more on this topic check out the podcast episode with TK Coleman, “Should You Follow Your Passion or Not?“

It’s Not About GDP

I’ve been thinking lately about GDP, and common ideas of economic progress more generally.

I just attended an event about the causes of and cures for poverty in the poorest countries.  So much of the discussion utilized comparisons between countries based on measures of GDP, GDP growth, and the like.  The more I thought about it, the less sense this made.  Not that GDP doesn’t decently correlate to overall wealth, opportunity, and progress – it does – but that it does less and less as technology and markets change.  GDP charts would fail to show, for example, the tremendous progress made in many poor countries by the fact that nearly everyone now has access to cell phones.  In fact, GDP does a bad job at measuring the progress of information/communication/data in general.

Consider MOOC’s and the abundance of free online learning.  Since the education industry is a chunk of GDP, putting it all out there for free can actually bring GDP numbers down, even as human well-being and human capital increase.

Think about other areas of misleading measures.  What you can do with a computer or smart phone in terms of sending data across the globe means fewer freight ships, the things easily measured in GDP calculations, but not less progress and opportunity.

Automation, information technology, decentralized networks, open-source…these make the world better and increase human flourishing, though they don’t do much for old-school metrics like employment and GDP.  Being listed as on the payroll of a company doesn’t always equal being better off (depending upon what else you might be doing of course), and having a larger number of physical objects to count doesn’t either.

For this reason, I don’t take much stock in those who lament slowed economic growth and fear it will bring an end to the complex market systems in countries like the US.  We used to consider farming the only thing that really mattered for economic well-being.  Then manufacturing.  As machines can do more of both of these, we humans can be redeployed in myriad ways previously unimagined.  Think about all the micro entrepreneurship going on today.  Think of crowdfunding for one-off projects.  I know authors who probably aren’t technically “employed” most of the time, if at all, and don’t produce GDP enhancing widgets, but they live wonderful lives by pitching book ideas on kickstarter, raising the money, travelling the world, doing the writing, and selling ebooks.  They may make aggregate data appear we’re economically worse off, but they’d rather not trade their life for one hoeing rows or assembling buggies.

The fact that no one quite knows how to calculate the value of the internet and other information age technologies probably causes us all to underestimate just how well-off we are today, and how bright the future is.  It’s the perfect time to seize the opportunity and do something new.  Carpe diem.

Why I Don’t Care About Income Inequality

AbundanceSmartPhone

In the 1980’s if I told you for only a few hundred dollars anyone could have a $1 million asset in their pocket you’d call me crazy.  But here we are.

The chart above (actually a picture of a chart taken with my iPhone and uploaded to this blog with an app to further emphasize the point) is from the book Bold: How to Go Big, Create Wealth and Impact the World by Peter Diamandis and Steven Kotler.  It illustrates why I think worry about and policy efforts aimed at changing differences in income between rich and poor are dumb, destructive, and miss the point by being stuck in a dead paradigm.

The above chart only scratches the surface.  It’s hard to comprehend just how much wealth (not income) we have today compared to 20, 30, or 50 years ago, let alone a century or two ago.  Anyone who complains that income gaps are growing misses the miracle under their nose of wealth exploding, and more accessible to individuals at any income level than ever before in human history.  50 years ago, it could take a hefty sum to launch and run a basic advocacy organization, for example.  You would need a secretary, long-distance phone line, office space, filing cabinets, a travel agent, a print shop that you’d have to visit to approve runs of literature (at least several thousand at a time), space to store them, shipping cost, etc. ad nauseum.  Today you can setup a WordPress website, bid out for design work on Fiverr or 99 Designs, get VistaPrint to run a few hundred after proofing a digital copy, book your own travel, store your own files, run email campaigns with MailChimp, etc. ad nauseum for a few hundred bucks.

Anyone can write and record songs, publish books, start businesses, sell goods and services, learn anything in the world, or meet people across the globe for free or close to it with a phone and some WiFi.  These things are equally accessible to rich and poor.  Wealth – as measured in opportunities and fulfilled desires, the real end of money – is greater than ever and flatter than ever.

The biggest obstacles are those erected by the wealthy to stymie competition from upstarts taking advantage of all this accessible capital.  Licensing requirements, regulations, wage laws, tax laws, immigration restrictions, intellectual monopoly status on non-scarce resources, and subsidized education and idleness are the biggest hurdles to the poor seizing the newly available wealth and creating a better life.  It’s not about income or even net worth.  It’s about what you can do and the value you can create and consume.  The chart above and the world around us indicate that there has never been a more broad and deep spread of wealth.

GDP doesn’t matter.  Neither does income.  Opportunity matters.  Value matters.  Times have never been better across the board, which is exactly what most threatens those precariously perched at the perceived top.  Don’t worry about them.  Let the doomsayers and wannabe warriors of equality clamber for an illusive goal that doesn’t make anyone better off.  Take advantage of the exponential growth in opportunity all around you.

Luxury and Voluntary Redistribution

Watching Mr. Selfridge with my wife last night I was reminded of an under-appreciated feature of free-markets.  The wealthy subsidize beauty for the less well-off by patronizing luxury retailers.

Selfridge’s, a pioneer in the development of department stores, is a purveyor of fine goods.  The upper crust are its clientele.  Yet one of the things that made the store famous is available to the general public for free: it’s beautiful and dramatic window displays.  The sale of expensive goods to wealthier individuals is the goal, but thanks to the dollars from those customers and the desire to get more of their business, the store goes to great lengths to display their wares in an appealing and provocative way.  The result is a positive externality for every passerby on the streets of London.

Other luxury items have the same effect.  If you can overcome the urge to envy, you notice that high-end cars and buildings make the world around us more beautiful and enchanting.  Market detractors often fret about negative externalities in a free world, but how often do they account for the immense richness experienced by all, thanks to the wealth of some?

Our sense of life is made up of many things, including the aesthetic environment in which we dwell.  The seemingly extravagant expenditures of the wealthy can create surroundings overflowing with creativity and elegant design.  If you’ve never enjoyed the art of a neighborhood full of houses you couldn’t afford and landscaping you’d never dream of, I recommend taking a drive through one.  Put prejudice aside and let the sensory magnificence seep in.  Humans are amazing creatures who can shape our environs in amazing ways – I’ll be damned if I’m going to let those with nice stuff be the only ones to take pleasure in it!

You Can’t Have Free Markets without Free People

I’ve run a trading game at seminars and in classrooms where, by the end, all the students agree that free trade creates wealth and restrictions reduce it.  I give out trinkets, ask students to rank how much they value them, then allow them to trade for a few rounds, each with a larger segment of the room.  At the end of each round we tally up the value they place on the goods they have after trading.  As the movement of goods opens up, each person’s wealth in trinkets goes up.  Without producing a single new good, the total value of the goods in the room (measured subjectively by the owners) increases dramatically between the initial dispensation and the few rounds of trading.  Trade creates wealth.

This provides a nice segue into a short talk about the benefits of trade, comparative advantage, specialization, and why trade restrictions make us worse off.  I see several eureka moments as students understand from this simple exercise that freedom to move goods allows resources to go to their highest valued use.  Then I throw in a twist just before Q&A;

“Just as restricting the free movement of goods unnecessarily reduces wealth, so does restricting the free movement of labor; otherwise known as immigration restrictions.”

Hands shoot up.  Despite nearly an hour spent demonstrating and discussing free trade in goods, this single line at the end attracts 100% of the Q&A attention.  Inevitably, well over half the class has a reason why the laws of economics they just learned cannot possibly apply to human resources the way they do to goods and services.  Within the first few questions, every one of these objections withers.  What’s left are objections that have nothing to do with immigration per se, but are problems with the welfare state or the warfare state, and immigration is sought as a scapegoat.

The economic case for the free movement of people is incredibly clear and not hard to make.  Yet those opposed to freedom of movement tend still to cloak their arguments in economic rhetoric.  Even though it’s unsure footing, it is perhaps more comfortable than talking about the moral implications of barring people from interaction and exchange across arbitrary borders.  When you get down to it, it’s one of the most inhumane policies around.  Anyone who talks about helping the world’s poor should start by advocating open borders.

Here’s a great article to get started.

Generational Wealth: Hesiod versus Aristotle

Originally posted here.

It is a great irony that prosperity affords posterity the luxury of forgetting its origins. Though not a hard-and-fast rule of societal evolution, generations who grow up wealthy often lack respect for or understanding of the values and ideas that generated the very wealth from which they benefit.

There is an honesty, realism, and practical virtue often accompanying generations that have to endure difficult labor that is sometimes lost on later generations that inherit a comfortable material life. This is not a new phenomenon but is present throughout history. Compare, for example, the life and work of the ancient Greek poet Hesiod with that of the great philosopher Aristotle some 300 years later.

Hesiod lived sometime around 700 B.C. in the region of Boeotia, which he described in his Works and Days as a “cursed place, cruel in winter, hard in summer, never pleasant.” Though little is known about his life, he was apparently a shepherd who claimed to have been given the gift of song by the Muses one day while tending his flock. Regardless of the source, Hesiod’s poetry is full of colorful mythology, practical wisdom, and sound ethics. The ancient poet wrote at a time near the end of the Greek Dark Ages and at the beginning of the Archaic period. Greece was a highly decentralized region made up of mostly small, self-governing societies, and the merchant class was just beginning to emerge.

It is in this context that Hesiod gives advice to his wayward brother Perses in his Works and Days. The poem is a very practical treatise on the value of hard work, the need to cultivate strong personal character and to focus on one’s own welfare rather than the affairs of others. There is a strong individualism throughout Works, and even a foreshadowing of Bernard de Mandeville’sGrumbling Hive and Adam Smith’s invisible hand, as Hesiod describes the value of self-interest and the ability of envy and strife to motivate hard work and wealth creation.

Hesiod makes no apologies for the pursuit of wealth. Indeed, he sees the hard work required to obtain it as a way of becoming virtuous:

But the immortals decreed that man must sweat to attain virtue.

And

If you work, you will be dearer to immortals and mortals; they both loathe the indolent.

No shame in work but plenty of it in sloth.

If your work brings you wealth, you will be envied by the slothful,

because glory and excellence follow riches.

Whatever your lot, nothing will be as good as work.

Ancient Greeks must have heeded Hesiod’s advice. Three centuries later, Greece had grown in power and wealth, and from it began to flower some of the greatest contributions to classical and modern art, science, law, and philosophy. It was into this culture that Aristotle was born.

Aristotle was the son of a royal physician and a member of the aristocracy. He enjoyed an excellent education at Plato’s academy, which allowed him to direct all of his energy to philosophic and scientific inquiry. There is no doubt that the product of his genius was tremendously important to the advancement of the sciences and to the advancement of liberty. However, several passages in his Politics stand in sharp contrast to the views of his Greek predecessor, Hesiod, regarding the value of work, wealth, and individualism.

Compare the passage above on work as a means of obtaining virtue and wealth as a precursor to “glory and excellence” to Aristotle’s description of those fit for citizenship in his perfect state:

Now, since we are here speaking of the best form of government, and that under which the state will be most happy (and happiness, as has been already said, cannot exist without virtue), it clearly follows that in the state which is best governed the citizens who are absolutely and not merely relatively just men must not lead the life of mechanics or tradesmen, for such a life is ignoble and inimical to virtue. Neither must they be husbandmen, since leisure is necessary both for the development of virtue and the performance of political duties.

Aristotle’s aristocratic upbringing leads to an arrogant view of not only who should be a citizen or leader but also how a state should be governed in general. Hesiod’s focus is on the individual and how he might improve his own lot and leave others alone, while Aristotle is more concerned with selecting the best men to plan and rule the rest. Like Plato before him, Aristotle thought those fit to rule were educated men like himself — men who had sufficient leisure and could stay out of “unnatural” businesses like retail trade and moneymaking.

There is no doubt that — probably thanks to the intellectual lifestyle afforded him — Aristotle provided one of the best defenses for private property, and his work in logic and metaphysics remains unrivaled today. However, Aristotle’s political and economic thought leaves something to be desired by those who value free-market capitalism, the role of the entrepreneur, and the positive power of self-interest and individuality.

The main difference between these two men was their wealth and status. Hesiod, perhaps due to necessity, was a practical thinker. Extolling the virtues of hard work was not mere speculation; I doubt Hesiod could afford to look down his nose at labor. Aristotle, on the other hand, could afford to disparage trade and labor. The wealth of Greece provided opportunity for full-time teachers and thinkers to ponder anything they chose. Indeed, the power of wealth to fund such speculative philosophy is one of its greatest advantages, and as one who spends hours studying, I would not wish to return to a poor agrarian society. Still, such generational wealth carries with it a certain danger.

Anticapitalist theories share in common an inability to take human nature as it is. Rather than analyzing man as a complex creature who will always act to achieve what he perceives as good, anticapitalist theories tend to focus on what the theorist wishes man to be and often overlook the necessity of market exchange for human improvement. From the vantage of a moneyed aristocracy, it is easy to be “above” the hustle and bustle of the marketplace, and to pursue higher ideals than material prosperity — forgetting that such prosperity is what supports the hours of speculation.

I do not believe one must be poor to understand and appreciate capitalism, nor am I opposed to generational wealth or inheritances. It does seem, however, that there is a certain danger in living a life completely detached from market processes and the pursuit of wealth through production and trade. Far worse than a physically lazy trust-fund baby is a generation that has become intellectually lazy. With wealth comes the temptation to rebel against existing institutions and ideas — after all, you can afford to. While iconoclasm and courage to question the status quo are cherished virtues and much needed in defense of liberty, they are not ends in themselves. There is no heroism in revolting against the existing order if the existing order is better than the ideals for which the revolutionaries stand.

In our age of plenty where “higher learning” is ubiquitous, it is imperative that we remain realistic in our assessment of human nature and not forget that the basic principles that produced our prosperity still govern human action. Teaching future generations the theories of individual liberty and capitalist production is important; perhaps letting them experience the theories in practice is as well.