Update (early April)

First off: the book is so close I can taste it.  The ideas are there. The writing is there.  All that’s needed is more work on the flow and we’re done.

If you didn’t know already, I just got back from two weeks in Australia with Marie and two of my daughters.  It was an amazing trip and the conference I spoke at was a much needed reality check on my current work.

Here’s a quick recap of the trip.

The main reason for the trip was to speak at the World War D conference in Melbourne Australia. Dan Denning (the head of Port Phillip Publishing) put on a great show and welcomed me with open arms.  He’s not only a great guy, he’s a big thinker and an talented entrepreneur.

The conference he and his team put on was excellent (I’ve been to many, many…).  It was packed and the delegates were amazing.   Unlike other financial conferences, these delegates were mostly self-made people from outside the financial world.

For example, one of the people I spoke with was a grizzled oil wildcatter who found one of the first shale oil deposits (building a $1.9 billion company over five years).  He provide a fascinating first hand account of how shale oil has transformed the oil biz.  It’s now less speculative and more industrial/technological.   This change has led to more improvement in oil technology over the last five years than in the last forty.

My conference keynote and subsequent panels I was on provided me with a chance to share my new work on the American Way (in addition to an update on my previous work re: super-empowered individuals and disruption).   The ideas not only resonated, they provided the only ray of hope in an otherwise clouded future.

As a result, I’m more convinced than ever that I’m on the right track with my current work.

I also had a chance to speak at meet-ups in both Sydney and Melbourne graciously put on effervescent Kate Carruthers and an intellectually curious Darren Sharp.  These meetups were an amazing opportunity to finally meet F2F some people I’ve only known online.   They were also a test bed for some of my ideas with a tech savvy and largely academically oriented group.  I’m not sure the ideas fully resonated with them, largely due to a failure on my part:  they wanted more meta thinking/discussion than street level walkthrough.

08. April 2014 by John Robb
Categories: Ideas | 4 comments

Why the People Running Our Economy are Clueless

Update.  Still working on the book.  Getting really close.

>>>

The US is in so much trouble is because most of the people at the top, don’t understand the role the American Dream plays in the success of our economic system.  Due to this ignorance, they are continually surprised when nothing works the way it is theoretically supposed to work.

Here’s a classic example from the testimony of Alan Greenspan to Congress in relation to the 2008 financial crisis.   Alan was, arguably, the person with the most power over the economic system in the world, for over a decade.  Yet as you will see in the testimony, he’s completely clueless.  In it, he professes that he didn’t understand why so many bankers, acting out of rational self interest, didn’t do the right thing.

Alan Greenspan: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”
Congressman: “Do you feel that your ideology pushed you to make decisions that you wish you had not made?”
Alan Greenspan: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.”

Of course, it is understandable why Alan is confused.  His entire life is built on the study of economics.  Economics is a soft academic science that is predicated on the idea that people act solely on the basis of rational self interest, and that the economy produces wealth only because people act in this manner.  Of course, as this book has proven again and again, this assumption is a terrible error.   A falsehood and a lie we’ve been told again and again until people think its true.

Capitalism doesn’t produce wealth because people are greedy or selfish to a fault.  Capitalism does it because people are building a better life for themselves by following the structure and discipline of the American Dream.   Economic independence is one indicator this pursuit is working, but so is the ability to build a produce or deliver a service that makes it possible for other people to improve their lives too.

This is so important I need to walk you through this step by step.  I’m doing this partly because I think you will see why it is so valuable and party to undo some of damage this lie has done to our understanding of how things work.

When Adam Smith penned his famous book, The Wealth of Nations, the Protestant Ethic was the basis of most economic and social life.   Not long after that, Ben Franklin articulated this ethic as the American Dream.   It was, for all intents and purposes, the commonly held wisdom at the time and Adam Smith recognized this.  He did this by reducung the American Dream to something he called “enlightened” self-interest.   Here’s what this means.

Rational self-interest is simply selfishness. It’s purely the desire of an individual to advance his or her interests to the exclusion of all else.  It’s the type of behavior we chastise in our kids for, due to problems it creates in later life.  IN contrast, enlightened self-interest requires the intelligence to see beyond yourself, to the greater context.  Additionally, it’s the belief, that if an action improves both your life as well as the lives of others, the value of the action is better than if it improves only your or others.  This truth should be self-evident and obvious to everyone reading this, particularly since we are living in a world that was built on the idea enlightened self interest. It should be proof enough that an United States with many prosperous people is much more prosperous than one with a few very prosperous people.   In a world of widespread prosperity, even the most prosperous are more prosperous than in a world with few winners.

This truth should also be self-evident on the personal level too.

When I act solely based on my self-interest, I operate without internal or external restraint.  This means that contrary to the thinking of the many economists who believe in petty self-interest, I am also free of the restraints imposed by rules, regulations, and laws.   In fact, self interest dictates that these rules are either weapons to use against others or dictates to be ignored to the extent punishment can be avoided.  In short, self-interest dictates that these rules and laws are only followed when the potential of being caught and the punishment that may result exceeds the value of the action — which due to the imperfections and corruptibility of legal and rational rule sets is very easy to do. It gets worse.  Rational self-interest can even be used to justify acts that damage the prosperity of everyone.  This implies that if a sufficient number of people act in the same fashion, the entire system becomes a dysfunction cesspool.  A place where every scam, fraud, and theft imaginable is dreamed up and acted upon.

In contrast, enlightened self-interest requires maturity. A mind that isn’t hamstrung by the myopia of childish ambition.  A mind that can see a world beyond.  This does NOT mean that enlightened self-interest means that we should put the needs of others above the needs of the individual.  Far from it.   A decision making system based solely on altruistic is as completely dysfunctional as one based solely on selfish action.  Selfless altruism is the basis of Communism and National Socialism, with their complete disregard for self-interest.  This  is why these systems are always heavily bureaucratic and machine-like in the way they operate.  This denial of nature also why they often become ruthlessly authoritarian.

 

19. March 2014 by John Robb
Categories: Ideas | 9 comments

Can I Trust You?

Here’s an interesting snapshot of a discontinuity.

It’s been clear for a long time that the rules, regulations, and laws the nation state used to run the economic system aren’t working anymore.  They simply don’t provide the trust they used to provide in a connected world.

For example:  how many times a day do people approach you with the intent of fleecing you for everything you own (or worse)?

When you combine e-mail, robocalls, and malware that number is in the dozens (and don’t even look at the number of times your home router is probed by hackers daily).  It seems like there’s an entire army of people working everyday to take you to the cleaners (and there actually is).

Jet back twenty years and that number is pretty darn low.  Frankly, before globalization and the Internet it wasn’t much of a worry unless you lived in a big city.

However, that reality hasn’t caught up with many people, particularly those of us that grew up before globalization.  We’re still hardwired to trust more than we should given the reality of the world.   In comparison, the generation of Millennials that are graduating for college and high school have learned differently.  They don’t trust the government’s rules and regulations to provide a bubble of artificial trust anymore.

A new study from Pew shows this:

2014-03-08_10-08-24

The simple truth is there is a generational shift underway.   A new generation that understands that the rules don’t work and that bad people are taking advantage of that situation.

That’s the first discontinuity.  The second is interesting too in a different way.  It’s counter intuitive:  despite that distrust, this younger generation is the group powering forward the sharing economy.  They are more willing to trust strangers on these sharing networks that older generations.

The reason for this is simple.  It’s the reason there is hope for a return of trust long after rules and regulations wear thin.  It’s reputation.  Online reputation. What you’ve done.  Reviews of your previous behavior.   All of these sharing systems are based on two way reputation systems.  These systems, plus what you can find out about the person on linked social media, provides a great deal of insight into their trustworthiness (they are getting harder to scam by the day).

Why does this work and where is this headed?

Online reputation is a return to the system that used to limit bad behavior before the nation-state took control.  Back in those days, most of our interactions (from commerce to relationships) were local.  Local reputation networks limited bad behavior.   Reputations are coming back in a new, global form online, and that’s going to remake trust.

JR

08. March 2014 by John Robb
Categories: Ideas | 4 comments

The Quagmire: Are We Better of Now?

As some loyal readers have rightly pointed out, proving we are worse off today than we were in the 70’s is tough to do in a convincing way.

It would be silly and wrong to claim that everything is worse today than it was forty years ago, and from a political, social, and fashion perspective, few would want to go back.

It’s true, there have been lots of improvements, mostly technological, to our lives since the 70’s. However, the discussion about whether a specific changes make us happier or not, can become a never ending debate over hedonics — the academic study of what makes us happy from an economic and technological perspective.  A debate that quickly becomes “hedonic quagmire,” which is something I’d rather avoid if possible.

To accomplish that, let’s take a look at the changes to daily life we’ve seen over the last forty years. I’ve found these improvements fall into three categories:

  • Negligible. Alternatives to things that we used to do differently. Changes that offer uncertain advantages in prices, quality, or experience. For example, we use the Internet to get our news today, it’s fast, but given its uncertain quality, it’s difficult to make the case that its actually better than the TV news and newspapers of forty years ago.
  • Absolute. Changes that are definitely better than the past. Technological improvements that make things less expensive or faster. Changes that allow us to do what we’ve never been able to do before. For example, interpersonal communication is better now than it ever has been. It’s also much easier, faster, and less expensive to acquire a book, movie, or song than it used to be.
  • Pyrrhic. Advances that have come at a great cost. For example, in medicine we’ve seen a considerable amount of improvement over the last forty years. Advances have added four years to our life expectancy. However, during this same period, the cost of basic medical care has gone through the roof. Medical care is now so expensive, it’s very difficult to afford the everyday care that is, and continues to be, the most important care we get.

That last part — the “Pyrrhic improvement” — is actually the path out of the hedonic quagmire.

It focuses the mind on the only question that matters.   Have the technological improvements we’ve seen over the last forty years made it easier for the American household to pursue the American Dream?

The answer to that question is no.  Most of the advances we’ve seen have fallen into the Pyrrhic category.

Here’s why.  Based on the financials of the families alone, it is EIGHT times harder to achieve the American Dream than it ever was, even without considering the costs of fragility.

26. February 2014 by John Robb
Categories: Ideas | 9 comments

The Red Queen’s Race

“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else — if you run very fast for a long time, as we’ve been doing.”

“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

By every measure, US households are worse off today than four decades ago.  It’s gotten so bad that even households with two incomes are worse off than households with one income in the seventies.

A big part of it is that the median income of today is actually less than it was four decades ago, and that is for men.  It’s even worse for women.  The median income for women is ~78% that of a man.   The situation is even worse given the fragility of the American household.

The Fragile American Household

The best analysis I’ve found on this situation is from Elizabeth Warren (Harvard Law School and a US Senator for the state I live in) in her seminal book The Two Income Trap.  Although this book came out in 2004, it’s still the best single source of insight into the finances of the American household available.  In the book, she dissected  three decades of US census data on American households.  This data showed that it had become increasingly costly for a household to stay  on the path to the American Dream:

  • Mortgages.  UP 76%
  • Cars  UP 52%
  • Taxes.  UP 140% (corrected from Warren’s presentation)
  • Health Insurance.  UP 74%

Further, just to keep up with the rising costs of pursuing the American Dream, both parents were required to go to work full time. However, that wasn’t all she found.  She found that even a dual income household couldn’t absorb the increasing costs of pursuing the Dream, and they were going bankrupt with increasing frequency.

This increase in bankruptcy wasn’t due to frivolous consumer spending or runaway consumerism as the media has claimed.  The numbers just don’t back up that claim.  In fact, households spent 32% less on clothing and 52% less on appliances in 2004 than they did in 1974.  Even the size of the American home isn’t that different.  The square footage of homes were only 5% larger in 2004 than it was in 1974, although the average age of the home was 50% older.

The actual reason is more interesting than this.  The real reason is that the rising costs levels of merely staying in pursuit of the American made the two income household of 2004 much more fragile than it was in 1974 with only one income.   You can see why in this chart from the book:

two_income_trap

The amount of discretionary income available to the family in 2004 is the same as it was in 1974, yet it takes much more effort to attain it (much more cost and two incomes).   Worse, it creates a fragility that makes the household extremely vulnerable to inevitable disasters or reversals.  For example:

  • It takes a lot longer to save enough money to cover expenses than it used to.
  • The loss of either income (due to divorce, illness, layoff, etc.) will wipe out any savings very quickly.
  • The chances of losing one of two incomes is higher than losing one (with a spouse in reserve to enter the workplace if needed).

In sum, the American household has become fragile.  Unable to get ahead.  Unable to save for big event or retirement due to frequent financial reversals.  Increasingly unable to pursue the American Dream and it’s getting worse by the year.

How so?  Incomes are lower the costs higher (particularly health care and education) than when Warren wrote her analysis.  However, the worst part is that the volatility of the economic system is much higher, radically increasing the chance of the economic reversals that wipe out savings and force families into bankruptcy.

The Red Queen’s Race

The path we are on is clear.  The competitive dynamic like this is a sign we’ve entered the Red Queen’s race.

The Red Queen’s Race is a concept used in biology to describe the evolutionary arms race between predator and prey in an inter species struggle (or host/parasite).  For example, if a predator develops a new and better offense, its prey needs a defense that is even better in order to survive.  This process of competition goes on until one of the species is driven to extinction.

However, in this specific instance, it’s not competition between predator and prey.  The competition we’re seeing between US households is fratricide.  The kind of intra-species struggle that occurs when a habitat is shrinking or in failure.

In our case, the habitat that is in decline is our economy.  Our economy is becoming hostile to the pursuit of the American Dream, and Red Queen’s Race is the fast track the dustheap of history.

“IN American, it takes all the running you can do, to keep in the same place. If you want to achieve the American Dream, you must run at least twice as fast as that!”

JR

24. February 2014 by John Robb
Categories: Ideas | 14 comments

The ONLY way to Measure Economic Health

For those of us paying attention, the signs of America’s decline have been as clear and crisp as the toll of a church bell in winter air.  All that is needed is a willingness to hear it and a stout heart to accept what it means.

Lots of “experts” say that I’m overstating the crisis.

They claim that America is doing fine, and all is well at the epicenter of global capitalism.  To make their point, these experts will trot out statistics to show that the economy is still growing and the stock market is doing better than ever.  The GDP and the DOW are doing fine, they crow.

Of course, these statistics tell us little about the current and future health of the economic system.  The value of any human built system isn’t measured that way.  It’s measure by what it does.  What it accomplishes.  For example, if doctors measured the success of a medical procedure the way the Federal Reserve and economists measured it, its success would be based on the amount the doctor got paid for it and not whether the patient lived, died, or was healed.   

This means — and this is as simple as it gets folks — the only measure of economic success is whether American families are becoming more prosperous, or not.  The answer to that is very clear and simple too.

It’s a resounding NO!   We’re worse off.

We are worse off than we have been since the 70′s:

  • Less income, fewer good jobs, more underemployment.
  • Fragile financials — more debt and higher costs.
  • Little savings and evaporating pensions.

24. February 2014 by John Robb
Categories: Ideas | 6 comments

Garbage In, Garbage Out

If you want to truly understand Capitalism, you have to start with this basic insight.

Capitalism isn’t a belief system.   It’s just game.  A rule set for buying, selling, and investing.

That’s all it is.

There’s not any moral or ethical element to it.  In fact, if you can get away with it, rigging the game to give you all of the winnings is completely within the rule set.

Of course, people don’t play the game of Capitalism because the “laws” of rational optimization tell them to.  They play it for three reasons:

  1. Avarice.
  2. Fear.
  3. It serves a deeply held belief.

That’s it.

Reasons one and two are crappy ways to motivate people to play the game.  Why?

Avarice encourages a cheating and an aggression that pushes nearly all of the other players out of the game (ever play a game like that?  it sucks).

Fear is a terrible motivator too.  It only motivates a minimum effort.

Whenever the game of Capitalism is being played by people with only avarice and fear as motivators — all we see is squalor and dysfunction.  That result has been inevitable for the thousands of years we’ve played the game (despite PR spin to the contrary, Capitalism is a very, very old economic game).

That leaves us with the last option.  The only good reason to play the game.  The only way we’ve ever gotten good results from the game.  In fact, it’s even narrower than that.

There’s a specific belief that the game of Capitalism has advanced the interests of.  It’s the belief that hard, honest work is a path to economic and spiritual prosperity and that this belief is available to everyone.  

That belief turns Capitalism into a game played by as many people as possible, all striving to push the game forward.

Unfortunately, it’s pretty easy to see that the results we are getting from the game of Capitalism stink.  Of course, all of this failure isn’t the fault of Capitalism.  It’s just a dumb game.

It’s why you and I play it that matters.

AVARICE and FEAR are taking over the game.

Avarice wins when a financial firm like Goldman Sachs goes bankrupt while gambling and it is bailed out by public money.  Fear wins when a similar bankruptcy among homeowners, as a result of the same crisis, results in millions of home foreclosures.

Avarice wins when every state adopts a lottery and gambling to generate tax revenue.  Fear wins when the government encourages you to take out loans to get a degree and no work worthy of any degree is in sight.

The answer to why we play it dictates how we play it and what the outcomes become.

Garbage IN >>> Garbage OUT folks.  It’s all connected.

JR

23. February 2014 by John Robb
Categories: Ideas | 5 comments

How to Write a Good Book

A friend of mine is writing a book and she asked for some ideas on how to do it.

Here’s my process.  It worked pretty well on my first go, and it’s working again with my second (I’m more than halfway finished with it).

There are three hurdles to writing a book:

  • Quality.  Is it good enough to engage readers?  Do people like the writing or ideas?
  • Writing.  The daily process of writing it.  The grind of researching it.
  • Packaging.   Putting all of your ideas into a cohesive whole.

If you fail to clear any of these hurdles, it won’t be worth the effort.

To make it easier to do, do it in public.  Use a blog.  Share it with everyone that would be interested in it.  Here’s how it will help you get it done:

  • A blog post generates feedback.  You will be able tell which ideas resonate, and which ideas don’t.  The feedback almost always enables you to improve you clarity, style, and delivery.  Further, the pressure of writing in public makes you try harder.
  • Daily blog posts provide a structure to your work.  The conversation you have with your readers along the way makes it more fun to do and their feedback often spurs new writing.
  • Your blog posts are packaged ideas. When you are ready to publish your book, take these posts and use them to flesh out an outline for the book.  To finish it, write the narrative by stitching these posts together (rewriting them as necessary) to create a smooth logical flow.

That’s it.  Simple.  Effective.

It also launches you into the marketplace with a small audience of people interested enough to read it.

JR

22. February 2014 by John Robb
Categories: Ideas | 5 comments

The Idea that Built the Modern World

When the Cold War ended, the US was left as most powerful nation on earth.

It was all due to one simple idea.

This idea united the US as a people during our long struggle with Communism. This idea produced our economic success and technological superiority. This idea connected us to a growing roster of allies. Winning their hearts and minds to our cause, even if they didn’t agree with policies or actions.

Yet perversely, nobody ever truly acknowledged this idea as the deciding factor in this existential struggle, even though it was the same idea that had taken the United States from agrarian backwater to the most powerful nation on earth at the end of 20th Century.

That idea was the American Dream.

Of course, the American Dream isn’t a home in the suburbs or high paying job. As you already know, it’s the simple idea that hard, honest work will provide you economic independence. The prosperous independence that makes everything possible; from raising a family to owning a home to growing old without fear. While the exact wording of the Dream has changed a bit in the last several hundred years since Ben Franklin first wrote it down, the essence remains the same.

What’s surprising to me is how few people understand the power of a simple idea. Particularly an idea powerful enough to change the world, as this idea did.

The truth is that the only way to change the world is through a simple idea. Specifically, a formula that alters how billions of people think and act. That feat can’t be done through legal pressure, government fiat, corporate marketing, speculative finance, big science projects, or anything that involves haranguing people with complex ideologies (anything that ends with ism) and creating elaborate arrays of incentives and punishments (carrots and sticks).

It’s only possible with something that is simple.

A clue to how the process works can be seen in how the global Internet was built so quickly. The reason is due to the following factors.

  • Simplicity. It’s based on simple, open protocols for sending and receiving information (similar to the simplicity of the Web’s markup language).
  • Openness. Nobody owned it. It was also very easy to join. Further it could be used to solve problems specific to the individual and not the many.
  • Results. It could quickly and easily be used to get things done. Things that people needed/wanted to see happen.

Of course, the way an idea can change the world works different with people than machines. For people, the idea must connect to a deeper layer. To emotions and urges that govern motivation and belief. It must answer WHY and do it in a way that is simple, open, and delivers results.

20. February 2014 by John Robb
Categories: Ideas | 8 comments

Basboosa and the American Dream

Tarek Bouazizi, known locally by the nickname Basboosa, was poor but he dreamed big.  He believed in his own version American Dream.  That simple, amazingly powerful idea that it was possible, through hard, honest work, to build a better life.

Unfortunately, Basboosa had a rough start.  His father died when he was three and he had to start work at 10 to support his mother and his sisters.

Absent any other options, he got creative and built a small income by selling fruit and produce from his cart.  A business he was successful enough at, he was able to send one of his sisters to the University — a classic American Dream story.

However, this pursuit of the Dream didn’t end well for Basboosa.  Over the last couple of years of his short life, he ran afoul of local Kleptocrats.  Corrupt government officials that had demanded steep bribes (disguised as a “permit fee” when none was needed) to sell produce from his cart.

Of course, Basboosa couldn’t always pay the bribe, and when he couldn’t, the police would confiscate some of his produce.  On a morning in December it escalated.  The police didn’t just confiscate all of his produce, they took his cart too.

Unable to pay back the $200 he had borrowed to buy the produce or replace the lost cart, Basboosa headed to the offices of the municipal authorities to protest.  The government official he saw, summarily refused to return his cart.  Not only that, she summoned the police to throw him out of the office and rough him up in the process.

Humiliated.  His hope for his own version of the American Dream shredded, he took an extreme step.  He burned himself to death (he died two weeks later with burns over 90% of his body) in front of the Town Hall in protest.

Basboosa’s death was tragic.  He was also a casualty in a much bigger conflict.  A conflict between those of us that want the opportunity to earn a better life through our own version of the American Dream, and those that want the opportunity to take it all, the people that have ascended to the throne of the kleptocracy.  So, even though his story occurred in Tunisia, it’s a story that we’re going to see play out again and again, in nearly every country.

It’s a story that will become even more harrowing when it becomes apparent that the traditional American Dream is dying at the very moment nearly everyone in the world has accepted it as their own.

 

19. February 2014 by John Robb
Categories: Ideas | 11 comments

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