A persistent situation has developed among the current political and economic climate that forebodes of large potential problems in the future.  This situation finds its source in a phenomenon that we refer to as “Evading the Obvious.”  The way this effect manifests itself is a stalwart refusal to recognize and adapt to the economic realities.  This issue is modestly problematic when constrained to people and absolutely catastrophic when employed by the political authorities.

The reason for this is because people are limited in the extent to which they can impact the overall marketplace.  However, political authorities can establish highly destructive rules and regulations that have the ability to cripple an otherwise vibrant economy.  Of the many pitfalls and problems that public officials can find themselves caught up in, there are three main principles that drive the most evasion of obvious economic truths.  These principles are that spending isn’t free, profits and losses are equally important, and that prices communicate knowledge.

Reality #1: Spending Isn’t Free

Against the backdrop of huge deficits in both the US and Euro-Zone, this truism cannot possibly be expressed poignantly enough.  Every time that any person, business, or government spends money, that money must come from somewhere.  In the cases of people or businesses, the spending frequently comes from either savings or credit.  In the case of governments, it can also come from ‘monetary expansion’ or simply printing new money.  In all cases, it is not free.

The world is a place where resources are limited.  These resources are often represented in terms of money, but there is no scheme that can ever be devised to create new resources out of nothing.  When savings are spent, those savings are not available for spending on anything else.  When money is borrowed, it must be paid back … with interest.  When new money is created, it devalues the money already in circulation.  Any time that money is spent, it represents a choice to bear a certain cost in exchange for a certain outcome.

Thus, the fundamental question for people, businesses, and governments is one of whether their money/resources are being spent in the most effective way possible.  It is certainly true that the notion of effectiveness is inherently subjective.  However, it is also true that when people are spending their own money, they do so much more effectively than people spending other people’s money.

When investors borrow to build a new factory, they do so because the rate of return from the factory is expected to exceed the cost of interest on the loan.  When people spend their savings, they do so because they value what they are buying greater than having a certain amount of money available to spend on something else.  When the government borrows or prints money to spend on “stimulus” projects, the net result is to either create or destroy value.  Projects more valuable than the alternative uses create value, and projects less valuable than the alternatives destroy value.

When one considers that political decisions are made by people who must be re-elected at regular intervals, and who are spending other people’s money, it is not difficult to see how large sums of money are spent on value destroying projects that benefit a particular political constituency.  If we seek economic growth, then net spending needs to be concentrated in areas that will generate more value than the (full) cost of the resources.  It is not possible to create affluence through borrowing to spend on value destroying projects.

Reality #2: Profits and Losses are Equally Important

Another key concept that seems to have been lost over the past five years is the importance of losses in a free market.  Profits exist to encourage innovation and risk-taking, but the risk of loss must be present to encourage prudence, and to weed-out under-performing entities so that the capital can be deployed more profitably elsewhere.  Problems emerge when the government seeks to insulate certain businesses from the impact of losses.  When profits are guaranteed, and losses are bailed out, the result is highly inefficient entities that funnel benefits to their insiders.

The reason for this is because in a competitive market, businesses who take excessive risk or have incompetent management will eventually go bankrupt.  In this scenario, the assets of the business will be sold off at a discount to other entities who behaved more responsibly.  The profit and loss system systematically channels resources from under-performing entities to those who are more effective and more prudent.

The problem that many people see in this process is the ‘creative destruction’ aspect of economic growth that pushes some companies out of business while new enterprises emerge and grow.  In response to this churn of business fortunes, many companies seek protection of their business, while people seek projection of their jobs.  Unfortunately, all of this creates a barrier against the systematic re-allocation of resources toward their most effective use.

Reality #3: Prices Communicate Knowledge

The third, and least well understood of the fundamental realities is that prices communicate knowledge.  When prices for a particular product or service are high, it signals to entrepreneurs that there is an opportunity for profit.  This opportunity attracts new competitors, and this competition often places downward pressure on the prices.  Similarly, when prices are pressed down low by weak demand relative to the amount of supply in the market, it is a signal to the marketplace that there are too many entities in competition with one another.

The problem that many government’s run into regarding prices is their attempts to manipulate prices for political reasons.  Almost every politician in the world will complain about the high price of health care.  However, very few ask why health care costs are so expensive.  Much of the reason comes from the fact that most people access health care through insurance plans where they do not personally bear the costs of care.  This means that they have no incentive to economize, and often consume much more care then they would if they were directly responsible for the costs.

This phenomenon bears itself out over and over in nearly every corner of the economy.  Most of the people who are upset about prices fail to realize that the prices are communicating valuable information.  Instead, they accuse the business charging the prices of ‘greed’ when the business is really just a messenger of market realities.  High gasoline prices stem from a relative shortage of petroleum that drives up market prices.  These market prices are created by other people who are competing for the same petroleum.  The reason the prices rise is because exploration of petroleum has not kept pace with demand.  Thus, the problem is not one of rapacious oil companies, but regulations that constrain supply.  Nobody is able to maintain high prices for long when competing against somebody else who is willing to sell for less.

As we have seen, the phenomenon of “evading the obvious” has a distinctive impact on each individual’s personal, professional, and financial life.  The impact of these fallacious misunderstandings escalate as the scope of influence grows.  As each of us go throughout our own lives, we must stay aware of the fundamental realities so that we can learn to recognize opportunities and take intelligent action.  It is only through embracing the obvious and understanding the reality that we will be able to create a life of happiness and fulfillment for ourselves and the people we care about.

 

A curious aspect of the human condition is how we are much better at understanding scarcity than abundance.  Our minds naturally gravitate toward what we do not have, instead of noticing what we possess.  Some observers have astutely noticed that every abundance creates a new scarcity.

However, it is an interesting thought experiment to consider what our life would be like if the things that we currently consider to be the most scarce and expensive suddenly became abundant and cheap?  How would our perceptions of value and our priorities shift?  What things that we currently ignore would we begin to shift our attention toward?

The interesting twist is that this transition has already happened in the realm of information.  Before the advent of the internet, information was scarce, expensive, and difficult to acquire.  As the global online marketplace emerged, it created a situation where a literal wealth of information was available to all people in all places.  Suddenly there was a flattening of access to a valuable commodity that had previously been the exclusive property of some, but almost completely unavailable to others?  How has our life changed since we all gained access to the insights and information of the internet?  What new things have we been able to learn?  What new insights have we been able to uncover?  How has our life been enriched?

Of course, there will certainly be those who point out the abundance of low quality content that prevails on the internet.  These observations are completely correct, but are almost totally irrelevant.  The presence of great abundance almost always means that the abundant resource will be wasted in some manner or another.  Since many people grew up in a world of expensive information, it feels unnecessarily wasteful to have low quality information floating around the internet.  The thing that most people miss is how this apparent waste is the laboratory out of which we gain new ideas and insights.

Growth and development is not a linear process.  It is a jagged line that moves up and down, backward and forward.  In order for great new things to happen, there must be the appropriate conditions for the new innovations to emerge.  Abundance allows those conditions to occur without the necessity of being planned or funded by a central authority.  By extension, this means that more experimentation happens with new ideas, and more innovative breakthroughs are discovered.  Of course, this also means that many seemingly useless ideas will be advanced.  However, this apparent ‘waste’ is actually a critical part of innovation and advances.

What Does Abundance Mean To Me?

An important point for us to consider as individuals is the impact to our persona lives if the things that we found the most scarce such as money and time, suddenly became ubiquitously available?  What would you do with your life if you never needed to work in order to live?  What would your life be like if people lived to be 500 years old?  How would your priorities change if a scarcity of today turned into an abundance of tomorrow?  What things that you neglect today would you notice tomorrow?

The reason why this thought exercise is important is because it helps us to clarify what we truly consider to be important.  There are certainly some people who would allow themselves to become idle if they no longer needed to earn money to live, but there are many others who would endeavor to help others acquire the blessings that they have come to enjoy.  When we no longer have to spin our wheels just to get by, it allows us pause to search for meaning.

The clincher is that most people seek meaning at some point in their life, and many wait for far too long before taking the intellectual journey.  This is not to say that we should neglect the things that we need to do today such as earn an income or care for our families … only to say that we should also think of the things that we will pursue when scarcity turns into abundance.  In truth, it frequently comes to pass that the things we perceive as being scarce today will be less scarce in the future, and may possibly be available in great abundance.

Each of us should take a moment to think about the things that we would want to do, and the person that we would want to be if the constraints of our present life were removed.  The power of this thought process is that it underlines how there is very little stopping us from working toward that goal today.  We may not live in a world with no scarcity, but we also do no live in a world of total scarcity.  In this way, we literally have the ability to shape ourselves into the people that we want to be tomorrow … and we are able to start today.

 

In the midst of the current sluggish economy that has engulfed the government and business sectors in an avalanche of difficulty and uncertainty, there is a great temptation to ‘curse the darkness’ by casting blame.  It is certainly true that the current financial situation has plenty of blame to go around.  Typically, entities such as “Wall Street Greed” and “Irresponsible Government” are dogs that frequently get kicked.  However, there is a very large elephant that frequently seems to be overlooked.  That elephant is personal responsibility.

The reason why personal responsibility plays such an important role in the current economic situation is because it is impossible for a financial crisis to develop unless there are a LOT of people using credit to live beyond their means.  The crisis develops when the people who have been living on borrowed money can no longer make the payments.  Once the borrowers stop paying the creditors, there is suddenly a crisis.  (Note that the crisis is the proverbial ‘hangover after the party’ since it is necessarily preceded by people living high on borrowed money.)

This phenomenon highlights a curious and unflattering corner of the human condition.  Namely that people are more eager to “curse the darkness” and blame somebody else for their problems than seek a path of action that they can personally take to influence their personal situation.  This is not to say that all things are all our fault.  Quite to the contrary, there are many parties who have earned a considerable measure of blame.  However, the collective malfeasance of various players on the economic stage is not within our direct control.  Taking personal responsibility for our personal decisions is of paramount importance because our actions are the primary points of influence that we have control over in regard to our personal, professional, and financial well being.  The only way that our life will improve is if we take action. Past precedent has most clearly shown that the so-called guardians of our financial well being will look after their own interests before ours.

An unfortunate and disappointing part of the current economic situation is that the ‘solution’ being sought isn’t one of returning to responsible spending and lending practices . . . no, it is the exact antithesis of responsibility referred to affectionately as a ‘bailout.’  The extreme danger posed with the ‘bailout’ solution is that it simply subsidizes the irresponsibility that caused the problem in the first place.  My greatest fear with this ‘bailout’ mindset is that constantly rewarding irresponsibility can only lead to an increase in irresponsibility by more and more people until the problems eventually get so big that it is beyond of the ability of the government to bail out.

Simple arithmetic clearly demonstrates that the extent of government financial obligations will soon exceed its financial resources by an impossibly large margin.  This will lead to a situation where many people receive far less than they have been promised for their benefits, pensions, salaries, and many other varieties of services.  This will compel many of them to “curse the darkness” as well, saying that the problem comes from taxes not being high enough on the “rich” or from unfair foreign competition, and from a variety of other sources.  In order to endure this ensuing storm of financial darkness, it is completely necessary that we take action now so that the financial well being of our families are safeguarded.

Ultimately, there is only one way to permanently restore stability.  That is to retreat from blaming other people for the financial problems that we the people have created.  Put another way . . . instead of cursing the darkness, try lighting a candle.

 

One of the curious aspects of the human condition is that we grow to achieve comfort, but when we achieve that comfort it prevents us from growing.  It has long been said that luxury is the lull to apathy.  In practice, this means that it is difficult to reach new heights if we do not leave our present place.  For most people, this means that personal, professional, or financial growth will require that we “Dial up the Discomfort” of the conversations and decisions that we must make.

The reason why this principal takes on such importance is because we all have a natural tendency to perpetuate the standard quo.  Keeping things going the way that they have been going in the past is the path of least resistance.  The problem is that following the path of least resistance cannot be expected to produce results that are different than what has been achieved in the past.  Fundamentally, this means that each time we wish to expand and grow our personal abilities, we must push beyond the realm of our comfort zone.

Why is Discomfort Necessary?

Whether we are talking about the context of personal, professional, or financial life, dialing up our level of discomfort is necessary to grow and progress.  If our relationships never experience any friction, they will not progress … they will simply stay where they are, and may possibly slip into decline.  If a business never challenges itself to accomplish new goals, it will pass through the stage of maturity and into decline.  If our financial decisions are rooted only in the desire for comfort, it will result in many lost opportunities throughout our career.

Fundamentally speaking, the way that we grow is to break out of our current ‘normal’ and seek out a new equilibrium that generates higher and greater levels of achievement.  Once this has been achieved, a new ‘normal’ is established, and the process begins over again.  The world’s high achievers must learn that constantly challenging the limits of their comfort zone is part and parcel to the growth and development that a high achiever should expect from themselves.

How Far Should We Dial It Up?

Once a person has accepted the necessity of discomfort as a piece of personal, professional, and financial growth, it becomes necessary to determine how far we must push the envelope.  If we push too hard, it can create destructive results from failed ventures, nervous breakdowns, and the like.  Conversely, if we do not push hard enough, we cannot expect to grow and progress.  In order to achieve this “Sweet Spot” of personal and professional development, it becomes necessary that we learn to recognize how much discomfort is necessary without pushing the boundaries so hard that they collapse.

The True Hallmark of Success

The true characteristic that differentiates those who achieve success and everybody else is the number of uncomfortable conversations that they are willing to have.  This does not mean that successful people need to become a “Bull in a China Shop” who constantly disrupt the environment around them.  Rather, it is a testament to the fact that constantly growing means that we will constantly be pushing the boundaries of our comfort zone.

In this way, we should go into each day asking ourselves what we are going to do that pushes our zone of comfort?  What conversations are we willing to have that we would rather put off?  What difficult work are we stalling on by keeping ourselves busy with something else?  What do we avoid by telling ourselves that we will get to it later?  The sooner we develop the ability to take these tasks head-on, the faster our trajectory of personal, professional, and financial growth will accelerate.

In the end, each of us who seek to follow a trajectory of continued growth must find a way to consistently push our personal boundaries of comfort.  The exact way that each person dials up their own level of discomfort will be unique.  However, there is one common characteristic that is shared between the journey of all aspiring achievers.  This common thread is that we must all find a way to push our comfort zone, and find the right way to undertake this task in such a way that it propels us onward and upward, but does not wreak a destructive force upon our lives. Ultimately, this serves as one of the many challenges that all achievers must undertake.  And like all other challenges, ignoring it will not make it disappear.  It will only be accomplished if it is addressed.

 

If you take the opportunity to walk into a bookstore and wander over toward the section on business books, you will see a vast multiplicity of titles on all manners of business, investment, and strategy.  Many of these books outline a ‘system’ for acquiring wealth that involves some clever means of generating superior profits from what appears to be a minimal amount of work.

However, there is a relatively simple principal that is the basis of all business success.  That principal is that you should always seek to offer a product or service that provides a greater ‘use value’ to your customer than they pay you in ‘cash value.’  Thus, the fundamental basis of business success consists of finding out what the customer wants, and profitably providing it to them at a reasonable cost.

How Can It Be That Easy?

The truth of the matter is that success never is easy, never has been easy, and never will be easy.  However, the fundamental principals of success are simple, and they are straightforward.  The problem that most people run into is that they do not apply the principals of success consistently. The building blocks of greatness are constructed from consistent application of timeless principals.  These simple principals such as providing a reasonably priced product or service where the value to the customer exceeds the cost of providing the product are truly powerful.

The simple elegance of this principal is that you will be making a practice of only conducting business in a manner where both you and your customer or employer benefits from every transaction.  If every transaction is mutually beneficial, then you will literally be helping to make the world of each customer a better place by conducting business.  Conversely, every time that somebody demands something for nothing (i.e. ‘get rich quick’ schemes or more money without providing more service) they are making the world a worse place by trying to capture resources from others without providing a commensurate service in exchange.

What Capitalism Is Really About

It has become popular to believe that capitalism is about “greed” or the belief that “greed is good.”  This represents a fundamental misunderstanding of what a market economy is all about.  Capitalism does not laud greed as being an almighty virtue, it recognizes self-interest (referred to many as ‘greed’) as being an inevitable part of the human condition.  Thus, the question is not whether or not greed will be present … greed is always present.  The question is how to harness the power of self interest so that it delivers a value that exceeds its cost to the customer.

Unfortunately, many people fail to draw a line of distinction between business activity that benefits the customer and using political avenues to extract resources from the public treasury.  Economists refer to this second activity as rent seeking … and it is the exact activity that capitalism was designed to counteract.  When government entities control resources, the people with the most wealth will be those who have garnered the most political clout.  In most cases, there is no real service that is provided to the public in this struggle for power.

Conversely, when an entrepreneur such as Andy Grove or Steve Jobs creates products and technologies that create transformational changes in peoples personal, professional, and financial lives, it becomes quite apparent that the value created by those people’s innovations vastly exceeds the (considerable) wealth that they achieve in their lifetimes.  Thus, the spite and ire being leveled against capitalism should really be directed at the government’s repeated use of public funds to funnel favors to people and businesses who are politically connected.

What About People Who Are Employees?

This principal also outlines the way to success as an employee; by providing more value to your employer than they pay you in compensation.  Similarly, if you are looking to advance in your career, the best method is to look for ways that you can provide more value for your employer than is currently being delivered.  Generally speaking, advancement and promotions are justified when the candidate is already doing work at the next level of proficiency . . . so why not ascend to the next level of productivity without being told to do so?

In the end, there is one true universal secret to business success, and it is not a secret.  It is a simple, fundamental truth that delivering value to the customer for a price that is higher than your you costs will create success.  This simple axiom has many reprocussions throughout our personal, professional, and financial lives.  The only lingering question is whether we posess the mental and moral discipline to carry through these principals of success until our goals and ambitions have been achieved?

 

When traveling on the journey of business and life, many people have a natural inclination to structure their activities to avoid mistakes.  This tendency is quite rational, in light of the fact that most of us learn through our education to prevent mistakes whenever possible.  When going through school, we strive for a high grade point average . . . one mistake can blow the average.  When working at a job, we strive to be promoted . . . one mistake can ruin your career.  The incentives that we regularly face condition us to be perpetually risk averse because of the ever present possibility of failure.

The implicit problem of avoiding failure is that it frequently results in avoiding gain also.  Thus, in our desire to avoid moving backward, we also prevent ourselves from moving forward.  The important insight to internalize is that moving forward toward your goals in spite of mistakes is more important than avoiding mistakes altogether.  Entrepreneurs frequently back into this realization when they discover that there are so many things to do that they cannot possibly be done in anything remotely resembling a mistake free manner.  What frequently ends up happening is that the first area of focus is placed on the things that are most critical to sustaining and growing the business, with improvement and refinement done over time.  The contrary version of this concept is the perfectionist obsession that frequently grips people who work at the pleasure of a manager or executive.

Fail Forward

Many people hold onto a notion of success as a linear climb where one step begets another, which begets another, on and on until your goals have been achieved.  This is typical of the linear western thought patterns.  However, the way that we achieve the things we want isn’t always in a steady climb.  Many times we have to try things that don’t work, learn, try again, learn try again, learn and try again until we achieve our goals.  In the linear world, success is simply a process of building on top of what has already been done until the pile is high enough to reach your ambitions.  in the circular world, success is a winding path that we must discover through an uneven process of experimentation.

To many people, this feels like a maddening process.  The ambiguity and uncertainty of discovering the right decision can be very difficult to maintain.  It is impossible to know if success is simply waiting around the corner or whether it is many miles away.  The opportunity that you have been waiting for may be nearly upon you, or it may be disconnected by a vast expanse of distance and time.  This ferocious uncertainty leads many people to give up.

This is where the “Fail Forward” concept comes into play.  It is not reasonably possible to ensure that everything we do will always work out the way we intend.  However, it is possible to ensure that even if we fail, we learn something important that will help us to move closer to our goals and ambitions in the future.  It is inevitable that we will fall as we go throughout life.  However, falling forward instead of falling backward is a characteristic that can have profound impacts on your long-term success.

Gifts vs. Grit

Many people mistakenly believe that great success is solely the result of superior talent.  However, many studies have confirmed that the characteristic shared by elite performers in nearly every walk of life is that they have spent a tremendous amount of time honing and refining their skills.  Some have come to call this the “10 year rule” … stating that exceptional skill can only emerge after 10 years of continued, focused work and practice.  If elite skill can only be built with this much persistence, it stands to reason that “failing forward” is a critical part of this continued development process.

When people talk about the value of persistence, what they are really referring to is the willingness to push through difficulty, uncertainty, and failure to reach your goals.  Consistently moving forward, even if it does not always feel like your movements are taking you directly toward your goal is the key characteristic that separates the exceptional from the average.  In fact, it provides a significant degree of comfort to those of average abilities, because it shows that an abundance of perseverance can frequently overcome a deficiency of talent.  In many cases, it is talent that starts a person on the path toward elite skill, but it is continued persistent work that takes them to their goal.  If you lack talent, you can substitute consistent, focused effort.

It is truly unfortunate that we have become so conditioned to avoid mistakes.  It is the mistakes that allow us to learn and grow, and ultimately what lay the foundation for greater achievements.  This effect pervades our personal, professional, and financial lives.  It is a dichotomy that many people will need to overcome if they are going to achieve their goals and ambitions.

Fundamentally, this dichotomy comes down to a “Job” mentality of avoiding mistakes, in contrast to an “Entrepreneur” mentality of discovering the ingredients necessary for success.  In the context of our personal, professional, and investment endeavors it is frequently more beneficial to ‘fall forward’ than to ‘hold back’ . . . especially in consideration of the fact that our financial future is becoming more uncertain, and it is becoming less and less likely that our employer, government, or 401k will be able to provide for our future.  Thus, it becomes the responsibility of each individual person to ensure that they are consistently moving forward.

 

The “Occupy Wall Street” protests of recent months has placed a lot of attention on income inequality and the reviled top 1% of earners.  The protestors loudly proclaim themselves to be a part of the 99%, and profess all sorts of beliefs about what should be done to remedy this perceived injustice.  Predictably, the desired remedies take the form of government financed subsidies.  As the protests have persisted, they have become notable for the disgusting state of protest areas, the deplorable behavior of some protestors, and the lack of a coherent message.  This has attracted all of the usual pro-socialist protesters to the movement, and steadily pushed it further away from the mainstream on its way to the fringe.

How About the “United States” 1%?

To the extent that there is a message from “Occupy Wall Street” that message seems to be that the top 1% are too affluent relative to the rest of the population.  The idea of income and wealth disparities have garnered quite a bit of media attention over the past few months, so it is reasonable to make a deeper examination of what the top 1% really means.  Fortunately, one of the economists from the World Bank named Branko Milanovic has done a considerable amount of research on the subject of inequality.

So how much do you have to earn to be in the top 1% of US earners?

Answer: $380,ooo per year

Many people are likely to reply that $380,000 is a lot of money and that a lot of the people earning those high incomes got them because of inside connections with the government to rig the game so that they have an unfair advantage.  However, there is an important distinctions that need to be made.  Not everybody in the top 1% got there through graft and corruption.  Many are owners of productive businesses, innovators, creators, entertainers, and people who generate otherwise valuable products and services.  If graft and corruption are the problem, it would make much more sense to protest against graft and corruption instead of protesting against the fact that some people have succeeded in generating high levels of income.

As far as having an unfair advantage is concerned, there is certainly credit to the argument that certain people have advantages that other people do not enjoy.  In Milanovic’s work, he calculated that 60% of global income disparity is explained by where a person is born.  To many people it is painfully obvious that some folks have more advantages than others, and that this is fundamentally unfair.  Because of this, some believe that the government should take resources away from those that produce the most so that they can be re-distributed to those who have not had as many advantages and produce very little.

How about the “Global” 1%?

This is where the conversation gets really interesting.  With global affluence being even more heavily skewed than the United States, it is reasonable to extend the analysis out to the whole world.  Assuming that one fundamentally believes in equality, then it should stand to reason that the top 1% of the world’s largest economy is too narrow of a sample.  What happens when we look at the whole world as our sample?  How does that change the dynamics of the discussion?

So how much do you have to earn to be in the top 1% of global earners?

Answer: $34,000 per year

Thus, it turns out that most of the people who profess to be in the (United States) bottom 99% are actually in the (Global) top 1%.  Ironically, the very people who are protesting against domestic inequality have themselves benefit greatly from global inequality.  If the philosophy of re-distribution is suitable for inequality within a country, it should stand to reason that it is suitable for a global scale?

Of course, this is where the self-centered hypocrisy of many protestors comes to bear.  The overwhelming majority of people protesting against domestic inequality have absolutely no interest in making intense personal sacrifices to remedy global inequality.  By expanding the scope of the debate, it becomes much more clear what is truly motivating the discussion.  The protestors have no interest in equality … otherwise they would be advocating for ‘global’ equality, which would require that they make sacrifices.  They are using equality as a shill to advocate for extracting resources from high producers.

The Fixed Pie Fallacy

The principal issue underlying the context of these conversations is a fundamental fallacy that believes the world’s resources are a fixed pie, and that this pie is divided up into “haves” and “have not’s” by some autocratic power structure.  When viewed through this fallacious lens, the answer seems to be one of simply re-distributing the pie.  However, all of the things that are consumed must first be produced.  Typically, the people who enjoy the most wealth and income are the ones who produce the most.  So it stands to reason that when the rewards of being productive are reduced or eliminated, there will be less production.

Unfortunately, government policies and financial markets have created a situation where many of the most highly compensated people engage in activities that produce very little in terms of real output.  Exploiting subsidies, regulatory protection, and market arbitrage can produce high incomes, but does relatively little to increase overall output.  It makes complete sense that these avenues of resource extraction without commensurate real production should be sought out and eliminated.  The free market is about rewarding real production and innovation.  The phrase “crony capitalism” is an oxymoron … capitalism is about competition.  the only way cronies can be rewarded is when a political authority is impeding the competitive market.

This is where the ‘real’ solution to the global inequality can be found.  Namely that emphasis should not be placed on how to extract more resources from those who are productive, but that emphasis should shift toward finding ways to help those at the bottom become more productive themselves.  Put another way, it is much better to focus on growing the whole pie instead of focusing on who has the biggest piece of the existing pie.

Envy Economics

Unfortunately, encouraging real productivity isn’t high on the priority list for most politicians.  The reason is because promoting free markets doesn’t deliver many votes.  There’s much more political mileage to be gained from higher taxes, more government subsidies, and higher regulations than the opposite.  The economic pie grows the most when tax rates are low, exemptions are low, regulations are light, and government intervention is modest.  However, high tax rates mean that you can lobby for campaign contributions from businesses and individuals who want deductions and exemptions.

Empirical studies have shown that the net tax rate paid barely changes over time, regardless of what marginal rate is published.  When rates are high, politicians can sell exemptions for campaign contributions.  This results in very little net tax revenue but a vast increase in net political contributions.  Light regulation promotes growth, but lobbying groups always prefer more regulation that benefits their contributors.  Most workers would be better off with a robust job market than government subsidies, but it’s much easier to take credit for subsidies than for a job market.

In the end, economic well-being on both the national and global scale must come from productivity.  The only sustainable way to increase the affluence of the people at the bottom is to help them become more productive.  Put another way, it is much more beneficial to help the people at the bottom climb up than it is to target the people at the top and bring them down.

 

During the Thanksgiving season, many people reflect on all of the things in their life that they are thankful for.  This is a time when people are especially mindful of all the blessings that we enjoy in our lives.  For those of us who are fortunate enough to live in the developed world, there are great material blessings that are available in abundance.  Of course, the vast abundance available in the contemporary world has resulted in a crisis of sorts … a crisis of abundance.

This crisis results from the fact that vast abundance renders us blind to the blessings of our life when they are placed in contrast against those who have been fortunate enough to amass more wealth than us.  In this situation, we lose sight of all that we have by focusing on all that we don’t have.  In the midst of this abundance crisis, we lose track of something else.  This important factor is that many of the most important things in life are not material in nature and cannot be measured.

In this way, we can become blind not only to our material blessings, but the virtues in life that cannot be measured.  Things such as family, friends, cherished relationships, and treasured experiences are all highly important factors of a full and happy life.  The unfortunate reality is that an abundance crisis can invade many facets of our life, causing the things that we do not have to blot out the many blessings that we are fortunate enough to enjoy.  The critical skill for us to master is that of appreciating the blessings we have, while avoiding the temptation to resent the good fortunes of others.

What About the World’s Problems?

This philosophy of gratitude causes some people to wonder whether they should ignore all of the world’s problems while they are being thankful for their life’s blessings?  To this sentiment, one must ask whether our worrying about the world’s problems brings them any close to being solved?  This is not intended to be an excuse for us to disengage from the world, but as an exhortation to elevate ourselves from worrying about the world’s problems to actually doing something that helps.

The reciprocal expression of thankful gratitude is a genuine desire to take actions that are within our power to help those less fortunate than ourselves.  In this way, an abundance crisis can be turned into an abundant opportunity. This abundant opportunity plays out in our daily lives as we have the chance to do things both large and small that help others.

Another frequent response to this philosophy is an objection concerning the civic responsibility of voting.  Specifically that paying keen attention to the news events of the day is necessary to be an informed citizen.  Furthermore, many would argue that their voting activity is the method by which they express their desire to help those less fortunate.  However, we must ask ourselves whether an opaque vote really represents our best efforts to help other people, or if it represents a shield behind which we hide as a means of convincing ourselves that we do not need to take any more action?

Our abundance opportunity should not be stifled by a civic vote in which we are a single anonymous player among many other people in the extended marketplace.  Each of us should avert the abundance crisis by living a life of gratitude that expresses itself in actions that help other people improve their personal, professional, and financial lives.  Ultimately, we each have a choice to make with each passing day.  We can decide to do things that will help, or decide to do nothing.  The decisions we make shape the taxonomy of our future.  As each day goes by, make sure that the decisions you make are in concert with the future that you wish to create.

 

One of the oldest and most frequently cited geometric axioms is that the shortest distance between two points is a straight line.  While this is most certainly true in the sphere of mathematics and geometry, the path we take through business and life rarely (if ever) moves in a straight line.  Because of this, much of our ability to realize success is dependent on our ability to adapt to the twists and turns that we are presented with on a perpetual basis.

This is especially important for our financial calculations and decisions.  It is not a secret that most financial planning models are built on the assumption of indefinite steady compounding that is expected to make you rich after a certain calculated period of time.  Of course, real life does not work in that manner.  The stock market does not compound at 9% per year, every year, with no deviation.  In some years … or in the past decade, in many years, gains do not meet expectations or values decline.

Thus, it is not just the paper performance of our decisions, but their ability to absorb uncertainty that is highly important.  The problem is that most people do not fully understand the impact of uncertainty, and even fewer people are not aware of how to make their financial plans sufficiently robust so that they can withstand abrupt, significant changes to the marketplace.

Adaptability is Key

Regardless of whether you are talking about a manufacturing line, a small (or large) business, or a financial portfolio, it is absolutely critical to ensure that your strategy is adaptable to new market realities.  The more you allow yourself to depend on static models, the more you will be susceptible to destructive changes in the marketplace.  This concept must be internalized when planning, executing, and revising our personal and professional strategies.  As reality changes, we must be able to adapt and change with it.

A simple way to understand this concept is by internalizing the following three truisms about business/life:

1. Business/Life is a game
2. The game has rules
3. The rules are always changing

If this feels highly chaotic, that’s because in many cases it is.  We cannot suffice ourselves with learning the rules (both written and unwritten) of business/life.  We must also learn how and when the rules change so that we can adjust our personal, professional, and financial decisions.  An unfortunate fact of life is that none of us possess the power to change the larger reality … we only have the ability to change the decisions we make and influence the decisions that people close to us make so that we can adapt to the larger reality more successfully.

Learning When the Rules Change

Many people make a regular habit of following the news both in print and on the internet.  The typical result of most people’s news consumption is agreement with stories support their political views, and anger at stories that stand in contrast to their personal views.  This typically manifests itself in political arguments over current events with friends, co-workers, and family members.  The only problem is that none of us have the ability to change the political reality of the world at large.  Our vote counts as one of many, many millions, and political decisions do not vary as much many are led to believe.  Politicians are wildly different in their rhetoric (what they say), but their decisions (what they do) are much more closely tied to their incentives.

At first blush, this can easily lead to a belief that the news is useless, and it is optimal to tune out.  While temping, this view is not completely accurate.  The news is not useful from the context of my ability to change the global political reality, but it is useful from the context of understanding what changes are coming in the national and global marketplace.  From this perspective, news and information take on an entirely new light.

Signal and Noise

The key to making use of what we learn through the news is the concept of signal and noise.  Within most transmissions, there is an element of useful information (signal) and an element of useless information (noise).  In everything that we see, sense, or experience, there is something we can learn (signal) and there is everything else (noise).  The challenge that we have as people and as businesses is to act on the signal, and not on the noise.  In practice, this is much easier said than done.  In following the news, we should not be simply looking for stories that either confirm or conflict with our beliefs, but looking for useful information signals that can help us make better personal, professional, and financial decisions.

In the end, each of us will be able to achieve the best results if we realize the importance of adapting our strategy and decisions to a changing marketplace, while using the signals that we gain from our everyday experience to inform better decisions in the future.  By learning to do this on a consistent basis, it will allow us to perpetually move closer to our goals, dreams, and aspirations.

 

Contemporary business theory places great amounts of emphasis on strategy and long-term thinking.  These concepts are most definitely of great importance, but there is one critical aspect of successful long-term strategy that many theories and systems fail to comprehend.  That critical insight is how all strategies, regardless of how large or small ultimately distill down to steps that must be acted upon in the present tense.  Furthermore, these action steps frequently break down into smaller steps.

Thus, it becomes true that the largest, most grand, and most complex strategies all come down to one small step.  That one step is the next step.  Once the next step has been taken, focus shifts tot he step after that, and the step after that, and the step after that.  The long-term perspective must always yield to the immediate action, because long-term results can only be accomplished through a continuous string of actions.

Another way of considering this concept is to understand the relationship between past, present, and future . . . both in regards to thought and action.  The past is beyond our ability to influence, but its insights are ours to discover.  Yesterdays victories cannot be relied upon to sustain us into the future, and yesterdays failures have passed into history.  We cannot exist in the past, because the past is gone.  The present is where we recognize current opportunities and act to capture them.  The knowledge of the past can help us to see opportunities, but they must all be captured in the present.

The present represents both the past of our future and the future of our past.  Todays opportunities will be gone tomorrow, and tomorrow’s opportunities cannot be captured today.  As we look into the future, we see the present that has not yet come to past.  None of us can act in the future until the future becomes the present.  The opportunities of the future are valuable to understand, as they will pass into the present tense over due time.

We must be mindful of the future, but we cannot live in the future.  The future is most certainly inevitable, but all that we do must take place in the present.  Furthermore, it is not practical to indefinitely delay all enjoyment of life for the sake of the future.  Life is for living, and each person must balance the present against the future, without being weighed down by the past.  We must understand that the future can only be built by decisions and actions that we take in the present.  Thus, what we do now is ultimately what is of the greatest importance, since the future necessarily build on the present.

In this way, we realize success by taking one small step . . . our next step.  The steps that we take are shaped by our vision of the future, and our recognition of opportunity.  However, the only way that we can turn this into reality is by taking action in the present.  Each of us has the distinct opportunity to shape our lives by taking action right now.  Success is not a multi-thousand step process, it is a one step process . . . your next step.  By consistently taking action on your next step toward success, it will keep you perpetually moving toward greater and greater achievements.  Each of us can increase the influence that we wield over our lives by taking action right now on one small step toward success.

In the end, achieving our ambitions is both more complex and more simple than most people realize.  The complexity arises from prioritizing between all the things that we wish to achieve and all the decisions that we must make.  The simplicity comes from the fact that all achievements result from individual actions.  And we can achieve our goals by isolating and prioritizing the individual actions that need to be taken.  Thus, one small step … followed by another and then another is the way that we gradually build the stairway to our goals and ambitions.