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.

 

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.

 

Harbor at Midnight

During the late 18th century, an economist named Adam Smith wrote an essay challenging the fundamental assumptions of the prevailing economic system.  This system emerged during the middle ages, and has come to be known as Mercantilism.  Many of the key tenants in a Mercantile system bear a striking similarity to prevailing political sentiment that persists to this day.

The primary thought behind a Mercantile system is a focus on domestic industry.  In this system, there is very tight government control of foreign trade.  High tariffs on imports are very typical.  The desired outcome of these actions is to maximize exports, and minimize imports to support domestic industry.  The “protectionist” sentiment is still alive and well in the current era.

Another key aspect of Mercantilism is heavy government involvement in the economy.  During Medieval times, monopoly rights were granted to favored families.  This led to high profits for the favored families, high prices for consumers, and limited availability of products and services.  In the modern era, this takes the form of government subsidies for businesses that engage in politically favored activities such as “green” industries.

In addition to this, many Mercantile economies engaged in colonial expansion.  The colonies of Mercantile countries were typically forced to export raw materials to the “mother country” and purchase finished goods from the state sponsored monopoly companies at the elevated monopoly prices.  One of the typical results of this situation is anger on the part of the colonies over high prices, high taxes, and a lack of political representation.  The most famous case of colonial strife is the American Revolution that started in 1776, which just happens to be the same year Adam Smith published the Wealth of Nations.

Modern Mercantilism

To many people, the principal desire of Mercantilism seems very appealing.  After all, if imports are reduced with taxes and tariffs while exports are subsidized by the government, it seems that the result would be more domestic industry and more jobs.  This sentiment has picked up many followers in recent years as the mix of employment has shifted with many jobs being done overseas that were previously done domestically.  In response to the problem of American jobs going overseas, many people favor a Mercantile system.

Another factor that draws many people toward Mercantile ideas is a fundamental mistrust of market forces.  Many people believe that if the market is left alone, it will result in under-investment in socially valuable projects such as “green” energy, technology, or industrial development.  The belief is that if government subsidizes these industries, it will give the country a head start relative to other players in the global economy and will ultimately benefit the people at large.

One can easily see where these sentiments come from, but it is another matter entirely to determine their level of validity.  The important factor to consider in regard to evaluating an economic system is that the best of intentions frequently produce results that are not necessarily consistent with those intentions.  Thus, it is important to understand the results and how those results can be different from the intentions.

What’s the Problem with Mercantilism?

Analysis of the Mercantile system begins and ends with an examination of what happens when imports are restricted through tariffs, exports are expanded through government rules, and favored businesses are subsidized.  The first level of this analysis is to ask where the resources come from to fund the subsidies?  The second level is to examine who benefits the most from these policies and who is the most disadvantaged.

Consider first that no government can create resources out of thin air.  Everything that any government spends must be extracted from somebody.  In order to subsidize favored businesses, higher taxes must be collected from the rest of the population who is not being subsidized.  These higher taxes result in higher prices for consumers.  In addition to this, the high tariffs on imports result in yet another increase in consumer prices because of decreased competition.  Ultimately, all of the costs are paid by the consumer.

In addition to this, we must consider who really benefits and who really pays.  This analysis starts and ends with the businesses who are favored by the government and receive preferential treatment through tariffs restricting competition or direct subsidies.  In medieval times, the families who ran the government sponsored monopolies were directly responsible for the King maintaining his throne.  In contemporary times, the companies who receive the most government support are the most active in lobbying politicians for favorable legislation.  The key to this whole cycle is that the people in charge must have a large degree of discretion over taxes, spending, and regulation to reward their allies in an amount that is sufficient to garner their continued support.

It is not difficult to see how this cycle will produce many undesirable results.  High amounts of government spending will attract high amounts of lobbying (both ‘above’ and ‘below’ the table).  These subsidies will direct resources away from what produces the highest rates of return.  The high consumer prices will dramatically reduce the real standard of living for the general population. Ultimately, Mercantilism is a systematic impoverishment of the masses for the exclusive benefit of politicians and favored companies.

This is the driving force behind colonial expansion.  An inefficient economy requires that resources be continually extracted from somebody else to subsidize an unsustainable economy.  Much of the strife that occurs throughout the world is driven by the fact that inefficient dictatorial economies can only sustain themselves by extracting resources from somebody else.  This leads to persistent fighting over natural resources by governments who want to extract that wealth for the benefit of the people they favor.

What Capitalism Really Means

Adam Smith wrote about a system that has come to be known as Capitalism.  The central tenant of Capitalism is that when commerce is more free to operate in a market environment, it produces (unintended) beneficial results.  According to Adam Smith, people are more likely to serve others out of self-interest than genuine altruism.  However, through the process of serving others to advance their own self interest, other people are made better off.

Capitalism is most beneficial to new businesses, and is most threatening to established businesses.  The reason is because open competition means that new innovations can very rapidly displace old ways of doing business.  This means that nobody can afford to sit on their past successes.  However, this competitive environment can only exist if the government allows market forces to prevail.  This means that a system of discretion and intervention must give way to a system of stable rules and market based results.

Thus, it becomes very easy to see why ‘true’ Capitalism is so hard to instill, and even harder to maintain.  The lynchpin of the whole system is regulatory rules vs. political discretion.  However, politicians always prefer discretion because it gives them more power and allows them to extract more support from business entities who benefit from the status quo.

In a bitter twist of irony, the infamous “Occupy Wall Street” movement that purports to be protesting against Capitalism is citing the tenants of Mercantilism as their complaints.  To wit, the hackneyed phrase “Crony Capitalism” is an oxymoron … Capitalism by its vary nature lacks the political discretion that is necessary for elected officials to reward their friends and contributors.  In another ironic situation, the purported solution to the perceived evils of Capitalism is dramatic expansion of government power and political discretion. And the inevitable result will be greater concentration of power in government and more favors being steered toward politically connected, powerful businesses while the population at large pays through higher taxes, higher prices, and less innovation.

Thus, the movement against Capitalism is nothing more than Mercantilism redux.

 

In the game of blackjack, you can ‘double down’ on a hand by doubling your bet for one more card from the dealer.  (When playing blackjack, your goal is to create a hand that is as close as possible to 21 without going over)  This action allows you to take additional risk for an immediate payoff.  Within the community of people who enjoy the game of blackjack, most will tell you that it is advantageous to double down on an eleven, or possibly a ten.  The principal reason for this is because cards with a value of ten have a higher concentration than other cards.  Because of this, it is advantageous for players to increase their risk in certain situations because of an increased probability for a higher payoff.

In the world of investing, there are both times to increase your exposure to risk for a higher payoff, and appropriate situations.  The problem which arises is that many people end up taking excessive risk to chase returns.  In this situation, it is rarely the optimal time to take more risk in the hopes of earning a higher return.

Currently, there are many people from the baby boom generation who are currently ‘doubling down’ with their retirement accounts by over-weighting their portfolios in high-risk ventures such as emerging market stocks and speculative real-estate in an attempt to pump-up the value of their nest egg before retirement.  The risk of this strategy is that your nest egg could crack just before it hatches.

The hidden danger of highly volatile investments is that the risk of loss generally stays hidden until market disruptions push the value of multiple asset classes down simultaneously.  In this case, there is not enough time to adjust your portfolio before it has been significantly burned.  These types of situations are especially dangerous, because the market tends to change very abruptly as relevant news and information develop.  For people who are approaching retirement, volatility can be especially dangerous.

This is not to say that investors shouldn’t take risks . . . it is very difficult to generate returns in excess of bond or money market yields without taking risks.  The caution is that you should be aware of the risks that you are taking, and not allow yourself to fall into a false sense of security because the market hasn’t had a significant downward movement lately.  Large returns generally require that you take large risks.  If you are currently earning large returns, chances are that you are at risk for a large adjustment.  It is very important to make sure that a significant downward adjustment in value of your risky investments will not place you in a situation that you can’t recover from.

Thus, when deciding whether to ‘double down’ on your investment strategy, it is critically important to understand whether you are in a situation where such a decision is optimal.  Are your personal emotions constructed in such a way that a dramatic shift in market valuation will cause excessive nervous tension?  In most cases, investors are their own worst enemy … we allow our emotions over the movements of our portfolio value to influence our actions in a way that frequently moves contrary to our rational thoughts.

Thus, investing becomes a battle of reason vs. emotion.  Our reason frequently tells us to make decisions that would appear to be quite smart by most objective standards.  Reason typically evaluates decisions based on their inherent merits.  However, not all of our decisions are made rationally.  Instead of making our investing decisions based simply on the merits of a particular investment, we allow ourselves to be influenced by the other people we have seen being successful in making money.  When the market is going up, our emotions want to double-down on what we have seen as being successful.  When the market is going down, our emotions want to run for the hills and retreat from the perceived danger of the investing world.

As it turns out, the movement in market perception of a particular investment does not necessarily change the underlying fundamentals.  Many investments that are fundamentally sound experience negative market news, and other investments that lack solid fundamentals will experience upward escalations in market valuation that defy reason.  In the former case, it is important to avoid the emotional pull to bail-out on an otherwise solid investment strategy.  In the latter example, it is important to avoid the temptation to increase our investment, simply because the price has gone up and we hope that it will go up some more.

In the end, it is important for each of us to understand the extent to which our emotions compel us to ‘double down’ on what may turn out to be a highly risky strategy.  All of our decision should be made because of what we judge to be best for our well-being.  Achieving our desires will require that we take risks of some manner along the way.  However, it is important to ensure that all of our decisions are being made consciously instead of re-actively … rationally instead of emotionally.  This will help us to make sure that we don’t double-down on risky situations that we are not emotionally prepared to deal with.

 

Eleanor Roosevelt once said, “A good leader inspires people to have confidence in the leader, a great leader inspires people to have confidence in themselves.” But, becoming a great leader isn’t easy. Successfully maneuvering a team through the ups and downs of starting a new business can be one of the greatest challenges a small-business owner faces.

Leadership is one of the areas that many entrepreneurs tend to overlook, according leadership coach John C. Maxwell, whose books include The 21 Irrefutable Laws of Leadership (Thomas Nelson, 1998) and Developing the Leader Within You (Thomas Nelson, 1993).

“You work hard to develop your product or service. You fight to solve your financial issues. You go out and promote your business and sell your product. But you don’t think enough about leading your own people and finding the best staff,” Maxwell says.

It turns out, the skills and talents necessary to guide your team in the right direction can be simple, and anyone with the determination can develop them. Here’s a list of 10 tips drawn from the secrets of successful leaders.

1. Assemble a dedicated team.
Your team needs to be committed to you and the business. Successful entrepreneurs have not only social and selling smarts, but also the know-how to hire effectively, says leadership trainer Harvey Mackay, who wrote Swim with the Sharks Without Being Eaten Alive (Ivy Books, 1995). “A colossal business idea simply isn’t enough. You have to be able to identify, attract and retain talent who can turn your concept into a register-ringing success,” he says.

Related: What’s Your Leadership Style? (Quiz)

When putting your team together, look for people whose values are aligned with the purpose and mission of your company. Suzanne Bates, a Wellesley, Mass.-based leadership consultant and author of Speak Like a CEO (McGraw Hill, 2005), says her team members rallied around each other during the worst part of the recession because they all believed in what they were doing. “Having people on your team who have tenacity and a candid spirit is really important,” she says.

2. Overcommunicate.
This one’s a biggie. Even with a staff of only five or 10, it can be tough to know what’s going on with everyone. In an effort to overcommunicate, Bates compiles a weekly news update she calls a Friday Forecast, and emails it to her staff. “My team is always surprised at all the good news I send out each week,” Bates says. “It makes everyone feel like you really have a lot of momentum, even in difficult times.”

3. Don’t assume.
When you run a small business, you might assume your team understands your goals and mission — and they may. But, everybody needs to be reminded of where the company’s going and what things will look like when you get there. Your employees may ask, “What’s in it for me?” It’s important to paint that picture for your team. Take the time to really understand the people who are helping you build your business.

“Entrepreneurs have the vision, the energy, and they’re out there trying to make it happen. But, so often with their staff, they are assuming too much,” says Beverly Flaxington, founder of The Collaborative, a business-advising company in Medfield, Mass. “It’s almost like they think their enthusiasm by extension will be infectious — but it’s not. You have to bring people into your world and communicate really proactively.”

4. Be authentic.
Good leaders instill their personality and beliefs into the fabric of their organization, Flaxington says. If you be yourself, and not try to act like someone else, and surround yourself with people who are aligned with your values, your business is more likely to succeed, she says.

Related: Tips on Loyalty and Leadership

“Every business is different and every entrepreneur has her own personality,” Flaxington says. “If you’re authentic, you attract the right people to your organization — employees and customers.”

5. Know your obstacles.
Most entrepreneurs are optimistic and certain that they’re driving toward their goals. But, Flaxington says, it’s a short-sighted leader who doesn’t take the time to understand his obstacles.

“You need to know what you’re up against and be able to plan around those things,” she says. “It’s folly to think that just because you’ve got this energy and enthusiasm that you’re going to be able to conquer all. It’s much smarter to take a step back and figure out what your obstacles are, so the plan that you’re putting into place takes that into account.”

6. Create a ‘team charter.’
Too many new teams race down the road before they even figure out who they are, where they’re going, and what will guide their journey, says Ken Blanchard, co-author of The One-Minute Manager (William Morrow Co., 1982) and founder of The Ken Blanchard Cos., a workplace- and leadership-training firm. Just calling together a team and giving them a clear charge does not mean the team will succeed.

“It’s important to create a set of agreements that clearly states what the team is to accomplish, why it is important and how the team will work together to achieve the desired results,” says Blanchard, who is based in Escondido, Calif. “The charter provides a record of common agreements and can be modified as the business grows and the team’s needs change.”

7. Believe in your people.
Entrepreneurial leaders must help their people develop confidence, especially during tough times. As Napoleon Bonaparte said, “Leaders are dealers in hope.” That confidence comes in part from believing in your team, says Maxwell, who is based in West Palm Beach, Fla. “I think of my people as 10s, I treat them like 10s, and as a result, they try to perform like 10s,” he says. “But believing in people alone isn’t enough. You have to help them win.”

8. Dole out credit.
Mackay says a good salesperson knows what the sweetest sound in the world is: The sound of their name on someone else’s lips. But too many entrepreneurs think it’s either the crinkle of freshly minted currency, or the dull thud of a competitor’s body hitting the pavement.

“Many entrepreneurs are too in love with their own ideas and don’t know how to distribute credit,” Mackay says. “A good quarterback always gives props to his offensive line.”

9. Keep your team engaged.
Great leaders give their teams challenges and get them excited about them, says leadership expert Stephen Covey, author of The Seven Habits of Highly Effective People (Free Press, 1989). He pointed to the example of a small pizza shop in a moderate-sized town that was killing a big fast-food chain in sales. The big difference between the chain and the small pizza joint was the leader, he says.

Every week he gathered his teenage employees in a huddle and excitedly asked them: “What can we do this week that we’ve never done before?” The kids loved the challenge. They started texting all their friends whenever a pizza special was on. They took the credit-card machine to the curb so passing motorists could buy pizza right off the street. They loaded up a truck with hot pizzas and sold them at high-school games. The money poured in and the store owner never had problems with employee turnover, says Covey, who is based in Salt Lake City, Utah.

10. Stay calm.
An entrepreneur has to backstop the team from overreacting to short-term situations, says Mackay, who is based in Minneapolis. This is particularly important now, when news of the sour economic environment is everywhere.

“The media has been hanging black crepe paper since 2008,” he says. “But look at all the phenomenal companies and brands that were born in downturns, names like iPod, GE and Federal Express.”

Article source: Entrepreneur.com

 

Inflation is typically a hot-button political topic, but it is important to note that the ‘real’ rate of inflation is different for everybody.  The reason for this is because all products & services do not rise & fall in price equally, and people all purchase products and services in different proportions. Most people pay attention to the published consumer price index, which is based on a defined “basket” of goods and services.  This basket is intended to represent an “average” urban consumer, but is not necessarily representative of everybody.

Generally speaking, commodity products (Bricks & Sticks) such as oil, gold, food, and building materials tend to rise in price over time.  Generally speaking, monetary inflation impacts commodities first.  The reason for this is because commodities are purchased in large amounts with cash on a regular basis.  This means that as more cash moves through the economy, the first place it typically lands to drive up prices is commodities.  Over the long-term his price rise tends to be linear, unless a market bubble temporarily pushes prices up or crashes down prices.

Conversely, technology products (Bits & Bytes) such as computers, cell phones, televisions, smartphones, etc tend to decrease in price over time for a relative level of technological performance.  Another way this phenomenon manifests itself is when new technology products are introduced at the same price as the prior generation, but with more features or better performance.  In this case, the price per unit of performance is decreasing even though the total price may be staying the same.  The dramatic price declines of technology are a primary driver new business models that consistently emerge, based on new digital economics.  Consumers benefit greatly from the technology curve, since it allows them to consistently buy things that are better for the same amount of money or less.

The average level of market inflation is based on a presumed mix of commodity products that are increasing in price and technology products that are decreasing in price.  (This average is publicly reported through the Consumer Price Index, which has a fair number of its own quirks concerning how inflation is comprehended)  The way that this phenomenon translates into our life is that the level of inflation we personally experience depends on our pattern of consumption between commodity and technology products.  By and large, a person is more susceptible to inflation when the relative amount of commodity products they consume is higher.

In this way, inflation typically impacts people of lower incomes the most significantly.  The way that this happens is by inflating the cost of commodities such as housing, food and energy.  Since people of limited means typically spend a larger portion of their income on housing, food, and energy it means that they feel the effect of inflation much more sharply.  Conversely, people who spend a lower portion of their income on housing, food, and energy are less directly impacted by inflation since their personal basket of consumption is weighted more toward technology products that naturally deflate.

Since individual people don’t have the ability to affect market prices, it is not possible to change the level of market inflation.  However, since each of us has the power to choose how we consume products & services, we DO have the power to change the level of our personal inflation.  When oil prices increase, we have the ability to carpool, purchase a more fuel efficient car, move closer to work, or use public transportation.  Conversely, we can also choose to shift more of our purchase decisions toward products and services that benefit from advances in technology.  These types of changes are not always desirable, but they do give us power to influence the impact of inflation on our lives.

In this way there is a personal rate of inflation for both me and you that we can influence at the margins.  In the torrid journey of life, it is easy to become upset about inflationary government policies that push-up prices.  And in many cases, this anger is well founded.  However, it is not something that any of us have the power to directly change.  Each of us only have the power to change the decisions that we make as individuals.  In that way, the most important change to make is one that changes your personal situation and the situation of your family.

 

For both individuals and business owners, negotiations can prove to be one of the most difficult and most important things that we do.  The largest purchases that most people make frequently involve very intense negotiations.  The ability to gain employment, and earn promotions is also frequently influenced by your ability to negotiate.  Negotiation has a very significant impact on personal, professional, and financial success.  Because of this, it is very important to understand the parts of negotiations that are the most important, along with the parts that are frequently misunderstood.

To many people, the idea of negotiating brings up images of aggressive arguments where both sides attempt to prevail against the other in a pitched battle for power where one side wins and the other side loses.  Another paradigm of negotiation is one where a “win-win” paradigm requires that no deal be made unless both sides realize significant benefits.  The truth of negotiation exists in-between these opposite visions.

Best Alternative To a Negotiated Agreement

The term BATNA, meaning “Best Alternative to a Negotiated Agreement” was coined by Roger Fisher and William Ury of Harvard University, and incorporates many of the ideas published by John Nash in his work on Game Theory.  The idea incorporated in BATNA is that our ability to negotiate is heavily influenced by our alternatives if the negotiated agreement does not occur.

One way to think about BATNA is to imagine that you’re looking to sell a car.  If you have one buyer lined-up who will pay $2,000 for the car, then you will be very unlikely to accept less than $2,000 from anybody else unless you have doubts about the original offer.  Your best alternative is selling the car for $2,000 and that places you in a position of power to confidently list the car for sale at a higher price. Alternatively, if you need to raise cash very quickly and have no buyers lined-up, then you may need to accept $500 or less from the first able buyer whom you come into contact with.  Thus, your best alternative exerts a tremendous degree of influence over your decisions.

How BATNA Influences Our Idea of Fairness

One of the enduring ideas of humanity is the notion of fairness.  The situations that most people perceive as being unfair are those where one side has a significantly better BATNA than the other.  An example of this is if you are walking across a desert, parched of desperate thirst, and run across a truck who offers to sell you a 20 ounce bottle of water for $5,000.  The natural response to this scenario is that the transaction is supremely unfair since the cost of that bottle to the seller is approximately one dollar.  In this situation, the BATNA of the person walking through the desert is a painful death of dehydration.  Alternatively, the BATNA of the seller is their lost time and the expense of driving across the desert to find somebody walking whom they can sell water.

The reason why this feels so unfair is because the alternative of the person walking is death, while the alternative of the person selling the water is simply wasted time.  However, this transaction still makes both parties better off, even though it feels patently unfair.  If the truck were not present to sell the high-priced water, the person walking across the desert would suffer a painful death.  Even when the person driving the truck engages in what is frequently called “price gouging,” he still delivers a valuable service that is critically important to the person in the desert.  Thus, in what seems to be a blinding paradox, some of the transactions that appear to be the most unfair to the “little guy” are actually the most beneficial.  The reason for this is because when the best alternative for the “little guy” is worse that the seemingly unfair exchange, then they are far better off with the deal that feels severely slanted against them.  Thus, by using legislative power to prevent exchanges that feel unfair, it is possible that we are actually condemning the people whom we think we are helping to suffer an even worse outcome.

How BATNA Influences our Negotiations

Another important thing to consider in regards to BATNA is its impact on our personal, career, business, and investing decisions.  Within this insight is two levels of distinction.  The first is that our alternatives influence our decisions.  The second is that our perceptions may differ from reality, and result in decisions that are sub-optimal.  In short, it is very easy to both over-estimate and under-estimate our best alternative.

• Why our Alternatives Matter

  • The simple reason why alternatives matter so much is because we can be more confident in refusing low-quality outcomes when we have a better alternative.  If you are highly educated and experienced in a field that is in demand, you do not need to take the first job offer that comes your way.  If you are able to re-locate with ease, you can be more flexible in finding a new job that allows you to advance more quickly.  If you are a business owner who already has a key customer that generates sufficient revenue to cover your costs, you can negotiate pricing with new customers from a stronger position.  If you are able to assemble investment deals that generate a high rate of return, it will allow you to walk past the traditional financial instruments that are sold for retirement planning.
  • In short, the decisions that you make are bracketed by the alternatives that you possess.  By increasing the quality of your alternatives, you increase the strength of your decisions.  Thus, the ‘real’ way that people achieve success is not just through the decisions that they make, but through developing the alternatives that allow them to make high-impact decisions in the first place.  Most of the best investments require some degree of capital.  If you are unable to pay the monthly rent, high-impact investing is not an option.  Regardless of how educated you are in decision making, those decisions will not become available until you influence the underlying alternatives through preceding actions and decisions.

• Over-Estimating the Alternatives

  • One of the thing that frequently happens in high-stakes negotiations is that one or both sides will over-estimate their alternatives.  This typically results in the adoption of “tough-guy” negotiation techniques, and can create very large problems if the deal falls apart and the assumed alternative do not materialize.  Typically this situation occurs when negotiators fail to invest sufficient research into their realistic options.  The most frequent occurrences of this effect are when one side focuses on the other side’s lack of options more than their own situation.
  • For example, the union frequently notes that management will be in a pinch without labor.  Similarly, management frequently notes that the union members will be in trouble without their wages.  The truth is that both labor and management suffer from a prolonged work stoppage.  It is important to avoid taking your eye away from your own alternatives by excessively focusing on other people’s alternatives.

• Under-Estimating the Alternatives

  • Another way that people can run into trouble is by under-estimating their alternatives.  When this happens, people will be likely to take “the first thing that comes along” instead of searching for their best option.  Typically, this situation occurs when people have a low opinion of themselves and their abilities.  This is not to say that ego and arrogance are in order, but that an honest assessment is critical.

In the end, understanding our alternatives is a critical part of optimal decision making.  It is important to make an honest assessment of what our options look like so that we can avoid the errors of both over-estimating and under-estimating the quality of our alternatives.  This is one of the fundamental keys to negotiating success in our personal, professional, and financial life.

 

The recent rise of gold prices and volatility within the economy has begun to challenge the notion of wealth, productivity, and output that many people hold in their minds.  The typical situation for most people, is that they think of wealth as being measured in money.  For people like Ben Bernanke, money means currency.  For people like Bill Bonner, money means gold.  However, in both cases, wealth is something much deeper.

Wealth as Money

It is not surprising that most people view wealth and money as being the same thing.  After all, your 401k is measured in money, your house is measured in money, and you salary is paid in the form of money.  The thing that is important for people to consider is that money doesn’t represent wealth itself … it represents a medium of exchange for wealth.  By producing something that is worth one dollar and receiving that dollar, it allows you to purchase something else that is worth one dollar without the necessity of bartering and trading.

The benefit of money to the functioning of a smooth economy cannot be over-stated.  However, it is important to understand that the money itself is not your goal.  Money is a medium of exchange that makes it easier to purchase the things you want when you want them.  However, without a population of people who recognize the value of money for trade and exchange, it is just paper.

Another insidious problem with money is that it can have its value debased by government action.  Since the government controls the amount of currency in circulation, it has the ability to influence the price of items through its monetary policies.  If the government prints a lot of money in order to finance its spending, it will de-value the money already in circulation.  In this scenario, money serves as a superior way to transfer value, but a very poor way to store value.

Wealth as Stuff

Another popular view of wealth is to think of it in terms of things.  This is where most gold and silver investors place their sentiment.  The fundamental belief is that commodities hold a constant real value while government currencies frequently become de-valued.  The general thesis of this belief is quite accurate.  Gold and silver are constant value commodities that cannot have their value directly eroded by the Federal Reserve.

However, there is another factor of gold and silver that must come into consideration.  Their value is exclusively a product of what other people think they are worth.  For most people, gold and silver do not have a very  high use value.  You can’t eat them, and they don’t directly improve your life in many manners outside of jewelry.  They are a store of value that depends on other people wanting to use them as a store of value.  Your house represents a store of value that gets pushed up in value when other people wish to live in your area.  However, its value is also subject to the willingness to pay of buyers, and can fluctuate very wildly.  In this way, a commodity-based view of wealth has some of the same deficiencies as a currency-based view of wealth.

Another view of wealth in regards to stuff is thinking about wealth in terms of consumable commodities.  By and large, consumable commodities have a much higher use value than gold or silver, since they can be eaten or used to make clothing, or any number of things.  However, the principal deficiency of consumable commodities is that they tend to be perishable.  Oddly, the strength of gold and silver is the deficiency of consumable commodities and vice-versa.

Wealth as Economic Resources

Finally we come to a view of wealth in terms of economic resources.  Another way of stating this is to say that wealth represents the ability to produce things of value.  In the ancient days, wealth came from livestock that would produce milk, eggs, and offspring that were valuable as a source of food or for breeding more livestock.  In the contemporary world, a ‘share’ of ownership in a company produces dividends that result from the value that is captured through profitable operations.  As individuals, our greatest source of wealth is our ‘human capital’ … or our ability to deliver valuable services in exchange for compensation.

In most cases, this great source of wealth is not directly valued since it is intrinsic.  It does not sit on a balance sheet, and is not tallied in a statement.  An investment such a rental property that produces value for the tenants whom pay rent in exchange for the right to occupy the property is a real source of wealth.  However, the creative mind that purchases the property and organizes a system for using it to create revenues that exceed the cost of operating plus the cost of capital represents a much greater and much more powerful source of wealth.

In the end, real wealth always is and always has been produced by people who are able to generate products and services that are valued by others.  When the value of these services exceeds the cost of delivering them, it results in a profit.  For most people, their greatest source of wealth (their human capital) is slowly used to acquire secondary sources of wealth that are not limited by the extent of their personal efforts.

The individual ability that each of us possess may be much greater than any of our investments that we own, but those investments have a very important characteristic.  That characteristic is the ability to create passive income … income that does not require constant effort.  In this way, wealth becomes a much more complex subject since it is inclusive of both our efforts to produce value and the passive effort of investment vehicles that we own to produce value.

Ultimately, all forms of real wealth must produce value.  As we are starting out in life, most of that value will come from our personal efforts.  Over time, our personal efforts allow us to invest in vehicles that produce passive value.  As more time passes, those investments will generate returns that allow us to purchase more investments in a process known as compounding.  This cycle of wealth all starts with a decision to focus on creating value through both our efforts and our investments.