Can Everyone Be Rich?

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“The reward would be…”

“What?”

“Well, more wealth than you can imagine.”

“I don’t know — I can imagine quite a bit.” 

—Star Wars: Episode IV – A New Hope

 

Let’s say you’ve done very well and you have a six-figure income and, say, four million bucks in the bank. And you start to feel guilty: Should I really have this much money when so many people are struggling to feed themselves?

You could give it all away. Let’s assume there are four billion poor people on the planet, so divide that into your four million dollars, and each of them receives … excuse me while I whip out my calculator … [*click-click-click*] … one tenth of a penny per person.

Well, that’s not gonna help.

Wait, I know! What if, somehow, everyone could be rich? Could everyone have four million dollars?

Let’s find out. Take America as an example. In 2015, the total assets of U.S. citizens (real estate, stocks and bonds, cars, smartphones, PlayStation consoles) minus debt (mortgages, credit card balances, and the amount you still owe your bookie) was about $85 trillion dollars. Divide that by the 2015 U.S. population and you get a bit more than $265,000 per person.

So if you divvy it all up, every adult and child in America would be worth about a quarter mil. Not bad, but certainly not four million dollars apiece. So that won’t work.

Oh, wait, I got it! Maybe “rich” can be redefined so that more people fit the definition. Maybe $265,000 is rich by anyone’s standards.

Well, first off, you can’t live on it forever. It’ll run out after several years, even if you invest it. You’d need a cool million earning 8 percent just to have an income, after taxes and inflation, of around $30,000 per year. (Give or take. Your mileage may vary.) And thirty grand doesn’t get you anything fancy these days. But at least one person could survive on it indefinitely.

So every American would need at least four times as much money as is available today to be able to retire.

Of course, if everyone suddenly retired at this point in history, all the factories and gas stations and restaurants and bars would close, and nothing would be produced. We’d starve. Dang.

Okay, let’s start over. What, exactly, is “rich”? Dictionary.com defines it as: “having wealth or great possessions; abundantly supplied with resources, means, or funds . . . ” “Great possessions” and “abundantly supplied”: these suggest much more than is owned by the typical schmo. But if everyone got the same amount — say, one million dollars — that would become the new “average”, not “rich”. Hmm.

On the other hand, four million dollars? Now, that’s getting somewhere. Thus if you’re worth millions, you’re still not off the guilt hook. But I have one more idea that might help.

It involves purchasing power. The average American — and the average European, Japanese, South Korean, Taiwanese, Chilean, etc etc — has more wealth than nearly every other human who has ever walked the Earth. Compared to those others, today’s middle-class groups are fabulously rich, abundantly wealthy with great possessions.

A citizen in today’s industrialized countries can own things never dreamt of by the kings of yore. What seem normal to us — quick cheap flights to weekend vacation spots, streaming movies on high-def stereo TVs, instant chats with people in other countries — would have been impossible a century ago. Our average income thus has enormous purchasing power compared with the past. 

That purchasing power keeps growing, year after year, as technology improves. In the future, a mere $30,000 below-average income could have several times its current purchasing power. In effect, a future $30,000 would afford what a six-figure income buys today.

Eventually each of us will have so many resources available from our lil’ ol’ average incomes that we’ll find ourselves possessed of the luxury and leisure and ease that the wealthy have always enjoyed. Like the idle rich of old, we won’t even have to work anymore — not if we don’t want to. The machines we’re building today will do that work for us tomorrow.

So if you’re still feeling guilty about having more than others, you can do two things: (1) invest your wealth in businesses that hire workers to produce the wealthy future that’s looming just over the horizon; and (2) dedicate your own work efforts to building that future, one in which everyone will have more than they know what to do with, to the point where money will no longer be an issue — a future where people will be judged more on their creativity than their bank accounts.

If, on the other hand, you’re wishing you had enough money to feel guilty about, please note that nowadays the quickest way to obtain filthy lucre is much the same: work to build a wealthy future for everyone.

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Robots and Riots

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You do not see union workers holding benefits for robots. — Stephen Colbert

There’s a Doomsday scenario where machines take over all jobs and everyone becomes unemployed. Evictions, hunger, and illness ensue. Riots in the streets. Calls for a guaranteed national income. Legislation to prevent robots from being built at all. Political calamities. A real mess.

French police unleashed tear gas and water cannons on demonstrators Tuesday as tens of thousands packed the streets of Paris in an outpouring of opposition to the government’s anti-labor agenda. news item

If workers will riot over incremental changes to employment, imagine how berserk they’ll go if all the jobs disappear.

“But robots will never take every job!” Oh, yes they will. We humans are clever — we’ve invented countless labor-saving gadgets over the centuries, devices stronger or faster or more precise than people can be. We’re also clever enough to invent mechanical brainpower that’s stronger, faster, and more precise than our own. In fact, we’re developing this Superior Artificial Intelligence as we speak. Such an intellect will eclipse our own poor powers and take charge. Soon.

(Which would you rather buy, something dirt cheap but excellent from a machine, or something flawed and unreliable and expensive from a human? Hmm.)

This could easily become a bad thing, since people thrown out of work generally don’t have money for food, rent, gasoline, and doctor visits. Also, most of us derive meaning from our labors, and without a job — a way to contribute — people might find themselves existentially adrift. Combine a lack of purpose with a lack of cash, and you get street riots and the other disasters.

And it also could be a good thing … if the automata serve us faithfully and make us all wealthy. We’d have endless free time to pursue our interests, with no need to convert hobbies into jobs. In that world to come, what matters would no longer be how rich you are, but how interesting you are. I call it The Star Trek Future.

(Yes, I’m well aware that this very blog could be replaced by automation. I’d have to find some other way to amuse myself. Tennis, anyone?)

A solution that lately has gotten traction is a guaranteed national income — a stipend for every adult citizen. If all people were unemployed, only those who owned investments would have regular income. The corporations would need to donate money to the unemployed, or none of them would buy any products.

The problem with this plays out as follows: I own a store, and you come in to get a candy bar but don’t have any money. I give you a dollar, and you hand it back to me for the candy bar. Essentially, I’m performing a short ceremony with you, at the end of which I give you a free candy bar. At this rate, I’ll go broke.

Another idea involves a kind of fiscal land reform: the government confiscates corporate stock and hands it out to everyone. We’d all become owners of the robots that took our jobs. Automated production would go to our bottom line, and everything turns out fine.

Except this would basically destroy the market economy. Nobody would invest in companies anymore, lest their hard-won gains be taken from them abruptly in some similar, future upheaval.

But what people aren’t talking about and what’s getting my attention, is a forthcoming rapid demonetization of the cost of living. — Peter Diamandis

What to do, then? It turns out there’s a solution that will likely unfold as a natural consequence of total automation of jobs. It’s called demonetization, and it will cause most prices to plummet. After all, robots don’t take vacations; they don’t need healthcare for their kids; they don’t go on strike; and they perform their tasks vastly more efficiently than can humans. They work much better and much cheaper.

Thus, though we may all one day find ourselves unemployed, our expenses could decline by as much as 90 percent. A meal at a fast-food restaurant would cost 50 cents, and a ride in a driverless taxi would set us back about 30 cents per mile, less than half the cost of car ownership. Dirt-cheap housing will be built using 3-D printing. Meanwhile, online education already is basically free, and the smartphone in your pocket comes with a slew of products and services that 30 years ago would have cost hundreds of thousands of dollars.

Given a small stipend from the government and/or a small stake in the big corporations, people would have more than enough cash to pay for basic necessities even if they were out of work.

It’s also important to bear in mind that non-human employment will likely emerge over time and not all at once. Economic downturns in recent decades have tended to resolve themselves with “jobless recoveries” as businesses bought new software first and then hired real people. This hints at workforce automation building momentum slowly over several decades.

Instead of being eliminated, your job might merely get cut back, bit by bit: they’d offer to keep you on at reduced hours that drop even further over the coming months and years. Of course, your pay would decline, but meanwhile your personal expenses will have plummeted due to all that cheap automation everywhere in the economy. So who cares? You just got a bunch of extra hours away from work while retaining essentially the same lifestyle.

(If you’re worried this optimistic scenario won’t play out according to plan, there are a number of ways to adapt your work life to reduce or delay your risk of being replaced by a machine.)

If business and government can coordinate properly (and that’s a BIG “if”), automation might supplant us gradually, so we retain a declining level of employment while prices also decline. We could actually achieve a soft landing into a life of prosperous leisure.

That’s not Doomsday. That’s more like Paradise.

* * * *

UPDATE: Will we control AI?

UPDATE: Jobs are already disappearing as robots take over

UPDATE: Automation begins to clean out white-collar jobs

UPDATE: The rise of the useless class

UPDATE: How to get paid in the Age of Layoffs

UPDATE: David Byrne on eliminating humans

 

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Women Who Put Out Fires

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Recently there’s been chatter on how women often become leaders during crises. A number of examples come to mind: Carly Fiorina (Hewlett-Packard); Mary Barra (GM); Marissa Mayer (Google, Yahoo); Margaret Thatcher (UK Prime Minister) and Theresa May (UK Prime Minister). All these women attained high leadership positions during major upheavals in companies or countries.

Why do crises and women leaders go together? Two reasons stick out: (1) the men screwed things up and don’t want to touch the problem with a ten-foot pole; (2) groups cast about for a fresh perspective, saying, “Let’s see what a woman can do with this situation.”

Of course, sometimes men on the outside are simply waiting for the problem to overwhelm the woman so they can claim, “See? She can’t do it! But we can!” and winch themselves back into power.

Thus women candidates for leadership may want to think twice before gambling on a position that could turn out to be a sucker bet.

It brings to mind an old joke: “Why do ducks have webbed feet?” … “To stamp out forest fires.” … “And why do elephants have flat feet?” … “To stamp out flaming ducks.” You don’t want to become a pile of ignited feathers squished by an elephant of a crisis.

Two approaches to this dilemma are likely to be popular:

1. Complain that “men are no damn good” and they only use women in blazing emergencies and then toss them under the fire truck when the going gets smoky.

2. Learn how to put out fires.

Number 1, above, may be partly true and therefore useful to know. But complaining does not a leader make.

Number 2 is where the money is. A crisis is a woman’s chance to demonstrate calm capability. To that end, prepare for the opportunity:

• Learn how to handle budget emergencies

• Learn how to cut red tape

• Learn how to lay off employees, especially men who will try to intimidate you when you hand them a pink slip

• Learn how to cut spending, especially pet projects that are squirting money like severed arteries

• Learn how to meditate (or anything else that keeps you calm and unflappable)

With hard work, smarts, and a bit of luck, a woman can save the day, convert a trap into a triumph, and rise from patsy to hero. At that point, she should make sure her future compensation reflects her excellent performance — and/or be ready to field offers from other companies desperate for a turn-around artist.

So, ladies: prepare for the job as if it’ll be a series of emergencies … assemble your fire equipment … and go put out some fires.

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A Survey of Startups

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Nearly all startups fail to scale up.

There — we got the bad news out of the way. The good news: it’s possible to greatly shorten the odds by following a few simple rules.

A report on recent MIT research lays out some pointers:

“Compared to average startups, which have a one in 3,500 chance of experiencing growth, the top one percent of firms with these characteristics have a much better chance (one in 100) of taking off. New startups are four times more likely than the average startup to grow if they are a corporation, two and a half times more likely if they have a short name, and five times more likely if they have trademarks. Furthermore, firms that apply for patents are 35 times more likely to grow. And, curiously, eponymously named firms are a whopping 70 percent less likely to grow.”

There’s more, but in a nutshell:

  • Incorporate
  • Use a short name (not the founder’s name!)
  • Nail down your trademarks
  • Apply for patents
  • Locate in a high-tech region:
    • Silicon Valley
    • Southern California
    • Washington state
    • New York / Boston
    • Texas

Oh, and let’s add the standard principles for business success:

  • Provide a product or service people need and love
  • Make what you sell vastly better in some important way
  • Hire excellent people you can get along with
  • Stay focused on results (instead of signs of your own importance)
  • Work your butt off for 4 years or more

What could be simpler? Now get to it.

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Your Livelihood and the American President

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Running a brilliant campaign does not translate into running a brilliant White House. — Gail Collins

Does it matter to your bottom line what the government does? Absolutely. Legislatures and bureaucrats and presidents and prime ministers can screw up an economy with the stroke of a pen. Witness, for example, the run-up to the Great Recession of 2008: the U.S. set low interest rates, encouraged home buying (and strong-armed banks to provide loans to incompetent borrowers), spent nearly $2 trillion on a useless military venture in Iraq, then blamed Wall Street when the bottom fell out … and then bailed out the Street’s investment bankers while workers and small firms on Main Street had to suck it up.

Okay, but does it matter to your bottom line who is the U.S. president? Yes and no. Great power does flow through the White House, but it’s like water through a firehose that’s hard to point at problems without backsplash or getting knocked over. Over the past century, a few Chief Executives have managed to wield enormous influence (for better or worse): Wilson, FDR, Johnson, Reagan, Bush. But most have come and gone without leaving much of a mark.

A finer-grained question is: does it matter to your income stream which party a president belongs to? Campaign contributors tend either to be labor groups or corporations, neither of which are keen on draconian measures that might cause job losses or declines in revenue. So there’s a political limit, despite all the rhetoric, to what either party can do to the economy once it controls the White House.

In fact, it may not much matter which party holds the office. Sometimes a Democrat can be good for business (as with Clinton’s budget surplus), and sometimes a Republican can be bad for it (witness Bush with Iraq and the Recession). What’s more, it’s hard to tell what kind of administrator a candidate will turn out to be, and it’s often just as hard to foresee what policies they’ll instigate once in office. Meanwhile, situations can change suddenly — Pearl Harbor in December 1941 … 9/11 … the recent upheavals in technology — with unpredictable results for White House policy.

On top of that, the Constitution was written deliberately to throw sand in the gears of political change, impeding the government from rushing headlong into wild-eyed projects that might do more harm than good. This applies to the Executive as much as to the Legislature. Sometimes the American government breaks through and hurtles toward disaster, but usually progress is glacial. Thus one change of government probably won’t result in enormous shifts in society or the economy.

In recent years, though, the purview of the White House has widened. Under George W. “I Am the Decider” Bush, overly broad use of signing statements — which are meant merely to outline a Chief Executive’s plans for implementing legislation — enabled him to get away with backdoor line-item vetoes. Then the administration pushed through Congress laws that vastly increased federal power to spy on, arrest and/or kill U.S. citizens, often without warrants.

In 2009, Barack Obama — a constitutional scholar who as a candidate railed against Bush’s assault on civil liberties — became president and added to Bush’s power grab, especially in the overuse of Executive Actions.

Every president feels beleaguered by ongoing assaults from political opponents and will cast about for any influence that may win the day. No sitting president willingly lets go of arbitrary clout inherited from previous administrations; worse, there’ll be an enormous temptation to expand on it. Basically, if a Chief Executive exceeds the limits to his authority and nobody calls him on it, the next president will do the same … and then some.

The overall result is an ongoing expansion of Executive power, with no sign that it will slow down. In that respect, it doesn’t matter which party occupies the Oval Office; presidential prerogatives will likely continue to grow. More and more edicts will be handed down arbitrarily, rulings that could cause your company, or your career prospects, to lurch crazily.

What’s a business owner or employee to do?

  • Don’t waste a lot of time worrying about who will be the next president. Their behavior and influence is hard to predict and often vastly different from what they promise. Besides, fretting about events you have virtually no influence over is a waste of resources. Instead, put your energies where they can do some good — work on your career. Hold a steady course despite the changing winds.
  • Assume taxes and regulation will continue slowly to increase, no matter who’s in office. They have done so for decades, and there’s no sign they’ll halt or reverse course. Any compliance process you can computerize will simplify the burden and save some of the time and money you’d otherwise lose.
  • Assume recessions will recur under Democrats and Republicans alike. The Fed tends to tweak interest rates to stretch out economic booms, and the resulting busts become that much deeper, regardless of who’s in office. Resist the temptation to invest or make expensive purchases at the end of a boom simply because you’ve been doing well and there’s no sign of trouble. You’ll find yourself over-extended just as your income drops.
  • Assume 5% unemployment is the best we’re going to get. Rarely does the rate fall much lower, and soon enough it begins to swing upward, often doubling within a year or so. At 5% get ready to batten down the hatches.
  • Never assume a strong economy, or a good job or business, will continue indefinitely, unmolested by national turmoil or bad governance. As they say in poker, “Take some chips south” — squirrel away cash from the win streaks, and you’ll still have resources after a loss.
  • Never assume Washington will save you! They’re much more likely to cause problems than fix them; at best, their help is a mixed blessing. It’s better to have yourself on your side: you’ll retain the best ally you can get … for both bad times and good.

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Three Ways to Bid

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If you work for an employer — like 93 to 97 percent of American workers — you get your pay from a salary or wage. If you work for yourself — free-lancer, contractor — your pay depends on the deal you strike with the client. That deal can take three forms:

HOURLY: You get paid for how much time you put into the work.

Advantages: You know in advance what your hourly income will be. If the job is bigger than expected, you’ll get paid more. Your rate is secure.

Drawbacks: You don’t now how much money you’ll make on the entire job, since the total number of hours is uncertain. And your rate is the upper limit on how much you can make per hour of effort. Also, your client doesn’t know how much the job will cost until it’s over, which can cause said client to balk at your bill.

When to use: Take your pay by the hour if the work is open-ended.

BY THE JOB: You get paid for results.

Advantages: You know ahead of time how much revenue you’ll receive. If the job takes less effort than expected, you’ll still receive the same amount. Your total payout is secure. Also, your client knows how much the project will cost ahead of time.

Drawbacks: You don’t know for sure what your pay rate will be, as the job could take much longer than you hoped. Worse, after expenses, you could lose money.

When to use: Take your pay by the job if you have a good idea of what your total hours and expenses are likely to be.

BY PERCENTAGE: You get paid a portion of your client’s revenue or equity.

Advantages: There’s no fixed limit on how much you can earn. If revenues — or stock value — go through the roof, so will your take-home. A lot of billionaires get started this way.

Drawbacks: You could earn nothing if the client’s business fails. Also, your equity participation can get seriously diluted, especially if you’re working for a start-up that goes for a second round of funding and renegotiates the cap table. And most start-ups don’t get very far, so don’t hold your breath.

When to use: Take your pay as a percentage of revenues and/or equity if the client’s company looks to blast off like a rocket and/or if the client is having serious cashflow problems right now but should get nicely into the black in the near future. (Bear in mind that most established businesses won’t do this kind of deal.)

…Of course, you can mix and match these pay methods to suit, taking a portion in up-front money and the rest as stock options or a piece of the company or a slice of revenues, then adding hourly consulting fees if the client has a last-minute need for extra help. 

In any case, your final bill can be hell to collect. Not every person you do business with — no matter how charming — is honest. The last bill is the easiest to welch on, as they often don’t expect to need your services anymore, and they know that most small contractors will give up the chase. Also, a client may sail into tight straits, and your bill gets tossed overboard.

That said, most people on salary never get rich, and the biggest opportunities find their way to independent contractors. So go ahead, make a bid.

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Victory or Profits?

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Popular business theories often rely on the notion that success is binary: that you either defeat other businesses or you are defeated. This idea enables sports coaches to consult with Fortune 500 companies, but does it really cover all the bases? 

“Do or die” has an elemental, romantic appeal to corporate CEOs, most of whom are highly competitive and love a good battle. And it’s true that the marketplace can be ruthless. But that’s not all there is, and out-and-out market victory certainly isn’t the only source of profitability. Let’s look at some of the popular shibboleths and see if we can improve on them:

  • Grow or Die: This idea comes mainly from the 1973 book Grow or Die by George Land. The author described how all living systems, including businesses, go through growth spurts when they discover and exploit new resources, then stall out when those resources run dry, at which point new approaches to resource discovery and management must be developed. It helped publicize the S-curve, which shows how growth starts slow, speeds up, then slows down again. These concepts have proven popular and useful to business strategists. But still we’re left with that catchy binary book title, which seems to imply that all companies, and life forms in general, must constantly enlarge or they will be destroyed. By that reckoning, the oldest and most successful creatures would be the size of Massachusetts, generating their own Zip Codes and a sizeable gravitational field.
    • Better: Adapt or Fade. The point is profits, not constant growth. It’s not how big you are but how much you return to your stakeholders. To that end, especially in today’s innovative marketplace, the adaptive and creative firms will do best. That S-curve will show the growth of your margin, not merely your bulk.
  • Go Big or Go Home: This is a metaphor from sports, where outcomes are always binary (except in hockey). But it’s not a solid match for what companies face in the marketplace. Competition is only one aspect of commerce, and second- and third-place firms often earn more profit than the leader. But “Go big” appeals to men, who are fueled by testosterone and thrive on competition. For many leaders, the only thing that matters is total victory, as if they were in a war where the loser submits to unconditional surrender. Markets don’t usually work that way.
    • Better: Own Your Niche. Find the spot in the market where your company has a natural monopoly because of its uniquely useful products. The focus is on serving the clients and making a profit, instead of trying for some arbitrary notion of “victory”. (But you can still feel dominant in your particular corner of the market, if you need that buzz.)
  • Take or Give: Givers, says Adam Grant in his book Give and Take, prefer to give more than they get, and their team thrives. Takers, on the other hand, believe it’s a dog-eat-dog world, and they must grab as much as they can and give as little as possible, which disrupts group efforts. Clearly, you want a Giver on your team. But Grant’s thesis suggests a binary takeaway, namely, that the energy of your labor is exactly counterbalanced by the energy stored in the money you make. This is a zero-sum game, and it represents an attitude that goes all the way back to 17th-century Mercantilists, who believed that trade only worked if they “got more than they gave”, as if cash and product were worth exactly the same to both sides of an exchange that was more competition than cooperation. It’s also an attitude popular among fiscal liberals, who tend to think the rich got that way by cheating. In fact, Grant suggests that the only real flaw in a Giver is the tendency to give too much, as if he or she should pull back, now and then, and be a Taker — at least, long enough to pay for some nifty stuff. It makes the Giver look like the Nicest Loser.
    • Better: Create Value (rather than hijack it). Grant’s main point is that we work best when we’re not constantly calculating what we’re getting from our labors. If, instead, we focus on producing for the team, our pay will tend to reward us naturally over time. This seems a wise and fruitful attitude. And Grant — a Wharton Business School professor — no doubt understands exchange theory quite well. He’ll likely agree that when you make value generation your goal, you’ll do much better in the long run than when you act like a leech.
  • Dominate the Market: If you control the market, you ought to be able to dictate price and guarantee huge profits. Or so they say. The binary implication is that you own your market or it owns you. In fact, giant companies with overwhelming market share often get trapped paying for their enormous infrastructure by cranking out low-margin items. Meanwhile, small competitors can adapt and innovate quickly, so their goods and services are more likely to be uniquely valuable and command higher margins.
    • Better: KIP (Keep It Profitable). Yes, a huge corporation with a low margin may take more total profit than a small company with a big margin. And, yes, a big margin on big revenue is better than a big margin on small revenue. But as a general matter, it’s more important to be profitable than large. Size, as scientists would say, is an “emergent property” of success. But it’s not required.

In short: stay adaptive, develop your own niche, focus your team on creating value, and point your firm toward profit rather than size, and you’ll sidestep most of the grinding headaches that come from trying to steamroll your competitors in a “do or die” fight to the finish. 

Let someone else take home the laurels, and you bring home the bacon.

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