Good post by Ben Casnocha on why many very rich people work so hard:
Status. I believe the quest for status drives the behavior of the “post-economic” population to an extreme degree—people for whom there is there no economic imperative to work—and, for that matter, most of the rest of us, too.
And that horse race is a zero-sum attention game.
Tyler Cowen argues that status isn’t all zero-sum, but instead talking about one’s achievements is
“a way of processing the self.”
Casnocha then goes on and says,
But the hit doesn’t last. Like a drug, status is insatiable.
I would add that it also has a high depreciation rate.
Wall Street titans, Hollywood moguls, and tech billionaires do not physically duel. And they’ve often made so much money that they all have nice watches and cars and houses. But they do continue to race each other for prestige and power and other non-monetary status markers.
Casnocha says “No”, we should learn how to balance ambition and happiness and gives some recommendations of how to do that. Most of the recommendations evolve around ways of not getting lost in the rat race. But Ryan Avent (who Casnocha cites) might respond that, really, it’s a package deal and you cannot just move away without stopping what you do.
Peter Thiel and Blake Masters discuss in “Zero to One” how to successfully found a start-up.
They say the goal is to become a monopoly and they warn against a culture of competition. The aim is not to enter an industry and compete hard in it, but rather to found a new industry and be safe from competitors.
I liked the book and many of their thoughts. I think the following citation is great and I read it as a criticism of an alleged contentedness and satiation of my generation:
“Consider the trivial but revealing hallmarks of urban hipsterdom: faux vintage photography, the handlebar mustache, and vinyl record players all hark back to an earlier time when people were still optimistic about the future. If everything worth doing has already been done, you may as well feign an allergy to achievement and become a barista.” (p96)
Before reading this book, I would have placed Thiel in the libertarian corner so I was surprised to read a criticism of the idea of efficient markets:
“But the existence of financial bubbles shows that markets can have extraordinary inefficiencies.” (p100)
Also, this is fun:
“This is why physics PhDs are notoriously difficult to work with – because they know the most fundamental truths, they think they know all truths.” (p104)
They spend some pages defending auxiliary business operations such as marketing and sales:
“But advertising matters because it works. It works on nerds, and it works on you. You may think that you’re an exception; that your preferences are authentic, and advertising only works on other people.” (p127)
I’m doing research on the effects of automation on labor markets, so I was happy to see a discussion like the following:
“The stark differences between man and machine mean that gains from working with computers are much higher than gains from trade with other people. We don’t trade with computers any more than we trade with livestock or lamps. And that’s the point: computers are tools, not rivals. […] Properly understood, technology is the one way for us to escape competition in a globalizing world. As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements.” (p144)
“Why do so many people miss the power of complementarity? It starts in school. Software engineers tend to work on projects that replace human efforts because that’s what they’re trained to do. […] Just look at the trendiest fields in computer science today. The very term “machine learning” evokes imagery of replacement, and its boosters seem to believe that computers can be taught to perform almost any task, so as long as we feed them enough training data. […] Google Translate works […] because it has extracted patterns through statistical analysis of a huge corpus of text.” (p148-149)
“But big data is usually dumb data. Computers can find patterns that elude humans, but they don’t know how to compare patterns from different sources or how to interpret complex behaviors. Actionable insights can only come from a human analyst (or the kind of generalized artificial intelligence that exists only in science fiction).” (p149)
The book is surprisingly deep, non-standard and well-written. I found the parallels to academia striking. In some sense every new research project is a start-up. You own it, protect it and want it to succeed. If we follow Thiel’s advice in research, we should look for novel research projects to escape the competition. The advice doesn’t carry over completely, but I do think standing out is easier when following unconventional paths.
I also liked idea of being very aware of who the stakeholders in a project are. In academia that would be:
your supervisor and others like fellow PhD students that you regularly talk with about the state of the project and that keep track of its progress
And I think the important thing is not to expect things from people from the wrong group.
And then there’s the issue of when you tell who about some good new idea. On the one hand, you want feedback. But if everybody knows your great new idea, then maybe they’ll go for it first. People tend to remember good ideas, but not who came up with them. And after a while, they think they came up with it themselves.
They write about this:
“If you find a secret, you face a choice: Do you tell anyone? Or do you keep it to yourself? […] Unless you have perfectly conventional beliefs, it’s rarely a good idea to tell everybody everything that you know. So who do you tell? Whoever you need to, and no more. In practice, there’s always a golden mean between telling nobody and telling everybody – and that’s a company.” (p105)
How radical to say: “Whoever you need to, and no more.” It goes against my nature. When I think I’ve figured something out I have a strong urge to tell everybody. But maybe it makes sense to pause, reflect on the idea first and to let the world know about it when the analysis is done and the story is ready to be told.
But then again, academics depend on their reputation and blatant stealing of ideas is not so frequent. And the process of telling people might even establish ownership. After all, start-ups can make you rich, but research offers insights.
There’s this sentiment I sometimes sense, creeping in our collective conscious as we lie alone after a party, or pack up our books when we give in and go out – that it is somehow too late. That others are somehow ahead.
What we have to remember is that we can still do anything. We can change our minds. We can start over.
She expresses her feeling of belonging and security with her friends in college and her feeling of unity with the world. I think the German term “Geborgenheit” describes it best.
We don’t have a word for the opposite of loneliness, but if we did, I’d say that’s how I feel at Yale. How I feel right now. Here. With all of you. In love, impressed, humbled, scared. And we don’t have to lose that.
We’re in this together, 2012. Let’s make something happen to this world.
So, this was the setting – small data sets, manual computation, and noisy environments. These were the conditions under which almost all the statistical procedures that we use today were produced. (p19)
A formula is a simple presciption for computation, one that does not contain data dependent branches. (p21)
I think what this allows us to do, and what is basically the trend for the future, is that we are substituting computer power for unverifiable assumptions about the data. […]
Why use these techniques? I think the reason is clear. The cost of computation is ever decreasing, but the price that we pay for the incorrect assumptions is staying the same. (p26)
I don’t want to spend to much time on the Donald. Following your lead, I want to show some restraint. Because I think we can all agree that from the start, he’s gotten the appropriate amount of coverage befitting the seriousness of his candidacy.
I hope you all are proud of yourself. The guy wanted to give his hotel business a boost, and now we’re praying that Cleveland makes it through July.
I really like this recent long-form piece by The Economist’s Ryan Avent. It’s a reflection on why high-achieving people nowadays choose to work long hours.
I get up at 5.30am and spend an hour or two at my desk at home. Once the children are up I join them for breakfast, then go to work as they head off to school. I can usually leave the office in time to join the family for dinner and put the children to bed. Then I can get a bit more done at home: writing, if there is a deadline looming, or reading, which is also part of the job. I work hard, doggedly, almost relentlessly. The joke, which I only now get, is that work is fun.
But my work – the work we lucky few well-paid professionals do every day, as we co-operate with talented people while solving complex, interesting problems – is fun. And I find that I can devote surprising quantities of time to it.
What is less clear to me, and to so many of my peers, is whether we should do so much of it.
And he says it’s not that there’s increased competition through – say – globalization, but instead people choose to work a lot:
The problem is not that overworked professionals are all miserable. The problem is that they are not.
And when he talks about his father’s attitude to work, it reminds me of how my grandparents view work and private life:
Work was a means to an end; it was something you did to earn the money to pay for the important things in life.
It’s a luxury that only well educated people in richer countries can afford. I’m sometimes surprised to see young people in countries like Brazil who are so much more focused on a straight career with high incomes than me and my peers in Germany. I think that’s because work there isn’t so much fun as you work for your father’s textile company, or a financial company or as a lawyer in São Paulo, but the things it allows you to do, are. But he wants more:
The pleasure lies partly in flow, in the process of losing oneself in a puzzle with a solution on which other people depend.
It boils down to choosing a lifestyle which comes with both long work hours and all the perks like intellectual stimulation and nice coworkers. He calls this the “package deal” that you get. And you cannot pick the best of both. He ends with:
[…] As I explain this, a circularity threatens to overtake my point: to build my career is to make myself indispensable, demonstrating indispensability means burying myself in the work, and the upshot of successfully demonstrating my indispensability is the need to continue working tirelessly. Not only can I not do all that elsewhere; outside London, the obvious brilliance of a commitment to this course of action is underappreciated. It looks pointless – daft, even.
And I begin to understand the nature of the trouble I’m having communicating to my parents precisely why what I’m doing appeals to me. They are asking about a job. I am thinking about identity, community, purpose – the things that provide meaning and motivation. I am talking about my life.
I see the point for convenience in buying a car in cash and some people might like to store their wealth in physical banknotes or make transactions in cash. But for most that’s not advisable anyway and it makes it things too easy for criminals. Also, in many countries in Europe there is already a limit on how large cash transactions may be. So I guess I see the point for getting rid of the 500 note, but I’m not quite ready to side with economists like Kenneth Rogoff who argues for abolishing cash altogether.
The profits from seigniorage that come from this underworld business should be quite large. The drug lord Pablo Escobar stored his wealth in the ground in dollar notes in Colombia and he reportedly lost 10% of his wealth every year due to “depreciation”. So if these notes were just by rats (and not stolen and spent somewhere else), then this amounts to an annual 10% tax for the United States government on Escobar’s wealth.
A similar thing is at play when bank notes from one country are used in another. Whether they are held by the Russian mafia to store wealth or by Cambodian shopsellers to trade, dollars in circulation in another country are a direct source of income for the United States government. The reason is that the Federal Reserve can print more money and exchange it for goods without pushing up domestic inflation.
So countries looking for higher seigniorage revenues have an incentive to have high denomination banknotes to tempt criminals in other countries to use their currency. Maybe it’s not a coincidence that the countries with the highest denominations are Switzerland and Singapore? So seen from that angle, capping the denomination of banknotes is a coordination game among countries.
The ECB’s decision to end usage of the 500 euro note might be a good idea, but is difficult to implement properly. For once, the stop is not immediate and, secondly, the existing 500 euro notes in circulation will keep their worth infinitely.
They’ll stop giving them out by the end of 2018. So until then, people can convert as much of their cash into 500 notes as they wish.
Will there be a second market for 500 notes after 2018? A large number of 500 euro notes are outstanding.
People might hold on to them for years. But bank notes aren’t made to last forever, so they’ll probably be used until they are worn down and at that point somebody will exchange them at a bank for different denominations.
Update: Lawrence Summers thinks the ECB’s policy makes sense but is just a start:
First, the world should demand that Switzerland stops issuing SFr 1,000 franc notes. After Europe’s bold step, these notes will stand out as the hard-currency world’s highest denomination note by a wide margin. Switzerland has a long and unfortunate history with illicit finance. It would be tragic if it were to profit from criminal currency substitution.
And I would add that it’s not just “substitution”, but benefiting from it through seigniorage.
By chance, I came across the first part of the biography of John Maynard Keynes by Robert Skidelsky and started reading it, not quite expecting to finish. It’s very well written and much more profound than I had hoped for in a biography.
Right from the first sentence, the book shines:
“John Maynard Keynes was not just a man of establishments; but part of the elite of each establishment of which he was a member. […]
This position was largely achieved by the force of his dazzling intellect and by his practical genius. But he did not start life without considerable advantages which helped him slip easily into the parts for which his talents destined him. There was no nonsense about his being in the wrong place or having the wrong accent. Of his chief advantages was being born at Cambridge, into a community of dons, the son of John Neville and Florence Ada Keynes.
When he was five his great-grandmother Jane Elizabeth Ford wrote to him, ‘You will be expected to be very clever, having lived always in Cambridge.’” (p1)
For an economics student, Keynes is worth reading about in any way, but the more I read about Keynes the more fascinating he becomes.
Skidelsky wrote this three-volume biography over almost twenty years with this first volume coming out in 1983 and the last volume in 2000. In this first part, Skidelsky covers Keynes’ upbringing in Cambridge, his education at Eton and Cambridge, his time in London with his Bloomsbury friends and his time at the Treasury during and after World War I.
How about this:
“He never did take an economics degree. In fact, his total professional training came to little more than eight weeks.” (p166)
“Like most economists at the time, Keynes started teaching economics without having taken a university degree in the subject. […] Compared with today, there was little to learn, and that was not difficult. […] In this way he acquired a firm understanding of a fairly limited range of theory.” (p206)
I was surprised to read that Keynes never traveled further east than Egypt.
Skidelsky explains in length the intellectual development in Cambridge which included Keynes father John Neville Keynes who he sums up with:
“In producing one book on pure, and a second on applied, logic, Neville had circumnavigated the range of his intellectual interests. He was thirty-eight. He lived another sixty years. Apart from a few contributions […] and the odd essay, his pen was henceforth confined to revising previous work, writing his diary and letters, and drafting minutes. […]
Perhaps he is to be admired, rather than pitied, for keeping silent when he had nothing to say.” (p64)
People at the time struggled with the gradual loss of theology during the transition from the Victorian to Edwardian period and searched for something to replace it. The names of the people involved are quite familiar to students of economics:
“Both [Marshall and Sidgwick] inherited the problems of collapsing theology and both engaged in essentially the same enterprise: the attempt to find authoritative theology-substitutes. […] Sidgwick was mainly a classicist; Marshall was mainly a mathematician. […] For many intellectuals brought up on Christianity still felt the need for authoritative guidance on how to conduct their lives – which they did not get from economics.” (p32)
“The difference was that Sidgwick had a need, which Keynes never had, to find a way to bring all these things into a rational, coherent, relationship with each other.” (p34)
There’s also a part on the Keynes’s family’s finances:
“The Keynes life-style was sustained by an income which was never less than comfortable, and grew more so.” (p55)
“As Maynard grew up his parents grew steadily more affluent. Capital and earnings went up, while prices went down. […]
But what strikes one today is how secure his position was. He just went on getting richer without great effort on his part. That is what the Victorians meant by progress.
Neville found his affluence all the more agreeable because his enjoyment of it was unclouded by any sense of guilt.” (p56)
This reminds me of Piketty’s “historical fact” \(r > g\) (with \(r\) the real return on wealth and \(g\) the growth rate of incomes). Piketty cites Jane Austen, who implicitly states that real rates are about 5% which allows for a comfortable life of existing wealth.
It is amazing, how much of Keynes’ conversation is documented and how much of his life can be reconstructed. I recently came across this article which states that we are left with 20,000 of Goethe’s letters. How many of us keep records of our emails or our Facebook and Whatsapp conversations?
I liked this part on Keynes’ mind:
“One never feels that he had a sense of a single current of history carrying the world forward to the natural order described by the classical economists, or some other kind of utopia. Rather he was always impressed, some would say over-impressed, by the fragility of the civilisation inherited from the Victorians, by the feeling that it was an exceptional episode in human history.” (p92)
And this reminds me of many people I know who are very good at what they do:
“Once again [writing an essay at Eton] he was showing his ability to get totally absorbed in a subject remote from his official interests.” (p113)
Reading about Bloomsbury I’m reminded of my time at UCL when I often passed Keynes’ house at Gordon Square. Consider these bits about the Bloomsbury Group for example:
“For it was [G. E.] Moore who tried to redefine the content of ethical discussion by insisting that the primary question was not ‘what ought I to do’ but ‘what is good’; and that the primary question could be answered only by reference to some conception of the good life. The virtues, Moore said, have no value in themselves. They are valuable only as a means to what is good, and must be rationally proportioned to it. If Bloomsbury can be defined by a common attitude of mind – as it surely can – this is it.” (p245)
“Bloomsbury, it is true, was devoid of Christian belief. […] And there is no doubt that it encouraged, thought it did not entail, political passivity.” (p246)
“Bloomsberries, as they called themselves, might be curious about outsiders. They were also frightened of them, and could be chilling to them.
Bloomsbury was a particular expression of, and gave direction to, the ‘revolt against the Victorians’.” (p248)
I was most touched by the parts on Keynes’ and his Bloomsbury friends’ response to World War I.
“Although the Archduke […] had been assassinated on 28 June, only a month later was there a first reference [in Keynes diaries] to the worsening international situation. Characteristically it was in the context of Stock Exchange speculation. […] Next day Germany invaded Belgium. On 4 August 1914 England declared war on Germany, and Bloomsbury’s – and Maynard’s – world collapsed.” (p285)
Keynes gradually came to oppose British participation in the war and so did his Bloomsbury friends. He considered quitting his job at the Treasury, but he thought it was better to be inside the circle of knowledge. He wrote to his mother that he would resign from the Treasury only if they started