February 2019 – My Mental Model

Taxing the wealthy won’t work. A cryptocurrency might. (Part 2)

Taxes are for putting money in the hands of the government, not the citizens.

The more taxes the government collects, the more resources they control. The more resources they control, the closer we get to the original problem: too many resources in the hands of too few. I think that just about all of us agree that there needs to be a more functional distribution of resources but it’s not as simple as taking resources away from the wealthy. Especially if you’re shifting those resources to the government and not the people. Let’s not forget that we have a government which is more likely to see value in socialism for corporations than socialism for citizens.

If our goal is to put resources back in the hands of more people, maybe there’s a more direct approach.. A way to accomplish that outside of the government. Maybe there’s the potential for a currency which bypasses tax and simply redistributes itself without the potential for a corrupted middle-person like the government. Perhaps a cryptocurrency with an automated distribution curve that ensures nobody ever receives less than a basic cost of living. Because how does that benefit the society as a whole? They require inefficient social assistance programs which require tax dollars anyways.

A lot of people see how much we’re struggling right now and think that it’s because wages need to rise. Well, that might not help if the cost of living continues to rise more quickly. What we really need to do is recognize that income is only relevant when compared to what we spend our money on. We could all be billionaires and it would mean nothing if the average home cost a trillion dollars. We need real a benchmark.

Right now, our poorest people receive so little support and so few opportunities, that their environment does a better job of keeping them where they are as opposed to helping them rise above their circumstances. That needs to change. Our baseline should be an environment that lends to creating successful people, not one which holds them back. Based on that, being poor would mean that you could still afford: A comfortable living space, healthy food, quality clothing, transportation, broadband internet and a smart phone, education, savings, and a disposable income. Imagine that, our least fortunate being given every opportunity to make something of themselves and live a good life. Do you have any idea what that would do to our nation’s productivity? That alone would increase the nation’s average IQ by double digits and slingshot us into the next industrial revolution.

Lets’ say that the average income needed to produce that lifestyle was $50,000 per year. Sounds steep? In 2018, total household wealth topped $100 trillion. That’s about $300,000 each across 350 million people. If it only costs $50,000 per year in resources to ensure that someone has every opportunity to become their most productive self, that’s starting to sound like a downright brilliant investment. As they spend that $50,000 in resources throughout the year on things like rent, or professional services, or education, or eating out, those resources simply flow to others within the economy based on free market principles. This still leaves plenty of resources left over for a strong middle class, and plenty still, for the most productive geniuses among us. And let’s not forget that when the lower and middle class have savings and a disposable income, they can invest in the great ideas of others, whether that be big companies they like, or good friend with a great idea.

If you could tie that distribution curve to a basic cost of living and a basic standard of living.. with the idea of promoting competition with a well resourced diversity of thought, and reaping the rewards of a meritocracy of ideas.. I think it could absolutely be something special. But it’s not without it challenges.

When I come up with an idea like this, one of the first things I ask myself is how I would undermine it. Generally speaking, if I could, then someone else would. Like how would someone buy into this cryptocurrency? If it’s like any other foreign exchange, what would prevent someone from buying 1 dollar of the currency, and then having it topped up to $50,000 through an automated rebalancing while they keep the rest of their money in USD? How would the currency even know who to rebalance it to? And how exactly are you ranked in this distribution curve? I don’t see how this would work without other pieces in play.

One of my most successful strategies in devising solutions to problems is thinking outside the box. I know it sounds cliche, but I also think it’s relevant. When we’re talking about a functional and effective distribution of resources among a population, just about every solution we’ve come up with includes making adjustments to the current tax system. That means using the government as a mandatory intermediary and decision maker. Considering that the government has managed to rack up $22 trillion in national debt with no plans of reducing it, maybe that’s part of the problem. Maybe they’re part of the box that we have to think outside of. But what if outside the box is uncharted territory? Well… a blank canvas usually requires some innovation and a willingness to create something new.

For a cryptocurrency to functionally redistribute resources across it’s users, it would have to know who they are. It would need a fair and accurate mechanism to evaluate their merit to determine the level of resources they should have access to. I’m tempted to say that’s a whole new set of problems… but perhaps that’s not the right way to look at it. Perhaps it’s a whole new set of solutions… ones which together, form a new platform for organizing wealth. Perhaps we’ve taken our current platform to the limit of it’s efficacy… a society in which we know the price of everything and the value of nothing. Perhaps next up, we can devise a system which cares about the price of nothing, because it understands the value of everything.

While not without its challenges, this concept has one rather remarkable advantage. A currency like this, if feasible, could be remarkably popular among the masses. If they chose to adopt that currency in a mainstream manner, it would destroy the value of the USD. The top 1% who would avoid a currency like this at all costs, would see the value of their estates drop dramatically.

Taxing the Wealthy won’t work. A Crypocurrency might. (Part 1)

I spent 4 years working at a major bank in a role that effectively made me the personal CFO for wealthy families. It was my responsibility to coordinate all things finance, from their investment portfolios, to their tax planning, to their wills & estate. I really enjoyed what I did, and I only worked with clients that I chose to take on, so I really liked my clients too. Most of them were the ‘top 1%’ but almost all of them had come from humble beginnings, worked super hard, succeeded at their craft, were good to their families, and did plenty of philanthropy. If you didn’t know how much money they had, you’d have little conflict calling them good people. But in having worked so hard to get to where they were, and having little to no confidence in government spending, they weren’t interested in handing over their hard earned money back via tax dollars. For that reason, just about every client had a full tax plan done for them by high level accountants and tax lawyers. We used to counsel our clients that avoiding taxes is legal, while evading taxes is illegal. There were some grey areas, but we encouraged them to avoid those too. Even so, they barely paid any tax.

It was while I was working at the bank that I also first discovered just how uneven the distribution of wealth was. I grew up in a poor neighborhood so I generally assumed that everyone around me was always better off than I was, and I was just in the process of catching up. But then I found this YouTube video:

Using data from 2009, it painted a very real picture of how wealth is allocated in today’s America. As soon as I saw that, I knew that this was a very real problem and started trying to figure out what I could do to help. I knew that the lack of financial literacy in the bottom 90% was a big factor so I started holding financial literacy seminars in my neighborhood and teaching a finance class at my old high school. The data was collected in 2009. I was teaching these classes between 2013 and 2015. Today, things are much worse.

And I’m that much more motivated to come up with a solution to the problem.

When you see how much wealth the top 1% control, most people would agree that it’s an issue but I don’t think people fully understand why. Wealth is not the same as money. These billionaires don’t have billions of dollars in the bank. Cash is understood to be an asset, and if it’s just sitting around, it’s losing ground to inflation. So people tend to keep as little cash as possible, and leave the rest of their money sitting in a diversified portfolio of assets. For the billionaires, that’s real estate, businesses, stock portfolios, gold, art, and just about everything in between. The problem has little to with how wealthy they are or how much money they earn, it’s about how much of the nation’s resources they control.

One of the fundamental concepts within capitalism is competition. When capitalism is running as intended, there’s a diversity of thought, a competitive market place of ideas, and those who can execute on the best ideas tend to win. When the best ideas we can come up with are what become the businesses of our economy, we all win. But that’s not what we have today. What we have today is a failed capitalist state.

I’m someone with no shortage of business ideas and people often ask me why I don’t start my own business. Well… people usually save up for that right? Work a decent paying job for while, save up some money and open a business right? Well, in an economy where 80% of people are living from paycheck to paycheck, I guess saving up to start a business isn’t exactly an option that’s available to everyone.

Well what about getting a loan from the bank? Well the bank isn’t interested in giving people opportunities as much as it’s interested in guaranteeing that it’ll get it’s money back. Businesses don’t have any guarantee of success, so they’ll ask for a personal guarantee. Since most aspiring entrepreneurs today don’t have savings let alone assets, the banks aren’t interested in lending money to them. For those who have scraped enough together to own their own home, the bank will gladly lend you the money to start a business. They’ll also take your home if your business fails. 80% of small businesses fail within the 5 years year.

What about getting an investment from friends and family? Well most would want to see you put your own money in first. If you’ve managed to do that, you need friends and family who have enough money to make a high-risk investment into your venture. If you have both, chances are you’re closer to the 1% than you think.

What about getting investment dollars from a venture capital firm? Well most would like to see a business that’s up and running already. If you’ve managed to get that far and have one of the few businesses they’d like to invest in, they’re likely to take a predatory stake in the company to mitigate their risk. Congratulations, you’ve just circumvented the control that the top 1% has on our nations resources… by begging them for money, and then giving them a significant part of your business, on their terms. This is all wrong. When the top 1% control the vast majority of the country’s resources, they get to choose where that wealth goes and who has access to it. When you can’t compete without resources, that reduces competition. When there’s no ability to compete, people are less inclined to come up with great ideas… because it’s just too hard to get it past the idea phase. And that.. is a failure of capitalism.

So how do we fix it?

Some would think that the wealthy aren’t paying their fair share of taxes, so why don’t we just tax the wealthy? How about a 70% tax rate on income over $10 million? Or a tax on their assets? Or change the tax brackets… or something! When I see these ideas being put forward, I’m hearing someone who is working with the right motivations, but the wrong understanding.

A 70% tax rate on incomes over $10 million? Easy, just don’t pay yourself more than $10 million in income in any given year. When you’re a billionaire, your entire life can be structured as a company expense and you have very little need for personal income. A tax on assets? Easy, just move the ownership of the asset into a structure which isn’t subject to tax. None locally? All good, just move them off-shore. I don’t think the general public or the politicians appreciate just how well the tax system is designed for wealthy people who don’t want to pay tax. I wonder how that happened…

I think that when the general public sees this behavior, they get upset. Us normal people who are barely getting by are forced to pay our taxes, while these rich people who have more money than you can spend aren’t paying their fair share. Well.. why is that? I don’t think it’s just greed. Why would so many of the world’s high profile billionaires be giving away so much of their money if they were so greedy? At least part of it is that they don’t trust the ability of the government to spend effectively. All things considered, they’re probably right. If the government were to confiscate all the wealth from all of America’s billionaires, it would cover government expenses for less than a year. It’s like making a donation to a charity and finding out that most of that money goes to the people running the charity and not the cause which the charity is supporting. I can’t help but think that the wealthy know that the government works the same way and avoids giving them money because of it. At least with philanthropy, you have a little more control over how that money is spent.

The reality is that our current tax system is so complex and filled with so many loopholes, that the wealthy will always find a way to avoid paying taxes. And if we make things prohibitive locally, there’s no shortage of countries which are willing to show preferential treatment to someone who is willing to bring billions of dollars with them. Think about Amazon’s approach to finding a new ‘HQ’ and hunting for government subsidies. To make it worse, it’s these same billionaires who are funding the elections of what are supposed to be *our* elected representatives. That means that laws and regulations will continue to shift to their favor. There’s a joke that if American’s didn’t have estate tax, the wealthy would never pay tax at all. Well, it should come as no surprise that politicians, including our current president, are keen to eliminate that estate tax.

The first solution I had to this problem was tax reform. A complete overhaul of the system that would make taxes simple and easy to file on your own. Something that was so easy and obvious, that there would be no room for loopholes. I think there’s probably a way to do it… but it’s not something I’m capable of figuring out right now. Too complex. So what do I do when things are too complicated? I make them less complicated.

The real special sauce behind capitalism is a meritocracy, where the best ideas get the most resources. We want someone like Elon Musk to have all the support and resources he needs because what he’ll build with them will likely benefit us all. But not all of us are like Elon, and some of us have to give up a little, so someone like him can have a little extra. And it’s not because we think he should have bigger houses or fancier vacations. The little bit that each of us gives up, goes to someone developing things like solar energy, or electric cars, or space travel… because when they do, all of us win. So for all us to be best off, there must be an unequal distribution of resources. But how do we create systematic inequality, which truly benefits everyone?

What about a crytpocurrency? One which had a distribution curve built into it, and automatically rebalanced itself? What if the currency itself always assured that those on the low end of the spectrum could always afford a standard cost of living, and those on the high side received more resources than the average person? And that our best and brightest generally had everything that they needed?

Wouldn’t that be something… I’ll take a crack at mapping it out in Part 2.

Educating the Next Generation

I’ve had a storied academic history. As a kid, I was always told about my ‘potential’. When shifting from elementary to high school, I applied to a ‘mini school’ for smart kids and was denied.. probably for not being smart enough. I went to the high school that the rest of my friends went to and by the next grade, had enrolled in their advanced program. My grades were generally below average and might have had something to do with my reluctance to study for anything. I was the type who went to class, paid attention, and participated… and that was usually enough to get by. By grade 12, I was down to 2 advanced courses, history and biology. The wager was that it would be easier to get into university with good grades from the standard classes than average grades from advanced classes. The bet paid off as I averaged mid 80s, and I was headed to university.

In my first year of university, I barely managed to stay off academic probation with a GPA of 1.8. The work wasn’t difficult, I just wasn’t that interested. There were certain courses that I did quite well in, like business or psychology, but then there were others like calculus that I failed twice after skipping most of the classes, doing none of the homework, and barely studying for the exams. I left university after my second year for a combination of reasons, including: a lack of funds, a lack of interest, a lack of focus, a bar fight, and a soured relationship with the university. When I got home that summer, I ended up making a fair bit of money.. enough to postpone any thoughts of finishing school. Fortunately or unfortunately, that job showed me that business is what I wanted to do, and I knew that getting a business degree was a good place to start. So I returned to school with a renewed interest after a couple years. With a renewed focus, I performed accordingly. I took business and psychology courses exclusively and was among the top of my class when we graduated. That included taking that calculus course on my own during a summer semester and finishing with a 90+.

During that time, I’ve learned a great deal. Including that being knowledgeable and performing well in academics are not the same thing. During my first two years, I set an unofficial record for fewest classes attended and still managed to finish with a GPA in the 2.5 range. It wasn’t because I was smart, I was because I knew how to study and how to test. For most classes, I could skip the lectures and course readings, and simply memorize the chapter summaries and vocabulary. It left gaps but with most tests being multiple choice, a bit of analysis and probability would usually get you in the 70s. Reflecting on it now, most of these courses relied heavily on memory. I learned to memorize things back in high school for biology but learned how to apply those skills elsewhere. Unfortunately, things that I memorized while cramming for an exam were almost always lost just as quick. Maybe not entirely, but the strategy wasn’t designed around long-term retention.

Perhaps there’s some rhyme and reason to things which are easy to remember and things which aren’t. If you learn a detail and know where it fits in your larger understanding of things and the variety of things it connects to, it’s easy to remember. If you’re just looking to memorize a list of details that’s isolated from your core understanding of the world, not so easy.

It would be interesting to see how much of the modern curriculum is based in memorization and I wonder if enough attention is paid to establishing the foundation for these facts to be absorbed more easily. Either way, I can’t help but think that memorization is going the way of long division. There was a point when I was a kid where elementary school teachers would tell me about how important it was to know how to do long arithmetic. Curious about why this was valuable when we had calculators, I had to ask. They would say something to the effect of, what happens when you don’t have a calculator? Thinking back on it now, I can’t say I’ve ever found myself in a situation where I needed to do math and didn’t have access to a calculator. I haven’t a clue how to do long division anymore and I’ve never once felt at a loss for it.

I think we’re evolving. For decades, if not centuries, if not millennia… people with remarkable memories were among the most capable individuals. They had the ability to draw from a larger database of knowledge than most of their peers, and as long as they filled it with useful things, they were remarkably useful. Once the written word and the printing press came along, it wasn’t just about your memory, but your ability to find good information worth memorizing. But here, in the information age, everything has changed.

Today, I walk around with a magical device in my pocket which provides me with a portal to 99.9% of all knowledge within the known universe. Within this portal exists search engines which help me locate the information I’m looking for. Within the results of those search engines exists all kinds of information, waiting to be understood and converted to knowledge. And these magical devices are available to just about anyone. This has revolutionized the way we gather and access what we need to know. And I don’t think we fully appreciate that just yet.

How much of a school’s curriculum is teaching kids what to think? How many of us were trained in the art of memorizing facts to be repeated at a later date, preferably when someone has asked asked a question to which that fact is an appropriate answer? Like while watching Jeopardy. That’s how to look smart isn’t it?. But what if we took the best (human) Jeopardy player of all time and matched them up against an average 15 year old with a laptop, internet connection, and a solid grasp of google? The 15 year old might be a bit slower but beyond that, I’d probably bet on the 15 year old. Without a doubt, the knowledge contained within Wikipedia, let alone the entirety of the internet would be considerably more vast and detailed than what any single mind could retain. Thinking about it differently, our collective digital brain represents just about all of human knowledge, far more than any one person could ever compete with.

Where a single mind can still compete quite effectively though, is with recalling that information quickly. Someone asks you your birthday, you can spit it back out almost immediately. If someone asks you when Thomas Jefferson’s birthday is, good chance you’ll need a few seconds on google. But in a practical world, when does one need to recall specific details of this nature in less than a few seconds? Is it possible that in this practical world, the skill of being able to find new information and understand it quickly becomes more valuable?

I’m watching the world tear itself apart right now and I can’t help but ask myself why and try to understand what I’m seeing. Something that I’ve observed, is that many people seem to be done learning. Old people can’t be bothered to learn how new technology works while young people can’t be bothered to learn history. Men won’t take the time to learn about the struggles that women go through while women won’t take the time to learn about the struggles that men go through. The religious crowd isn’t interested in learning new perspectives while the atheist crowd isn’t interested in learning about why people still seek religion. Hedge fund managers aren’t interested in learning about social impact and social justice warriors aren’t interested in learning about capitalism. Politicians aren’t interested in learning how to serve the people while the general population isn’t interested in learning how the government works. With access to more information than we’ve ever had, why have so many of us decided to stop learning?

I suspect that the search engine will go down as one of the most remarkable tools ever created by humans.. but it just wasn’t enough. If you do a google search for Thomas Jefferson’s birthday and get 5 different results on the first page, what then? Well hopefully you had memorized that date from American History class back in middle school. But if you hadn’t, that’s when you need to apply your skills of critical analysis, research, pattern recognition, and logic. You know… learning. But what if you don’t have those skills? I don’t remember any classes in school called logic or critical analysis. I don’t even remember anyone even offering detailed explanations on either.

I think that for a long time, academia has been about the memorization of facts which were deemed historic and relevant, in the hopes of creating a framework of future understanding. They were teaching us what they thought we should know. The problem with that though, is that the people who decided which facts were historic and relevant had their own biases and misunderstandings. Even worse, because of how they were presented, these frameworks became rigid. Within a rigid framework, it becomes more difficult to evolve and adapt to new environments. Also within these frameworks, people seem more likely to reinforce the walls than to question how their foundation was built.

What this all seems to boil down to for me is that many of us have either lost our sense of curiosity, or lack the tools to explore it. There’s no shortage of people who would like to tell us what to think or how to feel, but without an ability to explore it ourselves, how are we to know what’s real and what isn’t? If we fall into the habit of trusting people because we like what they’re saying, all we’ve done is fallen into an echo chamber.. a place where curiosity and learning is carefully restricted to reinforce an existing perspective. How do we get around all this? The answer seems to always be the same… education.

I think we need to revolutionize our approach to education and the first step will be supporting a child’s innate sense of curiosity with the tools to learn. Teach them everything we know that will help them discover the world for themselves and let them choose their own path. I don’t think it benefits anyone to have teachers reciting facts to groups of students, with the hope that they’re listening, will retain the information, and will then find it useful some day. What if teachers became facilitators which helped students develop the skills which in turn, helped them form their own understanding of the universe. Give them the compass of truth and reality, give them the tools of critical analysis, debate, logic, and research, and set them off on their own adventures. Prepare them to rise above the obstacles we couldn’t see beyond… and all that good stuff.

It’s not about teaching people what to think, it’s about teaching them how to learn.

A Brief Thought on the Self

Any time I’ve had the chance to look up at the stars on a clear night, I would start to lose my sense of self. There was something about appreciating where I was in the grand scheme of things to help feel like I was just part of the universe. After reading Neil Degrasse Tyson’s Astrophysics for People in a Hurry, I couldn’t help but understand why I felt that way. Within a 14 billion year old universe, for just a brief moment, the right amount of stardust mixed together in exactly the right away.. and here I am.

Since then I’ve spent a fair bit of time thinking about my sense of self. I may have stumbled upon a rather interesting understanding of how a sense of self exists within all life. I’m going to try and connect those dots here.

I suspect that the core programming of all life, is self-preservation. I also think that this programming manifests into different behaviors based on what we understand to be the ‘self’.

Consider the reptile, equipped with a reptilian brain. This brain is programmed to fight, flight, and f*ck. That is, it fights and flights to preserve its own life, and it f*cks to preserve the life of the species. Without this basic programming, survival of the individual self or of the species would not be possible. But the reptile brain isn’t very well equipped to understand the self as being more than the individual, hence why reptiles are more than capable of eating their own young.

Now consider the limbic brain, something that connects all mammals. This part of the brain developed on top of the reptilian brain as reptiles evolved into mammals. This likely had to do with mammals being responsible for raising their young while reptiles tend to hatch from eggs and make a mad dash for dear life. This means that the limbic brain had to develop a sense of self which included its off-spring. This programming is what motivates parents to put their lives on the line for their children… a sense of self that extends beyond the individual and to the family. I suspect that this sense of self can be extended as far as one’s entire tribe and may explain elements of today’s culture war.

Now consider the neo-cortex, or the brain that connects all humans. This is the part of the brain that lets us think logically and abstractly. I would suggest that these are the best tools for truly understanding one’s self and their surroundings.. And perhaps it’s through these tools that Buddhists arrived at this idea that there is no self. Or how Bill Clinton arrived at the quote that selfless and selfish are really the same thing when we understand how interconnected we all are.

There are more bacteria cells in my body than human cells. Does that make be more bacteria than human? Or are the bacteria cells in my body not part of my body? If so, could I survive without them? Drawing the line between what is you and what isn’t you, isn’t so easy when you actually understand what you are. And even if we did decide that everything that was within your physical body was the ‘self’, could that ‘self’ survive on its own? Without human contact, our minds tend to go. Without this ecosystem of life around us, our bodies wouldn’t survive. I think there is relevance and significance to the physical self, but the more I think about it, there’s a greater understanding available to us here.

A pattern that I see, is that the more capable we become of understanding ourselves and our surroundings, the more likely we are to expand the self beyond the individual self. That may suggest that the highest level of understanding, includes a definition of self which encompasses the entire universe. We’re all just stardust anyways, are we not?