economics – 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.

2019: The Second Great Depression

The most beautiful things are always besides the darkest.

Today, I seriously thought about killing you.

Kanye has reached the bat-shit-crazy stage of his creative genius.. but it doesn’t stop him from coming up with gems like that one. For me, those lines are a reminder to let your mind wander freely and not to be afraid of the darkness within us. Instead, explore what’s there and look to understand it. In my experience, the darkness was never what I had assumed it to be. More often than not, it represented my fear of the unknown. And through those experiences, I’ve gained a sense of calm while there.

I’m reflecting on this now because I’ve realized how many others are facing that darkness today. When I was younger, I kept this side of me buried. I was in this loop that went from challenged, to productive, to happy… and little did I know, that was only half the spectrum. As I got older, I learned about the other side.. being unproductive and unhappy. My initial instincts were to run back to what I knew.. but fate was not so kind. I was encouraged to stay there and rest for a moment… to find myself within the darkness so to speak. I’m glad I did.

I spent much of my life in a positive state of mind, and without much compassion for those who didn’t. It was easy for me to say things like ‘you just need to work harder’, ‘don’t be so negative’, or ‘get over it’. I hadn’t realized how backwards that all sounded to someone who was living the inverse of my situation. But as I started to venture out into my darkness, I began to understand.

Gratitude for being unproductive and unhappy might sound like a strange thing, but for me, it’s real. It’s given me a much deeper understanding of who we are as people and it’s made me a far more compassionate individual. It’s also given me the ability to relate to so many of those who are struggling today.

When we reflect on the great depression that began in 1929, we think primarily about the stock market. It’s when the market had it’s biggest crash, a ton of investors lost their money, and then everyone was poor for a while. But something occurred to me the other day… what was the mental and emotional state of those who went through it? I’d expect to find higher rates of suicide, anxiety, stress, and yes, depression. But we weren’t so keen on measuring mental health back then so we might be hard pressed to find that information. We measure those things today.

A couple years ago, I saw that the capital markets were overdue for a correction but couldn’t yet see the catalyst for what would cause it. With Trump taking office, I was confident that it would happen sooner than later, and probably as a result of Trump’s policies and corruption. Now with JP Morgan saying that it’ll most likely happen within the next 2 years, it seems to be an impending reality. I expect this correction to start with the US, but eventually turn into a global correction. I also think that this correction will be more significant than 2008, suggesting that we’ll reach levels similar to that of the great depression. It’ll be interesting to see how this plays out as the vast majority of wealth which will be lost, will be lost by the top 1% as the bottom half of the economy are still living paycheck to paycheck. As interesting as it is for me to try and understand how it’ll all play out, I can’t help but think more on those who are going through it… the depressed.

Currently, suicides are more common than homicides. Perhaps this is a sign of a civilized nation, but not when amid weekly mass shootings. And not amid historic suicide rates all over developed world. Having been at the point where I’ve toyed with the idea, it became important for me to understand what was happening. I think it’s a result of our failing mental health. Stress.. anxiety.. depression… these states of mind are becoming the status quo. I saw a tweet the other day which said something to the effect of, ‘imagine waking up after a good night’s sleep, having an awesome day, and then being able to do it again’. It made it to the front page of Reddit. I couldn’t help but find that relatable… I probably average 3-4 good sleeps a year. Days where I was consecutively happy? It was before my current venture.. before my career in wealth management.. before my dad died… that’s going on 8 years now. I was fortunate in that I had the tools to maintain my pursuit of happiness despite it all.. but the longer it takes, the more challenging it’s become. And how many have been at it longer than me? How many are going through it without the tools to keep their head above water?

When I see unemployment numbers at their lowest ever but I also see people struggling to afford the most basic cost of living, I can’t help but see something deeply wrong with how we’ve organized ourselves. So many of us are working excessive hours at low-paying jobs that we know will be automated within the coming years. Others invested the time and money into a post-secondary education, only to find entry-level work and seemingly inescapable debt. And those of us who have found well-paying jobs.. we have to recognize our good fortune and appreciate that it isn’t just a matter of hard work. Everyone’s working hard.. or at least everyone is willing to work hard when they’re doing something that matters.

The problem that I see, is that we’re quickly running out of work that matters. Many of the jobs which exist in the economy today only exist because of cheap labor. If people were being paid a rate which would allow them to afford a standard cost of living, businesses would have to accelerate their path to automation. A $15 minimum wage for fast-food workers? Have fun ordering from a touchscreen. Increased wages for warehouse workers? More robots. Increased wages for taxi drivers? How about automated cars. And for those already in those positions, they know this is coming. Entire industries will be swallowed up by automation.. and that’s OK. Automation is here to take over repetitive and programmable tasks… exactly the kinds of activities that we struggle to find meaningful.

Perhaps this is what the death of an old economy looks like. We used to rely on physical labor to produce physical goods and relied on our ability to consume these goods to push the economy forward. When we talk about a strong middle class.. that was the equilibrium for that style of economy. Now that we’ve been able to automate most physical labor, businesses are better able to retain the earnings that would’ve gone to employees. Without being able to find comparable jobs with other employers, things start to shift. Business owners become more wealthy while the working class loses ground to stagnant wages and a quickly rising cost of living. The working class will find ways to make ends meet, like multiple part-time jobs or debt, but this doesn’t improve things for anyone. If the top 1% hordes all the disposable income, who’s going to buy their stuff? This is a point Jeff Bezos made years ago, pointing out that he could only buy so many pairs of jeans.

So where do we go from here? For most, there’s a lack of clarity on what the future looks like and a lack of certainty on if we’ll even make it there. It’s become easier to assume that things will get worse before they get better. For many, it’s a state of hopelessness. They want to be hopeful… I think in many ways, it’s a natural state of the human mind. But when you slowly and systematically strip away the reasons to be hopeful.. we should find little surprise at where we’ve arrived.

As we prepare ourselves for this next great depression, perhaps we’d do well put place our emphasis on the people and not the markets. The market was always meant to be a reflection of humanity’s ability to be productive, not the other way around. If we’re losing ground to hopelessness, and we won’t face it until our economy comes crashing down around us… perhaps that’s exactly what we need. I don’t expect it to be easy… but I’m reminded of a quote, “in retrospect, the years of struggle will strike us as the most beautiful.” Through this struggle, we’ll have the ability to right so many wrongs and realign ourselves with a bright future which is fast approaching. I don’t know exactly how this will play out.. but I am optimistic.

A Digital Nation

I’m a problem solver by nature and the bigger the problem, the more interested I am in solving it. In looking to solve things like gun violence, the application of democracy, educational inefficiencies, or health care, I often end up back in the same place – the system for creating change is deeply flawed.

I don’t mind a flawed system, most are. What I do mind is a reluctance to face those flaws and solve them for the sake of progress. In the world of business, poorly run companies go bankrupt. In the world of politics, poorly run governments increase their national debt while raising tax on their citizens – and continue on. In the great recession, the big 3 auto-manufacturers were running their businesses poorly and were on the verge of bankruptcy because of it. Some argued that allowing them to fail would be catastrophic to the American economy and that losing those jobs were not an option. I would argue that failing businesses should be allowed to fail so that from their ashes, ingenuity and integrity may have the opportunity to build something better. Instead, 2 of those companies were bailed out and 10 years later, not much has changed. Had they been allowed to fail, I wonder if Tesla would be the only major new entry in the auto-industry in the last several decades.

Tesla wasn’t the first crack at the electric car either. We tried that back in the 90s but the system we exist in allows large business interests to influence government policy. Auto-manufacturers weren’t overly interested in the R&D necessary to tackle electric cars and the oil industry wasn’t interested in the competition – so they lobbied. A government which allows well-funded business interests to limit the innovation and competition in their industry is deeply flawed.

So how do you fix these problems? Run as a member of a major party and try to create change from within? I’ve experienced first hand how change from within can be an unrealistic approach, especially when you require the cooperation of those who would rather keep things the same. Run as an independent? Good luck getting any legislation passed in a 2 party system. Try and operate outside the government? They don’t take kindly to that. Start your own country? All viable land has already been claimed.

What to do.. what to do..

My pipe dream was to develop the technology necessary to build large, stable islands. Once you built an island large enough, you could claim it and start your own country. With a progressive game plan, you could easily lure great minds and great businesses. Together, you could set the example for the rest of the world on how things could be done.

I think Elon Musk’s plan is similar, but he prefers the buffer of 50 million miles of empty space. Given Russia’s announcement of their nuclear missile with indefinite range and all the other fun stuff going on, he might be on to something.

While these are fun contingency plans to think of, it’s overlooking something important. Life always finds a way. There’s a natural progression to what happens next and I think we’re starting to see it.

We’re moving from an analog reality to a digital reality.

I’ve watched a few animes over the years which touched on the subject of a futuristic society that was digitally based, and I couldn’t help but connect the dots. When I saw the first trailer for Ready Player One, I knew it wasn’t just me seeing where we were headed. With the film out last week and on my way to see it tonight, I wanted to put a journal entry together to document my thoughts before they’re further inspired by what looks to be a Spielberg masterpiece.

For anyone who still needs some context, a digital reality is the inevitable evolution of virtual reality. Virtual reality as it exists today is rather limited but the momentum is there and we seem to be approaching a new plateau. Within the R&D being done right now, there’s a focus on getting your brain to accept that the illusion is real. If that sounds like hocus pocus, you’d be right. For as long as magicians and illusionists have existed, there has been a craft designed around the manipulation of your senses. As complex as the the mind is, and as good as it is at processing the outside world, it can be fooled. Right now, the holy grail in virtual reality is getting your mind to forget that it’s within a virtual reality.

There’s an idea that we all hallucinate our own reality. Some are quick to dismiss the thought, thinking that what they’re experiencing is the same reality that everyone else is experiencing – but they would be wrong. Everyone’s mind is constantly collecting information from all of its senses and continually trying to make sense of all of its surroundings. If those senses are your input, your hallucination is the digital rendering. And this is the genius of true virtual reality, where all of your inputs have been taken over, and your mind hallucinates your new digital reality.

On the path to a true virtual reality, we have much ground to cover. Sound is perhaps easiest, sight is where the most progress is being made today, and touch is where new ground is being broken. There are a few people putting energy towards taste and smell but they don’t seem to be a priority right now (although I can’t help but think that smell may be one of the most immersive inputs). The piece of tech which I’m most interested in at the moment is the haptic suit, a full body suit which allows for a very real sense of touch. Within the next 10 years, I think it’s extremely likely that we’ll have sight, sound, and touch dialed in at a very high level. But perhaps this is where we’ll plateau. The biggest obstacle I see in VR is getting to the point where we have this brilliant digital universe to explore, only to be bumping into the couch and TV at home as we try.

As I’m trying to map out the future of virtual reality, I’m seeing an eventual division between analog and digital. Analog will be with the helmet, headphones, haptic suit, and everything else. Digital will be with what Elon and a few other think tanks are working on right now, a direct neural link. I don’t understand the science well enough to know what the timeline on something like this is but with the ramp up of AI, it’ll probably come quicker than we’re ready for. I suspect that this will be the technological jump that truly takes us into the digital age.

Today, so much of what we already do exists in the digital realm. Our work, our social lives, the way we learn, the way we play, the way we explore, the way we communicate… it’s now all digital first. What some of us may not realize or want to accept is that we’re already one foot in the digital world. We just have a low-bandwidth way of accessing it. What if it wasn’t through our thumbs on our phones or fingers on our keyboards that we accessed our digital world? What if we could interact with the digital world as quickly and accurately as we interact with the physical world? What would that look like? What would that lead to? Or maybe there’s another way of looking at this. If this is the direction we’re already headed in, what problem is this a solution to?

Well, what if the current level of inequality in the world persisted?

Well, life finds a way…

I’ve watched very closely as the disposable income of the lower and middle class has evaporated over the past decades. Half your income goes to tax, of what’s left, half goes to rent, of what’s left, you try to live a life you’re happy with. It’s failing. And when going outside begins to cost significantly more than staying in, dynamics start to change.

Personally, I’m feeling a very real resistance to leaving my house because of how much it costs. Rent is so high right now that to remain on budget, I moved to the edge of the city I’m in. Our city is paying the highest fuel costs in North America, which means anytime I want to go anywhere, I’m mindful of fuel and parking. High costs of real estate mean business owners need to increase their prices to stay open. That means the cost of eating out or shopping at local businesses becomes prohibitive. I used to eat out several nights a week with friends for the company and experience. Now we all stay in.

Stagnant wages in tandem with a drastic increase in the cost of living has left the younger generations without much to work with. So we rose to the occasion and introduced the world to the sharing economy and decentralization. Knowing this leaves me optimistic about our future. I suppose I’m pretty optimistic in general, but that’s not to say that I don’t see the other side.

Through the trailers of Ready Player One, it looks to take place about 20-30 years in the future where many of today’s biggest problems haven’t been solved – in all likelihood, they’ve gotten worse. In a world where the cost of living rises faster than income and a minimum wage doesn’t afford you a minimum lifestyle, in a world where government has forgotten its responsibility to the people and in a world where a handful of people horde the majority of the world’s wealth… where do the rest of us go?

According to Spielberg… into the Oasis.

I can’t help but think that I’m glimpsing that future now. As the digital approach has made things easier and more convenient, we’ve adopted them. From our finances to our social lives, we’re already most of the way there. What I think may determine how quickly we move towards being fully immersed in this digital reality is going to be a function of cost.

If it continues to cost more to be outside than to stay in, we’re going to come up with better reasons for staying in. Virtual commuting, virtual sporting events, virtual concerts, virtual dating… virtual sex… did I mention that porn was likely going to be one of the biggest drivers for advances in VR? I digress. If it costs $100 to go out and have the full analog experience, or $10 to have a virtual experience that’s most of the way there, which would you choose? And what if you didn’t have $100?

Personally, I’m kind of excited about event-based virtual reality. Big Jay Z concert on tonight? Don’t want to spend $200 or deal with the lines and crowds? No problem, just put on your VR headset with your VR headphones and you’ll be teleported to a front row seat where you can H to the Izzo along with everyone else. Now imagine being ring-side for a big UFC match… or pitch-side at a world cup finals where you didn’t have to pay for the flight, hotel, and rental car.. and where you go back to your normal life when you take the VR kit off. That sounds pretty darn neat to me.

While the cost of staying in versus going out is likely going to have a huge effect on the development curve of this technology, I don’t think it will change the destination. There’s something extremely unique about a digital reality that’s so much harder to create in the physical world, and that’s freedom. In Ready Player One’s digital reality, everyone creates an avatar for themselves to explore The Oasis. Want to try out another gender for the day? Go for it. Want to be the giant robot from Pacific Rim? why not. When the limitations of how you project yourself rest within your own imagination, I can’t help but think we’re going to encounter something very, very cool. And it’s not just about the freedom to be who you want, it’s also the freedom to do what you want.

Something especially interesting about a digital reality is that it literally comes with it’s own laws of physics. I have a recurring dream in which I have the ability to fly. Sometimes it’s even lucid, so in a very real way, I’ve been able to experience what it’s like to fly around the city like a superhero. Best thing ever. Unless that experience would be available to me anytime I wanted. Or maybe you’d rather fly around the galaxy and explore the other planets. Imagine being able to shrink down to the size of an atom and explore molecular structure. Or imagine having no physical form at all. Crazy right?

I was watching Elon at SXSW a little while ago and what stood out most to me was something he said about AI. At least in the early stages, it’ll be our responsibility to give direction to the AI – A prime directive. As Hollywood would suggest, telling the AI to keep us safe probably isn’t the right approach. We’re terrible at keeping ourselves safe and it’s a big part of how we’ve gotten this far. So what directive do we give the AI? According to Elon, it’s to maximize our freedom. I can’t help but think that he’s done the same deep dive that I have and understands how central the concept of freedom is to the human condition.

If freedom is core to who we are, and essential to our growth and evolution as a species, shouldn’t we pursue the direction which affords us the most freedom? Would that not be one which also frees us from the limitations of our physical selves? Worth pondering. But who’s to say that we’re not putting ourselves in the matrix by pursuing the future. In The Matrix, it was a war between man and machine which led to machine dominating man and plugging them into the Matrix as batteries. Maybe a more accurate future is one where we plug ourselves in and forget to leave.

A Quick Fix to Wealth Inequality?

I was having a chat with a friend yesterday about the incoming Canadian tax reform and he managed to inspire what I think is a rather interesting idea.

When it comes to modern finance, it’s a mess. For the last few years, I’ve been trying to figure out a system of finance to account for the deflationary nature of technology and best practices while increasing productivity. I think I’m close but it requires a complete overhaul of the system, and well as a cultural paradigm shift. I’ll be patient. Until then, I thought I’d mention an idea which works within the current system: Adjusting the local minimum wage to reflect the local cost of living.

If you’re working 40 hours a week, you should be able to earn a living. That’s not to say that we should all be making the same, that’s to say that the floor should be set at what it costs to lead of modest lifestyle in that area.

Consider this, if someone is working 40 hours a week and living in poverty, they’re likely relying on social assistance programs. Those social assistance programs are ultimately tax-payer funded. That tax burden falls primarily on those who aren’t in poverty. When someone grows up in a low-income neighborhood, falls in with the wrong crowd and ends up in prison, it’s the tax payers who pay for that too. No matter how we look at it, we’re all in this together. We either keep picking up the tab, or make an investment in the future.

For starters, imagine the impact this would have on the country’s collective anxiety – Knowing that if you work full time, you’ll be alright. Now imagine the positive cultural impact of an entire generation of kids growing up with parents who aren’t barely getting by. Now think about the reduction of people needing social assistance programs and the reduced government spending. Now think about the reduced taxes for all tax brackets. I guess we would call that trickle-up economics? Just like trickle-down economics except rather than starting with helping those with the most and letting the residual benefits trickle down to those with the least, we start by helping those who need it the most and letting those residual benefits trickle up to those who need it the least.

The definitive test that trickle-up is better than trickle-down? Trickle-up helps more people.

That all sounds pretty fantastic for people who are struggling to get by but that’s a rather large stone to toss in the water and it’s important to understand how this will affect everyone else in the pond, especially employers.

First off, businesses that haven’t embraced automation but probably should will likely need to. The jobs which require the least amount of skill are often the ones which are easiest to automate so businesses will no longer need to rely on cheap labor to sustain their operations. Fast food is already testing out automated ordering systems and burger flipping robots.

As the automation sector booms, the robotics and AI industries will boom and while not on a 1:1 basis, low-skill jobs will be replaced with high-skill jobs.

While measures like these will dramatically reduce low-skill jobs, I think they’ll also have the opportunity to redefine what we think of as an entry-level job. If the objective is to have people perform at the best of their abilities, it’s about time we stopped putting young people in roles where they’re underutilized and calling it paying your dues.

The real victim in all of these is the entrepreneur who has to pay those increased wages though right? Well if your business model relies on paying people a wage below what it costs for them to sustain, then yes – expect to be steamrolled. If you can’t run a profitable business without the use of government subsidized labor, there’s a good chance you’re not fit to be running a business.

What about the businesses who do adapt, but still have to pay higher personnel costs because the average wage is now higher? Because that’s real. Well, it’s going to raise the bar for what we consider to be a well-run business. Ultimately though, it means more money in the hands of the workers and less money in the hands of the owners. Considering how the best entrepreneurs are motivated by the opportunity to create change, I don’t see the smaller paycheck making a difference – especially when you know that you’re putting extra food on the table of the team you built.

From an economic standpoint, if you systematically shift income from the wealthy to the working class then you’re looking at a far more robust economy. More money in more hands makes for a much freer market as more people are inclined to make more decisions with their money. Culturally, fewer wealthy people will mean mean a smaller market for luxury items and materialism may take on a more utilitarian feel. From a philosophical standpoint, this is about equality in how we distribute the value we collectively create.

So set the local minimum income to be equal to the local cost of a minimum standard of living – seems reasonable. Now set the minimum standard of living at a point which allows for a focus on personal development, providing them with the opportunity to become the most productive version of themselves. Also seems reasonable.

Analogies: Capitalism

a long time ago, someone designed a car. It was beautifully engineered and truly revolutionary. It was so well designed that it was pretty much built to last forever.

While the car was a something for the history books, the drivers were inconsistent. Some understood the mechanics and drove respectfully. Some showed less regard for the car and drove as it suited their agenda.

Along the way, drivers began allowing for more passengers. Some for altruistic reasons, some because they paid, and some for the sake of personal relationships.

The car was built well enough to handle a few extra passengers, but as passengers increased and time wore on, key parts of the car started to wear down. All the added weight was creating excessive pressure, leading to wear on parts that the car couldn’t function without.

Some of the older passengers are looking out the window saying the car looks just fine. They can tell that the ride is bumpier but it’s hard to notice in a cushy seat. They know that car was built to last and they know it’s gotten them this far.

Those who are more familiar see that the car is unsustainable. If we maintain this rate of passengers, the car will fail. If we want to reduce the amount of passengers, we can keep the car on the road.

Ironically, we’re so focused on the survival of old reliable, that we haven’t given any thought to the new models. Technology changes everything. As great as that car was, modern technology has changed how we get from point A to point B and it’s important to appreciate those changes. There are ideas which we didn’t have the technology to pull off before but could be more viable today.

It’s dangerous assuming there’s no room for improvement. Might be a good time to look at some options. Even better, why don’t we look at what we need from our car, learn from our peers, and build something new and inspiring from the ground up.

The Wonderful Flaw in Capitalism

So sleep hasn’t come easily to me since I was young, but perhaps it’s both a blessing and a curse. As I lay awake at night wishing I could fall asleep, my mind continues to problem solve. A few months ago, I was doing my best to understand the difference between the idea of democracy, and the application of it in American politics – and effectively understand where things went sideways when 20% of the American public was able to elect someone which most of the world despised. More recently, I’ve been focused on capitalism and more importantly, how it’s led to an unsustainable concentration of wealth. At about 2am a couple nights ago, I woke up Siri to take a note. That note reads:

“The fly in capitalism is the assumption that resources are scarce”

I had said flaw, but close enough, Siri. What I first tried to do was understand what capitalism is at its core. My best definition was the exchange of resources for the creation of value. Whether you’re producing a good, a service, or something in between, capitalism was there to reward you with resources to help you sustain yourself and with the goal of motivating you to create more value in the future. Theoretically, in capitalism, those who create the most value should be rewarded with the most resources. I don’t think that’s the case today.

As the application of capitalism evolved, it became a heavily complex system and as with all systems, they can be taken advantage of. For example, some businesses specifically target customers who don’t fully understand the transaction and end up paying for services they don’t need or products they can’t use – selling ice to an Eskimo. While some examples are blatant, I suspect most are shades of grey. Those shades of grey allow those with a greater understanding of the system to manipulate that transaction of value for resources – ultimately leaving them paying less or receiving more. In this environment, the most significant factor in deciding who receives the most resources isn’t the ability to create value, but rather the ability to understand and play the game.

When I look across the board of the wealthiest people in the world, I don’t see a direct correlation between the wealth they’ve accumulated and the value they’ve created. There are some, like Bill Gates, Jeff Bezos, or Larry Paige who I think should be among the wealthiest individuals in the world, but for each of them, there are dozens of wealthy individuals who have made their fortunes by extracting resources rather than creating value – casino’s come to mind.

So when I understood that, I thought that we just needed to find a way to get back to the fundamentals of capitalism. We just needed to find a better way to ensure that there was a fair and equitable approach to the exchange of value for resources. But wait… if resources weren’t scarce, would capitalism still motivate us to create value?

I know this is all super high level so let’s make this more tangible. The sun currently projects more energy onto our planet than we’re capable of using – and we’re getting increasingly better at harnessing it. 99.9% of the resources ever used on this planet are still on this planet because as it turns out, matter can’t be destroyed. That means that resources aren’t scarce, we’re just temporarily inefficient at turning used resources into usable resources. That’s a technological issue that we’re getting increasingly better at solving – one which I expect to be largely solved within our lifetime.

So let’s be optimistic and think 100 years out. There are solar panels everywhere. Roads, roofs, cars, skyscrapers, and huge chunks of desserts are covered in enough solar panels to passive provide our planet with sufficient energy to both sustain and grow. Waste conversion technologies have advanced to the point where a landfill can be broken down into synthesized raw materials. Additive manufacturing is able to take synthesized raw materials and efficiently build just about anything that our minds can imagine. If that ecosystem sounds familiar, it’s because that’s pretty much how our planet worked before humans came along and started trying to reinvent the wheel. Mind you the earth did it at a much slower pace, but the fundamentals are the same.

Waste is a concept only known to humans. In every other aspect of the known universe, it’s simply another state in which energy or matter can exist. Once we can wrap our heads around that, it’s easier to understand that there is no scarcity in resources, simply an temporary inefficiency in turning used resources into usable resources. That is something that I’m confident technology can solve, and it has me looking rather optimistically towards the future.

In a future where resources aren’t scarce, what would motivate someone to create value for others? This is where the crusty capitalists might say that people are inherently lazy and it’s only through the motivation of scarcity that they’re willing to provide any level of value to others. It’s too easy to find counter-examples for that to be entirely true, but I don’t deny that the fear of not being able to sustain yourself can motivate people to do all kinds of things. What I also think though, is that love is a far more powerful motivator. In this case, it would be love for what one does. More often than not, the best computer programmers, the best musicians, the best entrepreneurs, and the best parents are those who absolutely love what they do. Between their hardware, firmware and software, they’re totally in line with their life’s work. They’re in their element. They love what they do, and as a result, their drive, passion, and work ethic to create value for others far surpasses what they might have done out of fear.

That is the future I see and the future that I’m confident we’re headed towards. We’re a few years out, and there will be plenty of stumbling blocks between now and then, but this is a logical eventuality which is simultaneously an enlightened perspective on how technology drives progress, and how progress drives ideology. The future is bright and oh so cool.

The Future of Real Estate – Part 2 (The Solution)

In my last post, I detailed the problem with real estate – it’s too expensive.

People have been trained to want to buy real estate without understanding what makes a good real estate investment. The system in place allows us to amplify those bad decisions by spending 5x more than we were able to save, effectively spending the next 20 years paying it back. Because it fit into our monthly budget, we were never overly concerned with the cost. The market has now figured that out and in many major cities, is testing our upper threshold of what we’re willing to pay. When you test that upper limit of what people are willing to do, they start thinking outside the box.

The best recent example, which I had mentioned in the last post is how high oil prices gave rise to an environment in which Tesla could be successful. So the fun question that we get to answer here is what high real estate prices are creating. Prices have reached a point where all kinds of businesses are coming out of the wood work with ‘alternative housing’ ideas. Most of it is in its early stages now, but we have some very cool options in the pipeline.

3D printed homes. If you don’t know what I’m talking about, do a quick search. Additive manufacturing is most likely the future of manufacturing, and I can’t see why it won’t also be the future of building homes. If I were to guess, I’d say that the future of construction is automated and the further we progress in that direction, it’ll look like a giant 3D printer. While they’re not ready for the market yet, I’d be surprised if we didn’t see some market ready options within 10 years.

Shipping container homes. Shipping containers are relatively inexpensive, structurally sound, and made from recycled materials. They also apparently double as pretty cool homes. The genius in this approach is that we’ve figured out we can build a modern, livable home out of just about anything.

Mobile homes. Not trailer park mobile homes, just homes that are mobile. One of the more interesting designs that I’ve seen was of micro suites which could easily be moved from building to building. For individuals who like to move around, their suite would just move with them from city to city. For others mobile homes are about getting off the grid. One of the coolest ideas in the pipeline are self-sustaining, modern, smart, mobile homes. Everything from solar panels to water filtration would be built into the home itself, allowing for you to put your home down on any piece of land you’d like.

Modular homes. While 3D printed homes certainly don’t qualify, almost every other new style of alternative housing falls under the category of modular (including container and mobile homes). Modular homes are such a broad category because it’s really referencing the production process rather than the final product. With modular homes, each section of your home is manufactured centrally, then shipped out to your location to be installed. That’s a big deal.

Right now, an average home is built like a Rolls Royce: with hand tools and a 6 month wait-time. What we need is an effective assembly line for homes and that’s what modular housing is looking to tackle. By building in modules, fabrication can be done centrally and then shipped out to the buyer for installation. That central, and streamlined fabrication process means that a home can be built in a couple weeks and with far fewer resources. We’re quite possibly looking at a genuine disruption in how homes are constructed, especially when the build time and cost are a fraction of our current options.

What about the land though? Real estate is always a two part conversation because land is pretty useless without a house to put on it and a house is pretty useless without land it put it on. It’s very possible that as houses become less and less expensive to build, people are just going to charge more for land, effectively providing the same end price. Again, this is what happens when we understand the price of something but not its value. That’s ok though, because I see a solution on the horizon for the cost of land as well.

Land is not unlimited, but we are not even close to using up what we have. What’s really limited is land near urban centers. Urban centers tend to have the most desirable jobs so people move to the city. There’s more people who want to live there than land available so demand exceeds supply and the price goes up. The solution thus far has been densification – finding ways to put more people in the same area and large residential towers are the result. The problem with densification is that the city’s infrastructure rarely keeps up and we simply end up with congestion. Yes you get to live in the city, but good luck getting around and doing things.

There’s more than one way to solve this problem though. Rather than trying to accommodate more people in the city, why not motivate them to leave the city?

The first way you do that is by making the commute more tolerable and I think driverless cars are going to help that in a big way. For most people, driverless cars are likely to cut down on commuting times significantly. Second, commuting takes on an entirely different meaning when you’re not driving. What we think of as a 2 hour commute today, could very easily become an hour in your mobile office a decade from now. Some will still prefer to be within walking distance of their job. For others, a cool modular home, on a quiet lake just outside of town for a fraction of the price will be the more attractive option.

The other way to get people to leave the city is by providing job opportunities outside the city. It was the industrial revolution which created this population shift, but it was really the evolution of technology. Farming techniques had evolved to the point where fewer farmers were needed, just as factories were being introduced and manufacturing jobs in the cities were booming. If I were to guess, it will be technology which brings people back out to the country – and I’m thinking it’s going to be telecommuting. Telecommuting is basically working from home, but with the power of the internet and the way the job market has evolved, it’s becoming more and more feasible. Perhaps one of the biggest transitions will be when coding becomes a primary trade.

When I think of successes like Uber and AirBnB, I see a trend of decentralization. It’s taking a look at the resources we already have access to and simply using them more efficiently. My biggest issue with real estate is that it represents a remarkable inefficiency. We have more than enough land to share, but we’re willing to commit decades of our income to securing a small piece. Every dollar that we spend on a house is a dollar we don’t spend on all the other things our economy produces, yet we’re encouraged to spend 5x more than what we’re able to save. And without understanding these dynamics, we haven’t been motivated to challenge the status quo – until now.

The Future of Real Estate – Part 1 (The Problem)

Real Estate has long since been a frustration for me. Growing up, I heard the same thing that everyone else did… You should own your home because if you lose everything, at least you’ll have your home. Paying a mortgage is better than paying rent because it’s pretty much like paying yourself instead of paying someone else. Real estate is a safe investment because everyone needs a place to live.

As I developed my investment skillset, my perspective on real estate began to shift. Not only did I lack any emotional attachment to owning my own home, Now I also had a much clearer understanding for how real estate behaved as an asset within its markets. What I’ve also realized is the unfortunate reality that while your average real estate professional is aware of these dynamics, they don’t entirely understand them, and will only mention them when it helps to close a sale. If a market is overpriced, you’re more likely to hear your realtor tell you that you’ll make your money back eventually, than to wait for prices to come down.

While we’re going to dive into what the real issues around real estate are and how I think they could be solved, I think it’s important to mention that my perspective on real estate has been shaped by growing up in a city which became one of the world’s hottest real estate markets. While I have the funds necessary to own my own home, I do not. It’s frustrating because I’d like to, but my understanding of the dynamics at work prevent me from making that decision. While I’m confident in my patience, paying rent is still far from ideal.

There are several issues with real estate, and I think they all start to come undone quite nicely when we start asking why real estate is so expensive. Consider this, if we didn’t have the option to borrow hundreds of thousands of dollars that would take us decades to pay off, how much would a home cost? What if we could only spend what we had saved up?

The problem with a mortgage is that it inflates purchasing power. If you saved 100K, you can now go spend 500k on a house. Saved 200k, go spend a million. The lenders know how hard it was for you to save that first 20% as well, which is why they’ll give you between 20 and 30 years to pay it off the last 80%. Yes you’ll have a place to live, you’ll spend most of your working life paying it off. Am I the only one who thinks this sounds like financial slavery? If we all simply said no, I won’t take on a debt which will take 20+ years to pay off, we’ve set the terms on what we’re willing to pay. They can only sell at the price at which we’re willing to pay. Unfortunately we haven’t figured that out yet and we’re too used to the upper threshold of what we can afford to pay.

So what is a home worth? Not price but value. Price is what you pay, value is what you get. Well traditionally, there’s 2 parts. First you buy the land, then you build a house on it. We often find land to be expensive, but why? If I were to buy a business that produced widgets, it would have value because I could take those widgets to market and sell them. If I bought a farm, it would have value because I could take the crops to market and sell them. If I owned a plot of land, which did nothing, would it have value? Well it would be worth whatever someone was willing to pay me for it right? If the land carries no inherent value, why would someone pay me for it?

In effect, what we’re really paying for when we buy land is a reduced travel time between home and work. With a limited supply of land within the city center and a seemingly unlimited demand of people who want to live there, the markets set the current price.

The second piece of this puzzle is the cost of building an actual house. Right now, an average house takes about 6 months to because it’s treated like an individual project, and done primarily with manual labour and hand tools. Sounds like the timeline and process for a Rolls Royce.

So this is where I leave you hanging. We’re keen on city centers now, but will that always be the case? And what happens when we can start building houses like we currently build cars? Well that’s not going to happen… is it? The real question is why it hasn’t happened already. Here’s my final thought: When oil prices were low, nobody cared about electric cars. When oil prices were high, electric vehicles became a more realistic alternative. When oil prices peaked, Tesla walked into a market waiting with open arms. High oil prices delivered Tesla.

What will high real estate prices deliver?

The Economic Case for Universal Health Care

So with health care being top of mind for a lot of people right now, I’ve been giving the system some thought as well. In the states, generally speaking, conservatives think healthcare should be left to the private sector and that people should should be able to source their own coverage. Liberals, generally speaking, think health care is a basic right and the government should assist in making sure everyone is covered.

The frustrating thing about politics for me is that these aren’t conversations about the most efficient way forward, these debates simply an arena where governing parties fight for power and control. I say this with confidence because if you think about it carefully, both sides are right but they can’t see it. Rather than working together and coming up with a solution that accommodates the priorities of both sides, those involved seem more interested in obstructing their opposition.

Healthcare should be privatized because privatization isn’t an evil word. In fact, all it really means is opening that business opportunity up to the public. As it turns out, the general population is filled with awesome ideas and great entrepreneurs who can bring them to market. Add in some competition with one another and we’ll find some pretty fantastic ways to deliver healthcare to those who need it.

People should be able to source their own coverage. Why? For the same reason we should be able to choose our own internet provider, streaming subscription, or gym membership. Where we choose to spend money reflects our preferences and our preferences let our providers know where they should be competing hardest.

All that said, health care should absolutely be a basic human right and the government should absolutely have a hand in providing health care to those without the means to provide it to themselves. I’ll even explain why with basic economic theory.

So I have this theory that right and wrong are human constructs which are actually based in efficiency (I’ll explore that more in another post once I’ve refined the theory a bit more). Effectively, the most efficient manner of accomplishing long-term progress is perceived to be both the most moral and ethical way forward. This is because for it to be the most efficient path forward, it must take all variables into consideration and deliver us to our end goal with the least amount of effort and time.

The next concept that needs to be touched on is comparative advantage. It’s a basic economic theory which essentially says that we’re all built a little differently, and that if we’re able to figure out what we do really well, we should do the hell out of it. Everyone produces what they’re absolutely best at, and trade helps goods and services end up where they should.

Most republicans and economists recognize comparative advantage to be fundamental to the free market – and for good reason. But for people to reach the peak of their comparative advantage, they require favourable circumstances. People on welfare, working minimum wage jobs, etc. are unlikely to be producing at their highest levels (AKA maximum utility) and without more favourable circumstances, never will. I get the classic conservative approach of taking it upon yourself to create your own favourable circumstances – I often tell people to be the change that they seek, but it’s not always in the cards. For you hold’em players out there, let’s use a poker analogy. Would you rather have pocket aces and hit nothing on the board or a 7/2 off-suit and hit nothing on the board? Most people will choose the aces, but statistically, both are losing hands. I think the best thing the government can do for itself and for its people is help the person holding aces to a hand where they flop the other two aces and the 7/2 to a flop with the other three 7s.

If we can do that, the entire country transforms and becomes an unparalleled powerhouse of production, delivering levels of value that we didn’t even realize were possible. Cost of universal health care in that scenario? Negligible.

I know, I know, what does comparative advantage and maximum utility have to do with healthcare? Stephen Hawking. He’s said on multiple occasions that he would likely be dead without access to the NHS, Britain’s public healthcare system. If that’s true, what if he had been born in the US? He’s one of my favourite examples of someone who was dealt a 7/2 offset, but because he existed in a system which wanted to give him every opportunity to reach his maximum utility, he was given the chance to make his contribution.

Would you agree that the value Hawking has provided to the world has exceeded the health care services he has provided? Perhaps my biggest point here is that everyone *should have* the opportunity to make their greatest contribution to society. Some of us are able to earn it, but as circumstance would have it, for those like Hawking it must be given. Healthcare included.