Tag: wealth inequality

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.

Why Suicide is More Appealing Today than Yesterday

Before anyone worries too much, I’m not considering suicide.  Not today anyways.

This morning was Anthony Bourdain.  Not long before that was Kate Spade.  And between the two, how many others?  I can’t help but think that this is getting worse and not better.  There’s a negative energy that’s growing in our world and it’s impacting us in some profound ways.  I think these are conversations we need to have.

I can’t remember the first time I thought about suicide.  I was probably quite young.  It wasn’t a function of depression as much as it was an exercise in exploring the extremes.  It was probably a fight with my parents, or getting picked on at school.  A moment of woe is me, I bet I would matter more if they thought I had committed suicide.  In grade 12, I fell for a girl and was infatuated to the nth degree.  When she left me, I was convinced that I would never be happy again.  There was probably some consideration of suicide, but where I landed was that I wanted to be a fire fighter or something to that effect.  I figured that if I wasn’t capable of being happy, I could at least dedicate my life towards helping others.  It blew over and I moved on, but the conversation of suicide remained.

In my third year of university, I dated a girl who opened up to me about having tried to commit suicide.  According to her, she wasn’t dealing with a breakup very well and ended up going into the shed at the back of the house and slitting her wrists.  As she tells the story, her brother stumbled in on her and took her to the hospital, saving her life.  I asked to see her wrists, and saw no scars.  I was asked to keep this to myself as nobody else knew besides her brother.  I did my best to be supportive.  When we broke up, she told me that she didn’t think she could handle another breakup like this.  That she might go and do something extreme.  I reached out to her brother and asked him to keep an eye on her.   From what I can tell, she’s doing just fine these days.

It wasn’t something I could relate to.  Even in my darker, more melodramatic moments, I wasn’t interested in taking my own life.  It seemed like giving up.  For better or worse, this mindset of never giving up is hardwired into me.  I’d much rather go out on my shield.  Maybe that’s why I’ve often thought of ways in which I would be willing to sacrifice myself.. the hero’s death.  The idea was that if I was going to die, I wanted there to be as much value in my death as possible.  I either wanted to die of old age among a lifetime of accomplishments, or to die in a proper blaze of glory.  There was almost a mathematical element to it, if my life was worth ‘x’ and an honorable death would yield ‘x’ + 1, I’d take it.

When I started getting in over my head at the banks, I started looking for outs.  I wasn’t willing to throw any more money at the problem.  I wasn’t willing to quit or give up.  I wasn’t willing to compromise my integrity.  And I was running out of time.  Part of my role at the bank included being licensed for life insurance.  I remember reading that a life insurance policy would still pay out if you committed suicide, as long as more than 2 years had passed since you took out the policy and when you took your life.  Hmm…

Last year, I was in a relationship with a girl who had been through a fair bit.  In grade 11, she was in a head on collision with a motorcyclist and the motorcyclist didn’t make it.  She went through some rough patches around that.  Her family was not as supportive as they could’ve been.  I knew this, but I also knew that she had been keeping something from me.  I knew it was something dark, so I told her that I would be ready if she got to a point where she wanted to share.  One night, we were hanging out in my car and the conversation went in that direction.  Feeling like I had an opening, I asked if she spent much time thinking about death.

I told her that I think about it often.  In the last 7 years, I’ve lost parents, friends, and family members… how could I not?  I told her that every once in a while, when life gets to be a bit much, I think about suicide.  What would it be like?  How would I do it?  Would I have the courage or the conviction?  Would I regret it?  She was surprised that I was talking about these things so calmly and openly.  She opened up to me about her experiences and we had a remarkable conversation.

At first, I think she almost expected me to freak out or want to report her to a hotline.  I didn’t, I just listened.  And when she talked about life getting to be too much, I told her I could relate.  I told her that’s when I think about it too.  I told her about the conversations that take place in my head when I reach those dark corners, and then I told her about all the things that bring me back to the light.  I could tell that she had never connected with someone else on this.  It’s easier when you don’t have to face things alone.

After that conversation, I can’t help but think that the contemplation of suicide is a sign of a healthy, curious mind that’s going through some things.  I spent most of my life thinking that people who are ‘suicidal’ are mentally weak, or damaged, or so distraught with life that I could never relate.  I suspect that most people have had a similar perspective.  Perhaps this is why we feel alone rather than connected when we have these kinds of thoughts.  If thoughts of suicide only happened in extreme and rare cases, then perhaps it would be indicative of faulty hardware and perhaps those people should feel scared and alone.  But if thoughts of suicide were had by most individuals in times of extreme duress, isn’t that something we should be aware of?  Something that we should collectively acknowledge?

I’ve seen different ways of communicating what it’s like to have suicidal thoughts, none better than this by the late David Wallace,

“The so-called ‘psychotically depressed’ person who tries to kill herself doesn’t do so out of quote ‘hopelessness’ or any abstract conviction that life’s assets and debits do not square. And surely not because death seems suddenly appealing. The person in whom Its invisible agony reaches a certain unendurable level will kill herself the same way a trapped person will eventually jump from the window of a burning high-rise. Make no mistake about people who leap from burning windows. Their terror of falling from a great height is still just as great as it would be for you or me standing speculatively at the same window just checking out the view; i.e. the fear of falling remains a constant. The variable here is the other terror, the fire’s flames: when the flames get close enough, falling to death becomes the slightly less terrible of two terrors. It’s not desiring the fall; it’s terror of the flames. And yet nobody down on the sidewalk, looking up and yelling ‘Don’t!’ and ‘Hang on!’, can understand the jump. Not really. You’d have to have personally been trapped and felt flames to really understand a terror way beyond falling.”

And yet the final thoughts of almost every person who has survived a jump off the Golden Gate bridge, are thoughts of regret..

 

‘What have I just done?  I don’t want to die.  God please save me.  Boom.’

 

There’s something happening here.  We need to talk about this.  Posting the suicide prevention hotline to your social media account isn’t enough.  Thoughts and prayers are not enough.  We need to have real conversations.  We need to acknowledge that suicidal thoughts have a place within a modern society like ours, and we need to do a better job of understanding why.

Unemployment rates are at all-time lows while income inequality is at an all-time high.  There’s no lack of work, just a lack of income for it.  With a lack of income comes a lack of opportunity.. The lack of opportunity to own your own home, or to further your education, or even to start your own family.  How many of us were raised with the idea that the only thing between us and a good life was hard work?  How many of us are at a point now where no matter how hard we work, we can’t seem to make any progress?  And how many of us are getting a sense that these factors are largely out of our control?

That’s hopelessness.

I can’t help but think that this structural shift in equality of wealth is the underlying reason for all this pain and suffering.. it’s the root of what we’re ultimately desperate to escape.  Like J. Cole said, ‘you can’t take it when you die but you can’t live without it.’  When wealth has been shifted from the many to the few, this is how it plays out.  When there isn’t enough to go around, people fall back into their tribes, looking to protect their own.  Rather than looking for a solution to the problem, we’re looking for someone to blame.  People become quick to draw lines in the sand between us and them.  Social discourse becomes hostile.  Where we were connected, we are now divided.  And it all starts to break down.

If we’re looking for an analogy for how this plays out, we don’t have to look far.  It sounds remarkably like climate change to me.  The planet is a large and complex ecosystem which tends to exist within an equilibrium.  Adjusting the average temperature of the planet by a few degrees over a long period of time isn’t something that most people would notice, but that’s not all that’s changing.  With a shift in temperature comes a shift in equilibrium and the path from here to there is filled with chaos.  Heat waves are now keeping planes from taking off.  Blizzards are lasting well into the spring.  Every hurricane that comes along seems to be worse than the one before.

By shifting the distribution of wealth by a few degrees over a long period of time, a lot of people didn’t notice.  But they see the mass shootings.  They see the school shootings.  They see the police brutality.  They see the Charlottesville protests.  They see the government corruption.  They see how little they’re making.  They see how much they owe.  They see what level of health care is available to them.  They see the opiates in the community.  And they see that we’ve lost the ability to talk these things through.  Things are heating up.

When I think about the world we live in right now, it’s not easy.  Then I remind myself that for some, this path is harder than others.  Then I remind myself that not everyone is equipped with the tools to deal with these things.  And that’s when I think no-shit people are struggling, these are hard times.  These are the times where those with nothing to lose and those with everything to lose are choosing to escape rather than endure.  And I can’t help but think that this is a function of hope.

 

 

 

There’s a Storm Coming

I tried to write an entry on reverse seniority last night.  I couldn’t do it.  I’m bugging out.

No cannabis.  That’s probably part of it.

I have a brain that doesn’t turn off, a large appetite for information, and an obsession for understanding things.  Something I’ve been doing since high school is recognizing patterns and using them to predict what comes next.  Nothing is concrete, just possibilities and probabilities.  Too many variables to keep track of, but sometimes you can see part of the picture and filling in the rest isn’t so tough.

Coming from an investment background, it’s difficult to ignore what I see in the markets.  Bonds are paying next to nothing.  The equity market hasn’t had a major correction in about 10 years.  The housing market is on tilt.  Even crypto is now detached from reality.  Besides my private equity investments, I’m now in 100% cash for the first time in my life.  It’s like being at a poker table with a bunch of drunk rookies.  I have chips, I know how to play, but when everyone else at the table is throwing money at shitty hands… you have to be patient.  Some days are easier than others.

My friends and I used to battle it out for who could be more generous.  We’d always enjoy trying to pay for one another.  Now we’re too poor to hang out with each other.  Half of them still live with their parents to avoid paying rent.  I look at my generation and I see an epidemic of drugs used to treat an epidemic of depression.  If it wasn’t for my drive and my lack of emotions, I’d probably be in the same boat.  Considering how much weed I was smoking, maybe I was in the same boat.  I’m surrounded by a generation of kids who were told that if they stayed in school and worked hard, they’d be able to land themselves a good career and that a good career would lead to a comfortable life.  I’m surrounded by a generation of the most educated kids we’ve ever produced, entering into a rapidly deteriorating job market, with the highest cost of living we’ve experienced in modern history.  We’re barely treading water.  Something’s gotta give.

Maybe it’s the birth rate.  Maybe this is how we cull the population.  I literally broke up with the first girl I thought I’d marry because she was fixated on having children in the immediate future.  I wasn’t willing to bring a family into this world without building a foundation first.  The biological clock is real.  And my heart goes out to the women struggling to understand what they should be doing at a time like this.

I saw Paul Ryan on TV the other night saying that the Republican tax reform was going to give the middle class the boost it needed to get back to having kids.  What a bold faced lie.  But that’s become the status quo for American politics.  Only a few of us will actually put the effort into understanding what’s going on.  The rest of us will just pick a team.  Red or Blue.  By picking a team, we think we’re taking a stand for what we believe in.  But we’re not.  Red or Blue, it’s the same song and dance.  The value of a politician isn’t a function of policies, their ability to inspire, or their ability to govern – it’s their ability to raise funds for their campaign.  Why?  Because the best campaign wins the seat.  But in the age of billion dollar campaigns, where is this funding coming from?  Big business and the top 1%.  So is an elected official’s loyalty to the people who voted for them?  Or to the people who paid for them?  If you’re not sure, I suggest you ask net neutrality.

With problems this obvious though, how are we not motivated towards change?  I’d argue that we are.  Trump was elected for exactly that reason.  As much as I liked Obama, he didn’t do enough to stop what was coming.  People were left behind.  All the pain and disillusion that we’re seeing in major cities today, the rural towns were ahead of the curve.  But they were team red.  They were loyal.  And someone on team red came along and said I have all the answers, here’s who you should blame, and if they ever say otherwise, they’re lying.  MAGA.  And half the country became complicit.

But maybe this is just what we needed.  When Trump was elected, I knew he didn’t have the character, integrity, or intelligence to be a great president, but I was open to the possibility of him being a good president.  As things started to play out, I knew that ship had sailed.  What did occur to me though is that he might still be valuable.  He might be so crooked, so corrupt, and so incompetent that the world couldn’t help but see that he had reached the most powerful seat in the world – not by merit – but through the abuse of American ignorance and a system which has been compromised beyond repair.  And maybe that would be our motivation.

You know what I wanted for Christmas this year?  Mueller.  I check my newsfeeds at least a dozen times a day.  Every time I do, I hope to see another piece of the puzzle.  Eventually, I hope to see justice.  And perhaps justice means that Trump is exonerated from crimes which he didn’t commit.  But I doubt it.  And I’m good at predicting these things.

So what happens when one of the most respected law enforcement officials of all time lifts the veil on the real Donald Trump?  What do those tax returns actually look like?  How much is he actually worth?  Who does he actually owe money to?  And what happens if there was collusion?  Will it be enough to shatter the image and faith placed in Trump?  I hope so.

I see the clouds on the horizon, and I can hear rumbles of thunder, but the storm is still too far away.  And I wanna dance in the rain.

I don’t know what that first crack of lightning will be.  Maybe it will be Trump going to jail.  Maybe it’ll be the Republicans refusing to impeach him.  Maybe it’ll be a loss of consumer confidence that triggers an overdue recession.  Maybe it’ll be the bond bubble that’s been growing since the last recession.  Maybe it’ll be China’s house of cards that finally topples.  Or maybe it’s on us.  Maybe we finally realize that you and I aren’t so different.  Maybe we realize that we aren’t the enemy.  Maybe we realize that we’re in this together…. and maybe we march together, up those stairs, and tell them that this does not belong to you.

And tear the whole. god. damn. thing. down.

True Meritocracy

The world is a crazy place.  It’s probably always been a crazy place, but something’s different right now.  Something’s starting to boil over.

A war is being waged between how things have been done, and how they could be done.  It’s tradition versus progress.  People are afraid.  The future is uncertain.  If you have it good, change isn’t so appealing.  But most people don’t have it so good – so change is coming.

One thing we all seem to agree on though is the concept of a meritocracy.  The best person for the job should get the job..  Seems straight forward but I don’t think we really appreciate what that really looks like.  In a meritocracy, opportunities are only earned, no longer given.

 

I consider myself someone who has fought hard for almost everything he has, but I’d be foolish if I said that I had earned all my opportunities.  I went to an inner-city high school that probably had the lowest graduation rate in the city.  Most of my friends lived in the projects while my family was middle class.  When grade 12 came along, they were barely considering college.  Meanwhile, my dad kicked my ass into gear, paid for biology and math tutors, and even a guy to help walk us through the application process to universities.  That didn’t mean that I wasn’t working my ass off, but still.

And the idea of being able to afford university?  My grandparents set some money aside for that.  It didn’t cover the full ride, but it let me come out of university with barely any debt.  I know I’m intelligent, I know I’m capable, and I know I have a strong worth ethic, so perhaps I earned an opportunity at a university education – but how many other intelligent, capable and hardworking people never had that opportunity?  How many of them are working dead-end jobs because they weren’t given the same opportunities along the way that I was?

In my mind, in a meritocracy, resources and opportunities flow to those who are most deserving.  So how does one determine who is most deserving?  It’s a function of efficiency – If you’re going to do the most with the opportunity, you deserve it most.

In the case of post secondary education, it’s not a matter of payment, access, or even intelligence, it’s a function of who will do the most with that education.  How many times have we seen people end up with a bachelor’s degree only to find out that it had nothing to do with what they wanted to do with their lives?  How many times has someone who would’ve turned that degree into a bright future, been turned down?

In the case of jobs, how often have we seen friends hired over strangers?  I’ll concede that familiarity and trust are important factors to consider when hiring, but the inside track is real.  How many times have mom or dad made a call to one of their friends at the firm to get their kid set up?  How many other kids who were more qualified were turned down because of it?  And here’s the crazy thing, is the kid who got hooked up really better off?

How often do we see kids pushed into careers like accounting or law by their parents, only to discover that it’s not aligned with them at all.  Sure it comes with a decent income and some degree of job security, but if that’s not their gift to the world, they’re holding themselves back.  If they could make the effort to tap into their inner-genius and align themselves with what they were born to do, not only would they probably make a lot more money, they’d probably be a lot happier too.  And for bonus points, that would now free up a spot in their previous profession for someone who was born to do that.

And now we arrive at one of the most interesting and currently relevant oversights of a meritocracy: Inheritance wouldn’t exist.

If you googled: great leaders who come from wealthy families, you might be surprised to at what it returned.  Not much.  If you do, you’ll notice that google tries to auto-complete the query with ‘nothing’ instead of ‘wealthy families’, the second suggestion is ‘poverty’.  This query returns everything you would expect it to.  Is that a pattern worth observing?

If you’re born into a wealthy family, are you more or less likely to encounter obstacles and experience adversity?  Are you more likely to be given your opportunities or earn them?  How likely are you to experience sacrifice?  How likely are you to think of your own self-worth as an extension of your family’s success?  How likely are you to have a skewed perspective of who you are and what you can offer the world?  How likely are to you see equality between you and someone who isn’t as nearly well off?

Maybe this is why Warren Buffett, perhaps one of the most grounded billionaires of all time isn’t passing his billions along to his family.  Not because he doesn’t like them, but because he thinks it’ll do more harm than good.  Personally, I think one of the best things you can do for your children is to help them discover their own success.

Back at the banks, part of my role was to help devise estate plans for my wealthy clients.  More often than not, they were great people who had worked hard their entirely lives to build what they had.  Most were philanthropic, but almost all wanted to leave the majority of their estate to their kids while paying the least amount of tax in the process.  From their perspective, they earned the money and should be able to do as they please when they pass away – it was about freedom of choice.

So is freedom of choice at odds with a meritocracy?  I don’t think so.  On first glance, someone might think that my suggestion would be a 100% estate tax with the proceeds used to fund something like free post secondary education.  I don’t think it’s that simple.  It would be too easy to invest your estate into a business or other asset, and gift that asset to your heirs, only for them to sell it and receive an indirect inheritance.  Rules create loopholes.  They need to be self-motivated to do it.  We have to convince the rich that their families are better off without all the money.  It needs to be logical, and it needs to be their idea.

So why is passing your fortune through to your kids so important?  The average price of a home here is about 20x the average household income.  The cost of living is high across that board.  What that means is that the only people who can afford real estate are people who already own real estate, people who in the top 1%, and children who receive financial assistance from their parents.  Under the guise of a free market, we exist in a scenario where only the wealthy and their children are capable of buying real estate.

You can only own property if your parents owned property – that’s downright feudal.

But how are you going to convince those parents not to help their kids?  I’m sure the parents would much rather spend that money on a vacation home or their favorite charity, but they’re deeply invested in the future of their children and will gladly sacrifice some of their success to see their kids get ahead.  But what if they didn’t?

A market will go up when there are more buyers than sellers.  A market will go down when there are more sellers than buyers.  When the well-off are funding the real estate purchases of their kids, they’re creating buyers.  They’re effectively raising the market price on everyone.  If they were willing to let their kids experience the realities of an unbalanced market, you’d be helping the market find its equilibrium – where an average income could afford an average home.  But they’re scared.  They don’t trust the system, and they definitely don’t trust that the system will look out for the best interests of their kids.  So they take matters into their own hands and take care of their family at the expense of others.  Do I blame them?  No, especially because I don’t think many of them make that connection.  Caring for your offspring is one of the most powerful instinctual drives we have, including protecting them at the expense of others.  So how do we move past it then?

Government as it exists now, if they ever came around to it, would want to put rules in place.  There would be regulations, and taxes, and other nonsense that would be more likely to shift wealth to the lawyers and accountants than to the people who would make the best use of it.  The movement towards a meritocracy needs to be a movement of the people, and it may have already started.

Warren Buffet and Bill Gates spent some time over the last several years speaking with their fellow billionaires about the impact of leaving their wealth to their families.   They’ve made progress.  More than 150 billionaires have already publicly pledged to give half their fortune away, including Zuckerberg who pledged 99% of his Facebook shares.  Just about every self-made billionaire will have a keen eye for investments so what does this really look like?  How is this connected to a meritocracy?  Does it stop at the billionaires?

When you’re looking to make an investment, the first thing most people ask is how much will I make?  I would ask, “of what?”  Investing is not financial by nature, it’s much more dynamic than that.  When these billionaires are looking to invest, most aren’t simply writing a check to their local chapter of United Way, they’re looking for the best return on their investment.  So what are they getting back?  I’d guess it varies on a case by case basis, but I think above all else, they’re looking to put those resources behind those who will do the most with them.  How many women are there in the world who are capable of so much more than the opportunities afforded to them today?  How many children die from poor health care before they’re able to contribute to society?  How much of the world is still off-line and unable to see beyond their own horizon?  These kinds of investments might create a return of capital, they’ll almost definite return some warm and fuzzies, but the real genius is the return that’s created for the rest of the world.

Think of how many women there are in the world who are operating at their full potential.  Now compare it to how many women in the world who will never have the opportunity to work, let alone at something that they were born to do.  Now multiply that number by how many neurons there are in the average brain and you’ll arrive at the world’s largest untapped source of brain power.  You could say something similar about most people living in poverty.  Imagine the power of bringing those minds online.  Imagine what the world would look like if we were all afforded the opportunity to tap into that inner genius – that’s the foundation of a meritocracy.

Does it stop at the billionaires?  I hope not.  They can’t do it alone.  They need our help.  They have the money, but we have the power – we just don’t know it yet.

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.