AI Summary #
The host discusses the inevitability of certain life events and societal phenomena, which he refers to as “guarantees” or “laws.” He identifies four such guarantees: perpetually moving goal posts, talent clustering around successful individuals, periods of wild uncontrolled excess, and intense debates about economic policy.
- Perpetually moving goal posts refer to the way people’s expectations and aspirations change over time, making it difficult to measure progress or success. The host uses examples of how median family income has increased since the 1950s, but not necessarily led to a corresponding increase in happiness.
- Talent clustering around successful individuals is due to the Matthew effect, where perceived talent can be more advantageous than objective talent. This leads to success snowballing into a larger phenomenon, making it difficult for new entrants to break in.
- Periods of wild uncontrolled excess are inevitable due to human nature and market volatility. The host notes that markets have always had periods of craziness and boom-and-bust cycles, and it’s impossible to predict when or where the next bubble will form.
The host also discusses the challenges of addressing social problems that evolve and adapt over time. He argues that social solutions have limited applicability and can be right for one person but wrong for another. Additionally, markets and trends are constantly changing, making it difficult to find a lasting solution to these problems.
Some key points discussed by the host include:
- The way people gauge their well-being relative to those around them, leading to a perpetually moving goal post.
- The importance of recognizing that being known as a winner is not the same as being talented.
- The inevitability of market volatility and periods of wild uncontrolled excess.
- The challenges of addressing social problems that evolve over time.
Notable quotes from the host include:
- “People gauge their well-being relative to those around them.”
- “Being known as a winner is not the same thing as being talented.”
- “Social solutions have limited applicability and they affect people differently.”
Actionable advice or conclusions drawn by the host include:
- Recognizing that certain life events and societal phenomena are inevitable, such as perpetually moving goal posts.
- Understanding that talent clustering around successful individuals is a natural phenomenon.
- Acknowledging the inevitability of market volatility and periods of wild uncontrolled excess.
- Being aware of the challenges of addressing social problems that evolve over time.
Overall, the host’s discussion highlights the importance of being aware of these inevitable forces in life and society, and adapting to them accordingly.
AI Transcription #
Alright, welcome back.
My new book, Same as Ever, comes out in a month.
It’s kind of the scary time as an author where it’s done, it’s printed, it’s in the warehouse, but no one’s read it yet.
But I’m really excited for it.
I think it’s the best writing that I’ve ever done and I had the most fun writing it.
Then I have any other writing project that I’ve done.
Of course, Same as Ever is about things that never change.
Things in the world that have always been like they have been and will always be like that in the future.
All these little trends about how people behave and what we experience in life that we know for certain is going to be a part of our future.
And I started thinking about that topic, I don’t know, six or seven years ago.
Mainly when I was just kind of disgusted at how bad people were at predicting the future.
The next recession and the next bear market would ever be.
And so I just started shifting towards, well, what do we know is going to be part of our future?
We can’t predict the change, we can’t predict necessarily the new technologies or who’s going to win the presidency or when the next recession is going to become, nobody can do that.
So why don’t we spend our time focusing on what we know isn’t ever going to change?
And that’s what I want to talk about today.
This episode is titled Death, Taxes and a Few Other Things.
Of course, the guarantees in life that will apply to everybody.
And I’ve been thinking about these topics for a while.
See, I got three or four of them here today that I want to go through with you.
The things that we know no matter who you are, or where you live, or what your background was, or how your career plans out, what do we know is going to be a part of your life and the world that you live in?
The first is what I call a perpetually moving goal post.
A quick little background about economic growth in the United States.
In 1955, median family income, adjusted for inflation, was $29,000 per year.
Today, it’s about $68,000 per year.
So we have adjusted for inflation, the typical household, has doubled their income since 1950s.
There is widespread belief in America that the 1950s and 60s were like peak time for middle class prosperity to secure a good paying job.
But it’s just a quantitative fact that the typical American household earned more money this year and last year than they did in the 50s or 60s.
It’s true not for everybody, but the typical household.
That’s how it’s been.
So there’s this disconnect here between how we remember the 50s that I’ll stowage that we have for that period versus what’s actually happened.
And I think at least part of the disconnect between feelings and reality is just explained by a shift in expectations that’s happened over the last 60 or 70 years.
To generalize only a little bit here, in 1950s, camping for your family vacation was a great thing and acceptable thing to do.
Hammy downclothes were acceptable clothes.
A 900 square foot house, which was the average size of the average new house, was an acceptable size.
Kids sharing a room was an acceptable arrangement.
A tire swing in your backyard was an acceptable toy.
Few of those things would be an acceptable baseline for most households today.
But and this is the really important part, they were acceptable back then because other median households accepted it.
You were willing to live that kind of lifestyle because that was the lifestyle that other people lived as well.
John DeRoccafeller, who was the richest man in the world during his day.
He never had penicillin, he never had sunscreen, he never had ad-vill.
But you cannot say that a low-income American with ad-vill and sunscreen today should feel like they’re living better than Rockefeller because that’s not how people’s heads work.
People gauge their well-being relative to those around them.
Everybody does.
And by the way, those goal posts move both ways.
Bastion Younger wrote this book called Tribes.
And it details the long history of com-rotary that takes place during disasters.
Like soldiers during a war and your neighbor during a natural disaster.
Hard ship is more palatable when everyone around you is in the same boat.
And that’s true for economic growth as well.
You just kind of look around at what other people are going through.
And if you say, well, if they’re going through it, that’s kind of my average baseline to put up with and accept.
So here’s the thing.
You can be an optimist and say that living standards will keep improving over the next 10, 20, 50 years, which I think is likely.
But you cannot say that people will feel proportionally better off because the goal posts will just move up with improvements in living standards.
Of course, there is a correlation between money and happiness, but it diminishes with every dollar that you gain.
That’s pretty well known.
And this is especially true at the micro level where people live their day to day.
Because look, a hedge fund manager who makes $100 million per year is comparing his life to other hedge fund managers who make $100 million per year.
So their life doesn’t feel nearly as amazing as others would imagine.
Their goal posts just move to the next town over.
If the 1950s and 60s felt like a better time, it was because there was less dispersion between income groups.
There were fewer, extremely wealthy people who were inflating the lifestyle aspirations of everybody else.
But that kind of highlights the point here.
When you watch other people live a better life, your benchmark for normal and acceptable rises.
The goal post moves.
This isn’t necessarily good or bad, and I really don’t have much of a solution for it.
It’s just one of those things that has always been like that and always will be, just like death and taxes.
Alright, number two.
Talent will always cluster around tiny groups of people.
Because people like associating with winners, so success tends to snowball.
Joshua Bell is one of the top violinists in the world.
He sells out auditorium concerts, and even if you can find a ticket, congrats because they sell on the resale market for hundreds and hundreds of dollars each.
Pretty amazing for a violinist.
But in 2007, Bell did an experiment.
He played his violin in a DC metro station.
Looking like he was a starving artist begging for change, you know, with the case opened out in like a dollar bill in front of it, he didn’t advertise who he was.
He wore a baseball hat to kind of make himself look like a, you know, a starving artist doing this.
1200 people passed Joshua Bell playing his violin that day.
Only seven people stopped to listen.
Nobody cared.
And he was playing the same music that he would play when he’s selling out an auditorium.
Now, of course, not every metro rider appreciates classical music, but even those who do, don’t just want to hear a good violinist.
They want to hear Joshua Bell.
So if you remove the name recognition, the actual music becomes infinitely less notable.
The same thing happens with books.
JK Rowling once published a book under a pseudonym.
And it barely sold to any copies at all.
After it was revealed that she was the author, it instantly went from being ranked about 5,000 on Amazon’s bestseller list to number three.
So equal talent does not get equal recognition because customers and employers and fans like associating with known winners.
And being known as a winner is not the same as being talented.
They’re two very different things.
I’m just going to repeat that because it’s so important.
Being known as a winner is not the same thing as being talented.
Two things cause this that are really important.
One is that winning opens doors, so perceived talent creates greater opportunities for actual talent.
The best athletes get the best coaches, the best investors get the most patient capital.
One other is that the perception of winning makes it easier for people to check the boxes necessary to value your worth.
Sociologist Duncan Watts once wrote, People almost never make decisions independently.
In part because the world abounds with so many choices that we have little hope for ever finding what we want on our own.
In part because we are never really sure what we want anyway.
And in part because what we often want is not so much to experience the best of everything, as it is to experience the same things as other people and thereby also experiencing the benefits of sharing.
So look, you can believe in meritocracy and you should.
That’s generally how the world works.
But you should also believe in what is called the Matthew effect, which is the idea that success tends to snowball independent of skill because perceived talent can be more advantageous than objective talent.
What it means in practice is that success clusters around a small group of people.
Not because only a few people are talented.
That’s not why it happens.
But because a few people success snowballs into something that is independent of their relative skill.
And it will always be like that.
And there’s not much that we can do about it.
It’s just one of those things that is just like death and taxes.
All right.
Number three, periods of wild uncontrolled excess.
After every bubble, there is this well-meaning attempt to ensure that it will never happen again.
Governments make new regulations and individuals say, I’ve learned my lesson.
I’ll never buy those crazy overvalued stocks again.
But you will.
Maybe not you, but the drive towards financial excess is an inevitable part of how markets work.
There are two reasons why.
What is that the most important variables of investment returns are unknown.
So how much will investors pay for this asset?
How much debt is too much debt to have?
How high do interest rates need to go before businesses stop investing?
The answers to those questions are more psychological than analytical.
So there are no predictable answers.
And when there are no predictable answers, the only way that we can identify the breaking point of any market or any economy is to go a little bit beyond it and then look back and say, oh, okay, apparently paying 50 times earnings for that stock was too much.
Which is something that we did not know when the stock was trading at 49 times earnings.
The only way to know how much food you can eat is to eat until you’re sick.
And it’s the same for markets, which will occasionally vomit what they test ingested.
And we have to find that breaking point because until we find it, there is a potential profit on the table and market potential will always be tested.
Like put up a sign that says there’s potentially a prize in this box and somebody will eventually open the box.
It’s just human nature.
The second reason we’re always going to have periods of access has to do with volatility.
If returns in the stock market came at predictable times and it was just, you know, the stock market goes up 1% every month, there would be no risk because you could just show up and collect your prize and go home.
And if there was no risk, investors would bid up the price of an asset so high that all the reward would be squeezed out because free money on the sidewalk is always picked up, of course.
Then once there’s no more reward because the prices got so high, the people who show up to collect their predictable prizes realizes that they’ve been stiffed so they get mad and they walk off and the asset price falls.
Which look, if that’s confusing, that’s just to say if markets were not volatile, prices would rise until volatility is triggered.
Which is why there’s always volatility in periods of craziness and wild bubbles and booms and bus.
It’s as certain as death and taxes.
All right, number four, intense debate, passionate debate about economic policy.
In late 2009, during kind of the peak of unemployment after the financial crisis, the unemployment rate for Caucasian females over age 45 with a college degree was about 3%.
During that same period, the unemployment rate for African-American males aged 16 to 19 without a high school diploma was 49%.
That’s like the most extreme socioeconomic unemployment skew that you can find.
But the point is that when there’s such a wide disparity of personal experiences, it’s very hard to get everyone on the same page about economic policy or financial goals or philosophies around things like risk-taking and opportunity.
Everyone’s kind of viewing the world through their own lens of their own experience.
And when the experiences have such a wide range, nobody’s ever going to agree on what’s the right thing to do with your money.
Some people, of course, argue certain economic policies with bad faith, knowing that they’re just talking their book.
But more common, I think, and particularly more dangerous, are those whose personal experiences makes it hard to even fathom those who have experienced a different world than they have.
Empathy and putting yourself at other people’s shoes only goes so far.
Daniel Coniman, the great psychologist, once put it, he said, quote, “‘Anything you experience is so much more vivid than if you’re just told about it.’” This is not the case for something like, say, physics, which everyone experiences more or less equally.
And of course, there are some debates about physics, you know, the flat earth or there’s whatnot.
But they are not as widespread or as passionate as economic debates are, which can rival in their passion like religious debates.
There’s an implicit feeling by many people that if you can just get the other side to hear you out, listen to your story, look at your data, that they’ll be able to agree with your economic view about what you think should happen in the economy or what you should do with your money.
And sometimes that is the case.
But as long as we have wildly different economic experiences, there will always be wildly different economic views.
That’s as reliable as death and taxes.
Alright, last one.
There are social problems that will never be solved because they evolve and adapt to whatever solutions you throw at them.
Social science can permanently solve problems.
Like in 1902, we didn’t know how to fly an airplane.
And now we can because we found the solution.
And that solution will be just as valid a thousand years from now as it is today.
But social problems, everything from relationships to the economy and the stock market are totally different.
Social solutions have a shelf life.
They have limited applicability and they affect people differently.
Today you have an investing strategy that works.
It doesn’t matter what it is.
Let’s just say you have a technique and it’s working.
It will always have two caveats that limit its importance.
One is that a strategy can be right for you and wrong for somebody else who has different goals.
So solutions will always be in the eye of the beholder.
But more important is that markets adapt and trends fade and companies evolve and competition feeds on previous advantages.
So solutions come and go and the game of investing is never solved.
Take for example, wealth inequality, which might be one of the most pressing social issues of our time.
There is a very long history of power.
Swing between labor and capital, workers and investors.
It’s swung back and forth in this pendulum every 30 or 40 years for the last couple centuries, where workers have all the bargaining power and then its shifts and then investors have all the bargaining power.
Each cycle is usually driven by policies that are designed to help the losing side.
And those policies can eventually go too far.
Because no social group benefiting from certain policies, it was ever going to say, okay, that’s enough.
We don’t need any more help anymore.
It always goes a little bit too far and so a new imbalance emerges in reaching the old losers.
And then the new losers tend to say, hey, this isn’t fair, it’s time for new policies and the cycle moves in the other direction.
It doesn’t matter whether you think wealth inequality is good or bad, it’s just what’s happened and it will keep happening, swinging back and forth.
Meaning we’re never going to solve the issue.
It’s just a social issue that’s always going to be with us on one side or the other.
Every solution to a social trend is at best, it’s like the flu vaccine.
It can be effective for a given period of time, but it has to be constantly updated.
Because of virus, it’s protecting, evolves and adapts.
Few problem solvers want to admit that.
It’s not easy or intuitive to let go of a good idea whose time has passed.
So we’ll always be debating problems and chasing new answers despite our desire to think that we found a solution.
That, like all this else, is a certain as death in taxes.
That’s all for this week.
Thanks again for listening, we’ll see you next time.