Jonathan Lemon. Reading. Words. Takeaways. Typing. Article Posting.

Join me as I express my thoughts with the parts of speech in passive sentences for Part 3 of Ryan Avent’s The Wealth of Humans. (Active sentences are harder for me to construct for whatever reason, so I’m just going to give up. You might say I’m going to…passively accept things.)

Part 3 is Chapters 7-9.

(See past reviews for the Introduction, Part 1, and Part 2.)

Wealth of Humans, Ch 7

Impression #1

Page 153: “Workers in places like Silicon Valley earn a hefty wage premium over similar workers in other cities, but new arrivals don’t get the premium all at once. Instead it builds over time: evidence that the city is contributing to the knowledge and employability of the workers within it.”

• How much of the wage premium is due to higher standard of living costs in bigger cities? If workers are actually similar, as stated, firms won’t overpay workers for comparable production just because of their address.
• I live in a medium-sized city, and I’ve had increasing wages over time. Does that mean medium-sized cities also add to employability, or does it just mean that most workers receive raises?
• I have a hard time attributing rising pay to the city itself. I definitely agree that opportunities accrue faster in particular locations such as Silicon Valley. However, to me, opportunities are a product of networking with other people, which is true anywhere. More people = more potential connections. I’m not sure opportunities are related to zip codes.
• If I own an apartment building and some movie stars move in, I can likely raise the rent and make more. But I didn’t do anything, I’m just the beneficiary of who happens to live within my building.

Impression #2

Page 153: “[As computers spread rapidly across the American economy,] new occupations suddenly became more cognitive in nature and appeared most often in places with large numbers of college graduates.

• I wonder how strong the link will remain between “opportunities” and college degrees, especially in technology.
• Do you really need a degree to learn tech nowadays? There are hundreds of free ways to learn tech skills, as well as avenues like code academies where someone can hit the ground running much faster and cheaper.
• As college costs continue to increase much higher than the inflation rate, the return on investment shrinks. More students might decide degrees aren’t worth it (this assumes that college costs aren’t assumed by the government at some point as an entitlement, and financed covertly through taxes).
• Why should students waste money and 2 years of their lives on general studies requirements when they can learn tech skills for free online and apply for work right away?

Impression #3

Page 154: “The metropolitan resurgence is also built on the rising returns of social ties, in terms of both economic opportunity and general life satisfaction.”

• Are social ties really rising in value? Seems like they’ve always been important. I would argue it was more important to have friends 5,000 or 10,000 years ago to have access to food and protection from tigers or marauders. I can have no friends and still get food today, and am currently unaware of anyone I’ve met getting eaten. If I have a computer and Internet connection, I never have to leave my house. I can work remotely and get necessities delivered to me, while paying for everything with a credit card.
• Networking has always been crucial for opportunities. I’m not persuaded that it is “more important today.” There are many more avenues to get noticed and showcase skills than there have been before. I don’t have to caddy at a country club and suck up to business executives to get a career-starting internship anymore.
• As an introvert, I’m aware of (and have lamented) the importance of networking!
• There is much more opportunity to be rich and successful today than ever in history. 500 years ago, if I wanted to be rich I had to be lucky and born into wealth. Also, my wealth would likely have derived from a feudal estate granted at the will of some lord or king. If he stops liking me, he introduces me to his army.
• I’m definitely not saying luck doesn’t play any part in today’s world. But if we stop to think about it, most of us are already insanely lucky to be alive today in an era of widespread food, shelter, electricity, plumbing, climate control, etc.

Wealth of Humans, Ch 8

Impression #1

Page 162: “Emerging-market workers represent one of the main contributors to the current abundance of labour. Their entry into the global labour markets contributed to the rise of a global middle class—and squeezed the incomes of the rich world’s less-skilled workers.”

• A few chapters ago, the author stated that immigration does not suppress wages in the destination country. Yet he also asserts the above.
• How can they both be true? The author does not say why increased labor availability from immigration would be different than increased labor availability from emerging-market workers.

Impression #2

Page 163: “Yet that assumes the rich world cannot do a better job of transferring its valuable social capital to those in developing economies…”

• If poor countries have thus far been lacking the capacity to develop social capital, even with help from rich countries, why is the solution for those residents to move to a different country? Why does a person’s location affect their capacity to build social capital?
• The author’s argument can quickly become absurd. Should all residents of poor countries be transferred to rich countries that have already developed social capital? Is this the only solution people can think of to help poor countries for the long term? Not very inspiring.
• Also, what of the effect of massive immigrant influxes into rich countries? How will this not affect the current culture, including the ability to generate social capital? If there are large influxes of people who do not share the cultural values of the new country, how will this not lead to conflict and class divisions? We are seeing the friction being produced in Europe from large amounts of refugees.
• The author does not even pay lip service to potential problems of mass immigration.

Impression #3

Page 168: The author discusses that Japan and South Korea have managed to turn into lasting rich countries, unlike other emerging-market countries who may experience periods of rapid growth but cannot sustain wealth.

• The author does not mention that both Japan and South Korea experienced direct and long-term U.S. military intervention. What effect did this have, if any, on contributing to social capital?
• Military intervention is not the solution in of itself (see Iraq and Afghanistan). But I couldn’t help noticing the possibility that success in South Korea and Japan was somehow affected by long-term relationships with the US, including longstanding US military presence.

Impression #4

Page 177: “Advanced economies cannot turn poor countries into rich ones, and we lack a foolproof recipe for poor countries seeking to make themselves rich. What can be achieved, and has been reliably achieved, is the process of helping residents of poor countries to become rich by welcoming them into places with strong social capital.”

• In past decades, immigrants were expected to assimilate into the new country and adopt cultural norms. Today’s age seems more focused on multiculturalism than assimilation. One wonders if immigrants will experience the same level of social capital transfer with this change in focus.
• The author has talked about the difficulty unskilled workers will have finding employment in an era where technology will replace them.
• Now the author advocates that technologically-advanced countries import millions of additional unskilled workers from other countries. To do what? Unskilled workers will immigrate and have no access to jobs. But they will somehow become rich by being exposed to social capital in the ether? I’m not following the logic.
• The concept of universal basic income to pay those who have been displaced has been foreshadowed in this book. I’ll get more into the topic if it makes an appearance in Part 4. However, as of right now, who would pay for all of this? Bill Gates?

Wealth of Humans, Ch 9

Impression #1

Page 180: “This condition, which economists label ‘secular stagnation’, is associated with limp and vulnerable economic expansions, which often conclude in the deflation of big asset-price bubbles, and with protracted and disappointing recoveries.”

• The proposed solutions for the stagnation problem in this chapter all involve large intervention from the government and/or central banks. Why is the answer always more government intervention? Interventionist track record is not stellar.
• Maybe we can try more freedom and see what happens for once?
• Chapter 8 just detailed how massive foreign intervention hasn’t turned poor countries into rich ones. But maybe massive domestic intervention will work, just like it ended the Depression in the 1930s and cured poverty in the 1960s.
• There was something called stagflation in the 1970s that was overcome in the 1980s. Let’s repeat that formula.
• I’m not saying we shouldn’t help people. It’s just that the programs that we keep throwing money at don’t seem to work very well, yet the only thing that changes is the size of their budgets. Results should matter more than intentions.

Impression #2

• The author makes multiple allusions to “the rich” in the sense of individuals who are rich. But he doesn’t talk about it in the sense of companies.
• In the technology space, four huge companies (Apple, Amazon, Alphabet/Google, Facebook) are basically crushing other businesses and consolidating spending/demand onto their platforms, and hoarding cash that would have gone into operation at other businesses.
• Everyone hates Wal-Mart but no one seems to hate any of the four companies above.
• The author states part of the stagnation problem is people aren’t spending enough. Why is this lamentation limited to people?

Impression #3

Page 193: “Keeping demand growth on track requires the redistribution of purchasing power from savers to spenders.”

• In other words, if you are responsible and save money, you should be punished with confiscation.
• Let’s agree that the rich spend less (as a percentage of income) and have more propensity and ability to save. How do we know they did not become rich because of these qualities, while some are poor because they don’t understand personal finance? The relationship between saving and personal wealth could be the opposite of what the author says.
  • I don’t have the answer but the possibility should at least be acknowledged.
• Let’s again agree that the rich spend less and have more propensity and ability to save. Let’s suppose that a plan goes in place to redistribute the idle savings of the rich to others more inclined to spend.
  • Effective immediately, let’s have a 70% top marginal tax rate and 50% of all existing savings of the rich will be expropriated.
  • People respond to incentives. To think a redistribution plan could be implemented without people removing their money from banks to stuff in mattresses, or deciding to work less because it’s not worth the paltry after-tax value, is erroneous.
  • Remember, the rich are also the ones that use tax shelters. Tax shelters don’t exist because people like paying taxes.

Impression #4

Finally, my opinion is that rich countries are rich because of liberal democratic values. In other words, a government that protects inalienable human rights, while at the same time is checked in its authority. Take a look at the World Freedom Index and see if freedom does not correlate with wealth. Places without “social capital” are also places that are not free.

As the size of government grows, freedom is reduced and economic growth is choked. Could my analysis be wrong and clouded by biases? Absolutely! But it’s my blog so I get the opportunity to be wrong here  🙂

Jonathan Lemon’s read-along rolls along.

He continues listing his impressions while reading Ryan Avent’s The Wealth of Humans. (He’s experimenting with the third person today.)

He’s finished Part 2, which are Chapters 4-6.

(See past reviews for the Introduction and Part 1.)

Wealth of Humans, Ch 4

Impression #1

Page 82: The author writes the following sentence when discussing the internet boom of the 1990s: “But while the hype raged, a more important project was under way: the construction of the hardware and software infrastructure of America’s information technology networks…it was firms such as Cisco and Oracle that truly represented the heart of the technology boom.”

• There is an important nugget in this sentence above. In previous chapters the author was presenting “society” as the entity that decides to move towards new technologies.
• In the Part 1 review Jonathan thought it was strange to attribute decision-making to “society,” which is not an entity with a centralized decision-making organ. Rather, “society” is the sum of individual decisions. Even the government is composed of representatives elected by individual votes.
• The sentence gives an affirmation that private firms are the drivers of technological investment. More importantly, adrenaline leaves Jonathan’s system as he reads something that aligns with his previous point.  🙂

Impression #2

Page 84: “Scarcity is one of the fundamental building blocks of economics: economics matters because people cannot have as much of everything as they want, but must accept trade-offs between one scarce item and another.”

• This explicitly states what anyone who’s received a paycheck knows implicitly: I can’t afford $105 worth of stuff with $100.
• Unfortunately, the laws of economics often get thrown out the window when it comes to entitlements. The intentions behind these benefits (healthcare, food stamps, pensions, etc.) are good. People in need should be helped. Unfortunately, the math isn’t adding up (see: unfunded liabilities). At what point does spending crush those it seeks to help?
• The entitlement mindset overrides the scarcity concept. Politicians campaign promising benefits; how to pay for them is ignored. Thus, the public is presented a future where everything can be had for nothing.
• So far, Jonathan has not seen the author talk about scarcity as it relates to government policies.
• It will be interesting to see how—or if—the author reconciles scarcity to government spending, especially as it relates to one of his predictions of a possible future: where governments pay people not to work if their jobs are eliminated by technology.

Impression #3

Page 94: “These countries have managed to achieve high income levels with relatively low wage inequality…”

• The phrase “income inequality” has appeared several times in this book (not to mention in many current political discussions).
• The book presents as fact that income inequality is bad.
• One might ask, “Why is income inequality inherently bad?” This question is not be answered with hard facts (e.g., income inequality caused poverty, poor health, etc.).
• From what has been presented so far, at best we can say that income inequality might be related to the stagnation that has been seen in real wages over the preceding decades. However, facts are scant to attribute causation.
• Jonathan will have to research income inequality further before he jumps on the inequality-is-evil bandwagon.

Wealth of Humans, Ch 5

Impression #1

Page 101: “A salary, then, is just as much a fee for the worker’s obedience as for their [sic] labour.”

• The author makes an excellent point here. Jonathan could be the world’s best accountant and not be employed for long if he showed up in sweat pants every day. He’s expected to do accounting stuff AND obey the dress code.
• Jonathan finds the following paradox interesting: one might think that as salaries go up, corresponding demands for obedience would go up. However, that is not always true. High-salaried high performers or rainmakers are likelier to receive less behavioral scrutiny and more leeway if they are integral to the organization. (See: Steve Jobs; warning, bad language present.)

Impression #2

Page 102: “Contracts [and outsourcing] are attractive when the quantity and quality of a worker’s output is easy to observe. Employment is more attractive when the specific contributions a worker makes are hard to measure.”

• Stellar point from the author.
• Outsourcing is, in effect, delegation. As a manager passes a task to a subordinate, a company passes a task to a contractor.
• Delegation is faster, easier, and cheaper when specifics are involved (e.g., “I want X number of parts to these exact specifications.”)
• More complicated tasks are harder to define in print and are more expensive to contract. For instance, today’s engineering service contracts can be 1,000 pages long and contain hundreds of additional pages of modifications. And these contracts are what result after extensive source selection processes.
• The harder the nature of the requirement is to write down, the less likely it is to be outsourced. No one wants to risk paying for an ambiguous contract.

Impression #3

Page 112: A firm’s culture dictates priorities when there are time constraints.

• Jonathan is reminded of Parkinson’s Law and the T in SMART goals.
• Jonathan adds the point that deadline usage is also a function of culture. Creating tasks lists is not hard. Determining and sticking to due dates is the hard part.
• Without hard deadlines, the probability of a task getting completed in a reasonable time craters…if it gets done at all.
• Priorities seem to be driven by what is received most recently, rather than what is most important (a FIFO mindset for all you fellow accountants). It takes discipline to ignore the most recent email and stick to the current task until it’s actually completed.

Impression #4

Page 113: “And that is what success within a firm means: learning about and thriving within the culture.”

• This sentence encapsulates a good discussion about culture and disruption.
• Once a culture is established, a path to success is laid out. Impress management by mastering the skills required for the level above you, and you get promoted. A low-risk, high-reward strategy.
• There’s a much higher risk of failure in trying to design and implement a new business model for the company. People don’t like change. Management doesn’t like spending money on risky, untested initiatives. If the company goes for it and it doesn’t work, you’re on the hook for the failure.
• As a result, start-ups are the firms poised to implement disruption. Established companies play catch-up.

Impression #5

Page 116: “Culture is easily confused with management initiatives.”

• There’s a cliché out there that when the new boss comes in, something’s going to change. The new boss justifies his/her own existence with a new direction. If the same direction is followed, why was the new boss needed?
• Good to Great by Jim Collins showed that management initiatives are not needed for superior results, and culture is distinct from initiatives.

Wealth of Humans, Ch 6

Impression #1

Page 126: The author includes an excerpt from historian Joel Mokyr: “The early industrial capitalists spend a great deal of effort and time in the social condition of their labor force, especially in Sunday schools which were designed…to make the workers more susceptible to the incentives that the factory needed…”

• This claim is bizarre. Sunday school is a plot by capitalists to create docile labor for factory work? Umm, what?
• Occam’s Razor time: if a factory boss wants a docile worker, tell him to follow the rules or he’s fired. The author previously stated that the Industrial Revolution was a time of labor surplus. Therefore, getting another job would be difficult and a displaced worker. Thus, compliance is incentivized. Jonathan finds this more likely than a secret Sunday school scheme.
• Furthermore, did these capitalists design the current method of education? In modern classrooms kids are told to sit down, be quiet, follow the rules, don’t innovate, and take orders from teachers. Jonathan is skeptical that the American Federation of Teachers and the Department of Education are die-hard capitalists.

Impression #2

Page 130: “As technology advances…. The ease with which any one person can become an expert in multiple fields declines.”

• “Expert” is not defined here, so it’s difficult to agree with this point.
• When a term is ambiguous the definition can be changed so that a claim is never wrong. (For example, “I define ‘expert’ as someone with five Ph. D.’s and 15 years of practical experience.)
• Jonathan has heard that all it takes to be an expert is to read three books in a field. That’s not a high barrier to entry.
• In addition, it seems that advanced technology (and the transitioning economic focus towards social capital and away from physical capital) makes the ability to create capital more accessible to the average person. 150 years ago, it’s hard to build a factory…today anyone can build a web site or develop a product or build social capital. This is not mentioned.

Impression #3

Page 132: “When a group of people comes up with a brilliant business model, it does not show up in GDP.”

• Great point. Often GDP growth is a proxy for economic health. It’s wise to consider other metrics for a healthy economy, such as the number of new businesses or IPOs. Such metrics might better represent future growth potential, as well as provide an indicator of the current environment’s ability to support business development.
• Still, remember a bird in the hand is worth two in the bush. You can’t spend unrealized gains!

Impression #4

Page 132: Social capital is part of the value of the firm.

•  The author is correct that the benefits of selling social capital flow to the owners.
• But is he correct when he says social capital is “collective”?
• Jonathan speculates that social capital was initially created by the firm founders. The founders are normally the original owners. When new employees are brought in, they normally conform to the existing culture (see: social proof as well as page 113).
• Page 133: “…People who come on board confront the new culture, internalize it and succeed, or don’t and don’t.” The sentence looks to be a tacit concession that most workers don’t create the culture, they conform to an existing one.
• So who created it? The founders.