Lion of the Blogosphere

Archive for February 2014

How to become rich

I previously wrote about how to become rich through entrepreneurship. That topic needed its own post because it’s the most complicated and confusing.

In addition to entrepreneurship (which I described as finding and exploiting hidden monopolies), here are the other ways.

Inherit wealth
Marry into wealth

Libertarians hate hate hate when people mention those two ways of becoming rich, because it so directly contradicts their belief that the amount of money people have is exactly equal to the amount of value that they created. They have to explain it as the “right” of rich people to do whatever they want with the money they righteously earned through value creation.

Rise to the top in a winner-take-all field

J.K. Rowling, the author of Harry Potter, is a billionaire, and so is Oprah Winfrey. And there are many wealthy athletes and sports stars.

The important thing to remember is that these people didn’t become rich because they personally created all of that value, but rather because they work in a field that is structured so that all of the profits go to a very small number of people. There are many rich football players, but how much money did Walter Camp, the guy who actually invented the game, make from it? The answer, as far as I can tell, is nothing. He did it for free.

Remember the book that J.K. Rowling wrote pseudonymously? Hardly anyone bought the book at all, until it was revealed who the real author was, and the next day it was at the top of the bestseller list. This proves that an author can be just as good as Rowling but not sell any books.

There is some overlap between winner-take all and entrepreneurship. I cited the developers of WhatsApp as entrepreneurs, but where is the dividing line between trying to create a cool iPhone app or writing a novel? Tens of thousands have tried to write iPhone apps (there are hundreds of thousands of apps at the app store), but only a tiny percentage succeed and become rich from it.

Like entrepreneurs, the people at the top of a winner-take-all field also have an element monopoly power about them. J.K. Rowling has a monopoly on Harry Potter, and Oprah Winfrey has a monopoly on being Oprah Winfrey.

Career tracks

Going to an elite college, and then getting hired into a good career track like BIGLAW or investment banking can lead to wealth. Or a good corporate job can lead to a high level executive position such a CEO where you can make ungodly amounts of money.

The career tracks mentioned above have a large element of winner-take-all about them. The number of CEOs is tiny compared to the much larger number of corporate workers hoping to climb the ladder to the top. The thing to remember about CEOs is they are not rich because they personally create so much value, but because the corporation is structured so that the CEO can extract the most money from it.

A career track that’s NOT winner-take-all is medicine. Go to medical school, become a specialist, and make lots of money. Some readers may not consider an income of a mere $500,000/year to be rich, but it’s a darn good salary for a field that’s not winner-take-all.

Theft and other criminal activities

The guys who stole half a billion dollars of bitcoin are rich.

Crime is very much a winner-take-all profession. A lot of criminals are in prison, or barely making much more than minimum wage, but a few super-criminals like the bitcoin hackers are rich.

How NOT to become rich:

Value creation as an engineer.

You don’t want to do this. The value you create will be transferred to people higher up in the corporation, the investors, the investment bankers, the BIGLAW partner on retainer, etc.

Written by Lion of the Blogosphere

February 28, 2014 at 7:16 pm

Posted in Economics, Wealth

Best bitcoin comment

Read at the NY Times:

So now the Bitcoin world is asking government to regulate it Wow. As with almost every business that exists, they start by demanding that government get out of the way and just let them do what they know best. They’ll make money and create jobs if they are simply left alone by those big bad governments. As soon as things get big and messy, as they always do, they want those same governments go come in and “stabilize” their industry by passing regulations since they can’t really control things themselves.

Sounds like repentant teenagers to me.

Written by Lion of the Blogosphere

February 28, 2014 at 2:42 pm

Derb reviews The Second Machine Age

A very humorous review. Highly recommended reading.

Written by Lion of the Blogosphere

February 28, 2014 at 12:09 pm

Posted in Books

Bitcoin vs real money

The previously biggest bitcoin bank is bankrupt, and nearly half a billion dollars worth of bitcoin are lost to hackers.

Some libertarians viewed bitcoin as money free from government interference, but it turns out that real government-sponsored money, stored at government-insured banks, is a lot safer and more practical.

* * *

Another problem with bitcoin is that you have to be smart to figure out how to use it. Can you imagine a typical prole using it? I can’t.

If government money is easier to use and safer, why would anyone use bitcoin? The only people who use bitcoin are: (1) libertarian geeks who have ideological reasons for wanting it to succeed; and (2) people who think they can make a quick buck by speculating in it.

Do real businesses like Exxon Mobil, IBM, or General Motors want to deal in bitcoin? I don’t think so.

Written by Lion of the Blogosphere

February 28, 2014 at 11:17 am

Is Thomas Friedman a moron?

Thomas Friedman was on Squawk Box this morning, and he talked about his recent NY Times column on how to get a job at Google, and prognosticated that in the future, where you went to college won’t be important because companies will hire like Google. (FYI, Steve Sailer blogged about this op-ed a few days ago.)

The idiocy in the column can only be explained by Thomas Friedman being a moron. How else can we explain the following?

For every job, though, the No. 1 thing we look for is general cognitive ability, and it’s not I.Q. It’s learning ability. It’s the ability to process on the fly. It’s the ability to pull together disparate bits of information. We assess that using structured behavioral interviews that we validate to make sure they’re predictive.

Doesn’t Friedman know that I.Q. (intelligent quotient) and general cognitive ability are synonyms? And that learning ability and the ability to “pull together disparate bits of information,” usually called pattern recognition, are included in all standard descriptions of intelligence? Did he bother to do even basic research like read the Wikipedia article on intelligence or the article on I.Q. (“a score derived from one of several standardized tests designed to assess intelligence”).

I know that Friedman is quoting some guy from Google, but as a journalist he ought to do some actual investigation instead of passing on the words of self-interested parties as though they were fact.

Friedman probably thinks he knows that “I.Q.” is really evil, and Google’s motto is “don’t be evil,” so obviously Google couldn’t possibly be doing anything evil, they can only be doing good stuff, so therefore “general cognitive ability” must be a good trait and not evil like “I.Q.”

Based on the descriptions in the op-ed, I gather that Google is primarily relying on I.Q., and secondarily on conscientiousness in order to hire people, with a third directive that they don’t want to hire assholes even if they have high I.Q. and conscientiousness. This, in fact, is exactly the traits that industrial psychologists who have studied the issue would agree are most highly correlated with job performance. It’s well known among industrial psychologists who have studied the issue that impressions gathered from an unstructured interview has practically no correlation with job performance. However, what is known in the research is NOT what’s actually practiced in corporate America where the unstructured interview is still the normal way that people are hired.

Microsoft in the old days used to be an exception to the normal corporate behavior. In the biography I once read about Bill Gates, I learned that Bill Gates hired people based on intelligence, or what he called “bandwidth.” I am sure that hiring criterion contributed significantly to Microsoft’s early success. Microsoft no longer hires people that way. Sometime between the 1980s and the present, Microsoft went from hiring only the smartest to hiring hoards of mediocre Indian programmers. The new Indian CEO represents the new Microsoft that creates more jobs for Indians than for native-born Americans. Microsoft hasn’t really innovated anything since the 1990s. Since then, all that they do is come out with new versions of their existing software, and I have extreme doubt about whether the new versions are really improvements on the old versions, or just excuses to get people to pay for updates.

Going back to whether this holds anything for the future, it’s my observation that no one has learned anything at all by the observation that two of the world’s most successful companies, Microsoft and Google, both had an IQ-based hiring policy. I see no evidence that other companies are de-emphasizing prestigious colleges. I see the opposite trend. For reasons I intend to write about in a future post, I expect that the automated robot economy will increase the importance of prestigious degrees.

* * *

It just occurred to me that if this had been about the hiring practices of a company less loved by bobos than Google, perhaps Koch Industries, Chik-fil-A or any oil company, this could have been a column about a corporation using racist hiring criteria.

* * *

I would love to see a disparate impact lawsuit against Google for using “general cognitive ability” which is the same as IQ, for hiring. Google can afford to lose billions of dollars, and it would serve Sergey Brin and Larry Page right for being big supporters of Obama.

Maybe I should create a fake blog on Daily Kos to start promoting this.

Written by Lion of the Blogosphere

February 27, 2014 at 11:16 am

Posted in Labor Markets

Arizona’s “religious freedom” law

I’m in favor of letting businesses decide what customers they don’t want to serve. The profit motive should ensure that potential customers who have anything useful to contribute will be serviced by the vast majority of businesses. So I guess I’m in favor of the new Arizona Law, except that I’m disappointed that it’s tied to religion, which discriminates against atheists who might not want to serve certain customers for various reasons.

This all started because of a wedding photographer in New Mexico who didn’t want to photograph a gay wedding, but I don’t see why the two guys getting “married” would want to give their business to a photographer who hated them and probably wouldn’t do very good work as a result.

Written by Lion of the Blogosphere

February 26, 2014 at 9:43 am

Posted in Uncategorized

How to become rich through entrepreneurship

Basic economic theory teaches us that no one can become rich by merely doing a value-creating activity, because no human is so special that his work product is valuable enough to allow him to become rich. Both people and companies make money by having a monopoly, or at least by having monopoly power.

The advance of technology, which has accelerated significantly since the invention of the integrated circuit and Moore’s Law which doubles their power every eighteen months, has created various hidden monopolies. The first person or company to discover and exploit one of these hidden monopolies becomes rich. It’s especially exciting when a lone individual or small group of individuals discovers and exploits a monopoly worth hundreds of millions of dollars. When a huge corporation like Apple discovers a new monopoly worth hundreds of millions of dollars, it’s just a small blip because Apple is already worth hundreds of billions of dollars, so an extra few hundred million doesn’t appear to be very significant.

If Mark Zuckerberg had been born two hundred years ago, he probably would have been a big nobody because it was a time when hidden monopolies were fewer in number and less valuable.

What are the factors that increase the chance that an individual can discover and exploit one of these hidden monopolies? I believe that one factor is that these people usually have very high IQs. At this point, some longtime blog readers are remembering that I’ve previously stated that IQ has nothing to do with making money except for getting you into a good college so you can get into a good career track. That part is true for the vast majority of smart people. The 0.1% of people with IQs higher than 140 who stumble upon one of these hidden monopolies are such a small number of people that they don’t show up at all on samples like the General Social Survey or the cohort of college graduates studied by Stacy Dale and Alan Krueger.

Let’s assume that the founders of WhatsApp are pretty smart guys. As pointed out by Steve Sailer, before WhatsApp they were just regular staff engineers at Yahoo who were presumably not thought of as worthy for promotion to executive-level positions, and they applied for jobs at Facebook and weren’t even hired. Their high IQ didn’t help them make any significant amount of money in their careers. The irony for FaceBook is that they paid $19 billion for a company founded by two guys that a few years earlier they didn’t even think worthy of hiring. Most high-IQ people are like the founders of WhatsApp before their app hit it big, but they never hit it big, they just keep on working at whatever career track they started out on, and if it’s a lousy career track like being a staff engineer at a big corporation, then they never amount to much.

The second factor in entrepreneurial success is having the resources to exploit the hidden monopoly once it’s discovered. And this is the main reason why smart computer programmers are overrepresented among centimillionaires and billionaire entrepreneurs. The best computer programmers are said to be ten times as efficient as the average computer programmer. It’s a lot more viable to start developing the hidden monopoly if you can do the work of ten computer programmers yourself instead of having to hire a team of ten people.

Furthermore lone individuals, or a small group of two or three individuals, are able to exploit the 80-20 principle. By that I mean that at most corporations, 80% of the time spent at work is wasted and only 20% is spent doing anything valuable. The lone entrepreneur, however, can spend 100% of his time doing only the 20% of the stuff that’s valuable, and skip useless 80% work which includes things like paperwork (now typed into Word documents but still the same thing) and all other unnecessary documents, time-wasting meetings to build consensus, and all work done on stupid projects that are doomed to fail but are the pet of someone higher up in the organization.

A guy who majored in history and doesn’t know how to program is at a disadvantage here, because he can’t do any of the work himself. However, if our history major has access to venture capital, then he can still found a company and become rich. How does one get looped into the venture capital markets? I’m not sure, but I suppose that attending a prestigious university and a prestigious MBA program can help you meet the right people.

Or you can do things the Steve Jobs way, which is to find a clueless high-IQ nerd like Steve Wozniak to work for you for free.

Written by Lion of the Blogosphere

February 25, 2014 at 7:16 pm

Posted in Wealth

Ross Douthat, another blog reader?

A commenter alerted me to the fact that two weeks ago, Ross Douthat had an op-ed column about leaving work behind in which he points out that Keynes, in 1930, predicted a future 15-hour work week. And he takes issue with other conservatives who reflexively criticized Obamacare because there was a prediction that some people would take advantage of Obamacare to quit their jobs (because they can now obtain health insurance without having a job).

But it’s also possible to argue that as a rich, post-scarcity society, we shouldn’t really care that much about whether the poor choose to work. The important thing is just making sure they have a decent standard of living, full stop, and if they choose Keynesian leisure over a low-paying job, that’s their business.

The fact that he understand there’s a good argument there shows that Douthat is a much smarter thinker than most conservatives.

Note that he uses the phrase “post-scarcity economy.” That sounds like something I would write. It’s like I’m reading my own ideas in the mainstream media.

Written by Lion of the Blogosphere

February 24, 2014 at 12:36 pm

Posted in Uncategorized

Ted Cruz says global warming not happening

At a CNN intereview, Ted Cruz says “data are not supporting what the advocates are arguing.”

Unfortunately, Cruz is the wrong person to promote this message. The liberals in the MSM believe that global warming is a “fact” like the earth revolving around the sun or evolution, so they will just take this as further evidence that Cruz is a moron-lunatic who is only a U.S. Senator because Texas has a lot of stupid voters. That Ted Cruz’s father recently told the media that evolution is a communist lie doesn’t help him here.

Written by Lion of the Blogosphere

February 24, 2014 at 9:58 am

Posted in Uncategorized

City College

City College

Above is a photo, which took on Saturday, of City College in Harlem.

Once upon a time, like back in the 1960s and before, City College was considered the Harvard of public colleges and universities. Nine Nobel Laureates graduated from City College, more than any other public school in the country. And the tuition was 100% free. That’s right, it was totally free.

Today, City College is just another crappy public school and the tuition has increased to $5,730. A good deal as far as college tuition goes, and a quite a bargain compared to for-profit schools that charge twice as much or more for an even crappier education, but still a lot more expensive than free.

The end of City College as a quality school is explained in a Wikipedia article:

In 1969, a group of Black and Puerto Rican students occupied City College demanding the integration of CUNY, which at the time had an overwhelmingly white student body.[12] The occupation spread to other CUNY campuses, forcing the Board of Trustees to implement a new admissions policy. The doors to CUNY were opened wide to all those demanding entrance, assuring all high school graduates, despite possible inadequacies of preparation, entrance to the University.

Recently in the comments, I suggested the benefits of free college education, and a commenter was outraged at the idea that “adults” should be provided with free education. Yet back in the 1960s, when real GDP-per-capita was supposedly half of what it is today, we could somehow afford to provide free quality education for adults, instead of crappy education today that costs significantly more.

In the book The Second Machine Age, which I reviewed yesterday, the authors made the argument that the official GDP number underreports how well we are doing because it fails to account for how technology has improved our lives. Yet here is a counter example of how things have gotten worse since the 1960s, and the official GDP number doesn’t account for that either.

Written by Lion of the Blogosphere

February 23, 2014 at 12:17 pm

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