Success and Luck

If an extra ambulance hadn’t happened to be nearby, I would not have survived. Some friends have suggested that I was the beneficiary of divine intervention, and I have no quarrel with those who see things that way. But that’s never been a comfortable view for me. I believe I’m alive today because of pure dumb luck. Not all chance events lead to favorable outcomes, of course. Mike Edwards is no longer alive simply because chance frowned on him. He was the cellist in the original group that became the Electric Light Orchestra, the British pop band. He was driving on a rural road in England in 2010 when a thirteen-hundred-pound bale of hay rolled down a steep hillside and landed on top of his van, crushing him to death. He hadn’t broken any laws that day. By all accounts, he was a well-liked, decent, and peaceful man. That his life was snuffed out by a runaway bale of hay was just bad luck, pure and simple. Location 182

Most people have no difficulty embracing the view that I’m lucky to have survived and that Edwards was unlucky to have perished. But in other domains, randomness often plays out in far more subtle ways, causing many of those same people to resist explanations that invoke luck. In particular, many seem uncomfortable with the possibility that success in the marketplace depends to any significant extent on luck. Location 189

Note: Everyone accepts “luck” for some things. Why is it such a stretch to accept that market outcomes can sometimes be the tale of luck as well?

Varney took risks! If I hadn’t realized it on my own during my cab ride from the studio, the implication of that remark would have been hammered home to me by several e-mail messages I received later that day from friends. Taking a risk means that a successful outcome isn’t certain. So if Varney took risks and was successful, he was lucky by definition! Too bad I didn’t have the wit to point that out during our conversation on the air. Location 219

Note: So the argument from risks is wrecked. If you took a risk, by definition you put faith in an uncertain outcome that could turn out either way. The “successful” people who took risks are just in a position to backwards rationalize their risk as merit, where “unsuccessful” people may have taken a risk that failed, and didn’t appear in the data set of people to crow on about how awesome they are for their great mind for risk and how everyone else sucks. Basically, by definition if your risk turns out as a win, which is luck, you get to tell everyone afterwards how luck played no part.

Stuart Varney and many others insist that people who amass great fortunes are invariably talented, hardworking, and socially productive. That’s a bit of an overstatement—think of lip-synching boy bands, or derivatives traders who got spectacularly rich before bringing the world economy to its knees. Yet it’s clear that most of the biggest winners in the marketplace are both extremely talented and hardworking. On this point, Varney is largely correct. Location 254

As the economist Branko Milanovic has estimated, roughly half of the variance in incomes across persons worldwide is explained by only two factors: country of residence and the income distribution within that country.4 As Napoleon Bonaparte once observed, “Ability is of little account without opportunity.” Location 265

In some unknown proportion, genetic and environmental factors largely explain whether someone gets up in the morning feeling eager to begin work. If you’re such a person, which much of the time I am not, you’re fortunate. Similarly, your genes and your environment largely determine how smart you are. If you’re smart, you’re more likely to perform well at the tasks rewarded most lavishly by society, so there, too, you’re lucky. As the economist Alan Krueger has noted, the correlation between parents’ income and their children’s income in the United States is a remarkably high 0.5—about the same as the correlation between parents’ height and their children’s height.6 So if you want to be smart and highly energetic, the most important single step you could take is to choose the right parents. But if you have such qualities, on what theory would it make sense for you to claim moral cr for them? You didn’t choose your parents, nor did you have much control over the environment in which you were raised. You were just lucky. Many people don’t like to work hard and also have limited endowments of cognitive abilities and other traits that are highly valued in the marketplace. In the competitive environments most of us inhabit, those people are unlucky. In short, even if talent and hard work alone were enough to ensure material success—which they are not—luck would remain an essential part of the story. People with a lot of talent and an inclination to work hard are extremely fortunate. Location 273

Note: Even hard work and talent, the desire to love to work and tirelessly focus, are largely the result of luck.

Why do so many of us downplay luck in the face of compelling evidence of its importance? The tendency may owe in part to the fact that by emphasizing talent and hard work to the exclusion of other factors, successful people reinforce their claim to the money they’ve earned. But I’ll also consider a second possibility, which is that denying the importance of luck may actually help people surmount the many obstacles that litter almost every path to success. Location 321

In short, people who believe that success depends only on talent and effort and have an exaggerated sense of how talented they are may find it easier to muster the kinds of effort necessary for success. If so, those false beliefs may be perversely adaptive. Location 331

But underestimating the importance of external forces in individual success stories may also entail significant costs. It may, for example, encourage people to compete in arenas in which they have no realistic prospect of succeeding. More troubling, it also appears to make successful people more reluctant to underwrite the investments necessary to sustain environments that support material success. Location 334

As Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” Location 337

There is nobody in this country who got rich on his own. You built a factory out there, good for you…. You moved your goods to market on the roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police and firefighters that the rest of us paid for…. You built a factory and it turned into a great idea, God bless—keep a big hunk of it. But part of the underlying social contract is that you take part of that and pay it forward for the next kid who comes along. Location 340

That such an opportunity continues to exist is a direct consequence of our failure to appreciate how profoundly our choices are shaped by frames of reference. How big, for example, should a house be? How much should a wedding cost? Orthodox economic theories assume, preposterously, that our answers are completely context-free. Yet all available evidence indicates that people find it impossible even to think about such questions without a suitable frame of reference. Location 355

Many good things happen when a country’s income grows, not least among them that people’s children are much less likely to die before reaching adulthood. Air and water get cleaner, schools get better, roads get safer. My point is only that the standards that define “adequate” in many domains of consumption are highly elastic. When everyone spends less, those standards adjust accordingly. Location 367

Yet, among the superwealthy, the actual quality mix of cars and highways in the United States more closely resembles Ferraris on potholes than Porsches on smooth asphalt. That’s puzzling, since the latter combination could be achieved at much lower total expense. This distortion occurs because what happens when any one person spends less on a car is very different from what happens when everyone spends less. In the former case, the buyer feels deprived. But when everyone spends less, the relevant frame of reference shifts, leaving drivers just as satisfied as before. Location 393

Although it’s no mystery that such experiences often spawn jaundiced views about government, the fact remains that no society can prosper without effective means for its citizens to act collectively. Without government, how could we defend ourselves, or enforce property rights, or curb pollution, or build and maintain the public infrastructure that makes us realize how lucky we were to be born here rather than in a desperately poor country? Location 425

Annual surveys by Transparency International, a nonprofit group based in Berlin, provide further evidence of the possibility of good government. Those surveys consistently place the same nations—New Zealand, the Netherlands, Switzerland, Canada, and the Scandinavian countries among them—atop the list of countries whose citizens think most highly of their governments. Few people in those countries view their government officials as corrupt, and most are satisfied with the quality of public services paid for by their taxes. Location 448

Extending Lazarsfeld’s work, the sociologist Duncan Watts has argued that hindsight bias operates with particular force when people observe unusually successful outcomes.2 The problem, he suggested, is that it’s almost always easy to create a narrative after the fact that portrays such outcomes as having been inevitable. Yet every event is the outcome of a complex and interwoven sequence of steps, each of which depends on those preceding it. If any of those earlier steps had been different, the entire trajectory would almost surely be different, too. Location 465

One of the bands in the experiment was 52 Metro. Their song, “Lockdown,” landed roughly in the middle of the objective scores, ranking 26th out of 48. This song’s subsequent fate varied dramatically across the eight websites that incorporated social feedback. On one it ranked #1, but it was only #40 on another. The song’s fate, it turned out, depended largely on how the first people to download it happened to react to it. If they liked it a lot, that created a halo effect that made others more likely to download it and respond favorably. But if early downloaders happened not to like it, things went downhill. The Music Lab findings suggest that many songs (or books or movies) that go on to become hits owe much of their success to the fact that the first people to review them just happened to like them. Works of unambiguously high quality are of course more likely to earn positive early reviews and may succeed even in the face of some negative early commentary. But most artistic endeavors elicit a broad range of subjective evaluations. Some go on to succeed simply because the first people to express their opinions about them publicly just happened to come from the right tail of the opinion distribution. Which is to say, many artistic endeavors owe their success, at least in part, to pure dumb luck. Location 595

Small chance events often have big consequences. Identical twins take the SATs on the same Saturday. One of them is sick and scores 200 points lower than her sister, and their career trajectories start diverging from that day forward. One goes on to win a Nobel Prize in chemistry while the other struggles to get by as an adjunct chemistry lecturer. Even tiny variations often ramify into enormous differences in final outcomes. Location 615

Chance events also influence career trajectories by shaping people’s decisions about what specialties to pursue. Childhood experience, which provides early clues about what sorts of things you’re good at, may help you identify a market niche that seems to fit. But perhaps that niche is already filled, in which case you move on to the best remaining available one. Location 618

As Malcolm Gladwell explains at length in Outliers, early family advantage often explains individual differences in success.11 Bill Gates, for example, had the good fortune as an eighth-grader in the late 1960s to attend one of the only private schools in the country that offered students unlimited access to one of the early time-share computer programming terminals. On those terminals, programmers for the first time were able to submit their programs and have them run immediately. Errors in syntax were flagged right away and could be corrected on the fly. Location 635

Gates was born at a time and in circumstances that made him one of the first Americans able to spend long hours getting instant feedback for his programming efforts. When he was later asked how many other teens from his era had backgrounds similar to his before heading off to college, he said, “If there were 50 in the world, I’d be stunned. I had a better exposure to software development at a young age than I think anyone did in that period of time, and all because of an incredibly lucky series of events.” Location 644

In short, most of us would never have heard of Microsoft if any one of a long sequence of improbable events had not occurred. If Bill Gates had been born in 1945 rather than 1955, if his high school had not had a computer club with one of the first terminals that could offer instant feedback, if IBM had reached an agreement with Gary Kildall’s Digital Research, or if Tim Paterson had been a more experienced negotiator, Gates almost certainly never would have succeeded on such a grand scale. Location 671

Similar links between birth dates and achievement show up in other domains. Although school start dates vary from place to place, most children born in the summer months tend to be among the youngest members of their class. That simple fact appears to explain why those students are significantly less likely to hold leadership positions during their high school years.17 Other studies have found that even after controlling for cognitive ability and other psychological and physical traits, students who hold leadership positions go on to earn significantly higher wages.18 And researchers who studied a sample of large American companies found that the number of CEOs born in June and July is almost one-third lower than would be expected on the basis of chance. Location 707

Recent trends in the distributions of income represent a substantial departure from those observed during the first three decades after WWII, when pretax incomes in America grew at roughly the same rate—slightly less than 3 percent a year—for households up and down the income ladder. Since the late 1960s, this pattern has changed. The inflation-adjusted median hourly wage for American men is actually lower now than it was then. Real median household incomes grew by roughly 19 percent between 1967 and 2012, primarily because of large increases in female labor force participation. Only those in the top quintile, whose incomes have roughly doubled since the mid-1970s, have escaped the income slowdown. Similar, if less dramatic, changes have been observed in most other countries. Location 899

The huge difference between the likelihood of a strange event happening to you now and the likelihood of that event happening to someone, sometime, clouds our intuition about highly improbable events. In any one person’s life, nothing unusual happens most of the time. Yet virtually everyone who lives long enough will witness a few events that seem to defy belief. Most of these events are merely highly unlikely to happen in any given moment. But the more moments you string together, the more likely they become. And if you string together enough moments across enough people, events that are prohibitively unlikely in any given instance suddenly become all but inevitable. Location 972

But the real message, I believe, is far simpler: if you live long enough, you’re bound to experience something profoundly improbable. The probability of getting heads 20 times in a row when flipping a fair coin is about 0.000001, meaning roughly that you’d expect to see it happen once every million times you tried. Most of the things we experience in life are the result of complex combinations of events, so a normal lifespan containing many millions of events is bound to include a few that seem stupefyingly improbable. Location 1043

Inspired by the pioneering work of the psychologists Daniel Kahneman and the late Amos Tversky, this field has cataloged a large inventory of behavioral anomalies in which people clearly violate the predictions and prescriptions of standard economic models.2 It is common, for example, for someone to be willing to drive across town to save $10 on a $20 clock radio, but unwilling to do so to save $10 on a $1,000 television set. Yet the benefit of making the drive is $10 in each case. So if the implicit cost of the drive were less than $10, a rational person would drive across town in both cases. People often explain their reluctance to make the drive for the television by saying the $10 savings is such a small percentage of its price. But a rational person reckons benefits and costs in absolute terms, not as percentages. Location 1141

What about false beliefs about luck? If, as I claim, chance events are becoming more important, why do so many people still insist they don’t matter? By emphasizing talent and hard work to the exclusion of other factors, successful people may be trying to reinforce their claim to the money they’ve earned. I’ll have more to say about that possibility in the next chapter. Here I’ll explore a more charitable view, which is that denying the importance of luck may actually help people summon the formidable efforts generally required for success. Location 1225

Those efforts have to happen now, or better still, to have begun years earlier. In contrast, the corresponding rewards come only with many years of delay, if they come at all. That disparity strongly discourages current effort, even when the potential future rewards are enormous. Because the costs of taking an action are vivid and immediate, they spring quickly to mind. But if the benefits of acting are delayed, they must be imagined. It’s thus no mystery that many students avoid the painful steps required to gain admission to highly selective universities. Location 1245

If any of you go running or ride a bike, you’ll know that when you’re running or bicycling into the wind, you’re very aware of it. You just can’t wait till the course turns around and you’ve got the wind at your back. When that happens, you feel great. But then you forget about it very quickly—you’re just not aware of the wind at your back. And that’s just a fundamental feature of how our minds work. We’re just going to be more aware of those barriers than of the things that boost us along. Location 1308

You should regard yourself as the sole author of all your future achievements and as the grateful beneficiary of all your past successes…. As you go through life, you should pass through different phases in thinking about how much cr you deserve. You should start your life with the illusion that you are completely in control of what you do. You should finish life with the recognition that, all in all, you got better than you deserved…. As an ambitious executive, it’s important that you believe that you will deserve cr for everything you achieve. As a human being, it’s important for you to know that’s nonsense. Location 1362

As F. Scott Fitzgerald observed, “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” By that test, clear thinking about luck demands an extremely high level of intelligence, for it requires that we embrace the starkly contradictory views on the subject held by people at different points along the political spectrum. But the challenge is made a little less daunting by the fact that both views incorporate essential elements of the truth. Location 1367

If you share my view that material prosperity is a good thing, there is one dimension of personal luck that transcends all others, which is to have been born in a highly developed country. No matter how talented and ambitious you may be, material success is only a remote possibility in the world’s poorest countries. Recall my description of Birkhaman Rai, the young Bhutanese hill tribesman who worked as my cook long ago during my stay as a Peace Corps volunteer in Nepal. Because he didn’t know how to read or write, I couldn’t keep in touch with him after returning to the United States, but I’ve often wondered what became of him. He was as talented and resourceful as anyone I’ve ever known, yet he probably never managed to earn even the meager average Nepalese income, currently somewhat less than $1,500 a year. If he’d been born here, he’d almost surely be a highly prosperous, perhaps even very wealthy, man today. If he’s still alive, he would be in his seventies, well past the normal life expectancy for men in Nepal. Had he been born here, however, he could expect many more years of good health and prosperity. Of course, individuals can’t choose the environments into which they’re born. But society as a whole can mold those environments in significant ways. Doing so, however, requires intensive levels of investment. We who were born into highly developed countries are thus the lucky beneficiaries of centuries of intensive investment by those who came before us. Location 1373

We’ve also done little to expand and improve existing infrastructure. Morocco, a country whose per capita income is roughly a tenth that of the United States, is nearing completion of a 350-kilometer high-speed rail link between Casablanca and Tangier. Trains along much of that line will travel at 200 mph. In the United States, which has one of the world’s most densely populated rail corridors, proposals to build high-speed rail consistently fail in Congress. The fastest trains along our northeast corridor average only 80 mph. Location 1389

Even more troubling, support for public education has diminished sharply in recent decades. Using revenue and spending data from the National Center for Education Statistics’ Delta Cost Project Database,2 one carefully documented study estimates that reduced state funding accounted for roughly 80 percent of the past decade’s more than $3,000 increase in average annual tuition at public four-year universities.3 More than 70 percent of students graduating from four-year colleges in 2014 had student loan balances that averaged $33,000.4 Location 1393

More troubling still has been the pattern of reduced investment on behalf of children in low-income households. The parents of children higher up the income ladder have the means to compensate for budget and program cutbacks that have been occurring in the public schools. They can send their children to private schools, or pay for private music lessons, athletic coaching, and SAT prep courses. Or they can enroll their children in pay-for-play programs in the public schools. Those options are beyond reach for low-income households. Location 1399

But an additional contributing factor, as the entries in table 6.1 suggest, has been a long-term decline in our top marginal tax rates—a trend that has occurred in many countries around the globe. Many tax cuts were adopted in the hope that they would stimulate economic growth by enough to prevent a decline in overall tax revenues, but it hasn’t worked out that way. The nonpartisan Congressional Budget Office estimated that the effect of the George W. Bush tax cuts was to reduce federal revenue by $2.9 trillion between 2001 and 2011. And in a widely cited New York Times article, Bruce Bartlett, a senior economic advisor in the administrations of Ronald Reagan and George H. W. Bush, argued that the actual revenue shortfall caused by the Bush tax cuts was considerably larger.5 If Bartlett is right, that shortfall would have been enough to eliminate our current estimated infrastructure backlog. Location 1406

Note: So much for tax cuts creating more revanue

If being born in a good environment is one of the luckiest things that can happen to anyone, it is failure to appreciate luck’s importance that has done the most to undermine our collective stock of good fortune. That’s because failure to appreciate luck’s importance has made successful people more reluctant to pay the taxes required to support the investments necessary to maintain a good environment. Location 1417

Note: That’s pretty much the crux of the book right there.

But first a word about the meaning of “improved material living standards.” Many interpret the expression to mean “having more stuff.” But it really means something much more general, which is being able to achieve more fully all the goals we care about. That might include having more stuff, but it would also include having cleaner air, safer streets, more time to spend with family and friends, and a host of other valuable intangibles. Location 1422

Note: It isn’t just having more things. Though that helps, beyond a point is not as much of a difference as many intangibles. Safety, clean air, the ability to move around, the ability to do things, health, education, lower crime, many other things than just owning more stuff.

The first error was on vivid display during a lunchtime conversation several years ago with one of my colleagues. When he asked whether I’d heard about all the new taxes that President Obama had in store for us and I said that I hadn’t, he expressed shock at my ignorance. I explained that it just didn’t make sense for people like us to worry about such things. When he asked why, I began by confirming that he agreed with me that there was no chance the government would enact tax changes that would threaten our ability to buy what we needed. (He and I are both authors of widely adopted textbooks, which in a town like Ithaca means we don’t spend nearly as much as we earn.) I then asked whether he was worried that higher taxes would make us less able to buy what we wanted. Yes, that was exactly his worry! But since all our basic needs have already been met, the kinds of things that people like us want are mostly things that there aren’t enough of—say, a house with a commanding view of the lake, or a choice slip in the marina. To get such things, we have to outbid other people like us who also want them, people with similar tastes and incomes. So if the government raises our taxes, the taxes of those other people go up, too. And that leaves the bidding wars that determine who gets the things we want essentially unaffected. The best home sites and marina slips go to the same people as before. In short, the effects of a decline in any one person’s after-tax income are dramatically different from those of an across-the-board decline. If you alone experience an income decline, you’re less able to buy what you want. But when everyone’s income declines simultaneously, relative purchasing power is unaffected. And it’s relative purchasing power that determines who gets things that are in short supply. Location 1438

Note: Best passage of the book, and possibly a level 10 or higher. It changes the way we think about everything. What you really care about is your ability to buy things you want. But prices aren’t set for you, but for everyone. If everyone had more money it would just bid the price up and you wouldn’t be able to afford it anyway. You don’t lose anything due to taxes because everyone is taxed prices are set according to the purchasing power of everyone. Truly worth the price of the book for this alone.

Since the vast majority of income declines that people experience—whether from the loss of a job or a divorce or a home fire—are losses that affect only them, the availability heuristic leads us to think of higher taxes as being just like other income losses. If you lose your job, you really are less able to bid successfully for a home with a view. But when everyone’s disposable income declines—as happens when taxes rise—it’s a totally different story. Location 1452

In thousands of replications of this experiment, however, most proposers don’t offer such one-sided splits. Many, in fact, make 50–50 offers. That might reflect concerns about fairness or generosity, but it could also result from fear that responders would reject highly uneven splits. And sure enough, in the small minority of cases in which proposers do make extremely one-sided offers, rejections are common. Location 1469

One variant of this experiment allows us to focus specifically on false beliefs about luck.6 As before, there is a proposer and a responder who must divide a given sum of money. But this time both players are first shown a computer screen with a large and apparently almost equal number of dots distributed on either side of a vertical line. They are asked whether there are more dots to the right or left side of the line, and then receive one of four possible combinations of feedback: both players answered correctly, both players answered incorrectly, the proposer was correct while the responder was incorrect, or the proposer was incorrect while the responder was correct. Unbeknownst to the players, the feedback is actually randomly generated and bears no relationship to either player’s true performance. In short, the players are led to believe that the results reflect their respective skill levels, but in fact they are purely random. As expected, the researchers found that when players were told that the proposer was correct and the responder was incorrect, proposers went on to make significantly more one-sided offers in their own favor, which responders were significantly more likely to accept. The reverse was true when players were told that the proposer was incorrect and the responder was correct. But the differences in behavior were highly asymmetric. When proposers were told that they were correct and the responder was incorrect, they claimed a much larger share of the total for themselves than when they were told that both had performed equally well. But when proposers were told that they were incorrect and the responder was correct, they proposed only a little less for themselves than when they were told that both had performed equally well. Falsely believing themselves to be more skillful apparently induced a powerful sense of entitlement to claim the lion’s share, while falsely believing themselves to be less skillful had much less of an effect. Location 1472

Note: Even if you “win” a fake game with no importance and with falsely generated results, you will think it’s due to “hard work” or some measure of skill, and this will give you a sense of entitlement post something completely unrelated. Asshole effect.

Failure to recognize luck’s role in success may also increase reluctance to pay taxes by reinforcing the natural sense of entitlement to income produced by the fruits of one’s own labor. As the seventeenth-century British philosopher John Locke wrote, “every man has a property in his own person. This nobody has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.”8 With these words, Locke became the patron saint of tax resisters around the world. Location 1504

This sense of entitlement to the fruits of one’s labors may owe much to the phenomenon known as loss aversion. One of the most reliable findings in behavioral economics, loss aversion refers to the fact that people will fight much harder to avoid a loss than they would to achieve a gain of the same amount.9 Since most successful people work extremely hard for the money they earn, it feels like they own it, and that makes taxation feel like theft. Location 1508

But equating taxation and theft is difficult to defend. A country without taxes couldn’t field an army, after all, and would soon be overrun by a country that had one. Its residents would then have to pay taxes to that country. A country without mandatory taxation is the political analog of a highly unstable isotope in chemistry. Location 1513

But government programs exist because important constituents want them and are therefore extremely difficult to cut. Cuts, when they do come, typically occur not where they would make the most sense, but where those who would suffer from them are least able to push back. An important result of deficits has thus been to reduce our investment in the future. The unborn citizens who will suffer as a result are simply unable to protest. Location 1522

These findings suggest that if people who acknowledge luck’s role in their lives are indeed more likely than others to feel grateful for any success they’ve enjoyed, they’re also more likely to share some of the fruits of their efforts to support the common good. Location 1572

Note: Summary of the whole few pages.

The result has been a systemic positive feedback loop of the sort that explains many instances of market success at the individual level. People succeed on a spectacular scale, then use some of their gains to win more favorable tax and regulatory treatment, which increases their wealth still further, enabling them to buy even more favorable treatment, and so on. Location 1619

In similar fashion, I’ve seen even brief discussions of the link between success and luck temper the outrage many wealthy people feel about taxes. At an intuitive level, it’s not puzzling that successful citizens like Schwarzman might view mandatory taxation as unjustified confiscation of what’s rightfully theirs. But that’s an unfruitful way to think about taxes. Extensive public investment was an essential precondition for the economic prosperity of those very same tax protesters, and we can’t have public investment without taxes. Location 1644

Why are people spending so much more? The short answer is that the standards that define “special” have escalated sharply. I’ll say more about why that’s happened, but for now note that today’s more expensive weddings have not made marrying couples any happier. On the contrary, it appears that increased expenditures on weddings may actually make them more likely to divorce.2 If an across-the-board rollback in wedding expenditures would leave wedding celebrants no less happy than before, then this particular escalation in expenditures qualifies as pure waste. Location 1694

Note: Arms race that results in collectively worse outcomes. You don’t really care about having a big wedding, you just need to have a “bigger” wedding than the other guy.

Failure to keep pace with what peers spend on housing means not just living in a house that seems uncomfortably small. It means also having to send your children to inferior schools. A “good” school is a relative concept, and the better schools are almost always those in more expensive neighborhoods. To send their children to a school of at least average quality, median earners must buy the median-priced home in their area. An indirect consequence of the higher housing expenditures by top earners is that median home prices have also risen sharply. Location 1733

Concerns about relative position are a hard fact of human nature. No biologist is surprised that they loom so large in human psychology, since relative position was always by far the best predictor of reproductive success. People who didn’t care how well they were doing in relative terms would have been ill-equipped for the competitive environments in which we evolved. Few parents, on reflection, would want their children to be stripped of positional concerns completely. Location 1754

Consider the antlers in bull elk, which can span four feet and weigh as much as forty pounds. Because those unwieldy appendages impair mobility in wooded areas, they put bulls at greater risk of being surrounded and killed by wolves. So why doesn’t natural selection favor smaller antlers? Darwin’s answer was that large antlers evolved because elk are a polygynous species, meaning that males take more than one mate if they can. But if some take multiple mates, others are left with none. That’s why males fight so bitterly with one another for access to females. Mutations that coded for larger antlers spread quickly because any bull that had them was more likely to win. A bull with smaller antlers would be less vulnerable to predators, but he would also be less likely to pass his genes on to the next generation. Bulls would be better off as a group if each animal’s antlers were smaller by half. Each fight would be decided in the same way as before, while the elk would all be less vulnerable to predators. The inefficiency in such positional arms races is analogous to the inefficiency in military arms races. Location 1768

Note: Another flawless counter to ethical egoism

This simple point applies not just to antler size but also to the amounts people spend on things whose value is highly context-sensitive. Beyond some point, additional spending on mansions, coming-of-age parties, and many other goods becomes purely positional, meaning that it merely raises the bar that defines adequate. Because much of the total spending in today’s economy is purely positional, it is wasteful in the same way that military arms races are wasteful. Location 1789

Many wealthy people think higher taxes would make them less able to get what they want. But as discussed earlier, what happens when everyone spends less is very different from what happens when an individual spends less. In a society with a progressive consumption tax, the wealthiest drivers might buy a Porsche 911 Turbo for $150,000 rather than a Ferrari Berlinetta F12 for more than twice that amount. But since everyone would be scaling back, that society’s Porsche owners would be just as excited about their cars as Ferrari owners are under the current tax system. Location 1805

My basic claim is that, without demanding painful sacrifices from anyone, this relatively simple policy change would enable us to put trillions of dollars a year to work rebuilding the institutions and infrastructure that reliably translate talent and effort into success—in other words, the kind of environment people would be lucky to be born into. This claim will strike many people as fanciful. Yet the argument in favor of it has few moving parts, and none of the premises on which it rests is controversial. Location 1812

Therein lies the fiscal alchemy inherent in the progressive consumption tax. By inhibiting a collection of largely unproductive expenditure cascades, it would effectively create new resources out of thin air. Location 1838

Some worry that a progressive consumption tax would undercut people’s incentives to work hard and invest in the future. But Darwin’s insight that life is graded on the curve suggests otherwise. No change in rules or tax policy could ever extinguish the human impulse to get ahead. But getting ahead is an almost purely relative concept. It means doing better than one’s rivals, and a progressive consumption tax wouldn’t alter the fact that those who earn more can also spend more. Others have worried that a progressive consumption tax would make life more difficult for those who take special pleasure in material possessions. But this tax would not in any way diminish the supply of nice things to be had. There are only so many penthouse apartments in New York City with sweeping views of Central Park, and although a progressive consumption tax would reduce what people could bid for those apartments, it would not change the identities of the winning bidders. Location 1839

Note: True one of the great insights of the book.

In his 1983 novel Mr. Palomar, Italo Calvino describes his title character’s thoughts during a stroll on a Merranean beach. When Palomar realizes he is approaching a topless sunbather, he quickly directs his gaze seaward, wanting to respect the woman’s privacy. But once he has passed, it occurs to him that in looking away he has unwittingly endorsed the belief, which he finds distasteful, that the sight of the human breast is somehow illicit. On his return walk, he therefore adopts a different posture. As he approaches the woman a second time, he keeps his eyes fixed straight ahead, attempting to convey an attitude of complete neutrality, his gaze counting for no more than that of a seagull. But that can’t be right, either, he decides moments later. Now he worries that he has reduced the breast to a mere object. So Palomar turns back and again walks toward the woman, this time hoping to convey an attitude of neutral objectivity. But once past her, he worries that the woman might have misinterpreted the grazing of his eyes as a sense of superiority. Still determined to get it right, he reverses course yet again. “Now his gaze, giving the landscape a fickle glance, will linger on the breast with special consideration, but will quickly include in it an impulse of good will and gratitude for the whole, for the sun and the sky, for the bent pines and the dune and the beach and the rocks and the clouds and the seaweed, for the cosmos that rotates around those hallowed cusps.”1 And this time the woman springs up, covers herself, and leaves in a huff. Palomar ruefully concludes that the “dead weight of an intolerant tradition prevents anyone’s properly understanding the most enlightened intentions.”2 Mr. Palomar Location 1939

Note: Great story. It doesn’t matter what you do, it can be interpreted as offensive if someone wants to perceive it that way. This is a good narrative describing that.

He couldn’t deliver fiscal stimulus, which was in the hands of a Congress determined to take only limited action. But he persuaded many initially reluctant Fed colleagues to back his proposals for the most aggressive monetary expansion our central bank has ever undertaken. Most macroeconomists now agree that without Bernanke’s leadership, the Great Recession would have been even deeper and more stubbornly enduring. Location 2033

Note: Most Economists agree the stimulus, and QE was effective at alleviating the worst effects of the recession.

Characterizing what makes someone an attractive teammate is obviously a complex task. I hope we can agree, however, that people who claim too much cr for their accomplishments are properly viewed with skepticism, and that those who insist that luck played no role in their own success are almost surely claiming more than their due. Location 2041

In the final paragraph of what I’ll call the skill version of the interview, Johnson emphasized that his company’s success was primarily a consequence of skill and hard work: But success didn’t just fall into our laps. We’ve worked hard, and my partner’s experience and market intuition were undoubtedly important factors. But lots of people work hard, and lots of MBAs are market-savvy. The real breakthroughs in our lab were highly technical, and I’m probably the only one who could have made them happen. In the luck version, Johnson said nothing further about his skill and effort. Instead, he noted that his company might not have been nearly as successful except for a few lucky breaks: We’ve worked hard, but we’ve also been lucky. I got to speak at that Berkeley conference only because another speaker canceled at the last minute. If those investors hadn’t happened to be there, if they hadn’t seen some promise in the work, I don’t know if any of the real magic in our lab would’ve happened. Location 2065

Note: Just explains the difference between someone who acknowledges lucky breaks, uncontrollable events, and the work help and contribution of others to their success. Everyone has something that made their position possible.

If all mansions were a little smaller, all cars a little less expensive, all diamonds a little more modest, and all celebrations a little less costly, the standards that define “special” in each case would adjust accordingly, leaving successful people just as happy as before. Location 2153

By living in private gated communities and taking other forms of evasive action, successful people have been able to escape some of the consequences of recent sharp cutbacks in infrastructure spending. But many other consequences have been impossible to escape. It’s not practical, for example, to take every short journey by helicopter. Nor does being wealthy insulate you from the hazards and discomforts of congested airports and poorly maintained public roadways. Owning a factory doesn’t insulate you from our schools’ failure to produce enough qualified workers. Location 2197

To be sure, a trait might be wasteful from the collective perspective of males, yet still not be dysfunctional for the relevant species. As biologists have long noted, sexually reproducing species have far more males than they need, so if bull elk are more easily caught and killed by wolves because of their large antlers, that may not much threaten the survival of their species. But that wasn’t my point. The only claim I made on the basis of this example is that bulls would find survival to a ripe old age preferable to being killed and eaten prematurely. Location 2722