Sunday, December 15, 2019

Third Base by Scott Galloway


The Dunning-Kruger effect posits that dumb people are too stupid to know they are dumb. They are not perplexed by difficult situations but overconfident — not knowing what they don’t know. As few people believe they are stupid, or a bad driver, a more relatable component of Dunning-Kruger is incorrectly believing one area of skill translates to another. 
I suffer massively from this. I’m smarter than your average bear when it comes to marketing, so I’ve come to believe that makes me an expert on pretty much anything. I don’t know much about physics but constantly reference Galileo despite knowing little besides the fact that he dared challenge the church. 
There is evidence of this all over the marketplace. Great P/E guys believe they would make great VCs and vice versa. Hedge fund managers believe two years of above-market returns means they are also great operators. To disabuse anybody of this notion, take them to a Sears. Billionaires running for president, actors starting skincare lines, and tech CEOs founding media firms. Being rich also naturally makes you a great film producer. 
Masayoshi Son created $64 billion in shareholder value, mostly through deft acquisitions. Mr. Son can also boast of perhaps the best venture investment in history, $20 million into Alibaba that became $100 billion. That investment is tantamount to Michael Jordan hitting a grand slam on his first at bat wearing a Birmingham Barons hat.
Mr. Son has mistaken luck in venture investing for the ability to responsibly allocate billions based on a gut feeling. The size of SoftBank investments, relative to the diligence, now looks stupid, if not negligent. A writedown on an investment in a dog-walking app may have been avoided had someone in the SoftBank diligence team taken the time to discover they were investing $300 million in … a dog-walking app.
Conflating luck and talent is dangerous. As I get older, I’m struck by how big a part luck played in my life, and how much I mistook it for skill, well into my forties. The Pareto principle shows that even if competence is evenly distributed, 80% of effects stem from 20% of the causes.
Not recognizing your blessings feeds into the dark side of capitalism and meritocracy: the notion that success is a choice, and that those who haven’t achieved success are not unlucky, but unworthy. This leads to regressive policies that further reward the perceived winners and punish the perceived losers based on income level. The most recent example of our belief that poor people are guilty: The US now has the fourth-lowest tax rate in the world, and billionaires have the lowest tax rate of any cohort.

First Base 

I constantly humblebrag that I was raised by a single immigrant mother who lived and died a secretary. But truth is I was born on third base. My parents got me to first base before I was born, immigrating to the US. This took courage, desire, and a dose of selfishness. Both left families that needed them. My mom left London when her two youngest siblings were still in an orphanage.
In Europe I’d make much less money being an entrepreneur and challenging institutions. In China I’d likely be in jail. Having one of my companies fail would have bankrupted me in Europe, as the tolerance for risk or failure is scant. I have no idea what would have happened in China. In the US, a tolerance for failure meant a lifestyle my parents couldn’t have imagined crossing the Atlantic on a steamship in 1961. 

Second Base 

I have some talent and have worked really hard, but mostly my success is due to being born in the right place at the right time, and being a white heterosexual male. Coming of professional age as a white male in the nineties was the greatest economic arbitrage in history. Today’s 54-to-70-year-olds saw the Dow Jones increase an average of 445% from 25-40, their prime working years. For other ages, it doubles at most.
Economic liberalization (globalization, technology, market deregulation) coupled with social norms that clung to the past meant 31% of America (white males) were given license over a lion’s share of the spoils. In nineties San Francisco, I raised over $100 million for my start-ups. I didn’t know a single woman under 40 who raised more than a million. And it seemed normal. Even today, white men hold 65% of elected offices despite being 31% of the population.

Third Base 

Rich, fabulous people are the ideal billboards for luxury brands. Our nation’s best universities have adopted the same strategy. Universities are no longer nonprofits, but the highest-gross-margin luxury brands in the world. Another trait of a luxury brand is the illusion of scarcity. Over the last 30 years, the number of applicants to Stanford has tripled, while the size of the freshman class has remained static. Harvard and Stanford have become finishing school for the global wealthy. 
In the class of 2013 in the Ivy League, five of the eight colleges (Dartmouth, Princeton, Yale, Penn, and Brown) had more students from the top 1% of the income scale than the bottom 60%.

Fast and Slow Thinking

According to @thetweetofgod, intelligence looks in the mirror and sees ignorance; ignorance looks in the mirror it sees intelligence. The sectors that have enjoyed the greatest prosperity spread across increasingly few people — technology and finance — have created an unprecedented level of arrogance among people born on third base.
When we feel threatened, we are more prone to see each other as an enemy, rather than someone who has a different opinion. We want to dismiss and fight the whole person, rather than just what they said. From primeval times, our brains have been set up to identify “enemy” or “one of us,” that simple binary distinction. Do I trust them as a person or are they not “one of us.” When we are in our more evolved, slow thinking mode (Daniel Kahneman), we evaluate arguments. When we are in our knee-jerk, threatened fast thinking, we decide the person is our enemy and argue from our amygdala, not our forebrain. 
When we are threatened, we are also less empathic. Altruistic behavior decreases in times of greater income inequality. The rich are more generous in times of lesser inequality and less generous when inequality grows more extreme. When the poor need our help more, we are less likely to offer it, because we don’t see the poor as one of us. They become “them.” 
Michael Lewis writes, “The problem is caused by the inequality itself: it triggers a chemical reaction in the privileged few. It tilts their brains. It causes them to be less likely to care about anyone but themselves or to experience the moral sentiments needed to be a decent citizen.” 

Old Age

My dad is not doing well. We think it’s dementia, but it’s more just that he’s 89. He has never asked me for much, but he needs me now. I don’t do as much for him as I did for my mom at the end of her life, as I don’t feel the same goodwill toward him — my mother raised me. It’s easier to be generous with him when I look at his life. He was physically abused by his father and had no education. Despite this, his courage and wits (immigrating to America) put his son and daughter on first base.