Piketty’s Dilemma: How to to Think Like a Billionaire

A British economist released a study based on the past 2000 years of human economic history. In the study, he examined trends illuminating an inevitable conclusion: the human species is doomed to starvation. We’ve reached the carrying capacity of the planet.

As the planet’s population continues to expand, we’ll be faced with an inability to produce enough food. Mass starvation will eventually bring the population back to sustainable levels, but I can’t imagine that’s comforting to those who don’t make the cut.

His conclusion is based on over two thousand years of undisputed historical data, verified by sources across the globe.

The British economist was Thomas Malthus and the study was the Essay on Principle of Population which he penned two hundred years ago in 1798.

Malthus thought population growth was such a powerful force that eventually it would outpace man’s ability to keep up, resulting in a return to subsistence level conditions. More and more people would be born into a world that couldn’t possibly keep up with feeding them.

So far, Malthus’s prediction hasn’t panned out.

In the two hundred years since Malthus made his prediction, global GDP has increased exponentially. Not only has man’s ability to produce kept up with population growth — it’s been outpaced by a factor of thirty times or more.

The level of abundance that we all have at our fingertips today would probably put Malthus into a state of shock. Picture a two hundred year old British economist dropping into Times Square today.

Malthus’s essay is a warning sign that we can’t rely on historical trends to continue indefinitely and that our interpretation of the data, is just that, an interpretation. While the vast majority of historical trends will continue, the ones that will define the future — the ones we can take advantage of — are the ones that won’t. More importantly though, how we interpret the data impacts what that future looks like.

The More Things Stay The Same, The More Important The Changes Are

The world has been relatively stable since the end of WWII. While that continues to be true for the majority of the globe, it’s the few areas that aren’t stable which are making an impact. The Middle East and Ukraine are recent examples.

The same is true in our individual lives. While most things in our lives remain the same, it’s the small number of dramatic changes that define our life.

On the whole, the life of someone in the same family in 1990 isn’t drastically different from the life of someone born in 1950. They speak the same language, they had a similar educational upbringing, and they share the majority of their cultural values.

However, someone born in 1990 versus 1950 is going to have a few aspects of their life be vastly different. Their relationship with technology will vary dramatically. Someone born in 1990 likely lives on the internet.

Piketty’s Dilemma

One of the most popular books of the year was French economist Thomas Piketty’s Capital in the Twenty-First Century. In the book, Piketty advances his theory that over the course of the twenty first century, we’re likely to see an increasing amount of income inequality.

Piketty’s basic premise, strongly supported by historical data, is that the rate of return on capital (r) almost always exceed the rate of economic growth (g). r>g — wealth grows faster than the economy.

While the rate of return for the average adult has been 2.1% since 1987, it’s been 6.5% for the average billionaire.

There’s at least two ways of looking at this.

The first is Piketty’s view. That we’re faced with a dilemma. Either the rich are going to get richer and we’re doomed to live in an unequal society or we have to institute more progressive rates of taxation across the globe.

The other is that Piketty’s dilemma is false. That perhaps people that have a track record of making money are good at making money.

Thinking Like Billionaires

What’s inherent here is two distinct mindsets.

What Piketty and Malthus both missed is that crisis and collapses and most of the things we fear are, from another point of view, opportunities. When we let go of the attempt to try and control and smooth out the volatility then there’s opportunity.

Just as the Industrial Revolution proved Malthus dilemma to be false, I suspect a new revolution that Piketty doesn’t see — economically based in technology and societally based in entrepreneurship, will prove his conclusions about our future wrong.

Just as the Industrial Revolution lifted billions into the middle class, I suspect a tech and entrepreneurial revolution will raise living standards even further.

If your industry is about to get put of business, it’s easier than ever to change industries or business models.

Just as newspapers and traditional publishing are dying, self-publishing is going through a Renaissance.

If Piketty is right that inequality and poverty will be greater in the 21st century than the 20th, it will have very little to do with some inevitable economic forces beyond our control.

It will have everything to do with how we view the world. Most people I meet today can be easily filtered into two camps. Those that see more opportunity than they know what to do with and those that see more change than they can handle. The external reality for both is the same.

The Scarcity of Stasis and Optionality of Opportunity

I was speaking with a friend recently who is graduating from a well-known law school. She’d gotten accepted into a well known firm in a top tier U.S. city. For someone coming out of law school in today’s market, she was, in her words, “doing as well as anyone could expect.”

She was telling me that most people put in three to seven years after law school where they are able to pay off their debt, and at the end of those three to seven years will either make partner at their current firm or, having “paid their dues” choose to go to another firm with a better work/life balance.

At the end of our conversation, she sighed and said “I mean, yea, there’s a set path. It’s the safe option.”

Is that true though? Or is that a manifestation of a particular worldview?

Just as Malthus’s data made it look like the cycle of starvation would continue for the rest of human history, much of our current data indicates that law school is a safe choice.

I’ve met a lot of entrepreneurs who have gone through rough periods and been able to bounce back. They hit a slump and broke through to bigger and better opportunities. Failed product launches that turned into new market opportunities or failed partnerships that led to better businesses in the long run. Is there some inherent truth or secret there? Or is it a manifestation of their worldview?

On the other hand, there was an entire generation of lawyers who were passed over for partnership over the last five years because they “came of age” for partnership at the financial crisis. For factors seemingly entirely outside their control, they had missed out on a major career opportunity because they believed they were on a set path. In a world with more and more volatility and more black swans — a belief in set paths, legible paths is dangerous.

If I was working at the Chronicle newspaper in a city right now where the Journal newspaper is the leader and as traditional print media is consolidating, and many secondary or tertiary papers are going out of business, it doesn’t matter how good of a journalist I am. I’m probably going to lose my job and the paper is going to go under.

And yet our instinct, my instinct, is most frequently to persist in my delusion. Not out of lack of intelligence, but because of it. Because of an understanding of the world as it always has been instead of the world as it is or is likely to be. Malthus was no dummy. He was one of the best educated and studied men of his generation.

What feels like a doomed situation though is rife with possibility. As some journalists struggle, others have thrived leveraging their respective publishers platforms to build followings that have taken them far beyond. Malcolm Gladwell among others comes to mind.

The natural instinct is to persist in delusion, to work harder at a game that can not be one. Yet increasingly, this natural instinct gets us in trouble. It conforms to a view of the world as Piketty sees it, and not as a billionaire might.

The opportunity isn’t them, it’s YOU.

The world’s not getting any calmer. Better and more fun to ride the rapids than swim upstream me thinks.