The 2 types of people that run the world.

The world is run by 2 types of people.

The first are genuinely smart people, who have the ability to create something of value for humanity. And the second type is con men: people who are very good at faking their smarts, and convincing people to give them power and authority they’re unqualified for.

In big organizations, you can usually find a few of both. You can find people who rose through the ranks by working hard, doing good things, and creating value. And you can find people who rose through the ranks with lobbying and ass-kissing.

If we want to change the world for the better, then we should try to give the reins to truly smart people, because they are the ones with the power to reshape society for the better. Some examples throughout history include Nikola Tesla, Martin Luther King, Jr., Benjamin Franklin, Albert Einstein, Elon Musk, Steve Wozniak, and many others.

However, most powerful people in the world got to where they are not by creating value for others, but by falsely signaling their talents. In other words, they bullshitted their way to the top.

Most politicians, for instance, have no true talents other than creating false signals to the public that they will govern well. That’s what wins elections, so that’s what they practice.

Likewise, most non-founder CEO’s aren’t that special. They’re often just talented enough at running a business to do well enough to save their jobs. In extreme cases, like Enron, they can run otherwise good companies into the ground. But they’re really, really good at convincing their bosses to promote them, so they end up with undeserved power and influence.

Signaling vs. Creating

Here’s a paradox: many things are considered “business-like”, and if you walk into a big company’s office, pretty much everyone will do them. Things that are “business-like” include wearing suits, calling people by their last name, and using “professional” language.

But walk into a startup’s office, and you’ll find they’re not very business-like at all. Many startups operate out of dorm rooms or apartments instead of “real” offices. They’re run by recent college graduates instead of seasoned businesspeople. Employees speak colloquially, even around their bosses. People often come to work wearing a T-shirt and jeans, arriving at noon and staying until 3 A.M.

But the paradox is, startups are usually much more productive than established businesses. They get way more done in way less time.

For instance, the majority of the incredible, world-changing innovations of the past 50 years, such as the personal computer and social media, were created by startups. And Elon Musk alone has created commercially viable electric cars and reusable rockets, two technological innovations long considered impossible, in less than 10 years at Tesla and SpaceX.

Startups usually grow much faster than established companies, too — although they’re high-risk, venture capital investments tend to pay off more than the S&P 500 in the long run.

If startups are so un-business-like, how come they’re better at doing business than actual established businesses?

Arguably, startups are productive in part because they do not behave very business-like. That’s because most business-like things are only done to influence the opinions of others. They’re useful signals if you want to get promoted, but they don’t actually create anything of value for the customer.

In other words, when viewed at a collective level, signals are a waste of time. The overall pie — measured by valuation, profits, GDP, or whatever — doesn’t increase when employees send signals to one another. And the people who spend the most time signaling are usually the ones who get the least done.

Why Poker Players Are Smarter Than Bankers.

In Maria Konnikova’s book The Biggest Bluff, about her learning to play poker, she tells a story about legendary poker player Dan Harrington’s real estate firm.

Harrington hired other poker players to analyze real estate deals for him. And he made a lot of money doing so.

Since poker players do not have to convince anyone that they are talented poker players to succeed, they can focus solely on their poker-playing abilities and do away with signaling altogether. Meaning when Harrington hired a poker player to analyze properties, they cut the crap and got to work.

One time, Harrington tried to hire a non-poker player to work at his firm. The new employee was a stock analyst who had worked at a major Wall Street firm.

The former banker was convincing in his interview, but he ended up doing a terrible job at analyzing real estate deals. It turns out, when you work on Wall Street, you’re incentivized to bullshit your way to the top, and make excuses when your clients’ portfolios don’t live up to expectations.

The banker took this mentality with him when he worked with Harrington, and it became quickly apparent that he couldn’t cut it. He couldn’t actually analyze real estate worth a damn — all he could do was send signals that he could.

What Happens When You Fire The Bullshitter And Hire A Smart Guy

Prior to 1940, Neville Chamberlain, the then-Prime Minister of England, was doing a terrible job.

Chamberlain was your average politician: he wore a suit, spoke with authority, and tried his hardest not to offend anybody.

At the time, there was this guy called Hitler, who was slowly taking over Europe. Chamberlain’s policy towards Hitler was to give him whatever he wanted, and hope he would go away on his own. (This was unsuccessful.)

In 1940, the British Parliament threw Chamberlain out and replaced him with Winston Churchill, one of the least “politician-like” politicians in history.

(It’s ironic that the British Parliament, consisting mostly of con men, threw out their fellow con man Chamberlain and turned the controls over to a renegade the moment that it became crucial to have a good prime minister.)

Churchill smoked, he drank, and he certainly did not act with the candor and professionalism that the British people expected from their Prime Minister. But putting Churchill in power ended up being exactly the right move. Churchill started fighting back against Hitler instead of giving in to his demands. And (spoiler alert) the Allies ended up winning.

Today, Churchill is hailed as one of the greatest heroes in the history of the United Kingdom. He proved that when you put someone in power who’s more concerned with getting things done than with appearances, you can achieve a lot more.

The Venn Diagram

Picture a Venn diagram. One circle contains everything that makes you good at a job. The other circle contains everything that makes you good at getting that job.

See the part where the circles overlap? That’s the range of real abilities that help you get stuff done, that people also judge you on.

In different fields, the Venn Diagram may overlap more or less. In poker, where talented players face no barriers to entry and can just sit down at the table, the two circles overlap almost completely.

Whereas in politics, the two circles might not touch at all, because the average voter is not smart enough to distinguish a truly gifted person from a con man.

Why The 22nd Century Will Not Be Ruled By Con Men.

I believe that, in most fields, the two circles will get closer together as time passes.

There are 2 reasons why. First, every now and then, a truly smart person is thrust into power over a con man — and when they are, they have a chance to hire even more smart people.

So if they can be just a little bit better at picking out smart people, on average, then you’d expect more and more smart people to get hired over time.

For example, let’s say that General Motors has to pick a new CEO. There are 10 candidates, 9 are con men, and 1 is truly smart.

If the board members are all stupid, they have a 90% chance of picking a con man to lead the company. But suppose that the last CEO was smart, and has some say in picking his replacement. Perhaps he can identify half of the con men as con men and rule them out.

Then, there would be only 5 candidates remaining, 4 of whom are con men.

In the short run, obviously, con men still prevail more often than not. But smart people would start to creep through the ranks, and become more of a force inside corporate America than they were before.

The second reason why con men will dwindle with time is technology. Technology will hurt con men in two ways: first, it will remove barriers to entry. And second, it will make things easier to measure.

First, barriers to entry: when there are fewer barriers to entry, talented people don’t have to go through the normal channels. If they have ideas about how to build cars, for example, then they won’t have to become the CEO of a major car company — they can just start making their own cars.

This will help smart people vault themselves into importance, without relying on beating con men at signaling. It will also drive the established companies into extinction, or at least force them to look harder for smart people in order to stay competitive.

Second, technology will make many things easier to measure. Think about marketing: in the past, it was hard to tell how well a specific marketing campaign was performing, but today, it’s easy.

You can tell how many people clicked on an ad, you can tell how many people bought from your website, and you can tell how many dollars of revenue you generated from every dollar you spent on advertisements.

This is bad news for con men, who will have a harder time explaining away their failures if their results are so easy to measure. If a schmoozer wrote a stupid TV ad in the ‘60’s, no one would know, and if his client liked him, they’d keep him around and blame poor sales on something else. But if a schmoozer creates a bad Facebook ad campaign today, his client would see the poor results and fire him.

How to tell who is actually smart and who is a con man.

Suppose you run a business, and you hire people to work with you. You read this article, and now you’re wondering how to avoid getting suckered by a con man. How should you defend yourself?

Con men are very good at giving off traditional signals — like, they’re tall, they’re white, they’re male, they’re attractive, they speak confidently, etc. Or, they’ve done a lot of research on you and your company. Or, they get their hair cut at the same place you do. Or, their resumé is well-written and polished.

Those signals all have little correlation, if any, with job competency, and can be exploited by incompetent people to boost their chances. So, you have to ignore them, and look for alternative signals.

One way to spot a faker is to give them a test. Albert Einstein came up with the famous “Einstein puzzle” — you know, the ones that say “Mary lives next to Bob, and her favorite color is green. Bob lives 2 houses away from David and smokes Camel cigarettes. What animal does Lucy keep as a pet?”

He then gave them to potential assistants, and hired based on their performance.

To avoid hiring a con man, think like Einstein, and devise some sort of test to see if the person you’re considering hiring is competent.

Another way you can avoid con men is to specifically hire renegades. Renegades are people who don’t bother to signal, like Winston Churchill. Often, the reason they don’t bother to signal is because they’re smart enough to get by without signaling.

I have a friend who was fired from his first job at an established company. Then, he got a job at a startup in the same space. According to his new employer, getting canned as a positive: if his old coworkers didn’t like him, it might have been because he was spending too much time producing value for the company, and not enough time playing office politics.

So, if you’re looking for productive people, you might specifically put on your job application that people who got fired from bigger companies should apply. You may get resumés from some really smart people. (Make them explain why they were fired, of course.)

Hi! I’m Theo, and every week I write an article about something provocative and interesting. If you want to see last week’s article, click on my profile. If you want to see next week’s article, hit the “follow” button, and you’ll get a notification when it shows up.