Globalism: Export Industrialism Itself & Share In The Wealth

This is Part IV. Find Part I here and Part V here.


Wealth-building under Feudalism concluded with an exhortation to “Take it and Tax it!”

Mercantilism with “Take it and Sell it!”

And Industrialism with “Make it and Sell it!”

You can see how the continuity flows from one to the other. There are other viable strategies I haven’t discussed in this essay that exist complementary to these 3 Core layers of the Stack (e.g. Port Cities/Nations which offer non-partisan venues with attractive tax rates for major parties to engage in trade), but it’s rare that those strategies are standalone-viable. Superpowers need a Wealth-generation machine they can compound by themselves, and that goes for Nations (China) and Companies (Amazon) alike.

When you see no investment opportunities, you’ve lost control of your growth. History tends to be unkind to those who stop growing.

So how does an Industrialist economy generate even more Wealth for itself? Industrialism made that simple: just produce & export even more product!

But what happens when there are no new customers to sell to? What happens when all your existing customers can’t afford to purchase any more product? Is that the end game of economic growth?

No! Like  Derrick Rose  —  “we wanna go higher!”

No! Like Derrick Rose “we wanna go higher!”

Enter the Mount Washington Grand Hotel, in the White Mountains of New Hampshire. Enter the Bretton Woods Conference of July 1944. If the camera turned around and pointed the other way, it’d be looking at the best ski resort in New Hampshire by the way (I’m a big fan).

Bretton Woods brought a plan for Pegged Foreign Exchange markets for all currencies (tied to gold), the International Monetary Fund (IMF), and the International Bank for Reconstruction and Development (IBRD). Big fancy dry boring sounding institutions, suitable only for high-school History tests. Did you start skim-reading yet? But don’t skim past this conference — this was about overcoming the Prisoner’s Dilemma of Industrialism:

The seminal idea behind the Bretton Woods Conference was the notion of open markets. In his closing remarks at the conference, its president, U.S. Treasury Secretary Henry Morgenthau, stated that the establishment of the IMF and the IBRD marked the end of economic nationalism. This meant countries would maintain their national interest, but trade blocs and economic spheres of influence would no longer be their means. The second idea behind the Bretton Woods Conference was joint management of the Western political-economic order, meaning that the foremost industrial democratic nations must lower barriers to trade and the movement of capital, in addition to their responsibility to govern the system.

Yeah. That paragraph could’ve been printed today in The Financial Times, The New York Times, The Wall St. Journal, The Economist, The Harvard Business Review, or any other reasonable mainstream publication. This conference established the doctrine of Geopolitical Economy, both in theory and practice, for decades to come, and if you paid attention in school or listen to the media, and you’re under 75 years old, this is the system you learned was best for the world: American Capital (carrot) and Military (stick) to keep the Western world cooperating instead of defecting.

And it worked! Like no system before it. This is the system that created the Economic Surpluses Scott Alexander described in his famous essay on Cost Disease:

If some government program found a way to give poor people good health insurance for a few hundred dollars a year, college tuition for about a thousand, and housing for only two-thirds what it costs now, that would be the greatest anti-poverty advance in history. That program is called “having things be as efficient as they were a few decades ago”.

The Stack of Globalism is the simplest of the lot (assuming you understand the prior stacks), the most powerful, the most Wealth-generating, the most morally-virtuous, and the least violent. We got here by asking, out of pure Adam Smith economic self-interest, how can an Industrialist nation increase its Revenues when its Export market is already saturated?

The Bretton Woods answer: make your customers richer. 

Take a portion of the Surpluses, the Wealth, generated domestically by our powerful Industrialist system and (i) invest them internationally, (ii) turning those other nations into Industrialist powerhouses in their own right, (iii) that they might then generate Surpluses of their own, (iv) which can then be spent buying even more U.S. Exports!

Our growth becomes a result of the growth of others. Their growth a result of ours. I talk a lot in my essays about the insane power of Compounding, but this is Compounding on a Global Scale. Global companies can Compound themselves across Global Markets. Globalism unlocks Compound Nations. Compound International GDP, a magical ride which wouldn’t end until the entire world was productively producing domestic goods and exporting them back into the supply chain!

U.S. Economic Development Plan, 1944-1971, as brought to you by the Great American J. Z. in  my favorite song  of his. The placement of the comma before “to me” really ruins the double-entendre…

U.S. Economic Development Plan, 1944-1971, as brought to you by the Great American J. Z. in my favorite song of his. The placement of the comma before “to me” really ruins the double-entendre…

Globalism Today: Flatlining As China & Germany “Capture” Their Neighbours Exports

Alas, the system was unstable, prone to financial collapses and runaway currency issues, and had to be taken off life-support in 1971 — Fixed Foreign Exchange Rates, Free Capital Movement, and Independent Monetary Policy are sometimes collectively called the Impossible Trinity. Things didn’t work out.

My friends know I like to over use hyperbole, so I’m going to make a bold claim: this Stack of society is basically non-existent today at the International level.

The core strategy of what I call “Globalism” is generating surpluses and investing those surpluses in other nations for the express purpose of developing them as a Wealthy Trade Partner. It’s not just about sending money overseas — the intention is key, and the intention is to grant Power (Wealth leads to self-determination) to others that they might then buy more from you. I get that people use the G-word in many different ways today, often in the context of companies permanently moving whole industries to other nations in order to lower their cost base, but let me stick with my reciprocal definition for a moment and ask: which nations generate large Surpluses today?

Ranked by GDP (left) & Trade Surplus (right). Email me if you’d like the full Excel file. You can quibble with the sourcing, but I took both data sets raw from the same place (the World Bank) to make sure the numbers were treated the same, no secret adjustments, and all numbers expressed in constant 2017 US Dollars.

Let me briefly go down the list and ask again: where are these nations primarily s(p)ending their Surpluses?

United States: 

  • In a familiar story for my international readers, the US is most preoccupied with itself. Only 6 countries in the World have a lower [Trade as % of GDP] number. Namely: Occupied Palestinian Territories, Cuba, Ethiopia, Rwanda, Burundi, and Chad

  • If I narrow my filter to [Exports as % of GDP], my US readers will be pleased to know they rise from 7th lowest to 28th. The nations which run lower [Exports as % of GDP] include the global superpowers: Macao, Nepal, Grenada, Lebanon, Sao Tome, Central African Republic, Andorra, Tonga, Samoa, Afghanistan, Yemen, Djibouti, Cape Verde, Mali, Kenya, Uganda, Barbados, Benin, St. Lucia, Maldivas, Pakistan, and Tanzania. That’s it.

  • “But the US is a massive Importer, surely!” I hear you say. Which is why when you compare [Imports as % of GDP] a whopping 9 countries have a smaller ratio than the US: Angola, Nigeria, Turkmenistan, Argentina, Japan, Brazil, Cuba, Occupied Palestinian Territories, and Chad.

  • No offense intended to citizens of those nations, many of which are currently plagued by war or trade sanctions or have a total-land-size of under 15 square miles, but that’s hardly fitting company for the Global Hegemon.

  • Whichever way you cut the data, any way you pull apart the GDP calculation and slice up Imports and Exports and International Trade and Domestic Production, it becomes abundantly clear that the US just does not Trade that much with the outside World relative to its Domestic Productivity.

  • Certainly, the US spends some of its domestic Surpluses Importing goods from & Investing in the industrial development of China & Mexico/Canada., and the fact that domestic productivity dwarfs the US’s international trade does not by itself prove that the US is not pursuing a Globalism strategy, but as far as I can see the core reciprocally-compounding nature of Globalism is absent from today’s US Trade & Investment flows with the rest of the World

    • The new cohort of rising economic powerhouses sit outside the Bretton Woods powerbloc, openly playing Mercantilist/Industrialist games, apparently not much interested in mutual-enrichment

    • US Dollars work like gold — everyone wants ‘em, nobody wants to spend ‘em. Which means there’s no expectation on our part that China will spend their $3 Trillion in US Dollar reserves buying our exports, which means it’s not compounding, which means that Growth trajectory will be rather more linear

Pictured: America

Pictured: America


  • I already covered China in too much detail in the Industrialism section, but suffice it to re-state that they have no intention of making other nations independently Wealthy (i.e. Powerful). They “tried” that (involuntarily) for ~150 years and it wasn’t fun. Which means investment is kept domestic, factories are kept domestic, companies are owned by Chinese nationals, supply chains are pinned to Chinese waters, and Surpluses are spent domestically.

  • To the extent that they do invest internationally, it has been and will continue to be in nations which can offer strategic Mercantilist resources to fuel their Industrialist powerhouse, with no expectation of reciprocal Compounding.

  • Much has been made of China’s investments in Africa, with many hoping that the continent will finally be able to Industrialize properly and “leapfrog” the Western world. Of course, the idea of President Xi Jinping allowing non-Chinese to build Wealth stikes cynical-old-me as deeply incongruent, so I took a look through the list of African countries he’s invested in and the list of African countries by proven-oil-reserves and can’t help but notice certain similarities.

  • US productivity is such a monster that China is still far from confronting the question of how to grow when your customers cannot afford to buy more of your product. They’ve room to keep their own Exports growing: as always, the American consumer can afford more — per the above, only a tiny fraction of domestic US productivity is actually spent on Imports.

Pictured: China’s Growth Plan

Pictured: China’s Growth Plan


  • Japan is too busy trying to stay solvent and keep its GDP growth above 0. Japan has an aging population, a massive welfare state, an unwilling almost-post-industrial economy that was considered the most technologically-advanced in the world when I was born…but basically missed the post-2000s Software Boom and the post-Steve Jobs Smartphone Boom due to odd quirks of national culture & policy…

  • …and their nearest neighbour is playing Zero-Sum Capture games on the scale of: “everything Industrial ever made anywhere”

  • Japan can barely keep Industrialism going domestically, how can we expect them to try and share it?

Pictured: Japan Clinging To Positive GDP Growth

Pictured: Japan Clinging To Positive GDP Growth


  • The rest of the world continues to miss just how powerful the German Industrial machine is. Which is rather odd — you’d think they’d have learned to pay attention by now. It’s impossible to understand the mess that keeps happening in the EU without understanding the degree to which German Industrialism absolutely dominates the continent. Only China runs a larger trade surplus today. And unlike China, Germany has no customer concentration risk! 

    • They export about the same amount to the US, France, China, the UK, the Netherlands, Italy, Austria, Poland, and Switzerland.

  • The major risk to Germany is their customers going bankrupt and not paying their bills…which is why Germany is so focused on the short-term financial wellbeing of their neighbours.

    • They’re not interested in Exporting German Industrialism to the rest of Europe — just in keeping the EU solvent enough to continue consuming German Exports, even if that means financing that consumption with debt

  • On the face of it, Germany is the one nation that could save Globalism, or at least run some modern version of it. They’ve got the surpluses, the trade partners, the raw materials, the knowledge, & the industrial culture!

  • What they don’t have is security. 2,000 years of European Feudalism, Mercantilism, and Industrialism have left a lot of distrust, bitterness, and beggar-thy-neighbour in the hearts and minds of Europe & its leaders. And now they’re all locked into a single shared currency with the unbeatable German Industrial Machine, with deficit nations unable to devalue their way into attractive exports and forced to pay for their cars and their mortgages in hard 1:1 German Euros, loaned to them by German Banks. 

    • Unfortunately, the domestic German debate assumes, wrongly, that the answer is for every member to become like Germany itself. But Germany can be Germany – an economy with fiscal discipline, feeble domestic demand and a huge export surplus – only because others are not.” - That’s a good essay describing the conflict between Industrialism & Globalism in the Economist. They’re still good folks.

    • The result:

Pictured: Germany negotiating with The Rest of Europe

Pictured: Germany negotiating with The Rest of Europe

I’ll stop there and leave the other nations as a thought experiment for the reader. I’m sure there’s a country somewhere that proves an exception to my hyperbole. But as far as my eyes can see, this is not our Grandparents’ Globalism, nobody who’s in charge is secure enough in their own position to enrich their neighbours, no rising would-be-superpower is interested in re-investing back into the productive capacity of those above them on the totem pole, and no current superpower feels comfortable sitting down with their peers and “enforcing” some ground rules to overcome the Prisoner’s Dilemma (see the EU’s tax rate debacle I mentioned in the Industrialism section).

I’m not saying Germany & France SHOULD sit down with Ireland and the rest of the EU and explain exactly why they’re unhappy (Sovereign tax rate competition uses the institutions and systems Germany & France have created to benefit one nation’s citizens over another) and propose a solution — that would be a quick way to have to pronounce more awkward-sounding words ending in “-exit”.

But we now live in a world where these grievances go unspoken, where Google and Facebook take their daily media floggings as emblems of American Imperial Influence and nationalistic distractions from the underlying issue, where no superpower is secure enough to stand up publicly and say “Look, this is our position, this is why we’re unhappy, and this is what we propose to do about it: [Carrot] and [Stick].” — however bad that might make them look on the 24/7 News.

Thus the animosity has no outlet except via quietly playing the exact Wealth-Capturing games that caused it in the first place.

Most of my fellow Europeans still have sore memories of Germany’s [Stick], but what [Carrot] does Germany even have today? They haven’t been industrializing the rest of Europe, so nobody believes their Capital serves any purpose except as a vehicle to purchase German goods on credit…

Ah! And that’s the mud-covered dollar-bill buried at the heart of the matter.

The use and purpose of the Capital as it flows across borders.

Globalism as I’ve pitched it in this essay is an attempt to build more Wealth for yourself by investing in your customers. That investment unlocks 10,000x Surplus Wealth Generation for them (see: Industrialism), some of which can be reciprocally spent buying more of your Exports.

But what if instead of all that complex bullshit you just loaned your customers the cash? Why wait for them to Industrialize and generate massive Surpluses and then become potential competitors? Why not just loan them the money upfront and have them spend THAT, plus the interest you can charge them?

Source  — the expansion of debt allows your customers to buy more of your exports without actually needing to build more Surpluses of their own to spend

Source — the expansion of debt allows your customers to buy more of your exports without actually needing to build more Surpluses of their own to spend

Of course you’d have to make sure they were good for it. Their currency would have to be solid, you couldn’t have a Sovereign customer just printing money and inflating his way out of Debts he can’t repay. In the very worst case, you’d want to be able to repossess their banks and have what’s left in the coffers be As Good As Gold.

Thank God Cyprus’ citizens kept their savings deposits in Euros!

Negotiations got under way on Sunday amid a hardening of stance by the IMF and Germany, which insisted that depositors must take the hit for bailing out the eurozone's latest crisis economy.

Spoiler alert, tell me if you’ve heard this one before: they took the hit and the bankers who gave them the loans which went bad got to repossess Euros As Good As Gold Euros.

This isn’t Globalism, not anymore. It’s something else. Domestic Industrialism coupled with…something new. Something unlocked by access to Capital, an ultra efficient Financial system, free movement of money, multi-national Reserve Currencies, and diffuse personal risk:

Globalism Recap

Everybody smiling

Everybody smiling

Export the Knowledge & Capital necessary to Industrialize friendly trading partners, and then mutually profit from the increased Trade and Compound Wealth-generation from running Industrialism on both sides of the table, under the softly-(un)spoken umbrella of a Hegemon’s protection

  • Today this means:

    • Basically nothing.

      • While nobody appears to operate this way today, many who grew up & were educated by teachers who experienced the powerful Wealth-generation of Globalism believe that it’s still dominant today and that all domestic policies should move towards this system, for the rather obvious reason that it led to the largest Surpluses seen ever…

      • And did so (relatively) peacefully and increased the total wellbeing of the Industrialized World in a way that, for the first time, everyone could feel morally good about

    • You could make a strong argument, at least within the US, that many private corporations have adopted the “Globalism” worldview of mutually-compounding-Wealth-generation, with the “national border” instead set to a “corporate border”

      • Honestly I think this is a really good argument and could be its own essay, and you can see the moral-virtue of “jobs created” cited in defensive of private Wealth-creation & capture (see those links above), but all private corporations are still bounded by the International framework of competing Feudal, Mercantilist, and Industrialist laws & incentives, and without an enforced Globalist framework, it’s unclear who really holds the cards: the Mutually-beneficial Globalist Corporation or the Personally-enriching Industrialist Nation. China certainly seems to think they come out on top.

Financialism: You Don’t Need Surpluses If You Can Trade With The Future

This is Part V. Find Part I here and the Conclusion here.

J.P. Morgan, Godfather of American Financial Wizardry

J.P. Morgan, Godfather of American Financial Wizardry

I did work on Wall St. after graduating college, but I think Yanis Varoufakis, the former Finance Minister of Greece, former economist-in-residence at Valve, academic, author, and self-described “radical lefty” did a better job than I ever could describing the modern Financial System at a talk he gave in Boston last year:

“The beauty and ugliness of Finance, of Banking, is that it is a Magical process. Because once we moved from the [Feudal] Landlord to Edison and Henry Ford, it became impossible to finance Capitalism simply via the accumulated Wealth of some rich person. There was never enough money in the hands of any financier to provide Edison with the money he needed in order to set up his networked firm. So you needed banks to conjure up money from nothing…

There is a common fallacy in popular culture that banks operate like vaults. Whereby you and I put our savings in, and somebody else borrows money that comes from our savings. And that the banker makes money from the difference between the Interest rate that he pays us for depositing our money into his vault, and the Interest rate he charges the borrower.

That is not what is going on.

If you go to a bank tomorrow morning and you get a loan, the money is going to come out of thin air. The bank will create it out of nothing. It’s really very simple. You get $100,000…what will happen is someone just types $100,000 into your bank account….the hope of the banker is: you are going to use this money productively, earn money from the loan, and then you will give the banker back the money that will tie up that lose end. With Interest. 

To the extent that this works, it really works magnificently.

It’s a bit like a banker being a specially gifted Magician who has a very long arm and can push that arm through the timeline. He pushes his hand into the future, grabs value that has not been created yet, snatches it from the future, brings it to the Present, and hopefully you do productive things, and you create the value that will repay the Future.

But once they learn the beauty — the glory — of doing this, they are in a privileged spot. Because they can take value from the Future, bring it to the Present…and because they are the mediators between Future and Present value they are ultra rich and central in societal processes. Political processes.

If you do this and it works, why not do more of this? 

Keep snatching more value from the Future, and more, and more! At some point the Present can no longer produce the value that it needs to produce in order to repay the Present. At that point, those of us who have borrowed money have no capacity to repay it, a recession beings, people that work for us lose their jobs, they cannot repay their own loans, and then suddenly the book of the bank is full of loans that are “non-performing”.

At that point, if you and I, or those of us who have some money in the bank, realize that this is happening, we panic, we rush to the bank — this is a bank run — we ask for the cash — the cash is not there! And then you have the financial crises that we had in this country and in Europe from the 1840s onwards.”

I think the word “Capitalism” in the first paragraph should be replaced by “Industrialism”, but otherwise this is spot-on. If you want to make stuff — any kind of stuff — you have to understand this “magnificent system.“

And you have to understand that for people and groups of people who can deliver above the median, this magnificent system multiplies their power and Wealth by a huge factor. That’s why they call it Leverage.

Sidenote: How to Become a Magician

Varoufakis might like to disparage Wizards by saying they “don’t do any work”, which is true to the extent that “work” == manual labor. But that doesn’t mean it’s easy being a Wizard. There’s one immensely difficult problem that all Schools of Wizardry attempt to solve:

How much value can be safely snatched from the Future?

Any good nerd will know that there are many different Schools of Magic. If you want to be admitted for study today, enroll in your college’s Finance 1 & Finance 2 courses, as well as Econ 1 & Econ 2, which might (no promises) give you the theoretical underpinning needed to become an apprentice Wizard at Hogwarts an Investment Bank.

Accio Value!

Accio Value!

The whole art of Financial Wizardry revolves around calculating exactly how much Value you can make from an [Asset], borrowing less than that amount to complete the purchase, actually extracting as much Value as you calculated, paying back the [Loan plus Interest], and then keeping all the value left over. Finance gives you the tools to discover what you should be maximally willing to pay today for an asset, and Economics helps you understand what others are willing to pay (and why the two seldom align).

Financialism Today: Magic Money Replaces Productivity Surpluses

As I said in the Mercantilism section, all these Stacks of Society exist together in the same time and place — this is not a history lesson, it’s about the different ways people build Wealth. The power of Finance has been felt since ancient times.

To the extent that there is a vaguely chronological narrative to the ordering of the Stacks, it’s because the likelihood of each Stack conferring the exact same Wealth-generating abilities upon its practitioners at any given moment in time is approximately zero. When one mode of Wealth-building has a Comparative Advantage over the others, it tends to dominate its local geography and time-period.

The Financial System exists as a Magical accelerant on Wealth-building for every other economic mode of being — Globalism most of all, followed by Industrialism. And that’s a really GoodThingTM (to the extent that you believe, like me, lifting people out of poverty, raising standards of living, and making your children better off is good).

What happens, however, when Financialism becomes so effective at Snatching Value from the Future that it becomes the dominant mode of Wealth-building?

Here’s the Money Shot:

"Actual Individual Consumption (AIC) per capita is more than 50% higher in the US than in the European Union as a whole!”  Per  RandomCriticalAnalysis , who wrote  much more than you wanted to know  about Health Care costs as they relate to AIC vs. GDP

"Actual Individual Consumption (AIC) per capita is more than 50% higher in the US than in the European Union as a whole!” Per RandomCriticalAnalysis, who wrote much more than you wanted to know about Health Care costs as they relate to AIC vs. GDP

Dark Blue bars == Actual Individual Consumption per capita

Light Blue bars == Gross Domestic Production per capita

[Actual Individual Consumption] is considered to be the better comparative measure of material standards of living between nations. Now go back to the chart and find a major country other than the United States where the Dark Blue bar (Consumption) is greater than the Light Blue bar (Production). There are only two — and one of those is itself an IMF-designated Global Financial Centre who might-or-might-not Brexit at some point in the near future.

How can you consume more than you produce? I’ll include an illuminating a quote from RandomCriticalAnalysis, whose chart I borrowed above:

My position is the average level of real resources available to residents of a country is the ur-cause of the vast majority of health spending everywhere and that AIC and AHDI are plainly superior measures of this…

Apprentice Wizards who internalized the principles of Econ 101 will intuitively understand the bold part. For everyone else: your fellow countrymen’s ability to pay determines what you pay.

For just about anything.

Now what happens when Financial Wizards offer your countrymen a higher standard of living by snatching Value from the Future and bringing it to the Present?

They say, quite reasonably: “yes, thank you, I would in fact like to have a higher standard of living. How did you know?!” This describes me too, of course. I went to college, as did most of my friends.

And then their ability to pay in the Present goes up, along with their line of credit.

When everyone’s ability to pay goes up, prices go:

I should honestly just keep including this chart in every essay I write.

I should honestly just keep including this chart in every essay I write.

That’s just Supply & Demand, Econ 101. And all that extra money — Value snatched from the Future — really is able to deliver meaningful quality of life improvements in the Present. The borrowed value accelerates today’s productivity, which means Americans end up with Consumption much greater than anyone else’s:

Quote per RandomCriticalAnalysis: “High US health care spending is quite well explained by its high material standard of living”

Quote per RandomCriticalAnalysis: “High US health care spending is quite well explained by its high material standard of living”

You have to ask: what supports this level of Consumption? Why can’t every other nation do this? What makes America so unique today? Sadly, there’s no pithy answer: everything important in life is multivariate, our economy today is complex, and Americans really are insanely productive on a per-capita basis, ranking around 11th-13th globally.

But Americans aren’t exactly running the same Industrialism playbook that they ran from ~1820 to 1945:

Read the y-axis closely for a laugh and don’t judge China too harshly for their 17% Tariff today — they learned from the best

Read the y-axis closely for a laugh and don’t judge China too harshly for their 17% Tariff today — they learned from the best

They’re running the Financialist one:

Source  (I set start date to 1971)

Source (I set start date to 1971)

Source  (The growth in the Debt-to-GDP ratio works out to ~1.07% CAGR over this 48 year period. Real GDP Growth CAGR over the same 48 year period was ~2.77%)

Source (The growth in the Debt-to-GDP ratio works out to ~1.07% CAGR over this 48 year period. Real GDP Growth CAGR over the same 48 year period was ~2.77%)

My position is the average level of real resources available to residents of a country is the ur-cause of the vast majority of spending everywhere

“The credit itself incites to deeds of spending.” - Homer’s Odyssey

The awkward thing about highlighting the downsides of Financialism is it sounds like you’re arguing against “having goods & services that help people and raise their Net Utility.” Which is a cause that approximately zero people ever have successfully spread to others. “Let’s put it on credit” has bipartisan appeal in the most polarized period of the last ~150 years, which means a) it might not be the right answer all the time and b) it’s not changing anytime soon.

And I suppose in some ways I AM arguing against people “having goods & services that help people and raise their Net Utility.” I’d much prefer they had the freedom and power to be the Masters of their Fate, to independently pursue their own goals, to leave their children better off, to enjoy and experience Wealth. Wealth Compounds, builds on itself, in a way that mere goods and services cannot.

But I’m going to ruin my ability to get reblogged and shared and retweeted here (if I didn’t do that already by writing so damn much) by saying that this all basically works. By saying that it’s not the end of the world. This is not going to cause Armageddon. This is the new normal, and it became the new normal because this system allows America to create more Wealth than any system before it. It’s not a system others can copy — not unless they have their own Global Financial Centers and a Reserve Currency and a Domestic Productivity engine and an obscenely large Military to defend it all. But for America, it works: just check the Stock Market.

For those who can beat the median, individuals or whole groups of people, Leveraged Wealth generation unlocks magnificent standards of living. Instead of trading with partners to access Compounding growth, you can “Trade” with your Future self. That’s the magic, and it’s why the system accelerates its best performers.


For those who can’t quite beat the median…you will still enjoy access to those same standards of living, but you’re not going to have any Wealth left over at the end of the day.

Of course, all these costs can only scale so far. The middle class must be able to fund them — and since wealth in America is distributed exponentially, what’s all-consuming for the middle class is peanuts to the wealthy. So Wealthy begins with a race to $2,000,000, adjusted-annually-to-the-cost-of-education-housing-and-medical-expenses.

See you guys at the finish line.

There’s an instinctive urge to reach for Feudal solutions like Universal Basic Income here (“Take it and Tax it!”), and I’m not saying those are right or wrong in any particular case, and I see how the failures of Financialism loop back towards Feudalism, but it’s worth bearing in mind that Financialism is a system designed to reward the compounding of success. To the extent that you “reallocate” (euphemism) capital away from the people who are, like it or not, most-efficiently compounding it, you will necessarily be reducing the Total Wealth available to the whole group at Time = T+1

As with Mercantilism, it may be possible to make that Trade advantageously, but it is rare to see an acknowledgement of its downsides, coupled with the thoughtfulness to avoid them, from those who advocate making the Trade. Indeed, rather than coupling Financialism with Feudalism, the largest returns to society as a whole appear to have come when it was coupled with Domestic Surplus Production, through either Globalism or Industrialism, such that the Total Wealth available at all levels of society at T+1 always increases.

Financialism Recap

Borrow money, invest it in anything that will return more than it cost you to borrow, rinse and repeat and don’t stop repeating because everyone else around you will be doing the same thing, pushing prices ever higher. To run this Stack at the societal level requires at least one Global Financial Center and Reserve Currency status — giving those nations an “exorbitant privilege”.

  • Today this means:

    • America, Great Britain, Japan, France/Germany are all able to generate Wealth domestically by routing the flows of Global Capital through their own institutions

Financialist policies receive strong bipartisan support from politicians who know “putting it on credit” gets them points for delivering on promises without taking a hit with voters (in democracies) or soldiers (in non-democracies) by making cuts elsewhere. 

  • For Americans, that means we spent $6 Trillion on wars in the Middle East over the last generation. Did anyone really notice? Whose bank account was pinched? Last I checked, we just cut taxes…and my lights are still on, my 401(k) is up, and gas is cheap

    • While this works, and will continue to work, it leaves a niggling anxiety in the back of regular citizen’s minds, certain that they’d never run their household finances this way. Of course they then take out $100k+ per child for college, put the car on a lease, the house on a mortgage, and pay for their phone in monthly installments — it’s not like they’ve got other options.

Financialism has fewer points-of-contact for Wealth creation as compared to Globalism/Industrialism, but touching those points results in higher returns than ever before due to the power of Leverage: being able to borrow from your Future self means you can more easily compound your advantages.

The increased Wealth of those who are successful under Financialism pushes prices up at the same time as Wealth-touching employment opportunities at the median shrink vs. prior Globalist/Industrialist opportunities.

Such pressure on society creates a tension that pulls things towards Feudal solutions…

So Can You Make A Whole Society Wealthier?

This is the Final Part. Find Part I here and Part V here.


Yeah, of course you can. Look outside. Look in any history book. Watch any Disney movie. Nobody ever doubted you could — the argument has always been about how (and who).

I’ve presented 5 frameworks, “Stacks of Society”, that I’ve come to rely on in describing, analyzing, evaluating, and advocating for different methods of Wealth-building. It’s just a Narrative, a loosely-linked story that I put together, not a gospel, not perfect, not even close to complete. There’s 10,000 words of examples and counter-examples that I’ve cut out and dumped into a document called “Draft”, never to see the light of day. I’m sure a number of the people I linked to will be irritated to be included in an Essay surrounded by links and quotes to their deep ideological opponents. No hard feelings, please, I’m just trying to understand the shape of things.

I linked to his most interesting Report in my Industrialism section, but it’s worth quoting Alexander Hamilton explicitly for his willingness to advocate for one specific thing (increased Government Debt), and then to acknowledge within that exact same advocacy that the reality was likely mixed, that the maximal public good is rarely found in extremes, that there would be a “perpetual tendency” to raise ever-more Debt, and that such a tendency should be fought “unceasingly(lol, yeah, about that…).

Say what you will about his ideas, good or bad, but don’t say he didn’t understand his intellectual opponents’ concerns on a deep level. Something something dialectic & synthesis.


Remarks of this kind are not made in the spirit of complaint. ’Tis for the nations whose regulations are alluded to to judge for themselves whether, by aiming at too much, they do not lose more than they gain. ’Tis for the United States to consider by what means they can render themselves least dependent on the combinations, right or wrong, of foreign policy.

Translation: “I’m just trying to find the sweet spot, right or wrong, where we can all get rich regardless of how Europe tries to screw us.”

While every layer of the Stack can operate at the same time in the same place, not all nations are equipped to run the Full Stack. Singapore is not Qatar is not Ireland is not the United States is not Switzerland is not Germany. But they’re all in the top 20 for GDP-per-capita, and the leaders & citizens of each must choose different strategies to build Wealth. Success in each layer has preconditions, both “natural” (resources, ports, climate, etc.) and “human” (policy, culture, capital, etc.).

What’s more, there’s a tension between the layers that I tried to highlight by structuring them into a Stack:

If you want to run Industrialism to the fullest, you need to be careful of Feudal policies hindering your growth by “Taking and Taxing” Capital away from Industrial reinvestment. (See: China & South Korea opening “Special Economic Zones” isolated from their standard domestic policies)

If you want to run Globalism, you have to be “the bigger man” and avoid playing Zero-Sum Mercantilist value-Capture games with your Trade partners, while also finding some combination of [Carrots] and [Sticks] that can keep everyone else from taking advantage of your benevolence. It is not enough to just be “bigger” — the [Carrots] and [Sticks] are critical to success. (See: Bretton Woods' global currency pegs, coupled with US foreign investment & trade [Carrots] and control of oil & naval trade routes [Sticks] limiting the surface area of possible game-playing)

If you want to run Financialism, bear in mind that you need much fewer people to efficiently direct Capital flows than you do to actually build & sell things (hardware or software) so unless you transition to Financialism directly from Feudalism you’re going to have a lot of people who suddenly don’t “touch” the Wealth-building process anymore (not involved in the process == zero opportunities to Capture Wealth), but who once did and remember how nice that felt. Political and Cultural implications of this abound.

I said in my intro that when it comes to Wealth, analysis and advocacy are inseparable. I’ve done a lot of bloviating tea-and-chocolate-fueled analysis here. Have I done any advocacy? Probably - I can't escape my biases. I didn't have some of the biases before I started this essay/project, but the act of learning shapes my worldview, pushes me towards certain solutions, influences which words I use to tell my Narrative. But to spell those biases out clearly:


I’ve come to believe that Financialism, as it exists today in America — and to varying degrees in Japan, Great Britain, France, China, and Germany — is the best system tried-to-date at accelerating Wealth-building and compounding success. Wherever the Capital is directed by those financial centers will experience the benefits of Compounding Wealth. Whoever is able to direct the Capital, and directly profit from the returns to doing so, will likewise experience the benefits of Compounding Wealth.

Left alone, those Nations/Cities/Companies/People most successful at Compounding Wealth will end up being the "Whoever”, and they’ll direct the Capital to “Wherever” the risk-adjusted-returns are calculated to be highest. Self-interest takes care of that.

Exerting Political will to influence the Wherever and the Whoever is possible, and a hazy calculus on the benefits of each can be done. Most times such calculus will return a negative total value, and whenever it looks positive, a reasonable suspicion is warranted. Quintuple check the numbers yourself and be wary of everyone who stands to gain (which is everyone).

Feudalism attempts to influence the Whoever, to change who benefits via taxation and redistribution.

Mercantilism reinforces the relative Wealth & Power of Ownership, shifting both Wherever and Whoever to those who can maintain possession of scarce resources.

Industrialism and Globalism both attempt to influence the Wherever, to shift the flows of Capital such that they directly benefit the domestic population.

Financialism can be coupled with any combination of those strategies — or none at all — and accelerates whatever you choose.

Choose wisely.


[0] For each of the commenters, if we take their only goal as Wealth-building, then my interpretation of each position is:

Maybe these commenters would disagree with my reading of their comments, but I think this is reasonable & charitable, and I can’t imagine the three of them reaching an agreement.

[1] As long as there are many possible products to produce profitably, the Industrialist-factory-owners are forced into competition with each other for labor. This competition creates, for perhaps the first time, a manufactured “scarcity” of domestic laborers — anyone willing to pay higher wages can shift labor allocation to his own factories. Unsurprisingly, this market power turns out to be pretty good for domestic labor, but it’s worth remembering that it’s only the competition among Industrialists with profitable factories that distinguishes the factory-laborer from the Feudal peasant. Demand for domestic labor can be capricious, moving at the whims of politics, economics, technology, and even culture.

[2] Expanding on my reading of history & the “Industrialism playbook”:

  • China copied and improved South Korean Industrialism (1980)

    • In 1962, South Korean ruler Park Chung-hee launched the coastal port of Ulsan as a “special industrial development zone” and enacted a set of export-focused policies, attractive to foreign investment, with a currency pegged to the US dollar

      • Gee that sounds familiar…(Right-click on page, Translate to English, then sacrifice a goat to Google)

    • The tight link between economics and politics was nurtured in Korea through well-connected family-owned vertical monopolies (Chaebol)

  • South Korea copied and improved Japanese Industrialism (1960)

    • Park Chung-hee grew up under Japanese rule, quit his teaching job to enlist in the Imperial Japanese Army, and was a big fan of how rapidly Meiji Japan industrialized to compete with the West

    • South Korea’s “Chaebol” were intentionally carbon-copies of Meiji Japanese Zaibatsu — both words are even written the same wayvertically-integrated family-owned politically-connected monopolies

    • From 1949 to 1971, the Japanese Yen was pegged to the US Dollar, which I’m told led to “Japanese exports costing too little in international markets” — hardly a problem for Japan!

    • Commodore Perry pried open Japan and forcibly created five cities as special economic zones from the very beginning of Japan’s industrialization

      • Taxes were then funneled via the Bank of Japan into the creation of domestic productive industrial capacity with a strong move away from imports (‘kokusanka)

      • Commodore Perry would have wept to realize he was playing a Mercantilist game in a new Industrialist world

  • Japan copied and improved German Industrialism (1870)

    • Japan’s First Prime Minister, Ito Hirobumi, was one of the first five Japanese to study in England, providing a glimpse of what Industrialism had already done for Europe — obvious parallels to Deng Xiaoping’s childhood experience 

    • Twenty years after his trip to England, he led another study mission to Europe, spending most of his time in Germany — or, as it was known then, The German Empire

    • The German Empire at this point had already rapidly industrialized and overtaken Britain as the largest economy in Europe — and, importantly, as the largest exporter of manufactured goods

    • They didn’t have Chaebols or Zaibatsu — they had “Konzerne” — politically-connected vertical monopolies formed around family businesses, which optimistically translates to “concern” and realistically translates to “cartel”. Regardless of translation, the function was the same

      • Wikipedia spells it out: “being significantly concentrated, [Konzerne were] able to make more efficient use of capital

        • Capitalism is about accumulating capital — I quoted German-born Peter Thiel much earlier: “Competition is for losers” — you can’t invest if you don’t have capital, and you can’t build capital if profits are competed away

    • The German Empire used “investments on the part of the state in new sectors where the technology required large infrastructure (and quantities of money) before becoming profitable…German workers were given arguably the best benefits in all of Europe in exchange for accepting the most severe discipline and higher productivity…”

      • The intentional parallels between Japanese and German workplace culture should not be missed — as well as the eventual cultural parallels outside the workplace (fascism)

    • And they believed: It must be added that it was undoubtedly only in this way that the incipient German industry could resist the competition from British product, which invaded the continent…and would have hacked any of the first German factories into pieces.” (Credit to Gilles Campagnolo)

  • Germany copied and improved British Industrialism (1850)

    • The Industrial Revolution began in Britain and after the dismantling of the Indian textile industry, Mercantilist Britain was no stranger to putting its own national private interests first

      • For 100 years, the British East India Company held a private monopoly on all global trade outside of Europe, granted by Queen Elizabeth, renewed by Parliament, enforced by the Royal Navy

    • The English didn’t have Chaebols, Zaibatsu, or Konzernes — they had “Joint Stock Companies”, an entity that could only be created with explicit permission from Parliament and one that should be familiar to every reader today

    • As one German economist from the 1800s observed: Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth” 

The Panopticon Prism: All Facts Serve A Narrative

Technology & Culture Democratized Storytelling — Paralyzing a Generation

Confronted by a terrifyingly complex world of ambiguous competing Narratives, mainlined into our bedrooms, gyms, offices, and pockets by the highest SAT scores in Silicon Valley, we do what 22 years of schooling taught us to do: demand the unbiased truth from an authority figure. 

This is the current Narrative of Zuck, brought to you by Congress & the Old Media…

This is the current Narrative of Zuck, brought to you by Congress & the Old Media…

A brief overview:

  • The same fact/study/experience/essay can rationally be understood by reasonable people to support different pre-existing worldviews

    • Each piece of evidence adds a new Lens to the stack, and everything is seen through decades of Compound Lenses

    • Proposed solutions to any problem will be mutually incomprehensible without understanding the other’s Compound Lens

  • Intelligent response to this scary realization: Idealize “Unbiased” Facts

    • …but this fails because the mere act of selecting and the manner of presenting a Fact colors how it’s understood and creates a Narrative

    • In the real world, action is a vector: it has both magnitude and direction. Meaningless facts offer no direction, no call to action…

    • Narratives create “Action Potential” and push us forward

      • “Unbiased” Facts have no meaning in isolation — trivia is trivial

  • Meanwhile, the Internet, Smartphones, & Technology in general have Democratized access-to and creation-of many Narratives, giving the average American a louder voice than history’s average Head of State

  • Social Media then forces all these newly created Narratives into Existential Competition with each other for Engagement (Moloch applied to Storytelling)

    • Thus the natural response to being confronted by a repository of totally “Unbiased” Facts is to alt-tab and refresh Facebook — at least Zuck calibrated it to show you something that matters. Maybe you’ll even like/upvote/retweet something…

  • Social Platforms’ need for engagement pushes actions at the Personal scale to conform to the standards of the Global scale by repeatedly surfacing Personal content to the rest of the Globe for judgement

  • Which forces the inmates to self-regulate: either conform to the Globe’s Lowest Common Denominator Compound Lens that can protect them or take no action at all

    • This perhaps has costs associated with it — I leave these to you to consider & weigh vs. the upsides of bringing Global Justice to Local Communities (America’s fav. pastime)

  • The old Narrative Gatekeepers now demand control of the stories to avoid having to confront the idea that their Narratives suck

    • It doesn’t take much talent to cast Zuckerberg as the devil in this story, but those of us who’ve been given a voice and a platform that was previously inaccessible might view Technology’s Democratization of Storytelling through a different lens…

  • While this may benefit those Gatekeepers, the rest of us need something more, something that this current landscape has reduced: Great Stories

  • Everything else results in inaction

And this is the counter Narrative, brought to you by…who? Me? Social Platforms sent me >25,000 readers in the last few months. Total Cost: $0.00. God Bless the Internet.  Note to lawyers: this is all transformative satire

And this is the counter Narrative, brought to you by…who? Me? Social Platforms sent me >25,000 readers in the last few months. Total Cost: $0.00. God Bless the Internet. Note to lawyers: this is all transformative satire

What’s Black and White and Yellow All Over? 

Where Boys Outperform Girls in Math: Rich, White and Suburban Districts (New York Times, June 2018, based on a study out of Stanford). Great article. Good visualizations. Even better data. Kudos to the New York Times, this was really great. Take a look at the headline data visualization…

Note Y-axis cut off to save on white space

Note Y-axis cut off to save on white space

…and allow me to (tongue-in-cheek) suggest an alternate title: Where Girls Outperform Boys in English: 10,000 / 10,000 School Districts, Seriously, It’s Not Even Close

The article’s third paragraph, included immediately after this awesome visualization, tells us that the study suggests some interesting things (emphasis mine):

The research, based on 260 million standardized test scores for third through eighth graders in nearly every district in the country, suggests that local norms influence how children perform in school from early ages – and that boys are much more influenced than girls.

Which I found surprising, because local norms don’t seem to show up anywhere in that awesome data visualization. “Richer Parents”, being nerdy and data-driven and therefore quantifiable along an X-axis, doesn’t quite translate. Still, sometimes these things show up in the underlying study and don’t make the graphic, so I went to the study and ctrl-f’d for “local norms” and bingo:

This paper has several limitations…Another is that we do not have good measures of local norms, expectations, stereotypes, or of how boys and girls are treated in school and home and community. Because of this, we cannot rule out the potentially important influence these factors may have on gender achievement gaps that we may be unable to observe with our coarse proxy measure.

Local norms may or may not cause the trends we see in that chart up above, but they weren’t tracked in any scientific way in this study. This study also doesn’t appear to have any data on which gender was more or less influenced by such things (since they didn’t measure such things in the first place), so the follow up punch in the Times’ summary of this research, “boys are much more influenced than girls“, caught my attention.

Not necessarily because it’s untrue, but because it suggests a reading of this study that’s colored by knowledge from elsewhere, to such a degree that this study is taken as further evidence in support of that prior knowledge base. Since the article had not yet given me, a normal Times reader, any info on which gender might be more or less influenced by various norms, their summary sparked a brief moment of incongruity. I try to notice those moments, as they often signal a deeper difference in the lens someone else uses to look at the world…

Looking Through The Prism

“It was sort of surprising because a lot of highly educated, liberal folks might think that they are more egalitarian and they express more egalitarian norms, but it looks like they are producing less egalitarian outcomes in math,”

…said Sean Reardon, a Professor at Stanford University’s Graduate School of Education and the lead author of the study.

And yes. It’s definitely possible that highly educated, white, suburban liberals (who reads the NYT again?) are acting sinfully — it wouldn’t be the first time. It’s unclear to me why the smaller socioeconomic-slope in Math is less egalitarian and the consistent ~8 month gender divide in English is more egalitarian. Have we all just collectively decided that Math matters more than English? That communicating isn’t important? Should I drop this writing hobby and get to work solving P=NP? (yes, of course I should)

But we were talking about noticing lenses, so it’s worth noticing that while the study measured test scores vs. “Socioeconomic status”, the study’s lead author has proxied his X-axis to “highly educated, liberal folks.” Education status and political affiliation aren’t exactly the same thing as “Socioeconomic status”, so I thought I should also go check what his study actually defines as “Socioeconomic Status” before continuing:



Apparently working in the Math-heavy disciplines of Finance or Engineering confers twice as much Socioeconomic Status on a district as Household Income (0.376 vs. 0.186)…Yikes. I wonder who’s gonna tell the New York Times authors of this piece, Claire Cain Miller (2018 Pulitzer Prize winner btw!) and Kevin Quealy what Stanford thinks of their Socioeconomic Status?[0]

But still…there’s nothing about politics in there, which means Professor Sean Reardon is letting us see some of his own lens when he shortcuts the X-axis of his own study as “highly educated, highly liberal.” Namely:

Employed in Finance or STEM => High Socioeconomic Status => Highly Educated => Highly Liberal => Egalitarian => Raises Girls the same as Boys => Girls Attain Same Scores as Boys

As lenses go, it’s certainly a reasonable one. I’m not saying this is a bad heuristic for America, although his definition of Socioeconomic Status places the highest premium of all upon “Management, Business and Financial Occupations” and I think I have a slightly different perspective on the politics of the finance industry after working on Wall St.[1]

My point in diving into this study isn’t to to challenge it (the data is super good) or call out Professor Sean Reardon for having his worldview (and not a bad one at that). Nor is it to call out the New York Times for having theirs — every publication has one,[2] and that’s a good thing. Having multiple worldviews that can compete with each other is healthy.

But we’ve got to be aware of our lens, how it colors the conclusions we draw from new evidence, and even how it shapes the sort of evidence we go looking for in the first place. If you construct an X-axis that discounts the socioeconomic status of these 3 guys, you & I might be experiencing a very different America:

Selecting a Different Lens

My point is just to show the Prism in action. In comes a single, solid, beam of light (the study). Out comes a rainbow of beams at different wavelengths (conclusions).

My interpretation of the New York Times’ take on the study is: local norms implicit in rich, white, suburban culture push boys to work harder on Math and/or push girls away from it. Later in their article, the Times expands on this view by linking to other studies that suggest exactly that:

There is also a theory that high-earning families invest more in sons, because men in this socioeconomic group earn more than women…

In the districts in which boys do better than girls in math, they also have a smaller gender gap in language arts – so it might be that they get more encouragement to do well in school in general. Boys’ grades, behavior and future earnings seem to be more influenced by the circumstances in which they grow up, research has found.

And of course I have my own lens too! I wouldn’t have picked this example if it hadn’t struck me so hard. Like I said earlier, my first response on seeing their awesome visualization was to ask: 

Wtf!? Why the hell are boys performing so terribly in English? Almost a whole-year behind girls all over the country — regardless of socioeconomic status, isn’t that crazy? Why does this not matter to anyone? Given that communication occurs throughout the day and Math is confined to a mere ~45 minute class block once a day, do 8th grade boys just seem mind-numbingly stupid to 8th grade girls every waking moment?

All my female friends laugh and tell me that boys did, in fact, seem (paraphrased) cognitively-stunted, and I feel better about my own memories interacting with 8th grade girls.


And yes, this lens of mine means that the gender gap that first catches my eye — the English one — seems like a BigDealTM. “Perhaps the most important one! It’s certainly the largest — and it doesn’t even go away if you add money! What else in the whole world can you add more money to without getting more performance?! Oh, right, we’re talking about Education.”

But that’s how lenses work. Observing (easy) and understanding (very hard) other people’s lenses after you spot them in the wild is a good way to learn to find new ones and practice the ability to see through them again later.

I’m not saying I’m very good at it yet. And (hot take here) it’s possible to understand someone without agreeing with their prescriptions. But maybe if I invert just three-and-a-half words in the Times’ title, I can show you what it looks like when you look through a fourth lens:

Where Boys Underperform Girls in Math: Poor, Black and Urban Districts


Considering The Whole Spectrum

“Is this just a rerun of the familiar old story of America failing its young black males. Does that story even get clicks anymore?”

This is America , afterall…

This is America, afterall…

I don’t know, I’m not asking anyone to agree, and this lens does not challenge the other lens’ data on parental-investment-by-gender across the socioeconomic spectrum. Interpretations are only mutually exclusive if you’ve got to write your answer in 2 pages, double-spaced, with reference to the text and extra credit for appealing to your teacher’s biases.

This lens requires its own unsupported assumptions and more studies. For the English-test data to show no socioeconomic gender-gap-trend, you’d probably want to look for other studies suggesting that the bulk of Language-skills-acquisition is done outside of the classroom and somehow in a gender-differentiated way (on average), but I’m no scientist. I just do quick Google Scholar searches to confirm that I could at least drop appeals to authority citations in support of my lenses if push came to shove. “Buy Access To This Study For: $42.00”thanks, but like everyone else: I already read the title & the abstract.

I’ll take us back to the section from the Times I quoted earlier:

…Boys’ grades, behavior and future earnings seem to be more influenced by the circumstances in which they grow up, research has found….

When you actually follow each of those links, you find the research has found something a little more specific than that quote implies:

A Disadvantaged Start Hurts Boys More Than Girls

Low-income boys who grow up in high-poverty, high-minority areas work significantly less than girls.

We find that, relative to their sisters, boys born to disadvantaged families have higher rates of disciplinary problems, lower achievement scores, and fewer high-school completions. Evidence supports that this is a causal effect of the post-natal environment; family disadvantage is unrelated to the gender gap in neonatal health. We conclude that the gender gap among black children is larger than among white children in substantial part because black children are raised in more disadvantaged families.

Boys at the bottom of society — i.e. the far-left of the X-axis on the chart that began this whole essay — appear to be more negatively influenced by their "local norms” than Girls, having disproportionately worse outcomes than we might otherwise expect and being particularly at risk for a range of behaviours that have low odds of increasing life outcome (measured however you like).

Looking through this lens implies very different categories of solutions to the problem presented by the initial graphic, and implies time & money should be spent somewhere very different from rich, white, suburban America…

Gambino is a mastermind

Gambino is a mastermind

The Power of Compound Lenses [Citation Needed]

The trouble with lenses is that they compound almost as well as money. Bayesian Inference (translation: updating your worldview in either direction as each additional point of evidence is added) is pretty damn cool, and I’m all about building a coherent rational understanding of reality. But each additional point of evidence is always interpreted and understood in the context of your pre-existing worldview — your lens.

Very small deviations in foundational-level lenses — whether they come from Culture, Upbringing, Lived Experience, Family, Early Relationships, Schooling, Religion, or even Language itself — can influence how all subsequent data points are perceived. That’s pretty basic, I think everyone gets it on some level.

What’s hard to understand is how this can compound entirely rationally into wildly different prescriptions. It’s the bold part of that sentence that’s hard to swallow — much easier, far simpler, to believe that wrong different prescriptions are the result of incorrect “facts” and a flawed thought process than to attempt to understand someone else’s Compound Lenses. But missing out on those Compound Lenses can be “outrageously expensive.”

The idea that the same fact/study/experience/observation/presentation/book/movie/song/essay can rationally be understood by reasonable people to provide Bayesian evidence in support of both their pre-existing worldview and ours is terrifying: always, we hope, the saner and more intelligent people in the audience can be convinced once we show them our Facts, capital-F.

Always, unfortunately, those Facts are Filtered through 10-80 years worth of prior Facts, each colored by a prior Lens. It’d be easier to just show them the whole stack of Compound Lenses than any single Fact, but how to do that without making them watch your whole life in VR? 

And even then, it’d be a passive experience: no choices == no skin in the game…

And even then, it’d be a passive experience: no choices == no skin in the game…

This is inescapable — and this is also why Great Fiction has real power. By cherry-picking certain Facts into a coherent Narrative that can be understood by people who otherwise might have rejected isolated facts and missed the value of the forest because they didn’t like the way a single tree looked, something approaching communication becomes possible, or at least a niggling gut-deep sensation that perhaps another human being might possess enough agency to teach us something. That or I get a lot of acid reflux.

Great Fiction comes in many forms: Religion, Scientism, the S&P500, Newspapers, Harry Potter, The Avengers Movies, Steve Jobs & Elon Musk, the History books you read in school, Instagram, and Venture Capital Pitch Decks

Sadly-but-not-coincidentally Fiction is the only category of book Adults aren’t buying anymore

Today’s Greatest Fiction: The Idealism of Unbiased Facts

One response to the reality of competing Narratives is to disparage them for being fiction and reach for a more perfect world, a Platonic Ideal of Truth, a world where all Facts are “unbiased”. Maybe that could work. Perhaps it could work better if humans weren’t so…human. It would certainly work better if we could all just agree to have the same foundational base of knowledge from which we could interpret these new “unbiased” Facts…

We could call it Culture? Identity? Re-education camps?

This response fails because even the selection of which Facts to present and how to arrange them, how to weight them, language choice, what colors you put on the jacket of the book, the musical accompaniment, the Identity markers of the presenter, and the sum total of all Facts that come before, during, and after this One True Fact — all those and more shape the understood meaning of your “unbiased” Truth.

Language note for my few thousand British readers: don’t tell your American girlfriend/boyfriend:“I’ll miss you when we break up for the summer.”


This does not mean there are no Facts. I’m not saying there’s no objective Truth, and I’m not saying that it can’t be understood and articulated and reasoned about — I’m an Engineer, I like my systems well-defined and internally consistent and with Energy Conserved, and I’m well aware that the correct response to an imperfect map of reality is building Tolerance into the system. You learn that shit in the 2nd year of undergrad. A map is not the territory, but that doesn’t mean the territory doesn’t exist, nor that the map cannot be useful, nor that some maps are not more useful than others…

What I’m saying is that Facts have no meaning, no value, in isolation — trivia is trivial. A single contour line on the map needs others around it to be useful.

And to take Action in the real world (prescription) requires first understanding a network of related facts (diagnosis):


That requires both taking and giving meaning to some Facts & their context. And once you’ve arranged a network of Facts, you’ve built a Narrative. Two points make a line, three make a story, don’t bury the lede, hit that Subscribe button.

Action is a vector: it has both magnitude and direction. “Unbiased” Facts would be facts without context, without Narrative, without meaning, without any action-potential and therefore of only academic value.[3]

So This Really Is A Post-Truth World?

The Post-Truth folks are today railing against a fiction without even being wrong (irony). Their peculiar Fiction is the first word: Post.

At one time we had truth and lies…

Post-truthfulness builds a fragile social edifice based on wariness. It erodes the foundation of trust that underlies any healthy civilization. When enough of us peddle fantasy as fact, society loses its grounding in reality.  Society would crumble altogether if we assumed others were as likely to dissemble as tell the truth. We are perilously close to that point.

Every danger diagnosed in that book is real, the examples emblematic of a phenomenon that exists today, like the New York Times data visualization that began this essay, and yet…

The Diagnosis (“At one time we had-”) is made based on a Compound Lens, a Worldview of the Past. I have to ask: How could you ever have a group of creatures as diverse as humans who viewed the same Facts with the same Meaning and pushed for the same Course of Action in response?

You couldn’t. Not unless you focused the historical lens tightly, narrowed the group: the same Culture, the same Religion, the same Life Experiences, the same Identity.

"People interpret the same facts in different ways!” is not a result of some new and nefarious force undermining your Truth and changing things for the worse. It’s a consequence of you being exposed to more people who before might have been a part of your Outgroup — people who you didn’t even notice and perhaps still prefer not to — a consequence of exposure to more Narratives.

You can have a Homogeneous Conforming Culture or a Heterogeneous Progressive Culture. Don’t expect them to behave the same way, and make sure you know what you’re pining for when you celebrate the past for its shared Truth.

I’d rather have the fractal intersectionality of Tumblr than these chucklefucks — and this is the “best”-case-scenario. Read Orwell for more details.

I’d rather have the fractal intersectionality of Tumblr than these chucklefucks — and this is the “best”-case-scenario. Read Orwell for more details.

Don’t get me wrong, it’s not that people today aren’t lying and spinning and manipulating and weaving truly creative fictions (hi Theranos)Great Fiction has always had power: has become by convention a sort of representative of demand; and this is why it has the name 'money' (nomisma)-because it exists not by nature but by law (nomos) and it is in our power to change it and make it useless

…This is why all goods must have a price set on them; for then there will always be exchange, and if so, association of man with man.

That’s Aristotle on Money as a Great Fiction to bring men together and also as within his our power to change. A Fiction with purpose. A force for good, a force for Justice, capital J — he wrote this in his book on Ethics.

The Counter Narrative on Money ends: “…the root of all evil.”

Millennials,  here’s Don Draper  lecturing you on your place in the office, which he has to do because you keep asking for all this extra shit that his generation never got — or at least that’s the writers’ Narrative. Our Counter Narrative begins: “In 2008…”

Millennials, here’s Don Draper lecturing you on your place in the office, which he has to do because you keep asking for all this extra shit that his generation never got — or at least that’s the writers’ Narrative. Our Counter Narrative begins: “In 2008…”

As Technology (if you’re reading this, it’s for you because the internet) and Politics continue to Democratize Power in America, the number of potential Narratives we’re all exposed to increases, many of them unscripted, unedited, and unapproved. Those Narratives which outcompete the others and rise above the noise will be the ones that shine brightest through the Compounded Lenses of the audience.

It’s totally valid to attack certain Narratives as #fakenews, as dangerous and harmful to society, and when the “facts” are “alternative” I’m all for shooting them down. It sure feels good. Just keep in mind that while you’re mowing fake-facts down on the internet like a less-roided Rambo, you’re fighting the symptom not the disease. The fake-facts might be an infection, but the Compound Lenses are open wounds — if you care about an outcome, your time is usually better spent telling stories of your own.

Of course, those stories will need to be calibrated to penetrate through society’s collective Compound Lenses if you want to outcompete and be the Signal that breaks through the democratized Noise…

…which is exactly why the system has become what it is. Moloch, God of Existential Competition, says hello!

The Panopticon

The scheme of the design is to allow all (pan-) inmates of an institution to be observed (-opticon) by a single watchman without the inmates being able to tell whether or not they are being watched. (Wikipedia)

And at last we return to Social Media.

If The Medium is the Message, what’s the message of the Social Medium? One answer: action, or more specifically, engagement. In contrast to the passive or subliminal advertising world of Mad Men, the modern consumer is an active participant in their own productization. Our actions tell businesses exactly what to show us to win our likes upvotes retweets dollars, and most of my friends & people plugged into Silicon Valley prefer it this way.

“What, you mean you’d rather see untargeted ads for shit you don’t need?”

Not at all — I remember my childhood and the endless car insurance ads squeezed between flashes of cartoons. Next Time on Dragon…Ball…Z: 0% APR for the first year!” I resented it then, the forced reduction in utility, the distraction, the psychological manipulation. And I resented the brands that did it and resolved never to buy their shit.

Today’s reduction of resentment does not imply a reduction in psychological manipulation, and the prize is still the same: Greenbacks and Bluefaces. Not out of my wallet — out of the advertiser’s. They’re the ones paying Facebook, and the more I hit refresh, the more impressions my content generates, the more engaged I am, the more engaged I make others, the more Facebook gets paid.

People whose girlfriends made them Facebook accounts in the Fall of 2005 (hi that’s me) or who remember the dark (surprise-soundtrack-filled) days of MySpace will know that the default home page of these sites was not an all-access feed to society’s firehose of toxic memes. You used to just login and see your own profile. Narcissistic? Yeah, but that was in the name: MySpace. If you wanted to see something else, you had to go looking for it…

Now this almost sounds useful! I’ve met so many interesting people in SF over the last few years who were friends of friends of friends…I wonder how many connections I’m missing out on. Contact link is up there ^

Now this almost sounds useful! I’ve met so many interesting people in SF over the last few years who were friends of friends of friends…I wonder how many connections I’m missing out on. Contact link is up there ^

But now?

Now my homepages at Twitter, Reddit, Facebook, and YouTube are dominated by the Narratives which have resonated most strongly across the largest number of shared Compound Lenses. Lowest Common Denominator Narratives, applied to the entire internet. There are no small gated communities because there are no gates strong enough to keep the Internet at bay, no privacy, even your group chat messages get shared and reblogged and viewed in the most inciting context, rewarding the share-er with the most precious social currency: attention.

The Social Medium demands action, engagement, proactive consumption (it’s like production except someone else gets paid), and then surfaces your action back to Skynet The Algorithm to see if it can induce even more engagement in others because that’s the metric that matters. “The algorithm itself incites to deeds of engagement.” I think Homer said that one.

In many ways the best Tech companies are little Paperclip Maximizers of their own, turning VC dollars into the metric on the Pitch Deck’s primary slide. Fine by me — Aristotle said money was Good, after all, and you’ve got to grow if you want to survive ‘til the IPO. And then you’ll meet Wall St. and realize you’ve got to keep growing forever, actually, so please keep the metrics going up. That’s the game and it’s actually a pretty fun one most of the time, no matter which side of the table you’re on.

Of course, Real Life for actual humans is a series of Iterated Games, which means all of us who participate in the Social Medium are aware that we might, at any moment, be put on blast by the entire fucking world, viewed only in the context of whichever Narrative put us on that Global Stage by “virtue” of giving us the greatest penetration through the largest number of Compound Lenses.

That sentence was a mouthful, so here’s Cap’ explaining it simply

That sentence was a mouthful, so here’s Cap’ explaining it simply

This process — taking the personal and repeatedly making it global, which then forces the personal to conform to the global — might be a metaphor for that stuff I mentioned earlier: “As Technology and Politics continue to Democratize Power in America-” The upside is that each of us gets more power (thanks for reading, follow me on Twitter!), the downside is that nowhere is safe because each of us is surrounded by more power than any individual has held since Truman (hyperbole). The downside is the power’s ubiquity makes us feel more constrained, not less, and the only protection is to conform or to not act at all.

"Boys, if you ever pray, pray for me now.” - Said everyone who ever ended up on the Internet

This is what Kanye West meant in that crazy interview when he said were all living in a simulation (timestamp 7:37): we’re all constantly calculating in our minds how our actions will be perceived, judged, and responded to by everyone around us, and we modify our actions to avoid pain.

The Social Medium makes that Global: implicitly threatening to put everyone around us, all the time. Simulate that!

That’s the Panopticon Prism. Inaction as a result of self-regulation based on simulated models of everyone else’s competing Narratives and the potential outcomes of falling under the focus of society’s Lowest Common Denominator Compound Lenses. 24/7, 52/76.

As redditor /u/DinoInNameOnly put it: Most of What You Read on the Internet is Written by Insane People. Of course it is — all the sane folks self-regulated.

Analysis Paralysis

It’s not a coincidence that I only published my writing after starting my own company. I’m neither the smartest nor the most articulate of my friends. The best conversations in Silicon Valley, the best insights, the most compelling arguments — they all happen in a galaxy far, far, far away from the Internet. It doesn’t take a genius to simulate the downside risks of being (mis)interpreted online and decide that nothing is that worth it.

I’m not claiming this essay is an entirely original articulation, I’m just thinking out loud and connecting dots into a Narrative. This has been covered more deeply by others and the lessons of Seeing Like A State (spoiler: the map at the Global scale is a poor representation of reality at the Local scale, beware of acting in one scale with a map from the other) apply to an ever wider pool of people as the State’s power over Diagnosis and Prescription is handed to the rest of us plebs by Technology and we find that our daily lives can cross from Personal to Global and back again in a heartbeat:

Back in 2016, human meme Ken Bone earned a backlash for the contents of his Reddit history, which was ridiculous—if tepid politics and softcore preggo porn are the worst of your vices you deserve to be sainted—but raises the question, could any of our chat logs take the heat? Doubtful. The circles of hell have been built deep over the past fifty years, the list of sins writ in blurred legalese. I’m not worried about Black Mirror histrionics, but rather about how this plays out in the micro, with millennials paralyzed by the pointlessness of pursuing any action that wilts under scrutiny, which is all of them, how dare you be happy when 10,000 children are sold into sexual slavery each year? “actually, i’m not happy. i have anxiety.” Well, whatever works.

Spoiler : it’s not working

Spoiler: it’s not working

As I said, Gambino is a mastermind, and if you want this essay in a more digestible format, just listen to That Power on repeat until you understand the outro:

I told you something. It was just for you and you told everybody

So I learned cut out the middleman, make it all for everybody, always

Everybody can’t turn around and tell everybody, everybody already knows, I told them

But this means there isn’t a place in my life for you or someone like you

Is it sad? Sure. But it’s a sadness I chose

The cost, if you missed it, was [ _ _ _ _ ].

That’s Depressing — What’s The Solution?

I don’t know. Everyone has their own prescription these days. But here’s what I think as of January 2019:

To those with megalomaniacal tendencies, a yearning for the 1950s and prior decades, a not-so-secret crush on the idea of a tyranny of The Elite (incl. yourself, ofc), and an optimistic take on your ability to fight the relentless march of the Democratization of Power in America…

…I suggest a reactionary political demand for Control of the (Social) Media.

For everyone else:

Tell some fucking better stories.


Preferably something aspirational? And may I suggest a target demo of Gen Z boys & girls? You’ll get the bonus of quick feedback (thanks to Instagram or w.e the kids are using now) and at least your attention might make things better even if your stories suck.

One solution to paralysis in the face of decision making under extreme uncertainty, ambiguous data inputs, small n, and the threat of intense social sanction is to make sure people have a destination they care about reaching: to raise the cost of inaction at the Personal scale.


[stuff might get said on HackerNews or Reddit or Twitter, and if it’s good stuff I’ll put it here]


  • Credit to Niall Ferguson for his quote from an interview. I don’t think his prescriptions are right at all, but the diagnosis is pretty on point:

I would describe the Network Platforms — as presently constituted — as engines not just of confirmation bias…it’s worse than that. They don’t just put you in a filter bubble and keep you there. They want to move you out along the spectrum, because the more “out there” you are, oddly enough, the more engaged you tend to be… 

…the goal was just engagement, but we’ve created in Silicon Valley Network Platforms that are accentuating the divisions in our society in a way that I think is profoundly dangerous.

I argue that the degree of competition for attention alters whether media is able to deliberatively articulate a purposeful message to the masses or whether the fascinations of the masses – that is what draws their attention – dictates the content that the media produces. The competitiveness of the attention market is shaped primarily by the logic inherent in the dominant technology of distribution: what Marshall McLuhan refers to when he says that “the medium is the message.” 

When it comes [to] meaning in media, we are confronted with an unpalatable choice. Either stable meaning imposed through deliberative control by the few (as tyranny) or the autonomous, impersonal and invisible hand of the attention market, which, in the end, results in the “liquidation of meaning”. Any point in between is an unstable equilibrium. And one can at least negotiate with a tyrant.

Paper filed by the author under “Frankfurt School, Social Theory” prefers tyranny to democracy, News at 11, don’t tell 4chan, it turns out this stuff is intentionally indigestible to those outside the Ivory Tower or we’d all riot — or at least sign a strongly worded petition. Still, as with Niall Ferguson, the prescription is off but the diagnosis is very on point: what makes the Media’s competition Molochian is the necessary sacrifice of that which it cares most about (a purposeful message).

Something something horseshoe theory.

[0] I understand that these might be the most relevant factors which were backed out of the data, but I wanted to highlight that Engineering and Finance are (to my knowledge) currently seen as professions with a strong Math component and a strong gender-gap. To the extent that this study & the NYT article are discussing the impact of “local norms” on child development, and ultimately on English & Math performance in the 8th grade, the employment of a parent in a highly-gender skewed professional environment based on Math strikes me as a confounding variable.

The X-axis in the NYT’s awesome data visualization wouldn’t make as much sense if it read: “One Parent Employed in Male-Dominated Math-Based Professional Environment ->”. Or perhaps that would make sense? Depends on your lens, I suppose.

[1] A different Stanford study suggests things are at least somewhat muddy:

This uses the standard Left-Right scale that we all know and love, Y-axis scales are adjusted, academics & lawyers have the most donors

This uses the standard Left-Right scale that we all know and love, Y-axis scales are adjusted, academics & lawyers have the most donors

[2] Consider the front pages of the Wall St Journal and The Economist and the BBC at the time of writing, and you’ll note that only the WSJ puts Chinese economic underperformance on the frontpage, only The Economist discusses European leaders from their own perspective instead of as unnamed bit-players who exist only in relation to US/UK leaders, and only the BBC has news of an actual unfolding disaster in Europe. It’d be quicker to play “spot the similarity” than “spot the difference”:

[3] Naturally, Academics tend to be big fans of this idea — along with anyone else who might claw back power over the sum-of-all-action-potentials by reclaiming control of a Narrative.

The Uncharity of College: The Big Business Nobody Understands

How Colleges Make More Money Than God By Giving It Away

Some people naively dismiss the insane increases in the Cost of Education over the last 50 years as merely Vanilla flavored Cost Disease. Don’t be fooled by the marshmallow swirl — this is Rocky Road, and the shit chocolatey-covered almond pieces are buried deep.


A very brief summary of what’s to come in this essay:

  • College degrees are more valuable than ever in post-industrial economies, so applicants to top-tier schools are up 240% over the last 25 years 

  • Meanwhile, available spots at top-tier colleges in America have increased just 2% over the last 25  years

  • Microeconomics 101: Fixed Supply + Increased Demand = Increased Price

  • That’s the obvious part

  • The non-obvious part is that this is intentional

  • Because the Charity-status ( 501(c)(3) ) of Colleges in America depends on more-than-half of their students being unable to afford the education (read: “receiving financial aid”)

    • Not in any legal code and statute you can find — but because the Ivy League was sued by the Department of Justice for price-fixing and beat the case by arguing that since more than half their students received “financial aid” — a lot of it — this was a charitable gift policy, not a pricing policy, thus tying together the charity-status of College and the percent of students receiving “financial aid” in a court of law…

    • …and Common Law puts tremendous weight on those court decisions, to say nothing of the political pressure that could rapidly be brought to bear on Institutions with endowments bigger than the budgets of 150 countries and most of the Fortune 500’s cash balances, yet which pay no taxes on their investments and charge middle-class Americans double-digit percentages of family Wealth for a degree whose cost is not tax deductible for the family paying $50,000+/year in tuition

    • All this is excused if people believe the true cost is even greater still, and merely attending college necessitates an act of immense generosity and charity on the part of that college…

  • That Charity-status protects the Investment Returns of College Endowments from Uncle Sam & the IRS

  • Investment Returns Compound over time, and there is no more powerful force on Earth — anyone not playing the game to maximize Compound-returns will lose to everyone who is

    • Investment Returns already generate more revenue than undergrad tuition income at: Princeton (911% more), Harvard (529% more), Yale (254% more), MIT (118% more), Stanford (115% more), Brown (29% more), Duke (13% more), Dartmouth (9% more), and U Chicago (6% more)

    • Undergrad tuition brings in just 10% - 20% of total revenue at the Ivy League / Top-10 schools not listed above. Undergrad Tuition is not more than a quarter of revenue at any of these schools.

  • Thus: if Colleges want to keep their Investment Returns tax-free, Tuition MUST remain unaffordable for at least 50% of undergrads

You think its your TUITION dollars that add $1 billion a year to this?

You think its your TUITION dollars that add $1 billion a year to this?

Ricardo’s Cost Disease

The traditional formulation of Baumol’s cost disease is quite simple: the cost of [SOMETHING] is not related to the direct cost of providing that [SOMETHING], but to the cost of the [MOST PRODUCTIVE OTHER THING] that could have been provided with the same resources instead.

They say there is nothing new under the sun, so naturally Baumol’s cost disease is a restatement for the modern era of a Law of economics developed by a Founding Father of the dismal science: David Ricardo.

The Law of Rent states that the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use…

And Adam Smith himself wrote in The Wealth of Nations:

The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.

In a Feudal Agrarian society, land is the major productive asset. So of course this conversation between Adam Smith and David Ricardo would be about Rent — what else would the average man spend his Wealth on?

But in 2018, we’ve got so many potential outlets for Capital — capital C — that Ricardo’s Law of Rent bleeds into every possible cost, from Infrastructure to Education to the Barbershop.


Lay of the Land: Education is a More Complex Flavor of Cost Disease

Conventional wisdom says “a generation” is about 25 years, plus or minus 5.

3 months ago, the class of 2022 began their first semester at my alma mater: MIT. 

A Generation ago, the class of 1997 also began their first semester.

How has this small world of education changed in one Generation?

Total US College Enrollment Up 39% from 1993 to 2018

How many people actually applied each year? Unclear. We genuinely don’t seem to have that data — or at least Google didn’t dig it up for me yet.

Similarly, you can cut the green line off on my previous essay’s chart around 1993…


…and see that the cost of this education has increased about 300% since 1993 (1,225% / 300% - 1) 

And to re-include just one more chart, you can see that 1993 marks a period that began a ~20% increase in real wages for male workers with Bachelor’s Degrees 


So over this last Generation, a Bachelor’s Degree or higher has increased real wages by 20% - 40%, the total number of college-enrolled students has increased 39%, and the cost has increased by ~300%.

Adam Smith suggests that the cost of this education should rise according to what the middle-class can afford to give. 

I concur.

David Ricardo suggests that the cost of this education should mirror the maximum possible benefit from the education, regardless of what major was chosen and GPA achieved. 

I concur.

Baumol’s Cost Disease suggests that the cost of this education should rise with the productivity of the rest of our economy. 

I concur. And incidentally, the Cost of Tuition chart above is not-inflation-adjusted, so if we look at nominal-GDP between 1993 and 2018 we find it increased from $7,247B to $20,412B — or 182%. That is to say, perhaps as much as 2/3rds of the increase in the cost of education might be driven by an increase in overall productivity over the same time period — assuming that education is well-positioned to capture a large share of that surplus production.

Which it is.

But what of the remainder?

Mens et Manus and No More Bodies

I’m going to focus on MIT because I love the school and I was lucky enough to get in 10 years ago today. I focus here because I know it best, and I know it is the best. Which brings me to MIT’s Class of 1997, who began their undergraduate journey 25 years ago. Being the advanced institute that it is, MIT kindly uploaded the admittance stats for this class:

Yes, you read that right.

32% of applicants were accepted to MIT last Generation.

Total class size: 1,100.

Step forward a Generation, and look at today’s MIT Class of 2022:

Of those 1,464 admits, 1,122 of them ultimately decided to make MIT their home for the next 4 years (good choice!).

Thus, the Total Applicant Pool increased 239% over this 25 year period — from 6,410 to 21,706.

Meanwhile, Class Size increased 2% over that same time period, from 1,100 to 1,122 — just 22 extra bodies.

The Cost of Tuition increased 171% — excluding room & board and other expenses — from $19,000 to $51,520.

Education therefore exists at the intersection of increased productivity driving up overall costs — Vanilla Cost Disease — with massively increased competition in an ever-growing applicant pool for a fixed number of spots. My claim is that this is a feature, not a bug.

Due to the way signaling, ranking, social hierarchies, and prestige work in human society, opening a brand new University does not lower the value of MIT & the Ivy League schools. It actually increases their value. Not attending has the same signaling weight as attending, just in the other direction. 

In a world where 32% of applicants are accepted to MIT, perhaps the signaling value is moderately strong. In a world where 93.3% of applicants are rejected, the signaling value of being one of the lucky few goes up, not down. People tend to like people that other people like (lol) — but they tend to avoid people that other people have rejected. The impulse to avoid is stronger than the impulse to seek-out, because the downsides of social-association can be unbounded.

Why is increasing competition for a constant number of spots a feature (intended), not a bug (accidental)?

Question: As someone who has already applied, been accepted, attended, and graduated from a prestigious Institute, is my personal value-by-association-with-MIT increased or decreased by MIT becoming more selective? 

Trivially: my value increases as the value of an MIT-stamp-of-approval increases. 

Spoiler alert: this describes all alumni, staff, and current and future students. 

So how do you increase the prestige price value of a social signal?

Thanks to  McGill for this chart  — here’s  a link to  MIT’s Microeconomics class if anyone needs to brush up on the fundamentals. Don’t worry, taking this class online for free doesn’t lower the value of getting accepted by MIT — why is that? 6.7% btw

Thanks to McGill for this chart — here’s a link to MIT’s Microeconomics class if anyone needs to brush up on the fundamentals. Don’t worry, taking this class online for free doesn’t lower the value of getting accepted by MIT — why is that? 6.7% btw

This is where I add that my own Class — 2013 — only had to deal with a 10% Admit Rate at MIT, a “record low” at the time. But 25 years from now, when the admit rate is 2%, I’ll be very appreciative of the increased prestige that comes by association with such an elite institution.

Again — I’m only focusing in on MIT because I love the school and I was lucky enough to get in 10 years ago today. Don’t think Yale didn’t accept 20% of applicants in 1995, UChicago didn’t accept 77% of applicants in 1993, or that the Harvard Class of 1988 didn’t admit more kids than the Class of 2022 just did. Because all those things are true.

I leave as an exercise for the reader to explore how massively increased competition for strictly limited spots at the nations most prestigious institutions impacts cultural cohesion and the perception of the elite in the rest of the country — especially during a time in which the stamp-of-approval from said prestigious institutions becomes ever-more critical to career success and wage growth.

Pictured: College admissions for the Class of 2035

Pictured: College admissions for the Class of 2035

One More Thing: If you're not paying for the product, you are the product

There’s an extra layer to this strange ice cream cake of constant-supply education, I told you the almonds were buried deep: we didn’t get to Tuition yet.

If you actually followed that earlier “$19,000” link to a 1993 MIT article on their Tuition, and you read the President’s quote at the end, and you were wondering what he meant by: 

These two actions are consistent with our stand against the Justice Department's anti-trust suit, and are major driving forces in the development of an imbalance in our operating budget.


You’ll be pleased to read that MIT prevailed in defending its practices from the Justice Department in December, 1993:

The case involved the widespread practice of pooling information about applicants for financial aid. The nation's brightest high school seniors often apply to several elite colleges. To prevent a bidding war, with colleges "buying" the best students with big aid packages, some institutions share information about their applicants, agreeing to limit their offers to the students' financial need.

I was under the impression that service-providers entering a “bidding war” to offer consumers lower prices was known as “Competition” in America. Thanks Uber & Lyft, btw. And I thought the opposite — NYTimes dubbed “cooperative practices” in that article — was known as “Price Fixing”?

And since when was the salesman of a service the right person to determine my financial “need”?

A Charitable Misunderstanding

In true Ivy League fashion, the eight Ivy League schools targeted by the Justice Department agreed to sign a “consent decree” barring such price fixing cooperation, while admitting no wrongdoing at all. Shoutout to the financial crisis of 2008 (ctrl-f for “wrongdoing” in that bad boy if you hate low blood pressure).

In true wronged-nerd fashion, MIT soldiered on and fought the Justice Department, once more teaching the world that if you start an argument with a nerd it will only end when somebody starts crying.

Pictured: Justice Dept., circa 1993

Pictured: Justice Dept., circa 1993

What’s great about this is that MIT marshaled the media (see: NYTimes above) and published their own view of the case while it was being litigated. Which means we can read their argument as they present it best:

In presenting its case, MIT made these key points:

i) MIT financial aid is a gift policy, not a pricing policy

ii) Tuition covers only half the cost of a student's education; all students receive a subsidy of more than $16,000 from MIT's endowment and income.

iii) Fifty-seven percent of students receive aid at MIT.

iv) The consent decree gave unequal treatment to non-athlete students by specifically excluding Ivy League athletes from the general ban on collaborative agreements.

Ignore that last point about athletes as it’s not important to MIT (shocking: Ivy League schools still wanted to be able to price fix cooperate in attracting star athletes), and focus on the first three points.

At first glance, this passes the sniff-test. MIT claims to be operating a charity — literally, that’s what they claim: “MIT said its need-based policy of distributing MIT scholarships is a policy of charitable gifts to students…” They say they can barely keep the lights on if they receive $51,520 in Tuition from students, they say they give all students a permanent 50% discount out of benevolence, and then they actually have to reach into their coffers and hand-out even more money to the 57% of students who otherwise would be unable to attend. 

Interesting note: the percentage of students who receive “financial aid” has not changed in the last 25 years. How perfect is that? The cost of MIT has gone up $32,520, but the number of kids in “financial need” has stayed the same! Pretty awesome that the 42% of families who don’t get any aid at all have all got at least $130,000 (4-years of tuition) in extra Wealth!

I said I wouldn’t include another chart from my first essay, but sometimes you just gotta do it.  Call me a hammer , if you must.

I said I wouldn’t include another chart from my first essay, but sometimes you just gotta do it. Call me a hammer, if you must.


Back to the “charitable gifts to students”: Follow the actual trail of REAL dollars, and not the imaginary zeroes and monopoly money shifted around behind the scenes — when MIT gives you $40,000 of financial aid, they don’t take a full tuition from another student and give it to you, they don’t reach into a vault and give you physical dollars. They simply charge you less, a mere “discount” — the exchange is theoretical, monopoly money.

When you drop out after your first week to start the next Facebook…you don’t owe MIT $40,000!

The tax implications of this — you can’t fuck the IRS — are zero.

More Economics: Variable vs. Fixed Costs and a Slush Fund

You think of Tuition in terms of individual student amounts because that’s how you experience Tuition and that’s exactly how The Institute presents the bill to you. “This is what it costs us to educate you, individually! Yes, all $51,520 of it! Times two!” But the actual marginal cost of educating a given student at MIT is approximately zero (spoiler alert: you will not get much tender affection from your lecturers at MIT, and after the first week of class there’ll be many empty seats in your lecture hall).

Universities are DOMINATED by fixed costs, not variable costs. Lab operating costs, building construction, rents, research salaries, professor salaries, administration salaries, energy costs, etc. etc..

Which means the cost of operating The Institute for a given year is determined before any kids are admitted.

And this cost is funded by three things: The Endowment and Income.

“But that’s only two things!”

Right, that’s the magic. Read MIT’s second key point again. The Tuition you’re asked to pay ($51,520!!!) “only covers half of The Institute's costs” (yes, they still say the same thing today that they said 25 years ago), so the remaining fixed cost must be covered by The Endowment and “Income”. What’s included in “Income”? Tuitions from other students, of course!

Little pink slice in the  bottom right

Little pink slice in the bottom right

Duh, how else could a college get money? “Net of discount” just means “ignore all the fuzzy monopoly money and just look at what we actually got wired by the entire student body.”

Your Tuition doesn’t pay for your education — it goes into a shared pot that pays for the fixed costs of educating the whole student body, including you. 

To the extent that Tuitions received don’t cover all the costs, gifts from Benevolent Alumni / DARPA and Investment returns from the Endowment’s portfolio must necessarily fund the remaining balance.

Two Plus Two is Four, Minus One that's Three: Quick Maths Dodge the IRS

Flash back to the comment that has been clearly stated on all MIT admissions pages for the last 25 years (to remind the Justice Department that this is a Charitable institution):

The actual cost of an MIT education is about twice the annual tuition

And then look again at the pie-chart of Revenues above. If Tuitions received total $361.5M and that amounts to half the “actual cost” of an MIT education, then the full cost of educating undergraduates could be $723M.

But that must be understating the number hugely! MIT claims that the full cost is about double the list price of $51,520, or about $100,000, and since 58% of our undergraduates receive MIT Scholarships that average $45,542 per student” the Tuition Net of Discounts income of $361.5M must be much less than the actual amount MIT needs, because most of the kids get “financial aid”.

Thankfully, we can do napkin math. Since there are approx. 4,500 undergraduates at The Institute, MIT’s own words suggest that the actual Fixed Cost of providing MIT educations to all those kids must be $100,000 * 4,500 or…$450M.

Huh??? $450M is pretty close to the total income from Tuition in that pie-chart. How can MIT be subsidizing half the costs for every student, then giving 58% of them another huge discount in “financial aid” that averages $45,542, and yet still be collecting such a huge fraction of the needed amount??

This is like those goddamn word-problems they put on the Math section of the SAT…screw that. Have a spreadsheet instead:

Uncharitable observation: if all students paid exactly the same price — zero financial aid — and MIT collected the same $113M in total tuitions, the revenue from a new student would be $25,105 per student per year.  Rephrased: the Expected Value of a marginal student to MIT is $25,105…

Uncharitable observation: if all students paid exactly the same price — zero financial aid — and MIT collected the same $113M in total tuitions, the revenue from a new student would be $25,105 per student per year. Rephrased: the Expected Value of a marginal student to MIT is $25,105…

Answer: apparently they don’t — this doesn’t add up to the $361.5M in income listed as coming from Tuitions. Not even close.

The 1,890 students who pay the full sticker price of $51,520 a year contribute about $100M to MIT’s income statement. The 2,610 students who receive some form of aid, contribute another $16M. That’s $245M short of what MIT actually collected in Tuition in 2016.

Even if every undergraduate paid $51,520 a year, MIT would be $132M short. Graduate students, I suppose, must make up the difference? Are the MBA kids really subsidizing undergraduate educations? But then wouldn’t those Graduate students have a cost associated with their own education? Who is actually paying all this tuition?!

And, more importantly, who is subsidizing all those costs. MIT “needs” $450M to educate the undergraduates alone — according to MIT — and those guys are only contributing $113M…

Whatever the shortfall really is, it’s got to come out of the mythical Endowment, right? That’s what this is all about. That’s why this is a subsidy, “aid”, a charity.

The Case for Charity: A Charity Case

Is this Charity?

If tuition had not increased by $32,520 over the last 25 years, what percent of undergraduates would qualify for “financial aid”, by the standards of 2018? If 58% of undergrads qualify for “aid” when the price is $51,520, surely many fewer would qualify for aid if tuition were a mere $19,000 a year.

Would under 50% qualify for “aid”? Almost certainly.

Under 25%? Perhaps.

At that point, if only a minority of students are even receiving any aid at all — IS THIS STILL A CHARITY?

Units are in millions btw

Units are in millions btw

You know they don’t pay taxes on that, right?

You know that means it will compound faster than any other source of Wealth in the country, right?

Or do you still not understand compound growth?

The Justice Department lost their suit against MIT on the merits of MIT’s argument that they operated a Charity, as evidenced by the number of students receiving “aid” and the degree of that “aid”, which means there’s legal precedent that you count as a Charity and are subject to different laws as long as more than half your customers can’t afford your education product…

…and you think it’s a coincidence that exactly 58% of students qualify for “financial aid” every year for 25 years in a row?

It’s not “aid” when the price is calibrated to maintain unaffordability and necessitate 501(c)(3) Status.

The eagles of Justice have sharp eyes and sharper talons — best play it safe.

You Can’t Spell Irony Without The Alphabet Soup

There’s a delicious irony here, which is that donations to a college’s Endowment are tax-deductible up to 50% of your Income. This is because that endowment is hypothetically spent “Charitably” funding the education of students that otherwise just could not happen.


They’ve got a point, by the way. Imagine what would happen if a clerical error deleted MIT’s endowment. No other source of Revenue even approaches the magnitude of the Investment gains from the Endowment (well, except the DARPA funding but that’s perhaps unique to MIT) — go back and check the pie-chart if you don’t believe me. If MIT’s endowment evaporated, it just wouldn’t be able to compete for talented professors or afford the latest research labs and facilities — because the cost of those scarce commodities is bid up by all the other colleges who’ve got their own big swinging 501(c)(3)-protected endowments to throw around.

The best way to compete for talented professors and the best facilities is to have the largest pile of money, and then earn tax-free investment returns on that money. I’m not knocking it, everyone else in America learned this at birth, in fact I think it’s in the Pledge of Allegiance — the best way to compete in Capitalism is to have the largest pile of Capital.

So donations to MIT must continue to be “tax advantaged”, and they’ll help you work out how to lower your tax bill by doing so with three different web pages.

Your own child’s Tuition, however — which as we see in the pie chart above ends up in the same shared pile as the donations — is only tax deductible up to $4,000 dollars. Unless you and your spouse jointly make more than $160,000 (i.e. unless you and your spouse both work and have degrees from a school in MIT’s tier), in which case you’ll spend $51,520 on tuition and say fucking thank you.

A Ditty for Your Pity:

Tuition for thee


For me

If you get college with no fee

You’re the reason investment returns are tax free

The product is you.

Thank the Revenue Act of 1954 for establishing a legal way to fuck the IRS btw — I said earlier: you can’t fuck the IRS. The emphasis was on you.

The Eight Levels of Giving Tzedakah

Making a donation to MIT appears to satisfy the second-highest level of giving possible, according to a 12th century Jewish sage:

2. Giving assistance in such a way that the giver and recipient are unknown to each other. Communal funds, administered by responsible people are also in this category.

There doesn’t seem to be a qualifier in his ancient text for giving in a way that offers the “greatest tax advantage” or “giving” money that you were never going to see anyway because Uncle Sam had it earmarked in his name — but hey, we make allowances in the modern day.

Since MIT is the one with the 501(c)(3) Charity Status, I wonder where its giving from the mythical Endowment ranks on the ancient scale?

It turns out that lately, colleges like to boast about the size of their endowment — look, I get it — which means we know roughly how big MIT’s is. In the past, however, they weren’t nearly as forthcoming with data about its size. I don’t think you need an advanced degree in Phallocentrism to understand why.

Thankfully, we can hold a magnifying glass to the past with the power of the internet and vague statements made to college newspapers…

In 1990, MIT’s operating budget was $1B dollars, and its Endowment was approximately the same amount: $1 billion.

In 2018, MIT’s operating budget was ~$3.5B dollars, and its Endowment was $16.4 billion

If this is a Charity, they have become remarkably inefficient with their assets over the last generation. 

At the bottom of the giving scale we have:

8. When donations are given grudgingly.

7. When one gives less than he should, but does so cheerfully.

Perhaps some received their “financial aid” cheerfully, but my interactions with MIT’s Financial Services arm were like pulling teeth — bloody, painful, leaving a wreck behind and a bad taste in the mouth, and best done under the influence of drugs. To be clear here lest this leaves too bitter of a taste in the mouth: from the individual family’s perspective, “aid” is not judged by the magnitude of the “discount” received, but by the percentage of the family’s existing assets the school decides we "need” going forward. While The Institute finds your family “not in need” of an extra $20,000 this year, you’ll find their Endowment increased by another billion dollars…

How much should MIT give though? Only God knows. Somehow they’ve been able to give, and give, and give, each and every year to students, subsidizing them all for 50%, and then giving 58% of them another 80%+ discount…and yet the Endowment has grown by $15.4 billion.

If this is a “charity”, I’d hate to see what they think a business looks like.

Big Business is Booming

A Generation ago, The Institute was able to fund its Fixed Costs with Tuitions, donations, grants, and an Endowment equal in size to its operating budget. 

Today, it needs Tuitions, donations, grants, and an Endowment 4.7x the size of the annual budget.

An Endowment that has grown 1,500% in 25 years.

While the class size has grown a mere 2% — don’t forget the first half of this essay.

A JPMorgan colleague once said to me: the power of compound growth means the best way to give to charity is to invest wisely.

Self-serving, of course, but all the best rationalizations are. But it turns out he had it the wrong way round: perhaps the best way to make money is actually to give money.

Not so much of it that you can’t compound what you’ve got, though: just enough to stay 501(c)(3).

Which means your product must remain unaffordable, to justify your benevolence.

Which means its cost must grow faster than the wealth of your customers.

The Justice Department’s eagles are out hunting mice, so you can’t conspire too openly to raise prices.

But limiting supply? Despite the Expected Value of an additional student being $25,000-per-year? That’s playing the game on easy mode, and comes with extra bonuses to institutional prestige to boot.

Tuition is meaningless income to MIT now — a drop in the bucket, just 3.2% of their income comes from undergraduate tuition — but so long as the Tuitions are unaffordable for 58% of undergraduates, the Investment returns on $16.4 billion dollars are tax free.


BONUS: this all serves to keep Alumni exceedingly happy with the ever-appreciating value of their degree, ensuring that everyone affiliated with The Institute is happy, donates more (did you even notice Charitable contributions were already a larger source of income than undergrad tuition?), and acts as good brand ambassadors.

EXTRA BONUS: the only people unhappy with this state of affairs are the ones who did not get into MIT, but might have if the admit-rate wasn’t 6.7%, so we can write them off as salty haters and nobody listens to their whining. Of course the plebs would want more places at MIT — but what do they think we’re going to do? Lower standards???

EXTRA EXTRA BONUS: Imagine for a moment the reaction in the admissions office at MIT and the rest of the Ivy League on reading the headline: HARVARD DOUBLES ENROLLMENT

Yield manage that one, rest of the fucking world. The fact that this doesn’t — and won’t — happen tells you much about the “competitive” state of the industry. You learn in the first week of Microeconomics that under a state of Perfect Competition, excess profits are competed away. Harvard got flack this year because their Investment Profits Endowment only grew 10%, to $40 billion dollars. It took Apple 3 years after the release of the iPhone to build up a cash balance the size of the one Harvard now has. Call it Imperfect Competition? Far-From-Perfect Competition? Perhaps Big Business will do after all.

EXTRA EXTRA EXTRA BONUS: Colleges who do not have $10+ Billion dollar endowments (most of them) still have to compete with the Ivy League-tier schools for Professors, Facilities, and more — they just don’t have the investment returns to help pay for it. What’s the only source of income they have left? Tuition.

So both the Big Dogs and the Small Dogs in the yard have an incentive to keep Tuitions unaffordable — the little guys are still relying on capturing all the surplus Wealth from America to keep the doors open (again, see: my first essay). If I were a Small Dog, though, I’d be very worried about the future.

You can’t compete with Compound Growth when you’re only collecting linear returns.

CRITICISM: “There is no statute in the body of tax law that specifies you must be offering aid to 50%+ of your students in order to qualify as a Charity, so a core point of this essay is in fact incorrect."

I’ve edited in an extra sub-bullet in my intro bullets clarifying the structure of my argument a bit. But while this criticism is definitely factually true, it perhaps suggests a different view of our legal framework in America (and its fluidity) from the view I have, where the letter of the law and the Tax-Sheltered status of these orgs is somewhat mutable and has already been subject to prior challenge by the DoJ. By bringing up the prior challenges by the DoJ — which was a case the DoJ lost based on Charity-arguments put forth by MIT — I hoped to highlight that the current status of the Institute as a “provider of Charity” was court-sanctioned based on those exact arguments.

I.e. Because MIT responded to the lawsuit by pointing to the number of students receiving “aid” and the degree of that “aid”, and because they won the case on those merits, Common Law precedent is created that bounds them and suggests that the case could perhaps be re-litigated were that “aid” no longer needed. Certainly the worry must exist.

I suggest this might be driving the magical 58% of students who receive “aid” every single year.

Instead of responding further to this critique in my own words, I hope it's okay to link to two other comments who I think addressed the issue in a better way that I did.



Since the discussion has moved on from the front-page of social media, I wanted to include these links for people who might end up here in the future without editing the post itself. Hopefully that's okay!


  1. I said it twice already, but I’ll say it again to be sure: I love MIT, and feel both intense pride and gratitude about being able to attend (an odd mix of emotions). It’s the only college I ever applied to — I knew I wanted to go before I got there, and I’m much better off having gone than not. If you get in, you should go. This is not an indictment of MIT — it’s an explanation of a “Why?” that I think is somewhat hidden and not widely understood.

  2. I worked in the call center soliciting donations from Alumni as an undergrad — the people were great, the job was fantastic, the pay was excellent, the hours were flexible, the Alumni were wonderful and happy to speak to me, and it was just a good experience all round. If you need a job in college, I recommend it. Bonus for MIT kids today: you might get to see me on your training video!

  3. When MIT mandated freshmen live on campus, there was actually a decrease in admitted Class size. Much credit to Dean of Admissions Stu Schmill for increasing the class size back to prior levels

  4. Credit to Philip Greenspun for articulating some of this a whole generation ago. There truly is nothing new under the sun:

  5. Credit also to Tyler Cowen and others in the rationalist sphere who write online and first introduced me to the question: “why don’t universities add more spaces for undergrads?”