“One must shed the bad taste of wanting to agree with many. “Good” is no longer good when one’s neighbor mouths it. And how should there be a “common good”! The term contradicts itself: whatever can be common always has little value. In the end it must be as it is and always has been: great things remain for the great, abysses for the profound, nuances and shudders for the refined, and, in brief, all that is rare for the rare.” –
The truth is, there is no conventional wisdom. True wisdom can never be conventional. Following the conventional path will lead to conventional results. To decide whether following conventional wisdom is a correct decision you need to look at the average person, I will focus on North America / America.
- In North America, 73.9% of people are overweight. That is far worse than I was expecting when I researched it.
- In America, 61% of people have less than $1000 in savings (not enough to cover an emergency room visit or car repair)
These are societal average and they are not very good at all. Is it a product of the society or people not taking care of themselves? Probably both. Either way, there are no excuses – you need to accept the reality of the situation and then take the most important step. You need to take an alternative route to be exceptional.
The Typical Route
There is a stereotypical path that people took in the second half of the 20th century.
School -> Job & Mortgage -> Retirement & Pension
This traditional path worked from approximately 1945 to 2000, unfortunately the underlying structure of the economy has changed. We are victims of the success of the Western world. Our expectations are still for the old way of doing things to continue to work. However it’s naive for thinking the old way to live continues to work. Instead of taxi drivers we now have Uber drivers.
New York City taxi medallions have decreased by over 500% from 2010 to 2018. In 2010, a New York City taxi driver had a $1,000,000 asset allowing them to drive a taxi in their city. In 2018, a New York City Taxi driver has a $200,000 liability – the price will probably continue to fall until the medallion gains value as an antique collector’s item to remind us of the past.
People that were relying on their taxi medallions for their retirement lost it all. They were relying on government regulation limiting the number of taxis, when Uber came along they got blindsided. Taxi drivers did not see themselves as vulnerable to technological innovation, they could not have been more wrong.
To develop a real understanding of the economic situation from 2009 to 2018, you need to learn basic economics. Although I will try to explain it very simply. Since the great recession, economies have made it extremely easy to borrow money (low interest rates) so that the economy grows. It is easier for businesses to borrow, and easier for consumers to borrow to buy a home and consumer goods.
This presents the issue of a massive amount of debt in the world economy at very low prices. As interest rates rise, the cost of servicing that debt increases. Since borrowing has been so cheap, people and companies have borrowed more than they would have at more modest interest rates. Therefore as interest rates increase it will become more and more difficult for economic agents to pay their debt (interest and principal) and the risk of a recession increases.
The corollary is that the economic growth of the last 10 years has been debt-fueled growth more so than growth fueled by productivity improvements or technological innovation. Below is what the Bank for International Settlements (the bank for central banks) writes about the situation.
“The global economy cannot afford to rely any longer on the debt-fueled growth model that has brought it to the current juncture.” the Bank for International Settlements (BIS) warns in a new annual report.
“Debt levels are too high, productivity growth is too low, and the room for policy maneuver is too narrow, the BIS warned. Adding that the most “conspicuous” sign of this predicament is interest rates that continue to be persistently and exceptionally low.” It’s time for the world to end its debt-fueled growth model, CNBC
Economists and pundits may say that high levels of debt are not a big deal. This is a situation to use your common sense and think out loud, “If someone has a lot of debt is it bad?” “If a company has a lot of debt is it bad?” “If a country has a lot of debt is it bad?”
The answer is very simple, and poses a massive risk to the world economy.
Alongside high debt levels, we are also dealing with a low productivity environment in the West. Productivity is very simple, it measures how efficiently production inputs such as labor and capital are used to produce a given level of output in an economy. Productivity growth is the main driver of economy wide standard of living increases.
The management consulting firm Mckinsey & Co. weighs in below,
“In the United States, productivity growth has declined sharply since 2004, yet digital technology has been widely apparent during this period. Even more startling, in 2016, measures of productivity growth flirted with negative territory. The answer to this puzzle holds the key to future prosperity, because now more than ever, as low birthrates slow the expansion of the labor force, the US economy depends on productivity improvements for long-term economic growth.” New insights into the slowdown in US productivity growth, Mckinsey
Low productivity growth in the economy tends to mean low wage growth and jobs growth. This is bad news for the overall economy, as well as anyone working a job (not running own business). A period of extremely low productivity growth (in the absence of debt-fueled growth) would means people standard of living would remain the same or decrease. This is unheard of in the Western world.
The Good News
Understanding is the first step towards preparation. Since you now understand what is happening in the global economy you can help yourself and your family. The first step is to look at the mistakes many people make.
- Accumulating Debt
- Never accumulate debt for consumption. Going into debt for education is an incredibly complex decision, and it will depend on where you live, career prospects, how smart you are. This is your decision – I am happy I got a degree, but I know people with massive debt and regrets about the decision.
- Low/Zero Savings Plan
- You need to do a complete 180 of this, this is fairly simple, save money and invest it in income producing assets or to scale your online business. If you are bad at saving money, you need to create a budget and stick to it – this doesn’t require fancy software, just an excel spreadsheet and discipline.
- Minimal Professional/Career Development
- Most people take a laissez-faire mindset about their career. This is the attitude of letting their career go as it be, and expect it to handle itself. Good career development involves having a solid plan for 5, 10, 20, 30 years down the road as well as salary negotiations, understanding office politics, and actively networking.
- No Entrepreneurial Mindset
- The average person doesn’t take measured risks and take accountability of all their decisions. You need to own everything in your life and view your life as a business – You Inc. Obviously the corollary is to create a business and own the sources of income you are receiving.
Willful ignorance will get you nowhere. The next economic crash may come very soon, prepare yourself.