Firewood

Chickens

Socks

Screwdriver

Tree

Ocean

Granite

Peanut Butter

I know enough economics to get into things, but generally am far from complete understanding. So I’m writing this about something I’ve been thinking about and hope for comments from people more knowledgeable. In my Googling around I can’t find this brought up anywhere, so I’m assuming I’m wrong. That or it’s really interesting.

Say you and 999 of your friends live in a nice little country called Libertania. Everyone is gainfully employed and the 1000 people earn $5/hour, $10k per year producing a GDP of $10 million.

People in Libertania are naturally quite self-sufficient. I spend 40 hours a year fixing my own car, and 35 hours mowing my lawn – 75 hours total. You are more efficient at both, requiring only 30 hours to fix a car, and 32 hours for lawn mowing – 62 hours total.

One day we each read a book on the theory of comparative advantage. Following the recommendation, we decide to specialize. You fix both our cars. This takes you a total of 60 hours, saving you 2 hours or $10. I mow both our lawns, taking a total of 70 hours, saving me five hours or $25. Granted, it would probably get more equitable in time but it doesn’t really matter.

Win-win! Together we saved seven hours in time, worth $35! Even though you are better at both things, we can both benefit by specializing in what we do best.

With our savings, we could now either relax and enjoy more leisure time, or use that time to work more and earn an additional $35. But for now lets ignore that.

Other citizens of Libertania notice us relaxing with our extra time and want in on this deal. Bartering services becomes rather tedious to keep track of so we all switch to just paying each other. Keeping it simple, fixing a car for a year costs $200, and a year of lawn mowing costs $200. The system works so well that all citizens now specialize in one or the other.

The government of Libertania (a small one…) is a modern economy and interested in knowing GDP – roughly, the total goods and services produced by the economy. Before this specialization trend the GDP was $10 million. Now, each citizen pays another $200 a year for one of the two tasks, a total of $200,000 changing hands. The GDP increases to $10,200,000, and the government marvels at it’s success in raising GDP 2% over the prior year.

But remember, what we actually saved was 7 hours in time between us, for a national savings of 3500 hours annually. At our average wage of $5/hour, that’s worth $17,500. Still good, but it’s hardly the $200,000 increase that the GDP showed. $182,500 of that increase is due simply to a transaction taking place. It didn’t add any actual value to anything – nothing was produced. It appears to be 91% overstated.

The more we specialize and exchange services the more we grow GDP. That’s good. But the actual value to the citizens is overstated in the GDP growth. They didn’t get 2% better off. They got 0.175% better.

I don’t know what the actual gap between true comparative-advantage savings, and the transaction amount is. But I’m confident that it’s significant. To be the same would require the savings for each of us to equal the price of the service, which is absurd. We would have had to have saved 40 hours each in the deal to justify the full $200 in GDP. You can play with the numbers but I can’t see any way to make it close to accurate.

But you say, remember the 7 hours in savings. We’re hard-working Libertanians and would spend that time working and making more money to make our lives better. So in addition to the transaction, we work an additional 7 hours, or a total of 3500 hours for the entire country, for a total of $17,500 in true, new, value and income (depending on how you’re measuring GDP)

But, the true value did not go up. I traded my newly-freed-up leisure time for money, which is a net zero.

So now, that income is added to reported GDP growth to make it $217,500, with a true increase remaining $17,500. That actually makes the overstatement worse at 92%.

That seems like a big deal. Services are roughly 68% of the US GDP

Almost any conceivable number would indicate that GDP growth has been significantly overstated.

Thoughts?

Next up, tax implications…

The tax rate at which the original transaction becomes a net loss for us is equal to 1 minus the overstatement – or 9%.

What is happiness? Most emotions seem easier to identify: angry, anxious, grumpy, frightened, surprised, bored… For being widely considered to be the big one, the meaning of life and all that, it seems elusively vague.

How to be happier is certainly not a unique topic. There is actually a book with the exact same title as this post. And I’ve read lots of others. I’ve even written a couple of posts here before on the subject. Yet I haven’t found a satisfying answer.

There are many things people want to change in their life:

1. Lose weight
2. Have more money
3. Be happier

These are compelling goals, but they generally aren’t actionable. You can’t do much directly to achieve these goals that isn’t fraught with issues:

1. Get liposuction
2. Rob a bank
3. Do heroin

But there are things you can do that in turn, are likely to move you towards these goals:

1. Eat healthier and exercise more
2. Learn a valuable skill
3. ???

If I commit to one of these, create a plan, and stick to the program, I’m very confident that I will at least move towards the goal.

But happiness is a complex one. A common question is “what makes you happy?”. Many things seem correlated to some degree with happiness – going biking, good times with friends, doing something cool and meaningful at work, etc. But it’s not a direct correlation. If I bike more I will get better at biking, at least up to some physical limit. But biking even more doesn’t make me even happier. Biking a few times a week seems optimal, and then doing something else. Work often makes me happy, but working more usually doesn’t make me even happier. Friends are great, but I also want time by myself.

Beyond that, anyone into “advanced” happiness knows that pinning your happiness on something external is troublesome. What matters a whole lot, maybe completely, is your mental attitude – waking up with a positive attitude and appreciating the little things.  There are many stories of people blissfuly happy while in prison, or while doing nothing but meditating all day in a room. There is definitely a lot to this, but taking it to the extreme of just sitting in a room and being happy doesn’t do it for me.

Then there’s the “Flow” crowd. About being engaged at that threshold between being competent and challenged. Being good at something, but pushing it to a level where it becomes challenging but not impossible. I get that, but it’s also not the whole picture. Sometimes I’m very happy just having a nice day.

I think that the challenge is that happiness is the net result of many different, often competing things.

It seems a bit like money. Not that money is happiness. But similar in that the way to get a lot of money has very little to do with directly trying to get money. Robbing a bank might be analogous to heroin here – yes you can simply go somewhere that has a bunch of money and take it, but that course generally has repercussions. Heroin might make you briefly very happy, but downsides exist.

A more common and less risky path to making money is more complicated. Know yourself, you skills, and what you love to do. Pursue your passions. But for best results do try to align those passions with some skills that someone actually wants. Preferably skills that are scarce. Make meaningful friendships and professional connections. Get into situations and companies that are successful and growing. All this and much more is required to have a successful career that in turn, in the end, is likely to result in reasonable amounts of money. 

For all practical purposes, unless you’re the federal reserve it’s impossible to just get more money. You need to do a bunch of things that, when combined, probably ultimately result in money. Ironically, it’s generally the most direct “get rich quick” ideas that are the least likely to work.

I think happiness is similar. And asking “what will make me happy?” is like asking “what will make me a lot of money?”. It’s not actionable. And any straightforward prescription for happiness is likely to be a flawed as Internet popup ads to “make money fast!”

So what are the components that create the recipe for happiness? Like many things, I think it’s like Thai food. Contrasting and even conflicting flavors that, when combined perfectly, result in an amazing, balanced, and delicious tension.

I think “contentment” is one ingredient. The umami in the recipe. This is the  “just be happy” dimension, and Webster’s even lists “happiness” as a synonym. But I don’t think it is. It’s important, but umami alone is also boring.

Another component seems to be something between “interesting” and “exciting”. The spice. The proverb/curse of “may you live in interesting times” is appropriate. This is all about challenges, and often unpleasantness. But it’s interesting. I really dislike hearing the alarm clock go off at 5 to get up early to go fly somewhere. Or to go to Alpental for powder before the pass closes. But, I never regret it. Tim Ferriss has some good arguments for excitement being equal to happiness, but for me, that’s also not the complete picture.

What’s exciting, as a hacker, about both of these is that they’re are eminently actionable. I have lots of ideas for increasing my contentment. Make my environment nice and uncluttered. Engage with friends and family. Meditate. Feed the woodpeckers in the back yard. Enjoy a glass of wine.

I can also increase the excitement. This is a bit more of a challenge as interesting and exciting things often also can be rather unpleasant at times. Get up early to go snowboarding. Go for a run, even if it’s raining out. At work – take on speaking opportunities, learn new things, take on project you aren’t sure you can do. Tackle the difficult issues no one else wants.

Travel is an interesting subset of life. Travel can be about contentment. Take a nice flight somewhere posh, relax, have good food. That’s nice, but it really doesn’t work for me. I need a solid dose of excitement too: Go somewhere without a plan. Explore something new. Use AirBNB instead of hotels and meet new people. Do things that are physically challenging. 

Like great Thai food, it is challenging because these the different forces are in conflict. Lime juice, sugar, and fish sauce all pull in different directions and must be balanced. If it needs more tangy lime juice add some. But then you also need to balance the other flavors as well.

Italian food is great but simpler – say some tasty pasta. Start with some tomato sauce. Add garlic, spices, some cheese. Put it on pasta. Each component adds to the whole. If it doesn’t have enough oregano, then add some more. You can overdo it, but oregano does not directly counteract the garlic. Most books on happiness are simple like this. Do xyz, be happier. I think that works but only to a certain level, or for some people. I truly envy the Italian food people with a less contemplative view of the world.  But for me it gets more complicated.

This isn’t earth shattering but I think it is fairly unique. I certainly have spent a lot of time trying to figure out how to be happier. I can’t complain, but I’ve always felt less effective than in some other areas of my life.

I’m looking forward to focusing on the components. Instead of asking what will make me happy this weekend, I’ll consider whether I want more contentment, or excitement. And how I want to adjust that balance in different aspects of my life – work, travel, relationships. I can work that!

What are your happiness flavors? And how do you combine them?

Everyone loves the certainty of a simple answer – you can see them on the front of most magazines. The winning investment strategy. What makes Apple great. How to fix the economy, lose weight, find happiness… All in a few pages of magazine article. Politics is even worse – “fix the deficit”, “balance the budget”, Republican or democrat.

But the words I find myself saying more and more is “It’s complicated”.

One of the most popular business books was published in 1982 – Tom Peters’ “In Search of Excellence”. My dad had it. It looked at the companies that his buddies at McKinsey (oy,  trouble…) identified as dominant and “genuinely getting it”. Then they identified the common things they shared that led to their success. And the recipe for your own success was to replicate those factors. Seems like a solid plan. Unfortunately, even just a few years later it was clear that many of the star companies were not exactly outperforming – NCR, Wang, Xerox… How could that be? The success factors look about right, even today. The countless other business books creating recipes for success regurgitate similar themes. If they aren’t wrong, what is it?

Maybe it’s about the leader? The countless books on how to succeed by CEOs at their peak would seem to suggest that’s the key. Yet many companies buck the trend and persevere and thrive over time through drastic leadership changes – GE, IBM. While others rise and fall under the same leadership – Microsoft, Cisco.

Apple and Steve Jobs is an interesting study. Apple rose with Jobs but was well down the path to ruin while Jobs was still on duty. Then Jobs came back in 1998 to introduce the, drumroll, iMac! In pretty colors. For 3 years that was it. Then they hit on the iPod thing and it got better from there. Now he’s gone again and it’s not clear whether what was working will live on. So far so good. The obvious lesson learned is something like “make insanely great products that people love and they’ll buy lots of them”. But that’s like saying the way to lose weight is to… lose weight. The interesting part is how to do that.

In general, it’s clear that individuals can inspire and lead. But if this is a key attribute of an organization’s success then that inherently creates an organization dependent upon them. If the individual spirit can be transmitted to the organization as a whole and it can live on without them, then the key attribute is really the organizational culture.

I’m taking a mini-MBA class next week and as pre-work they talked about Net Present Value. It’s a great way to take a really complicated opportunity and boil it down to one number – the dollar value in today’s dollars. But the numbers on which it’s based involve a whole lot of assumptions that are often subject to major change. The calculation takes that reality and complexity, buries it deep, and presents an impressive facade of plain numbers. The math replace the truly meaningful attributes with simplifications all the way down to a single dollar value. Easy to understand, actionable, just completely disconnected from what’s actually going on.

I think the only general rule is “any general rule is wrong”. If there were any formulas everyone would converge and do that. Look at investing strategies. Countless books and magazines herald the best way to pick investments, even as an amateur investor. Yet the most sophisticated banks and hedge funds in the world have yet to beat the market consistently over time.

In contrast to this kind of analysis is intuition.

The Occupy Wall Street movement is now largely an odd footnote of history. At the time I was inspired by their passion, yet completely disdainful of their almost complete lack of tangible vision or execution. The plan began and ended with “camp in parks and talk about what bothers us”. It ended up being ineffective, but they got something right. The intuition that something needed to change, and that involved wresting control from the big banks. In many ways this is more valuable than the opposite – an effective plan without the right intuition. Heartless. The occupy movement was all heart and no brains, but at least they nailed something. The challenge is how to turn intuition into tangible change.

Intuition is powerful and certainly a key part of success. That part of us that seems to know what to do even when we don’t understand. Part of the solution must be to channel that intuition – create the conditions that allow it to thrive and speak. Meditation comes in here. But the other part is to pair that intuition with the right amount of analysis, due diligence, and practical execution. My summary of Malcolm Gladwell’s book Blink is that intuition is incredibly perceptive and powerful, except when it’s just the opposite and you’re just being racist, sexist, or just stuck in your old ways. Knowing which intuition to trust and which to ignore is key, which of course, makes it…  complicated.

Which is the semi-unsatisfying point at which I attempt to end this mostly wandering post still searching for the take-away.

Clearly doing the right things is important, and the right things are generally fairly well known. Do them, it’s better than doing the wrong thing, but it’s also no guarantee.

Intuition is really useful. Feed it and listen, but also know when to question it.

Leadership is important but is not everything.

Great people are key but can still mess things up badly.

And so on down the long list of good ideas that fill countless books.

But in the end the answer is that there is no answer. Instead of looking for the answer, embrace the complexity and explore what works. In the words of my good friend Barak: “Notice, Get Curious, Play”.