...continued from last week:
In our last post we talked about expanding how we think about competition and substitution in order to defeat inflation and shift the balance of power back into consumers' hands. Let's pivot now from the spending side of the ledger over to the savings and income side of the ledger, and try to think creatively about attacking inflation on a second front.
Labor markets: tightening
One of the fortunate aspects of inflation is it tends to coincide with lower unemployment rates and an improving economy. Remember last post when we talked about making companies compete to sell to us? Well, labor market conditions are tightening, which means, finally, employers are beginning to compete for workers.
This means a couple of things. For one, enterprising workers who are valued by their employers and willing to ask for what they want can potentially get more money for the jobs they already have. Second, other opportunities are likely be opening up for you, right now, for a superior work situation. Start looking.
Both employment and wage increases tend to lag a recovery, which means now is the time to start taking advantage of the most direct way to beat inflation: get more money.
Side hustles/additional income sources
Last week we talked about monopolies in the consumer marketplace. Here's another way to think about a monopoly: if you have one job, your employer is a monopoly provider of your income. Your employer has maximum power over you, and it can "substitute" you right out of a job under the flimsiest of pretexts, whenever it wants!
To borrow a phrase from Nassim Nicholas Taleb's must-read book Antifragile, this makes you fragile to the loss of all of your income. Not good.
You cannot consider yourself to be truly robust financially if a) you have a monopoly income provider and b) your monopoly income provider can, by terminating your job, spontaneously shut off all of your income. This is why all households ought to be thinking, Wall Street Playboys-like, about what kind of side hustles they can run to supplement income from their primary job.
My domain of expertise is stock market investing, thus that's where I try to drive incremental income for my household. But there is no shortage of ways to earn extra money on the side, and plenty of resources that cover this topic better than I could. Once again, remember our primary heuristic: the more broadly we think about competition and substitution (and monopoly providers of things like our income!), the more we can eliminate various fragilities in our financial lives.
Turning an expense into an income source
One major insight from Jacob Lund Fisker's book Early Retirement Extreme is to look for ways to "monetize" your hobbies: Fisker loved bicycles, taught himself how to fix them, and gradually fell into a modest income source repairing them. Recently, I taught myself how to string tennis racquets. Now, not only have I dramatically reduced one of my largest tennis-related expenses, I'm now in a position to string other peoples' racquets for additional income!
In both these cases we've taken an inflation-prone expense and not only neutralized it, but turned it into a source of funds. I'll leave it to you to figure out where in your life you can apply this important insight.
Low overhead, low fixed costs
The late publisher Felix Dennis, in his useful book How to Get Rich, used to say "overhead walks on two legs."
I gotta be honest: that phrase makes absolutely no sense. But, well, he's from England.
What he's getting at, however, is this: never, ever, ever get yourself in a situation where you have high fixed overhead costs. Felix Dennis kept his organizations lean, mean and flexible so they could withstand anything--any kind of financial stresses. And whenever a windfall came in, rather than getting spent covering expenses and overhead, that income dropped right down to the bottom line.
Why can't we keep our households lean, mean and flexible too?
Debt = Fragility
The first and most obvious step most families can take towards making their households lean is to pay down all debts. Debt makes you fragile. It saddles you with non-negotiable monthly fixed costs that swell up your expenses, limit your flexibility, and crowd out your ability to manage inflation.
But believe it or not, debt can be an inflation fighting tool. Let me explain how.
Here at Casual Kitchen, we carry a modest mortgage on our townhome. When we first started seeing a few too many "non-beat-backable" examples of price inflation, like our auto insurance bill, our property taxes and some of the other examples I discussed in Part 1 of this post, we put a plan into place to accelerate paying off our mortgage entirely.
Our plan is to get this cost item paid off and eliminated from our household ledger for good by the end of 2018. This will create significant room in our budget to compensate for quite a bit of other sources of inflation in areas where we have less control.
A quick sidebar. Traditional economic "logic" says that borrowers benefit from periods of inflation. If you borrow money today (assuming you can do so at attractively low interest rates, a not-always-true presumption) you can then pay it back with lower-value dollars in the future. That's what the economic textbooks say at least.
The truth is debt is a fixed overhead cost burden that you are better off not having at all. The money you vaporize to service your debts could can be far better used to fund a huge savings buffer, or to fund investments in long-term, inflation-protected cash flows. Unlike a large debt load, these protect your family, making you more financially robust.
Nearly every household in our country carries a significant level of debt, which means nearly every household lights a meaningful portion of their money on fire, every month, just so they can use someone else's money to buy things they likely never even needed in the first place.
Eliminate all debt. Overhead walks on two legs. Eliminate that overhead and you'll free up room in your budget to handle all sources of inflation and then some.
Now, let's move on to our final and most powerful tool for defeating inflation.
Income generating investments
A detailed discussion on investing is beyond the scope of this post and likely beyond the scope of this blog.[1] But we'll make room here for a few general heuristics you can use to diversify your sources of income using the amazing vehicle of conservative dividend paying stocks.
Remember in last week's post when we were talking about companies with pricing power? Those are the types of companies you'll want to consider for investments. Or, as I phrased it in another post here at Casual Kitchen: "Wherever you find a highly profitable company charging prices well above intrinsic value, forget buying the product. Buy the stock instead."
I'll share a couple of examples from my personal investing activities: my dividend on my Coca-Cola stock has more than quadrupled since I bought my first shares in 1999. Since the financial crisis in 2008-2009, JP Morgan hiked its dividend from a post-crisis low of 5c a share to 56c a share, an eleven fold increase.
I have yet to see a product in the consumer marketplace inflate prices at that kind of rate, not even status-signalling iPhones.
Which reminds me! Apple stock paid its first quarterly dividend in 2012, a modest 38c a share. In the five years since, the company has nearly doubled the dividend, a growth rate of some 15% a year.
I don't know if we can expect these types of dividend growth rates going forward, but you can put a relatively high level of confidence on all of these companies, and many others like them, increasing their dividends over time at rates equal to or exceeding inflation. This genre of stocks should be one of the pillars of your overall investment strategy.
Conclusion and review
Once again, let's return to Galbraith's "at-risk" households: those with no control over their income, no control over prices they pay, and "no capacity to protect themselves by increasing their own returns." While we can't control everything--here and there we will have to eat a price hike--we now have several tools we can use to increase our "capacity" to protect ourselves and our families from inflation:
* Think about competition and substitution as broadly and as empoweringly as possible
* Improve your brinksmanship: increase your ability to say "no" to more and more products and services in the consumer marketplace
* Avoid monopoly and oligopoly providers in as many forms as you can
* Ruthlessly strip out overhead ("overhead walks on two legs")
* Relentlessly pay off all debts (debt = fragility)
* Save more, both into a large emergency fund and into income generating investments
* Don't let your job be a "monopoly income source"--diversify away from it now, even if you do so in small steps at first.
Good luck and get started!
[1] Footnote: Resources for further reading:
For those readers interested in more articles and resources about investing, see:
1) Consumer Empowerment: How To Self-Fund Your Consumer Products Purchases
2) Synergies of Being an Investor AND a Consumer
3) Money Sundays: The "Stoplight Rule" For Creating An Emergency Fund
4) Ask CK: More on Emergency Funds
And, be sure to see my chapter-by-chapter analysis of Your Money Or Your Life, [full archive here], and in particular,
5) Becoming a Sophisticated Investor: Six Steps
6) The Official "Your Money Or Your Life" Reading List
7) Ask Casual Kitchen: Best Investing Books
Tuesday, October 31, 2017
Tuesday, October 24, 2017
How To Beat Inflation
How do you deal with inflation and price increases? I've noticed quite a few price hikes over the past several months across the consumer marketplace: in the grocery store, on the menus at local restaurants, in the costs of various services... the list goes on. Some examples from our household:
* Our cable company hiked our internet bill 9%.
* Many product categories in our primary local grocery store have seen price hikes: a few that come to mind: store brand peanuts $2.49 to $2.99 (20%) and then to $3.29 (32% cumulatively), soy milk: 33% ($1.50 to $1.99). pineapples 20% ($2.50 to $2.99).
* Our automobile insurance bill went up a surprise 10% in the last billing cycle.
* Our townhouse community fees increased about 5% last year.
* And our property taxes jumped 8% two years ago as our town put through new assessments.
Of course, let's not forget one of the worst examples of inflation today: increases in health insurance policy premiums, which seem to inflate at a shocking rate each year.
All of this made me want to attempt to collect and organize my thoughts for readers on how best to deal with inflation and price increases. Unfortunately, I can't solve the inflation problem directly, that's the job of all those stone-handed economic geniuses at the Federal Reserve. But I what I can do is share some heuristics and general principles to help us blunt inflation's impact on our household budgets.
Let's start by stealing a quote and a conceptual framework on inflation from economist John Kenneth Galbraith, from his book The Affluent Society:
"Those individuals and groups will suffer most which have the least control over their prices or wages and hence the least capacity to protect themselves by increasing their own returns."
Galbraith ain't the greatest writer in the world, but what he's trying to say here is you want to increase your flexibility on both sides of the ledger--with both income and expenses. Those households without much room between income and expenses, those carrying high fixed costs, those that can't (or won't) save aggressively, and those unable to control their incomes at least to some extent--it's those households inflation hurts the worst.
Don't be that kind of household. To ensure your family isn't like the "at-risk" example Galbraith describes, you'll want to add to your income, cut expenses, and beat price hikes where you can. All three--at the same time.
Okay. Let's move from the theoretical and get into some practical ideas.
The ability to say no
The things we buy in life can be broken down into two categories: things we need and things we don't. Many posts here at Casual Kitchen address how easy it is to confuse needs with wants, and inflation in the price of a given product or service gives us a way to clarify the confusion. The more you can consider something as a want rather than a need, and the more you can simply say "no" to that product or service, the more power you have over the entity selling to you.
Some of our peers tell us they could never part with television. Now, I never judge peoples' horrible media consumption habits, but if that's your position, guess what? To the extent you believe TV is a "need" you lose all your leverage. You lose the ability to use true brinkmanship with the supplier. Yes, you can use all the Ramit cost-savings scripts you like. But if you won't cancel service when it really gets down to it, the company holds all the cards, not you.
Eventually, you're going to eat a price hike.
In contrast, imagine a household that places cable television in the "want" rather than "need" category. In our case, that simple act of mental categorization at first enabled us to keep cable, as the cable company, smelling our utter indifference when we called to challenge a price hike, offered us a hilariously cheap deal. Ironic.
But eventually, as with all monopoly- or oligopoly-provided services (more on this in a moment) the price hikes inevitably resumed, and we simply eliminated the entire cost category from our life. We won the brinkmanship battle because we could always say no. And eventually we did. The more you can improve and expand your ability say no, whatever the product or service, the more power you have over inflation.
Sounds easy, right? The problem, of course, is sometimes there's no competition at all.
Monopoly providers
In our community, internet service is a monopoly, and--no surprise--they've put through multiple price increases in recent years. They do it because they can. It's a reality. We've managed to negotiate the last few away, but this summer they put through a 9% hike that we were unable to beat back.
Unfortunately, some price hikes you just have to eat, and we'll be eating this one. You won't be able to beat back every single manifestation of inflation. Instead, you'll have to make room for the ones you can't beat back by driving down costs elsewhere in your budget.
Oligopoly providers
Oligopolies are markets where there are very few players competing. Here's where we often see creeping inflation and the dreaded "pricing umbrella," where the most dominant company in an oligopoly hikes prices and the other competitors follow along. It's not collusion exactly. It's not like these companies get together in a smoky back room and agree to hike prices in advance (which is illegal). They are, however, still free to watch each others' pricing decisions in the open market, and either follow along or not.
Branded consumer products companies tend to be worst offenders here, which is why you want to try and both avoid their products and invest in their stocks. More on that next week in part two of this post.
Substitution/Competition: broadening our primary weapon
It's an elementary economic concept to know that the more competition there is in a market, the lower prices will be, and the less likely there will be inflation. I wouldn't be teaching you anything by telling you this--you already know it.
What I want readers to do instead is to view "competition" as broadly as possible in all consumer marketplaces.
Branding is one way companies try to artificially limit competition. If you only buy Bumblebee Tuna for example, you're enabling a type of mini-monopoly market, and setting up a possible pain point for inflation in the future. On the other hand, if you know the real truth about canned tuna, and thus are indifferent to branding, you can switch.
And the ability to switch or substitute is a consumer's primary weapon of empowerment. The question is, can we think about substitution in ridiculously broad terms, and impose more competition across more markets--and thus increase our overall power as consumers?
Let's go over an example of what I mean. One of the most basic substitution examples, one you'd find in an introductory economics textbook, is the idea of substituting chicken for beef based on whichever meat is least expensive. But Casual Kitchen readers steeped in the practice of almost meatless cooking should be able to broaden the substitution possibilities far, far further, by rotating in laughably cheap vegetarian meals for some meat-centered meals.
If you think about it, this makes meat providers "compete" far more expansively. They're not just competing against other meat providers, we're making them compete against vegetables too! In other words, you've created circumstances where all of these food providers have to compete against each other for your food dollars. And this gives you more options and flexibility than ever.
Interestingly, one of the primary flaws in measuring inflation decades ago resulted from the government failing to take into account the substitutability of many products in the consumer marketplace. Heh. We won't be making that mistake.
Substitution and competition can be thought of still more broadly, at all levels of the consumer marketplace. For example, think beyond the mere product level. Competition and substitution can be found at the store level too: If any store hikes prices beyond what you think is reasonable, go to another store.
So, we now have our first set of weapons for combating inflation, and here's the general heuristic for readers: source as many of your "needs" from markets that are competitive, and for each need, have as many substitution possibilities as you can, in as broad a sense as you can. To the extent you can expand the envelope of competition and substitution across all things you buy, you will massively increase your leverage and flexibility over price inflation.
Next week we'll look at still more ways to beat inflation in Part 2: we'll look at the issue from the income and employment side of the ledger, and we'll consider some unusual ways to think about overhead and investing. Stay tuned!
* Our cable company hiked our internet bill 9%.
* Many product categories in our primary local grocery store have seen price hikes: a few that come to mind: store brand peanuts $2.49 to $2.99 (20%) and then to $3.29 (32% cumulatively), soy milk: 33% ($1.50 to $1.99). pineapples 20% ($2.50 to $2.99).
* Our automobile insurance bill went up a surprise 10% in the last billing cycle.
* Our townhouse community fees increased about 5% last year.
* And our property taxes jumped 8% two years ago as our town put through new assessments.
Of course, let's not forget one of the worst examples of inflation today: increases in health insurance policy premiums, which seem to inflate at a shocking rate each year.
All of this made me want to attempt to collect and organize my thoughts for readers on how best to deal with inflation and price increases. Unfortunately, I can't solve the inflation problem directly, that's the job of all those stone-handed economic geniuses at the Federal Reserve. But I what I can do is share some heuristics and general principles to help us blunt inflation's impact on our household budgets.
Let's start by stealing a quote and a conceptual framework on inflation from economist John Kenneth Galbraith, from his book The Affluent Society:
"Those individuals and groups will suffer most which have the least control over their prices or wages and hence the least capacity to protect themselves by increasing their own returns."
Galbraith ain't the greatest writer in the world, but what he's trying to say here is you want to increase your flexibility on both sides of the ledger--with both income and expenses. Those households without much room between income and expenses, those carrying high fixed costs, those that can't (or won't) save aggressively, and those unable to control their incomes at least to some extent--it's those households inflation hurts the worst.
Don't be that kind of household. To ensure your family isn't like the "at-risk" example Galbraith describes, you'll want to add to your income, cut expenses, and beat price hikes where you can. All three--at the same time.
Okay. Let's move from the theoretical and get into some practical ideas.
The ability to say no
The things we buy in life can be broken down into two categories: things we need and things we don't. Many posts here at Casual Kitchen address how easy it is to confuse needs with wants, and inflation in the price of a given product or service gives us a way to clarify the confusion. The more you can consider something as a want rather than a need, and the more you can simply say "no" to that product or service, the more power you have over the entity selling to you.
Some of our peers tell us they could never part with television. Now, I never judge peoples' horrible media consumption habits, but if that's your position, guess what? To the extent you believe TV is a "need" you lose all your leverage. You lose the ability to use true brinkmanship with the supplier. Yes, you can use all the Ramit cost-savings scripts you like. But if you won't cancel service when it really gets down to it, the company holds all the cards, not you.
Eventually, you're going to eat a price hike.
In contrast, imagine a household that places cable television in the "want" rather than "need" category. In our case, that simple act of mental categorization at first enabled us to keep cable, as the cable company, smelling our utter indifference when we called to challenge a price hike, offered us a hilariously cheap deal. Ironic.
But eventually, as with all monopoly- or oligopoly-provided services (more on this in a moment) the price hikes inevitably resumed, and we simply eliminated the entire cost category from our life. We won the brinkmanship battle because we could always say no. And eventually we did. The more you can improve and expand your ability say no, whatever the product or service, the more power you have over inflation.
Sounds easy, right? The problem, of course, is sometimes there's no competition at all.
Monopoly providers
In our community, internet service is a monopoly, and--no surprise--they've put through multiple price increases in recent years. They do it because they can. It's a reality. We've managed to negotiate the last few away, but this summer they put through a 9% hike that we were unable to beat back.
Unfortunately, some price hikes you just have to eat, and we'll be eating this one. You won't be able to beat back every single manifestation of inflation. Instead, you'll have to make room for the ones you can't beat back by driving down costs elsewhere in your budget.
Oligopoly providers
Oligopolies are markets where there are very few players competing. Here's where we often see creeping inflation and the dreaded "pricing umbrella," where the most dominant company in an oligopoly hikes prices and the other competitors follow along. It's not collusion exactly. It's not like these companies get together in a smoky back room and agree to hike prices in advance (which is illegal). They are, however, still free to watch each others' pricing decisions in the open market, and either follow along or not.
Branded consumer products companies tend to be worst offenders here, which is why you want to try and both avoid their products and invest in their stocks. More on that next week in part two of this post.
Substitution/Competition: broadening our primary weapon
It's an elementary economic concept to know that the more competition there is in a market, the lower prices will be, and the less likely there will be inflation. I wouldn't be teaching you anything by telling you this--you already know it.
What I want readers to do instead is to view "competition" as broadly as possible in all consumer marketplaces.
Branding is one way companies try to artificially limit competition. If you only buy Bumblebee Tuna for example, you're enabling a type of mini-monopoly market, and setting up a possible pain point for inflation in the future. On the other hand, if you know the real truth about canned tuna, and thus are indifferent to branding, you can switch.
And the ability to switch or substitute is a consumer's primary weapon of empowerment. The question is, can we think about substitution in ridiculously broad terms, and impose more competition across more markets--and thus increase our overall power as consumers?
Let's go over an example of what I mean. One of the most basic substitution examples, one you'd find in an introductory economics textbook, is the idea of substituting chicken for beef based on whichever meat is least expensive. But Casual Kitchen readers steeped in the practice of almost meatless cooking should be able to broaden the substitution possibilities far, far further, by rotating in laughably cheap vegetarian meals for some meat-centered meals.
If you think about it, this makes meat providers "compete" far more expansively. They're not just competing against other meat providers, we're making them compete against vegetables too! In other words, you've created circumstances where all of these food providers have to compete against each other for your food dollars. And this gives you more options and flexibility than ever.
Interestingly, one of the primary flaws in measuring inflation decades ago resulted from the government failing to take into account the substitutability of many products in the consumer marketplace. Heh. We won't be making that mistake.
Substitution and competition can be thought of still more broadly, at all levels of the consumer marketplace. For example, think beyond the mere product level. Competition and substitution can be found at the store level too: If any store hikes prices beyond what you think is reasonable, go to another store.
So, we now have our first set of weapons for combating inflation, and here's the general heuristic for readers: source as many of your "needs" from markets that are competitive, and for each need, have as many substitution possibilities as you can, in as broad a sense as you can. To the extent you can expand the envelope of competition and substitution across all things you buy, you will massively increase your leverage and flexibility over price inflation.
Next week we'll look at still more ways to beat inflation in Part 2: we'll look at the issue from the income and employment side of the ledger, and we'll consider some unusual ways to think about overhead and investing. Stay tuned!
Tuesday, October 17, 2017
Ten Book Recommendations (Actually, Eleven)
Readers, I thought I'd share a list of the best books I've read so far this year. And also, I have a favor to ask: What have you been reading lately that you'd recommend? Please share in the comments--I'm always looking for new reading material.
A quick housekeeping note: if you'd like to support Casual Kitchen, one of the best ways to do so is to visit Amazon using any link here at this site. I then get paid a modest commission, at no incremental cost to you, on anything you buy on that visit. As always, I'm grateful for my reader's support!
Now, on to the books:
Spent -- Geoffrey Miller
This book looks at consumer behavior through the lens of evolutionary psychology, and it helps explain much of the conspicuous trait-signalling and virtue-signalling we see all around us. This book was at times funny and at other times tone-deaf, but it gives readers--particularly frugal, Casual Kitchen-type readers--a helpful set of tools for understanding modern consumerism.
The Hidden Life of Trees -- Peter Wohlleben
An unusual, even kooky book, but absolutely hypnotic. You might think you already appreciate trees… read this book and you'll appreciate them far more.
Never Split the Difference -- Chris Voss
An excellent book on negotiating. Readable, insightful, and often counterintuitive.
The Life-Changing Magic of Tidying Up -- Marie Kondo
A book that really changed the way I think, and one that has forever changed how I think about my stuff. If you could only pick one book from this list, make it this one.
Spark Joy -- Marie Kondo
This is a companion guide to The Life-Changing Magic of Tidying Up. Where "Tidying Up" had a lot of philosophy and theory, Spark Joy gets into the pragmatics and practical applications of how to execute the specific steps of tidying. Use both.
Happier -- Tal Ben-Shahar
Useful. Offers readers helpful techniques and mini-habits to spur self-awareness and gratitude in your daily life. (Note: this author is an intellectual disciple of Martin Seligman, whose book Learned Optimism was also a subject for an unusual post here at Casual Kitchen)
Hannibal -- Harold Lamb
No, not Hannibal Lecter. I'm talking about the Hannibal, the general from the lost city of Carthage. This is a short, well-written biography, telling the nearly unbelievable story of how Hannibal attacked Rome after moving his entire army (including, incredibly, his elephants) across the Alps. Excellent.
Godel, Escher, Bach: An Eternal Golden Braid -- Douglas Hofstadter
I strongly recommend this book for geeks, and strongly do not recommend it for normal people. But if you're a geek and you take pride in being so, you'll never forget the experience of reading this foundational book, which has helped shape the past few decades' discussions on consciousness, software programming, recursion, and artificial intelligence.
The Education of a Value Investor -- Guy Spier
Best investment book I've read this year by far. Excellent advice on how to control your intellectual and emotional inputs, useful thinking on what kinds of media you should (or shouldn't) consume, and helpful insights about what kinds of people you should surround yourself with (consensus thinkers or rigorous non-consensus thinkers), and even thoughts on how often you should check stock prices (in my case, less often--probably a lot less often). This is a very honest book that looks at the "water" we're in, and how to to improve the intellectual environment driving our investing decisions.
Capital -- Karl Marx
No one actually reads Capital, they just opine about it. And in our modern era of infantalized, "I'll talk louder than you" public discourse, you can barely bring up this massively influential book without people losing their shit and spouting all their pre-fabbed opinions. It turns out, at least in my opinion, that there are two totally different ways to read Karl Marx's divisive book: you can see it as a bible for people who want to believe "capitalism" is a horrible, awful, no-good, really bad economic system, or you can read it as a how-to guide for joining the investor class. If you'd like to protect yourself financially and help construct a good future for you and your family, try reading it through the latter lens.
A quick housekeeping note: if you'd like to support Casual Kitchen, one of the best ways to do so is to visit Amazon using any link here at this site. I then get paid a modest commission, at no incremental cost to you, on anything you buy on that visit. As always, I'm grateful for my reader's support!
Now, on to the books:
Spent -- Geoffrey Miller
This book looks at consumer behavior through the lens of evolutionary psychology, and it helps explain much of the conspicuous trait-signalling and virtue-signalling we see all around us. This book was at times funny and at other times tone-deaf, but it gives readers--particularly frugal, Casual Kitchen-type readers--a helpful set of tools for understanding modern consumerism.
The Hidden Life of Trees -- Peter Wohlleben
An unusual, even kooky book, but absolutely hypnotic. You might think you already appreciate trees… read this book and you'll appreciate them far more.
Never Split the Difference -- Chris Voss
An excellent book on negotiating. Readable, insightful, and often counterintuitive.
The Life-Changing Magic of Tidying Up -- Marie Kondo
A book that really changed the way I think, and one that has forever changed how I think about my stuff. If you could only pick one book from this list, make it this one.
Spark Joy -- Marie Kondo
This is a companion guide to The Life-Changing Magic of Tidying Up. Where "Tidying Up" had a lot of philosophy and theory, Spark Joy gets into the pragmatics and practical applications of how to execute the specific steps of tidying. Use both.
Happier -- Tal Ben-Shahar
Useful. Offers readers helpful techniques and mini-habits to spur self-awareness and gratitude in your daily life. (Note: this author is an intellectual disciple of Martin Seligman, whose book Learned Optimism was also a subject for an unusual post here at Casual Kitchen)
Hannibal -- Harold Lamb
No, not Hannibal Lecter. I'm talking about the Hannibal, the general from the lost city of Carthage. This is a short, well-written biography, telling the nearly unbelievable story of how Hannibal attacked Rome after moving his entire army (including, incredibly, his elephants) across the Alps. Excellent.
Godel, Escher, Bach: An Eternal Golden Braid -- Douglas Hofstadter
I strongly recommend this book for geeks, and strongly do not recommend it for normal people. But if you're a geek and you take pride in being so, you'll never forget the experience of reading this foundational book, which has helped shape the past few decades' discussions on consciousness, software programming, recursion, and artificial intelligence.
The Education of a Value Investor -- Guy Spier
Best investment book I've read this year by far. Excellent advice on how to control your intellectual and emotional inputs, useful thinking on what kinds of media you should (or shouldn't) consume, and helpful insights about what kinds of people you should surround yourself with (consensus thinkers or rigorous non-consensus thinkers), and even thoughts on how often you should check stock prices (in my case, less often--probably a lot less often). This is a very honest book that looks at the "water" we're in, and how to to improve the intellectual environment driving our investing decisions.
Capital -- Karl Marx
No one actually reads Capital, they just opine about it. And in our modern era of infantalized, "I'll talk louder than you" public discourse, you can barely bring up this massively influential book without people losing their shit and spouting all their pre-fabbed opinions. It turns out, at least in my opinion, that there are two totally different ways to read Karl Marx's divisive book: you can see it as a bible for people who want to believe "capitalism" is a horrible, awful, no-good, really bad economic system, or you can read it as a how-to guide for joining the investor class. If you'd like to protect yourself financially and help construct a good future for you and your family, try reading it through the latter lens.
Tuesday, October 10, 2017
Second Class Needs
Keynes observed that the needs of human beings "fall into two classes--those needs which are absolute in the sense that we feel them whatever the situation of our fellow human beings may be, and those which are relative only in that their satisfaction lifts us above, makes us feel superior to, our fellows."
--John Kenneth Galbraith, The Affluent Society
Readers of Casual Kitchen already know all about status competition and costly trait signaling. Longer term readers will also recall the concept of desire triggering: by buying something, you can even extinguish a desire you never even knew you had until some company gave you that desire to quench in the first place.
There's an obvious insight that follows: If you want to avoid getting rudely separated from your money, simply avoid all purchases in this genre of "needs" Keynes discusses above. They aren't needs at all, they just feeeeeeeeeel like needs.
Which takes us to Galbraith and Keynes once again:
Keynes noted that needs of "the second class," i.e., those needs that are the result of efforts to keep abreast or ahead of one's fellow being, "may indeed be insatiable; for the higher the general level, the higher still are they.”
Empowered consumers must know to separate needs of this "second class" from true needs. Further, they must also know the game: that these "needs" exist at every socioeconomic level--and no matter what your level of wealth, your attempts to satisfy them will take all the money you have, and then more.
Understanding this dynamic is a gigantic step towards playing the money game on the easy setting, and an even bigger step towards living a much more fulfilling life. Not to mention a far less expensive one.
READ NEXT: Epistemic Arrogance
And: Epistemic Humility
--John Kenneth Galbraith, The Affluent Society
Readers of Casual Kitchen already know all about status competition and costly trait signaling. Longer term readers will also recall the concept of desire triggering: by buying something, you can even extinguish a desire you never even knew you had until some company gave you that desire to quench in the first place.
There's an obvious insight that follows: If you want to avoid getting rudely separated from your money, simply avoid all purchases in this genre of "needs" Keynes discusses above. They aren't needs at all, they just feeeeeeeeeel like needs.
Which takes us to Galbraith and Keynes once again:
Keynes noted that needs of "the second class," i.e., those needs that are the result of efforts to keep abreast or ahead of one's fellow being, "may indeed be insatiable; for the higher the general level, the higher still are they.”
Empowered consumers must know to separate needs of this "second class" from true needs. Further, they must also know the game: that these "needs" exist at every socioeconomic level--and no matter what your level of wealth, your attempts to satisfy them will take all the money you have, and then more.
Understanding this dynamic is a gigantic step towards playing the money game on the easy setting, and an even bigger step towards living a much more fulfilling life. Not to mention a far less expensive one.
READ NEXT: Epistemic Arrogance
And: Epistemic Humility
Tuesday, October 3, 2017
Costly Signalling
I just finished an intriguing book called Spent
by Geoffrey Miller. I recommend it. In some ways the book is all over the place, covering more topics that it probably should, but to a patient and accommodating reader it offers plenty of useful insights.
One of the central themes of Spent is the idea of observing consumer behavior through the lens of evolutionary psychology. We all know that consumers buy things to "signal" desirable qualities and traits. This in itself is not a new idea--after all, Thorstein Veblen covered it in sarcastic detail in The Theory of the Leisure Class back in 1899. Heck, for that matter, Diogenes saw it back in 400 BC. We signal to the people around us that we are "fit" in the evolutionary sense: fit to be friends or peers, fit to be colleagues, fit to be a member of whatever tribe we're in, fit to be a mate, and so on.
The consumer marketplace gives us all kinds of methods to engage in signalling. We can signal wealth by buying expensive cars, clothes and houses. We can signal intelligence by buying shelfloads of books, or by name-dropping the Ivy League university where we got our MBA. We can signal environmental conscientiousness by waxing rhapsodic about the organic, fair trade bulgur we bought at that family-owned health food store in town.
Unfortunately, it can get awfully expensive to do all this signalling. What if, instead, we were to look at signalling activity from the perspective of consumer empowerment?
One thing to consider: If you think about it, all signals given via purchases made in the consumer marketplace are essentially... facades. Returning to our luxury car example, let's say you buy an expensive car to signal economic fitness, and by doing so you successfully attract many mating partners and friends.
Here's one problem that comes to mind right away: you will have attracted the kind of people who judge you by the car you drive.
That's bad enough... but there's an even bigger problem. Your actual economic fitness will become quickly obvious to all of those mating partners and friends once they actually get to know you. The whole point of attracting friends and mates is for them to know the real you, right? So when they find out (and they will find out) that you can barely swing your monthly lease payment, and that your "wealth signal" was totally phony, your facade instantly crumbles away, and these alleged friends and mates (who you attracted under essentially false pretenses) will neither care about your nor the luxuriousness of your car.
All facades crumble. Better to have built true financial fitness instead--by not buying that car in the first place.
In fact, taking this one step further, you could argue that a sophisticated observer of consumer behavior could judge an expensive car as a signal of anti-fitness. The signal of always driving late-model luxury automobiles, viewed across a person's entire lifetime, might represent not wealth, but the waste of hundreds of thousands of dollars of personal financial capital! This is a second-order insight you might distill from, say, books like The Millionaire Next Door
or Your Money Or Your Life.
Now, in the archives of Casual Kitchen, we've written about the idea of driving old cars as an act of mini-rebellion against consumerism, against financial waste, and against the idea of raising the bar of status competition for the people around us. But as much as we anticonsumerists like to think we're above base displays of fitness signalling, these things are acts of signalling too.
What driving an old and highly practical car signals, I'm not quite certain. I'd like it to signal something along the lines of "I have the confidence to drive an old car and not worry about what people think." But then again, perhaps it signals "I'm slightly dull." Or "I'm slightly dull, thus I am unlikely to get pec implants and a mistress, therefore I am signalling I would be a very steady and economically desirable mate." It's hard to say.
Of course, I'm not judging any of these signals in the least (really, I'm not!). What I want to illustrate is that this last signal--uh, whatever it happens to mean--costs a lot less to put out there than a lifetime of buying late-model luxury cars. A whole heck of a lot less.
The point here is to be aware not only of trait signalling, but also to be aware that we all do it--even if we'd like to think we don't. As "hypersocial status-seeking primates" as Spent's author Geoffrey Miller would phrase it, we are genetically built to signal. In fact, the entire reason we're even here talking about this topic in the first place was because our genes successfully signaled fitness over time, and thus survived to the present day.
The empowered consumer, then, finds a way to signal the right kinds of fitness without resorting to buying things in the consumer marketplace. Those signals are the costliest--and the most transparently artificial.
So what signals are you giving off by the purchases you make? Or, more importantly, the purchases you don't make?
READ NEXT: The Scientific Study That Cried Wolf
by Geoffrey Miller. I recommend it. In some ways the book is all over the place, covering more topics that it probably should, but to a patient and accommodating reader it offers plenty of useful insights.One of the central themes of Spent is the idea of observing consumer behavior through the lens of evolutionary psychology. We all know that consumers buy things to "signal" desirable qualities and traits. This in itself is not a new idea--after all, Thorstein Veblen covered it in sarcastic detail in The Theory of the Leisure Class back in 1899. Heck, for that matter, Diogenes saw it back in 400 BC. We signal to the people around us that we are "fit" in the evolutionary sense: fit to be friends or peers, fit to be colleagues, fit to be a member of whatever tribe we're in, fit to be a mate, and so on.
The consumer marketplace gives us all kinds of methods to engage in signalling. We can signal wealth by buying expensive cars, clothes and houses. We can signal intelligence by buying shelfloads of books, or by name-dropping the Ivy League university where we got our MBA. We can signal environmental conscientiousness by waxing rhapsodic about the organic, fair trade bulgur we bought at that family-owned health food store in town.
Unfortunately, it can get awfully expensive to do all this signalling. What if, instead, we were to look at signalling activity from the perspective of consumer empowerment?
One thing to consider: If you think about it, all signals given via purchases made in the consumer marketplace are essentially... facades. Returning to our luxury car example, let's say you buy an expensive car to signal economic fitness, and by doing so you successfully attract many mating partners and friends.
Here's one problem that comes to mind right away: you will have attracted the kind of people who judge you by the car you drive.
That's bad enough... but there's an even bigger problem. Your actual economic fitness will become quickly obvious to all of those mating partners and friends once they actually get to know you. The whole point of attracting friends and mates is for them to know the real you, right? So when they find out (and they will find out) that you can barely swing your monthly lease payment, and that your "wealth signal" was totally phony, your facade instantly crumbles away, and these alleged friends and mates (who you attracted under essentially false pretenses) will neither care about your nor the luxuriousness of your car.
All facades crumble. Better to have built true financial fitness instead--by not buying that car in the first place.
In fact, taking this one step further, you could argue that a sophisticated observer of consumer behavior could judge an expensive car as a signal of anti-fitness. The signal of always driving late-model luxury automobiles, viewed across a person's entire lifetime, might represent not wealth, but the waste of hundreds of thousands of dollars of personal financial capital! This is a second-order insight you might distill from, say, books like The Millionaire Next Door
or Your Money Or Your Life. Now, in the archives of Casual Kitchen, we've written about the idea of driving old cars as an act of mini-rebellion against consumerism, against financial waste, and against the idea of raising the bar of status competition for the people around us. But as much as we anticonsumerists like to think we're above base displays of fitness signalling, these things are acts of signalling too.
What driving an old and highly practical car signals, I'm not quite certain. I'd like it to signal something along the lines of "I have the confidence to drive an old car and not worry about what people think." But then again, perhaps it signals "I'm slightly dull." Or "I'm slightly dull, thus I am unlikely to get pec implants and a mistress, therefore I am signalling I would be a very steady and economically desirable mate." It's hard to say.
Of course, I'm not judging any of these signals in the least (really, I'm not!). What I want to illustrate is that this last signal--uh, whatever it happens to mean--costs a lot less to put out there than a lifetime of buying late-model luxury cars. A whole heck of a lot less.
The point here is to be aware not only of trait signalling, but also to be aware that we all do it--even if we'd like to think we don't. As "hypersocial status-seeking primates" as Spent's author Geoffrey Miller would phrase it, we are genetically built to signal. In fact, the entire reason we're even here talking about this topic in the first place was because our genes successfully signaled fitness over time, and thus survived to the present day.
The empowered consumer, then, finds a way to signal the right kinds of fitness without resorting to buying things in the consumer marketplace. Those signals are the costliest--and the most transparently artificial.
So what signals are you giving off by the purchases you make? Or, more importantly, the purchases you don't make?
READ NEXT: The Scientific Study That Cried Wolf