Warren Piece

The Gist:  How the Oracle of Omaha refined his investment strategy to become a billionaire.

The second of a two-part review of multiple Buffett biographies.

Read the first part here: My Warren Report.

Where last we left off, Warren Buffett was just starting to get back into the stock market as it underwent a sustained downturn during the 1970s. In other words: businesses were on sale! 


Figure 1. “C’mon down to Wall Street because EVERYTHING MUST GO! Your favorite brands are 50 – 70 – even 90% off! We are SLASHING prices MARKETWIDE for this decade only – so get in while you can and tell ‘em Cowboy Pete sent you!” 


His vehicle was rather unusual: the publicly-traded Berkshire Hathaway, originally and ostensibly a northeastern textile manufacturer. Yet Buffett was using the profits of the manufacturer to invest in other companies – and those investments were paying off far better than the troubled underlying business. His partner in success – the man who refined Buffett’s investing approach from the pure bargain-hunting that had led to Berkshire’s acquisition in the first place – was Charlie Munger.

Munger was also an Omaha native but, unlike Warren, was determined to get out. Bouncing around different colleges but never getting a degree amidst military service in World War II, he was at one point assigned to California and quickly concluded he preferred western winters. As the grandson of a federal judge, Munger was able to solicit a family friend’s help in getting into Harvard Law School without the college prerequisite – and, despite the dean’s skepticism, wound up graduating in the top 10% of his class. Soon making a sizable income at a California law firm, Munger began investing with a notable caution: he did not want to put his money into people and companies that made good law firm clients because they had so many legal problems. 

While Munger was a great lawyer – he even co-founded a super-star law firm – he was an outstanding investor and soon was investing other people’s money. Wall Street Journal reporter and Buffett biographer Roger Lowenstein reports: “Munger was no Ben Graham disciple. In his view, troubled companies, which tended to be the kind that sold at Graham-like discounts, were not easily put right.” As Buffett would sum up, “Time is the friend of the wonderful business, the enemy of the mediocre… It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner.”


Figure 2. Literally bought for a song from a troubadour, Ye Olde Renaissance Fair franchisor turned out to have an array of pending lawsuits related to its attempt to genuinely recreate its time period with Bubonic plague infections, burning of heretics, malnutrition for most participants, and explanations of danger only available in hand-drawn Latin brochures sold for hard currency.


But what was a “wonderful company”? Munger was on a mission to find out and asked everyone he met “What’s the best business you’ve ever heard of?” In 1959, Munger was back in Omaha to settle his father’s estate when he got to ask his favorite question to a new acquaintance, the grandson of the owner of the grocery store he once worked at (in his words, “slaved” at) as a teenager: Warren Buffett. It was an instant friendship that would last a lifetime and they began talking every single day by phone. Soon, Buffett would be asking a variant of Charlie’s question: “If you were stranded on a desert island for ten years, in what stock would you invest?”


Figure 3.  Among those actually castaway on a desert island for years, the answer was Anta Sports Products Limited, traded as ANPDF on the Hong Kong Stock Exchange, perhaps better known for its subsidiary, Wilson Sporting Goods. 


The understanding that drove the intensity of the duo’s search was that concentration on the right bets – the equivalent of putting it all in on the royal flush – would pay off better than diversification. The difference, of course, is that you know a royal flush is the best hand while you don’t know the future of a company. Diversification is really risk management because concentration can mean you lose it all as well – maybe you’re really putting it all in on a pair of twos. Buffett would later advise students that “You’d get very rich if you thought of yourself as having a card with only twenty punches in a lifetime, and every financial decision used up one punch. You’d resist the temptation to dabble.” 

For Buffett, that meant staying within your circle of competence and being as sure as you could be, after much intensive and obsessive analysis, that every decision was right. From Graham, Buffett understood that he needed a margin of safety and that Mr. Market might provide it to him at the right time. From Munger, Buffett began to see that there might be more to intrinsic value than merely the price at which a company could be liquidated. Munger wanted businesses that continuously threw up easy decisions rather than hard ones. But he also became interested in a specific feature: “Munger had a Caterpillar tractor dealership as a client. To grow, the business had to buy more tractors, gobbling up more money. Munger wanted to own a business that did not require continual investment, and spat out more cash than it consumed.”  

The business that fit the bill and fueled Buffett’s success would be insurance. Buffett had first gotten to know the industry through studying Ben Graham’s greatest payoff, Geico, which originally and brilliantly sold insurance through direct mail (thereby removing the commissions and costs of agents) only to government employees (who, on average, filed fewer claims). While Buffett would eventually buy Geico, he started out with a profitable Nebraska insurer whose owner was a bit moody and had a reputation for getting irritated enough to threaten to sell the business – but only for about fifteen minutes once a year before calming down. Buffett let it be known that if he could get in during those 15 minutes, he’d buy. Soon enough, he did – or, as one might put it, 15 minutes saved him 15% or more on insurance.

What Buffett understood faster and better than the rest of the insurance industry was the opportunity to invest the float – that is, the money available between when premiums are paid in and claims were paid out. Most of the industry then just stashed it away in long term bonds (conventionally safe but soon ravaged by inflation). Buffett, while insisting on relatively safe and conservative underwriting, put the float to work in the market and in piecing together his own conglomerate. The float meant he did not have to take on debt but instead had access to his own cash source: “Charlie Munger has said that the secret to Berkshire’s longterm success has been its ability to ‘generate funds at 3 percent and invest them at 13 percent.’”

Flight attendant

Figure 4. “Welcome aboard the New York Stock Exchange! Thank you for your attention while important margin of safety information is reviewed. Your cash may be placed in an overheard compartment or completely under the seat in front of you – but taking on additional leverage is prohibited. In case of an emergency, please follow the lighted ticker signals reflecting a downward price movement and buy as much as you can. If you are an insurance company, your float is an approved cushion device. If you are seated in an exit row, you may be called upon to get as many bargains as you can as terrified sellers pass you by. If you are unable or unwilling to perform that function, you will lose a lot of money.”


Buffett’s success ultimately came from laddering up his investments and, as he put together a conglomerate, redistributing capital to its best and highest use. Buffett had a single goal: for every dollar he could get from profits or float or wherever, where would it go the farthest? Buffett insisted “I’d rather have a $10 million business making 15 percent than a $100 million business making 5 percent… I have other places I can put the money.” William Thorndike authored a study of Buffett and other unconventional CEOs with outsized returns and concluded that their success related to this magic of capital allocation. “Whenever Buffett buys a company, he takes immediate control of the cash flow, insisting that excess cash be sent to Omaha for allocation.” Once Buffett had all the cash in one place, he would decide where to invest in existing operations, whether to acquire a new business altogether, whether to invest in Berkshire’s own stock if it was cheap, whether to pay off debt, or whether to keep powder dry – all depending on what might have the highest return.

Buffett’s style had another related feature: “Except on June 30 and December 31, when [a CEO of a subsidiary] was obliged to transfer his profits to Omaha, he felt as if the business were his. In a practical sense, he was free to run it for the long term, as a private owner would.” Buffett’s corporate offices had an anorexic staff – even by the time it was a Fortune 500 company, HQ had less than a dozen people. One CEO reported that he “delegated to the point of abdication” and would “always praise [his team] while he gave [them] more to do.” But “while remarkably tolerant of others’ quirks and flaws, he was less so of quirks and flaws that cost him money.” It was all about the return – and if you couldn’t deliver, none of the profits would be given back to you. 

Given the attractive features of the insurance business, you won’t be surprised by the business that ultimately brought together Munger and Buffett as partners: Blue Chip Stamps. Essentially a rewards program, super-markets paid Blue Chip for the ability to distribute stamps that their customers could earn by making purchases and redeem for prizes. For Buffett and Munger, the magic was that they got immediate control over the money that would only have to be given back over time – if at all (lots of customers lost their stamps). “To Buffett, Blue Chip was simply an insurance company that wasn’t regulated” – with a float of almost $100 million.

And yet the maneuvering of Buffett and Munger at Blue Chip did attract the unwanted attention of the SEC. Between them, Munger and Buffett owned 3/4 of Blue Chip and were using the investment committee to pursue more good deals, including making a substantial run at a savings and loan, Wesco Financial, trading at “less than half its book value”. But Wesco’s management soon announced they were going to be taken over at what Munger and Buffett thought to be a terrible price, so they maneuvered to kill the deal and then eventually themselves acquired a majority stake. The SEC, however, suspected stock manipulation and were further suspicious of Blue Chip’s convoluted and complicated ownership structure – often a sign of attempted fraud. The problem was that though Munger and Buffett controlled Blue Chip, they did so through lots of different entities, each of which may have required fiduciary duties, where Munger’s partnership owned a portion, but also a portion of a third company that owned a portion, and that third company was owned in part by Buffett’s Berkshire Hathway, which also owned a portion of Blue Chip, and then there was Buffett himself who personally owned part of Blue Chip along with other companies, and so on and so on.


Figure 5. Meanwhile, thousands of kids would kill for some attention from the SEC.


An investigation ensued, and Munger and Buffett decided to cooperate in full. By the end, instead of an indictment, the SEC “named [Buffett] to a blue-ribbon panel to study corporate disclosure practices.” By all accounts, they really were totally above board – and unusual in that they each interviewed alone without a phalanx of attorneys. But it may have helped that the SEC had been taken over by a former law partner of Munger’s. Regardless, the duo realized that their structure had organically grown into something too complicated and they decided to consolidate everything into the single entity of Berkshire Hathaway. (And Munger might have had extra motivation because, unlike Buffett, he had not returned all capital in 1970 and so his record took a rough dip as the market declined).

In the meanwhile, Buffett found another kind of wonderful business – and this one Ben Graham did not approve of. The specific company was California chocolatier See’s Candy, which Buffett bought at 3x book value – very expensive in Graham’s outlook and Buffett had held his nose to offer that absolute maximum. But one of the problems with book value is that it does not take into account the power of a brand – the difference between whether you’d buy a generic cola or Coke, the difference between the price of machinery on the open market versus what its capable of producing – Mustang or Edsel. See’s had established a consumer franchise where customers were willing to pay an irrational price well above cost. Around this time, Ben Graham invited Buffett to be the coauthor of a revised edition of the Intelligent Investor; Buffett wanted to add a chapter about See’s Candy and identifying great businesses but “Graham didn’t think the average reader could do it.” Buffett ultimately declined – his foundation was still Graham but Munger had helped him go beyond it. And if the stock market was as cheap and inflation as bad as the 1970s, he was ready to invest a far greater percentage in stocks than Graham’s 75% ceiling. Relatedly, 

Fear of inflation was a constant theme in Berkshire’s annual reports throughout the 1970s and into the early 1980s. The conventional wisdom at the time was that hard assets (gold, timber, and the like) were the most effective inflation hedges. Buffett, however, under Munger’s influence and in a shift from Graham’s traditional approach, had come to a different conclusion. His contrarian insight was that companies with low capital needs and the ability to raise prices were actually best positioned to resist inflation’s corrosive effects.


Figure 6. Pro tip for your budget: look up all the companies considered consumer franchises – and immediately and forever more replace them with generics. With Coke, a cheap alternative generic comes right out of your faucet! 


But, of course, people could still buy chocolate elsewhere. What Buffett really wanted was the only toll-bridge in a river town, a business where people had to use the product. The best equivalent he could find was a local newspaper where businesses felt obligated to advertise. He shopped around for a few years, bought an alternative weekly in Omaha and even helped it win the Pulitzer Prize, bought Washington Post shares at a bargain and went on the board to further get to know the industry, and finally he was able to acquire, in his biggest purchase then to date, the Buffalo Evening News. 

Acquiring the evening newspaper (with a strong morning rival once edited by Mark Twain) without a Sunday edition (published by the rival) in a declining manufacturing town with unfavorable labor laws did not seem to be the kind of wonderful business that continuously threw up easy decisions – and it’s possible that Buffett and Munger were too influenced by their love of newspapers. And yet what happened next was even more difficult than they could imagine: when the Buffalo News tried to publish a cheap Sunday edition, their rival sued them for antitrust – and a local federal judge, perhaps skeptical of non-local interlopers, held them up in court for years. But Buffett made the bet that his balance sheet was stronger than the owners of the other newspaper and so they bitterly fought it out until the rival went bankrupt. Suddenly, Buffett had his toll bridge and the printing presses at the Buffalo News started figuratively printing money, spurring new purchases for the Berkshire conglomerate. Interestingly, Buffett was very clear on who won the classic newspaper war:

Soon after the [rival] Courier’s demise, Buffett attended a meeting for the newspaper’s middle-level managers, in Buffalo’s Statler Hotel. “What about profit-sharing for people in the newsroom?” Buffett was asked. On its face, this seemed reasonable. The newsroom had certainly done its bit. Buffett replied coldly, “There is nothing anybody on the third floor [the newsroom] can do that affects profits.” The staff was shocked, though Buffett was merely living up to his brutal-but-principled capitalist credo. The owners of the Buffalo Evening News had run very great risks. Employees had not come forward during the dark years to share in the losses. Nor, now, would they share in the gains. 

The 1980s would be defined by the image of the corporate raider: an aggressive outsider who used debt to buy companies he could not otherwise afford with the hope of paying it off by better management (or liquidation). Buffett hated that this helped Mr. Market go manic: “A raider with access to somebody else’s dough would pay a lot more than a company was worth. And Wall Street’s soaring appetite for junk bonds was providing a vast supply of easy money.” But he soon found that he could secure special deals by being the antidote to the era: as a folksy debt-shy Midwesterner with a hands-off management style, he was the perfect white knight to fend off raiders looking for easy prey. Indeed, this was a business Buffett understood well: he was going to be management’s insurance. 

But while pursuing private opportunities and cutting deals of special consideration throughout the decade, Buffett saw less opportunity in the public markets. In 1985, he “sold every stock in the portfolio” except for the “permanent” three: Geico, the Washington Post, and Capital Cities (lots of local television stations that wound up buying ABC). In the same year, he finally ended Berkshire’s textile business: “The equipment would have cost as much as $50 million to replace. Put to the auction block, it sold for $163,122.” For three long years between 1985 and 1988, he did not buy a single common stock. When he did, “he staked a fourth or so of Berkshire’s market value” on the sufficiently cheap consumer franchise of Coca Cola, which had been trying to concentrate on its core business after some bumps in the road. Over the coming years, Berkshire’s holdings would grow in value by nearly $19 billion, up over 1,000%.

The New Coke fiasco merely made the company more compelling to him. As Buffett explained it, Coca-Cola knew that Americans had preferred the sweeter New Coke, but when people were told about the switch, they wanted their old Coke back. The drink had “something other than just the taste—the accumulated memory of all those ballgames and good experiences as children which Coke was a part of.”

The 1990s began with a white knight deal gone wrong. Buffett had long been critical of the investment banking industry, quipping that “the bankers should be the one wearing ski masks” and “you won’t encounter much traffic taking the high road on Wall Street.” But he had a personally good experience with Salomon Brothers and when they asked for his help to fend off a raider – and offered an extremely sweet deal – Buffett took it. A few years later, however, a rogue trader repeatedly defrauded the worst possible victim: the U.S. government. When management discovered the problem, they dithered and procrastinated until it was too late – the culture of the firm tending to encourage employees to walk the line. But this scandal threatened the destruction of the entire business, either through criminal action or, even more significantly, the cutting of U.S. Treasury bond sales to the firm. As a board member and substantial investor, Buffett realized he was the only one who could put it right and took over as CEO. Quickly finding the right person to run day-to-day, more than anything else Buffett provided moral leadership. Buffett sent a short memo to all employees, “insisting they report all legal violations and moral failures to him. He exempted petty moral failures like minor expense-account abuses, but, “when in doubt, call me,” he told them. He put his home phone number on the letter.” He pledged complete cooperation with the government, stating before a Congressional committee “ I would like to start by apologizing for the acts that have brought us here. The Nation has a right to expect its rules and laws will be obeyed. At Salomon, certain of these were broken.” Through extreme cooperation, Buffett saved the company – and salvaged his investment.


Figure 7. For Solomon Brothers, twas but a scratch


The 1990s also saw the return of a big bull market led by technology – and many thought that Buffett had lost his touch. The market run had gone on for so long that some thought it could only go up – the old bargains weren’t there and Buffett’s record didn’t look quite as shiny next to the ridiculous instant returns of tech (including from the company of Buffett’s personal friend Bill Gates). In 1999, near the height of the bubble, Buffett gave a famous speech that conceded the internet would change the world – but he wasn’t sure where or even whether money could be made over the long term. Buffett noted two technologies in particular had upended the 20th century: automobiles and airplanes. Of some two thousand auto companies at the beginning, only three had survived: could anyone be so confident that those were the three that would? As for the other innovation, “As of a couple of years ago, there had been zero money made from the aggregate of all stock investments in the airline industry in history.” Buffett had gotten past the mechanical analysis of Graham but he could not get to the magical analysis of Silicon Valley. “Charlie Munger… said that if he were giving a test calling for an analyst to value a new dot-com internet company, he would fail anyone who answered the question.” 

Ultimately, what made Buffett truly remarkable was that he became so rich as an investor as opposed to an inventor or someone who plied a specific trade. Rockefeller had oil, Vanderbilt had transportation, Walton had discount retailing, Gates had software, but Buffett didn’t invent anything – he just knew a good deal when he saw it. And knew it from a very young age, so his successes compounded decade after decade, such that over 90% of his wealth has been generated after he turned 65. He had created the structure that fueled still more success, reallocating capital time and time again to quickly take advantage of operations or the market. The books reviewed here end in the late 1990s and early 2000s, but Buffett has continued to apply similar principles sometimes with non-obvious elements: Berkshire’s largest public holding would become Apple, which many think of as a tech company but Buffett prefers to see as a luxury manufacturing company with the customer franchise model he has long sought to invest in. And Buffett continues to pursue private deals – his biographer Alice Schroeder argues that “Buffett’s real brilliance was not just to spot bargains (though he certainly had done plenty of that) but in having created, over many years, a company that made bargains out of fairly priced businesses.” In the final part of his career, he reaps the rewards:

Remarkably, Buffett has created a system in which the owners of leading private companies call him. He avoids negotiating valuation, asking interested sellers to contact him and name their price. He promises to give an answer “usually in five minutes or less.” This requirement forces potential sellers to move quickly to their lowest acceptable price and ensures that his time is used efficiently. Buffett does not spend significant time on traditional due diligence and arrives at deals with extraordinary speed, often within a few days of first contact. He never visits operating facilities and rarely meets with management before deciding on an acquisition.

Of course, there’s significant academic commentary that Warren Buffett is not necessarily an uber-talent but in fact the winner of an investor lottery. As Nassim Nicholas Taleb has argued, “I am not saying that Warren Buffett is not skilled; only that a large population of random investors will almost necessarily produce someone with his track records just by luck.” The related formal hypothesis – the efficient market theory – has won economists the Nobel Prize. EMT concedes that individual investors can beat the market average – but insists that it’s impossible to predict in advance which investors would do so. EMT insists that the market’s pricing reflects the collective wisdom of participants and that you’re far better off just investing in an index. Buffett himself famously participated in a debate about the topic in the 1980s and argued that if investing really was just coin-flipping but that a certain group consistently got the right side more often, that group’s technique was worth investigating. Buffett related the outstanding records of disciples of Ben Graham and insisted that “observing correctly that the market was frequently efficient,” the academic theoreticians “went on to conclude incorrectly that it was always efficient.” In other words, Mr. Market was a manic-depressive who could be profited from. In subsequent years, the two sides have gotten a bit closer to each other. Academic theorists have found a long-term pay-off to value investing (in fact, one of the very small number of explanations for differing performance) but have differed on whether this was due to increased risk (as conventional economics would insist – perhaps because of the more troublesome companies involved) or due to cognitive biases dismissing cheap stocks (as behavioral economics would argue). Despite Buffett’s move toward Munger’s concept of wonderful companies at a fair price, he dismisses being paid for risk: if the same company with the same assets has a much lower price one day than the day before, Buffett insists that means a greater margin of safety and inherently less risk. And yet, in the end, Buffett has recommended that the typical investor be defensive and just invest in an index fund – and has even gone so far as to successfully bet that active management would not beat a typical index fund.


Figure 8. Rather than try to find the next Geico yourself, why not just go with index funds? They’re so easy, a Caveman could do it!


Whether Buffett’s intensity had a reward may be debatable, but it did have a price. As a friend put it, Buffett’s “real marriage was to Berkshire Hathaway,” not to his wife Susie. Their original courtship had been uneven, with Susie eventually falling in with Buffett, a family friend, because her father disapproved of her serious college boyfriend. Through the years, as he made more and more money, Buffett was not especially interested in spending any of it (or giving it away). Susie, meanwhile, liked the good things in life and was also a full-hearted philanthropist always giving her time to those she deemed in need of help. As an example, even as a multi-millionaire, when he visited New York he’d stay at a college buddy’s mom’s house. When she came with him, she insisted on their staying at the Waldorf. Buffett has always taken a relatively small salary and refused to sell any of his Berkshire shares – only in midlife did he do some extracurricular investing that gave millions in spending money. When he paid $31,500 for the home in Nebraska he still lives in, he called it “Buffett’s Folly.” Susie would eventually get him to spring for additional properties – but he spent most of his time in Omaha. Buffett would come to enjoy celebrity and high social contacts, and he would eventually even spring for a private jet he dubbed “The Indefensible,” but his principal vice was cheap: playing bridge for 12 hours a week (and even then, he kicked Susie out of his group because she was not competitive enough.)

As Buffett made his fortune, “the family swirled around him and his holy pursuit” – his focus was so intense that at one point he came downstairs from his office and asked about “new” wallpaper in the living room that had been installed years earlier. After their three kids went off to college, a neglected Susie rekindled her romance with her college boyfriend while pursuing a new career as a cabaret singer. Within a couple of years, Susie told a shocked Warren that she was leaving him to move to San Francisco (she did not tell him that she was also bringing along her tennis coach, a new beau). And yet the marriage didn’t end. A depressed Buffett called her everyday and part of Susie’s heart was still with him. She wound up encouraging the hostess at an Omaha nightclub she used to sing at to look in on her husband. Soon, apparently unanticipated, the hostess, Astrid Menks, moved in. They wound up in a bizarre arrangement where Astrid would accompany Warren around Omaha, Susie around the world; they’d send Christmas cards from the three of them; and Astrid would become Warren’s second wife upon Susie’s death. When Susie did die, Warren was so emotionally overwhelmed he could not attend the funeral.

Meanwhile, all of his kids would drop out of college, enter short-lived marriages, and sell their Berkshire stock for questionable purposes. If they had held, “they could have been millionaires without working a day.” Instead, Susie Jr. sold to buy a Porsche. Later, pregnant during her second marriage, she asked her dad for a $30,000 loan to redo their kitchen, thinking that’d be easier to acquire than a gift. He told her to try a bank. A visiting Katherine Graham was so shocked at her modest living – a black and white television! – she paid for a redecoration. “When Buffett gave his kids a loan, they had to sign a loan agreement, so that it would be plain, in black and white, that they were legally on the hook to him.” (Somewhat relatedly, his sister got herself into over $1 million in debt with some questionable stock speculation and when she asked for help, he declined to bail out her debtors, leading her to default). Howie (Howard Graham, named after Buffett’s two heroes) at least sold his stock to try to finance a business, but it went under. Howie worked for See’s for a while but his real dream was to buy a farm. Buffett tried to argue with him and tell him, based on his insights about franchise businesses, “nobody goes to the supermarket and asks for Howie Buffett’s corn,” but Howie was persistent. “After ‘torturing’ himself,” Buffett “offered to buy a farm and rent it to Howie on standard commercial terms” but insisted on getting a bargain of a price on the land. After about a hundred bids and years of looking, Howie finally got one at the bottom of the market. Buffett’s only non-commercial terms were an agreement to lower the rent if Howie lowered his weight, which never happened. Finally, Peter would wind up quitting Stanford and sold his stocks to help finance a sound studio as he pursued a career in music. Eventually, Howie got swept up into another questionable business, leading his mother to successfully pry open Buffett’s purse strings for million dollar gifts to each child every five years on their birthday.


Figure 9.  A great car, perhaps, but has not quite multiplied in value 30x.


Buffett had always assumed that his first wife Susie would be the one to give it all away after he died. Because Buffett was so enthralled with compound interest and confident of his own ability to generate outsized returns, he did not give much away for most of his life, insisting “When I am dead, I assume there’ll still be serious problems of a social nature as there are now.” When Buffett did occasionally dabble, he was disappointed. On the board of a small college, he helped grow their endowment substantially through profitable investments – and then was distressed by their spending it down too aggressively, and not to his preferences for students’ actual educational benefits. On the board of a bank chartered with the intention to help minorities with credit, Buffett became frustrated that it was generously lending at the expense of its own sustainability as a business and refused to bail it out. Beyond civil rights, Buffett’s charitable interests were eclectic, controversial, and difficult to finance: population control and the prevention of nuclear war. The first translated into gifts for an unusual combination of abortion providers and immigration restriction advocates. More than anything else, Buffett was looking for a long-term return (as he saw it), even asking friends a version of Munger’s business question, “If you had to give money to one charity to do the most good, which would it be?” Ultimately, for better or worse, Buffett decided his highest and best use was making money and others would give it away: without Susie, he has given more than a billion dollars to each of his three kids’ charities – and the remainder to the measurement-obsessed foundation of his close friend Bill Gates.

If you can somehow mimic Buffett’s investment record without his personal life, then you’ve really got something going – but you’re probably better off mimicking his fanatical saving, investing the proceeds with index funds, and spending the saved time with your family!


Figure 10. Click here to acquire Alice Schroeder’s the Snowball (9/10), titled to evoke the wintry sphere growing in size as it rolls down a mountain – just like what compound interest does to your money.  Click here to acquire Roger Lowenstein’s Warren Buffett: the Making of an American Capitalist (8/10). These two comprise the foundation of this double review and I’d recommend both, with Schroeder having a lot more detail about his personal life (including covering, before linking up with Astrid, a possible affair with Katherine Graham. Lowenstein has the better anecdote about their relationship though as Warren convinced Katherine to finally visit him in Omaha and, when they got on the plane, asked her to draw a map of the United States and mark the location of their destination. It was so awful she tore it up. Such is the knowledge of our media elites.) I also explained at some length Buffett’s father’s politics because they were central to his life but Warren’s politics are interesting as well, and I don’t know that Lowenstein fairly labels them even as he describes them. Warren drifted away from his father over time, eventually joining the Democrat Party, but, even after hosting George McGovern at his home in Omaha, he wound up voting for Richard Nixon after McGovern announced his welfare policies. Buffett has been especially vocal about taxation, advocating for a confiscatory tax on short term capital gains, a high death tax, and replacing the income tax with a progressive consumption tax – not all ideas easily placed on the spectrum. Perhaps his best idea has been a single constitutional amendment: if the federal budget has not been balanced for the last two years, no incumbent is eligible for re-election.

Damn Right

Figure 11. Click here to acquire Janet Lowe’s Damn Right! (5/10), a wandering biography of Munger, unfortunately just about the only one. It’s hard to recommend, though I did learn some things, especially about how Munger’s law practice affected his investing philosophy. Also notable: while both Warren and Charlie are voracious readers, Warren is nearly completely focused on financials while Charlie reads extremely widely into psychology, physics, biology, history, etc. 

The Outsiders

Figure 12. Click here to acquire William Thorndike’s The Outsiders (8/10), which studies a select number of CEOs with outsized return to shareholders and concludes their secret was capital allocation. Remarkably, Buffett is not only profiled but was a key investor in and adviser to others profiled such as Katherine Graham at the Washington Post and Tom Murphy at Capital Cities. Buffett argues that most CEOs get the job due to relatively narrow skills in their previous junior position – they were great at marketing or manufacturing efficiency or legal maneuvering or whatever – but they really have no experience in allocating capital, which Buffett believes is the #1 job of the CEO. The book is most applicable to public corporations and it does have a winners’ bias – among the reasons these CEOs had such a good record was buying back their company’s public shares at cheap prices before their management made them more valuable again, but it’s plausible that other CEOs used the special sauce of buying back shares – but at the wrong time – and their management wasn’t up to snuff. Regardless, a great exploration of capital allocation.

Value investing

Figure 13. Click here to acquire Value Investing (7/10), an exploration of the concept followed by a series of profiles of practitioners. The Buffett section is almost entirely excerpted from Berkshire annual reports – which are worth reading and very accessible (Buffett liked to imagine that his not-financially-sophisticated sister was traveling for a year and he was updating her on the family business). Of particular interest might be how Graham’s disciples have been jiggering his mechanical rules that are far harder to apply in today’s market. If you’ve gotten this far, you have no doubt repeatedly seen my evangelization of index funds, which most people think of as taking on the whole market, but it’s also worth noting that there are passive index funds that capture the cheapest parts of the market, too (though they are best held in a tax-advantaged account).

Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend: know anyone who invests in the stock market? How about anyone who appreciates a good biography? Or perhaps anyone young and needing to benefit from compound interest?

I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

    My Warren Report

    The Gist: The origin story of an investing superhero.

    The first of a two-part review of multiple Buffett biographies.

    Access the second part here: Warren Piece.


    A few years ago, a close friend invited me to a weekend enjoying the finest that his home state of Nebraska had to offer: steak, a unicameral legislature, and the Berkshire Hathaway annual shareholder meeting.  We ate well, ran into the Governor while he was out walking his dog, and mostly had a great time shooting guns and talking by the evening fire at the farm.


    Figure 1. Sadly, we missed Carhenge, a Nebraskan’s reconstruction of Stonehenge using cars.


    But the weekend opened with a visit to the Woodstock of capitalism. By the time we arrived at the basketball arena where it was held – before 6 AM, more than an hour before doors were to open – the line circled the million-square-foot building several times and appeared to include the entire population of Nebraska (and perhaps a couple neighboring states). Once finally inside, you could partake in the Berkshire conglomerate’s diverse products: Dairy Queen Blizzards, cowboy boots, auto insurance, private jet gift cards, and much more. Yet the real treat was being able to ask any question you’d like of Warren Buffett, one of the greatest investors of all time. In this email, we’ll explore the origin story of this investing superhero.

    Make money

    Figure 2. The vibe was a bit different than 1969. Less hippies, more yuppies. Less heroin, more ritalin. Less free love, more free markets. 


    Warren was born in Omaha in 1930 and his earliest “hobbies and interests revolved around numbers.” He saw their magic everywhere, even becoming skeptical of religion when he calculated in church that hymn composers did not live longer than average. Wall Street Journal reporter and biographer Roger Lowenstein relates that the jump from math to money was early: “When Warren was six, the Buffetts took a rare vacation to Lake Okoboji, in northern Iowa, where they rented a cabin. Warren managed to buy a six-pack of Cokes for twenty-five cents; then he waddled around the lake selling the sodas at five cents each, for a nickel profit.” By age 7, Warren begged Santa to give him the nearly 500 page then-definitive book on bonds. At age 10, his father Howard offered to take him on a trip to the east coast (something he did with each of his kids) and Warren naturally wanted to see the New York Stock Exchange. At 11, Warren was confident enough to buy his first stock – and got his sister in on the deal. She tormented him as the stock price dropped and, when it recovered, he sold at $40 for a small profit. The price then zoomed to over $200 and he vowed never again to be so oriented toward the short term. 

    There was one idea in particular that gripped Warren’s young mind: compound interest. He understood and appreciated early on what Albert Einstein called the most powerful idea in the universe: every nickel he saved might, with enough time, benefit from growth and growth on that growth, and end up being worth much more in the future. Warren would imagine his future riches and ask, “Do I really want to spend $300,000 for this haircut?” With that in mind, Warren soon announced he would be a millionaire by 35 – the equivalent of a kid today saying he’d be worth $18 million.


    Figure 3. Presumably back then each strand of hair was individually cut with bejeweled gold scissors by specially imported barbers who required luxury accommodations and all-expenses-paid during the multiple day process. No wonder kids wound up growing their hair out!


    Warren’s hero was his father Howard, whose portrait would hang prominently in his office. Howard’s principal passion was politics and he had wanted to become a journalist but his father Ernest, having paid his college tuition, insisted that he get a more commercial job. So Howard joined a bank – which turned out to be not to be as stable as imagined once the Great Depression took hold. When the bank failed, Howard asked for a job at his father’s grocery store. Ernest replied he already was employing one son and couldn’t hire another – but he’d let Howard run a tab at the store so his family could eat. Howard then made the extraordinarily bold move to start his own stock brokerage at a time when no one wanted to buy stocks. Despite the headwinds, the business quickly turned a profit and served as an early hangout for young Warren, who often fled the house to escape the wrath of his mother, who had significant mental health issues.

    Fishing pole

    Figure 4. The Buffett clan was known for their God-fearing debt-fearing pinch-every-penny austerity. After a long day’s work, Ernest would dictate to Warren a memoir – “How to Run a Grocery Store and a Few Things I Learned About Fishing, feeling these were “the only two subjects about which mankind had any valid concern.” Buffett reported that “I’d write it on the back of old ledger sheets because we never wasted anything at Buffett and Son.”  


    In 1942, Howard volunteered to be the sacrificial Republican nominee for Congress and, to the surprise of everyone, including the candidate, won. Richard Nixon would soon be the Buffetts’ neighbor but Howard was the Ron Paul of his day and “considered only one issue in voting on a measure: ‘Will this add to, or subtract from, human liberty?’” Concluding that most proposals were subtractions, Howard voted for very little, instead hopelessly crusading for a return to the gold standard and a more humble foreign policy. Above all, Howard was known, in politics and out, as a man of unflinching ethics, refusing “a raise because the people who elected him had voted him in at a lower salary.” He always carried a piece of paper inscribed “I am God’s child. I am in His Hands. As for my body—it was never meant to be permanent. As for my soul—it is immortal. Why, then, should I be afraid of anything?”

    Warren initially did not like Washington but soon made the most of it by insisting that his father get him every book – literally, the number ended up being in the hundreds – the Library of Congress had on horse handicapping. While Warren made some money at the tracks, he made far more with a paper route, eventually delivering “almost 600,000” papers. Not content with merely delivering the Washington Post, “he asked all his customers for their old magazines as scrap paper for the war effort.” Warren then checked the magazines for their subscription expiration dates, established a card system for tracking all his customers, and sold them renewals for commission. From these efforts, Warren was making more money per year than any of his teachers and, bored at school, taunted them by shorting the AT&T stock they had their retirement savings in. Despite his smarts, Warren’s grades were mediocre – until Howard told him he’d have to give up his profitable paper route and instantly the marks improved. Yet Warren was still entrepreneurially restless, redirecting his paper profits into operating pinball machines in local barbershops, renting out a 40 acre tenant farm back in Nebraska, and experimenting with whatever money-making scheme he could conjure. By 16, he wondered why the heck he would want to go to college when he was making so much money.


    Figure 5. A deeply under-studied strategy is investing for spite. Thumb your nose / stick out your tongue / see how it goes / in the long run!


    Howard insisted, so Warren went off to Wharton, where he was, again, completely bored. “His professors had fancy theories but were ignorant of the practical details of making a profit that Warren craved.” About the only notable aspect of his time there was his arrangement “with the Philadelphia Zoo to ride an elephant” down a main avenue to celebrate the expected victory of Republican Thomas Dewey in the 1948 presidential election. Dewey, of course, did not beat Harry Truman, and the carnival stunt had to be canceled. More close to home, his father Howard lost his congressional seat, probably due to his rare vote for successful legislation – Taft-Hartley – which, among other related labor reforms, forbade unions from compelling employers to only hire their members. Though Howard would briefly return to Congress, he was part of the Robert Taft wing of the Republican Party and Dwight Eisenhower’s Nebraska allies oversaw the end of his career. Howard would spend the remainder of his life back at the stock brokerage, worried about the country’s bad choices.


    Figure 6. Modern zoos are really missing out on the profits involved in renting out their animals to college students.


    Warren thus transferred home to the University of Nebraska and graduated at 19 to get it over with. Warren considered an alternative education far more practical than college: Dale Carnegie. Till now, Warren had always been an argumentative contrarian but 

    “He decided to do a statistical analysis of what happened if he did follow Dale Carnegie’s rules, and what happened if he didn’t. He tried giving attention and appreciation, and he tried doing nothing or being disagreeable. People around him did not know he was performing experiments on them in the silence of his own head, but he watched how they responded. He kept track of his results. Filled with a rising joy, he saw what the numbers proved: The rules worked. Now he had a system. He had a set of rules [for winning people over]”

    More significant to his future, Warren would soon get the practical financial education he craved. Still running his various side rackets, Buffett confidently applied to Harvard Business School – and got rejected. Reconsidering his options, Buffett successfully applied to Columbia Business School, where he could study with the Wall Street legend of that era now known as the father of value investing: Ben Graham. Graham would become his personal mentor and give Buffett the intellectual foundation for his future success. 

    Born in 1894 to a comfortable life, Ben Graham’s introduction to the stock market had been unpleasant: his widowed mother had over-borrowed to play the market and been wiped out in the Panic of 1907. His family was saved, in his own words, “from misery, though not from humiliation” by the generosity of relatives. Undeterred by his childhood experience, Graham went to Wall Street and started making a name for himself – then lost 70% when he assumed Black Tuesday 1929 was the bottom and borrowed to buy in. Still undaunted, with everyone else scared of stocks, Graham saw bargains. Over the rest of his career, he assembled one of the best long-term Wall Street records ever, beating the market average by about 2.5%. Buffett biographer Alice Schroeder advises “That percent might sound trifling, but compounded for two decades, it meant that an investor in Graham-Newman wound up with almost sixty-five percent more in his pocket than someone who earned the market’s average result.” Incredibly, Lowenstein reports that “the figure, though, does not include what was easily its best investment, its GEICO shares, which were distributed to Graham-Newman’s stockholders. Investors who kept their GEICO through 1956 did twice as well as the S&P 500.”

    Graham made no secret of his approach and in fact considered investing just another intellectual exercise along with the study of classics, the suggestion of novel inventions, and the seduction of women. He claimed that he wanted to do something foolish, something creative, and something generous every single day. Graham endlessly annoyed his business partner by sharing in real time his insights about stocks with his Columbia business school class. His still-popular book, the Intelligent Investor, inspired Buffett to apply to the school in the first place

    At the core of Graham’s philosophy is the attempt to buy a dollar for fifty cents. Graham advised that all companies have an intrinsic value derived from their actual business operations but detached from the price that people are willing to pay for them at any given time. Graham intoned that “you are neither right nor wrong because the crowd disagrees with you” and that “in the short run, the market is a voting machine. In the long run, it’s a weighing machine.” At the most basic level, a value investor would look for companies trading at a small multiple (say, 1.5x) of or even less than their book value – that is, the value of the company if all of its assets were liquidated. Graham initially got famous in the 1920s by buying lots of shares in an oil pipeline company who he realized owned bonds of 50% greater value than the company was selling for on the stock market – and then putting himself on the board and distributing an enormously profitable dividend. Buffett quips: “Price is what you pay, value is what you get.”

    Graham conjured the analogy of an obliging but manic Mr. Market who is always prepared to buy or sell stocks, often at nonsensical prices. Jason Zweig summarizes: “The intelligent investor is a realist who sells to optimists and buys from pessimists.” “The secret of getting rich on Wall Street,” Buffett told a class of his own, is “try to be greedy when others are fearful and… very fearful when others are greedy.”


    Figure 7. Unfortunately, while we can often profit from Mr. Market, we can often suffer from Dr. Democracy, who is subject to similar nonsensical swings unless slowed down. 


    Because you can’t anticipate when Mr. Market will be manic or depressive, Graham says “selling short a too popular and therefore overvalued issue is apt to be a test not only of one’s courage and stamina but also of the depth of one’s pocketbook.” The market can remain irrational for longer than you have capital. The opposite side of the equation is preferable, but “buying a neglected and therefore undervalued issue for profit generally proves a protracted and patience-trying experience.” Graham’s advice to derisk was to buy so cheaply so as to create a “margin of safety.” As Buffett would later say in one of his famous shareholder letters, “This is the cornerstone of our investment philosophy: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.” For Graham, to do otherwise would be a game of chance – or speculation that some greater fool would pay more than you. “An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” And, if the stock market is too expensive, trading at large multiples of an average of the past few years’ earnings, Graham advised to buy bonds instead (indeed, Graham instructed never to own less than 25% bonds nor less than 25% stocks, adjusting the exact split in contrarian spirit to buy low and sell high)

    Fight club

    Figure 8. Buffett would also say that the first rule of investing is don’t lose money. The second rule is to remember the first rule. But the truth is that the first rule of value investing is that you don’t talk about value investing. Don’t let other people in on your bargains. The second rule is the same. The third rule is that someone yells “STOP!” when the market is too high and buying is over. The fourth and fifth rule have to do with concentrating your investments. The sixth rule: No shirts, no shoes. The seventh rule is that investments will go on as long as they have to – be patient for that return. And the eighth and final rule: if this is your first time value investing, you have to buy something cheap.


    When Buffett met Graham, Schroeder records that “the rest of the class became the audience to a duet.” Lowenstein relates what happened after graduation: “Having racked up the only A+ that Graham had awarded in twenty-two years at Columbia, Buffett made what seemed an irresistible offer: to work for Graham-Newman for free.” But Graham turned him down – the Wall Street firms did not hire Jews, so he only hired Jews. Deflated, Buffett returned to his father’s company to be a stockbroker, unhappily a salesman rather than an investor. But Buffett kept in contact with Graham and, after a couple of years, Graham relented and invited Buffett back to New York.

    In that era, market information was relatively scarce – there were no quick Google searches to discover endless reams of data about stocks. So instead Buffett was put to work endlessly reading annual reports and financial information to discover bargains in the depths of the market. Graham’s methods were remarkably mechanical. He was almost myopically focused on a company’s balance sheet and almost indifferent to what a company actually did for its money – if anything, knowing more might constitute a distraction from the opportunity. When Buffett or another would present a stock, “Graham would decide on the spot whether to buy it. It wasn’t a matter of persuading Graham. A stock either met his criteria or it didn’t. He did it by the numbers… when anyone tried to talk to Graham about a company’s products, ‘Ben would look out the window and get bored.’” Buffett soaked up everything he could but, within a couple of years, Graham decided to quit while he was ahead and returned capital to investors.

    Buffett was not going to return to stock salesmanship so, despite cautions from his father and Graham that the stock market was overpriced, he opened up his own investment partnership. It had two unusual aspects. First, he based himself in Omaha at a time when “no serious American money man worked anywhere but New York City.” Second, Buffett offered not the friendliest terms: he would give investors an annual summary of results but not tell them anything they were actually invested in and he’d only allow them to take out money once a year on December 31. Otherwise, investors would receive 100% of profits up to 4% and 75% of any profits that Buffett generated thereafter. Around Omaha, the initial whisper was that he was a sophisticated conman. And, to be fair, this is the kind of thing that lured investors to crooks like Bernie Madoff. 

    But Buffett wanted to spend more time analyzing stocks than having to explain and defend to his average investor why he had money in unwanted, problematic, or broken companies that were therefore cheap to buy shares in. As incredible as it may seem, by then, “Buffett was familiar with virtually every stock and bond in existence. Line for line, he had soaked up the financial pages and the Moody’s books; day after day, he had built up a mental portrait of Wall Street.” He later advised that the secret to success was to read “Read 500 pages every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.” It wasn’t easy but “intensity is the price of excellence.” That intensity, Schroeder says,

    made him burrow into libraries and basements for records nobody else troubled to get. He sat up nights studying hundreds of thousands of numbers that would glaze anyone else’s eyes. He read every word of several newspapers each morning and sucked down the Wall Street Journal like his morning Pepsi, then Coke. He dropped in on companies, spending hours talking about barrels… or auto insurance… He read magazines like the Progressive Grocer to learn how to stock a meat department. He stuffed the backseat of his car with Moody’s Manuals and ledgers on his honeymoon. He spent months reading old newspapers dating back a century to learn the cycles of business, the history of Wall Street, the history of capitalism, the history of the modern corporation. He followed the world of politics intensely and recognized how it affected business. He analyzed economic statistics until he had a deep understanding of what they signified. Since childhood, he had read every biography he could find of people he admired, looking for the lessons he could learn from their lives… He ruled out paying attention to almost anything but business—art, literature, science, travel, architecture—so that he could focus on his passion. He defined a circle of competence to avoid making mistakes… He never stopped thinking about business: what made a good business, what made a bad business, how they competed, what made customers loyal to one versus another. He had an unusual way of turning problems around in his head, which gave him insights nobody else had… In hard times or easy, he never stopped thinking about ways to make money. And all of this energy and intensity became the motor that powered his innate intelligence, temperament, and skills.

    Some friends, family, and acquaintances – around Nebraska or associated with Graham – saw something in that intensity and invested. If you had been crazy and lucky enough to invest $10,000 at the beginning and had stubbornly stuck with him, you’d have over $500 million today (versus over $5 million if you had gotten the market return). But even by the sixties, Omaha now whispered that Warren Buffett could make you rich. Per Buffett’s childhood vow, by 35, he was a millionaire – worth over $50 million in today’s money. 

    Buffett was doing it by applying Graham’s principles about intrinsic value – but also learning new things along the way. As a new generation started trading on the stock market, fears of another crash disappeared and the market began to get frothy – especially about new technology. With tech trading at crazy multiples, Buffett pledged to his partners that “We will not go into businesses where technology which is way over my head is crucial to the investment decision.” (And while you hopefully can see that this was prudent, you also should know that he declined the opportunity to invest in Intel when given a special opportunity to do so at the beginning). At the same time, with an ever-increasing amount of capital to put to work, it was harder to find bargains that Buffett could take advantage of without moving the entire price – so he contemplated buying entire companies. But as Buffett got more involved in the operations of the companies he bought into, he understood better why they were so cheap: they really did have significant problems. And yet he’d be hesitant to get rid of a company that still generated a return – even if it was measly – because he resisted confrontation and enjoyed the collection.


    Figure 9. Turns out the incredible savings of eating every meal at McDonald’s are overwhelmed by later medical expenses.


    But Buffett thought that if he could get management right that the value would pay off. Knowing relatively little about the underlying businesses, even after much research, he tried to find the right kind of obsessive. He loved to tell the story of when he bought a grocery store chain and convinced the owner, Ben Rosner, to stay on to manage the asset. Rosner was so consumed with his business that, when he went to a black tie event at the Waldorf Astoria and ran into a rival, he started asking him all about what prices he paid for different goods and discovered that he was paying a lot cheaper price for toilet paper. Rather than gloat, Rosner thought something was wrong and immediately left in his tuxedo, drove out to one of his warehouses, tore open a box and individually counted the sheets of toilet paper, discovering that his vendor had screwed him over, providing less sheets than promised.

    Following the Graham playbook, Buffett would eventually acquire a controlling stake in a Massachusetts textile manufacturer called Berkshire Hathaway, whose stock was selling at a 2.5x discount to its liquidation value – presumably plenty of margin of safety. But Berkshire was in an extremely tough industry that would eventually leave the United States but by then had already basically left the northeast and fled south. Partially because of uncooperative management who was idealistic about making textiles and not money, Buffett got mad enough to buy them out. Putting in his own team, he explained “the basic theory of return on investment. He didn’t particularly care how much yarn [Berkshire] produced, or even how much [it] sold. Nor was Buffett interested in the total profit as an isolated number. What counted was the profit as a percentage of the capital invested.” This was wise direction, but there was too much headwind in the industry. He would ultimately reflect: “I would have been better off if I’d never heard of Berkshire Hathaway.” 

    And yet Berkshire would be his destiny: in 1970, after years of warning investors that he could not sustain his track record amidst the Go-Go years of an overheated market, he closed his partnership and offered to return all capital. With the market so crazy, Buffett said he would invest his own money in municipal bonds – and Berkshire Hathaway. For some lucky investors, knowing that Buffett would be in control was enough to roll over their investment into Berkshire. When the market came down again, Buffett told people now was the time to get rich and he would use Berkshire to propel his further investments. But he also partnered with the man who would redefine his investment style, building on and adjusting from Graham: Charlie Munger. 

    More on that partnership and the rest of Buffett’s career in our next correspondence.


    Figure 10. Click here to acquire Alice Schroeder’s the Snowball (9/10), titled to evoke the wintry sphere growing in size as it rolls down a mountain – just like what compound interest does to your money. A former insurance analyst, she spent over 5 years working on this book, interviewing hundreds of people who knew Buffett. More or less authorized, Buffett told her “Whenever my version is different from somebody else’s, Alice, use the less flattering version.” Unfortunately for their relationship, she apparently used a few too many versions different from Warren’s memory – but it still comes across as a tribute to the man. Published in 2008. 


    Figure 11. Click here to acquire Roger Lowenstein’s Warren Buffett: the Making of an American Capitalist (8/10). A Wall Street Journal reporter and Berkshire investor, he spent three years working on this biography, published in 1995. Some of his descriptions of politics seemed off and he is very dismissive of academic commentary on Buffett’s investing history, but it’s a good book!

    Intelligent investor

    Figure 12. Click here to acquire Ben Graham’s The Intelligent Investor (8/10) – appropriately, Buffett’s purchase of the book had an outstanding rate of return. This version has commentary from Wall Street Journal columnist Jason Zweig after every chapter offering additional context through the early 21st century. Graham distinguished between an entrepreneurial investor – like Buffett – who would have to put in a ton of work to find bargains and a defensive investor who was just trying to get the market return. While there is timeless wisdom here, Graham found it harder and harder to apply his mechanical rules even in his day and it’s only become harder. Toward the end of his life, he recommended the average investor defensively invest in index funds, then a new-fangled instrument of John Bogle’s, now a standard offering.

    Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend:  know anyone who invests in the stock market? How about anyone who appreciates a good biography? Or perhaps anyone young and needing to benefit from compound interest?

    I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

      A Very Different Idea for Ending Spending

      The Gist: Turn bondholders into loan sharks.

      A partial review of 10% Less Democracy by Garett Jones.


      How do you get the government to be responsible with your money?

      The conventional answer is a constitutional amendment that requires a balanced budget, forcing politicians to spend no more than they collect in taxes in any given year. As early as 1798, Thomas Jefferson wanted to constitutionally prohibit debt – but soon thereafter discovered its merits when Louisiana went on sale. As recently as 1995, the Senate came just one vote short (a Republican vote, no less) of sending a balanced budget amendment to the states for ratification. 

      Presumably the states would have ratified: 49 claim to have a balanced budget amendment, though they vary in strength. Some amendments are more suggestive than mandatory and quite a few permit “casual” deficits which is a perfect term for our present attitude toward debt. A surprising number permit debt for such necessities as repelling invasion which, based on some states’ balance sheets, appears to be a regular occurrence. Colorado and Oregon have features that not only discourage debt but also surpluses: excess collections are redistributed back to taxpayers. But Alabama should inspire the nation: one provision of its constitution calls for the imprisonment and personal fining of officials who spend more than is available.


      Figure 1. Texas probably just needs a little nudge to make unbalanced budgets a capital offense. But if we really want fiscal responsibility, that’s not enough: balanced budgets could be an annual precondition of state universities’ participation in football.


      While few officials actually want to run a deficit, fewer still are willing to give up something they like to reduce it. One man’s waste and inefficiency is another’s vital project for the security and prosperity of the nation – and vice versa. The two end up coming to a perfect compromise at the favor factory: keep both projects, borrow money to buy votes for re-election, worry about the problems later (maybe they’ll even be retired by then!)


      Figure 2. Forget party sponsorship, fees, and voter signatures. Ballot access should be limited to those who pass the marshmallow test.


      Though some states have thus made extravagant expenditures (and profligate pension promises), their debts and obligations are all in United States dollars, the value of which is beyond their control. Who does control the dollar’s value is of course the federal government, which has a significant debt burden of its own. Other nations, finding themselves drowning in debt, might suddenly make the 27 trillion pesos they owe just enough to buy a Big Mac.


      Figure 3. Before you judge, know that, despite experiencing hyperinflation, the Confederate dollar has actually held its value better than the United States dollar since 1865. 


      Economist Garrett Jones proposes an intriguing but politically challenging alternative that answers a basic question: in whose incentive is fiscal responsibility?

      His answer is bondholders – that is, owners of government debt that fear not being paid back if states recklessly spend beyond their means into default or if governments inflate away their debt by overprinting money. Though all citizens should worry about their government’s debt, a majority too often can be bribed with immediate goodies. Bondholders are the only ones with a disproportionate and direct financial stake in ensuring that the government is responsible.

      James Bond

      Figure 4. “Bond, James Bond. I take my risks on baccarat, not government debt. I am here to give you a dose of Scottish frugality in between martinis, shaken, not stirred. From now on, your monetary policy will be determined by Goldfinger and you’ll need to submit your budgets to Dr. No. With your risks, I expect much more than 0.07% yield!”


      Bondholders presently exercise their substantial power over governments only when they buy their bond. Jones illustrates how:

      If you had lent (to give approximate figures) $100 to the United States in 1972 for ten years, you got back enough money when you were repaid a decade later to buy just $82 worth of goods. Yes, you would have been repaid “one hundred dollars” in 1982 plus interest, but since prices had nearly doubled over the decade, that sum of money bought 18% less than it did in 1972. The bondholders of the 1970s paid for the privilege of lending to the U.S. government, and that experience made investors cautious about lending to the U.S. government ever again… By the late 1970s, after it became clear that U.S. government bondholders might get burned by high inflation, investors insisted on higher yields, higher interest rates, and so they paid lower prices for U.S. government debt. Those low prices were expensive for the government and its taxpayers. The government didn’t have to just repay the money it borrowed; it had to repay investors enough to make up for the fear, the risk, that high inflation could happen again. This pattern continued through the 1980s and 1990s. Even in 1988, six years after inflation had dramatically (and, so far, persistently) fallen, investors were (effectively) paying $100 in 1988 and getting repaid $190 in inflation-adjusted buying power in 1998. The global pool of money that chose to invest in America during the late 1980s and 1990s received a massive return on what turned out to be a safe, fairly low-inflation investment, in large part because the United States had burned its reputation in the high-inflation 1970s. It’s expensive to rebuild a burned reputation.

      Once you’ve bought your bond, however, the government is almost indifferent to you. The most you can do is sell your bond on the secondary market at a discount, which might influence future bond buyers to demand higher yields. And while this pressure has resulted in downward pressure on U.S. inflation, it has had little impact on spending (or the related size of debt taken on). Perhaps this is because at the center of modern finance is a convenient but perhaps fictional foundation that literally insists that U.S. bonds are “riskless” assets when it comes to credit – in fact, all other debt instruments on the globe are compared to it. During times of international crisis, even if it originates in the United States, even if the U.S. government might be responsible, there’s a “flight to quality” as investors abandon risky stocks and alternative debts to buy “safe” U.S. bonds. But with no ending to spending in sight, can the fantasy last?

      What if, Jones proposes, the balance of power was altered? What if bondholders were no longer an impotent mass of individuals and institutions but were instead collectively organized into a group that could actually pressure their government debtors into the right behavior, like a bank might a credit card borrower? What if bondholders were given a veto over government spending?


      Figure 5. Expect income tax garnishments, liens on national parks, repo men going after aircraft carriers – and, if that’s not enough, politicians’ kneecaps might be at stake! 


      Though Jones does not mention Antonin Scalia, this kind of proposal goes to the heart of what Scalia always thought was the most important part of the United States Constitution. Other countries, such as the Soviet Union, had long lists of guaranteed and wonderful rights but they never got enforced because what actually matters is how power is arranged and divided. James Madison hoped that our government would feature ambition clashing against ambition that would ultimately limit the federal government’s largesse. It hasn’t quite turned out that way – politicians bought off each others’ ambitions with other people’s money but might the answer lie with properly-incented bondholders?

      Jones offers a variety of proposals that range from the toothless to the unconstitutional (at least, until an amendment or an activist judge decides otherwise). The United States could hold “formal annual shareholder-style meetings between elected bondholder representatives and elected government officials” but, of course, the government wouldn’t be required to hold the meeting and we’d see if it resulted in sufficient political pressure. Jones’ most dramatic proposal would add U.S. Senators elected by long-term bondholders, the number to increase “for every 10% in the debt-to-income ratio” that the government enjoyed. Were it debt to GDP, bondholders might have to elect 98% of Senators, though they might be restricted to voting on fiscal issues.

      greed is good

      Figure 6. In the new shareholder meetings of that malfunctioning corporation called the USA, “Prudence is preferred” will be the new “greed is good


      Of course, you might be worried about a particular problem associated with empowering bondholders: who owns U.S. debt? The answer might surprise: the U.S. government is actually the largest owner of its own debt – more than a third – another strange aspect of American accounting. For outside pressure to reign and fiscal responsibility to follow, this debt would have to be devoid of voting rights. Instead, we’d want to empower the famously risk-averse, disproportionately curmudgeon individual American investors and institutions that own about a third of our debt. 

      The final less than a third is owned by foreigners. While China has frequently been the biggest individual foreign national owner in recent years, Japan has been as often on top or right behind. And, for context, China owns only about 6x as much debt as tiny Luxembourg and only about 1/20th of total U.S. debt. Jones is not especially concerned about foreign-debt holders improperly exercising their voting rights – even to the degree China wanted to dramatically cut our military spending, Japan may want us to increase it. Jones cites the positive examples of international lenders demanding free market economic reforms – and a bit more fiscal pressure from Switzerland (a top 10 foreign holder of U.S. debt) might be welcome. But, to the degree we have any fear at all, we could limit the power of foreign debtholders – we’d just have to be on guard that the U.S. government didn’t suddenly only sell foreign debt and continue its spendthrift ways.


      Figure 7. Just wait for the policy changes when the Vatican starts buying our debt!


      Of course, the Founders designed the Senate to be a bastion of states’ rights and Senators failed miserably to protect them. Perhaps bondholders would be terribly represented by their newly empowered representatives – or there may be unpredictable perverse incentives where bondholders demand the US take on debt merely for the sake of creating an income stream for its owners and not for any especially useful national project. Giving bondholders genuine power would probably require a constitutional amendment and if a fairly popular balanced budget amendment can’t get passed, then the exotic empowerment of bondholders might face much more trouble. Within our present system, we might give bondholders more power over the constitutionally ambiguous Federal Reserve but, as we’ve seen, the bond market has already successfully put downward pressure on inflation with no visible success on spending. Perhaps there might be additional, positive pressure – debt might be limited only to inflation-protected securities so that bond-holders would be focused entirely on credit risk – but bondholders might also go too far, not content to contain inflation, they may push personally profitable but nationally questionable deflation. 

      Relatedly, neither empowering bondholders nor a balanced budget amendment necessarily decreases government spending – either move might instead increase taxes (to pay the bondholders and/or balance the budget’s heavy spending). To the degree you think that’s a problem (as I do), it’s worth considering how to increase the number of people or points at which spending could be cut, such as giving the President a direct line-item veto. Or, for that matter, a bondholder-elected National Comptroller whose only power is to veto spending. Back during the 2011 debt ceiling crisis , I worked for the U.S. Senate Steering Committee, which tried to push something called Cut, Cap, and Balance – cut the budget now, cap it forever at a percentage of GDP, and balance the budget henceforth. It’s a fine idea, but the devil’s in the details – legislators were demanding exemptions, GDP and projections can be fiddled around with by bureaucrats. In the meanwhile, the President ought to reassert his impoundment power and we all ought to give serious thought to how properly aligned incentives and clashing ambitions might result in a responsible government.

      10% less democracy

      Figure 8. Despite the focus of this email, empowering bondholders is actually just one chapter of the reviewed book: 10% Less Democracy by Garett Jones. I am not confident all of his proposals would lead to desirable results – in some, I am confident of the opposite – but they are at least interesting to think about. His fundamental point is that in rich democracies around the globe, some insulation from total democracy (a republic, perhaps?) might result in better economic policies leading citizens to enjoy a multiple of their current income. Jones quips that Singapore – ruled by a single free-market-oriented political party for decades – has thrived with 50% less democracy. Among his suggestions:

      1. Enact longer terms to get braver politicians – but what if “bravery” means banning fossil fuels, seizing the means of production, packing the Supreme Court, etc?
      2. Elect fewer officeholders, i.e. why elect a dog-catcher or coroner? But, to the degree those are irrelevant, it may not change much. The real question is whether fiscal authorities should be elected and, if not, how should they come to power.
      3. Especially, don’t elect judges. He claims that, around the world, this is correlated with freer economic systems but my experience in the United States is that the type of system he recommends results in lawyers’ guilds choosing judges who aren’t faithful textualists.
      4. Maintain or strengthen central bank independence. He again finds that central bank independence is correlated with low inflation and strong economic growth and insists that this is due to isolating conservative technocrats from whimsical politicians who want to juice the currency ahead of an election. But what if the independent central banker discovers magical monetary theory?
      5. Tighten voter eligibility. He argues that voters who have more education are more likely to support free markets and directly challenges William Buckley’s quip that he’d rather be ruled by the first 2,000 names in the Boston telephone directory than the faculty of Harvard. Jones has a variety of proposals: increase the voting age to 40, disenfranchise criminals, weight people’s votes based on their education and military service. He cites the incredible example of Ireland, which reserves 10% of the seats in its senate to be elected by alumni of its top universities, which sounds like a pretty bad idea in the U.S. 
      6. Embrace national (or supranational) regulators whose goal is to reduce local regulations, a la the Great Reversal.
      7. Vigorously use earmarks: “The practical way to cement a spending cut deal would be to hand out a few dozen well-targeted earmarks to the most pro-spending members of Congress in exchange for a pro-spending-cut vote. (Even if the earmarks add up, they won’t add up to much; at their peak, earmarks were no more than 1% of total U.S. federal spending)”

      For more and more detail, check out the book!

      Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend: know anyone passionate about restraining government or its debt? How about any holders of U.S. bonds? Or perhaps lawyers ready to restructure our government?

      I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

        When Many Want Your Job

        The Gist: Who benefits – and who suffers – from immigration to the U.S.

        A review of We Wanted Workers by George Borjas.

        Cui bono? Who benefits? This useful Latin question was the ancient Roman equivalent of “Follow the money!”

        George Borjas asks the question about immigration to the United States. Himself an immigrant, Borjas now researches and teaches immigration economics at Harvard. In We Wanted Workers, Borjas reveals who benefits – and who suffers – from immigration to the United States.

        Imagine that you are hiring. It doesn’t really matter what for – maid or mathematician, farmhand or pharmacist. Now consider two scenarios: in the first, you have 2 similarly-qualified candidates apply; in the second, you have 25 similarly-qualified candidates apply. Which scenario would you prefer? In which scenario would you be more likely to end up paying your hire less?


        Figure 1. Like, what if the Bachelor could choose between only two romantic interests? How could he possibly find true love for the few months after his season ends?  


        Generally, the more competition the better for the consumer – in this case, you, the person hiring. If you have lots and lots of people who want to work for you and they’re all similarly-qualified, you enjoy a buyer’s market, can freely choose whom you like, and can more or less dictate salary. You naturally benefit by not spending as much – and you can divert that extra money to alternative uses that benefit others, whether it’s hiring another person you might not have, passing along your savings to your own consumers, buying something, investing, or even just putting it in a bank to be lent out. You may also be able to increase your productivity by spending more of your time on what you do best and (cheaply) delegating the rest.

        But, if the roles are reversed, and you are one of the candidates for the job, you may suffer as the employer benefits. Every additional similarly-qualified applicant for the job you want makes you both less likely to be hired in the first place and more likely to command a lower salary if you are. “The most credible evidence—based solely on the data—suggests that a 10 percent increase in the size of a skill group probably reduces the wage of that group by at least 3 percent.” If the place where you live has lots of candidates for every job, then you still might enjoy the benefits of lower prices or cheaper loans – but neither of those benefits will matter if you can’t secure an income. 

        There is the basic economic dilemma of immigration: employers benefit from cheaper and more plentiful labor, consumers benefit from lower prices, immigrants benefit from higher wages than from where they came, but similarly-qualified natives suffer from lower wages and fewer opportunities to be employed. To the degree that economists acknowledge that it’s a trade-off at all, most believe immigration is net-positive, growing the economy and making it more efficient. These economists argue that the immigrants make a country richer by saving natives money and allowing natives to become more productive with their time, by being additional consumers for goods and services often provided by natives, and by being additional sources of innovation, including starting businesses that hire natives.


        Figure 2. Things get more complicated for natives if employers redirect their savings from hiring immigrants toward taking foreign tropical vacations clad in swimsuits made in China.


        Borjas concedes benefits of immigration but invites us to take a closer look at three aspects: 


        1. What we’ve already seen: the economic benefits of immigration fall unevenly on the population, with natives of similar skills suffering the most.
        2. The missing part of the equation: What we save in labor costs we may lose in an increased tax burden to pay for a larger welfare state supporting both natives and immigrants.
        3. What’s not in the formula at all: Immigrants are more than robots we program to do a job – they impact our culture in meaningful ways.


        Let’s explore those in detail.

        Borjas argues that “immigrant participation in the workforce redistributes wealth from those who compete with immigrants to those who use immigrants.” During the 2016 presidential campaign, Ted Cruz ran a clever television ad that featured men and women in business attire running across the border as the candidate bellowed that if lawyers and bankers and journalists were immigrating in mass to the United States, there would be instant political momentum for change. The reality instead is that America’s lowest-skilled natives suffer in political obscurity. Borjas relates a story of a federal immigration raid of a chicken-processing plant that resulted in 75% of its workforce disappearing. To survive, the company raised wages by a dollar an hour and wound up aggressively recruiting local US citizens – the biggest beneficiaries were low-skilled African Americans. Borjas concludes: “It is not that immigrants do jobs that natives don’t want to do. It is instead that immigrants do jobs that natives don’t want to do at the going wage.”

        George Shaw

        Figure 3. There’s an old story that I first heard referencing George Bernard Shaw. Seated next to a beautiful young woman, he asked if she would sleep with him for $1,000,000. She giggled and said she would. He then asked if she would do it for $5. “Why, what kind of woman do you think I am?” she indignantly replied. “We’ve already established that,” Shaw observed. “Now we’re just haggling over price.”


        The broader problem with low-skilled immigration is that it increases your tax burden: low-skilled American citizens face fewer and worse economic opportunities and the government responds with welfare programs that sustain joblessness. Yet it doesn’t end there: the government also subsidizes low-skilled immigrant households. With our debt, why should Americans continuously mass import a fiscal burden? It wasn’t always so. Borjas relates that, among the flinty Puritans, “as early as 1645, the Massachusetts Bay Colony began to prohibit the entry of paupers. In 1691, the Province of New York required a new entrant to ‘give sufficient surety that he shall not be a burden.’” In the 19th century, as the United States began experiencing new waves of immigration, the government legally prohibited immigrants who might become a public charge – and deported those who wound up receiving government benefits within a few years of their arrival. And this was a time when government benefits were rather few!

        John smith

        Figure 4. Virginia explorer, admiral, governor, mustache model John Smith decreed that “he that will not work shall not eat (except by sickness he be disabled). For the labors of thirty or forty honest and industrious men shall not be consumed to maintain a hundred and fifty idle loiterers.”


        Today we should know the high cost of good intentions: in the 1960s we simultaneously opened the doors to mass immigration and dramatically extended the infrastructure of entitlements. But as Milton Friedman insisted, “it is one thing to have free immigration to jobs. It’s another thing to have free immigration to welfare.” Without welfare, if there are no jobs, immigrants leave – to Friedman, this was a functioning free labor market that benefits everyone. Instead, Borjas’ research concludes: “Despite the many restrictions on welfare use by immigrants, the evidence indicates that immigrant households are far more likely to receive [government] assistance than are native households.” This becomes all the more clear when we consider a special feature of America: non-citizens’ children born in the United States are automatically citizens – and therefore entitled to all the benefits and harms of the welfare state. Borjas finds that “46 percent of immigrant households received some type of public assistance.” Again, with our debt, why should Americans continuously mass import a fiscal burden?


        Figure 5. Imagine your accountant – appropriately donning a green eye-shade – promises to save you money on most goods and services you consume. Sounds great! The only catch is you have to cosign all of his loans. Don’t worry! He has half your credit score but, with your help, he’s hopeful about bringing it up. 


        After extensive analysis, Borjas concludes that immigration has increased American GDP by a couple trillion dollars – but that “immigrants themselves get paid about 98% of this increase” and that, when you factor in government subsidies of immigrant households, immigration may be a “net economic wash.” And yet that’s not a necessary vice of immigration, only of our particular policies:

        “If the typical immigrant was a high-skill person, outperforming others in the labor market, that immigrant would surely be defraying the cost of welfare programs [by contributing more than she took]. But if the typical immigrant was a low-skill person, performing worse than other workers, that immigrant would likely receive a net subsidy. Put bluntly, low-skill immigration is likely to be a drain on native taxpayers, while high-skill immigration is likely to be a boon.” 

        Unfortunately for the American taxpayer, the typical immigrant today – and for more than the last three decades – has been low-skilled. In 1960, before our present immigration laws, immigrants to the United States had similar education to natives and earned 11% less than the average native upon entry. By 1990 and continuing through today, immigrants are 3.5x more likely than natives to lack a high school degree or equivalent and earn 28% less than the average native upon entry – a reflection of their lack of skills. Worse, this wave is not the result of thoughtful policy but our inability to control our border. Because we tacitly favor immigrants in walking distance, we get more Mexicans (who tend to be low-skilled and earn on average 50% less than the average native upon entry) and fewer Germans (who tend to be high-skilled and earn 70% more).


        Figure 6. Concentrating on national origin can be a blunt instrument for understanding the data: Borjas says Mexico has plenty of college graduates – they just stay home because they earn double what someone without their degree can and wouldn’t make much more in the US of A. Low-skilled Mexicans come to the United States because the trip is relatively easy and they’re rewarded with better pay supplemented by government assistance. Compare this to the people who can’t walk here: “The average person in India has less than six years of schooling, but over 70 percent of Indian immigrants in the United States have a college or graduate degree.” Altogether, “The rule of thumb for immigrant selection is straightforward: the United States attracts high-skill workers from countries with egalitarian income distributions (those countries where high-skill workers do not do so well), and low-skill workers from countries with a lot of income inequality (those countries where low-skill workers do very poorly).”


        Borjas advises: “If our goal is indeed to make natives as rich as possible, the accumulated knowledge from economic research tells us exactly how to get there: we should admit only high skilled immigrants.” They are more likely to contribute more than they take and more likely to innovate and start businesses that improve our lives. If making natives rich is too crass and we desire to be humanitarian, why do we privilege our relatively wealthy neighbors (who break our laws) rather than find the globe’s most needy

        And yet, as Pat Buchanan asked, “Is our country nothing more than an economy?” Borjas’ title “We Wanted Workers” references the idea that we simply desire jobs done but don’t think about what else the job-takers bring along with them. How does our country change when 40+ million foreign-born constitute more than 13% of the population – more than triple the proportion of 1970? How do our politics change when there are more foreign-born residents of California than people in Tennessee and Utah combined – and yet everyone gets counted by the census for divvying up power and money? 

        For Borjas, the question is: how do we make it in the interest of immigrants to assimilate and adopt the best American culture has to offer? He cites Samuel Huntington who feared that modern Latin American immigration presents a threefold assimilation challenge: the numbers are high, continuously growing, and concentrated in a few states. Borjas compares this to the early twentieth century, when we also had high levels of immigration – no single national origin dominated and then the government dramatically restricted the total inflow: now Mexicans alone account for over 30% of our immigrants, they tend to cluster in less diverse communities than that previous generation, modern technology enables easy keeping in touch with home, and there is no political consensus on what to do about immigration.

        Whatever the reason, by at least one measure, we’re failing to integrate: Fairly consistently, about 30% of new immigrants speak English fluently. About 42% of those who arrived in the 1970s spoke English fluently by the end of their first decade in the country – a 12% gain. We might hope for more and yet we got less: Among those who arrived in the 1990s, only 33% spoke English fluently after a decade. What’s the point if you can get by without it? 

        Douglas Murray wrote a book about Europe’s far more challenging position of integrating significant Muslim immigration: “The world is coming into Europe at precisely the moment that Europe has lost sight of what it is. And while the movement of millions of people from other cultures into a strong and assertive culture might have worked, the movement of millions of people into a guilty, jaded and dying culture cannot.”  We may have all come from somewhere else somewhere in our family tree, but what we forged was something special: Has America “lost faith in its beliefs, traditions and legitimacy” as well? Will America still be worth coming to if we lose them?

        Borjas ultimately concludes that our path forward must start with controlling our borders and getting intentional about who we let in. “The fact that we have already had a major amnesty [in 1986] and that it did not work is partly the reason why the debate over ‘comprehensive immigration reform’ is so contentious.” He suspects that the only way to do that is “seriously penalizing lawbreaking employers” but is willing to offer a compromise: give employers the ability to rent guest workers and set the price appropriate to their total social cost. Otherwise, we have to decide what we really want out of immigration: who we want to benefit, who we are willing to let suffer. And that’s what makes immigration so hard. But maybe we could start with reforming welfare!

        We wanted workers

        Figure 7. Click to acquire We Wanted Workers by George Borjas (9/10), a nuanced, technocratic take on immigration that digs into the nuts and bolts of data to find winners and losers.

        Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend: know anyone interested in immigration politics or policy? How about any American taxpayers who might want to know where their money is going? Or perhaps any American workers facing competition?

        I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

          Say No To The Glow

          The Gist: 7 specific, escalating steps to spend less time with your favorite screen.

          The second of a two-part review of multiple books, most notably Tech-Wise Family.

          Access the first part here: Intervention.


          So, you’ve decided to say no to the glow and yes to life. Maybe you want to remember what your family looks like (without Instagram filters). Perhaps you want to actually get some work done (maxing out your skill points in real life). Or you just want to chase that great American birthright: the pursuit of happiness (amazingly, guaranteed before the advent of screens!)

          We are going to go over some digital hacks and tips but Cal Newport, the author of Digital Minimalism and Deep Work, will tell you “what you need instead is a full-fledged philosophy of technology use, rooted in your deep values, that provides clear answers to the questions of what tools you should use and how you should use them and, equally important, enables you to confidently ignore everything else.” 

          The underlying truth of Newport’s warning is that technology is ubiquitous, convenient, and, as we discussed in our last correspondence, designed by the world’s smartest people to keep you using it for as long as profitable (i.e. forever).  You will ignore casually set intentions too easily – so, whether in a moment of frustration or clarity, you need to identify the good, the bad, and the ugly of your relationship with technology.

          Clint Eastwood

          Figure 1. Note that in the original, “Good” was relative. Clint played a corrupt bounty hunter who abandoned his business partner to die in a desert. Up to you whether to move anything analogous in your own life into another category.


          Crucially, along the way, focus on what technology is substituting for. You justify social media to keep track of friends – but how often are you having really meaningful conversations? You explain that you always need your phone in case of an emergency – but how often is the real emergency your boredom? You ironically defend television as “unplugging” – but how often have you watched a few too many episodes and find yourself more exhausted than when you started?


          Figure 2. To be clear, if your way of unwinding is to sit on your couch watching a blank, unplugged TV screen, that’s probably ok – though don’t miss the excitement outside of seeing grass grow!


          When you are tired, when you are procrastinating, when you are bored, when you are lonely, the digital world has practically limitless offerings. And yet these glittery mind tricks don’t deliver. As you feel the cue, remember that there are more satisfying alternatives. Stanford psychologist Kelly McGonigal reports that the American Psychological Association has found that the least effective strategies for stress relief include playing video games, surfing the Internet, shopping, and watching TV or movies (along with gambling, drinking, smoking, and eating). The most effective stress relief? “Exercising or playing sports, praying or attending a religious service, reading, listening to music, spending time with friends or family, getting a massage, going outside for a walk, meditating or doing yoga, and spending time with a creative hobby.”

          “If there is a secret for greater self-control, the science points to one thing,” McGonigal reveals. “The power of paying attention. It’s training the mind to recognize when you’re making a choice, rather than running on autopilot.” And, as James Clear articulates especially well, your goal is to make the desired choice easy and the undesired choice hard. Embrace a cascade: start at whatever level you think is appropriate and, if you falter, make it harder. Below are suggestions for your phone, your computer, and your television.

          Starting with your phone:

          You want to access apps when you want, not when they want.  

          1. Reorganize and replace your apps. On your home screen, keep only single use tools (like maps, calendars, weather). At first, you can try to bury deep in folders your endless apps (social media, games, news, video). Replace your temptation with a better alternative: Where YouTube once tempted, you now have Spotify. Where you once tapped Candy Crush, you can now tap Kindle to read the last book I reviewed. Where Facebook once sat, you now have a list of people to call (starting with your mom!). If social media is your particular temptation, Newport concedes that “refusing to use social media icons and comments to interact means that some people will inevitably fall out of your social orbit—in particular, those whose relationship with you exists only over social media. Here’s my tough love reassurance: let them go.” For the people you really care about, upgrade your approach: “When your friends and family are able to instigate meandering pseudo-conversations with you over text at any time, it’s easy for them to become complacent about your relationship. These interactions give the appearance of close connection (even though, in reality, they’re far from this standard), providing a disincentive to invest more time in more meaningful engagement… Being less available over text, in other words, has a way of paradoxically strengthening your relationship even while making you (slightly) less available to those you care about. This point is crucial because many people fear that their relationships will suffer if they downgrade this form of lightweight connection. I want to reassure you that it will instead strengthen the relationships you care most about. You can be the one person in their life who actually talks to them on a regular basis, forming a deeper, more nuanced relationship than any number of exclamation points and bitmapped emojis can provide.”
          2. Turn off all notifications. Restart at zero and then extremely sparingly restore the absolute bare minimum. I myself just have notifications for my phone calls and emails. 
          3. Go grayscale. App developers make very intentional color choices to attract your attention – there’s a reason why notifications are in red. Deny them the privilege and take back control.
          4. Place your phone somewhere it will take a few minutes to retrieve from. You may not be able to always do this, especially if your work requires call availability – and, if that’s the case, you can move up the cascade. But the vast majority of people can keep their phone away from arm’s reach for far more time than they do. (Added bonus: limit police searches!) But for your day to day life, Andy Crouch puts it nicely: “We [should] wake up before our devices do, and they [should] ‘go to bed’ before we do.” At the very least, buy a traditional alarm clock and banish your phone from your bedroom. You can also slow yourself down a little bit by disabling Touch ID and requiring a password or putting a rubber band around your phone to remind you not to endlessly scroll. I take a cue from Tristan Harris – the background of my phone says “Do not open without intention.” 
          5. Limit time on your apps. Phones now have powerful built-in tools that can warn you about the time you are spending on applications and can function as speed bump reminders if you try to access apps outside of a designated time (the morning, when you should be working) or if you use apps in excess (only 15 minutes a day or whatever you decide). Exploring the features of Apple’s Screen Time or Google’s Wind Down is well worth the effort – and you can ratchet your process up with apps that block your access altogether. As you contemplate the appropriate time limits, consider the results of Tristan Harris’ study of 200,000 iPhone users about what apps made them feel happy or unhappy after use. The unsurprising bottom line: you’ll tend to be happier after using meditation, fitness, and book apps; you’ll tend to be unhappier after using social media, dating, and game apps. 
          6. Purge your apps and give away your passwords. Cal Newport suggests that, in order to truly understand your temptations and what substitutes look like, you should take a 30 day detox (not just of your phone but of anything digitally tempting). After it’s over, similar to the notification process, only extremely sparingly add back anything you think is truly beneficial. Don’t purge every few weeks in frustration – only to add back temptations a short time later. Determine what you are better off without, change the password to something complicated and impossible to memorize, give the password to a disciplined loved one, and delete the apps. The authors of Make Time go so far as to delete email and web browsers from their phones because they think that those functions are better handled on computers but even that step can be easily reversed by a phone with the functionality. Bizarre to me, some of the digital monks I discuss find texting acceptable (sometimes justified because it’s a social interaction).  Personally, I find the data on how quickly people read and respond to texts alarming in light of the goals of digital restraint. Unfortunately, my phone provider doesn’t have a plan without texts and the app can’t be deleted, so I use the time limits described above to only see them rarely.
          7. Dumb down your phone. If you really, truly want to end your phone’s distractions, then get a dumb phone with few functions (including, alas, texting). I have not made it this far down the cascade – I enjoy too much settling arguments with instant internet access – but going this far, as extreme as it seems today, could be rewarding on net.

          Figure 3. Our new Paleotechnology Program allows you to live as your ancestors did! Travel way back to the 1990s when most humans had to contend with landlines! Experience life as it was intended in such cinema classics as Citizen Kane: in black and white! Along the way, enjoy all the mystery and wonder of real human contact!


          For your computer:

          you want to be able to focus and work when you need to, and you also want to embrace the benefits of the real world, especially socializing. 


          1. Consider alternative relief. Keep a copy of the list of activities above that the American Psychological Association actually deliver on stress relief. Whenever you are tired or bored and tempted by surfing the web, online shopping, or gaming, fight the mind trick and try something else, if only for a half hour. If you’re procrastinating, think about the consequences of NOT doing whatever you’re putting off and just get started with the smallest step you can take toward progress.
          2. Demand quality. This particularly applies to gaming, and it will come up again for TV. There’s a psychological phenomenon where people heavily weight their judgment of an experience based on the final outcome – even if they enjoyed the vast majority of an experience, if it ends badly, the memory is sour. There is data online about how long a game takes – make sure you know what you’re getting into and that it’s worth the opportunity cost. Beware the diminishing marginal utility of 100% completion of anything and embrace refund policies that will give you your money back after a couple of hours – that way, you’ll be incentivized to make a determination relatively quickly whether you’re actually enjoying what you’re doing.
          3. Schedule your digital entertainment in advance. Newport suggests that if you calendar when you are going to be able to take advantage of your vice, you will have an easier time resisting during the non-calendared time. You aren’t giving it up entirely, you’re just postponing it till after you complete this project, until the weekend, or whatever. 
          4. Put away your toys. The Make Time authors suggest that when you are done browsing or gaming, make sure to exit out of everything so that when you come back to your computer, you are starting clear (or, even better, with precisely the work you need opened up).
          5. Apply your skill points to real life. Consider the magical prospect that rather than dispatching your Sim to learn cooking, you could learn to cook for yourself. Or, rather than sniping that Nazi, you could genuinely master a rifle at the local firing range. As you contemplate customizing the character that is you, particularly bear in mind your social needs: join a paintball league for the adrenaline rush, break out the Risk board to think through strategy, or take on improv to flex your creativity.
          6. Enforce your schedule. It’s one thing to say that you won’t check a website until your project is done or that you will stop playing a game at your normal bedtime. It’s another thing to do it. Get creative in how to throw up obstacles: Use an app to block websites. Plug your computer or your Wifi into a cheap timer outlet that will cut off electricity at a certain time. Create a child account on your PC, put all your games on it, and enforce time limits with another complicated password difficult to retrieve. Don’t charge your controller so that the battery runs out. Lock your laptop physically in a cabinet. If you still press forward but at some point hit a speed bump or realize that you’re stretching yourself beyond your intention, hit the brakes, walk outside for a bit, and just think. Ultimately, embrace sunk cost, forgive yourself, and learn from the experience.
          7. Downgrade your computer. If you routinely overcome your obstacles to access the capability of your computer, eliminate the capability. Cancel your home internet. Get rid of your computer speakers. Get a computer with a bad graphics card and basic functionality. My own view is that the internet is an opportunity for such benefit that its harms aren’t worth the cut off – but you have to weigh the trade off in your own life.

          Figure 4. The real 100% completion. How you play determines your Epilogue. 


          For your television:

          beware the relatively steep cost to benefit ratio.

          1. Consider alternatives to TV’s perceived value. Stress relief is better achieved through the activities described above by the American Psychological Association – where playing a sport is better than watching one (especially if your team is losing) or socializing with your own family is better than watching a family sitcom. Learning is best achieved through reading, itself a stress relief, but I’ve found that podcasts are a perfect substitute for something to have on in the background while you cook or do something else. 
          2. Only watch with family or while exercising. Make the most of your watching by only doing it when you can combine it with something good. TV has perhaps the best capability of any digital offering to be a shared simultaneous experience – I have always loved watching movies with my dad and we still watch old action flicks together over Christmas. Just be careful not to use this as an excuse to endlessly engage in TV at the expense of other shared experiences – or better conversations. Similarly, if you’re seeking to multitask, consider upgrading the background noise to podcasts. 
          3. Disable autoplay and prefer media with quicker ends. Go onto your streaming settings and disable the service from just queuing up your next thing to watch as soon as you finish the previous item. You want to choose when to continue based on your priorities. Similarly, movies outside the Marvel Universe are inherently going to be easier to manage than TV shows, which can easily dwindle in quality over the many hours you spend feeling a need to see how it all works out. Don’t forget the phenomenon discussed with gaming where a bad ending can sour the memory of an otherwise enjoyable experience (see, most recently, Game of Thrones). If you do find yourself engrossed in a deteriorating TV show, embrace sunk cost and quit!
          4. Cut cable, unsubscribe from streaming, and choose quality on demand. Per Make Time, switch your mindset from “What’s on?” to “There’s something specific I want to watch.” Get rid of your opportunity to surf endlessly for options to watch without friction and switch to a model where you purchase or rent each individual item. (I have mentioned before that the Netflix DVD service is still around and serves this purpose nicely.) Given the big benefits of non-screen alternatives, insist on only watching things you have high confidence in being good (such as over an 8 on IMDB, for example). 
          5. Hide the remote and its batteries in separate locations from your TV. Make it a chore to go find everything. Plug the TV into a cheap timer so it goes off before it endangers your sleep. And, if you haven’t already, change the passwords on your apps and delete them from your devices.
          6. Get rid of your TV. When you contemplate the balance between opportunities and harms of your smart phone or your computer, getting rid of them entirely is a hard argument to make – even dumbing them down by dramatically reducing their capabilities has problematic side effects that make the lesser measures more attractive. But when you apply the question to television, the benefits seem considerably more sparse. At the end of the day, most people, despite their protests, would probably be happier without a television. Giving up the gigantic opportunities associated with the internet is a big deal. Giving up TV just eliminates one form of entertainment – and, as we noted, some of the least effective strategies for stress relief. But if you can’t go to a friend’s to catch Stanford football, then the Make Time guys have a solution: replace your TV with a projector and a fold up projection screen. It’s a hassle. And that’s the point.

          Figure 5. Asked afterward the secret to his remarkable endurance, the first-time contender exclaimed, “I was just trying to get to the end of Lost!


          That about sums up what I consider some of the best takes on personal digital restraint. But perhaps your worries extend beyond yourself: what about kids?

          I don’t have personal experience as a father, but several parents have recommended Andy Crouch’s book on the Tech-Wise Family. I found it to be an excellent meditation as he explains his family’s approach (and how well they’ve lived up to their own rules, among them: zero screens for kids until they turn 10.) Crouch fears that “We most often give our children screens not to make their lives easier but to make our lives easier” and yet considers this a paradox because “the less we rely on screens to occupy and entertain our children, the more they become capable of occupying and entertaining themselves.” He also powerfully rejects the common defense “that children need to become ‘computer literate,’ as if learning to use computers were somehow as difficult and rewarding as learning to read itself.” After all, “A three-year-old (or a ninety-three-year-old) can intuitively figure out how to use an iPad. There is almost nothing to teach, and certainly nothing that any typical person can’t learn with a few hours of practice.” If you are raising a family, check it out.

          Bill Gates

          Figure 6. Bill Gates often ruefully reflects on a childhood deprived of such essential technology literacy builders as Fortnight and Snapchat.


          I’ll close by noting that some of the digital restraint authors I’ve cited believe that the responsibility for digital restraint goes beyond individuals managing their own use. Tristan Harris, for example, has called for vigorous antitrust actions against and taxation of big tech. But fellow Google alum James Williams, the author of Stand Out of Our Light, is interested in a steering wheel, not a brake and calls for the industry to self-regulate through individual tech workers taking  an equivalent of the Hippocratic Oath: 

          “As someone who shapes the lives of others, I promise to: Care genuinely about their success; Understand their intentions, goals, and values as completely as possible; Align my projects and actions with their intentions, goals, and values; Respect their dignity, attention, and freedom, and never use their own weaknesses against them; Measure the full effect of my projects on their lives, and not just those effects that are important to me; Communicate clearly, honestly, and frequently my intentions and methods; and Promote their ability to direct their own lives by encouraging reflection on their own values, goals, and intentions.”

          My advice: don’t wait on Silicon Valley or DC. Embrace the cascade(s) most relevant to your own goals of digital restraint!

          Tech wise family

          Figure 7.  Click here to buy the Tech-Wise Family (9/10), as much a meditation on family as tech, or here to buy Make Time (7/10), a breezy, cheery, practical book with some interesting ideas about how to get things done, especially with respect to digital distraction.

          Figure 8. Click here to buy Deep Work, 10/10 or Digital Minimalism, 7/10, both by Cal Newport.

          Willpower Instinct

          Figure 9. Click here to buy the Willpower Instinct (10/10) or here to buy Atomic Habits (8/10) – both great books I’ve reviewed before that apply generally to doing what you set out to do.  

          Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend:  know anyone who you’d like to spend more time with you than their devices? How about any parents? Or anyone who owns a wireless mobile device?

          I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

            Has Anything Really Changed Since 1970?

            The Gist:  Much less than you’d think.

            A review of The Rise and Fall of American Growth by Robert Gordon.

            “Everything that can be invented has been invented.”

            That’s a quote often apocryphally attributed to the head of the American patent office around 1900. Today, mentioning it is a way to smugly correct the misconceptions of the past as we enjoy the since-invented wonders of the present. 

            But what if it’s kind of true? What if we have invented, innovated, and adopted the relatively easy, big things – and what’s next is really hard? What if stagnancy is normal?


            Figure 1. As you already suspected, the Segway represents humanity’s peak.


            That’s the provocative argument of Robert J. Gordon in the Rise and Fall of American Growth, a book recommended to me by a friend working for Peter Thiel, the billionaire investor who has quipped that we wanted flying cars and got 140 characters.

            To illustrate the point, let’s compare the average American families in the typical homes of 1820, of 1870, of 1970, of 2020.

            Gordon argues that there really isn’t much of a difference between the average home of 1820 and 1870. Or, in fact, between the ordinary American home in 1820 and its Roman counterpart in 20 AD. “According to the great historian of economic growth, Angus Maddison, the annual rate of growth in the Western world from AD 1 to AD 1820 was a mere 0.06 percent per year, or 6 percent per century.” As Gordon vividly portrays it, “A newborn child in 1820 entered a world that was almost medieval: a dim world lit by candlelight, in which folk remedies treated health problems and in which travel was no faster than that possible by hoof or sail. Or as the economist Steven Landsburg puts it even more starkly: “Modern humans first emerged about 100,000 years ago. For the next 99,800 years or so, nothing happened.”


            Figure 2. Landsburg first conceived this argument when he failed to do any of the readings for a history course that required class participation. Worried that any slip in his confidence would reveal his decision to spend the semester partying, he proceeded to dismiss the wheel, the Pyramids, the Bible, the aqueduct, Shakespeare until he exhausted his classmates and could slip back to the frat house. 


            By 1870, the Industrial Revolution was well under way in the workplace – but it was only just beginning to reach into the American home. Fully adopting its benefits, along with new great inventions, would take the next century. In the meanwhile, “a typical North Carolina housewife had to carry water 8 to 10 times each day. Washing, boiling, and rinsing a single load of laundry used about 50 gallons of water. Over the course of a year she walked 148 miles toting water and carried more than thirty-six tons of water… But that was not all the carrying that needed to be done. In 1870, the gas or electric stove had not been invented, so all cooking involved wood or coal. Fresh wood and/or coal had to be carried into the house—and spent ashes carried out… Keeping a fire burning all day required 50 pounds each day of coal or wood.”


            Figure 3. Forget the Paleo diet. If you really want to get in shape, time to try GildedFit™!  For just six easy payments of $99.99, you can get our hand-crafted American-made water buckets – and save thousands of dollars by getting rid of central heat and plumbing in your home! It pays for itself – and is endorsed by Lady Antebellum! (Basically all ladies antebellum, in fact)


            And yet carrying was hardly the end of her efforts! She had to make her family’s clothes because there was little shopping, not even by mail, which was not delivered to 75% of American homes. She had to diligently prepare her family’s meals, the components of which were inherently limited in variety: “fresh meat was unsafe, so the diet was a monotonous succession of salted pork and starchy foods. Unless home-grown, fruit was all but unavailable except during the summer months, and vegetables available in the winter were limited to a few root vegetables that could be stored.” She had to help with the hard labor of the farm she probably lived on. She had little source of entertainment, not even politics, which denied her the right to vote. And she had to not only suffer from an array of common deadly diseases but had to watch her many children suffer, and often die, of the same. In fact, she might not have lived as long as her grandmother: “there was no improvement in either mortality rates or life expectancy before 1870, and in most data series, there was no improvement before 1890. In 1870–79, male life expectancy at age 20 was identical to that in 1750–79, and that for females was actually lower.”

            Over the next hundred years, American lives would be transformed as they were freed “from an unremitting daily grind of painful manual labor, household drudgery, darkness, isolation, and early death.” Only a few homes in 1870 had running water, sewage, or central heating – or could afford to pay people to take care of their basic human needs. No home in 1870 could have acquired electricity, a phone, a washing machine, a dryer, a vacuum cleaner, a refrigerator, a radio, or a television. By 1970, virtually every home that wanted everything above could get them. We went from traveling mostly by horse (which had a record travel speed of 9 MPH over a long distance using multiple rides and riders of low weight), occasionally by rail (then 25 MPH between cities, only 3 MPH in city public transport) to mostly by car (80 MPH on the open road), regularly by jet (575 MPH cruising). In the transition, our streets were cleared of manure, we built a national highway system along with other major infrastructure, and we also adopted an underappreciated form of transportation that transformed the shape of cities: the elevator. Dense, vertical buildings accommodated the massive shift from rural to urban living and from labor-intensive, often dangerous work to alternatives that were relatively cognitive and practically safe. Our food variety and quality, delivered from around the world in new supply chains, increased dramatically. We could enjoy, at the flip of a switch, the world’s most accomplished entertainers. And the list goes on and on, touching every element of how we spend our lives.

            So, perhaps the change between the Roman of 20 AD and the American of 1870 is understated – paper and the printing press certainly opened up lots of opportunities, such that about 90% of white Americans then were literate. The compass and other improvements helped global navigation that helped the transport of goods and people. Gunpowder changed hunting and security in profound ways. But whatever improvements you might list, they pale in comparison to the single century change between 1870 and 1970. Those wonders, along with some subsequent ones, lead to a reasonable argument that to be middle class in America today is to be better off than the richest man in the world 100 years ago. 

            But now we get to Gordon’s most controversial claim: “There was virtually no economic growth for millennia until 1770, only slow growth in the transition century before 1870, remarkably rapid growth in the century ending in 1970, and slower growth since then…the economic revolution of 1870 to 1970 was unique in human history, unrepeatable because so many of its achievements could happen only once.” The freeing of hours associated with household chores could only happen once. The value of instant communication, not just for friendly human connection but for price information and other gigantic economic and scientific benefits, could only happen once. The urbanization of America could only happen once. After all the change, what was and is left?

            Nuclear cloud

            Figure 4. Gordon is wrong, of course. After a nuclear apocalypse, we can repeat lots of these improvements!


            Let’s return to our core comparison: how is the typical home different today than in 1970? The obvious answer, of course, features the internet. There are bigger and better televisions that play a greater variety of entertainment. Less obvious might be the microwave and air conditioning – both invented before 1970 but universally adopted in homes thereafter. And beyond that… Gordon argues not much. There have been some increases in fuel efficiency (and associated costs) but basically a light, a refrigerator, a washing machine, a vacuum, a faucet, a toilet basically does the same thing as it did in 1970. Food and clothing might be delivered more conveniently but are apparently not leaps ahead in quality. In some ways, we are actually getting worse. To fly from Los Angeles to New York got faster and faster every year from 1934 until 1958. Since then, every year it has gotten slower.


            Figure 5. Unless you have one of those self-cleaning Japanese toilets with warmed seats, automatic flushing, self-opening lids with proximity sensors, water sprays, dryer, glow-in-the-dark armrests, deodorization, stool analysis, massage features, and Wifi and speakers for Spotify syncing or Netflix. Forget the Segway. Here is peak humanity.


            You’re skeptical because the internet is gigantic. I get it and I agree. The most compelling response is that, as big as the internet and computing are, they’re not close to being as big as the difference between carrying water and fuel to your home for hours a day to cook and clean versus our modern conveniences, or the difference between traveling cross country by horse versus plane, or the difference between traveling many miles to mail your handwritten letter and waiting months for a response versus instant vocal connection. Gordon goes further. He concedes that electronic entertainment, communications, and information technology have seen big improvements since 1970 that no other sector has but says that total related business and household spending “amounted in 2014 to only about 7 percent of gross domestic product.” And he quotes Nobel Prize-winning economist Robert Solow’s quip that “You can see the computer age everywhere but in the productivity statistics.” Gordon’s explanation is that the improvements gained may actually be covering for slowdowns elsewhere and/or the mass availability of the internet (and therefore cat videos, social media, online shopping) has done as much to impede work as aid it. And Gordon also points to data that, even within this vaunted space, improvements are slowing down. Google’s chief economist “explained that technological change in desktop and laptop computers has come to a halt ‘because no one needs a superfast chip on their desktop,’ so research has shifted into trying to improve larger computers in data centers as well as battery life of portable devices.” In sum, “advances since 1970 have tended to be channeled into a narrow sphere of human activity having to do with entertainment, communications, and the collection and processing of information. For the rest of what humans care about—food, clothing, shelter, transportation, health, and working conditions both inside and outside the home—progress slowed down after 1970, both qualitatively and quantitatively.”

            One item on that list we haven’t mentioned yet but you may be wondering about: health. Don’t we live longer, healthier lives? There’s a lot of misconception about life expectancy statistics of earlier ages because the numbers are driven down so much by child, and particularly infant, mortality. So, for context, more than 1 in 5 white infants died in 1890. Today, 1 in 200 do. The vast majority of that gain occurred before 1970. In fact, “the annual rate of improvement in life expectancy was twice as fast in the first half of the twentieth century as in the last half.” Some of the developments we’ve already discussed were perhaps the biggest contributors: running water, sewage, food variety, lack of universal horse manure. The development of germ theory, vaccines, and antibiotics like penicillin did much of the rest of the work: “more than 37 percent of deaths in 1900 were caused by infectious diseases, but by 1955, this had declined to less than 5 percent and to only 2 percent by 2009.” Once common terrors like polio had been virtually wiped out! Other big improvements – the x-ray, radiation, chemotherapy, birth control – were all invented before and in widespread use in or shortly after 1970. Since then, Gordon argues our progress in extending life has significantly slowed. For whatever reason, between 1960 and 2010, the FDA approved half as many new drugs as between 1940 and 1960. AIDS became a health crisis and got remarkable innovative treatment. Fewer people smoke, but more people overeat. The net is that an infant born in 1970 could expect to live over 25 years longer than an infant born in 1870. A child born today could expect to live an additional 10 years longer. But, at the other end of the spectrum, a 70 year old in 1970 could expect less than 5 years longer than a 70 year old would have in 1870. And a 70 year old today can expect to live an additional couple years. The main gains have been made in early life, not at the end, and they’ve been slowing down. Or, in other words, data suggests that you won’t live much longer than your grandfather, who survived childhood to sire your parent – but your kids have a much better chance of reaching adulthood than your grand uncles. 

            All of which comes down to a classic question: Do you think your children will be better off than you? For most of human history, the correct answer for most people would have been not really. From 1870 until 1970, the answer for most Americans was a resounding yes. “Historical research has shown that real output per person in Britain between 1300 and 1700 barely doubled in four centuries, in contrast to the experience of Americans in the twentieth century who enjoyed a doubling every 32 years.” In other words, “children had the expectation that on average they would be twice as well off at any given age as their parents had been at that age.” Gordon illustrates the slowdown: “In 2014, real GDP per person was $50,600. If productivity growth between 1970 and 2014 had been as rapid as between 1920 and 1970, real GDP per person for 2014 would instead have been $97,300, almost double the actual level.” Driving his book, Gordon says, is the fact that the most recent growth in output per person, measured at the time in 2014, was less than a quarter of the 20th century average – and had been on a decline, with the exception of the late 1990s, since 1970.

            Ultimately, Gordon makes a strong argument that big, unprecedented improvements in American quality of life occurred between 1870 and 1970 and a provocative argument that growth has since slowed and may not recover. He doesn’t believe there’s any spur available to reinvigorate growth because he thinks that the major gains could only happen once – but is his a failure of imagination? As Henry Ford quipped, if he had asked what customers wanted, they would have said a faster horse.

            rise and fall of american growth

            Figure 6. Click here to acquire Robert Gordon’s Rise and Fall of American Growth (7/10). The heart of the book is deeply interesting but it is badly organized. Despite his explicit claim of the unique century of 1870-1970, he devotes half the book to the period between 1870 and 1940 and the other half to the time between 1940 and today. He also gets bogged down in telling stories behind inventions and other material less relevant to his central thesis, all of which probably inflates the number of pages by 2/3. Atop all that, his policy proposals call for a redistribution of wealth because the pie isn’t getting bigger faster and he has some questionable analysis of earlier government policy. But it does have notable statistics (nearly 90% of men over 65 and over 30% of boys 10-15 in 1870 were in the labor force) and interesting arguments (growth elsewhere in the world has been fueled by attempts to catch up to American standard of living). I’ll leave you with this analysis of fast food:

            “Go into the kitchen of a Taco Bell today, and you’ll find a strong counterargument to any notion that the U.S. has lost its manufacturing edge. Every Taco Bell, McDonald’s, Wendy’s and Burger King is a little factory, with a manager who oversees three dozen workers, devises schedules and shifts, keeps track of inventory and the supply chain, supervises an assembly line churning out a quality-controlled, high-volume product and takes in revenue of $1 million to $3 million per year, all with customers who show up at the front end of the factory at all hours of the day to buy the product…. The big brands spend hundreds of millions and devote as much time to finding ways to shave seconds in the kitchen and drive-through as they do coming up with new menu items.”

            Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend:  know anyone interested in technology or history? How about any inventors who need to get angry about the lack of progress so they can fix it? Or anyone who was alive any time between 1970 and today?

            I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

              Just My Luck

              The Gist:  Success may be more random than we’d like to think.

              A review of Fooled By Randomness by Nicholas Taleb.

              The ambitious are always trying to figure out how to win in life. 

              Often that search means looking at winners and copying their practices – or investing in their future success. You can read articles by the dozen about how the President won his election with a master communications strategy while his opponent neglected critical voters. You can watch TV after the Super Bowl to find out the diet, exercise regimen, even the sex life that might have contributed to the quarterback throwing the game-winning Hail Mary. You can dial into an earnings call to listen to a CEO diligently explain his strategy for building upon the company’s record-breaking profits from the previous quarter.

              But what if a secret to success is randomness? As the old saying goes: better to be lucky than good.

              Crossed Fingers

              Figure 1. For maximum performance, knock on wood while crossing your fingers and grasping a rabbit’s foot underneath a horseshoe. 


              This is the question that haunts Fooled by Randomness, the first in a series of books by Nassim Nicholas Taleb, an options trader, about the role of uncertainty in our life. We humans are emotional beings, poorly equipped to evaluate odds, and naturally inclined to construct reasons for events that may not be knowable, much less actually true.


              Figure 2. If he hasn’t called, it must be that he joined the French Foreign Legion! 


              To begin to understand performance, you need to know the size of the sample (how many people tried) and the randomness content of his profession (how significant a factor is luck). How much success could luck alone produce?

              If someone accurately predicts 10 presidential elections, the media hail him as a predictive genius, report with big headlines his latest prophecy, delve into his particular analysis of the electorate or the economy or whatever his formula. But you have to seriously consider whether he is better than someone who accurately predicted 10 coin flips. If a million people try to predict something with (almost always) only two outcomes, some will be right by chance alone, whether they base their predictions on deep analysis, gut feeling, or the weather. To extend the example: If a million people try to predict 10 die tosses, there are more opportunities to be wrong so fewer should be right by only luck — but some still will because there are a million participants!

              Nate Silver

              Figure 3. Or, in the case of Nate Silver, you only have to predict one election for the media to rave about you. The next election didn’t quite go as predicted.


              In more complicated professions, just because the odds can’t easily be defined doesn’t mean they don’t exist. Talent is relevant but we often overestimate it. If you are identifying the ingredients to success, you have to constantly assess the role of luck. Taleb controversially argues: “I am not saying that Warren Buffett is not skilled; only that a large population of random investors will almost necessarily produce someone with his track records just by luck.” 

              The role of randomness is far easier to understand from the loser’s perspective. You win and you credit your creativity, genius, and industry. You lose and you blame the odds.

              Of course, there could be very good reasons why you or someone else lost. Losers don’t get biographies. But the reason behind winning or losing may really be luck. And that fact doesn’t satisfy our minds that hunger for a story. Yet winning is worthwhile so we study the winners.


              Figure 4. Apparently the secret to winning the Powerball is using a combination of the birthday of your first ex-mother-in-law, the number of Budweisers you had last night, your number of unreplaced teeth, and the amount of spots on your coonhound divided by 25.


              Isolating performance quickly complicates things. The best wide receiver on the planet has real limits that come with the guy throwing to him, and vice versa. Taleb observes that the performance of a cook in the company cafeteria is far easier to evaluate than that of the company CEO. At a certain point, one can only so often confuse salt and sugar, but at the pinnacle of leadership there are a lot more factors that go into success or failure. And the more factors, the more randomness plays a role.


              Figure 5. Yes, it may be said that a cook can better master the ingredients of success than a CEO.


              If top performers are identified, analysts will discover commonalities and make the leap: if you share these traits, then you, too, may become a top performer. But the commonalities are rarely put under study. High tolerance for risk is an entirely believable shared trait among billionaires and bankrupt.  Taleb again: “I never said that every rich man is an idiot and every unsuccessful person unlucky, only that in absence of much additional information it is preferable to reserve one’s judgment.”

              You may also stumble upon something completely unrelated but randomly correlated. Taleb himself is “convinced that there exists a tradable security in the Western world that would be 100% correlated with the changes in temperature in Ulan Bator, Mongolia.”  This is called a spurious correlation, itself an amusing website. The examples are silly, of course, but they point to the possibility that a plausible explanation is actually completely wrong.  

              Even when true statistics are captured, they are prone to misinterpretation. Just because a majority of American presidents were born before 1900 does not mean that the next President is likely to be over a century old. If a surgery with a 99% survival rate has been performed 99 times and you’re next, you still have a 1%, not 100%, chance of death. Insurance is not necessarily a waste just because you have not had to take advantage of it. Our mind does not easily grasp these ideas.

              Taleb ends up dividing the world: “I thus view people distributed across two polar categories: On one extreme, those who never accept the notion of randomness; on the other, those who are tortured by it.” 

              For those who take the red pill: “Probability is not a mere computation of odds on the dice or more complicated variants; it is the acceptance of the lack of certainty in our knowledge and the development of methods for dealing with our ignorance.”

              What are some of those methods?

              First, be happy you’re already lucky to live in the greatest country in the world. Psychologists have found that people are happier when they make $70,000 a year when everyone around them makes less than to make $80,000 a year when everyone around them makes more. Whatever your circumstances, if you are reading this newsletter, there are people worse off – and yes, perhaps, because of random bad luck. Inform your envy that its objects may merely be beneficiaries of the odds. And take into account just how lucky you are – and how grateful you should be.


              Figure 6. Classic financial advice is to own the cheapest home on the block. New happiness advice: own the most expensive home on the block.


              Second, be skeptical of the explanations behind success and failure – including the ones you conjure for your own – that don’t factor in luck. News is especially bad: Every day every media outlet screams for attention even when the news does not merit it. Analysts offer immediate speculation without subsequent confirmation. On television, anchors are hired based on their charisma and looks, not their crucial insights. Taleb continues the indictment: “To be competent, a journalist should view matters like a historian, and play down the value of the information he is providing, such as by saying: ‘Today the market went up, but this information is not too relevant as it emanates mostly from noise.’ He would certainly lose his job by trivializing the value of the information in his hands.” To attain distance, I personally gather news and read it altogether at the end of the week. I can read the whole story, rather than each daily update, or decide the story isn’t even that relevant. I have other friends who have unplugged from the news altogether. Another reason to read books instead! But even taking a historical view, “Past events will always look less random than they were… Humans are not wired to understand the impact of randomness in our lives, and so we must be constantly vigilant as to not assign greater significance to things that largely happened by chance.”


              Figure 7. Sources confirm that the dog DID NOT chase the cat today. Will this signal a new era in feline-canine relations? Let’s go to our panel. 


              Third, remember: Winning does not mean the risk should have been taken. Losing does not mean the decision was bad. Never confuse the quality of a decision with the desirability of the outcome. By all means, try to figure out what happened. But judge decisions based on what was known at the time, not whether the gamble paid off. Taleb even gets philosophical: “Heroes are heroes because they are heroic in behavior, not because they won or lost.” Just because randomness plays a role doesn’t mean you shouldn’t work hard and give yourself opportunities to score.

              Ultimately, as Robert Heinlein observed, “Certainly the game is rigged. Don’t let that stop you; if you don’t bet you can’t win.” Who knows? Maybe the game is rigged for you.

              Fooled by randomness

              Figure 8. Click here to buy Fooled by Randomness. 8/10. Taleb’s writing is best characterized as wanderlust, as it does not fit neatly together and he has a unique voice that not everyone will appreciate. But there are outstanding insights scattered throughout, complemented by vivid thought experiments and playful language. He is more famous for Black Swan, but I consider this a better book. His work resists summary and I’ve done my best above – though he argues that book reviews tell you more about the reviewer than the book, so take that as you will. For a review of more of his work, click here.

              Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend: know anyone with bad luck? or good? how about anyone who needs to understand risk?

              I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!

                More Kids = More America

                The Gist: Schedule date nights with your spouse as soon and as often as possible.

                A review of What to Expect When No Ones Expecting by Jonathan Last.


                You haven’t had enough kids.

                At least, not enough to save America.

                Family flag

                Figure 1. Who will wave the flag when you’re gone?


                Even if you beat replacement – that is, you had more than 2 kids to account for you and your spouse eventually departing – there are still too many people like my parents who failed to spread their risk and only had one. And too many people like me, past 30 and childless (Average for postgraduate modernity, an embarrassment in every prior century).


                Figure 2. “30! You should be a grandfather by now. Who will inherit the Duchy?”


                Jonathan Last’s What to Expect When No One’s Expecting is a book about the frightening demography of depopulation.

                Who cares? Couldn’t fewer people mean shorter lines, less traffic, lower pollution, and more stuff for the people left over? If you believe that, move to Detroit.


                Figure 3. No waits for robberies. Only police.


                There are three big reasons why we need to continuously grow our population.

                First, our reckoning is fast approaching from entitlement economics: in the coming years, we will have fewer taxpayers and more demands on government services. If we somehow manage to reform entitlements, there’s still…

                Second, places with smaller proportions of young people tend to be significantly less entrepreneurial and innovative. There is an absolute lower number of creators willing to challenge conventional ideas and able to take risks. Because of their relative population, there are fewer young people in positions of authority. And there is a smaller pool of customers who will instantly adopt new technology, therefore limiting the capital for innovators. 

                Relatedly, Adam Smith observed “the most decisive mark of the prosperity of any country is the increase of the number of its inhabitants.” Nobel prize winning economist Simon Smith Kuznets explains: “More population means more creators and producers, both of goods along established production patterns and of new knowledge and inventions.” This can be taken too far – you’d rather be dealing with Hong Kong’s problems than Pakistan’s. But Hong Kong’s potential is inherently limited by its small size.

                Third and finally, there’s the prospect of war: The Pentagon now spends 84 cents on pensions for every dollar it spends on basic pay. And whatever form our future military does take, families with just one child will be less willing to accept military casualties.” The good news? “The Chinese entitlement scheme is even worse than America is: it covers only 365 million Chinese citizens and it is already unfunded to the tune of 150% of the country’s GDP.” Then again, no data exists on whether ISIS’ pension is fully funded.


                Figure 4. “Our most devious strategy yet: encouraging reservists to retire in Shanghai”


                We are not quite as doomed as most of the industrialized world. Japan and Italy’s “fertility rates (now around 1.4) are within a range demographers call ‘lowest-low.’ This is a mathematical tipping point at which a country’s population could decline by 50 percent within 45 years. It is a death spiral from which, demographers believe, it might be impossible to escape. Then again, that’s just theory. Modern history has never seen fertility rates so low.”

                Our total fertility rate (TFR) is 1.93 children per woman but demographers believe we really need to be above 2. 

                Immigration is the primary reason our population is expanding: Immigrants add to our population when they enter but they also have more children than natives over the course of their lifetimes. “Between 2000 and 2010, the total population of the United States increased by 27.3 million, yet more than half of the entire increase came just from Hispanics. Most of that increase was due to fertility. Between 2000 and 2010, a net of 7.02 million people immigrated to the United States from south of the border.  Which means that, over [that] decade, 30 percent of America’s total population growth was the result of the labors of a group that makes up only 16 percent of the country.” Interestingly, “immigrants to America tended to have higher fertility rates than the country women they left behind.” And yet immigrants bring their own challenges. But for context, “When you break it out by demographic group, you see that black women have a healthy TFR of 1.96. White women, on the other hand, have a TFR of 1.79. Our national average is only boosted because Hispanic women are doing most of the heavy lifting, having an average of 2.35 babies.”

                History offers important context for our fertility decline: “In 1800, the fertility rate for white Americans was 7.04… By 1890, the fertility rate for whites had fallen to 3.87 [before] settling at 2.22 in 1940.” Then the Baby Boom exploded and collapsed. “For 20 years, the fertility rate spiked, reaching a height in 1960 of 3.53 for whites and 4.52 for blacks… From a combined TFR of 3.7 in 1960 (the end of the Baby Boom), the fertility rate in the United States dropped to 1.8 in 1980, a 50 percent decline in a single generation.” We’ve had a decent uptick since 1980 but, again, primarily due to immigrants. 

                So why haven’t we yet seen a population decline? The answer has to do with demographic momentum – and the fact that the Baby Boomers are mostly still alive.


                Figure 5. An attempt at an actually useful though very simplified cartoon. Demographic momentum means that until the last big generation dies off, our population will appear to be growing. Here’s an example that starts with two Baby Boomer couples but ends with their passing.


                So, how did our fertility rate get so low?

                First, parents have fewer kids because children survive longer in America than elsewhere or in the past. The reason the official replacement number has to be above 2 is because kids die. In Third World countries, replacement actually has to be much higher. In America, “in 1850, 2 out of every 10 white babies and 3.4 out of every 10 black babies died during infancy.” Much more died before adulthood. With more children surviving, intentional parents can reasonably plan the number of family members.

                Second, children have evolved from economic assets to family costs. Not so long ago, kids served two extremely practical purposes for parents: they were able to produce additional income for the family while they were young and take care of their elderly parents down the line. Whereas in the past parents were heavily economically incentivized to have more kids, now they’re fiscally punished.

                Kids were once considered useful farmhands; now they’re expensive dependents. “It is commonly said that buying a house is the biggest purchase most Americans will ever make. Well, having a baby is like buying six houses, all at once. Except you can’t sell your children, they never appreciate in value, and there’s a good chance that, somewhere around age 16, they’ll announce: ‘I hate you.’” Apparently as concerned with raising kids as crops, the U.S. Department of Agriculture projects that the cost to raise an American child born in 2015 will be on average the suspiciously precise $233,610 – a more than 20% increase from their 1960 projection in real dollars. And yet Last notes this is a significant undercount because it does not fully consider “three big-ticket items”: “childcare, college tuition, and mothers’ foregone salaries.”


                Figure 6. “You need to start pulling your weight around here. If you can’t explain to me how we can make money off Bitcoin, I guess we’ll just have to think through other ways you can contribute. Are you good enough at Fortnight for endorsements? I’m investing over $200,000 in you and I expect at least an 18% return on such a risky concentration. Otherwise, I should have just put it all into an index!


                Government has made having kids even more expensive. Consider the example of requiring children to sit in special car seats, first enacted in 1977 by Tennessee. “If you had five small children in 1977—a situation not at all rare back then—few vehicles could accommodate enough car seats to transport the entire brood at the same time…  In 1976, when car seat laws were sweeping from sea to shining sea, 16 percent of women had four children and 20 percent had five or more. Today, the percentage of women who have five or more children is 1.8 percent… (As a side note, they didn’t radically transform auto safety, either. The most optimistic estimate is that between 1975 and 2005, car seats saved a grand total of 7,896 lives. Every one of them is a miracle for which we should be thankful. But saving 263 lives a year isn’t exactly conquering polio.)”


                Figure 7. Fertility really plummeted when the safety advocates convinced the government to require that each child be under the supervision of three adults at all times.


                But there’s another fascinating story about entitlements. To quote Last at length: “Since the 1970s, young white men have seen a 40 percent decline in income relative to their fathers (young black men have seen a relative decline of 60 percent), largely because of taxes. So Social Security and Medicare have placed a serious and increasing burden on families, making it more difficult to afford the—also increasing—cost of children… There were two larger consequences of establishing government-funded programs for care of the elderly. The first was that children were no longer needed to look after their retired parents. Where people’s offspring had for centuries seen to the financial needs of their parents, retired people with no offspring now had access to a set of comparable benefits. They could free-ride on the system. This new system undermined the ancient rationale for childbearing. In a world in which childbearing has no practical benefit—the government will care for you if you don’t have children to do so—parenthood becomes a simple act of consumption. People have babies because they want to, seeing it as either an act of self-fulfillment or as some kind of moral imperative… You can spend your $ 1.1 million raising a child to become a productive worker, but an increasing share of his labor will go to the government. And the government hands out equal shares of retirement benefits from his labor both to those who spent the money raising children and those who didn’t.” Demographers guess this decreases the total fertility rate by 0.5 points – the difference between replacement and disaster!

                Third and finally, a constellation of social changes has limited the window in which women have children. Because of workforce participation, time in school, debt, and new norms, women are delaying childbearing toward the close of their biological viability. The invention of contraceptives has given women more control over when they get pregnant. The legalization of abortion has given women control over whether they deliver their kids. Sex outside marriage has led to more kids born out of wedlock, less likely to be joined by others in the same family unit. And “the routinization of divorce allowed married couples to split before they finished having children”

                From the late 1930s until the late 1960s, Gallup asked Americans how many children they’d ideally like to have and nearly two-thirds consistently said three or more. Today, only one third of Americans want three or more kids. Last reminds us: “with easy access to birth control and abortion, increased educational demands, and the rising cost of raising children, the ‘desired fertility’ metric is an upward limit on ‘actual fertility.’ In practice, actual fertility is often much lower than desired.” In 2011, 58% of women wanted two or fewer children – but 72% wound up there.

                The decline in desire can be traced to the new opportunities in the workforce – but also just looking around and seeing what other people were doing. Interestingly, “from 1879 to 1930, American men and women graduated from college at roughly the same rate.” The GI Bill dramatically altered the equation. “By 1947, 2.3 men graduated from college for every woman.” Women started going to college in greater numbers over the coming decades to the point where today more women graduate than men. Simultaneously, until about 1965, the percentage of women working outside the home was about 44%. Today, it’s about 70%. The desires to get educated before having kids, to pay off some debt before having kids, to advance in career before having kids all contribute to delays.

                But “delaying children is not as simple as it sounds, because while our social institutions are often malleable, biology is not. Between the ages of 24 and 34, a woman’s chance of becoming infertile increases from 3 percent to 8 percent. By 35, half of women trying to get pregnant over the course of 8 months will not succeed. After 35 it gets even dicier. By age 39, a woman has a 15 percent chance of being unable to conceive at all. And by a woman’s 43rd birthday, her chances of getting pregnant are nearly zero. All of which is why today, 1 out of every 100 babies born in the United States is created via in vitro fertilization. You can only push off pregnancy for so long… In 2009, fully 37 percent of all births were to women over the age of 30.”

                Ironically, “Margaret Sanger willed the Pill into existence so that the educated classes would not be ‘shouldering the burden of the unthinking fecundity of others.’ Instead, it has been the educated middle class—Sanger’s people—who have used the Pill to tamp down their fertility.” Surprising to me, only 17% of women aged 15-44 use the Pill; less surprising, that percentage is concentrated in the educated. As a result, the total fertility rate of women who have graduated from college is 1.78. For women with a graduate degree, it’s 1.61. For context, during the period in which China aggressively enforced a one-child policy, forcing women to get abortions or sterilization, their birthrate was 1.54.

                Only so many people use birth control effectively (or at all), and so accessible abortion also prevents childbirth. “In 2000 the RAND corporation tried to estimate the numerical effect of abortion on the TFR. It concluded that for white America, abortion on demand lowered the fertility rate by about 0.08—or 4 percent. Among black Americans the effect was much stronger: the Roe regime pushed fertility down by 0.34—or 13 percent.”

                And finally the instability of relationships has taken its toll on our fertility rate. “There’s a 64 percent chance that a first marriage will last at least 10 years. Fifty percent of cohabitations break down after just the first year…The chance that a person in 1910 who was married would someday be divorced was around 15 percent; by 1960 the odds rose to around 32 percent; and by 2000 to around 45 percent.” Married couples can just have more kids. Finding another partner, especially as a single mom, has big costs that results in fewer children, regardless of desire.

                So what can be done? Last concludes: “The government cannot get people to have children they do not want. However, it can help people have the children they do want.”

                Examples abound from throughout history around the globe of countries trying to spur their populations to have more kids. Almost nothing works. “Comrade Stalin announced the creation of the motherhood medal, given to any woman who bore at least six children… In ancient Sparta, fathers who sired three sons were exempted from Garrison duty and those with the four lads to their name paid no taxes at all. Caesar Augustus levied a ‘bachelor tax’ on unmarried aristocratic men.” Singapore, which waged an incredibly successful campaign to reduce their birth rate, reversed course and attempted to increase it by offering subsidies, preferred entry to good schools, relocating grandparents nearby — and nothing has worked. Just about the only thing that HAS worked is in the country of Georgia, where the local religious leader, Patriarch Ilia II promised that “he would personally baptize any child born to parents who already had two or more children.” The birth rate jumped an astounding 20%. America’s only hope may be Beyonce agreeing to only perform concerts for mothers of three or more kids.

                A significant challenge is that state tax breaks, subsidies, and encouragements tend to influence the timing of kids’ births, rather than the number. If you are delaying having kids because you don’t think you can afford them, a government grant may cause you to have them earlier, but not many more than you already wanted. “The consensus is that subsidies produce returns mostly at the margins: Studies of European countries show that for every 25 percent increase in benefits, fertility increases by 0.6 percent in the short term and 4 percent in the long term.” 

                One interesting suggestion about Social Security which may help alleviate demographic problems but would exacerbate financial ones: “Phillip Longman proposes a ‘Parental Dividend’ system by which a couple’s FICA taxes would be reduced by one-third with the birth of their first child, by two-thirds with the birth of a second, and then eliminated completely with the third (until the children turn 18).”

                Ultimately, Last has “three golden rules for natalism.” First, “Below a certain point, there’s no turning back.” Once you drop below 1.5 kids per woman, it’s practically impossible to get back on track. 

                Second, “any efforts to stoke fertility must be sustained over several generational cohorts… A four-year tax credit is useless. So is a long, but feckless, string of hopscotch initiatives, like Japan’s. What you need is a serious, decades-long commitment to family growth.” And those efforts need to be concentrated on making life easier for parents, as opposed to specifically orienting toward having more kids because…

                Third, “people cannot be bribed into having babies.” Because kids are a lot of work! (I know my parents had their hands full with just one. But that may be a special case.)

                What to expect

                Figure 8. Click here to buy What to Expect When No One is Expecting. 7/10. An amusing guide to a scary subject. The book touches on but does not fully address some big questions: should we be indifferent about who is having kids as we strive to exceed replacement? Is a larger fertility number inherently good or is there a sweet spot above replacement? There are also some interesting insights tangentially related to fertility, like the fact that premarital cohabitation started among the poor in the Depression, not among hippies in the Sixties. The book ultimately makes a subversive argument: society needs to empower women to have the number of children they want, a number higher than they currently have. Of course, the book fails to note the truly correct answer to its title.


                P.S. If you really want a blast from the political past, read Teddy Roosevelt addressing the National Congress of Mothers: “There are many good people who are denied the supreme blessing of children, and for these we have the respect and sympathy always due to these who, from no fault of their own, are denied any of the other great blessings of life. But the man or woman who deliberately foregoes these blessings, whether from viciousness, coldness, shallow-heartedness, self-indulgence, or mere failure to appreciate aright the difference between the all-important and the unimportant – why, such a creature merits contempt as hearty as any visited upon the soldier who runs away in battle, or upon the man who refuses to work for the support of those dependent upon him, and who though able-bodied is yet content to eat in idleness the bread which others provide.”

                Thanks for reading!  If you enjoyed this review, please sign up for my email in the box below and forward it to a friend: know anyone with kids? How about anyone without? Know anyone who is concerned with the downfall of America?

                I read over 100 non-fiction books a year (history, business, self-management) and share a review (and terrible cartoons) every couple weeks with my friends. Really, it’s all about how to be a better American and how America can be better. Look forward to having you on board!