The philosophical keystone holding up the idea that rich people contribute more to society is contained in the parable of the Edgeworth Box.

Edgeworth box

Edgeworth box with isoutility curves


People only engage in mutually beneficial transactions, endowment differences are left to the 2nd welfare theorem, and the only counterfactual is that we didn’t actually measure the utility surface.

1. “The sale begins when the customer says no”.—Randal J Kirk, billionaire.
Randall Kirk's email to Helen Dragas talking about learning to sell

So here you have a billionaire saying the same thing that all of my bosses in sales jobs said, and the same as Glengarry Glenn Ross’ famous line (which another sales boss send me the video clip as if it’s the realest advice ever), and it agrees with my experience doing sales.

Coffee’s for closers only.
Of course I can’t know if I change the free will of the customers I’m working opposite towards, but it certainly feels like it. In retail sales, door-to-door sales, and less aggressive stuff that still counts as “selling” in the more abstract (but, thankfully, more respectful / refined) way, it feels the same: I’ve been through this transaction many times, I’ve honed my pitch, I’m ready for all the directions your mind could possibly go (“objections”), and my bread comes from making you do what I want instead of what you want. If you’ve done well in sales and don’t agree with Randall Kirk’s quote, please leave a comment sharing your experience.

If sales is an aggressive head-to-head game where I, the seller, am playing against you, the potential customer, and your limited cognitive space you’re dedicating to not being manipulated by me, then that’s very different to the Edgeworth story where you only buy something if it suits you at the price.

I just find it very hard to believe that all of the sales tactics you can think of — rebates, $x.99, fuel points, upselling ("get you to agree to a little more, then get you to agree to a little more"), deals that aren’t really deals, mail packets, catalogues sent to your home, commercials — aren’t effective in getting people to buy what they wouldn’t of their own accord buy. Why are these idiot millionaires "wasting" ad budgets year after year after year? Aren’t they actually more likely to be rational than the consumers since they dedicate more headspace to it, they team up, they organise, they research, they practice, they test, and they analyse their own performance quantitatively?

At least for me, I don’t think I can convince someone to buy something they truly don’t want — and very infrequently I’ll get called out on a subtle trick I’ve pulled (with no cost to me, so I’ll just do it again on the next person) — but I do believe I can “shade" or "influence" people to spend more, and while I’m probably top .001%, I am at least top 50% at that…and I’d guess maybe top 20% or even top 10%.

A business that solves a problem may be a good place to start if you’re trying to come up with a completely new product or service. May. But obviously the ultimate test is whether sales > costs by a wide margin. In other words I don’t need any assumptions or hypotheses to say that sales are the foundation of a business, whereas to do some kind of welfare theorem I do need to assume a lot.

2. “I could have done that”.

This is a big one for me because, like Bryan Caplan, I’m bitter that I didn’t have the perfect milk round. No BCG, no McKinsey, no Goldman, no Bear for me. But if you ask me, of course I would out-compete those lazy Harvard MBA’s who landed the good jobs! … Well, of course you can’t really believe me since I’m biased. But it’s no stretch at all to believe that not everyone gets a Bloomberg terminal so the competition to figure out who’s the best trader eliminates a lot of competitors before they can even be tested. Same with every job at a large organisation (and, of course it’s important to note that large companies control a lot of money and have a lot of profits … that’s how they got large).

There’s no dynamic, cutthroat competition where I, with my CV listing factory jobs and menial labour, get to challenge Consultant Who Makes Six Figures for his job every day. In fact, Consultant Who Makes Six Figures got a lot of special training (and got paid to have it) just by being let in the gates at Megacorp C.
http://trident.adamonline.com/Products/RedSalmon_Lg.jpg
I wasn’t picking up anything about financial markets at the salmon canning factory, and if I want to scrape together a trading account on my own to challenge a trader who had the right-looking CV to get past Megacorp's HR flacks, it would take me years of saving to get the kind of AUM that he was vested with after a year of pouring coffee for some senior person who really knew what she was doing. I never got to watch Senior Trader, I never got a fraction of Megacorp's AUM, and it's not because I was measured to be objectively worse or because I was outcompeted at the job in question, but rather because I wasn't judged good enough due to my Yorkshire accent, charity-shop suit, and ugly face.

Point being, just because you make a lot of money, doesn’t mean somebody else couldn’t do your job equally well, close to equally well, or possibly even better than you could. Converse to this, I’ve often seen bourgeois people assume that if they weren’t doing their specialist high-paying job, they would be kicking *rse equally well at something else. I find that hard to believe. Nobody hiring for construction cares if you used to be an MD, they want to know if you have any actual trade skills. So what if finance is “above” construction in pay? Being good at finance doesn’t translate to being good at everything else in the world, and actually I think there have to be some tradeoffs so the people who are good at one thing have to be worse at something else.

Anyway, winning the HR game and therefore acceding to a position of power where you’re hooked up to capital structures that allow you to contribute more to society, doesn’t imply that you deserve more money than the people who aren’t hooked up to the capital structures. Yes, your productivity will be higher and your output will be higher. But you didn’t win a fair fight to get access to the capital structure, you won the “looks good to HR” fight and even if you consider throwing ‘bows to get to the front of the line “fair”, it’s hard to square that kind of behaviour with “I’m an upstanding citizen who contributes to society and you’re a garbage collector”.

So OK, technically the richer people here are contributing more, so my title is not apt. But they aren’t better people than the lower earners. Given that it’s well-known that people who have to go through zillions of CV’s a year have other concerns than administering fairness, social justice, and moral dessert—why should we be surprised about that?

3. “There’s no money in taking care of the homeless”.

So you think you contribute more to “society" because you make more money? You must mean "the society pages" society!
Hit it too hard tonight. @karlmarkustien @viktorprill #rkoi #domp by mrlager 
If your goal is to receive pieces of paper that are going to induce shopkeepers and airlines to provide goods and services to you, then you should probably provide services to the people who have the most pieces of paper to give. Duh. On the other hand, let’s say you don’t care about providing for yourself and invest all your capital in installing water purification systems for poor people around the world who die of cholera (the sh*ts). What are they going to give you? Goodwill, sure. But money? They don’t have any! The same principle applies in less exaggerated form to any consumer situation, which is why the other weekend I got a solicitation from a “dating website” with income categories >250k, >350k, >500k, >1M. It’s people looking for the easy score: dumb people with too much money. Not that I believe the people got to be rich by being so dumb; whenever I see a business with that air (except for iAmRich the iPhone app) I smack my forehead. But for example it’s smarter to go into B2B hedge fund services and bring together a bunch of secretaries to do all the paperwork for fund managers, than to start a coffee shop that needs to do volume and can’t charge much per customer. Again, duh.

Of course if you’re like me, you’ve read puff pieces in The Economist about how wonderful Unilever and Nestle are for marketing powdered milk to “the growing African middle class”, and the distribution is so wonderful and would be impossible by a government and the marketing department has figured out exactly the details of how to make a cheap product that suits them, and so on. Maybe that’s true. I don’t know, it sounds a little too heavenly on the corporations and like that kind of simplistic viewpoint The Economist likes to take. But I’m not trying to argue that capitalism doesn’t work. Just that it’s a fairly f*cked up state of affairs that some primates, because of possession of certain kinds of pieces of paper, get to eat caviar whilst others get to fish through trash.

I’m not sure there’s a moral or ethical purpose to things being that way, in fact it would seem the opposite. But if you want to market to “the growing Indian middle class” you’re going to have to offer homogeneous products, find a way to make them very cheaply, and if you can really multiply it out times a billion then you win. But isn’t it much easier to make Instagram? Every iPhone app has as part of its business plan the fact that everyone who owns an iPhone ∈ the richest .1% of the world’s population AND has proven willing to spend large amounts of money on stylish, expensive toys. So who do you think is the easier mark: the hardened mother of 4 who has mastered the art of budgeting so that a small income can be stretched thin enough to support all 6 and even buy 4 presents at Christmas? Going to market 5 days a week and coming back empty-handed some of them? Or the brand manager with the expensive clothes and straight teeth owing to orthodontia, with loads of cash to blow, itself derived from providing services to well-heeled corporations staffed by well-heeled individuals? Yeah, I would rather have the rich client as my customer as well.

http://www.extravaganzi.com/wp-content/uploads/2011/04/One-Hyde-Park-1.jpg

I’m not pretending I know everything about  business or where all the opportunities are, I do recognise there’s money to be made in emerging markets, but just making the point that dollars don’t correspond directly to good deeds done. I would feel a little too populist using some finance examples of the “hatchet man” CEO coming in and firing a ton of people to make a lazy, sort of profitable company into a lean profit-smoking demon. That may or may not add a social value. But these kinds of examples should undermine the confidence of anyone who thinks that a band selling out is by definition a good thing because whatever the market rewards is whatever the market wants, and whatever the market wants is whatever’s good for society. No, that’s not even derived from neoclassical economic theory, it’s just a distortion that somehow went from doctors making more than sandwich fillers to an unwarranted and overbroad theory of every wage comparison in the society.

30 notes

  1. beccamarieholmes reblogged this from isomorphismes
  2. logicianmagician said: Always Be Closing, heh. I worked in financial sales for a while. Completely soul sucking, turned me off economics and I switched my major to electrical engineering.
  3. davidaedwards reblogged this from isomorphismes
  4. joleebindo reblogged this from isomorphismes
  5. darklordreasonable reblogged this from isomorphismes
  6. photon-milk reblogged this from isomorphismes
  7. isomorphismes posted this