Happy Friday friends,

I'm coming to you a day early this week because I'm headed out of town for the weekend, and didn't want to lug my computer along. :)

This week, I've decided to re-read The Most Important Thing Illuminated by Howard Marks, as I plan to share quite a few excerpts from that book on the podcast in the coming weeks. If you haven't already subscribed, I'd encourage you to do so now, by clicking here to find your podcast player of choice!

That said, I also read a wide assortment of other articles and one piece in particular stood out to me. It was called Mind the Gap by Paul Graham, written in 2004. In this essay, he touched on something that I believe has been misunderstood for quite some time. That is the idea that wealth is a zero-sum game, meaning that many people seem to believe that for one person to "become wealthy," it must come at the cost of someone else.

Of course, the media loves to perpetuate this belief because nothing induces clicks quite like rage does.

Graham's note is the antidote to that belief.

I wanted to share his perspective here because I believe that this misunderstanding causes so many people to believe that financial success must be impossible for them. As a result, many folks never even try.

As you'll see, Graham dissects this argument in an incredibly logical way and shares plenty of great examples throughout. I'm going to share a few quotes from the article down below, but I believe everyone, regardless of their starting viewpoint, would benefit from reading it in its entirety.

Here is Paul Graham--each individual quote is separated by an ellipsis [emphasis is mine]:

With the rise of the middle class, wealth stopped being a zero-sum game. Jobs and Wozniak didn't have to make us poor to make themselves rich. Quite the opposite: they created things that made our lives materially richer. They had to, or we wouldn't have paid for them.

But since for most of the world's history the main route to wealth was to steal it, we tend to be suspicious of rich people.

...

Will technology increase the gap between rich and poor? It will certainly increase the gap between the productive and the unproductive. That's the whole point of technology. With a tractor an energetic farmer could plow six times as much land in a day as he could with a team of horses. But only if he mastered a new kind of farming.

I've seen the lever of technology grow visibly in my own time. In high school I made money by mowing lawns and scooping ice cream at Baskin-Robbins. This was the only kind of work available at the time. Now high school kids could write software or design web sites. But only some of them will; the rest will still be scooping ice cream.

I remember very vividly when in 1985 improved technology made it possible for me to buy a computer of my own. Within months I was using it to make money as a freelance programmer. A few years before, I couldn't have done this. A few years before, there was no such thing as a freelance programmer. But Apple created wealth, in the form of powerful, inexpensive computers, and programmers immediately set to work using it to create more.

As this example suggests, the rate at which technology increases our productive capacity is probably exponential, rather than linear. So we should expect to see ever-increasing variation in individual productivity as time goes on. Will that increase the gap between rich and the poor? Depends which gap you mean.
Technology should increase the gap in income, but it seems to decrease other gaps. A hundred years ago, the rich led a different kind of life from ordinary people. They lived in houses full of servants, wore elaborately uncomfortable clothes, and travelled about in carriages drawn by teams of horses which themselves required their own houses and servants. Now, thanks to technology, the rich live more like the average person.

...

Materially and socially, technology seems to be decreasing the gap between the rich and the poor, not increasing it. If Lenin walked around the offices of a company like Yahoo or Intel or Cisco, he'd think communism had won. Everyone would be wearing the same clothes, have the same kind of office (or rather, cubicle) with the same furnishings, and address one another by their first names instead of by honorifics. Everything would seem exactly as he'd predicted, until he looked at their bank accounts. Oops.

Is it a problem if technology increases that gap? It doesn't seem to be so far. As it increases the gap in income, it seems to decrease most other gaps.

...

If you suppress variations in income, whether by stealing private fortunes, as feudal rulers used to do, or by taxing them away, as some modern governments have done, the result always seems to be the same. Society as a whole ends up poorer.

If I had a choice of living in a society where I was materially much better off than I am now, but was among the poorest, or in one where I was the richest, but much worse off than I am now, I'd take the first option. If I had children, it would arguably be immoral not to. It's absolute poverty you want to avoid, not relative poverty. If, as the evidence so far implies, you have to have one or the other in your society, take relative poverty.

You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I'm not talking about the trickle-down effect here. I'm not saying that if you let Henry Ford get rich, he'll hire you as a waiter at his next party. I'm saying that he'll make you a tractor to replace your horse.