Productivity Inequality: Do Not Covet


Productivity Inequality: Do Not Covet by David Markel CFA of Aleph Blog.

I would encourage people to contact their friends that are better off, to give them contacts with their friends that are better off, to see what it takes to earn a superior income. Yes, there are those that have rich inheritances, but those are a minority among the rich.  Most of the rich are rich because they built something significant.

I am reluctant to hire a person to help me.  But I know many people who know far less about investing, who are making far more than me.  Do I begrudge them that?  No.  I am happy to grow my business slowly, and they hire people to aid in marketing, operations, and investing.

Guess what? There are relatively few people willing to take the risks of running a big business, and that includes me.  But hiring people and structuring their work increases the productivity of the entrepreneur.  Being an entrepreneur is significant — my Dad was that, but it was a three-man firm, and I asked him when I was sixteen, “Why not set up a second team so that you can do more, given your excellent reputation?”  He told me that he did not want to sacrifice quality.   He did not want to drift into the background, where he could not directly control the quality of his company’s work.

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With all of the talk of income inequality, I would urge people to consider two things:

1) You always have the ability to start you own firm, and work for yourself.  How much did it cost me to start my own firm?  Less than $250.  There were other costs after that, but well within my revenues.

2) Structuring of economic activity is important.  Jobs do not appear out of nowhere, aside from useless government jobs.  Private firms must figure out where they need help, and hire accordingly.

The difference between a mediocre CEO and a great one is tremendous.  Don’t begrudge A CEO his pay, unless he is a failure.  CEOs should be paid highly, with the condition that they lose pay if they do badly.

It’s the Tenth Commandment: Do not covet.  When you have a good attitude, which is be happy with the prosperity of others, you yourself will be more happy given what you have.  Don’t give in to envy, it is a cancer that harms your life and happiness.

Finally, recognize the reality: different people produce more value than others and should receive more value as a result.  It is a question of happiness.  People have needs, and who can meet those needs cost-efficiently?

Those who are unemployed, or who complain that they are not paid enough should start their own businesses, so that they can realize how tough it is to run a business.  Jobs aren’t free; they don’t appear magically, and the government rarely creates real jobs.

Don’t think you are paralyzed because you don’t have a job.  Create your own job, by solving a need that others don’t meet.

Finally, let’s get used to the idea that income inequality is normal, and is the result of differing efforts.

  • Some people do more when they are young.
  • Some people network better than others.
  • Those who direct productivity successfully deserve a greater reward.

Intelligent management of businesses does not magically occur.   It takes a concentrated interest in a share of the profits of a business to run the business well.

Don’t talk about income inequality.  Instead, focus on productivity inequality — there are many who are less productive, and deserve less as a result.

Not all work is equal — harder work deserves more pay, and intelligent work deserves yet more pay.

So don’t begrudge inequality in pay — this is what should be.  And to those on the low end:

Put in extra effort to show that you are earnest.  Do your best for the firm.

Learn about areas related to your work, which will make you more valuable to your firm.  Take chances, and learn — it might not be valuable today, but it might eventually be valuable.

I would say to all: work more intelligently.  Where you can be more productive, do that.

Final note: I would encourage employers to look at resumes rather than having computers analyze them.   Human beings will have a better sense on whether a person is well-suited for a job than a mere screening for keywords.  Beyond that, I would say to employers, put yourselves in the shoes of those seeking work.  Would you like to be screened by computers rather than analyzed by a person?

I’m pretty certain most would agree with me that using computers to screen resumes is  a stupid practice.  So if you do that, abandon the practice, it might save time, but it does not improve the hiring process.

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.
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