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The gap between what you’re paid, and the value you create

One of the essential challenges in life is understanding the difference between money received and value created.

Knowing how much money you get paid is relatively straight forward.  You generally know how much you get paid.

Value is a much trickier concept.  While value creation should imply an expectation of money being received (or less needing to be paid), there can be a significant time gap between the two, as well as an uncertainty as to when and how much will be received (and indeed, in some cases you may not receive any).  And there is no necessity that the money or saving will come to you – intentionally or unintentionally, others might get some or all of the benefit.

Unfortunately, humans have a tendency, when faced with a difficult problem, to subconsciously replace it with a much easier problem.  A lot of people intend to largely optimise for value created.  And if you optimise for money when you actually mean to optimise for value created, you’ll be making the wrong decisions.

Obviously, it isn’t unreasonable to at least make sure you are paid enough to survive.  And someone might actually want to maximise the amount they get paid in a particular period, or ensuring that all, or as much as possible, of the value will lead to them benefitting.  But if you’re doing that, it should be a conscious decision.

There are a number of causes of difference between valuation creation and money you get paid:

  • Investing in your future, or borrowing from the future
  • Collecting on past investments, or paying back past debts
  • Taking from others
  • Giving to others
  • Luck (for example, a lottery ticket paying out, or not)

It isn’t always obvious when these are occurring, and people often subconsciously misinterpret them – for example, convincing themselves they have created value when really they were just taking from others or borrowing from the future.  Taking an honest view in distinguishing takes real effort, but it is crucial in order to make the right decisions.

Books I read in 2015

Looking back at 2015, one achievement I’m pretty proud of was that I managed to read a lot of excellent books.  I’m sure my fellow gym attendees laugh at me sitting on an exercise bike reading, but I don’t care – it has got me through a lot of good books.

As much so I don’t forget what I’ve read, but also in the hope that some of these inspire others, I decided to put together a list of most of the non-fiction books that I’ve read or listened to over the past year.


Made to Stick – Heath – A guide to what makes ideas memorable – entertaining and worth reading for just about anyone

The Career-coaching handbook – Yates –  I found it useful, but probably not for most people.

Chasing the Scream – Hari – a history of the war on drugs, its massive failures, and our best hopes of ending it.  Highly recommended.

What money can’t buy – Sandel – a look at when markets can weaken institutions and relationships.  I found it really good.

How to be a conservative – Scruton – I found it quite boring if I’m honest.

How we learn – Carey – a guide to the research into learning.  I didn’t find it too memorable.

The examined life – Grosz – the adventures of a psychoanalyst and his patients.  Some interesting stories, but I don’t think I’d recommend it.

Reasons to stay alive – Haig – a personal insight into depression (something I didn’t know much about) – a short read but well worth it.

Being Mortal – Atul Gawande – extremely highly recommended – a look at medicine’s obsession with intervening to prolong life, and what can be done to offer a more humane end to life

Choosing in Groups – Munger – quite a technical review of election theory – I didn’t find its insights that interesting or helpful

How Adam Smith can change your life – Roberts – I really enjoyed this review of Adam Smith’s Theory of Moral Sentiments, a lot of real relevance for today.

Change Everything – Felber – an excellent review of some of the big changes that could practically be made to make our economies work for the common good.  Highly recommended.

Focus – Goleman – I had read and loved a few of his earlier books, and was full of hopes for this one, but found it pretty boring and unhelpful.

The Darwin Economy – Frank – Why liberals and libertarians are wrong –   I loved the ideas in this, though I think it could have been written better.

Freedom Regained – Baggini – this review of some of the challenges of thinking about free will was quite hard going but did get me thinking about a lot of issues that I’m pleased to have thought about.

The Last Act of Love – Rentzenbrink – a very sad tale of a family coping with the aftermath of a tragic injury.  Beautifully written.

Superforecasting – Tetlock – a look at common mistakes people make when forming predictions, and how we can do it better.  I found it well worth reading.

Reinventing Organizations – Laloux – an excellent look at companies that genuinely work for their employees and customers, and aren’t limited by traditional (incorrect) assumptions about motivation and the need for control.  Highly recommended.


What comes first: self-interest and altruism

I’ve never been too bothered by the chicken and egg question.  I’m happy knowing that we’re in a stable state where chickens lay eggs, and eggs hatch chickens, and as long as we don’t leave that stable state, we’ll continue to have chickens and eggs.

There’s a puzzle that I’ve been finding a lot more challenging: whether self-interest leads to altruism, or altruism leads to self-interest.  

You’ll definitely hear more people arguing the former, and it does make sense that ignoring other people’s interests is unlikely to be in your own best interest.  Other people can hurt you if they don’t like you.  You can forego opportunities to cooperate.  And there’s plenty of evidence that having others in your life with whom you empathise improves the quality of your own life.

But I’m not convinced that people are purely selfish, simply pretending to care about others to get a better deal.   For a start, I don’t think people could keep up the pretence as much as they do.  I believe much of the personal benefit of caring for others relies on it being genuine.  And we’d worry about the risk of being found out.

If people did genuinely care about others, how might that lead to self-interest?  Well, if I care about others, I’m not going to want them to be suffering – I’m going to want them to look after themselves, to maintain self-interest.  I know that others are much better at knowing what they want than I can, and that a world of door-mats is unlikely to make anyone genuinely happy.   

As I’ve thought about this puzzle, just as with the chicken and the egg, I don’t think there’s a single right answer.  I think it is a wonderful thing that so often, self-interest and altruism work hand in hand, each supporting the other, and it would be wrong to insist that one comes first.  
(Disclaimer: I’m not claiming that self-interest and altruism have to coincide – there are plenty of obvious cases when they conflict, and these are definitely worth pointing out and addressing. )  

What I have been thinking about

My posts over the past couple of months have been a bit irregular, quite possibly because I’ve been thinking about some pretty big topics that I’m still grappling with. I like to feel like I’m able to add a bit of clarity to a topic when writing a blog post, and I probably need (at least) a few months more to digest these questions.

But in the meantime, I thought a post on some of what I’ve been reading over the past 3-4 months might be of interest, even if I haven’t yet distilled it into any great insights ready for sharing.

I’m a regular listener to Russ Roberts’ podcast Econtalk, so when I heard he had written ‘How Adam Smith can change your Life’, I was keen to get the audiobook. Unfortunately, the audiobook isn’t allowed to be sold in the UK so after 6 months of waiting I decided to buy the book. I thought it was an excellent guide to the moral philosopher’s ‘Theory of Moral Sentiment’ – which I think has more lessons to teach us today than his ‘Wealth of Nations’. Roberts brought the Smith’s ideas and language to life, showing just how relevant they are to the 21st century:

  • That we don’t just care what people think of us (i.e. to be loved) – we actually want to know ourselves to be good people (to be lovely)
  • Why we care more about ourselves than others, and more about those close to us than those further out of mind
  • Why we obsess about celebrities and the latest gadgets (for Adam Smith it was the latest model of nail clippers!)
  • How we moderate our emotional states to fit in with others (and that isn’t necessarily a bad thing)

Following on from the UK election, and hearing an Econtalk interview with the author Michael Munger, I read ‘Choosing in Groups’. It was a tough read, covering the challenges of converting complex individual preferences into a group decision, so I’d only recommend reading it if you’re really interested in the theory of analytical politics, but it did get me thinking.

I heard about ‘Freedom Regained’, by Julian Baggini, on a Guardian Books podcast, and it sounded quite an interesting practical discussion of free will. It did provide some good insights, particularly on the interplay between conflicting internal desires, and between intrinsic and extrinsic desires. But a lot of it felt a bit disappointing, with great focus on dismissing arguments that I didn’t have.

I am struggling with the question of how to reconcile religion with the right of all people to seek well-being. I see that religion often obstructs people’s well-being, but restricting religion can also reduce wellbeing. Related to this question, I read ‘The Third Choice’, by Mark Durie, which looks at freedom of religion in the context of Islam. I don’t agree with the main contentions of the book (that we need to be afraid of Islam), but I found it helpful to think about why I feel this way, and thinking about how people respond to the ideas and beliefs of institutions and people around them.

The most thought provoking book that I’ve read recently is ‘Change Everything: Creating an economy for the common good’, by Christian Felber. This book looks at different ideas to radically change how our economic and political system works. His ideas were certainly a lot more radical than I’ve ever thought about, but when forced to think about them, I came to the conclusion that they’re far less crazy than a lot of aspects of today’s system. This is definitely an area I intend to explore more.

Interestingly covering a lot of similar topics, though from a different perspective, Pope Francis’s encyclical ‘Laudato si’, primarily on the environment was a much tougher read. I believe it is definitely right on a lot of aspects, though it struggled with simultaneously arguing a truth that makes sense with or without a belief in God, and arguing that God is essential to finding that truth. But there’s definitely a lot of wisdom in it that I’m still to digest / unpack.

As I walk to work most days, I’m always on the lookout for audiobooks worth listening to. I discovered some series of lectures offered by The Great Courses that looked interesting, so decided to give them a try. The first I tried was ‘The mysteries of human behaviour’, which in 24 half hour lectures looked at a lot of aspects of human behaviour from an evolutionary perspective. The ideas were fascinating, and I was pleased to discover that human behaviour doesn’t become any less complex or rich on close examination.

Having finished (and enjoyed) ‘The mysteries of human behaviour’, I moved on to ‘Thinking about Capitalism’. This ties in with some of the other reading I’ve done, and I’m finding that most of the course is completely new to me. So much to learn and think about, and the ideas interact with many other topics like philosophy, politics, the role of institutions. I’m about half way through the 36 lectures, so still lots more to learn.

A Remarkable Life

My grandfather, Rex Lipman, sadly passed away on July 4, at the age of 93.  I have often considered writing a blog post about him, as so much of my thinking was inspired and encouraged by him.

His life story is quite remarkable: childhood in a fairly prominent Adelaide family, commando in WWII, school teacher, dentist, merchant banker, travel agent and tour operator, honorary consul, racehorse owner, hotel management school founder, vineyard operator, author and no doubt a couple of things I’ve forgotten.  Alongside those achievements he enjoyed a long, happy marriage, and helped raise 5 successful children, doted on his 15 grandchildren, and lived to see 16 great grandchildren.

So many people he met over his life found him remarkable – he managed to blend incredible curiosity, insight, generosity and desire to make the world a better place in every way he could.  He showed genuine affection and interest in anyone, whether they were rich and famous, or just one of the many people who happened to cross his path.

Rex was fascinated by people – how they think and act.  When he was young he read anything he could learn from, particularly biographies and histories.  And with each experience and encounter, he asked questions, hypothesised, observed and noted his findings.  Much of what is now written in leadership studies and self-help books he had identified half a century ago, and applied to his own life.

He clearly recognised that happiness wasn’t to be achieved by chasing after money or status, but by dedicating your life to improving your abilities and using your gifts to improve the world.  Noblesse Oblige (the gifted must give – the family motto of the Quetteville family in Rex’s series of historical novels) was something that he believed everyone was capable of doing and encouraged to do.

Alongside this, he came up with lots of rules for living (he called them his ten commandments, until there became way too many to pass off for ten!) – and I would say every one of them is as good advice now as it was when he sat me down at age 14 along with my cousins and taught them to us.  These include: Punitive expeditions seldom succeed, The worst four letter words have five letters – fault and blame, If you can’t think of anything nice to say, say something nice.  I honestly don’t think I’m exaggerating too much to describe him as a Benjamin Franklin for our time.

Rex never stopped learning, and his last book, “Don’t Miss the Bus” recounted the neuroscience of ageing – bringing together the latest research and ideas that he had observed in himself and many around him.  Much of his final two years was spent promoting the responsibility we each have to ensure our minds stay as nimble as possible in our later years.

I realise all this could make Rex come across as a strict man who spent his life following rules – but that would be completely wrong.  He was a born entertainer, with an amusing story for every occasion.  He loved parties, and music – particularly the jazz greats.  I have many memories of us going to musicals on his frequent trips to London, most recently to Gypsy only 5 weeks before his death – and he knew the lyrics to everything.   He loved practical jokes (occasionally even to the point of annoying those of us who were trying to organise things around him).  In other words, yes, life might be for optimising, but never at the expense of living.

My grandfather’s death will leave a huge hole in my life, as well as those of his many families and friends.  That said, I feel immensely privileged to have known him and spent so much time with him in my life.  I know I will think of him and his ideas often, and would love to feel I was doing what I could to continue his work.

Advice for a friend starting out in the world of finance

One of my friends is part way through a maths degree, and has got himself his first job in finance, for over the summer.  I was thinking about what advice I’d give him, having been in that position myself, and watched a lot of people go through it.  

In the hope that other people might find it useful, I decided to make it a blog post (I hope my friend doesn’t mind – though I won’t mention the name of the friend or the company).

Firstly, congratulations. Having got yourself into a position in life where a commercially minded organisation think you are useful, or at very least worth investing in, is a good thing. It isn’t the only thing that matters, but you should be happy about it.

Finance jobs pay a lot of money, relative to other jobs. You can try to argue that they deserve it because they work long hours or have lots of stress, or require lots of study – but plenty of other jobs have more hours/stress/qualifications.  I believe it is just a side effect of how the markets work (and that is difficult to fix without creating other undesired consequences).

I’m not saying you need to feel guilty about earning your pay.  Just don’t fall into the trap of thinking that people who are paid more are inherently better or even economically more valuable than others.  Don’t develop a self-esteem around how much you get paid.  And try (even though it’s difficult) not to develop a lifestyle that relies on you having larger amounts of money than everyone else around you.

I’m not totally sure of the point of work, but I think it makes sense to maximise the real value you can add to other people and the world.  That should be a long term strategy, so you want to make sure you are working sustainably (ie you don’t want to burn out).  And it makes complete sense to invest time in developing skills and capabilities so you can add more value in the future.

So, in the early stages of a career, it is important to get a balance between adding immediate value and improving your ability to add value in future. If there’s a conflict trade-off between short term and long term value, I tend to treat the short term value as a constraint (I try to ensure my short term value exceeds my cost) and treat the long term value as what I’m optimising.

A lot of people have in their heads that work can’t be enjoyable.  On the contrary, I’d say that the people who add the most value in the world tend to really enjoy their jobs.  It is a lot easier to persist at something and develop skills if you enjoy what you are doing.  So, work at being very mindful of what things you enjoy doing and what things you don’t.  You won’t get to do just the things you like, at least at the start, but the more you can work towards doing the things you like doing, the happier you’ll be.

The next thing I’d say is about the importance of being both professional and genuine.  Your colleagues will want to see that you are there to help get a job done, and without being able to know what you are thinking, your professionalism is how they will judge that (particularly before you get a track record).  But if you are not genuine or sincere in how you are or how you treat people, you’ll struggle to get people to trust you, connect with you or like you.  And if you’re not being genuine, you are acting, which is exhausting and distracts you from adding value.  So, the sooner you can master being genuinely yourself and professional, the better.

Just because you are working for a company, don’t think of your colleagues as robots, or as nasty, selfish people.  It should be needless to say, they are human beings, each with their own complicated mix of motivations and fears.  So, enjoy working with them (subject to being professional and genuine), and let them enjoy working with you.  And be nice – despite what people outside think, the finance industry actually thrives on people building trust and looking for ways to help each other.

It is possible to have a really satisfying career in finance – I’ve had a great time working on interesting problems with some great people.  But it isn’t for everyone, and there are lots of people stuck doing it for unsustainable, unsatisfying reasons.  But at least if you go into this job with the right mindset (and guarded against the most common pitfalls), you’ll have a good chance of working out how you can best add value over the long term.

Good luck!


I suspect this is going to be one of those blog posts that everyone is going to hate – either for being stupidly left wing, stupidly right wing, or stating the obvious.

I find that austerity is a concept that is often talked about, but usually with a goal of being divisive and winning an argument, rather than achieving the best outcome.  Since one of the goals of this blog is to give me an opportunity to engage with these kinds of tricky topics and work out what I think, here goes…

Austerity usually relates to government spending / borrowing, but I wanted to start with the simpler question of an individual’s borrowing.

I borrow (or reduce savings) when the money I earn is less than the money I spend or invest.   For me, it seems rational to borrow for two reasons:

  1. when investing in things with a high enough rate of return
  2. to get me through temporary times where my earnings don’t cover my spending.

It isn’t always obvious when these criteria are met.  For example, I don’t know what rate of return I’ll get on any investment, and I won’t ever know for sure what my future income will be.  But at least if I knew these weren’t satisfied, I should look to avoid borrowing.

I take a pretty similar view when it comes to government borrowing.  Yes, I know that governments do have greater ability than individuals when it comes to borrowing, and that borrowing often is the right approach when we are are in faced with short term drops in income (say in a recession).  But I don’t believe it is responsible to borrow forever – even when we borrow to invest, we should have a reasonable view that it should earn us enough in future to be able to pay off the debt and be ahead.

I suspect most fiscal conservatives will agree with what I’ve said so far, and probably even most governments would agree.

Unfortunately, I don’t feel we’re doing this in how we assess our social spending / investing – on things like health, education, our safety net, etc.  I’d like us to think about them based on whether they are worthwhile and sensible, and if so find a way to make them sustainable, through boom and bust.   Instead, in the bad years we’ve been going through, this is the spending we’re seeing being cut, and I would say to levels that I don’t believe are healthy or sensible.

I suspect the government believe that they should (and will be able to) grow spending on these areas to more sustainable levels when the economy is stronger – but if that’s the case, these are the very things that it would be rational to be borrowing to fund now.

Unattractive Truths

Read the following statements, and try to keep track of your initial thoughts as you read them:

  • There are many unemployed people that don’t want to work
  • The science behind human caused climate change is shakier than some people believe
  • Gay men are less likely to end up as parents than straight couples
  • A teenager in a store is more likely to be a shoplifter than is an older person
  • Not all people are capable of achieving the same outcomes in life

Most people will feel outraged by these statements, and claim that they’re wrong, and must not be repeated.

A smaller number of people will claim that they are totally true, and it is crucial that they be shouted, to battle the forces of political correctness.

I’ve got friends in both these camps, and I understand and even respect where they are coming from.  But I try to avoid either approach.

These are all statements that I’m pretty sure are technically and factually true, but have a strong tendency to lead to some unhelpful and undesirable conclusions.  In the case of climate change, belief that the science is shaky can lead to not taking important and appropriate action.  In some of the other cases, belief in the statement is self-perpetuating, or hurtful and unfair on many individuals.

Logically, when a fact appears to imply a bad outcome, it doesn’t suddenly become untrue.  I am a lot more receptive to the argument that when stating a fact leads to a bad outcome, it shouldn’t be stated.  But, there is generally another option – we can work to clarify the logic, working to prevent the bad outcome.

By reminding people of the value in respecting the vast number of teenagers that don’t shoplift, or the many great gay parents (and their families) that are hurt by stereotypes.  By working to fight attitudes that limit people’s potential.  By showing how being more open-minded than limited facts might suggest, we will create a better world.

I realise that many of these sorts of unhelpful statements don’t need to be made, so I don’t tend to make them.  And I make a point of not engaging with internet trolls.  But faced with someone I respect that makes them these kinds of remarks, I will try not to shame them into silence (a sense of persecution never helps).  Instead, I try to engage with them respectfully, listening to what they have to say, but helping them see the other side of the story, and the harm that their statement can unintentionally cause.

Tracking Habits and Behaviour

Over the years, I’ve read a few blog posts and books that recommend monitoring your behaviour as a way of promoting mindfulness and good habit formation, but I’ve never actually tried it.  Yes, it is some effort, but I think the main reason I hadn’t was my fear of seeing just how bad I was at sticking to anything.

Then, at the end of last year and the start of this year, two of my friends told me they had each been carrying out this kind of exercise, picking a handful of activities that they wanted to incorporate into their lives, and keeping track of how often they did them.  I decided to try it out, partly in solidarity with them and partly to just see if I could.

I’ve now been doing this for almost 3 months, and I’m glad I’ve done it, so thought I’d write a post on what I’ve learned from the process, in case it helps or inspires someone else.

You can do this as a public or private exercise.  I know some people who need to be held externally accountable, but for me, I was fearful of being one of those people who tells their entire facebook feed every time I go for a run, so chose to monitor it privately.

Next, you have to choose appropriate activities to monitor.  I chose 8 things that I want to do, that I don’t dislike doing, but that I don’t end up doing as often as I’d like.  Walking to work.  Going to the gym.  Flossing my teeth.  Not eating chocolate. Working on a blog post.  That sort of thing.

I found it important to have a realistic view of what I was aiming for.  I purposefully chose items that were digital – I had either done them or not.  I didn’t want to be in a situation of cheating – for example, doing something badly just to tick it off (working on a blog post is an exception).  But, I wasn’t going to get hung up about a couple of choc-chips in a cookie.  I also I didn’t need to achieve every item every day – just more than I would have otherwise done.  But for setting your goals, there isn’t a right or wrong answer – the main thing is that you’re happy with the goals you set, and you’re happy if you achieve them.

In terms of how I monitor it, I used a google spreadsheet, with the dates going down and the 8 items in columns.  This makes it really easy to update, and gives me a great view of my progress (which I found very helpful).

One of the main things I’ve gained from this exercise is an ability to be cope with the many times I don’t do something.  I’m able to keep them in proportion  – I can be honest about it, and can’t / don’t need to lie to myself about it, make false excuses, or feel guilty about it.  As a result, I’ve been able to look rationally at the times that I do and don’t achieve the goals, and understand any influencing factors.  For example, I’ve learned that if I come home late, if I don’t floss my teeth straight away, it probably isn’t going to happen.

And I have definitely done more of the good things than I would have otherwise done.  This is pleasing, obviously because the items are worthwhile in themselves, but also because it has also helped me develop self-efficacy – a general sense that I can do things I put my mind to – which is valuable throughout life.

Optimistic thoughts on inequality

A friend of mine forwarded me a blog post ( he had read on the future of work, knowing that I’d be interested. I highly recommend reading it – it clearly explains a lot of the facts on how the jobs market is changing, making some sensible suggestions, and offering some not unreasonable predictions.

The gist of the argument is one I’ve heard before – that most people will end up out of work as technology advances, and all the wealth will end up in the hands of a smaller and smaller group of creatives and capital owners.

That is certainly a possible outcome, and not a good one. But it isn’t inevitable, and I’m optimistic that we can avoid it.

I agree that technology will replace much of what is currently done by human labour. I can see that the earning power will become less equal. Those that harness technology better, and invest in it optimally, will be at a massive advantage. But for that to imply that wealth and opportunity will become limited to too small a segment of society assumes a zero-sum logic: that the only (or best) way that the rich have to improve their situation is to take from everyone else.

But I don’t think it is in the interests of anyone, especially the richest in society, to let wealth and opportunity be limited to too small a segment of society. Being a rich minority, surrounded by huge majority that is disengaged and disempowered, is not a good position to be in.

Starting positively, I am convinced that human resourcefulness will still be capable of creating things of great value to the rich. Technology will change what we’re capable of, but I see no intrinsic reason why humans wouldn’t be capable of working with and alongside the technology to create things that make other people happy. We are still going to want humans in our lives, inspiring us, listening to us and responding to us in a way that I don’t believe a computer will ever be able to do. Yes, people could become demotivated or stripped of the ability to add this value, but the rich have got a large self-interest in preventing this.

Next, the rich benefit from being in a diverse society. They enjoy relationship with a wide range of people of different backgrounds and experiences. I don’t think many people, if given a choice, would actually choose to only interact in some super-elite – it would feel like endless string of Downton Abbey dinner parties (just without the drama or witty lines dreamt up by creative script writers).

Thirdly, as some are more strongly influenced by fears than hopes, as the rich end up with a larger share of wealth and opportunity, the costs of maintaining that position become prohibitive. The incentives for other people to steal from you, perhaps even kill you, will rise. Expecting other people to support the rule of law, when it is of less and less benefit to them, is unrealistic. You’ll have to resort to more and more extreme actions to protect yourself, at a huge cost to your own wellbeing.

Just because something is in people’s interests, doesn’t guarantee that they will do it. I’m not suggesting that everyone else should just sit back and wait for the rich to decide to contribute to maximising overall potential – there is a lot that the government can do to reduce inequality that I support. But I do think that there is value in helping those in a position of power to see that maximising wellbeing isn’t achieved by maximising their share.

Postscript – since starting this post, I’ve read two other articles on the subject that I recommend: