Linchpin

Over the past few years I’ve found myself having a recurring conversation with friends, colleagues and family members. Despite indications that the economy is healthy and moving along, it sure doesn’t feel that way, and it’s tough to identify exactly why. Consider the following US economic data from the end of 1999 through 2014

1999 2014 Annualized
Change
Median Household Income $57,843 $53,657 -0.5%
Real After Tax Corp. Profits $523.1B (Q4) $1,700B (Q4) 6.2%
Real Gross Domestic Product $12,323.3B (Q4) $16,151.4B (Q4) 2.0%
CPI (Inflation) 168.3 (Dec) 234.812 (Dec) 2.4%
Effective Federal Funds Rate 5.30% (Dec) 0.12% (Dec)
Source: Federal Reserve Economic Data (See Below)

While the US economy is apparently chugging along, and corporations are generating profits well in excess of inflation, the median household has not seen any increase of income after inflation was taken into account. The data would suggest that our economy is undergoing a pretty substantial change, and not to the benefit of the typical household.

There’s more to this story than high level economic data. From my perch cube at MegaCorp restructurings combined with layoffs have become biennial events. Benefits and retirement packages are being trimmed. Pensions have been placed on the endangered species list. Full time employees are being replaced with contractors. Almost every project is a cost-reduction initiative. Many of the elements of “work” have been reduced to merely following procedures and protocols. Just about everything has become automated. From a qualitative perspective, the change is very apparent.

Put another way, corporate profits aren’t a consequence of organic growth, creativity or innovation, they’re the inevitable outcome of cutting costs to maintain or improve margins and remain profitable.

I say this not to complain, but to communicate the reality of what I’ve seen and personally experienced. For those who haven’t taken notice or experienced these circumstances Linchpin will feel like a cold shower–at first it isn’t comfortable, but a surefire method of waking you up. Keep in mind that corporations are, after all, businesses. Their sole purpose is to generate a profit for their owners/shareholders. From that perspective, they’re behaving exactly as they should.

Capitalists need compliant workers, workers who will be productive and willing to work for less than the value that their productivity creates. The gap between what they are paid and what the capitalist receives is profit. [1a]

The US economy has evolved greatly over the past several decades. The notion of hiring into a company, working hard, having a secure job, moving up the ladder and retiring comfortably has become more of a fantasy than reality. Godin summarizes this as the old American Dream

Keep your head down
Follow instructions
Show up on time
Work hard
Suck it up
…you will be rewarded.
[1b]

The problem with this mindset is that many workers have essentially become commodities. Most are easily replaceable. As with many things in life, situations change and we must adapt or risk falling by the wayside. If we are to prosper in the future we must do something to differentiate ourselves. Godin’s advice: create art. This does not mean quit your day job and start making paintings or sculptures. Art, in the way Godin describes it, is much broader

Art is anything that’s creative, passionate, and personal. And great art resonates with the viewer, not only with the creator. [1c]

Art can include just about any form of work: customer service, technical skills, problem solving, leadership, deep expertise, unique experience and insights, etc. The essential idea is to provide something unique and valuable that connects with an audience and that cannot be turned into a commodity. By doing this one takes themselves from being a replaceable part in the corporate machine to becoming someone that is irreplaceable and indispensable–an artist, a linchpin.

Doing this is not easy. If it were easy everyone would be doing it, and it wouldn’t be valuable. Along the journey to becoming an artist there will likely numerous obstacles. Godin refers to these as “the resistance.” Creating something unique often involves risk. The resistance stems from the region of our brains that wants to keep us safe and tells us to avoid these risky activities. It taps into our inner fear of failure and a deep seeded need to fit in.

Even if we can move beyond the cognitive hurdles there are still more obstacles that must be overcome. Art is messy, and doesn’t always follow a linear path from start to finish. It will move in fits and stops. It takes time and experience to figure out what work is important and worth investing emotional effort, and that which is not important. In some cases it will be controversial, and not everyone will like it.

Artists and linchpins find a way to move beyond these obstacles, they possess two major things that allow them to succeed: they exert emotional labor and they make a map. They put in the difficult, important work that’s easily avoided and lead others when there is no path. Along the way failure is inevitable. What’s important is understanding how to correctly learn from these failures

Successful people learn from failure, but the lesson they learn is a different one. They don’t learn that they shouldn’t have tried in the first place, and they don’t learn that they are always right and the world is wrong and they don’t learn that they are losers. They learn that the tactics they used didn’t work or that the person they used them on didn’t respond. [1d]

What does this have to do with personal finance and investment management? Everything. What I aim to write about in these pages is building a more financially secure life. Godin’s message is a prescription to excel at the work that we do so that we may be more secure in the future. If you want to succeed and live securely in the new economy you will have to be different and stand out in positive, productive and valuable manner.

Find work that you love.

Take a chance.

Exert emotional labor.

Create something.

Give gifts.

Make mistakes.

Learn from them.

Blaze a new path.

References
1. Godin, Seth. Linchpin. Penguin Group. New York, NY. 2010.
(a) p. 46
(b) p. 32
(c) p. 83
(d) p. 115

Economic Data
Median Household Income: https://fred.stlouisfed.org/series/MEHOINUSA672N
After Tax Corp. Profits: https://fred.stlouisfed.org/series/CP
Real Gross Domestic Product: https://fred.stlouisfed.org/series/GDPC1
CPI (Inflation): https://fred.stlouisfed.org/series/CPIAUCNS
Effective Federal Funds Rate: https://fred.stlouisfed.org/series/FEDFUNDS

NOTES – Linchpin.pdf


What I’m Reading
Silicon Valley’s Audacious Plan to Create a New Stock Exchange (Bloomberg)
The Stock Markets Are Crazy — It Might Be Your Fault (Amy Witherbee)
Will Bonds Deliver Crisis Alpha in the Next Crisis? (Andrew Miller)
Last Week Tonight on the high cost of retirement plans (Tadas Viskanta)
Why a New Allocation Approach Is Needed (Charles Rotblut and James Cloonan)
51 Things You Shouldn’t Do (Jonathan Clements)