Warren Buffett: How to Create a Fair Social System

photo by trackrecord

With the increasing analysis of the differences between President Obama’s policies and those of Mitt Romney, I felt that these wise thoughts by Warren Buffet would be very timely.  Mr. Buffet gives a brief and entertaining explanation of how difficult it actually is to create a fair social system.  I feel like we have all become very good at critiquing our politicians but when it comes down to actually coming up with creative solutions ourselves, it is a real challenge.

Here is Mr. Buffet:

Let’s just say, Sandy, that it was 24 hours before you were born, and a genie appeared, and said “Sandy, you look like a winner.  I have enormous confidence in you, and what I’m going to do is let you set the rules of the society into which you will be born.  You can set the economic rules, the social rules, and whatever rules you set will apply during your lifetime, and your children’s lifetimes.”

And you’ll say, “Well, that’s nice, but what’s the catch?”

And the genie says, “Here’s the catch.  You don’t know if you’re going to be born rich or poor, white or black, male or female, able-bodied or infirm, intelligent or retarded.  All you know is that you’re going to get one ball our of a barrel with, say, 5.8 billion balls in it.”  You’re going to participate in what I call the Ovarian Lottery.  And it’s the most important thing that will happen to you in your life, but you have no control over it.  It’s going to determine far more than your grades in school or anything else that happens to you.

Now, what rules do you want to have?  I’m not going to tell you the rules, and nobody will tell you; you have to make them up for yourself.  But they will affect how you think about what you do in your will and things of that sort.  That’s because you’re going to want to have a system that turns out great quantities of good and services, so that your kids can live better than you did, and so that your grandchildren can live better than your kids.  You’re going to want a system that keeps Bill Gates and Andy Grove and Jack Welch working long, long after they don’t need to work.  You’re going to want the most able people working more than 12 hours a day.  So you’ve got to have a system that incentives them, and that turns out goods.  But you’re also going to want a system that takes care of the bad balls, the ones that aren’t lucky.  If you have a system that is turning out enough goods and services, you can take care of them.  You want a system where people are free of fear to some extent.  You don’t want people worrying about being sick in their old age, or fearful about going home at night.  So you’ll try to design something, assuming you have the goods and services to solve that sort of thing.  You’ll want equality of opportunity – a good school system – to make you feel that every piece of talent out there will get the same shot at contributing.  And your tax system will follow from your reasoning on that.  And what you do with the money you make is another thing to think about.  As you work though that, everybody comes up with something a little different.  I just suggest you play that little game. (Warren Buffet, “Buffet & Gates on Success,” KCTS/Seattle, May 1998, transcript p.12)

Seneca: On the Shortness of Life

photo by h.koppdelaney

It has been awhile since I have posted on here.  Sorry for the delay but hopefully I will pick it up and be more consistent.

I recently finished a book called Seeking Wisdom by Peter Bevelin.  I think it just became my new favorite.  That is not saying much because that changes pretty consistently for me.  It is definitely at the top though.  Bevelin essentially analyzed great philosophers and thinkers to discover how to gain wisdom.  He spends a lot of time studying Charlie Munger (Warren Buffet’s partner at Berkshire Hathaway) because he has developed a simplicity and clarity to analyzing any situation.  I will definitely have to reread it a few times in the future.  It is pretty expensive but will definitely bring more value to your life than the cost of the book.

Bevelin ends the book with part of an essay from Lucius Seneca about how short life is.  It left me sitting and thinking in silence for probably ten minutes.  I’ll let you read it and come to your own conclusions.  Hope you enjoy it…


Why do we complain of Nature?  She has shown herself kindly; life, if you know how to use it, is long.  But one man is possessed by an avarice that is insatiable, another by a toilsome devotion to tasks that are useless; one man is besotted with wine, another is paralyzed by sloth; one man is exhausted by an ambition that always hangs upon the decision of others, another driven by the greed of the trader, is led over all lands and all seas by the hope of gain…many are kept busy either in the pursuit of another mens fortune or in complaining of their own; many, following no fixed aim, shifting and inconstant and dissatisfied, are plunged by their fickleness into plans that are ever new; some have not fixed principle by which to direct their course, but Fate takes them unawares while they loll and yawn – so surely does it happen that I cannot doubt the truth of that utterance which the greatest of poets delivered with all the seeming of an oracle: “The part of life we really live is small.”  For all the best of existence is not life, but merely time.

You live as if you were destined to live forever, no though of your frailty ever enters your head, of how much time has already gone by you take no heed.

You squander time as if you drew from a full and abundant supply, though all the while that day which you bestow on some person or thing is perhaps your last.  You have all the fears of mortals and all the desires of immortals.  You will hear many men saying: “After my fiftieth year I shall retire into leisure, my sixtieth year shall release me from public duties.”  And what guarantee, pray, have you that your life will last longer?  Who will suffer your course to be just as you plan it?  Are you not ashamed to reserve for yourself only the remnant of life, and to set apart for wisdom only that time which cannot be devoted to any business?  How late it is to begin to live just when we must cease to live!  What foolish forgetfulness of mortality to postpone wholesome plans to the fiftieth and sixtieth year, and to intend to begin life at a point to which few have attained!

How to Live a Fulfilled Life

I have always read that if you want to be successful, you need to find what you are passionate about and pursue it.  I think this is great advice.  I believe that this wisdom often gets tossed aside because it doesn’t seem very practical.

However, if you are willing to be patient, you will see the practicality of it.

Pursuing Money:

You will always work harder on something that you truly care about than you will for money.  The common thought is that the relationship between money and motivation will remain linear.  For example, your  motivation to move from $20,000 a year to $70,000 will be the same as your motivation to move from $70,000 to $120,000. In reality, your level of motivation is NOT linear and will actually decrease as your earnings increase.

Once you obtain a certain amount of money, your motivation for the job will decrease drastically.  You will have reached a point where you can pay your bills and live comfortably.  Earning money will become less important.  At this point, you will start to look for fulfillment in other places.  You are essentially working along Abraham Maslow’s Hierarchy of Needs:  Continue reading “How to Live a Fulfilled Life”

Lessons from Toms Shoes

Toms Shoes is a great example of Social Entrepreneurship.  The business model is based on the idea of one for one.  For every pair of shoes that you buy, they will give a pair of shoes to a child in need.  They have recently expanded into a second area of giving with glasses.  For every pair of glasses that you buy, they will give a pair of glasses to a person in need.  Pretty awesome right?

This got me thinking about what it would be like if every business was formatted in this way.  What if every time you bought something, a second one of that same item would be given to a person in need?  It would definitely promote giving, which I am all for; however, I don’t think that profit driven businesses would be up for making this shift.  However, what if we did it on our own?  What if you made the choice that whenever you bought something, you would buy two of them and give one away?

What would the social implications of this commitment be?

1) Buy less and save more – If you knew that when you bought something that you had to buy two of them, you would think long and hard about whether you really needed it or not.  I think this would prevent people from buying unnecessary items and force them to only purchase the things that they truly need.  We are a culture of consumption but we also want things cheap.  If every time you looked at the price of something you had to double it, you probably wouldn’t buy anything that wasn’t essential. Continue reading “Lessons from Toms Shoes”

Why should we be so blessed?

I had my iTunes on shuffle the other day while I was working, and a Brett Dennen song came on with the line “In a world of suffering, why should I be so blessed?”

That one line really got me thinking.  It is kind of hard not to start reflecting on your life when you are asked something like that.  “Why should I be so blessed?”

– Why am I lucky enough to have the amazing parents I do?

– Why was I born in the United States?

– Why can I choose from 10 different restaurants to eat at tonight?

– Why do I have friends that support me and care about me?

– Why do I have supportive siblings that have taught me so much?

– Why do I have a car to drive?

– Why do I have teachers, pastors and mentors to learn from?

– Why do I have the freedom to pursue any dream I want with my life?

Some people might argue that they are blessed because they work hard, study hard and treat people well.  I absolutely believe that these things will get you further in life but I also think that you would agree those things could still be taken away from you in a second.  You probably know a few hard working and kind people that have seen their life take a negative turn because of circumstances that are out of their control. Continue reading “Why should we be so blessed?”

How much is enough?


From the New Yorker, May 16th, 2005

True story, Word of Honor:
Joseph Heller, an important and funny writer
now dead, and I were at a party given by a billionaire
on Shelter Island.

I said, “Joe, how does it make you feel
to know that our host only yesterday
may have made more money
than your novel ‘Catch-22’
has earned in its entire history?”
And Joe said, “I’ve got something he can never have.”
And I said, “What on earth could that be, Joe?”
And Joe said, “The knowledge that I’ve got enough.”
Not bad! Rest in peace!”

Kurt Vonnegut

What is enough?  That is a hard concept to grasp in any area of your life.  What is enough money to make?  What is enough time exercising? What is enough support from your spouse?

When does ambition stop being a good thing and turn into a cycle of reaching and achieving that consumes you?  If we are constantly in pursuit of goals that we cannot see and things that we cannot afford then how will we ever be happy?

Princeton did a recent study that came to the conclusion that there was no connection between higher levels of happiness and money after a person reaches $75,000/year.  For some people that is a hard goal to reach.  For others they have met that long ago and moved on but still are not happy.  Why do you think that is?  Constant pursuit for a number that you have never set is a road to disaster.  You may be thinking that you are working harder to provide more for your family so they can have the best life possible; but there is a point where money will no longer provide that and your time and love become far more critical to reaching that goal.  How much money is enough?

What about your fitness?  Most people stop a workout because they are not seeing results fast enough.  Most of the time this occurs because they set the bar too high.  Why isn’t enough being able to play with your children or grandchildren?  Maybe it is being able to play in the weekly ultimate frisbee game with your friends.  If that is enough then you don’t need an intense workout schedule and an expensive gym membership.  You just need to jog for half an hour three times a week.  It is mentally daunting to try and reach goals that seem so far away.  If you don’t figure out why you are getting in shape then you are creating a huge barrier to success in your fitness.

How much food is enough?  Who said we need to eat three meals a day?  Who decided the size of the plates and bowls that we use?  Your weight would drastically change if you simply had smaller portions.  My good friend made the insightful observation that when we are picking out places to go eat, we often think of what restaurant provides the most food.  You think restaurants don’t realize this?  They know that if they fill the plate with something cheap, like fries, then we will feel like we got a great deal and want to come back.  Have you ever sat around at the end of a meal with your friends and continued snacking on the fries just because they are there?  Haven’t you already had enough?

What about your spouse?  I once heard that many people get divorced because their spouse provides them with only 80% of the things that they are looking for in a mate.  When they meet someone new that has that other 20% that is missing in their life, it excites them.  It is new and intriguing.  They want to go and check out what this new thing is like.  Problems arise.  Cheating might occur and this person now has the new 20% that they have been looking for.  However, what happens a couple months down the road when that 20% is not new and exciting anymore?  They will want that 80% back that they had with their spouse.  Regret will follow.  The questions becomes, is that 80% really not enough?  Maybe your spouse only has 75% or maybe they have 90%, but if you are always looking to have the full 100% then you will never be happy.  No one is perfect.  We are all full of flaws.  I hope that you don’t think that you are providing 100% of what your spouse wants because I doubt it.  It is just not real. Continue reading “How much is enough?”

Life Lessons from Backpacking

This past year, I spent eight months backpacking with my brother.  We spent seven of those months in New Zealand and one of them in the Philippines.  It was a great experience but it was definitely not what I expected.  For someone who is fresh out of college, backpacking seemed like the greatest opportunity imaginable.  No homework, jobs or responsibilities.  You see different parts of the world and meet new and amazing people.  A chance to get away from the regular routine of life and just be free.   Most importantly, it is an opportunity to get in touch with yourself and reflect on who you are and who you want to be.

That is exactly what happened to me.  However, I was expecting that to happen during some mystical self reflection time where I was analyzing who I am. How naive. To my surprise it happened through my daily routine.


Continue reading “Life Lessons from Backpacking”

Create vs. Consume

I love to read.  I read a book about every two weeks.  They tend to be business, psychology or personal development books because that is what I am interested in.  I truly enjoy reading and that is why I am able to get through books relatively quickly.  However, I have started to realize a problem with this, I read too much.  Most people don’t view reading too much as a problem, but it definitely can be if it is preventing you from what you should spend the majority of your day doing; creating.

Don’t get me wrong, I think reading is great and ABSOLUTELY necessary to become a healthy and well-rounded person.  However, spending all of your leisure time reading allows you to FEEL PRODUCTIVE without actually creating anything tangible to show from it.

Gaining knowledge is just the first step in obtaining your ideal life.   I consider this the CONSUMPTION PHASE.  You realize that you have a passion for cooking, hiking, writing, business, etc. and you start to read books, blogs, and magazines all about this topic to learn what other people are doing or saying about it.  This can be an exciting time because you are joining a community that shares your passion.  You start to learn new aspects of your passion that you never knew existed before.  Since this is something that you care about, you want more and more.  You want to learn new secrets and tricks that only this unique community knows about.  This is not a bad thing.  All this knowledge will feed your passion and keep you pushing forward.

Continue reading “Create vs. Consume”

How Facebook Could Cure Overspending

Tim Ferriss recently wrote about an idea for a gym that would get incredible results.  He claimed that it would have higher attendance rates than any other gym created.  This would then lead to major health improvements.  The members simply had to agree to a few requirements when they signed up.

The first requirement is that when you register for a membership, you must submit a picture of yourself in your underwear.   You must also sign a form that allows the gym to place the picture on their website if you do not show up a set number of times to exercise (e.g. three times a week).

The second requirement was that at the beginning of each month, you would pay an extremely high membership fee.  This would be something like $600.  The gym would then gradually pay you back throughout the month as you came.  For example, the gym would return $50 to your account each time you came to exercise until your total reached a normal membership fee of $50.  Therefore, you make the initial commitment at the beginning of the month and then you are forced to come after that.

The point that Tim Ferriss was trying to make is that negative social pressure can be used as a positive tool.  It might sound a little strange, but we can use public humiliation and fear of financial loss to remove bad habits from our lives.

I began to wonder if this principle could be applied to personal finance.  Could we use negative social pressure in order to create a system where people would save more and also be more strategic with their spending?  Given our current financial situation, I think this would be extremely beneficial.

Continue reading “How Facebook Could Cure Overspending”

Giving Challenge #2: One Item A Day

While backpacking around New Zealand for seven months, I learned to love living with only the necessities.  All of the possessions I brought with me fit into one backpack and it was still more than I needed.  It is incredible how little you actually need when you are forced into a limited situation.

I knew that this living style was going to be an adjustment, so I began to read about minimalism to prepare.  Walden by Henry David Thoreau is the classic example of minimalist writing.  This book provides a lot of valuable information but for a more modern and applicable example of these principles, I suggest reading Leo Babauta’s writings.  The combination of his books (The Power of Less and Focus) and blog posts (Zen Habits and mnmlist) will provide you with the concepts needed to simplify your life.

This material and my experiences in New Zealand has helped me take a minimalist approach to the number of possessions I have.  It is definitely a struggle to maintain in a society that is constantly pushing people to buy more.  However, it is amazing the amount of stress that is relieved by simply living in an uncluttered and organized space.

This leads to the challenge for the week: Give away one item each day for seven days.  This will not be seven random items either.  I want you to make it a challenge for yourself by strategically choosing the items that you give away.

Take the next five minutes to figure out seven items that fit one of the following two categories:

1) Items contributing to a bad habit
–  Moderate Example: Give away your DVD’s.  Having a large collection of DVD’s can be a huge barrier preventing you from being social.  Without any movies to watch, you eliminate a reason for staying home.  This gives you more incentive to go out and build deeper relationships with friends.  Remove barriers between your current life and your ideal life.
Extreme Example: Give your TV away.  If you want to instantly transform your life, eliminate all TV from it.
Other examples: Unhealthy Food, Video Games, etc.

Continue reading “Giving Challenge #2: One Item A Day”