Making Sense with Sam Harris - #287 — Why Wealth Matters

Episode Date: July 5, 2022

Sam Harris speaks with Morgan Housel about the psychology of money and investing. They discuss how personal history shapes one’s view of economic risk, the implications of not understanding the future, being rich vs being wealthy, how we measure success, the problem of social comparison, happiness vs life satisfaction, saving and investing, Warren Buffett and the power of compounding, rational vs reasonable decisions, the role of luck, optimism vs pessimism, dollar-cost averaging, and other topics. If the Making Sense podcast logo in your player is BLACK, you can SUBSCRIBE to gain access to all full-length episodes at samharris.org/subscribe.   Learning how to train your mind is the single greatest investment you can make in life. That’s why Sam Harris created the Waking Up app. From rational mindfulness practice to lessons on some of life’s most important topics, join Sam as he demystifies the practice of meditation and explores the theory behind it.

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Okay, well, it's been a big week for news. There are many things happening in the world. Of course, there were the January 6th hearings, which are not at all the partisan witch hunt that Republicans are claiming. Most of the witnesses have been Republicans. That should be a pretty obvious point. And most have been avid Trump supporters. Most of them did this lunatics bidding up until the last moment

when they were staring into the abyss. Some of them, like Cassidy Hutchinson, whose testimony was the most damaging to Trump, have everything to lose from coming forward. No doubt she and her family are now besieged by death threats and very real security concerns. She was an extremely compelling witness. she was an extremely compelling witness. She was obviously a Republican partisan down to her toes, and yet she recognized that what happened in the run-up to January 6th, all the cultic hysteria whipped up by the big lie,

and then what happened on the day itself, was an abomination. Perhaps I should emphasize for the hundredth time that political partisanship has nothing to do with this. Liz Cheney is one of the people running these hearings. She is a conservative Republican. She is pro-life and against gay marriage. and against gay marriage. She is, by my lights, a religious extremist. I am sure I disagree with 95% of her politics. But she is a straight-up American hero in my book.

On a bad day, she's doing more to support and defend the Constitution of the United States than the rest of the Republican Party has done in years. She is standing between us and the utter dismantling and desecration of our democracy. This is not a partisan point. For instance, I'll concede that almost anything bad that is said about the Democrats now is probably true. Biden appears unfit for office. Whether he's actually senile, I don't know. But he simply can't communicate the way the president needs to. I mean, watch these speeches and interviews and press conferences, insofar as they even take place. Every sentence is a death-defying feat. It's like watching your mom do parkour. You're just waiting for the worst thing that has ever happened every fucking second.

And he is totally unfit to run again in 2024. And Kamala Harris is probably worse, though she might be fine neurologically. She still manages to speak in word salad, in an apparent effort to talk down to people. Have you seen these snippets of her circulating? Many of the things she says are completely mystifying. It's like someone trained an AI on woke Twitter and had it talk to itself for the equivalent of a thousand years and it went properly insane. And as a political candidate,

she manages to convey a disingenuousness that makes Hillary Clinton seem like Will Rogers. This administration is doomed, right, and has been doomed almost since the very beginning. But Biden and Harris saved our democracy by beating Trump. And as odious and as incompetent as the Democrats have become, Trump. And as odious and as incompetent as the Democrats have become, there is simply no comparison between them and what the Republicans have become under Trump. Trump and Trumpism is not just a symptom of a deeper problem. They are that too, but they are also a cancer that has been actively destroying our politics.

You have to cut out the cancer. Trump has always been and remains a litmus test. The real Trump derangement syndrome is to not see how abnormal he is as a person, and to not see or to not care how abnormal it is that such a person could have ever become the President of the United States. That's the real Trump derangement syndrome, to say or to think things like, well, all politicians lie, right? What's the difference with Trump? There's no both sides to this political moment. Making Trump president was like making Alex Jones the lead anchor on the nightly news.

Whatever you want to say about the media, whatever you want to say about CNN, for instance, about the errors of journalism they make over there, and about how woke everyone is, it would be orders of magnitude worse, and the degradation of our journalistic standards would be complete if they swapped in Alex Jones for Anderson Cooper. That would be a totally different world, journalistically speaking. And that's where we are with the Republican Party, apart from the few brave people like Liz Cheney who are trying to save it from itself. Anyway, if you haven't been following the hearings, for whatever reason, you're missing something. The window they have opened onto the last days of the Trump administration is beyond unflattering. And the prospect that we may one day see the orange man

in an orange jumpsuit seems to have grown a little. It's hard to imagine him not being prosecuted now, after what we've learned. That is, of course, if he doesn't become president again in the meantime, which remains a real possibility. Now, of course, if he doesn't become president again in the meantime, which remains a real possibility. Now, of course, the biggest development in recent weeks was the overturning of Roe v. Wade by the Supreme Court. Some people have asked for my thoughts on that and about the ethics of abortion generally. Perhaps I'll do a podcast on that at some point.

But briefly, I guess the first thing to say about Roe is that the writing was always on the wall for Roe. It has always seemed like a dubious judicial decision, and just the wrong way to enshrine abortion rights at the federal level. And the fact that we've been relying on it for 50 years has been a failure of governance. The Democrats knew how precarious Roe was, and yet they completely failed to pass legislation, much less an amendment to the Constitution, to properly guarantee this right for women. So there's a lot of blame to go around, and the Democrats share in that blame.

That said, I think repealing Roe is going to be unambiguously bad for women, in particular poor women in red states. And it'll be bad for the red states, too. I think the spectacle of having desperate women prosecuted as murderers for going out of state to terminate a pregnancy or taking illegal medication at home, this will be bad for business. I think you'll find that corporations don't much like being associated with a real-life version of the handmaid's tale.

But again, this will only hurt red states. But I don't think the problem necessarily stops here. I do think there's a larger concern about creeping theocracy. Let's call this for what it is. What happened here? The unjustified and unjustifiable religious beliefs of Catholics on the Supreme Court have delivered this change in our society. This is religion, pure and simple.

There is simply no valid ethical argument that privileges the interests of a single fertilized ovum over those of a woman whose life is going to be completely deranged by being forced to have a child. It's not just that pro-life absolutists have bad arguments. They have no arguments for banning abortion at the earliest stages. But then pro-choice absolutists are also extremists. Anyone who would argue for abortion as an absolute right of a woman at every stage of pregnancy, as though terminating a fetus in the third trimester had no ethical implications beyond a woman's bodily autonomy. Such people are just not making contact with the

real ethical terrain here. So our political debate about abortion seems pretty confused, and it ignores the very sensible intuitions that most people have on this topic. I mean, most people recognize that a clump of cells is not a person, while a 30-week-old fetus is so close to being a bouncing baby that it is a person. The real problem here is to figure out where that change happens, and therefore where it becomes ethically complicated to terminate a pregnancy. The most important question for me is, at what point in development can a fetus conceivably suffer? That's not the only consideration, but I think it's the main one. And here it's reasonable to think that sensory connections to the cortex are the relevant

threshold. We can be even more conservative than that and draw the line somewhere earlier, but it's not an accident that most people think that the first trimester and the third trimester are very different, ethically speaking. And the difference is in the presence or absence of the nervous system structures that could conceivably produce suffering. Terminating a pregnancy at 10 weeks is just different than terminating one at 30 weeks. Given what we know about developmental neuroscience, I would say that the first should be at the total discretion of the mother,

and the second should require very serious justification, like saving the mother's life or saving the child from some utterly horrific suffering should it be born. And obviously, emergency late-term abortions should and do include anesthesia. At a certain stage in pregnancy, you have to treat a fetus as a being who can suffer. But over 90% of abortions happen in the first trimester. And given what we know, that should be a legal practice available to all women, especially given what we know about the effects on a society that outlaws that practice. Ultimately, there's a lot of ethical work still ahead of us to understand human development in a fine-grained way and to specify exactly where a fetus, even a specific fetus, becomes a person to which we want to ascribe independent interests.

to which we want to ascribe independent interests. But most people know that the extremes are very different. Ten weeks and thirty weeks, say. And where we draw the line should be somewhere in the middle of that range. And yet our political discourse tends not to reflect this. But the fact that we appear to be moving into a situation where abortion at every stage will be illegal in half the country, that is clearly a step backwards, politically and ethically. And we have Iron Age religion to thank for it. Okay, today I'm speaking with Morgan

Housel. Morgan is a partner at the Collaborative Fund and a former columnist at The Motley Fool and The Wall Street Journal. He is a two-time winner of the Best in Business Award from the Society of American Business Editors and Writers. He's also the winner of the New York Times Sydney Award and a two-time finalist for the Gerald Loeb Award for Distinguished Business and Financial Journalism. And he has written a wonderful book titled The Psychology of Money, Timeless Lessons on Wealth, Greed, and Happiness. And this is the topic of our conversation. We discuss how personal history shapes one's view of economic risk, the implications of

not understanding the future, the difference between rich and wealthy, how we measure success, the problem of social comparison, happiness versus life satisfaction, saving and investing, Warren Buffett and the power of compounding, rational versus reasonable decisions, the role of luck, optimism versus pessimism, dollar cost averaging, and other topics. Anyway, I found it a very useful conversation,

and I hope you do as well. And I bring you Morgan Housel. I am here with Morgan Housel. Morgan, thanks for joining me. Thanks for having me, Sam. So you wrote this really wonderful book, The Psychology of Money, Timeless Lessons on Wealth, Greed, and Happiness. And I want to talk about a lot of what's in that book and anything else you think on these topics. But before we jump in, I guess two things. I want to acknowledge that we're having this conversation at an interesting moment, and we seem poised on the brink of some kind of recession, and the stock market has been fairly crazy. And just one interesting reference point that jumped out

at me. I think at some point in your book, you single out Netflix as a company that has made stratospheric gains. And I now notice that Netflix has lost almost all of those gains, and it certainly lost five years worth of gains seemingly overnight. So a lot can change here, obviously. And we don't know when people will be listening to this conversation. I think this will be evergreen, and they're just very different moments in the life of any economy, in the life of any person. It's fascinating to see how it's changed even since your book was published. It's interesting for sure. What I would note too, something with Netflix you mentioned,

what I mentioned in the book is Netflix during a period of 2002 to 2018 increased like 500 fold. It went up 500 fold. That's just cherry picking in hindsight. But during that period, it lost 70% of its value twice. It lost half of its value on six separate occasions, despite increasing 500 fold during that period. I think that's relevant today as it goes through another 70% climb. As you pointed out, I think a lot of what we deal with in the economy and the stock market, whenever we go through these periods like we have in the last six months when a lot of things decline and collapse and there's a lot of volatility, I think the huge majority of what we are experiencing is normal volatility, normal accidents, normal uncertainty that you should expect with 100% certainty to occur during your life in the stock market, in the economy. It's rarely phrased like that. It's always,

even in the Wall Street Journal and Bloomberg and the Financial Times, it's phrased as like crisis, surprise, catastrophe. Even if what we are dealing with is something that has always occurred at fairly regular intervals and will always occur at fairly regular intervals. Yeah. We'll talk about some of the details there when we talk about investing and just the psychology of it. But before we jump in, perhaps you can summarize your background. How did you come to focus on money and wealth and related matters? And perhaps this might be the time to talk about the way in which a person's personal history can provide a lens through which they look at these topics. And it's a lens that's fairly difficult to change.

So I think you have some interesting things in your book on that topic. How does personal history and personal bias play in here as well? Well, I had a pretty unique background starting in my teenage years. I was a competitive ski racer growing up in Lake Tahoe. And because I was a competitive ski racer, I more or less bypassed high school, not because I was smart enough to bypass it, just because it was viewed as getting in the way of competitive ski racing. So I did an independent study program for high school. That was a joke. There was effectively no academics involved. It was a program that was designed for juvenile delinquents, which I was not one,

but that's what it was designed for. And I did nothing. I did basically no academic work for it. When I was 16, they gave me a piece of paper that said diploma on it. But for all intents and purposes, I had an eighth grade education. And then I stopped after that. And during my teenage years, it was a lot of fun. I was ski racing all over the world. It was great. But as I became a later teen, 18, 19 years old, and all my friends started going off to college, I had this moment of, what now? What do I do? They all have this skill set in terms of a high school education that I did not. And they're all going into college that I

felt I was completely inadequately prepared for, which I was. I started as a valet at a high-end hotel in Lake Tahoe during that period. And that was my first exposure to wealthy people. I grew up in a middle-class household, but I'd never been exposed to very wealthy people. And at the hotel, you had people coming in in their Ferraris and their Rolls Royces, and I had just never seen that before. And as I was 19 years old, I was very naive in my worldview. My first reaction as a 19-year-old man was, I want to be that guy. The guy driving the yellow Ferrari, that's who I want to be. And I think it's funny now because that's the opposite of what I want to be, what I aspire to. But that was my first view of like, there is another side

of the world out there that I don't know about and I want it and I want it badly. And so this was the early 2000s. The huge majority of those people who I met who were very wealthy worked in finance. And that was kind of my first exposure to like, okay, I want to get into finance because I want to be that guy. And I had this chip on my shoulder in terms of my lack of education. And as the years went on, I finally started college when I was about 20. And I had to start at the most remedial levels of effectively, I stopped at eighth grade and I had to start back at that level at a local junior college, community college. Eventually worked my way up. I graduated from USC. It took me many years to get there. I think

I was in college for six, maybe seven years if you added it all up because I had to make up for so much lost time. But my entire goal during that period was I want to work in finance. I want to be an investment banker. I want to move to New York and work for Goldman Sachs. That's what I wanted to do. And in the early 2000s, that's what a lot of young men in particular wanted to do because investment banking had this allure of like, that's where the power, that's where the money is. And when you're 21, 22 years old, you're just so enamored by that. And then so I was going to be an investment banker. And then I got an investment banking internship in Los Angeles. And you did your degree in economics?

That's right. Yeah. I have a BA in economics from USC. And I started this investment banking internship. And this was my dream. This is what I had aspired to do. I put all my eggs in this one basket. And on day one, not even day one, like hour one of this investment banking internship, I realized it was not for me. This is just not going to work. The culture of investment banking, particularly back then, was really

geared towards hazing. It was not geared towards productivity or solving problems. It was like, how much can we torture you to see if we can break you? And if we can break you, then you don't fit in here. And I was just, my personality, some people thrive in that environment. I was like, get me out of here. I couldn't last. It was supposed to be a several month long internship, summer internship, and I lasted like a month and it was just a torturous month. So then I'm like, okay, I need to do something else. And then I got a job in private equity. And this was the summer of 2007. I got an internship at a private equity firm and I really liked private equity. It was a great- Can you just differentiate those two areas for

people? Because I'm sure some people could define investment banking and private equity, but I would imagine many can't. So how are those different? So investment banking is really a service industry of you get hired by a corporation to help you transact in a deal. So if a big company like Microsoft wants to buy another company, they want to buy another company, they want to acquire another business, they will hire an investment bank to kind of do the administrative work for them, which is creating presentations to sell the board of directors, getting the deal done, all the kind of behind the scenes valuation analysis,

legal analysis to get this big merger done. That's at least one aspect of what investment banking is. Private equity, you are actually an investor writing checks, where a private equity firm is like an investing fund that will go out and buy an entire business. They'll go out and buy a big industrial company that was for sale. And then they will not only invest in it, but they will now run it and manage it and kind of take over the business and do what needs to be done to run that business. So the banking side is very transactional and private equity was more of like, you're actually a long-term investor or a somewhat long-term investor here. And I really liked that side of like, it was half finance and half business. It wasn't just a transaction. It was like, let's run a business now. So I really liked private

equity. And I was like, great, this is what I'm going to do. I'm going to work in private equity. And that was the summer of 2007, which if you recall, that's when the global economy started breaking up. That was like the early innings of the financial crisis. And then so the fund that I was at got into some trouble as a lot of funds did. And I was the junior analyst and they came to me and said, look, there's not going to be a full-time spot for you. The fund was really struggling at the time. So then it's like, okay, I'm just about to graduate. I have a degree in economics. The entire financial world is collapsing around me, the whole industry. Nobody was hiring in 2007, 2008. And I don't know what

I want to do. And that was kind of a hard, tough moment for me. But then I had a friend who was a writer at The Motley Fool. And he said, hey, The Motley Fool is hiring investing writers. If you're looking for a job, you should apply. And I had no interest in writing. It was never part of the plan. I had no desire. I didn't enjoy it. I never thought in a million years that this was what I would do. But I took the job out of desperation. I just needed a paycheck at the time. And I thought, okay, I'll be a financial writer writing about the stock market. I'll do this for a couple of months until I find another private equity job. But I ended up staying for 10 years at The Motley Fool. And that was really where I learned how to write and also learned that I liked writing and I enjoyed it. And I

loved the process of being an outsider. I'm not a fund manager. I'm not a financial advisor. I'm not an economist. I just sit at my desk in my house and observe what's going on in the economic world and try to piece together what I think is happening and what I can learn from it and any insights that I might be able to glean and then write about it as an outsider. And I really enjoyed that process. So it was a completely serendipitous, haphazard path to where I got, but I think a lot of careers work like that. So I spent the last 15 years now or so just trying to figure out what's going on inside of people's heads when they're thinking about risk and greed and reward and uncertainty

and just trying to write an interesting story that will capture people's attention about what's going on in the global economy. Yeah, well, your outsider status has caused you to produce such an unusual and useful book because it's not a normal finance book. It is a book, as you say, which focuses on just how to integrate the issue and problem of money and wealth into a balanced and fulfilling life, right? And so many people get that wrong and so many rich people get that wrong. It's just, it's bewildering and it's fascinating to be kind of be led through your thinking about this. And it's just very convergent

with what we're doing over at Waking Up and thinking about global issues in the context of living a more examined, fulfilling life. What does your personal history... So not everyone has experienced a major downturn at the moment they became or were struggling to become financially independent. You hear stories about people who lived through the Great Depression and what that did to them. And there are people who miss that entirely, and they're almost in the same age bracket. Maybe you can say some general things about how a person's experience can define their attitude toward money and building wealth comprehensively. Yeah. Well, let me tell you two stories here. One that's kind of a follow-up to my career and one that's just a little bit more personal.

So I started as a writer in 2007, which is when the financial crisis began. So I spent the early years of my career writing, just trying to write about and piece together what happened during the global financial crisis of 2008. And as the years went on, I kind of realized as time went on that you could not find the answer to the question of what happened. Why did the financial crisis happen? Why did people make the decisions that they did during the housing bubble and during the bust? You could not find the answer to that question in a finance textbook or an economics textbook. There's nothing in those fields that could accurately explain why people did the things that they did. But you could find little clues

about what happened and explanations for what happened. If you are thinking through the lens of psychology, like greed and fear, and sociology, keeping up with the Joneses, and politics, like why certain regulations are put into place, history, all of these other fields that had nothing to do with finance could really accurately explain why it happened. And so that to me was just this idea that there is so much more to finance and economics than finance and economics. These are all fields that study how people think and how people behave. And behavior is such a big and broad, all-encompassing field. There was a lot that we could learn about economics and finance through the lens of these other fields. That was kind of my first opening to this idea of like, I want to

write about finance and think about finance, but not through the lens of finance. That's boring. And I think it's just woefully incomplete. I want to look at this as more of like a sociology perspective. And I think that's a good segue into the other part of your question, which is that we tend to think of finance like it's a math-based field. It's just numbers and data and charts and formulas. And it's like engineering or it's like physics where it's very clean and precise. That's how finance and economics tends to be taught, like down to the decimal precision. And everything we know about it is that it's not. It's just people make decisions with their money and have outlooks about the economy and their greed and fear that are all just based off of their personality and their

psychology. And so much of that is just anchored to the own unique experiences of their personal history. And since everyone from different generations and different countries and different socioeconomic statuses have very different backgrounds and experiences in the world, everyone thinks about finance and economics differently. I think that's why it tends to be a controversial field in a way that physics and meteorology is not controversial. Let's not say that we know everything, but the arguments that take place in economics over what's the right tax rate, how should we promote entrepreneurship are so fierce in economics. And I think the reason is, is because there is no one right answer. Everyone is just doing what makes sense to them through the own

lens of what they've experienced in life. And a couple of examples of this, one that I think is really interesting is that before COVID, Australia had not had a recession in 30 years. They went 30 years without a single recession. A lot of that was just because China had an insatiable appetite for their natural resources. So this had this giant economic tailwind. So 30 years, no recession. Whereas in the United States, we had three recessions during that period, two of which were like crippling, devastating recessions that reset our entire society. And so the people of Australia, of course, are just as smart as anyone in America. They have the same information as anyone in America. They're learning about the same topics, but they had a completely different view of economic risk

than anyone in the United States would. And it's not because one side is smarter than one another. It's just like the dumb luck of their individual experiences. And then you get into these things of like, if you grew up during the Great Depression, of course, you thought about economic risk totally differently from the rest of your life than someone who did not. And that's all well documented and whatnot. I was once having a conversation with Daniel Kahneman, who of course is a psychologist who won the Nobel Prize in economics. And we were talking about how our individual past shape how we view about risk. And he brought up this almost chilling point that he grew up as a child in a Jewish family in Nazi-occupied France.

That was his upbringing. And how that made him think about risk and just the kind of outlook of humanity in a pessimistic way, way more than I ever would. And what's important about this is too, is like, I can learn about World War II. I can read about the Holocaust. But until you have the emotional scar tissue of experiencing it firsthand, it's never going to be even remotely as persuasive as it would be. Like nothing is more persuasive than what you have experienced firsthand. And this is when people who think and go out of their way to be open-minded and empathetic to other people's experiences, everyone, including myself and including you,

everybody is just kind of a prisoner to their own past of the dumb luck of where they were born, when they were born, and the people who they kind of just happened to meet along the way, the experiences that they happen to have along their path. And so we all think we're being objective about how the real world works, but I think the truth is nobody is. And I think that really comes through with how people manage their money and think about the economy. Yeah. Kahneman is so useful here because not only does he have his personal experience, but his field that he has largely invented of behavioral economics, he can draw lessons that are highly counterintuitive because so much of his focus is on how our intuitions prove to be bad in various circumstances.

And one thing that's relevant here, which I believe you discuss somewhere in your book, is how he thinks about our capacity for surprise and that we tend to draw the wrong lesson from surprising events, because the lesson people draw is, let's say there's a surprising downturn, let's say, in this case, Netflix loses 70% of its value overnight, and you think that, okay, now you understand that, so you can build this into your model, this is the kind of thing that is going to happen in the future, but what you really should be building into your model, perhaps in addition to the first lesson, is surprising things are going to continue to happen, and they will be different, right? Your capacity to be surprised is not going away, and you can't merely look at past surprises in preparation for the future surprise.

What you have to actually factor in is you don't understand the future. That's it. And it's really hard for people to grasp that we have no clue what the biggest news story of the next year, five years, 10 years is going to be. That's always been the case. I don't think there's ever been a time in modern history when we knew what the biggest news story of the next five years was going to be preemptively. It's always been the case that the biggest news story was something that virtually nobody saw coming. COVID, 9-11, Pearl Harbor, the Great Depression, all of these things that were just generational defining events that no one or virtually no one saw coming before they happened. So that's always the common denominator of these big events. It's not that they were big, it's not that they were massive events. Well, sometimes they are. It's that no one was prepared for them before they came. I'll give you one recent example of this that I think is really interesting. The Economist, which is a magazine that I really admire. I think they do great work.

But every January, they put out a review for the year ahead. Here's what to expect over the next 12 months. They do this every January. If you go back and look at their January of 2020 edition for what to expect in 2020, there's not a single word about COVID, which of course, as they were writing that edition in December, 2019, it was an unknowable event at that point. And then if you go back and look at their edition from January of 2022 of this year, there's not a single word about Russia or Ukraine, which again, of course, you could not have known with any kind of precision that that was going to take place. But COVID and Russia and Ukraine are probably the biggest events of those periods, but they were completely unknown 60 days before they took place by some of the best journalists

in the world. And I think that's not a criticism of them because that's just an example of it's always the case that even within a 60-day window, we have no clue what the biggest news story is going to be. I think that's true today. And I can say that with confidence because again, it's always been like that. But no matter how many times we experience it, I think it's just so uncomfortable to accept that level of uncertainty. And there's always going to be just an insatiable demand for people to think that they can see the future or to pay people who tell them that they can see the future because the reality of accepting otherwise is so painful. Yeah. Yeah. Well, with that proviso in mind, let's think through our relationship to

money and wealth and related matters from something like first principles. I think let's start with the differentiation you make between being rich and being wealthy. How do you think about those two seemingly synonymous concepts? I would first start by saying I made these definitions up, so people shouldn't take them too seriously. But rich, I described as you have enough money to pay your monthly bills to live the lifestyle that you want to live. You can make your mortgage payment, your car payment. You have the monthly cash to cover your spending. Wealth is a completely different thing. Wealth is the money that you have not spent. It's money that is saved up and invested and unspent,

banked up, sitting around that you're not doing anything with. That's what wealth is. And it's a very different concept because I think that the biggest reason that we should differentiate these two things is because rich you can see. I can see the biggest reason that we should differentiate these two things is because rich you can see. I can see the car that you drive and the house that you live in and the clothes that you wear, the jewelry that you wear, that's all visible. Wealth you cannot see. I cannot see your bank account.

I can't see your brokerage statement. I have no idea how much wealth you have. And we go through a life with a very skewed and flawed sense of rich and wealth because we only make judgments and we only make assumptions based off of what we see. So you see someone driving a Lamborghini and you think that guy must be rich. And maybe they are rich in the sense that they can make the monthly payments on that Lamborghini, but they might have zero wealth, zero money saved up that's going to give them independence and room for error and the ability to endure a recession. They might have zero. This to me, I really became aware of when I was a valet and getting to know some of these people who would drive in and their

Bentleys and their Rolls Royces and learning after I got to know them that a lot of them were actually not that successful. They were like mediocre successful people that spent half of their income on a Rolls Royce lease payment. And that to me, it was just like all of my assumptions about these people was completely skewed. And on the flip side of that, some people who were legitimately very wealthy, who you would never know by their outward appearance that I could measure them by. And that to me, it was just like, after you've seen 20 of those extreme examples of like, I thought you were

X, but you turned out to be Y, just the most extreme difference that I could think of. After I saw enough of those, it was just like, I don't believe... There are so many flaws and skews that we are blinded by. And I would say particularly young men get blinded by the view of richness when actually what they deep down aspire to be is wealthy. They actually want to be wealthy because what wealth does, the unspent money that you're not spending, that you're saving and investing and you're not spending on a monthly basis, is it gives you independence and autonomy.

When you have that level of money saved up, that net worth saved up where you can be autonomous, that's what wealth really is. It's like using money to give yourself a better life rather than just a tool to buy more things. I think that's what people actually aspire to. But always what they're measuring and judging in the world is just how rich people are or aren't. What are the consequences of richness being on the surface and wealth being invisible? I think there's so many people that will assume, again, I think particularly young men richness being on the surface and wealth being invisible? I think there's so many people that will assume, again, I think particularly young men,

who assume that the material aspects of richness, the nicer car, the bigger house, the fancier clothes will give them a level of happiness in life. And since I think what they actually aspire to is to be wealthy and to be independent, but they don't know that yet, I think it leads to a lot of depression, actually. If they are lucky enough to have a pretty high income and they can go out and buy the nice car and the big house, a sense of emptiness when they actually get it, that it's not going to bring them what they assumed. I just finished Will Smith's biography, which is actually incredibly good. And he made this point that when he was poor, if he was depressed, he could always say, look, I'm depressed now, but if I have more money and prettier girls, then my depression will go away. And it gave him a sense of hope. But then when he was rich, he couldn't have that hope

anymore. If he was rich and depressed, he could not say, oh, if I only had more money, things would be better. There was no more hope. And so I thought that was a really interesting point of I think what the material side of wealth can do for people. Look, I like nice cars and nice homes as much as anyone else, but I think we massively overestimate the amount of benefit that we are going to get from those things. And that point that I just said is like cliche. That's a worn out point that a lot of people know. But I think the next step of that that does go overlooked is what we actually want is not the materials. It's not that money won't make you happy.

It's that money can make you happy if you use it to give yourself independence and autonomy and control over your time. That's something that I think for overwhelmingly the majority of people will bring a lasting level of contentment and a benefit to their life that is overlooked. And so it's not a plea to live like a monk. It's not a plea to like the fire movement of retiring when you're 24 years old to live in a shack. It's not that. But I think if we can use our money with a sense of independence of, look, if I have some level of savings, maybe I can take a lower paying job

that I like more. Maybe I can live in an area that has a shorter commute, whatever it is. Maybe I can endure a medical setback without falling into a crippling amount of debt or bankruptcy. All of these things just pile on your shoulders with a little bit of lack of independence and autonomy in the world. that if you can remove that by having wealth, the money that you're not spending, it's something that is so overlooked that can actually give people a fighting chance at using money to give yourself a better life. Yeah. Well, I want to talk about wealth and happiness next, but there's a point you make in the book somewhere related to the visible and the invisible here, which is interesting because when all you see, all you can see in other people, unless you really know them intimately and you're

having a conversation about their actual financial habits, all you can see is their spending patterns, you can see the car they bought or the house they bought or the clothes they wear, and you can't see how much they're saving or not saving. And because you never really see what it takes to be truly wealthy or to merely pretend to be wealthy, the only thing you can be tempted to model really is the rich side of this dichotomy. I think that's right. And I think that's why there is a lot of... I mean, here's one point that I think is interesting. If you ask most Americans, what was the best period economically in the history of this country? What decade was the best decade economically in the history of

America? Overwhelmingly, across generations, across socioeconomic groups, people point to one decade, which is the 1950s. We remember, like across generations, we remember the 50s as the golden age of middle-class prosperity in America. That's how we remember it. And I think what is amazing about that and fascinating about the nostalgia for the 50s is how easy it is to disprove that we were actually better off in the 50s. And by almost any economic measure that you look at, the median American household adjusted for inflation is so much better off today in the year 2022 than they were in any period during the 1950s. And it's not even close. The median household income adjusted for inflation is more than 2X today what it was in the 1950s.

And life expectancy, access to medical care, educational attainment, go on down the list of almost any metric you want to think about. We are better off today than the 1950s. So then the question is, why the nostalgia? Why do we remember it at such a great period if we know that it wasn't? I think at least one explanation for that is because a lot of it was the rise in media, particularly social media over the last 20 years, that just inflated everyone's expectations to an incredible degree. And maybe our incomes have doubled since the 1950s, but our expectations have more than doubled. Because everyone judges

how well they're doing in the world relative to those around them. And when your judgment of those around you today is opening up Instagram and just seeing a curated list of people taking their private jets to their private islands with their beautiful model wives. And that's people's expectation of what the world is. And in that world, even if your incomes have doubled over the last couple of generations, you're going to feel worse off because your expectations are so wildly inflated. And I think that's probably a huge socioeconomic trend of the last eight years, since the end of World War II. It's expectations rising faster than reality on the ground. Even if the reality on the ground is a lot of progress and

a lot of material success, it doesn't feel like that because we have so anchored onto this false view of what we want in life and what we aspire to in life and what is normal in life without having any sort of grounding in terms of how far we've come. I mean, I think anyone, if they're really honest about it, if you said, I have a time machine, you can trade places, do you want to live and work in the year 2022 or 1952? I think if you were honest about it, virtually no one would say 1952. Again, I think this is something you discuss in your book. The difference between the richest family in town and the average middle-class family in terms the amount of gains in wealth in the society that accrued to the top 10% or the top 1%, it was not completely out of whack the way it is now. And so there really are, I mean, there's just the, you know, the far tail of the distribution is living in a completely different world economically than the average person. America is an extreme here. I think this is true globally. But the Gini coefficient in America is,

I don't know what it is right now, but it has been creeping toward something far more extreme than anyone in the 1950s would recognize. That's true. I mean, I think a lot of that was kind of an echo from World War II of how the economy was managed. There were wage caps during the war that kind of stuck around, at least in the corporate culture in the 1950s. The top marginal tax rate was 91% in the 1950s. And there was a lot of negatives that did come from that. But you're right that it created this period where wealth inequality was so low. And therefore, when people are measuring how well they are doing relative to those around them, most people around you in the 50s were doing exactly as you were. People were living... So the small house felt great because everyone else lived in a small house. And the low income felt fine because everyone else had a low income.

And camping for your vacation felt like a great thing to do because that's what everybody else did. And so I think that is a lot of the nostalgia that we had, is that even if we were analytically worse off, like substantially worse off, it felt better just because people were measuring their success relative to everyone else around them and everyone else around them was doing roughly as they were. And so that started to break a little bit in the late 70s and early 80s, and then took off from there. And I think it just, it went supernova in the last 10 years

with social media to where now your definition of the people around you is this algorithmically curated list of the most shocking photos that you can find of wealth and beauty and sex. And particularly for young men and young women, I think it's so distorting on where they should be in the world and how they anchor their success in the world. It's this anchor of if I'm not driving a BMW or a Lamborghini, and if I'm not living in a mansion in Bel Air and flying a private jet, I have not succeeded at all in the world, which is just a complete 180 from where we were in the 1950s, which was if I'm not living in a mansion in Bel Air and flying a private jet, I have not succeeded at all in the world, which is just a complete 180 from where we were in the 1950s, which was, if I have a 1,200 square foot house and I can go camping once a year, I'm successful. Okay. Well, let's talk about the relationship between wealth and happiness because it's not

precisely as advertised and people's beliefs about it are obviously quite consequential. people's beliefs about it are obviously quite consequential. We've already begun speaking about the variable of social comparison, which is, you know, if anyone has figured out a way to correct for it, I haven't heard of it. It should be the kind of thing you could correct for, because it really is irrational. You know, the problem here is that because we derive so much of our sense of our own satisfaction by comparing our status with others, absolute changes in the life experience of everyone, for the better, don't register in the way that they should. So if you have a tide that lifts all boats, but some boats are still bigger than others, we become numb to those auspicious changes and truly just disregard progress across the board because we look at our neighbor and he's

doing better than we are. This just habit of social comparison is truly insidious. And as we've already established, the context of social comparison has genuinely changed because there are levels of inequality now that are very difficult to think about. I mean, people don't have good intuitions for the orders of magnitude here. And one way to think about it, which makes it intuitive for people, is if you put orders of magnitude in terms of time, for some reason people grok this much more easily. So, I mean, the difference between a million dollars and a billion dollars and a billion dollars

and, you know, hundreds of billions, which is now where the richest people are, people just don't have a gut feeling for that. But if you tell someone that a million seconds is two weeks, and a billion seconds is 32 years, and a trillion seconds is 32,000 years, and now we're talking about people who are a quarter of the way to a trillion dollars when you're talking about Elon Musk and Jeff Bezos and some of the other richest billionaires, when you're talking about someone who made a hundred billion dollars during COVID, the difference between that and making a hundred million dollars during COVID or a hundred thousand dollars. If you'd like to

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