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Thursday, January 1, 2009

Finding the Nipple

The past year or so I have been interested in a few economic theories and how they apply to everyday life. Books like Freakonomics inspired me to think about things a bit outside the box and movies like Beautiful Mind showed me that basic social behavior and complex political activity can be articulated with the same language.

In Freakonomics, the author provides statistical evidence for a barrage of conclusions that, while very controversial, are exceedingly logical and convincing. My favorite one is the idea that Roe v Wade actually resulted in a massive reduction in criminal behavior, roughly 20 or so years later. The rationale being that persons likely to engage in criminal activity usually come from underprivileged backgrounds and the amount of abortions occurring in underprivileged settings is significant enough such that a significant amount of people that would commit violent crimes such as rape, murder, and aggravated assault were never born in the first place. The reduction in criminal behavior was observed by many circles in the early 1990’s but none outside of this particular author imagined it would have a cause 20 years in the past. It goes without saying that such a line of logic, while very clear and reasonable, is a perfect example of outside the box thinking.

In Beautiful Mind, there is a great scene where the main character, John Nash (Russell Crowe) comes to a realization while observing his fellow academics in pursuit of a beautiful woman. In the scene, he articulates how if he and all of his compatriots attempt to attract the same gorgeous female, they will invariably cancel one another out. To make matters worse, if they attempt to settle for a secondary female, they will undoubtedly be met with signs of disapproval because as John Nash states, “no woman likes to be second”. In any event, the conclusion I drew from this particular picture was the idea that sometimes it is better to tie than to win. Securing the hottest girl in the bar is great and worthy of Maxim Magazine publication, but it is probabilistically unrealistic. What is realistic however is achieving ones fundamental goal of securing a mate and while this may seem like settling, aiming for a much more attainable target usually results in dodging high maintenance pre-Madonna’s, something all men will eventually learn to appreciate.

Like Freakonomics, this idea can be applied to several topics outside the immediate application. For example, a nuclear war between the US and China or Russia is completely inadvisable because even if one wins, they both undoubtedly lose. The same goes for basic social interactions. To be abrasively stubborn in order to achieve one’s “way” at the expense of a relationship is foolish because unless it is something extremely important, the result is a Pyrrhic Victory, or a victory attained at too great a cost.

So with this background, I have a new idea that I’ve been kicking around for a few months, which I call, “Finding the Nipple”. Aside from the obvious sexual overtones, this conception is based around basic economic theory, more specifically, Reagan’s Laffer Curve. Briefly, the Laffer Curve is a compelling taxation figure that shows how a person should rationally approach earning money with respect to taxation. The curve looks similar to an inverted parabola, or a breast in my opinion, with the Y-axis being gross income and the X-axis taxation percentage. As one makes more and more money, the federal government taxes them more and more. If one makes zero dollars, they are taxed 0%, however as a person reaches Alex Rodriguez or CC Sabathia levels of income, the federal government actually takes greater than 50% of one’s income.

While this may seem like highway robbery, it is in fact very true and therefore has attracted the best economic minds in the business. While some tax lawyers would have their clients defer income circa “The Firm”, I am interested in determining how one establishes a maximum balance between two variables, ie finding the nipple of the breast so to speak.

Not surprisingly, this idea extends well beyond the realm of taxation/income and it is my belief that in developing an understanding of this concept, one can reach enlightenment with regard to their own life. Take for example the automatic transmission. For those that know how to drive a stick shift, accelerating a car by pressing on the gas not only results in movement, but increased output by the engine. Depending on what gear one is in, the RPM (revolutions per minute) of the engine rise at varying rates. In first gear they rise very rapidly resulting in more acceleration and more work done by the engine but in 5th gear, the RPMs fall dramatically resulting in less acceleration. So why 5 gears? Because the car requires a series of accelerations to achieve top end speed. A car must start off accelerating quickly to get from 0 to lets say 15 mph but the level of acceleration drops off when one goes from 30, to 40 to 50 mph. Why you ask? Because we all crave fuel efficiency, going 0 to 60 in 4 seconds does not make economic sense. The amount of engine output to achieve such a feat is more than most are willing to pay for, that is unless you are Jimmy Johnson trying to win the Nextel Cup.

So in the 1950’s engineers developed the automatic transmission, which was a machine that could effectively integrate the intricacies of acceleration, speed and fuel efficiency. If you floor an automatic, you accelerate considerably but ultimately, the car will automatically change gears resulting in lower RPMs, and less acceleration. For those of us that have a stick, we may be able to beat you off the line, but if we red line it too much, we’ll blow the engine and spend the rest of the day getting a hold of AAA and hanging out at Midas.

What's the relevance to the Laffer Curve? The automatic transmission integrates engine output with speed and controls the acceleration of a car to achieve the maximum amount of engine output and fuel efficiency, thus allowing us to get 30 mpg or so. Now most folks will tell you that a manual transmission will give you better fuel efficiency, but that is on the condition that you are competent enough to know how to handle your car’s acceleration better than a computer, something I know I can do.

So with this in mind, I have been very interested in understanding how one can integrate the cost/return aspects of their lives. Being an avid ultimate player, I love to play the game but I understand that winning is far from everything. While it is nice to be victorious, I am not willing to make the sacrifices that one must in order to win and compete at the highest level, not to mention the fact that I’m not the most athletic person out there. This might seem trivial but the key for me is to understand the situation and potentially attain the enlightenment I need to avoid frustration and feelings of failure.

These last few words are by far the most important aspect of this Laffer Curve discussion. “Avoiding frustration and feelings of failure”. Wow, wouldn’t that be nice to have all the time. Forget happiness, if I could just avoid being pissed off or feeling like I’m not worth anything, I’d be set. Happiness comes and goes with the cocktail of neurotransmitters that flow through the brain, but this sort of enlightenment has staying power.

Anyway, so the challenge becomes, finding the nipple. Pick a goal, or summit or whatever and figure out how hard you need to work to get to it, while not working too hard such that you’re hurting yourself in the process. This isn’t as easy as it sounds because I get the feeling many people would consider this to mean, get the most while putting in the least, but that statement is flawed because it can’t exist in a vacuum.

What do I mean by vacuum? Living one’s life under this previous statement is like wanting a million dollars. People don’t want a million dollars, they want a million dollars worth of spending power. A million dollars in a vacuum (ie under glass) is just a few pieces of paper. It has no inherent value on its own. Maybe having an important document or trophy or artifact under glass is worth something because there is meaning behind it, but a million dollars you can’t spend is worthless, as is wanting to get the most while putting in the least. The missing element is what you’re working towards. If it is an automobile, do you want the cheapest car out there? Probably not.

We all have a budget and an idea of what kind of car we would like to have. The trick is to integrate the two. If you are rich, odds are you wouldn’t settle for a pinto and if you’re not rich, a Ferrari is out of the question. With that in mind, if either party decided to select the car I have suggested, they’d probably face some sort of frustration or failure. A richer person would constantly be agitated with a car they could do better than and a poor person would either sacrifice everything they had to drive a Ferrari or have feelings of failure because such a commodity is out of reach.

So with all of this in mind, I’m of the opinion that a true adult should try very hard to consistently find their own nipple (don’t worry I know how goofy this statement is). But seriously, if one can look at their life in at least two dimensions (and hopefully more) they can potentially see how it is possible to combine work and reward, as well as know what is or is not more trouble than its worth.

I get the feeling that the bulk of the people that fail to do this are at one end of the curve or the other and are unhappy because of it. If for example someone is overweight and is considering a lifestyle change but never manages to establish a decent diet, it is pretty obvious that they want particular food items more than they want to be thin. Perhaps they say they want to be thin, but don’t put in the energy to achieve it. They are more towards the 0% end of the curve and are constantly looking up at a goal they want, but don’t want to do what is necessary to get it. This may seem trivial but the point is that these people need to integrate what they can do with what they can get and be content with their nipple. There is no reason why self-hatred should result from an overweight person, if they are enlightened to the point where they are secure with their nipple.

Conversely, there are a lot of other people out there that are more towards the 100% end of the curve. I’m at Yale so I know a fair amount of people that do the Investment Banking thing and I always cringe when I hear about their 100 hour work weeks, especially now that the economy is in shambles. They make ridiculous money but they never have the time to spend it and it seems like a ton of them sign off on their 20’s. Maybe it is what they want, but personally, I’d rather enjoy my youth. No one ever says on their death bed, “I wish I had worked more”. Money might mean a ton to a lot of people, but it isn’t everything and I’d rather have memories than commodities. But that’s just me.

I feel like these people have issues with over extending themselves and sacrifice too much for something they may or may not actually want. Maybe money is all the motivation they need but I've heard some horror stories and wonder if things like mid-life crisis and job induced depression are a potential down stream problem.

So at the end of the day, I think it is really important to find the happy medium. This seems painfully cliché but as one gets older, things tend to get tangled up with other things and prioritizing becomes really important. What makes this difficult is outward perception. Being committed enough to a goal to plan out things as I have discussed requires a lot of energy and passion and that is rarely ever met with open arms. People love to take shots at those that dare to take chances and despite the fact that outside perception never matters as much as one thinks, people still doubt themselves and fail to execute. With regard to this, one must be confident in their selection and realize that most of the time, the most important and meaningful moments cannot be shared or felt by more than a handful of people. My PhD, my worlds experience, these are things that only I can understand and appreciate but its absolutely worth it and that is how I have found my nipple. Can you do the same?

just my thoughts

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