The Sovereign Individual by James Dale Davidson and William Rees-Mogg

These are my notes from The Sovereign Individual by James Dale Davidson and William Rees-Mogg. Each one contains a core idea from the book that stood out. The goal of writing my notes this way is that each could be it's own independent idea with the need for the specific context within the book.

The 4 Traits That Determine How Far You Go

Otto Ammon was a German economist who became the first to apply probability theory to major social questions. He studied human ability and relied on the work of Francis Galton to come up with 4 traits that decided the “place which a man will occupy in life.” They are:

1. Intellectual traits: This is the rational side of man-power. Quick comprehension, memory, judgment, and the power of invention.
2. Moral traits: Self-control, will power, industry, perseverance, moderation, regard for family, (character) honesty.
3. Economic traits: Business ability, organizational talent, technical skills, caution, clever calculation, foresight, thrift.
4. Bodily traits: Power to work, endurance, power of undergoing exertions and resisting excitements of every kind, vigour, good health.

Incompetent Competition

A study called "Adult Literacy in America" was conducted in the 1990s. They discovered that finding a literate audience for a political argument was difficult. Majority of Americans over 15 lack basic skills to evaluate ideas and form judgments. According to the U.S. Education Department, 90 million Americans cannot write a letter, navigate a bus schedule, or do basic addition or subtraction. That's 27% of the population. 30 million, or 9%, were judged to be so incompetent they couldn't even respond to the questions.

Digital Economies Are the Experts Economy

The highest skilled workers will have outsized returns on their expertise. Locality is no longer a constraint on the services you can receive. The limit on information combined with locality previously made imperfect markets. The more work moves online, the closer we move towards perfect competition where experts can receive outsized returns for their skills. If you're a patient with a specific illness, instead of having to visit the best doctor in your area, you can now search the top 10 doctors worldwide. Through video calls, their services are available to give you the best care possible. People with specific knowledge are now the most favorable. The top 10% of experts will receive a larger share of the global market. Someone can now hire 27 software engineers for the price of one Silicon Valley engineer from other parts of the world.

The Economic Value of Internet Shifts

The value of memorization as a skill continues to fall. The faster the world moves, the less valuable it becomes. My job does not yet exist as a field of study in universities. Since the 2000s, product management has rapidly evolved. Every company tends to create their own rules around it. An information economy is less about memorization and more about creative application and synthesis. Computers and search engines put all the information at our fingertips. Why would I need to hold it all in my brain? The real skill that drives economic value is being able to derive insights from infinite information to create new forms of value for the market. Memorization is out, while application is in. Wealth will be created by adding knowledge to products by understanding the full context they operate in.

The Creation of Wealth Is an Artistic Performance

Standardized pay was the impact of standardized outputs. When people use the same tools, the output is standard and certain, so pay varies very little. With modern tools, the outputs are no longer like an assembly line; instead, they vary dramatically by person. The creation of conceptual wealth is an artistic performance and the economy is becoming an opera. The biggest reward goes to the best voices. The return on ordinary performance is falling. Middle talent is in high supply because of global competition.

Premiums on Brevity

The amount of information available to us creates a premium on brevity. What is unfamiliar gets left out for abbreviation. The insights to discern what is important and true go with it. When you have so much competing for your attention, the desire is to make information processing quick and concise. Unfortunately, this creates a gap in true understanding, leaving you with no foundations of knowledge or understanding.

Flat Future Predictions (Failure of Nerve & Imagination)

Arthur C. Clarke said there are two reasons why you fail to anticipate the future: failure of nerve and failure of imagination. The most common is failure of nerve. Despite all the facts, we cannot see the inescapable conclusion. It’s not that we cannot imagine it as a possibility, but that you fail to risk being wrong. We would rather fail to accept a thought that could be vilified for the future than risk the prediction being overblown or embarrassing in retrospect. Forecasting the future requires bold predictions. You’ll naturally bring skeptics.

"It Will Rot Your Brain" Reaction

Parents used to say “it will rot your brain” when talking about video games. With the rise of arcades, Boston refused to license video games in residential areas because kids spent too much time playing Pac-Man (it inevitably ended up in every home anyway). In the 1995 experts thought the internet had no economic importance outside of chat and pornography. Believing that too would rot people’s brains. Whatever the old way is set to know better. Despite the initial impulse to shun new technologies, the video game industry is a market worth more than $300B. The internet has created economic opportunities too large to even measure.

The Error of Minimal Expectations

Even experts fail to estimate the impact of new technologies. Being well-informed does not mean you understand the consequences. A British parliamentary committee believed Edison’s lightbulb was “unworthy of the attention of practical or scientific men.” Thomas Edison himself only thought the phonograph would be used for business dictations. The Wright brothers demonstrated flight after heavier-than-air travel was written off by many failed inventors. After proof it was possible, respected astronomer William H. Pickering declared commercial travel wouldn’t work. He said “it is clear that with our present devices there is no hope of competing for racing speed with either our locomotives or our automobiles.” Even the company Mercedes failed to forecast the future of their cars. They knew more about automobiles than anyone but believed there would never be more than a million in use worldwide. We frequently have a misunderstanding about the capabilities of new technology, tapering our expectations too low.

Disgust Is a Leading Indicator of Change

One era always turns into another. Technology disconnects the old way from the new means of economic prosperity. Your morals and preferences shift with it. Disgust for the previous forms grows with technological adoption. Widespread disgust comes before any new coherent ideology is molded. It's the leading indicator of change.

Financial Escape Velocity

Financial success is not measured by the number of zeros in your bank account. A millionaire (or even a billionaire) may not be financially successful if they're confined to a role in order to maintain their wealth. You become financially successful when you have full autonomy and independence. Financial independence is the goal. Financial success is found by structuring your life around freedom. You can reach financial success long before you have 7 figures in your account by just being clever with your money. Before you reach unprecedented financial independence, measure your financial escape velocity to know how much effort is required to push you over the line.

Barbells of a Machine Learning Society

Society and culture will be defined by the ends of a barbell. On one end is what machines can do better than people. Where automation can replace low-skill tasks. The people who once fulfilled these are "information poor." They're forced to compete with quantity and certainty (something that's never achievable for themselves). The other end is the "information aristocracy." These are the people that actually have the talents to take advantage of new technology. These people will enjoy a high level of freedom that's not available to others competing against automation.

Society Is Shaped by Work

Think of a group of 1000s of hunters looking for food. They would have caused a ruckus and scared away the game. If they managed to kill a herd to feed them all, food would not be sustained for long. Tilling and farming shifted the paradigm. Simple shifts in work can alter the organization of society. Hunting bands had to be small. Farmers could be villages. Industries could be cities within skyscrapers.

Clear Thinking Becomes Wealth

The internet has created an environment where the greatest source of potential wealth comes from individual ideas. The ideas in your head, rather than just physical capital alone, create the opportunities for upward mobility. Anyone who creates the ability to think clearly will be rewarded in equal proportions. Now, the brightest and most ambitious will be successful regardless of past circumstances.

Attention Diverted to Non-sense

The average American in the 1990s spent 100x more attention on the O.J. Simpson case or the Monica Lewinsky scandal than on new emerging technologies. In 1990, there were about 132,000 travel agents. Today, there are only 44,000. Our attention is often spent on non-sense, trivial things. The internet and software destroyed 3/4 of travel agents' jobs because they ignored the trends in innovation. Distracted by mainstream gossip.

Conceptual Glue for Cultural Blind Spots

Culture has blind spots and uncharted frontiers. Places with no vocabulary to describe an experience or change happening around you. The job of an artist is to provide the conceptual glue for others to name these paradigm shifts. Their role is to expose the blind spots so that others can recognize them in their own life. Naming the tokens that exist there.