Meeting People
Amul Pandya converses with independent, adventurous and sometimes courteous free spirits. Creativity is an act of rebellion. Whether they are entrepreneurs, artists, athletes, investors, chefs, or corporate antagonists, Amul's guests all share a common disposition of not just pushing boundaries but re-drawing landscapes.
Meeting People
#1 Simon Evan-Cook - the Winston Wolf of investing
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Richard Feynman once said "If you can't explain something in simple terms, you don't understand it." Simon not only explains challenging topics with simplicity but also throws in a healthy dose of entertainment. I was gripped from start to finish during this conversation and learned a lot. We covered the tyranny of experts, the shortcomings of scientism in complexity and systems thinking, the reduction of education to exam-taking, forthcoming societal challenges, the Dunning-Kruger effect and more. Strap-in at 1x speed to get the most out of this discussion.
Books mentioned:
Thinking in Systems: A Primer - Donella Meadows
The Wisdom of Crowds: Why the Many Are Smarter Than the Few - James Surowiecki
Alchemy: The Surprising Power of Ideas That Don't Make Sense - Rory Sutherland
This podcast was produced by Matt Cooper with music composed by Loverman.
Problem Solving in Modern Society
Speaker 1Hello and welcome to Meeting People with me , amal Pandima . Meeting People is a podcast where I speak to rebellious , adventurous , independent , sometimes courteous , free spirits , and today I'm very , very excited to have Simon Evan Cook with us . Simon is a very , very well regarded investor and also a very thoughtful writer .
Speaker 2Simon , thanks for being here . Pleasure , very , very glad to be here . Thanks for the introduction .
Speaker 1Right . So look , let's dive straight in . I think if I was to have to sum you up in one short phrase , it would be something like you're a professional problem solver . Now people listening might think , oh so he's an agony art or he's , you know , something that organized crime goes to when they need to take out a kind of nuisance Like the wolf right Exactly , you're sounding out of reservoir dogs , but the reality is , you know you like the realm of complexity and the role of problem solving within what is a very weird and wonderful , difficult world . Is that an accurate representation of how you think ?
Speaker 2I think that's probably fair . I do like to fix things . I think without having any kind of clue about engineering , I believe I've got a kind of engineering mindset in that I do like to fix things , I like to make things better . Whenever I've had a job in the past , the jobs that I found most boring are the ones , probably , where there were no problems . There I was running quite smoothly when they were fine . But when I'm able to see a problem and then find a way to fix it , that's when my brain kicks off and engages . And so , yeah , I think that probably is a fair way of describing it , albeit one that I haven't necessarily considered for myself before .
Speaker 1Well , I had a follow up question to that . But something you said there is just grab me . You said problem solving with an engineering mindset . Now , do you work in the investment world ? Yeah , do you think that there's a bit of kind of or in certain domains it could be an investing could be elsewhere . There is this kind of engineering envy , let's say , where problems are approached with a pseudo scientific or scientific lens , where it's actually the complexity doesn't fit .
Speaker 2Yeah , I think they're completely as an , I think when I'm sure we're going to get onto this later but when you look at so many of the problems we've got today , it's because of people working in the social world , the complex world of human interactions , who are trying to act like physicists , who are trying to put every interaction down onto an Excel spreadsheet and then be able to map it and control it and plan it forward . That's where I think so many of our problems are coming from at the moment , so many in the world of business , in the world of socially living , social media , I mean everything I think comes down to . That is the . Is that trying to apply science to everything ? Now , I'm a big fan of science , but I also think also science has been proven to be have its shortcomings .
Speaker 2I think actually , in its defense there's something called Mount Stupid , which is the Dunning Kruger effect , which I'm sure you've come across before , but if you haven't , it's effectively a curved line that goes up straight and then comes down straight and then goes back up again and that maps knowledge of a certain subject , to map it from an individual perspective . And if you think about what it was for like for us growing up we had maximum confidence probably the most confident you ever were was probably at the age of 18 that you believed so strongly in certain stuff . That's the peak of Mount Stupid . And then , when you get into your twenties , you suddenly realize that these long held views that you had aren't quite as good , and that's complexity coming in this single view you had that this thing was the only way to do it . Actually , when you applied it in real life and got to try it , you found all these problems with it , collided with reality .
Speaker 2Yeah , collided with reality , and I think that is where so much of the world is . I think science to be fair to it , if you think back to the fifties , I always use the smash robots , and that might be before you .
Speaker 1You remember the smash robots ? I came , I only came across it from your blog .
Speaker 2Oh , right yeah .
Speaker 1For those who haven't seen it why don't you just ?
Speaker 2So if you were a kid in the eighties , there are certain adverts that you'll remember , and the smash robots will be one of them . Now , smash was a kind of synthetic mashed potato product , and at the time , those adverts were basically some robots and space Martians laughing at the stupid humans because they still ate these things called potatoes when they could have these packets of rational .
Speaker 1Yeah , yeah , that science had improved , yeah .
Speaker 2We now know , and science now knows , that that was all sorts of wrong , and these smash robots who were laughing at us for eating potatoes are now being proven to be the idiots . Not us , because you're much better off eating the altered product than you are eating the kind of space age thing . Like in the fifties and sixties , everyone believed everyone was going to be eating pills . We'd all be wearing silver suits and flying around . Science Got its ass kicked many , many times and I think it's now come down the other side of Mount Stupid and so many more . Institutions and scientists are now building complexity into the way that they measure things , the way that they do their experiments , and I think that is for the betterment of science . But in the social science world , particularly economics and how that then goes into investing , I think we're at the peak of Mount Stupid . There are so many people with maximum confidence about what should be done , what's coming down the pipeline , with so little appreciation for the PhDs .
Speaker 2Yeah , who never leave the lab right and never have to apply this in the real world , never have to run a fund and see the look on someone's face when some decision that you've made has lost them 100,000 pounds of their investment pots . They don't have to do that . The stakes they make are kind of like whoops , never mind , I'll just change my theory and we'll move on , whereas actually if you're operating the real world , that can end your career , that type of thing . So it's practitioner versus theorist a lot .
Speaker 1Yeah , have you noticed , kind of science itself has become a kind of tribal thing recently .
Speaker 2Yes , yeah .
Speaker 1Let's not go down the covert vaccine rabbit hole . Maybe next time . But it seems to be this , this thing that people hang their hats on in a very religious way , almost like yeah , it's almost yeah . Religion is a bit like a new kind of Newton's second or third law . Of any , it can either be created or destroyed . It just changes form and it's gone from you know the crucifixion to the belief in you know the scientific method , or like absolutely the science is settled .
Speaker 2The science says this the really I think that is . That is the modern religion is science , and to the point where , if you think about what religious belief might have been 50 years ago , 100 , 200 , 300 years ago was an unquestioning belief . People have now switched that to science . They believe that . I mean we just don't have enough time to check all the science right . It's just simply not enough time the day . If I'm told that this drug works or that this chemical reacts in such a way with this chemical , I've got no reason to disbelieve that if it's presented in a scientific way , and I'm not going to go and do that test myself . So I have to take it on faith that they've done it and they believe and I think that is exactly . I think you're exactly right . That is where modern people find their religion is the belief in the science . I trust the science and that's what religion used to be right .
Speaker 1It was a kind of I trust it's very ironic , because you're trusting something that's built on skepticism and you know disproving things .
Speaker 2Yeah , and now , all of a sudden , people aren't applying the scientific method to the scientific method , which is fascinating to see that happen .
Speaker 1Yeah , I mean I want to ask you about this later on , but let's jump into it now . I mean there's two or three incidents I saw in the media during the kind of during and in the aftermath of the kind of Brexit referendum that happened here , when one example was Michael Gove was being interviewed or debating Faisal Islam Sky News and he was challenging him on like can you name an institution that supports the economic case for Brexit ? You know against it .
Speaker 1We've got the IMF , we've got Bank of England , we've got the Treasury you know , name one three letter putting words in his mouth , but name one three letter institution that you know both of us , the CBI that backs it , and Gove was kind of , you know , backing away , backing away until he was in the corner and he kind of just looked , look . He said , look , the public are fed up .
Speaker 2Oh , yes , yes yeah .
Speaker 1Telling us what's what's right and what's wrong . And there was a second example of this , where it was on Jeremy Vines radio to phone him where it was the same issue and this lady calls up . I think she had a balls and accent , which I won't try and do , but you know she said it was . You know it's your expert predictions that cause the Titanic to sink , was her like yeah , that kind of grandmother's intuition and the final example was was a BBC journalist called John Sopo .
Speaker 1It was on the kind of daily politics show where he was challenging someone who was on the kind of the leaf side who talked about . He talked about this loss of faith in experts . He said you know that you're , you're basic . You know the people I called village idiots . He described people , called the people who don't believe in experts anymore . And he was . He married doctors and nurses with economists and and bureaucrats and it goes to the . You know this is turning into the world's longest question , but your point is we don't have the time to analyze a scientific experiment and the outcome of it . What we do is we have our tribe . We will find the scientists that will back up from that perspective with experts .
Speaker 1You know , expert like rationality and we hang our hat on it . And what kind of worries me is that our experts are all too similar . Yes , yeah , absolutely . And so the question I guess is are you , do you think we have a bit of a tyranny of experts here , that that isn't diverse enough in their perspectives and therefore you get this herding of opinions that say they all read the same newspapers , they all go to the same parties , they all go ? You finish the IMF , you go to the central bank . You know whatever .
Speaker 2I absolutely do , yeah , and it's something that I've given a lot of thought , and I think Brexit is a really good example of that . And I'm somewhat unusual in the sense that I'm a remainder by vote and I woke up on the 23rd of June , same as most other remainers , and was shocked . You know , still remember that feeling sat on the edge of my bed when I had my phone in my hand of just being , you know , shocked , borderline , horrified at the outcome . But since then , and contrary to what I read in the press , I've actually moved more towards Brexit than further away , which , from what I read and understand , makes me , in a minority of about one , an outlier of him .
Speaker 1Yeah , completely yeah .
Speaker 2And I think the reason for that and it will come unto all sort is I began to get a bit annoyed with the experts . I spent a lot of time trying to think about why would people have voted the way that they did . I didn't . At first , I was probably as guilty as any remainder and a lot of remainers , I think , are guilty of this of painting all remainers with the same brush , of saying they're just racist , they're just voting because they're racist , and undoubtedly there were or they're ignorant or they're ignorant or the racist , and that was basically it . They dismissed everyone as that and I think that is borderline criminal .
Speaker 2When you really spend time thinking about the different reasons why people may have voted Brexit and I wrote a few different examples of why you might have voted Brexit and not be rational at all , so I wrote a series of blogs on that and all of them I think you can put a perfectly rational case forward for why you might have voted Brexit .
Speaker 2But in response to your specific question here , I think one of the biggest fault lines in Brexit Trump , bring it forward a few years Elon Musk In our societies is one that doesn't get discussed very much and I think it fits beautifully with the subject of your podcast and it is about . I think it's about risk takers and free spirits and rebels versus rule followers and rationalists and logical , more scientific types of people , and I think there was definitely a split there on Brexit , remain on Trump , not Trump . Maybe some of those people couldn't have brought them to themselves to vote for it because of the characters involved . You've got people like Farage and Trump , who are no one particularly likes them , but a certain type of people you never really like .
Speaker 1It took a certain personality type to kind of for decades . Not , it wasn't a surprise that you were an asshole if you had to substantiate these views over a number of decades , exactly .
Speaker 2Yeah , and it probably took a certain type of person , to be fair to them , who is maybe slightly shunned from the elite , from , you know , polite London society or city society or British society , to maybe see that and do that to give them their Jews , their worth . But I think when you , I think a good way , I think , of describing this is , I don't know if you've seen the movie or read the book One Flow Over the Cuckoo's Nest . I actually haven't . No , yeah , it's a highly recommend watching it and I think the two main characters in that sum up those camps perfectly . So just as a little intro for you , well , you haven't seen the movie but other people might not have done as well . So you have
The Clash Between Rebels and Bureaucrats
Speaker 2.
Speaker 2Jack Nicholson plays a character called Randall McMurphy . He is a kind of small time , petty criminal series of crimes , you know , you might even call him a hacker of sorts , a rebel at heart is caught for a crime , not a particularly pleasant crime , but not a really serious crime as well . He thinks he's hacking the system by not going into jail but by putting himself into a mental institution as well , because he thinks it'll be an easier ride . So he thinks it's another way of kind of rebelling and getting out of having to do the hard yards . So he's put into this mental institution . But once he's in there he comes under the sort of control of Nurse Ratchet . Now , nurse Ratchet is very much a role following order , not chaos .
Speaker 2So again , you see a lot of these things repeated in all sorts of movies Spock and Kirk , for example , c3po and Han Solo , these types of characters when they come together and clash . But in this one it's quite a serious , heavy movie . But you have this one character who is a free spirit , who rebels , does not like being told what to do , who clashes with this other character who has been told what to do Without necessarily understanding why she's doing it , will stick doggedly to those rules and any sign of anyone coming in and changing any of the systems that she's got in place in the control she has are met with a crushing offer . And I don't want to give a spoiler , but it's an old enough film that I think is probably fair enough now .
Speaker 2But at the end of it , nurse Ratchet sort of reveals herself to have not been concerned primarily with the well-being of her patients . She's been concerned with maintaining control , to the very obvious cost of one of the patients . At the end of the movie , and it comes down to that . When you watch it it's quite shocking . And I think when one of the things that changed my mind a little bit about Brexit , or at least moved me further from the spectrum , away from Remain , was when we were in the EU . We were very happy with it . We are very happy to you .
Speaker 2Look to the people who are running the EU . They were very civil , very obeying , nice people who were looking out for everyone's interest , and we were quite happy to be in there . As soon as we said we wanted out , they attacked . You saw a sort of glint in their eye , a kind of snarling of the teeth , and they went for Britain and they didn't seem to care about the British people in the way that they'd suggested they did before . I think someone who is genuinely interested and concerned would have said well , we want a good deal . We want , still want a good deal , because the British people are still good people , as are European people . But they went to punish , not to kind of ease the passage of it , and that for me was a little bit of a . Actually , maybe I see a little bit what some people were rebelling against when they voted for Brexit .
Speaker 1I think with these issues , it's interesting how kind of people wrap their identities around them in a way that you know and social media may have some responsibility for this but like you identify as a lever or Remain and you have it on your profile , you have the EU flag or the yeah .
Speaker 1And I just as you were describing Nurse Ratched and Jack Mickelson , I couldn't help but be remiss of . My two and a half year old girl would be shouting . And if I don't mention Snell in the Whale by Judith Olson , oh yeah , a classic , a classic , a classic Hero's journey , absolutely . You know the other snails in the flock . Be quiet , sit still , don't wriggle , stay put . It's in my head , it's kind of like , and in this snail she goes on this Do you think the kind of that bureaucratic class or that controlled the Nurse Ratched ?
Speaker 2Yeah , the Ratchedists I'm calling them the Ratchedists and the McMurphists on the other side .
Speaker 1Yeah , they have an inherent fear of a broad dispersion of outcomes . So they , whereas the hero or the kind of rebel or the hand solo you know , will face death and success , that kind of I'm doing a bell curve for people listening like where there's a wider dispersion of outcomes , and that's kind of what a hero's journey is is you're willing to risk death for changing the world or doing the unlikely ? And it's the kind of the you know , the economist class , where things are predictable and forecastable even though they're driven by complexity , like to kind of pretend there's a narrow dispersion of outcomes and there actually are . And it's quite damaging .
Speaker 2Yes , yeah , I do . I think it's . I do find it fascinating the different characters , how they come in together . Do you want if we start that one again , because I'd sort of forgotten the initial point ?
Speaker 1of the yeah . So the answer to that If you yeah , maybe do the question again .
Speaker 2Yeah , and cause I'd lost my thread ? Oh , yes , right .
Speaker 1That was my question . Yeah , so like the nurse ratchet example you gave or the kind of that the steadying the ship , let's not rock the boat mindset that's kind of prevalent amongst the kind of bureaucratic segment of society , do you think that they have a inherent fear of a broad , a broader dispersion of outcomes ? That was a big thing in the you know what . What does a Brexit Britain look like ? And the answer is we don't know , but you're offering predictability and stability and a narrow . It might be crap , but we know what it is and it's not going to deviate too much versus that kind of hero's journey , that C3PO , the Han Solo rather , where he's willing to accept death , take the risk that cause death . I've to create the chance of these outsized outcomes . Entrepreneurs are another example of this . So do you think that that's just maybe a human mindset or is it more of a tribal ?
Speaker 2thing that I think it's different types of people , and what I'm fascinated by is , I guess , cause and effect on that . There are certain type of people , this kind of nurse ratchet type of people , and what I'm not sure about is is it because they don't necessarily have an imagination or aren't created necessarily the most creative people , which means that when something unexpected comes along , they don't have necessarily the ability to solve that problem and therefore become a little bit panicky ? And because that makes them panicky , that makes them plan ahead and it makes them want to get ahead of it and make sure there's a there are rules in place , there are plans ahead , because they don't like being caught off guard . Or is it the other way around ? Are they naturally people who like to plan and control and do things .
Speaker 1My wife likes to plan holidays 12 months ahead and I'm kind of like I don't know what I'm going to do in 12 months , when it worked .
Speaker 2I'm not criticizing either side , because I think human society has got so many different angles like this , spectrums where the two halves work together , like conservatives and progressives . You take one of them away , there's a problem . You need both . Yeah , I think it's the same with creatives and you know more kind of rules based , rational people . I think you need both .
Speaker 2I think the problem that we've got in society today is and this is something I've been noodling around in my head for a while is that , from a society perspective , risk taking is a recessive gene . Yes , so what I mean by that is that , if you imagine , in my world , fund management , what tends to happen is the people who maybe start funds which become successful are quite often big characters . There's probably a rebellious streak in them . They don't want to do what the market's doing . They don't want to set up their fund and manage money the way that they want to manage it , and that's probably the same across all sorts of businesses . A lot of entrepreneurs see the way something's done , don't like it , want to do it differently . Yeah , and there's a rebellious streak in them . Now , when you are a rebellious character maybe who embraces chaos and allows chaos to be part of your operating system . It's probably quite appealing to have a number two who is a controlled person , someone who nails down details , plans ahead , and I think that works quite well . When the chaotic person who's got the creativity is in charge of the kind of more controlling , that's probably a great relationship , yeah , and what's to happen after that is that that person retires the founder and puts in charge the controlled person .
Speaker 2Now , I don't think controlled people like to hire chaotic people underneath them .
Speaker 2No controlled person says I need to bring some more chaos into my life , I need to .
Speaker 2So I think what tends to happen is , as businesses and societies mature , is that the risk takers either retire out of it and they're not brought back in , because once the Tim Cook is in charge , rather than the Steve Jobs , they're not going to want to hire in rebels underneath them , because they don't enjoy the chaos . They don't want to bring more chaos into it . And I think , when you look across all of our society , all levels of business , and you look at culture as well , what's happening in the movie world , where every other movie is a superhero movie or is a reboot , or there's just not the originality there and it's because you've got rational people in charge who say I like your idea , but show me the evidence that in the future this will succeed . There is no evidence . There was no evidence that the Matrix could have succeeded 20 years ago . It's a crazy idea that used weird philosophy and unproven technology and yet it did . But now they're making remakes of the Matrix , so they're not making new stuff , and I think that's what we've got to in society .
Speaker 1You're absolutely right , it's like a different mindset to make money versus keeping it . Yes , and one of the things that Rory Sovland , who I know you're a fan , of talks about is you know , it's always the creative Maverick who has to justify his plans to do the counting Exactly that , yeah , or the CFO or the procurement officer , but it's never the other way around . They don't have to justify why they have structured something this way and why it shouldn't be free for them .
Speaker 2And it's such a brilliant point . I love that point from Rory Sovland as well , because it is exactly that . You know , if you've ever tried to create something or do something new , you've got to run it past finance , past legal past , compliance , past . You know , but the legal people don't run anything past me . What do you think of this contract ?
Speaker 1We're introducing this new dealing rule or compliance rule , the current budgeting system . What do you think ?
Speaker 2Yeah , but I think actually , joking aside , it would probably be a good thing , because diversity in the genuine sense of bringing in people with diverse thought patterns who's to say that they couldn't actually just point out something that's pretty obvious about that that you've forgotten because you were , I think , yeah , again , any system is going to be benefited , if done the right way , from bringing in different ways of thinking , different mindsets
Impact of Exams and Expertise in Society
Speaker 2of looking at it .
Speaker 1For sure , yeah , I mean you've read James Surowakki's book Wisdom of Crowds .
Speaker 2Yeah , a long time ago , but the principle stuck with me for sure . Yeah , really powerful book .
Speaker 1I will put these in the show notes . But one of the things that stuck with me from that book was that the crowds where you had Deaf people no longer there , only educated people performed worse than the crowds where you had I'm putting it educated in inverted commas for people listening . But If you try to get a bunch of smart people in the room , their prediction power fell . You know , yeah , dramatic . You needed that variation of backgrounds and people who were Less good at doing exams but may have an other form of intelligence .
Speaker 2That is kind of and you also literally needed to not put them in a room together so that they couldn't anchor each other and influence each other , and so , yeah , that is a . It's a true thing , markets do work very well , but as soon as they start to anchor on something , and this , in my world , benchmarks and indices Mean that now you've got something that everyone's copying and moving around , whereas in dex , years ago .
Speaker 2Yeah , we won't get into that because it's not a financial podcast , but it , yeah , it is that . It is the anchoring and it is , you know it , the . The example I think sorority uses in the book is of A county fair where you've got to guess the weight of the cow and everyone gives it independent guesses , one at a time , and Actually the average of those is always right , it's more right than any one of the individuals , unless one of those individuals just shouts at the whole crowd .
Speaker 2I think it's half a ton , in which case everyone anchors on that . Even if it's actually one ton , then it can be wildly out . But yeah , but it's , it's . It's absolutely true , and our society , I think , is getting it's having a lot of thought removed from it and again . So you mentioned the tyranny of experts , but I think also one of the weapons of the tyranny of expert is that is , exams .
Speaker 2And this is something I'm getting a big bee in my bonnet about at the moment is it's a gate , and it's increasingly a gate . That is , is narrowing out lots and lots of people from the top jobs or even half decent jobs , because passing exams is a skill set and not everybody has it and not everybody Wants to do exams . A rebellious type of person you might well be the sort of person who's listening to this podcast might hate the thought of exams . My youngest son is a rebellious character and Hates exams , just rebels against the idea of them . I'm not going to use this in my future life . Why should I bother revising for it ? That sort of character is never going to do as well as someone who does what they're told and well , it's the classic example of incentive .
Speaker 1You know , show me the incentive and I'll show you the outcome , or the or the behavior . And you know , I I Think that the problem , it , or yeah , another way to put it . I think it was Einstein who said you know , not everything that counts can be counted . You know , yeah , and not everything that can be counted counts . And we like to measure things because it gives us that illusion of certainty . And we've equated education with the ability to memorise and rote , learn and regurgitate in a short term .
Speaker 2Yeah , and it's a skill set and it's not an . It's not an amazingly useful skill set , and it's a new , diminishingly useful skills as well , given that we've all got phones in our pockets which give us that ability to pick up facts but the incentives are .
Speaker 1You know , I was very lucky thanks to you know a lot , of , a lot of graph from my parents to go to a very elite school and you think that that's brilliant . It was brilliant in many ways in terms of facilities and stars a real fish out of water . But what were they measured ? What was the school measured on ? It was measured on how many people went into Alkstbridge and how many a stars and a's people get so all of a sudden . That's how the school measured their performance . So the teachers were pushed , yeah , to teach along those bases .
Speaker 2That's awful it's absolutely awful .
Speaker 1You get that , sir . Will this be in the test ? I've had this right before this podcast , unfortunately . But like , and the kid is trained to switch off the moment the teacher goes . Well , this is pretty interesting , but it's probably not gonna come on again . But you might want to know that .
Speaker 2You know it's not in the kids interest because they're told and the teachers like it to get a wrap across the nose . Yeah for wasting time , even telling the kid about it in the first place . It's not on the curriculum . Don't waste their time . It's absolutely terrible . That system is wrong for all sorts of reasons , like and if you want , I would get rid of exams . You know , if you want Ways to make the world better , remove all exams and just yeah , and then rely on people to judge whether someone is good at the job .
Speaker 1That you're hiring them for .
Speaker 1I think , again , meditation is a form of volatility , dampening in some ways , and you know when you it tends to come , let's say , in . You know , in the investment bodies , you know you caught these people . Now you know exams are seen as a proxy of . You know how well you know you can and it invest or understand risk . And we all know that risk is not about absolutely test and what , what kind of . You know what I've noticed about it various industries is that as they progress , let's say like a , a new innovation comes along , a new technology and then new industries born around , that Initially the dispersion of outcomes is pretty wide . As you know , people experiment phase . So I'll give you a , I'll give you a model which I found .
Speaker 1I'm probably gonna butcher , but I found really interesting the book I read recently called the innovators dilemma by a guy called Clayton Chris Christensen , who it was a favorite , a book that was a favorite of Steve Jobs actually , and Bill Gates was a big fan of his mother . In it he kind of references this model by and research institution called the wind Amir associates and say any new technology industry goes through four stages . It starts with functionality . That's number one . Number two is reliability , third is convenience . And fourth is price . So let's take as in it working example the oil industry .
Speaker 1So in the 1800s in in Pennsylvania , these farmers noticed what they call the crude substance which was getting in the way of their crop , and they didn't know what the hell it was Till someone figured out this thing burns , right . Oh , that's quite useful . Yeah , does it ? Does it tick the functionality box ? Yes , okay , let's try and do something here . Some people probably got hurt or damaged , some people , you know . But that second stage when they worked on the reliability people want to refine it . They give it different uses once it was refined . Then people went to step three , which is convenience , terminals , transportation .
Speaker 2Yes .
Speaker 1Yeah , you're getting . And then step four was price . It became a commodity . Yeah , effectively , and along the each step that the dispersion of outcomes kind of narrowed and Experimentation diminished . And I guess my challenge to you is someone who likes problem solving and understands complexity , you know , does the investment industry Tighten the boundary conditions around you too much to do that properly ? So let me sorry again , and bad habit of very long questions , so let me just finish the train of thought . You know , let's take the investment industry as an example .
Speaker 1Appalled vehicle as a invention or technology was kind of discovered to be Functional over a hundred years ago and then it was made reliable by people coming in and doing it full-time . Then it was made convenient through platforms and , like you know , being able to trade and have you broke her . And now it feels like all we talk about is price . So , yeah and it's , I've got . Actually , no , I'm not gonna , I've got . One more model was just crossing the chasm , by Jeffrey Moore , but I'll come back to that after . Do you feel like your toolkit is being diminished by this journey across that ?
Speaker 2I do . Yeah , I think it's the , it's the regulations . As you go on , things get cemented in and there's all sorts of reasons they get cemented in and again it's . There are certain type of people who want to narrow things down To a very precise level of what are you gonna do , what's it gonna look like , what's it gonna be ? Yeah , and again there's a lot more of those in our industry than perhaps they used to be . Some ways that's good because they've removed some of the the bad elements , the real worst stuff . But quite often in removing a lot of the worst stuff , everybody else gets dragged down to a certain level , like the really brilliant .
Speaker 2I've used the example of restaurants in the past whereby If there's a restaurant regulation trying to get rid of the few cases where food poisoning happens , they put in place rules , regulations this needs to be filled in , whereas actually most restaurants are doing this stuff already . They know that poisoning clients is not a great business model . And the very Many excellent restaurants , the real outliers , the ones that provide amazing food at cheap level You're only making their life harder and making their product more expensive because they then have to hire someone who fills in the boxes to make sure that and checks that it's been cleaned properly , and and everyone then suddenly becomes they're not thinking about it , they're just staying in their own little area . There's a person who's in charge of cleanliness and everyone else just thinks what's not up to me , it's up to the person who does cleanliness , and that's completely happened in the finance industry and everyone's got their own little job and actually trying to step back and and Be a little bit entrepreneurial and go actually . This needs to change . This needs to be different .
Speaker 2Having just been through the process of launching funds , I've seen that how hard that is , because To give you one very precise example of how it's changed when people used to launch a fund , even as recently as five , ten years ago , they used to set an objective for that fund and that objective used to be super woolly . Right used to be to grow your money yeah , and maybe that was too woolly . But now the objective runs to two or three paragraphs and it talks about it will only hold 65 to 75% UK equities and that's too precise . Can I rail against that ? Because that might be fine for now , but it shows a lack of imagination of what can happen in five , ten years time . Uk is a fine place to invest now , but it should something happen which means it's in my investors interest to move money out of the UK .
Speaker 2I don't want to be held back by a rule that was put in place under completely different conditions that are no longer relevant but are cemented in . Yeah to our prospectus and our rules and our legal documentation . So there is a there's a keenness amongst certain types of people to cement stuff in , get the rules written down , codify . If I've just written the Downing Fox Downing Fox is the the part of the company I work for , rule book and the rule is and I nod to fight club on this but the rule is never write down a rule . And rule number two is see rule number one , because I just think as soon as , even if you've got the best intentions , you think what you do is the best thing going , you don't know whether it's going to be the right thing in ten years time . What needs to be passed on , our principles and the way that you operate , but the actual mode and what , the precise nature what you do will need to change as the world changes and adapt .
Speaker 1Well , that's , I mean . I think that's very well put . And what one of other parts of that book I referenced the innovator dilemma . You know One of the things he says it's not .
Speaker 1The reason why large companies struggle to innovate or come up with disruptive technology Is not because they're lazy or bureaucratic or they've left let me know , they've taken their foot off the ball . You know , got comfy . It's because they're following Principles of sound management , yeah . So what are the right things to do ? Well , you want to go after large markets , you want to Go for the most profitable enterprises and you want to be able to predict . Yeah , you know what , what , what the future revenues are going to be . And so you get this kind of in big companies is internal filtration process where good ideas get stamped on because they can't . The guy proposing it's got . Well , I've got this idea the market's tiny , if non-existent , and the margins are gonna be really slow , really low or small or narrow for the next three to five years . But this could be something really interesting that no one's doing . It'll never , they'll never make it past . Executive .
Speaker 2A car would never have been invented right because it would have been like well , it's not a horse . With the market for horses , it's huge . Why would I yeah , in this crazy contraption ?
Speaker 1Yeah , exactly that happens over and over again going back to that loop of education that the challenge with that exam is that you know when an industry becomes mature , you see accreditation becoming the norm , whereas in the early days it's kind of like that , yeah and so you , and but your training kids for the end of the journey To enter the post innovation part of the are you
Problem-Solving and Fund Management Complexity
Speaker 1completely on .
Speaker 2I think fund management my world is the perfect example of that , because if you think about it To become a furniture , desirable job , right to become a fund managers , a lot of people want to do it . You've got to pass a load of exams to do it . Passing exams means doing what you're told . Study this , study that , learn this . Turn up at this time , regurgitate for three hours this thing and then do it all again for another three years to get your CFA . That requires you to be very good at doing what you're told .
Speaker 2When you then become a fund manager , the only way to be a brilliant fund manager is to do the opposite in a lot of cases , of what everyone else is doing , to be so out there that you are Ignoring what the market says you should . In the market is a big voice saying do this , do this , do you should invest in this ? And you're stupid if you invest in that . It takes a rebellious type of person to do that , and those are , in my industry , a dying breed of investor who are prepared to say Screw everyone else . This is the right thing to do . This is how you should invest .
Speaker 2I don't care that everyone else is doing that . I think they're wrong and that is not the type of character that gets through Exams or very few of them do and I think that's why there are so few amazing fund managers is because All of the kind of rebels and the Mavericks who've got the ability to do something different and Be different enough in a good way to create incredible returns over a benchmark are filtered out Well before they get to being in charge of a fund . It's , it's sad . Yeah , I don't know what the answer is .
Speaker 1Well , so let's , let's switch to Simon's perfect world , then , where , um , complexity or problem-solving is part of the kind of education curriculum . One , yeah , one of the things I remember from reading Carniman's thinking fast and slow , was he wanted Behavior people to have a better lexicon with behavioral psychology and to , like you know , arm people with a better you know some mental models and some words that they can use . And I think he's been , or his movement has been , phenomenally successful that most people you know , you hear them , you talk about loss , aversion or you heard it purding , or the word bias appears quite a lot . What we don't have is that movement with complexity , and that's something that I know you're trying to address , so Trying to give people a bit of a lexicon to kind of approach a complex world . So why don't you kind of give us a couple of examples of yeah , tell us you start with you know why you think problem is just too narrow word .
Speaker 1Yeah , give us some examples of you know what we should be adding to that heading and what are the substructures of Problem problems , too narrow word .
Speaker 2There's a . There's a good example with the innuets . Supposedly they've got I forget the number . Let's say they got 50 words for snow . They've got 50 words for snow because they said , spend so much time with it that they can see all the differences .
Speaker 2But we are surrounded by problems . I mean , particularly in the modern world . We are surrounded by problems and yet we seem to only have one word for problems , which is problem . Or maybe you've got conundrum , maybe there's another one in there , but I , yeah , a few years ago I started with my blog , never mind the silver bullets , going down and looking at actually there's loads of different types of problems .
Speaker 2Like there is a problem which are christen , the shoe stone problem . Yes , and I called it that because you've got stone in your shoe . What's the solution ? Take the stone out of your shoe problem , solve . That's done . That is a really simple cause , single answer , single answer . It's got a silver bullet solution . I take the stone out of the shoe . But that is a specific type of problem and there are tons of those around and you'll meet hundreds every day and you'll solve the hundreds every day , but Almost by a process of a Darwinism , the problems that stick around in people's lives the longest Are the ones that can't be solved with one simple answer .
Speaker 2The example I used was of my second child who Wouldn't sleep for 40 months , wouldn't sleep through the night , and we were pulling our hair out to try and work out what was the problem . But the problem was that it wasn't a problem . The problem was that it was a cluster of two problems that had linked together . Yeah , that needed two answers , but it was masquerading as one problem . Now , if we'd have known and I've called this a hickam- is what I've christened this thing as , where you get two problems together .
Speaker 2So actually what you need is a an answer that has two parts , and the case of my child , the reason he wouldn't sleep was because , firstly , he had a dairy intolerance , so we were feeding him milk and he was waking up in the night with an upset tummy right . But also we didn't know that he hates being hot and he still hates being hot . Now , at the age of 30 , he doesn't like it at all . But what was happening was , as a Six-month-old baby , we were eliminating all the problems on the food side , one by one , taking out this food , taking out dairy , and we took out dairy at one point and it didn't solve the sleep problem . The reason it didn't solve the sleep problem ? Because we happened to do the dairy problem in summer , when he was too hot , anyway . So he was still waking up and crying about the heat thing . So we needed to hit solve the two problems together , and that is so much more complicated than trying to find one answer .
Speaker 2But we go through our lives Trying to solve these massively complex problems by finding one thing like I'm good . Happiness is obviously the big problem for everyone . Everyone wants to lead a happy life and quite often they just think , oh , you know , if I can just lose weight or if I can just get a better job or more money , or if I can get that girlfriend or that bigger house or that , then I will be happy . But it's never that . It's always a combination of things . It's a combination and it's yeah , you get that one thing and you're not happy . You think , well , what , what was that all about ?
Speaker 1Why so this combination ? From why we called it a Hickam ?
Speaker 2Yeah it is . It's after a Doctor I believe it's a US doctor mid last century and his saying was what's it ? A man can have as many diseases as he damn well pleases . And so it came from the medical world where this very sensible doctor had spotted that all sorts of misdiagnoses , diagnoses were happening because someone was ill with two things at the same time .
Speaker 2Yeah , and when you're ill with I don't know , let's say , a cold and You're getting , you happen to have a migraine at the same time , that might present as the Symptoms of leukemia , for example . And so they think , right to leukemia . It's not , you had two things going on , maybe even three things that were going on . So I call it that and respect of this guy who trained doctors he was working with to Think this might be one thing where it might be two things or it might be three things . It's just be open to the fact that you might not be attacked on one front at this point . Actually two or three and most of the toughest problems we have in life medically , socially , emotionally are hickam's .
Speaker 1This is so fascinating . So can we just go back to the shoe stone very quickly ? Would you say that the shoe stone problem is kind of what we're involved to solve ? Yes , our evolutionary endowment .
Speaker 2Yeah , caveman , lizard brain , you know cake Paleo man would be faced with very simple problems very simple and you got very good at solving those types of things with Certain rules to satisfy absolutely that , and we mentioned Trump earlier and I think Trump was a misplaced silver bullet solution . Yeah , but obviously the problems that the US faces , like any economy or country faces , are incredibly complex . People's instinct was to say , god , if we can just bring one guy in and stick him at the top , all the problems will go away , and that is a classic example of trying to find one problem , whereas the problems the US face are many , multi-fold , and they are so complicated that you'd need Hundreds of smaller solutions to come in and do that to come and so dress each of them .
Speaker 1How would you reconcile that with your well , define the gateway solution , if you don't mind , or the gateway problem , and how would you reconcile that with your perspective that there is no silver bullet ? Because I kind of really enjoyed reading your , your Article about Heston Blumenthal and , yes , maybe you should want to elaborate on that , but Is that a circle that needs squaring ?
Speaker 2Remind me of the gateway problem . Again , the gateway problem is where ?
Speaker 1you've got one , one Problem , that kind of unlocks , one solution to unlocks many problems .
Speaker 2Yes , yeah , can you . Can you remember the example , Isn't that ? Because that would be the sub , the submarine . Yes , okay , the Heston Blumenthal , Heston Blumenthal . Okay , then I'll start answering that . I Now , yeah , the Heston Blumenthal thing was interesting and it came from a TV show I watched a few years ago .
Heston Blumenthal and the Royal Navy
Speaker 2So it's not like I've done deep researches . I can't pretend that I have , but it's still available on the internet if you want to go and search it . But Heston Blumenthal , the kind of crazy chef I like , I think he's a rebel innovator , I like what he does . But he did a series of shows where he tried to solve problems food-related problems for other organizations , and one of those organizations was the Royal Navy and it was really interesting because they brought him in to solve what was a relatively a poem problem , but not a the solution , for it would have been just one tiny little thing that had been made life better . That problem was on a submarine . It's a really small environment and people don't get to do a lot of exercise . You can't put a gym on a submarine and people do 300 steps a day , but it's mentally tiring work and people eat a lot and so it's quite unhealthy . So the Royal Navy for a bit of a laugh .
Speaker 1I think they would never have actually brought Heston Blumenthal to come in and solve the problem they took seriously , If it was something they took seriously they wouldn't have led him with a hundred miles of it .
Speaker 2But they said , okay , well , that seems like a kind of sufficiently irrelevant problem that we can have Heston Blumenthal come in and solve this problem . So Heston Blumenthal was brought in and he was put on a submarine and he was like , right , can you improve the diet of the submariners ? And he went in and , in classic Heston Blumenthal style , his first attempt at solving this was absolutely fucking ridiculous . He tried to do I think it was smoke tearing and blueberries , where they smoked the blueberries on the submarine , literally with hay set on fire in a submarine and he presented that to the top brass and their faces just dropped because it was obviously ridiculous .
Speaker 2The submariners hated that type of food . It was clearly impractical and the person who must have said can we get Heston Blumenthal into who is a captain of that particular submarine just must have felt his heart drop of oh my God , I'm gonna . What have I done here ? So Heston Blumenthal went away and his second attempt at the solution basically increased the entire capability of the British Navy , full stop .
Speaker 2I improved Britain's defensive capabilities by a decent measure and what that was was he spotted when he came in that when they were loading up the submarine with the food which they were using to create shepherd's pie and stuff like that and you saw it happen in the TV show they were loading it up with boxes of onions , boxes of mushrooms and some of this stuff went off . And when they loaded it up , it blocked up the fridge because there just wasn't enough room for this stuff . And for him , who is an expert chef , he was like well , that's nuts , right , why don't you just sous vide it ? Now , sous vide is where you basically pre-prepare all the stuff . You chop up all the onions , you basically create 90% of the cooking and you remove all of the extra space and it packs down into like a plastic thin , easily packable film that is 100 times easier to cook and takes up 10% of the space .
Speaker 1And it's got good ingredients in it .
Speaker 2Great ingredients , it's been cooked by someone who knows what they're doing . And it's got the space . And basically it means that the chefs on the submarine just have to warm the thing up and add a couple of things . Saves them time .
Speaker 2And when he presented this solution to the captain of the Navy of that submarine , you could see his face rise because he realized the importance of that , because the limiting factor , the limb fact , as I know that the American military call it like the one factor that's stopping this thing from being better for submarines , was that they could only go out for I don't know , I forget the number 40 days on maneuvers , because and the thing that made them come back or had to go to port was to restock with fresh food because it had gone off . So that's it . So now it almost doubled the amount of time a submarine could be under the water now because of this . And I'm even amazed that the TV show was allowed to air , because I would have thought under the official secrets act that I would say that's given them such a massive advantage to be able to go out for 80 days , not 40 , then why would you want to put it out in the BBC ?
Speaker 1It's almost crazy to think about . And it came from someone from a different field , not a kind of single point expert in a single discipline , but someone yeah , if they'd have said , right , how can we improve the scope of the Royal Navy ?
Speaker 2No one would have said , well , let's bring in Heston Blumenthal , a celebrity chef . It would have been the very last person that they had bought in , but yet that was the person who did this amazing thing for the Navy , and that again is certain . That's why diversity of thought is important . Like you know , it's just having that individual there is like well , hang on , why are you doing that ? You know , in my world we can do that , like that , and you see that quite a bit . The company I've just joined , I've got people who are good at excelling the way that I'm not , and they're like well , why are you doing that ? You could just write this macro , change it and actually something that saved me an hour a day .
Speaker 2But it's someone who's got a different set of skills , and it's so important to me to try and bring it and respect different people with different backgrounds , different brain sets , different skill sets and that is when something becomes truly powerful . It's a founding tenet for me with the company or the sub company that I've started down in Fox is to bring in people who think differently and allow them the space to do their thing and listen to them , and if they say , well , hang on a minute , why don't you try that ? And in a certain way , it was what I was denied in my last job which turned me into a bit of a kind of dissatisfied rebel within what I was doing , because I thought there are ways it could have been done better . And I ended up basically cut a very long story very short , having to go my own way because I couldn't do what I wanted to do in that place .
Speaker 2Now we'll see whether what I do turns out to be successful or not , but if it does turn out to be successful , you would think that the company that I left will be kicking them some . So we could have just created a new little unit for Simon to run and it's different to what we're doing before , but we could have just given it a chance . If it failed , fine , get rid of him . But if it was a great business success , then great . We've got another thing in the business .
Speaker 1So , in answer to my previous question , the kind of boundary conditions is still sufficiently broad for you to feel like you can practice what you're interested in this domain . Just about yeah , just about yeah , but you can see the kind of walls closing in Kind of interesting .
Speaker 2Yeah , I feel like they are . It feels like Indiana Jones grabbing his hat .
Speaker 2It just feels like this might be the last hurrah for being able to take something approaching a risk , and the risks I'm able to take are smaller than someone 10 years , which is smaller than 10 years before that ago we're able to take . So it does feel like that Now I'm conscious . Also , I haven't answered the first part of your question , which is about what should change in the curriculum and the problem solving , and you mentioned thinking fast and slow there , but how that's become part of language and people are so much more comfortable with biases and I'm talking about that now . Now , to me , the missing part of the conversation everywhere is systems thinking . It's a subject called systems thinking . There was a book called systems thinking , which is almost the Bible of this , by a lady called Danella Meadows . I think it's about 40 years old now , this book , and for me it should be part of the curriculum , not when people are 16 , it should be taught to five year olds , it should be taught through primary school , because I think it is such an important way of thinking , of understanding how systems work .
Speaker 2Now , systems is quite a techie , boring word , but , amal , you're a system , I'm a system . We're sat in a system that is a business . We're sat in a building here that is a system . We're sat in a country that is a system and a town that is
Understanding Systems and the Debt Crisis
Speaker 2a system . All of these things are systems and it's almost like this lady , danella Meadows , and other people in the field as well , have kind of almost created the hard wire model of what a system is and what are the common features of it . So you can compare the way that a body works and compare that to how a coral reef works . Or if you understand how a coral reef works or a forest , you can apply that to a business . And for me particularly , it should be . If you are gonna become a regulator or have some position of oversight like a politician , you should absolutely have to do a module on systems thinking , because it teaches you about unintended consequences , about feedback loops that start All of these things , that when well-meaning regulators and politicians put in place a rule , the 20 years time it creates another massive problem . Second third order effects , all of those types of things . Now that book to me , absolutely does a brilliant job of setting out some of the common features , starting from stocks and flows . So that is literally in the wealth world stock is your savings , a flow is your income , and that's different because people find it quite easy to measure income because it passes through a tax gateway every year , but wealth sits in a kind of murky , dark world that never gets measured .
Speaker 2She uses the example of a bath . Right , that's the most simple system of water coming in through the tap and then leaving through the plug hole . If both the running the plug is open and the tap is running , you've got a simple system of running through . But as soon as you put the plug in , you've got a stock of water building up and that then affects what happens when you pull the plug out , because the pressure pushes the water out quickly and it causes a delay , and so that's the basics of it . But then , when you start to add other things into these systems and it's yeah I've used the example recently because we're obviously in a world that's obsessed by inflation and deflation You've got central banks desperately trying to control this thing .
Speaker 2That example of hot water coming through a system is perfect . So at the moment , central banks are wrestling with what to do and they've raised interest rates because that's the way you dampen down inflation . To me that is analogous with being in a hotel where you get into the shower and it's not , and it's a bit cold , and then you turn the knob a little bit . You don't know which way to turn it . So you turn it a little bit , nothing happens . So you turn it another little bit nothing happens .
Speaker 2You turn it a little bit more and the last interest rate rise that the Bank of England did was quite a big one , it's like well , not even that , I think you just go , I'll screw it and you turn the whole tap the whole way , and then you find the water gets a little bit warmer , and then a little bit warmer , and then a little bit warmer , and what you realize is those tiny little turns you made 20 seconds ago are now coming through the system , and that giant turn that you just made is about to school down onto your head . And so that , to me , is the perfect analogy of because there is this lag time on monetary policy . It doesn't immediately have an effect . You have to wait 18 months to see what it does and the type of people who you know . Going back to the question you asked very much earlier about institutions , the Bank of England , you know , are run by people of very rational , very logical people , and you could feel the pressure on them to say well , hang on a minute , why haven't you sorted out this inflation ? You can't , it's not an instant thing . You can turn off . But I felt he had to do something to make it look like he was doing something . What is that going to do in 18 months time ? I think we'll find out in 18 months time , I suspect it'll probably be the turn too much or get scalded by the hot water that's coming down the pipe . That's now too late to turn off . But that's systems thinking . That's the bit I'd like to see come into the language in the way that behavioral science has .
Speaker 2So people I mean people talk a little bit about feedback loops now , but I think people should be talking about it in every aspect of life the way that your body works . You know , the way that your body processes calories , sugar going into it , you've got a stock of fat , you've got the flow of calories going through . It's all relevant , it's all it all ties together . And once you get it , it's almost like that . I've mentioned the matrix before . It's almost . Once you understand this stuff , it's a little bit like the end of the matrix , where he gets it and you start to see how understanding how this bit works helps you to understand how an investment fund works . And understanding how an investment fund works helps you to understand how your body works a little bit , and it's . I cannot recommend it highly enough . Wow , well that ?
Speaker 1what was the name of the book ? Remain ?
Speaker 2It's called Thinking in Systems and I will put that in the show notes if I've got that wrong . Or systems thinking , I forget which way around it , it's the author is Danela Meadows , so if you Google her , you'll find it for sure . Well , that's fascinating .
Speaker 1Let's , let's , let's wrap up with one thing I want to talk about , which is the debt Uber problem that you talk , that you've written about what ? Why don't you just elaborate on what you mean by the debt Uber problem and what ? What you're thinking is on that , since you've written that , since you wrote that article ?
Speaker 2Yeah , I think for me , so many of society's problems could be solved and come back down to equality and specifically inequality . I think when you look back through history , you see these phases where and you know the last big one , that's obvious 1910 , 2030 , culminating in the wars .
Speaker 2You know the inequality that built up in the Gilded Age under the previous time , at the Vandermelts and the , the , the , the you know , Robert Barron's , the tycoons of that period where wealth increased massively and I didn't realize this until recently , but it's called the Gilded Age because it looked like a golden period but the gold was spread very thinly on the outside and actually inside people were becoming more disillusioned , very much poor , it wasn't spread , and I think we're at that level now where we've got inequality .
Speaker 2And it's not just inequality because some people have got a lot and some people have gotten out very much . It's actually people with negative wealth , ie debt . And when you look at all of the problems that we're suffering from now , when people talk about productivity or the lack of entrepreneurialism , I think that comes down to too much debt . You know , when you compare generations and you think of the Baby Boom generation , who came into a situation where housing for them was not cheap , but it was maybe three times a modest one-person salary . Now for your generation and for Generation X , the younger generation coming through , it's five times two people's salary to afford a house . And so gearing yourself up that much , to have to take on that much debt , are you then going to want to take on more debt to start another business somewhere else , To start ?
Speaker 2even to experiment , to take an experiment , you know to start up a lawn mowing business , whatever it might be . Are you going to want to borrow a bit more money to buy some lawn mows and stuff ? It doesn't have to be , you know , the next SpaceX , but just any business . You know they better just start up a clothes shop , or you know anything at all ? The thought of taking on more debt when you're already absolutely stacked with it means that you're not prepared to do it . The thought of and it's also , then it's a form of yeah , and it's using inflammatory language , but it's a form of slavery .
Speaker 1Inventured , you know , in the literal sense .
Speaker 2It's bonded , you are effectively , whichever way you're doing it , you are . If you own a house that someone else is having to rent off you , and that rent basically means that that person then just has to work all of their time to pay that rent . They're never going to be able to afford a house for themselves , and so they are in a kind of debt bondage . And it's the same with student loans . I think particular situation is worth worse in the US , but it's now got to a point where an education is so expensive that actually you are basically bondaging yourself . It's almost like , you know , a retired person can buy their own graduate now .
Speaker 1Yeah .
Speaker 2And it's not as if it was that obvious , people would rally against . If it was like I'm going to buy Steve Smith , I'm going to basically own him from now on and he's got to work and he's got to give me 50% of his salary , people would obviously rise up because it goes through the financial system and is securitized away and it's through a mortgage , but ultimately it's the same thing . There are a lot of people with a lot of money who own assets and there are a lot of people who don't have assets and have got a load of debt and having to work their ass off that effectively they are , they're effectively becoming debt peons to use them . But that's another way of saying debt slaves and that's going to breed discontent and it's going to breed rebellion and it would not do society no harm at all to even that out , to remove that kind of rebellious instant , because it's there and it's like a tinderbox , I think .
Speaker 1I think the inequality point is a good one . It's an interesting one . My perspective is that inequality in and of itself is not necessarily a bad thing . There's no system that we have come up with where inequalities just don't . What happens in nature happens inside . What happens with wealth distribution , it's just normal . It's just how much turnover .
Speaker 2There is , it's turnover , and what is the balancing factor now ? Sadly , the balancing factor of that . The last big balancing factor was World War II and World War I . So if we don't design a system that naturally balances that way in a way that doesn't require a World War or a giant famine .
Speaker 2So the Black Death back in the 1300s was another one of these great levelers . There's a book called the Great Leveler by I forget its name again show notes which his theory is that the only way you get actual inequality to come back in is through one of these almost four horsemen of the apocalypse style events whereby there is mass death , and clearly that we don't want that to be the balancing factor .
Speaker 1All of a sudden , thanks to the Black Death , supply and demand meant that there was fewer providers of labor or laborers .
Speaker 2Yeah , there's suddenly . They were wearing the sort of boots they were in charge .
Speaker 1Well , a slightly more optimistic kind of solution could be . I remember I listened to a historian I really like Neil Ferguson kind of . I like reading his work , but he said something which I disagreed with and but agreed with at the same time . In the aftermath of all the kind of COVID stimulus spending that the West in unison kind of did , and the terrifying stats was that we've not been in this level of debt since the aftermath of the Napoleonic Wars , and he kind of goes well , we got out of that . So we can get out of it , it's doable and what you know I'm sure he knows better than anyone . But , like you know , we got very lucky because we had the industrial revolution , which brought growth , GDP growth got us out of the debt hole , because we had , you know , steam trains and mass manufacturing and is is a better solution , Hopefully a non apocalyptic solution either , you know , plague or war is technology .
Speaker 2I think that would be the best , I mean if we could find some way of manoeuvring our way out of this through a new productivity burst . But I guess the trouble is with the most recent technology is the technology that came in the industrial age was highly labour intensive . This stuff doesn't seem quite . The seems quite the opposite . The opposite atoms , not bits .
Speaker 1Yeah , and that's it , and it's for me it's .
Speaker 2you know , again , it's a controversial thing to be saying , I think , particularly for someone in the financial services world . I think probably the safest solution to is going to be inflation . Yeah and yeah . The other solutions I just think are worse . And so you know , I'm not as disappointed to see inflation I'm not surprised to see inflation , is some people seem to be , but I'm not as disappointed to see inflation as as the commentary at seem to be , because I think the alternative of not inflation and everything staying flat potentially goes to a much darker place than if we have some 70 style inflation . And actually that creates a bit of a quality , because the wealth of some people gets reduced because of inflation and the income of other people stays or grows with time . So it hands some power back to income at the expense of stored wealth . Yeah , if that's what inflation does .
Speaker 1As long as we don't have a kind of Vyma inflation that you know was the kind of cherry on the cake or the straw that that yeah , and that comes , but that comes about from a different thing .
Speaker 2That is a and that's another
Hyperinflation and Money in the Economy
Speaker 2thing . James Montier wrote an amazing piece on this and it's a big misunderstanding about hyperinflation . Hyperinflation is a symptom of something very , very bad happening . Now , what it was in the Vyma Republic was about the Germans being crushed with debt again and also problems that were happening with with the crops at the time . So actually what it led to was an extreme shortage of food .
Speaker 2Now why hyperinflation is occur is to give you an example . If let's say , for example , extreme weather hits the UK for the next six months either it's extremely hot over winter , and so we don't , but nothing grows to a point where you and your family , you know that someone is offering you the last bag of wheat that you know to be in within a hundred miles of you and you have got I don't know how much you've got in your bank account . Let's say you've got 20,000 pounds in your bank account . You will pay 20,000 pounds for that bag of wheat because you can't do anything with money , you can't eat the money . So that is what hyperinflation is . Is it going from today , where everything's normal and actually you would pay maybe three quid for that bag of wheat ? Probably nothing , because it's no use to you to being to the point where money doesn't matter , and it's so .
Speaker 2The hyperinflation is the death of money . It's not related to the high inflation we're seeing at the moment . It's , and so that's why you saw it in Zimbabwe . That was a direct result of the land being parceled out from white farmers to indigenous farmers . The trouble was , the white farmers had all the knowledge about how to do industrial level farming , and so , once they were gone , the food supply created , and so there was a panic simply just to buy food , and so the currency that was created had to create more currency just to keep up with how much people would pay for the diminishing level of food . So it's not . It's a slight misunderstanding .
Speaker 1That's . That's definitely food for thought . And I mean , the way I've been thinking about inflation recently is kind of kind of yes , cpi inflation has been low for many years , or kind of measured inflation , should we say . The basket of goods has been low for many years . But if you take the four things that are kind of the largest parts of people's wallet so housing , education , health care and government government services , policing let's take the cost of a TV has come down , you know , for $1,000 TV today , you know , is phenomenally better than you know a 10,000 pound to mix my currencies at TV 10 years ago , so that we've had deflation or very low inflation with kind of stuff like thanks to globalization .
Speaker 1But the things that really matter to all people who are median income they're about below where you know their wallet spend is affected those four things I mentioned housing , education , public services and health . Not only have they got more expensive over the last 50 years , considerably more expensive , they've got a lot worse . One could I as well , a shrinkflation . But yeah , exactly , you can have the Mars bars kind of come and it's to me it has felt a bit odd that this was , you know , because the data said inflation has gone up . Now it's in the narrative , but it felt like it's been happening .
Speaker 2That's been happening for ages .
Speaker 1We're not trying to reduce that person to one , as we promised not to do at the beginning , but they would have . What do you mean ? Inflation ? Slow , like everything's going .
Speaker 2It is , and it's on some extent and I've my last post on medium , which is medium is where I write kind of more financially stuff . We're starting to get into this world and I'm just starting to talk about the world of everyone just thinks in the world of money and again it gets back to rational people . The way that we are in the West is we are in a world that is measured and defined by money . But I think that is starting to come apart of the seams and the world doesn't . We don't need money to be there for things to happen . Like , if you think , a thought experiment , it wouldn't work in my reality . But we're in the middle of London .
Speaker 2If we all agreed to just carry on what we were doing before but not to take any money for it , the economy would still be happening . People would still be doing stuff the same sort of level we'll be doing . We just agreed not to swap any money tokens for it . It's a kind of imagined concept . But when you look at , think about how much stuff passes , how much , you know a plumber doing some work for some electrician . They can just swap their jobs without ever having to swap any money and so that never gets registered in the financial system and so all these activities happen .
Speaker 2You do a favor for a friend , the friend does a favor for you , and this is how the world used to work before money was even a thing , before GDP , before money was a thing , basically as a kind of informal debt system whereby I would sort of do you a favor because we lived in the same village or town and you'd maybe do me a favor in five years time . He wouldn't record it . It would just be a kind of thing that intuitively measure it . It'd be the right thing to do for someone , and if someone fell on hard times , you know your village would look after them and make sure that they didn't starve , and that's just how it would operate . But now we've inserted money into the middle of everything and that's worked somewhat well for a long time .
Speaker 2But it's becoming a part of the seams and the biggest , most obvious way it's coming apart the seams is big tech , and big tech have basically been operating a barter model for the last 12 years that seems to have escaped the attention of the tax authorities and the regulators . So , like your electrician swapping his services with a plumber which is illegal to do , by the way . You should register that as a monetary transaction either way , but we have been . I use Google Maps to get over to this office today and I swapped Google services for data about how I use and travel , and it didn't cost me anything and I didn't send Google any money , and so it hasn't troubled the tax , but they've taken something of value from me and I've taken something of value from them , but then no one's having to pay any tax on it at all , and that has been the big con , if you like , that big tech has been able to pull is that they put a barter model right into the center of our economy , and that's how they're operating .
Speaker 1You get free email and I give you some ads that you made Exactly .
Speaker 2And I don't have to pay any tax on it and you don't have to pay us any money . We're just swapping , and so money is not involved in that at all .
The Future of Money and Value
Speaker 2And so when we think that money has to be involved in everything we do , and it's not worth doing if it's not measured by this , and GDP is measuring the amount of money and how big the economy is getting . So much stuff happens outside of that world of money and I think it's a growing amount . And obviously , if we get some kind of and I hope we don't some kind of cataclysm , there's a chance that we just go back to a system which doesn't use money at all . And that's when I was talking about earlier about the death of money . That's what happens is actually people go back to what they did a thousand years , 2000 , 3000 years ago is which is like well , I've got some food , I need you to look after my kids , and you kind of informally barter , and money is not involved , but economy still happens .
Speaker 1Value is psychological . That's what someone and you know . There's a lot of value . The economist will call it consumer surplus or whatever .
Speaker 2That and the link I'm trying to make with this , and I'm yet to work out a really good way to do . It is between in physics and we've all got physics envy in the financial world but in physics you've got energy , and energy you mentioned earlier cannot be destroyed . It can only be changed . I think there's financial energy as well . I don't think that can be destroyed . It's not the only way of storing it . You can store it through reputation , through trust . You can store it locally .
Speaker 2Now , if you are the sort of person who's done a lot of charity work and help people out in your local town or village , then when you fall on hard times , you can probably rely on those people coming good for you as well . That's still unleashing financial energy . You're not having to pay someone and come in to look after you , but someone will take care of you , and you can do that . And you can do that and you can do that . You're unleashing financial energy . You're not having to pay someone and come in to look after you , but someone will still do it . So you're still getting the same service . You're just not having to pay for it . And so I think we're getting to a world where we're going to have to start thinking a little bit about different ways of doing things that don't necessarily have money stuck in the middle of it and therefore create a measurable value for it ?
Speaker 1ROI type mindset ? Yeah , exactly , because it's not always measured in terms of speed , efficiency rather than psychological value .
Speaker 2Yeah , almost to the point of like there's no money involved , it's not worth doing so much . Government policy is that now it's too expensive or it's not worth . We're not going to save this many lives because it's not worth it for life . Everything has become a transactionary amount and it's not a great path . We've gone down , reel back a little bit . I think that would be pretty healthy .
Speaker 1Well , look , you've kind of already answered my sort of traditional final closing question . I like to ask yes , but I'll maybe give you a chance to kind of package it up into something which I like to ask yes effectively , you know you're allowed . I asked them to take a long bet , and either it's a prediction or it's something that you would like to see happen . So or both . And the timeframe is 10 years . Why 10 years , don't ask me , but it's 10 because it feels sufficiently long to know what this podcast may be existing then . So I can't call you out on that , but it's not too short , that it's kind of like it's not too long , rather that you know it is pointless . What do you ? What's something that's meaningful that you think will happen over 10 years or in 10 years time , or something that you would like to
Predictions on Crime and Community Responsibility
Speaker 1happen ?
Speaker 2Well , I'm going to go with the prediction , which is against almost everything I stand for , because I don't believe that predictions for the most part , can be made or should be made or likely come true . But this is a prediction that actually made 10 years ago and I'm prepared to make it again now , and that prediction is that crime and antisocial behavior will get worse , will continue to get worse , and it's quite a bleak prediction and I'm sorry for that . But the reason I make that prediction is to illustrate again systems thinking . So the reason I think that this is going to happen is because when you go back 10 years , you come to the time when austerity first came about , and austerity first came about because and the result of that was cuts to social services .
Speaker 2I was a governor at a school at a time when I saw the cuts to staffing there and really what that was doing to kids , particularly needy kids , and those were the sort of kids who previously were getting helped , and those were the sort of kids who , if they hadn't been helped , would have fallen into crime when , instead of being five , they were 15 .
Speaker 2So you've got to go back into systems thinking .
Speaker 2You've got a lag built into the system there and it's a 10 year lag where the kids who are not getting care and attention now are now becoming of an age where their social behavior is not noticeable . And the irony is that it's a conservative policy and I'm not meaning to pick sides on this , but it was a conservative policy and conservatives generally hate crime . But I think the decision that was made back in 2013 , whenever it was will have led to more crime than almost anything else they could have done , because they have stopped nipping it in the bud and we've now created the system . So spending on police , spending on prisons , will have to go up , will have to rise . So all of that money we saved on cutting social services and cutting teaching support , we're now going to have to spend probably threefold on prison officers , prison capacity , police officers to deal with the problems that are now in the pipe that's stored up , yeah , and so it's quite a bleak prediction . So I'm sorry to make you , but it seems like the one that's most likely to get right .
Speaker 1Can we twist it into some sort of positivity ? I mean , we were talking with Matt before we started . You know , human beings are phenomenally good at picking up slack when they need to , and I mean , I remember David Cameron talking about something called the big society and we obviously that became a big nothing that we never hear about from the conservative party anymore . But you know , do the small C conservative institutions , whether it's family , church , community , village , whatever could . Can the slack be picked ? Charity , you know .
Speaker 2I would love to see that . Yeah , so if you want something that I would like to see over the next 10 years , it would be a return to localism , so people taking their local community into their own hands . And I'm someone who's kind of dreamily think about big picture things , but as I get a little bit older I'm much more inclined to try and sort out my own little patch of the world . You know , do the beach clean ? Do the beach clean ? Yeah , you know , sort out your own . You know , sweep your own doorstep , something as small as that , just to kind of improve your little part of it . And actually if everyone does that , then actually the whole thing gets better . So , yeah , that would be what I would love to see .
Speaker 1So people need to . I mean , I was guilty of this as anyone Like . Kind of the macro BS is so appealing .
Speaker 2Yeah , Talking about Well , you're trying to find the silver bullet , right , yeah . What can we bring in ? Can we bring in one thing that can change everything the monetary policy , or is ?
Speaker 1it ? You know the financial ? Is it Bitcoin ? Maybe that's the right thing to kind of create stability , yeah .
Speaker 2Forget that Volunteer at your school , go and help someone out , you know . Check in , check on your neighbor , you know . Keep your street clean , you know , pick up a piece of litter . I think that's going to likely to be much more , and it goes with environmentalism as well . I mean , there's some of the problems we can't solve like that , but actually doing each of us doing our own little bit to try and cut down the damage we cause , is likely to have a decent size effect . So , yeah , I would love to see people taking on responsibility for their own .
Speaker 1Well , one of the interesting things that you know Modi did when he was elected . First elected as Prime Minister of India I mean contentious , very disliked in the press , or at least in the Western media . As a Prime Minister , he did something which you know was . It was quite fascinating in his first week , early on in his office , first term I think it was 2014 , 2013 , 2014 . He's elected . He did this . Do you remember the Ice Bucket Challenge ?
Speaker 2Yeah , yeah , yeah .
Speaker 1So the Ice Bucket for very young people who are hitting social media . You throw a bucket of ice over your head and you nominate someone on social media to do it . He obviously didn't do that , but he did , with his mother , swept outside his kind of home and then tagged on his social media accounts five celebrities .
Speaker 1Oh , wow , I didn't know that Said over to you and it cascaded into this . Amazing like you had these regional banks all competing to put on their social media profiles that they'd cleaned up the outside of their bank branch entrance and I don't know if it's still going or not , but it did . Cleanliness was a big issue . People taking responsibility beyond their own Linsula family domain . Something called Richard Sharma calls the High Context Society , like Brazil and India , high Context Societies , where the clan and the family is important but everything else is kind of irrelevant . Trying to break people out of that and go actually take a bit of pride in what the car park of your block of flats looks like and people . It was one of the more interesting things I've seen a politician try and do , probably way more powerful than some policy change .
Speaker 2Well , that to me is someone who understands system thinking and Cascades is one of the things is another feature of systems Something called a leverage point as well , which is , you know , in her and don't ask me to quote them because it's a while since I read it but Danele Meadows lists different ways that you can change a system and one of them is called a leverage point . It's almost like the kind of kung fu expert who knows exactly which part of you to tap that causes you to collapse . Occasionally . You can find a leverage point Rooji Fingerhole , if you see Kung Fu Panda .
Speaker 2Exactly that , yeah , supreme power for that , and it is that . Yeah , if there's one place I think there is a leverage point for everything , it is education and that's a form of education . But I think it's also one of the most disappointing things of the last 10 years in our country . It's been to see funding removed or at least sort of staff from education , because that is the bit where you can change behaviors , and it's a long burn because you have to wait 10 , 15 years to see these behaviors come through .
Speaker 1It's outside the election cycle kind of , but it's , I mean , does the education ? Just there's a rulebook there . Just I mean it's to me it's been designed for the factory . No , it is , yeah , so do we need to just tear up that rulebook really ? Oh , I'd love to Long school holidays . You know , let wrote learning Latin vocab and French declension ending .
Speaker 2Yeah , and encourage freedom of thinking rather than , you know , just trying to get people through exams . And you've got to learn this . The point with my kids where they're learning economics and they're being taught something that I know to be wrong . But it's no point in me trying to correct that now , because I'll just make it worse for them . Because if they try and in the examiner say , well , actually this is actually been proven in the last six months to be a false , they'll get in trouble for it and they won't get the marks , because you're supposed to say what you've been told to say by the Well , it's interesting , like you know , put two examples very closely at Steve Jobs and Jeff Bezos .
Speaker 1Steve Jobs had foster parents and his foster father . All summer he used to make him or help they would , you know repair stuff . They'd paint the fences around the house , they would , they would , and his father made him do everything perfectly and he made him kind of you know , even the bits that no one would see will have to look perfect and beautiful . Oh , right he carried that with him , so the inside of the iPhone had to be as beautiful as the outside of the iPhone .
Speaker 2And the packaging is everything .
Speaker 1And similar with Jeff Bezos . He had his grandfather I think it was in the telegram father , but someone will correct me in the comments if I ever get any . Well , over their summer holidays , his parents would , I think he did . His father left him and his . He had a stepdad , hence he's got a Cuban surname , but he's American origin . His maternal grandfather would spend summers with him and they would literally like repair stuff . There was no phone , there was no computer gaming . Maybe there's something wrong with computer gaming or phones per se , but like that to me was like he was . Like it's probably a more powerful education with a small e than you know this .
Speaker 2The bell , the factory floor , the teacher at the front , yeah , absolutely All of my best learnings have come from real life experience . I can barely remember anything other than Oxbow Lakes from my education which seems to be the thing that everyone remembers .
Speaker 2But yeah , it's not zero use to me . Yeah , all the best learnings have been through little moments in life . I did something wrong , I screwed up or I happened to be taught something , and it's like a penny dropped . And yeah , it's come from the University of life . I think of it as kind of slightly cheesy title , but yeah , I don't . Yeah , I wouldn't want to completely do away with education as we have it , but a bit more freedom , a bit more ability for a school to just decide or a teacher to decide .
Speaker 2Actually , I'm interested in this today and I think it would be brilliant for you to learn about this and it doesn't matter whether it's an exam or not , would be . You'd get different brains coming through and different ways of thinking , and you know a proper garden rather than you know a kind of factory row of daffodils being grown , which are all the same .
Speaker 1Yeah , sausage machine . Well , maybe it's coming , maybe not as fast as we need it to . But you know , one anecdote you hear of is people who get accepted to elite universities . On , you know , there's this phenomenon of now you get your Harvard acceptance letter and then you go to Silicon Valley and go look , I've got in . I don't want to go , I don't want to get into debt , I'm not going to learn anything , I'd rather earn a salary and learn , and , and you know , I can still party if I want to make friends . But you know I'm smart enough to get in , so can I just come and work for you ? Yeah , cut out the middleman , yeah . And you know , there's the university racket . Maybe thanks to COVID , thanks to distance learning , thanks to , like , thanks to the price , yeah , I mean it's , it's probably maybe kind of will have , will have a new way of doing things coming soon .
Speaker 2So I hope , so . Yeah , I think that would be a massively positive thing . So let's make that our kind of prediction and hope .
Wrap Up and Appreciation for Conversation
Speaker 1Anything else you want to say , wrap up , anything you want to get off your chest ?
Speaker 2Oh , like a thousand things because you know , all the way through this conversation and I've loved it , by the way , but I've had , you know , things sprouted off different directions . I'd love to have gone into and talked more stuff . So it's been a fascinating conversation . But the interests I won't say brevity , because we haven't been , but in the interest of stopping at some point , then I will sign off , yeah , and just say thanks for the conversation . I've loved it . Well , thank you .
Speaker 1So much for sparing the time . I'd love to have you on again , not in 10 years time when you went to see if our betters come true , but hopefully sooner . So yeah , thanks for spending the time . It's been a lot of pleasure . I love to .
Speaker 2Thank you , thank you , thank you .