Pursuing the perfect world for everyone is a waste of time and an excuse for not doing the hard work of making the world better for many.”
-Bruce Bueno de Mesquita and Alastair Smith. The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics
Robert Rizzo served as mayor of the city of Bell, California from 1993 to 2010.
When he left his office in 2010 he was earning $787,000 a year.
For context, the President of the U.S. earns $400,00 a year, and the Governor of California earns $200,000.
The reason Rizzo was earning twice that of Obama in 2010, is a lesson at the intersection of power dynamics, agency, and technology.
After his election in 1993, Rizzo held a special vote to make the city of Bell a charter city.
The vote meant Bell was no longer subject to the scrutiny (and accountability) of state legislators. This was done under the pretense that local leaders (like Rizzo), knew what was better for Bell than faraway state politicians.
The vote didn’t take place alongside state or general elections, where people would be voting anyway, but in a special election.
Of the thirty-six thousand residents of Bell, only four hundred (1%) voted in the election where the charter passed.
Effectively, the provision made Rizzo a dictator who could then proceed cook the books.
Rizzo was elected on the promise to balance the budget, and balance the budget he did. He raised the property tax to 1.55%, higher than almost anywhere else in Los Angeles County – higher than affluent suburbs like Berkeley and Malibu.
This generated an enormous budget surplus for Rizzo, which he gradually used to give himself raises of 15% each year going from the $72,000 salary he got when he took office in 1993, up to $787,000 by the time he left in 2010.
How was he able to do this?
When the city of Bell was declared a charter city, Rizzo was only accountable to six city council members instead of state officials. He promptly increased the payout to the six council members from their base salary of $8,076 per year to around a hundred thousand per year.
To be elected to the city council required only about five hundred votes, and so the existing city council members – now strongly incentivized – made sure they campaigned harder than any city council member in an equivalently small town would, in order to keep their seats.
To the public, Rizzo and the city council presented a balanced budget, which was a feat few cities were able to do.
No one asked questions.
From this, come a few rules for any aspiring dictators reading now:
- Politics is about getting and keeping political power. It is not about improving the general well-being.
- Political survival (particularly for the corrupt) is best ensured by keeping the number of people necessary to retain office small. Rizzo was only accountable to six city council members, and each of them to a tiny set of four hundred voters.
Selectorate Theory
Bell’s temporary case of near-despotic rule is actually a good case study for how the mechanics of Selectorate Theory works.
Selectorate Theory breaks down the political landscape into three tiered categories of those who have the power to ‘select‘ the final outcome of a given election.
The Three Sections of the Selectorate:
The Interchangables (AKA the nominal selectorate) – everyone who can, nominally, influence the outcome. In the city of Bell’s case, this the city’s sum of Registered Voters.
The Influentials (AKA the real selectorate) – the group that actually chooses the leader. In Bell’s case, this was those who actually made a vote.
The Essentials (AKA the winning coalition) – the subset of the real selectorate, whose decisions are truly influential. In Bell’s case, this was the six city council members – and Rizzo.
In a U.S. presidential election, the same categories might look like this:
The Three Sections of the Selectorate in a presidential election:
The Interchangables (AKA the nominal selectorate) – all eligible registered voters
The Influentials (AKA the real selectorate) – the people who actually voted (or, one could argue, the electoral college)
The Essentials (AKA the winning coalition) – major media (less now so with social media), influential public figures (talk show hosts, prior presidents, celebrities), high-level campaign staffers.1
Both Selectorate Theory and the case of Rizzo can teach us a particularly important lesson about power dynamics and social justice:
Democracy is a better form of government than dictatorships, not because presidents are intrinsically better people than dictators, but simply because presidents have less agency and power than dictators.
What matters isn’t who the individual is, but the distribution of agency and power in the system they are operating within.
Specifically, a larger selectorate = more highly distributed agency and power = better outcome.
Had Rizzo held the special election during a regularly scheduled election, (a system with a larger selectorate/more distributed agency and power), he simply couldn’t have pulled off the heist he did. Once he’d reduced the selectorate to a small handful of individuals on the city council, his power was better secured.
A brief history of disintermediation and technology
Governments with larger selectorates are more democratic and governments with smaller ones are more despotic.
These are not differences in kind, only in degree. As you increase the size of the selectorate (distributing power and agency), the system produces better outcomes.
The mechanism for increasing the size of the selectorate is disintermediation.
Disintermediation is a four dollar word used by people like me that want to sound smarter than they really are for “cutting out the middle man.”
Larger Selectorate/More distributed agency and power/democracy
Disintermediation distributes agency and power and enlarges the Selectorate
While the Bell, California example above is a political system, the same thing is true of any system or power structure. They have different size winning coalitions and selectorates and the size of those correlates to the quality of outcomes.
To the extent that the West is a better place now than it was five centuries ago, this is overwhelmingly due to the fact that one of the core properties of technologies is disintermediation.
Technology increases the size of these groups, moving us from autocracy towards democracy (broadly speaking).
The printing press disintermediated the Pope and the Catholic Church at large, because suddenly people could read the Bible themselves. There weren’t enough books prior to the printing press for people to even learn to read.2
Luther and the early members of the Protestant Church asked for the Catholic Church to change. It didn’t. The extent it did change was due to competitive pressure created by other Christian sects.
The Enlightenment and its accompanying social technologies, including democracy and capitalism, distributed power from kings to bankers, CEOs and industrialists.
Even democracies have become more democratic. In the past century, women and non-whites have legitimately entered the influential and essential categories in the U.S.
George III didn’t give in to the American colonists’ demands because they asked nicely, they disintermediated him to create a new nation-state under new terms which didn’t include a king sitting as an intermediary.
Disintermediation Theory
This leads us to disintermediation theory.
If you want to improve the outcome you’re getting, you don’t ask for people in power to be “nice” or “fair” or “just,” you disintermediate the people that have power and distribute it to more people.
The imperative of Disintermediation Theory? Don’t seek justice, seek disintermediation
I taught English for a year in Brazil and I didn’t get along with my boss. I thought he didn’t prepare well for the lessons. I thought he was inconsiderate. I did a lot to try to get along with him. I started meditating. I tried to rework all the lesson plans to prepare better, and show him the proof of the changes that needed to be made. None of it worked.
What I realize in retrospect now is that he didn’t believe that I had any other options, so he didn’t need to change his behavior. It was a simple question of power dynamics. If I had gotten my own clients on the side, I would have suddenly had leverage to renegotiate with him (or just leave).
I was reminded of this recently after watching The Big Short. The film, an adaptation of Michael Lewis’s book by the same name, traces the origins of the 2008 financial collapse back to Wall St. and irresponsible practices.
The most common response among readers and viewers was anger, after they learned the “real story” behind the recession. “No one went to jail! Why isn’t the government doing something to prevent this? What kind of people are these investment bankers?”
My response: Why would they go to jail when they could go the Hamptons instead?
These arguments is just as naive as thinking that telling Pope Urban in 1096 and saying “Bro, don’t be such a d**k” would have prevented the Crusades.
People have been complaining about bankers on Wall St. fleecing them for the last century, to little effect.
Claiming that these guys are crooks is a waste of time.
The better response: seek disintermediation
The better question: “How do you disintermediate these people?”
A few days after watching The Big Short, I met with an old friend who was in a terrible professional situation. Helen (not her real name) hated her job, her boss and rightfully so. Management treated the customers like crap because they had an effective monopoly and customers vented on people like Helen.
She worked in an industry that was predominately public, so I asked why not try the private side? If that wasn’t viable, why not consider a totally different path? How long was it worth putting up with being overworked, underpaid and unappreciated?
Her answer? Nineteen more years — or how long it would take to get her to retirement age.
I probed more, questioning how realistic it was that an organization already in huge debt would actually pay out retirement obligations.
Everything was stonewalled. Online reactions I read to The Big Short followed much the same trend.
After losing half their life savings, people stuck their heads in the sand, instead of seeking ways to disintermediate the people that were taking advantage of them.
I found this sad.
I’ve talked in other places about how to do this in your career.3 Others talk about how you can do it in investing. The exact mechanics are different in each domain.
While the mechanics are important, I think there are deeper underlying reasons which hold people back.
If knowledge of mechanics was enough, we’d all be walking around with six packs.
There is no doubt that the power to disintermediate existing power structures is greater than it’s ever been and technology is increasing them.
Why don’t more people that hate their jobs or bosses find ways to disintermediate them?
Why do investors who continually get fleeced not disintermediate the people fleecing them?
5 ways to stop people taking advantage of you. (Or: reasons why people complain)
1. Agency just accelerated and no one told you (because no one gets rich but you when you disintermediate them)
Five hundred years ago in the West, only the Pope had any real agency. Then, the founding of Church of England moved it to Kings, then the rise of the Rothschilds to Bankers, then the rise of the Industrialists moved it to CEOs.
However, the Western middle class, which you’re probably a part of, just got their first real taste agency in mid to late 20th century, so a lot of people alive today had dramatically less agency when they were born.
The internet has accelerated disintermediation and increased agency more than any prior technology, but it’s only been commercially available for a couple of decades.
While the technology is now available, no one is incentivized to tell you to learn to grow, manage and invest your own money (or any other part of your life).
If you do, not a single person will get rich except you. Your certified financial planner won’t get his 2%. The Venture Capitalist and hedge fund manager won’t get his 2 and 20. The only person that gets rich is you.
However, if you sit around, blame the government, and watch Fox News or MSNBC, lots of people get rich. The people that own Fox News or MSNBC get rich. The people they interview often get rich.
The one person that doesn’t get rich? You.
2. The soccer mom problem – people in your life are denying you agency out of good intentions
The soccer mom attempts to remove all randomness and uncertainty from her kid’s lives and protect them. She only lets her children play on padded playgrounds and rigorously schedules their extra curricular activities.
In doing so she prevents them from developing the ability to bounce back and adapt to future difficulties.
The people who love you most are often the ones denying you access to agency.
Parents deny their children agency because it means accepting their children don’t need them, and so they do paternalistic things (out of love) that hurt their children in the long run.
For all the hate that gets put on millennials suffering from “failure to launch,” we live in a world where successful people seize agency and the same people blaming them for not being successful are the ones preventing them from seizing agency.
Managers prevent team members from having agency because it would mean the team member doesn’t need them to function effectively.
I’ve seen this many times with entrepreneurs. They prevent the business from growing because their ego can’t take it. I’m probably doing this right now, and just don’t know in what way. It’s really hard to see because you’re blinded by ego. Being aware that it’s possible and surrounding yourself with people that call you out helps.
There’s a reason meditation is coming into vogue. Realizing the illusion of ego isn’t just a nice spiritual thing, it has cash ROI.
3. You’re actually scared of meritocracy and agency.
As agency has increased, and the world has become more meritocratic, many people reject it.
It’s like someone is handing you power over your life and you say “no thanks!”
Why? Because accepting power and agency means success or failure is your responsibility and your ego can’t handle it.
If you accept that we live in a post-Oprah, post-Musk world, it’s devastating to your ego.4 Oprah came from a very poor background, was raped as a child, and now she’s, well, Oprah. Musk came from a middle-class family, and now he’s outrunning NASA and Ford, and he is only spending half a week on each!
If you were born as a serf in feudal France, you didn’t have to worry about it. No one moved up from serf to King, effectively what Oprah has done.
If you keep blaming Obama or Goldman Sachs or your boss then it’s not your fault and you get to feel righteous.
It’s hard to overstate the value homo sapiens put on “saving face.” Most people would probably rather pay an ego tax of 50% of their net worth than lose face.5
4. It’s scary to dance with the fear
Here’s what’s crazy: From an evolutionary perspective, we are hardwired to choose “lose 50% of net worth” over “be different”
If you live in a tribe of 150 people and you want something different than the rest of the tribe, you could be exiled and DIE. Much better to give up half of your stuff.
If you’re an investor and you start managing all your own money, I suspect feels a lot like you’re going to die. I have heard many people describe times in their business as feeling like they were going to die.
Darwin almost didn’t publish the Origin of Species because he was afraid that he would be socially ostracized.
He was socially ostracized, and it sucked. If that’s the price you have to pay, how many people would give up half their own net worth not to be shunned and feel like they were going to die? Most people.
It’s gotten a lot better because of the internet.
From around age nineteen to twenty-two, after I started traveling and reading a lot, I mostly felt like an alien. I wouldn’t have used that terminology at the time, it was more of a nagging sense that this didn’t seem right and that literally every single person I knew was behaving irrationally.
It wasn’t until I found my tribe that I realized a few other people that had the same experience I had, read the same books I did, and came to similar conclusions.
However, at some level, that fear never goes away. It’s programmed into us. Cheesecake never stops tasting good, you just choose not to eat it (at least not all the time).
“How do I get rid of the fear?” is the wrong question.
The right question is, “How do I dance with it?”
5. The dip is hard and takes a long time.
It a good rule of thumb that it takes a thousand days of being more or less broke and working really hard to replace your corporate income with entrepreneurial income. The same is probably true of many other domains. It will probably take you at least three years of studying and practicing investing to get good at it.
If you substitute watching CNBC and Fox News for reading Ben Graham and Warren Buffett’s writing on investing, it will probably change your life, but it will take three years. Three years is not that long, but you don’t get an immediate dopamine kick of righteousness like watching the news.
Seth Godin has called this “the dip,” point C on this chart:
We often get to a local max which seems pretty good. To get to the Big Max, where things seem great, you need to go through Point C – the dip.
This is person that gets a “good job” they don’t really like and doesn’t want to go through the process of developing the skills and network to start a business or get a job that would be better.
There were 10,000 single-location hamburger restaurants in the world when Ray Kroc decided to build a giant chain of franchised McDonald’s. Anyone could have done it. No one did. Because everyone who tried had to go through point C to get there. It took Colonel Sanders more than a decade of pain to get through point C.”
Seek Disintermediation
I was driving down Riverside drive along Ladybird Lake in Austin when I hear this quote for the first time. It hit me so hard I almost slammed into the car in front of me.
Desire is a contract we make with ourselves to be unhappy until we get what we want.”
It illuminates a tradeoff: It is reasonable to be unhappy and work to disintermediate the power structure making you unhappy or be happy and accept it as is. It’s not reasonable to be unhappy and accept the system as is.
Technology makes the former, working to disintermediate people, easier than it’s ever been.
The choice to seek disintermediation is, more than ever, yours to make.
Once you’re willing to dance with the fear, the how is important, but not before.
- Selectorate Theory and the example of Rizzo are taken from Bruce Bueno de Mesquita and Alastair Smith. The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics
- Literacy rates in Europe were probably around 5% before the printing press.
- The TL;DR is cultivate a strong network and transferrable skillset
- This is not to say that becoming the next Oprah or Elon Musk is the point. It is equally scary to define what you want out of life as different from what other people want and pursue that.
- For further reading see Status Anxiety by Alain De Botton h/t to Zach Obront and Carlos Miceli for the recommendation
Footnotes
- Selectorate Theory and the example of Rizzo are taken from Bruce Bueno de Mesquita and Alastair Smith. The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics
- Literacy rates in Europe were probably around 5% before the printing press.
- The TL;DR is cultivate a strong network and transferrable skillset
- This is not to say that becoming the next Oprah or Elon Musk is the point. It is equally scary to define what you want out of life as different from what other people want and pursue that.
- For further reading see Status Anxiety by Alain De Botton h/t to Zach Obront and Carlos Miceli for the recommendation