Welcome to the making cents podcast. This is Sam Harris. Just a note to say that if you're hearing this, you are not currently on our subscriber feed. And we'll only be here in the first part of this conversation in order to access full episodes of The Making Sense podcast. You'll need to subscribe at Sam Harris dot-org there, you'll find our private RSS feed to add to your favorite podcast track along with other subscriber, only content.
Don't we don't run ads on the podcast and therefore, it's made possible entirely through the support of our subscribers. So if you enjoy what we're doing here, please consider becoming one. Okay. Well, it's been a big week for news
Are many things happening in the world. Of course, there were the January 6 hearings which are not at all. The partisan Witch Hunt that Republicans are claiming most of the witnesses have been Republicans. That should be a pretty obvious point.
And most have been Avid Trump supporters. Most of them did this lunatics bidding up until the last moment when they were staring into the abyss
Some of them like Cassidy, Hutchinson whose testimony was the most damaging to Trump.
Have everything to lose from coming forward. No doubt. She and her family are now besieged by death threats and very real security concerns.
She was an extremely compelling Witness.
She was obviously Republican partisan down to her toes and yet she recognized that what happened in the run-up to January 6th. All the cultic, hysteria whipped up by the big lie.
And then what happened on the day itself was an abomination.
Perhaps I should emphasize for the hundredth time, that political partisanship has nothing to do with this Liz Cheney is one of the people running these hearings, she is a Conservative Republican, she is pro-life and against gay marriage, she is by my lights, a religious extremist. I'm sure I disagree with 95% of her politics.
But she is a straight-up American hero in my book.
On a bad day, she's doing more to support and defend the Constitution of the United States. Then the rest of the Republican party has done in years.
She is standing between us and the utter dismantling and desecration of our democracy.
This is not a partisan point.
For instance, I'll concede that almost anything bad. That is said about the Democrats. Now is probably true.
Biden appears unfit for office whether he's actually senile. I don't know.
But he simply can't communicate the way. The president needs to me. Watch these speeches and interviews and press conferences, insofar as they even take place.
Every sentence is a death-defying feat, it's like watching your mom, do parkour. You're just waiting for the worst thing that has ever happened. Every fucking second and he is totally unfit to run again, in 2024 and Kamala. Harris is probably worse, though. She might be fine, neurologically. She still manages to speak in word salad?
In an apparent effort, to talk down to people.
Have you seen these Snippets of her circulating? Many of the things she says are completely mystifying. It's like someone trained in a ion woke Twitter and had a talk to itself for the equivalent of 1,000 years and I went properly. Insane.
And as a political candidate, she manages to convey a disingenuousness that makes Hillary Clinton's seem like Will Rogers.
This Administration is doomed, right? And has been doomed almost since the very beginning.
But Biden and Harris saved our democracy by beating Trump and is odious and this incompetent, as the Democrats have become, there is simply no comparison between them and what the Republicans have become under Trump.
Trump and trumpism is not just a symptom of a deeper problem. They are that too but they are also a cancer that has been actively destroying our politics.
You have to cut out the cancer.
Mets, Trump has always been and remains a litmus test. The real Trump. Derangement syndrome is to not see how abnormal he is as a person and to not see, or to not care, how abnormal it is, that such a person could have ever become the president of the United States.
Right. That's the real Trump. Derangement syndrome.
To say or to think things like, well, all politicians lie, right? What's the difference with Trump?
There's no both sides to this political moment making Trump president was like making Alex Jones. The lead anchor on the Nightly News, whatever you want to say about the media. What if you want to say about CNN, for instance, but the errors of Journalism they make over there and about how woke everyone is. It would be orders of magnitude worse and the degradation of our journalistic standards would be.
Complete. If they swapped in Alex Jones for Anderson Cooper, that would be a totally different world journalistically speaking. And that's where we are with the Republican Party, apart from the few brave people like Liz Cheney, who are trying to save it from itself.
Anyway, if you haven't been following the hearings for whatever reason you're missing something, right? The window they have opened on to the last days of the Trump Administration is beyond unflattering and the prospect that we may one day. See the orange man in an orange jumpsuit seems to have grown a little. It's hard to imagine him not being prosecuted now after what we've learned
That is, of course, if he doesn't become president again in the meantime, which remains a real possibility.
Now, of course, the biggest development in recent weeks was the overturning of Roe v-- Wade by the Supreme Court. Some people have asked for my thoughts on that and about the ethics of abortion generally.
Perhaps, I'll do a podcast on that at some point, but briefly, I guess the first thing to say about row is that the writing was always on the wall for row.
Right. It has always seemed like a dubious judicial decision and just the wrong way to enshrine abortion rights at the federal level.
And the fact that we've been relying on it for 50 years has been a failure of governance. By the Democrats knew how precarious row was and yet they completely failed to pass legislation much less an amendment to the Constitution to properly guarantee this right for women, right? So there's a lot of blame to go around and the Democrats share in that blame.
That said I think we're peeling row is going to be unambiguously bad for women. In particular, poor women in red States and it'll be bad for the red states to. I think the spectacle of having desperate women, prosecuted, as murderers, for going out of state to terminate a pregnancy or taking illegal medication at home, this will be bad for business. I think you'll find the corporation's. Don't much like being associated with a real-life version.
Asian of the handmaid's tale.
But again this will only hurt red States but I don't think the problem necessarily stops here. I do think there's a larger concern about creeping theocracy. Let's call this for what it is, right, what happened here? The unjustified and unjustifiable religious beliefs of Catholics on the Supreme Court have delivered this change in our society.
This is religion, pure and simple. There is simply no valid ethical argument that privileges the interests of a single fertilized ovum over those of a woman whose life is going to be completely deranged by being forced to have a child. It's not just that pro-life absolutists have bad arguments. They have no arguments for Banning abortion at the earliest stages.
But then pro-choice absolutists are also extremists. Anyone who would argue for abortion as an absolute, right of a woman at every stage of pregnancy as though terminating a fetus. In the third trimester had no ethical implications Beyond a woman's bodily autonomy. His such people are just not making contact with the real ethical terrain here.
So our political debate about abortion seems pretty confused and it ignores the very sensible intuitions that most people have on this topic. I mean, most people recognize that a clump of cells is not a person. While I 30 week old fetus is so close to being a bouncing baby, that it is a person.
The real problem here is to figure out where that change happens and therefore, where it becomes ethically complicated to terminate a pregnancy. The most important question for me is at what point in development can a fetus conceivably suffer.
That's not the only consideration but I think it's the main one. And here is reasonable to think that sensory connections to the cortex are the relevant threshold. We can be even more conservative than that and draw the line somewhere earlier, but it's not an accident that most people think that the first trimester and the third trimester are very different. Ethically speaking.
And a difference is in the presence or absence of the nervous system structures, that could conceivably produce suffering. Terminating a pregnancy at 10 weeks is just different than terminating one at 30 weeks. Given what we know about developmental Neuroscience. I would say that the first should be at the total discretion of the mother and the second should require very serious justification. Like, saving the mother's life or saving the child.
From some utterly horrific suffering, should it be born and obviously emergency late-term abortions should and do include anesthesia at a certain stage in pregnancy. You have to treat a fetus as a being who can suffer but over ninety percent of abortions happen in the first trimester and given what we know that should be a legal practice available to all women.
especially given what we know about the effects, on a society that Outlaws that practice
Ultimately there's a lot of ethical work. Still ahead of us to understand human development in a fine-grained way and to specify exactly where a fetus even a specific fetus becomes a person to, which we want to ascribe independent interests. But most people know that the extremes are very different 10 weeks. And 30 weeks, say,
And where we draw the line should be somewhere in the middle of that range. And yet our political discourse tends, not to reflect this, but the fact that we appear to be moving into a situation where abortion at every stage will be illegal in half the country. That is clearly a step backwards politically unethically and we have Iron Age religion to thank for it.
Okay, today, I'm speaking with Morgan. Housel Morgan is a partner at the collaborative fund and a former columnist at the Motley Fool and the Wall Street Journal, he is a two-time winner of the best in business award from the Society of American Business, editors and writers. It's also the winner of the New York Times, Sydney, award and a two-time finalist for the Gerald Loeb award for distinguished business, and financial journalism, and he has written a wonderful book.
Titled the psychology of money Timeless lessons on wealth greed, and happiness. And this is the topic of our conversation. We discuss how personal history, shapes one's view of economic risk, the implications of not understanding the future.
The difference between rich and wealthy how we measure success. The problem of social comparison happiness versus life satisfaction saving and investing, Warren Buffett and the power of compounding rational versus reasonable decisions. The role of luck. Optimism versus pessimism dollar cost averaging
And other topics. Anyway, I found it a very useful conversation and I hope you do as well.
And I bring you Morgan, housel.
I am here with Morgan. Housel Morgan. Thanks for joining me. Thanks Rodney said, so you wrote this really wonderful book the psychology of money Timeless lessons on wealth greed and happiness and I want to talk about a lot of what's in that book and anything else you you think on these topics? But before we jump in, I could because two things I want to acknowledge that we're having this conversation at an interesting moment and we
Poised on the brink of some kind of recession, and the, the stock market has been fairly crazy. And I would, just one interesting reference point that jumped out at me. I think, at some point in your book, you single out, Netflix as a company, that has made stratospheric gains. And I now noticed that Netflix has lost almost all of those gains and it certainly lost five years worth of gains seemingly overnight. So a lot, can change here obviously. And
And we don't know when people will be listening to this conversation. I think it's this will be Evergreen and they're just very different moments in the life of any economy in the life of any person, is fascinating to see how it's changed. Even since your book was
published, it's interesting for sure, what? I'll note to your something lately, with Netflix, you mentioned where I mentioned in the book is Netflix during a period of 2002. 2018 increased like five hundred fold and went up. Five hundred fold, that's just cherry picking in hindsight but during that period,
It it lost seventy percent of its value twice, right? A lost half of its value on six separate occasions despite increasing five hundred fold during that period. I think that's relevant today, as it goes through. Another 70%, Klein as you pointed out that I think a lot of what we do within the economy and the stock market, whenever we go through these periods, like we have in the last six months, when a lot of things, Decline and collapse. And there's a lot of volatility. I think the huge majority of what we are experiencing is normal, volatility normal.
Accidents, normal uncertainty that you should expect with 100% certainty to occur during your life, in the stock market in the economy, it's rarely phrase, like that. It's always even in the Wall Street Journal, and Bloomberg in the financial times. It's, it's phrased as like Crisis, surprise catastrophe. Even if what we are dealing with is something that you should that has always occurred at fairly regular intervals and will always occur at fairly regular intervals.
Yeah. Well, we'll talk about some of the details there and when we talk about investing,
And then just the the psychology of it. But before we jump in, perhaps you can summarize your background, how did you come to focus on money and and wealth and related matters? And perhaps, this might be the time to talk about the way in, which a person's personal history can provide a lens through which they look at these topics, and it's a lens, it's fairly difficult to change. So you, I think it might, you see, you have some interesting things in your
A book on that topic. What, what, how does personal history and personal bias play in here as well?
Well, I had a pretty unique background starting in my teenage years. I was competitive ski racer growing up in Lake Tahoe, and because I was a competitive ski racer, I more or less by past High School, not because I was, I was smart enough to buy passages because it was viewed as getting in the way of competitive ski racing. So, I did an independent study program for high school. That was a joke. There was there was, there was effectively no academics involved it.
Said program that was designed for juvenile delinquents. That was not one but it's that's what it was designed for and I did I did nothing. I did not basically no academic work for it. When I was 16, they gave me a piece of paper that said diploma on it. But for all intensive purposes I had an eighth grade education and that I stopped after that. And during my teenage years it was it was a lot of fun. I'll ski racing all over the world. It was great. That's I became a later, teen 18, 19 years old and all my friends started going off to college. I had this moment of what. Now what do I do? They all have this skill?
All set in terms of a high school education that I did not and they're all going into college. That I felt I was completely in adequately prepared for which I was, I started as a valet at a high-end hotel in Lake Tahoe during that period and that was my first exposure to wealthy people. I grew up in a middle-class household, but I never been exposed to very wealthy people and at the hotel yet people coming in and they're Ferraris, and the rolls royces, and I just never seen that before. And as I was, you know, I was 19 years old, I was very naive in my world view, my first reaction.
Action as a 19 year-old man was I want to be that guy, the guy driving the yellow Ferrari. That's who I want to be. I think it's funny now because that's like the opposite of what I want to be what I aspire to, but that was my first view of like, there is another side of the world out there that I don't know about and I want it and I want it badly. And so, this was the early 2000s, the huge majority of those people who I met who are very wealthy worked in finance and that was kind of my first exposure to like, okay. I want to get into Finance because I want to be that guy. And I had this chip on my shoulder in terms.
Of my lack of education. And as the years went on, I finally started college and I was about 20 and I had to start at the most remedial levels of effectively, you know, I stopped in eighth grade. And I had to start back at that level at a local Junior, College Community College. Eventually work my way up. I graduated from USC, it took, it took me many years to get there. I think is in college for six, maybe seven years. If you added it all up because I had to make up for so much lost time, but I my entire goal during that period was I want to work in finance. I want to be an investment banker. I want to move to New York,
For Goldman Sachs, that's what I wanted to do and during the early 2000s. That's what a lot of young men particularly wanted to do, because investment-banking had this Allure of like that's where the power, that's where the money is. And when you're 21, 22 years old. You're just so enamored by that. And then so I was going to be an investment banker and then I got an investment banking internship in Los
Angeles and you're done your digit agree and in economics.
That's right. Yeah, I have a, I have a ba in economics, from from USC and I got my interest, I
And this Investment Banking internship. And on and this was my dream. This is what I had aspired to do it, put all my eggs in this one basket and on day one, even though not even day one, like our one of this Investment Banking internship. I realized it was not for me, this is just not going to work. The, the culture of investment banking, particularly back then was really geared towards hazing. It was, it was not geared towards productivity or solving problems. It was like, how much can we torture you to see if we can break you? And if we can break you, then you
Fit in here and I was just my personal like some people thrive in that environment. I was like, get get me out of here. Ike I couldn't I couldn't last. It's supposed to be a several month long internship summer, internship my last. I'd like a month and it was just a torturous month. So then I'm like, okay I need to do something else and then I got a job in private equity and this was the summer of 2007. I got an internship at a private Equity Firm and I really liked private Equity. It was a
great. Can you just differentiate those two areas for people because
I'm sure some people could Define investment banking and private Equity, but I would imagine many can't. So how are those different?
So Investment Banking is really a service industry of you get hired by a corporation to help you transact in a deal. So if a big company like Microsoft wants to buy another company, they want to acquire another business, they will hire an investment Bank to kind of do the administrative work for them, which is creating presentations to
Sell the board of directors, getting the deal done, all the kind of behind the scenes valuation analysis, legal analysis to get this big merger done. That's at least one aspect of what investment banking is Right. Private Equity. You are an actually an investor writing checks where a private Equity Firm is like an investing fund that will go out and buy an entire business. So go out and buy a big Industrial company that was for sale and then they will not only invest in it, but they will now run it and manage it and kind of take over the business and do what needs to be done.
Done to run that that business. So, the banking side is very transactional and private Equity was more of like you're actually a long-term investor or somewhat long-term investor here. And I really liked that side of like it was half finance and half business, it wasn't just a transaction. It was like let's run a business now. So I really like private equity and I was like great. This is what I'm going to do. I'm going to work in private equity and that was the summer of 2007. Which if you recall, that's when the global economy started breaking up, that was like the early Innings of the financial.
Yeah, and then so the fund that I was at start got into some trouble as a lot of funds did and I was I was a junior analyst and they came to me and said, look, there's there's not going to be a full-time spot for you. The fun was really struggling at the time. So then it's like, okay, I'm just about to graduate, I have a degree in economics. The entire Financial world is collapsing around me, the whole industry. Nobody was hiring 2007-2008. And I don't know what I want to do, and I was kind of a hard tough moment for me, but then I had a friend who was a writer at the Motley Fool and he
Said, hey, The Motley Fool is hiring investing writers. If you're looking for a job, you should apply. And I had no interest in writing. It was never part of the plan. I had no desire. I didn't enjoy it. Never thought in a million years that this was what I would do, but I took the job at a desperation, I just needed a paycheck at the time and I thought, okay, I'll be a financial writer writing about the stock market. I'll do this for a couple of months until I find another private Equity job, but I ended up staying for 10 years at the Motley Fool and that was really where I learned, how
to
Right and also learn that I liked writing and I enjoyed it and I love the process of being an outsider. I'd like, I'm not a fund manager, I'm not a financial advisor. I'm not an economist. I've just kind of sit at my desk in my house and observe what's going on in the economic world and try to piece together, what I think is happening and what I can learn from it and any kind of insights that I might be able to glean and then write about it as an outsider. And I really enjoyed that process. So it was a completely serendipitous haphazard path to where I got. But I think a lot of career
Ears work like that. So I spent the last 15 years now, or so. Just trying to figure out what's going on inside of people's heads, when they're thinking about risk, and greed, and reward and uncertainty, and just trying to write an interesting story, that will capture people's attention about what's going on in the global economy.
Yeah. Well, your Outsider status is cause you to produce such an unusual and useful book because it is not a normal Finance book. It is a book,
As you say, which focuses on how to integrate the issue and problem of money and wealth into a balanced and fulfilling life, right? And so many people, get that wrong and so many rich people, get that wrong, it's just it's bewildering and it's, it's fascinating to be kind of people led through your thinking about this, and it's just very convergent with what we're doing over at waking up and thinking about global issues in the context.
Out of living a more examined fulfilling life. What does your personal history with? So it's so. Not. Everyone has experienced a major downturn at the moment they became or we're struggling to become financially independent. You hear stories about people who lived through the Great Depression and and what that did to them and their people who missed that entirely and they're almost in the same age bracket. If you can say some general, things about how a
Experience can Define their attitude toward money and Building Wealth comprehensively.
Yeah well let me tell you two stories here. One that's kind of a follow-up to my career and one that's just a little bit more personal you know what I started as a writer in 2007 which is on the financial crisis began so I spent the early years of my career writing just trying to write about and piece together what happened during the global financial crisis of 2008. And as the years went on it was
Was I kind of realized as time went on that? You could not find the answer to the question of what happened. Like why did the finisher Crisis happen? Why do people make the decisions that they did during the housing bubble? And during the bust you could not find the answer to that question in a finance textbook or an economics. Textbook. It just there's nothing in those fields that could accurately explain why people did the things that they did. But you could find little clues about what happened and explanations for what happened. If you are thinking through the
Of psychology, like greed and fear. And sociology, keeping up with the Joneses and politics like hat, like why certain regulations are put into place history. All of these other fields that had nothing to do with Finance, could really accurately explained why it happened. And so that to me was just this this idea that there's so much more to finance and economics, then, finance and economics. It was, these are all fields that study, how people think, and how people behave and behavior is such a big and Broad All In.
Compassing field. There is a lot that we can learn about economics and finance through the lens of these other fields. That was kind of my first opening to this idea of like I want to write about finance and think about Finance but I but not through the lens of Finance that's boring. And I think it's just good woefully incomplete. Yeah I want to look at this as more of like a sociology perspective and I think that's a good segue into the other part of your question, which is that we tend to think of Finance. Like it's a math based field, it's just numbers and data and charts and formulas.
And it's like engineering or it's like physics where it's very clean and precise that's how finance and economics tends to be taught like down to the decimal, precision and everything we know about it is that it's not, it's a, it's just people make decisions with their money and have outlooks about the economy and their greed and fear that are all just based off of their personality and their psychology. And so much of that is just anchored to the own unique experiences of their personal history and since everyone from different generations and different countries and different socio-economic. Statuses have
Very different backgrounds, and experiences in the world. Everyone thinks about finance and economics differently. I think that's why it tends to be a controversial field in a way that like physics. And meteorology is not controversial. This not this, not saying, we don't that. We know everything. But the arguments that take place in economics over like, what's the right tax rate? How should we promote entrepreneurship are so fierce in economics. And I think the reason is, is because there is no one, right answer. Everyone is doing what makes sense to them through their own lens of what they've experienced.
Life. And a couple examples of this one that I think is really interesting, is that, before covid, Australia had not have a recession in 30 years, don't 30 years without a single recession. A lot of that was just because China had an insatiable appetite for their natural resources. So this had this giant economic Tailwind. So 30 years, no recession was in the United States. We had three recessions during that period, two of which were like, crippling devastating recessions that reset our entire society. And so Austin up the people of Australia
Of course are just as smart as anyone in America. They have the same information as anyone in America. They have their learning about the same topics, but they had a completely different view of economic risk than anyone in the United States would. And it's not, because one side is smarter than one another, it's just like the dumb luck of their individual experiences, and then you get into these, these things of like, if you grew up during the Great Depression, of course, you thought about economic risk totally differently from the rest of your life than someone who did not and that's all well. Documented in what not? I was once having a
Precision with Daniel Kahneman, of course, is a psychologist who won the Nobel prize in economics and we were talking about how our individual past shape, how we view about risk and he brought up this almost chilling point that he grew up in as a child, in a Jewish Family, and nazi-occupied France. That was his upbringing and how that makes them think about risk and just the kind of Outlook of humanity in a pessimistic way, way more than I ever would
And what's important about this is to, it's like I can learn about World War Two, I can read about the Holocaust, but until you have the emotional scar tissue of experiencing it firsthand, it's never going to be even remotely as persuasive as it would be. Like, nothing is more persuasive than what you have experienced firsthand. And this is when people who think and go out of their way to be open-minded and empathetic to other people's experiences everyone including myself, including you, everybody is just kind of a prisoner to their own past of the dumb luck of where
They were born when they were born and the people who they kind of just happened to meet along the way, the experiences that they happen to have along their path. And so we all think we're being objective about how the real world works. I think the truth is nobody is and I think that really comes through with how people manage their money and think about the economy.
Yeah, condiment is so useful here because it not only does he have his personal experience, but his field of feel that he is largely invented of Behavioral economics, he can draw lessons that
There are highly counterintuitive because so much of his focus is on how our intuitions proved to be bad in various circumstances. And, you know, one thing that's relevant here, which I believe you discuss someone your book is is how he thinks about our capacity for surprise. And that we tend to draw the wrong lesson from surprising events because the lesson people draw is, you know, some there's a let's say there's a surprising downturn, I'll say, in this case,
Flex loses seventy percent of its value over night. And you think that, okay? Now you understand that you so you can build this into your model, this is the kind of thing that is going to happen in the future but what you really should be building into your model. Perhaps, in addition to the first lesson is surprising, things are going to continue to happen and they will be different, right? Your Capacity to be surprised is not going away and you can't merely look at past surprises in preparation.
For the the future surprise you what you have to actually factor in is you don't understand the future,
that's it. It's really hard for people to grasp that we have no clue what the biggest news story of the next year. 5 years, 10 years is going to be, that's always been the case. I don't think there's ever been a time in modern history. When we knew what the biggest news story of the next five years was going to be preemptively, like, it's always been the case of the biggest news story was something that no virtually nobody saw coming.
Covid-19 Levin, Pearl Harbor, the Great Depression. All of these things that were like, just like generational defining events that no one or virtually no one saw coming before they happened. So that's always the common, not the common denominator of these big events. It's not that they were like big. It's not that they were massive events. Will sometimes they are. It said, no one was prepared for him before they came. I'll give you one recent example of this, I think is really interesting, The Economist, which is a magazine that I really admire. I think they do great work, but every January they put out,
A 12, a review for the year ahead. Here's what to expect over the next 12 months to do this every January. If you go back and look at their January of twenty, twenty addition for what to expect in 2020. All right, there's not a single word about covid, which, of course, as they were writing that addition and in December, 2019, it was, it was an unknowable event at that point. And then, if you go back and look at their Edition, from January of twenty, 22 of this year, there's not a single word about Russia or Ukraine, which again, of course, like you could not have known with any kind of precision that that was going to take.
But covid and Russia and Ukraine are probably the biggest events of those periods, but they were completely unknown 60 days before they took place by some of the best journalists in the world. And I think that's that's not a criticism of them. Because that's just an example of it's always the case even within a 60 day window. We have no clue what the biggest news story is going to be, I think that's true today and I can say that with confidence because again it's always been like that, but no matter how many times we experience it, I
It's just so uncomfortable to accept that level of uncertainty. And there's always going to be just an insatiable demand for people to think that they can see the future or to paid to people who tell them that they could that they can see the future because the reality of accepting otherwise is so painful.
Yeah, yeah. Well, would that Proviso in mind? Let's think through our relationship to money and wealth and related Matters from something like first principles. I think, let's
With the differentiation, you make between being rich and being wealthy. How do you think about those two seemingly synonymous Concepts?
I would first start by say, I made these definitions up, so people shouldn't take them too. Seriously. But rich, I described as you have enough money to pay your monthly bills to live the lifestyle that you want to leave. You can make your mortgage payment, your car payment, you have the monthly cash to make to cover your spending wealth.
It's a completely different thing. Wealth is the money that you have not spent its money that is saved up and invested and unspent banked up, sitting around that you're not doing anything with. That's what wealth is. It's a and it's a very different concept because you know, I think that the biggest reason that we should differentiate these two things is because Rich you can see, I can see the car that you drive and the house that you live in and the clothes that you wear the jewelry that you wear. That's all visible wealth. You cannot see. I
Not see your bank account, I can't see your brokerage statement, I have no idea how much wealth you have and we go through a life with a very skewed and flawed sense of rich and wealth because we only make judgments and we only make assumptions based off of what we see. So you see someone driving a Lamborghini. You think that guy must be rich and maybe they are rich in the sense that they can make the monthly payments on that Lamborghini. But they might have zero wealth zero money saved up. That's going to give them Independence and room for error and the ability to
to endure recession. They might have zero this to me. I really became aware of when I was a valet and getting to know some of these people who would drive in and they're Bentleys and their rolls royces and learning after I got to know them, the lot of them were actually not that successful. There were like mediocre successful people that spent half of their income on a Rolls Royce, lease payment. And that to me is just like all of my assumptions about these people was completely skewed. And on the flipside of that, some people who were legitimately very wealthy who you
Never know by their outward appearance that I could that I could measure them by. And that to me is just like, after you've seen 20 of those extreme examples of, like, I thought you were X but you turned out to be. Why just the most extreme difference that I could think of, after I saw enough of those, it was just like, I don't believe it's there, so many flaws and skews that we are blinded by. And I would say, particularly young men get blinded by the view of richness.
When actually what they deep down aspire to be as wealthy, they actually want to be wealthy because what wealth does the unspent money? That you're not spending that you're saving and investing and you're not spending on a monthly basis, is it gives you Independence and autonomy when you have that level of money, saved up that net worth saved up where you can be autonomous, that's what wealth really is. It's like, using money to give yourself a better life rather than just a tool to buy more things. I think that's what people actually aspire to, but always what they are measuring and judging in.
World is just how rich people are or
aren't. Mmm. What are the consequences of richness being on the surface and wealth being invisible?
I think there's so many people that will assume. Again, I think, particularly young men who assume that the material aspects of richness, the nicer, car the bigger house. If it's your clothes will give them a level of happiness in life. And since I think what they actually aspire to is to be wealthy and to be independent, but they don't know that yet. I think it leads to a lot of
Depression. Actually if what if if they are lucky enough to have a pretty high income and they can go out and buy the nice car and the big house, a sense of emptiness when they actually get it. That it's not going to bring them. What they what they assumed. I just finished Will Smith's biography which is actually incredibly good. Hmm and he made this point that when he was poor, if he was depressed he could always say look I'm depressed now but if I have more money and prettier girls than my depression will go away and it gave them a sense of hope. But
What he was rich, he couldn't have that help anymore. If he was rich and depressed, he could not say, oh, if I only had more money, things would be better. There was no more hope and so that was I thought that was a really interesting point. If I think what the material side of wealth can do for people it I think look II like nice cars and nice homes as much as anyone else. But I think we massively overestimate the amount of benefit that we were going to get from those things. And that, that point that I just said is, like cliche after it. Like that's that's
A worn-out point that a lot of people know but I think the next step of that that does go overlooked is what we actually want is not the material so it's not that money won't make you happy. It's that money can make you happy. If you use it to give yourself Independence and autonomy and control over your time, that's something that I think for overwhelmingly the majority of people will bring the lasting level of contentment and a benefit to their life that is overlooked and so it's not it's not a plea to live like a monk. It's not a plea to like you know, the fire movement of
When you're 24 years old to live in a shack, it's not that. But I think if we can use our money with a sense of independence of look, if I, if I have some level of savings, maybe I can, you know, take a lower paying job that I like more. Maybe I can live in an area that has a shorter commute, like whatever it is. Maybe I can. I can endure a medical setback without falling into a crippling amount of debt, or bankruptcy, all of these things just pile on your shoulders, with a little bit of lack of Independence and autonomy in the world that if you could remove that.
By having wealth, the money that you're not spending. It's something that it's like, I'm so over. Look, that can actually give people a Fighting Chance at using money to give yourself a better life.
You know, I want to talk about wealth and happiness next but there's a point you make in the book somewhere related to this, the the visible, and the invisible here, which is interesting because when all you see all you can see in other people, unless you really know them intimately. And you're having a conversation about their actual
Financial habits, all you can see is their spending patterns, right? You can see the car they bought or the house, they bought, or the clothes they wear. And you can't see, you know, how much they're saving or not saving. And because you can, you never really see what it takes to be truly wealthy, or to merely pretend to be wealthy. The only thing you can be tempted to model really
Is the rich side of this dichotomy,
I think that's right. And I think that's why there is a lot of. I mean here's one point that I think is interesting. If you ask most Americans, what was the best period economically in the history of this country? What decade was the best decade economically in the history of America overwhelmingly across Generations across socio-economic groups. You point to one decade which is the 1950s. We remember like across Generations, we remember the 50s. This is the Golden Age of middle-class prosperity in America. That's how we remember it.
And I think what is amazing about them. Fascinating about like, the Nostalgia for the 50s is how easy it is to disprove that. We were actually better off in the 50s and by almost any economic measure that you look at the median American household, adjusted for inflation is so much better off today. And the year 2022 then they were at any period during the 1950s and it's not even close. It's like I've like the median household income, adjusted for inflation is more than 2x today. What it was in the 1950s and life expectancy.
Us to Medical Care, educational attainment, like, going down the list of almost any metric you want to think about. We are better off today than 1950s. So then the question is, like, why the Nostalgia, why do you remember it at such a great period if we know that it wasn't? Yeah, I think at least one explanation for that is because a lot of it was the rise in media particularly social media over the last 20 years. That just inflated everyone's expectations to an incredible degree and maybe our incomes have doubled since the 1950s but our expectations have more than doubled.
Because everyone judges how well they're doing in the world relative to those around them. And when you are Judgment of those around you today is opening up Instagram and to seeing a curated list of the, you know, people drive taking their private jets to their private islands with their beautiful model wives. And like that's people's expectation of what the world is. And in that world, even if your incomes have doubled over the last couple Generations, you're going to feel worse off because your expectations are so wildly inflated and I think that
Is that that's that's probably a huge social economic trend of the last eight years, like since the end of World War Two, it's expectations Rising faster than reality on the ground. Even if the reality on the ground is a lot of progress and a lot of material success. It doesn't feel like that because we have so anchored onto this false view of like what we want in life and what we aspire to in life and what is normal in life without having any sort of grounding in terms of how far we've come. I mean, I think anyone, if there are really honest about it if you said
I have a time machine. You can trade places, do you want to live and work in the year, 2022 or 1952? I think if you are honest about it virtually, no one would say 1952.
Yeah. Well, in defensive, all of the envious people in the 21st century, one difference between 2022 and 1952, is that the level of wealth inequality, really has changed. Right? Mean in 1952 again. I think this is something you discuss in your book. You know, the difference between
The richest family in town and the average middle-class family, in terms of the outward signs of wealth wasn't all that extreme. I mean, you know, it was a difference between driving a Chevy and driving a Cadillac but basically people, when he actually just look at the amount of gains in in wealth in the society that accrued to the top 10% of the top 1% It was not completely out of whack.
It is now. And so there really are it mean that's just the, you know, the the far tail of the distribution is living in a completely different world economically than the average person in America is an extreme here. I think this is true globally but the gini coefficient in America is I don't know what it is right now, but you know, it has been creeping toward something far more extreme than than anyone in the 1950s would recognize.
That's true. I mean I think a lot of that was kind of echo from WWII of like how the economy was managed there were like wage caps. Do you know, during the war that kind of stuck around at least in the corporate culture in the 1950s, top marginal tax rate was 91% in the 1950s and there was a lot of like negatives that did come from that. But you're right that they created this period where wealth inequality was so low. And therefore when people are measuring how well they are doing relative to those around them, most people around you in the fifth.
We're doing exactly as you were, people are living. So like the small house felt great because everyone else lived in a small house and the low-income felt fine because everyone else had a low income and camping for your vacation, felt like a great thing to do because that's what everybody else did. And so I think that is a lot of the Nostalgia that we had. Is that even if we were analytically, worse off, like substantially worse off, it felt better just because people were measuring their success relative to everyone else around him. And everyone's around him was doing roughly as they were.
And then, so that started to break a little bit in the late seventies and early eighties and then took off from there. And I think it just, it went supernova in the last 10 years with social media to wear. Now, your definition of the people around you, is this algorithmically curated list of the most shocking photos that you can find of wealth and beauty, and sex, and, particularly for young men and young women. I think it's so distorting on where they should be in the world and how they anchor their success.
The
world and whether they like it's this anchor of if I'm not driving a BMW or Lamborghini and if I'm not living in a mansion in Bel Air and flying a private jet, I have not succeeded at all in the world which is just a complete 180 from everywhere in the 1950s, which is was if I have a 1200 square foot house and I can go camping once a year, I'm successful,
okay, well, let's talk about the relationship between wealth and happiness because it's not, it's not precisely as advertised and people's beliefs about it are obviously quite consequential.
We've already begun speaking about the variable of social comparison, which is, you know, I don't know if anyone has figured out a way to correct for it. I'm, I haven't heard of it. It's it should be the kind of thing you could correct for because it really is irrational. You know, it's the problem here is that because we derive so much of our sense of our own Satisfaction by comparing our status with others.
Absolute changes in the life experience of everyone for the better don't register in the way that they should. So if you know, if you have a tide that lifts all boats, but some boats are still bigger than others. We become numb to those auspicious changes and truly just disregard progress across the board because we look at our neighbor and he's doing better than we are this just habit.
Of social comparison is truly Insidious. And as we've already established, the context of social comparison has genuinely changed because, you know, there are levels of inequality now that are are very difficult to think about and people don't have a good intuitions for the orders of magnitude here. And it one way to think about it, which is which makes it intuitive for people if you put orders of magnitude in terms of time for some reason, people grok this much.
As always, I mean the difference between a million dollars and a billion dollars and a billion dollars and you know, hundreds of billions which is now where the richest people are. People just don't have a gut feeling for that but if you tell someone that, you know, a million seconds is two weeks and a billion seconds is 32 years and a trillion seconds is 32,000 years writing that. Now we're talking about people who are you know, quarter of the way to a
Trillion dollars when you're talking about Elon Musk and Jeff Bezos and some of the other richest billionaires when you're talking about someone who made a hundred billion dollars during covid the difference between that and making a hundred million dollars during cold. If you'd like to continue listening to this conversation, you'll need to subscribe and Sam Harris dot-org. Once you do you'll get access to all full-length episodes of The Making Sense podcast along with other
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