“Well, you know, 80% of all homeless rickshaw businesses fail within the first six months.” -Seinfeld
Pareto: He was into economics before anyone else was, but it was only because it was ironic.
Vilfredo Pareto was born in France in 1848. At birth he was given the name Fritz Wilfried but his parents changed it to Vilfredo after the realization that they weren’t German (really – this sounds like a goofy fact I would make up because it might be true, like Lutherans being secret space-vampires, but Vilfredo/Wilfried’s parents actually were kinda nuts). Vilfredo died in Switzerland. The logical conclusion? He must have been Italian. And he was.
Outside of his extensive collection of Abraham Lincoln-themed women’s undergarments, Pareto is best known to us for the Pareto Principle. As the story goes, Pareto was in the midst of trying to figure out what laws governed the distribution of wealth, and had pulled together historical economic records from all around Italy. Now, modern Italian record-keeping is on a par with modern Italian engineering – I mean, has anyone ever been able to keep the oil on the inside of an Italian engine? But the story goes that while working on this economic problem, Pareto was messing around with the peas in his garden and noticed that 20% of the pea plants produced 80% of the peas.
I don’t believe that story for a second. It’s a well-known fact that Italians explode like watermelons dropped from the Empire State Building if they are in the same room with a pea. Don’t ask me about how I know what a watermelon dropped from the Empire State Building looks like – Homeland Security® still hasn’t figured out how the watermelons were smuggled up there. I’m just saying, never go to Olive Garden™ on Fresh Green Pea Night. It takes them a week to clean the place up from all of the exploding Italians.
The pea proportions that Pareto allegedly observed, that 80% of peas came from 20% of the plants, seemed to match up with his data in economics. 80% of the land in Italy was owned by 20% of the people.
Looking further, 80% of a business’s profit comes from 20% of its customers. 20% of the words in a language account for 80% of the words used. 80% of crime is caused by 20% of criminals. 80% of car accidents are caused by my Mother-In-Law. Seriously, do NOT be around the woman when she puts the car into reverse.
The numbers aren’t exactly the same in every example but 70/25 or even 75/30 is close enough to prove the point. 80/20 is nice because the math is simple. It also adds up to be 100, which is nice and makes the number taste better on the tongue, just like watermelon that has been pulverized by being dropped from a great height, even though there is absolutely no reason for the numbers to add up to 100.
To me, however, this proves the idea that the universe isn’t fair. Talent isn’t equally distributed, and, when you toss in the idea of chance, the result is inequality. And it’s a vast inequality: the 80/20 rule holds for wealth. But you have to dig deeper: the top 20% that owns 80%? The top 20% of the top 20% (that’s the top 4%) owns 80% of the 80% (that’s 64%). So, the top 4% owns 64% of the wealth. Going one more time: the top 1% owns roughly 50%. The real number for the amount of wealth owned by the top 1% is around 38%, so it’s pretty close for an approximation and the missing 12% is probably under a mattress at the Elon Musk’s house. Pareto’s rule is alive and well in 2019.
It also tells me that even though intelligence and other human attributes follow a bell curve, wealth does not – it grows geometrically. An old story I use to illustrate this is: If you have fifty people in a room and bring in the tallest person in the world, well, the average height in the room goes from 5’ 9” (16 meters) to 5’ 10” (30 centimeters). But if you add Bill Gates to the room, the average person in the room is a billionaire, though your credit rating might not improve as much as you are expecting. Our brains are used to dealing with that normal distribution, but are inadequate when dealing with these quantities that grow geometrically. And I think the thing that fosters that geometric growth in today’s society is increasing returns.
When I was just starting at work after college I knew a little more about computers than the folks I was working with. Just a little. But because I knew just a little more, my coworkers would ask me questions if their computer broke or wasn’t working right. I didn’t necessarily know the answers, but I was able to learn more because I (and another coworker) kept getting all the questions. Pretty soon I knew lots of arcane stuff about how the computers worked and how the network worked.
The point isn’t that I’m a computer wizard, or even an apprentice magician anymore. I got better at computers because I had a tiny advantage over my coworkers. Magnified by a couple of years? Expertise. But expertise has to be used to be kept, and I didn’t keep my computer mojo. The Boy and Pugsley have me beaten (by far) at this point. The point is clear, however: increasing returns is the rule, rather than decreasing returns. You get better the more you do, and those slight advantages, that slight edge in competence adds up. You get better by solving those problems that exist around you – much better. And you don’t have to be perfect – you just have to be a little better than anyone else.
That was the story of manufacturing in the United States. There is a ton of knowledge in books about how to make things, but what’s not in the books is the everyday know-how that’s required to actually make the machines run. The more manufacturing we did as a country, the better we were at it, and the more know-how we had accumulated. In one story that amazes me still – the SR-71 Blackbird, the fastest manned, air-breathing aircraft that officially exists, was built from contract to flight in just over two years in the early 1960’s. The X-15 was faster, and also built in the 1960’s but it’s not a fair comparison, since it’s essentially the same as flying a rocket.
Now? Fighter development takes decades. Sure, they’re more complicated, but it took eight years from contract to prototype, and a further fifteen years to be put into service. I doubt we could make the SR-71 today in less than a decade, if even then.
I think that one of three things is happening: the first possibility is that we’ve forgotten how to make great stuff quickly, which Pareto can easily explain. The second possibility is that we’re stupider, which I’ll cover in a post within the next month. The third is we’ve forgotten how to make stuff AND we’re stupider. It’s like we’re sitting drooling drinking warm Coca-Cola® because we forgot the recipe to make ice.
You can wipe away the drool because the bright side is this: most of the decisions that you make don’t impact you all that much. Pareto is at work here, too. 20% of your decisions, actions, and habits account for 80% of where you are in wealth, health, and wisdom. The nice thing is that you already know what habits are good or bad, which ones take you away from your goals, and which ones help you.
The best part? You don’t have crazy Italian parents who can’t decide what your name should be.
The SR-71 was made before AutoCAD, Excel, and Power Point. That’s why it only took two years.
That explains it all! It was developed before labor saving devices!!!
I think it has much to do with computers. When calculations, and plans, were completed by hand, errors meant much more than just clicking a mouse to repair. Frivolous efforts only added to the drudgery, and spilling coffee on a slide rule didn’t mean stopping work, and going to Best Buy for a replacement. You had to focus and be concise.
Now, computers allow hours of trying to determine what form of madness instigated creating the monstrosity of separate pages, and macros that link to other workbooks. To add to this problem, you have to print the thing, At some point in this process, the printer runs out of paper, the process stops because HP is out of magenta, and you spend hours trying to determine on which page it stopped printing.
And then you restart the print job, and it starts back at page 1. So, you’re saying the enemy is us?
I doubt we could build a blackbird in two years today, with all the plans and development work already done.
If, in fact, we could do it at all.
I think you might be right. Actually, I fear you might be right.
I do believe a lot of it still is the Pareto principle. Technology works as a force multiplier, and it also works as an intelligence multiplier, but both only up to a point. At that point, real genius and motivation takes over as the primary driver for results.
As an example, most IT departments throughout the U.S. and the world rely upon their support staff not being able to actually know how to fix anything, but on finding the document that tells them how to fix something. If access to the internet goes down and no search engines are available to query for help, a minimum of 80% of your IT staff can’t fix anything at all. IT exists only because of the availability of Google and Bing and DuckDuckGo.
You can see the issue here. We rapidly run into a chicken vs. egg scenario, and it doesn’t bode well for recovery efforts in a true disaster situation.
The same problem exists throughout the modern world. Most People Are Idiots (MPAI), and actual progress is driven by the very few. Most scientists aren’t actually scientists. They are merely lab techs. Most engineers aren’t actually engineers. They are trained drafters or folks who know how to run a calculator. Most IT folks can’t do most IT tasks, partly because of the necessary specialization, and partly because those that really know already built it, and they are just technical janitors. But all of them LOOK like real scientists, real engineers, and real information superhighway gurus.
It turns out, most people can’t actually tell the difference. Your average non-gardener couldn’t tell which pea plants produced the most pea pods, and your average non-scientist can’t tell the real Feynman from the snake-oil salesman or the technician who fancies himself vastly more intelligent and influential than they really are. Most companies also can’t tell who can really run their IT equipment or not, or who can run their manufacturing or not. It looks like they all can, but most really can’t, and those that can’t often don’t understand how much they aren’t actually doing.
There ends up being too much demand for the real folks making hay, and in the absence of the ability to tell them apart, anyone wearing overalls gets hired. We have 1/5th the necessary competence available to accomplish everything we are trying to do as a nation, or a company, or a community. The really successful places somehow manage to actually corral more of those top 20% folks than their competitors, and everything takes a leap forward.
Once the leaps are made, everyone else tries to copy, and copying is a LOT easier than figuring it all our yourself, and the top 20% of the bottom 80% are competent enough to copy effectively and fix minor quibbles as they come about, and we all lurch along forward blindly thinking that all in peachy-keen and we all have great, intelligent, capable folks making things work. But we don’t.
As the population gets bigger, you have more folks in the top 20% to make things really work, and to make cool new stuff. It looks pretty great, and you can spring forward with amazing new ideas, gear, and tech. But you have even more in the bottom 80% to support, too. That exponential spread is destined to bring everything back down to ground level if you can’t find a way to deal with it and drag them along with you.
That exponential spread widens even faster when your intelligent, “can do” population isn’t replacing itself, and is being replaced by less intelligent foreigners with a culture of corruption and an indifference to standards.
And it widens ever faster when schools indoctrinate our children with enforced unreality and low standards. (Only one in three eighth graders in DC will go on to graduate high school, and only half of those will be able to read, write, and do basic math.)
I was unaware of the DC stats – I first read that “only one in three will go on to graduate school” and I thought, man, that’s a lot of masters degrees . . . oops.
What kind of industrialized economy can support those who can’t read, write, and do basic math?
Yep. The average IQ of the U.S. used to be just over 100. It is currently between 92 and 95.
A modern, #WesternCiv society requires a minimum average of an IQ of about 90 to function at all, and everyone below 90 is a serious net-drain.
Importing low-IQ foreigners is bad. Importing foreigners who don’t support your culture is really bad. Importing both, and pretending that all people are the same/interchangeable/plug-and-play is suicidal. There is no magic dirt that converts one foreign-born person into someone who behaves, believes, and responds like people who have generations in the culture.
Then you’ve got the a$$hats like Rand Paul, who will vote their libertarian “principles” to restrict the federal government from having too much power while that same federal government is actively trying to stop the invasion of the folks who vote 80%+ for more federal government power, handouts, etc. That’s libertarianism for you. Just like every other “ism,” it is utopia-based thinking that doesn’t account for actual human nature, and is generally stuffed full of idiots who just want to do drugs and have everyone else not look down on them for it.
And in a future post (2 weeks?), I’ll present evidence that the whole shootin’ match is getting stupider. Which does NOT bode well.
Great example of this 80% in action here with the 737Max:
https://medium.com/@jpaulreed/the-737max-and-why-software-engineers-should-pay-attention-a041290994bd
Excellent article.
“What kind of industrialized economy can support those who can’t read, write, and do basic math?”
The kind that has their 20% with above 110 IQs and not Communists, a lot of highly functional robots, and low income apartment flats that are actually abattoirs to make Soylent Green.
Or spaceships to Venus, as in The Marching Morons . . .
Laws become a joke when everything is illegal. Law-abiding Americans find breaking the law is easy when you must be a criminal just to live.