Podcast appearances and mentions of Hyman P Minsky

At the height of the financial crisis in 2008, the late Queen Elizabeth II asked economists at the London School of Economics the obvious question "why did nobody notice it?". Doubtless there was much muttering and shuffling of feet at that point but there was at least one economist who had predicted what would happen (albeit some years earlier), namely Hyman P. Minsky. Before the Credit Crunch Minsky had been largely ignored by mainstream economists but now was his "Minsky Moment". His slogan that "stability created instability" was now taken up with some enthusiasm; his recommendation that it was essential that governments tightly regulated financial markets perhaps less so. In this first episode of Season Seven, your friendly neighbourhood economists, Pete and Gav explore Minksy's life and ideas and explain what a ‘Minsky Moment' is. Along the way you will consider whether you are a fox or a hedgehog, reflect on which parent had more influence on your social or political ideas and take part in a quiz which will establish your knowledge of financial innovations. Technical support as always comes from Nic The Ledge!

Uma bolha financeira acontece quando ações começam a ser negociadas a preços muito acima do valor real. Ou seja, quando há uma visão distorcida do valor desses ativos. O nome bolha vem justamente deste processo. Como ele é baseado em especulação, basta algo para a bolha “estourar”, causando uma queda brutal e rápida, deixando os investidores com um prejuízo alto. O que alimenta a bolha é tipicamente o comportamento de manada: investidores que se atraem pela popularidade do investimento e passam a comprá-lo– aumentando ainda mais sua popularidade. As bolhas costumam passar por algumas estágios comuns. Segundo o economista americano Hyman P. Minsky, especialista em crises financeiras, são cinco fases principais. 1) Deslocamento: momento em que os investidores começam a notar e se encantar com um novo investimento no mercado. Uma oportunidade de investimento com retornos aparentemente fáceis, por exemplo. 2) Boom: os preços começam a subir no início de forma lenta, mas logo ganhando impulso conforme mais investidores vão entrando no mercado. O ativo vai ganhando cada vez mais atenção, inclusive na imprensa, alimentando a atração dos investidores e o sentimento de que quem não colocar seu dinheiro vai perder a oportunidade. 3) Euforia: nessa fase, há uma sensação generalizada de otimismo em relação ao ativo e os preços disparam. A maior parte das pessoas sequer questiona a solidez por trás de seu investimento. 4) Lucro: quem vende no auge dos preços consegue ganhar muito dinheiro. O problema é que pouquíssimas pessoas conseguem perceber os primeiros sinais da bolha e entender que é hora de começar a vender antes que ela estoure – a maioria segue para a quinta e última fase. 5) Pânico: ao perceber o dinheiro começando a ir embora, outros correm para também vender seus ativos e os preços despencam ainda mais rápido do que subiram. A maioria dos investidores acaba com um prejuízo enorme.

Our guest on this week's installment of "The Long View" podcast is James Montier. Montier is a member of the asset-allocation team at Grantham, Mayo, Van Otterloo & Co. Before joining GMO in 2009, he was co-head of global strategy at Societe Generale. A prolific and incisive writer, Montier has authored several books, including Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment; and The Little Book of Behavioral Investing. He's also a regular contributor to GMO's library of white papers and research studies on topics ranging from productivity, strategic asset allocation, contrarianism, and more. In addition to his duties at GMO, Montier is also a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts. Background  Grantham, Mayo, Van Otterloo & Co. Behavioural Investing: A Practitioner's Guide to Applying Behavioural Finance by James Montier  Value Investing: Tools and Techniques for Intelligent Investment by James Montier  The Little Book of Behavioral Investing: How Not to Be Your Own Worst Enemy by James Montier  GMO's research library   Montier's articles in GMO's research library  Montier's Role at GMO "My role is essentially to be difficult, and it turns out I'm quite good at that." Montier describes his role at GMO and how his contributions to the firm are measured. (1:10-3:11) Ben Inker bio  Fostering Debate at GMO "We have never had a house view." Why debate and constructive devil's advocacy is welcome at GMO. (3:12-4:31) "Investing is one of those fields where there is almost constant evidence that we are all wrong." How to foster humility and a diversity of views. (4:32-7:38) Debating Jeremy Grantham on mean reversion: Montier gives an example of an issue the team has debated recently--how long it takes for markets to revert to their long-term averages. (7:39-9:36) Jeremy Grantham bio  "This Time Seems Very, Very Different" by Jeremy Grantham (GMO Quarterly Letter, 1Q 2017)   "The S&P 500: Just Say No" by Matt Kadnar and James Montier (Aug. 15, 2017)  Forecasting and Portfolio Construction How the debate over mean reversion informs GMO's asset-class forecasts. (9:37-10:09) GMO 7-Year Asset Class Forecast (May 2019)  Corporate concentration and low interest rates: How GMO is reconsidering these variables and their impact on the asset-class forecasts it makes. (10:10-11:38) "The Idolatry of Interest Rates, Part II: Financial Heresy and Potential Utility in an ERP Framework" by James Montier and Ben Inker (Aug. 11, 2015) How GMO incorporates its asset-class forecasts into the multi-asset strategies it manages. (11:39-12:37) GMO Benchmark-Free Allocation III GBMFX   The appeal of a "robust" forecast that's meant to help portfolios withstand various potential outcomes. (12:38-14:15) "Our portfolios look a little freakish." Montier explains why GMO is U.S.-stock-phobic and, conversely, why the firm is finding value in alternatives. (14:16-18:04) GMO Benchmark-Free Allocation II Fund's asset allocation  Sir John Templeton: "If you want to have a better performance than the crowd, you must do things differently from the crowd." Career risk: Where individual investors hold an edge over institutions. (18:05-18:55) "Career Risk Is Likely to Always Dominate Investing" by Jeremy Grantham (Dec. 24, 2014, Finanz and Wirtschaft)  Alternatives Montier defines "alternatives." Different ways of owning standard risks--depression risk, inflation risk, and liquidity. (18:56-21:49) "The General Theory of Employment, Interest, and Money" by John Maynard Keynes  Montier presents two examples of alternative strategies that GMO employs--merger arbitrage and put-selling--to own standard risks in different ways. (21:50-25:49)  Merger-arbitrage definition   Put-selling definition  "Is This Purgatory, or Is It Hell?" by Ben Inker (GMO Quarterly Letter, 3Q 2014)  "We should size them such that they cannot hurt the overall fund should we get something wrong." How GMO sizes its positions in alternative strategies. (25:50-27:33)  GMO Systematic Global Macro Trust  Alpha, beta, and decay: How GMO assesses an alternative strategy's vulnerability to being arbitraged away. (27:34-29:57) GMO's Bearish U.S. Equity Forecast "How do I get paid for owning this asset?" Key inputs to GMO's U.S. equity forecast--multiple, margin, yield, and growth. (29:58-32:08) "Back to Basics: Six Questions to Consider Before Investing" by Ben Inker (Nov. 8, 2010)  "A behavioral self-defense mechanism." How GMO's approach to forecasting helps to structure its thinking and anchors decision-making. (32:09-34:54) "It's really valuation where we've been most wrong." Where GMO's U.S. equity forecast erred in recent years. (34:55-36:01) "We have to wear that. We have to own it." Montier on steps that GMO has taken to introspect on its forecasting error and how that expresses itself in the way it makes decisions and manages money. (36:02-39:45) Planning Amid a Dearth of Value "A reach for yield in any way, shape, or form." Explaining the dearth of value. (39:46-41:43) "The Deep Causes of Secular Stagnation and the Rise of Populism" by James Montier and Philip Pilkington (March 22, 2017)  "We have always been pretty bad at (forecasting), and it's unlikely we're going to get a lot better." (41:44-44:37) How should investors and advisors forecast asset-class returns and plan for the future? (44:38-47:25) "Investing for Retirement: The Defined Contribution Challenge" by Ben Inker and Martin Tarlie (April 5, 2014) Capital Allocation Montier on the folly of firms borrowing to repurchase shares: "The more stable the environment, the easier it is to take on leverage, but the greater the danger that taking leverage creates further down the line when you get some random shock." (47:26-50:49) "The Late Cycle Lament: The Dual Economy, Minsky Moments, and Other Concerns" by James Montier (Dec. 17, 2018)   "The Financial Instability Hypothesis" by Hyman P. Minsky (May 1992; The Jerome Levy Economics Institute of Bard College) 

After touching on the topic of risk in many other episodes of this podcast, David and Blair finally take a full episode to discuss at length the role of risk in entrepreneurship.   LINKS "Confessions of a Recovering Consultant" by Blair Enns Hyman P. Minsky Archive Twitter exchange with Jonathan Stark on risk Strategic Coach program with Dan Sullivan "A Mission With No Exit" by Blair Enns Peter Drucker   TRANSCRIPT BLAIR ENNS: David, what's the riskiest thing you've ever done? DAVID BAKER: I've always wanted to have a really long pregnant pause right after you start something, because you're always telling me I can regain the power with silence. The biggest risk I've taken was probably telling my wife about the risks I was going to take. BLAIR: Yeah, right. Wow. Hands up, everybody. DAVID: She's only told me there was one thing I could not do and it's so illogical. She says I cannot jump out of an airplane. She doesn't terrify flying, or race, or whatever, but I can't jump out, which seems so illogical. So, as soon as I get some, you know what, I'm going to jump out of an airplane. BLAIR: You've got some high risk hobbies. I'm not sure that you indulge in all of them, but tell us a little bit about your high risk hobbies. List them off, because it's a little bit incredible. Here's the consultant, somebody who types for a living. DAVID: Oh, that is dismissive, types for a living. BLAIR: Well, I refer to myself that way too. DAVID: Yeah. BLAIR: Like I'm a typist, right? I have friends who have calluses, like they're real men. You and I, we type and talk on the phone. DAVID: Okay. So, I taught motorcycle racing. I fly airplanes and helicopters. I travel to very dangerous parts of the country. BLAIR: Yeah. DAVID: I love the shooting sports, not shooting at each other. I'm not so much into those, and I don't hunt, but I like shooting sports. And I do a podcast with you, that's pretty up there too. What are yours? BLAIR: Yeah, right. Okay. I knew I was going to open with this question. For those of you listening, if anybody is listening, this is the risk episode, where we're going to talk about various types of risk, but to answer your question. When I knew I was going to pose this question to you, I started thinking oh, what's the most riskiest thing I've ever done? Other than some things that were driven by kind of alcohol and youth that were just outright stupid when I put my life or the lives of others in danger, other than that, I can't ... The riskiest things I've done in business have been investing in the business. By that I mean spending money, seeing something as an investment but knowing in the short-term, the expense is potentially debilitating to the business. DAVID: Right. BLAIR: But then trusting that it's going to pay off in revenue down the road. DAVID: Oh. The biggest risk you took that I can remember was when you totally changed your business model to a training model from a consulting model. That was a huge risk, to me at least it felt, maybe it didn't feel that way to you as much as it did to me. I was looking, from the outside, in marvel really. I was thinking, "Wow, that is a big risk." BLAIR: You were thinking, "Wow, that is a stupid move." I remember you telling me like a year later, "You know you could still go back to being a consultant," and I couldn't because I wrote that 3,000 word blog post called "Confessions of a Recovering Consultant." DAVID: Right. BLAIR: The reason I did it is I put it out there so that I would not ... That was my version of burning the ships so that I would not go back. DAVID: Right. BLAIR: And here we are. DAVID: But you do take some pretty significant physical risks. They may not seem like it to you because of where you live, but you hike in pretty crazy places and you poke bears, maybe not literally but close to it. BLAIR: I once said to my son, who was 15 at the time, I said, "You know, you're one of the few people in the world who has put your hand into a grizzly bear's mouth," and he responded promptly by saying, "I'm one of the few people in the world who has stuck a thermometer up a grizzly bear's butt." DAVID: Except he didn't use that word, but yes we gathered. BLAIR: He did. DAVID: He did? BLAIR: Okay. Enough about us. So, I sent you a text saying, "Hey, we should do a whole show on risk," because probably like one in three or four episodes, we keep coming back to the subject of risk, like how much risk that the principals of creative firms take. So, where do you want to start here? Do you want to start with your Minsky quote? DAVID: You know, I never used to pay any attention to economists, until you kept quoting different economists to me. So, as I was thinking about risk last night, watching a very boring TV show, I found this quote that just struck me. It's by Hyman Minsky, and it says this. He said, "Stability is destabilizing." And then there was an article on the Wall Street Journal talking about that concept and he also said, "That's because, in other words, stability is destabilizing because long periods of calm induce behavior and innovation that make the next downturn more violent" I was thinking about times in history where all the nobles were safe in the castles and the rest of the people are dismissed, and all of a sudden, they revolt against everybody. You think about all of these cycles that have happened over time, and the apparent stability that just slowly, slowly was like boiling a frog in water, people don't even notice, and all of a sudden it just breaks out. Or you think about some of the terrible diseases that have wiped out millions of people, or you think about some of the financial crises that almost all of us now are not too young to remember, like the Housing Crisis and so on, and yet we think that somehow this isn't going to happen. Then other times, we think it's going to happen. The more I thought about risk, the more confused I got really because I think of myself as quite a risk taker, but I also wonder if I really am. BLAIR: Isn't that interesting? Why do you doubt that? DAVID: Well, because I have one of those personalities that thinks really carefully about the implications of something, and then I just do it. So, I have what's called the DC conflict in a personality, so I tend to overthink things a lot and I'm a bit of a control freak. BLAIR: Yeah. DAVID: Then I think well, after I thought through this this much, it doesn't feel like that much of a risk. That's why it doesn't feel like I'm as much a risk taker I think as maybe other people who've seen my behavior might think that I am, because it's just no, I'm going to do this. But also, you and I have had really interesting conversations usually after a Manhattan or whatever we happen to be drinking. BLAIR: It's a Negroni this year. Let's just be clear, this is the year of the Negroni. DAVID: The year of the Negroni, that's right, yeah. But I have run my business and my life in a way that I'm going to try to make principle decisions and that means that I'm not going to stop short of those because of fear. So, I am willing to picture myself homeless, that is, without a business, without any significant level of asset, and I will still be making decisions based on principle. DAVID: That just seems like such a logical position for me to have, and so in that sense, it doesn't feel all that risky to me because what's the worst that can happen? Oh, homelessness, oh, I'm okay with that. That's why risk is a confusing concept to me. BLAIR: I think that some listening to this might think, oh that's a bit of an exaggeration, but like somebody who knows you and has had many conversations with you, in which you have brought up that scenario, you have very vividly painted this scenario of you being homeless, you usually had a dog. DAVID: Right. BLAIR: You've lived in this future state where you've imagined it quite a bit, and so you've tried it on and thought, "Yeah, I'm okay with that, as long as I can live with myself and the decisions that I've made." DAVID: Right. I believe that I am a few stupid mistakes, let's say I'm struggling with some emotional or mental issue and I make a bad decision, and then it's compounded by another one out of 10, so two decisions. BLAIR: Yeah. DAVID: Do you think you are a couple of decisions away from a very altered lifestyle? BLAIR: Wow, you know, you're probably asking me at exactly, I won't get into the details, but we're considering a big move in the business, financial move. So, I have thought okay, if this goes wrong, I'm really vulnerable. If this goes wrong and something else goes wrong, I might be starting over. But like you, being bankrupt and starting over doesn't worry me. It worries me because it would terrify my wife and my obligation to my marital partner. My kids will be fine. I'm okay with starting over. When you get these compounded variables, it's like okay, I'm going to take a big risk. DAVID: Yeah. BLAIR: And you take a big risk and it doesn't work out. Usually, we're not betting the entire firm or our entire lifestyle on it. But if something else happens at the same time, then possibly we're wiped out. That's how populations go extinct, this combination of a steady pressure and then an incident. I forget, there's a name for it, it will come to me in a second. So, the steady pressure might be economic decline. So, we're in a period of recession and then something goes wrong, so when you get those two variables together, that's when everybody is really vulnerable. BLAIR: I was really interested in this topic because a friend of mine, Jonathan Stark, on Twitter he's a developer and teaches developers about value-based pricing, and he was tweeting about an episode of one of his podcasts recently, and I haven't listened to it yet. But he was ... just the subject of risk, I forget what his question was, but I tweeted that ... and I was really thinking through this as I was forming the tweet that's, "I've come to the conclusion that the state of entrepreneurship is that you are all in all the time. You're always making ... You always have a bet on the line." BLAIR: His reply was, "Yeah, but you're not always betting the business. It's a series of small bets." I tweeted back, "Yeah, I agree with that," but I don't fully agree with that. I want to come back to that Hyman Minsky quote in a minute, but I think there's something about the state of entrepreneurship where you are always walking some sort of line and when I read Minsky's quote, let's just reread it again. BLAIR: So, "Stability is destabilizing, that's because long periods of calm induce behavior and innovation that make the next downturn more violent." I read that quote, I think of our listeners, our clients, and the ones who are like they get comfortable. They build a comfortable business. They're not constantly reassessing their business model. Then along comes change and they're just caught flatfooted. It's like your friend who says, "Yeah, my wife left me and I ..." DAVID: It was a surprise. BLAIR: We didn't even have any trouble. We never argued, and you think you idiot. A married person needs to be just slightly paranoid about the state of their marriage, the way an entrepreneur needs to be slightly paranoid about the state of the market. Something could come along, the karate instructor or whoever it is. DAVID: I just love how you just lay your whole life out in front of thousands of people. BLAIR: Well, I've learned my wife doesn't listen to this podcast, so I'm okay. DAVID: Oh, that's given you a lot of freedom, yeah. BLAIR: When you read the Minsky quote, were you thinking about yourself or were you thinking about those clients that you've had who it's like good stable business, and they're playing golf or they're so comfortable, they don't change anything, and all of a sudden, the condition are slowly, slowly changing like the boiling frog. BLAIR: And then bang, they wake up one day and everything is different and they kind of blame the market or they don't understand what's happened to them. What's happened to them is they got comfortable. They weren't sufficiently paranoid to the point that they weren't constantly reinventing things, constantly taking risk. That's what I see in that quote. What do you see? DAVID: I see the same thing, and your description of these entrepreneurs, these principals that are listening is exactly right. They wake up in the morning and if they're not worried, they're worried. They're worried about nothing to worry about. They're always paranoid about something, even if they have to make up something that they're paranoid about. They envision that maybe an employee is plotting with a client to take the business, or they read something that isn't even there in a comment that a client made about oh, their client is going to leave. Or they read something in the news about how this entire industry is changing. So, yeah, that's exactly right, but I feel conflicted because on the one hand, I look at firms who just toil under the radar, they're not firms that anybody is trying to emulate. They're not winning all kinds of awards. They're not the cool places that all the young folks want to go work at. They just do good solid work. They've got solid financial fundamentals as well. They've got decent principles about how to manage people, and year after year, they make money. Then you have the other ones who are innovating at the frontline and creating new service offerings and saying, "Hey, you know what? Nobody is going to be developing websites in three years. So, in one year, I'm going to stop doing that and reinvent myself." What's the better model, because I just don't see too many firms who have much of a balance between those two things. It seems like it's one or the other, and I want ... Maybe this is my personality coming through here, but I want a little bit more balance and I hate the fact that they're constantly paranoid, but I love the fact that they're constantly paranoid. Does that make sense even? BLAIR: So, you're saying at one end of the spectrum, there's an unhealthy paranoia. DAVID: Right. BLAIR: Right, just because you're paranoid doesn't mean they're not out to get you. DAVID: Right. BLAIR: At the other end of the spectrum, there's this complacency. DAVID: Right. BLAIR: And you're saying you would like to see more firms in the middle that have where the principal has a healthy level of paranoia. Is that what you're saying? DAVID: Yes, I am. I wish there was some way to figure out where principals were on that spectrum. Here's an example, this may not be the answer, but it illustrates what I'm thinking of. Maybe you need to be making your employees a little bit nervous most of the time, but not flat terrifying them, right? BLAIR: I agree with that completely. I really identify with that. DAVID: Okay. BLAIR: Yeah. DAVID: Or another would be you need to run a culture where people really want to stay and work for you, but some of them should still leave for the right reason. We don't want to read too much into people, or read the wrong things into people leaving. We want them to leave for the right reasons, and so on. I'm just inventing these on the fly. I don't know exactly what the answers are here. Then there's also this whole notion of an efficient marketplace. Here's an example of that. An efficient marketplace says that there are very few unexplored arbitrage opportunities in that a market will usually fill in those low spots on the road or knock off those high spots on the road within a couple of days. Okay, but entrepreneurs principals or folks listening, our clients, your clients, they're always seeing like oh my God, there's an unmet need that I can fill, but they don't think about those opportunities very objectively. The same sort of objectivity they bring to solving problems for their clients, they don't bring that same level of objectivity to solving problems for themselves in terms of evaluating the soundness of an opportunity. This is why, as we were thinking about this topic, I'm thinking you know, you're always saying that the sample of the work you do for the client is the sale. You say it differently, but that's the idea. BLAIR: The sale is the sample. DAVID: Sale is the sample, yeah. And here, the fact that we are bouncing all over the place, this is the risk thing and we're taking a huge risk even talking about all this stuff without really knowing. We're flailing around here. We're just kind of getting inside each other's heads a little bit.   BLAIR: Okay, we're talking about risk. This is the risk episode. Do you remember, David, a couple of years ago I asked you to translate something into Latin for me? Do you remember what the phrase was that I said this is my personal motto? DAVID: No, I don't. I don't remember that. BLAIR: So, looking up on the wall, I'm still seeing your handwriting of the various ways to translate this into Latin. But it's unpredictable, but dependable. To me, just looking at this it's still tacked to my wall, I'm thinking when you were mentioning how your employees should maybe be a little bit nervous about what you're going to do next. DAVID: Yeah. BLAIR: I was thinking about I really enjoy in relationship with my wife, who's not only my life partner, but my business partner, I enjoy the role of disruptor. I enjoy the role of being the person who shows up and says, "Okay, we're going to take a whole bunch of risk," and then she and the other calm people around me kind of have this little meltdown and I enjoy seeing them go into meltdown mode. BLAIR: So, it's really important for me as my personal identity, and I really wonder the people listening out there, all the entrepreneurs, I wonder if you identify with this as well, to be seen as unpredictable, but not unstable. I would like to be known as somebody not just in business, but in life who is seen as you never know what Blair is going to do next, but I know I can always depend on him. DAVID: Yes, buttressed with the fact that you have scared them before. BLAIR: Yes, and they have survived. DAVID: And they've survived, and they've also seen, they followed your lead, and you led them through the Red Sea and nobody, or not too many people drowned. BLAIR: I didn't lose many. DAVID: You didn't lose many, right. So, the idea is that okay I've had crazy ideas in the past, some of them have not worked out, but enough of them have that we should at least have a really good discussion about this. In the end, I'm going to listen to everybody says, but I'm going to make a decision on my own kind of. Maybe not on my own, that's a little bit ... That doesn't sound good, but it's not going to be democratized. BLAIR: Yeah, yeah, with the input of others. DAVID: Right. BLAIR: So, I wonder if that shouldn't be the motto of all entrepreneurs and not just me. While we're skipping across risk related topics here, another thing I really wanted to talk about is this idea of no exit. A few years ago, I had a revelation about my own business from a couple of different sources. One was the Strategic Coach program and Dan Sullivan, and another entrepreneur who had said something publicly. I'd had this revelation and this epiphany that I was never going to sell my business and I was never going to retire. So I wrote a lengthy blog post about it called "No Exit", and I've since done a bunch of exercises around this when I'm speaking to a room full of agency principals. The first time I did this was at Revenue 2.0, that's an event you and I did together twice about alternative business models, and I do this talk that I have called The Five Constraints, but the first constraint is this idea of no exit. So, if you're listening to this, if you're the owner of a business of any kind of, whether it's a creative marketing business or some other kind, I want you to try on this constraint. The constraint is that you can never sell your business and you can never retire, and then I'll just stop there while you think about that for a second. Then I'll ask you if that's the constraint you had to live by, what are the changes that you would make in your business right now? Make a list of the changes that need to be made in your business, and then what are the changes that need to be made in your life. So, I give people a couple of minutes to make some notes, and then I ask the audience, "All right, what did you write down?" People say, "Well, I've got to change my role. I've got to quit sacrificing today for tomorrow. It's important that I show up to do a job that I love, so I've got to change my role. I've got to delegate. I've got to take more vacation." DAVID: Right. BLAIR: So many people say, "I need to start working out." I'm not exactly sure how that's connected, but it's a really interesting constraint. The real source of it, I was inspired by a couple of different people, but the real source of it is I noticed this pattern in my clients' businesses. When the principal gets to a certain age, and the age is just a few years shy of where I am. I'm 52 at this recording, so I start to see it around 55, late 50s, so definitely in the early 60s, when somebody gets to that age, when they can tell me when they're going to retire, I know it's over. It's over because as soon as they have one eye on the exit, they quit taking risk. Have you see this too? DAVID: I have, but I'd never seen it expressed quite like that. Immediately I say, "Oh, that's something I could study." BLAIR: Yeah. DAVID: Because as soon as they have a date three years, now what does their decision making look like when they know that it's only going to be three years or five years or two years or whatever it is? BLAIR: I'll tell you this anecdotally, if somebody says they've got an eye on a retirement date that's within five years, they will not make a difficult decision around positioning. DAVID: I was just going to ask, positioning would seem to be the likely one. BLAIR: Yeah. DAVID: What are some of the other topics they would avoid decisions around? BLAIR: They won't make difficult staffing decisions. I might not be right about this, but I'll say it anyway because it never stopped me before. DAVID: Wait, is this the same Blair? Who took your mic? BLAIR: They kind of cede control of the culture. That's not necessarily a bad thing, but if you think about like a vibrant firm, at the helm of the firm is a truly inspired leader whose primary job is to keep an eye on the horizon and say, "We're going this way," and to make decisions about things that are going to happen in the future, spotting things in the market, spotting trends in technology, et cetera, et cetera. So, that vision is at least five years out, and as soon as that vision gets to a five years, four years, three years, they're not really thinking about the health of the firm long-term. That has a significant impact on the culture of the firm. The energy is different. As I'm talking about this, I'm hoping that you can imagine firms or just recall firms that you've walked into where you realize, oh yeah, this is not a vibrant young place, and it's not so much to do with the chronological age of the people, although that is a factor. But the energy of a place where the principal is thinking about retirement is completely different. As soon as the principal starts thinking about retirement, they lose, I don't know if it's moral authority, but they become less of a guiding force. So, where does the guiding force come from? Maybe it doesn't come from anywhere. Maybe there's a power battle. DAVID: Nature fills a vacuum, right? So, if they're not leading, then somebody is going to step up. I think I can illustrate what happens along this same line. What I have seen is that you will be more tolerant of talented assholes as employees. You do that, not just because you don't want to rock the boat, but because this talented asshole is somebody that has taken something away from you and you don't want to step back in. You don't want to find somebody else to do this for you. That is making a huge ethical compromise honestly. BLAIR: Yeah. That's part of the problem I have with it. I do see some of these compromises as ethical compromises. You avoid the big fights. You're absolutely quick taking risk in the marketplace, and that's another element of risk. My favorite Peter Drucker quote, there are so many great Peter Drucker quotes, is, "In business, all profit comes from risk," and I like to add, in life, all profit comes from risk. So, you imagine that okay, if that's the nature of profit and risk in business, so you imagine that your client decides that they're going to go out into the marketplace and take some risk in the market as a way of earning profit. So, first of all, your client decides I'm going to take some risk, and then they hire you and in part, what they're hiring you to do is to make some of that risk go away. In every price that you charge, put forward to your client or charge your client, there's some sort of risk level built into the price. There's just risk all around. When somebody in the middle of the equation that is the principal of the firm quits taking risk, then everything kind of doesn't grind to a halt, but everything kind of slows down, gets less interesting, less value is created. DAVID: And clients start to run things more as well. You don't push back. BLAIR: Yeah. There's another tough decision that you're not going to make. You're not going to push back on this client. You're thinking ah, three more years. DAVID: Yeah. BLAIR: Three more years. DAVID: Don't want to upset the applecart. BLAIR: I've some friends who are cops and once they get 20 years of service in, they always say three bad days. If I have three bad days in a row, I can just quit and I've got pension. I feel like that's what happens to agency principals when they have one eye on the exit. I just want to clarify here, I'm not saying you can never retire. I am saying you obviously want to build a business. You want to create your wealth, so at any moment you can stop, you can shut it down. But the idea that an entrepreneur is going to, in five years from now, I'm going to keep sacrificing and then in five years or whatever the time period is, I'm going to like shut it all down or go do something else and start my new life. I think if that's what's driving you, if that's kind of your vision, maybe you've just inherited it from the previous generation where we were taught, for whatever, that that's how things are done. We just need to unlearn this old practice of retirement. We should just get away from this practice of retirement, or you've just built your business in a way that it's just ongoing sacrifice, sacrifice, sacrifice. So, what I'm advocating is your business should serve you, right? Structure your business in a way that it serves you, in a way that you love showing up to work, and you're energized by work, and you're making good money, and you're getting all of your needs met, and you get to this place where your business is so good at serving you that the idea of retirement becomes ridiculous. DAVID: Right. Now, if you catch this early enough, let's say ... And I get this, because I get calls from people who want me to help sell their business, and if it's early enough in the process, I can probe and say, "Oh, you know what? This isn't the problem. The problem is that you're just not as interested in it anymore, but we're catching this quick enough. You could reinvent yourself and you wouldn't want to sell your business." Sometimes that's quite possible, right? But if you're past that tipping point, there's very little that can happen. I'm hoping that as people listen to this, they're inspired to be honest with themselves about this, and to live with some of the discomfort and the paranoia and to let that make them feel alive and to embrace the risk taking, and also to picture themselves homeless or whatever that looks like for them. Maybe it's just not enough money for a latte tomorrow or whatever. But picture themselves and embrace that fear and then make better decisions that follow some deeply held principles that you have and not be dragged along by the marketplace. My goodness, that's what I hope people hear here. BLAIR: Yeah, and again, back to this point I was trying to make earlier is at some point, things change, your partner, like health problems, whatever, everything changes, and you do want to be in a position where you can shut your business down or sell it if there's a willing buyer. I'm not saying you can never sell your business and you can never retire, because there are times for lots of people when it's going to make sense to do one or the other. What I'm saying is you should operate your business with this idea that you're going to die with your boots on, so that you never quit taking risk, you never quit facing the difficult business decisions. I want to close by, I'll give you the last word here, but I want to close my part here by recalling a tweet that I saw last week on the subject. I'm not sure who it was from. I think it was a financial advisor. He was saying the pattern in life when it comes to retirement is you've got a job, and at some point, you get to a certain age you realize, at this rate, I'm not going to have enough money to retire in the style that I want to retire. That situation, that realization forces you into entrepreneurship. So, you begin to take risk and you start a business, and then what this guy says is the inevitable is you make the money that will allow you to retire, but you're having so much fun now that you completely ... You discard the idea of retirement and this guy is saying this is a pattern that he sees over and over again. That really resonated with me. I think there are certain jobs that you absolutely have to retire from. There are certain businesses that it might make sense to retire from. But when you're already an entrepreneur, you're already taking risk, we're not coal miners. You're not wearing out your body. I think you structure your business today so that it remains fascinating to you and the requirement of that is that you keep taking risk. When you do that, and you don't have one eye on the horizon, you're going to focus on living a long healthy life. You're going to focus on shaping your role in your business so that it serves you, and the idea of ever retiring is going to be absurd. So, that's my last word on this. What do you want to finish on? DAVID: I can't top that. We'll leave it at that. I think that's a very apt way to end this thing, and it's been fun to talk about this risk. There's just such a brotherhood out there, of risk takers and almost like a secret handshake, you meet somebody that you hardly know but they're an entrepreneur and you immediately know that there's something you share with them. It's this risk taking thing. All of a sudden, you understand their world, even when you don't even know it yet. It's just an amazing thing. BLAIR: That is so profound. Like I got goosebumpy when you were talking about it, because I'm remembering there was no room I would rather be in than a room full of entrepreneurs. DAVID: Yeah. BLAIR: A room full of people taking risk, and then you drop the person in who's like got his eye on the retirement and it's like, yeah, you're in the wrong room, dude. DAVID: Yeah. This has been great. BLAIR: Yeah. DAVID: This has been a fantastic discussion. Thank you, Blair. BLAIR: Thanks, David. Talk to you next time.

L. Randall Wray — A Minskian Explanation of the Economic Crisis – 2/24/11Professor of Economics, University of Missouri–Kansas City A Minskian Explanation of the Economic Crisis Thursday, February 24, 2011Anita Tuvin Schlechter Auditorium, 7:00 p.m. Relying upon the theories and assumptions of Hyman Minsky, Wray will explore and expound upon the factors that contributed to the current economic and financial crisis. This event is co-sponsored by the Department of Economics. Biography (provided by the speaker)L. Randall Wray is a professor of economics at the University of Missouri-Kansas City as well as research director, the Center for Full Employment and Price Stability, and senior scholar at the Levy Economics Institute of Bard College, NY. A student of Hyman P. Minsky while at Washington University in St. Louis, Wray has focused on monetary theory and policy, macroeconomics, financial instability, and employment policy. He has published widely in journals and is the author of Understanding Modern Money: The Key to Full Employment and Price Stability (Elgar, 1998) and Money and Credit in Capitalist Economies (Elgar 1990). He is the editor of Credit and State Theories of Money (Edward Elgar 2004) and the co-editor of Contemporary Post Keynesian Analysis (Edward Elgar 2005), Money, Financial Instability and Stabilization Policy (Edward Elgar 2006), and Keynes for the Twenty-First Century: The Continuing Relevance of The General Theory, Palgrave, 2008. Wray is also the author of numerous scholarly articles in edited books and academic journals, including the Journal of Economic Issues, Cambridge Journal of Economics, Review of Political Economy, Journal of Post Keynesian Economics, Economic and Labour Relations Review, Economie Appliquée, and the Eastern Economic Journal. Wray received a B.A. from the University of the Pacific and an M.A. and Ph.D. from Washington University in St. Louis. He has served as a visiting professor at the University of Rome, the University of Paris, and UNAM (Mexico City). He was the Bernardin-Haskell Professor, UMKC, Fall 1996, and joined the UMKC faculty as professor of economics, August 1999.DownloadL. Randall Wray's website is: New Economic PerspectivesSource: The Clarke ForumAired: 2/24/11 12:00 AMThis podcast is an aggregate of audio files freely available online. Please visit the original source and subscribe to the host website.