Wheat and taxes (E)

0:00Somehow, I'm not sure why, I've become friends with four of the greatest bakers of our time. Mari Rubin, Kathy Dumas, Apollonia Poulain, and Dan Leder can turn wheat and other grains into something extraordinary. But before we can talk about wheat, we need to talk about taxes. Hey, it's Ajay, and this is a special archived episode of Akimbo.

0:34Like most people, I had a pretty benign view of how civilization came to be. People were tired of walking around all the time. They liked the idea of having a house and a yard, maybe even a cat. A house is a very, very, very fine house. And so they settled down. Once they settled down, they realized they could farm, and farming felt way more reliable than picking berries or traveling around following animals. And then once they settled down, I figured, they had to pass the hat to create resources so they could do things like build roads or protect the village. On close inspection, though, I'm not sure this fairy tale narrative really holds up.

1:23Maybe it all happened in a completely different way, backwards, in a reverse order. Lots of people complain about taxes, but we don't usually talk about the history of taxation. Search all you want online, you're not going to find very much in the way of a definitive history. One reason for this is that taxation has been around forever, or at least as far as we can find recorded history. The Chinese have been taxing people for more than 5 ,000 years. Taxation figures heavily in the Old Testament, mentioning both how Pharaoh took a tax on everything that was grown and how sacrifices were required at the temple.

2:10But how exactly did we end up with taxation? What is it and what is it for? And what does any of this have to do with bread? The author James Scott has a theory. I'm going to take that theory and expand it a little bit, knowing that while it makes sense and I think holds water, I have no proof at all. So here we go. Let's begin with this. For time immemorial, some people have tried to dominate others. Some people have been stronger or have used their will to bully others into doing what they need done. And it's not difficult to imagine that long before history, some people took others into bondage.

2:55That if you dominated someone so completely that they became your indentured servant or your slave, you could leverage your own effort. That it's not hard to imagine measuring the wealth of someone thousands of years ago in terms of how many slaves they had. In the Bible, they're called slaves. They might be servants. They're probably slaves. So slavery became a small-scale way for some humans to exert force over other ones, profiting as they did. But inevitably, when human beings are involved, people want to scale things up. But it's very difficult to build the infrastructure where you can actually control the work of dozens, hundreds, or thousands of people, the way we see in the stories told about the pharaoh and building of the pyramids.

3:54However, Scott argues, if you can get people to stop being hunter-gatherers, to stop wandering, to stop living in nomadic tribes, and get them to settle down on a piece of land, well, then all you need to do is show up at their land just before harvest time. And you can take the best of what they grew and leave them the rest. Farmers have a hard time escaping because farmers can't bring their ungrown crops with them. Scott's argument is that we ended up with wheat and other grain production and with livestock because the growing idea of government required it. That's the order it all went in. And so the idea of taxation as a taking, in the French, task, tasking people to give their labor to support a power that is over them goes way back.

5:01And it's inextricably connected to the idea of wheat, of grain, of farming. Well, let's fast forward a little bit because as states begin to grow, the people who run states decide they want to get bigger. So I'm not sure whether offense came first or defense, but let's assert it was defense. They're coming to get us. Genghis Khan, Attila the Hun, Alexander the Great, they're coming to get us. Let us raise funds from the people to defend our nation. And so a second sort of taxation kicks in. This is the taxation of mutual defense. And the Greeks, famous for going on the offense and conquering other places, had very specific rules in place to raise funds, to pay for armies, so they could go conquer other places, taking slaves as they did, taking the spoils of invasion as they did, and then repaying the citizenry who funded it through their taxes.

6:16Now, along the way, all of this is happening without democracy, without people speaking up, because they have no power. Their land connects them to this place, to this leader. And when the taxman shows up armed and ready to take, they really have no choice but to contribute. But then industrialization kicks in. One is tempted when the industrialized economy arrives to tax the wealthy. But the wealthy have plenty of influence. And so, before the French Revolution, salt was taxed. There is nothing you can tax that is more aggressive than a tax on salt, that the poorest people were paying the biggest part of their income on a tax on salt.

7:10Before the French Revolution, the typical working peasant was paying half his wages for bread. Salt was a requirement for life. A couple bad years in a row, which led to poor harvest, led to an increase in the price of bread, which led to peasants needing to pay 88 % of what they were earning to pay for bread and salt. This definitely led to the French Revolution. In the UK, where industrialism started, we see an income tax arise. But the income tax in those days, 150 years ago, was pennies on the dollar. It was a smaller amount. About the same time that all these shifts in taxation are happening, that industrialism is showing up, governments start investing in their cities.

8:06They put in parks and city planning. They start investing in water systems. I think part of that is they wanted a nice place to live as the cities got more crowded. Part of it is a new sense that maybe you're not going to be marauded by the next gangster who rolls into town. But I think the biggest part of it is an understanding that the people have more power than they used to because they're not tied to the farm. That taxing them is going to require at some level some cooperation on their part. Then comes World War I. the first industrial full-scale war. And it cost like it was an industrial war.

8:56As a result, the nations that were involved dramatically raised their taxes. And it may not surprise you that when the war was over, they weren't in any real hurry to lower their taxes. To this day, the income tax in the United Kingdom has to be approved every single year by a new vote of parliament. And it has succeeded in being re-voted in every year since World War I. But again, most of what was going on with this taxation was a sense of taking. But then something shifts again. And what shifts is that the Nordic countries decide that they're going to increase taxes and dramatically increase services, that they will seek to treat the taxpayer as a customer and they will provide the greatest safety net in the history of the industrialized world.

9:57That over time, this high taxation, high service mindset leads to countries where the grumbling about paying taxes isn't nearly what you would imagine it is. Then the story continues, because the space race, the mission to put a man on the moon, cost the U.S. taxpayer approximately 4 % of the annual budget of the United States for a decade. Not only that, but we were paying for the Vietnam War at the same time. So tax rates continued to increase, not because the people in government were lining their pockets. It wasn't a kleptocracy, not then. The people in government instead were seeking to create goods and services and experiences and progress on behalf of those they were serving.

10:55While this went on, we experimented with using taxes to change behavior. So a tax on alcohol doesn't seem to have much of an effect. States where they tax alcohol, I have no data, but my hunch is they don't drink that much less. Taxes on gasoline. Andy Tobias, the great business writer, proposed the following. Let's put a four cent per gallon tax on gas, and now auto insurance is included for everyone. That by building auto insurance into the price of gas, you get a whole bunch of really extraordinary benefits. You don't have to pay the insurance companies. You don't have to pay insurance sales reps.

11:36You don't have to pay for settlements. And the more you drive, the more it costs. And if you want to save some money, get a car that gets better mileage. All around, a behavior change that would be interesting to experiment with. It was, to my knowledge, never enacted. But a tax on cigarettes, it was. And all of the data shows us that when you raise the price of cigarettes, fewer people start smoking because it worked. And so now, here we are hundreds of years after the tax on salt. Here we are in an era when progressive taxation seems about to go in the other direction, that the richest corporations and the richest people are coming perilously close to paying no taxes at all because not only don't they own a farm, their money is everywhere.

12:34And so country after country, these huge institutions, these super wealthy people are extorting the countries where they live, basically threatening that if you raise our taxes, we will leave and go somewhere else. And so all countries can do until they figure out how to work together to change the culture of taxation is tax people who aren't Amazon, tax people who aren't Michael Bloomberg, because these people are stuck. They're stuck with the land they own. They're stuck with the factory job that they have. So now we come to the fork in the road, which is, it's pretty clear that if we charge a fee for putting carbon into the world, for taking carbon out of the ground and putting it into the world, it will change behavior.

13:29If windmills and solar panels end up being dramatically cheaper than having an oil truck come to your house, people are going to switch. If it turns out that the supply chain for whatever you're going to buy, for whatever you're going to do, is going to use a lot of carbon and you're going to have to pay for it, you'll probably seek to use the smart sensors of the free market to switch to another option. It's not a carbon tax. What it is, is a way to influence behavior. And its short-term byproduct is that it creates revenue that enables governments to either provide more services or tax something else even less.

14:16So I get why so many people are averse to taxation. because 3 ,000 years ago, taxation was like slavery, because taxation was simply a taking. But now, as some taxpayers have more power than others, now, as farming is fading away, now, as gluten-free diets threaten the very nature of what it is to eat a loaf of bread with no guilt, it's time to reconsider what does it even mean for the community to pay for something. Taxation is an inherent part of our culture and it's largely invisible. But we've discovered that not only is taxation required, but that taxation changes behavior. The question then is who is going to decide which behaviors we're going to change.

15:15Pass the question. Thanks for listening. We'll see you next time. Hey Seth, it's Maria. Hey Seth, my name's Kyle. Greetings, Seth. This is Stephen out in Madison, Wisconsin. Hi Seth, Alicia from Charleston here. Hi Seth, this is Anupam. Hi, this is Caitlin. Hi Seth, warm greetings from Curacao. Hey Seth, my name is Nick Ryan from Pittsburgh, Pennsylvania. Hey Seth, this is Rex. Hey Seth. Hi, this is Vasilis from Greece. Hi, this is Roberta Perry. My question is... And that completes my question. As you know, I do love to hear from you. I hope that if you've got a question or a comment, you'll submit it.

15:52Just visit akimbo.link, that's A-K-I-M-B-O dot L-I-N-K, and click the appropriate button. While you're there, you can check out show notes and previous episodes. Before I get to the question that just came in, I want to respond to a blog post that Paul Graham wrote five years ago. Paul Graham is one of the smartest people on the internet, co-founder of Y Combinator, and he wrote an essay that I disagree with. It's about bias. And what he said, which was very clever, is that one way we can figure out if an organization is using bias in how it is making decisions is to look at its results. And what he highlighted was the fact that a venture capital firm, First Round Capital, had published a report that said that if First Round Capital funded a team that had a woman on it, it outperformed their standard dramatically, 63%, if I'm remembering properly.

16:52They were proud of this because it pointed out that having a woman on a team might be correlated with better than expected performance. Paul said, wait, this is proof of bias. His argument, if the outcomes show that people who are underrepresented are overperforming, it means that you are making a mistake, that you are biased in who you are picking because the people you're not picking would have raised your overall performance. Here's my problem with it. Let's consider law schools. First, we'll go back, 1975. In 1975, without a doubt, women lawyers were dramatically underpaid. You may recall that Sandra Day O 'Connor, when she graduated from Stanford Law School, couldn't even get a job as a lawyer.

17:47She had to first get a job typing. But by 1975, women lawyers could get jobs, were dramatically underpaid. I think the same is true to this day, that women are underrepresented running the heads of firms. And if we did a hour by hour comparison, I think we'd find that women are paid less than men in law. But in 1975, they definitely were. So the question is, does that mean that law schools should accept fewer women? Because after all, they don't outperform when they get done going through law school. I think bias has a time shift problem. And the time shift is this, that it may very well be that in any moment when a venture capital firm or a law school makes decisions about who they're going to pick, the people that they're not picking will underperform after they're done.

18:46But I'm not sure that's the only job of a venture capital firm. I don't think their only job is to pick the people who are going to win tomorrow because they have an obligation to the culture, to the community, to the market where they work. And if they are going to reinforce the prejudice and bias that's happening downstream from them, it will never get better. And so the law schools picked up the gauntlet and starting in the 70s and 80s, actively worked to make sure more women were being trained at the top law schools. Because you know what happens when you do that, you get more highly trained women lawyers.

19:26And what happens when you do that is then the market wakes up and starts to narrow the gap between what they're paid and what they should be paid. So no, I don't think we can look in the rear view mirror and just decide that that's all bias involves. Hi, Seth. This is Lisa from Lafayette, Indiana. I've been listening to your podcast for a while and really enjoy it. And I'm currently a participant in the Creatives Workshop. I've got a general question for you. I often hear you refer to the smallest viable audience for our work, and I'm wondering, what is the metric for figuring that out? Is it a simple cost analysis, so a mathematical equation, or what else goes into figuring that audience size for myself?

20:13Thanks, Seth. Thank you for giving me a chance to clarify about smallest viable audience. This is something that I go into in depth in my book, This is Marketing and in the Marketing Seminar, but here we go. Two key elements. The first one is the idea of audience. What it means to have an audience is that when you are inventing what you invent, it cannot be for everyone. Just a simple example. If you write books, there's a whole bunch of people on earth who don't speak the language you are writing your book in. It's not for them. If you write mysteries, there are a whole bunch of people in the world who don't want to read a mystery.

20:54It's not for them. Who is it for? The audience you seek to serve, the more precise you can be, the more specific you can be, the more likely it is you will find true fans. It's our idiosyncrasy, our willingness to be peculiar that enables us to even have a fan. Because if all we're making is something generic for everyone, no one will care enough. to be a fan. So it begins by being specific. And then the question is, what do I mean by viable? What I mean is simple. If you're a soloist, you don't need to make$10 million a year. You might want to, but you certainly don't need to. Way less than that would be sufficient.

21:39As Kevin Kelly has pointed out with 1 ,000 true fans, if you've got 1 ,000 people paying you$100 a year because they love your stuff and they want more of it, you're done. That's enough. you're now a professional. But most people who seek to be in the marketplace don't say there's only a thousand people I need to delight. They have this amorphous everyone. So those are the key pieces. Getting clear in your head about what it means to be specific and building an organization that's the right size to match how big specific is. Because if you succeed, and I'll use Starbucks as an example. When Howard Schultz came back from Italy and decided to make bitter coffee that most people didn't like, he made a good decision because most people weren't the goal.

22:27Most people can go to Duncan. He needed enough people. And once he had enough people, those people told the others. Once enough people were telling enough people, he could invest in the building itself, the third place, the place that was fun to go to. He could invest in other things to broaden what they stood for. But from the beginning, it was about being specific, not being a wandering generality. So there you go. Thanks for listening. I hope that helped. We'll see you next time.