Practical analysis for investment professionals
15 September 2020

Michael S. Falk, CFA, on Safety Nets, Trampolines, and Opportunity Equality

In his introduction to Let’s All Learn How to Fish . . . to Sustain Long-Term Economic Growth by Michael S. Falk, CFA, Laurence B. Siegel observes that economics is about incentives:

“People respond to incentives — the economist Steven Landsburg has written that all of economics can be summed up in those four words — so, let’s set up incentives for people to produce more.”

It’s that underlying philosophy that drives Falks’s analysis in Let’s All Learn How to Fish and its follow-up, Get to Work . . . on OUR Future.

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Though Let’s All Learn How to Fish . . . was inspired by his frustration with government dysfunction and the sorry state of US finances, Falk doesn’t just point fingers at the fiscal problems and opportunity deficits. To be sure, he identifies where our social safety nets have become unsustainable and counterproductive, but he proposes thoughtful measures to reform and augment them. He focuses on how these safety nets can be transformed and complemented by trampolines that both keep people from falling into the poverty trap while also helping propel them up the economic ladder. He takes a deep dive, does the math, considers the incentives, and comes back with well-reasoned, innovative, and real-world solutions.

Of course, real-world solutions are not entirely in vogue in our current moment. And since Let’s All Learn to How Fish . . . was published in 2016, the problems Falk identified have only grown more severe in the face of the pandemic and a deteriorating fiscal outlook. And for Falk personally, there is an added sense of urgency: In September 2019, he was diagnosed with ALS. Consequently, seeing these challenges confronted and this dialogue extended has taken on ever greater import.

With these issues in mind, I spoke with Falk over email to gauge his outlook on where things stand today and to explore how he believes we can leverage the tools of finance to pave the way for a more prosperous future. If we get to work . . .

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CFA Institute: For readers who may not be familiar, what is Let’s All Learn How to Fish . . . ?  What did you set out to accomplish by writing it?

Michael S.Falk, CFA: My goal was to help generate/facilitate the necessary dialogue in order to improve that which was failing society. And, if successful, improve what is ahead for all of us. I must admit this was born out of a feeling of burning anger and frustration about policies and incentives that just weren’t helping. However, I believe that if you don’t like something, don’t complain unless you have a solution to propose. Does my writing seem like a rant?

Haha, not at all. How would you describe the book’s underlying philosophy?

The policies and incentives of old may have been well-intentioned but they are now causing harm. More specifically, safety nets are a good thing until they become of a certain strength or support and seductive. We need trampolines to complement our nets and the right incentives to make sure each exist for those in need.

My goal was to rethink entitlements in such a way that few if any would be hurt and we had a more sustainable growing economy as a result. The math term would be a Pareto optimality, but let’s not go there.  

Now you initially applied that philosophy to addressing health care, retirement, and education challenges. What does a response to the Coronavirus pandemic, which sort of straddles all those issues, look like through the lens of that philosophy?  

The short answer is that all safety nets are massively impacted in a pandemic — more people need help. The pandemic is impacting people of different socioeconomic backgrounds very differently. For example, those with higher socioeconomic status are coping much easier since they can work from home versus on the “front lines,” have less income risk versus increased job insecurity, and have savings versus living paycheck to paycheck. Socio-economic imbalances have worsened due to the pandemic. And the stay-at-home orders have damaged the overall economy.

How do you choose between the economy and a person’s health? Without enough testing, without fast tests results, without some form of contact tracing, or without universal usage of masks, this is a lose-lose choice. I guess my philosophy intersects via the Pareto optimality again, sorry.

Working should be allowed for all those who wish to after they test negative, allow contact tracing or wear a mask (shorthand for all safety precautions) and crowds should not gather. However, there should also be a policies to protect both employers (from lawsuits) and employees (claiming safety concerns, not working and being fired).

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One of the book’s central concepts is opportunity equality. How would you define it? What do you think are the principal contributors? What direction do you see it going?

Opportunity equality is defined by all kids and young adults being able to leap into their adulthood from the same platform, and everyone living above Maslow’s bottom rung. The definition easily extends to equal benefits and opportunities for equal abilities regardless of your gender, race, religion, etc.

There are strong combatants to this. Think of those who have benefited from the differentiated platforms of the past. Too many of those who have been fortunate think they accomplished their status by themselves. This is patently false for most everybody. When you have been the beneficiary and don’t recognize that it wasn’t all you, you defend your status. Those with status have power and influence to gerrymander the rules favoring themselves or at least maintaining their status quo. The direction of opportunity equality has been worsening for decades, but the awareness is growing substantially. However the awareness has been focused on income and wealth inequality issues and both of those are residuals of time and success, I care about the inputs and leveling playing fields. Think about everyone starting off with the same minimum platform.

So how did Get to Work . . . come about? How does it build on the ideas and concepts you laid out in Let’s All Learn How to Fish . . . ?

During dozens of lectures I gave on the first book, many questions tended to be about where would all the jobs come from in the future. Understand that in 2016 I focused on my new E.R.A., which stood for “from entitlements to taking responsibility with appreciation for those who were unable to take responsibility.”

My audiences gave me an “Aha!” moment. All this thinking regarding entitlements and I might have missed the biggest entitlement of them all, the job. I realized that I needed to explore this aha. But, could I muster the energy to write another book? During my exploration, I recognized that I needed to “get to work” on another book.

Get to Work . . . is an admonition for all of us to recognize how we might go about fixing entitlements. I mean, c’mon, it’s been four years since my first book. We also needed to gain respect about how our current economy is looking more and more different than any before it and maybe we need new ideas/perspectives.

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Now, it’s nearly 10 years since the debt-ceiling crisis that inspired Let’s All Learn How to Fish . . . and four since the book was first published and here we are. What’s your take on where we are today? Are you more or less hopeful that solutions are achievable? Or will things have to really break before they can be fixed?

Can I admit that I’m not a hopeful person? Hope is not a strategy. The only way my ideas or any other good ideas might come true is through grassroots. Politicians have too many incentives to maintain the status quo. Hence my leading chapter about governance in my most recent book. The problem with grassroots today is that the public is more polarized than ever. There is a phenomenal level of disinformation out there and I don’t think literacy on many of these topics is sufficient.

I have this dream that my books help with literacy and help people understand that there are sensible middle grounds. Without real governance changes, I would bet on breakage first. Know two things: I don’t gamble and breakage first would be the most expensive path for all of us. Let’s all be cheap right now and get to work.

Keeping in mind that “It is better to be vaguely right than exactly wrong,” what most worries you most about our collective future?

We have politicized everything and everyone thinks they’re right. I’m sorry but everyone cannot be right without everyone being at least aligned. If we don’t come together, we will be exactly wrong as a whole.

Remember the prisoner’s dilemma? For those who think, “No, no, some will be right, while others will be wrong,” I suggest you imagine what the wronged might wish to do with those who won. Protests around the world do not seem to be getting more peaceful. Let’s all learn how to . . . communicate with one another!

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And from a personal perspective, certainly circumstances have a way of forcing wisdom upon us. I imagine that’s particularly true for you over the last year or so. How has your own experience informed your thinking about these issues and about what matters in life more generally?

With more time being stuck at home reading / watching what’s happening in the world today, I have grown more comfortable with my decision to make chapter one in my latest book about governance. I wanted to write about the topic but was concerned it didn’t fit well with the rest of my material.

On a more personal level, I have found my levels of gratitude and empathy rising. Maybe, just maybe, those two things will allow me to deliver my thoughts more effectively. During the pandemic, I have begun to see many silver linings in places that I wouldn’t have perceived before. For example, the lowest paid people in developed economy workforces have to some extent been invisible. This thought alone disturbs me, but they are no longer invisible (GOOD) since they have delivered us everything that we have ordered online (THANKS).

Now, we must ask why, if they’re critical workers, are they among the lowest paid?

Do you have a third book in the works?

No, just specific topic articles for me at this stage. I finished a paper called “Everything You Need to Know about Investing” that should be published before year-end. And I have completed a first draft, with a co-author, on a paper about moving society from a shareholder to a stakeholder mindset.

The time it takes me to research, write, and get a book out might just be beyond my life expectancy. So please buy Get to Work . . . . Proceeds will go to an ALS Foundation, to help those like me but with less good fortune.

Thank you, Michael. Great to talk to you as always. Stay well.

For more from Michael S. Falk, CFA, check out Let’s All Learn How to Fish . . . to Sustain Long-Term Economic Growth from the CFA Institute Research Foundation and Get to Work . . . on OUR Future.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images / Carl & Ann Purcell

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About the Author(s)
Paul McCaffrey

Paul McCaffrey is the editor of Enterprising Investor at CFA Institute. Previously he served as an editor at the H.W. Wilson Company. His writing has appeared in Financial Planning and On Wall Street, among other publications. He is a graduate of Vassar College and the Craig Newmark Graduate School of Journalism at CUNY.

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