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Recently I received some insightful comments on my novel, Rao’s Solution. I always appreciate well-intended objective comments on my work. I thought I would share parts of my response because it really goes to the whole purpose of the book. [As you will see I didn’t pay close attention to the rules of punctuation.] In any event, what follows is, of course, the opinion of the author.
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Sometimes we don’t see things that are right in front of us…even though we may repeatedly confront or drive past those things every day. Some of the most important things are hidden in plain sight. Not noticed because they are ordinary. I decided that this was true with regard to the concept of RISK TOLERANCE. RISK has always been a big issue in finance…it is one of the cornerstone factors that affects such things as the interest rates on home and auto loans and the pricing of all stocks and bonds…but never once…never once…have I ever heard of anyone ISOLATING the issue and pointing out its huge effects on the pressing problem of wealth inequality which is such a big issue right now.
In addressing this issue, Rao’s Solution attempts to point out a very fundamental consequence of the differences in risk tolerance between rich and poor — namely, that differences in risk tolerances between rich and poor is a direct, fundamental and structural cause of wealth inequality. I tried to make this important fact understandable to regular folks who probably do not contemplate theoretical economic concepts on a regular basis….but, unfortunately, I fear that all most readers will see is the story…the coin flip show (which more than amply illustrates risk tolerance differences); the love affair of a lonely separated husband, the love triangle involving a foreign and U.S. intelligence officer, the virtually mandatory bedroom scene, the wage demonstration and shootings, the worry of a mother and father and the recalcitrant student-son, Chris, etc Maybe some will even consider the geopolitical ramifications of rising Ocean levels as the Chinese try to leverage Guyana’s need for a floodwall into a worrisome naval base near the Panama Canal. Who knows but I had more in mind than just the entertaining story that it is.
I should say, to be perfectly clear, that the coin flip show, was intended to be, and is a metaphor for totally free markets and capitalism. It was designed to be as fair as one could possibly make a game between the rich and the poor (where folks start with a different amount of resources and wealth). Importantly, the results of the coin flip show were designed to be realistic (with highly probable outcomes) and not to slant outcomes one way or another. And, I think the book succeeds in being realistic in this very important way.
This is my second book (the first being Law, Lawyers and Your Case, which is nonfiction and deals with how people can cope with the legal process more effectively). I am a lawyer and former college instructor in Finance and International Business, and I have been unfortunate enough to witness over and over again how it appears that we increasingly live in a winner take all society. I like to write when I think I have something to say that has some wider societal significance. So, in Rao, I was primarily interested in making the two or three major points mentioned herein. And, I wanted the book to be short and readable in the few hours that it took to fly from New York to LA….and I think I succeeded on that front as well.
Anyway, I didn’t care if I was first or the last person in the world to suggest requiring employers to pay employees under the formula set forth in the book. My purpose was not to be revolutionary in that respect at all. My larger point was that we have to start to take steps to rectify wealth and income inequality (because it is having tremendous adverse and long lasting effects on our society)….and Rao’s solution was, and perhaps is, a FIRST STEP.
In fact, when I, that is Rao, suggests/imposes a rule that requires companies to pay all workers at least one percent of what top management or the CEO is making (as the minimum wage ) that amount , to me is not revolutionary at all….in fact, a true moderate…someone trying to find reasonable middle ground would suggest something like a mere one percent as a better way to institute minimum wage reform than the flat rate that has been used in the past. (But the book correctly points out the alarming fact that, even at one percent, a huge number of people in this country would get a substantial raise, which is amazing and alarming in and of itself.) After all, Chris in the book, objects strenuously to one percent as being far too low …even though he supports Rao’s use of a minimum percentage (of CEO pay) approach to setting worker wages. As further evidence that Rao attempts to “moderate” the effects of his new law, he even gradually “phases” the one percent rate in over three years.
What’s truly revolutionary about Rao’s solution is that Rao actually imposes this formulaic concept as law (of general applicability to the population at large) in Guyana (and not as part of a negotiated collective bargaining agreement negotiated by a union with a particular employer) and that he does so as a start towards solving the wealth inequality issue in that country. In short, to grow and/or revive a larger middle class.
The book points out the numerous advantages of Rao’s approach. But I’ve never heard an American politician suggest something like Rao’s solution. [They either haven’t thought of it, or, just as probably, they fear that people having more traditional free market views would be horrified and seek to paint any proponent as a would-be socialist or communist. Why? Simply because of the precedent it would set. Traditionalists would probably use the old marijuana type arguments (for example, that the use of marijuana will eventually lead to something far worse… heroin, cocaine or other harder drugs) and that, similarly, Rao’s solution would just lead …eventually ….to higher and higher percentages and multiples of worker wages…until…there would be, at some point in the future, total pay equality between management and workers alike. In other words, folks with more traditional views would probably say that Rao would just drive up employer costs to unsustainable levels and that it is really dressed up communism!] But communism is expressly disavowed by Rao in the book, and Chris in the book tells why one of the beauties of Rao’s solution is that it probably would not drive up a company’s total wages and salaries, but instead would tend to divide a company’s wage pie a little more fairly between management and workers.
The book also, importantly, takes a desperate stab at trying to use the World Trade Organization (WTO) as a means to referee a system of international fair pay (requiring all nations who desire most favored trade status to use Rao’s formula domestically) so wages around the globe would be MORE LIKELY to be equalized (because CEOs everywhere want to be paid an amount that roughly equals what other CEOs in other nations are being paid, which would put upward pressure on the wages of all workers everywhere around the globe and give birth to or rejuvenate a world-wide middle class).
This issue, namely, the fact that US workers are higher paid than most other workers around the world, is largely responsible for jobs moving overseas….Rao’s solution, however, if agreed to by all nations…and thus made effective internationally, would minimize wage differentials across nations…and would improve living standards overseas in many developing countries…which would create new overseas markets for the products of American manufacturers etc….And, might I add, this would reduce the incentive for migration/immigration, which of course, is such a big issue right now.
There are a whole lot of positive wide ranging ramifications to using Rao’s solution as part of international trade treaties….and Chris, in the book alludes to just some of those. Anyway, the purpose of the book was to point out something that most people don’t adequately appreciate….appreciate in the sense that the very simple factor of RISK TOLERANCE ….even in an otherwise fair game such as the coin flip has profound effects on economic outcomes and it shows that even if everything else is FAIR…the rich will always get richer and that ever widening wealth gaps between rich and poor are inevitable under totally free markets.
In fact, an economist whose work I admire, Joseph Stiglitz (Nobel prize and all) always talks about wealth inequality and points out the tax code reasons, or faults with the structure of the central banking system in Europe or some other legislative/policy shortcoming….all as reasons for the widening wealth gap. Well, he’s right to point those things out…but my point is that he does not go far enough…because there is a very fundamental and basic structural problem with totally free markets and capitalism and it is that differences in risk tolerance…if left unchecked will always allow the wealthy to get wealthier…while the poor languish. And, importantly, this is true even if you solved every other wealth distortion created by the tax code or any other law! This is one reason why things such as the nation’s antitrust laws are necessary and why they must be enforced more vigorously.
I should add an additional important point. Chris’ fight against oligarchy in the book is an inevitable political consequence of totally unregulated free markets simply because as the rich get richer, fewer and fewer rich people will get richer at accelerated rates relative to those that are rich, but less so. (By this I mean that a billionaire has a higher risk tolerance than a mere millionaire and thus can, in the long run, increase the wealth gap between millionaires and billionaires. And the same is true for multi-billionaire versus a mere billionaire. ) And this fact has potentially dire political consequences because it would ultimately lead to a nation or a planet in which fewer and fewer wealthy people will run everything – a true planetary plutocratic autocracy, if not worse, with fewer and fewer plutocrats able to control more and more people. AND this is possible simply because of things like the “drones” mentioned in the book and the ability of government to spy into virtually every aspect of our lives. An example of this, of course, is the traffic cameras in the book. [ In this regard, if you have a cell phone, the government can probably find you anywhere on the planet in just a few minutes (if not seconds) and probably knows what you have just tweeted or texted.]
Also, I would draw attention to the fact that two or three “tech” and internet companies have grown to the point that they increasingly control the flow of the vast majority of information worldwide and undoubtedly know more about everyone than one would care to think. In this regard, they even control worldwide advertising availability and advertising space (via search engine rankings and their bidding procedure for key words on paid ads). (This has a huge underappreciated affect on the ability of small businesses (such as mine) to compete…but that’s a whole different subject.) Just imagine having such de-facto economic power over so many lives all over the planet? The book vaguely alludes to this in its reference to the fictional URSEARCH company.
I went to college, then law school and I got an MBA and I, like virtually everyone else, has been taught and sold on the RELIGION (…and, make no mistake, to most Americans capitalism and free markets are a religion…) and my point is that we need to QUIT WORSHIPPING CAPITALISM. We can appreciate many of its considerable virtues. However, man conceived of it and operates it, and therefore it has some warts.
But make no mistake. I think capitalism …just like I said….is a good system to generate wealth for some. I am emphatically not saying that society generally does not benefit from capitalism…because in one form or another all of us, rich and poor alike, have benefited to varying degrees from capitalism. In fact, capitalism is very probably the best wealth generating system that mankind has yet devised. And it has done a lot of good for this country and its people. But, Rao’s Solution illustrates that capitalism and totally free markets have major flaws if left completely unchecked. And Rao’s solution is one suggested step to limit capitalism’s shortfalls. And so we need to convince all those people who worship at the altar of capitalism…….that capitalism isn’t the BE ALL END ALL…and that we should be free to criticize it and, more importantly, to take more effective steps to eliminate or minimize its dangers.”
In short, and putting other environmental concerns aside for a second, capitalism and free markets are like nuclear reactors. Nuclear reactors can generate a lot of power, and provide heat and light for a lot of homes and businesses and thus do a lot of good for society. But if they aren’t put in correctly designed, sealed and hardened shells, and if no one watches to make sure that their cores don’t overheat they can quickly cause a Chernobyl or a Three Mile Island—which is what may well be happening when it comes to free market effects on wealth inequality.
Yours truly,
David Dixon Lentz 3/20/17