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  • Bogleheads on Investing with Larry Siegel – Episode 21

Bogleheads on Investing with Larry Siegel – Episode 21

Post on: April 27, 2020 by Rick Ferri

Laurence B. Siegel is the director of research at the CFA Institute Research Foundation, former director of research at The Ford Foundation, former Ibbotson Associates, Inc. managing director, senior advisor to OCP Capital LLC, and an independent consultant, writer, and speaker specializing in investment management. He has won many awards for writing including the coveted Graham and Dodd Award to recognize excellence in research and financial writing in the Financial Analysts Journal.

We discuss Larry’s new book, Fewer, Richer, Greener: Prospects for Humanity in an Age of Abundance. This important book for our time chronicles how the world has become a much better place to live and why optimism is abundantly justified today, even in this time of societal stress and economic uncertainty resulting from the COVID-19 pandemic. 

We would like to thank Larry Siegel for providing us with a transcript of this podcast. Larry has prepared a richer version of this transcript, with charts, diagrams, and illustrations. This version is available for download:

Richer, Greener in the Year of Living Uncomfortably

You can discuss this podcast in the Bogleheads forum here.

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Rick Ferri: Today our special guest is Larry Siegel, the director of research at the CFA Institute Research Foundation, and an independent consultant, writer and speaker. Today we’re talking with Larry about his new book – Fewer, Richer, Greener. This is an important book for our time because it reminds readers how good things are. Even in the middle of this pandemic, Larry meticulously documents the advances we’ve made in medicine – how efficient energy has become and how we take for granted just turning on a light, something we could not have done 150 years ago. How much wealth has been created all over the world. How much more widespread education is. How open more societies are. So, even now, when everything looks bad: let’s step back and take a broader view, a historical view of how we got to where we are today and where we go from here. With no further ado, then, let me introduce Larry Siegel. Welcome to Bogleheads on Investing, Larry.

Larry Siegel: Thank you.

Rick Ferri: I’ve been following you for more than 25 years. I started reading your work when you were a managing director at Ibbotson Associates and then you went over to the Ford Foundation and you became the director of research there. Some time after that you became director of research for the CFA Institute Research Foundation and have been doing that for 15 years. Now you have a new book out. You’re a busy person. Can you tell us a little bit more about yourself — maybe some of your history, some of your past?

Larry Siegel: I’m going to start with a very brief anecdote from college. I went to the University of Chicago in the early 1970s. Most of the people there wanted to get their PhD, or become backpackers and travel around the world, or do something to make the world a better place. There was one fellow, Gary Hoover, who wanted to be a big business man. Now this was truly new and different – and radically unhip. We were not in the tech era! Gary admired the great founders of our industrial and retail corporations and in particular wanted to go into the retailing field. He eventually wound up founding the company that became Barnes & Noble Superstores. He made it cool to want to study economics and business. Almost 50 years later we’re great friends and are still doing some work together.

So I have Gary Hoover to thank for steering me to the University of Chicago Graduate School of Business, which is now called Booth. After taking the introductory finance series with Professor Roger Ibbotson, I became his research assistant. After I graduated I needed a job so I went to talk to Roger. Instead of telling me where I might find a job, he gave me a stack of papers to look over – right then and there – and said, “I’m testifying in a rate of return hearing for a public utility tomorrow morning. I’d like you to read these papers tonight and brief me on them early tomorrow.” I sat on the floor – that’s right, my first office was on the floor – but I’m a night owl and he’s an early bird so I got to take over his desk after about 2:00 p.m. I stayed up and briefed him the next morning and that was the beginning of Ibbotson Associates, where I spent 15 years in various capacities. The Ford Foundation, where I spent my mid-career years, recruited me out of Ibbotson Associates to be their head of research. I helped with the overall asset allocation as well as selection of managers across all asset classes, and I retired from there in 2009. I started my own consulting practice and also became the head of research for the CFA Institute Research Foundation. But I’ve also decided to do something new with my life, which is to become a writer. I’ve always written for the investment industry but I never wrote a commercial or “trade” book until Fewer, Richer, Greener. This book look backs on economic progress in the last 2000 years or so, and then looks forward.

Rick Ferri: What got your started on the path to write a book about the history and future of the human race? That seems like an awfully big topic to take on.

Larry Siegel: Peter Bernstein, the great investment philosopher and historian, originally planted the seed – he thought I should write popular books in my dotage. I don’t quite think I’ve reached my dotage, but I am a fully registered and paid-up curmudgeon. What got me started writing this book, instead of some other book, was my assignment by Advisor Perspectives, an online magazine, to review books and articles of interest to investment advisors. Within a short period, I reviewed Matt Ridley’s book The Rational Optimist and Robert Gordon’s article “Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds,” which was the short version of a book he published a few years later. Ridley and Gordon came to opposite conclusions. Ridley’s title speaks for itself. Gordon said that the United States has basically cooked its goose and that future technological progress will consist of minor improvements in existing technologies, not revolutionary innovations. This doom and gloom vision is so widespread, including among very sophisticated and successful people, that I felt I had to speak up against it. This task was cut out for somebody who, like me, has an interdisciplinary focus and can look at not just economics but demography, history, the environment, literature, philosophy, and so forth with at least a little bit of knowledge of each of them. When you put together the insights from all these disciplines, you arrive at the conclusion that we’re in the midst of the greatest improvement in standards of living that the world has ever known. We’re not anywhere near the end of it, either, despite some setback.

Rick Ferri: So your basic premise is that the standard of living of the world, not just in the United States but over most or all of the world, has increased significantly and that’s not going to end. Correct?

Larry Siegel: There is a chart my in book that shows that world income per capita, expressed in today’s money and in American dollars, has reached about $18,000 per year. Now that doesn’t sound like a lot. But the amazing thing about this fact is that $18,000 was the average income in the United States in the late 1940s, when we were a first world country by any standard. That’s the average now for the world. Just one more time so your audience can let it sink in: the average income in the world today is equal to the average income of the richest country in the world only 70 or 75 years ago. This improvement has not only been huge but very also widespread. I’ll get to this later.

Rick Ferri: I like the way you broke the book out into three basic categories. Fewer, Richer, and Greener. Could you explain, starting with “Fewer,” what do you mean by that?

Larry Siegel: Fewer people. It’s a bit of hyperbole; the right phrase would have been “fewer people than we were expecting,” but you can’t squeeze that into a book title. There has been a tremendous and very welcome slowdown in the world’s population growth rate. Eventually we will have fewer people. The peak will probably be late in this century and will be around 10-1/2 to 11 billion people – which is about 40%% more than there are now. In the late 1960s, Paul Ehrlich, an entomologist and self-styled futurist, wrote a book that began, “The battle to feed humanity is over [and we’ve lost].” The last three words, “and we’ve lost,” are my paraphrase of the rest of his book. He said that, by the 1970s, “hundreds of millions of people are going to starve to death…on a dying planet.” The population has doubled since then, but food production has soared beyond belief, and obesity is the world’s number one health problem, including in most developing countries. Ehrlich’s predictions are often lampooned, including by me, as the worst forecasts ever. But at the time it was a legitimate worry. The population of the world had increased by 50% between 1950 and 1970. At a growth rate like that, you will run out of resources pretty quickly. He didn’t foresee the increase in the food supply due to the Green Revolution, but more importantly he didn’t take into account the “demographic transition.” That is the phenomenon where people start having fewer and fewer children as they get wealthier.

Rick Ferri: Why is that?

Larry Siegel:: To put it in somewhat cold-sounding economic terms, people begin trading the quantity of children for quality. Poor people have a lot of children so someone will work on the farm and also take care of them when they’re old, but cannot afford to invest much in each child. Richer people have fewer children but give each of them their own room, a good education, guitar or tennis lessons, and all that. As a result, the population growth rate slows down almost to zero, and in some cases turns negative. (The population growth rate is zero if each couple exactly reproduces itself on average, having two children.) If you look at Singapore, or South Korea, Taiwan, parts of Eastern China, most of Europe – these are the parts of the world where the population is actually shrinking. The U.S. population is growing slowly, mostly due to immigration, which I favor by the way.

Rick Ferri: How about in the developing world? Is the population explosion almost at an end there too?

Larry Siegel: Yes. What’s even more remarkable than population stability in the First World is that the

population explosion is visibly coming to an end in countries like India, Mexico, Turkey, Brazil, Iran, and Thailand. Those growth rates have not turned negative, but they’re getting close to zero. So the main growth in future population will be in Africa – and they’re slowing down too, but a generation behind those other countries, or maybe two generations.

Rick Ferri: Your theory flies in the face of what we hear in the media. Crime is up, drug abuse is up, this is a terrible time to raise children. It’s a terrible world to bring children into. Who would want to do that? One could also make the case now that, due to health concerns, there’s another reason not to bring anyone into the world. These are said to be the reasons why the birth rate is lower but you say the opposite: birth rates are lower because things are getting better.

Larry Siegel: And low birth rates will help the world continue to get better. It’s easier to feed, clothe, and educate 7 billion people than some much larger number. There’s some truth to the crime concern. Between about 1960 and 1990, crime in the United States rose to levels that had not been seen since the 1930s and have not been seen since; crime is now down. This was a period of social stress for various reasons. But we got much wealthier during that period. The technological progress enabled us to live longer, healthier lives and the rest of the world got richer much more quickly than we did. It was a very good period – we’re still in a very good period overall, we’re just suffering from a sudden disruption that’s very traumatic.

We’ve never in our lifetimes experienced a pandemic on this scale although the 1957-1958 flu was pretty bad; we just didn’t do anything about it – what could we do? – so people died of the flu at younger ages than they otherwise would have. It didn’t attack the young disproportionately the way the 1917-1918 flu did, so it’s hard to even remember that it happened – but the 1957-1958 event did happen, and 116,000 people died in the U.S. at a time when we had half the population we do now. Compare that to the COVID-19 death statistics. This epidemic is on the same scale, but it hasn’t killed 116,000 people yet, much less twice that number which would be the same per capita death rate as 1957-1958.

This is a trying time. It is socially and psychologically very upsetting to go outside and see nobody. Our economy is shrinking faster than it ever has before, faster than the start of the Great Depression in 1929, but we have every reason to think this crisis is temporary. When it’s over, it will probably grow faster than was growing before the crisis because people are going to do whatever it takes to get back the work, income, and lifestyle they had. The work that they were doing still needs to be done. The products their employers made will still need to be made, although some of the employers will be under new ownership and some will go under. The government is doing a lot to provide relief and economic stimulus. This too shall pass. I do feel sorry for people in the travel and hospitality industries, though, because those will recover more slowly than the rest of the economy.

Rick Ferri: This segues into the second part of your book, which is “Richer.” In that section you talk about how much better things have become over historical time. We’re healthier, we have higher productivity, we have less pollution actually, more education, more collaboration. We’re a richer country and a richer world. Let’s dig into how good things actually are.

Larry Siegel: We take for granted a standard of living that even my own parents, who were born in 1915 and 1919, would have had a hard time understanding. I don’t look at the prices of groceries; I just buy what I want. (I’m not that way with cars and houses.) My parents not only looked at the prices, they packed their own lunches to bring to work instead of buying them on site. But they always had something fairly good to eat. Through most of human history, you were poor if you didn’t know where your next three meals were coming from, and you were pretty well off if you did. If you had reserves that went well beyond this week and next, you were rich. That is what primitive societies are like, and human beings lived in primitive conditions for most of the time we’ve been on Earth. The ancients had some flush times, but economic growth didn’t become widespread and sustained until about 250 years ago and, even then, it was mostly in Western Europe and North America. The Industrial Revolution made it possible for large numbers of people, not just aristocrats, merchants, and traders, to become comfortable. Now only 9% of the world’s population lives in what the World Bank defines as extreme poverty. That number was 40% as recently as 1980. That’s an incredible achievement. The World Bank set as a goal the reduction of extreme poverty to 3% of the world’s population by 2030 and they are ahead of schedule. Now, I don’t mean that the formerly poor are driving new shiny cars and live in sparkling condos in the suburbs of Shanghai – although some are. I mean that they live on more than $1.90 a day per person, the World Bank threshold separating the extremely poor from the ordinary poor. That is a very low bar, but it’s the difference between being able to sleep at night (indoors) knowing where your next three meals are coming from, and not.

Rick Ferri: One of the things you look at is mobile phone cellular subscriptions in various countries. I was surprised by your chart showing that, for every 100 people in the United States, there are 120 cell phone subscriptions. And in South Africa, there are actually 160 cell phone subscriptions. In China there are 110. In other words, in the past if you knew where more than just your next three meals were coming from, you were rich; now it seems as though if you don’t have a cell phone, anywhere in the world, you’re poor.

Larry Siegel: I’ll bet someone is wondering how there can be more cell phone subscriptions than people. The reason is that devices such as tablets (like an iPad) require their own phone number even though you can’t make a phone call with one. So it’s not a data error, although it looks like one. But back to your main point. The huge number of cell phone subscriptions is not exactly what it seems. It is not teenagers chatting endlessly to their friends. A cell phone to an artisan in Kenya is his or her passport to a better life. Whatever they make or sell – let’s call it shoes – they used to be confined to selling it in a tiny market area, consisting of their village and maybe another village a two-mile walk away. With a cell phone, your market becomes everybody else who has a cell phone. Products get improved, marketing and distribution techniques get improved. Incomes have gone way up. In Kenya and some other countries they have a phone app called M-PESA that allows you to do all your banking without ever visiting a bank. So the “unbanked,” who used to face high deposit requirements, high fees, and long-distance travel to open a bank account, are suddenly “banked” at very low cost and with almost no effort. Having a cell phone means that you also have a bank, a television, a still camera and video camera, a music player, a video recorder, a video conferencing device, a free online school, and 50 other gadgets including a way to look up every fact, idea, and picture in most of the libraries of the world. So phones are not a luxury good. They have become a necessity that has revolutionized the way that people do business and conduct their social life. Also, it’s a misnomer to call it a phone. It’s a room full of formerly bulky and expensive gadgets compressed into a little supercomputer that is called a phone for historic reasons.

Rick Ferri: I particularly enjoyed the illustration by Dave Stanwick showing all the gadgets that have been compressed into a cell phone.

Larry Siegel: Dave is my research assistant and literary critic. He took out all the sillies in my book, except for the ones that remained at my insistence of course.

The tech side of the improvement curve is the most dramatic part and is the most fun to focus on, but the medical side is also very dramatic. In 1837, Nathan Mayer Rothschild, the world’s richest man with a net worth of a quarter trillion dollars in today’s money, died of an infection that could have been cured with a few dollars’ worth of penicillin, had it existed. And, much more recently, in 1924, President Calvin Coolidge’s teenage son died of blood poisoning from a blister; penicillin would have saved him. It was discovered only four years later.
My mother used to serve frozen peas in the winter because it was the only vegetable available – and we weren’t poor. Now you can get kohlrabi, ramps, leeks, okra.

There are other little things that we don’t necessarily appreciate like the food supply. In the last 50 years it has suddenly become wildly varied and much better. My mother used to serve frozen peas in the winter because it was basically the only vegetable available – and we weren’t poor. Now you go to almost any grocery store and buy vegetables you can’t even pronounce the name of. Kohlrabi, ramps, leeks, okra.

Rick Ferri: One thing that struck me when I was reading your book, which I never thought about before, was the price of lighting. It just really hit me hard. We turn on a lamp when we walk into a room at night, we sit down and read a book, and we don’t think anything of it. But what I learned in reading your book was that lighting, just 200 years ago, was extremely expensive.

Larry Siegel: We all know the story of Abraham Lincoln, who grew up in a log cabin and “read the law” to become a lawyer. (There were law schools, but they were for the few.) After working all day, Lincoln had to study at night and the only lighting available was candles. It’s pretty hard to read by the light of candles; lighting was so precious that most people stopped doing whatever they were doing when the sun went down and went to bed. Education and advancement are going to be pretty low when you can’t study; Lincoln was an exception, not the rule. But, as work got less punishing and new discoveries of energy sources were made. the price of lighting began to plunge by powers of 10, one after another. The first big innovation was whale oil. The idea of killing whales for their oil sounds disgusting now but when there is no alternative, you do it. And whaling was one of the most dangerous occupations: half of all whalers died on the job. That is where the expression “widow’s walk” for an outlook on the top of a house comes from. The next innovation was the discovery of petroleum in the middle 1800s, which put the whaling industry completely out of business. One petroleum derivative, kerosene, could be safely put into a lamp and all of a sudden you had a light that was usable at night, relatively cheap and really bright. The electric light came later, around 1875, and that brings us to modern times, except that delivery of electricity to the home was a tougher undertaking than the invention of the light bulb, and electrification of U.S. households wasn’t really complete until the middle of the 20th century.

Rick Ferri: But that is not the end of the story…

Larry Siegel: Of course not. The cost of lighting has fallen another couple of powers of 10 since Edison’s day. The latest innovation is LED, which uses a baby computer screen to provide light, instead of an incandescent light which mostly gives off heat and then a little bit of light as a byproduct. The investment manager and consultant Charles Gave has said that “the history of capitalism is the history of falling real prices” and this is a great example of it.

Rick Ferri: In your book, you make a comment that in Babylon, which is 1750 BCE, a person would have to had to do 50 hours of labor to get 1 hour of reading from the oil lamps that were available at the time. Today it’s less than one half-second of labor to pay for the electricity to get the same light.

Larry Siegel: That’s correct. I am a little skeptical that anyone really worked 50 hours to buy the oil needed to read a book. I think they just didn’t read.

Maybe that is why the ancient Jews and others created a priestly class to study religious texts: they couldn’t do that and also hold down a job, so they had to be supported by the community. By the way, the existence of a priestly class is a sign of the beginning of an affluent society. People who struggle to ensure day-to-day survival don’t give up part of their income to support religious studies.

Rick Ferri: These stories also show how fake Hollywood is, because movies that depict ancient times, the Middle Ages, and so forth, are all lit up at night. There are lamps everywhere; the palaces and castles are brightly illuminated. In fact that is not what happened. There might have been one lamp that used animal oil and that was it. But your lighting story really hits on the idea of productivity. What’s amazing about the book is that it talks about the human experience, not just the data. That experience did not improve a whole lot; many people in 1800 lived as primitive a life as people in Biblical times did. So the “richer” part of your book didn’t really kick in until the Industrial Revolution. And then things just really took off.

Larry Siegel: That’s right. We can, of course, argue about when the industrial revolution began. John Locke, the philosopher who was the inspiration for the American Revolution, wrote in 1700 that a day laborer in London lived better than a king in America. (By a king he meant an Indian chief.) The day laborer slept indoors, probably had a way of getting well water, and didn’t have to catch his own food. So a certain amount of economic progress had taken place in England and a few other places before the Industrial Revolution.

This revolution emerged slowly and there were some amazing industrial innovations before 1750, but between 1750 and 1800 it really kicked off. Over the next century, the predominant way of life would evolve from growing your own food – self-sufficiency not that different from what had prevailed a millennium earlier – to manufacturing and trade, with agriculture itself becoming a specialty.

This process started in the most advanced countries, which were the United States, Britain, and the Netherlands, and then expanded to include much of the rest of Europe, as well as Japan and a scattering of other places. Even into our own lifetimes, China and India were mostly pre-industrial, but rapidly became industrial or post-industrial starting with the reforms of 1976 in China and 1992 in India. Africa is still working on it, but making rapid progress (finally!) in the last 25 years.

Rick Ferri: One of the things you talk about that goes hand in hand with the Industrial Revolution is the migration to the cities. You make the case that, by migrating to the cities to do the work that the Industrial Revolution created, people actually saved the countryside. I thought that how you looked at that was really fascinating.

Larry Siegel: Thank you. If you took 7.6 billion people, the current population of the world, and distributed them evenly among all the arable land in the world so that they could grow their own food, you would ruin the arable land quickly and we wouldn’t be able to support 7.8 billion people any more – which is a polite way at saying they would starve. And in the attempt to avoid starvation they would mine the earth for every calorie that you could get out of it and ruin the land for future generations. An author – I forget who – said that if you want to protect the environment, stay away from it. I like that. I don’t mean you shouldn’t go visit national parks – we absolutely should – we should all spend as much time outdoors enjoying the beauty of nature as our way of life allows. But to the “back to the land” movement was one of the dumber ideas in the history of the human race. What it means is eliminating all the efficiencies and productivity gains that come from people clustering together in cities and towns, sharing their ideas, and specializing. In a city, one person makes the shoes, another runs the store, another does the tax accounting and so on, with the result that each person becomes a kind of expert at something, and they all trade with each other. That is how prosperity evolves, to use Matt Ridley’s phrase. When people are isolated, they all have the same job, which is to be a jack of all trades and master of none. Progress is painfully slow if it occurs at all, and the standard of living is shockingly low.

Rick Ferri: We’ve got better health, we’ve got better jobs, and we’ve got a cleaner environment as well. We’re also living longer, not only in the United States but all over the world. What effect does this have on us?

Larry Siegel: Like almost everything, living longer has an upside and a downside. It takes a lot of money to live a long time. We have to pay for a generation of people whose best productive years are in the past and who, a century ago, would have been dead and not needed support. (Some people lived a long time even in the old days. My grandfather was born in 1887 and died in 1991, so he ran out of money well before he ran out of life even though he was not a poor man. His kids and grandchildren had to help him. Try asking your grandchildren to support you in your old age now!) But our government budgets are reflecting the burden of supporting a large older population. The solution to the problem is to work longer. Most work has gotten easier, and it’s physical, not mental, limitations that usually stops people from working. The retirement age of 65 or 66 is going to increase, both voluntarily because people want the money and social interaction, and by government action where you have to work longer to get a full benefit. People tend to be healthier and happier when they work longer – they’re more socially connected, they feel productive, and they’re not counting backwards on their bank balance to see when they need to die in order to avoid running out of money first. I’ve written an article on that topic but I haven’t quite finished it so it’s not available yet. It’s called “Longer, Healthier, Happier.” The title is a takeoff on Fewer, Richer, Greener, and I’m writing it with Steve Sexauer, an investment thinker of great ability. The key to this succeeding is to make work arrangements more flexible, because many older people cannot or do not want to work full time or at the same work they did when they were younger.

Rick Ferri: One of the interesting things about a population that is becoming richer is that we’re actually becoming cleaner. When I was in middle school in the late 1960s, the big book out there was Rachel Carson’s Silent Spring, which talked about the terrible pollution of the environment. I grew up in Rhode Island. I recall the Blackstone River was so polluted that if you lit a match it might go up in flames. We couldn’t go swimming in Narragansett Bay because of the raw sewage being dumped into the bay by the city of Providence. And it went on for years and years and years. But we don’t have that problem as much anymore, yet we’re a bigger and richer country. So, in fact, things are getting “Greener.”

Larry Siegel: The air and water pollution levels in the United States have gone way down. Starting with the Clean Air Act in 1970, the air in the United States has gotten dramatically better. I used to land in Los Angeles and not be able to see the ground as I was approaching the airport. Now I can often see from the Pacific to the San Gabriel mountains which is about 70 miles and it’s as clean as the air in Kansas. There are days when it’s not quite so good but it’s pretty good. Water has also gotten dramatically cleaner. Can you remember when turned on the tap and soap bubbles would come out? This was, of course, due to environmental regulation. Why did we wait for government intervention on a massive scale to clean up our act? The reason is that pollution is an externality. You get something for nothing when you pollute the environment because you are foisting off one your operating costs, the cost of cleaning up the pollution, on other people and they have no way of charging you for it. I grew up in Cleveland where the Cuyahoga River not only could have been set on fire with a match, but was. It burned down part of a bridge over it. At least we got a good song out of it: “Burn On, Big River, Burn On” by Randy Newman. And Cleveland became the laughingstock of the nation – we didn’t laugh at Providence because we didn’t know it was there.

Rick Ferri: Well, thanks a lot – I appreciate that.

Larry Siegel: I’m happy to oblige. There are certain things that can only be done by governments. Economists refer to them as public goods and externalities. A public good is something that everybody needs but wouldn’t be produced if you could pay for it voluntarily – like national defense. Nobody’s going to pay for national defense without being required to because you could become a free rider on other people paying for it. Externalities exist when you can get someone else to pay part of your costs, say by polluting a river instead of paying to get rid of the waste that you generate. It took until 1970 for us to gather the political will to pass clean air and water acts, reducing these negative externalities. There were several reasons we did it then and not some other time. One was the increasing wealth of the country, which made it possible to have these higher levels of government spending and taxation without depriving people of necessities. We’re seeing that now in China and India – they’re beginning to clean up their environment too, but at earlier stages in their development than we did because one can learn from other people’s mistakes if you’re paying attention. But it’s a good thing that China and India are starting now because they have a long way to go.. As a result, the First World has become astonishingly clean. The whole country of Switzerland looks like a national park. The United States is environmentally in good shape. There is more forest in the U.S. today than at any time in the past century and a half.

This has been happening in Europe too, because of increased efficiency in food production and because trade has made it possible to buy food grown elsewhere in exchange for goods manufactured in Europe.

The newly industrialized countries, China and India among them, are later on the curve and they are the source of most of our pollution now. That will improve rapidly if we don’t cut off our noses to spite our face and stop trading. That would greatly limit the economic growth made possible by capitalism, globalization, and free trade. Those are the three key factors.
Rich people are working for you – and not just through philanthropy

Rick Ferri: Let me ask a question about philanthropy. Some people in the country have done very well for themselves. They have become multi-billionaires. And I think that they sometimes get a bad rap, at least in the mass media, which talk about millionaires and billionaires eating caviar and cruising on their yachts. But in fact, a lot of these very wealthy entrepreneurs are taking their money and doing a lot of public good. They are trying to help the world eradicate sickness and other scourges. We talked about the public side of things; can we talk about the private side?

Larry Siegel: Sure. It’s worse than what you said. Some in the media talk about billionaires destroying the world, when in fact they’re helping to create it. It would be better if they just complained about caviar and yachts. I think that Bill Gates are Warren Buffett are exemplars of giving away a lot of money in ways that do good. But philanthropy is not the only way for rich people to benefit society. Jeff Bezos, for example, has not given away a lot of money, but his money is not idle. It’s invested in the stocks and bonds of companies and governments. It’s working hard for the employees and customers of those companies, not just for him.

If Bezos does buy a yacht, is he doing anybody any good? Well if you know anybody who builds yachts, and I do – they’re not rich people. They’re working people who have a payroll of dozens of craftsmen and engineers and artisans who make a good living if somebody buys a yacht. These employees go out and spend the money they’ve made on food and clothing and shoes and restaurants. The economy is not a zero-sum game. If somebody makes a lot of money, whether they spend the money or just let it sit in an account, say, in an S&P 500 index fund – it’s working.

So I don’t feel that rich people need to give away their fortunes in order to do social good. I admire Bill Gates’s philanthropic work, but if he invested the same $50 billion in starting new businesses, he might do even more good because of all the people who would get high paying jobs and because of all of the technological improvement those businesses would create over a period of generations.

Rick Ferri: But isn’t Gates doing a lot to eradicate disease?

Larry Siegel: Yes! I do want him to give away money to eradicate malaria in Africa. You have 200 million people a year – not 200 million in total! – contracting a disease that doesn’t usually kill them, but makes them unproductive and slows down their ability to accomplish much. (The rate of 200 million per year is for the whole world, not just Africa.) Let’s just get rid of it. We have the technology, using genetically engineered mosquitos. I describe this in detail in my book. So I think Gates’s heart is in the right place and his money is in the right place but I don’t think rich people are doing wrong by spending money on things they want instead of giving it away. The money they spend gets recycled into every little corner of the economy through the process I was just describing.

Rick Ferri: Your final thoughts on your book…what does it look like to you going forward? By 2120 the poverty of Africa will look a lot more like the poverty of Thailand. It won’t be that poor.

Larry Siegel: Obviously we’re going to continue to face problems. But in the past, sometimes when we faced problems we didn’t win. The Plague wiped out a third of Europe in the 1300s. The Thirty Years War, a religious way in the 1600s, wiped out a third of Germany and that was basically cultural suicide; they did it by themselves without a plague. With more advanced technology, literacy, communication, transportation, and knowledge of all kinds, we’re able to solve the problems that we encounter much more quickly and at lower cost. And in a couple of years, we’ll have all but eliminated the COVID-19 virus with a cure or a vaccine. We’ll be on to the next virus (more accurately, the next virus will be on to us), and we’ll have a tremendous new body of virological and epidemiological knowledge that we don’t have now, with which to face that future challenge. This cycle is going to keep on going. Bad things have not been outlawed by human ingenuity, but we’re getting much better at managing them. By 2120, the poverty of Africa will look a lot more like the poverty of Thailand. Africa will still be the poorest continent in the world, but it won’t be that poor. And we will have effectively eliminated extreme poverty from the world. That is just unimaginable, even 40 or 50 years ago. I won’t be around to see it, but a lot of people will.

Rick Ferri: Any last comments on your book or any other topic?

Larry Siegel: Jason Zweig, the great Wall Street Journal reporter, had a conversation with a bright young woman and he wrote up in the Journal a few months ago. The woman asked him, “Why should I invest for retirement, 40 years away?”when, she said, the planet will be a “rotating cinder” by then. She really believes that, I guess, but it won’t happen – it will be too warm for comfort in some places and ocean levels will be higher is some places, and we’ll have to adapt to it the same way we adapted to a freezing Europe in the 1600s by migrating to the Americas. But the human race will most definitely be here, and so will she. The final thought in my book is that children are being told that the world that they were born into is not worth living in. The people who are telling their children this are conveying the worst nonsense about the future and they’re making children not want to live. That’s a horrible way to treat a child – we just have to stop doing it. What we need to be telling our children is how to identify and solve real problems and how to understand the difference between problems that we have to live with and problems we can fix. So I titled the final chapter of my book, “Save the Children (from Apocalyptic Thinking).”

Rick Ferri: The name of the book is Fewer, Richer, Greener by Laurence B. Siegel, published by Wiley and available on Amazon. A really good uplifting book, and, Larry – thank you. I know you’ve done a lot of research in writing the book. We wish you great success with it and thank you for being my guest on Bogleheads on Investing.

Larry Siegel: Thank you.


About the author 

Rick Ferri

Investment adviser, analyst, author and industry consultant



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