Empowerment through Expanded Access

And a Primer on Economist Thomas Sowell

I had a long conversation with an old friend of mine from Venezuela this weekend, and at one point in the conversation, she told me about how she loves to support Latin American entrepreneurs who mostly market their products via social media. She said that she loves to buy from these people/independent businesses, and informed me that some of these entrepreneurs have made enough money to support both themselves and their families throughout the pandemic via their online businesses. This made me feel a great sense of hope. I was inspired. As I wrote about in this piece and this piece, both on the Information Age, the Internet has the potential to level the playing field when it comes to commerce and economic opportunity. People no longer need brick and mortar stores to sell their goods. They just need a Wifi connection and a profile on a social media platform. I deeply believe that this is a part of how the financial game changes when it comes to getting money into the hands of people who were the most marginalized during the Industrial Age.

This conversation also brought to mind something that I just read in Thomas Sowell’s Basic Economics, a tome that I have been working my way through for the past few weeks. But, before diving into Sowell’s ideas, I’d first like to introduce him, as my guess is that many of you might not be familiar with this name.

(Thomas Sowell. Source)

Sowell is an economist and social theorist who was born in North Carolina and raised in Harlem, New York City. Sowell was the first in his family to be educated past the sixth grade. He attended New York City’s prestigious Stuyvesant High School, but dropped out at age 17 due to financial difficulties and problems at home. He then worked a number of odd jobs before being drafted by the U.S. Marine Corps. to serve in the Korean War. Fast-forwarding ahead a bit, he went on to complete his B.A. in economics at Harvard University, his master’s degree in economics at Columbia University, and his doctor of philosophy degree in economics at the University of Chicago (a very prestigious school for economics; Milton Friedman taught there). He’s taught at universities ranging from Howard to Cornell to UCLA, and is currently a senior fellow at the Hoover Institution at Stanford University. In short, dude doesn’t play. (All of the above info comes from a Wikipedia page on Sowell, which is a good place to start if you’d like to learn more about him. I also highly recommend watching Thomas Sowell: Common Sense in a Senseless World, which you can stream for free here.)

So, why have most people not heard of this guy?

My guess is because he is often labeled a “Black conservative”, and that doesn’t fit the mainstream media narrative of the political ideology of most Black people. (Rest assured, he’s hardly as caustic as let’s say Candace Owens.) However, Sowell himself dismisses this label. He actually prefers not to be labeled when it comes to his political ideology. After reading this work, I can comfortably say that Sowell doesn’t outright promote any sort of political agenda. In Basic Economics, he simply breaks down how the many facets of the global economic system work. Some of his thoughts seem a bit counterintuitive at first, like his seeming disdain for labor unions, but once he fully lays out his arguments, one can clearly see the logic in them. (Whether one agrees or disagrees with said logic is another story.)

Anyway, I wanted to share some of the passages from the book that I believe compliment the aforementioned conversation that I had with my friend. In a section of the book entitled “Financial Institutions”, Sowell discusses the many purposes that financial institutions serve. Below is the first quote from this section of the book that I’d like to share:

“Financial institutions not only transfer resources from one set of consumers to another and transfer resources from one use to another, they also create wealth by joining the entrepreneurial talents of people who lack money to the savings of many others, in order to finance new firms and new industries.”

I share the above quote simply because it is one of the most simple and precise ways in which I have ever heard the purpose of financial institutions described, and it’s a good jumping off point for the following quotes. Sowell continues,

“Not only Third World countries, but also some countries in the former Communist bloc of nations in Eastern Europe, have yet to develop the kinds of sophisticated financial institutions which promote economic development. They may now have capitalism, but they have not yet developed the financial institutions that would mobilize capital on a scale that Western countries can. It is not that the wealth is not there. Rather, this wealth cannot be collected from innumerable small sources, concentrated, without financial institutions equal to the complex task of evaluating risks, markets, and rates of returns.”

I found this idea fascinating and eye-opening. It never occurred to me that a country’s embracing capitalism does not immediately equate to a country having an adequate amount of financial institutions to help mobilize capital to those in need of it. Being a from a coastal metropolitan city of developed Western nation, I take for granted the fact that the market-based economy in which I live has enough (“overabundance of” would probably be a better way to put it) financial institutions to serve its people - especially its white people. However, most banks and legacy financial institutions have failed to reach large swaths of populations in developing countries that have “embraced capitalism”. For example, 70% of El Salvador is unbanked. You cannot really have a successful capitalistic system if such a large percentage of the population has such a lack of access to capital and financial products. And we are seeing in Eastern Europe and in Nigeria (excellent article from The Guardian linked here) the doors that cryptocurrency markets are opening for everyone from entrepreneurs to activists.

But even with access to capital, financial markets can be complex and difficult to understand (which is, in part, why I write to educate people about finance), as Sowell mentions below:

“The complexity of financial institutions means that relatively few people are likely to understand them, which makes them vulnerable politically.”

So, access is only a jumping off point. What we truly need is access and education. And that education serves the purpose of not only empowering people economically, but of quelling social unrest that stems from financial illiteracy. More on that from Sowell:

“Many unthinking people in many countries and many periods of history have regarded financial activities as not ‘really’ contributing anything to the economy and have regarded the people who engage in such financial activities as mere parasites. This was especially so at a time when most people engaged in hard physical labor in agriculture or industry, and were both suspicious and resentful of people who simply sat around handling pieces of paper, while producing nothing that could be seen or felt. Centuries-old hostilities have arisen - and have been acted upon - against minority groups who played such roles, whether they were Jews in Europe, overseas Chinese minorities in Southeast Asia, or Chettiars in their native India or in Burma, East Africa, or Fiji. Often such groups have been expelled or harassed into leaving the country - sometimes by mob violence - because of popular beliefs that they were parasitic. Those with such misconceptions have then often been surprised to discover economic activity and the standard of living declining in the wake of their departure. An understanding of basic economics could have prevented many human tragedies, as well as many economic inefficiencies.”

As is often the case, education, and the economic empowerment that it has the potential to provide, is key in preventing the type of hate and frustration that stems from economic misunderstandings that then manifest themselves in violence based on race and culture. If people, especially laborers/members of the working class who work hard for their money, had a better understanding of finance, they could be more economically empowered and, therefore, less prone to resenting those that they feel are taking advantage of them financially. Yet, we still don’t teach financial literacy in the overwhelming majority of primary and secondary schools, especially the ones in the poorer parts of the U.S.. Truly a sad state of affairs.

Let me tie things back to the initial point that I made in this email about the Internet leveling the playing field, though. Not only is the Internet leveling the playing field when it comes to marketing and selling goods and services, but it is also providing more and more people with access to capital, and it is doing so at an exponential rate. The majority of this access to capital is coming via “fintech” that enables the buying and selling of both legacy assets and cryptocurrency. Technology is filling the gap that legacy financial institutions have seemingly barely ever even tried to fill. According to my limited knowledge, the closest the legacy system has ever gotten to truly serving the poor has been Nobel Prize Winner Muhammad Yunus’ Grameen Bank, which is mostly awesome.

As both DeFi and access to technology continue to expand, it will become easier and easier to get capital to those in need. Sure, the continued rolling out of DeFi won’t always be smooth, and it will need sensible regulation, but I believe it is the future, whether the powers that be like or understand it right now or not. The world will need more leaders like the mayor of Miami, Francis Suarez, who believes that government should be a “facilitator, not an obstructer” when it comes to working with new financial technologies.

I understand that the expansion of the financial industry does not solve all of the world’s problems, and that government still has a role to play in helping to fund human needs, but the government isn’t always reliable and true economic empowerment lies in learning how to become as economically self-reliant as possible. Take, for instance, the fact that I’ve applied for the unemployment benefits that I am entitled to for the past seven weeks, as neither of my two employers have offered me work, and I still haven’t received received a dime of support from a program that I’ve paid into. (But I should probably rest assured that the agent from the New York State Dept. of Labor with whom I spoke on the phone last week told me that NYS is going to look into my claim and get back just as soon as they can, right? Clown talk.) It’s a good thing I’ve learned to invest, as, without this skill, right now I’d have less of an ability to support myself. And my case is just a “First World” problem when it comes to government failings regarding financial support for those in need.

I’ve spent enough time in both Latin America and in Africa to know how industrious and innovative people from these regions can be. I also know how deep of a distrust some people from these regions tend to have toward their governments. As I’ve mentioned in various editions of this newsletter, I am tremendous believer in the human spirit and in the idea that most people know what they need and often times even how to get it; they usually just lack the access and means. In the Information Age, hopefully more and more people can get more of both. Ideally, people become financially literate and feel comfortable depending on the government to provide the services it promises to provide, but, we only have immediate control over one of these two situations.

Capitalism without the proper financial institutions is often crony capitalism. This is the type of capitalism that exists in Russia, China, and more and more in the United States, thanks to The Cantillon Effect. It makes my blood boil. A (mostly) free Internet and access to digitized financial assets and services will play a major role in creating more wealth and opportunity for more people in more countries. In the Information Age, also known as the Exponential Age, the more people with whom we can provide financial opportunities and empowerment via the Internet - the better it will be for all of us.

Best,

Frank

Twitter: @frankcorva

Currently Listening To: Anne Lamott on Taming Your Inner Critic, Finding Grace, and Prayer (Episode #522 of The Tim Ferriss Podcast)

“Writing is like driving at night with the headlights on; you can only see a little bit ahead of you, but you can make the whole journey that way” -E.L. Doctorow (cited by Anne Lamott)

Omar Alfonso 🟩 @omaralfonsoh

@saifedean Esto es irrefutable. Pregunta a un Bitcoiner en Venezuela o Argentina. Literalmente #Bitcoin salva vidas.