The Trappings of Prosperity: Escaping the Misappropriation of Resources
Going through old possessions is a revealing experience. It helps us understand who we are and how we have changed. As we dust off the things we once cherished and now laugh at, we are reminded of the fleeting nature of our desires and the misappropriation of our resources.
If you've recently had a garage sale or spring cleaning session, you know how amusing it is to uncover stuff you've long forgotten.
Recently, I was going through my belongings in preparation for a long trip. As I sorted through my things, I was struck by how much I had accumulated over the years. I found artwork that was still boxed up from a previous move, t-shirts I hadn't worn since high school, participation trophies from recreational sports leagues, and other relics from the past that have been imprisoned in cardboard cells for years.
Throughout this process, I was also reading a book called Outsiders: Eight Unconventional CEOs. In the book, author William Thorndike discusses a concept called "prosperity-blinded indifference." This is a term that Charlie Munger, Warren Buffett's witty business partner, uses to describe companies that, when they are doing well, start to misallocate resources to areas that are unimportant to adding value to the company. This can include building luxurious headquarters buildings, buying corporate jets, and hiring too many executives.
As I read this, I realized I had been suffering from prosperity blindness myself. I had accumulated a lot of stuff over the years, much of which I didn't need or use. I had become so focused on acquiring possessions that I had lost sight of what was truly important — I fell into the prosperity trap.
Executives indulge in unnecessary luxuries when companies thrive, and the economy is booming. Individuals do this, too, as they earn more and move up the socioeconomic ladder. For example, someone who used to enjoy a $12 bottle of wine may only be satisfied with $50 bottles once they earn more. However, while upgrading their lifestyles, people often forget why they enjoyed the things they used to have in the first place. They may also fail to consider whether the move from a $12 to a $50 bottle of wine has actually improved their lives.
Why is the $12 wine no longer good enough?
Rene Girard's mimetic theory may help explain prosperity blindness. Girard was a French philosopher who developed a theory of human behavior called mimetic desire. Girard argued that human beings are not naturally competitive or acquisitive. Instead, we learn to desire things by imitating the desires of others. He describes two motivations for desire — physical and metaphysical.
Physical desire is experiential, like the drunkenness of drinking. The metaphysical is identity-based — what drinking a particular bottle says about us. Through this lens, we can better see why some people fall into the trap, and others escape its appeal.
In Outsiders, Thorndike contrasted leaders who remained focused on growing the value of their businesses with those who became distracted by success. For example, CBS executives made excessive purchases like a toy company and the New York Yankees baseball team. They also built a landmark office building and created a bloated corporate structure. These actions are perfect examples of Munger's "prosperity-blinded indifference."
Capital Cities CEO Tom Murphy was a different kind of executive. He was focused on growing the value of his business rather than on living a lavish lifestyle. He once said, "The goal is not to have the longest train but to arrive at the station first using the least fuel."
Murphy's focus on value creation paid off. Capital Cities grew three times more valuable than CBS before long. So, why can some CEOs fend off prosperity-blinded indifference while others succumb? And why can some individuals maintain value alignment while most of us become unhinged at some point?
Here are some ways to stay on track:
Value Clarification and Contemplation — It may seem unnecessary to think about your values. After all, they are your values, right? You should know them. However, we are constantly bombarded with external influences, making it surprisingly challenging to contemplate our internal motivations and beliefs. Take some time each week or month to reflect on your values and review whether or not you are living up to them. Be honest.
Focus — Tom Murphy took Capital Cities to another level because he remained focused. He wasn't worried about his image or comparing himself to other, more flashy executives. He remained focused on generating value. If we can channel our inner Tom Murphy and focus relentlessly on what we say is important, we can avoid the prosperity trap.
Mind Who You Mimic — According to Girard's mimetic theory, we can't suddenly quit mimicking, but we can be mindful of who we emulate. The emergence of social media has made it easier than ever to imitate others. We may start to imitate the people we see on social media, even if their values and lifestyles are not in line with our own. It is important to be mindful of who we imitate. Choose models whose actions and messages are aligned with your values.
This isn't to say that you shouldn't treat yourself as you attain your financial goals. I encourage my clients to live life fully— after all, we don’t know how long we’ll be here. But, as you earn more and grow your net worth, don’t lose sight of what you value, what makes you happy, and what makes life worth living.
Prosperity blindness is a powerful ailment —it afflicts even the most well-intended individuals and corporate leaders. To counter it, remain vigilant, focused, and aware. By understanding prosperity blindness, we can be more mindful of our desires and make choices better aligned with our values. We can avoid falling into the trap of prosperity-blinded indifference and focus on what is truly important to us.
