I recently tweeted a thought that has been marinating inside my head for quite some time. As you can see, it’s an idea that received wide support, with plenty of tweets and favorites, especially by some heavy hitters who understand how the game is really played.
Over 100 hours years ago, an economist predicted that the capital-owned class will be eventually overthrown by the rebellious proletariat (the working class). His name was Karl Marx and, in his pamphlet, The Communist Manifesto, he preached the wonders of a new socio-economic political system called Communism.
These days, Karl Marx’s theories are mostly ridiculed because his predictions didn’t come true. The working class didn’t rebel against the capitalists. While Communism became the economic system of a few countries, it eventually collapsed, leaving capitalism as the only system that efficiently organizes labor and capital.
Nevertheless, Karl Marx was right in his other famous work: Capital. In it, he explained how the capitalist classes exploit the labor-providing class for its own gain.
His main argument was in something called “surplus value,” where a capitalist derives value from workers in excess of what he pays him. For example, if you’re making $50/hour working at your soulless and lifeless 9-5 job, the value your boss derives from your work is typically more than $50/hour—often many times that amount. This “surplus value” goes into his pocket without any compensation to you. If you want to understand how the middle class is being exploited, you don’t need to look much further than this.
The mystery of the middle class
In describing how labor is exploited, I mentioned a term that most of you probably glossed over without thinking twice: middle class. It’s an innocent term that gets thrown around a lot. Politicians love using it when campaigning for an important post such as the Senate or the Presidency. They love it because it carries lots of political capital; mention those two words and you’ve immediately got the attention of the sizable chunk of your electorate.
Here lies the paradox. While this term is of immense value to politicians and other public figures, that’s not the case when it comes to someone who has no aspirations of manipulating large crowds for their own Machiavellian gain—someone like you and me. That means there’s the formal definition of a middle class that’s taught to the masses and the real definition that few actually know.
The formal, economic definition of the middle class: a group of people who’re not poor and not rich. It’s someone who’s making a decent salary, usually at a comfortable 9-5 job with generous benefits.
At least that’s the economic definition, the one touted by politicians and the one you study in your high school textbook.
But real life, as I’m sure you’ve suspected if you’ve been reading this blog long enough, works quite differently. And, I’m here to tell you but you’ve been deeply mislead: this “middle class” is actually something else entirely.
Do you know what “middle class” really means? I bet that nobody told you that the middle class doesn’t really exist. It’s a house of mirrors, a mirage, a smokescreen.
Imagine for a moment that a population is divided into three groups: those who don’t work, those who work for someone else, and those who work for themselves. Out of the three groups of people, the middle class would be the second example (it’s in the middle of the other classes).
Unlike the other two classes, the middle class is the only class that’s voluntarily trading their only precious asset—time—for money, aka pieces of paper that are devaluing at a constant rate due to inflation.
It’s a class consisting of lost and confused people who do pointless and useless things like obtaining bullshit “liberal arts” degrees because they have no idea what skills are actually in demand. So, they listened to their trusty high school guidance counselor (who’s paid by the state to tell you complete bullshit) who was nice enough to tell them that they’re going to “change the world” while forking over $20,000+ of tuition each year. It’s a class that thinks it’ll “change the world” while slaving away nights and weekend at some “startup” whose main business model is quick delivery of organic food to small chihuahuas.
Not only is the middle class lost and confused, it’s more than happy to work hard and subsidize others who don’t work nearly as much. It’s one of the most ingenious schemes in the world. One way this is accomplished is via taxes. The tax code contains all kinds loopholes that greatly benefit those who’re earning lots of money at the expense of those who don’t earn as much (those who make little or no money are subsidized by the government).
Not too long ago, I read an article that talked about how Warren Buffet’s secretary actually paid more taxes than the famous billionaire himself. He was taxed less because most of his earnings were on capital instead of as a result of his labor.
Another ingenious method of robbing the middle class is via a scheme better known by its common marketing name: “the financial crisis.” For one reason or another, these “financial crises” seem to occur like clockwork every ten years or so. Coincidence? During the last big 2008 financial crisis, people had their savings completely obliterated (my own 401k retirement account and other investment accounts were contracted by half, and I lost a substantial amount of money).
Since you’re incentivized by everyone—your employer, your “financial advisor” and the IRS—to contribute to an IRA or 401k fund, the middle class usually has a sizable funds there. Thus, it becomes a good target to raze via orchestrated “financial crises” just like the big one in 2008.
The middle class is stuck between a rock and a hard place. Always has been. Always will be. It’s the consumer guinea pigs for products and services that are produced by others. It’s a class that’s constantly being scammed and gamed in all kinds of ways.
While Karl Marx was a brilliant economist, his mistake was giving this class too much credit. After all, the middle class is very lazy. Extremely lazy. He expected them to actually stop watching their 500 channels and get out of their comfortable couches in their cookie cutter suburbia homes and actually revolt against the oligarchs (yes, even in America, there are oligarchs like George Soros) that control their lives. How crazy is that?
They didn’t revolt because they couldn’t be bothered. As long as they have their “chic” downtown studio and their 500 TV channels all financed by cheap and unsustainable credit (i.e., finance slavery) to buy a house or some car to impress some girl (if it’s a girl to buy her Louis Vuitton bag), they’re perfectly comfortable.
How to pillage the middle class and get away with murder
Many say that middle class began to decline after Ronald Reagan took office. At that time America was suffering from hyperinflation (a strange phenomenon where prices rise but without the corresponding rise in productivity). In order to battle this problem, the head of the Federal Reserve Bank (the quasi public/private monopoly that controls American currency) heavily raised interest rates that it charges to banks when it makes loans.
The result was that money became scarce, which lead to a contraction of the economy and eventual depression. Since the cost of money went up, this greatly benefited those who had capital and money to lend at the expense of those who didn’t (yup, middle class got duped again).
But there’s a another risk—a much graver one—to the middle class that has been evolving for the past several decades: globalization. Globalization presents an interesting problem for governments. For a government to survive, it must find ways to make revenue. Since a government doesn’t actually sell any products or services, it derives revenue via two ways: taxing the population or borrowing from creditors.
In an increasingly borderless world, it’s getting harder for governments to tax its citizens. In most countries a citizen is not a taxable resident if he spends less than 180 days in the country (America is the only country in the world that taxes its citizens regardless where they actually live in the world; I’m sure that more countries will shortly be following suit). As a result, governments will begin to run higher budget deficits by spending more than they take in.
Guess who’ll be used to make up for the shortfall? Those who’re the easiest to tax: the immobile middle class who doesn’t have much choice but to pay up.
The wall street — which runs the US government – is interested in squeezing the most amount out of the middle class as possible. And it’s actually the easiest thing in the world to do: convince people to pay taxes while giving favorable loopholes that only the rich can exploit to legally avoid paying taxes. Convince people to “invest” their money into funds that are entirely controlled by others.
In fact, having a sizable middle class is preferred for the elite because it keeps the masses fed and entertained while letting the government and the elite covertly raze what they’ve worked so hard for.
Regardless how you look at it—and whether you actually want to believe it—the “middle class illusion” is coming to an end. You can’t have a sustainable society where a large part of the population is defaulting on its credit—credit that’s kept artificially cheap thanks to government subsidized loans—because their jobs are rapidly being outsourced to cheaper regions of the world.
Globalization: the dagger in middle class’ heart
Globalization is making this easy for risk-takers because it’s now easy to move around the world and cherry pick your labor (i.e. hire in a low cost place like India or The Philippines), but the dynamics of this new economy is putting a squeeze on everyone else.
That means if you’re reading this and aren’t sitting in Bali, Indonesia, Koh Lanta, Thailand or San Miguel, Mexico while building your SaaS business whose goal is to generate $5,000 in monthly revenue from some coffee shop with 20 or 50mbps Internet—you’re being squeezed in more ways than you can imagine.
Because someone always needs to be squeezed. Modern economical systems are nothing more than a game of musical chairs. Of course, it won’t be the rich (they own “old” capital and are “protected” by the government). It also won’t be the poor (there’s a limit to how much people can be squeezed; see Baltimore riots).
So, who’s left? The dumb and lazy sheeple class which is better known by its other name: the middle class.
(If you ask me, I think that’s what the middle class deserves: as far as I’m concerned, you just can’t have a sustainable society when you don’t take any risk and yet still enjoy the rewards.)
The utopian society predicted by Karl Marx called Communism is exactly what it is: a utopian society bearing no resemblance whatsoever to actual reality.
That means only one thing: the capitalistic class isn’t going away anytime soon. Capitalists are here to stay. Capital is here to stay. So, if you’re not generating capital, you’re losing out. You’re losing ground because the only thing you’re able to do—labor—is being devalued at an alarming pace.
Capital is back with a vengeance and it’s stronger than ever.
The end of jobs
This is both good and bad news. The good news is that it’ll give new opportunities for people to transition to this new class and own capital for the first time in their lives; the bad news is that things will be harder for those who refuse to make this transition.
In the not-so-distant future, there will be a redistribution of capital between traditional owners of big capital and newly entrants such as entrepreneurs: you’ll either be a location independent nomad enjoying dollar arbitrage or a wage slave permanently trying to make ends meet while working harder and harder to maintain the rapidly decreasing standard of living.
Since capital is being globalized, it’s much easier to hire someone who lives in a place with a relatively low cost of living than to hire someone who wants (or demands) to be paid a high salary and also wants some kind of job security plus all kinds of benefits.
This process is called called outsourcing, and while I’m sure you’re aware how it works, what you may not be aware is that outsourcing also leads to insourcing; the import of lower quality of living as a result of outsourcing all the key manufacturing and service jobs to some distant land. One doesn’t need to look further than a city like Detroit; once the beacon of American industrious might and now a city of ruins like any of the ancient Latin American cities with Mayan or Aztec with beautiful ruins.
Contrary to popular belief, being an employee at a big company is also riskier than running your own business. Much, much riskier. Running your own business gives you more control, you’re intricately aware of all the details of the business; when you’re an employee you’re given a set salary but are shielded from the businesses’ operating details.
Perhaps years ago there was some kind of security-a “job for life” of some sorts, but with the borderless world, every job is an implicit temporary contract. The word stability exists only for those who own capital. It doesn’t exist for those who merely have money, because as you’ve already noticed such money can disappear overnight but capital is here to stay.
The New York Times recently published an article describing how being fired and losing one’s job is now considered some kind of “graduation.” As time goes on, these “graduation ceremonies” will happen more often.
So, what does this mean? While productivity has been slowly rising worldwide, the truth is that increased mobility brings advantages to some while turning into a disadvantage for others. Like money, the world belongs to hustlers. The world belongs to those who make moves. I like to think of all kinds of employment as temporary, regardless whether you’re a “temporary” contractor or a “permanent” employee.
The name of the game is capital. In order to survive in this new world, you must have capital. Capital gives you everything; without it you’re nothing. The middle class doesn’t have any. If you’re trading your time for money instead of investing this time into more productive endeavors, you don’t have any capital. None of it. Not a single drop of it.
The invisible capital
Along with the decline of the middle class, there has been parallel rise in another type of class: the nomadic entrepreneur. This is no coincidence. This is a class that owes no allegiance to any “defined” group of people.
The nomadic entrepreneur crosses religious, nationalistic and geographical boundaries. The nomadic entrepreneur follows the invisible capital. While he isn’t risk-averse, he isn’t necessarily a red-blooded risk taker, either. His job is to create and build capital, a new type of capital that has never been available before. This class is native to Globalization and, thus, is able to leverage its benefits in the most efficient way possible.
Back in 2007 when I quit my job and became a permanent nomad, it was pretty rare to meet guys who lived anywhere in the world while making money from the comfort of their laptops. Although I did meet some of those guys, they were usually associated with less savory corners of the Internet: porn and gambling (among others).
When I visited Thailand back in 2004, I spent a week in Chiang Mai, a small and pleasant city in the north of the country. At that time, it was mostly overrun by backpackers who were traveling on a shoestring budget through SE Asia, eating $1 dinners in night markets and sleeping in filthy $2/night hostels.
Nowadays, it’s very easy to find such nomadic entrepreneurs. There are everywhere. As someone who’s been a nomadic entrepreneur long before it became trendy, it boggles my mind how many people out there are making money and living on their own terms. It’s insane. It seems like everyone is doing it.
The majority don’t make a lot of money—although some of them make an absolute killing—but certainly make enough to get by on cheap in “3rd world” places such as SE Asia, Latin America or Eastern Europe. Regions with a more laid-back quality of life, fantastic weather, and truly easy living. (My present two-month sojourn on the tropical island of Bali, Indonesia has been amazing).
As I’m getting ready to move to Chiang Mai, Thailand for three months in less than two weeks, I’ll be visiting a completely different city from the one I visited ten years ago: these days Chiang Mai is being boldly called by many as “The Digital Nomad Capital of The World.” While it’ll still have its share of budget backpackers roughing in dirty hostels, most of the people I’ll probably be running into guys with monthly revenues easily breaking the four figure mark, some even reaching five figures.
What changed? What changed was the democratization of societies thanks to the Internet and its brother globalization. The world is getting smaller, the borders are being erased, and more and more people are speaking the same language: English.
The beauty of this new world is that, for the first time in human history, you now have access to a completely different way of doing business. In this increasingly borderless world one can create an online presence in San Francisco and ten minutes later take payments from a guy sitting in a warung in Bali, Indonesia, a cantina in Mexico City, or a stolovaya in Nizhny Novgorod, Russia. The new rich are being minted every day and it’s also a lot easier to become one than you think.
Becoming a nomadic entrepreneur
The key to joining the new rich is what capitalists and oligarchs have known since the beginning of private capitalism: creating, nursing and ultimately owning your own capital—and not trading your precious time for rapidly depreciating pieces of paper that you’ll have to surrender to starved and hungry governments anyway.
The rush is on for this new capital. Unlike the rubber barons of the 19th century or the great capitalists of the 20th century, you no longer need to be born with a golden spoon or have a roman numeral affixed to your name in order to mint your own capital. Capital is rapidly becoming a commodity.
The simplest—and most powerful way—is to take what you’re good at and expose it to the world. Since most of the things out there are now commodities (e.g., every guy and his dog has a travel blog and an FBA business), the only thing that’s real is you. And since we’re living in an attention-deficit economy, your primary job is to get noticed before doing anything else. It’s ironic that in our world of excesses, the only thing we truly lack is our attention.
Not long ago, entrepreneurship was some buzzword that you study and contemplate being like whether you should order chocolate chip or vanilla ice-cream. It was never something you decided to do automatically.
But that’s quickly changing. Instead of it being some abstract topic that you spent countless hours reading and researching while getting accomplished absolutely nothing, it will cease to be a buzzword and become you.
Many of you read what I write because you lack motivation and need a kick in the ass to get where you want to go. Well, I’m here to tell you that soon you won’t need motivation, you’ll need to do it because you won’t have any other choice in the manner.
And why not? Making money on your own terms has never been easier in recorded human history.
While you’re perfectly comfortable now with your 500 channels, your Internet porn and other distractions that are designed to keep you “in the middle,” soon the word “comfort” will disappear from your vernacular. The longer you delay, the harder the transition to a capital-rich class will be; the longer you delay, the more struggle you’ll face in the not-so-distant future. Not feeling the great squeeze yet? You will.
Right now, the decision is no longer whether it makes sense to build your own capital by tapping into the global marketplace or not. Since working online and building your brand is getting quickly commoditized, the question now is how to differentiate yourself. How can you let the world know that you exist? How do you unleash yourself on the world?
The question isn’t whether to market to a global audience, the question is what to market. The question isn’t whether you should get noticed or not; the question is how to get noticed so that someone like me who doesn’t know you personally can still buy what you’re selling. Every one of us is unique and talented in one way or another; the challenge becomes of the best way to deliver this value to others in a most efficient way possible.
Pondering these questions now instead of later is precisely how you escape the shackles and tyranny of the broken middle class and rise above the mediocre masses while working your way to becoming the person you’ve always meant to be and living the life you truly deserve.
This is important. Because in the future that comfortable job where you get paid for doing nothing will disappear, and—depending on how you act—you’ll either be working as a wage slave or become a nomadic entrepreneur with all the benefits of earning income in hard currency along with geoarbitraging yourself around the world as you see fit.