How I Won My FreedomFest Debate With Michael Shermer
A number of readers inquired about the results of my debate at FreedomFest in Las Vegas last week.
As you may recall, I was supposed to debate author and New York Times columnist Robert Frank about his contention that economic success is not primarily due to education, hard work, talent, skill, persistence or resilience... but “luck.”
He calls the idea that our society is a meritocracy “a myth.”
Unfortunately, Frank was unable to attend. So author, Skeptic magazine founder and Scientific American columnist Michael Shermer agreed to take his place, even though he doesn’t agree with all of Frank’s conclusions.
Shermer kicked off the debate by arguing that we have differences in genetics, upbringing and personal circumstances, all of which may have more to do with our resulting economic success than we care to admit - particularly if we’ve been highly successful.
This is incontestable, and I didn’t quibble.
In this country, for example, if you’re born white, male, into a relatively affluent household with nurturing parents, and possess a higher-than-average IQ, you are far more likely to experience economic success than, say, someone who is born to a crack-addicted single mother in inner-city Baltimore.
No one is responsible for his or her circumstances at birth. We should all recognize this - and the effect it has on outcomes in a market-based economy.
Yet Frank argues that even among people of roughly equal circumstances, it is still luck that makes the difference.
In his book Success and Luck: Good Fortune and the Myth of the Meritocracy, he provides anecdotes to illustrate his point, arguing that plenty of talented people work hard and never experience any great economic success.
This is true, of course. Sometimes our lack of success really is due to circumstances beyond our control.
But is this really the best and most satisfactory explanation for why some individuals experience greater economic success than others?
We know this thanks to the work of the late Dr. Thomas Stanley, author of The Millionaire Next Door, The Millionaire Mind and other best-sellers, who spent a lifetime surveying and studying the habits and characteristics of America’s wealthiest men and women.
At the end of 2016, almost one in 10 U.S. households had a net worth of $1 million or more. Stanley's research indicates that the vast majority of these kinds of individuals received no generous inheritance and had no special connections. Rather, they maximized their income, minimized their expenses, religiously saved and invested the difference, and let the money compound for years - and usually decades.
You don’t have to be a high-income earner to do this. However, you do need discipline, patience... and time.
For example, if beginning at the age of 25 you invested $190 a month in an S&P 500 index fund - and earned nothing more or less than the market’s long-term average annual return of 10% - it would turn into $1,110,022 by the time you turned 65.
According to the U.S. Census Bureau, the U.S. median household income is $55,775. So it requires the average household to save just 4% of its income - or less than 5% post-tax - to hit the seven-figure mark in 40 years.
Even if a household could save only $95 a month, it would still turn into more than half a million dollars. That still provides a substantial measure of financial independence.
Yet most Americans don’t do anything like this. Why?
Some don’t save. Some save but don’t invest. Some invest but not successfully. And some invest successfully but can’t resist the temptation of spending the money rather than letting it compound.
What Stanley’s research reveals is that the vast majority of American millionaires made choices and developed habits that almost invariably led to financial success.
These choices are available to virtually all working men and women.
In his final book Stop Acting Rich... and Start Living Like a Real Millionaire, Stanley wrote, “I have spent a lifetime identifying and profiling the myths and realities of the rich. Among the least important factors were high academic achievement... and luck.”
We polled the audience in Las Vegas both before and after the debate. And in the end, all but one audience member agreed with me.
In my next column, I’ll explain why this is not just an academic discussion but also vitally important to your long-term financial well-being.
Thoughts on this article? Leave a comment below.