Levels of Action and Value

Closely related to this nice post by Tom McCabe: http://lesswrong.com/lw/58g/levels_of_action/

Short version: a Level 1 action is something that directly improves the world, like getting a log out of your yard. A Level 2 action improves you ability to do level 1 actions, like buying a chainsaw for faster log-removal. Level 3 actions improve your ability to do Level 2 actions, etc.

So right now I’m thinking about how to make money at all. The most-available-to-my-brain answer to that right now is to get a job, in which I turn hours of my life into dollars at some rate.

That’s pretty Level 1, put in some hours, get out some directly proportional amount of money. Yay!

But people who actually make lots of money don’t seem to do it that way. They get compensated for some improvement to the world, but it doesn’t seem at all proportional to the time they spend on things. It’s definitely probably more related to how much stuff they get done that makes things happen that are valuable enough for other people to give them money for it.

What would 2nd Level job action look like? I think team management would be a good example, where you help other people do Level 1 actions more effectively. You help them save or spend time, and help figure out what’s more valuable to be working on.

When you make and sell something, you don’t get money from having spent such-and-such a time making it, you get money from people buying it. Once it’s made, it’s made. You can make it better and everything, but ultimately you’re getting your money from people buying it.

Hiring a marketing manager or a salesman would be a Level 2 action. You’re getting more of your product out, and getting more money in, but only requiring the work of hiring and managing people.

This seems to be the first level that actual passive income is possible. If I only get paid for directly doing work, then I need to be actively doing something whenever I want money.

I once explained this idea to my Mom as an explanation why it could actually be reasonable for CEOs to make 100x more than their employees. Let’s say that the average employee produces 1 unit of car-value every year. If you’re a Level 1 car builder and you become 10% more effective at making cars, then you produce an extra .1 units of value per year.

If you manage a floor of 100 car-builders (at Level 2), and you figure you figure out a way to make everyone 1% more effective at making cars, then you produce 1 more unit of value each year.

If you’re a process engineer and figure out how to make everyone in the 10000 person company 1% more effective, then you produce 100 more units of value per year.

If you hire the engineers…

In an ideal world each level of management would be, effectively, a force-multiplier. Actual companies sublinearly scale number of people to productivity (I think that productivity is cut in half every time the company triples in size), but I still think the idea is still useful.

In particular, I should (in the long term) be focusing more on creating stuff that I can sell, or finding higher-level work opportunities, in the long run. Rather than having my hours be the input to my money.


About atucker

Provisional pronouncements and (hopefully) honest mistakes. I'd like to be differently wrong about things, and helpful to the world.
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