The Arithmetic of Life and Death (6 page)

Billy Ray DeNiall, Reginald’s youngest son and a second-year entrepreneur at the local high school, believes he is an undiscovered Formula One racing talent who needs to exercise his aptitude on a regular basis. So he drives his Dodge pickup truck at a steady fifteen miles per hour over the speed limit to and from school every day.

The local police, who are understaffed, can allocate only one car to patrol the roads leading to and from the high school. Since it is a large high school, there are so many roads, and there is so little time, the police can apprehend
an average of only one in every hundred high school speeders on any given patrol.

Billy Ray is a keen observer of local law enforcement in action. He knows that he has only a 1 percent chance of getting caught on any given trip and just a one-in-fifty chance of getting caught in any given day. So he speeds with confidence and consistency.

But the school year is 180 days in length. Unless Billy Ray mends his ways, he will be ticketed an average of 3.6 times per school year, a total of ten or eleven tickets in his three years to graduation. The fines will be substantial, Billy Ray’s already stratospheric insurance rates will escape Earth’s gravitational influence, and his license may be revoked.

The same principle holds for more serious forms of illegal activity. Although the odds may be against getting caught any one time, the chances accumulate with repetition. Also, since law enforcement officials are sensitive to taxpayer opinion, the odds of getting caught tend to increase with the severity of the offense.

If, for example, the chances of robbing a bank without getting caught are 75 percent, then one would expect three out of four bank robbers to be on the loose. But thieves never rob just one bank, because a single crime hardly adds up to a productive career. Besides, the odds are always against getting caught the next time.

Let’s suppose that a career in bank theft requires about one robbery every four months or so. Then, even at a 75 percent probability of success per theft, the chances of avoiding apprehension are less than 32 percent by the fourth heist (.75 × .75 × .75 × .75). Thus, more than two
bank robbers in three will celebrate their first anniversary on the job in jail. After two years, just one in ten bank robbers will still be plying the trade, which is why there are more felons in jail than there are on the street.

According to local law enforcement officials, in fact, 90 percent of all bank robbers in the Puget Sound area are apprehended. One ought to seriously question the sanity of any career that offers a 90 percent attrition rate after only a few paydays, much less one that results in a multi-year engagement at the local penitentiary shortly after apprehension.

The odds of getting caught also hold for legal but potentially lethal activities. If the chances of having unprotected sex without contracting a social disease are 90 percent per encounter, then the odds of making it an extracurricular hobby, say one new rendezvous per month through two consecutive years of junior college, are less than 8 percent. That means that the odds of at least one disease transmission, the consequences of which may be fatal, are more than 92 percent. Using the same 90 percent probability of avoidance per monthly conquest, the odds of contracting one or more sexually transmitted diseases will exceed 99 percent prior to the completion of a four-year bachelor’s degree.

An informed sense of statistical mortality can also be useful in career planning. If, for instance, your chances of successfully squeezing an extra $200 out of your monthly expense report are 98 percent, then you might expect to increase your income by $2,400 per year with impunity. However, by the thirty-fifth month, your odds of getting caught will exceed 50 percent. In that period, you will have “made” an extra $7,000. But the consequences of getting
caught are likely to include immediate termination. If your salary is $48,000 per year, and if it takes you six months to find an equivalent job, then your net loss, excluding humiliation, will be $17,000 ($24,000 in salary less $7,000 in improperly claimed expenses), which is 85 times $200 per month.

Arithmetic is a hard master. It will punish anyone who believes that a pattern of mistakes or unnecessary risks is a series of isolated, one-time occurrences. America’s graveyards are full of dead people who thought they could make a career out of repetitive stupidity. America’s jails are full of living people, currently 1.5 million of them, who thought that they could make a career out of crime. America’s streets are full of unemployed people who thought they could make a career out of not working.

With repetition, the odds of getting caught always move rapidly toward certainty. It is a Law; there are no exceptions. Including you.

M
ost forms of human endeavor consume money. Some consume lots of it, especially government. Only one form of human endeavor produces money, which is commerce. In this regard, the business of commerce is very important, because it pays for everything else.

Before any business can pay for anything else, however, it must pay for itself. This means that each and every enterprise must cover its own costs for people, facilities, equipment, transportation, and outside services. Whatever is left over after all of its internal costs have been covered is called profit. Usually, the company keeps some of its profit for future investment, pays some to the government in the form of taxes, and returns the rest to its investors in the form of dividends.

Investors create companies. No company has ever been
started without at least one of them. All investors have the same objective: to get back more money than they originally invested. Alternatively, no investor has the objective of getting back less money than originally invested. That would be like investing in Congress, which would be absurd were it not required by law.

If a business is not profitable, by the way, it will not be able to pay all of its bills. Then, in order to keep itself alive, it will eventually require an injection of new capital, which means additional investors. These new investors will not commit more capital to the company without the expectation that they will eventually get more back than they invest.

So every business must be profitable or it will eventually fail. The responsibility for the profitability of the business is shared by its employees, who are paid solely on the expectation that this promise will be fulfilled.

Since the responsibility for making money is shared by all of the employees of a company, it might be easy for any individual to assume that the responsibility is not personal. But such an assumption is a form of theft, because it steals the time and effort of all of the other employees who must unfairly shoulder the lost portion of productivity. Usually, those who do not shoulder their fair portion of the workload are not employed for long.

The size of each individual’s burden may not be intuitively obvious. These days, an average employee costs one and a half to two times basic salary. The rest of the money is for the plant or office, furniture, telephones, fax machines, computers, insurance, many taxes, and many, many other expenses. So an employee who makes $40,000 per year in base salary actually costs the business $60,000 to
$80,000 per year by the time all of the other expenses are added up. But this level of production produces no profit. If the business is to make a 10 percent profit after taxes, it must produce a pretax profit of about 15 percent (about one-third of business profits are consumed by taxes). This means that the productivity burden on each $40,000 employee is actually from around $70,500 to about $94,000, or 1.8 to 2.4 times base salary.

Cecilia Sharpe, Gwendolyn’s mother, works in a small, 24-person, professional accounting firm where the average salary is $45,000 per year. The average annual cost per employee is $81,000, or 1.8 times salary. This means that the company must produce $1.944 million in revenue (24 employees X $81,000) to break even. In order to make a 10 percent tax profit, it must produce $2.16 million, or $90,000 per employee per year.

The company must produce $2.16 million in revenue regardless of how many of the 24 employees actually pitch in. If, for instance, two employees at the firm (such as the aunt and uncle of the managing partner) are completely unproductive, then the burden on the other 22 employees climbs to more than $98,000 per year. To produce that much more, each employee will have to work almost 9 percent harder, which is more than a month of extra work per employee. As you might expect, the affected employees are unlikely to be enthused. So the managing partner will be expected to correct the productivity problem, even if it is in the family.

Return on investment is not an arcane economic theory or some artificial number that large companies bandy about in the press. It is a principle that is at the heart of free enterprise, and it is a prerequisite for the ongoing transaction
of business. Moreover, the principle of return on investment applies to each employee in every enterprise. If you take a company’s money in salary and other forms of compensation, then it is your responsibility to produce more than what you cost so that your employer may be profitable.

In the former Soviet Union, there used to be a common saying among the proletariat that went, “We pretend to work, they pretend to pay us.” But that was a communist society, so it was okay to pretend to work, at least until 1989 or so. Ours, however, is a capitalist society, so it is against the law for your employer to pretend to pay you. If you pretend to work in America, therefore, you must either be a politician or you will be out of a job.

I
n these quality-focused, service-centered, megahertzed times, many businesspeople are faced with a never-ending barrage of new tasks. The conscientious attempt to squeeze in as much work as possible. Personal productivity, however, is frequently less dependent on the zeal of the squeeze than it is on the intelligence of it.