"The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it." ~Einstein
Pareto's Principle
When I began seriously researching for the book I'm working on, "Psychopathic Economics," two principles really surprised me.
The first was a much deeper review of the '80/20 Rule', which states that 80 percent of the profits come from just 20 percent of the product line. Most often, 80 percent of the business generated is created by 20 percent of the work force (usually the sales team). In many cases 80 percent of the product line is purchased by 20 percent of the customer base. When businesses wind up on the ropes, 80 percent of the time they cut into that 20 percent muscle.
But what really floored me was the second principle. Social scientists revealed that with herds it only takes 5 percent of the herd to create a "social tipping point". This 5 percent is actually large enough to nudge the herd in a different direction. Which brings focus to Einstein's quote:
"The world is a dangerous place to live; not because of the people who are evil, but because of the people who don't do anything about it."
Sheeple Meet Cliff
Herds exhibit strange and often suicidal tendencies: "450 sheep jump to their deaths in Turkey"
First one sheep jumped to its death. Then stunned Turkish shepherds, who had left the herd to graze while they had breakfast, watched as nearly 1,500 others followed, each leaping off the same cliff, Turkish media reported.
Momentum in a herd is hard for one creature to resist without being trampled. In order to change the herds direction a new critical mass, a "tipping point" of 5% must first be developed first.
Economic Tipping Points
Economic tipping points are easily noticed—especially after the sheeple go cliff diving.
The tech bubble was a classic example of this. Greenspan flooded the economy with dollars in the late 1990s. Soon people I knew were quitting their day jobs, borrowing from their HELOCs at 6.x percent and looking for the 100-"baggers."
Stocks like Yahoo which opened under in 1997 and brushed 0 by 2000 inspired them (and many fund managers). Sadly many picked companies like IPET (Pets.com) which opened at rose to and soon tanked to 22 cents.
"Because pets can't drive," and because IPET amassed a customer base of 570,000 customers, Amazon became interested in them and bought a 30 percent share of the company. Of course IPET's power point presentation had impressive growth sounds—"boing"—and charts that dazzled them. Steve Jobs said that if you need a PowerPoint presentation then it means that you don't know what you're talking about.
As Mike Daisey's incredibly hysterical book "21 Dog Years, Doing Time @ Amazon.com", describes: The rub was in the shopping cart during checkout when those 570,000 customers (and Amazon) came to the startling realization Pets.com was in the gravel-shipping business. .00 for a bag of cat litter and .00 for UPS ground shipping.
People soon came to their senses and realized that pets had survived before the internet—even though they couldn't drive.
The herd moved again.
...This time into the housing bubble.
