Robert Kiyosaki – Guru or Snake Oil Salesman?
20 September 2006MyMoneyForest has generated a lot of controversy by initiating a debate over the merits of Robert Kiyosaki’s teachings in his books (such as the famous Rich Dad, Poor Dad) and seminars, pointing to five things Kiyosaki teaches that he thinks are nonsense. MyMoneyForest’s list of the things he thinks are wrong:
1) Traditional education isn’t imporant.
2) Stocks, bonds, and mutual funds are for losers.
3) Real estate debt is good debt.
4) Job security is not important.
5) Learn to fail.
He also links to a thread on the Rich Dad forums, where a number of people are jumping in to support the philosophy behind the book.
I’m going to go out on a limb and say that I don’t think any of these five things are necessarily wrong – the biggest thing I think he’s wrong about is the assumption that anyone can follow his plan to success. Not everyone can. Some people just don’t have the temperament to be an entrepreneur – I know a lot of smart people who would never succeed in real estate investing either because they are naturally too risk averse, they don’t care about getting rich, they wouldn’t want to put in the time, or any of a number of reasons that aren’t really things they can do anything about. You can’t just flip a switch in a person and have them be a successful businessperson. And some of these statements might be true for some people – a lot of people might be better off starting a business right out of high school than getting a college degree. Some people probably shouldn’t go at all. But a lot of people’s lives will be a lot better off if they follow the boring, traditional path that won’t get them rich – but won’t leave them poor, either.
That’s another assumption that I strongly disagree with – the idea that the U.S. is headed for economic collapse with the poor having their lives destroyed as the rich run wild over everyone else, sucking up all the money. Kiyosaki thinks the U.S. is doomed because we’re a debtor nation, and because of a coming oil crisis - and this underpins a lot of his philosophy. To him, getting rich is the only thing that will work – everyone else is going to be left behind begging for scraps. And therein lies his problem. If the U.S. economy is going to do fine, and isn’t going down the tubes, the losers who use the boring, traditional approach of getting a job will likely do pretty well – no instant millionaires, but no crushing poverty either.
I think his predictions about the U.S. economic future are, to be charitable, nonsense. They aren’t very well informed and seem primarily based on his political beliefs rather than an understanding of what’s going on in the economy.
Take the national debt. Everyone’s always complaining about it, in both parties. Everyone knows that it’s not a good idea to manage your own personal finances that way, by spending more money than you make. But is it going to destroy the U.S. economy? Nope. There are plenty of reasons why that’s absurd. First and foremost, most of the debt we owe isn’t real. It’s fake debt – owed by one branch of the government to another. The government has been using current taxes to pay for current expenses – only some of those taxes are labeled as Social Security taxes. The Social Security Trust Fund, part of the government, is owed money by the government itself – so essentially what the government is doing is saying “Instead of saving money to pay for future Social Security obligations, people in the future will have to pay for the future obligations.” That’s a big part of the reason why many people think social security isn’t going to be around in the future – the obligations will be too much, and we won’t be able to keep paying out the current benefit levels. That means people who rely on Social Security will be in serious trouble, and potentially living in poverty. But that doesn’t mean the economy is going to collapse from a debt burden - it means that we won’t be paying the “debt” we owe to ourselves off.
The second reason it isn’t as big a deal as he thinks is because as a percentage of the overall economy, it is at historical lows. One of his articles makes a big deal about how in the last six years, we’ve borrowed a trillion dollars – more than we did in the first hundred years of our country’s existence. Interesting factoid, but utterly pointless – because when our entire national output was measured in millions of dollars, of course we didn’t borrow trillions. Look at your own personal finances - the amount you can afford to borrow depends entirely on your income. And for the government, the Gross Domestic Product, or overall economic output of the country, is the biggest factor in its income – it makes money when the people in the country make money, and can thus be taxed. As this report points out:
There is no mystery to why the debt ratio has dropped so much since World War II: Economic growth has dwarfed the amount of new debt. Since 1946, inflation-adjusted debt has grown by 84 percent, but the economy has grown by 429 percent— more than five times as fast. (See Chart 2.) Just as a family with rising income can afford to buy a more expensive home and take on more mortgage debt, the growing American economy has been able to absorb its new debt.
It’s also important to look at other countries. We’ve got the most debt – so we’re obviously the worst off, right? Wrong. We’ve got the most debt – but we also have the biggest economy in the world. In fact, there are 34 countries with bigger debt burdens than the U.S., in that they owe a bigger percentage of their economic output in debt. Some of these are tiny countries or poor countries – but the list includes places like Japan, Italy, Greece, Egypt, Belgium, Israel, Singapore, Germany, France, Austria, and even Canada. Every single one of those countries is worse off in terms of debt than we are – they’ve got less resources to pay their debts back. And there are quite a few other countries that rank just a little better than we do, but are still in the same range.
So do I think the national debt is some wonderful thing, and love deficit spending? No – it’s true that we waste lots of money and could easily cut some government fat out. It’s true we’d be better off if the government acted more responsibly with our money. But our debt burden is nowhere near severe enough to crush our economy – and that means the “losers” shouldn’t be panicked about their job prospects.
Well, surely we’re going to have an energy crisis then, right? That’s already looking like a dated prediction. The reality is that oil prices fluctuate around – and trying to make predictions for the future based on vague memories of the 1970’s oil situation isn’t going to work. This prediction is reminiscent of the resource scarcity doomsayers of the 1970’s – whose ideas didn’t hold up too well with history. Why won’t we have an oil crisis? We might have a temporary one. We might have more shortages, and we might have high prices. But we aren’t going to run out of oil or have a shock so severe that it derails the U.S. economy. Why? Technology – we keep finding more and more reserves of oil. In the long run, our access to oil is increasing, not decreasing. And my bet is that well before we start to run out of oil, we’ll have developed workable renewable energy sources that will be better as an economic matter anyway, regardless of environmental or other issues. “Oil” is just a thing – it’s not something people want inherently. What they want is energy – and we’re constantly improving our efficiency and finding new ways to produce it. If the last fifty years are any guide, our lives will only get better, not worse.
And all this is why I think Kiyosaki’s attitude – that anyone who doesn’t follow his advice is a loser – is what he’s wrong about. Not everyone wants to be rich or make lots of money. Some people want money, but are only willing to do so much to get it. The sacrifices a seven day work-week requires are out for them. The attitude that anyone who’s not like you is a loser or just lazy is nuts. I’m not saying it’s bad to be an entrepreneur or to try to make lots of money, either. Money is great. But if someone’s attitude is “everyone else sucks, and I win!” – I’m not sure I’d be too eager to follow their financial advice.
Discuss this on the Free the Drones forums.
2 Responses to “Robert Kiyosaki – Guru or Snake Oil Salesman?”
September 21st, 2006 at 3:58 pm
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January 25th, 2007 at 2:09 pm
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