How we got here and why leadership is an economics problem

Spencer: you know, if you got three quarterbacks, then you don't have a quarterback. And if you got 60 some odd descriptions of leadership, then you don't have a definition of leadership and how it interacts in people's lives and how it's effective. So.

Aaron: Alright, Spencer, how do you describe this podcast to people?

Spencer: Well, For me, you know, it's been a, it's been a nice run. I've had, you know, I just had my 56th birthday, Aaron, I'm not old yet, but in my life I've been really just trying to make sense of the world. You know, how do you make things a little bit better? what I've been blessed with when I tell somebody this, like I'm trying to make sense of the world. and I really enjoy hanging out with people. I truly value relationships. Uh, been a lot of great teams in my life. met a lot great people in my life. You're one of them. One of the best conversations I've ever had is with you. So, that's what this podcast is about. How do we make sense of the world and how, you know, us as human beings kind of interact and, um, it's been something that we haven't provided a really great answer for. We got a lot of research, we've got a lot of opinions about it. but nothing really sticks that much. You know, I introduced it last night to some friends of mine. I said, you know, if you got three quarterbacks, then you don't have a quarterback. And if you got 60 some odd descriptions of leadership, then you don't have a definition of leadership and how it interacts in people's lives and how it's effective. So. I think that's what I, that's kind of my description to people. If you wanna make sense of the world, you wanna think about how human beings interact, then uh, we got a fresh new look for you. How about you?

Aaron: so I think, what I really love about this is that it's not as though we have all the, things nailed down. We have all the answers to everything. but we do certainly have some novel ideas about how. You can, think about what, what really makes up leadership and how you can think about actually applying it in different contexts. So, what it is, is really exploring what it means to, improve your life, to improve your interaction with other people, to understand, that leadership is something that we all engage in. Whether we're in charge of people in a big organization or just in our own lives, in our own pursuits. I think that the very nature of humans is that need to create, we need to make something new. We'd like to shape the world around us. and to me. that's leadership. so I always fall back on this idea that leadership is an act of creation. this an exploration of sense making and understanding how you interact with the world. good is to So let's introduce who we are.I'm an economist. I completed my graduate degree at the University of Virginiain 2018. and coming outta there, I was hired by West Point and started, paying a little bit more attention to how leaders operate and how West Point actually goes about training people to be leaders. And it's not exactly what, I would've thought. and so being around a lot of these fantastic people, Spencer included, I really started to grow in this interest of how we can understand, a little bit carefully what it means to have those skills. How do you train those skills? How do you think about, what it is that makes a good leader? why don't you tell us the rest of this story here?

Spencer: Was on that hiring committee. you know, we're looking for some talented young, economists. And, I remember meeting you first time, I remember we said that thing called Econ bootcamp. I don't know if you remember that. it was a kind of our onboarding process. I was talking about these core principles of economics. What I said was, all great leaders are at least good economists, even if they don't know it. what you just said previously, we're all economists we're all trying to figure this out. We're trying to make sense and how to make the most out of the things we have. I was in the military, never planned on being in the military, but happened to get there. and I really enjoyed it. again, the human side of this, being on great teams, having meaningful purpose, When I left West Point, I was enlisted first as, an engineer, and then I graduated West Point in Aviation. one of my strategies was I was just to get around the best people I could. I chose Fort Bragg, an Airborne unit. I went to 18th Aviation Brigade and kind of cut my teeth in Bosnia trying to, uh, lead a Black Hawk Platoon. And then I got command there at Company Command at Fort Bragg, really early in my career earlier than most. It was, it wouldn't happen today. it was an odd, sequence of events, but I got company command experience really early. Then I had this chance to go teach at West Point. Now this is the first time before you and I met, I met other young folks just like me who were coming outta graduate programs to teach just core economics and some finance classes at West Point. And the more I taught these classes in the classroom, I'm thinking about my company Command experience. the ideas were the same. They felt really the same. That's when I first kind of jumped into this idea that, uh, what I'm teaching in the economics classroom is really a, a thought process of how you could make the most out of the, the resources you have. And that was really my first venture into combining leadership and economics and my peers that were in that group teaching with me. two Star Generals. One Star Generals right now that are still doing it out there.those guys agreed and we attacked that class like it was a leadership class, which is easy to do at West Point. If you put leadership on it, people like it. And honestly, this was not a hard sale because what we were selling is this idea of getting more out of the existing input you have, making it better, making sense of how to pull levers to increase productivity, to increase, capability. so for me, that's, that's how it kind of came to be. Now, fast forward the tapes, 10, 11 years later, and that's when you and I first interacted. But I've been dealing with this for a while, in my operational career in the Army, not in the academic sense, but when you said you were really interested in it, I was like, oh man, this may have a future because I need somebody smart.

Aaron: I'll never forget actually what happened probably within the first two weeks or so that I was there, you were going front of the room. You had, uh, Ben Summers, I believe,

Spencer: Oh, yeah.

Aaron: up there presenting a little bit of this,and he is going through the, uh, economic leader,

Spencer: Yeah.

Aaron: points that you guys had, put together, which I loved. And I, I had spent. Essentially all of my time in grad school, I'd been studying a lot about personnel economics and trying to understand how you incentivize people, how you motivate people. My whole dissertation was actually about this. and so I had come up with this sort of like clunky model, a mathematical model, but you know, I still like it, that, showed a few very novel insights about, incentives and just, I don't wanna go down the rabbit hole here, but, the basic thing is that we are noticing that the more we paid people, huge, performance pay it rarely actually worked. There's only like two, maybe three successful cases that we've shown that incentives, like big strong financial incentives work, and they require a certain kind of, context. And so this was a big puzzle. My whole dissertation was about teachers and teacher performance incentives, when, when, I saw what you and Ben Summers were presenting up there, I was like, man, we could really go far with this.

Spencer: I, I mean, that was a good day for me and our time together has been so rewarding. But that group of guys you mentioned Ben Summers, I mean, that set of people that we hire every year those are extremely talented young men and women. And, um, they have these great operational careers and then we give them this reflective space to think about in, in a graduate program. And then they get to teach these young leaders and these young leaders are vicariously pulling this information. you know, if somebody would've stopped me and stiffed on me in the forehead and said, Hey, this don't work, and they could prove to me, it don't work. I wouldn't be on this path with you. But I'm telling you, there's a lot of green space between me and that end zone. Every time we talk about this, and every audience I've been in front of with these ideas, there's no Derrick Henry stiff arm out there. I mean, I'm running green grass every time I do it. It just hasn't caught. Caught fire yet. And I think we've been building a bonfire and, I don't know, as we light this thing, we'll see what happens, I've yet to see that stiff form that pushes me back off these ideas. and again, like you said, and like I've said in that there's a lot of theories out there. we don't have it all figured out, which is again attractive. We we're looking to make this better. I like the idea that we don't have it all figured out, and I'm looking for where the dead ends are, and we shouldn't be down that pathway just so we can get on the right pathway. And I think the frameworks we're looking at are really exciting. Again, of every audience I've been in front of, I have yet to, to find pushback that, oh, that doesn't work. Mostly it's, Hey, that's a fresh idea. Well,

Aaron: I would also add that, I think part of this is that we are approaching this a little differently than I think a lot of, leadership advice, leadership, material starts with. But, one of the things, I mean, just to like, you know, after that conversation that we had, and you were really. Enthusiastic. I was enthusiastic. And so actually at one point somebody suggested I start a personnel econ class, and I was like, well, that sounds really cool, but I'm gonna do my own thing. And so that's why I, I went to you and I was like, here, I think we should just turn this into a leadership econ class. and we did. We ran with it, Spencer was there the whole time coming to class, helping me plan this stuff out. And then, uh, we've put some crazy theories up in front of these guys. This would've been in 2020 right before, this is the, winter of 2020, right before COVID hit. I'll never forget that we were there, we were teaching this stuff and I have no idea how to teach these complicated integrals to these kids. I was like, I've got this really cool model here, and it's got multi-vector derivatives going on. And I was like, oh, geez, I gotta, I gotta sort of like, bring this back a bit. but anyway, so that's how we developed the class for a long time. we've taught it now six times. Six

Spencer: Mm-hmm. the textbook that you've written, the foundation behind this thing is really impressive. that's the big logs at the bottom of the fire, Aaron. And that's what I'm really impressed about, how you connected all this.

Aaron: well, it takes someone who's actually, led you know, I look back on my career and, academics, don't usually lead a lot of people. it tends to attract somewhat solitary folks, you know? And I, I've always been somebody who likes to just, sit with my own thoughts for too long. so having you along for this ride is a huge part of making sure that these things aren't just theoretical. It's about making sure that, um, they make sense in, someone's experiences who's actually had to lead people, I actually interact a lot with, leaders and what they are struggling with. So, it's a good complementarity as we say.

Spencer: We brought in some speakers that, that showed us that this is truth. Again, nobody stiffed armed us, but we brought in military leaders. We brought in, um, some hedge fund guys. We brought in some real estate guys, some risk dudes. But what you bring up is a very good point in that you joined, you joined the academic world, and academics. There's so many great things out there. but there's some silos in academics and the administration of academics that kind of limits this idea because of our department sequences and all the rest. what I really like about what we're doing is that we're connecting a lot of these ideas from many different disciplines to really figure out how the world works. I think that's one of our comparative advantages in this framework

Aaron: like, the, departments are inherently siloed. They have their own graduate programs that they all come out of. They have their own journals that they publish, and it's really difficult. it's really difficult to actually connect a lot of these different dots. In fact, one of the good examples of, where I started to see this struggle as I was working with the, uh, national Academies of Science on this big, report on, training and learning in the military I was the only economist there. Everybody else was either a, psychologist or, organizational behavior. And sometimes I felt like I was just speaking a different language. they didn't like some of the approaches. but again, I think that there's just so much good research out there in a lot of these different areas. I, I've been very impressed with a lot of the organizational behavior stuff. I've been very impressed with a lot of the, and, and I gotta be careful I say this, 'cause if you talk to some folks, they poo poo a lot of the, the positive psychology. But I actually think that we need some research on things that people do that improve their lives. this is a huge, win to have people thinking seriously about it. So, you put that all together, uh, you know, and then there's some other stuff that I was like, man, I need to understand like how it is that brains work. if I'm gonna really build up this model,the way an economist would. We need to actually have some foundation. And the more I looked into it, I was like, man, there's some things that, like all of micro theories built off of that we already know aren't quite accurate all the time. we just dug down deeper and we got into even some of the neuroscience. So that's, that's kind of how we, how we got here, is just starting to dig deeper and deeper and deeper with Spencer's background in organizational behavior, mine and economics and personnel economics. then we are all mashed together in this location West Point where we are really interested in thinking more clearly and rigorously about leadership, but like I said, oddly enough from an economist perspective. So let me just introduce actually a little bit of what it is that. We, include in this idea of leadership economics. and the best way for me to introduce this is to start off with, how most leadership ideas or advice from, and this isn't like a, it's not a bad thing and it's not like the wrong way. it certainly isn't the way that I think. most leadership advice comes in the form of. we observe this leader, he does this great thing, or someone who actually was a leader, who writes a great book afterwards about their experiences. And so you learn a lot about like, how they approached issues, how they approached decisions, how they dealt with, the people that they were, leading. Or you can read about like history. You can read about great CEOs and great, business tycoons. You can read, all these different things. so then we compile those together and we have this list of either characteristics or behaviors And then that sort of gets formalized a little bit more into different models of leadership, where you've got, um, you know, servant leaders, you've got, these different models that we teach, which again, are useful for describing different approaches to leadership, the other part coming from the economist side would be the behavioral economists who are coming at it saying, you know, turns out people don't behave mechanically like a lot of the utility theory might suggest, or they have these certain quirks. All this sort of gets smashed together and you end up with a very long laundry list of, different things, different ideas, different approaches. And me, as I was digging into this, I was like, this is overwhelming. I actually really don't know how to think about all of this. I need a framework or a model or something that helps me piece these together. 'cause they're all talking about something, but they're not, connecting in my head, there should be some sort of a connection between them. And the best way to describe this is the difference between inductive reasoning versus deductive reasoning. And inductive reasoning is that we're going to observe a bunch of things throughout the world. We're going to observe, say like the motion of the stars and how the, how the moon does its phases and moves around the earth and all these other things. we're gonna observe it and then we're going to create some sort of a framework about how we think this works. Whereas deductive reasoning is we're gonna start with some first principles. for example, Newton comes along and he starts developing physics in terms of forces and mass. And, and so he's putting together these basic frameworks. And so from that, he builds up, He builds from these basic foundations and then he builds them up, which eventually allows us to understand the motion of the planets in a much more,rigorous way where we get to predict where they're going to be based off of the laws of physics as opposed to simply observing where they are. And again, this isn't like you need one or the other one's better than the other. Like you really need both. There's no purpose in doing an inductive process unless you actually have spent a lot of time and observing so I feel like what we're at now in terms of the leadership research, in terms of actually helping people become better leaders is we're at this point where we need some sort of a, a lens or a framework that allows us to build up into, a more comprehensive theory of, of leadership itself. So. other, the other thing, we gotta get past a little bit, is what people view economics as. it's a very common joke in economics that as soon as you tell someone you're an economist, they are immediately going to ask you what stock they should buy. And, you know, every economist is gonna say the same thing, go buy it, but go buy an index fund. But, the reason it's funny to economists is because I spend zero time studying stock markets in grad school, I spend a ton of time on microeconomic theory and on how we actually measure and test certain ideas in policies. What I think a lot of people don't realize is that economics is, it's not so much about stock markets or how even the, stock market functions, but markets as an idea and how markets themselves work labor markets. but it goes much beyond markets itself. I know we've talked about this a lot, Spencer, but I always come back to, you've got the father of economics, Adam Smith and his very first book, and I gotta be honest, it's not a very fun read. it's a very dense and, exhaustive read. But his first book actually was a theory, moral Sentiments Not the Wealth of Nations. And so Adam Smith was building up from the ideas of his mentor, David Hume, who also was very interested in just understanding how humans work even, uh, compared it to understanding the workings of a clock. so the very core of economics actually really started from this philosophical idea of building out what it, what makes us tick quite literally. And so Adam Smith built this out. He was trying to figure out like, why is it that people do kind things to each other? How do we empathize with each other? That's the whole book. a Theory of Moral Sentiments and how does that lead us to coordinate and be good or bad towards each other? So then later he writes The Wealth of Nations, and that's what really takes off. So what I feel like goal is that economics has just developed into this very big science of, very math, heavy, very, rigorous in terms of how we build up our logic. I love that. But in the process, we forgot a little bit about where we came from. And where we came from is this philosophical idea that we actually just wanna understand do we work h do we operate? , And so that's where we're at now that's what we want to do with this podcast, with the leadership economics class and the textbook, what we want to do is revisit those roots of economics, so trying to bring back that heart of economics and understanding human behavior, but at a more fundamental level. And I'd say that because we have, especially in the last 20 years, great advances in neuroscience technology. And then we've also had huge developments mathematically in sort of our understanding of how to model certain behaviors. We are at a very good position now to start to connect these dots from a core understanding of how brains function into, plugging that into the great logical apparatus of economic theory. then that's going to create this framework that allows us to predict certain behaviors that allows us to see all these different ideas that are connected to leadership in one comprehensive, coherent system.

Spencer: Yeah. That's a lot of meat on the bone right there, man. you just went through a pretty big hefty piece. I've got some notes down here, but I think honestly, we're trying to bring sexy back. you're not Justin Timberlake nor I, although you're a pretty good pianist. You got a little music in you, not a little, you got a lot of, you're probably a world class pianist,

Aaron: Not

Spencer: but, uh, but we're trying to bring sexy back and I think that's where, you know, you spoke of David yume and Adam Smith, where we started just trying to make sense of the world and how human beings interact is where they started. And the connection with the physical world, I think is absolutely apropos right here, because at some point, deductive reasoning can only bring you so far, but it's absolutely critical. You, critical you have it. Finding those first principles. I think that's what I was trying to put in front of you back when I first met you in that summer bootcamp. Like, hey, this is what we've got figured out. These things seem to work. Here are some principles that we've pulled together outta economics, that we're applying to leadership. what we have not done. And what I'm excited about is, uh, creating a predictive model, a predictive framework that can help us. And if we ever solve this where it can be just totally mechanical, then we don't need leaders anymore. 'cause that is the whole definition, the nuance of the leadership is caught within its mystery. So, I know Econometrics and the world of causality, we wanna say it's always causal, but I don't know if we'll ever have enough information to fully get to causal, inferences on everything out there. but it's a worthy cause.

Aaron: Yeah. I would also say this is what makes leadership so perplexing is that there's no leadership formula. Like

Spencer: Yeah.

Aaron: you can't just wake up and go do everything that Steve Jobs did and expect to be successful. Like Steve Jobs, you can learn from him. You can learn certain things from him. You can understand a little bit about how he approached life, but you can't copy him because your circumstances where the world's at right now, your opportunities, your experiences, they're so completely different that, you can't just copy over what he did. And

Spencer: Yeah,

Aaron: what I mean by there's no leadership formula.

Spencer: yeah.

Aaron: and instead, what we want is something that illuminates a bit more what the problems are.

Spencer: Yeah.

Aaron: of how your team is working, in terms of how you're not quite succeeding at accomplishing what it is you wanted to do. And what we need in that sense is, we need some actual diagnostic tools some, prescriptions about how we do this. And, and you can't have those diagnostic tools are going to apply to your unique context. If all we're gonna do is we're gonna observe Steve Jobs, we're gonna observe Elon Musk, or we're gonna observe,Ford understand what it was they did. can learn some things, but it's, I believe time for us to actually develop something that is, like I said before, deductive , we build

Spencer: Yeah.

Aaron: and then you get to see how it applies to you.

Spencer: Yeah. and that's definitely not a dig on any other of this great work that has happened. but, It's that point and has actually Ben Summers, that he and I had talked about this, maybe right about the time that you were showing up, is that, you know, we make a lot of assumptions to allow theories to work. and as you push that theory towards reality, sometimes reality starts to break down your assumptions. but what it doesn't do is make your theory not totally, it's not useless. It's at that time when you may need to take a little high hover and re-look at the theory, you know, and how you're gonna adjust it as it approaches reality. So they're both very important ideas. I wanna this idea of, um, economics and how it applies to human interaction. I think it was great, Maya Angelou who said, they won't remember what you did. They won't remember what you said, but they will remember how you made them feel. And in that sense, I think the reality of our interactions is worth mentioning that, you may not know how much, but you will know the person's decision and that decision will help you in, seeing what they value. And that really matters to me because I think a lot of the, the action is in the transaction. This one of the things that really attracted me to economics in that I have a cost of production and, it's my marginal cost. And you have a benefit from this production. And as long as the benefit's greater than the cost, we've got a win-win going here. And if I were to explain that on a graph to you, I'm explaining to you a pricing mechanism that Adam Smith try. He called it the invisible hand. That you could be better off and I could be better off if we both acted in our own benefit. That coordination is tremendously powerful. The health and wealth of this globe has gotten so much better 'cause we've empowered this invisible hand that Adam Smith introduced in The Wealth of Nations in 1776.

Aaron: it's that idea of, setting up the circumstances where people in pursuing. you know, it sounds super selfish to pursue your own self-interests, this is actually one of the core assumptions is that we're always going to do we see as being the most beneficial. And that can include altruism where you see yourself and you want to be kind, caring, and self-sacrificing person. and so if you set up the right circumstances in a team or an organization where pulling in the same direction, not because you've forced them to, not because you're paying them extra to, maybe that doesn't hurt, but if they're pulling in that direction because are on board, see the value in it, or there's a whole slew of different reasons why people will pull in the same direction. But the point here is that. it's about establishing the circumstances that are going to actually promote that. this whole thing, this whole podcast, the book that,we're in the process of writing. It's going to rest on a few assumptions, and I don't wanna dig into all those right now. But there are two big ones that I think are important to keep in mind. The first one was what I just said is that we are always going to do what we see is, moving us in the direction our self. what we envision as, beneficial for us. And, you know, sometimes we're shortsighted, sometimes we're better at, looking into the long term. But the point is that each step, at each moment that you're taking. are in that moment trying to optimize something and we can talk a lot about what it is. other really big, assumption is that there is a very important distinction between uncertainty and ambiguity. And this is going to play a very big role, as we go through this framework and how we, as we think about, what makes for good leaders. the reason this is, is crucial is that it's not something, it's not just semantics, it's not something we've just made up. turns out that your brain itself also treats uncertainty and ambiguity quite differently. it responds differently to them and has different threat responses to ambiguity. It has dopamine responses to uncertainty, right? There are important distinctions. Just starting from your very brain chemistry of how you respond to those different things. And we Can talk about the differences between them, how they're different. But the best way to understand this is that ambiguity is when you don't understand the connection between your choices and the outcome, So ambiguity is where you don't actually know that path and you can't see the connection. Uncertainty on the other hand is that you know what you're going to do and you know how it's going to affect the outcome in some, vague, average way, right? Like, if I push hard enough on this, it's gonna move how much exactly it's gonna move, I may not know. That's uncertainty. So uncertainty is about, rolling the dice. you understand that rolling the dice is going to lead to some outcome, and you know that there's some distribution of those possible outcomes. So it's a gamble, but you at least understand the connection between your action.and that resulting distribution of outcomes.

Spencer: Yeah. I'm gonna pull back a term that I didn't make it to, but we really need to talk about. this is the idea of this dollar wall. And you were mentioning it about how economics, most people just see dollar signs, they see stock market and the rest. But what I'm talking about, and it really is in light with what Maya Angelou would say, is that you have a feeling, And in that feeling, there is an exchange, there is a win-win in every relationship that you're in. There's also a lose lose. There's a win-lose. There's a lose win. There's a many interactions that go. Now we generally seek win-wins and um, the dollar wall for me is like I look at the old, obstacle course we used to do in the Army. It's like, I gotta reach my hand over, pull you out of the side of you think that economics is only about dollars. I'm gonna yank you to the other side. And on this other side of the dollar wall, what I'm telling you is that where there is scarcity, where there is a scarce resource, and your honor, your integrity, your time, your talent, your effort, all those things that are scarce resources that you're applying every day, that you're allocating to other people, that you're receiving back from other people. Your, another term I'll use a lot is currency of commitment. Your commitment to yourself. You just talked about altruism and your own identity. You have some vision of who you are. When you start to fail that vision of who you are, your own identity, it affects you, it creates dissonance in your world. Well, that's an economic, conundrum right there. you have to change your allocation to get to the right spot. Your equilibrium, the win-win that you're seeking outta your life. all that matters. what I'm telling the world, our listeners today is that economics is way more than just dollars and stocks and the rest. Economics is a mode of thinking, decision making, discipline, that's used in every other discipline in the world. It's as fundamental to our human interactions as. Physics is to mechanical engineering, you know, uh, economics is at the base of all this. and you see it everywhere. So now in that win-win, what you were just talking about in that win-win in this production function, I'm putting stuff in, I'm, I'm shaking it up in different ways and I got some output that's coming out on the other end of that thing. um, we would like for consistency to happen in our lives, right? You know, the last time I was in this situation, I did this, and when I pushed the lever this way, or I created this kind of incentive structure, or I gave this kind of penance to that action. You're setting the prices, the relative prices of an organization, and um, as long as it's consistent, like I, you know, hey, I fly helicopters, right? I push the cyclic forward. The helicopter moves forward, right? but if I were to push that cyclic forward and all of a sudden the helicopter went left, well that would make no sense to me. So in this sense of I have a set of, um, assumptions that I'm walking into that this action causes that output. it's not always the case. It becomes inconsistent. So this discrepancy that you're talking about, the uncertainty side of things, the gamble, which some of us really enjoy the gamble. Some of us love the gamble. versus ambiguity where I can't even make sense of this production function. Man, that's, that's a scary world. And I'm tell you how human beings are. You know this where I can't make sense of the world again, all the way back to making sense. If I can't make sense of the world and I'm in a black room, you turn all the lights off, we all go to Texas Chainsaw Massacre. There's nothing but bad out there, right? So that is the idea that we're after. It is one of our core ideas that what I, when I teach economics to, to young students, the idea that we make is that perfect information can clear the market. It allocates the resources to their highest valued use. It's efficient, it's a very important word in economics, but efficiency in your life is also a tremendously important thing. It means that you are getting all your scarce resources to their highest valued use. How you see they should be used and that will feel right. That term feel right is not a great economist, would not like this term. Well, that feels right. You can't double underline that for an answer. STATA does not accept, feel. Right. You know what I mean? So.

Aaron: Well, okay. But this is a great, this is sort of a great introduction or a great setup for the AIME framework. going forward every podcast episode is going to have something to do with what we call the AIME framework. And so that's spelled a AIME. Don't forget the e on the end. and so AIME stands for allocation information, motivation, and execution. And so what you were just talking about there is the allocation part, right? when you say, efficiency is going to be you've taken your scarce resources and you've allocated them, you've distributed them, or you've broken them up into all the, appropriate uses, that's going to maximize. The outcome that you're pursuing. Okay. So that's the A But you also hit on the I, but I'm gonna let you pick it up from there. what is it that we are interested in about information, and then we can move on.

Spencer: Yeah, you and I have talked many different iterations of this framework and they came from those first principles that, you saw at Econ bootcamp. We kinda said, all right, let's go one step up. What are the big buckets? Allocation, information, motivation, execution, our. Originating principles. And every originating principle in econ fits right into that. And I'll tell you in my own life, this is probably the cleanest look out of it at, at this idea would come, from my deployments over in Afghanistan. the first job I had when I went over representing our special ops aviation regiment is this idea of, I was the operations officer and I had to assist the task force commander in allocating the most scarce of the resources out there. And that's the helicopter assault force. There's just not a lot of us, right? And we have way more ground forces that want this assault force. The helicopter assault force driving around at times was really dangerous, explosive devices on roads and all the rest and just the speed, the flexibility, everybody wanted to have helicopters. This relationship we have with this, uh, tier one ground force and this tier one aviation is a tremendously important one. It all came right in. I mean, and this is after Aaron. I've taught at West Point once, I got a chance to go to a graduate program. I got to live through this experience of, uh, a reflective experience on how do you allocate scarce resources And the cycle is this. Every day I would meet in the late afternoon with everyone in our, uh, task force, the meeting was led by a guy who's representing the commander, and trying to engage in his intent and accomplish a mission, an overall mission, but the short term missions as well. Right? we called it the joint allocation meeting, the JAM, JAM, the JAM. You gotta get on the.

Aaron: A good acronym, man.

Spencer: Yeah, we're jamming it up in the JAM, you know, and, this thing is very efficient meeting. I'm telling you. We're 30 minutes and out and, everybody gives their information. Now they're all speaking from their own motivations too, right? So you gotta be aware of this. We're trying to make an allocation decision, and then we're gonna talk about the execution later. once we allocate it, then you can start to execute the how you're gonna do this thing for tonight, and we're gonna do the same thing tomorrow. We're gonna have another jam tomorrow, right? We're gonna do all these missions tonight. We're gonna jam again tomorrow. the process was so clean and that people would stand up. the one guy who is the decision maker, he's listening to all this and I'm sitting right to his, right. I'm the last guy to tell him what we got because our maintenance is running it too, right? I only have so many helicopter assault forces to hand out. so the Intel guys speak up, the ground force guys speak up, the weather people speak up. We're gonna gather all this information into this one spot, and then we're gonna allocate what we call the limb fact. It was a, is an acronym the limiting factor? What is the limb fact for night? You know, and we, we had a term for it. I mean, like, this is pure econ right here. So,the guy representing the commander, very powerful guy, would hear all this information. He absorbs it all like this great calculator. and they were really talented folks. those are the division commanders we see today. then that guy would look at me, he is like, Spence, how many helicopter assault forces you got? And I would give him my number. He's got twice the number of missions. Then I got helicopter assault forces, and he has to make a decision. And how is he making that decision? Well, he's just looking for his bang for buck, right? He's looking for what is his return on investment, this scarce resource tonight. And then, you know what? We make that decision. We go out, we execute, we learn again, what happened last night to inform the next day's decision again, right? as you just mentioned, the context is changing. There's gonna be new things we find out tonight, the environment's changing. We gotta think an enemy out there that's doing a totally different,process, that's a force against us. So, this had been my whole life in the army where I have seen this numerous times. I've seen it in a long-term horizon. how do we build combat power three years from now? and I use that same mechanism, these same processes, and how do we build combat, combat power for tonight? So the framework we're offering is really applicable in so many different levels from, a military application to general contractors. I've spoken to, life insurance agents, you name it. I have, again, when Derek Henry shows up and put his big stiff arm on my forehead and says, this doesn't work, then I'll back down. But right now this allocation information, motivation and execution fits at every level and you have to keep these things in mind. I'll say one more thing and I'm gonna shut up about it. The information and motivation in the middle, I think feed the edges. I think of information as almost like a broader sense, motivation to me is partly information as well. And you gotta figure out what motivates this person that's, on the other side giving you the information

Aaron: Oh

Spencer: wanna understand that. So more to come, but information, motivation in the middle, feeding allocation and execution, and then just recursive production functions that are nested in a bigger intent. Yeah.

Aaron: I think that's a little, what's hard about this acronym, is that they're not meant to be sequential. These are just

Spencer: Yeah.

Aaron: We're just like, how do we organize all this stuff that we've got going on underneath all this groundwork and all this theory, all these experiences, how do we organize them? And it's just allocation information, motivation, execution. Those are the buckets. the only other thing that I, I would add, we keep referring to a production function it's like the, the black box, right? where you have the inputs that come in, something's gonna come out the end, and whatever happens inside that box, that's the production function. And you can influence it, you can misunderstand it, but that's what we're gonna be talking about is the production function is what connects the inputs to the outputs.

Spencer: can I add this about the production function? how you use those inputs. If you were to look at just macroeconomic theory, how a country uses its natural resources, its physical capital, its human capital. How some of the typical items you would expect in a country, how does a country use that to get to its gross domestic product? You know, that's what we're kind of thinking of. But here, join me in this idea. If you read any Jocko Willick, right? they do an iteration where there's a zodiac training and racing, lifting these big heavy boats and then moving out into the, the shoreline and they're coming back. And the inputs did not change at all on these six teams. They explained it in his book, all they did was change the leader. So how the leader was using the inputs similar to how is the country using the inputs. So United States has been very productive, in GDP because we use our inputs very well. How the leader uses inputs just like that country. Really matters as well. So in Jocko's book he says that, Hey, we just changed the leader. I took the worst boat and gave them the best leader. And I took that bad leader supposedly and put him on the first boat, you know, and just changing the leader, not the inputs, changed the outcome. So that's what we're really talking about here, is that those great leaders out there inside of that production function you just mentioned, are using their inputs correctly. And there are other folks that have inputs, maybe the same inputs as a great leader, and they're using 'em incorrectly. And efficiency would tell me that the leader that's using 'em correctly is getting 'em to the highest valued use. And that's why this core principle's tremendously important to, uh, the overall framework. And we'll use that production function. I mean, it's, it's, it's a very good way to look at applying and, um, making sense of the world. And this A IME, the AIM framework.

Aaron: Perfect. And before we sign off here, I just wanted to give a preview of what we expect to produce going forward. so first of all, we've mentioned it a little bit here, but Spencer and I are also working on a book that will be coming out and that's going to really lay out a lot of these ideas, but in, a lot more detail and with some applications. that's going to be coming out probably in the next year or so. And then we also have, um. podcast, which is I think, going to be really exciting for interviewing people. We're going to be interviewing different leaders coming from different, segments of the economy, but also from, the military. And we wanna get their stories and their experiences as leaders and just understand it better and see how we can think about it through the framework of leadership economics. And then the other thing is the newsletter that we are going to start up once this podcast, has kicked off the newsletter, will also be available. And you can subscribe to that at leadershipeconomics.com this has been a very long, fascinating, enjoyable journey. Thinking about, these concepts. I hope it's been fun for Spencer too as we've iterated on this over several years now, right? About eight years now. what I've discovered over the years as we've developed this, There are a few little snippets of wisdom that I've, I've just come across that I think sort of encapsulate what it is. I see as being leadership and also the sort of the journey that we're on here to try to understand better how we can improve our own lives we can improve the lives of those around us, and we can make better, more successful teams, that are really all about creating something in the world. And so this is, by, Antonio Machado. of course in my opinion, the Spanish version is a bit more, elegant. But this is the translation and it says, traveler, your footprints are the trail and nothing else, traveler. There is no one way, the way is made by walking. The path is made as you walk. And upon looking back, the path that is seen can never be traveled again. Traveler, there is no trail, only wakes in the sea. And for me, that's the whole difference between simply looking at how somebody else did it The only way to really lead is to start walking I think this is the journey that a lot of leaders are on as well, is just trying to understand that there is no one way to approach leadership. instead what we wanna do is provide a much deeper understanding of what leadership actually entails and how we interact with other humans.

Spencer: I wanna ask you a question on the quote, I don't think I've ever asked you this before, but I've heard the quote so many times, it's so beautiful. and I think there's so much truth in it. How is it forward looking?

Aaron: It is forward looking and saying that you can't look back at what other people have done. when you think about like the trail that's ahead of you, it exists, right? If you go hiking, it exists because other people have gone over it But

Spencer: yeah,

Aaron: That's, that's not how life works. Exactly.

Spencer: yeah.

Aaron: you can have a map, you can have a compass, you can have an idea of where you're going, but in the end you have to move forward to discover exactly what it is next. And even

Spencer: Yeah.

Aaron: you look back, all you see are just like wakes in the sea. it's like just the wakes behind a boat, just dissipate. And I just, I think It's not about, trying to understand exactly how one person did it. It's about understanding principles that can guide you in charting that trail

Spencer: Yeah. That,

Aaron: no one way to do it.

Spencer: yeah, that's what I kind of thought. That's where I thought you would get to is that the principles there is some learning to be had and those first principles, you may have to create some of these on your own, but I do believe there's some mechanisms that are always the same. And I think this economic framework has a piece in describing, what those first principles are. it's a tip of the hat to, uh, David yume and Adam Smith. Maybe we also follow with an apology from humanity that we've gone so far off track that we haven't brought these ideas back, but we're here to be their champion to, try to put these ideas, the economic ideas back into our daily lives. 'cause I think for me at least, I feel like I've led a very fulfilling life and, I think largely because these ideas are the ideas I've been using my whole life. And surely they've been dead ends. Truly, they are. There's so much information in failure, you know, but these ideas make sense to me and they have remained a discipline for centuries because they do explain, the complexities we face. So I'm just telling the audience, listen, if you wanna be better personally, these are the right ideas. come to them, listen to them. Once you see them, once you understand them, you can't stop seeing them in every aspect of your life. And it's not just your personal life. It'll help, it's gonna help your professional life. It's gonna help every relationship you've ever been in. It's gonna help you allocate these scarce years we have in front of us. The scarce time you have in front of you. it's been tremendously informative for me and I'm very, very happy, very fulfilled that, I've kind of on this pathway. It's a great spot and I look forward to the future, Aaron, sharing this with you, man.

Aaron: Yeah. same feelings there. I think that we have been very fortunate actually have this opportunity to work through this and one of the books that I've read and really loved is, the Hero with a Thousand Faces. And in the end, I think, what really struck me is what he says about how back then there was, darkness. if you think about Galileo and how he was trying to bring light to the world, and now we have a lot of the scientific light and we understand a lot about how the world is. and so he says that the modern hero deed must be that of questing to bring to light again, the lost Atlantis coordinated soul. And in a world that is so full of a scientific obsession, which I appreciate, there's so much to science that's been valuable and beautiful, but we also have so much more depth to us as humans. And I feel like this is my quest, this is our quest to bring the two back together, that we can use science to understand who we are in a much more holistic way.

Spencer: I love it, man. The coordinated soul. I just wrote that down. That's nice.