Miller’s Theorem: A Principle for Getting Off the Fence

Rob Collie (00:00): Hello friends. This weekend my wife Jocelyn and I dropped in on a friend's business here in Seattle. It's a home decor store offering a carefully curated mix of fine goods that I myself would frankly never be in the market for. But A, it's a friend's store and it's good to support friends. And B, my wife does have a sense of style even if I lack one.

(00:21): So we were there getting some decorating advice from him. And we were talking with him, our friend the owner, about how most of his goods are imported and how he's already been struggling to get things delivered to him on time thanks to some of the new import restrictions and delays associated with the import tariffs instituted by our country's new administration. He seemed more worried about the delays and hassles than he did about increased prices. He just kind of said, "Well, I'm just going to have to pass those extra costs along at some point."

(00:51): Well, after we left, Jocelyn and I started talking about whether he was deceiving himself with that. Are those extra costs really just something he can pass along? Or is this going to be meaningfully bad for his business? I mean, this is a pretty bougie store. And it does cater to the Seattle upper middle class. Which, by the way, is a sight to see. The upper middle class in Seattle has a lot more money than most places in the nation. More than Jocelyn and I do for sure.

(01:19): When we moved back here in October, for instance, we discovered that it's now customary when meeting a 50-year-old man such as myself to ask the question, "Do you still work?" Like, what? Of course I still work. What kind of nonsense question is that? Except it's not nonsense in Seattle, apparently. Anyway, so in a store that sells things like $60 single-use candles and hand-woven Patagonian alpaca wool throw blankets and cloth napkins made in the French Alps, the clientele is already kind of telling you that they're not exactly price sensitive. They're buying these things for another reason entirely, maybe almost even because they are expensive.

(02:01): Now, by the way, I'm happy to report that we decided we did not need any of the above items, and we made it out of the store with no purchases. But we watched others buying things, and by all accounts the store is going gangbusters. So will his clientele prove to not be price sensitive? Will this be no big deal for his business? That many of his goods will potentially be 10 to 25% more expensive to acquire? Can he indeed just pass those costs along? Which, by the way, even that phrase kind of builds in the idea that the customer will not stop buying things. You can't pass costs along if they stop buying. So even him saying "Pass those along," as opposed to saying something more straightforward like, "I'm going to have to raise prices." It sort of conveys a ballistic kind of optimism, doesn't it?

(02:51): While Jocelyn and I were discussing this, the cynical side of me was going, "Of course this is going to result in reduced purchasing volume by his customers." But that was running up against the super cynical side of me going, "But these luxury goods are the sort of thing where the buyer doesn't even look at the price." So I was deadlocked. And then suddenly all at once, I had clarity, perfect clarity. I turned to Jocelyn and said, "You know what? This is the contrapositive of Miller's Theorem."

(03:20): Okay, that's a joke. I didn't actually use those precise words. But I did invoke a principle we've been talking about at our house for years now. And very recently, after years of using the principle, but before this particular conversation took place, I had finally named it Miller's Theorem. Miller's Theorem is one of those things I love because it's what I call post-intellectual. As in, when you get smart enough to not outsmart yourself, where intelligent thinking comes full circle and lands in a place of informed common sense. It's a place where you can reach simple conclusions, but they aren't powered by group think or gut instinct. They're simple but not oversimplified.

(04:03): It's a place on the journey where you've seen enough of the ivory tower to know that it's often a place where you hear very complicated lies. When you've reached a point of simple humility and can communicate things to yourself and to peers without a bunch of abstract highfalutin' language. And then, as an irony of ironies, I of course decided to call it Miller's Theorem to remind us of the ivory tower phase that we've passed through on our way to someplace better. So Miller's Theorem is precisely one of those tools you can use to not outsmart yourself.

(04:35): So what is it? Stated most simply, Miller's Theorem says this: if something is not worse, it is better. Now, I bet that sounded like nonsense. So let me say it again. If something is not worse, it is better. Now, did it sound more or less nonsensical the second time? I'm genuinely curious because as someone who's lived with Miller's Theorem for about a decade, I am no longer able to see it with fresh eyes. All right, let's dive in and understand it better and the best way I can do that is to tell you the origin of Miller's Theorem.

(05:10): My friend Brad Miller is a very smart and successful guy. Ivy League MBA, serial entrepreneur with multiple successful exits. He's my age and has already reached a level of success that I envy, but he's still working because he's got something amazing in the works and is probably about to become even more successful by degrees of magnitude. In other words, he's one of those friends who inflicts imposter syndrome on me. He is an amazing friend and I'm so grateful to know him. But yeah, to the extent that we can't resist comparing ourselves to others, Brad is a nightmare.

(05:45): Years back, he was a guest on this podcast, so if you want to look it up it's episode five of this show from October of 2020. We'll link it in the show notes. And I am trying to get him back on the podcast, but we haven't had time to schedule it, and I really wanted to get this topic introduced now. One of the important things to know about Brad is that he is very hands-on in all of the businesses he's helped found and run. He's not some passive executive, but rather he's someone with the data gene and the business gene and the persuasion talent. So he gets his hands very dirty, often dirty in spreadsheets, and he often even finds himself in the depths, in the details, of designing and debating algorithms.

(06:28): He's helped invent behind-the-scenes techniques that they've codenamed things like probabilistic pixel, dienominator, and something called project trillions. You don't need to know what those things are. You just need to know that he's much more than just a business guy. So he finds himself quite often exploring new approaches. What if we changed things up and started doing X as opposed to Y? Or maybe adding X on top of Y? Would that improve our bottom line? And because he's wired for this, perpetually seeking improvement and turning things over and over in his mind for weeks and months at a time, he's frequently the first person to suggest a change. Which means almost by definition he's kind of ahead of everyone else in the room when he suggests it.

(07:15): And that of course means he immediately encounters resistance and inertia, even if the people in the room are perfectly capable of understanding the justification for his suggestion when given sufficient time to come up to speed. The thing is, they'll never have as much time to think about it as he has already invested. So he doesn't have to be smarter than them to be ahead of them. In these situations, over the years, Brad developed a persuasion technique. A way to get people on board or to at least defuse their opposition.

(07:52): In these situations, he'd ask the opposing party, "If we did this, would it make things worse?" And since he's sharp and brings data and analysis to the table every time, it's already pretty clearly established that it will not make things worse. So when they concede, "No, it probably won't make things worse," then he springs his trap. "Okay then," he says. "Will things be the same?" And of course they will not be the same. Miller's theorem rests on the very nuanced but simple observation that in any complex system it's practically impossible for things to be the same after any significant change is made. Okay, and if things won't be worse and they won't be the same, that leaves us with only one possibility. Things will be better.

(08:40): Now, to be clear, this isn't some mathematical cheat code for winning at business. You don't deploy this every day. You just deploy it in cases where there is inertia for no good reason. It's a means of shocking yourself awake and breaking out of the outsmarting yourself zone. Even Brad himself has told me that he's only deployed this technique somewhere between 10 and 20 times in his own career. I myself find it comes up slightly more often in my personal life than even in my business life. To illustrate, let's circle back to where I was: deadlocked on whether tariffs were going to be meaningfully bad for my friend's business. And for the first time ever, I applied Miller's theorem in reverse.

(09:21): Will tariffs make our friend's business better? Well, no. There's zero chance that increased costs of goods is going to make his business better. And we know that things won't be the same because they're never the same when there's a change of any significance. Now does 10 to 25% higher cost of goods qualify as significant? You better believe it qualifies as significant. So you see, applying Miller's theorem in this situation didn't make me smarter. It didn't divine some mysterious conclusion from the messy world around me. It just helped me not outsmart myself. I was debating whether things would be the same. I wasn't debating whether things would be better. And when you find yourself in that spot, you really need to just get out of your own way.

(10:06): It's going to be worse for him. It's going to hurt his business. And that's when I needed to go do some research to remind myself, what's the official name in mathematics and logic, back in ye old ivory tower, for this kind of opposite of a theorem? It turns out it's the contrapositive. And I had ChatGPT reason through it for me. We'll put the link in the show notes to that conversation. Make sure you click to expand the places where ChatGPT was reasoning, because it's amazing. I'm positively delighted, by the way, to report that if a theorem is true, its contrapositive is always also true. It's mathematically and logically airtight. So if the positive formulation of Miller's Theorem, when you ask if something will be worse and they say no, then you know it's going to be better. The reverse, if you say, is it going to be better? And the answer is no, then you know it's going to be worse. It's mathematically and logically airtight. If one of those is true, the other one is also true.

(11:02): Now, again, the false academic rigor here is merely a spice that makes the dish tastier and not a way to deceive ourselves into believing something silly. It's just fun. Contrapositive of Miller's Theorem. Circling back. Okay, so it's going to be bad for his business. The only thing yet to be discovered is how bad. Now it's bad for our friend, okay. Zoom back even further and say, as a political and macroeconomic thing, is this overall bad? I mean, a luxury goods store from one of the richest segments of American life is not exactly crucial to the future of our nation. I get it. And we do know that on a global scale, tariffs are bad. But whether they are good for any specific nation and its citizens definitely depends on the bigger picture and the details thereof.

(11:47): Many countries already enforce tariffs to protect domestic industries, and many countries, including our own, subsidize their own domestic industries for exactly the same sort of protection reasons. And both of these things, both of these practices, absolutely distort competition and result in a global decline in overall quality of life. So it's not like we've been living in some global utopia of free market capitalism, even today. And as a positive example of this, Apple, just today, announced some pretty sizable domestic investments in job creation here in the USA, which were absolutely the result of tariffs on Apple's Chinese supply chain.

(12:26): So I'm not here to make a political statement about tariffs good or tariffs bad for the USA. Trade wars are bad, and in the end, everyone does lose. But if everyone else has already been conducting a trade war, it doesn't pay to be the only one sitting it out. So I need to do more homework than I've already done before I have a stronger opinion there. Here's one opinion I do have, though. President Trump has been saying that he wants to abolish the IRS and fund the federal budget entirely with tariffs. That I can say with confidence will not work. The US collects about $3 trillion a year in taxes, and coincidentally, imports about $3 trillion a year in goods. So it would take 100% tariffs on all goods to pull this off.

(13:14): And tariffs are things that force adjustments. Even if you managed to cut costs, you managed to cut the budget, so you didn't need the full 3 trillion. If, for example, tariffs lead to more domestic production like in the Apple case, well, that means we're importing fewer goods, which reduces tariff revenue. And it also means that consumers will stop buying imported things at the same sustained rates that they were before. Tariffs dry up over time in other words. The market adapts around them. And if we're left without an IRS to collect taxes, trying to restart the IRS 18 months later would be a mess, a disaster. It wouldn't work, and it definitely wouldn't work fast enough.

(13:59): And folks, we do need a federal government. Even if you just want to focus on traditionally conservative touch points like national security, border control and crime, the United States would cease to exist as a nation if the IRS ever got abolished. I know none of us like taxes, and few of us like the complexity and unfairness of the USA tax code. There are legitimate complaints here. But killing off the IRS would be going from frying pan into the fire or really more accurately going from frying pan to like into a live volcano. The disintegration of the United States would be horrible.

(14:34): Ignore what things look like on the other side for a moment and just focus on the chaotic transition period that would ensue. There wouldn't be food on the shelves, folks. Or medicine in the pharmacies. Eventually, yeah, other political structures and supply chains would kick in, after which the citizens of the newly created countries would all be worse off than before. Because the strength in numbers and economies of scale that we used to enjoy as one nation would all be severely diminished. No one, and I mean no one, should be rooting for a red state, blue state division of this country. Everyone loses, even once things settle down.

(15:10): But the transition phase would be far, far worse than the Great Depression. Millions of Americans would die. This isn't something to toy with, no matter who you voted for. I like the USA. I like what it stands for. I wouldn't mind seeing it improved. I wouldn't mind seeing it finding its way back to more of what it stood for in the past. So I'm open to change, but it terrifies me to hear anyone in a position of power even bluff about something like abolishing the IRS. Ask yourself, without the IRS, would things be better? Would they be the same? See how that works? Whether we're applying Miller's Theorem straight up or in contrapositive, it helps untangle ourselves from our own self-inflicted complexity. And in an ever noisier world, that's a tool we need in our toolbox.