Status as economic catalyst

"Politics again?"

Isn't this site supposed to be weeby and nerdy?

Yeah, but it seems like power and politics is everywhere and the older I get, the harder it is for one to escape from such mechanism.

While it is not recommended for anyone to base their self-image off the voluntary expression of appreciation by other people, too often we find ourselves wanting status.

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The Big Problem with Status

Status is zero-sum. That alone already makes the pursuit of status a device that creates corruption.

While it is easy to dismiss status games or pursuit as an immature engagement, often this argument suffers from the "sour-grape fallacy."

The fact is that often people find that having status just makes it easier for someone to get what they want, or the lack of status inviting more unnecessary resistance.

This leads to the next hypothesis.

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Most Transactions Require Activation Energy

If you are familiar with chemistry, you learn that activation energy is the minimum amount of energy that must be available to reactants for a chemical reaction to occur.

So you need to get past the initial energy curve before the reaction (or transaction) can proceed down the slope to the next state.

In economics, this initial barrier is called a transaction cost or, more specifically, a verification cost.

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Status as a Catalyst: Lowering Verification Costs

A chemical reaction's activation energy can be reduced when there is a catalyst -- an object that does not get consumed or reacted, but nevertheless still performs a role at reducing the energy required.

In the economy, one hypothesis is that social status functions as a catalyst. This is because it shares traits like:

• It is a non-consumed asset (reputation)
• Reduces the cost of transaction: (verification cost)

What is Verification Cost?

Verification cost is the time, effort, and money spent by one party to confirm the competency, trustworthiness, and legitimacy of another party. This includes:

• For a Buyer: Researching product reviews, comparing specifications, and checking for scams.
• For an Investor: Performing due diligence on a founder, auditing financials, and checking references.
• For a Recruiter: Reviewing applications, conducting multiple interviews, and verifying degrees.

These are the "frictions" that slow down the movement of capital and opportunity.

The Catalyst Effect

When a person or company has high status, they have effectively outsourced their verification process to the public record, social proof, and established institutions.

The higher the status, the less energy the counterparty needs to spend verifying the quality of the person or offer. The social trust embedded in the status acts as a shortcut. ¹

The Zero-Sum Mechanism of Wealth Creation

Because status is zero-sum, the advantage is magnified:

1. A high-status individual gets a faster head start because their opportunities require near-zero friction.
2. They spend less effort overcoming unnecessary resistance and more time creating wealth.
3. The accumulation of wealth then reinforces their status, turning an unfair advantage into an even unfair advantage.

In this context, the pursuit of status may not just be an immature game -- it could be an efficient but ruthless way of establishing trust in a high-friction world, thereby functioning as a powerful economic catalyst for those who possess it.

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Why most pursuit of status doesnt end well

That being said, there is no shortage of stories where the pursuit of status ends up creating more losses than the gains it gets for the owner.

This is mainly because most people do not understand the value of status (as a means of lowering transaction costs), but rather a cargo cult behavior to get them what they want (or to avoid getting looked down by people whose opinions are hardly worthy anyway).

Status signals are absolutely useful, valuable, and creates unfair advantage -- provided the owner is being intentional about who the signal is meant for and what currency it is supposed to be minting.

In some circles, people would describe status as "cost of advertising".

If one is not intentional about their audience and currency to be minting, status signals eventually becomes a waste of time.

This is because there is real upkeep when it comes to maintaining a status signal. Going back to the idea of "status as advertising cost":

if you can't save $100k worth of DD that comes from having status, it is probably not worth spending $100k to signal that status.

Granted, the value function for status is not linear and often complex. In certain situations, even the pursuit, expression, or presence of status can be turned into an anti-signal. ²

Lesson?

Its hard to give any recommendations about what people should do. Chasing clout or status are usually discouraged, but in right context are absolutely critical to get things done.

This post simply just raises a few perspective of how one could look at status and decide how one can farm value out of it.

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Footnotes

1. This theory also aligns to why "brand equity" gets recognized as an intangible asset in company's balance sheet. Brands at the end of the day resembles the reputation and public perception of a company, and brand image certainly help at reducing the transaction clear times. ↩

2. Which is to say that "you looking like a try-hard" may end up raising your cost of transactions because some people think you are untrustworthy to be wanting status. ↩