I’ve run my own business, first as a sole-proprietor for nine years, then as a corporation for four. I’ve earned a good income in that time. It’s allowed me to take on interesting projects, travel full-time and work whenever I want.

To many outsiders, it looks like I’m living the fantasy you see on so many “earn money from home” scams advertised online.

Despite all this, I absolutely hate the advice that comes with the saying, “You’ll never be rich working for somebody else.”

This is a little phrase that gets thrown around in some corners of the internet, which glorifies entrepreneurship over employment as a means to wealth, freedom and happiness. The implied advice is that working for somebody else is a sucker’s game, and that if you want to really live, you need to start your own business.
Why This Advice is Dumb

This is terrible career advice.

Don’t get me wrong. I love running a business, and I would recommend it to someone who has the right drive to make it work. But the idea that entrepreneurship is the best route to wealth and freedom is stupid.

For starters, the advice doesn’t even make sense. Many of the richest people I know earned all of their money working for other people. Accountants, doctors, engineers, CEOs and financiers. All working for others, all stinking rich.

Second, even if we ignore that the advice is literally false, the assumption—that entrepreneurship offers a better path to wealth than working for others—is bad economics.
Supply and Demand (or Why Get-Rich-Quick Doesn’t Work)

All career choices are pushed by supply and demand, just like any other purchasing decision. If a career choice is really attractive (because it offers a lot of money, for little effort, low talent and is highly prestigious) it will get a lot of new entrants. Those new entrants will increase competition, push the payoff down, and it won’t be so attractive anymore.

Suppose, for a second, that starting a business really did offer a lot more money for less effort and with fewer barriers to entry than working at a job.

What do you suppose would happen?

Obviously, more people would start businesses! Those businesses would compete. Some might succeed, others might fail. The end result would necessarily be that the average payoff to each new entrepreneur would shrink down until it was no longer so lucrative.

Economists call this stable level of profit that you should earn as a business normal profit. It is contrasted with economic profit, the kind of profit you earn when you’re a monopoly or can otherwise prevent people from competing against you.

Even though you might think to yourself, “all that means is I need to make a monopoly!” this reasoning still doesn’t work.

Everyone chasing those rare unicorn start-ups also create more competition. Since the prize is bigger if you win, it’s also more fierce before you get there, meaning that the average payoff is reduced.

Why People Don’t Earn the Same Amount

This kind of logic might seem to go too far, however. If it were true—wouldn’t all professions pay the same amount?

However, there’s at least three mediating factors that explain why some people earn more than others, even though we can expect the above reasoning to hold:

1. Some career choices have a higher variance.

Some professions have a very narrow range of possible incomes. Being a public school teacher, for instance. Others have huge ranges, say launching a start-up.

This is a problem with assessing entrepreneurship because it has much greater variance than normal professions. This means you will see some people get really rich. However, what you don’t often see, is a lot of people making zero or negative money (once you count the cost of their time and investments).

A risky-profession might return a little more on average, because people tend to be risk-adverse. But all that means is that people would rather have a decent income as a certainty, rather than a random chance at poverty or riches.

2. Some career choices offer other (non-monetary) benefits.

Some careers are sexy and prestigious. Others have legendary job security and.......


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