Byrne Hobart
Progress Studies Meetup
The next NYC Progress Studies meetup will be on the evening of February 11th, in NoMad. We’ll be doing one 30-minute talk highlighting some case studies in rapid scientific and economic progress in the 20th century, with a focus on the role of luck and preparation. Chance favors the prepared mind, and some of the best-prepared minds in human history studied physics in the early 20th century and gathered in Los Alamos a bit later on, with exciting results.
If you’re interested in doing a 5-minute talk/presentation, please reach out.
I just emailed previous attendees and people who expressed interest in the next meetup; if you didn’t get that email, please ping me and I’ll add you to the list.
The Latest
I went to a numismatic convention last weekend. I recommend this, because it’s a chance to physically touch historical artifacts. I don’t think I’ve ever held something that was two thousand years old and worth tens or hundreds of thousands of dollars before. This led to a meditation on coins and survivorship bias. A coin is a relic of peacetime—it represents a stable system in which you can store and accumulate wealth. But the coins we have are coins somebody hid and never recovered; they’re relics of unexpected violence.
Just published today: The Pirahã Are Off By One. The Pirahã are a famous tribe with a simplified number system: they have words for one, two, and many. If you subtract one from each, you get a useful claim about the world: there are many things that don’t exist, many things that are unique, but very few cases where the same phenomenon exists in just a handful of cases and isn’t ubiquitous. It’s a good intuition pump for finding phenomena in nature and business that are more common than popularly believed.
(Homework question: why are there two really big online travel agencies, Booking.com and Expedia? Why are there two really big soft drink companies, Coca-Cola and Pepsi? Monopolies are easy to explain, at least in the abstract, but profitable duopolies are hard: did each company figure the same thing out, or is there a set of non-overlapping innovations that happen to lead to similarly profitable outcomes?)
Elsewhere
FT: Climate change threatens quant funds. This sounds dumb, then smart, then dumb again. The smart version is that climate change is will make a bunch of assets lose value at the same time; yet another example of correlations going to 1 in a crisis. But climate change is on every investor’s radar; it’s already affecting prices, so it’s already affecting quant models. Compare energy equities to TSLA if you don’t believe me. The quants will only lose if climate change is an issue whose response curve is unique in human history.
The Wall Street Journal is kicking off some Weimar-level hyperinflation in the LinkedIn social status market by letting anyone get their own computer-generated hedcut. Now this is a risk that wasn’t in anyone’s model.
Alex Danco, formerly of capital-S capital-C Social Capital, writes about lowercase-s lowercase-c social capital. If you think of social capital as similar to financial capital, Danco is telling you how to get your first credit card so you can start gaming your social FICO score like an upstanding citizen. The core claim: “Social Fog of War is a counterintuitive concept: in order for status- and social capital- driven social systems to work optimally, they must be opaque.” But that maps perfectly well to capital in general. Green pieces of paper and numbers in a bank’s database have immense power, as long as we don’t treat them as what they literally are.
You can even extend the social capital metaphor further by taking a monetarist approach: is the supply of social capital rising, or shrinking? If it’s shrinking, and we face Nominal Status Stickiness, that leads to hostile negative-sum behavior, which further destroys social status. Maybe a more judicious version of the WSJ status printing press is exactly what we need, to counter the deflationary effect of trolling.
Worth reading and meditating on.
Equally worth reading but much less worth extended contemplation: the New Yorker piece on venture capital. There are some great lines: “In Venture World, everyone seems to be more or less on your wavelength. Its companies are geared toward unfussed people who keep their phones silenced and close.” But the core thesis is confused. The author argues that we would have made just as much technological progress without venture-funded companies. But, at best, you can say that if “we” is weighted to people who worked at Xerox PARC or a research university, “We” would have the same access as everybody else; to make technology available to billions of people rather than dozens of researchers, you usually need somebody with a financial model and an advertising budget. And since technology has deep network effects—not just the trivial fact that more posts on Instagram mean more reasons to check the ‘gram, but in the sense that cheap chips and sensors for phones enable cheaper drones and surgical robots—scale is essential.
Perhaps the most damning part of the article, at least to me, was when the author quoted a segment of Mike Isaac’s otherwise-decent Super Pumped, in which Isaac argued that the app store was the first platform to enable instantaneous widespread product distribution. I, too, highlighted that in Kindle, and added a note-to-self asking if Isaac had maybe forgotten to pay attention to the news in the 90s and missed an obscure tech trend called the Internet.
It’s a healthy practice to question powerful institutions, but it’s important to do so on the right terms. The difference between okay returns and negative returns for venture comes down to a handful of companies each decade. If the industry is in a desperate scramble to find those few essential companies, it’s going to engage in profligate waste. The question is not: do VCs encourage wasteful behavior. Rather, it’s: is the inevitable waste worth it? Or, even better, what if we’re not wasting enough?