Sharing Economy Services Reduce Income Inequality

Sharing economy services like AirBnB, Lyft, Uber, et al reduce income inequality as follows:

Once upon a time, only rich people who could afford to build hotels could offer rooms for guests to rent. Thanks to AirBnB, now anyone with a home or apartment can offer a room for rent. Hence, income inequality reduced.

Once upon a time, only rich people who could afford to buy a taxi fleet or medallion could offer car rides to other passengers. Thanks to Lyft and Uber, now anyone with a car can offer rides to other passengers. Hence, income inequality reduced.

The same dynamic of reduced income inequality will play out in each new sharing category. Delivery, field service, personal care, etc. This expansion of economic opportunity and reduction of inequality is a direct result of widespread deployment of disruptive tech, the smart phone. As history has repeatedly shown, putting means of production and technology in the hands of the masses increases their opportunity and income.

Since we are at the very beginning of understanding the full range of real world applications of the new wave of technology, we are also at the very start of the creation of thousands of new opportunities for economic growth and progress for a huge number of people.

Source Tweets: 1,2,3,4,5,6,7,8,9,10

Two Different Types of Relationships Between Prices and Information

In financial markets, one observes two different types of relationships between prices and information.

  1. Type D for Deductive: Consider the available information and then calculate a price. The classical model of how to value things.
  2. Type I for Inductive: Consider the price, assume it contains informational content, and derive the information from the price.

In theory, financial markets operate mainly with Type D, but I think in practice, markets operate mainly with Type I. In the real world, one observes investors and analysts assiduously building models to explain and thereby justify prevailing prices. Paradox? The more one believes the market is Type D, aka the EMH, the more the market actually behaves as Type I. The more you believe the market is efficient, the more information you assume is embedded in market prices.

Hence, the more information you assume is embedded in market prices, the more you operate as Type I, inductively reasoning from prices. Therefor, the more one believes the rest of the market is Type D, the more likely oneself is Type I. Hence the widespread belief in market efficiency leads to inefficiency, as investors reason from prices vs from a priori information?

Is this a robust explanation of boom and bust cycles within a market in which most investors are trying to be rigorously logical?

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11

An Idle Musing on Space

Here’s an idle Friday musing. Unlike many of my contemporaries, although I enjoyed space novels and movies as a kid, it didn’t take the same with me. The common science fiction assumption that people would behave differently in space than they do on Earth always struck me as wrong. Which is why I’m delighted but not enamored with space exploration today. There is so much still yet to do here on Earth.

I think we will get a lot more out of making life on Earth better for the 7+ billion people already here than escaping to other planets. Or, more pointedly, it would be a shame if we just repeat the dysfunctions of human existence on Earth, in space. Which is not to imply that I am not thrilled by what explorers like Elon Musk are doing, I would love to visit Mars when I am 80.

Confirming my nerd status, I have happily watched every hour of Star Trek ever made and so: Live long and prosper, Leonard Nimoy.

Source Tweets: 1,2,3,4,5,6,7

The State of Bitcoin, Cryptocurrencies, Distributed Transaction, and Trust Networks in 2015

Some thoughts on the state of Bitcoin, cryptocurrencies, distributed transaction, and trust networks at start of 2015! A year ago, I articulated my views on Bitcoin in the New York Times, and I wouldn’t change a word today. Over the last several months of 2014, there were three Bitcoin counter-narratives that I will describe and analyze.

The Dumb Critique

First, what I call the “dumb” critique: “Bitcoin BTC currency price dropped to below $300, proving Bitcoin is a stupid idea.” The same class of critics slamming BTC for price falling in 2014 were slamming BTC for price rising in 2013. The only consistency is the slamming. Further, the critique that BTC is bad because it was down in 2014 changes completely if one uses a 2-year window instead of a 1-year window.

BTC was below $14 in Jan 2013. If 1-year performance has been disappointing, 2-year performance has been spectacular. As a general rule, arguments that rely on cherry-picking specific date windows are not very good arguments.

The Smarter Critique

The second critique I call “smarter”: “BTC is too volatile. It goes up and down too much and so cannot be used as a store of value.” This is largely correct at the moment, and yet misses most of the point of Bitcoin as a distributed transaction and trust network.

Bitcoin was specifically designed to use speculation early on to overcome the normal chicken/egg bootstrapping problem for new networks. Attacking Bitcoin for having speculative levels of volatility is missing the point of how the system was designed for this point in time.

Now, yes, in the long run, BTC does need to stabilize, which I think will happen with a combination of scale plus the use of derivatives (hedging). In the short run, Bitcoin is still highly useful as a transaction and trust network in many use cases even with high volatility.

For example, payment applications of BItcoin don’t require users/merchants to hold BTC for any period of time. All of the benefits are still gained. Further, all other uses cases of Bitcoin and the blockchain are unhampered by volatility of BTC. The system continues working just fine.

The network bootstrapping process is happening pretty much exactly as Satoshi designed and anticipated. It’s a thing of beauty.

The Innocent Critique

The third critique I call the “innocent” one. “Are there enough sufficiently compelling use cases for Bitcoin to succeed at scale?” I previously identified many use cases here ranging from eCommerce to remittance, micropayments, and anti-spam. Two particular areas of focus today are (A) used outside the US where currencies plus banks are often awful, and (B) machine-to-machine payments.

At our venture firm, we continue to see an escalating stream of fascinating new Bitcoin use cases and applications from entrepreneurs. In addition, there are entirely new vistas of technological creativity opening up, such as sidechains. The price of BTC has very little to do with the level of creativity of thinking that’s going into new Bitcoin apps, or their usefulness.

By loose analogy, the price of domain names didn’t determine the usefulness of the Internet. This is a broad-based technology phenomenon. What to watch in 2015: New apps, new use cases, international adoption, consumer education, technological innovation and spinoff ideas!

Final thought: The entire Bitcoin system is 6 years old. TCP/IP was 6 years old in 1981. Big things take time. Onward!

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18,19,20,21,22,23,24,25,26

A Few Tentative Conclusions on Secular Stagnation and Our Economy

A few tentative conclusions on secular stagnation and our economy, with a vigorous disclaimer that I am far from a macro economist. It seems a core dynamic of our times is too much capital relative to the number of productive investable economic opportunities. Coupled with a massive global capital flight to quality since 2008, it’s hard to see interest rates rising dramatically anytime soon.

While I am a bull on technological progress, it also seems that much of that progress is price deflationary in nature, so even extremely rapid tech progress may not show up in GDP or productivity stats, even as it equals higher real standards of living. I think economists, particularly on the center-left and left, are really underestimating two factors that are inhibiting investment. The developed world and the sheer level of regulatory burden on business formation and growth, per George McGovern.

On this point I agree deeply with : Many sectors of Western business are now wired to prevent or inhibit new investment. In the developing world, often brutally high levels of corruption and expropriation are making new investment extremely risky. It seems straightforward to identify ways to increase rate of investment and also hard to see how any of that politically happens.

For these and other reasons, we may be living with an oversupply of capital relative to opportunity set for a long time. But this is not necessarily a terrible world to live in. In fact, it might be a wonderful world to live in, for these reasons: Oversupply of capital means that any investable project can get funded. We see that today in tech, and it may broaden from here. We may experience a massive global demographic tailwind, as a huge number of young people worldwide are fully connected to the modern economy.

Virtuous cycle of science and tech advances, with fast-growing number of scientists and technologists globally, may overwhelm expectations. In this world, we can have massive advances in real standards of living even with a formally low investment, GDP, and productivity growth. Beyond that, a world where 7 billion people decide they really do want and deserve an upper-middle-class American-equivalant lifestyle may make all of these current stagnation theories look as silly as Alvin “Secular Stagnation” Hansen now looks 76 years later.

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18

Excellent Survey of The Original “Secular Stagnation” Thesis of Alvin Hansen in 1938

An excellent survey of the original “secular stagnation” thesis of Alvin Hansen in 1938 by .

Source Tweets: 1,2,3,4,5

A Counterargument From David Beckworth to Larry Summers’ “Secular Stagnation” Thesis

Now, thinking about a counterargument to Larry Summers’ “secular stagnation” thesis from .

In this interpretation, there is no secular stagnation, there was just a crisis and then a slump, which is already ending.


Source Tweets: 1,2,3,4,5,6,7,8,9,10

Larry Summers’ “Secular Stagnation” Thesis

: “Secular stagnation is an economist’s Rorschach Test. It means different things to different people.” Contrary to a lot of public discussion, Larry’s thesis is about interest rates and supply/demand of capital, not technology change.

To quote Notorious BIG, “mo money mo problems“. In this case, mo money equals not enough productive places and projects to put it. As economists do, Larry then proposes a series of reforms to address the dynamic, few of which seem politically likely.

Can the goal be to get to normal if there is no normal? Or should the goal be something else?

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17

The Secular Stagnation Hypothesis From The Bank of Italy

Fascinating overview of the secular stagnation hypothesis from the Bank of Italy (In English).

After reviewing recent long-run projections, we argue that similar warnings were issued in the past after all deep recessions.


Interestingly, pessimistic predictions turned out to be wrong neither because they were built on erroneous theories or data nor because they failed to predict new tech, but because they underestimated the potential of the technologies that already existed.


These findings suggest that today we should not make the same mistake and undervalue the effects of information technology.

This matches my personal belief: Much current economic commentary is the result of living through a 15 year down cycle, which will change.

Interestingly, our friend Larry Summers on CNBC today conceded secular stagnation may be more a Europe/Japan issue than a US issue. If the US economy is indeed at the front of a broad-based recovery, as it appears, it will be interesting to see where this issue lands.


Source Tweets: 1,2,3,4,5,6,7,8

The Christensen Style Disruption Idea

Few intellectual concepts in our time have been mangled by observers more than Clay Christensen’s disruption idea. Some thoughts:

A disruptive innovation gives new consumers access to product historically only available to consumers with a lot of money or skill. Disruptors offer a different set of product attributes valued only in new markets remote from, and unimportant to, the mainstream. – Clay Christensen

The key attribute of disruptive innovation is a new product for a previously underserved market, typically cheaper than an existing product. This is inherently pro-consumer: Disruptive innovation only works if customers buy it and if they do, lives are improved vs prior status quo. Similar, disruptive innovation is only funded by investors who believe underserved market exists, customers will buy it, lives are improved.

It’s a fabricated myth that disruptive innovation is about destruction: It’s about the creation of new products, new choices, for more people. Later, of course, the new product often evolves to squarely take on incumbents serving established customers which is cheaper and better for them too! Disruptive innovation shrinks inequality, by bringing to lower-income consumers things that only richer consumers had access to before.

If you are reading this, many of the things you own that make your life better are the result of prior disruptive innovation. The printing press disrupted books from scribes; recorded music disrupted live concerts in homes, washing machines disrupted live-in maids. Rich people always had books, music, clean clothes, etc.; disruptive innovation made these things available to many more people.

In the exact same way, sub-$50 smartphones are disruptive innovation to PCs bringing computing and Internet to far more people than status quo. To be FOR disruption is to be FOR consumer choice, FOR more people bring served, and FOR shrinking inequality. To be AGAINST disruption is to be AGAINST consumer choice, AGAINST more people bring served, and AGAINST shrinking inequality.

If we want to make the world a better and more equal place, the faster we have more Christensen-style disruption, the better!

References: Disruptive Innovation, The Innovator’s Dilemma, Clayton Christensen Responds to New Yorker Takedown of ‘Disruptive Innovation’

Source Tweets: 1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17