A Few Tentative Conclusions on Secular Stagnation and Our Economy

December 30, 2014 / / No Comments

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

December 30, 2014 / / No Comments

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

December 30, 2014 / / No Comments

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.

References:

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

Larry Summers’ “Secular Stagnation” Thesis

December 30, 2014 / / No Comments

: “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

Questioning Christensen’s Theory Of Disruption

June 18, 2014 / / No Comments

A fascinating question around Christensen’s theory of disruption: “OK, smart guy, why haven’t Apple iPhone/iPad been disrupted by Android?” I count five possible answers, there may be more.

  1. The theory of disruption is hucksterish management consultant fraud. (This one I do not agree with.)
  2. Right now Apple *is* the disruptor–iPhones/iPads vs Windows PCs. Many are surprised by the rapid rise of direct substitution, including me.
  3. Apple *is* getting disrupted right now: Android phones are outselling iPhones somewhere between 5:1 and 10:1 worldwide right now.
  4. Apple isn’t getting disrupted *yet*, but will be soon. This is what many in Silicon Valley believe, but Apple does not.
  5. The most interesting one: The current theory of disruption is incomplete and does not have a broad enough concept of end-user quality.

In this line of argument, disruption theory was born in the Microsoft/Intel era, when everyone expected computers to have, um, certain issues. Apple brilliantly redefined the conception of what was possible from an end-user quality and integration standpoint, against prevailing assumptions. We have attempted to generalize *this* concept into “full stack” thinking, which many of today’s best startups are also pursuing. It’s possible disruption theory needs to be evolved to accommodate these newer patterns and knowledge. But it’s also possible all such “full stack” patterns are just integrated approaches that themselves will be disrupted in the future.

Time will tell. In Silicon Valley, these topics are central and being debated both in actions and words by ultra-smart people every day.

References: Full Stack Startups, Disruptive Innovation

https://twitter.com/snakeynag/status/479074693190647808
https://twitter.com/letsgoduke/status/479075060548763648

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

Dear Young Person, If You Are a Geek, the World Needs You.

June 7, 2014 / / No Comments

A rare interview with one of my heroes: Stanford Professor Donald Knuth, author of “Art of Computer Programming“…

I can speak only to people who happen to have grown up with the strange kind of ‘brain organization’ that I seem to have. For lack of a better word, let me simply say that I’m a ‘geek.’ I haven’t got a good definition or a good litmus test for geekhood but I definitely know it when I see it; and I see it in about 2% of the world’s population. The main characteristic is an ability to understand many levels of abstraction simultaneously, and to shift effortlessly between in-the-large and in-the-small. Dear young person, if you are a geek, the world needs you, and you will never run out of opportunities to apply your talents.

Source: Tweets – 1,2,3,4,5,6

Responses:

Imagine a World with No Physical Need Constraints

June 4, 2014 / / 3 Comments

Thought experiment: Posit a world in which all material needs are provided for free, by robots and material synthesizers. Housing, energy, health care, food, transportation–> All delivered to everyone for $0, by machines. Zero jobs in those fields remaining. What would be the key characteristics of that world, and what would it be like to live in it?

First, it’s a consumer utopia: Everyone enjoys a standard of living that kings and Popes could have only dreamed. Fifth, all human time, labor, energy, ambition, and goals reorient to the intangibles: the big questions, the deep needs. Human nature expresses itself fully, for the first time in history.

Without physical need constraints, we will be whoever we want to be. The main fields of human endeavor will be culture, arts, sciences, creativity, philosophy, experimentation, exploration, adventure. Rather than nothing to do, we would have everything to do: curiosity, artistic and scientific creativity, new forms of status seeking (!).

Imagine six, or 10, billion people doing nothing but arts and sciences, culture and exploring and learning. What a world that would be. The problem seems unlikely to be that we’ll get there too fast. The problem seems likely to be that we’ll get there too slow.

Utopian fantasy you say? OK, so then what’s your preferred long-term state? What else should we be shooting for, if not this? Finally, note the “thought experiment” nature of this stream — this is an extrapolation of ideas, not a prediction for the next 50 years!

Clarification: I’m not talking about Marxism or communism, I’m talking about democratic capitalism to the Nth degree. I’m not postulating the end of money or competition or status seeking or will to power, rather the full extrapolation of each of those.

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

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Human Potential

June 4, 2014 / / 3 Comments

The flip side of the “robots eat all the jobs” theory not being discussed: The current revolution in the “means of production” going to everyone in the form of the smartphone (and tablet and PC) + mobile broadband + the Internet: Will be in almost everyone’s hands by 2020. Then everyone gets access to unlimited information, communication, education, access to markets, participate in global market economy.

This is not a world we have ever lived in: Historically most people in most places cut off from these things, usually to a high degree. It is hard to believe that the result will not be a widespread global unleashing of creativity, productivity, and human potential. It is hard to believe that people will get these capabilities and then come up with absolutely nothing useful to do with them.

And yet that is the subtext to the “this time is different” argument that there won’t be new ideas, fields, industries, businesses, jobs. In arguing this with an economist friend, the response was “But most people are like horses; they have only their manual labor to offer.” I don’t believe that, and I don’t want to live in a world in which that’s the case. I think people everywhere have far more potential.

Source: Tweets – 1,2,3,4,5,6,7,8,9

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Why Doing What You Love Is Destructive Career Advice

May 29, 2014 / / 6 Comments

Thesis: “Do what you love” / “Follow your passion” is dangerous and destructive career advice.

We tend to hear it from highly successful people who have become successful doing what they love. The problem is that we do NOT hear from people who have failed to become successful by doing what they love. It’s a particularly pernicious problem in tournament-style fields with a few big winners and lots of losers: media, athletics, startups.

Better career advice may be “Do what contributes” — focus on the beneficial value created for other people versus just one’s own ego. People who contribute the most are often the most satisfied with what they do and in fields with high renumeration, make the most money.

Perhaps difficult advice since it requires focus on others versus oneself. Perhaps a bad fit with endemic narcissism in modern culture? It requires delayed gratification and may toil for many years to get the payoff of contributing value to the world, versus short-term happiness.

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

Theories on Valuing Companies

May 7, 2014 / / 1 Comment

The conventional view of how to value companies:

(1) Analyze the company + its financials + future cash flows;
(2) Calculate the correct valuation.

What actually happens:

(1) Observe current market valuation;
(2) Construct theory and model to explain that valuation.

In this way, George Soros’s theory of reflexivity is exactly correct. Fundamentals influence prices which influence fundamentals which influence prices which influence fundamentals… ad infinitum.

At the cyclical top, high prices drive creation of theories to explain infinite future glory; negative investors and analysts get fired. At cyclical bottom, low prices drive creation of theories to explain permanent future misery; positive investors and analysts get fired.

Therefore, a boom in theories of how everything’s a bubble and certain to crash is evidence of a cyclical bottom, not a cyclical top. Therefore, Efficient Market Hypothesis is correct if for “all information” you substitute “all information, theories, noise, and bullsh*t”. Since we are social animals, the challenge of actually standing outside of the herd is brutally hard. Pressure to conform is constant/intense.

Further Reading:

Famous paper well worth reading: “The Limits of Arbitrage”

Another famous paper well worth reading: “Noise” by the great Fischer Black

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

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