Articles that made me think (March 2, 2019)

Markets are Eating the World

Many internet pioneers in the 90’s believed that the internet would start to break up corporations by letting people communicate and organize over a vast, open network. This reality has sort-of played out: the “gig economy” and rise in freelancing are persistent, if not explosive, trends. With the re-emergence of blockchain technology, talk of “the death of the firm” has returned. Is there reason to think this time will be different?

Transaction costs can be subdivided into trust costs, transfer costs and triangulation costs. Technology drives down transaction costs. In general this increases the prevalence of gig work and incentivizes renting instead of buying.

Technology increases coordination scalability which is key in understanding how this all changed from the Neolithic to the Blockchain eras. Mechanical clocks and cryptocurrencies are both useful examples to understand the impact of technology on the economy.

Would be interesting to develop a framework for shocks caused by a sudden increase in transaction costs. Revolutions and natural disasters can cause a break down in trust in society. This of course does create an opening for crypto that can be overlooked by people’s whose experience consists of stable monetary regimes. Crypto has played a larger role in Argentina and Venezuela recently.

Ultimately, what we call society is a series of overlapping and interacting ledgers. In order for ledgers to function, they must be organized according to rules. Historically, rules have required rulers to enforce them. Because of network effects, these rulers tend to become the most powerful people in society. In medieval Europe, the Pope enforced the rules of Christianity and so he was among the most powerful.

Should I hire someone or outsource this role? Should a business vertically integrate? Why are CPG brands being upended by upstart product designers? Transaction costs is the datapoint that can answer all these questions.

Going for broker: Remittances to North Korea
Speaking of high transaction costs and low trust economies, its risky and expensive for North Korean refugees to send money home to relatives.

If a refugee in south South Korea wants to make a transfer, she may contact a broker in the North who owes a smuggler in China. The refugee may offer to pay some portion of the broker’s debt; in return, the intermediary gives an equivalent amount the the refugee’s family in the North, usually in dollars or Chinese yuan. The system is based on trust — and extravagant fes. The broker who facilitates the transaction takes a cut of around 30%.

Actually I’m kind of fascinated by how robust this market actually is all things considered.

Bond Illiquidity And LIBOR

Financial markets’ failure to solve the LIBOR replacement problem is the result of a misunderstanding of the reasons for the LIBOR problem. Understanding of LIBOR suffers from journalistic misdirection, on one hand, and a misunderstanding of the root problem that the LIBOR brouhaha exemplifies, on the other.

….In short, any satisfactory LIBOR replacement must be a form of debt that doesn’t exist now. We could throw up our hands and use the hazardous SOFR, but this seems to be a negative way of looking at the situation.

This is an obvious opportunity to seize an enormous chunk of the financial markets in one fell swoop by addressing bond market illiquidity more generally. Moreover, it is an opportunity that anybody with the courage and the capital could pursue. The problem is one of creating a new debt market with a different structure. Such a new market would have no incumbent oligopolies and no reactionary regulators. Capital, a few hotshot IT professionals, and some people with skills of persuasion would be enough ammunition to get the job done. Island overwhelmed the incumbent stock exchanges with less.

Enrique Abeyta has four pieces of advice for Jorge Paulo Lemann

The story of 3G’s value creation — buying a big brand and cutting costs to generate high equity returns — worked for ten years, “but they sailed in the direction of a storm they did not forsee. They overleveraged the ship in search of returns and lost their flexibility.” …


Rule thinkers in, not out

Imagine a black box which, when you pressed a button, would generate a scientific hypothesis. 50% of its hypotheses are false; 50% are true hypotheses as game-changing and elegant as relativity. Even despite the error rate, it’s easy to see this box would quickly surpass space capsules, da Vinci paintings, and printer ink cartridges to become the most valuable object in the world. Scientific progress on demand, and all you have to do is test some stuff to see if it’s true? I don’t want to devalue experimentalists. They do great work. But it’s appropriate that Einstein is more famous than Eddington. If you took away Eddington, someone else would have tested relativity; the bottleneck is in Einsteins. Einstein-in-a-box at the cost of requiring two Eddingtons per insight is a heck of a deal.

Basically its the framework of high upside convexity applied to ideas and people.

The fall of America’s “Money Answers Man”
This guy was simply promising 6% risk free. But it was too good to be true. Early Ponzi schemes usually promised outlandish returns with no risk. Perhaps after many years of millenium low interest rates, the bar for return promises on ponzi’s has been lowered.

America is obsessed with Theranos and Fyre Festival
The insatiable appetite for all things Holmes is part of an overarching obsession in America right now: We can’t get enough of scams and scammers.

Why hipsters all end up looking the same
Mimetic desire is a powerful force- even(or especially) for those who claim they don’t care.

In a vast range of scenarios, the hipster population always undergoes a kind of phase transition in which members become synchronized with each other in opposing the mainstream. In other words, the hipster effect is the inevitable outcome of the behavior of large numbers of people

For some reason this also reminded me of the movie SLC Punk.

RIP culture war thread
Slate Star Codex creator was subjected some of the crazier human tendencies that come to surface in the cultur war. Painful to read. Which is why it is essential reading.

In praise of work

The reason for the emergence of workism was that the jobs of banking and consulting were fundamentally about signaling intelligence, competence, credentials, hard work and availability. They were not about what sliver of work was being done, or how much meaning anyone invested in it. The job was – and is – almost wholly abstracted from that work. That is the soul of workism: that the job is, in every meaningful respect, to look like you are doing the job.

Leave a Reply