Thoughts on Things: Thank you, Big Tech, Very Cool!
Stress. It’s as ubiquitous in our lives as air or water or cars or bad financial takes. You get stressed. I get stressed. Animals get stressed. Plants and fungi get stressed. Everything, and I mean everything is subject to stress in some way, shape or form.
Systems, albeit more abstract than the examples above, are no different. Systems too experience stress. Robust, antifragile systems embrace this stress; more gracile and fragile systems crack under pressure.
How can you determine the level of fragility in a system? By stress-testing the system in question. In winter of 2020, economies around the world were gifted their very own stress-test in the form of a pandemic. How sweet!
Unfortunately, with the administration of a test comes the expectation of results. I am displeased to announce we did not pass the stress-test that was a global pandemic.
Contrary to popular belief, stress-testing a system doesn’t create new issues. Rather, the stressor exacerbates pre-existing issues. The stressor that was a global pandemic operated precisely in this manner, revealing glaring issues with supply chains, labor, and education. Let’s look at some examples of each.
Supply Chain
demand fluctuations across the board
staffing issues, again, basically across the board
issues with accessibility to production and manufacturing
Labor
labor intensive industries saw a shortage of available workers, slowing down production for things like food and materials.
white collar industries were driven remote, placing a heavy reliance on technology and people’s ability to effectively communicate (turns out, not a lot of people can do this).
Education
Math and reading scores have dropped across the board, most notably in students around middle school/early high school ages.
Students who had minimal access to educational resources fell even farther behind their peers who had adequate access to those resources.
The pandemic threw us for a loop and exposed some issues in how our Machine operates. At the same time, the demand fluctuations were pushing revenue higher and higher amongst tech and tech-adjacent industries. Between January 2020 and January 2022, the stock market reached all-time-highs, a record number of IPOs were launched, and crypto was minting new millionaires overnight. It was impossible to lose.
Fun stuff. Good times. Then everyone came crashing back down to Earth as 2022 continued unfolding. Unrelenting inflation and The Fed’s strategy of hiking rates to combat that inflation left companies feeling immense financial pressures. In the span of a few months, business leaders went from the-top-of-the-top, to cutting revenue expectations and laying off thousands in the face of ever-shrinking projections. The party was over, but at least we made some good memories and used our time wisely, right? Wrong.
The name of the game during pandemic was The Metaverse, Web3, and Crypto. Largely seen as the next big thing, The Metaverse, Web3, and tokenomics were getting attention from investors at all scales. VC’s, Hedge Funds, and Retail Bros went full throttle, allocating billions to the new frontier. Facebook even changed their name to Meta, attempting to spearhead the expedition into the digital unknown. As of today, mid-December 2022, turns out all of this was for naught. Zilch. Zero. Nada.
Digital assets carry a lot of hype. They’re flashy, and in the right economic climate, allow the holder to basically print money. Value only goes up, after all. At the height of their popularity, people pushing these assets framed them as the solution to everything. There was only one thing these digital money-making machines couldn’t do: support an economy.
NFTs can’t power a city. Jpegs don’t move freight across the country. You can’t build a manufacturing plant on digital property. The utility of these assets is limited to computer screens and power grids. Congratulations on having an NFT worth $100K+, it’s useless if you lose access or the grid goes down. People were so obsessed with trying to make a quick buck, they forgot those quick bucks don’t just appear out of thin air, and there’s only so many of them. The more money invested into jpegs and tokens, the less money was being invested into things like critical infrastructure, supply chain, education, healthcare, and energy; you know, all the stuff that powers an economy and was revealed to be in poor condition when our system got stressed.
As Kyla Scanlon said early this year, “you can’t have green energy without green investment”. We live in a capitalistic society. Love it; hate it; doesn't matter, that’s what it is. In order to do basically anything in Capitalism, you need, you know, capital. Want renewable energy? You need to invest in those things. Want better education? You need to invest in those things. Want better supply chain? You need to invest in those things. During a historic bull market, where money was flowing far and wide, where did we invest the gains? Not in education. Not in supply chain. Not in infrastructure. We put billions into risky, volatile assets with almost zero proven use-cases.
I could sit here and write about how capital allocation shouldn’t gatekeep everything, or what we could’ve done with all that money, but there’s another, slightly more abstract point I’d like to make (shocking, I know) that harkens to the field of Game Theory and decision making.
When you’re playing a game of incomplete information, as we all are when engaging in market activity, there’s always going to be elements of randomness. One way to hedge against this randomness is by controlling your competitive space.
Cool, I guess, but how does occupying and controlling of space relate to all the money being made during the pandemic? A critical part of space management in game theory is knowing when you’ve overextended.
Overextending in Game Theory refers to strategically making too many commitments in a game of strategy that may exhaust the resources of the player making the commitments, leaving the player in a vulnerable position.
Examples:
In a game of chess, a player can overextend by making too many aggressive moves in the opening and can leave them exposed to attack with too few pieces to mount an adequate defense.
In business, a company can overextend by taking on too many projects at once and may find itself in a financial bind as resources are drained by too many commitments.
In a game of poker, a player can overextend by putting too much money into the pot and can leave themselves in a position where they are unable to compete with the remaining players.
This is exactly what people did with speculative digital assets. Companies overcommitted their resources to things that had no proven value. As the market hype died down, so did the value of these assets. But what about the billions of dollars in valuation that was attached to them? Gone, seemingly overnight. The fellas in Tech got a little too hasty with their cash, and instead of allocating it to the glaring infrastructural and educational issues staring us in the face, they overextended into the world of speculation. Now, we’re all paying the price whether directly or indirectly.
Normally, this wouldn’t seem like a such a big deal. Businesses make poor investments all the time. The world of VC is littered with the bodies of failed startups and poor investors. What makes this situation so different? In this situation, we had explicit exposure to critical issues and actively ignored them.
Two of the most notable issues (in my opinion) are with supply chain and education. Supply chain is how things get places. An oversimplification, but certainly one of the most important features of a healthy economy. Do you like food at the grocery store? Do you like energy? Do you like going out and having a fun night with friends? At every level and every context of consumption, supply chain is a main factor in making that consumption available. Things have to get places, and that getting-to-places isn’t powered by a verified jpeg.
What about education? Standards fell in math and reading scores for the first time in a long time (info available here and here). Some of you may be thinking, “Ok, but I never read and suck at math, and I’m doing just fine. What’s the big deal?”. The functioning of our civilization depends on language and communicating with other people. Being inarticulate is downstream from poor literacy skills. If you can’t communicate your ideas to people clearly and effectively, that’s going to cause a slew of issues in both professional and personal relationships (source). What about math skills? Equally important. On a basic level, being good at math will help you acquire a cozy career with healthy paychecks. On a deeper level, math is a pillar of logic. Having sound logic and reasoning when making decisions is downstream from being good at math (source).
There’s also another, more subtle issue on the educational front. Much of the data references students ages 9-14, generally somewhere in a critical stage of development. Low test scores can be made up, but the full impact of these issues won’t be felt until these students grow up and start entering the labor force. I’m sure some people would argue otherwise for a variety of reasons, but in my experience, stupid people don’t exactly produce the best labor. How will important fields like medicine, construction, engineering, research, finance, economics, etc. be impacted when people with poor math and reading skills start entering the workforce? My intuition says it’s going to be a rough ride.
I’m nervous that if I make this piece too long, I’ll start rambling into the lexical void. No thanks. I think most people get the point by now anyway. Innovation doesn’t happen without investment. In a time where our weaknesses were explicitly revealed, we actively ignored them, opting for shiny Things. More than a bad business decision, it was irresponsible on almost every level of civilization. Education, ignored; supply chain, ignored; energy, ignored; progress and stability, ignored.
The coming decade will be much more difficult economically than it should’ve been. Supply chains are easing, but still facing historic levels of stress. The USA has never been the beacon of intellectual thought, and test scores say that’s only going to get worse. Quite frankly, the future looks pretty bleak. It’s going to take a lot of work to dig ourselves out of the hole we created.
I’ll leave everyone with this quote that I (probably incorrectly) attribute to Captain America, arguably one of the greatest characters of all time.
When the mob and the press and the whole world tell you to move, your job is to plant yourself like a tree by the river of truth, and tell the whole world “No, You Move.”
It’s easy to lose sight of what’s important when you’re caught in the race to be first. Look at Legacy Media, see how it’s working out for them. Oh, you’re the first company to create a communal space in The Metaverse? Neat, how’s that going to improve energy infrastructure. Oh, you created tokens for a blockchain project nobody understands? Cool, how’s that going to help education? Oh, you announced an airdrop for a series of verified images? How’s that supposed to ease supply chain?
Taking time to observe your surroundings and make sure you’re actually on the right path is goated when the future stability of your country is the vibe. Next time we have a period of “unprecedented growth” (likely the next bull market; my reckless speculation says somewhere around 2024 or 2025), I suggest our leaders don’t piss away the opportunity on shiny things that print money, and instead invest in making our economy and culture more antifragile. Does this mean slower growth? Yeah, probably. Call me a contrarian but I think slow, steady, stable growth is more important than fast-but-volatile growth. The faster they rise, the harder the fall. This is simply part of the Natural Cycle.
These are just some Thoughts on Things. I’ve only been paying attention to Stuff for a couple years now, so I’m excited to see where the World flows from here. I’ll continue to watch and write as things develop. My gut says it will be hard for some people, easier for others (yeah, like, no shit).
If you take time to observe things and flow through your environment, I think you’ll be fine. If you run around with nervous energy, pulled this way and that way by the volatility around you, you’ll probably have a tough time.
When I got my first tattoo, I found bracing for the pain made it 10x worse; when I laid there, calmly breathing, I felt nothing.
Something to think about.
Cheers.