Zero To One might be the first best-selling business book based on a Tumblr. Stanford student Blake Masters took Peter Thiel’s class on startups. He posted his notes on Tumblr after each lecture. They became a minor sensation. Thiel asked if he wanted to make them into a book together. He did.
The title comes from Thiel’s metaphor that ordinary businessmen like restaurant owners take a product “from 1 to n” (shouldn’t this be from n to n+1?) – they build more of something that already exists. But the greatest entrepreneurs bring something “from 0 to 1” – they invent something that has never been seen before.
The book has various pieces of advice for such entrepreneurs. Three sections especially struck me: on monopolies, on secrets, and on indefinite optimism.
A short review can’t fully do justice to the book’s treatment of monopolies. Gwern’s look at commoditizing your complement almost does (as do some tweets). But the basic economic argument goes like this: In a normal industry (eg restaurant ownership) competition should drive profit margins close to zero. Want to open an Indian restaurant in Mountain View? There will be another on the same street, and two more just down the way. If you automate every process that can be automated, mercilessly pursue efficiency, and work yourself and your employees to the bone – then you can just barely compete on price. You can earn enough money to live, and to not immediately give up in disgust and go into another line of business (after all, if you didn’t earn that much, your competitors would already have given up in disgust and gone into another line of business, and your task would be easier). But the average Indian restaurant is in an economic state of nature, and its life will be nasty, brutish, and short.
This was the promise of the classical economists: capitalism will optimize for consumer convenience, while keeping businesses themselves lean and hungry. And it was Marx’s warning: businesses will compete so viciously that nobody will get any money, and eventually even the capitalists themselves will long for something better. Neither the promise nor the warning has been borne out: business owners are often comfortable and sometimes rich. Why? Because they’ve escaped competition and become at least a little monopoly-like. Thiel says this is what entrepreneurs should be aiming for.
He hates having to describe how businesses succeed, because he thinks it’s too anti-inductive to reduce to a formula:
Tolstoy opens Anna Karenina by observing “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition.
But he grudgingly describes four ways that a company can successfully reach monopolyhood:
1. Proprietary technology. This one is straightforward. If you invent the best technology, and then you patent it, nobody else can compete with you. Thiel provocatively says that your technology must be 10x better than anyone else’s to have a chance of working. If you’re only twice as good, you’re still competing. You may have a slight competitive advantage, but you’re still competing and your life will be nasty and brutish and so on just like every other company’s. Nobody has any memory of whether Lycos’ search engine was a little better than AltaVista’s or vice versa; everybody remembers that Google’s search engine was orders of magnitude above either. Lycos and AltaVista competed; Google took over the space and became a monopoly.
2. Network effects. Immortalized by Facebook. It doesn’t matter if someone invents a social network with more features than Facebook. Facebook will be better than their just by having all your friends on it. Network effects are hard because no business will have them when it first starts. Thiel answers that businesses should aim to be monopolies from the very beginning – they should start by monopolizing a tiny market, then moving up. Facebook started by monopolizing the pool of Harvard students. Then it scaled up to the pool of all college students. Now it’s scaled up to the whole world, and everyone suspects Zuckerberg has somebody working on ansible technology so he can monopolize the Virgo Supercluster. Similarly, Amazon started out as a bookstore, gained a near-monopoly on books, and used all of the money and infrastructure and distribution it won from that effort to feed its effort to monopolize everything else. Thiel describes how his own company PayPal identified eBay power sellers as its first market, became indispensible in that tiny pool, and spread from there.
3. Economies of scale. Also pretty straightforward, and especially obvious for software companies. Since the marginal cost of a unit of software is near-zero, your cost per unit is the cost of building the software divided by the number of customers. If you have twice as many customers as your nearest competitor, you can charge half as much money (or make twice as much profit), and so keep gathering more customers in a virtuous cycle.
4. Branding Apple is famous enough that it can charge more for its phones than Amalgamated Cell Phones Inc, even for comparable products. Partly this is because non-experts don’t know how to compare cell phones, and might not trust Consumer Reports style evaluations; Apple’s reputation is an unfakeable sign that their products are pretty good. And partly it’s just people paying extra for the right to say “I have an iPhone, so I’m cooler than you”. Another company that wants Apple’s reputation would need years of successful advertising and immense good luck, so Apple’s brand separates it from the competition and from the economic state of nature.
Thiel continues with various counterintuitive pieces of wisdom. Don’t try to “disrupt” your field – if you’re “disrupting” someone, it means you’re competing with them, and making enemies who will try to hold you back. Don’t try to be the “first mover” (Yahoo was the first-mover in the search engine space), instead try to be the “last mover” whom nobody is able to supplant. Etc, etc. Just try to get a monopoly or something like it.
Is all of this a plot against the public? Monopolies are usually viewed as cheating the system and preventing progress; is Thiel promoting that behavior to the detriment of society? Well, obviously he says he isn’t:
The problem with a competitive business goes beyond lack of profits. Imagine you’re running one of those restaurants in Mountain View. You’re not that different from dozens of your competitors, so you’ve got to fight hard to survive. If you offer affordable food with low margins, you can probably pay employees only minimum wage. And you’ll need to squeeze out every efficiency: that’s why small restaurants put Grandma to work at the register and make the kids wash dishes in the back. Restaurants aren’t much better even at the very highest rungs, where reviews and ratings like Michelin’s star system enforce a culture of intense competition that can drive chefs crazy. (French chef and winner of three Michelin stars Bernard Loiseau was quoted as saying, “If I lose a star, I will commit suicide.” Michelin maintained his rating, but Loiseau killed himself anyway in 2003 when a competing French dining guide downgraded his restaurant.) The competitive ecosystem pushes people toward ruthlessness or death.
A monopoly like Google is different. Since it doesn’t have to worry about competing with anyone, it has wider latitude to care about its workers, its products, and its impact on the wider world. Google’s motto — “Don’t be evil” — is in part a branding ploy, but it’s also characteristic of a kind of business that’s successful enough to take ethics seriously without jeopardizing its own existence. In business, money is either an important thing or it is everything. Monopolists can afford to think about things other than making money; non-monopolists can’t. In perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.
So monopolies’ advantages include being better for employees, more socially responsible, and able to engage in long-term thinking. The classic examples of this (which I don’t think Thiel brought up) are Bell Labs and Xerox PARC. Two monopolistic companies with more money than they knew what to do with started super-basic-blue-sky research centers that ended up creating many of the technologies that shaped the modern world (Bell Labs, started by AT&T, helped invent the transistor, the laser, information theory, UNIX, C, C++, radio astronomy, etc; PARC, started by Xerox, helped invent Ethernet, laser printing, the personal computer, graphical user interfaces, object-oriented programming, bitmaps, and the LCD.) Google X wants to be the modern version of this kind of thing, though I don’t know how much success they’ve had so far.
On the other hand, all of the classical disadvantages of monopolies are still there. Monopolies remove the pressure to do a good job – whether that’s in keeping prices low, keeping working conditions tolerable, or in keeping products and service high-quality. They lower the diversity of an industry, making it more likely to get stuck in an evolutionary blind alley it can’t get out of; they increase the risk of merging with government into a crony capitalism. A wolf sheltered from survival-of-the-fittest for too long becomes a Chihuahua; Amazon sheltered from survival-of-the-fittest for too long becomes the DMV.
(also, isn’t Thiel the guy who wanted floating independent seasteads because competitive governance would break the monopoly of existing nation-states and lead to a revolutionary improvement in institutional capacity? Doesn’t that suggest even he acknowledges monopolies are often bad?)
I don’t think this is one of those issues that’s going to get decisively solved in a few paragraphs. Moloch and Slack are the new yin and yang, the new chaos and order; their interplay creates the Ten Thousand Things. Err too far towards competition and everyone works themselves to death in garment sweatshops; err too far towards monopoly and everyone sits at a desk filling out forms and backstabbing each other until the lights slowly go out. It’s only in the collision zone between the two that anything interesting ever happens.
One could rescue Thiel’s position by assuming that competition will always be with us. Google’s pretty monopoly-like, but even they can’t rest on their laurels too long. It’s not just that Bing might take over, but that advertisers might get better non-search-engine ways to place ads, Facebook might come up with better ways to target ads, some alternate platform like cell phones or VR might take over from classic Internet searches, or something else. Whatever their concern, real-life Google sure does seem to put a lot of effort into being competitive. So sure, maybe one has to find the sweet spot between perfect competition and perfect monopoly, but one could argue that right now only the most monopolistic companies are near that sweet spot.
The rest of Zero To One becomes less directly about the startup world, and more about deep social trends that good startup founders will have to buck. One such trend – which Thiel approaches in a lot of different equivalent ways – is the loss of belief in secrets. People no longer believe that there are important things that they don’t know, but which they could discover if they tried a little harder.
Past scientific discoveries came from a belief in secrets. Isaac Newton wondered why apples fell, thought “Maybe if I work really hard on this problem, I can discover something nobody has ever learned before”, and then set out to do it. Modern people aren’t just less likely to think this way. They’re actively discouraged from it by a culture which mocks stories like Newton’s as “the myth of the lone genius”. Nowadays people get told that if they think they’ve figured out something about gravity, they’re probably a crackpot. Instead, they should wait for very large government-funded programs full of well-credentialled people to make incremental advances.
Good startups require a belief in secrets, where “secret” is equivalent to “violation of the efficient market hypothesis”. You believe you’ve discovered something that nobody else has: for example, that if you set up an online bookstore in such-and-such a way today, in thirty years you’ll be richer than God. This is an outrageously arrogant claim: that you have spotted a hundred-billion-dollar bill lying on the sidewalk that everyone else has missed. But only people who believe something like it can noncoincidentally found great companies. You must believe there are lucrative secrets hidden in plain sight.
Thiel relates this to the decline of cults (see these two essays fleshing out the phenomenon). Although cults may not be desirable, they are the failure mode of individuals and small groups trying to throw off conventional wisdom and discover profound new ways of looking at the world. Have we lost our cults because we no longer fail at this task, or because we no longer attempt it at all?
Belief in secrets is connected to belief in one’s own reasoning abilities. Modern conventional wisdom says armchair reasoning never works; any idea you prove true in your head is useless until it’s been exhaustively tested in real life, and you’re more likely to get some other (true) idea out of the exhaustive testing than to validate your armchair speculation. As a corollary, the more steps in your proof, the less likely it is, since each one exponentially increases the error rate of your final conclusion. Since your armchair reasoning is useless, you are unlikely to ever discover a secret (except perhaps by chance, if you randomly do experiments no one else has ever done). The only thing that might not be useless is large institutions working together to gradually advance knowledge with lots of testing, who effectively buy many lottery tickets hoping one will pay off.
The modern skepticism about secrets and reasoning implies a similar skepticism about planning. If the argument against multi-step reasoning is right, then a mildly Internet-famous scene from Harry Potter And The Methods Of Rationality is right too:
Father had told Draco about the Rule of Three, which was that any plot which required more than three different things to happen would never work in real life. Father had further explained that since only a fool would attempt a plot that was as complicated as possible, the real limit was two.
This disbelief in planning suggests, not a strategy, but a sort of meta-strategy. Do something vaguely in the space of what you want to do, don’t commit yourself to a specific plan, watch what happens, iterate, keep your options open at all time, and be prepared to pivot quickly once you know more.
But Thiel says the most successful visionaries of the past did the opposite of this. They knew what they wanted, planned a strategy, and achieved it. The Apollo Program wasn’t run by vague optimism and “keeping your options open”. It was run by some people who wanted to land on the moon, planned out how to make that happen, and followed the plan. Not slavishly, and certainly they were responsive to evidence that they should change tactics on specific points. But they had a firm vision of the goal in their minds, an approximate vision of what steps they would take to achieve it, and a belief that acheiving an ambitious long-term plan was the sort of thing that people could be expected to do. And great startups like SpaceX are much the same. Elon Musk started with a n-step plan to get to Mars, and he’s currently about halfway through.
He gives one particularly striking example of the past’s attitude to secrets and planning:
Bold plans were not reserved just for political leaders or government scientists. In the late 1940s, a Californian named John Reber set out to reinvent the physical geography of the whole San Francisco Bay Area. Reber was a schoolteacher, an amateur theater producer, and a self-taught engineer. Undaunted by his lack of credentials, he publicly proposed to build two huge dams in the Bay, construct massive freshwater lakes for drinking water and irrigation, and reclaim 20,000 acres of land for development. Even though he had no personal authority, people took the Reber Plan seriously. It was endorsed by newspaper editorial boards across California. The U.S. Congress held hearings on its feasibility. The Army Corps of Engineers even constructed a 1.5-acre scale model of the Bay in a cavernous Sausalito warehouse to simulate it. These tests revealed technical shortcomings, so the plan wasn’t executed.
But would anybody today take such a vision seriously in the first place? In the 1950s, people
welcomed big plans and asked whether they would work. Today a grand plan coming from a schoolteacher would be dismissed as crankery, and a long-range vision coming from anyone more powerful would be derided as hubris. You can still visit the Bay Model in that Sausalito warehouse, but today it’s just a tourist attraction: big plans for the future have become archaic curiosities.
This is a fascinating story (and remember that early San Francisco was settled by New England Puritans; there’s something super-Puritan about all this, right down to it being a schoolteacher) and does a great job of highlighting the contrast between past and present attitudes.
But how much of a flaw is it that the Reber Plan would in fact not have worked? Suppose a thousand enterpreneurs try to create exciting long-term plans for their businesses, each of which requires guessing ten binary variables in advance. And suppose the vague-ists are right, nobody can do armchair reasoning or long-term planning, and all of their guesses are random. By chance, one of the thousand entrepeneurs will get all ten variables right, his plan will go perfectly, and he’ll become a multi-billionaire and land a rocket on Mars. He will be the only person we ever hear about and the only person who ever becomes a stock example, and it will look like “Wow, multi-step reasoning and long-range planning can work well after all!”
This is the proper canned response that the conformist parts of my mind generated after three seconds. But is it true? Elon Musk has founded at least three super-successful companies that have executed decade-long plans; lightning shouldn’t strike the same place twice. Newton didn’t just discover gravity, he discovered optics, calculus, the laws of motion, and [insert ten page list of other things Newton discovered here].
And, uh, Thiel compares these sorts of long-term plans to “conspiracies”. And he himself is implicated in a conspiracy – his successful destruction of Gawker is now the subject of a book titled Conspiracy: Peter Thiel, Hulk Hogan, Gawker, And The Anatomy Of Intrigue. His Gawker accomplishment was exactly the kind of ambitious long-range multi-step plan he describes as possible in the book – and the book was written long before it bore fruit.
Some of the smartest people I know say that Thiel’s endorsement of Donald Trump was the same sort of complicated plot. Thiel endorsed Trump at a time when no other famous intellectual would touch him. Trump won and followed a spoils strategy of rewarding his early supporters (like how he made Jeff Sessions the Attorney General), and Thiel got 100x the influence he would have if he’d had to fight against every other important person for prestige in the Clinton administration. I am still trying to figure out what happened with this – my impression is that for about a month after Trump won, he was doing a lot of things that bore Thiel’s fingerprints, and after that he didn’t. Either there was some kind of early break between the two of them, or Thiel decided to operate very quietly – a few hints of leaked information suggest the latter. If he’s still involved, this is an even stronger example than Gawker.
I’m bringing these things up because once you write a book saying “Hey guys, conspiracies are totally doable and often successful”, and then a few years later you succeed at multiple ambitious conspiracies that destroy your enemies and give you vast national influence, I think you are allowed to say that this is possibly something other than coincidence and survivorship bias.
But then it equally becomes fair to say that Peter Thiel is a billionaire CEO Stanford professor chess master, and Elon Musk is, well, Elon Musk. Both may be better at planning than the average person. Suppose you have a ten-step plan. And suppose you’re good enough at planning that you have a 90% chance to carry out each step. That means a 35% chance of all ten steps going without a hitch; start three companies or Gawker-destruction plans, and one will succeed. Now suppose someone only a little worse at planning – 70% success rate per step – tries the same thing. Now their per-plan chance of destroying Gawker is less than 3%. In the real world, where there’s more variance between plan steps, I think this becomes even more pronounced.
On the other hand, each successful SpaceX or Gawker-elimination-plan brings huge benefits to the world. We are stuck in the awkward position where a heuristic of “Go ahead, think big” will be inappropriate for and predictably bankrupt the vast majority of people, but a heuristic of “Think small and don’t trust yourself” will create a world of sub-par rockets and tragically un-destroyed gossip rags. Which do we choose? This is probably the wrong question; nobody controls the heuristic supply, and the one that works for most people will catch on. Under this model, Thiel is doing the public service of saying “Hey, if you’re a smart person, then despite what everybody says this whole ‘make big plans’ thing might actually work for you.”
(good thing everybody has an accurate, undistorted estimate of whether they are a smart person or not!)
I really liked this part of the book. When every intelligent person you trust is pushing one heuristic, it can be really refreshing to hear someone else intelligent and successful say exactly the opposite. Not even prove the opposite – I don’t think Thiel makes all that strong a case in this book – just say “Hey, think about the fact that this piece of conventional wisdom might be totally wrong”. This is almost the first time I’ve heard this said about the “don’t make complex multi-step plans” piece of conventional wisdom, and it was fun to hear this new perspective that I’m going to have to wrestle with from now on.
Zero To One has one more section on secrets and planning, where it expands them society-wide into the ideas of definite optimism vs. indefinite optimism.
Definite optimism is Thiel’s take on the can-do philosophy of the 1950s. We can-do the Apollo Program, so let’s get to work. We can-do John Reber’s plan to dam the San Francisco Bay, so let’s start debating it. People believed anything was possible, so they made grand plans and carried them out. Progress would happen because people would have great ideas and force them into being.
The 2010s aren’t less optimistic, they’re just less definite. We still believe in the impersonal force of Progress, we just doubt any existing plan’s ability to serve as its avatar. Nobody will say “Let’s dam San Francisco Bay”, they’ll say “let’s promote innovation” or “let’s grow the economy”. It is assumed there are no secrets to discover or grand plans to implement, but everything will get better anyway based on- I don’t know, some sort of principle that it should, plus millions of small actors doing little things below the threshold of notability in the right direction.
Again the weird modern belief in “the myth of the lone genius” (not belief in the lone genius, belief in the mythicism of it) comes into play. We are perhaps glad that there is convenient online retail, but this does not translate into appreciation of Jeff Bezos. Online retail came into being because it’s a part of Progress; Jeff Bezos is just some annoying guy who claimed credit and captured the profits.
(the obvious counterargument here seems to be that if Jeff Bezos didn’t do the admittedly hard work of creating an online retail giant, somebody else would have, perhaps a little later and a little worse; hundred billion dollar bills don’t lie on the sidewalk literally forever. I’m not sure what Thiel thinks of this; at the very least he might say our society fails to appreciate that some specific person does have to do the work for the work to happen.)
The flagship industry of the definite optimism of the 1950s was engineering. The flagship industry of the indefinite optimism of the 2010s is finance. Finance is about “making money when you have no idea how to create wealth”. While the engineers plan out specific dams and rockets and so on, the more abstract levels of finance invest in “the market”, a vague aggregate of all economic activity which is expected to go up because Progress. And so:
Think about what happens when successful enterpreneurs sell their company. What do they do with the money? In a financialized world, it unfolds like this:
– The founders don’t know what to do with it, so they give it to a large bank.
– The bankers don’t know what to do with it, so they diversify by spreading it across a portfolio of investors.
– Institutional investors don’t know what to do with their managed capital, so they diversify by amassing a portfolio of stocks.
– Companies try to increas ehtie share price by generating free cash flows. If they do, they issue dividends or buy back shares and the cycle repeats.
At no point does anyone in the chain know what to do with money in the real economy. But in an indefinite world, people actually prefer indefinite optionality; money is more valuable than anything you could possibly do with it. Only in a definite future is money a means to an end, not the end itself.
The flagship government of indefinite optimism is liberalism, here including both the standard Clinton-issue variety and libertarianism. Liberalism doesn’t take any specific position about what the good life is, or how to promote it – it is a neutral arbiter that enforces content-independent laws. It can ban or promote the construction of monuments, but it cannot and will not say “Ten Commandments monument good, Satanist monument bad” – it either accepts or rejects both. The culmination of this style of indefinite liberalism is Rawls’ veil of ignorance, where government only works insofar as it approximates what people would create if they knew nothing about their own opinions.
The flagship level of indefinite optimism is the meta-level. Come up with some principles that should work, like “capitalism” or “evolution”, then let them figure everything out.
Like the section on secrets and planning, this succeeds in being an interesting critique of something I had previously thought so obviously good that I had never bothered thinking of criticisms of it before. But its specifics are a bit weird – the Burkean/Chestertonian argument for conservativism goes that our current traditions are the outcome of exactly the same sort of incremental experimentation that indefinite optimists love, and that our own multi-step reasoning and planning telling us that X new law will improve things is too fallible to trust. So if our philosophy of government isn’t liberal, libertarian, or conservative, what is it? Thiel mentions two “definite optimistic” philosophers – Marx and Hegel – and neither is the sort to inspire too much confidence. Maybe we should be imagining Eisenhower-era America – liberal-ish, but still with grand visions? I don’t know enough about that era to know whether that era really had a unified version of the good life, or what shifting more in that direction would entail.
Also, different philosophies work for different situations. The virtues of feudalism are more relevant to a sprawling medieval empire than to modern Denmark. Indefinite liberalism seems suited to a country where in fact nobody agrees on anything; one with deep religious and racial divisions, caught in the grip of a smoldering culture war. If nobody can agree on what the good is, then refereeing everybody as they pursue their own private versions of the good might be the best you can maange.
There’s a lot more to this book, but it all seems to be pointing at the same central, hard-to-describe idea. Something like “All progress comes from violations of the efficient market hypothesis, so you had better believe these are possible, and you had better get good at finding them.”
The book begins and ends with a celebration of contrarianism. Contrarians are the only people who will ever be able to violate the EMH. Not every weird thing nobody else is doing will earn you a billion dollars, but every billion-dollar plan has to involve a weird thing nobody else is doing.
Unfortunately, “attempt to find violations of the EMH” is not a weird thing nobody else is doing. Half of Silicon Valley has read Zero To One by now. Weirdness is anti-inductive. If everyone else knows weirdness wins, good luck being weirder than everyone else.
Thiel describes how his venture capital firm would auto-reject anyone who came in wearing a suit. He explains this was a cultural indicator: MBAs wear suits, techies dress casually, and the best tech companies are built by techies coming out of tech culture. This all seems reasonable enough.
But I have heard other people take this strategy too far. They say suit-wearers are boring conformist people who think they have to look good; T-shirt-wearers are bold contrarians who expect to be judged by their ideas alone. Obviously this doesn’t work. Obviously as soon as this gets out – and it must have gotten out, I’ve never been within a mile of the tech industry and even I know it – every conformist putting image over substance starts wearing a t-shirt and jeans.
When everybody is already trying to be weird, who wins?
Part of the answer is must be that being weird is a skill like any other skill. Or rather, it’s very easy to go to an interview with Peter Thiel wearing a clown suit, and it will certainly make you stand out. But will it be “contrarian”? Or will it just be random? Anyone can conceive of the idea of wearing a clown suit; it doesn’t demonstrate anything out of the ordinary except perhaps unusual courage. The real difficulty is to be interestingly contrarian and, if possible, correct.
(I wrote that paragraph, and then I remembered that I know one person high up in Peter Thiel’s organization, and he dresses like a pirate during random non-pirate-related social situations. I always assumed he didn’t do this in front of Peter Thiel, but I just realized I have no evidence for that. If this advice lands you a job at Thiel Capital, please remember me after you’ve made your first million.)
Another part of the answer must be that when everyone is competing on weirdness, the winners will be the people who are actually weird. The people who unavoidably do weird things because they are constitutionally weird people. There is a certain degree to which an ordinary person can relax constraints on their behavior and act and think in a weirder way than they ordinarily would. After that, you actually have to just be a strange kind of guy.
Of the six people who started PayPal, four had built bombs in high school. Five were just 23 years old—or younger. Four of us had been born outside the United States. Three had escaped here from communist countries: Yu Pan from China, Luke Nosek from Poland, and Max Levchin from Soviet Ukraine. Building bombs was not what kids normally did in those countries at that time.
The six of us could have been seen as eccentric. My first-ever conversation with Luke was about how he’d just signed up for cryonics, to be frozen upon death in hope of medical resurrection. Max claimed to be without a country and proud of it: his family was put into diplomatic limbo when the USSR collapsed while they were escaping to the U.S. Russ Simmons had escaped from a trailer park to the top math and science magnet school in Illinois. Only Ken Howery fit the stereotype of a privileged American childhood: he was PayPal’s sole Eagle Scout. But Kenny’s peers thought he was crazy to join the rest of us and make just one-third of the salary he had been offered by a big bank. So even he wasn’t entirely normal…
The lesson for business is that we need founders. If anything, we should be more tolerant of founders who seem strange or extreme; we need unusual individuals to lead companies beyond mere incrementalism.
Signing up for cryonics doesn’t give you a business advantage. But it indicates that you are probably good at thinking outside the box. People who learn that thinking outside the box is a useful skill and decide to try it with zero experience are always going to lose to people who have been doing since they could speak at all.
Or as a wise man once said, “when the going gets weird, the weird turn pro”.
Whoever wrote that block quote you’re quoting on finance doesn’t understand the financial industry at all.
Peter Thiel wrote it (or caused it to be ghostwritten, and approved its inclusion). Do you want to stick to your claim?
Yes. If anything I am more confident in it. Peter Thiel was moderately successful in the legal field, hyper successful in the tech field, and a failure in finance. He started a hedge-fund, and got his lunch money taken by more knowledge more savvy market participants and closed it as a massive failure. (note the “lunch money taken” is just flavorful language and is not to be taken literally) To quote Wikipedia “Clarium’s assets under management grew to $8 billion in 2008, after which a series of unprofitable investments and client redemptions resulted in its assets declining to between $300–400 million as of 2011.”
I don’t know when he formulated his “be a monopoly and avoid competition theory” but I wouldn’t be shocked if the contrast between his experiences in the field of startups vs the highly competitive field of hedge-funds had something to do with it. in a startup you need to do something new, in a hedge fund you need to do basically the same thing as everyone else but much better than everyone else, even though everyone else includes a lot of very smart hard working people.
Or be the best at insider dealing, have the best connections to people with inside information, or find a way to use regulatory arbitrage (or even collude to capture regulators) to take advantage of sloth-like governments and abuse people with less education than you.
I say this as someone who works in the Finance industry.
It strikes me that the same thing is true of running a restaurant. You’re not going to come up with a fundamentally new way of making Indian food that gives you a moat, you’re just going to have to do the same stuff as other Indian restaurants, but while getting the food quality to be a bit better, or costs to be a little lower, or business to be a little more brisk.
Or persuading your cooks that when customers say they want “mild,” they mean it. Which our favorite local Indian restaurant eventually did.
The 9 year geometric mean of returns from Clarium were 10.9%. Is that a massive failure? If Thiel had charged a conventional 2 and 20 he would have made a lot more than than his contrarian 0 and 25.
I’m not sure it shows a lack of understanding, so much as a substantial over-simplification, which may (or may not, YMMV) spark reflection.
If I have a great business idea and a bunch of money, I don’t invest in “the market,” I invest in my business. My business makes money because I know how to be good at that business and thereby produce surplus value.
If I have a great business idea and no money, I borrow money and invest in my business. My business makes money and my investors make money.
If I have no great business idea but a bunch of money, I invest in the market. Other people in the market fall into Category 2, and thus I make some money.
Finance is, at its heart, about locating and funding those people who have more direct knowledge of how to actually produce value. Whether or not Thiel is good at this, I think it’s not an unrealistic simplification. There always has to be real underlying boots-on-the-ground production of value in order for finance to be useful. And going into finance usually means that you aren’t part of the boots-on-the-ground, or else you would be producing value that way instead.
How does it work? Or do you have any links?
Non sequitur. Armchair reasoning produces ideas that are much more likely to survive exhaustive testing than does e.g. random guessing. That some people overestimate its power, does not mean that it doesn’t work within its proper scope.
I think you’ve mangled the link to the Hunter S Thompson quote.
The better model isn’t the Lone Genius so much as serial computation with speculation.
Take Newton: The chronology of calculus goes something like (1) Descartes invents analytic geometry (2) calculus is immediately independently discovered by two people. You have to get analytic geometry first, but once you do it’s not incredibly unlikely that someone will get the next step. Many things are like this – progress has to be made in a logical order.
Serial computation is hard: you can’t just throw more cores/humans at it. We can make some progress using speculation, where you guess how some intermediate step will come out and work from there. If the intermediate step doesn’t come out that way, most of the work done under that assumption gets thrown out. Speculation happens in real life when people do speculative research (e.g. practically-minded quantum computing stuff) but also in every corporation: one employee tries to accomplish their tasks under the assumption that the other employees will accomplish theirs; if the assumption is wrong (e.g. the engineering team shits the bed) then other work (e.g. the ad campaign is wasted).
The serial computation model is a downer. It implies there’s no great virtue in seeking to be the Lone Genius, since somebody will eventually do it. But there’s also no great virtue in plugging away in indeterminate-stan, which is sort of just irrelevant to the mainstream march of progress and discovery.
Whenever I was in intro economics, they told me that agriculture is one of the few industries that really approximates perfect competition as described in our textbooks. It makes sense for all the other industries. Perfect competition is by definition not economically profitable. Why do that when you could do something else that has more potential for profit like being in a tech startup?
Of course with agriculture someone has to do it because people have to eat. But someone is looking at opportunities to sell people food that reduces competition. We don’t just buy apples and chicken at the store anymore. We buy Cheetos and Doritos and Pringles. Of course these are just snacks. But I would bet that fifty years from now, generic chicken will be less common than some kind of meal that is much easier to commoditize and make a profit from.
This might be the movement that capitalism is always headed towards. Not more competitive industries, but less as companies try to find some little thing they can exploit to become incredibly profitable and swamp any possible industry that resembles perfect competition.
Plenty of industries are highly competitive, but are far enough back in the supply chain that the end-user never notices them.
Transistors, 1.4301 (304 in freedom units) sheet, M8 hex nuts, most things one might order 10,000 of from China etc.
There’s enough demand that a single company can’t supply the whole world, and everybody is manufacturing to the same set of standards, so there’s nothing to compete on except price.
Put this way, this feels like it should scare the hell out of me.
It scares the hell out of me for sure.
A more positive spin might be: if you don’t know what will work, try everything. (Or at least, a little piece of everything, weighted by market cap.)
We don’t seem to lacking in startup funding for specific, promising ideas, so I’m not sure what the problem is supposed to be?
I think this is the fundamental underpinning of the culture wars. We have no plans that enable us to invest in ways that result in actual valuable stuff (engineering), so we instead invest in ways of bidding up the value of the stuff we have (finance).
That stuff on monopoly sounds like pretty standard high school economics, at least how I taught high school economics. And, competition drives profits to zero only if the products are identical, and consumers understand them to be identical. That is what drives most advertising: an attempt to convince customers that there is something unique about the company’s product. It is no accident that most products that are widely advertised are essentially identical to that of competitors – laundry detergent, soap, shampoo, razors, gasoline, motor oil, fast food hamburgers, Coke/Pepsi, big box retailers, even cars, within classes (eg pickup trucks).
If the products are not identical, then you have a tiny monopoly on the exact sort of product you sell, so it matches the claim that the more you are a monopoly the better off you are.
But even perfect competition doesn’t drive profit to zero, but to the prevailing rate of return corresponding to the amount of capital you use and the (reasonable) risk you take.
I came here to point out the same thing. Yes, it is generally accepted in mainstream economics that perfect competition does not really exist and that normal firms have some market power (market powrer is sometimes called monopoly power). Even in highly competitive industries like restaurants, where market power mostly comes from location or branding. But Thiel is right that it is usually better to work in less competitive industries and that business innovation is often motivated by attempts to increase market power. It is however not very original point.
In particular, you probably don’t want to be in a commodity business, where you are competing on price with factories in very low-cost parts of the world.
I admittedly haven’t read the book you’re referencing here, so maybe it contains more information than what I read in the news back in 2016, but isn’t it a bit much to call Thiel’s takedown of Gawker a “ambitious long-range multi-step plan”? He waited for people to sue Gawker, then stepped in and threw money at them. He did it enough times until he eventually scored big.
I’m not saying this wasn’t an effective strategy, just one that doesn’t require the Machiavellian level of strategy that Thiel’s getting credit for here.
You missed the part where he invented VHS.
As others have said, the book is worth reading. It’s more complicated than that.
The list of things Newton discovered also includes “investing your life savings in the South Sea bubble is a bad idea”, “there is no Bible Code”, and “alchemists cannot teach you how to obtain or make a Philosopher’s Stone”.
Paul Graham’s hypothesis was “Physics seems to us a promising thing to work on, and alchemy and theology obvious wastes of time. But that’s because we know how things turned out. In Newton’s day the three problems seemed roughly equally promising.”
I can’t swear that the alchemy research was a complete waste of time, though. Newton’s translation of the Emerald Tablet begins:
Tis true without lying, certain & most true.
That which is below is like that which is above & that which is above is like that which is below to do the miracles of one only thing
Newton might have got that whole “universal scientific law” thing that revolutionized modern thinking from watching a falling apple, or he might have got it from the sacred texts of an ancient cult…
It’s an open secret that modern science is the intellectual descendant of Hermeticism by way of alchemy and astrology. It wasn’t just Newton: Boyle, Roger Bacon, Galileo, Kepler, and many other titans of science were followers of that tradition.
Interstingly, there was a third Hermetic art (they were big on the number three), theurgy, which doesn’t seem to have inspired any scientific fields. Alchemy was the basis for modern chemistry and medicine; astrology was the basis for modern astronomy and physics; theurgy wasn’t the basis for anything as far as I can tell. Who knows, maybe we’re missing a big chunk of scientific understanding of the universe because Renaissance-era scientists didn’t spend enough time working on their summoning circles compared to transmuting lead into gold or predicting the future.
Theurgy: perhaps this is might have been the starting material for a better or at least different understanding of psychology. Possibly a lot of the contemporary interest in Buddhism and Buddhism-derived things is trying to fill that gap; trying to import from a distant mystical tradition rather than transforming a home-grown one.
That would be interesting, and not totally implausible. Jung famously took a lot of inspiration from alchemy so there’s some precedent.
If we started with something like Jungian psychoanalysis in the 17th century, that would have given us three centuries of room to develop better theories as opposed to mere decades.
These aren’t as incompatible as you’re suggesting. A state is a monopoly within a given geographic area. But they still have to compete with other states. Similarly, maybe a monopoly in one industry is not so bad but a monopoly across many industries is.
I’ve always felt that what made America great was that it was full of delusional people attempting to make it big (be rich or famous).
My pet theory is that the first American settlers were selected for bravery and devotion (escaping religious persecution) people and those genetics and that culture survives to this day.
Scott puts it better than I when he talks about which heuristic people believe in (dream big vs. don’t trust yourself).
Well, if you’re hunting weirdos, this forum seems like a pretty good place to set up a blind.
An anarchist, a pick-up artist, and a rocket scientist walk into a bar. The barkeep says, “The SSC meetup is on the second floor. You can’t miss them.”
I wouldn’t be surprised if Peter Thiel was reading this. I know for a fact that some people on his staff are regulars.
Moldbug sends him an executive summary.
(joke. I think.)
Nah, if Peter Thiel’s paying anyone on the IDW, it’s gotta be Nick Land.
Thiel was interviewed awhile back on The Rubin Report. As often is the case with Rubin’s interviews, he was good at letting his subject speak, but didn’t ask a lot of the questions I’d have enjoyed hearing answers to. (I gather Rubin is trying to be the modern version of Larry King.).
For some reason that line reminded me of the scene in The Man Who Was Thursday, where the anarchists are meeting in a restaurant, disguised as anarchists.
Glad to see you reviewing Zero to One. I really liked the book so nice to see a new take on it.
I’m not an economist, so you shouldn’t take my word for it, but the answer you’re looking for to explain why Thiel thinks that monopolies can sometimes be a good thing is Schumpeterian rent or entrepreneurial rent.
For an example which should be familiar to you, think about drug patents. It takes years and hundreds of millions of dollars to shepherd a lead compound through the FDA approval process to the point that you can prescribe it to your patients without being sued. Why do pharma companies go through all that instead of closing their doors and opening Indian restaurants? Because, if they manage to get a drug patent, they can recoup their losses and then some by making monopoly profits until their patent runs out.
That can be abused, and people have abused it, but Peter Thiel isn’t advocating rent-seeking so much as innovation.
Is this an equally valid argument? I’m sure anyone who manages to gain huge unfair advantages over others can say they will use that power to do good.
To be fair, “can afford to think about things” is not the same as “will think about things”
The key word here is unfair.
If I have an effective monopoly on importing olive oil because I’m a mafia don and will literally destroy any legitimate competitors, that’s an unfair advantage. If I have an effective monopoly on search because I made a much much better search algorithm to the point where my company’s name is literally synonymous with searching, that’s a fair advantage.
The difference isn’t just ethical but practical. If Google just sits on its laurels without continuing to push the envelope, they’ll eventually become as irrelevant as Kodak and Xerox are today. If the mafia just sits on their laurels they’ll be fine: people have known about it for decades and they’re still doing fine. A fair advantage is much easier to lose.
Arguably much historical progress in science and philosophy was due to oppressive land-owning aristocrats, some of whom devoted their leisure time to intellectual pursuits.
This is a trap.
If you buy the line that nobody agrees on anything, it’s not a trap, but I don’t think anyone can reasonably claim this to be true. There are lots of things people overwhelmingly agree on, and even when some people don’t, they tend to not matter.
What they disagree on is how much things are worth, but that’s enough to shut down the plans because they’ve already bought the line. You know what everyone wants? Dams that aren’t collapsing. Roads without potholes. Fewer people killing themselves with Fentanyl. Public libraries. Friends. The eradication of measles. Rivers you can swim in.
But they’re convinced other people don’t care, so they hoard their money and spend it on atomically beneficial goods. Guess who won the advertisement war? It wasn’t the engineers. And guess whether the real costs and extractable rents of failing infrastructure and the destruction of the commons are greater or lesser than those of the atomic goods that substitute for them? Cynicism and narcissism are way too sexy, even for me. Sorry, I’m doing my best.
Either way, the problem isn’t a lack of things that people want; it’s the sentiment expressed above.
I think the resolution to the “monopolies are bad, wait why is he so big on monopolies” question is that, while monopolies are bad (relative to equally efficient competitive markets), zero-opolies (that is, the product isn’t even available) are much worse. More generally, if a company gains market power by coming up with a product that is much better than all other firms’ products, then consumer welfare is almost certainly higher than it would have otherwise been, even though there might be less competition. Sure, the iPhone took huge amounts of share from feature phones that were basically commodities, and Apple definitely earns a markup for that. But does anyone seriously think we’d be better off if we all still had feature phones?
Also, I think your allusion to all of this violating the EMH is too strong, especially the weak form of EMH which is more or less the only one anyone believes. All you have to do to earn above average returns is to have private information. Inventing a new way to do something is private information, and people do it all the time. Even if everyone is equally smart, invention is stochastic and context dependent, so it won’t happen for everyone.
You can disabuse yourself of the notion that EMH is remotely strong by looking at the trading prize of mid-sized or even larger but not Mega-sized companies before they make an announcement. Private information and inside trading are still very much alive and encouraged. It used to be how most of them made any money at all. My old boss used to say that Thursday afternoon down the golf course he’d get a tip from a mate at a public company that their results looked good. He’d load up on stock, boom client performance sorted for the quarter, would be out of the office by 11 on friday morning.
It’s Georgism. Depriving others of a fixed supply, is unfair and taxable. Expanding a supply is fair and untaxable.
With respect to apparently-successful long term plans, they may be less improbably and intricately plotted than they seem. Instead of each step being crucial, they could instead have taken a large number of low-probability but low-risk attempts combined with high-probability generally useful steps. The bets that pay off are apparent, those that fail are much less so. This seems to be the likely case for starting a company, possibly less so for an enemy-destroying conspiracy. I haven’t looked into these examples in any detail, so this theory may or may not be correct.
When I saw this I thought you were reviewing George Ifrah’s From One to Zero, a delightful historical excavation of the origin of counting and numbers.
Oh I thought it was a sequel about how to run companies into the ground.
I had a more morbid interpretation (Xrisk).
This review reminds me of Taleb’s advice from The Black Swan: He said you should divide your investments between ultra-secure but low return, and ‘lottery tickets’ with only a small chance of paying off but a very high payoff if they do.
I think he wrote that in the context of finance but it makes sense in ordinary life too- you can divide your time and energy between a very safe, secure job, and put your spare time into a moonshot type startup. The ‘in between’ strategy to, say, quit your job and open a restaurant, is both too risky (very high chance that the restaurant fails) and not enough reward (even if it’s successful, most restaurants don’t make all that much money).
It also makes sense in the context of government and society. A government can, and should, be willing to fund very radical projects like the apollo program, while also keeping up the safe stable things that the economy relies on (roads, agriculture, etc). Trying to re-shape the economy by, say, converting all existing coal plants into oil-burning plants is a bad strategy because it’s risky and expensive for only moderate gain.
I am a fan of Taleb for a few reasons, but his real life advice is generally terrible. He was a trader in the 80s when you could get 8% on government bonds, and 5%+after inflation, but that was one of the best decades to be in Treasuries every (possibly the best, I’m not a bond expert). His advice is colored by coming of age during a specific financial situation that is unlikely to be repeated in the near future.
The whole “work and pursue your passion on the side” is very unlikely to make you rich. You are at a massive disadvantage to anyone who just goes after the same passion full time, while also leaving you behind your coworkers who put in 10% more hours because they aren’t pursuing their passion project. It might be a much better quality of life for some people, but it isn’t great “get rich” advice.
But more likely to get you status in the subset of people who share your passion.
A pattern I’ve seen in the SCA is someone who supports himself by some relatively boring and undemanding job but gets his feeling of accomplishment by running the Pennsic University, being the first and best person to research some particular period cuisine, doing exquisite and admired calligraphy, … .
I’ve seen that a lot.
“What do you do?”
“I DM for a shadowrun game that’s really taking…”
“I mean, for money.”
“Oh, I’m a finance guy, but listen, about this game, its wild, you see…”
I don’t disagree with any of this, but if I have read Taleb correctly his advice in this vein is to work a salary job and then shoot for the moon financially on weekends so that you can get a better shot at ‘eff you’ money. You probably have a (far) better shot at financial independence following Mr. Money Mustache aggressively or maximizing your earnings and increasing savings for a decade or two rather than taking this path. Having a job + a hobby you enjoy a lot sounds more like typical “work/life” balance advice than Taleb.
I don’t know how specific Taleb is, but most of my worth is in the form of owning my living quarters, which I believe to be a fairly safe investment, and reasonably profitable, especially given that I have to live somewhere . Better to pay mortgage than rent.
But is that a sensible goal? I realize there are some who manage to consistently produce successes, Jobs was one, Thiel may be another. Musk, perhaps. (Who else, btw?) But for most people, a good bit of luck is needed, in addition to a lot of hard work and talent. Why not just go to med school or law school or something, have a great time at college, and go on to a secure and comfortable life?
I think this is also a myth, google gives me 660,000 restaurants in the US, tons of people open up and run successful restaurants. You get a high failure rate among people trying to launch the hip new place in New York, but they are aiming for something super specific.
The number of restaurants that exist at any given time has little to do with their failure rate. I don’t know about that industry specifically, but most new businesses in general go under in a few years. So I’d guess that the majority of those 660,000 restaurants are either old or will be gone in five years (and replaced by a new crop of new short-lived restaurants).
This is clearly true, and googling around it does appear that I was wrong and estimates of restaurant closures are very high.
I don’t see the two heuristics as incompatible. People who try to accomplish grand things will usually fail; the expected value of trying to accomplish grand things is negative for the person doing the trying. But grand things usually get accomplished only when people try to accomplish them, and they have enough positive externalities that the expected value of having individuals try is positive for society. So neither heuristic is wrong per se; which one you choose depends on your values.
It seems that most of this is just watering down the definition of a monopoly.
Apple- currently about 15% of all phones sold are Iphones, I don’t think their market share has ever been above 25%, Ipads share is higher, but generally well below 50%. If you claim that they are a monopoly because they make lots of money then you are about to take a spin around the tautology pole.
Facebook- if you want to argue network effects for Facebook then why did MySpace fail? They were several years ahead of Facebook and had the #1 most visited website in the US in 2006. Tons of places tried to create social sites with “network effect” advantages. Google and Microsoft had large, built in email bases, Yahoo had tons of funding, MySpace was well ahead of them, weirdly their network effects didn’t work, but Facebook’s did. Besides that what exactly does Facebook have a monopoly in? Places where you post pictures? Places where you connect with your friends? Facebook has tons of competition even if you assume that “social media” is some special subset of “media”, which shouldn’t be assumed. Why is Facebook a monopoly? Because they are the largest? Because they make a lot of money?
I mean, on the Facebook thing, it says a *Lot* that Google decided to step into their space, armed with the home page of the internet, infinite wealth and widespread goodwill, while Facebook is regarded as war criminals, and it wasn’t even close. Like, you can say ‘they aren’t a monopoly, a company that was more popular, more powerful and richer than Google could have successfully competed with them”, but I feel like by that definition Standard Oil wasn’t a monopoly either.
The point is that “network effects” just ends up a catch all for explaining why one company made it to the top while ignoring all the others. Myspace had a large leg up on Facebook in terms of network effects and eventually faded into oblivion. Google et al who have challenged them elsewhere have large network effects, tons of resources and tons of capable programmers, and they failed. Why isn’t the default just that Facebook is a really well run company?
Weirdly enough Google challenged Twitter (with Buzz), Facebook (with Google Plus), and YouTube (with Google Video), and lost all three times. They don’t always win. Not nearly.
Network effect is not a 100% guarantee that you won’t bungle it, but it helps a lot.
In order to dominate social networking through the network effect, you need most people to be registered on your social networking service, with their acquaintances set as such in your social networking service. Merely converting Google accounts into Google+ accounts is not enough, unless you can give people enough incentive to register their friendships on Google+, because this sort of social networking service doesn’t work unless friendships are registered in it.
Of course networking effects help… so does landing a big government contract, or hiring really smart people, or hundreds upon thousands of other things. The network effects are just one ingredient of many, and only come into play when you have enough of all the others, so again his advice just boils down to “create a good company” and then focuses on some tiny portion of what is necessary and acting like its the whole. Its like teaching someone to bake and telling them its all “Time and Temperature”… what about the actual ingredients? Well I just assumed that you had them….
Yeah, the whole network effect thing has a little bit of explanatory power, but it’s way insufficient. It’s more of a barrier to equal or minorly improved competitors, not actually innovative changes.
The reality is that in the free Internet software space, it’s virtually costless for users to switch to a competitor because you don’t have to pay anything and aren’t required to completely leave the old one while you try out the new one. As a result, everyone seems to switch at once compared to brick and mortar industries which have to build physical locations in places in order to get new customers.
MySpace is huge until Facebook is way better (At the time, mostly because of their offered API integration to third party developers) and everyone switches. Facebook will only last as long as there isn’t a superior alternative which manages to at least get a critical mass where people have heard of it.
That story repeats itself with Yahoo, Geocities, etc…
That’s why Facebook feels the need to do things like purchase Instagram or WhatsApp. It’s not because they’re sure their network effects will save them from any competitors, it’s because they know they won’t, they have to have the best features (games, photo sharing, chat, whatever) people actually want to use.
There’s not much incentive to switch to a worse or even similar platform, as Google+ found out the hard way, despite having lots and lots of pre-existing users to create that vaunted network effect. Linked-in survives by being in a different market than Facebook, instead of being better than Facebook as a general purpose social network, they’re better for the specific purpose of work/employment relationships due to their software targeting that market.
You can’t out compete Facebook without being better at something users value than Facebook is. If you are, then you can get the users, and/or get someone like Facebook, Microsoft or Google to buy you once they recognize you’re winning.
That’s the thesis, in the software context, of Winners, Losers & Microsoft by Liebowitz and Margolis. Network effects and economies of scale produce serial competition. At any one time there is a dominant product, but when someone brings out something else significantly better people rapidly switch to that.
The sort of competition where someone can only out-compete you by offering something much better is still very different from the sort where someone can out-compete you by a small improvement, or by offering the same but cheaper.
Thanks, I’ll check it out.
MySpace was barely used by anyone over 25. Every demographic has a large percent of their population on Facebook across many countries. There’s a vast difference between the two. There can be other social media apps than Facebooks but they aren’t going to be able to directly compete. They have to find some niche that Facebook doesn’t cover, like Snapchat initially or TikTok now.
At the same time that MySpace was in business Facebook was also barely used by anyone over 25. It grew into that market as people who used it graduated and got jobs and intermingled with older professionals.
Stretching the definition, but not tautology. Huawei has a monopoly on Huawei smartphones but that doesn’t matter because its customers are ready to ditch it for any similar phone; so Huawei’s real market is smartphones in general, in which it doesn’t have a monopoly. However, Apple’s monopoly on iPhones is meaningful because many people decide to buy iPhones in particular, rather than just any good smartphone. As such we could talk about degrees of monopoly, meaning how much (real or perceived) distinguishing value your product has over its closest alternatives (that don’t come from your company). Maybe there is a better term in economics for this.
If you use this definition it becomes a tautology, any company that sells a really good product will end up with this type of “monopoly”. Using this definition you might as well reduce the advice to “well run companies make lots of money, bad ones don’t, run a well run company”.
Not necessarily, if its competitors can easily sell an equivalent product. Theoretically you could make a lot of money on a competitive market too, that company would make a lot of money, but wouldn’t be a monopoly in this stretched sense. Thiel’s claim is that such a company doesn’t exist (or at least it’s not the best way to make a lot of profit), which means that, indeed, companies making a lot of profit more or less equal monopolies; however, that’s a non-tautological claim.
Apple doesn’t have a monopoly, it has brand power: people are willing to pay more for Apple products for a given functionall quality because they get social status from owning Apple products. Apple products are Veblen goods.
Other phone manufacturers don’t have this advantage. Why this happened, I don’t know.
You can’t just declare a good a Veblen good by citing a high price, Veblen goods are specifically goods that increase their sales when they increase their prices*. The Iphone 1 came out at around $500 and the Iphone 7 is still in that nominal price range and is lower with inflation adjustments, I am unaware of them making any significant push to increase the prices of their products and getting higher sales volume.
*Ie not just returned higher profit with higher prices that overcame lower sales, but more units sold at the higher price.
“Phones” is too broad of a category. If there exists a large population for whom an Android phone is not a substitute for an iPhone, you can extract profits that are larger than a typical Android phone maker can.
Today, Facebook succeeds because of network effects. At it’s inception, it succeeded because it knew a secret: that people want an online proxy for real-world identity. It started by dominating an area where it was easy to solve this (.edu addresses). Now, the secret is out of the bag, and Facebook must rely on network effects.
MySpace was offering that AND was one of the top websites for traffic before Facebook took off. There were other competitors who attempted similar things that never went anywhere as well. They weren’t first, or the first to have big network effects, nor the last to have big network effects, picking that as the reason they succeed is unconvincing.
There are people who will only buy a Mercedes (if they can afford it), is Mercedes a monopoly? Also BMW? Also Subaru? It’s a massive jump from “people really like their product” to “monopoly”. Why not take the more reasonable route of just assuming that their products are better for that subset of people?
Myspace did not have a compelling solution to the identity problem, because it was easy to make a fake myspace, and people usually did not use their real names. Facebook discouraged this, initially by requiring a .edu address. I think facebook beat myspace despite myspace’s network effects, because facebook understood this secret.
I think network effects always have to be present in addition to one of the three other factors. Once you already big, network effects are sufficient to help you keep extracting outsize profits, but to get that big in the first place, you need technology, a secret, or economies of scale.
I agree that Thiel is playing fast and loose with the definition of monopoly. Let’s call Thiel’s concept foo, to avoid confusion. Foo is not a binary, it lies on a continuum. If there are a lot of people who only buy Mercedes, Mercedes is more of a foo. For a better example, look at Lamborghinis, which hold a special fascination for hiphop heads and crypto enthusiasts that enables much more favorable economics than their competitors. iPhone’s are even more of a foo, since those rigid people make up a pretty high percentage of the smartphone buying public. If you can make a product that is better for some subset of people and that subset is large enough, you are more of a foo.
Maybe the continuous analog to what Thiel is saying is: create products whose consumers have a very inelastic demand curve.
That isn’t my impression of how Myspace lost, as I recall Myspace’s customizable pages meant that 10% of the ones you went to took forever to load (back in the early 2000s) and would suddenly blast a 5 second loop of their favorite song and had backgrounds that could be NSFW without warning. Facebook was worse for people who wanted to create their own unique online presence, but way, way better for the 90% of people who were interested in interacting with them.
Either way the description for beating network effects is “have a better product” not “you can’t beat network effects”, and the explanation for Google not being able to dislodge them is probably more like “Facebook has a good enough product that overcoming their network effects is hard”.
As for the rest, its a reasonable way to look at it, but without the dichotomy much of the advice falls flat, or reduces to “good companies are run good”, but live blogging a course called “why google is a well run company” probably won’t go viral.
Just like Tumblr, which hasn’t displaced Facebook but became a really popular online social network unlike anything designed by Google, Microsoft or Yahoo.
It’s tempting to look at past success and failure stories and try to form hindsight explanations, but I doubt these are generalizable. It’s more likely that success or failure of an enterprise is mostly driven by chaotic factors and internal organizational factors that are invisible from outside, and may be not even understood by insiders.
There are people who only buy Mercedes, but their numbers would start to dwindle if Mercedes consistently sold their cars at a significantly higher price than a similar BMW. (Or maybe not, if they could establish Mercedes as a Veblen good at a higher level. I don’t know enough about cars to know if that would actually require something other than a higher price. Also, that way they would start to compete with established higher-priced luxury car makers.) Apple’s sales don’t seem to dwindle. (Though note that Apple devices have different operating systems than the rest, which some people prefer. That falls into the category of proprietary technology.)
A monopoly means a product that can’t easily be replaced by another, not in market share. As somebody pointed out, Amazon is not a monopoly, they compete with others selling the same books and other stuff. Facebook is a monopoly, since the value is in having my friends there. Apple is kind of a monopoly, since no other brands have quite the same signaling value, and kind of not, since you can get another mobile phone if you want.
And at least in my experience, Facebook was never technically very good, I mean, who else doesn’t have a decent search function these days? And it is becoming really crappy lately. They survive on having a monopoly, for the time being, in spite of their technical ineptitude – it’ll be interesting to see how long it lasts.
In antitrust law it comes down to market definition. Apple may have a relatively modest share of the smartphone business, but if it can sell its phones for $500 and everyone else has to sell their (functionally equivalent) phones for $400 (I have no idea whether Apple can in fact do this, or if other smartphones really are functionally equivalent, but let’s pretend), then an antitrust attorney (or a court) would probably say that iPhones and other smartphones are not in the same market, and that Apple really does have a monopoly (or at least a massive amount of “market power”) in a properly defined market.
I think Thiel is saying you should be completely unique, and if you can’t be, then being where Apple is (or was until recently) is the next best thing. Apple’s incredible profits from its phones indicated that it did have something really, really powerful.
The definition of monopoly in the law is a little bit fuzzy. Amazon does have competitors, but it also has massive market share by any definition. There’s a law review article that’s making a stir (by the standards of law review articles) called “Amazon’s Antitrust Paradox” (a dig at Robert Bork’s influential book The Antitrust Paradox, incidentally) that talks about it at length. Basically, Bezos was not particularly interested in profits, just market share — like Rockefeller 150 years ago. He undercut everybody. Nobody could compete with Amazon on price, just like no one could compete with Standard Oil.
I can’t speak to the case of Amazon, but I believe Standard Oil had been losing market share for a fair while before it was broken up.
No one thinks monopolies are eternal. But the Supreme Court decision breaking up Standard Oil came down in 1911, so Rockefeller had dominated the business for ~30 years by then. Not bad. When I say “no one could compete with Standard Oil on price” I’m talking about the 1870s, 80s, and 90s, when it drove one competitor after another out of business. (Edit — I checked The Prize — at the time of the breakup, Standard Oil refined 4/5th of the petroleum in the United States, marketed more than 4/5ths of all kerosene sold in the United States, and sold the railroads more than 90% of their lubricating oils. So it was still pretty damn big! Its successor companies, like the bones of a giant used to make the earth in a creation myth, included what became Exxon, Mobil, Chevron, and Amoco.)
The market cap of the various pieces of Standard Oil post-breakup was higher than Standard Oil’s market cap pre-breakup, presumably because investors expected the successor entities to focus on making money and not so much on market share. But that fact militates against the argument that monopoly was the secret of Standard Oil’s profitability. On the other hand, Rockefeller was selling a commodity, while Bezos has a dominant platform (and now a distribution network and a trove of consumer data). His monopoly may be self-reinforcing in a way that Rockefeller’s ultimately wasn’t.
People have pointed out that MySpace was a dominant social media platform but still got swept away by Facebook. I don’t know much about either company, but it’s possible that MySpace had a really big market share in a relatively small market — there were huge numbers of people that weren’t on social media at all. Speculating further, maybe the non-networked people were demographically different from the people who were on MySpace, so their friends weren’t on MySpace. If that’s true, then maybe MySpace wasn’t really truly dominant.
The bulk of Standard Oil’s sales was for kerosene (parenthetically, kerosene probably saved several whale species from being hunted to extinction in the 19th century). The development of the electric light bulb blunted that market. And the backbone of Standard Oil’s supply were the oil fields of Pennsylvania. Also, it wasn’t very powerful outside the United States. When the Texas fields began coming online at the beginning of the 20th century, those oilmen didn’t sell them to Standard Oil — the men who drilled Spindletop (site of the famous 1901 gusher) sold that field to Shell in London. So Standard Oil wasn’t able to dominate the market for gasoline for cars the way it had the market for kerosene. So in those senses, maybe Standard Oil was a little bit like MySpace.
I don’t know about antitrust law.
But I’ve recently been having to deal with problems caused by lack of competition among ISPs. Basically, there are two suppliers, and they know they have the end users over a barrel, and behave accordingly. Consumers may go from one to the other – but the prices, bad service, etc. pretty much match. I’m experiencing this in Silicon Valley, where there actually are other competitors, but they are too often in the business of reselling lines supplied by the big two, which seem to me to frequently sabotage these competitor-partners. My mom experienced it in small town Canada, with only her local big two. I suspect it’s true across both the US and Canada – two lousy ISP offerings, each as easy to work with as the New Jersey DMV .
The only thing either of the local duopolists seem to deliver reliably, is direct mailed advertisements. Apparantly they figure that there’s no need to provide service – advertisements will do just as well 🙁
I don’t know whether the phone and cable companies are coining money this way, or not. But I do know they are supplying what’s becoming a vital service – just try functioning with all your stuff “in the Cloud” when your net access goes unreliable 🙁 And they are basically screwing their customers over.
I’d support any kind of anti-trust that broke this up. Having a duopoly doesn’t seem any better to me than having a monopoly. Alternatively, I’d support some serious government regulation that forced them to behave like utility companies granted monopoly status in exchange for excellent prosocial behaviour.
Meanwhile, it seems that the cellular companies are behaving at least somewhat better – even though there’s generally only 3 in any area. My cell service stays up.
And as for iPhone vs Android – after two weeks offline, and months of erratic low bandwidth so-called sevice, I think Apple’s killer app is the “personal hotspot” 🙁 It’s one of the few things on any cellphone that’s easy to figure out how to do, and it saved me from taking my laptop to the public library or some internet cafe – a lot. AND I’ve never figured out how to get an Android device to do the same thing.
So to me, for political/legal purposes a ‘monopoly’ is a business that puts consumers into a no-choice situation, and leaves them with no good options. I don’t care how many other supposedly independent ‘competitors’ are providing the same equally bad options, though I do care somewhat about barriers to entry.
That’s not what the word actually means, of course. But it’ll do for a political soundbite, and certainly captures the essence of my objections to “monopolies”, “duopolies”, etc. Whether or not any collusion between them is, legally speaking, explicit and actionable, it feels like it should be treated that way.
Implication by the way: I don’t care if some business is the sole source of something new – the consumer can always continue to do without it, and will if the price or other sales conditions are sufficiently unattractive.
Meanwhile, after all this ‘fun’ I’m even less willing to receive statements online, store data in the cloud, etc. The post office is just plain more reliable 🙁
It takes about 4 touches on my android phone to configure it to act as a hotspot.
The issue you may be seeing is that there are a few wireless carriers who sell “unlimited” plans which then turn around and disable that functionality on the phone in order to prevent you from using more data than you would with your phone by itself.
That could very well be the problem I had.
I think the issue with ISP is that they’re physical infrastructure, which just can’t compete in the same way as most other things.
If you want to enter the market, what do you do, dig up a load of roads and lay another load of cables parallel to the existing ones? (Checkmate, ancaps 😉 (seriously, if any libertarian has a general solution to this kind of problem, I’d like to hear it.) )
The UK mitigates this by having a (possibly former?) state-sponsored monopoly (BT) operate the physical infrastructure, but other ISPs are allowed to pay to use it.
At one point there was a similar situation in the US, but the monopoly (whatever slice of the old country-wide phone monopoly you had in your locality) wasn’t government sponsored. Legally, this is probably still true – but what I’m seeing locally is rampant incompetence that amounts to sabotage, combined with government decisions about “net neutrality” that probably allow them to give intentionally worse service to those end users using one of those partner-competitor ISPs who pay to use their infrastructure. My ex-ISP is dropping coverage of any area where it doesn’t have its own physical infrastructure because of this.
This is not the first time I’ve seen malicious incompetence used by large businesses to improve their own profit margin, by the way. Health insurers in the US are notorious for losing paperwork, forgetting to send notifications about demands for extra data, etc.
Yeah, BT have been fined millions for that kind of thing.
In terms of ancap solutions, the obvious one is for property owners to own the roads which are required to access their property, generally as part owners of an organization which manages those roads for them, or at the very least to have contractual rights with the road-owning organization for a travel easement.
The way the road-owners (or property developers) increase their value is to have property for sale accessible via the road which people want to buy. People don’t want to buy property for very much without they and their friends being able to access it. Landlocked (no-access easement) property which exists right now is rare and virtually worthless.
Now extend that to if the property owners control the road maintenance organization, or have/are able to purchase rights related to using it’s roads (similar situation), then it also makes the most economic sense for that road organization to also provide physical access for utilities like ISP (or other) infrastructure, either shared infrastructure they maintain, or else conduits or dark fiber or whatever. They’re responsible to the end customers (the property owners), more than to the providers.
The current lack of future planning for infrastructure (it’s cheaper to put in dark fiber or infrastructure conduits while first building a road than it is to physically rip up the roads periodically, for example) is a condemnation of the current government ownership and management of those roads. In most places, they apparently didn’t have the right incentives to ensure future infrastructure was planned for. This probably has something to do with the model that they either grant a monopoly at the start to a single provider at a time (and make them pay some of the initial costs), or else they decide to become that single monopoly themselves (and force the property owners to pay for it). The idea that they could be maintaining shared infrastructure for the benefit of the local land owners from the resulting provider competition was mostly missed, although there are now a few and far between locations starting to realize that.
Sounds an awful lot like you’ve just turned HOAs into microstates and nationalised all the infrastructure, but ok.
The transaction costs of moving house, while high, are lower than those of emigrating.
I agree that Thiel’s basic message is to be contrarian. Question assumptions. Think for yourself.
The problem is that this message is a cliche. Simply saying, “think for yourself” doesn’t work. Then everyone tries to “think for themselves” by following Thiel’s particular contrarian opinions, or (even worse!) by trying to mimic the trappings of originality (wearing T-shirts to signal that you don’t care what people think about how you dress!).
(Aside: if I ever interview with Thiel, I’m wearing a suit.)
So simply saying “think for yourself” doesn’t work. It’s a sort of zen thing.
How does Thiel tackle this problem? He lays out his own contrarian thinking to show how its done.
The result is fascinating. I don’t agree with everything Thiel says, and I think that focusing on the details is obscuring the larger point, which is to *show by example* the kind of thinking required to actually *think for yourself*. Yes, thinking more about the particular examples might be useful, but the bigger trick is being able to generate novel Thielisms.
What would happen if the book succeeded and everyone actually did start thinking for themselves? That wouldn’t be a problem at all. There’s no anti-inductive problem in actually truly thinking for yourself, because that will by its nature lead us in different directions. If everyone starts thinking for themselves, we all win.
The apparent contradiction with monopolies goes away when you consider who the book is written for. If you are the entrepreneur who creates a monopolistic company, your market position is good FOR YOU. Obviously, the public will be better off when your business becomes a commodity, with cheap prices and lots of options. At that point, the entrepreneur should have jumped ship to start something new, which certainly feels like the way people like Elon Musk run their lives. Focusing all your energies on being the CEO of a successful company is a lame 1 -> N job. Better to start something new with the potential to be a monopoly, like the Boring company, and leave 1 -> N to the bean counters.
> remember that early San Francisco was settled by New England Puritans
This surprised me, so I did some Googling and couldn’t find any support for this. Anyone got a reference?
In this post Scott mentions this belief, but he doesn’t seem to hold it as strongly as now. The map there does show that San Francisco was settled by the Portuguese. Of course you’d expect it to be settled by sailors and New England dominated US sailing. There is a 1840 book by a New England sailor (on the Pilgrim!) that is said to have an advertisement for California in general and San Francisco in particular. Samuel Brannan lead Mormons to double the population of SF in 1846. Mormons were generally descended from Puritans, until they started recruiting in England. Some of the first 49ers were from Oregon and the map does show them as Puritan.
But I’d think that the later 49ers would swamp all this.
[Actually, I think Scott asserted that the 49ers were Puritans, to explain this.]
“> remember that early San Francisco was settled by New England Puritans”
Whoever settled it decided to give it a Latin name. So no, it wasn’t.
This is dependent on the earlier assumption that almost everyone believes in the EMH. This assumption is false. The vast bulk of the populous doesn’t believe in EMH. This is true regardless of whether EMH is actually true.
This seems like one of those statements that only makes sense in the context of a specific bubble, similar to thinking that no one believes in creationism, etc.
EMH will only be true if enough people believe it isn’t true.
Newton is sort of a bad example. He was very weird.
(Incidentally, Thiel has mentioned previously that he thinks that the reason for many weird founders is that they are oblivious to conventional wisdom, so able to think originally. That’s possible, but I’m skeptical: another explanation is that weirdness is associated with high IQ and interest in tech, a combo that turned out to be very profitable in the last 40 years).
Wikipedia has this on Kepler:
The notion that astronomy around 1600 probably had things figured out enough that they hadn’t missed something as simple as elliptical orbits strikes us as weird (with the benefit of hindsight). Of course in 1600 nobody knew anything! But apparently Kepler didn’t see it that way, and he was the guy who ultimately figured it out, so among the most likely to be skeptical of conventional wisdom on the subject.
That at least is one thing I’ve learned in doing mathematics — never assume that someone must have done what you’re thinking of doing just because it would be so simple. If you can’t find any actual instances of someone having done it (and have reason to believe that you’ve searched pretty thoroughly), it probably has not in fact been done and you should try it (if you haven’t done it yet — if it’s so simple, it won’t be a large cost to do so) or write it up (if you have already done it).
I guess this maybe applies less in business, but…
“Avoid competition” and “don’t try to be the first mover, be the last mover” contradict each other, unless the latter really is intended to mean “try to be both the first and the last mover (as opposed to the first mover among many)”.
I think Thiel would say being the “last mover” means dominating the industry so overwhelmingly that your domination can hardly be called competition. For example, see Google’s search as compared to any of the also-ran’s. I think he would also say that you should not be the first mover without some indication that you will have a moat to keep competition at bay.
“Be the last mover” sounds like a cliche non-advice like “git gud” or “be attractive, don’t be unattractive“.
The fact that these things sound obviously ironic when said by a normal person, but become revered as profound revelations when said by Thiel is a testament to the culture of celebrity worship that pervades society at large and the Silicon Valley in particular.
I read it more as, “If you are sure you have a decisive advantage, don’t let being late to the party bother you.”
My model is that there are dozens of things that need to go right for a startup to succeed big. And even a capable founder can only control a handful of them. This means following the advice of those who’ve done it before is only somewhat useful. They succeeded, and succeeded big. But their problem won’t be your problem. And attempts to generalize advice tend to yield earnest but only vaguely useful homilies.
I don’t think its silicon valley, most successful people there aren’t asking Thiel for his advice (I wouldn’t think), its everyone else who isn’t in silicon valley who is looking for a way to get to their own SV.
It’s not entirely meaningless. One could think that if you are as good as your competitors, you’ll make as much profit as them, if you are a little better, you’ll make a little more, if you’re twice as good (in some sense) you’ll make ~2x as much, if you’re 10x as good, you’ll make 10x as much. He says that if you manage to dominate the market by being a lot better than the others, or being somewhat better and exploiting network effects, then you’ll make disproportionately more profit. This change to your payoff function should affect your decision-making, such as what risks are worth taking for a chance to become dominant.
OK it’s not a big secret, but it’s not as tautological as “run your company well if you want to make a lot of money”.
Sure, that’s what he means by last mover. But he also says “don’t disrupt your field” because that means you have competitors, which implies that you should be the first mover, too.
Then again, Google was a disruptor roundly out-competing competitors, not a first mover.
Does the Gawker incident fit the category of ambitious, multi-step long range plan/conspiracy? My reading of it was more that that Thiel held a long-term desire for revenge, then when Gawker fucked up in a way that visibly exposed themselves, Thiel approached Hogan with the old “Enemy of my enemy”, and from there the multi step long range planning was the same kind that naturally must accompany any kind of lawsuit. That sort of “remain open and flexible, then pounce on a good opportunity once presented” doesn’t seem like a specific example of the “zero to one” strategy. If I read the Ryan Holiday Conspiracy book, would I be more convinced that it was a single grand design from start to finish?
You should read the Holiday book. It’s very interesting. Thiel’s plan to get revenge on Gawker started after they outed him, almost ten years before they published the Hogan tape. Someone pitched Thiel on the idea of bankrolling lawsuits against Gawker on the theory that sooner or later Gawker would mess up and publish something that they couldn’t defend in court.
As a recovering “serious book” snob, Holiday is the kind of author I would have hesitated to read in the past, but Conspiracy is great. Trust Me I’m Lying might be even better.
The NYT review of the book says:
False things are often widely documented. I’d think if the book is improve our knowledge of the subject, the single most important purpose would be to correct this claim. Does Holiday say what is quoted? If he gets this wrong, why trust anything else he says?
If you’re referring to the fact that Gawker chose to go into bankruptcy to protect assets rather than post the $50 million bond that the court ordered before any appeal, that’s in the book. But if I remember the book correctly, Denton wouldn’t have been able to come up wit the bond anyway and since Gawker media was quite highly leveraged, it’s not clear that he could have posted equity instead. So, it might be true that Gawker had no choice but to file for bankruptcy. But I don’t remember if that is accurate.
Also, I believe that Thiel and his team were aware of the Florida law that made the bond necessary and that’s one of the reasons why they backed Hogan’s suit. It’s not clear that Gawker knew about it.
Was Gawker leveraged at all? I don’t see that claim in the book. It is probably true that Denton didn’t know about the bond, because he raised only $15 million. He definitely could have raised $50 million if he had known that he needed to.
I didn’t know about the bond, so maybe that is the right answer. But I am skeptical.
I’m a mathematician. A few times, I’ve had the privilege of hearing somebody of fields-medal-candidate quality talk about one of their major projects. The sense I’m left with afterwards is generally, “I just heard somebody describe a twelve-step solution of a problem, and every single one of the steps would have made me think, ‘I’m barking mad to be pursuing this solution anymore, it’s obviously impossible, I’m going to go work on something simpler.'”
This has encouraged me (in its own small way) to resist listening quickly to that voice when I have an idea for attacking a problem. It seems relevant to what Thiel is saying in business.
Nowadays people get told that if they think they’ve figured out something about gravity, they’re probably a crackpot. Instead, they should wait for very large government-funded programs full of well-credentialled people to make incremental advances.
This feels to me like another yin and yang whose interplay creates the Ten Thousand Things. In my job, almost every day I have to give advice to students and postdocs about their research projects. Sometimes the correct advice is: “if these hundred brilliant people before you made zero progress on this problem, then you’re probably wasting your time trying to attack it head-on. Back up and try something else.” Other times the correct advice is: “holy crap, GO FOR IT!” I hope I don’t err too often. Of course, my proudest moments as an adviser came when I gave the latter advice and it was followed and it worked.
Of course, the same applies when giving advice to oneself.
And I think all working scientists are forced to navigate this same yin and yang—interestingly, no matter how politically far to the left they might be, and no matter how opposed to self-styled contrarians like Peter Thiel. This sets up a strange dynamic, where a given scientist’s Facebook posts and other public opinions might consist almost entirely of railing against various contrarians and crackpots and denalialists—but then in their professional life, they often enough tell students (and it’s one of their greatest joys to be able to do so): “YES! DO IT! LUNGE FOR THAT TRILLION-DOLLAR BILL THAT NO ONE ELSE SEES YET!”
(Here, of course, “trillion-dollar bill” is just a metaphor for “solution to a decades-old open problem.” While I’ve been lucky enough to be near the latter a few times, none of it has ever yet made actual money…)
This is related to my argument about the intensive vs the extensive margin in economics (or, probably, any other field). The intensive margin is trying to say something new about a question that smart people have been thinking about for a hundred years. The extensive margin is finding something economics can be applied to but hasn’t been.
Isn’t this also the missing piece also in economic development? The big question is where does innovation come from? Why hasn’t the innovation already been made? My thinking is that there is an idea frontier where necessary information exists to move the frontier forward by some small innovation on existing knowledge by some necessarily smart person. This moves the frontier forward so the next person to study this frontier area can move it forward somewhat. The frontier is very large and there are multiple places where it can move forward, so as long as there are lots of people on the frontier it moves forward all the time, which is what creates economic growth. You can’t leapfrog into an area well beyond the frontier though – so even if a Victorian engineer was presented by a time traveller with the idea of a jet engine it would not be possible because it was so far from her technical frontier.
Semi-related: You may be interested in the fiction book ‘The First Fifteen Lives of Harry August’.
It seems like the word “monopoly” is getting abused here to mean “any significant competitive advantage”. You can win big without being anywhere close to a monopoly.
(When has it ever been difficult to avoid Amazon when buying a book, if you want to? They succeeded by making sure a lot of people didn’t want to.)
It may be due to what i’m reading at the moment but this sounds a lot to me like when the First World War Generals were hastily trying to publish their memoirs to defend their wartime legacies. The public was rightly wrathful in the aftermath as they counted up all that had been taken from them, and were eager to find someone to blame, and rightly so. I feel it’s safe to say that in our time one of the deepest driving antagonistic currents is inequality, and all billionaires must know that they are being judged heavily by the public. This reads like a defense of why i should be wealthy and why most people aren’t (of the Silicon Valley flavour). Plenty of billionaires seem to feel the need to defend themselves, just spend 5 minutes with Ray Dalio’s “Principles” and you will be overwhelmed with the guilt and arrogance it takes to make someone write such a book.
Regarding sections 2 and 3, maybe we should consider that if you have 1000 people doing the 10 step plan as you said and one makes it then (as you rightly said) that is survivorship bias. But how do the probabilities change for a billionaire trying to do a 10 step plan? When you can consult others in your class for connections to those with the best knowledge, and pay them top dollar to help. Maybe once you’ve accomplished your first great idea and make your money, all the other ones become substantially easier? I’m not saying these people aren’t supremely talented, or that they don’t deserve to be rich. But if i wanted to start a foundation with the 10 step plan of wiping out malaria across the world, it certainly makes it much easier to start off with being Bill Gates wealthy.
Considering most of us are never going to be the multi-millionaire (billionaire) founder of a monopoly company, why are we okay with them existing and not grinding them down with efficiency so, as consumers ourselves mostly) we get the most consumption? Is it due to the chiefly American concept of everyone believing that they’ll join that class of people one day, and so why would i strip down these people who i one day hope to join?
More plausibly, it is because, while a competitive industry doing X might be better for us than a monopoly doing X, a monopoly doing X is better for us than X not being done. That’s the point of the zero to one metaphor—that the entrepreneur is creating something that otherwise would not exist.
This is a good reply thanks.
By the public that elected a billionaire for President?
I don’t think people care about inequality all that much. A minority does, but there are a variety of political divisions the majority of people care more about.
Your point in your second paragraph is reasonable.
I think you’re probably right. Enough people definitely read these memoirs and agree strongly enough to defend them in public.
I’m torn between viewing the offshoring of manufacturing in western countries to the far east and the true globalization of finance as being simultaneously one of the best things that ever happened (lifting like a billion people out of subsistence living) and also one of the greatest tragedies in the West (leaving millions in worsening conditions as the masterminds of this switch write books about how smart they are).
It seems like the last time we had such extreme inequality in recent history we got World War One. (I’m not implying causation merely pointing out correlation)
Polls from Reuters on election day 2016 found that 75 percent of the populace agree that “America needs a strong leader to take the country back from the rich and powerful.”
I don’t know if you remember Trump’s campaign, but a major subtheme was “Elites, typified by Clinton, have taken over the country with their outsized money and influence, and only I can take it back.”
We’ll vote for billionaires, but only when they’re promising to go after other billionaires.
This is the problem with these sorts of polls. In this case not leading questions, but the phrasing of the question itself sounds good to many people, and is strongly suggestive of a “yes” answer. If they asked something like “should the government make it easy for entrepreneurs to create successful companies”, the majority would probably answer “yes” too. One question makes people imagine evil businessmen who abuse their power and hurt the people, the other one makes people imagine businessmen who make the economy strong and make the country successful.
Or, rather, leading question, but not preceding questions as in the video.
I’m not sure how true this is. The obsession with income inequality and specifically with “billionaires” and “the 1%” seems concentrated among certain types of over-educated professionals and activists. The current seems bigger because those folks make up an outsourced portion of the media. I think that the middle class cares way more about their objective well-being than they do about inequality.
Personally, I’ll probably never be a billionaire. But I get the appeal of Thiel’s message, especially when compared to the alternatives, which seems mostly about channeling my personal disappointments into misplaced anger. So, I have a choice between listening to the chattering classes who keep telling me that everything is socially determined, therefore my only hope is to subsume myself into some larger political/ideological movement or listening to people like Thiel who tell me that I can achieve something as an individual. I don’t think either view is 100% correct, but I find the information coming from Thiel to be way more useful than the information coming from the chattering classes.
Even if my whole life does turn out to be socially determined, the personal efficacy of making everything about politics is pretty close to zero. I might as well take a shot on trying to make some things happen for myself.
But Facebook wasn’t the first online social network, when it came out all your friends were on Myspace, so according to this reasoning Facebook should have failed.
Yup, let’s throw money at people who dress like Steve Jobs, what could possibly go wrong?
It’s a lottery. Think of genetic mutations: most mutations are either neutral of harmful, but evolution is driven by the the few mutations that happen to be beneficial in one particular environment.
Similarly, most weirdos and contrarians will be either average functional or dysfunctional, but progress is driven by the few weirdos who happen to be weird in some specific way that is highly functional in a specific socio-economic environment.
When Facebook first came out, none of my friends were on Myspace. I’m not exactly sure what Myspace’s demographics looked like in that era, but their network was narrow enough to leave large pools of potential users effectively untouched or at least unbound. Facebook initially grew in that virgin territory, and had a fairly large network of its own before it needed to seriously compete with Myspace for the same users.
As someone who was going to high school during the transition era, there were a number of social networking sites. Myspace unfortunately couldn’t expand beyond the Tumblr user demographics of angsty teens, while Facebook had much higher penetration of the Ivy League and could market its exclusivity.
It’s shocking how many high-level decisionmakers basically fall prey to a cargo cult.
This seems wrong to me. I think we (society at large) do appreciate Jeff Bezos, and others like him. Surely “the myth of the lone genius” is a reaction against the mainstream cultural trend of crediting the entire success of companies to their founders? Is it possible that you’re so steeped in counterculture that you’re only exposed to the reaction?
There certainly was a lot of hagiography about Steve Jobs after he died.
I don’t think this is accurate. Tradition might be described as an incremental optimization process, but Chesterton at least is very clear that it’s not optimizing for the same kinds of things that liberalism is. I see Thiel’s approach as embracing a different strategy from modern liberalism, but toward essentially the same (and still vaguely defined) ends.
Interesting to note that one of the two people saying this was one of the largest early funders of the other.
I liked Antonio Garcia Martinez’ formulation in _Chaos Monkeys_–a normal business requires nothing miraculous to happen, just hard work and competence; a startup typically requires one or more miracles to occur.
> “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”
> ― George Bernard Shaw
I find the argument about secrets fairly unpersuasive. Most of the ideas you describe were fairly obvious (to the extent that they’d all been tried already) – electronic money, selling books over the internet, reusable space rockets, social networks, electric cars. I know this because I thought of them myself, or read of other people talking about them before they become successful. Arguably PageRank was non-obvious, but it also wasn’t entirely a secret either – there were already academic papers discussing the use of incoming links as a ranking mechanism available to the public.
In none of these cases was it a secret (unless there were further nonpublic secrets that haven’t been revealed) that made the business successful, but (I presume) a combination of execution, context, determination and unusual appetite for risk.
Incidentally, this is one of the reasons that I don’t find it so surprising when someone who has been successful in one area is successful in another – they start with a massive amount of capital, both monetary and social and useful knowledge that a newcomer doesn’t.
However, I find myself interested in beliefs that are probably false but beneficial. In order to actually change the world, you probably need to start with a completely unjustified and irrational belief in the likelihood of your own success.
I think you’re misreading the nature of the secrets involved (disclaimer- I haven’t read the book, so the following is my interpretation of Scott’s interpretation.) A concept, like the ones you described, is almost never secret- for instance, anyone can hit a bong and go “what cars had electrons instead of gasoline? Wooaahh.” And electric cars of some sort or another have existed since before the internal-combustion variety- but gas cars have dominated the automobile market for over a hundred years, since on a price-per-performance basis, gas consistently won. In order to change that, you’ve got to lower the price-per-performance of electric cars, which means breaking the Efficient Market Hypothesis- changing a pricing pattern that has withstood a century of technological progress. And to do that, you develop and deploy a bag of tricks- engineering and design (and marketing) techniques that no one had figured out before. Those are the secrets. Tesla’s secrets include supercharger stations, the gigafactory, and crazy assembly-line-assembling sprints to hit flashy ramp-up milestones; things like that are much harder to see in advance, and yet also don’t fit the indefinite mold of “technological progress.”
Resources- capital and otherwise- are also an important factor, obviously. Musk couldn’t have gone on to found a stack of hardware-heavy startups if he wasn’t already filthy rich. But there again, the EMH suggests that if resources are the only barrier to creating a clone of your startup, the market will spawn such clones whenever your company starts to pull ahead. Something beyond that- something that the economy can’t simply cough up at will- is necessary to get the kind of edge Thiel thinks is important.
You’re probably right about me misreading the nature of the secrets involved. It’s difficult to calibrate exactly what level these secrets exist at.
Even the things you list: ‘Tesla’s secrets include supercharger stations, the gigafactory, and crazy assembly-line-assembling sprints to hit flashy ramp-up milestones’ don’t necessarily seem like secrets to me.
For example – the knowledge that electric cars would need a charging network is absolutely obvious with five minutes thought. The broad technology to achieve it was also not a secret, and DC fast charge networks already existed, although there was plenty of room to improve on the things I mentioned – execution, context, determination and appetite for risk – especially as one of the early movers.
Broadly, I agree with the premise that any outsized success involves either or both of
* someone reaping the benefit of taking an unusual level of risk
* ‘market failure’ (by sufficiently loose definition), usually from barriers to entry (network effects, regulatory and legal, starting capital, patents which are a form of deliberate market failure, licenses, large information asymmetries etc)
Outsized success is valuable because it encourages more people to try to become outsizedly successful, and creates benefit to society from their efforts, but harmful because the incentives of the outsizedly successful tend not to align too closely with the rest of society, and they have disproportionate ability to influence the way society works to try to lock in their success.
I tend to think that a reasonable way of approaching this would be to have a series of steps that can be taken by government to decrease barriers to entry, that they ramp up over time on a schedule that allows the entrepeneur to become successful to a huge level, but one that is not too dangerous to society. The schedule could be accelerated in cases of obvious bad behaviour.
“Electronic money” or “self-driving cars” or “mass-produced personal cars” are all pretty easy-to-have ideas, but figuring out how to actually make something in one of those spaces work well enough that you can start making money and ramp up into a big success is a lot harder. Lots and lots of people have tried to do electronic money over the years, some of them genuine geniuses (Chaum’s Digicash, for example). Paypal is pretty mundane in terms of technology, but it actually does work and make money, whereas Digicash had amazing technology and went nowhere.
 They developed anonymous payment systems based on blind signatures, which Chaum invented, along with a lot of other clever ideas.
I agree, and it’s for precisely that reason that I think that working out some ‘secret’ in the sense of gnostic secret knowledge is not the important factor that caused success in these examples.
That, and the reason that the article hinted at – its hard to imagine many of these niches remaining unfilled for very long, even without the specific companies that achieved success in them.
I want to throw out another data point of immensely successful individuals, which is Babe Ruth.
In 1918, Babe Ruth shared the home run title for the season, with one other guy, hitting 11 homers.
In 1919, he set the all time single season record for homers in a season, with 29 (next highest that season was 12).
In 1920, he hit 54 – next best was 19 (and slugged .847, a record that stood until 2004 and is still the 2nd best ever).
In 1921, he hit 59 (next highest 24) and set the career record with 162 (and slugged .846).
When Ruth retired in 1935, he had 714 career home runs. Lou Gehrig had 378, and nobody else had more than 302.
Why did Ruth crush the competition so thoroughly? Part of it was that he was better than the rest, sure – nobody else really matched his numbers until the steroid era.
But a big part was circumstance – Ruth came up as a pitcher in the dead ball era. Back then the “correct” form was to swing downward. If Ruth were a hitter they would have coached him to do this. But nobody cares how a pitcher swings because they assume they’ll get out anyway, so they didn’t bother teaching him the “correct” form. When circumstances changed suddenly and the game became more conducive to home runs, Ruth’s swing was suddenly the optimal one, and he was in a much better position to take advantage, all of the other hitters having been coached not to hit homers.
How did circumstances change to make the game more conducive to home runs?
Thanks for this writeup! I love learning about the greats and the individual and circumstantial things that contributed.
I always love this quote:
ctrl – f: “selection”
2 results, 1 in the comments
When considering taking advice from a famous individual, it seems like the first thing you should be asking is, “how many people I’ve never heard of tried the same thing?” If I were less of a libertarian I would probably be advocating for a law requiring all motivational speeches, graduation speeches, TED talks, etc. to be preceded by an explanation of survivorship bias. Like how cigarettes have warnings on them, all of these events would have to have warnings on the promotional material and the walls of the venue: “Claims made within may not be validated by statistical evidence.” Basically, this xkcd.
Yes to this
In the case of Facebook, for example, we know it was at least two – MySpace was already in existence, Facebook came into existence around the same time as Friendster, and so forth. It’s still possible they just got lucky, but given that MySpace was already huge at the time I think you can’t reduce it to just that – they were offering something different that people liked.
Google is even better example of that, because there were so many search engines back when it came out – actually standing out was really hard.
Scott explicitly addresses this. CTRL+F “canned response”.
Addresses? yes. Satisfactorily answers, I’d argue no. Here’s the portion of the essay you’re referring to:
Correct me if I’m wrong, but my interpretation of the above is “I know survivorship bias is a thing, but we can safely discount it if the odds of the individual’s success seem low enough.” The natural human tendency to make that leap is why people take care to warn each other about survivorship bias and we all should be hyper-aware of it. Sometimes, after all, lightning does strike twice
I think he provides the correct response to the response to the canned response (that’s way too many nested qualifiers, thanks math degree!) himself:
Thiel might be right for an extremely small minority. I suspect most people would be worse off and not generate much societal value if they followed his advice.
edit: to try to clarify, I would say that Thiel’s book is not an argument for dropping your stable office job and starting a company based on Your One Big Idea, or for encouraging lots more people to do that. It’s an argument for aggressively identifying the few people capable of doing that, and encouraging them to do it.
I’m not positive, but I don’t think any of Elon Musk’s N step plans survived the first handful of steps. SpaceX had him flying around the world trying to buy rockets before he ditched that and decided to build them himself. Tesla was founded by others with Musk an early investor and the others were eventually ousted for Musk, Paypal was his company X.com that merged and Musk was ousted as CEO in 2000.
Planning and implementing long chains of steps don’t seem to be Musk’s advantage, if anything its the ability to overcome his plans or adjust them when they don’t work as anticipated.
Palantir, another company Thiel founded, does a lot of work for the government using big data to predict things like terrorism. For example, it was used by the military in Afghanistan to help predict the locations of IEDs. It was used alongside this other military intelligence system called the Distributed Common Ground System–Army (DCGS-A), which was mostly developed by Lockheed Martin, as far as I can tell. The DCGS-A was clunky and inefficient compared to Palantir’s software, according to a DoD report in 2012 (this report was suppressed to some extent, which caused a minor scandal). At some point before 2016, Palantir lost out on a big hundreds of millions contract to help redo the DCGS-A. They successfully sued the DoD in 2016, however, arguing that the DoD had not even considered them for the contract (this is illegal under some law passed in the ’90s). After Trump’s election, a former Palantir employee and VC partner of Thiel’s served on Trump’s transition team (Trae Stephens), specifically advising about the DoD… Palantir and its partner Raytheon were awarded a $876 million contract to revamp the DCGS-A in March 2018.
This sequence of events as I have presented them may make things appear sketchier than reality. In an interview, Trae Stephens sounded like he felt he had played a very minor role on the transition team. Palantir won that lawsuit in 2016 independently of anything to do with Trump. Regardless, Trump’s election couldn’t have hurt!
DCGS sucks and Palantir is neat. Every single person in the army except general LeGoblin would agree.
This is a great review that is marred by its embrace (in its ultimate conclusion!) of the concept and term “thinking outside the box.”
It’s a cliche, but there isn’t anything obviously repulsive about it otherwise, is there? Don’t get me wrong – it’s useless as a tool and a motivating factor – but I’ve always thought it was a fairly good description of what having an original idea looks like in comparison to an unoriginal one.
… the basic economic argument goes like this: In a normal industry (eg restaurant ownership) competition should drive profit margins close to zero.
That’s not economics as I understand it.
First, a business with zero profit margin is a business with no profit; hence the owner would be better off without the business: owner gets same zero income, but with much less work.
Second, I recall a theorem that the profit margin of every kind of business trends to the same (non-zero!) margin because less-profitable businesses are abandoned for more-profitable businesses.
The business owner could still be making a profit in accounting terms (revenue – explicit costs), but the economic profit could be zero since economic profit also takes into account opportunity/implicit costs that don’t show up in the accounting.
Kind of doesn’t matter for almost every industry though because there are no perfectly competitive markets in the real world. The closest is probably commodity agriculture.
The business owner is taking substantial risks, so unless he’s getting a better return on his investments (including way more than 40 hours per week of his high-value time and attention) than he would with conventional investments or a standard job, he’s screwing himself over.
The economics argument also includes the concept of a normal return to capital, typically hovering around whatever the current natural interest rate is in the economy.
In other words, there can be a return on capital as profit, but generally excessive profits above that for a company/industry don’t last forever as they induce someone who wants a better return on their capital to invest as a competitor. To stay permanently ahead without ongoing innovation which serves your customer base more effectively than your competitors requires some sort of government monopoly protection (including IP protection), truly secret trade secret, unhirable skill (think the Kobe Bryants of an industry), etc…
Profit is revenue less cost, which includes things like an owners labor, opportunity cost of capital, etc.
The EMH is just that in a “perfect” market, profits are *driven* towards zero, because they represent a sort of arbitrage waiting to be captured.
Raj—profit is revenue less cost, but when we speak of profit margins being driven to zero in a competitive market, we are including opportunity costs—that is, the next-best-thing-you-could be doing. In the long run in a competive market, no one will do better by switching jobs than they will by staying where they are—if you like, it finds a Pareto optimal state. That does not mean that long run income tends to 0.
Did it? These are not independent of each other – a big part of the reason why Tesla got so much leeway from its investors and creditors in the long, agonizing period of unprofitability was because Musk had sold the idea of Musk The Great Innovator so effectively based on his earlier successes.
I agree. It is the same as Warren Buffet – he can achieve superior long term returns because he essentially gets a lower cost of capital than everyone else because of his previous success. He is quite open about this – his insurance business float is used to fund high risk investments in businesses. The cost of these insurance funds is very low compared to what I would be charged (as a neophyte investor) if I went to banks for the same funding (if they would even give it to me). If Elon Musk had gone to equity investors for money to fund his investment in rocketry as say an anonymous car mechanic he would never have got the funds or their cost would have to be high and backstopped somehow by some massive equity. So it is true that insanely rich people get a lot more opportunities to make insane amounts of money than poor people. I think we must still recognise people like Musk – I probably would be enjoying some tropical paradise after I had earned about one thousandth of Musk’s wealth – his work ethic and motivation to carry on innovating is definitely praiseworthy.
I agree that perfectly predicting the outcomes of 10 long-term decisions each complex enough that experts disagree shouldn’t happen multiple times to the same person. But I think Elon Musk’s plans are flexible enough that there isn’t really a puzzle here. Each step of Musk’s plans for SpaceX and Tesla mostly involves building up the money and institutional expertise for the next step. But that money and expertise can be used for many things which means it’s often feasible to modify step 2 while halfway through executing step 1 in response to new information (e.g. the demand for small-launch rockets). This seems far less fragile (and therefore far more plausible) than the model of a ‘house of cards’ that collapses if one thing doesn’t go to plan.
Re monopolies: trying to run a small business will make you realize how much closer it is to a job than to being Elon Musk. There is no conflict between too much or to little competition: people open restaurants because they want the lifestyle, not having a boss, earning based on their success and not what somebody else decides etc. Basically a different kind of day job. If you open one because you want a shitload of money… you’re simply wrong.
Just a quick anecdote: I’m an software entrepreneur, owner of a B2B business that’s market leader in my country and is currently expanding internationally, with clients on 3 continents. I make less than I’d make employed.
There is a continuum between aiming for a monopoly and a cash-generating small business, and it’s the very same continuum between Taleb’s extremistan and mediocristan. High risk/reward vs low risk/reward. I actually placed myself very carefully on this continuum: somewhere where I’m pretty sure I can make a living, but with good change of increasing profits (mainly by scaling up).
So the question Scott is asking is a bit meaningless: there is no “sweet spot” of too much vs too little competition. We want a market where individual actors can easily chose their position on the continuum, and fail or succeed accordingly. Sure, a world of “googles” is communism, where no business manager is stressed by survival or profit. But a world of competing restaurants is still open to Uber Eats and any number of other innovations. Their number will naturally be very low, and their monopoly short lived.
Are there exceptions? Monopolies born through network effects have the least merit and are good candidates for regulation. The breaking up of Bell was by all accounts a success, and opened up the way for low prices and innovation. But we’re talking about historically rare cases, something like one per generation. In current times, this would probably be Facebook, period. The others have decent competition, and/or dominate through technology and brand.
Bell, pre-breakup, was a government enforced monopoly.
You have more upside though. Read the book The Millionaire Fastlane. Not much content, but it’s pretty inspiring.
I honestly can’t understand why people are still getting this wrong:
“If there was a $100 bill lying on the street, someone would have picked it up.”
Yes. Sometimes that person is you. If you don’t pick it up, someone else will. That’s how the market becomes efficient.
Monopolies are great for the monopolist, but tend to suck for everyone else. The reason people aren’t up in arms about online monopolies quite yet is that they tend to be monopsonists as well and screw their suppliers rather than their customers.
(Facebook is an especially fun case: their suppliers – the users – think they’re the customers and are getting something valuable for free. Instead, they’re being conned out of their valuable data that will be used to their detriment, ‘coz that’s where the money is.)
Having just one of something may be better than having none, but it’s still no reason to give would-be monopolists a free pass. If any entity (or small group of entities) has a disproportionate amount of power, that power will be abused. It’s an evolutionary principle: someone willing to exploit all advantages will always outcompete someone who isn’t. If you don’t pick up the money lying in the street, someone else will.
> Instead, they’re being conned out of their valuable data that will be used to their detriment, ‘coz that’s where the money is.
Much of the valuable data a user gives Facebook will be used to the detriment of people the user knows and potential competitors to Facebook, not the user himself. That’s an externality we aren’t dealing with so well right now, though the GDPR is progress in that direction.
Could you expand on that? It seems a popular meme, but one I don’t understand.
One obvious way of using data about me is to figure out what goods I am likely to buy, hence what ads to show me. That strikes me as in my interest. I would rather be shown an ad for the new C.J. Cheryh novel, having enjoyed her previous writing, than get a phone call at dinner from someone offering to refinance my nonexistent mortgage.
What are the ways in which data FB acquires about me is likely to be used to harm me?
It’s not whether it will harm you, but whether they would otherwise be willing to pay for the same data (or alternatively, the harm is the opportunity cost of not being able to monetize your own data).
That isn’t what “used to their detriment” means.
Someone buys my book for $14 when he was willing to pay $20. I have gotten less from the transaction than I could have, but it would be very odd to say that he bought the book to my detriment.
Well, personally I regard sending me unsolicited ads of any kind to be a (minor) harm 🙁
More seriously, I’m not on Facebook. I have no personal experience with the data it collects.
But one common complaint seems to be Facebook revealing people’s current addresses to folks they are trying to escape. Or revealing aspects of their activity/preferences likely to provoke bad reactions – to the very people likely to react badly.
I don’t know about FB revealing addresses–I’ve never seen that. So far as revealing aspects of my activity/preferences, that happens when I make a post–choosing to reveal those aspects. I get to choose who sees it–those I have friended or (in my case) everyone.
I wouldn’t be surprised if FB occasionally slips up and lets people I haven’t friended see my friends only posts (assuming I made any), but that isn’t what the bit I quoted sounds as though it is referring to.
Why do you consider unsolicited ads a harm? In particular, why do you consider them a harm if they have been selected to be things you are likely to be interested in buying, which is presumably how the information is being used?
Basically, most ways in which I’m presented with advertisements constitute theft of some small quantity of my time. A certain local ISP sends me advertisements at least weekly, in a variety of envelopes; the only thing they have in common is that they don’t have the company name on the outisde, so I have to open them to determine that it’s just more spam.
Ads by phone cost me more; they have increased to the point of constituting an effective denial of service attack.
Ads on web pages cost me less, except those that also include malware in their payload – sometimes accidentally. The malware payloads are rare – unless you count things like additional tracking – but have occurred too often for me to ignore. Unless of course I have an underpowered computer or lousy internet connection, in which case they once again steal small amounts of my time – and of course my computing resources, bandwidth, etc..
Sadly, even if I were to read the ads, the one thing I’m sure they wouldn’t have is reliable information. AT&T has spammed me for years about how they have this thing called Uverse. I get it that it’s in their opinion incredibly wonderful; they are more eager to share it with me than most holy rollers are to share the Gospel 🙁 But AFAICT, the main feature of it (compared to DSL, or cable, or sattelite based internet) would be that I’d no longer have telephone service in a power failure – and I didn’t get that information from their ads, either.
When I finally needed to replace my ISP, I did a web search for ISPs covering my area, examined their web pages, and created a spread sheet. I then checked with people I knew for stories, good or bad. Finally, I called one of the ISPs with technical questions. A week or so later, having figured out how to work around their limitations, I called them again and purchased the service.
All those advertisements I’ve been binning for the last decade or two probably did influence my decision somewhat – but in a negative direction. I was glad that I hadn’t been forced to purchase from either of the two big spammers. FWIW, I *was* aware of the one whose services I purchased beforehand – but only because several people I knew had already sung their praises to me.
Unless you don’t have the money, so it just shows you nice things that you can’t actually get.
There is a reason why showing off wealth is often considered not so nice to others.
It’s even worse for people who lack self-control and buy things they shouldn’t buy. As a comparison, imagine having sweets on your desk. Many people are not able to ignore those, even though they would not seek them out if it took effort.
Or to put into econotalk: higher transaction costs are not always negative.
My understanding of the facebook model is that people’s data is only valuable in volume. The value of one person’s data may only be a couple cents or less, but if you have millions of people’s data then the database is worth something.
There is, of course, good reason for this. Newton could, if I may be allowed the expression, pick low-hanging fruit. Few people had really thought about gravity, and those who had, were other individual thinkers. These days, if you believe you’ve made a revolutionary discovery about gravity, you almost certainly are a crackpot, because lone thinkers trying to work stuff out in their head just isn’t how developed physics proceeds any longer.
Are there areas of physics that don’t get much attention and would still be accessible without either a gazillion-dollar ultramegacollider or a one-in-a-billion intellect?
Condensed matter physics, and more specifically solid state physics. It isn’t as “sexy” as the particle or theoretical stuff, so many smart people just ignore it because they want to be the next Einstein or Schrodinger. Which is weird because a lot of the biggest advances in technology of the past 20 years come from that branch.
I’m not a physicist, but the cost to make B-E condensates must have come down a lot, and no one has ever tried to engineer them for any kind of practical purpose, but they’re weird and understudied (IMHO) and I feel like there might be some “medium hanging fruit” in that area. *shrug*
The flip side is that because condensed matter has better industrial applications, there are a lot more people working on it. You need to find something that seems unsexy AND not useful.
The graphene guys won a Nobel prize using scotch tape.
And just this year someone found that just by rotating 2 sheets of graphene slightly they could make a superconductor.
There are lots of surprises out there in the condensed matter physics world waiting for people to discover them.
Right. The point is that you don’t imitate Newton by coming up with an original theory about gravity. Instead, you imitate Newton by coming up with an original theory about the 2019 equivalent of gravity, i.e. another domain that people haven’t thought about so much, or in the right way, and so there’s lots of low-hanging fruit. This is the whole “the next Bill Gates won’t build an OS” thing.
Eliezer wrote something wonderful about this a long time ago — basically asking what meta-level cognitive approaches would have worked to help people discover modern science a couple thousand years ago. It was something like a machine that lets you talk with Aristotle (or whoever), but translates anything you say into the meta-equivalent expression in his culture.
Sorry, I probably didn’t explain that well. Here’s the original piece (it was Archimedes, not Aristotle).
I can’t speak to the present state of physics, but there certainly were things within the past century that were individual breakthroughs–Feynman’s approach to understanding particle interactions, for example. So far as economics is concerned, Coase got and deserved a Nobel prize for a conceptual approach that he seems to have developed in his twenties and later incorporated into two articles that became arguably the most important pieces in their respective fields. There are other examples.
I can relate to this as something that’s been on my mind lately in regards to how people interact online. If you look at any internet pile-on, they mostly follow the same pattern. Someone offends the norms of some group and the members of that group come out of the woodwork to try to snark and meme that person to death. No one tries to make an objective argument as to why what that person said or did was wrong. It’s just assumed by members of the group. They all just know that they’re right and this person is wrong. The fact that this person may have a point of view worth noting is completely lost.
I think the current culture of snark and ridicule is extremely corrosive of the kind of local, private weirdness of a small group that allows for interesting new things to come into the world.
Of course, the members of that group aren’t going to bother making an objective argument because they’ve already tried it a dozen times and it just takes too much effort while new idiots keep being wrong. (This is what it looks like from within the group, anyway.)
Wasn’t the conviction about competition being naturally superior to (state) monopolies, the main economic argument put forward by classical economists against socialists wanting to nationalize industry?
But if monopolies can indeed be more beneficial to society than (perfect) competition (since monopolies, in the words of Thiel, don’t “have to worry about competing with anyone” and therefore have a “wider latitude to care about its workers, its products, and its impact on the wider world” and “can afford to think about things other than making money”), then why again shouldn’t we nationalize major industries?
And if I understand Marx correctly, his prediction was not that perfectly competing capitalist markets will be superseded by state monopolies, but rather that, given enough time, the dynamics inherent to capitalism will lead inadvertently to the monopolization of every major industry, so that when the socialist revolution happens, private monopolies will simply be turned into public ones. Capitalism in its natural development is thus (and in a number of other ways) thought to smooth the transition towards a socialist economy up to a point, where the last thing missing to make the transformation complete, is a transfer of property rights from capitalists to workers. I think this is the historical materialist interpretation of a “dialectical jump from quantity to quality”. Once socialism comes into being, it will be a new (qualitative) state of social existence, but its revolutionary preconditions grew (quantitatively) over centuries by natural processes within capitalist development itself. So, the working class may inherit the economic institutions of late stage capitalism without much alteration required, just like the bourgeoisie had inherited the political institutions of late stage feudalism without much alteration required.
By classical capitalist economists, monopolies (both state and private) were seen as the archnemesis of free markets. So, in their view, it was the responsibility of governments to intervene in the economy to prevent the emergence of monopolies in order to preserve the existence of “free markets”. Nowadays, modern capitalist economics, see government intervention as the archnemesis of free markets, and it is monopolies which ought to be protected from government intervention in order to preserve “free markets”. To me, this seems like an interesting and telling change of perspectives from one era of capitalist development towards another.
If you want to be a good 21st century capitalist, should you prefer benevolent monopolies and efficient planning over perfect competition and efficient markets? Or wouldn’t that make you a 19th century socialist?
I think that you are mixing up concepts here. The kind of monopoly to which Thiel is referring is monopoly over a particular market segment. Apple has a monopoly on the iPhone, which is a particular brand identity that has value over and above generic smartphone. It’s what Warren Buffet calls a moat.
It’s not the same as a government enforced monopoly like Ma Bell or even the kind of market dominance that Microsoft enjoyed at one point.
Depends on the classical economist. Adam Smith is concerned about cartels but argues that the only thing the government should do is prevent making rules that encourage them.
The idea that capitalism naturally tends towards monopoly is associated with critics of capitalism, not defenders of it. And perfect competition isn’t a bad result for the world, it’s only a worse result for the owner of the firm than monopoly. It’s a better result for both customers and workers, who end up with their consumer and producer surplus.
I think it’s more telling in either analysis (classical and modern) that labor unionization is poo-poo’ed, even though labor unions are an effective means of providing ‘slack’ to workers. After all, unions are just a means of monopolizing labor as an input to some industrial output.
If you want to be a “good” 21st century capitalist, you should be an 18th century Mercantilist, replacing an obsession with gold for productive capital.
Personally, I favor competition and efficient markets, which are fully compatible with market-based forms of socialism. Kevin Carson’s Homebrew Industrial Revolution: A Low-Overhead Manifesto provides a good explanation/defense of how removing Intellectual Monopolies (Copyright and Patents) along with removing subsidies for infrastructure that benefits large corporations (Like the Interstate Highway System) would dramatically reduce the cost of sustenance for individuals, and thus allow people to work dramatically less, enabling them to flourish by giving them the extra ‘slack’ they need to either start their own business/collective, or just find personal fulfillment in art and leisure.
Labor unions aren’t poo poo’ed by classical economics, labor unions with special rights granted by the government are poo poo’ed in the same way that businesses aren’t poo poo’ed but tariffs favoring specific businesses are.
I’m not sure if people here are distinguishing between classical economics (Smith, Ricardo, Mill, …) and neoclassical economics (Marshall, Jevons, Menger, …).
The standard neoclassical view is that unions have the same negative effect as other cartels.
If we wanted to learn more about the distinction, what resources would you recommend?
Any good book on the history of economic thought. It’s long enough since I taught the subject that I don’t know what the best ones now are.
The distinction between classical and neoclassical is pretty standard.
My personal beef here is that Newton -and Galileo- had all those billion dollar bills lying around. They just ate the low hanging fruit that civilization left them.
The one who put in the hard work, and whom without, as far as I know, would have delayed us a century or so, was Kepler. That was the fucker who just spent several years doing manual multiplications that no one else wanted to do, all to build a somewhat better astrologic table. And that without Tycho Brahe leaving him a boatload of good data, would also have had nothing to do.
So yeah, Newton invented a fuckton of things, but he would not have been so successful if Kepler had not worked himself to the bone. Maybe Newton would have done the math himself? I find it hard to think. He seems more of a dabbler who would get bored of the multiplications and go back to his alchemy or whatever.
I don’t think “dabbler” is a reasonable description of how Newton approached anything. There were bigger obsessions and there were smaller obsessions. I also don’t think it’s fair to say that he had billion dollar bills lying around. The guy had to invent calculus in order to invent physics. It may all look easy peasy in hindsight, because it usually does, but when you read his actual work it seems anything but.
I think it illustrates a principle in science where you need a healthy mix of Takes Work Seriously people and Gets Excited About Ideas people.
Kepler was definitely a Takes Work Seriously guy, doing mountains of calculations. Brahe was a Takes Work Seriously guy, taking mountains of observations. But in each case, that was basically the only thing the man did with his life. We owe them a tremendous debt, because they each did something that required that a highly competent astronomer spend his entire adult life doing specifically that one thing.
Newton? He was more of a Gets Excited About Ideas guy. He could be just as committed to an idea, just as unwavering in his pursuit, as Kepler or Brahe… But he could change targets rather than spending his whole life doing calculations on the same thing. This made him much more effective as a ‘synthesist,’ someone who could look at a field as a whole and come up with a way to revolutionize it after twelve months of Really Hard Thinking, then move on to the next field.
I don’t think we should promote one category at the expense of the other; I think we should celebrate both. In the context of this specific post, though, the Get Excited About Ideas people are really the subject matter. Because entrepreneurship and starting big grand projects is usually more about being the person who can revolutionize a field after coming upon it in a ‘ready for change’ state, and less about being very very good at the exact same thing for one’s entire life.
I mean, I don’t know. Newton tended to change targets once he solved something, but not otherwise.
It’s a relatively straightforward multivariable integration problem today, but if memory serves, Newton spent twenty years showing that you could treat the mass of a planet as if it were concentrated at its center. Doesn’t that kind of undermine this neat categorization?
Not to disrespect Newton, but there was another guy who invented Calculus almost in parallel to him. Without Newton, someone would have used the other Calculus a little later to accomplish the same thing.
And when Haley came to ask him to work on the problem of uniting the laws of motion with Kepler planetary motions laws, Newton said hey, I already did that. Turns out he had lost the pieces of paper where he had done it, which is believable cause he redid them and sent them back to Haley in short order. Which shows that he had “dabbled” in physics a little.
And Haley had other people who had tried their hand at the problem -and failed, yes-. But AFAIK nobody was doing what Brahe and Kepler were doing. Well, Brahe probably yes, although Kepler went specifically to him because he was the best by far.
Newton acknowledged this when he said
It’s kind of funny that Eliezer Yudkowsky is the person who made that comment about multistep plans aimed at goals that seem implausible to most when he is best known for a multistep plan along the lines of:
Step 1: write a bunch of sequences online
Step 2: create LessWrong
Step 7: write a harry potter fanfic
Step 23: humanity becomes more rational
Step 71: save the world from the threat of UFAI
I don’t think there’s so much of an overarching plan in place.
My understanding was that the original plan was:
1: write a bunch of articles online
2: help people recognize cognitive biases etc and be a bit more rational.
3: get more support for issue of worry about AI.
4: hopefully improve the situation somehow.
But during step 2 he wrote a few articles in short story format to get a point across.
He and other members of the community noted that those stories got orders of magnitude more attention and responses than any of the dry articles.
This spawned the idea of putting effort into writing a significant story to get various ideas across and get readers. it succeeded to a fair extent on that score.
So it’s less a master complex plan and more a simple plan that got additional steps added as new data became available.
Any incremental attempt at progress towards a goal can be made to look stupid if you present it as a 100-step plan, with your current action as “Steps 1-5” and the goal as “Step 100.”
I don’t consider these monopolies to be equal in character. A competitive monopoly from having a brand has a positive and negative aspect; the brand can eventually become radio-active due to poor business practices.
Social network monopolies and patent monopolies don’t really have this problem.
Apparently there’s now money to be made by buying up existing brands, producing shoddy imitations of their prior products (with the real brand!) selling those to suckers who believe in the brand, for the full price it once would have meritted, and dumping the brand/product once too many of the potential customers get wise to this particular brand’s new ‘quality’ standards.
Do you know any examples off-hand?
Pyrex is considered a classic example of a brand that no longer represents the product it is associated with. It used to be that the line was made from more expensive borosilicate glass, but now it is made from cheaper lime soda glass which is more susceptible to thermal shock: https://www.consumeraffairs.com/news04/2008/08/pyrex.html
Pyrex still makes decent laboratory glassware, it’s just their consumer glassware that’s declined in quality.
Supposedly their European consumer glassware is closer to the standards of their laboratory glassware, but I don’t know if that’s actually the case.
A few thoughts:
1. Weirdness — If a bunch of people are being (successfully) weird, who wins? To a certain point, probably everyone who does a good job and doesn’t have a streak of bad luck can win. But I suppose it can get to the point where there aren’t enough workers for all the good ideas, or customers don’t have the time or money to devote to all the revolutionary new things. In that situation, escaping competition with the restaurant down the street may still leave you in competition with the guy who wants to start a colony on Europa (e.g., you’re both traveling to high schools to convince people to study something that will put them in YOUR industry and not the other guy’s). And who wins in that case … I don’t know that there’s a good way to escape that competition. You can’t out-flank the other guy’s business. It isn’t Amazon vs. Brick ‘n Mortar anymore, it’s reading a book vs. going fishing. (Related: I’ve heard that Netflix has started viewing pretty much every activity as a competitor for people’s time. Granted, that’s not because they still need to “win.” They just want to win more and protect themselves from losing in the future.)
3. Are we at that level of competition in most situations? Hmm. If your weird idea requires a lot of upfront investment, then yeah. There’s only so much VC and grant money going around.
4. Also, if you’re looking at weird ideas, the “90% of everything is shit” rule still applies, with the corollary that the people who are buying into your ideas usually can’t tell the difference. So even if we get to the situation where the resources required for all the revolutionary ideas are more than what we’ve got, mostly it will be meh ideas that get promoted, and for a lot of the good-idea-havers, it won’t be worth it to push through the muck.
5. I think it’s possible to train yourself & others to have and identify actually-good weird ideas. Not everyone will be great at it, but I don’t think it’s just a terminally-mysterious thing that happens in the minds of those with a special ability. So we can train our society to do better at this as a whole. I might try to write something about that.
6. Anyway, this post drifted back and forth between two poles: “Good ideas that can game the system” and “Good ideas that require a lot of help FROM the system.” I guess Thiel’s book was more about the former (more SpaceX than NASA, although Space X doesn’t exist in a vacuum either [heh]). Probably some interesting thinking to do in that direction. For instance, if you’re gonna game the system then you have to play by the rules that define which ways it can be broken. If you’re part of the system, then you can do whatever you want as long as you play by everyone else’s rules. SpaceX can only operate in certain ways, but it can be self-sufficient. NASA can do whatever it wants, but it has to convince everyone else to get on board.
I don’t think I’ve ever wanted to be rich for its own sake. Money is instrumental for me. One thing it provides is comfort, safety etc. for me and my family – for that, in most circumstances I encounter, skilled work and competent money management are more effective, requiring less time and risk per dollar earned – provided of course that the skill remains in demand or I can pick up newly demanded skills along the way.
I can imagine someone with my motivations wanting to start a successful company, but that would be for a purpose beyond acquiring money.
I’d like to see more companies out there focussed on a sustainable pattern of producing a desired product for a reasonable price, not on growing enormous, increasing their stock prices, and convincing suckers to buy things that won’t actually be worth the price they pay for them. If I thought such companies would be viable – and had the right talents – I can imagine starting one, particularly in some badly served niche that I personally care about – kind of like the origin of LandsEnd. That would be n->n+1 in one sense, but 0->1 in another, if the niche was sufficiently badly served. I’m pretty sure this would be beneath Thiel’s notice.
The other reason I can imagine someone like me wanting to start a company would be to make something important (to them) happen. E.g something like SpaceX. I don’t think Thiel would have much interest in those motivations either, though I could be stereotyping him.
For the rest, I’m not sure anyone’s advice on how to be the next famous-rich-insanely-wealthy-company-founder is likely to be much good. Too many people trying that, and very few are succeeding. Of those, many started with advantages which can’t be taught, such as family money. Beyond that, we have small sample size combined with survivorship bias. So these are my priors, and this review hasn’t inclined me to see Thiel as a likely exception to that pattern.
But it’s probably a fun read, providing a little bit of harmless fantasy about what one could/would do oneself, if only …
Of possible relevance.
I heard a talk by one of the original Paypal people, back when it was just getting started—I don’t remember if it was Thiel. The idea then was a form of anonymous digital currency that could be done with Palm Pilots, making it possible for people, especially people in poor countries with corrupt governments, to engage in unobservable transactions. Pretty clearly a case of wanting to create something useful that didn’t exist. I gather that that original planned turned out, for one reason or another, to be unworkable, and they ended up with a less exciting but very profitable alternative.
Was this before or after sending money using sim cards was developed? (I believe it’s called EMV tokenisation)
I’m too young to remember the technology being a flop the first time around* in the developed world, but it’s since taken off in Africa. It’s how GiveDirectly sends funds, for example.
Though I’d imagine it’s easier for governments to de-anonymise than whatever the vision for PayPal was.
* It’s back in the form of Apple and Android Pay, going so far as to include the same microcontrollers as are found in SIM cards.
Paypal was started, with a different name, in 1998, had its IPO in 2002. My guess is that that is before what you are describing, but I don’t actually know.
The book Founders at Work has an interview with one of the founders, Max Levchin, that goes into this a bit more:
As soon as we got funding, we started hiring aggressively, and we built this app for the Palm Pilot, which was getting pretty good growth. We were getting 300 users a day. Then we built a demo for the website, which was functional, so you could do everything on the website that you could do on a Palm Pilot, except the website was unsexy and we didn’t really care. It was like, “Go to the website and download the Palm Pilot version. It’s really cool.”
Sometime by early 2000, we realized that all these people were trying to use the website for transactions, and the growth of that was actually more impressive than the growth of the handheld device one, which was inexplicable, because the handheld device one was cool and the website was just a demo. Then all these people from a site called eBay were contacting us and saying, “Can I put your logo in my auction?” And we were like, “Why?” So we told them, “No. Don’t do it.” So for a while we were fighting, tooth and nail, crazy eBay people: “Go away, we don’t want you.”
Eventually we realized that these guys were begging to be our users. We had the moment of epiphany, and for the next 12 months just iterated like crazy on the website version of the product, which is today’s PayPal. Sometime by late 2000, we killed the handheld one because we peaked out at 12,000 users. They were still using it a little bit, and they were really upset when we killed it. They said, “You were about the handheld transactions, not about this web stuff.” We’re like, “No, we’re pretty much about the web stuff.”
I assume there’s another anecdote in the book which inspires the plot of the remaining 10% of Silicon Valley episodes.
I feel like you are giving an overly harsh view of how well companies do under competition. They way you lay things out, if there weren’t monopolies, everyone would be just barely scrapping by, which is really weird from an economics perspective since monopolies are generally seen as a source of inefficiency. If the economy were more efficient, wouldn’t people be doing better?
The resolution is that prices (or wages) are not set at the worst that people are willing to accept, but set by supply and demand. In a competitive industry wages are not set to the minimum that people in the industry will accept, but set to the level where the marginal participant is tempted to switch to their next best option. For Indian restaurants in SF, this might be someone with a business degree who went into restaurants because they loved cooking, but is temped by the ability to make a ton more money with their degree by doing something else. The people in the industry that are better chefs might well be doing better than this, and if you find ways to increase efficiency and are not right at the bottom, that’s just extra profits for you.
I mean hedge funds seem like they should be a pretty competitive industry, but I don’t get the impression that hedge funds or their employees are hurting right now.
The definition of economic efficiency is “everyone lives in rags just scraping by because all the margins are so thin”. So you’re right, but not for the reason you think.
Butlerian—living in rags (ie impoverished producers) is not anywhere contained in the definition of a competive market. One could make the argument that producers in competitive markets inevitably end up impoverished (I don’t find that argument very persuasive), but I assure you it isn’t true by definition.
The definition of economic efficiency is that there is no way of changing the pattern of who is doing what that would produce net benefits, summing over everyone. For a more detailed explanation of what that means, seen this chapter of my Law’s Order.
David Friedman, I was hoping you would comment on this.
This. In a competitive market, economic profits tend towards zero—that is, income approaches its opportunity cost—but actuarial profits (take-home pay) can still be arbitrarily large and growing.
I think this whole thing about profit tending towards opportunity cost in a competitive business confuses people. Opportunity cost is not zero. Take Scott’s Indian Restaurant example – the people running a restaurant have other opportunities both for their time and capital. So they will earn a return on their time and capital and actually it could be quite good. Dentists for example need to be highly trained and there are not many people capable of doing dentistry and the type of people who can do dentistry can also do other complex useful things – so their opportunity costs are high. So dentists make good money. This is despite the fact that dentistry is a fairly competitive business, there are literally tens of thousands of dentistry businesses in the US.
Really good point, Chris. That helped me understand it better.
I think I disagree.
Couldn’t the reason why dentist get good pay be described as them having a kind of Monopoly?
Only a few people can do their work, because it takes time, money and some talent to learn it. That applies for many trades, and dentistry seems to me an especially good example for Monopoly granting good pay, because, at least I’m Germany, the admissions to study University are heavily regulated.
As I understand Scott’s review, this is one of the ways Thiel says monopolies are important:
Small monopolies like the one with the dentists are needed so that pay is good.
Even variation on ability can be described as a kind of monopoly.
I think it’s really useful
In the US at least I’m pretty sure that there is no regulatory limit on the number of people who can attain credentials for dentistry. However, you are right in the sense that getting these credentials is expensive which means that there is a large barrier to entry.
This does leave the market at least minimally competitive though. If dentist’s wages started going through the roof, you would expect more dentistry schools to start opening up.
This whole thing on monopoly vs opportunity cost is confusing I agree. I think we should reserve monopoly strictly for cases where other companies are legally not allowed to enter the business – like was the case with AT&T before regulation, or many airline routes. In that case the monopoly provider can charge what they like without anybody being able to do anything about it (other than go without). What we are discussing with dentists is not a local monopoly, just that it take talent, time and money to enter the business. So they get a good return because they could have done other things with their money and time, because if they didn’t get a good return they would do something else. But dentists still don’t get to charge what they like – if one dentist tried tripling her prices, you can bet that many of her customers would find another dentist. Of course if demand for dentists suddenly increased then they will be able to charge more, but this is just demand-supply which is also different from monopoly. Think about the situation where someone introduced a pill that dramatically reduced the need for dentists, don’t you think that dentistry prices would initially fall, but over the long run (15 years perhaps) would return to something like today’s prices?
Chris – I think that this is an overly restrictive view of monopolies. There are plenty of reasons why a company might gain a monopoly other than regulatory banning of competitors, and many of them are not good for consumers.
Monopolies can be maintained by aggressive pricing to drive out competitors, especially when startup costs are large (who would want to compete if it costs millions of dollars to get going only to be immediately pushed out by the big guy immediately lowering prices).
But other things contribute: economies of scale, startup costs, political influence to attack rivals
I think there are three different cases, two of which are monopolies. One is your government enforced monopoly. Another is a natural monopoly–a firm in an industry where economies of scale continue up to a size that produces for the entire market, so the large firm can produce and sell at a price at which no smaller firm can cover its costs. There is also the idea of an artificial monopoly via predatory pricing, but that seems to be mostly or entirely mythical, based on a mistaken account of the history of Standard Oil.
The dentist case isn’t a monopoly in any sense, just a producer collecting quasi rents on his investment in training.
Scott, if you want to know how a society with a vision might look like perhaps read Lee Kuan Yews autobiography “From third world to first”. The title says it all.
I wonder if Bismarck wrote something like that as well.
Reading Scott’s article about Lee Kuan Yew sounds like… another afternoon spent reading SSC… uhm, I mean, sounds like a really great thing!
LKY seems to me like the classic example of an “If he didn’t do it, someone else would have 5 minutes later” sort of “founder”. Singapore has by far the best port on the busiest shipping route in the world. Any schmuk could have turned that into a regional success story. The myth of LKY’s political genius is People’s Action Party nationbuilding propaganda and nothing more.
I agree. We have a near perfect experiment actually with Hong Kong. Also a small island off the coast of a large land mass populated with expatriate Chinese. But with none of the ‘leadership” of LKY, instead with a deliberately very hands off management. But highly successful and with lots of great infrastructure, same low health care costs (basically they have the UK style NHS) and successful (probably more so) businesses. I think the success of Singapore is a lot more to do with the ethnicity of its inhabitants than LKY. Of course the other point about leadership vision – when it goes wrong it goes very wrong – you don’t have to look very far from Singapore to see illustrated. Give me democratic muddle over strong leadership any day.
Visakan Veerasamy has some good Twitter threads touching on this:
Excellent twitter thread, I have spent a lot of time in the past in Singapore but not visited for 3 or 4 years, this made me remember what I am missing. Thank you. We should not be too critical of LKY, he had some pretty good ideas – but I think Singapore would have been just as nice with HK style hands-off leadership.
This is really the part of Thiel’s philosophy that I find most compelling. Thiel’s idea (and the reason he supports libertarianism) is that outliers are most likely to drive rapid growth and that people who are outliers in one way (say, intelligence) and will break with institutions are likely to be outliers in other, unrelated ways. Society should thus be set up to tolerate these people as much as possible.
Obviously, if the person’s ‘quirk’ is that they’re an ax murderer… well, not that far. But if someone wants to run their company out of a giant ersatz pirate ship or believes that they’ve optimized their coding routine by listening to specific classical music pieces for each task or thinks they’ve created a sociologically perfect group marriage (all real beliefs held by wealthy, successful entrepreneurs I know)… well, society should just leave them alone. Because they might be nobodies but they might be the next Steve Jobs. And society gains more in one Steve Jobs they let do their thing than it loses in any nebulous concepts of cohesion.
This drives a lot of his philosophy, from what I’ve seen. Thiel’s war on Gawker was partly because they wronged him personally. But it was partly because he felt Gawker involved seeking out and shaming weird individuals. He’s repeatedly shown extreme hostility to institutions he feels force people into conformity or punishes those who don’t conform.
Please stop citing Elon Musk as an example of a titan of business. He’s the biggest net-negative entrepreneur the world has ever seen.
Right. IMO, Musk is a buffoon and snake-oil salesman. See https://blog.piekniewski.info/2018/12/28/elon-and-the-collective/ – for example.
I don’t know that this article’s writer has a very good grasp of the topics he’s writing about. For example, using the space shuttle as an illustration of the limitations of reusable rockets is laughable. The shuttle’s design was not primarily driven by the goal of being an economically feasible reusable rocket; it was driven by various political considerations that had nothing to do with that objective.
As for the excerpt you quote, space is an even more hostile environment for humans than Mars, yet we have a space station that has been continuously inhabited by humans for more than 18 years. Granted, the space station is a lot closer to Earth than Mars is; but the travel times to and from Mars (and note, these are assuming you coast almost all the way, if you have a rocket that can provide thrust during the trip, even a small thrust like a hundredth of a gee, it reduces travel time a lot) are comparable to the travel times from Europe to America or the Far East during the age of exploration. There were people willing to make those trips then, and I think there will be people willing to make the Mars trip.
As for “no incentive to go there”, how the heck does he know what resources are or are not on Mars? Nobody knows. We’ve explored a miniscule part of its surface. We have no idea what’s there. There could be little or no resources; or there could be lots. That’s why people explore: to find those things out. If this author thinks those explorers are being foolhardy, he’s entitled to his opinion. But I don’t see why that should prevent Musk from trying, or other people from joining in on the trip, nor do I see how that makes Musk a “snake oil salesman” for making the effort.
I love the idea of exploring and colonizing Mars, but it’s really hard to imagine what resources we could find there that would pay for the exploration/colonization. It’s insanely expensive to get there and back with anything like modern technology.
If there were stacks of gold bars sitting in a known spot on the surface of Mars, would it be economical to send people there to pick them up and put them in a return ship and send them back?
No, only with things that exactly are modern technology. “Anything like” modern technology allows for orders-of-magnitude variation in cost, partly because of the distinction between people who are trying to make things as expensive as possible and people who are trying to make things as cheap as possible.
The first people who go to Mars will be those who pay for it themselves because they want to go to Mars.
It is unlikely that Mars will be exporting any material to be sold for a long time (until there are moon colonies to supply or Helium-3 becomes economically valuable). The return trip will be scientific samples and people who want to go back to Earth.
Mars can export IP very cheaply.
Okay, suppose we found rich, easily-accessible gold deposits on Mars. Would you expect someone in the next 30 years to be able to make a profit sending humans there to mine it and send it back? I don’t know enough to have confidence in my answer, but it’s hard for me to imagine that working out economically….
Gold currently sells for $42,000 per kg.
A SpaceX Falcon Heavy with booster and core reuse can deliver payload to Mars entry at a price of $10,700 per kg. Current systems can deliver about 25% of the entry mass to the surface as useful payload, which puts you at very close to $42,000/kg delivered to the Martian surface.
But we’re looking for the price of the return trip, for which there are no current baselines.
To deliver one marginal kilogram of inert mass from the Martian surface to Earth, using a two-stage expendable LOX/methane vehicle with a 10% stage dry mass fraction, requires ~0.45 kg of empty rocket stages and ~3.0 kg of propellant. Looking at some of Zubrin’s old proposals, that translates to ~0.9 kg of propellant refinery and associated power systems, etc.
So, assuming gold that shovels itself into the Earth return vehicle and ice that leaps into the refinery feed hopper, that comes to (0.45+0.9)*42000 = $56,700 to return $42,000 of gold to Earth.
Not quite profitable, but not far from it – and that’s with pretty much today’s technology, today’s actual hardware for the biggest part of it. It doesn’t take much improvement on the transport architecture to make it profitable even after accounting for the people you are going to have to send to do the shoveling, etc, and their habitats and potato farms.
And I’m pretty sure I can get you at least an order of magnitude improvement in round-trip transport costs without requiring any scientific or technological breakthroughs, just engineering tailored to that as-yet-unaddressed task.
How long is the trip? That is adding to your costs.
Roughly three years round trip, so if you’re borrowing at 7%, that’s $70K up front for $42K return, before we start throwing engineering at the cost-reduction part. Plausibly $7K up front for $42K return with near-term technology.
There are also issues with amortization of the propellant refinery; I’m simplistically assuming it produces its first load of fuel instantly and then wears out beyond repair or salvage, and slightly less simplistically assuming those assumptions cancel.
Roughly three years round trip
Not if you use a propulsion mechanism that provides continuous thrust. Such mechanisms exist today (e.g. ion drives), but are not suitable for large payloads. But if reducing trip time significantly was valuable, it would not be any more of a challenge to develop, say, a thruster that could put out a constant hundredth of a gee with a payload of tens of tons for a Mars trip, than the challenges you’ve already said could be met. And even a hundredth of a gee does reduce trip time significantly: to about 20 days each way, or 40 days round trip. (Even a thousandth of a gee reduces it to about 126 days round trip.)
Robert Heinlein once said that the problem with all of our current space missions is that they are like floating down the Mississippi on a raft. What we need are the space equivalent of sailing ships–even a small push from the wind was enough to make a big difference in exploration and trade.
Continuous-thrust electric propulsion, at thrust levels that result in a net reduction in transit time, requires throwing lots of expensive power and propulsion system mass into the mix and results in a net increase in cost. Particularly on the return trip, because modern ion and plasma thrusters don’t like the sorts of propellants we know how to make from Martian materials and would thus have to be shipped from Earth. For bulk cargo, which is most of what we are talking about in this application, that’s not the right answer – we’re not going to make a marginally-unprofitable enterprise profitable, by increasing the shipping costs so we can save a year of 7% loan payments.
Manned flights, to deliver the hypothetical gold miners and propellant refinery operators and whatnot, could benefit from electric propulsion systems optimized for reduced travel time, but that’s likely to be a minor part of the economic equation.
More important would be using low-thrust EP systems optimized for slow cargo delivery, e.g. tugs to predeploy payloads at the Earth-Moon L1 point in advance of the Hohmann transfer departure window. But that is a way to reduce costs while increasing travel time.
Continuous-thrust electric propulsion
I was actually thinking more along the lines of nuclear rockets. 🙂 Pretty much anything will do as reaction mass for those.
at thrust levels that result in a net reduction in transit time
A thousandth of a gee is not much thrust.
You may be right, though, that shipping time is not a very critical variable. Most cargo on Earth today ships very slowly, on slow freight trains or cargo ships.
One milligee at three thousand seconds specific impulse and 75% efficiency, requires a specific power density of 200 W/kg. The most optimistic current space power technologies come in at 300 W/kg, meaning your spacecraft is two-thirds solar array by mass, and one-third for everything else including propellant..
Which, at 3000 seconds Isp, is going to be a bit over one-third of launch mass for even a minimum-energy Mars mission, never mind constant acceleration.
So, no milligee constant-acceleration with current or near-term technology.
your spacecraft is two-thirds solar array by mass
Who said anything about solar arrays? I believe I mentioned nuclear rockets. I would expect development of those to be able to achieve significantly higher power-to-weight ratios.
Ah, In that case your spacecraft is four-thirds nuclear power system by mass. Space nuclear power systems made with current technology are heavier than solar arrays of equivalent power. Changing that would be very expensive up front, and may not change the numbers as much as you might hope.
Space nuclear power systems made with current technology are heavier than solar arrays of equivalent power.
That’s because they’re optimized for providing electrical power, not thrust. I’m talking about nuclear rockets, not nuclear electrical power systems. 1960s era nuclear rockets were already in the range of 1500 seconds specific impulse and thrust to weight ratios of about 7 to 1.
“Not if you use a propulsion mechanism that provides continuous thrust. Such mechanisms exist today (e.g. ion drives)”
That’s an electric propulsion system, not a nuclear rocket. Nuclear rockets aren’t continuous thrust propulsion systems on any relevant timescales. Also, the 1960s versions struggled to reach 900 seconds Isp, and are not going to reach 1500 seconds without some fairly substantial breakthroughs in materials science and/or fluid mechanics.
Also also, they don’t get an Isp much above the 450 seconds of a good chemical rocket unless they use straight liquid hydrogen as a propellant, which is cumbersome to store and particularly difficult to manufacture on Mars, making it at best a small improvement over ordinary rockets in this application and probably not the hassle of dealing with anything nuclear.
Solar electric propulsion, thoughtfully used, can provide substantial reductions in bulk cargo delivery cost, though it doesn’t accomplish this through speed.
My Tesla Model 3 is a pretty goddamn huge net positive in my life. SpaceX if nothing else is one of the best dry eye remedies around.
As for net negative entrepreneur…have you never heard of Facebook?
I don’t buy Thiel’s arguments about monopolies being good things. I blogged about this some years ago when Thiel posted in the WSJ about it:
The customers of Google are not the people who use web search or send e-mails, but the advertisers. Advertisers don’t use the product for free, and they pay for the value they get (and Google captures that value).
So this criticism feels a bit like saying “having a pet shop is a bad business model, because pets don’t pay you, and cannot tell you how much value they get from being sold”. Yeah, they don’t and can’t, but who cares.
This also feels like missing the point. You can make a ton of profit with a few customers; you just need something you have a monopoly on, and a few very rich customers who really want it. Also, Intel has significantly fewer competitors than a restaurant.
The customers of Google are not the people who use web search or send e-mails, but the advertisers.
Advertisers don’t use the product for free, and they pay for the value they get (and Google captures that value).
Of course. Neither of those statements is inconsistent with what I said. Google captures the value they give to advertisers; but they don’t capture the value they give to users. And the value they give to users is what makes the whole thing work: if Google’s search and other apps weren’t valuable to users, nobody would be clicking on any Google ads. And yet Google is not only not capturing any of that value, it’s not even trying to measure it. And this is supposed to be a good thing?
this criticism feels a bit like saying “having a pet shop is a bad business model, because pets don’t pay you, and cannot tell you how much value they get from being sold”.
In other words, you agree that, in Google’s business model, users are basically pets. And that’s the sort of “monopoly” model that Thiel is advocating. Thank you for making my point better than I could.
You can make a ton of profit with a few customers; you just need something you have a monopoly on, and a few very rich customers who really want it.
“Small business” doesn’t mean “few customers”. It means “small revenues”. A business that sells yachts, for example, fits the profile you describe here, and might have a small number of customers, but it’s not a small business in the sense that a mom and pop restaurant with a local clientele is a small business.
My guess is that they are measuring it, because the more valuable their service is to users the more people will use it more of the time, increasing what they can charge advertisers. If they tried to capture the value directly by charging users, there would be a serious risk of losing users to a free competitor.
My guess is that they are measuring it
How can they measure it if they don’t know how much users are willing to pay?
If they tried to capture the value directly by charging users, there would be a serious risk of losing users to a free competitor.
This suggests that users are not willing to pay anything for the services Google is providing, which, as I noted in my blog post, undercuts Thiel’s argument.
I am hopeful that, as small, regular and/or incremental payments continue to get easier, people will continue to move toward the Netflix/Kickstarter model of paying for what they want rather than the old model of bundling the things that are a negative to the consumer but valuable to advertisers.
I think consumers will pay to actually be the customers of the services they are using (and with it the expectation of customer service, in addition to ad-free, tailored experience) once paying becomes really cheap and easy.
If, for example, Google could auto-deduct .01 cents worth of e.g. Bitcoin from my account every time I searched, or every minute of Youtube content I watch, that would definitely be worth it to me to actually feel like I am the customer instead of the product.
There is a Moloch-y thing where it’s hard for even super-cheap to compete with free, but I think it’s just that super-cheap has to be both a much better (not a little better) experience, and also very convenient (I think it’s not paying for what they use per se people hate, but minor inconveniences usually attendant on paying; also, although network effects are very important, as SSC users learned, I think, after registration became a requirement, sometimes minor inconveniences are a plus in that, while the average user wouldn’t mind paying .01 cents per tweet, a spammer would, which fact in turns makes the user’s experience better).
Google wouldn’t even need micropayments to charge for their services. I’d gladly pay a flat fee of, say, $10 a month to get Google search unadulterated with any ads and free of any tracking or selling of my personal data.
It suggests that they are not willing to pay anything significant for the advantage of Google over an alternative supplier.
What a firm can charge depends on the value of what it sells to the customers, but also on the price at which competitors can offer the product.
Google, pretty clearly, is more than covering their costs of operations with what advertisers pay them. That suggests that a competitor might be able to offer a free search engine nearly as good as theirs and still make at least a modest profit. That’s a good reason for Google not to charge.
It suggests that they are not willing to pay anything significant for the advantage of Google over an alternative supplier.
But what if the advantage of Google is no ads?
To be clear, I’m not talking about a hypothetical scenario where Google charges for their services but otherwise leaves them unchanged, i.e., still shows ads, still tracks you, etc. I’m talking about a hypothetical scenario where Google charges for their services *instead* of showing ads (and instead of trying to track everything you do).
In other words, the product Google is currently offering to its users is a bundled product: you get services, but you have to take ads and tracking along with them. I’m suggesting that Google could unbundle those things.
I’m just going to have to disagree with you on the restaurants point. They are a notoriously low margin business, and there are many small businesses that are not. For instance, a law practice with a small number of employees can pay its employees well, and the owner (or partners) also can extract good profits. This is because, as Thiel would say, law is a quazi-monopoly because of bar associations restricting entry.
a law practice with a small number of employees can pay its employees well, and the owner (or partners) also can extract good profits. This is because, as Thiel would say, law is a quazi-monopoly because of bar associations restricting entry.
Interesting example. I’m not sure a law practice fits Thiel’s actual definition of monopoly, though (in the sense in which he says monopolies are good things, I mean); a law practice’s monopoly does not come from being so good at something that there is no close substitute. It comes, as you say, from an externally enforced barrier to entry. (And that barrier is not just bar associations, but governments.)
I agree with the reason for the “pseudo monopoly” being different, but it is the example that came to mind, me being an attorney and all.
There are, however similar examples in other fields. I work with someone who is a business broker (sells businesses), and he has never sold a restaurant. He’s had clients who want to sell a restaurant and they make a decent living owning it, but buying a restaurant is just buying a job so no one does it (outside of crazy high end ones like The French Laundry). Dialysis centers and home healthcare businesses make bank (although again through exploiting government licensing).
A major example I recall that was surprisingly good was a trash compacting business. Machinist shops regularly sell quite well because they have expertise and equipment that no one can compete with locally. This is contrasted with car repair shops that almost never sell, and are more like a restaurant.
Liberalism doesn’t take any specific position about what the good life is, or how to promote it – it is a neutral arbiter that enforces content-independent laws.
Liberals like to claim this, and probably actually believe it, but to me it seems like obvious nonsense. No philosophy can credibly claim to be content-neutral when it promotes political correctness and brands anyone who disagrees with its orthodoxy as a “denier”.
I think you are using “liberalism” in a narrower sense than the quote intends. What you are thinking of as liberalism is not even a subset of liberalism in the sense Scott is using it–in part because of the characteristics you mention.
I think you are using “liberalism” in a narrower sense than the quote intends. What you are thinking of as liberalism is not even a subset of liberalism in the sense Scott is using it
Wouldn’t this imply “different” instead of “narrower”? “Narrower” implies (to me) at least some shared content, if not “a subset of”.
Also, if Scott intends “liberalism” to mean a philosophy that actually embodies the qualities he describes (instead of just saying it does while not actually doing so), I’m not sure there is any such philosophy today that has more than a token number of adherents. And if there is one, it doesn’t go by the name “liberalism”, so at the very least I think we have a terminology issue that needs to be addressed.
I think there is an overlap. Some modern liberals are liberals, some, including many who prefer to label themselves “progressives,” are not.
Narrower does not necessitate an overlap, though it does imply comparability of width. For instance, my index finger is narrower than my thumb. “x means castor canadensis” is a narrower definition than “x means any species of arthropod”.
Aside: I am certain that interpretations of liberalism that assume people should be free to pursue their own conceptions of the good have many adherents.
The first half of this observation, read out of context, is very good, culminating in “no philosophy can credibly claim to be content-neutral.”
What would it even mean to have a philosophy that was truly content-neutral? In general, we expect our philosophies to be, for instance, opposed to people getting eaten by wolves.
Any given political philosophy will promote some vision of how people should live, even if it does so in a tacit, indirect manner by trying to ban a large chunk of the alternatives.
The second half goes downhill because it tries to single out a specific philosophy and blame it for not being content-neutral enough, with the implication that a better philosophy would be more neutral. The problem is that any active political philosophy, when implemented outside an ideal spherical frictionless vacuum, inherently has consequences. It inherently picks winners and losers; it’s simply a question of how openly it does so.
If your society has tacit rules against shouting racial slurs at people because insulting people over their race is considered wrong, then that makes people who like to denigrate other races the ‘losers,’ and it makes the people who’d get denigrated the ‘winners.’
If your society has no such rules because banning racial slurs would be ‘political correctness’ and that’s a bad thing, then people who like to denigrate other races win a point, and the people getting slurs used against them lose a point.
In neither case is “but this isn’t neutral, it picks winners and losers!” a valid criticism in and of itself. There is no way to avoid picking winners and losers. Even refusing to have rules at all is itself a way of picking winners- namely, whoever has the means to enforce their will and establish themselves as a powerful clique in the resulting anarchy.
Ultimately, society consists in large part of tradeoffs; power is transferred from one group to another group through a complicated mix of formal and informal rules, trades, and social dominance games. Many of these tradeoffs are win/lose; even if they’re not “zero sum,” they still result in one side gaining something while the other side loses it.
Sometimes all you can really do is try to figure out which way the tradeoff should be made, and ascertain if either side has nominated themselves for the short end.
Any given political philosophy will promote some vision of how people should live, even if it does so in a tacit, indirect manner by trying to ban a large chunk of the alternatives.
Yes, this is a good point, and I’m glad you brought it up. See below.
The second half goes downhill because it tries to single out a specific philosophy and blame it for not being content-neutral enough, with the implication that a better philosophy would be more neutral.
That wasn’t my intent, although reading back over what I wrote, I can see how it could be taken that way. As you point out, no philosophy can really be content-neutral, and no set of rules can avoid embodying, even if only implicitly, some vision of the good life. My criticism of liberalism (or at least the version of it I described) is simply that it claims to be content-neutral, and makes that a big part of its claim to being a “better” philosophy, while in fact it is just as committed to a particular vision of the good life as any other philosophy–and in fact takes steps to actively suppress expressions of alternative visions.
Spengler, insofar as he philosophizes, doesn’t promote any vision of how people should live. Nietzsche didn’t have to promote any vision of how people should live; any such promotion was incidental to his philosophizing and stuck out like a sore thumb. In general, any political philosophizing that begins with the assumption that political systems are like organisms or ecosystems won’t promote any vision of how people should live.
any political philosophizing that begins with the assumption that political systems are like organisms or ecosystems won’t promote any vision of how people should live.
Sure it does: it promotes the vision that “whatever evolves is right”.
“However, I find myself interested in beliefs that are probably false but beneficial. In order to actually change the world, you probably need to start with a completely unjustified and irrational belief in the likelihood of your own success.”
If you could persuade a lot of people of that, your system for changing the world would probably have traction.
One minor comment – my father had a friend who was a serial developer of restaurants. He would always say the best place for a new restaurant is in a street full of restaurants. His logic was that people are already used to going to that area to eat, so the new restaurant gets instant customer base, which then increases the tendency of people to go to that area creating a positive feedback effect. So in this case multiple Indian restaurants could be creating a regional hub of Indian restaurants, sort of like why Cities are more productive than people spread out in small towns.
Yes. I always thought the town where I grew up had too many restaurants for its size.
But this strategy is reliant on transport working well. Parking always seemed to be a bottleneck in the way of it being a larger middle-class day out/dinner hub.
Ideally, you’d want to open a different variety of restaurant on that street full of restaurants instead of trying to do the exact same thing as the other guys.
Paul Krugman won a nobel prize partly for his work on economic geography and explaining why hubs are important.
It’s actually a bit more complicated. Once there is enough choice, people are more likely to go to the location and then make their choice, rather than what they do if there is only a single restaurant in one place: decide before they set off, to go to a specific restaurant.
To woo someone who uses a ‘late chooser’ strategy, there are actually two competitions going on:
1. Between that location and other locations
2. Between the restaurant and the other restaurants
Clumping together allows mediocrity in mass to flourish: your location defeats the other locations by sheer quantity and then once people are at the location, you only have to beat the local competition.
The trick is to be similar enough so (enough) people see all/most choices at the location as fulfilling their need, but dissimilar enough so people still perceive sufficient choice.
This balance depends on consumer preferences.
Clumping also means that you can choose your restaurant but easily switch if say the wait time is to long or if you see something else that catches your eye.
Yes, it is quite rational because it gives you options when things happen that are out of your control or when you lack godlike knowledge.
“But the greatest entrepreneurs bring something ‘from 0 to 1’ – they invent something that has never been seen before.”
What Thiel is referring to is the difference between providing a product/service for a demand that already exists versus creating a demand by introducing of a new product/service to the market. Achieving the former can make you a great entrepreneur, while achieving the latter can make you one of the greatest, e.g., Thiel, Jobs, etc.
I think Jobs is, importantly, a really poor fit for that description – unless we’re talking about one if his deep cuts. His big hits are mostly about repackaging and perfecting perfectly acceptable existing technologies.
Have people stopped trying to throw off conventional wisdom, or is this tendency just finding more expression these days in the political and medical/scientific spheres rather than focusing on religion as much?
Okay, Scott, I’m very concerned why your definition of “suppression of freedom of speech/thought” includes “people being shamed and criticized on social media” but not “eccentric billionaire engages in conspiracy to destroy media company he dislikes using the court system.”
I’m not about to defend Gawker on the merits, but one of those things seems WAY more like worrisome censorship than the other.
I read the original quote as tongue-in-cheek and anti-Gawker, not pro-Thiel per se.
One possible distinction is that social media mobs tend to be lopsided affairs (huge mob vs. some poor schlub), whereas billionaire vs. corporation seems more of a fair fight. Indeed, one might argue that Thiel was doing a public service, since most people screwed over by Gawker were small-timers who couldn’t afford to stand up to them in court, whereas Thiel had the resources to fight them.
A conspiracy to use the court system is also a fairly non-central example of a conspiracy.
“using the court system” is not the central conspiracy mechanic of funding a massive number of third-party lawsuits until an entity either goes bankrupt from legal fees or loses the wrong one and goes bankrupt to a massive judgment. The conspiratorial mechanic is recruiting and funding a bunch of plaintiffs of varying degrees of merit.
If you have no idea what the word “conspiracy” means, sure.
You’re also engaged in some pretty flagrant strawmanning if you think Scott’s objection was to people being criticized on social media.
Replying to my own comment Paul Zrimsek because I accidentally reported yours and now I can’t reply to it (or un-report it for some reason?). Sorry, purely a fat finger situation.
First, the actual literal premise of Scott’s post is that Thiel is someone who has successfully figured out how to run conspiracies successfully, and the point in question is that one such conspiracy is Thiel’s plan to destroy Gawker media.
Second, how is recruiting a bunch of people with a resource (a potentially actionable claim) and funding them in secret to destroy your enemy *not* a conspiracy? Seems like if that is not a conspiracy, nothing is.
Third, I said criticizing *and* shaming. Throw harassing in there too. The point is that all of this behavior – speech acts from individuals – is a hell of a lot different than a secret campaign to destroy your enemy.
Zrimsek, obviously no one has any idea what the word “conspiracy” means — thus so much time is spent establishing a meaning for it. If anyone had any idea what it meant you wouldn’t have an opportunity to claim that someone has no idea what it means.
@antilles A central example of a conspiracy is one where it’s important to keep it a secret, because if you get busted, you can’t achieve your goal. In our case, even if Thiel did it entirely in the open, it would still have worked. (Or perhaps not if Gawker would have been more prudent about not exposing themselves to lawsuit.)
You couldn’t reply to Paul’s comment because it’s already at maximum depth.
Aging Loser sort of has a point, though the way I would put it is that “conspiracy” not only has fuzzy boundaries, but is one of those ideas (illness and disease are another example) which practically beg to be used metaphorically, by people who might then forget that it’s only a metaphor. That’s probably what’s happened here, for reasons touched upon by 10240; there’s got to be some way of distinguishing conspiracies from everything else two or more people do without publicity.
Either way, a common enough thing that I have no business snapping at people about it, so I apologize for that.
The lack of a confirmation feature is one of several issues which have bedeviled the “report comment” function for a long time, and have so far resisted every attempt to fix them. No harm, no foul.
Was Thiel funding lots of bogus lawsuits to drive up Gawker’s court costs?
I know he funded many, but funding legitimate court cases is different than funding illegitimate court cases.
Certainly possible that it was tongue-in-cheek, but given that Scott’s views on SpaceX are fairly unequivocally positive, it certainly doesn’t *read* that way at first glance.
This is a complete misrepresentation of Marx’s argument, through competition businesses will replace living labor (variable capital) with dead labor (constant capital) and drive the rate of profit down. That’s not the same as “nobody will get any money”.
Citation needed. There’s actually quite a bit of evidence that this is happening (see Michael Roberts’ work, for example).
It’s also Marx’s argument that this will drive class warfare, not that the capitalists will long for something better. the revolutionary class here are the proletariat, not the capitalists. Can you find a single quote of Marx’s where he says somthing to the effect of “even the capitalists themselves will long for something better”?
Sorry if I’m being blunt here, but I don’t think it’s a good idea for you to write about what Marx’s “warning” was if you don’t have a basic familiarity with what his warnings actually were.
So Scott says that according to Marx eventually nobody will get any money while you say that according to Marx eventually nobody will get any money beyond a vanishingly tiny quantity.
The single quote of Marx’s where he says something to the effect of “even the capitalists themselves will long for something better” may be found in that silly part of the MANIFESTO where he explains how it can possibly be that he and his friend Freddy, both from the “bourgeois” class, are writing this book.
“Don’t talk about Marx if you don’t have basic familiarity” is the kind of thing that commies used to scream each in secret meetings on Avenue B at 2AM.
It’s not that there is a “vanishingly tiny” quantity of money, it’s that the surplus value is getting smaller as compared to the total amount of value in society. This is a very basic and important distinction.
Where? You didn’t quote him.
There is definitely no evidence that this is happening as Marx made specific claims to this extent and you will have to do more than drop the name of an unknown economist as evidence.
From Communist Manifesto
Marx did not argue that there would be an inequality of capital where the rich had lots of it and the poor not so much, he argued that the trend was toward the rich having ALL of the capital and that capital would slowly be stripped away from the middle class and that they would be turned into non capital holders. People who argue that today’s inequality supports Marx have not read their Marx. His claim was that the capital holdings of the majority would DECREASE towards zero, not merely increase at a slower rate. In Marx’s far off fantasy future owning even a small amount of capital would free you from the need to do labor and thus his whole economic argument relies on the loss of capital by the lower classes.
Here’s a blog which gives some of the evidence for the falling rate of profit.
As to your second point, are you using Marx’s definition of “capital” or a different conception? It seems like you’re kind of conflating two different definitions.
It doesn’t matter which definition you use, if you use Marx’s financial capital definition then you get wealth out of that definition. If the real wealth of the lower classes is not shrinking then accordingly it must be because they are maintaining enough capital to do so. You could only make the claim that Marx was correct if the rate of return to capital was rising which would allow you to claim that the lower classes were having more surplus value stolen from them, but that would directly contradict your above link and another linchpin of Marx’s theory.
What? It matters a lot, so can you please define your terms using references from Marx’s work.
For Marx if you have money it can be turned into capital, and so they only way to have money and to not be a capitalist is to have your earnings capped at subsistence levels so that there can be no accumulation of capital. Without that condition there is no distinction between “capitalist” and “laborer”, only a continuum. Every laborer who gets paid higher than subsistence wages can potentially be a capitalist if they so choose, which is why, under Marxism you need a reduction in capital, or wealth, or earnings, of the lower classes down towards the subsistence level, which is why Marx assumed that capitalism would lead to monopoly. He had to so that he could arrive at his desired conclusion, he was an ideologue who had to build a structure around basic economic thought (I don’t mean basic here to mean low, or simple) to constrain it and allow his conclusions to arise.
This is not the first time you wrote something like this in a SSC comment. Actually, my model of you is more or less: “that guy who always comes to say ‘Scott is completely misinterpreting Marx’, usually without any evidence or explanation”. So, thanks for providing actual arguments today.
From my perspective, there is no reason to assume that your understanding of Marx is more correct than Scott’s. You seem like a big fan, but that doesn’t necessarily imply understanding. (People can be fans of e.g. quantum physics or a particular religion, while completely contradicting the experts.)
If you value “SSC readers having a good understanding of Marx”, perhaps it would be more useful to write your own interpretation of his key points; reasonably short (i.e. an article, not a book) and legible for non-fans (i.e. using generally known terms, not Marxist jargon). Or, if such resource already exists, please share a link. — The reason I am not going to google “Marxism 101” now is because even if I found it, I would have no idea whether this is a version you agree with, or just another version you would dismiss as a misinterpretation. If you provide the link, it has the extra value of knowing that you agree with it; so it would make sense to complain to you about mistakes I might find there.
According to Michael Wolff in Fire and Fury, Trump just stopped responding to Thiel after he won: https://www.businessinsider.com/trump-told-peter-thiel-theyd-be-friends-for-life-then-ghosted-him-2018-1
Marc Andreessen once said he agrees with exactly half of everything Peter Thiel says. I feel roughly the same.
The “definite optimism” idea would be a lot more convincing if it didn’t directly contradict what Thiel himself did at PayPal, which started as a technology to beam money from one person to another using handheld devices (like Palm Pilots; this was pre-smartphone). They pivoted about five times before they hit on the business idea that actually worked. And even that was a total accident: it was literally a web-based demo of the online payments concept, which people started using about 100x more than they were using the actual product.
I find Paul Graham more convincing:
Columbus is a great counterexample to Apollo, etc. He went looking for a route to India and came back with the New World. (Best pivot ever.)
On the other hand, there are plenty more examples of people who found exactly what they were looking for. The team at Bell Labs that invented the transistor was looking for the transistor. The first synthetic plastic (Bakelite) was invented by a guy who was trying to make a synthetic plastic. Etc. So both methods can work.
IMO “definite” vs. “indefinite” is a false dichotomy. Jeff Bezos says to be “stubborn on vision but flexible on details.” When you see a mountain in the distance, you can’t see its features, or the path up it, but you are absolutely sure it’s there, because it’s so huge. The mountain is definite, the path is indefinite.
(What makes this tricky is what level of abstraction we’re talking about. In retrospect, you could say PayPal’s mountain was “electronic payments” or that Bill Gates’s was “PC software”. But that might not be how they identified it at the time.)
It feels like there’s a connection between this distinction and the paradigm shift idea of Kuhn. Sometimes, you’re working within a reasonably-well-understood model and just trying to get from X to X+1, other times you’re trying to invent a new model and trying to get from 0 to 1 in that model. Both of those are necessary for making progress–you need people making the big leap (like inventing general-purpose computers) and also people working out how to make incremental improvements (like inventing Python).
Can anybody step me through the process by which Newton came up with his theory of gravity? I can sort of get how he could imagine that the force was inversely proportional to the square of the distance — that’s how surfaces grow in three-space, and I’m thinking you wouldn’t get orbits otherwise. But how did he get that it was proportional to the product of the two masses? Surely he had no idea how massive the Earth or Sun or any of the planets were, and the relative mass of the Earth and a cannonball are so disproportionate that seeing the symmetry between them would be very hard.
When I took college physics, they could walk us through the theory of relativity starting from the first principle that the speed of light is a constant, but I never saw anything like that for Newton’s theory of gravity.
In order to explain objects of different masses accelerating at the same rate when you drop them, you need to assume that the force of gravity on the object is proportional to its mass. Once you assume that, it’s natural to assume symmetry between the force of the Earth on the mass and of the mass on the Earth. If you don’t assume that you lose conservation of momentum, since gravity exerts a greater force on one object than the other, hence changes the momentum of the two objects together without any interaction with anything else.
How Newton actually did it I don’t know, but that seems a plausible explanation.
Newton had differential calculus and Kepler’s laws of planetary motion. If you have the concept of a “force” as a thing that produces proportional acceleration in a mass as per F = M*A, and you differentiate a Keplerian orbit, you get an acceleration due to solar gravity that is independent of planetary mass (unless all planets have the same mass) and is inversely proportional to the distance. That gives you A = K / R^2 and thus F = K Mp / R^2
That the Earth’s gravity is weaker than the Sun’s and the Moon’s gravity is weaker than the Earth’s is fairly straightforward, therefore ‘K’ isn’t really a constant but is a function of the gravitational source. Throw in Newton’s third law of motion, and K has to be proportional to the mass of the gravitational source to conserve momentum by symmetry.
Newton wasn’t the first to propose that gravity was an inverse-square force, but he was the first with the tools to (almost) prove it. Kepler’s Laws were published in 1609, extended to primaries other than the sun in 1621, and debated with increasing confidence over the next half-century. And Kepler was working from Tycho Brahe’s precise and comprehensive observations from the late 16th century, so this all proceeded about as fast as it reasonably could.
The secret sauce was that gravity is a universal property, rather than a property of the ground, or the Earth. Once you start thinking about gravity as a force that acts on all matter, and various ways you can arrange matter to produce the force, multiplying two masses together would be one of the first things you’d try. As for the inverse-squareness of it all, Newton was an excellent geometer, and that’s pretty much all you need.
Three good perspectives. Thanks!
I think that the key is that he wasn’t just working with Kepler’s laws. He was also working with ancient static physics and Galileo’s terrestrial mechanics. Static physics is about balanced forces proportional to mass. Galileo says that acceleration is important. F=ma is often read as just a definition, but if you’re unifying these two fields it is a substantial statement. I don’t know quite how he got there, but it seems pretty reasonable, if you’re going to unify them. I think that the third law of reaction comes from the balance of statics. I think that conservation of momentum comes from the third law, not vice versa.
With F=ma, gravity has to be proportional to the mass of the satellite, as David says. But, as John says, we see that different primaries have their own satellites, with different periods, so there is some other term, which is the mass of the primary. Multiplying them fits with the symmetry of the third law, as David says.
The inverse square does not come from geometry, but from the scaling of Kepler’s 3rd law, that the period is the 3/2 power of the radius. A radial acceleration as a function of the radius produces circular motion with speed depending on the radius. Thus Kepler’s law pins down the strength of the acceleration. I believe that many people observed this and proposed the inverse square law. The question is about non-circular orbits, whether the deviation makes an ellipse, and of the correct varying speed. I believe that Newton ultimately proved that an inverse cube law also produces elliptical orbits, but no other power does.
Kepler’s second law says that equal areas are swept out in equal time. The first thing Newton did is prove that this implies that the acceleration is directly towards the sun. That’s a pretty big reality check. This computation is fairly easy, at least with modern techniques. (Specifically, one needs the Leibniz rule for cross products: D(A×B)=DA×B+A×DB. If the orbit is the vector P from the sun as a function of time, its velocity is DP and acceleration DDP, then Kelper’s law says that P×DP is a constant vector. Thus its derivative is zero:
But DP×DP=0, so P×DDP=0, so the acceleration is colinear with the line to the sun.)
Actually finishing the job and showing that the inverse square force actually produces an ellipse is much more difficult. I am skeptical of John’s claim that you can just differentiate the orbit. Even if there is some easy proof, Newton didn’t find it. But at this stage he knew that the inverse square law was a very promising candidate.
Note that the above presents two almost completely disconnected arguments, one for the force being proportional to the product of the masses, the other for it being proportional to the inverse square of the distance (and along the line of separation).
My hypothesis is that all innovation stems from advances in materials science or materials engineering. If you happen to be thinking about the right things when a materials science advance occurs, you have a good chance of seeing the billion dollar bill lying on the ground. All the internet billionaires were staring in the right spot when Moore’s Law (which is wall-to-wall materials innovations) revealed the billion-dollar bills.
I’m pretty sure that’s why the guys at Commonwealth Fusion are going to be billionaires in 20 years: they just happened to be staring at spherical tokamaks when REBCO tape magically appeared.
Of course, this hypothesis can’t explain why there are innovations in materials science itself. Maybe chemists and solid-state physicists really are lone geniuses. Or maybe it’s just that all recent progress stems from blundering about with quantum mechanics.
I have long suspected this as well. “Plastics make it possible” is more than a slogan. When I briefly studied the field in undergrad, I never got a sense for how those innovations happened beyond blundering about though. It seems less like a science and more like a craft with lots of tacit knowledge embedded in the people and processes. I heard there was a special foam seal material that was used in ICBMs in the 70’s and stopped being produced, and the guys at Los Alamos who had to replace them when they started to fail couldn’t reverse-engineer it after the process knowledge was lost.
Even when I’ve set out to solve problems in my personal life, it’s been bizarre how often the progress jumps involve obtaining novel materials with unique properties to conduct some experiment or build a weird apparatus. Next month I’m going to undergo a surgery that was invented as an indirect consequence of advances in implant materials in the 90’s — it seems like as soon as the materials science caught up, there was a surgical pioneer waiting in the wings to start building on it and discovering new surgical possibilities.
The one problem for those people (I think) is that its such a highly regulated sector (usually regulated monopolies) that your are selling to one of the worst customers possible.
Neither the Gawker takedown nor the Trump support were complicated multi-step plans. Both can de described in one sentence: “Fund lawsuits against this pile of garbage until they lose enough money to go bankrupt” and “Invest in somebody nobody else wants to invest in, so you gain influence in case that somebody actually wins”.
To be fair the Apollo project was even simpler (single clause): Get a man on the moon.
Not sure that the fact something can be boiled down to an accurate precis is actually an indication of it being a simple plan. It just means that it is easily understood.
Wasn’t it get a man to the moon and back?
The problem with this formulation is that the failure modes for either are very costly.
Easier to explain is the Trump angle. Funding every candidate that nobody else will fund is like asking to spend money on failure. To select Trump requires information way beyond “nobody else wants to invest in” which requires setting up criteria to evaluate options, a selection process, etc. You also don’t get very many chances to try this, as people will soon consider you a crank if you do it very often (meaning you could hurt future candidates through your support, and they will disassociate with you). To do this well (assuming he didn’t just go with a gut reaction) probably means setting up a team to look for potential candidates and heavily evaluate how well they might do, then follow that up with a process to evaluate the best way to support such a candidate. That sounds “multi-step” to me.
Slightly differently, but along the same lines, you can’t advertise “I’m throwing money at every random chance to sue Gawker” because you’ll get a million false positives and maybe a lawsuit from Gawker. Instead, you have to monitor what Gawker is doing and identify legitimate breaches of law that could allow a lawsuit, with a potential plaintiff that can go the distance. You then have to convince them to sue and to accept your help in doing so. You can’t sue on their behalf, and if they flake or fail, you’ve lost your money.
So we’re left with two alternate possibilities to what Thiel himself says. One, that Thiel got really lucky, which Scott addresses somewhat in the post. Or two, Thiel has a bunch of failures trying to do the same thing. I haven’t checked, but it wouldn’t be too hard to note that Thiel threw a bunch of money away in lawsuits against Gawker that went nowhere. Similarly, you could evaluate his support of long shot election contestants and see if he has a lot of failed support. If neither of those things are true, it makes his assertion that he planned these out much much stronger. Not definitive, as he really could have gotten lucky, but definitely stronger.
I’ll bite: what is the cost of failure? If Hogan had lost vs. Gawker, or Trump vs. Hillary, what would Thiel have lost but a modest and affordable sum of money and a small mostly-temporary hit to his reputation?
It’s true that you can’t randomly finance every long-shot lawsuit or candidate and expect to win in the end, but you can afford quite a few failures and if you hit with say 10% of your shots, that may well make for a winning strategy.
That’s a distinctly different paradigm than actual conspiracy theories, where a single failure winds up with you in prison or having to run your operation from a cave in Afghanistan or the like. And the eleven-step conspiracy plans where each step depends on the one preceding it going as planned, are right out. Here, we’re talking a one-step plan where you may get eleven shots at the goal.
I think this is the point of contention. We agree that someone can’t fund every long shot option. Even Thiel would run out of money quickly (which is the primary “cost of failure” that I had in mind). Secondly, as I mentioned he can’t support every weird longshot candidate for office, because he would become associated with failure and cranks. Donating to a candidate is not the main issue, it’s becoming close enough to that candidate/campaign to expect to wield influence later. He can donate money to Ron Paul and say that he’s supporting Libertarians (or Rand Paul and get Libertarian-adjacent). If they lose or turn out to be crazy or racist, he was supporting the party or some niche and he can move on. Just normal monetary support doesn’t get you a spot in the Cabinet.
I don’t think of either of these things as “conspiracies” and I don’t think single failures will ruin him.
That said, as Argos mentions below, Thiel needed to keep his involvement with Gawker quiet for the sake of juries. Similarly, if he went full tilt towards losing candidates, especially multiple, then I think he would be written off shortly.
Right, but when was that even under discussion? Supporting every weird candidate would be the maximally-stupid degenerate version of the “support weird candidates as a long-shot influence play” strategy, as would supporting every anti-Gawker lawsuit.
Pretty much every strategy everywhere in every context includes “…and apply intelligence to avoid wasting resources(*) on the lowest-probability false opportunities”, and are properly evaluated on the basis that this will be done. Why should we declare Thiel’s strategies to be either unworkable because the maximally-perverse stupid version can’t work, or conspiratorial because Thiel didn’t tell us about the part where he privately applied intelligence to avoid maximally-perverse stupidity?
* Including credibility, reputation, etc
I believe we’re at the point of the conversation that hinges on how much [multi-step plan] verses [normal application of intelligence]. I went into this conversation leaning heavily on “multi-step plan” meaning something more than “I had this idea and then did it” – which I think is true. I think that the process for figuring out who to support is a very meaningful and complex bit of planning, but that doesn’t mean Thiel gave it all that much thought – he could have thrown darts as far as I know, or just went with a gut feeling. Otherwise, are the steps that he took so obvious that it doesn’t need to be spelled out in a plan? I would think not, but that’s certainly debatable. I am not really interested in having that debate.
In regards to my original response to this thread, I think Watchman said it better – the OP essentially says that being able to say the plan in one sentence means that the plan is itself simple. Destroying Gawker certainly isn’t going to the moon, but there are multiple steps that need to be undertaken before it can be accomplished.
Trying to invest in successful startups is basically an exercise in making low-probability-to-win, high-payoff bets. It wouldn’t be crazy for Thiel to suspect he’s better at that sort of thing than most people….
First of all, Thiel never claimed himself that either of those things were conspiracy, multi-step plans (admitting it would obviously kind of defeat the purpose)
In addition to what John Schilling wrote, Thiel did fund many politicians in the past:
In the past, he donated to Ted Cruz (small amount), to Ron Paul in 2012 (very large amount) and to Rand Paul in 2016. Not to mention support for local and senate elections. In fact, according to this site, he was the 11th largest private contributor to federal donations: http://www.opensecrets.org/overview/topindivs.php?cycle=2012
To be fair, investing in Trump was a bit different, since the Pauls are libertarians already, while Thiel wanted to nudge Trump into becoming more libertarian (at least that’s the theory). But still, many people donate to buy influence, and we don’t go around calling their actions genious multi-step plans.
The gawker case is more interesting: Reading up on it, people speculate that a lawsuit by a Tinder cofounder was funded by Thiel as well. Steelmanning the Thiel mastermid case, the plan could have been: 1)Fund the Hulk 2) Before the Hulk case starts, fund other lawsuits 3) Gawker is not able to afford competent lawyers 4) Make sure your whole involvement stays secret (so the jury stays sympathetic) 5)Due to incompetent lawyers, Gawker embarass themselves in court (that kind of happened: after the verdict a clip of a gawker journalist’s testimony surfaced where he asserted that child sex tapes were ok as long the child is older than 4)
This is clearly very speculative, whether you believe that things were planned like this depends on your prior for Thiel’s genius and the feasibility of multi-step plans in General.
FWIW, the lawsuit was not by the Tinder founder, but by a journalist whose attacks on the founder Gawker described as “obsessive, possibly unhinged.”
Here is a list of 11 lawsuits against Gawker.
I feel like Thiel’s Trump plan was a one-step plan with an immediate near-certain payoff. Subsidizing Trump meant Thiel got to give his “proud to be gay and proud to be republican” big-deal nominating speech at the GOP convention on national television. Thiel clearly saw a relatively cheap opportunity to give a massive publicity boost to some causes he cared about. In subsidizing Trump, he bought a chance to influence the Republican party (and perhaps the country in general) in a positive direction. That Trump might actually WIN was not necessary for that bet to pay off. Trump WINNING was a long shot. But Trump getting nominated was a certainty.
Had Trump not won, Thiel (a) would still have gotten to make his speech, (b) might still be able to parlay his investment into political pull with whoever DID win the nomination, and with even more candidates in the NEXT election. It’s win-win. Giving SOME outsider the big bucks makes one a force to be reckoned with in the future – it proves he’s serious. Future long-shot Republican candidates are now likely to make an effort to keep on Thiel’s good side in the hopes that he might give THEM money and endorsement like he did Trump.
No, it should drive them down until the economic profit is zero. That is, the profit will be the normal return on capital plus some (imputed) salary for the sheer headache of being an entrepreneur. For while, yes, a lower profit rate in one line of business will push entrepreneurs into other industries, if all industries are unprofitable, then people will jack in this whole ‘enterprise’ thing entirely and go to work for someone else, so that the planning and the risk and the ruthless optimisation aren’t their headache any more.
For the marginal entrepreneur, running a business should pay just enough extra to balance out the advantages of a steady job. Of course, there are further complicating factors, such as: ‘being your own boss’ is another nonpecuniary advantage to some people; most people (probably) overestimate their likely success in business; some people who would otherwise be inframarginal entrepreneurs cannot raise capital… but if the life of businesses really were “nasty, brutish, and short” then no-one would want to run them, and either the interest on capital would go down, the wages of labour would go down, the rent of land would go down, or the prices of goods and services would go up, until there was enough money in enterprise to draw people into it.
Everyone tends to focus on startuppy 0→1 businesses, because they’re the only way to make millions (that doesn’t involve starting with millions (or, as in the airline industry (according to Branson), billions)); but if all you want is to be mildly rich, and you’re competent enough not to need a hail-mary plan to stand any chance at all of success, then there’s a lot to be said for the n→n+1 variety. No-one is ever gonna be famous for succeeding in the Indian Restaurant business, because it’s a “dog bites man” story. But “Startup doesn’t crash and burn” makes the news, and bends our availability heuristic just that little bit further.
Relatedly, I would hazard a guess that the total economic value created by all the restaurants in the US is probably greater than the total economic value created by all the tech startups. I wouldn’t know how to go about measuring it, though.
I… don’t think you’ve been following SpaceX very closely. Some points:
His original plan didn’t involve building his own rockets at all.
Then he planned to launch small LEO payloads with Falcon 1 (with Falcon 5 as a growth design). He had enough money to launch three Falcon 1s, and they all failed.
Then NASA came along and said “we want Station resupply”, so he pivoted again, to Falcon 9 and Dragon; it was only thanks to NASA’s backing that he was able to scrape together enough to launch a fourth Falcon 1 (which finally worked).
He was originally planning to recover Falcon 9 boosters by parachute. That didn’t work, so he pivoted to retropropulsion.
He was intending to send a Dragon 2 to Mars (“Red Dragon”) to prove out retropropulsive Mars landing tech; it would have launched on Falcon Heavy (which itself was originally planned to happen much earlier, but the market changed, so the schedule did too). This got dropped when NASA wouldn’t accept propulsive landings for Commercial Crew.
Big Falcon Rocket and Big Falcon Spaceship have seen repeated changes in the basic design and even mission scope.
As far as anyone knows, Starlink wasn’t part of the original plan, but a later idea to raise money for BFR development.
Now sure, there’s an overarching meta-plan you can say is still there (“lower launch costs, then build Mars rockets”). But that’s not far from saying that a startup’s plan is “make money”. SpaceX’s success is an example of a well-judged balance between planning and flexibility. If anything, the most obvious example of long-term planning (Falcon Heavy) is also an example of where more flexibility might have been better — much as I love FH, I’m far from convinced that it’ll pay its development costs; arguably SpaceX should have dropped that program years ago to speed up Commercial Crew and BFR.
@Scott Alexander wrote: “When every intelligent person you trust is pushing one heuristic, it can be really refreshing to hear someone else intelligent and successful say exactly the opposite. ”
That was approximately my sentiment up on finding this blog and realizing that a highly rational/empirical/skeptical approach to the world wasn’t without proponents.
Thiel is repeating old industry wisdom about not wanting to be first. The old timers always used to say that you can tell the pioneers by the arrows in their backs. It was the guys coming up behind them. I heard this in the 1980s, but was told it was wisdom from the 1920s.
Xerox and AT&T had another driver, the antitrust enforcers. Their main businesses were constantly at the edge of antitrust action, but when things got too hot, they’d back off a bit and point to all the blue sky research they were doing. From a business sense, this was terrible. The government was forcing them to waste money on research that they’d never get any benefit from, but it let them make high sounding speeches when the antitrust came by rattling the door.
@Scott Alexander wrote: “Building bombs was not what kids normally did in those countries at that time.”
I lived in Ukraine roughly at the same time as Max Levchin did. Most normal boys were involved into building some kind of small(sometimes not so small) explosive device. The were usually pretty basic using elements left from construction work yet extremely dangerous and powerful.