Fisking the YC Request for Startups from an SEA Viability Perspective

YC recently updated their request for startups, and it’s helpful to look at this list to see what can be built out in SEA and when SEA builders and investors should consider charting a different path due to their inherent strengths and weaknesses of building in this region.

1. Applying Machine Learning To Robotics

This is an area where SEA founders who have expertise can hire cheaper yet effective engineers to attack complicated engineering problems, giving them more shots on goal for the amount of money raised. The main risk is that the customers are unlikely to be local. Robotics replacing expensive labor is far more viable than robotics replacing cheap labor. Factories in low cost of living countries have less of an incentive to invest in capital that replaces labor, and investing in capital when it is at the bleeding edge of state of the art technology is taking on a lot of risk for minimal upside. On the plus side, there are potential customers in the same time zone in countries such as Korea, Taiwan and Japan.

2. Using Machine Learning To Simulate The Physical World

There is no reason a realm of strong ML engineers couldn’t take this approach in SEA, the main issue is there are fewer clusters of ML engineering teams in this region. But there are sizable groups in Singapore working on ML and there are pockets of strong AI talent in places like Hanoi, so it’s plausible that someone starts something interesting in this space.

3. New Defense Technology

Building defense oriented companies is trickier in SEA, as these countries will be regulating defense tech far more closely than they are tracked in the US. While the US purchasing system has various inefficiencies, they are a big buyer and they have the best technology. And when the US is not a likely customer because they are buying domestically, it makes building for this space very tough. But if Baykar can make a billion dollars in revenue building drones based out of Turkey, there is opportunity to do this in other parts of the world. The region and the world needs more capabilities to help counter an increasingly aggressive CCP. But US investors should realize that the political and regulatory risks of playing in this space are far larger when they venture outside The Gundo and the rest of the US.

4. Bring Manufacturing Back To America

There is no way an SEA startup will truly be focused on manufacturing in the US. But there is a broader trend of China + 1, in which companies are figuring out how to move at least some of their production outside of China. It’s far more viable for them to relocate that production to parts of SEA than it is to the US. The question is what type of business or technological solution to the China + 1 problem will generate venture scale returns in this space. The FDI is going to be coming into Vietnam, Indonesia and other markets as businesses realize they cannot rely only on China. The question is whether technology companies can be uniquely helpful enough in the process to capture a significant portion of the value they are enabling.

The fastest wins in the manufacturing space will be from experienced teams that bring in advanced manufacturing, as local governments are more likely to subsidize these ventures, and non-dilutive funding always helps.

An orthogonal but important point is that many of the companies that have been manufacturing things in the world of atoms still use China for their production. Switching outside of China is a luxury for profit making businesses that want to protect their downside. Unless it is the point of the company to relocate manufacturing it is not necessary to incorporate this idea.

5. New Space Companies

There have been a couple space companies built out of Singapore. It’s an exciting space, but so far the end user economics is either tied to telecommunications, government and defense related work, or capturing money being spent by eccentric billionaires who want to mine and colonize the solar system. The more viable companies will be building for the first two types of customers. When building or investing in space-tech, know your market to make sure that your market size is adequate.

6. Climate Tech

Climate tech in SEA is an interesting beast. Many of the opportunities are coming from regulations from outside of SEA. The potential generation of carbon credits from Indonesia for European companies is enormous, and a well connected local team can start a company out of the gate facilitating an amount of carbon credits rivaling that of much better funded US startups. The question is where things go from there and if players in this region can develop scalable business models or compete on the technology side. As a financially motivated investor, it feels very dangerous to play in spaces occupied by many people who are deploying money for non-economic reasons. There are local subsidies and incentives for EVs, but it’s not obvious that there is product market fit among the end users. Those who are not careful risk ending up like Ford, losing $4.7 billion dollars in 2023 trying to make EVs work while not coming close to capturing the market.

7. Commercial Open Source Companies

This is an area where SEA’s lower cost and high quality engineering talent can really shine. There are a lot of really strong engineers and founders in the region. The challenge comes from the sales and distribution side. India has a BPO and SaaS sales culture in place, but outside of the Philippines, where engineering talent is not as dense, it’s hard to find people willing to make themselves available on Western time zones. Founders who are tackling this problem from SEA need to have feet in both worlds to have the best shot at making this type of company work. And any company that doesn’t have a smart distribution strategy is going to languish unless they really did build the best tools in their space and are lucky enough to be getting organic traction.

8. Spatial Computing

AR/VR in the context of building for Apple Vision Pro, Meta Quest 3 or other devices is still early. SEA founders can use their engineering cost advantage to build apps and tools for these environments. It’s an exciting market in part because we don’t yet know what the product market fit looks like outside of a few niche areas. It’s also a distant market, because there really isn’t any major PMF that we can point to. Apple and Meta are going to keep investing, so it’s likely that we will see a few more small wins in this space even before we figure out what the future looks like. But building to be bought out is always a risky move (unless you are in a space like biotech where the dynamics are more broadly understood - but even in this space the upside is capped relative to the rest of the tech). 

9. New Enterprise Resource Planning Software

This is an area that might be approached in SEA from a fast follower and fragmented world market perspective. The risky part of building this primarily in SEA for the SEA market is that the multinationals, which make up large portions of potential customers, tend to prefer using the same tech stack throughout their company. Still, the market is large and deep enough that we should expect a few winners. One encouraging trend in Indonesia is that startups have moved beyond the stage where they give away their SaaS solutions to companies and try to make up for it by charging for ancillary services. Building for the world market encounters challenges related to selling to the world from SEA, so any founder building for this market again needs to be sure they have the context of the problems they are solving and the ability to spend time to form the relationships needed to make sales happen.

10. Developer Tools Inspired By Existing Internal Tools

This is an interesting concept that doesn’t apply as directly in SEA, where internal corporate tools are not held in as high regard as those emerging from FAANG (Or MAMAA or the Magnificent Seven or whatever we are using as an acronym for the elite tech companies of the United States). The approach that might work better in SEA is solving common business operational problems inspired by internal issues at top local companies.

11. Explainable A.I.

This seems like a feature of a successful AI based company more than the end in itself, but making sure processes are explained is a useful concept for people doing important work with AI models and other algorithms. Generating multiple similar results with different types of approaches can reduce errors and create confidence for people who will need to trust their outputs. While LLMs can do a lot of the heavy lifting, it’s interesting to think about areas where alternative processes can act as a double check.

12. L.L.Ms For Manual Back Office Processes In Legacy Enterprises

Service Now has been seeing a lot of growth in the US as they transition their traditional back office offerings to AI enabled processes. There is a lot more that can be done in this area. The SEA’s fragmented market presents challenges and opportunities, so companies who figure out this approach for the US will be reluctant to expand to SEA quickly. This is an area where a fast follower approach that gloms onto a working model, modifies and applies it to SEA before the companies decide to come out to this region could be very successful. 

13. A.I. To Build Enterprise Software

This is a tough idea, as most enterprise software needs to be extremely reliable and current LLM approaches still have lots of hallucinations. But outside of execution, the main challenge for founders building in this space in SEA is either needing to sell it to local customers, or making sure they are global enough to sell to Western customers. One fun trick with selling globally from SEA, for those who are not yet hiring local sales reps, is to make sure that your availability looks similar to that of your localized competitors. Offer 9 to 5 hours in their timezone, even if that means taking a call at 3am.

The initial iterations of this style of custom software will still be relatively formulaic, but as programmers get faster at creating working custom software the dynamic of enterprise sales really does change.

14. Stablecoin Finance

Stablecoins are an interesting regulatory arbitrage - they can be money market funds that avoid actually registering as funds. And with the broader crypto ecosystem still not expecting significant yields after various firms lost all of their funds chasing yield, these offerings should have a high net interest margin and be quite profitable. There might also be good reason to expect more of these companies in SEA, as it makes sense to build these products away from the jurisdictions of the SEC and other US regulatory bodies. US regulators might be losing in court, but they are still quite antagonistic to crypto.

15. A Way To End Cancer

MRIs have an interesting potential to detect abnormalities. And there are many other approaches, finding markers in blood or in urine that AI tech can detect cancer. This is an area where serving the US market is far more lucrative than trying to sell in SEA. There may be ways to do testing more efficiently in Thailand’s medical ecosystem, but outside of something interesting coming out of Singapore’s university system we don’t expect there to be many opportunities in this space or related spaces in the region. 

Still, founders should keep in mind that there are interesting things that might be done with Thailand’s well developed medical ecosystem.

16. Foundation Models For Biological Systems

Foundational models are very capital intensive. Capital intensive businesses in the healthcare space are generally not the right fit for SEA based startups. Capital is harder to access in the region, so after blowing through some capital the next rounds will remain difficult if they don’t produce amazing results. And the human body works mostly the same anywhere, there are no obvious cost or business advantages to doing this out here. It is only once copyright or data access concerns start slowing down LLM training in the US then it would make sense to explore creating models in jurisdictions where access to the relevant data is easier. 

Some interesting specialized AI companies have been formed in Australia and Singapore using more traditional medical imaging and other data. Eventually, the biggest models will benefit from massive amounts of data on patients, interventions and outcomes in ways that it would make sense to focus on parts of the world where the legal system facilitates this data usage. However, external investors should not imagine SEA to be a mythical land of open data and no medical privacy regulations. Activists trained in the West have been pushing for the types of data protections that are hamstringing the emergence of functional AI doctors in the West.

It will make sense for startups in the healthcare space to piggyback on other company’s foundational models and form operating companies to capture the opportunities in this market. Even those opportunities will be complicated by the local regulatory landscape, but once AIs are helping us understand the human body at a level of biological researchers and doctors there are many amazing opportunities.

17. The Managed Service Organization Model For Healthcare

Managed service models might be an interesting opportunity in the US, but while the US is finding alternatives to classic PE plays, these plays may make more sense in SEA. Doing so in a way that is operationally sound, complying with regulations and keeping customers happy while making a profit, is the main challenge. Startups have also found some success building out plays that can be justified on PE type metrics - SEA has always been a region where PE and VC investment tend to overlap. In Vietnam, Nhi Dong 315 figured out a healthcare clinic model for mothers and babies and had a model in Vietnam that attracted significant investment as the investors figured they could copy and paste the clinics around the country. Jio Health was able to do something similar for primary care, chronic diseases and pediatrics.

One aspect of MSOs is that value is created in part by sourcing patients for the organization. There are many founders interested in building on the sourcing side, and the most obvious opportunity is to channel patients to medical tourist destinations in Thailand and elsewhere in SEA. The costs are low and the quality is relatively high, so matching patients with providers creates an obvious win-win-win, but unless the founders find a new model that is large and defensible with patients around the world, it is unlikely that these opportunities will scale to the size that can justify VC investment. In order to reach that type of scale, founders need to help solve the problem of getting people treatment inside the country where they live.

18. Eliminating Middlemen In Healthcare

Many aspects of the healthcare systems in SEA countries are not nearly as cost inefficient as they are in the US. Singapore’s regulatory regime causes drug prices to be much higher than they are in surrounding countries, but it’s the exception.

What is missing is the next step in telemedicine - AI enabled healthcare. Unfortunately, there is no country in SEA where doctors do not have some significant amount of political power. They will fight attempts to replace them. But there is room for AI enabled tools that supplement doctors, take notes automatically, generate potential diagnosis, guide appropriate followup, etc. Hallucinations, inaccuracy and reliable access to high quality training data are among the many challenges in the space, but we are closer than ever to a world where high quality medical advice is within reach of everyone.

19. Better Enterprise Glue

Companies that make it easier to customize code and connect different products will benefit from being based in a geography where engineering talent is cheap relative to their strength. As mentioned above, the sales and distribution issues are the challenges that the SEA founders who want to build in this space will need to think through.

20. Small Fine Tuned Models As An Alternative To Giant Generic Ones

The open source LLM ecosystem is rapidly catching up with the state of the art closed source companies. And cheap human labor may be just what is needed to curate data for these models. So this is definitely something that SEA’s AI developer can look into building here. But they also need to be realistic about the funding disadvantage that they face in this market. Absent an enthusiastic sovereign backer or access to somewhere with extremely cheap power to reduce training costs (didn’t the bitcoin miners find most of those?), it will be a more difficult area to build out of SEA. Some biotech companies are formed in Singapore and relocate to a US biotech hub once they get enough funding. We might see something similar for promising AI companies.

For those who want to build AI from SEA, there are plenty of interesting developer tools that can need to be built, and if they stay away from training relatively large foundational models there are many tools that AI developers and companies will need. 

Concluding thoughts:

Fisking is usually done aggressively. Not aggressively as in replacing the k with a t, but it is usually done as a critique. In this case, it was done to give those building an investing in SEA, or those who are interested in the region, a perspective on what might be easier or harder to build out here.

Reading through YC’s request for startups emphasizes just how many really cool things the world needs right now. When founders in SEA are deciding what they are building and who they are building it for, they need to be honest with themselves about their comparative advantages and disadvantages. With the recent AI boom, a lot of innovation became centralized in Silicon Valley. But the tools and methods that are powering this trend are available for technologists everywhere. While founders in SEA face tougher fundraising environments and don’t have as much access to talent from top global companies unless they are from those companies themselves, they do have lower costs, faster growing local markets, different legal regimes (a blessing and a curse), and the opportunity to fast follow emerging trends in the US that won’t hit local markets for years. As long as they are thoughtful about the advantages and disadvantages of building in SEA, there are many ways they can create huge wins.

Information Hazards in Career and Life

This site was named after the idea that we need to face unpleasant facts. In some ways, it is named after a quote from George Orwell’s Why I Write.

“I knew that I had a facility with words and a power of facing unpleasant facts, and I felt that this created a sort of private world in which I could get my own back for my failure in everyday life.”

Now, I lack Orwell’s facility with words, but I have always thought that my ability to face and discuss unpleasant facts as an asset. After encountering Nick Bostrom’s work on information hazards, I am less certain that this is the case. According to Bostrom, an information hazard is:

A risk that arises from the dissemination or the potential dissemination of (true) information that may cause harm or enable some agent to cause harm

One basic example of this dynamic is that once people know that nuclear bombs or certain bioweapons are possible, some agents who might cause harm might figure out how to make these for themselves. For the world at large, the advancement of science and spread of scientific knowledge is not always good like we assume it is.

Bostrom’s paper does a good job categorizing different types of hazards, but I want to focus on how individuals might use the concept of information hazards. An example of a potential information hazard is if a person would be much happier never knowing their partner cheated on them. It is only an information hazard if they could have lived their life happily having never known that their partner was unfaithful. If they would have found out eventually when other people laughed at them for it, or if they got an STD, genetically tested their children, or if their partner then leaves them for their mistress then the revelation is just getting bad news earlier and giving the person more time to adjust for it, which is not an information hazard.

On an individual level, one way to frame this is the classic Matrix dilemma, where Morpheus asks Neo if he wants to take the red pill and see reality for what it is or take the blue pill and go back to believing everything is normal. Many people immediately think the red pill is the obvious option, but after taking the red pill they can no longer relate to their previous friends. And worse, having taken the red pill Neo made enemies of immensely powerful people.

Information hazards are not necessarily about red vs blue, as taking the red pill might give you superpowers. But sometimes it is more like a black pill that might give you a slightly more accurate understanding of how the world works but saps your motivation to effectively navigate it.

Social media is a way information hazards get spread in the world. One example that applies to everyone who uses social media: We know intellectually that people have horrible views. But in today’s world, more and more people are saying offensive things in ways that can spread online. When a partisan commentator is highlighting how some random person on the other team is saying ridiculous thing about the world, a practice often referred to as nut-picking, their partisan fans become less inclined to interact in good faith with anyone on the other side. Everyone is worse off because they were exposed to true but unrepresentative information about how some people see the world.

It might be helpful to think through a few more scenarios.

Knowledge that makes you unpopular

One type of knowledge that is often more than useless is knowledge that makes you unpopular. It might be fun to be the one to tell your classmates that Santa Claus is not real, but they will not like you for it. Similarly, knowing something is false when your colleagues ardently believe in it can be dangerous for anyone with a predisposition for correcting others.

An accurate vision of a future point in time without considering the paths that will lead there.

There have been many economic bubbles, and not participating early on has always been the wrong choice from a financial perspective.

Imagine a situation where people are getting excited about a technology, but the pessimist who is interested in the area knows that it will not be viable for another decade while others in the field insist that success is a couple years around the corner. If they decide not to join or invest in a group of otherwise very smart people working on this problem, they will miss out on working with people at the cutting edge of what they are doing. And their business venture might still be a success if they can convince someone else to buy their company, whether it is public market investors or a CEO who wants their company to have exposure to the cool new technology. They could buy it early on even if numbers do not add up. And the pessimist could have been right about the timeline and the fundamental economics but still miss out massively by not joining that initial team.

Knowing that a problem is really hard

Similarly, industry insiders often miss out on new ideas that remake their industry because they are too aware of the little details that new solutions do not address. Knowing other details, they fail to appreciate what can be built on top of new technologies.

Understanding that what they are doing is not helping the world (or their customers).

It is debatable as to whether this is a true information hazard for the world at large. But from an organization’s or individual’s perspective, if they or their employees switch from believing they are helping the world towards believing they are a negative force then morale will take a hit and there will be less productivity. Like bad news about infidelity, this is not an information hazard if there are effective paths that resolve the issues. But if an employee is naïve enough to put information about the problems into an email, it could later be used as evidence against the company.

Google’s quest to keep all mention of antitrust related phrases out of any written communications is an example where explicit knowledge of market dominance is effectively an information hazard.

When team members understand that they are not aligned with the firm.

Many organizations have incentives set up that allow for abuse by clever employees. When people understand these mismatching incentives, the organization can suffer. If one of the employees notices a misalignment and does not think before they point it out publicly, they might not be helping the company or themselves. Now other employees might be tempted to take advantage of the loophole and some people in management might resent them for bringing up the issue in the first place when things weren't broken before they mentioned the problem.

Complete knowledge of costs, incomplete knowledge of communication norms

Let’s say that a project manager knows certain types of projects run into cost overruns, and they incorporate those projections into their presentation. First, the project will look expensive compared others. Second, the observers might not give them credit for incorporating the overruns ahead of time and might add an additional premium on top of their estimates, making the project look even worse in comparison. The project manager suffers if they acknowledge the true costs ahead of time. From a societal perspective, it might be beneficial if a few less boondoggle high speed rail type projects get started under extremely rosy projections, but the people working on the project will hurt their careers if accurate information about the project's actual costs become widely known ahead of time.

Knowledge that a person acted badly towards someone else

Knowing that another person treated someone badly is another type of information that is sometimes protective but can also backfire. People are already subject to fundamental attribution error where they ignore the situational factors when judging other’s behavior. And if the person who did something questionable is in their life regardless as part of their social circle or exists in their business world, then it would be better not to hear about a one-off instance of bad behavior unless it is likely that the bad behavior is persistent or extreme enough to be worth noting.

Information about who is to blame during a crisis

Figuring out who to blame can backfire if everyone is going to remain on the team and will be working to fix things together for the time being. If there is a big leak in the boat, finding clues about who caused the leak is a distraction to the main goal of bailing out the water and plugging the hole. If two parents leave their child at the mall, understanding who was supposed to bring them home does not help. Only after the crisis is solved is information about who is at fault not likely to do more harm than good. Like other types of potential information hazards, this only holds true to the extent that the person at fault is not an active saboteur. (Or in the parent analogy, it’s possible that proof that one parent was at fault allows them to stop fighting and focus on solving the problem)

General Solutions for personal information hazards: Optimism, Social Grace and Esotericism

One confusing fact that the existence of personal information hazards help solve is how pessimists are generally more accurate than optimists, but optimists succeed more often. About the only career in which pessimists do better is law, where understanding downside scenarios is particularly valued. Developing a bias towards optimism helps avoid focusing on information hazards that are more likely to bring you or other people down.

One aspect of social grace is developing a habit of not spewing out low-grade information hazards to people. If that is too difficult for some people, and I can relate, then being a little bit more esoteric in your speech and writings might be an alternative solution.

Knowledge in any amount can sometimes be a dangerous thing. But thinking through some of these dynamics can help us understand when and why we might want to hold off on making the world or at least our social circles face certain unpleasant facts.


There have been a lot of SPACs, special purpose acquisition companies, recently. What has been going on? 

The WSJ covered them in a recent article, showing both SPAC IPO volume spiking and taking over a significant portion of total IPOs.

It is not a coincidence that the launch of these funds has accelerated in recent times. It is based on a distinct aspect of the market: Public company investors are valuing private companies at significantly higher multiples than both private company investors and private company management teams. And perhaps more importantly, with a pandemic shutting down large portions of the economy but government stimulus propping up other areas, private company executives and investors are unsure how much longer this valuation differential will exist.

The difference in valuation leads to the perception that there is a lot of money on the table. And people are rushing to get their piece.

It is important to understand that there are eventually three distinct parties to SPACs, each of whom benefit in different ways.

1. SPAC sponsors: The people who raise and deploy the SPAC. Sometimes, this group is broken up into two distinct types of people:

A. The money people: These are the people who have money and connections to the types of investors who might be interested in deploying capital into a SPAC type vehicle. They also have the operational experience to do the work to get the special purpose vehicle public and conduct the due diligence of the acquisition target (Note: In some deals it appears that there were not anyone specializing in DD associated with the SPAC sponsor team). From the perspective of the money people, a SPAC is yet another way to do their job of finding deals to get done.

The risk reward is significant, they typically put up above $3M and usually below $10M dollars to cover the cost of running the SPAC. In return, they can end up with a value equivalent to 20% of what they are able to raise. So $5M in capital that successfully finds a deal for a $200M SPAC can turn into $50M in wealth, which nets them a $45M return minus the upside they might need to pay out to the credibility people. And this calculation is before the company they find is bid up by the public markets.

B. The credibility people: These are the people who have accomplished enough in their careers that LPs feel like there is someone important putting their reputation on the line for them. From the perspective of the credibility people, a SPAC is a way to monetize their current reputation in return for relatively small amounts of work compared to the money involved but with the downside of significant regulatory exposure and minor reputational exposure. They will also often put up some capital, but have even more upside than the money people (Their additional upside would come out from the share of the money people).

In many cases, such as with Bill Ackman's or any other hedge fund's SPAC, it doesn't make sense to differentiate between the two groups because the money and credibility come from the exact same people. In other cases, the credibility people are distinct. They are people who built their reputation in their industry, whether that industry is Hollywood, automobiles, government, sports, or Silicon Valley. From the perspective of outsiders looking at the value differential between public and private companies, we should expect many money people will be courting Silicon Valley people to lend themselves the additional credibility to both raise the capital and win the right deal.

Both the money people and the credibility people are staking some capital and their reputations in return for significant immediate upside in the 20% of sponsor equity they usually structure into the deal for themselves. They have additional warrants on the upside if the stock price outperforms.

How much of their reputation the sponsors are putting at stake is an interesting question. For the money people, they are risking important business relationships if they put people into SPACs that go nowhere. Meanwhile, the SPAC investors hope that a lot more is at stake for the credibility people than is usually the case. In the real world, ex-speaker Paul Ryan and legendary baseball general manager Billy Beane will not have their legacies ruined if their respective SPACs go sideways. They have a huge monetary incentive to make things work, but the only thing really at risk if their respective SPACs do not work is their ability to make money with SPACs.

2. SPAC Investors

In times before SPACs were popular, the type of people who would be SPAC investors were an enigma. They were the types of people who allowed themselves to be pitched by people who had a very particular dream for their blank check company and who bought into that dream and the team enough to come along for the ride. It was never that risky, as SPAC shareholders could sell their shares on the open market or reject deals and get their money back. But there was a significant opportunity cost to letting their money sit in a SPAC for up to two years and there was no reason to expect that the SPAC sponsor would find a company that the market would value enough for the investor's warrants to matter. And maybe even worse, it was weird.

But today it is more obvious why a SPAC should work. SPACs are the new IPO and IPOs are hot. There is enough upside for the company to get a higher valuation and for the public markets to bid up the price even more. So many SPAC investors have been getting the equivalent of ridiculous IPO pops when their companies get announced. The people who come in before the SPAC is publicly traded also get warrants, long term call options they can keep even if they sell their stock, when they invest in the initial deal and a large enough pop means that these warrants quickly become quite valuable. The pre-launch SPAC investor can get both initial upside, protected downside, and longtail upside. And when other parts of the market seem risky, SPACs seem like an almost safe way of taking part of a portfolio to cash, forfeiting money they might earn with near zero interest rates in return for some valuable optionality.

There is a type of SPAC investor that sponsors need to watch out for: The greenmailers. Greenmail used to refer to investors who threatened a hostile takeover but would leave a company alone in return for a payout. But it is a term that works well for any legal financial blackmail. Today’s SPAC greenmailers are those who buy into SPACs with the intention of voting against the deal unless some of the sponsor upside is shared with them. Bill Ackman structured his SPAC so more of the warrants went to people who actually stayed in the deal as it de-SPACs to try to deal with these tactics. But if you see a deal announced and the stock is trading below the $10 price, understand that there could be some behind the scenes greenmail going on as some more opportunistic investors demand some of the sponsor’s share of equity in order to get their vote to approve the deal.

3. Target Companies

A SPAC solves a lot of problems for a company. It raises capital and generates liquidity for the private company on terms they want at what should be a higher valuation than they were getting in the private markets. And it does so relatively quickly, with a minimum of hassle. With so many SPACs competing for deals, target companies can choose whether to optimize for amount of capital raised, valuation, control, or affiliation with some of the people involved in the SPAC whose help they might want or who might just be fun to hang out with. 

The main downside is that unless the SPAC sponsors arrange for significant additional investment via PIPE (private investment in public equity) from outside their SPAC, it's uncertain if the company will really get the capital they need and the fees are really high compared to an IPO. It's on the order of 20% for a SPAC vs 7% for an IPO. The other downside is that due to the way that SPACs are structured, the investors have a public up or down vote on whether they want to do the deal.

I have not seen a notable no vote in this market. Like politicians from the Tammany Hall of old, the SPAC sponsors are not going to have an election if they do not already know they are going to win. There might be whispered conversations, and the closest we might see to a public rejection would come as rumors of the company name hits the market and the SPAC in question’s share price doesn’t move up in anticipation of the deal. The sponsors would then know it was not a good move and would probably not force a shareholder vote. But if it came to a vote and shareholders decided to shoot down the deal, it would be a much more damaging public rejection than one in which a company’s underwriters quietly pushed back the timing on an IPO.

And a minimum of hassle is always great, but for some companies it is better than others. Nikola surely benefited from a lack of scrutiny, although it’s important to note that given the lockup time period that insiders have they still need to keep their company from being exposed as a fraud long enough to sell their equity. In the case of Nikola it’s unlikely to be able to hold up. But Nikola is perhaps an exception, a company that primarily consisted of smoke, mirrors, optimistic business deals, and hope.

Types of Targets

There are a few characteristics of companies that make them good targets, and the more of these attributes a company has, the more attractive it is to SPAC sponsors:

1. The most attractive feature of a SPAC target might be a company that is known to be IPO ready, But they also make difficult targets as not only does the sponsor have to win the deal against other SPACs, but against the lower-cost IPO option.

2. Companies with metrics where private valuations are significantly below the public market comparable.

Related: Companies in the same space as another public company that is getting a high valuation.

3. Companies with a promise of a future version of the company unrelated to near-term cash flows. Every company is based on future cash flow expectations, but usually the best evidence of that future cash flow is what is happening to a company’s financials today. This is why investors are concerned with earnings reports, as they hint at the direction the business is going. But there are some companies who are not yet making a substantial amount of money and earnings reports mean very little.

For SPAC sponsors, they do not want to risk real world events bringing bad news that lowers the price of their stock before they are allowed to sell their shares. Thus, the further out in time that investors are expecting to see real results, the better. Draftkings, a sports betting stock while major sporting events were expected to be shut down for the duration of the pandemic, is a great example of a company insulated from any potential bad news before the lockup period expires.

4. Hype. If investors are not getting excited about something, there is less of a chance that they will buy the stock at a significant premium to its private valuation. Hype is what the SPAC sponsors are trusted to find, and what can create the outsize return for their investors. In a $100 million dollar SPAC, the sponsors are splitting about $25 million in upside if they can push through a transaction they make their money. But if they latch on to an idea that the market values at a 4x premium, their upside becomes substantially higher.

The hype is helped by the lack of a quiet period that traditional companies going IPO are required to observe. Instead of no stories about the company from the company's point of view, we get the SPAC sponsors and the company hyping their story to the masses. 

The Future of SPAC

Are SPACs the replacement to IPOs that some tech investors have long hoped for? How long will we be inundated with SPACs? The answer to these questions depend primarily on how long public market companies trade at significant premiums to private companies. The model doesn't broadly work without the IPO-like pop that some tech investors have focused on to what some may say is an unhealthy degree, and given how discounts in high finance can turn something low status and thus destroy hype, it is unlikely that the 20% take from SPAC sponsors will be cut to be competitive with the 7% fees charged for IPOs.

If fees do get cut, it will be because someone has decided that they can to be to IPOs what Michael Milken was to corporate bank loans: Their biggest enemy. It's worth remember that Milken made a fortune introducing companies to the option for lower cost junk bonds, but his enemies eventually found a way to throw him in jail, effectively for the crime of taking their business. A systematic low-cost SPAC machine would likely be targeted by both numerous nuisance shareholder lawsuits and a future New York Attorney General.

While a public market crash could take most of the air out of the SPAC balloon, there is also the risk that too many people become involved because they are only focused on the IPO style pop when deals are announced. In Hong Kong, normal IPOs are now trading down on the day when they started the day over 1000 times oversubscribed. If all the investors are there for the pop and none are there for the long term, the pop goes away too.

If more SPACs turn into Nikola, which is still somehow trading above the SPAC’s $10 initial price but which option markets give a high probability of falling significantly, then we might see excitement in the sector cool.

But until then, the excitement over SPACs will only heat up. People are even launching funds of SPACs, one with more fees on top as well as potential leverage. What could go wrong?

I would like to thank the people who read drafts of this and helped me clarify my thoughts, but I will refrain from doing so lest I implicate them with the errors that I added in afterwards.

A Short Framework on Charter Cities & Hong Kong

Ever since I came across Patri Friedman’s writings on Seasteading, I have been very interested in the long-term need for frontier spaces where alternative forms of government can be tried. When Paul Romer made the case for charter cities, it took the idea of competitive governance to a level that seemed to have less technological risk involved.

Hong Kong is an early modern example of what we now think of as a charter city. It took a population that mostly resembled those on China’s mainland, gave them a different set of rules and regulations to live under, and demonstrated that a capitalist system with a rule of law was vastly superior to whatever we want to call the disaster that occurred under control of the Chinese Communist Party on China’s mainland. Hong Kong’s positive example led to numerous special economic zones inside China, and their explosion of wealth might be directly tied to the example set by Hong Kong’s success.

Broadly, there are three types of charter cities to be explored:

Developing world charter cities

The goal here is letting people see what people inside a country are capable of building if they import a rule of law system from the developed world. This is basically trying to kickstart conditional economic convergence in countries whose economic growth has otherwise fallen into a rut. There are many promising projects in this area, but there have also been many setbacks as governments in the developing world are often not stable enough or do not care enough about their reputation for trustworthiness to follow through on promises made to those organizing charter cities.

It is also often a mistake to take a Field of Dreams, and “If you build it, they will come” approach to charter city development. The most successful new charter cities are likely to be in Africa where new cities are being built regardless of whether they would be charter cities. A city that was going to be built anyway will have stronger economic fundamentals that a more efficient governmental system can then make even more efficient.

Refugee charter cities

The second category has to do with either reforming refugee camps or creating a space where refugees can move, live, and most importantly, work. Currently, refugee camps are not great places for people who are unable to have much control over their lives. Allowing them to participate in a modern economic system, either in the camp location or at some new city they can enter, would enable a level of self-actualization that is currently denied to them. They would also be given the opportunity to develop skills that they are currently denied in their current positions of sitting around in refugee camps and wondering if it will ever be safe for them to go home. This is not to suggest that refugees should not be fed and housed gratis, but systems which do not allow refugees even the option to work for fear of exploitation are hurting both themselves and the refugees.

This is an idea whose time has not yet come, neither the countries of the developed world nor the countries of the developing world seem eager to give up effective sovereignty over any piece of land. And in the developed world, they are incapable of welcoming refugees only into a refugee city without allowing them full access to society, which is a political nonstarter for many constituents. Creating a refugee city on national land would be a political disaster waiting to happen to all but the strongest political leaders, even if the lives of people within the city were an order of magnitude better than those inside the refugee camp from which they left.

Developed World Charter Cities

Creating charter cities with relatively uneducated workers, whether they are from stable or unstable parts of the developing world, is a tough task. Not only does lower average education imply a lower average productivity level per worker, but their lower-trust cultures might take time to adjust to fully take advantage of rulesets that allow the developed world to be relatively wealthy. It would be a much better shortcut to just take developed world workers and give them an environment with new rules where they can potentially thrive.

When thinking about new cities in the United States, Las Vegas comes to mind as the most populous city founded in the 1900’s. Since its founding, it has benefited from having a different set of rules than other places. With its legalized gambling, tolerated prostitution and mob activity historically funneling money into and around Vegas, it benefited massively from having different rulesets. But it is not exactly the type of example that inspires policymakers in other jurisdictions.

The better ideas for special economic zones in the United States to date have revolved around allowing new rulesets which might enable additional innovation in healthcare, aerospace or finance. People are moving less these days, finding a way to get lots of people to move for anything other than job opportunities has been difficult in a country whose annual mobility rate has fallen by almost half since the 1980’s. This might have just changed, as it now appears that a population of skilled developed world citizens might be induced to leave their country for one where they might find freedom.

A Hong Kong Exodus?

When China decided to pass a national security law for Hong Kong, they effectively ended the one-country two-systems policy that they had agreed to keep for 50 years past the 1997 handover. It will likely be enforced with a light touch at first, as they want to make sure that Hong Kong remains a viable financial center. But the situation has changed, and any local or even foreigner can be arrested by the CCP in Hong Kong, without recourse to Hong Kong’s famously impartial judicial system.

The United Kingdom has indicated that this is a breach of their 1985 agreement with China and indicated that they will be offering the three million plus Hong Kong residents that have or are eligible for British National Overseas status and their dependents a pathway to citizenship.

If Hong Kong citizens decide that flight is the answer, it will be one of the first large migrations of a highly productive and educated population since the Cold War ended. This potential influx of people has excited people in the broader charter city movement – a highly productive city demonstrating the benefits of alternate government rules seems within reach. And any opportunity is not going to be seized by just one group. There is going to be competition.

Old Networks vs New Networks

The problem with seasteading and charter cities has always been about core productive activities and how dependent they are on networks. If there is value without a local network of people working on various interweaving complementary and competing goods and services, as we see with offshore oil production, then there will not be the type of economic activity that can sustain a new city. A city only arises when there are valuable activities with significant network effects in various complementary industries which are able to operate relatively efficiently.

Hong Kong worked because it was a place that could handle manufacturing, or later coordinate manufacturing and other economic activities within China, along with services such as shipping and finance. If Hong Kong were relocated by an act of god, or by the great programmer of the vivid simulation, to the other side of the world, they would immediately become far less productive. With no geographic proximity to China, even with every local network intact, they would no longer be the gateway to China.

Moving people out of Hong Kong and into a new city would not just be weakening their China-dependent network, it totally snaps it. The relevant historical analogy might be the long-term decline of Venice after trade routes started going through the Atlantic around Africa, except with the trade routes shifting all at once instead of over many years. It is imperative that the professionals who are leaving behind their China-based connections find attachments to other productive networks which they can both support and benefit.

And setting up a new city somewhere far from existing cities, as various people have been proposing in the UK, is not going to cut it. Any new city needs to be close enough to existing cities to be intertwined with their networks, or those of the coming Hong Kong exodus would be better off focusing on finding their place among the many Cantonese Chinatowns around the world.

The Most Important Regulatory Change

Many people who think about charter cities like to think about fixing things that are obviously wrong. In the developing world, that is the rule of law. In the developed world, that is removing some of the burdensome regulatory overhang that is preventing the fast-moving iterative processes which can lead to significant technological advances and productivity growth in certain industries.

But for the people leaving Hong Kong, the most important factors will be whether they will be able to practice their jobs in their new location. A fast track towards approval for doctors, nurses, lawyers, teachers and other specialists would go a long way towards convincing them that your destination is right for them. Attracting the doctors, lawyers and teachers will make the destination that much more appealing to their friends and family members, some of whom might consist of specialists in technology or restaurateurs who would otherwise be able to work from anywhere.

The United Kingdom or Canada, with their parliamentary systems and historical ties to Hong Kong, might have the best shot at doing this. In the United States, once the more difficult immigration issue has been solved, the question comes down to which state to pick. States like California and New York might seem like potential cultural fits, but they have made building so expensive that they are out of the question. It would have to be a state with empty land near major cities that are willing to grow. Texas, Nevada and Arizona all come to mind. Arizona is the only state that has so far demonstrated that it is worth recognizing occupational licenses from other jurisdictions (within the US) for people who move to Arizona. It might not be a large stretch to get them to apply the same standards to Hong Kong emigrants.

Do you have a plan?

And finally, for those directly focused on building something – it may be popular to talk about charter cities but convincing a government to give up any sovereignty is always a tough fight. It is better to focus on a brand that has worked in recent history in the United States, and that has been master plan cities. Donald Bren, who acquired the Irvine Company in the late 70’s and early 80’s and built out Irvine into a city of around 280,000 people, is now worth over $10 billion dollars. Among the many advantages of the Irvine Company’s master plan community were the size of its land, its undeveloped nature despite being relatively close to a major metropolitan area, its single owner, and how it welcomed a public university into the center of its city. These advantages enabled them valuable connections to important networks combined with a level of control and flexibility that should not be underrated by those looking to achieve something similar.

Rather than ask for a country to give up sovereignty, it will be easier to ask for some HQ2-type support for a new master plan community. Amazon had cities and states around the United States bid on how much of the tax revenue that would be generated by Amazon moving into the area that Amazon would be able to keep. Arlington, Virginia agreed to give some of the extra money raised in payroll taxes and hotel room taxes generated by Amazon back to the company and promised to spend almost $200 million on infrastructure improvements. This is credited against the almost $3 billion in extra revenue that Amazon expects to generate for them over the next twenty years. Amazon has a lot to promise a region, but an influx of potentially hundreds of thousands of developed world workers should be even more valuable. And while discounts on state taxes or help with some infrastructure funding will be important variables, it will be more important to negotiate with agencies at the state level who will have the authority to authorize specialists to continue practicing their previous jobs with minimal retraining periods.

Starting any new development is not going to be easy and for a project that aims to provide a place where fleeing Hong Kong residents can find their freedom, there is a need for a big start. It will be interesting to see if any of the Hong Kong billionaires manage to get the bulk of their wealth out of Hong Kong before they, too, are subject to Chinese capital controls. In terms of evaluating projects for relocating Hong Kong people, the presence of people with those types of resources will be a key factor for ensuring success. Having people on board who are credibly committed to investing hundreds of millions to billions of dollars to get a project off the ground will be key for convincing both people in Hong Kong that it could make sense to move and to convince the authorities in the new destination that it makes sense to give them the type of support that they were willing to give to Amazon’s HQ2.

When talking about where people from Hong Kong might make new lives if China makes remaining in Hong Kong untenable for a large fraction of the population, it is important to remember that those who choose to and are able to flee will end up where they can make the best lives for themselves. Cities across the world are poised to benefit from an influx of smart, hardworking people who value their freedom enough to take drastic measures to ensure that they do not fall under China's thumb. Communities built specifically for them will be just one of their potential options, but the governments, organizations and individuals who take that option seriously are poised to benefit massively from China's mistakes... if they can get it right.

Some 2020 Predictions

It’s 2020, and there were a lot of things that I wanted to write in 2019 that I never finished. Luckily, I can write one post and cover many of them under the guise of writing predictions for the next decade.

Rise of the Splinternet

A significant trend of the last decade has been users engaging not with the general internet, but in walled gardens like Facebook, Pinterest and other applications. The number of blogs linking to each other has fallen off, the number of users on curated apps have grown much more. The declining relevance of a global internet is happening on a geographic level and as more discussion moves out of public spaces.

Geographic Splinters

The rise of China’s internet ecosystem inside their great firewall is another example of a space on the internet that has been walled off from the rest of the world. And inside China’s walled garden there are walled gardens within walled gardens. Alibaba and Tencent have relatively separate ecosystems. Despite both investing prolifically in China the companies that have taken money from both are few and far between. China’s ecosystem makes discovery difficult relative to other ecosystems, new companies cannot easily buy Facebook or Google ads to reach customers, which may be why super-apps like WeChat and Meituan-Dianping work well in the Chinese ecosystem while outside of China every wannabe super-app is still only really able to make money at the thing they are best at. Competition is hard, and while competition in China is fierce, the winners are not always related to who can serve their customers best. As one Chinese VC put it, “We like aggressive founders, ones who can get their competition thrown in jail.” However, in more open ecosystems where winners are determined by consumers, it is tough to be the best across multiple services.

This is not to say that winning Chinese companies did not also furiously focus on their customers by quickly copying what is otherwise working for other companies. It’s just that they do all this while also facing less competition from other sources as many of their competitors are absent for political reasons.

In the face of general unrest, China has been stepping up their internet censorship. While foreigners can use a sim card as a VPN and large corporations have their ways around the system, China is throwing some domestic VPN providers in jail and the ability to access internet from the rest of the world in China is getting more difficult by the year. China’s creation of an internet walled garden, and the tech ecosystem that has sprung up inside their garden, has inspired other countries. Iran and Russia have followed suit enthusiastically. India has been taking a playbook from China and shutting down the internet in politically volatile areas like Kashmir.

India has also seemingly used the threat of shutdowns against companies like Bytedance to force them to have a sizeable presence in the country, either because they need to have someone they can talk to in person about the problems of their platform or perhaps with the goal of transferring knowledge and skills to their local workers. India’s tech sector has produced a few big winners by selling companies to outsiders, but the number of homegrown tech startups that have found business models that can generate positive cashflows rather than act as strategic assets for companies looking to enter India have been few and far between. With so many tech companies still having to compete with Facebook, Google and the like there is a temptation for politicians to skew the playing field in favor of local companies. When India passed a law preventing e-commerce companies from selling products from companies in which they owned an equity interest they skewed the playing field to support local SMBs. There will likely be pressure to do more for the domestic tech scene.

Vietnam has also started down the path to mimicking China. They passed new cyber security rules in 2018 that require internet giants keep data generated by users within Vietnam inside Vietnam’s borders. Depending on how it is applied and how foreign companies react, they will either be excluded from doing business in Vietnam or will have to open a sizeable presence in the country.

The developing world is not the only group of countries getting in on this game. When Europe passed General Data Protection Regulation, companies were faced with the choice of annoying all their visitors with popup notifications about cookies and implementing other regulations, or not being allowed to operate in Europe at all. So far most of the companies have cooperated with the EU, and a new category of compliance jobs was created. But the EU also seems close to implementing policies or implementing so many regulatory fines that create costs that make it too expensive for tech companies to operate in Europe. At some level of cost companies will choose to opt out. The resulting splintering might Balkanize the developed world internet in a world where the developing world is already splitting up.

Personal Content Going Offline

The 2010’s brought about another odd scenario. Content is relatively valuable. It helps create the brand of a person or company. It can help with search engine optimization as others link to useful pieces. But today, people are actively deleting content they have created. It is now considered best practice in some circles to automatically delete twitter comments, old reddit comments and to privatize Facebook posts (or even simply delete Facebook). And when they create new content online, it is more often in places where the masses cannot see it.

The first widespread acknowledgement that comments created career risk arose when Justine Sacco got fired for making a joke on Twitter that spread far beyond the followers she meant to target. Today, every high-profile political appointment or really any person who enters the limelight will have their past views scrutinized by their adversaries or by content creators hoping to generate some rage clicks. There was a particularly notable case of Leif Olson, a lawyer appointed to a role in the Trump administration whose public joking about anti-Semites were purposefully taken out of context by Bloomberg Law reporter Ben Penn to make a story. This was notable because Penn was actively operating in bad faith, passing on screenshots that looked incriminating to the department where he was going to work when the full context made it very clear he was laughing at anti-Semites rather than being one. Benjamin Penn celebrated Leif’s temporary resignation and then went silent after Penn received blowback for effectively fabricating a scandal. Bloomberg Law later issued a correction. But Leif was only open to this attack because he had content on a Facebook page open to the public.

Given that jokes will be taken out of context, views that were acceptable during their time will be compared to today’s zeitgeist and found wanting, and the increasingly common practice for this information to be sent to employers with the implicit threat that if they do not act the employer will also be attacked, having personal content accessible on the internet is riskier than ever. In the face of this, many people have decided that engaging publicly just isn’t worth it. Some people have opted for pseudonyms. There are entire ecosystems of finance, energy and government professionals commenting anonymously on current events. Mitt Romney chose the nom de plume Pierre Delecto simply to follow relevant Twitter conversations without excessive scrutiny around where he was getting his news. That we know what his username was indicates that this method has significant risks, although in this case the only part of the story that resonated was about the name he chose. Pseudonyms are particularly popular on Reddit, an internet portal that is only behind Google and Youtube in traffic but where monetization is much more difficult because of the nature of its users.

Other websites have rejected anonymous commenters. People who have something to say are often only speaking because they disagree. And between spam and trolls it becomes logistically difficult to police commenters. The main benefactors of a relatively curated comment section are the readers who are looking to see how the author’s points might be challenged or expanded upon. The usefulness of the comments is usually inversely proportion to the size of the community commenting. A very small subreddit will have experts happily engaging with neophytes, while a place with a large commentator base will often put discussions around tribal dynamics first and foremost. The economics blog has managed to keep a relatively high signal to noise ratio in their comments despite a significant readership (at least one of the authors really doesn’t like the comments, but that’s part of the point of having comments), and that may be due to how they hide the fact that there are comments on the main page. The more comment sections close, the more important forums such as Twitter or Facebook feeds become.

In school we were warned about misbehavior going on our permanent record. It’s not clear one even existed (And if it did, my elementary school never figured out I was the one who stuck the wires in the electrical socket in the library), but the internet has become a permanent record that people care about. If jokes from five years ago weren’t making it hard for people to direct movies, host the Oscars or work at a random company that does social media screening, then people wouldn’t care. But there are real life implications to having casual conversations on your personal record, so people are opting out. They are exiting the public internet. People have private slack channels, Whatsapp groups, FB messenger chats, iMessage groups, WeChat groups (where the internet isn’t watching but the CCP is), email threads, Twitter DMs, newsletters, Discords, etc. There is no clear winner of the second conversation space, but its growing popularity is also a retreat from the open discourse that was once more significant on the internet.

Text, Video & Audio – Separate Conversations

It’s pretty easy to be sent a link to an article, read it, find a few more related pieces and some online debates around them and come to an initial understanding about an event in a reasonable time frame. But that isn’t how the next generation is engaging with certain ideas. A lot of debate and discussion is occurring on Youtube. In order to understand a situation, you would have to sit through thirty minute videos (play them at 2x) and multiple responses. It’s exhausting, and that might be the point. If you want to look at the most accessible version of this drama, check out Philip DeFranko’s Youtube channel. Video discussions and print discussions on subjects are happening in parallel and do not necessarily intersect. And this is part of the point, young people avoid interacting with older people by choice and video is their way to do this. It’s the tech enabled version of a loud bar that scares away older patrons.

One area that is more age neutral is podcasts. Right now, podcasts are another way for people to talk about things and it doesn’t seem like people get attacked in a way where they would if they tweeted or were quoted in an article saying the same things they say on podcasts. You can say things about people you could never say on Twitter or in blog format. This makes for a golden age of podcasting that might not last as long as we would like. The inevitable pressure to find ways to share content and increase engagement is going to mean more ways to spread clips from shows – and perhaps more importantly, people are going to get used to consuming bite-sized audio clips. When the ease of sharing a clip goes down, so does the ease of sharing an out of context clip, or an in context clip that was a truth that is offensive to the wrong people. Once people know they are going to be attacked for what they say, we may lose much of the free-flowing conversation that occurs and be left with people who excel at PR speak.

A Couple Cold Wars Heating Up

The Ideological Cold War

It’s no secret that politics are becoming more polarized around the world. The far right and far left are become more influential in many countries around the world. In the US, congressional voting patterns have born this out and many centrist candidates end up not seeing re-election as they know they would not survive a challenge from primary voters. The start of political violence has broken out between violent antifa communists and actual fascist far-righties in various cities. Threats of violent protests, or actual violent protests, have been used to shutdown speakers. But these events have so far remained on the fringes of society.

People are being personally attacked, figuratively more often than literally, for their politics in ways they were not previously. Joaquin Castro courted controversy when he tweeted a list of 44 local Trump donors and the local businesses they ran (six of whom had previously given him or his brother donations). But to see the future of where the decade might lead us, we look to China… This is not usually as good an idea as many people in tech would like you to think, but in this case, what is going on in Hong Kong is particularly relevant. What is still mildly controversial in the US is standard practice in the current Hong Kong protests. In a move called the yellow economy, protesters are using apps that lets them know which businesses are in favor of the protests so they can support them and ignore the so-called blue businesses that are owned by people who support the CCP and current establishment in Hong Kong.

It isn’t much of a stretch to imagine parallel red and blue economies emerging as the decade moves on and presidential election years are likely to accelerate these bifurcations. Each year, companies are asked to make public statements on divisive political ideas, and currently the default color for consumer companies is blue. Right now, with notable exceptions such as Nike, most companies are more focused on avoiding controversy (and overreacting to Twitter mobs) and hoping that red and blue consumers will both want to buy from them.

But going forward, as partisan antipathy increases, it is easy to imagine campaigns by either side to increase their boycotts of companies that lean too far in the wrong direction. It is easy to imagine apps that track different types of coded spending, letting people know how many dollars they must donate to the democrats to cancel out the financial support they gave to the GOP. This number could be displayed right next to the amount they need to spend on carbon credits to cancel out the impact of their air travel. We could even imagine leaderboards where people compete for ideologically pure consumption habits.

The above story isn’t likely to come true as described, but some version of it is unfortunately too likely. Also possible is increased usage of secret blacklists by companies, whether to track people who made too many righty statements or to track new employees whose lefty activism makes them significant litigation liabilities. This might be a space where censorship-proof decentralized tools prove useful, though not in a way that is necessarily helpful for society.

The way we might avoid this future is if centrist coalitions become more viable politically. But if the trend towards extremism continues, the above scenarios become more likely.

The China Cold War

One of the few places people have given Trump credit has been in his shift towards treating of China as more of a potential adversary. Whether Trump stays or goes, the adversarial shift towards China is going to be one of the most enduring parts of his presidential legacy. It’s unclear if this would have happened as quickly under a president who answered more directly to the US business community, many of whom are still making or hoping to make money in China. But enough companies have been burned by seeing technology transfers to China create their future competitors as they are kept out of China’s market that even the US business community is increasingly skeptical of China.

Politically, the reasons for opposing China are almost overdetermined. The voices who claimed that access to world markets would democratize China have been proven decisively wrong over the past decade as Xi centralized and increased state power. Add in China’s treatment of Uyghurs in concentration camps, Falun Gong organ harvesting, the breaking of the one country two systems pledge with regards to Hong Kong, China’s military expansion to try to claim the South China Sea, and efforts to influence and effectively colonize less developed countries via the Belt and Road Initiative and behind the scenes bribery and there is every reason to start pushing back on China’s agenda.

One notable advantage of China’s soft power in this developing cold war is their near total capture of America’s film and television industry. People in Hollywood are worried about ever offending a totalitarian regime, lest they end up on a blacklist that prevents them from working on movies that are hoped to be released in China. It is notable that none of the new action movies have the villain played by a Chinese government official, despite many real-life scenarios that could inspire these types of stories. Absent large mistakes made by China in Hong Kong or large groups of filmmakers who give up on ever getting their films into China, it is hard to see how China will lose its grip on the industry.

The US has started preventing technological acquisitions from Chinese investors with stricter applications of CFIUS. Silicon Valley hasn’t fully caught up yet to these developments, there are a few people who facilitated the transfer of technology to China who are still hailed as inspiring venture capitalists and not as enablers of a totalitarian police state.

There will be a continuing fight between governments who want cheap telecom technology and are willing to expose their infrastructure to the Chinese and those who want to stick to systems that implicitly allow surveillance by the US and its allies.

Grad schools still see China as a source of students with extremely high test scores to fill up their programs. But as shown by the recent case of the grad student arrested from Beth Israel Deaconess Medical Center in Boston, they are now being tracked a bit more carefully to prevent transfers of technological secrets back to China. Still, many of these students are patient enough to wait out their time, and with the US making staying in the country difficult it is an easy choice for many of them to take this knowledge back to China where they will find higher status opportunities than their alternative options in the US. The Trump administration is already looking more closely at students applying to study robotics, aviation and high-tech manufacturing. If the cold war with China heats up, it is only a matter of time until more research funding is explicitly tied to the student researchers being mostly US citizens, or perhaps just directly excluding Chinese graduate students. That this hasn’t happened may be due to the reliance of low tier colleges on foreign Chinese students paying full price. If all 363,000 foreign Chinese students are paying around $40,000 a year, that is almost $15 billion dollars going to colleges that the establishment has no easy way of replacing.

The Bureau of Industry and Security announced in 2018 that they were considering implementing controls over technologies like AI and autonomous vehicles the way they control weapons technology. Their prospective list includes, biotech, position, navigation and timing technology, microprocessor technology, advanced computing technology, data analytics technology, quantum information and sensing technology, logistics technology, 3D printing, robotics, brain-computer interface, hypersonics, advanced materials and advanced surveillance technologies.

In 2019 they added five technologies to the Commerce Control List.

Discrete microwave transistors (a major component of wideband semiconductors), continuity of operation software, post-quantum cryptography, underwater transducers designed to operate as hydrophones, and air-launch platforms.

To start out 2020, they put restrictions around exporting AI for analyzing satellite images.

We should expect more of the technologies mentioned above to become controlled technologies. (Incidentally, Dan Wang is one of the better people to follow if you are interested in the China/US technology trade war and regulation space). The choice to implement controls on something as broad as machine learning technology would send a shockwave through the industry. The satellite rules are an interesting test case. Many of the people working on technologies on the prospective list in US companies are Chinese nationals, educated at US universities. If the licensing program around deemed exports does not make it easy for them to get licenses it will result in many of these experts going back to China to build tools over there. To the extent that there are competitive ecosystems, forcing people out of the US ecosystem and back to China might not be a long-term win for the United States. On the other hand, employees at companies like Google might be less quick to criticize working on tools that help the United States Defense Department if the ones loyal to the Chinese government are no longer working there and able to sign employee petitions.

The Subscriber Economy

Businesses have always realized that financing purchases for consumers allows them to extract more from their customers. That has become institutionalized in subscription only business models as things that used to be sold once with upfront fees are now primarily funded via subscriptions. What started with software is now applied to exercise bikes, tractors and even baby monitors (Nanit). How far this can be taken, where else we will see it and its general impact on society are all open questions. A lot of early stage investors say they do not want to fund any new hardware company that doesn’t have a subscription element, so this trend is not going away. The cars that people supposedly own are becoming increasingly more difficult for unauthorized third parties to fix. In the 1980s, Margaret Thatcher made a point to increase home ownership significantly in the UK to create more capitalists. Today, homes in major metropolitan areas are more out of reach than ever and if new business plans work then even appliances won’t keep working unless their real owners are paid a fee. In the long run, a society with lower levels of ownership risks fueling a wholesale rejection of capitalism.

Another reaction might be a return to dumb devices. There is a hole in the market for well-functioning dumb hardware that people can own, repair and do with as they please. While I appreciate the convenience of many smart devices, I find myself rooting for dumb devices even as many forces are arrayed against them.

Can’t Buy Me Status (Everybody Tells Me So)

The explicit rise of the status economy has been one of the major events of the past decade. Eugene Wei chronicled many of the emerging dynamics in his Status-as-a-Service essay. Suffice to say, what many people thought was a joke with Klout (obviously not a joke in retrospect, and it got acquired for $200 million) has become an obviously important factor in our modern economy. People are creating careers out of being popular and pushing products, from the Kardashians and other influencers whose fans follow their recommendations with purchases to founders who are popular on Twitter and thus able to raise at much higher valuations from VCs, the internet has created a space where people can turn their status into money.

No, no, no, noooo

For much of history, people have also turned their money into status. In the olden days, people married into nobility or outright bought a title. In the modern age, people endow prizes or institutions to be named after them. Slightly less wealthy people serve on the boards of these high status and highly resourced institutions and contribute to their finances. It is typical for someone who made money in their life, even if it was in a way that society finds distasteful, to launder their reputation by getting their name onto a new or existing respected institution. The Ford Foundation, Carnegie Mellon, etc. One hundred and fifty years ago, Leland Stanford benefited from Chinese migrants willing to work for less than whites to build his railroads. Today, Asian students need to have much better than the average scores compared to others who make it into the school he started (Stanford wasn’t the school directly under litigation, but they filed an amicus brief supporting the rights of institutions like their own to continue to discriminate against Asian Americans). Bill Gates was perceived as the enemy of most nerds in the 1990’s due to his aggressive business practices, but thanks to the effective philanthropic work of the Gates Foundation, he is almost every nerd’s hero in the 2020’s.

One of the more notorious recent cases of status laundering was Jeffrey Epstein, who helped raise money for MIT’s media lab and people might have therefore assumed he must not have done such horrible things if respected institutions were still interacting with him. (I believe it’s obligatory to mention at this point that he obviously didn’t kill himself.)

The universities have remained central in the establishment status system, and despite their many types of dysfunction it has been hard to replace them. Many professional certifications also require going through the university system, and it is hard to find talented young people by other means. What makes the process difficult is there needs to be a reciprocal transfer of status between the institution and the people who have passed through the institution. Harvard could primarily teach juggling, but as long as people thought it was the same institution that has their impressive alumni, the ambitious students who want to be associated with that group would continue lining up. All Harvard or any other top college needs to do to keep the system going is continue to accept people who are likely to be impressive. They just need to make sure the parts of the class that are legacy or meritocratic are large enough to outweigh the drag on their brand that occurs if they focus on students with other characteristics. By legacy I do not just mean the children of successful alumni, but also other children of politicians, stars, industry leaders or other powerbrokers. Meritocratic can mean test scores, grades, competitions and research projects but also other accomplishments like a flourishing acting career. Movie star alumni are good branding even if they have scandals later. Kevin Spacey is still pretty good for Juilliard’s branding while Enron’s Jeffrey Skilling is not great for HBS.

So where does this leave people who want to replace these institutions? They have to realize that reputation gets built in a feedback loop between the institution and its members. First the institution gives credibility to the member, but then some of those members give much more credibility back to the institution. Paul Graham did this well with YC. First, his business accomplishments and his essays earned him a significant amount of status and people took those going through the YC program more seriously. When some of the YC companies worked out, they added more status to the program than they got from it. Money is only the first step. If the money isn’t put to work attracting people who might pay an order of magnitude more status back to the institution then attempts to build new high status institutions will be very hard.

A lot of people that want replace educational institutions aren’t thinking clearly enough about the status angle. There isn’t a good flywheel to attract high school students away from colleges without offering them a substantial amount of money. It is likely that top tier colleges will continue to dominate the high-status landscape in the 2020’s. There will also be more institutions of higher learned that shoot themselves in the foot like Evergreen, mismanage their money like Sanders’ Burlington College, and others that are too dependent on a flow of subsidized loans or Chinese students paying full tuition like many low tier colleges.

As an aside, the basic way to fix the student loan crisis is as follows – revert the bankruptcy law that made it impossible to declare bankruptcy on student loans. Bankruptcy is not a great thing, so people who paid off their loans won’t be angry, and people who really need to escape their debt will now have a way. Then add in some measures to make schools accountable for the bankruptcies they are causing and call it a day. Hopefully this will be the political compromise that the debt forgiveness/free college types can agree on with the hard money conservatives.

The Rise of the Neurotic

This is not so much a new trend as it is something that has been happening since the 1950’s. In 2000, Jean Twenge published The Age of Anxiety? Birth Cohort Change in Anxiety and Neuroticism, 1952-1993. She found that the average child psychiatric patient in 1957 had similar anxiety scores to normal children samples collected between 1970 and 1988. This looks to be a trend that is either accelerating and/or we are seeing the normalization of behaviors prompted by extreme levels of anxiety.

But the past decade already saw an acceleration of sorts. Microaggressions, a new category of social offenses, became a significant subject this decade. Yale fired some otherwise exemplary faculty-in-residence, Professor Nicholas Christakis, after his wife Erika Christakis, an expert on child psychology, sent out an email with offensive statements such as

As a former preschool teacher, for example, it is hard for me to give credence to a claim that there is something objectionably “appropriative” about a blonde-haired child’s wanting to be Mulan for a day.


Even if we could agree on how to avoid offense – and I’ll note that no one around campus seems overly concerned about the offense taken by religiously conservative folks to skin-revealing costumes – I wonder, and I am not trying to be provocative: Is there no room anymore for a child or young person to be a little bit obnoxious… a little bit inappropriate or provocative or, yes, offensive? American universities were once a safe space not only for maturation but also for a certain regressive, or even transgressive, experience; increasingly, it seems, they have become places of censure and prohibition.

Yale’s kowtowing to its students was widely seen as a mistake at the time, but these types of reactions are becoming more normalized. To see where the future might lead, we might look to DSA meetings and the Yale quad where some people claim that clapping hurts them so everyone should use jazz hands instead. As for the people who find jazz hands creepy? Some people apparently get left behind by history.

Hormesis is the idea that a little bit of stress makes people stronger (Hormesis is frequently incorrectly attributed to noted popularizer Taleb in the name of antifragility, but these are separate concepts). As a society, we are removing early stress from children’s early years. When they finally face people who even simply disagree with them and the values they have been taught, they don’t know how to react outside of ad hominem attacks, frequently believing that if they identify their opponent as part of another tribe they have won the argument, and complaining to the authorities.

There are other factors that might be making our society sicker. The maximalization of empathy, the type that puts a person in the mindset of another that is suffering, is not necessarily a healthy thought pattern. The need for compassion for other humans is obvious, it’s less obvious that letting people imagine themselves suffering leads to rationality or a healthy psychological mindset.

A Google n-gram showing the rise of the concept of empathy, which has increased along with our age of anxiety:

Large families and close-knit groups are also on the decline, replaced by potentially better matched but amorphous relationships that people can easily exit. The prevalence of ghosting, the idea of just never talking to someone again, makes exiting bad relationships easier but also makes other existing relationship more fragile. On the one hand, it is easier than ever to find a new partner online. On the other hand, it is easier than ever for people’s partners to find a new partner online. And instead of seeing and interacting with friends every day, people count on likes and notifications from social media to reassure themselves that their relationship status is intact.

On top of all of this this, going back to the adults at Yale who were kicked out of their jobs by anxious students, people are shown that broadcasting their problems in a certain way gives them power over others. It would be a wonder if society wasn’t getting more openly neurotic.

The Rise of Gaming

Gaming is a huge industry. For how big it is, it has stayed on the relative periphery of our culture. That is partially because an interest in gaming is still coded as an activity that is more low status male. But with the ubiquity of smartphones, everyone is gaming now, and it is obvious that PC, console and mobile games are huge multi-billion-dollar industries.

Gaming Regulation

The big scare of past decades was about whether simulated violence leads to real violence. To the extent that violent people played violent video games, it was obvious that the worriers were mixing up correlation and causation and activists like Jack Thompson were making such bad arguments that he became an internet meme before the concept of memes became primarily associated with pictures with text that get widely shared on the internet. It wasn’t that games calmed down, and we might see a new wave of puritanical censoriousness trying to clean up games in the coming decade. Even a relatively tame game, such as Dota Underlords, derived from a Warcraft 3 custom map called Pokemon Tower Defense can have themes that some parents would want to protect their kids from. A line that stands out in my mind when using the insane arsonist character, is when he sometimes says “Nothing is more rewarding than the feeling you get when the body stops moving” after you win a round.

But there are other avenues for those looking to regulate gaming. Some people are worried about gaming addiction. Korea already implemented a Cinderella law, doesn’t let kids under the age of 16 play between midnight and six o’clock in the morning. But that wasn’t enough for some mental health professionals in Korea, who saw games as a cause of problems among young men, and they lobbied the World Health Organization to add an internet gaming disorder to its International Classification of Diseases. The WHO announced in 2019 that it will include the disorder in the its 2022 ICD.

To the extent that better games are effectively creating Nozick's hypothetical experience machines that allow people to opt out of society, it will be interesting to see if yet another war will be waged against people doing what they want to do to themselves. If that war is waged, it is likely to be as effective as other types of prohibition.

In an area where activists might have more success, consumer activists are worried about how certain games monetize their users by encouraging gambling. The primary gambling mechanism is loot-boxes. These are in-game chests that contain random items, some of which sell for a premium on the secondary market. Customers, some of them young children using their parents’ credit cards, buy loot-boxes until they get the item they really wanted. This generates far more revenue than if the company had simply charged a direct price for the item. Loot-box regulations have been passed in a variety of countries, and given the tendency of legislatures to both protect children and push back on gambling business models this is a trend we should expect to continue. It is likely that a freemium model of gaming, in which gamers get the basic game for free but have to subscribe to earn achievements and cosmetics, will become more of the default method for monetizing games when loot boxes are banned.

Where there is a secondary market and an active esports scene, it is also popular to bet these digital goods on the outcome of esports games. A lot of the gambling happens in the gray market, as companies are hoping that by betting with skins instead of money they will be allowed to skirt existing laws or at least enforcement of laws. Gaming companies, who might be liable due to the skins only being marketable on their website, have started pushing back against these sites themselves.

Esports - the Sport of the Future?

There are two ways to look at esports:

1. An activity that will grow to be as large and as valuable as the NBA, NFL or at least the NHL.

2. A distribution mechanic, branding exercise or loss leader for games that can be played repetitively. Less employees are needed to create and slightly modify an hour long game than is needed to create content for new 40 hour+ AAA games.

Right now, the people who benefit the most from esports are the gaming companies. The question is if sponsors can grow beyond the endemic sponsors like energy drinks, computer hardware and streaming services into more mainstream advertisers to cover the production costs, team salaries and prize pools needed to sustain an esports ecosystem.

Different gaming companies are taking different approaches. Blizzard seems to be trying to build a gaming league that looks similar to the NBA, NFL or NHL while Valve is focused more on major tournaments that promote their game. Riot is somewhat between Blizzard and Valve, where they have a league but aren’t as tied to the traditional model that Blizzard is trying to capture. Of these companies, Blizzard, with its very high franchise fees, might be the only company directly profiting from their foray into esports. Riot and Valve seem to be investing significant amounts of money into their competitive scenes as a way to engage their player bases and sell them more in-game digital goods.


Streamers are a combination of influencer, reality TV and the Harlem Globetrotters. The most popular streamers at the end of this decade play first person shooters, and grew their popularity playing battle royale style games (Fortnite). Battle royale games have one person facing off against 99 random players, and they are generally not organized by skill. In these conditions, a player in the top percentile can pull off moves that make their opponents look sillier than the Washington Generals.

As they amassed viewers that rival that of a modern TV show, streamers have been recruited by platforms, either those trying to break Twitch’s dominant hold on the space or Twitch itself. Microsoft’s Mixer made waves when it recruited top talents like Ninja and Shroud, but it is unclear if viewer loyalty is enough to create a Howard Stern to satellite radio moment from Microsoft’s significant investment. With the competition to attract talent, it’s unclear if the companies in the streaming space are profitable, and the current business models might not see profits for some time. But right now, the major players now have very deep pockets and are willing to use them.

1. Amazon is willing to subsidize streamers on their Twitch platform by letting Amazon Prime customers subscribe free (Giving the streamer income in return for emoticons) to one streamer each month. They also pay major streamers and esports events directly to remain on their platform. Users are pretty locked into the streaming live chat experience, and smaller creators really like the subscriber dynamic that has given them a relatively steady income. Twitch has also locked in mindshare with their custom emoticons/memes – if you don’t go on Twitch much but recognize Kappa (also an unrelated European clothing brand), Pogchamp, 4Head, BibleThump or Monkas you are seeing Twitch memes in the wild.

2. Microsoft has been spending money to recruit major streamers to their platform. But so far these streamers see their viewership drop by more than an order of magnitude, so other than the cash payouts things are not really working out for the recruited streamers.

3. Youtube is still dominant in hosting content but not in gaming live-stream viewers. This is despite their live-streaming being technically decent. They are still missing the live chat experience that draws viewers to Twitch but exclusive streaming contracts stick to streaming and acknowledge that every relevant influencer needs Youtube to host their permanent content.

4. Facebook has done exclusive deals with esports orgs like ESL, but viewers were not happy with the laggy stream or the chat experience. They have a greater shot at being more relevant in the next wave, as Oculus is well positioned to be the default hardware if VR becomes a dominant way for people to experience streaming events.

Behind these major players are the far more numerous minor players. Some of the minor players rise to prominence via their esport achievements – people want to watch the best. While top streamers have to decide how to monetize their popularity, competitive esports players often have to decide between being a career streamer or being competitive. When top players stream in casual matches, their competitors often stream snipe them to get information not available to normal opponents. There are a variety of ways for them to handle this, but the bigger trade-off occurs when their streaming schedule intersects with the demands of rigorous training. In team games, teammates who don’t have streaming to fall back on might also resent the competitive player who is spending time investing in what is essentially an in-case-we-lose insurance policy. Some players have managed this balance, but a greater majority have opted into the steady income of being a full-time streamer.

In the next decade, a lot of people who dropped out of college or put their careers on hold to play games will find themselves falling behind in game to younger players with faster reflexes. They will have to see if the demand for their content and other skills can sustain a long-term career. The biggest hurdle is moving outside of their primary game, where the bulk of their fans come from. The game streamers who have viewership across multiple games have derisked a significant aspect of their future income, while single game players are at risk of dropping off the map when the game the specialize in falls in popularity. It is likely that we will see new jobs emerge in these spaces as this is an emerging media space that is attracting just as many eyeballs as some of the most popular shows.

Are You Ready for a Remix?

One sad prediction, for those who might have hoped gaming would show us a path to the future beyond the endless sequels and prequels ending up on Hollywood and on our televisions today, is that we are going to see even more repeated content in the gaming space. Making games is expensive, and anything that can be done to derisk games is going to be done. This isn’t new. Farmville, the first major success on social, was really just a remix of Harvest Moon. League of Legends is a version of Dota, modified to increase the twitch gaming and remove aspects that overly complicate the game.

For games that are new, one common pattern to expect to continue is that second movers can win big if they release faster cartoony free-to-play version of a newly popular games. League of Legends beat out Heroes of Newerth in this manner in the genre created by Dota and Fortnite beat out Public Battlegrounds (PubG) in the battle royale genre. EA fast followed with Apex Legends, which seemed to do relatively well even if it never became as large as Fortnite.

A source of game ideas that is still probably underappreciated are the custom map games from the days of Warcraft 3 and Starcraft. Riot’s Teamfight Tactics (as well as Dota’s Underlords) emerged after the studio Drodo released a game called Autochess, modeled after Pokemon Tower Defense, a custom game on the Warcraft 3 map. Just as Craigslist was a map for hundreds of startups, the custom games on WC3 and SC can be a map for game developers looking to do something that gamers previously liked.

There may be some truly new experiences with VR coming this decade, but so far everything has been basic first person shooters with controls that are a little more annoying and which can make people who play for long hours of time kind of dizzy (Gaming addiction might be solved by forcing games to use VR, similar to how alcoholics are given disulfiram to make them sick if they drink). However, the new Oculus is selling well and Valve is making Half-Life: Alyx in VR. So it might very well be the decade of VR, though that is what people thought most other decades.

Societal Long Tails and Societal Bifurcation

In 2006, Chris Anderson wrote The Long Tail, a book about how the internet solved distribution for consumers. And their actual demands for less common products that fit their needs means that there will be millions of markets for dozens of products rather than dozens of markets of millions of products.

For too long we’ve been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are actually artifacts of poor supply-and-demand matching—a market response to inefficient distribution.

He was certainly right about the fractionalization of pop-culture. The last big cultural event was Game of Thrones. This massive hit had 13.6 million viewers watching its finale. This is great for a premium cable network like HBO, even if the creators had no idea how to write a story when they weren’t using GRRM’s cliff notes and badly mauled the show’s brand in their rush to finish their work. However, this number is less than half of the 30 million viewers pulled in by an average showing of Seinfeld in the 90’s.

At the same time, it’s never been a better time to be a niche media consumer. Anime, vampire shows, documentaries, procedurals, fake healthcare advice and other genres are being cranked out in record numbers thanks to the streaming wars. Disney, Netflix, Amazon and the established media are racing to create content that will encourage consumers to sign up to their subscription services.

And this long tail doesn’t just apply to media. It expands to other parts of culture. Going on Reddit, people have very different experiences based on what they want to see. One person can get leftist propaganda, makeup advice, relationship advice and track the MtG professional scene while another person might see things aimed at Trump fans, League of Legends, Rocket League and subreddits dedicated to their favorite TV shows. Going on Twitter people curate similarly unique content. There are even blocklists available to be shared. Everyone is becoming exposed to only what they want to be exposed to.

This trend will only accelerate as platforms themselves are acting as if they must pick sides. Reddit admins are trying to find excuses to shutdown subreddits with abnormal political perspectives, while Twitter finds reasons to kick off their platform anyone who can’t or won’t properly pronounce the latest shibboleth or who suggests to journalists losing their jobs that they learn to code. Gab, formed in opposition to Twitter with the intent of being a free speech platform, revealed that their main issue with Twitter censorship was that they were not censoring the right people.

Notably, Twitter has not shutdown Trump, despite calls for them to do so. It will be interesting to see if campaign finance laws address a future where certain politicians are allowed on internet platforms that give them valuable reach if their opponents are not allowed to use those same platforms to promote their candidacy. This is already happening on a small scale with local candidates who have violated certain rules, but when it happens in a major election the internet platforms will face significant political blowback the first time the people they oppose get power.

Are you are only really cancelled if you let them cancel you?

One aspect of social bifurcation is the rise of cancel culture. Extremists on the left try to shutdown righties, and righty partisans try to give them a taste of their own medicine, with noticeable less success. One thing that has been underrated this past decade is that most people were only cancelled after they let themselves be cancelled. Trump is the politician who blew this open, he didn’t let any allegation, true or false, bring him down. The people most at risk from cancel culture are the individuals and institutions who have enthusiastically wielded the tools of cancel culture.

In the next decade, we should expect to see more very public fights. Lawyers tell their clients to save their statements for the court room, but the court of public opinion is stronger than before and it is vital to come out swinging against false allegations that other people see as credible. Making a lukewarm apology and then disappearing from public life is the equivalent of ceding the field to your enemies.

For those looking for a non-Trump model for how this plays out, Carlos Ghosn’s very public pushback on the allegations made against him by Japan’s prosecutors and Nissan will serve as a template for others who have been unjustly accused.

Some Other Tech Trends

There have been a few other tech trends that are either ending or accelerating into 2020, it’s been a long essay so I’ll try to keep it short.


New SaaS companies have been enabled by the rise of cloud computing, and the transition of old school businesses into SaaS businesses has been a boon to tech companies as markets have rewarded SaaS companies with higher multiples. These companies are more capital efficient, but eventually markets will realize that SaaS businesses don’t always grow as much as they hope and the multiples will contract.

Amazon’s competition with SaaS businesses will also start to impact the market and there is a chance that other major players come in and try to compete significantly on price across multiple open source projects. More projects will modify their licenses to prevent this type of competition.

Remote Workers

As real estate prices in major metro areas remain ridiculous, this is a trend that will only accelerate. Remote companies were less popular because not that many people had seen functional remote companies. Now that there are more examples of success, and with more example the funding for additional remote companies will be easier.

Money Losing Business Plans

What is going to get harder are businesses that lose money until they somehow win the market. Many of them are growing without product market fit, and they are disguising it by giving their customers $1 for $0.95 and selling VCs on the growth. With Softbank pulling back from funding these types of companies (both because they are choosing not to and because their ability to raise future massive funds is in question) and public markets punishing companies like Uber, it will be harder to execute this strategy. What will be interesting to see is what happens to the companies who were running a playbook to attract Softbank or Softbank-like money. There may be a lot of blood in the water the first couple years of this decade.

Bootstrapped companies

There should be even more bootstrapped companies in the 2020’s. The companies that don’t raise at increasingly large valuations won’t get as much press – both because they won’t seek out press and because there will be less public news like funding rounds to talk about – but since a highly functional SaaS company can be cashflow positive from a very early timeframe, it is feasible that a few very successful companies will be able to fund their growth internally, independent of the funding ecosystem.

The Crypto

A decade is a long time. And while the demand for grey market money is only going to increase, governments are probably going to catch on to the fact that crypto players are enabling all sorts of things that they would prefer not to be enabled. The price isn’t likely to crash until it looks like the various off-ramps from crypto into the legal economy start closing, and that won’t happen until there is a major geopolitical event.

There are a lot of other projects in the works, many of them will be interesting tools or networks where having a trusted institution (ie, a company) coordinating things and reducing transaction costs might improve the experience significantly. The largest demand for blockchain will come from government officials who don’t know that databases can be auditable without it and the people who are using blockchain as a selling point to modernize an old-school industry.

The Old Economy Tech Funding Arbitrage

Thanks to Andreessen, everyone knows that software is eating the world. One strategy for tech people has been to go after an old economy space and raise at tech valuations. They can slowly build out an old economy company, perhaps a bit more efficiently thanks to fewer legacy systems, and keep raising at tech multiples to revenue. Then they go public and valuations rationalize to match the actual fundamentals of their business. The founders win, the early investors win, a few late stage investors might not win, and the public markets definitely don’t win. Although WeWork didn’t go public, it was otherwise shaping up to be one of the platonic ideals of this motif.

This is a pattern that played out a lot in the 2010’s and should continue to play out in the 2020’s. This strategy will only work because there will also be tech enabled companies that will take over sizable portions of these industries and it will remain difficult for many of the players to tell the difference between real tech disruption and VC funded customer subsidies at scale.

Mobility and Cities

The rate at which people move has been consistently falling, and cities are being more poorly managed than ever. This comes down to the long run results of the idea that housing is an asset that should appreciate significantly and politicians who are beholden to their current constituents, not their futures ones. So politicians in many major metropolitan areas came up with a compromise of building restrictions combined with rent controls or rent subsidies.

This worked well for current residents until it became apparent that their children would not be able to live in the city they grew up in, and other people who want to work in their city need to spend hours commuting which drives up labor costs significantly.

On top of this failure, there are failures to both take care of and police the behavior of the homeless, many of whom are mentally ill. With no options for affordable housing due to lack of supply, no options for incarceration for many who commit crimes of various magnitudes due to both a lack of desire and a lack of ability to incarcerate them at an affordable cost, and no ability to get them committed, and in the case of San Francisco no desire to move the homeless out of the city’s main business districts, many people are starting to think about how they can do cities better.

In the US, there is more interest than in a generation in developing new cities. They are likely to be developed in states that can make a credible commitment to make it easy for people building for the long term. States like California and Illinois don’t merely have significantly more corruption to navigate, but their precarious long-term pension situations should give pause to anyone thinking of building something in their state wary that their assets will eventually be looted to pay for promises made by local governments.

With the United States broadly allergic to concepts like a congestion tax, traffic in major metropolitan areas is only going to get worse. Places like San Francisco think they can fix things by replacing car lanes with bus lanes without making it safe for commuters to want to try public transportation. It is telling how the only major transportation solutions that have worked in SF have been company shuttle buses, and these solutions have been opposed by many locals. Alternative transportation systems are being attempted to get people into and around cities, but these solutions will function much better in cities designed for their use than they do in currently existing cities.


There are more topics I want to address... from attention spans, to healthcare to the future of various rent seeking economic models more generally. But I am coming up on 10,000 words so I should probably put them in separate posts.

As usual, none of these ideas belong to me. They are free to spread however they spread. But it is 2020… So if you, my dear reader, happen to know someone that I also know, you should attribute any questionable view espoused in this essay to them unless they agree to immediately publicly denounced me and apologize for ever interacting with me.

We must let the public witch-hunts continue as they lead us to a more empathetic society.

AI-Driven Job Disruption in a Constrained Economy

In an overly simplified version of economic growth, productivity improvements are developed that allow for more tasks to be done better with fewer inputs. Some of these inputs that get replaced are people, who need to find a job doing something else. Many of these workers never find a job that paid as highly as their original work, but society has always adjusted. Today, through applications of deep learning and other algorithms, computers are looking like they be proficient at many more tasks. To some people the question of what people will do when an AI takes their job is an alarming question. But other than the typical issues of displaced older workers and some increased difficulty in moving to higher productivity areas due to high housing costs, there wouldn't be much to worry about if the sectors with increasing demand weren’t protected from new entrants.

There is a significant amount of people who are worried that computers and robots are going to take most of the jobs, and that there will be nothing for normal people to do. Some go so far to believe that putting them on a universal basic income plan is the only rational thing to do.

There are a few reasons given for why humans might not find a job:

1. A combination of AI and robots will be doing what humans used to do.

2. There are not enough activities that these workers are willing to do which might promote the welfare of customers who can afford to pay.

3. The workers who lose one job will be zero-marginal productivity workers at other jobs.

Most UBI proponents accept some combination of all three of these explanations. Most of them have some grain of truth, but there are strong counter arguments to each.

1. Robots are expensive and generally constrained to industrial and repeatable tasks. We are far from removing humans from the loop. It is still difficult to get video conferencing and printers to work consistently without IT assistance.

2. Many who make over $200k run their household at a deficit, which suggests that $60k GDP per capita economies are nowhere near conquering economic scarcity. (Given the existence of status games that require money, it might be that economic scarcity will never be truly conquerable)

3. Robots are expensive, and precision robots that can multitask are even more so. A moderately skilled person who can be guided by a computer will be the most viable choice in many situations for decades to come.

Amusingly, Bill Gates is among one of the AI worriers. Perhaps he is thinking back to his role in bringing spreadsheet software to market in the 80’s and 90’s. The proliferation of this software really did destroy jobs, the number of bookkeepers, accounting and auditing clerks in the US economy fell drastically. However, they were replaced quite quickly by more accountants, auditors, management analysts and financial managers. Making one part of the economy more efficient creates new possibilities that were cost prohibitive before new technology drove down costs.

It is tempting to say that AI worriers have it all wrong. That automated trucks will lead to more much more jobs for people supervising truck convoys and working at places that become economically feasible once the movement of goods becomes much cheaper. And maybe drastically cheaper transportation will create even more specialized retail experiences. It is more fun point out to the biggest worriers that they have witnessed the rise of a category of jobs under their very noses, that of the influencer and their various enablers.

But the Pollyannish approach downplays some realities. Productivity improvements leave some people behind. The historical Luddites didn’t find better jobs. And when society has gotten richer, the type of new services demanded changed. Richer societies aren’t buying that many more clothes, personal consumption expenditures on clothing were near 10% of US GDP in 1929, today they are closer to 2%. In place of sectors that have gotten more productive, we see consumers wanting to spend more on things like education, healthcare and housing.

It will not be simple to increase economic output in these areas. Each of these sectors has numerous artificial barriers to entry, especially relative to the high quality of services that advancing technology could enable in a competitive market.

The main barrier to entry in most non-housing sectors is occupational licensing. Occupational licensing has basically replaced union job protection in the private sector. In the 1950s, about 35% of the private sector workers were in unions. Today, that number is closer to 7%. Instead, an equivalent amount of the workforce has been created occupational licensing protections. These protections now cover over 30% of the workforce, up from 5% in the 1950s. And their impact will retard productivity much more than private sector unions in the US ever did. Union workers may have destroyed Detroit’s auto dominance, as the union's strict rules slowed process improvements and increased labor costs at the Big Three. But occupational licensing rules are not just making a few companies uncompetitive, they are making entire sectors less competitive.

Occupational licensing sometimes requires periods of apprenticeships to existing professionals. Often, a prerequisite to getting the license is participating in our inexplicably expensive and slow education system. For some reason, Michigan requires security guards to have three years of education and training while most other states tend to require 11 days or less. Healthcare is one of the more extreme examples. The typical physician has at least eight years of post-secondary education. The students with the best test scores will often go into practices such as dermatology and radiology, where the hazing of the residency doctors is minimal, and the post-graduation lifestyle and pay is highest. Doing well on tests doesn’t prepare these students for thinking about how soon basic machine learning models will do their jobs better than them.

When thinking about how to meet healthcare needs, the question of increasing supply is usually ignored in favor of increasing spending across the board. In the rare cases when supply is addressed, the focus is usually on increasing enrollment in medical schools and residency programs (which is good!) or allowing underutilized doctors to help people outside their market via telemedicine (also good!), but not increasing the scope of what a nurse or technician guided by today’s more advanced computers (and soon, augmented reality) is allowed to accomplish without additional oversight from doctors.

We are entering a world where computers will be able to help a random conscientious person do 80% of the job of various experts. In this type of environment, the pressure to retain occupational licensing requirements will become strongest just as the need for restrictions are disappearing. This misguided response will be the one thing that keeps society poor, as the sectors of healthcare and education will continue to take a larger share of the household budget in the same way that housing does for people who live around centers like San Francisco and NYC where the supply of housing is artificially constrained.

When I get Lunch, Part II: The Tasty-Unhealthy Scale

This is the follow-up to When I Get Lunch.

In my more formative years, the show How I Met Your Mother was an amazing sitcom.  When the show was still in the phase where it was somehow more often than not ridiculously funny, in season 3, episode 5 (I had to look that up), Barney introduced us to the Crazy-Hot scale.

The basic idea is that there are sometimes direct tradeoffs between two variables, in this case, mental stability and attractiveness in the dating market. If someone is above the line, it means that along these two dimensions, their relevant positive trait outweighs their negative trait in the category under consideration. The higher one variable is, the higher another must be to make it a viable option.

Having been happily absent from the dating market for many years, I have taken to applying this trade off when considering food. The first relevant variable is how the food tastes. Like attractiveness, the tastiness of any given food item is subjective, though with considerable consensus around different food types. The directly relevant tradeoff for how tasty any given food type is how healthy it is. There is considerable debate and disagreement about what people consider healthy. Judging by its popularity in supermarkets, many consumers still look for “fat free”, while that is a label that tells me to look elsewhere. Either way, it’s far too often the case that things which taste good are unhealthy for us, especially when we consider the quantity of unhealthy food that we are tempted to consume.

The basic chart looks as follows:

In this case, salmon sashimi is comfortably above the line while in my case, cake is comfortably below the line. While it would be nice to standardize this metric, it’s going to vary unavoidably from person to person. My taste bias is generally towards spicy food and oriental cuisine. My health concerns are generally centered around avoiding excessive carbs and sugar.

The line is not always stable. If a woman becomes pregnant, that salmon sashimi which seemed like a great way to get protein and omega-3 now looks like a high-risk food item where the small chance of trichinosis or other parasites is too much of a risk, regardless of how tasty it is. Someone who loves pizza, but who goes on a low carb diet, will start seeing pizza as laying on the opposite side of the line compared to when they were not on a diet.

The fictional Barney Stinson named his trade-off line the “Vicky Mendoza line” his fictional ex-girlfriend whose cosmetic and behavioral changes caused her to fluctuate between the zones.

The closest food analogy might be the egg yolk.

At a young age, scrambled or hardboiled eggs would be served in the morning. These eggs were not particularly tasty, but they were seen as relatively healthy. Then, doctors became more concerned with the cholesterol in egg yolk. Eventually, I discovered the wonder that is soft boiled eggs, particularly in ramen noodles (Ramen is probably somewhere in the upper right of my chart, if I don’t eat most of the noodles I can pretend it is on the upper side of the line). And scientists have started to come to the conclusion that identifying bad things in the body and tying them directly to things that are eaten, like cholesterol, might be oversimplifying our body’s very complicated mechanisms. Dietary cholesterol from eggs is generally not thought to be as bad for the general population as it was twenty years ago.

With Thanksgiving coming up, it is worth thinking about why America’s feast meal traditionally involves some of America’s most mediocre food. My relatives are generally great cooks, but Thanksgiving is a category where almost every single dish is either on the line or below the egg-yolk line. It’s inaccurate to say that rituals don’t evolve over time, but they do evolve more slowly than the rest of culture. While some families have modernized their various parts of their Thanksgiving food, it is still a window into what food was like a generation ago.

Turkey – The main dish consists of a meat that is seemingly only popular now and during Christmas, its defining factor is its ability to put you to sleep. The only real turkey enthusiast seems to be Michael Dukakis.

Mashed Potatoes – Basic starches that are sometimes made edible with enough salt, butter and gravy.

Mashed Sweet Potatoes – There is some potential here, if not for the marshmallows that drive this dish firmly to the left of the egg-yolk line.

Stuffing – Made properly, these are better tasting carbs, made even better with gravy.

Gravy – The only thing that makes it worthwhile to think about eating the above dishes.

Cranberry Sauce – This tangy collection of sugar is adored by many people in the thrall of nostalgia.

In fact, outside of pie enthusiasts, most of the appeal of the Thanksgiving meal appears to come from nostalgia. Before condemning me as un-American, look into your heart, you know this is true. Or better yet, look at popular restaurants across America. There are very few chain restaurants whose thesis is that they should serve Thanksgiving food year-round. And those that do, like Pluto’s, survive mostly due to the popularity of their salads and simple meat options. It takes a lot of self-brainwashing to convince yourself that salads are anywhere other than the lower left side of the tasty-unhealthy chart – except for the ones at risk of being on the wrong side of the line in the lower-right due to a heavy reliance on tortilla chips, fried meat or an unhealthy dressing.

A two by two matrix often oversimplifies things. Maybe the most important trade-off isn’t between hotness and craziness, but between social status and wealth. The nice thing about the tasty-unhealthy framework is the axes can contain most of the complicating variables. The hungrier you get, the better certain foods taste. Or maybe almost all food is seen as unhealthy at meal time if you have decided that intermittent fasting is important. Someone who discovers they suffer from Celiac disease should relocate everything that has gluten to the far right of the chart. Maybe you don’t usually eat cake but make exceptions for friend’s weddings – you can incorporate the desire to be properly sociable into the tasty side of the scale. Or just throw it out during cheat days or cheat events.

The important thing is having a framework that is generalizable enough to handle new information and new constraints properly. The best approach would be if we were capable of brainwash ourselves into only liking healthy food and constrain our diet to the upper left side of the quadrant, but that is easier said than done. It may be most useful in avoiding borderline foods when we know it’s not good enough for its health levels. So when someone asks you why you don’t like pizza, you can tell them “Yes, I like pizza. But I don’t like it enough considering how unhealthy it is for me.” You can even draw it out, using slightly better handwriting than my own. But this is advice on how to think of the trade-offs between enjoyable and healthy food, not on how to lose friends and bore people.

Ignoring the Lives Technological Progress Doesn't Save

Everyone knows the story of thalidomide and the deformed babies that were born as a result of approval in European countries. There were delays in approving the drug in the United States. The director at the FDA in charge of the approval was worried about nerve damage that wasn't proven to be a real problem, but she became a hero for keeping this drug off the US market once the birth defects were linked with the drug. Fewer people know about the deaths caused by the FDA's delay of approving beta-blockers for preventing the risk of a second heart attack. Despite trials showing its effectiveness in the mid 1970's and approval in Europe, it wasn't until 1981 until timolol was approved for use in preventing a second heart attack. In the press release, the FDA announced that it could save 17,000 lives a year. So by their numbers around 100,000 people died as the FDA dragged their feet. 

Now, medicine is complicated. There are many examples of delays of useful treatments, there are many more ineffective treatments that were properly blocked and there are some treatments that should never have been approved. Recently, a study found that guidelines suggesting the use of beta-blockers in non-cardiac surgery are resulting in significant excess strokes and deaths. The problem is that the deaths caused by actions are taken far more seriously that the deaths caused by inaction and delays. Our moral calculus does not seem to recognize that obvious missed opportunities to save a life are almost as bad as other causes of death, even in obvious cases like the example above where many people who had already had a heart attack died of a second one because the FDA had yet to approve beta-blockers as a treatment.

That brings us to self-driving cars. Every year in the past decade over 30,000 people in the United States have died in car crashes on public roads. To the extent that many of these accidents are caused by driver error, replacing more fallible human drivers with an electronic system has the potential to prevent many of these deaths. Recently a pedestrian was killed in Arizona and the company suspended tests in all cities. To the extent that Uber is suspending testing to fix an obvious bug that caused this mishap this is what we should expect. But the extent to which Uber or any other company has to suspend operations after an accident only for political optics then we should recognize that the knee-jerk political response is pushing back the time when humans will not only be free to devote many hours of commuting time to other activities, but tens of thousands of lives each year are lost because human drivers still dominate the roads. And that's just counting the deaths that occur within the United States.

We must not expect new technology to start out an order of magnitude better than the old technology. When human lives are on the line we must have higher standards, but those standards should not be unrealistically higher that the status quo. If they are even equally as safe as current human driven systems, then ensuring a legal and regulatory framework under which self driving cars can operate will allow for real time improvement and iteration. When we get to a point that self-driving cars are ubiquitous it will save tens of thousands of lives and give billions of hours of free time back to commuters.

Be careful about demanding too much perfection too soon. Demanding perfection now causes delays, and our moral calculus is too ready to ignore the tens of thousands of lives lost every year that effective automated driving is delayed.

When I Get Lunch: Part 1

I think a lot about food. I haven't yet put my food related thoughts down on paper and sometimes the only way to progress in understanding is to lay everything out on paper. This technically isn't on paper either, unless someone decides to print out this page, but it's close enough. I'll start by covering a book that has helped me develop a large part of my framework for how I think about picking out and eating at restaurants. One more caveat before I start. This is not a competent book review. Competent book reviews engage with a book within five years of having actually read the book. This is more of a reflection on a book that I did at one point read and whose concepts have continued to shape my thinking about food over the years.

That book is Tyler Cowen's An Economist Gets Lunch: New Rules for Everyday Foodies. It's one of the few books that I've bought a couple times, as I always end up giving it to a friend or acquaintance (I prefer not to engage in the myth that I'm letting someone borrow a book, that's just a set up for minor friction and disappointment if they forget, damage or lose it). It is a combination of an overview of the economic and social forces that made good food in the United States almost disappear and a framework and advice for finding the best tasting food in general. 

The economic history portion is interesting, it delves into the dynamics behind how prohibition killed off the best restaurants & provides an interesting hypothesis as to how the child-centric culture in the era of Baby Boomers oriented our food culture towards fatty, sweet foods and away from more interesting flavorful options.

The history is fun, but more relevant is Tyler's advice for finding good food (Those in the DC area have the option to skip much of the work of applying his framework and access his recommendations directly). He uses a combination of economic and cultural understanding to determine when he is paying for good food and when he might be paying more for the other goods or services bundled with food. Some tips in his own words can be found here.

I will paraphrase the six points from that article:

1. Order what sounds the least appetizing, it is on the menu for a reason. Avoid what sounds safe if it is not the restaurant's specialty, that's just there to mollify people who prefer the familiar.

2. Be suspicious of restaurants that are social scenes, especially if it is not a new restaurant that has an extra incentive to create a reputation for its food quality.

3. Low rent places in suburban strip malls will have more interesting varieties of food. Places with higher overhead will be less able to take risks, and when they do provide good food it will generally have a matching high price. Food trucks share relevant qualities with suburban strip malls. 

4. Ask other people for advice, particularly people between the age of 35 and 55 who become excited by the topic of giving advice on where to eat. Searching online for the best particular dish will give better outcomes than searching for general cuisine.

5. Cheap labor leads to good food at low prices, expensive labor & superfluous employees means that the customer is going to be paying for the experience. 

6. Food cuisines that Americans are comfortable with will often be biased towards American taste-buds. A Pakistani restaurant will generally be more authentic than your average Indian restaurant. Americans feel more comfortable wandering into an Indian restaurant and the restaurateurs have learned that Boomer-type customers are happier with dishes that are blander and slightly sweeter than is traditional. Thai food is another category that is often targeted at Americans, while Vietnamese food has yet to catch on and is less likely to be overly fried and sweet in an attempt to lure Americans who do not have a preference for interesting food.

Besides these tips the book also explains many of the forces driving where good food is made. It is the demand for high quality food that creates a good supply. The only Chinese restaurant in a very white town might be have a highly capable chef, but if his customers prefer bland, sweet food he will learn to give them what they want. Place this same chef in the middle of a metropolitan Chinatown and it could be well worth a visit to his restaurant. Therefore, if you talk to the chef and express interest in non-Americanized fair, you might be able to convince him to make you a good meal at the mediocre place. And when we hear the common rule of thumb to make sure that people of the same ethnicity as the food are eating in a restaurant we are trying to avoid a dynamic where food is made both more bland and sweeter in an attempt to attract a Boomer-ish type of clientele. 

Consumer demand driving restaurant behavior is also the reason why areas with significant tourist traffic will have more questionable restaurants, as the main skill required of restaurants in those areas is to convincing people to drop by just once. This is why it is easier to accidentally find a good restaurant in San Francisco's Sunset and Richmond district than in its more tourist filled Chinatown.

Most of Tyler's advice on food and the parts of his framework that I have internalized, probably including insights which I might not directly remember as coming from said framework, have served me well. But most rules do not work all of the time and his suggestions are suggestions and not laws for a reason. I remember right after reading the particular piece of advice about trying things on the menu that sound disgusting I tried pig blood curd congee in a restaurant attached to a 99 Ranch (essentially a suburban strip mall with a large flow of Asian customers). I was rather disappointed. Although now that I think of it, even that dish was generally pretty good once I took out the pig blood curd. But every so often things that sound disgusting actually are.

One area that was touched on but incomplete is how to find good food using online sources. He recommended avoiding generalizations and using specific searches even if that isn't what we are interested in. His approach does work, searching for "pig blood" in San Francisco on Yelp actually highlights a few restaurants I know to be quite decent. But when we look at the Yelp or Google for reviews and scores the process of interpreting them is not very direct. Most of the US review systems ask users to give only one all encompassing score, so many other factors outside of the food quality are being measured.

For people who are trying to find the good food at reasonable values using these services, there are some basic heuristics outside of looking at the number of stars that will help interpret the results.

Sometimes an almost cheap ethnic restaurant gets dinged for its relative price, not the quality of its feed. If the biggest problem is that it is slightly more expensive than its category suggests it should be, remember your opportunity cost. The $16 ramen, where half the customers are raving about it and the other half are complaining about it for costing too much for ramen, will still be much cheaper than other dinner options. (If this seems particularly high, it should be noted that I live in the San Francisco Bay Area).

By that same token, the places with glowing reviews from people who are amazed at large portion sizes should be treated with a grain of salt.

When a restaurant has a bad score due to people complaining about service and the goal is to find good food, not to impress someone with a flawless evening out, then that restaurant deserves significantly more consideration. 

Relatively expensive places, those which fall under the $$$ and $$$$ categories, often have ratings that are biased upwards. Many of the people reviewing them did not have to pay for the restaurant, and even those who did often forget that the baseline experience for these restaurants should be good food and great service. They do not adjust their baseline expectations higher. Many of these places actually have great food worth trying out, but don't trust the average score. Some of the most mediocre meals out have occured because I was being hosted by someone who fully relied on the heuristic of "If I spend enough money and go to a place that is popular I won't get a bad result."

Ratings are also biased upwards when the owner replies to every or almost every review, positive or negative. Real negative reviews are scared away by the prospect of having a real person react to public criticism. Be wary of these places, not only are they skewing what might otherwise be a useful indicator, they may be more concerned with perception than reality.

And just to make sure that the absolute basics are covered, learning about the specialty of the place is important. There are many places with large menus where it is a mistake to pick anything but a couple items. Also in the obvious column is looking at the most recent reviews for signs of deterioration in food ratings or ownership changes. And if you know the cuisine well then the pictures might be the most helpful content.

There are other concepts beyond analyzing reviews that are quite helpful.

Many times the health inspection score will be easily available when looking up options online. For those who like to travel, remember that a mediocre health inspection score in the United States would be a great health inspection score in a developing country. Unless you know of people getting sick at the restaurant don't be as put off by a mediocre health inspection score as your instincts tell you to be.

While traveling, it is useful to understand which countries do another's cuisine well and which ones don't. Getting Kebab is Germany is a no-brainer, but in Korea it may be mediocre. Thai food in Vietnam is much better than sushi or Korean. (My perception of bad Korean might be due to trauma, one restaurant put ketchup in a bottle that was supposed to contain chili paste for the bibimbap.) US style Mexican food doesn't seem to travel well past the states that are touching Mexico's border. In Japan, some cuisines can be reproduced even better than in their home country, at other places there will inexplicably be mayonnaise on everything. But the general rules still apply, a local population with high standards which will eat at whatever restaurant makes the highest quality version of the food they want is needed for quality food. The more metropolitan an area, there more likely there will be a significant population of people with standards for the cuisine you want. So it's more likely you will be able to find a good meal of most cuisines in major metropolitan areas. But if you took a multi-hour bus or train ride to get your location then sticking with the local cuisine will be your best bet.

Another important concept is time arbitrage, doing things when others aren't. The basic time arbitrage related to eating out is going out for lunch rather than dinner. If you are able to visit a good place during lunch hours the time arbitrage allows for obtaining good food at much cheaper prices. Some Korean places have such a significant price difference that even though they slightly increase the portion size it feels like a ripoff to visit them for dinner. The exception to this rule of thumb would be the places that are designed to make most of their revenue from lunch, like the nicer sitdown lunch places in a downtown area which might not even be open for dinner.

Time arbitrage extends beyond just getting lunch, some places impose higher costs on customers by making them wait in lines. These lines act as advertisements to the restaurant, and if people are willing to wait for a restaurant that isn't a social scene of one sort or another then that is generally a good sign (Remember that urban brunch places are all social scenes). If you have the flexibility, going out for early or late dinner on a weekday, as long as you are also avoiding traffic, would be the best way to experience these restaurants.

By this same token, the place that is open 24 hours or until 4am when other places close earlier will often be serving worse food at a higher price. I have found this to be very true with most Korean places within San Francisco. But there are also definite exceptions to this rule, there are a few 24 hour burrito places in San Diego that you should visit regardless of the time.

The only place where it seems that Tyler's take was wrong, at least as I remember it, was on sushi. In Tyler's estimation, the only way to be certain of getting a better meal was to spend more money, as this would be more directly correlated with high quality fresh fish and perhaps the skill of the chef. Part of the reason this is wrong is that some expensive places have built up brand names as the place to go for business dinners and these have dropped in quality significantly. And sometimes there are restaurants which are far less expensive than the ultra-expensive places who are ordering similar quality fish from the same wholesalers. Figuring out which sushi places are ordering from these wholesalers and which ones are ordering from the same places providing the selection at your local Japanese supermarket can help a discerning eater determine where to find really good sushi at reasonable prices (Note: The prices may still be unreasonable compared to other cuisines).

The restaurant scene is an inefficient marketplace. If you want good food there are plenty of ways to get better food at a better price than what most others are getting. But if what you want is close to a completely normal social dining experience then the inefficiencies get smaller. You will be choosing to also pay for the atmosphere, the service, the view, etc. The best you can do is use these techniques to make sure the food is also good. When it comes to finding good food at reasonable costs, it helps to be a little weird.

That's it for Part 1. Eventually there will be a Part 2, where I will introduce a framework focusing on addressing the tradeoffs that often occur between matters of taste and matters of health.

Schemes, Illustrated

A lot of people are calling bitcoin and other blockchain tokens* Ponzi schemes or pyramid schemes. This is inaccurate, what is happening in the token economy is a new structure with significantly different incentives for participants.

*For the sake of simplicity, I will use the term token and coin interchangeably. This is far from the most blatant generalization that I will make in this piece. 

Ponzi Scheme

One centralized entity attracts investors by pretending returns are higher than they are. The first few investors might get more than their money back as proof that the fund is healthy, but those funds were not made by the firm, they are funds stolen from later investors.

In the end, only the perpetrator of the Ponzi scheme comes out ahead.

Incentives for participants to recruit others: Social upside from sharing how to make money. Little direct incentive.

In recent times: Madoff’s investment scandal was a classic Ponzi scheme. People believed he had a way to make consistent returns in up or down markets, but he really used new investor money to pay out fake returns to old investors.

This wasn’t just a one map shop, there were firms called fund of funds with an incentive to introduce their clients to Madoff’s Ponzi scheme as they would make a percentage of their client’s returns. But these funds did not think there was a Ponzi scheme, though many believed that Madoff was making his money illegally.

Total size: At the Madoff’s fund peak investors believed they had $65 billion invested in Madoff’s fund, but the total amount investors put in was closer to $20 billion dollars.

Legitimate form: None?

Ongoing Ponzi Schemes: There is also a famous Russian Ponzi scheme, MMM, which after having collapsed in Russia it has inexplicably become popular in developing economies. It is primarily a Ponzi scheme in which money is put into the system and is paid out only when newcomers put in more, but the scheme has set up some incentives to recruit other people that cause some to label it a pyramid scheme.

What to look for: There may be many small ongoing frauds of this nature. Investors should always do due diligence when a scenario seems too good to be true. Understanding the strategy and making sure the fund has a respectable auditor can help avoid some of these schemes. More generally, funds trading very illiquid asset classes in which they are the main participants might act as accidental Ponzi schemes. If investments from one source are driving up the market value of the fund, and fees are being paid out on this increased value, then the scenario may act exactly like a Ponzi scheme.

Pyramid Scheme

In a pyramid scheme, the person at the top benefits from everyone below him in the scheme. The people below the top person are incentivized to recruit other people below them to increase their payout.

Incentives for participants to recruit others: Incentives are siloed, someone recruited by the top guy doesn’t care if a person he did not recruit is successful, he shares no gains in the scheme’s success except to the extent that he is directly introducing new people into the scheme.

In recent times: Bill Ackman’s fight against Herbalife has been one of the most publicized looks into whether or not a company is a pyramid scheme. His presentation can be found here. As of January 7, it still has a market capitalization of $6.1 billion.

Legitimate form: Multilevel marketing companies, in which companies recruit consumers to both sell products and recruit other people to sell products have varying levels of legitimacy. To the extent participants make most of their money by selling goods that generate significant consumer surplus the company can be said to be a legitimate MLM company. Some people suspect that Bill Ackman’s mistake in going after Herbalife was in not understanding the benefits from communities enabled by Herbalife’s MLM system. Despite some questionable practices and relatively high prices the MLM system is creating significant consumer surpluses.

Total Size: The top ten multilevel marketing companies, from Amway to Tupperware, had a combined 2017 revenue of a bit over $40 billion dollars.

What to look for: The more money that is sourced from recruiting additional people and selling to those recruits, the more likely it is to be pyramid scheme.

Token Scheme:

The blockchain tokens that we have seen recently have a significantly different dynamic from Ponzi and pyramid schemes. In a Ponzi scheme, it’s only the guy pulling off the fraud that really benefits from attracting more people. In a pyramid scheme, each silo is separate, and people below someone in a pyramid scheme do not typically get any advantage from that person becoming more successful.

Incentives for participants to recruit others: In a token scheme, everyone is paddling in the same boat. Early adopters take ownership of space on the ledger, represented by tokens, and lobby everyone to buy more. Wealthy latecomers, rather than being stuck at the bottom of the pyramid, can choose to take on a more significant stake if they invest the capital. And when that capital is invested and drives up the price, the existing holders all win. Each of the newcomer’s tokens has the exact same status as the tokens of the early adopters, and everyone is expected to work together to push up the value of the systems that they have bought into. 

When individuals start to think that the value of the network is going to fall and internal collective actions cannot prevent it they are incentivized to be the first to jump ship without letting the others know they have decided to defect until after they have exited.

The incentive structure enabled by token schemes are very powerful. They can be used to incentivize people to all contribute towards a central project, like the people building on Ethereum and other projects where many talented people are trying to develop useful decentralized system. Token scheme incentives are also the driving force behind many obvious scams.

This type of environment created by token schemes forms cult-like behavior. The early believers are told to “HODL” (buy and hold) and not sell any of their tokens into the market, helping drive up the price as new entrants are only able to purchase token that are being flipped. The general community reaction to critiques of any of the token schemes is to accuse the critic of spreading FUD (Fear, uncertainty and doubt), like the way a priest might accuse a scientist of heresy. And a market that has gone up over 1000x has only strengthened these dynamics.

The analogy to stocks: Many observers view blockchain assets as analogous to stocks. The might interpret a coin’s market capitalization, the amount of coins outstanding multiplied by the most recently traded price, and view it through the lens of a company’s valuation. In the case of the healthiest blockchain projects, there are companies and individual engineers putting in lots of work to develop and update the codebase or build products on top of the existing infrastructure. The token itself retains its fundamental value so long as the projects that will eventual create value remain on top of the token’s blockchain ecosystem.

While a decentralized blockchain generally does not convey ownership of real assets the way that owning Exxon’s stock conveys partial ownership of oil producing assets around the world, there is a closer analogy to technology companies. Technology companies derive most of their value from their intangible assets and not their real assets. Investors in technology companies worry that they will lose their best employees who are creating value within the company or that employees who leave might create or enable competitors, so they incentivize the employees with stock options and hope their employees believe that their compensation combined with helping the company achieve its mission is enough to keep working. In the case of blockchain, the main thing keeping technologists working on a token that is not directly tied to a company is their personal token holdings in place of options, and the goal of achieving their project's vision in place of their company's impact.

But unlike stock, tokens do not have the same type of end game. A company like Whatsapp can be acquired for $19 billion, there is no equivalent liquidity event that can reward token holders. Liquidity events only occur when new money enters the system and token holders chooses to leave instead of letting new money push the price up to even higher levels. While they do not have an endgame, tokens have a much quicker mid-game, as many blockchain programmers are able to cash out in the seven to eight figures thanks to the extreme price appreciation of the major tokens. Start ups have historically been wary of letting employees cash out life changing amounts too early in the development process, as the employees may be more tempted to work on their own projects when they have sufficient capital to choose to work on anything they want. But even if some contributors drop out to due to options from their wealth creation, this scale of wealth creation attracts new workers looking for similar upside. Some companies have started vesting tokens to employees over time in way similar to how companies grant employees stock options. The longer-term stability of these projects is only threatened once token price appreciation slows down significantly, and that’s a situation that tech companies without traction also face. The bigger risk for the ecosystem is that if obviously bad tokens are rising with the good tokens, then the good tokens can later fall when the price of bad tokens crash.

Thinking about token market capitalization can be misleading, and not just because acquisitions aren’t as feasible in token-space. Blockchain tokens can be almost permanently lost in ways that stock is not lost. The lost tokens are still counted towards the market capitalization even when their permanent absence from the market is one of the factors driving the price of tokens higher. Despite being potentially misleading, there does not seem to be a better readily available metric or name. There are significant differences when talking about a company’s market capitalization and it should not be confused with a coin’s market capitalization. That Ripple’s company is valued at a couple billion dollars when its coin holdings are supposedly worth well over $50 billion is illustrative of that difference.

The analogy to currency: Many people think the main use case for blockchain is decentralized currency, or a decentralized store of value. In the case of traditional fiat currencies, the demand for money is likely to stay within an order of magnitude of the expected range as each currency is tied to the economic activity of a geographic region. The local state collects their taxes in their own currency, ensuring demand. Over the long term the question is if the supply of money will get out of control as it did at times in the Roman Empire and the Weimar Republic or more recently in Zimbabwe and Venezuela.

For blockchains like Bitcoin, the targeted supply at a given date can be forecasted with relative accuracy. The bitcoin outstanding will increase by about 4% in 2018. The total amount will never be more than 21,000,000. It is the demand that is the unknown factor. Morgan Stanley estimated that hedge funds put around $2 billion into the token economy in 2017. The amount from institutions and people not tracked by Morgan Stanley was likely much larger. 2018 may be even larger, but it is an open question if the money flow can continue to increase through 2019 and 2020. If the miners sell every bitcoin they mine in 2018 and everyone else holds bitcoin, there needs to be around $10 billion in new investment at current prices to keep prices stable. For reference, a calculation done at the start of 2017 would have found that $700 million dollars would be needed to keep bitcoin at approximately the same price. Continuously growing demand is dependent primarily on continued high prices and benign neglect by governmental agencies who may be concerned at the law breaking behavior enabled by various blockchain networks. The networks currently using the protocols could be as stable as Google, but many could just as easily be Friendster or Myspace.

For fiat currencies, the demand is certain and future supply drives price uncertainty. For blockchain, the supply of a specific blockchain is known, the demand is unknown. There may be uncertainty on the supply side. Alternative blockchains and forks effectively add blockchain assets to the ecosystem. Bitcoin has forked quite a few times, and to the extent that investors deploy money to forks, such as Bitcoin Cash or Bitcoin Gold, the supply of blockchain assets can also be said to be increasing. However, this interpretation is not how the market reacted to forks. The price of Bitcoin on announced forks generally stayed level or increased, as if the forks merely increased demand and did nothing for supply. Many people even started equating forks with dividends. This dynamic of assuming the increased supply from forks and additional blockchains being accretive in value to existing blockchains does not seem sustainable.

Current use cases: Avoiding capital controls, black market exchanges, cybercrime enablement, grey market money storage

Additional use cases: Corporate gift cards for products under development, Security-ish tokens, automated contracts, online gambling, cryptokitties

Size: Currently over $800 billion across the publicly tracked tokens. (It would be very interesting to find estimates for total capital committed)

What to look for: First, there are the obvious scam signs. A whitepaper might include significant plagiarized work, promotional material making false or illegal claims and people who attached to the project being attached to other types of scams are all giant red flags.

Sometimes things aren’t quite scams, just unlikely to be good investments going forward. The most obvious example is the companies who change their name to something blockchain related hoping to attract fast money. More subtle case involve scenarios where the token itself is incidental to the process seen as valuable (as seems to be the case with Ripple), or companies selling a blockchain token it retains full control over to do a task that a distributed database would do the job better. In the case of Doge coin, a token designed as a joke, the market capitalization hit $1 billion despite it being abandoned by its creator.

Just as legitimate MLM companies adopt aspects of a pyramid scheme to make something useful, there are some token schemes that have the potential to create real consumer surplus. Some of these projects might even be designed to facilitate legal activity in ways that are more efficient than what trusted institutions are currently doing. And some of those projects might even have a legitimate reason that their tokens should appreciate in value outside of a speculative mania.

When it comes to understanding the dynamics behind blockchain tokens, even the blatantly useless or fraudulent ones, it is important to realize that they cannot be fully understood by analyzing Ponzi or pyramid scheme dynamics. They are token schemes that have their own unique and much more powerful dynamic.