StreetEYE Blog

Guns

OK, here’s a Sunday rant on guns.

I’ll start at the outset by saying I’m not a huge fan. I was a kid in New York City in the 70s when there were 5 murders a day. Being a city boy, and especially at that time, colors my reality. It’s not great to live in a town where most taxi drivers have a weapon under their seat, many bodegas have a weapon behind the counter, stray bullets are a risk to consider. Knowing there are a lot of crazies out there colors my reality.

There are some people who make the argument that a society where more people are armed is somehow better. I’ve seen it and it’s not. If you don’t understand that the point of politics and civilization is to not sort differences out with weapons, you can probably stop reading, if you somehow got this far.

The argument that ‘you can’t regulate evil, if you regulate weapons, only criminals will have weapons’ is absurd on its face. You criminalize the activity, and you also try to reduce harm. We try to minimize harm from all kinds of devices and activities, from Kinder eggs to Sudafed, even if it’s not 100% effective.

‘The only way to stop a bad guy with a gun is a good guy with a gun’ is also absurd on its face. Of course, the good guys, i.e. trained law enforcement and security personnel, should carry guns when necessary. And also, of course, if it’s possible to keep LV-style MacGyver automatic weapons out of the hand of the bad guy or crazy guy, you should try to do that.

‘Guns don’t kill people, people kill people.’ Yeah, people with guns. Do you want to keep nuclear weapons out of the hands of Kim Jong Un? Then you understand why I want to make it harder for my crazy neighbors to have guns.

‘Terrorists can kill people with knives or trucks, do you want to ban those?’ The old slippery slope argument…you’d have to ban sticks and stones too. Well, until a lone lunatic kills 58 and wounds 500 with a knife, that is the dumbest argument in the world. And maybe it would be a good start if we applied motor vehicle licensing, safety, insurance standards to deadly weapons. I have seen, with my own eyes, libertarians question the morality of having a DMV. Inexplicably, the same manifestly stupid argument gains credence when applied to managing the externalities and costs imposed on the innocent victims and on the public by deadly weapons.

If you live in a relatively safe city or suburb and you think a gun makes you safer, you’re almost certainly wrong. You’re much more likely to get shot if you own or carry a gun. You may think you’re a responsible, well-trained, level-headed gun owner, but probably so did every other parent who got shot by a toddler. You’re probably not as special as you think. On a bad day, normal people are susceptible to alcohol, murderous rages, depression and other mental illnesses, and guns don’t make any of those things any better.

The cost of easy access to guns is very high. This Las Vegas massacre is going to be 10 figures of direct costs for medical, first responders, lawsuits. Years of recovery from physical and psychological trauma for survivors. Then there are all the loved ones who will not have a spouse, a parent, a child. Then there is the fact that every cop who approaches a car has a risk of encountering a gun, the reality that their first responsibility is not to serve the public but to live through the day and go home at night, making trigger fingers itchy. Despite the fact that that society is less violent than ever, acceptance of police-state tactics is increasing. Places with fewer guns have fewer murders, have higher trust in law enforcement and in society generally.

That’s an example of what I tend to view as the fascist-libertarian nexus. Arguments in the name of liberty lead directly to and justify authoritarianism. As George Washington said, “Arbitrary power is most easily established on the ruins of liberty abused to licentiousness.” People make the strange argument that the Second Amendment is a check on tyranny. Strange, because the Second Amendment wasn’t put there to license war against democratically elected government, or treason, or rebellion. When a minority group protests, with some justification, that a tyrannical government is using excessive force against them, with bad shootings caught on video on a regular basis, the people who self-identify as pro-liberty seems pretty quick to label the protesters as terrorists. When it’s oppressed ranchers on Federal land, it’s one thing, but when it’s Black Panthers marching in the streets with guns, even Ronald Reagan and the NRA can agree that open carry is an act of violence. When the disenfranchised try to exercise freedoms, even to protest peacefully, it somehow becomes a huge problem. If you’re making freedom arguments which only apply to people who are already empowered, it bends toward fascism and feudalism.

Let’s face it, a Muslim does this, people go nuts. It’s a new 9/11. They hate us for our freedom! A black man does it, you’ll seem some colorful language on social media. White man does it, crickets. It’s the price of our freedom! You cannot tell me race, fear of the ‘other,’ latent prejudices, aren’t key factors driving the disparity in emotional and policy response.

The Second Amendment maximalist argument is, in my opinion, a complete red herring. The Second Amendment contains the clause, “a well-regulated militia.” It explicitly foresees regulation. The NRA conveniently omits that clause, perpetrating what Warren Burger called a fraud on its extraordinarily gullible members.

The Second Amendment came out of debates over desirability of standing armies, need for slave patrols, fears that the Federal government would ban slavery or otherwise intrude in the affairs of individual states. The ‘well-regulated’ clause is saying, the motivation of this amendment is that the Feds may not ban and assume functions of legitimate state and local armed militias, police forces, national guards, etc.

Of course it also bears on individual rights to bear arms. But at some level you have to draw a line and say people cannot have personal RPGs, machine guns, WMDs, or something. Machine guns and guns above .50 caliber seem like a pretty reasonable limit, which is currently enforced (with obvious loopholes, i.e. Las Vegas.). A system to keep guns out of the hands of known organized criminals, convicted felons, domestic abusers, mental patients, and people who could not be part of any ‘well-regulated militia’ seems both reasonable and falling clearly within the language and intent of the Second Amendment.

When you read any part of the Constitution, or any law, you need context. The First Amendment says Congress shall make no law abridging freedom of speech. But you have to read it, or any law, as “you shall not, other than to the extent reasonable and necessary to protect other rights and enforce other parts of the constitution.”

Many, many crimes are essentially speech: trademark infringement, fraud, conspiracy, child pornography. You cannot argue that the First Amendment means you cannot be convicted of fraud, or conspiracy to commit murder. Well, you can argue that but you will lose. Once the speech becomes the nexus of a criminal activity, it is no longer just speech. In order to preserve the other rights in the constitution, like patents, it becomes necessary to construct reasonable limits around what is considered protected speech.

These are common sense reasons why regulation around guns is unavoidable and explicitly Constitutional. That being said, I recognize that every place isn’t New York, people have strong views about guns, there are different cultures and realities on the ground. If you’re in a rural area with no law enforcement response within an hour, exposure to nearby drug and human trafficking, etc., the context is very different from being in a safe city or suburb. And even if not, there are just different cultures and views on the matter which should be respected in a democratic society.

I accept that people in Maine will have a different view of firearms than people in Boston, so for the most part, I would leave the gun question to states and local governments.

However with freedom of travel and commerce, you cannot effectively restrict guns in Boston if anyone can drive to Maine, walk into a store, buy firearms, get back in the car, and drive back to Boston. (or Chicago/Indiana)

Here is the approach that would make sense to me.

In order to enable state and local regulation, you must have Federal registration of all firearms. You want to own firearms for self-defense, hunting, sport shooting, you and your guns have to be in a national database. The gun’s ballistic signature is in the database. Your fingerprints are in the database. You want to sell or gift the gun, you have to make sure to update the database under penalty of Federal law. Whenever the cops pay you a visit, they get a popup noting what guns are associated with your address, car etc. A crime gets committed, the cops look up who has the weapon and what its chain of ownership was.

If you are a Boston resident, you buy a gun in Maine, the Boston PD gets a popup. They maybe pay you a visit, ask you where the gun is, remind you of the local gun laws. If it’s for skeet shooting at your place in Maine, that’s fine. Just comply with your local laws and keep the records updated.

Local regulation, which states and municipalities might wish to consider:

  • Safety and responsible gun ownership training.
  • How weapons may be stored, transported, etc.
  • Background checks.
  • Additional limitations for felons, certain violent non-felonies like domestic abuse accusations, subject to due process. Mental illness limitations.
  • Inspections. If you have a lot of guns, the government can inspect that they are being stored safely at the location they are registered to.
  • Biometric safety devices, so only authorized individuals can access or fire them; geolocation.
  • Insurance, financial responsibility if your weapon is stolen, misused.
  • Taxes on guns, ammunition to pay for the regulatory regime and the significant economic externalities of gun ownership.

This would be the American way, I think. Move the debate to the local level, so it’s not, Washington wants to take away your guns, and let local communities determine what common sense means to them.

We’re in a vicious spiral of loss of trust in government, institutions, each other. Americans support gun laws that would make a difference, but can’t get them passed, further eroding democracy and trust. They don’t trust the government to keep them safe (even though it’s hella safer than it used to be), so they buy guns. Then every argument carries the risk of deadly escalation, whenever someone reaches a breaking point there are potentially dozens of casualties. Then cops militarize and sometimes escalate unnecessarily, further worsening trust.

We don’t want to go back to the Wild West. Harsh local restrictions probably won’t make a very large difference in gun deaths. But a comprehensive approach would reduce gun deaths, the terrorism threat and irrational fears about it, and help restore trust in cops and democracy.

It’s probably going to get worse before it gets better. But it’s up to us to remake those institutions and that trust, or turn into Argentina with nukes, or worse.

A Google teachable moment, or the end of Western civilization?

This anti-diversity manifesto has been making the rounds, with calls to avoid “socially engineering” diversity in response to “veiled left ideology”, to “de-moralize diversity”, to “de-emphasize empathy”, to “prioritize intention”, and to “be open about the science of human nature” which is claimed to confirm a lot of right-wing priors and stereotypes.

I have questions for the author… Really? You don’t understand that a corporation is a form of social engineering for specific objectives? You don’t know that small effects at scale result in disproportionate impacts? You don’t realize that results matter as well as intentions?

And you don’t understand that, at Google of all places?

According to you, Google’s new motto should be, “Don’t do evil, but if evil is caused by our biases or actions, prioritize intention?”

If you don’t know that all companies, all engineering is social engineering, but especially Google, then you don’t know engineering, you don’t know society, and you really don’t know Google and aren’t doing your employer any favors.

You really think the rest of the world is going to look at this and say,“sure Google, go ahead and remake the world in the image of engineers like you? We’ll just be over here, blissfully watched over by your machines of loving grace?”

Immanuel Kant’s categorical imperative is a foundation of Western Enlightenment ethics: “Act only in accordance with that maxim through which you can at the same time will that it become a universal law.” It’s the Golden Rule taken to a logical extreme: Treat others as you would like to be treated. Think globally, act locally.

Is possible to act that way all the time? No. Not even if you’re some kind of saint. You have to be a little crazy to say, software should be free, so I’m only going to use free software because if everyone did that the world would be better.

Who can even say what the consequences would really be? It’s a foundation of ethics to think through the consequences of your actions and act accordingly, and yet, to predict the consequences of any universal law (or anything) is also an act of hubris.

The Ayn Randian view is that everyone should act for their own benefit. Government and even altruism is immoral. That’s even more extreme than Kant. It ignores the fact that humans do anything worthwhile in groups, not just as individuals, and organize into hierarchies with rules, enforcement.

A more enlightened Randian view is that everyone pursues his or her own self-interest, but does so strategically. Governments and charity can be social contracts that people enter into freely to promote the good of all.

Game theory, where everyone acts strategically in their own interest, is an antithesis to Kant. Treat others as you would expect to be treated. Think globally, strategically about how everyone else will respond, then act locally, in your own self-interest.

The synthesis, is how do we build a society of laws, institutions, corporations, and technology like Google, that lets imperfect humans, who are boundedly ethical and boundedly strategic, work together to survive and prosper?

If you’re human, you have intelligence. It’s the apple from the tree of knowledge. In no earthly religion or philosophical system do you get enlightenment or salvation based on good intentions. You have to think through the consequences of your actions. You are free to choose but not to escape the necessity of choice, and the consequences.

The sentiments expressed in the screed are, to be generous, immature. It’s what happens when a smart kid’s idea of the way the world should work confronts a reality where if you want diversity, you have to measure it, understand where and why it falls short, and take steps to fix it.

Is he even claiming that Google bends so far backwards for diversity that it damages the company’s ability to deliver products and attract great people, or just that it offends his sensibilities about how things should work? None of these abstract suggestions are going to make Google a better company.

Less generously, it feels like toxic social media drama by self-appointed culture cops, people making waves because they can and because it gratifies some impulse to make a dent in the universe.

Does he think it’s his job to determine Google’s values? Does he really think Larry Page and management are going to welcome criticism of their values as a constructive intervention, and it’s going to make Google a better place? Or is it just someone who lives in his own reality bubble with an inflated sense of his own importance, and/or thinks social media pot-stirring is normal in the workplace?

Lately it’s become acceptable to make anti-social statements against women, men, blacks, whomever. Some of the people who deride PC ‘snowflakes’ also generate a lot of outrage at any perceived slight, sometimes to the point of veiled threats. It’s a dangerous decline in norms of civilized behavior. We should be thinking carefully about who benefits, who is promoting it, and why, and how we defend freedom while at the same time defending ourselves against stupidity, and people who abuse their own freedom to take it away from others.

UBI, health care, welfare economics and asshole economics

People sometimes ask me what I think about Universal Basic Income (UBI).

TL;DR it’s just a name…I’m skeptical of any radical implications…what matters is the marginal rate.

There are societies that let people starve in the streets. We are not one of those. Voluntary giving is laudable, but it’s even more laudable for a society to say, everyone will contribute to helping the least fortunate who are too old or too ill to earn a living.

If you agree that we don’t just let people die and there should be some minimal safety net, the fair thing is for everyone to contribute. It’s people taking shared responsibility, today I help you, tomorrow maybe you help me.

Once you agree to some minimal safety net, you agree in principle to something like UBI, we’re really just debating how much, in what form, under what terms.

  • You can provide assistance in kind, like soup kitchens, homeless shelters, free clinics.
  • You can provide scrip that can only be spent on approved items, i.e. food stamps.
  • You can provide cash.

You can provide assistance to anyone who asks, or you can have people apply and determine whether and how much assistance they are eligible for, according to some need-based criteria.

When I think of UBI, I just think of some amount of unconditional cash, recouped by a tax from higher-income folks. So basically no-strings welfare.

UBI has advantages. No bureaucracy. No arbitrary determination of eligibility. No restrictions on spending. Just give people cash that they can freely decide how to spend. High freedom, low overhead.

A lot of people view those as features. Some people might view them as bugs, taking the view that only the ‘deserving’ should get assistance, they should have to work for it, they shouldn’t be able to spend social assistance on beer or Twinkies, etc. (Paternalism FTW? Government should stay out of people’s business…unless they’re poor?)

I have trouble generating strong feelings about it. Whether the safety net should be partly in the form of UBI is unimportant compared to the size of of the safety net and the marginal rate structure, i.e. how much you get to spend out of every additional dollar you earn.

I have strong feelings about two pet peeves. The first is the discussion tends to be mostly woodshedding. People get worked up about small pieces of the picture. It’s meaningless to say I like UBI, or food stamps, or don’t like sales tax or VAT because of the distribution implications. The only thing that really matters is the distributional effect of the whole system, i.e. the marginal rate structure. If a particular tax or benefit is efficient, you can always offset the distributional impact elsewhere. You can even have a progressive VAT. You can’t divorce a benefit like UBI from how you pay for it. You have to look at the efficiency and distributional impact of the whole system, not each individual component.

The second is, it’s pretty hard to be poor in this country. The system is built around the needs of the wealthy and middle class. In some countries you can be poor and have very little in material possessions, and you can manage, live, work, your kids have opportunities. In America, in a lot of places if you don’t have a reliable car, you can’t get to work, if you don’t live in the right place you can’t get a proper school, and don’t even get me started on access to minimal, basic medical care. People seem to think that’s part of being poor but it’s really not. There are countries where you can live with dignity on a low income.

It costs a lot to be poor in America, even at a level of income which would be middle class in most other countries. It’s practically a crime to be poor, there’s a war on poverty, but not in the sense LBJ meant it.

You could get lot of bang for the buck improving the supply side for poor people: cheap housing and transportation.

Personally, I think for sure there should be soup kitchens, free clinics, homeless shelters, a real rock bottom safety net.

And there should be a marginal rate structure without perverse incentives. We should ensure it really pays to work, if necessary subsidizing initial wages via the EITC, not taxing people 17.65% on the first dollar when they start to work. And especially we should avoid benefit cliffs, where you lose a lot of benefits when you reach a certain level and so it doesn’t pay to earn an additional dollar.

Those are the most important: A secure minimal safety net, and a rational marginal rate structure. People find meaning through work, taxpayers who work hard get cranky when people get benefits and don’t work. Welfare queens and rich panhandlers are media stock-in-trade. See Exhibits 1, 2, 3.

Politically, I think UBI is a hard sell, because you have to reclaim the UBI from high earners to balance the numbers out. You give people something and then take it away, they feel worse than if you never gave it to them in the first place. And giving money for nothing to the poor, no work requirement, just annoys them even more.

It seems like a political loser, and raising UBI to a level where the ‘basic’ means everyone has basic needs met, no-strings-attached, seems to entail more redistribution than a lot of people want. It’s possible that in the future, robots and automation will make so much labor redundant that we will need more redistribution just to avoid mass poverty. The robot singularity is something we should keep an eye out for but might as well deal with it if it becomes a problem.

Ultimately I don’t see UBI as an anti-poverty game-changer. It could be part of that rational marginal rate structure.  I like the simplicity of UBI more than, say, food stamps and a hodge-podge of local and federal welfare programs with complicated administration, eligibility.

I just don’t think you can make UBI a complete substitute for in-kind assistance, then let the market deal with everything, food, health care, housing, education.

While I’m at it, I find it pretty inexplicable that Obama passed a health care plan that is basically private insurance for about 1/3 of the uninsured, while creating a multi-$100b+ bonanza for insurers, hospitals, doctors, and big pharma, and the GOP wants to reverse it, take away health care from 20-30m Americans. Asshole economics is too kind, it’s just politics to piss off liberals and most people who aren’t cray-cray.

Again, we don’t let people die in the street. So at some level society pays for that minimal care, the question is how. It’s extraordinarily expensive in human and cash terms to have EMS and emergency rooms deal with things that shouldn’t be emergencies. There are armies of people employed to push costs on other people, often in sketchy ways, getting in the way of doctors trying to provide the best possible treatment, and there are a lot of expensive, not necessarily helpful tests and therapies.

This is how I solve it, with a 3-level system:

Essential care: dedicated NHS-like facilities funded by a dedicated tax, like a 3% payroll tax. Free clinics and hospital beds. Tax proceeds go to the states to provide care, as long as it’s within guidelines. Services are going to be basic. Nothing non-essential. There are going to be waiting lists for surgery. You are not going to get a $1m liver transplant. If people make a fuss that it’s crap, then improving it means raising that dedicated tax. Social contract is, you aren’t going to die in the street, but if you want top care you will have to pay for it.

Normal care – something like Obamacare – everyone can buy a health plan on more or less a level playing field, whether they are corporate or not. And everyone who can should, in the sense that you get some subsidy if you do and some penalty if you don’t. If anything, there should be more teeth to the Obamacare penalties to prevent free riders. If you pay 28% income tax, and health care is paid by your employer out of pre-tax dollars, there is currently a 28% tax subsidy there. I think as a moral imperative we should apply that subsidy to everybody.

And then of course if people want more they can buy it on the free market.

I don’t see how you can reasonably reconcile, don’t let people die in the street outside the hospital, with anything short of a single-payer system at this point. Anything less seems cruel and perverse and actually endorsing a free-rider situation instead of a rational scheme for indigent care.

Anyway, I find the low quality of the debate distressing. We should be able to agree that we will not have people die over toothaches. We should be able to agree that the current system delivers poor care and enriches a few in strange ways. And it’s pretty messed up that you will basically go broke if you get sick, sometimes even if you have insurance. We can argue about what constitutes a minimal acceptable level of care and what is a fair way to pay for it. But a system where you exclude people arbitrarily, everyone has to fight the system for basic care, we have poor outcomes, and pay a ton of money, should not be acceptable to anyone and we should be talking about ripping it up and starting over.

Straight talk on Trump and Russia

We have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men. – George Orwell

  • The report that taught me the most this week is this interview with Natalia Veselnitskaya. The Russians have decided Trump is worth more dead than alive. If that’s not the case this interview doesn’t happen. [Edit: Others also seem oddly talkative.]
  • Mixed reports on Veselnitskaya: Browder, who would know, says she’s Russia’s point person on Magnitsky Act sanctions; Bershedsky says she’s a nobody, more like an AG Schneiderman repping some local oligarchs than a Kremlin power broker; Ioffe says she’s connected.
  • Bottom line, if Putin doesn’t want her to throw Don Trump, Jr. under a bus, it doesn’t happen. She is in a position to know that interview serves her patrons.
  • Veselnitskaya went to Trump Tower, said Russia can help…But first, are you going to lift sanctions and let oligarchs move money around free from worries about seizure? That’s what Russia is talking about when they talk about adoptions and sanctions. (Edit: she brought along a Russian ex (?) GRU specialist in hacking dirty tricks.
  • So then what happened? Hardly likely that was the end of the matter, given subsequent events: multiple hacks; Trump harping on emails, being very solicitous of Putin; the untimely demised Mr. Smith tracking down hackers who might have had Hillary’s emails; meetings with Kislyak, VEB, the infamous backchannel through Russian communication facilities.
  • Trump’s problem is that having taken Russian help, and it being public, he is now no longer in any position to deliver them anything of value.
  • Maybe the source of the Don Jr. email was Russia: Manafort was on the email chain, given his Russian connections, he might (recklessly) have inquired about it with some trusted Russian who now has an interest in releasing, or he might be sending a message by releasing it now.
  • Maybe the Mueller investigation is about to bear fruit and the plan is to get ahead of it and try to pin it all on Don, Jr., and then have the president pardon him. So incriminating himself could be a feature, not a bug.
  • If it didn’t come from Kushner or Manafort, it would have to be someone they or Jr. forwarded it to, or someone who intercepted it, like a US or Russia three-letter agency, or a deep Trump organization mole (I would be tearing out walls Billions-like if I were the Trump IT guy, and it would make my day if a lowly IT guy went Snowden on Trump with an email dump.)
  • In any event, the Trump presidency is walking dead. It’s over, in terms of major legislation. Once you’re worth more dead than alive to both Vladimir Putin and Mitch McConnell, your days in office are probably numbered.
  • Even a hardened cynic can only be appalled at these events, at the people who still deny or excuse a Russian entanglement, think it’s somehow business as usual for presidential candidates to ally with the KGB/GRU, or that loyalty or expedience makes it worth defending. Or respond with propaganda that would make Goebbels proud, even if they can’t pronounce Goebbels.
  • If deference to Vladimir Putin, a man credibly accused of false-flag bomb attacks in his own cities to consolidate power, is the price of keeping the alt-right / tea party on side, and that’s not electoral poison, if not in primaries then in the general elections, maybe there is something to the idea that the West is unwilling to defend its values.

The Top 100 People To Follow To Discover Financial News On Twitter, May 2017


It’s been a year since we posted our last list of people to follow on Twitter for financial news. Time for an update!

I posted earlier about some of the trends in the financial Twittersphere.

  • More churn
  • Less growth
  • Politics (i.e. Trump) drowning everything else out

See below the table for a little technical discussion, and a fun interactive map.

Screen name Quality Centrality Frequency
valuewalk 10.00 1.97 9.04
JohnLothian 8.54 0.05 10.00
blakehounshell 8.28 4.55 6.63
lrozen 7.86 2.60 8.05
pdacosta 6.70 6.02 7.43
ClaraJeffery 6.49 2.60 5.94
HotlineJosh 6.42 0.77 6.32
fmanjoo 5.73 5.41 4.52
JohnJHarwood 5.69 3.48 4.49
mathewi 5.50 2.12 4.74
moorehn 5.47 4.64 6.47
activiststocks 5.45 0.41 3.81
niubi 5.26 2.13 4.32
michaelsderby 4.96 1.77 3.28
Frances_Coppola 4.92 2.69 3.71
acrossthecurve 4.79 1.07 3.03
TimOBrien 4.77 3.97 2.90
BruceBartlett 4.75 2.49 3.76
MarkThoma 4.74 5.49 3.05
dandrezner 4.64 4.24 2.89
mattyglesias 4.58 6.37 2.96
sdonnan 4.57 3.07 4.29
AmyResnick 4.53 2.71 4.59
kimmaicutler 4.52 1.70 3.06
crampell 4.51 6.52 3.24
davemcclure 4.50 1.31 4.02
WillauerProsky 4.40 0.65 4.16
kairyssdal 4.33 2.93 2.32
AdamPosen 4.26 4.39 2.88
gabrielsnyder 4.24 2.24 2.03
sarahcuda 4.23 1.23 3.36
DavidClinchNews 4.19 0.54 2.96
BobBrinker 4.16 1.11 2.73
Noahpinion 4.16 4.94 3.09
Susan_Hennessey 4.16 1.73 2.60
AnnieLowrey 4.10 5.48 2.21
ComfortablySmug 4.08 1.54 3.34
EpicureanDeal 4.07 2.68 2.40
brianstelter 4.06 5.51 2.91
kadhimshubber 4.00 1.50 2.22
LaurenLaCapra 4.00 2.03 2.49
hblodget 3.98 6.76 2.06
NickatFP 3.98 2.05 2.56
djrothkopf 3.94 1.99 2.71
TimDuy 3.94 2.57 1.95
ZekeJMiller 3.93 1.91 2.17
davewiner 3.88 0.79 3.65
JohnCassidy 3.87 5.08 2.29
FGoria 3.84 1.74 1.79
BarbarianCap 3.76 1.61 2.46
BaldwinRE 3.72 2.33 2.24
carlquintanilla 3.69 4.94 1.91
BrendanNyhan 3.66 3.34 2.19
jbarro 3.65 6.71 1.97
lizzieohreally 3.63 3.91 2.53
sspencer_smb 3.59 0.26 2.59
NKingofDC 3.58 1.91 1.69
MissTrade 3.58 0.00 4.66
JesseDrucker 3.58 1.96 1.90
jyarow 3.57 2.42 1.34
harrisj 3.56 0.71 2.46
ReformedBroker 3.53 6.26 1.68
markgongloff 3.50 2.21 1.72
MattGoldstein26 3.47 2.81 2.28
FlitterOnFraud 3.42 0.91 2.33
jeffjarvis 3.35 1.66 2.27
davidmwessel 3.35 6.59 1.55
raju 3.35 2.91 2.89
PekingMike 3.30 1.52 1.71
TonysAngle 3.29 1.20 2.31
NickTimiraos 3.28 3.85 1.43
ritholtz 3.22 6.44 2.03
GreekAnalyst 3.21 1.58 2.17
ObsoleteDogma 3.21 7.91 1.07
prchovanec 3.21 2.60 2.29
HBoushey 3.17 1.74 1.60
rationalwalk 3.11 0.03 1.98
karaswisher 3.07 4.39 1.72
jessefelder 3.06 1.03 1.46
BuzzFeedBen 3.02 5.59 1.55
edwardnh 3.00 3.30 1.70
RobertMackey 2.99 0.95 1.83
mims 2.98 4.31 1.46
TimAeppel 2.97 1.65 1.66
M_C_Klein 2.95 5.98 1.17
mekosoff 2.92 1.37 1.68
qhardy 2.90 1.99 1.55
jamessaft 2.88 1.55 1.44
davidjoachim 2.86 1.19 1.54
mbaram 2.82 0.58 1.48
alex 2.81 0.86 1.93
MikeIsaac 2.81 2.75 1.31
NoahShachtman 2.78 1.92 1.19
BCAppelbaum 2.77 8.05 0.81
mccarthyryanj 2.77 3.16 1.14
EddyElfenbein 2.76 2.64 1.64
NinjaEconomics 2.71 2.82 2.21
JHWeissmann 2.71 2.16 1.22
CarlBialik 2.68 0.72 1.60
inafried 2.66 1.30 1.74

Here’s our map of ~350 Twitter accounts, using a force-directed network. Everyone who follows an account or posts similar links pulls it toward them, so we see Twitter accounts arranged into broad areas: Asia, Europe, US markets, tech, media, econ, politics. People who are in the center are pretty equally followed by folks in all parts of the map, whatever their varied interests. Bigger labels represent people with larger followings.

Here’s a link to a fun interactive version.

How does this work?

We start with a network centrality analysis, building a graph of who follows whom and finding the people with the largest number of most influential followers. Those are probably people who will play an important role in transmitting important news.

Then we trim the list to people who are good curators: they post links to a variety of good content in a frequent and timely manner. We cull people who may be central, but don’t post a lot of good timely news links.

Who do we cull?

  • Non-relevant accounts. @DonaldTrump (the new champion!) and @BarackObama are widely followed, but the stuff they post is only occasionally a news link directly relevant to financial markets.
  • People who don’t curate, filter, and signal the most important things to read. @LHSummers is a good example. He’s a really important guy to follow but he only tweets out his own stuff, he doesn’t help people discover financial news.

We rank the quality of each account’s curation on how much financial news they tweet, how much of it gets picked up and generates a lot of buzz, and how early they post it. It’s a subjective, but hopefully useful formula. Everytime you tweet something, and your followers view it and retweet it, traffic flow downstream, more likely than not from the most central folks to the periphery, and whenever attention flows downstream, influence flows back upstream in a sort of Newton’s Third Law of social media.

And of course, see the most shared financial stories updated continuously on the StreetEYE home page, and follow us on Twitter.

A final P.S. and caveat: Like all such lists, it’s closer to a fun parlor trick than a definitive ranking. I’m delighted if people I respect get a kick out of it and even find it useful to discover new people to follow, but keep in mind that 1) I just used a small sample of Twitter data and 2) it’s just a simplistic formula. If you’re on here then you’re probably pretty widely followed, post a lot of timely and relevant financial news, that goes pretty viral. Let’s just say it’s inherently has a lot of bias and variance and tilts mainstream by design. I wouldn’t read much into why X is higher than Y or Z isn’t on here. Don’t take it too seriously!

Frequently asked questions:

  1. WTF is StreetEYE? Since 2011 we’ve tried to systematically find the best people to follow for financial news, and create a crowd-sourced front page of the financial Internet. You can read more here.
     
  2. Why isn’t <brilliant pundit or technical commentator> on the list? Assuming they are very widely followed, probably because they don’t share other people’s content very much. There are a lot of great people to follow, who only share their own original content, or that of their colleagues. They don’t add a lot of signal to help discover news, so they don’t meet the relevance bar. 
     
  3. Why isn’t ZeroHedge on here? Everyone knows they should be #1! ZeroHedge blocks our bot on Twitter. There are three accounts I would like to follow that block us. Maybe they hate being aggregated in this way. Maybe I said something snarky. I have been known to be a jerk. Sorry! Ask them.
     
  4. What about Drudge Report, Memeorandum, Techmeme, Mediagazer? Those are aggregators in politics, politics, tech, media respectively, the latter three in the great Gabe Rivera’s empire. They are fantastic and a lot of people follow them, I recommend you check them out. But even though by the numbers they rank pretty highly, they’re not specifically market-related and people thought they looked weird on this sort of list, so I took them off as not directly relevant, despite decent numbers.
     
  5. Why isn’t <other great account> on here. Maybe they are just below the 100 cutoff. I am the first to admit the formula is subjective and arbitrary. If they post a lot of timely relevant headlines, they are probably on our radar. If there is someone who is relevant and widely followed who is not on the list, we would like to know. Contact us! We love feedback.
     
  6. Can I see the whole list? Here are the top 300. If you want to see where others rank, or follow even more of them, go to town!
     
  7. If you have other questions, tweet at us at @StreetEYE or contact us via the contact form.
     

Rethinking the marketplace of ideas

I was recently listening to Fred Wilson and Howard Lindzon talk about, among others, news sources and curation, which is a topic dear to my heart. (Which I wrote about before here and here).

Curation is hard, people tend to fall into confirmation bias circle jerks, and we are in a crisis of media legitimacy. (More generally, the legitimacy of the establishment and objective reality.)

If you think the moon is made of green cheese, you have a problem. If a lot of people think the moon is made of green cheese, society has a much bigger problem. (Or that climate change is a hoax invented by the Chinese, or that vaccinations cause autism, etc.)

The marketplace for ideas is faltering. I’m not sure if it’s only the arrival of the unwashed masses, Facebook likes, adverse selection, filtering tools that aren’t fit for purpose, or manipulation and ‘fake news.’

What seems to have gone missing is the sharing ethic that existed when the blogosphere and Twittersphere and social bookmarking were young.

What works to surface quality content is human curation, like Memeorandum, Abnormal Returns, and an engaged community that actively promotes and shares quality and feels that it’s important… like AVC, Hacker News, the better subreddits, Open Culture, Arts and Letters Daily, Brain Pickings, etc.

Ray Dalio seems to think a new market design with some kind of regulatory component is needed. I don’t know what he has in mind, but one could imagine a self-regulatory body that agrees on journalistic standards like CFA ethics: clearly separating fact from opinion, having a reasonable basis for any statement of fact or conclusion, showing your sources and investigative processes, promptly correcting errors, etc.

And then people and media sources that meet those standards get a seal of approval, and it investigates violations, censures or even expels people and organizations that don’t meet the standard. Sort of a credit rating agency for journalists.

Government regulation of the press isn’t compatible with the USA’s Constitution and even press self-regulation wouldn’t be in line with American’s traditional sense of the free press. It’s not clear that the most prominent publications e.g. the New York Times and Wall Street Journal would submit to a regime like that or that it would have much sway without them.

But Dalio is not wrong either, we need better consensus on what we expect from journalists and tools to signal credibility and hold people accountable. If the New York Times wants to be credible, it can’t rely purely on prestige, it has to be open about its standards and practices and uphold what it means for something to be published in the newspaper of record.

David Siegel and Cathy O’Neil think personalization and big data are the problem.

Siegel frames the problem as one of micro-personalization. The picture I have is, in the old days everyone watched Cronkite and read the New York Times, and elite media institutions set the agenda. With the Internet and cable TV, the media fragmented. Everyone is more receptive toward media outlets that reflect their own values and point of view, and gravitates towards outlets that reflect them. But the more you hear mostly news and points of view that confirm your own biases, the stronger those biases get. And personalization and news recommendations are the ultimate silo or filter bubble. You only hear the news you like to hear. The end result is a singularity of polarization, where anything that doesn’t toe a narrow line triggers cognitive dissonance and a strong emotional reaction of ‘OMG mainstream media bias’/’fake news’.

Siegel’s argument as I understand it seems completely plausible. But the root issue is fragmentation, not algorithms per se. Eliminate algorithms and you still have the problem that some people get all their information from Democratic Underground and some from Free Republic. You can make an algorithm optimize for whatever you want, for instance try to surface quality from a variety of points of view. The algorithm genie is not going back in the bottle. To the extent there’s an algorithm problem, the answer is to improve the algorithm.

O’Neil’s “Weapons of Math Destruction” point is that any manipulation that can fool humans can fool the algorithms. We’re stuck with misinformation, and the solution is to turn to trusted sources. But what happens if sinister forces fool your trusted source, or make you think a source can be trusted when in fact they are bought and sold?

Furthermore, if I only believe stuff once it’s fully fact-checked and published on Bloomberg or in the New York Times, I’m ignoring a lot of potentially useful information and sources. It’s a bias/variance problem. I want a news filter that is sensitive enough to surface the viral story about United Airlines if I happen to own their stock, while being selective enough to bury hoaxes.

If the argument is that any signal a filter might use can be gamed by fake news information operations, that is generally true, but only up to a point.

Indeed, Goodhart’s law is in play, and any statistical regularity that let’s one filter fake news will tend to collapse once pressure is applied on it for control purposes and it starts being gamed.

But good predictors don’t usually collapse to zero. Even though just about anything can be faked with sufficient skill, museums are probably not mostly full of fakes, even though the incentives to manufacture forgeries are enormous. Our relative safety lies in the fact that it’s hard to commit a perfect crime. The entropy of reality is impossibly complex to forge. With enough fact-checkers, lies are generally detectable. With enough resources you can make anything go viral, but you can’t make anything withstand scrutiny. You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time. And (fake news alert!) Lincoln never actually said that.

The crude manipulation of the form ‘Pope endorses Trump’ is straightforward for the top quartile of readers to detect and debunk. So it is feasible for algorithms to filter that out based on where the story originated, the ratio of credible sources spreading it, spam flagging. Just as Google filters spam, news algorithms can and should filter egregiously fake news.

Platforms like Facebook and Google are going to build algorithms, and it’s incumbent on them to build ones that can’t be fooled all of the time. To cry censorship is a bad-faith, burn-it-all-down argument. The answer to bad algorithms is better algorithms. There is no argument for letting people vote based on ‘Pope endorses Trump’-level news. Either participate in truth-based news and policy, or GTFO, because democracy needs to be nurtured, and the crude distortions of reality, reminiscent of Nazis and Soviets, herald the end of democracy.

Powerful forces will use big data and machine learning to manipulate you. But big data and machine learning algorithms are also very powerful tools to fight manipulation and help surface quality. And we should be doing that instead of decrying personalization, and building a market design which is more resistant to manipulation and provides tools to surface quality.

I think Cathy O’Neil is right in the sense that the process has to be connected to human curation. Giving the filtering process over to machine seems to result in a sort of clickbait fetishism, vaguely akin to Marx’s commodity fetishism, where fundamentally human relations and processes are abstracted and subordinated to relationships between commodities and markets. The value of true information gets buried by clickbait that triggers the reptilian brain, endorphin release, and bias confirmation.

I think if we could somehow build a pervasive ‘pay it forward’ karma and reputation ecosystem that rewarded people for sharing quality and burying fake news and garbage, and somehow get back some of the old sharing ethic, it would go a long way. That’s what I’d be thinking about if I were a VC or online community entrepreneur. Tools to let people signal quality, find data exhaust that separates spam, disinformation and noise from truth, build trust, and fight the noise machines.

If credible news organizations open their work, tag facts vs. opinions, open up source materials like interview transcripts, link to sources, then a crowdsourced fact-checking Wikipedia / Genius could do a pretty good job debunking stuff that’s complete garbage. Contributors recognized as fair fact-checkers could get karma and monetary rewards.

Something like WikiTribune seems like a promising approach. Maybe even an industry news integrity initiative.

It’s a huge problem and solving it is critical for democracy and free market capitalism.

That being said, if you have a large chunk of people who want to tear everything down, you’re not going make progress building trust and credibility.

And fish rots from the head. If you’re led by someone with a habit of lying, denying reality, and calling everything he doesn’t like “fake news,” you’re going to continue to have a crisis of legitimacy and reality-based institutions.

Come back Kelly Evans! We’ll be good this time! I promise!

A digressive rant on the rot in the financial Twittersphere in the Trump era

If we’d been born where they were born and taught what they were taught, we would believe what they believe. – attributed to Abraham Lincoln

(who also said, “The love you take is equal to the love you make”, but that’s another story)

Spring is in the air! On the East Coast, anyway.

Last week I was fortunate to get out to the West Coast, dodging storms on this side of the country and also over there. And this week I spent a little time sprucing up StreetEYE sources, deleting people who haven’t tweeted in a while, adding the popular, influential, prolific, and relevant new sources. Every year or so around this time I’ll do an updated ranking of the top people to follow.

So I’m in the frame of mind to step back and take a look at the evolution of the financial Twittersphere.

And what I see is not great.

  • Churn. Losing great people like Kelly Evans last summer.
  • Lack of growth. Churn has always been a factor, people fall in love with social media and burn out after a couple of years. But the all-stars like Kelly Evans are not being replaced like they used to be.
  • There’s a subset of influential FinTwit people who protect accounts, allow only approved people to follow them. Or who regularly delete all their tweets, so no one can start a shitstorm over something they said a year ago. Which hurts discovery. And discovery is hard enough. Which is one of the reasons I created StreetEYE, so I would have a way of systematically finding the top people to follow.
  • And the usual garbage troll accounts devoted to stirring up bullshit. Some of which are surprisingly popular. It turns out a judicious mix of clickbait bullshit and timely entertaining commentary is a good way to amass a huge following. (Even if following those folks is a money- and sanity-losing game).
  • And the elephant in the room is Trump. Politics is all people talk about, even in the financial Twittersphere. Those Trump posts are great for engagement, but they suck out all the oxygen for intelligent conversation about markets and economics. (And are possibly terrible for Twitter, if the non-hyperpartisans start tuning out. Ever-increasing vitriol and engagement, ever-diminishing reach.)

The relatively low quality of online discussion is the thread that brings all of those together. Tragedy of the commons, adverse selection, I guess.

Twitter is great. So why does it suck so much?

We generally think most people think more or less similarly to us. We are astounded when we encounter cargo-cultists, flat-earth believers, whole societies of magical thinkers.

When we go online, we find that while our own process of social construction of reality is pretty similar to other people’s, it takes us to very different places.

If we’d been born where they were born and experienced what they experienced, would we really believe what they believe?

It can be mind-expanding that social media takes you outside your bubble, brings opposites together, like some virtual A train to Times Square. But it leads to conflict.

Now, to me, it’s pretty obvious that women often get a raw deal from society. I follow some smart, funny women who are pretty feminist. And not gonna lie, even though my left brain mostly agrees with them, the nursing of a litany of petty grievances, the constant mocking of white male privilege, ‘mansplaining’, ‘manspreading’, and whatnot, can get really annoying.1

There are also some males who are into, shall we say, non-female-friendly male culture. Pickup artists, ‘red pill’ and whatnot. Immature maybe. Lacking self-awareness and empathy. Assholes.

When those two mindsets encounter each other on social media, they’re not gonna have a good time.

Cognitive dissonance arises. Sparks fly. Much heat is generated and little light. And both sides walk away with even more strongly confirmed priors, that men and women on the other side are mean and nasty and out to oppress or emasculate them.

I share an alma mater with Barack Obama, I was a freshman when he was a senior. He talks like me, thinks like me. Well, I wish, because he’s smart and cool and funny. I’m predisposed to like him.

That same intellectual approach apparently offends a lot of people who see it as condescending.

When Donald Trump sees Obama, clearly he sees something totally different from me. I take personal offense at the whole birther thing and view it as an original sin that can never be expunged. But clearly it resonates with a lot of people, to my disgust and amazement.2

And the Trump supporters confronted with what is apparently my sort of ‘condescension’ just dig in, double down, and reinforce their views.

I don’t really know why Trump supporters support him. As Pascal said, “The heart has its reasons, which reason cannot know.” Or JP Morgan, “A man always has two reasons for the things he does – a good reason and the real reason.” I really don’t really believe ‘liberal condescension’ is the reason. That sounds a lot like the cognitive dissonance someone without self-awareness might experience when untenable positions meet inconvenient facts and reason.

Like being virulently anti-Muslim, and at the same time not understanding why Christian fundamentalist values arouse opposition.

You can’t reason someone out of an opinion they didn’t arrive at through reason in the first place. The answers are more likely to be found in mass psychology, Gustave Le Bon, in Goebbels, in the inability of Hillary Clinton to construct a narrative with mass appeal, to run as a candidate of change instead of as a machine politician of the establishment, to do electoral math (just like in 2008 vs. Obama).

As the world gets smaller, the ability to put yourself in others’ shoes a little bit is more important. It would help if people dialed down the online vitriol, learned to roll their eyes and go about their business, instead of going bananas over a dongle joke or someone wanting to tone down the pubescent male fantasy world of video games.

But civility has to be a two way street. The online hate against Obama was really something. Aligning yourself with that, positioning yourself as the leader of that, and calling people who disagree with you ‘enemies of the American people’ sure isn’t going to help.

People say there’s a problem with social ‘filter bubbles’. The underlying problem is parochialism, intolerance. People go bonkers when they encounter anything outside their norms. Was there really less of a filter bubble 40 years ago, when different parts of America were even more like different countries, with different languages, foods, music, brands, and there were only 3 networks with anodyne non-culture that filtered out anything controversial?

Is social media making us worse people? Is it making us dumber?

I’ve written a little bit about ‘fake news’, since I think I know a little about news and machine learning.

Cathy O’Neil has made a schtick out of saying that big data is a ‘weapon of math destruction‘ and problems like ‘fake news’ can’t be solved by machine learning.

She’s mostly wrong…the ‘fake news’ we’re talking about, of the ‘Pope endorses Trump’ variety, is easily detected by the 20% of the informed, critically thinking population, and so it can also be detected by robots with much better information about where it came from and how it spread. Google does a good job with spam and it’s essentially the same problem.

Cathy O’Neil is mostly right that big data relies on patterns of human-created data, that data will reflect human biases (an even more appalling example), big data is garbage in, garbage out, and you can’t dispense with old-fashioned evidence-based critical thinking, gumshoe reporting, to prime that pump of evidence-based reasoning.

And also that it may concentrate winners and losers and wealth. (Same may apply to passive investing, machine learning-based investing).

There’s a classic bias/variance tradeoff.

If you say, I’m only going to use Bloomberg-vetted information in investment decisions, you’re going to be slower to respond to new information than if you react to every tweet and blog and market rumor.

You need a filter that is adaptive enough to surface good social media experts without necessarily waiting til they become Bloomberg pundits, while not trusting every source of flackery, disinformation, and idiocy.

If everybody followed Cathy O’Neil’s advice, no one would ever have started reading some obscure but clever blogger like Cathy O’Neil, who owes her career as a big data pundit to social media, and maybe some big data-assisted discovery like Google searches, Twitter’s recommendation engine.

You need both shoe leather and tech. You need to be selective in which sources you trust, and you need technology to deploy against the armies of bots and data scientists looking to spam, deceive, and manipulate you.

Social media can make you smarter and quicker. You need both, the Cathy O’Neils and big data.

If everybody just watches CNBC, everybody gets super herdy (bias). Everybody watches different social media filters, that’s less herdy, maybe inefficient and noisy (variance).

Big data filters some of the noise, aggregators aggregate, Bloomberg goes and hires the Cathy O’Neils, that might eliminate some variance, bring back some bias, but maybe with an overall better level of discussion.

The noise level of the chattering and flaming on social media continues, occasionally something rises above the noise, gets picked up by aggregators, Bloomberg etc.

Big data isn’t inherently bad, in fact you need it on your side to to get maximum benefit from all the noise, to defeat the dark forces of spam and fake news. It’s an arms race, the forces of evil use the magic of big data and you need your own magic to counter their spell.

But it’s imperfect magic, when sophisticated, well-funded people finance CNS and Breitbart, and use sophisticated personalized marketing to raise them to a higher profile among their target audience than more balanced, fact-based sources, you need machine learning just to level the playing field a bit. And so much of the media is so self-serving and bought and sold by vested interests and you’re bombarded with so much garbage that there is no substitute for critical thinking.

On the whole these days, I’m probably more in agreement with Cathy O’Neil about big data tilting the playing field toward the forces of evil than I used to be, when it seemed everyone having access to all information anytime anywhere would be great for well-informed democracy.

Is the financial Twittersphere destined to be the Mos Eisley cantina of financial media? Does social media make participants more vile, primitive, and unhappy?

Facebook and social media are the McDonald’s of social interaction. Ubiquitous, convenient, enjoyable, not necessarily unhealthy if consumed mindfully and in moderation. But they are engineered to be highly addictive and appeal to most basic tastes and impulses.

The types of social interaction they favor are single-serving emo BS for ‘likes’. Extreme views. Comment wars. Trolling.

Sometimes there are positive viral movements like the Ice Bucket Challenge, petitions, GoFundMes for Jo Cox and Pulse victims.3

But often it’s pretty mean and nasty stuff.

One thing I think we should have learned is that Facebook’s real names work better than Twitter’s pseudonymity. (Which maybe Twitter is moving away from, gradually). Social media needs reputation management. People should be able to control whether random trolls can interact with them. Maybe people should need to accumulate reputation to post stuff, or for their posts to have reach, or people should be able to filter who can interact with them based on reputation. Maybe people should accumulate mod points to bump or bury others’ posts. But it should be transparent (which Facebook is not, at all).

Another thing we should have learned is, folks who spend their entire social lives in this highly engineered environment, are like people who only eat at McDonald’s, or never get off their couch from watching Fox or CNBC, or out of their cars.

It’s not just a ‘fake news’ problem. The whole social media ecosystem bias/variance tradeoff needs to be re-tuned for more quality and less noise.

Maybe social media would be better if there were mechanisms that encouraged people to limit their usage. Maybe it should cost reputation if you are constantly tweeting. Maybe there should be options to remind you if you’ve been online more than an hour a day, or to cut yourself off entirely when you hit your daily budget.

There are ways to optimize for quality over quantity both in what people see, and how they contribute.4

The reach and activity might go down a little, and the quality might go up a lot, paradoxically increasing reach and activity in the long run.

I don’t know how I feel about Zuck’s manifesto until it produces some real features and products (see here and here) but social media, like a mall, is a highly engineered experience, and it needs some intelligent design to not be terrible and not make the world worse.

Maybe there’s a happy medium between the Twitter free-for-all and more closed communities like SumZero and Value Investors Club. Where the worst noise is disincentivized and good stuff rises above the noise.

Social media gave us Trump. And Trump is shaping up to be a disaster. Ergo, social media is a disaster for civilization?

When I created StreetEYE, I thought social media, people freely sharing information, with the best information and the greatest people percolating to the top, was the way of the future. It hasn’t happened yet. The tools may need to evolve. It may take a new generation of platforms and tools. But it’s going to happen.

When we can give people like Kelly Evans the reason to come back.

On life’s vast ocean diversely we sail. Reason’s the card, but passion the gale. – Alexander Pope

Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves. – Lord Byron


1 I can appreciate some gentle witty mocking, but to the more extreme women, maleness seems something offensive per se, while a dose of estrogen will excuse just about any misdeed. The black activist community picks battles judiciously by comparison. I’d go so far as to say most blacks are more judgmental about black lawbreakers than most white folks. Anyway, that’s one way I read those statistics showing white cops are less likely to shoot blacks than black cops. You pretty much have to kill an unarmed child to get a black protest movement going, whereas some women seem on the edge of violent uprising over a dongle joke or ‘manspreading’.


2 Blinding glimpses of the obvious: am not a Trump fan, and he’s a very weird guy, he’s outside the norms of politics, reality, decency. And not in the good way that shakes things up.

If a political opponent is going to say Obama may not be a citizen, or didn’t go to Columbia, or didn’t deserve his spot at Harvard, it doesn’t tell me anything about Obama, it tells me about the person who’s spreading that.

I have friends with personal experience with selecting editors of school newspapers, law review, etc., and your peers don’t select you unless they think 1) you’re one of the top people and 2) a decent guy they’re going to get along with. Anyone who says Obama was somehow undeserving or not legit is 1) ignorant, 2) of poor moral character, or 3) pandering to people in those groups. Which group do you think Trump is in?

One can not like Obama’s politics or as a human being but a lot of the conversation about him reflects very poorly on us as a country.

I get personally offended by people who promote the notion Obama was not legit, and Trump based his whole career off that. Where the f*** are Trump’s Fordham transcripts that somehow got him into Wharton? We know something about Ivy affirmative action for the rich too. Did Trump have the grades or scores to get into any grad school, let alone Harvard, let alone be President of Law Review? The guy doesn’t read books.

If Trump believes 10% of what comes out of his own mouth he’s 100% delusional. People really see what they want to see, and Trump is Exhibit 1 of that kind of crazy-ass magical thinking, and his supporters are in the same category … how do they not see he’s a promoter, has no deep interest in policy or ideology, knows practically nothing about economics or foreign affairs, cares about no principle or ethic beyond gratifying his ego and the chips on his shoulder, has angry, divisive views, indecent behavior that should have disqualified him, is supported by unabashed Nazis. He says stuff politicians don’t say, because when they say it and people believe it, it sinks us as a nation.

And yeah, seems kind of odd that he picks feuds with NATO, EU, Merkel, China, the Fed, the CIA, Mexico, but one country loves him and he has nothing bad to say about them…Weird! As someone once said, ‘there’s something going on there.’

He’s got the ‘B’ and ‘C’ string appointed to the Cabinet. I mean, can you even imagine Dimon or Blankfein or Paulson working for this guy? They wouldn’t even lend the guy a fiver. And on the foreign policy side it’s even worse, he has the entire national security establishment on his blacklist. And the guys who aren’t blacklisted are wary of working for him. I’m not even so worried about Trump because he’s a clown. He could start a war but I think the military and Congress wouldn’t let him. Unless there’s a dirty bomb in NY or DC and then all bets are off.

But when Trump craters, a lot of people are going to be very very angry, and I don’t think they’re going to turn to an establishment type, they’re going to turn to another candidate of change on the left or right. And I’m worried about stability in the rest of the world. If the US and the UK that had fairly rational economic policy are going populist, what the hell is going to happen in southern Europe in the next downturn? What about India, and Turkey, and the rest of the Middle East?


3 Viral memes giveth, and viral memes taketh away. Social media creates a Jo Cox murder or a Comet Ping Pong or a Dylann Roof, and then mobilizes to helps the family of the victims. Doesn’t quite even out.


4 Facebook has all the data, they can optimize for anything: duration of interaction on items, clicks through to items, people you frequently message, are tagged with, are in the same location with via your smartphone. They have an incentive to optimize for things that give them more ad revenue in the short run, but in the long run also for things that increase the depth and quality of interaction.

 

Some fun data-mining of StreetEYE headlines

Well, congrats to the Patriots and all my Boston homies. That was a catch and a comeback for the ages. Huger than Joe Montana back in the 80s, maybe GOAT. Y’all still should still learn to talk and to drive like normal human beings, but enjoy a legendary victory.

So, last year I did a word cloud of most common terms in 2015 StreetEYE headlines. Somehow I never got around to it around New Years this year. So here it is! (click to embiggen)

2016 StreetEYE Headline Word Cloud

Word cloud 2016

Interesting to compare … ‘Trump’ was yuge, and ‘Brexit’ was the other big one. ‘Greece’ was big in 2015, and faded like <cough> the Atlanta Falcons.

OK, while we’re clearing up unfinished business, here are the top clicked stories of 2016.

1. Economics on Buying vs Renting a House
2. A hedge fund has laid out why it is closing — and it is enough to set alarm bells ringing everywhere
3. Goldman Sachs Says It May Be Forced to Fundamentally Question How Capitalism Is Working
4. Trader exposes sexist horrors of the Wall Street ‘frat house’
5. FANG Is So 2015… BARF In 2016
6. With a single vote, England just screwed us all
7. Let Me Remind You Fuckers Who I Am, by @shitHRCcantsay
8. My very peculiar and speculative theory of why the GOP has not stopped Donald Trump
9. How Does This Hedge-Fund Manager Make So Much Money
10. Are US Stocks Overvalued?

Finally, if you’re REALLY into mad science…here’s a semantic analysis of > 1,000,000 headlines on StreetEYE (not just front page, everything that was shared by anyone on social media that we follow…this app does the analysis in your browser, so it will take a minute to download the data, and needs an up-to-date computer).

In the top right search, type a term, like ‘Trump’, then click on a completion, then click on ‘Isolate 101 data points’, and you’ll see something like the below (click to embiggen):

To try another search, choose “Show all data”, type in something new like “jpmorgan”, click on the completion, and you’ll see one like this.

What is the point? This is a way for computers to infer meaning of text based on context. Possibly it gives insight into how humans do it. A good representation of meaning can let us cluster related stories together. It can be used as an input to predict which stories will go viral, and improve the relevance and timeliness of headlines, or for other purposes like machine translation.

For the code that was used to generate the visualization inputs, see here.

Is Silicon Valley Truly Libertarian? Is Politics Society’s OS, Ripe For Disruption?

I heard it was you
Talkin’ ’bout a world
Where all is free
It just couldn’t be
And only a fool would say that – Steely Dan

A hero is someone who understands the responsibility that comes with his freedom. – Bob Dylan

Here’s a ramble that’s been hanging in my drafts for a while: Why do so many tech folks identify as libertarian? What do they mean? Is politics ripe for tech disruption? It’s a brand new year, and all old posts must go!

Now, I tend to lean, as the cliché goes, socially liberal, fiscally conservative, market-oriented. So I have an affinity for libertarian thinking. Libertarians emphasize human rights, think outside the box and reason from first principles. I love that.

But a lot of the people who identify as libertarian take it too far. What gets me eye-rolling is the person who, whenever something is messed up, thinks “OMG, if the government would step out of the way, a market solution would appear and work so much better!” … Even for activities which historically have a strong government role, roads, schools, money and banking, safety standards, pollution, etc.

I’ve written (here and here) about why I’m not a fan of more extreme strands of libertarianism.

If you think the notion of immaculate, spontaneous order is a straw man, oh boy, just go to a Gary Johnson event and hear him questioned about whether it’s OK for the state to issue drivers licenses and speeding tickets. Not to mention debates about whether the Civil Rights Act of 1964 is a worse infringement on liberty than Jim Crow and segregation, or it’s moral for the government to tax people to save them from an asteroid impact, or whether parents should have the legal right to not feed kids and let them die. These aren’t just thought experiments to them, the libertarian scene is a hotbed of non-seriousness to downright kookiness.

I like freedom as much or more than most. But the idea that freedom is, in and of itself, a sufficient condition for desirable outcomes for everything has never seemed a compelling, complete theory that can deal with public goods, coordination problems, financial stability, most of the things we consider economic policy. It’s the ‘assume a can opener’ of political ideologies. It just begs the questions, doesn’t answer how should the ‘market’ solve things. Once you give everyone freedom, you still have to design a market system and system of laws to solve social problems, define and assign property rights, decide what gets traded and how1.

Policies are market designs. Markets are sophisticated mechanisms, complex social institutions that have highly co-evolved with economic and political frameworks.

There is no such thing as a pure free market, just as there’s no such thing as a pure human ‘state of nature’. Free markets depend on laws, cultural norms, technology which are like David Foster Wallace’s water. They may seem natural and invisible because we’ve internalized them…but try explaining them to an alien or an uncontacted Amazon tribe.

Laissez-faire is not even wrong, it’s not even a thing. Free markets are games within a game, they are institutions humans create to serve objectives. They have to obey natural laws but they don’t exist in a social and cultural vacuum, they are intensely developed to be fit for purpose.

And market designs involve values and choices. Freedom is not the only human value that matters. Policy involves difficult tradeoffs between freedom, some notion of effectiveness, and some notion of fairness. Here’s a fancy graph:

Venn diagram of ideologies
(3D version which seemed more logical but turned out pretty hard to read)

There ain’t no such thing as a free lunch, but also, there ain’t no such thing as a totally free market.

That’s my political science ‘theory of everything’. (Inspired by Keynes) People organize to pursue their individual and also group values.2 They can choose to maximize different values. One universal value is freedom, or maximum power to the individual. Another universal value is fairness within the in-group according to some value system… each accorded status, power, material reward in accordance to their contribution and merit, with no one taking undue advantage of anyone else. Another value is ‘efficiency’, which is a catch-all for other possibly non-universal group values: economic efficiency and growth, national power and world supremacy, religious or sectarian values.

Extreme pursuit of individual freedom leads to libertarianism. Extreme pursuit of fairness leads to communism. Extreme pursuit of narrow group values at the expense of freedom and fairness leads to fascism.

Are tech types libertarian in that extreme sense of primarily maximizing freedom? Clearly not!

The vast majority of Silicon Valley political contributions go to Democrats. A tiny sliver of CEOs identifies as Republican, sometimes keeps it secret, or wears it as a badge of contrarianism. Someone like Travis Kalanick used Ayn Rand as an avatar, but loves Obamacare, which lets gig-ers get healthcare without putting the onus on their employer/platform.

The simplistic stereotype is that the tech elite are Randian technocrats who just want the government to get out of the way while they solve the big problems that confound the politicians, lobbyists, and bureaucrats, and make the world a better place.

But I think the proper analogy is that Silicon Valley techies view government as code, the operating system that defines the operation of society…an operating system maybe overdue for disruption and a major upgrade. And Silicon Valley types think they know code, know complex systems, and are just the ones to do it.

Let’s explore the analogy a little.

• Government defines rules between the people, corporations, the administrations, foreign policy. An operating system defines rules, protocols, APIs between the users, administrators, programs and processes, hardware, networking with other computers.

• Government defines a market design that allocates public goods between competing interests. An operating system defines rules that allocate hardware (e.g. CPU time, peripherals) between different processes and users.

• Like an operating system, you want government to have as small a footprint as possible, use as few resources as possible, and give users and developers maximum freedom to fully utilize all the computing resources at their disposal.

• Like computers, economies have grown bigger, more powerful, and more complex. Both operating systems and governments have taken on greater roles over time. Add multiprocessing, and you need a good scheduler, memory protection. Add multi-user and networking, and you need much better permissioning and security.

As systems get better and more complex, users expect more and more from the OS in terms of services, coordinating and scheduling complex tasks, security, supporting complex peripherals. So, as the system gets better, the percentage of work done by the OS vs. individual programs tends to grow, and the resources it uses grow as well.

That’s an essential paradox of operating systems and government. A better society is one where individuals are maximally empowered, and can also coordinate with others in complex ways. It’s a hallmark of improving civilization to give more people access to a more complex network of interactions, because they are safe, they have good norms of behavior and trust each other, they have clear laws well enforced, they have access to basic services. The more complexity is supported, the better the society. More complexity and interaction tends to mean more complex laws and regulation, and more shared resources supported by government.

That government is best which governs least, but as society grows more complex, the bar will tend to rise.

• In code, you want to abstract problems into modules that solve parts of a problem well. In politics you have the concept of subsidiarity: national, state, local governments; solve every problem at the lowest level of government that can effectively deal with it.3

• The qualities that make good code are agreed upon…efficient use of resources, easy to use, simple to understand, easy to read and maintain. But code involves hard tradeoffs…fast, good, or cheap? Pick any two. What actually is good code is partly subjective. People get into religious wars about methodologies and languages…agile vs. extreme…functional vs. object-oriented, etc.

Premature optimization is the root of all evil. Government changes very slowly, tech changes very rapidly. So any optimization in government, i.e. writing really detailed regs applicable to the current state of technology and the economy, is generally a premature optimization. Therefore government is the root of all evil? Well anywhere there’s something really wrong it’s probably a government failure, by definition. But it’s a catch-22, you don’t optimize, government is bad; you optimize, and eventually you end up in an unplanned-for situation where the optimization makes things worse.

Checks and balances slow things down. They’re sort of like bias and variance. You want to tune your system so that it adapts to change…but if it responds too quickly you can get instability and overfitting. You want your government to respond to the people and to changing circumstances, but not pivot abruptly on every whim. Direct democracy can be a double-edged sword. <cough>Brexit, Proposition 134<cough>.

• Sometimes you need to patch code pretty quickly and you accumulate technical debt, expedient solutions which need to be more carefully implemented later, or create maintenance and other problems in the long run. Hard cases make bad law…the solution that seems just in a complex case doesn’t always generalize. You don’t want to optimize code too much for the current use case, you need to be flexible. And you need laws that reflect universal principles. Sometimes worse is better…a simple, cheap solution everyone understands is better than a highly optimized, over-engineered one.

The euro is the ultimate in political ‘technical debt’. Build something that works today, even though it will need major re-engineering to be robust over the long term, and hope you can implement version 2 in time to avoid catastrophe.

• As you add complexity, a well-designed system can iteratively get better and better. Up to a point. There comes a tipping point where it becomes impossible to maintain and iterate on. Sometimes you accumulate too much technical debt, or change is just too fast, and you need to start over from scratch. Security exploits, bugs multiply. The same may be true of society, the tree of liberty, etc.

• Any computer system can get hacked. When you have a good market design, it’s a good basis for powerful interaction and coordination. But all systems can be gamed and exploited. Unless people are mostly decent and bad actors are sanctioned, you can get moral hazard and a tragedy of the commons.

• We don’t write systems or build hardware in which the components are told, here’s what we want to do, you guys work out the protocols.5 APIs and protocols aren’t libertarian things; they are specified in gory detail in docs like RFCs.

• You can write awful systems in any language, and you can write pretty good systems in any language. It’s the same with ideologies. There are countries with moderately socialist orientations that work pretty well, and there are socialist countries which are disasters. There are countries with mostly market-oriented solutions that work pretty well, and there are free-market countries of weak-state and strong-state varieties which are disasters.

Personally, I’ll take Sweden over Pinochet’s Chile. In my opinion there are no countries at the extremes of any axis that work well over a long period of time. Somalia, with no working government, is in some sense the apotheosis of small government and maximum private freedom, and hardly paradise on earth.

Ideologies are like development methodologies, people get pretty worked up about them, you need some methodology, but any reasonable methodology that isn’t applied so strictly it gets in the way is probably OK, and having decent developers is more important than which methodology they use.

If you’re concerned about Obamacare trampling on liberties, and not about people unable to get care, being bankrupted, facing impossible choices and preventable deaths, you might be an architecture astronaut caring more about buzzwords and ideological purity than actual solutions, outcomes, lives. The person who is free from government interference, because they’re dead, doesn’t notch it up as a win for liberty. The user wants code that works, and if it doesn’t work it doesn’t matter if it was made using agile or scrum or Ruby or Erlang.

Ultimately, I think the Silicon Valley brand of libertarianism is largely the cult of disruption; healthy skepticism of government as premature or partial optimization and technical debt; nerd suspicion of wooly MBA/JD pointy-headed boss types; desire to empower people with tools, knowledge, ability to make their own choices, build their own solutions; when that requires a strong guiding hand in the form of code, or government intervention (education, net neutrality), so be it.

When you translate the rules of society into code, is it always a win for the freedom and power of the individual? Not unless you’re careful. Technology sustaining totalitarianism as well as a disrupt it. It can be a tool for surveillance, social control, databases of Muslims.

I like Uber, but a lot of the code is a pricing black box designed to maximize the value of Uber, not a free auction market. There are still questions of fairness to e.g. the disabled, blacks. You can use big data to understand customers better and offer them more and better choices, or selectively charge people more.

Build a true 2-way market where drivers can offer services and riders can bid for them transparently, maybe even based on a blockchain ledger, and that’s a true libertarian solution. If you work on free software, you are a true libertarian and a scholar and I salute you. Until then, you’re paying lip service to freedom while creating a new layer of code to regulate behavior, while maximizing your own rent-seeking.

It can sometimes look like tech hubris, liberty for me, the nerd, and not for thee, the unwashed mashes.

Since we’ve expanded the scope to theories of everything, what really separates left and right? Some interrelation between financial interests, learned values, psychological makeup, and tribalism:

  • How you feel about people making good choices on their own;
  • How you feel about authorities coming up with good policies and market designs, avoiding deadweight losses;
  • How you feel about markets, whether they are generally fair or some participants accumulate one-sided market power; whether externalities and market failures are important and common, relative to deadweight losses from interventions that interfere with markets like taxes, regs;
  • In particular whether labor market outcomes for individuals are fair; whether people generally get what they deserve in the market economy, or whether the distribution of wealth and income is unfair; whether people generally rise or fall to the level they deserve, or whether initial endowments of wealth, educational opportunity, ethnic biases are determining factors6;
  • How you feel about democracy and the likelihood of corruption and capture vs. the ability of government to work for common good;
  • How much slack we should give to the ‘losers’; how you feel about free riders;
  • How you feel about authority; are you oriented toward rules, and motivated by a sense of moral outrage, or outcomes, thinking moral rules are heuristics to lead to good outcomes; is your personality high in ‘conscientiousness’?
  • How you feel about the ‘other’; do you strongly identify with a group, are group values more important than individual values; is your personality high in ‘openness’ to the values of others?
  • Are you motivated by fear, or hope, is the world a dangerous, zero-sum place with internal and external threats, or do people generally work together for progress?

I think there’s a subset of engineers who are cerebral, low in empathy, low in agreeableness, high in agency ‘I can solve my own problems and take care of myself, just get out of my way’ who are drawn to libertarianism.

Decent people can solve problems using left and right solutions, just as programmers can solve problems with different languages. But there is good code and bad code. Indecent, extreme, and disagreeable people aren’t going to solve anything.

And frankly, I think some problems and some tools are better disposed toward distributed/centralized free/authoritarian left/right solutions than others.

We’ve become a nation of architecture astronauts, spending our energy on ideological flame wars instead of shipping code that works.

There’s a fine line between being a critic and a contrarian, and being a hater tearing down the progress other people are trying to achieve. Once you get to the extreme of opposing all mandatory vaccinations, I would say you’ve left reason behind. Given what we understand about network effects, advocating freedom to engage in antisocial behavior without sanction seems like rejecting the categorical imperative and reason-based Western morality.

Elevating individual freedom to the highest and only moral good, and following that to its extreme conclusion on matters of asteroids and vaccinations, seems like bad code. In the extreme, it leads somewhere between indifference to the possibility bad choices may create human suffering, and outright cruelty.

Of course, gentle libertarian-oriented friends, I don’t ascribe cruelty to you, I merely urge you to ask yourself how far extremism in the name of liberty should be taken before it becomes a vice, or at best self-defeating.

Men of intemperate minds cannot be free. Their passions forge their fetters. — Edmund Burke

To suppose that any form of government will secure liberty or happiness without any virtue in the people, is a chimerical idea. — James Madison


1 Suppose individuals solve problems by freely agreeing on institutions like democratic governments with civil liberties and also taxes, police forces, prisons, some middle ground between non-violence and slavery? If people freely enter into a contract that imposes sanctions for violations, is it still freedom?

2 Yes, Virginia, people identify, and act with their tribe, nation, other institutions, not just as individuals. People have aspirations as individuals and also for their social unit. Have you ever been to a football game or other ‘sacred’ ritual where people dress, paint their face, eat and drink, sing, chant and play music in the proper manner to appease the universe and bring success to their in-group (and disaster to the out-group)? The original sin of communism and totalitarianism is not respecting the individual and private property, evaluating every individual choice as political and what it means for the state; the original sin of libertarianism is not respecting the drive to identify and find meaning through an in-group, ‘something bigger than me’, viewing every interaction as a trade, significant only to people as individual unitary atomistic me-bubbles.

Leftists tend to view market forces as somehow illegitimate when they are laws of human nature and game theory math. Libertarians tend to view everything as a market, and politics as somehow illegitimate. Markets and politics are just a couple of important, well-defined games of organizational and social control among many, such as social status.

3 If you think this is an easy problem, think again. Refactoring is a bitch. Some argue the 2nd Ave Subway costs more because it had to go deep below all existing infrastructure. If one entity owned all the buried infrastructure, you wouldn’t dig up the road one week to fix electricity and the next to fix water, you would presumably do everything in one shot, or redesign an integrated subway/water/gas/electric/telecom package and have something more maintainable that saved money. But then every time you need an electric fix, you have to go through the monolithic infrastructure agency, maybe wait until you can schedule water/gas/electric simultaneously. Sometimes you need agencies that cross jurisdictions, like the Port Authority which coordinates transport activities that impact the NYC area with NY and NJ. Maybe guns are the poster boy for this problem. You can’t regulate guns in Chicago if they are unregulated in Mike Pence’s Indiana. So I would prefer a national registration system, with local authorities in charge of local regs, but then at least they would be able to look up what residents bought in another state, require training, insurance, follow the trail of guns used in crime.

4 Proposition 13, which freezes California property taxes at 1975 levels, achieves the unusual feat of being rash direct democracy (variance), and locking in an outdated policy over the long term (bias). Premature sub-optimization.

5 Actually, that’s what machine learning is. But even in supervised learning, you define how the components can interact, and what they are trying to optimize and iteratively improve. Sci-Fi time! Imagine a society of the future where a giant computer is taught the human happiness ‘loss function’ and some kind of mother ‘hello Google’ and smartphone notifications directs everyone in the most optimal way.

6 Case in point: Civil rights. Was Jim Crow really more tolerable than the Civil Rights Act? Under normal circumstances a law targeting specific groups and specific outcomes, as opposed to universal principles, is bad code. But it’s perverse to deny blacks the right to participate in democracy, enforce a system of segregation by extralegal means and unequal application of the law, and then say that system is less of a cruel insult to freedom than a law that ends it. When that system was maintained in many cases by unequal application of equal laws such as bogus ‘literacy tests’, I fail to see an alternative to mandating reasonable outcomes as a last resort in this sort of extreme situation. It’s hard to do social science without thinking about outcomes; Noble principles and intentions should be eventually be checked against results. It’s called evidence-based policy. Ambrose Bierce said politics is a contest of interests, masquerading as a contest of principles. Better people acknowledge they are fighting for their interests (outcomes), but also think of others and shared principles. The worst sort actually believe they are fighting on principle, and only their opponents are fighting for their own narrow interests. Whatever your ideology, at the end of the day you have to ship code that works.

Buyer’s markets, seller’s markets and the hedge fund hype cycle

First come the innovators…Then come the imitators…And then come the idiots — Warren Buffett

I was playing poker with hedge fund CTO types over the holidays and they were debating whether they were underpaid.

Given some of the skills, years of training, responsibilities, trust, hours involved, some argued, it’s lamentable that senior IT folks get paid mid 6 figures, when mid-level investment staff make 7 figures.

(A rule of thumb in a well-established hedge fund might be, in a good year the top guy makes 9 figures, the most senior trader/analyst/PM types make 8 figures, the workhorse mid-level folks make 7 figures. While there are a few exceptional hedge fund CTOs who are partners and earn on a par with senior management, most earn far less).

So, time for some game theory / micro-economics 101.

Suppose there are 100 hedge funds. They each need a CTO. Suppose there are 101 guys who have the right skills and training to be CTOs. If you hire a guy who doesn’t have the chops, the fund has a 25% chance of a crippling crash, cyber-attack, trading system outage that puts you out of business.

Now, 100 guys will get jobs, and 1 will be left unemployed. That guy will send out his résumé and basically be willing to take someone else’s job for any meaningful raise over his best alternative job. And any fund who gets that guy’s résumé is going to tell the guy with a huge partnership package to take a pay cut, or take a figurative hike. And now a new guy will be in the same position of sending out his résumé, and so on until every CTO in the industry is getting a really basic pay package.

Now suppose there are 100 hedge funds, but now there are 99 guys with the qualifications to be CTO. One hedge fund is going to be left out in the cold bearing that risk. How much should they bid to steal away a CTO from the other firm? The answer is, A LOT. In the short run you could justify giving them anything up to 25% of the value of firm every year, and still come out ahead.

OK, no one is going to get 25% of the value of the firm every year, it’s not really a stable long term solution. The IT guy ends up with 95% of the equity after 10 years. And then the PM says, hey, if I leave there’s a 100% chance the place is out of business. So in practice the equilibrium is, the top guys whose talents are scarce, ‘A’ player portfolio managers, traders, etc., end up partners, and the equity share each one gets is proportional to their ‘marginal product’: the value of the firm with an ‘A’ player in that spot compared to the value of the firm with a ‘B’ player in that spot.

And that’s the difference between a buyer’s market and a seller’s market. If there are more buyers than sellers, the sellers set the price. If there are more sellers than buyers, the buyers set the price. 1

It doesn’t matter how big the market imbalance is. A small shift in either supply or demand can tip the balance. And once market participants realize the other side now has the upper hand, the impact on price can be enormous.

And when it becomes a buyer’s market for the hedge funds themselves, everybody’s gonna have a bad time.

For a while, from the 90s to the end of the dot-com crash, superstar hedge fund managers seemed to have an edge. Everybody wanted in on that deal. The business got crowded. Returns suffered. And maybe a shakeout, a popping of the bubble, is at hand.

There’s a parallel to the technology ‘hype cycle.’ In the old days large investment managers had an edge. You needed big budget IT, fund accounting, marketing and distribution, scale to get management to talk to you. The advent of PCs, Bloombergs, the Internet changed that. An ecosystem sprang up of technology partners for hedge fund order management systems, portfolio accounting systems, CRMs, research analytics…along with hedge technology integrators, administrators, prime brokers.

In the 80s and 90s you had a small number of pioneers who did extremely well, Soros, Steinardt, Robertson. You had a slope of hope, which eventually leads to a peak of inflated expectations, followed by a trough of disillisionment. Finally, you reach an equilibrium plateau of productivity.

Hedge funds are a star vehicle. Stars come and go, and only a few have staying power. Sometimes, when there’s enough demand, stardom can be manufactured, and even mediocrity gets rewarded. When there’s no demand, talent has to fight harder to be recognized. But talent usually finds its own level, genius usually gets rewarded, and mediocrity usually becomes a commodity.

1 In the classical economic model, wage earners get paid their marginal product of labor. In the economics described by Marx, wage earners get paid a subsistence wage. The difference is simply between a buyer’s market or a seller’s market for labor. Typically, we assume that as technology improves, increasing the productivity of both labor and capital, they stay in balance, and the increased productivity of labor means employers are willing to pay more for labor. In the Solow growth model or Piketty, if capital is easily substituted for labor, as technology improves continuously, eventually you end up with a buyer’s market for labor, and owners of capital appropriate more and more of the gains from growth. We’ve never seen this sort of economic singularity, where overall wealth grows as robots build more robots while wage earners sink to a subsistence level. But just because something never happened before doesn’t mean it can’t happen.


39 queries in 0.187 seconds.