Hello family and friends,
I’ve been planning to return to writing for some time now but one thing or another always seems to prevent me from following through. I haven’t felt like anything I have to write is particularly worthwhile; the chaos of ongoing world events and discourses are plenty to absorb without another newsletter in the mix. The Capitol insurrection happened at the start of this year, but the density of the news cycle plus all the other distractions of life - meme stocks, album drops1, TikTok - make it feel like so much further in the past.
Recently, I came to learn that a former coworker of mine had suddenly passed away. While I hadn’t worked with him very closely, I always thought of him as a fixture of the company, a jovial presence with a quip for every occasion. Like most people you interact with for some time, even as your lives proceed on divergent paths, you take it for granted that life proceeds nonetheless. You go long stretches without hearing from or of them. But you don’t ever expect to hear that they’re gone.
Any time death hits remotely close to home is a sudden reminder of our own mortality. The existential questions resurface - what have I accomplished? How will others remember me? It spurred me to take stock of what I have, what I still want to do, and where I am in the grand scheme of life.
All things considered, I’ve had an incredibly fortunate year. I still have my job, and I still like what I do. I’ve been vaccinated, and I’ve been able to go on vacations again. As the city opens up, I’ve been eating out and seeing friends. I moved in with my girlfriend, and get to hang out with her and her dog every day. With assistance from my family, we were able to buy a home in Alameda. I’m driving a brand new car. I have a lot to be thankful for this year.
As I’ve worked to organize the set-pieces in my own life, however, I can’t ignore the big problems affecting the world around me. Climate change is accelerating at a frightening pace and it’s clear we aren’t doing enough to stop it. Social unrest is worsening and the polarization of America seems inescapable. Income inequality is becoming painfully apparent, even in Bay Area communities that once felt insulated. Inflation is soaring. The cost of childcare is becoming untenable, and a population collapse would have unimaginable consequences for the economy. The list of concerns goes on.
Even as I’ve spent the past few months getting comfortable in my own life, the big picture is roiling. We are living in strange times that promise to get stranger.2
Are we still building for the right reasons?
This topic came to mind as I’ve been observing increasing mania in the stock market ever since the COVID crash. Particular fervor surrounds “generational innovation” sectors like clean energy, electric vehicles, and the metaverse. Outside of the stock market, cryptocurrencies are clearly benefitting from a similar surge to get in early on the next big thing.
To better understand how we got to this place, I first think back to how innovation used to happen. Note that these observations come from an American lens. From my perspective, prior generational innovations revolved around
The age of the automobile. Vehicles and motorways, which unlocked intra-continental commerce from which the modern brick and mortar retail and service economy evolved.
The age of air travel. Commoditization of air travel accelerated globalization and enabled massive communication and manufacturing efficiencies.
The age of the internet. Computers, and now mobile, have made globalization seamless and interconnected populations instantaneously, creating innumerable associated benefits (and consequences).
Motor vehicles and motorways came about as a result of necessity - a way to span a continent-sized nation and spur growth in the postwar economy. The federal government subsidized the national interstate system as well as the adoption of vehicles (via fuel subsidies, road infrastructure) to the tune of hundreds of billions. Though profits came to many automobile manufactures, it was not the significant driver for these innovations.
Air travel came about as a stroke of inspiration for the Wright brothers and was significantly accelerated in times of crisis - world wars and the Space Race forced the industry to reach new heights. Though airlines fly for profit today, in the early evolution of these technologies, I would argue that utility and novelty were key incentives more so than profit.
Computers started largely as government experiments and the internet began as an academic exercise. While early entrepreneurs correctly saw how these technologies would shift the course of history, I would say that the early development of digital interfaces and internet protocols were not so much profit-driven as it was led by hobbyists and true visionaries.
The most recent generational development, mobile, shows where the lines begin to become blurry; Apple led the first push into personal connected devices and has profited handsomely as a reward, and the floodgates have been open since.
Now that the internet has established a clear path to market caps in the billions and trillions, everyone wants to know - what’s next? What’s the next technology that reshapes society as we know it? And more importantly, how do we make money off it?
The profit incentive is undeniable and an ever-increasing motivator for new innovation. As investing (thanks to the internet) becomes more accessible than ever before, everybody wants to be a beneficiary of the next evolution in technology - ideally before the masses have caught on.
I’ll call to mind Paul Graham’s distinction between wealth and money:
Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn't need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn't matter how much money you had.
Wealth is what you want, not money.
As we attain late-stage capitalism3, the value proposition of developing new technologies has majorly shifted from wealth generation to money generation. Just as fiat money once disassociated from the gold standard, does it now threaten to disassociate from actual utility? It’s easier for me to rationalize Tesla’s $1 trillion market cap (at time of writing) and cryptocurrencies’ continuous rise in value with this lens. As a society, we’ve come to prize money, and avenues for its procurement and replication, over wealth.
Quickly visualized, a business used to follow approximately the following lifecycle before attaining larger valuations.
Think of early Apple Computers, which first learned from the hobbyist PC market and expanded to create a mass-market machine. Their early product innovations led to sales, which helped to raise their profile and ultimately fund further development.
With the advent of aggressive venture capital investing, particularly notable in B2C behemoths like Uber and Airbnb, winner-take-all markets were swallowed by companies that had rushed to take on funding (and expand in market cap) in order to outspend and outcompete their rivals. In this model, the funding and valuation stage moves earlier on in the cycle, making sustainable business practices an afterthought. Fun fact: since its founding in 2009, Uber has yet to report a profitable quarter (though Q4 2021 is apparently looking good).
Recently we’ve seen this self-serving valuation cycle reach new heights of absurdity; electric vehicle startups, the latest flavor of the month, made incredible highs off the back of great prototypes and lofty promises. Last week, Rivian was briefly worth more than Goldman Sachs. The valuation model has apparently short-circuited the part where actual wealth creation happens, but the money flows regardless. Value/wealth creation will happen, sure, but we want our returns now.
To be clear, I think many modern companies are still founded with the best of intentions to work on the most challenging issues facing humanity. It’s not even necessarily a company’s fault when the valuation cycle runs away from reality. We’re simply seeing the emergent effects of capitalist incentives, accelerated by the accessibility and speculation of the internet era.
All this said, I’m not expecting a “correction” overnight or even particularly soon4. The market is pricing in the risk that investors are willing to undertake. There are uncountable and complex factors that ultimately make valuations an art rather than a science. But my point is that, so long as these crypto and meme stock run-ups go on, and so long as society’s collective impatience demands immediate gratification, we are sidelining the less monetary incentives for innovation. I hope we see more companies building and goaling on solving big problems, not because they can get stinking rich doing so, but because that’s what’s necessary for humanity to thrive.
Interesting reads:
The almost too-crazy-to-be-true story of the man who brought Pokemon and Yugioh to America. It shouldn’t be too surprising that he’s still wheeling and dealing; he’s a bona fide hustler hunting for the next “it” toy brand even at the ripe age of 76.
The rediscovery of ingenious fish traps built and maintained by generations of indigenous people on the Canadian Pacific coast. A thousand years of sustainable fishing technology was nearly forgotten in the wake of European colonization.
Zhang Yiming’s last speech as CEO. The founder of ByteDance espouses keeping an ordinary/settled mindset (平常心), which lets one be “more relaxed, have no internal distortions, observe things with a more nuanced perspective, [be] practical, and have more patience.”
That’s all for now. Happy Thanksgiving week!
Hope you and your loved ones are well,
Lawrence
Kanye West recently released Donda’s Deluxe Edition and Taylor Swift is in the midst of re-recording her albums, meaning most every music fan had something to chew on this week.
Then again, by almost every metric, we are living the best years for humanity, so maybe it’s not all so bad.
A popular forum on Reddit refers to “late stage capitalism”, in which we capitalist profit motives have driven society to absurdist ends.
I drafted this post a week ago (11/15) and today (11/22) might be the start of a correction? Who knows in this market 😆