Issue 5: The maelstrom and the Optimistic Thought Experiment

Alternatively: how to navigate the maelstrom

Apr 18, 2020

Here’s the week’s best and most interesting.

Topics in this issue: the maelstrom.

China

Nicolas Colin on Kissinger and Thucydides::

On one hand, China seems to be fundamentally uninterested in what’s happening in the rest of the world. On the other, China has been investing quite a lot in getting to know the world better. China has effectively become expansionist [see: Africa.] In the Entrepreneurial Age China became ruthlessly competitive and the only way to come out on top is to approach with Kissinger’s “process rather than a program.” At the same time, keep in mind “Thucydides Trap” — the high probability that the rising power of the day eventually goes to war against the dominant one.

Central banks and risk

Matt Clifford on the Fed and public opinion:

The Cantillon Effect is the idea that increasing the money supply has important distributional—and so political—consequences. Though intervention is sold as a public good, the financial institutions that are the Fed’s intermediaries reap the biggest benefits. Further, public opinion (and so politicians) systematically underestimate catastrophic risk. Jonathan Wiener calls this “the tragedy of the uncommons”.

Edward Harrison on defending the Fed’s junk bod campaign:

I do not support the Federal Reserve's foray into the non-investment grade bond universe. It opens up a whole can of worms. It sets a precedent both for future policy and for market expectations. But, this is a crisis. And even though I accuse policymakers of being reactive, the Fed is effectively saying they want to be pro-active, even at the risk of its reputation, because time is of the essence. However, where do you draw the line?

Finance

Jamie Catherwood on smart takeaways in equity, fixed income, and alternative asset investing in low-growth economies::

As concerns over the impact of COVID-19 on long-term economic growth increase, this timely paper looks at the history of investing in a low-growth economy, and what has worked previously.

History of pandemics

Matt Clifford, again, on the possible trade offs:

We shouldn’t worry about protecting public health or the economy. According to this paper, during the Spanish flu epidemic of 1918 the areas where government cracked down more aggressively had fewer deaths and recovered faster economically. On the other hand, what the Black Death does show us, is the consistency of humans’ desire to narrativise events beyond our control.

Various & Sundry

Links of the week:

Fast Grants is offering $50-100k grants for scientific research on Covid-19 with 48-hour decision times.

Thought of the week: I find myself revisiting Thiel’s Optimistic Thought Experiment. Thiel claims that “in every possible future, all of today’s bubbles will burst” and:

. . . their ideological scaffolding will prove to be but lint in the winds of history. Bubbles have begun to implode across the globe, laying bare the fraudulence of ‘China,’ ‘technology,’ ‘hedge funds,’ and their like. As the world’s economy weakens, so will support for the globalist orthodoxy, the political tenability of which rests heavily on the ability of the doctrine to literally deliver the goods. Some policymakers seem to sense this already, with the most immediately obvious of these being the Fed . . . [but] the Fed’s morally hazardous accommodations are best understood not as a perplexing and facile sop to bankrupt homeowners but as a desperate effort to stave off a recession that will end the debate on globalization for years to come . . . The Fed’s gambit entails several potentially catastrophic trade-offs, chief among them the revival of inflation. Whatever may be said of the soundness of the Fed’s policy in the faltering United States, loose monetary conditions are not appropriate for the near-runaway economies of other nations with dollar-linked economies, notably China and much of the Middle East. The Fed’s iatrogenic policies have already caused considerable inflation in these economies and, especially disturbing for students of history, a massive spike in the price of oil. At some point, the tensions caused by wild inflation, collapsing currency accords, and expensive oil will resolve.

He clarifies:

It is beyond the scope of this essay either to enumerate all drivers of these trends or to determine whether the pro- or anti-globalization forces will gain the upper hand in the longer term. Still, the following conclusion seems safe: since we are very far from any stable equilibrium, the future is likely to be much more or much less globalist than the present.

OTE the one essay you should read in order to navigate the perma-maelstrom. And regardless of where globalism will end up, if one were to see this crisis as a potential restart of the current economic model of sorts, whether because of time lost in limbo or actual dollar value, then one can argue the following: it is a prime opportunity for investing in what my friend Saku once tweeted about: Thiel’s theory about technological edge and, by extend, productivity growth. When you don't have a technological edge in your country, then you have to compete fiercely with other countries (in this case, for capital investment.)

To put it on a bumper sticker: tech, because of the pandemic, has won. It’s a knock-out. This is the moment, amidst the craziness and the chaos, where you can go back to first principles and restructure the entire economy for the next 50 or 100 years with a tech-first model fused with applicable strategic and comparative advantages without anyone being able to tell you “No.” (Something similar happened with the Black Death; a paper argues it was crucial in establishing the conditions for the industrial revolution. See Matt’s linked letter above.)

A parting thought

In Yuval Noah Harari’s praise of the Greek response to the coronavirus pandemic, I was reminded of one my favorite poems, Tennyson’s Ulysses. Perhaps one of the better descriptions of contemporary Greece and the complex, poignant, Promethean, yet unwaveringly optimistic Greek psyche. This small, great world stands resolute and obdurate—like Sunium’s marbled steep—before the afflictions and vicissitudes of Time and Memory.