Too Clever By Half


The smartest animals on my farm aren’t my bees (although they possess the genius of the algorithm). It’s not the horses or the goats or even the dogs. The barn cat is pretty smart, but only in fairly limited circumstances, and the house cats are useless. Obviously it’s not the sheep or the chickens. Nope, the smartest animals on my farm aren’t really on my farm at all. They’re the coyotes who live in the woods.

My favorite example? We have a really big invisible fence for the dogs … covers about five acres. Yes, my farm is a great place to be a dog. For those of you who aren’t familiar with the technology of the invisible fence, it’s a buried wire that transmits a signal to a receiver placed on your dog’s collar. When the dog gets close to the wire, the receiver starts to beep, and when the dog gets all the way to the “fence” boundary, the receiver generates a small electric zap. I know, I know … it’s negative reinforcement and it’s a shock collar and all that. Don’t care. It’s fantastic for us and our dogs. But whether it’s a smart dog like Maggie the German Shepherd or a … shall we say … “special” dog like Sam the Sheltie, after a few weeks (Maggie) or a few hours (Sam) they will forget where the fence exists if they stop wearing the collar.

Not so the coyotes.

The coyotes know *exactly* where the invisible fence begins and ends, without the benefit of *ever* wearing a shock collar. How do I know? Because they intentionally leave their scat on their side of the invisible fence, creating a demilitarized zone as precise and as well-observed as anything on the Korean peninsula. Occasionally a coyote will try to test our dogs by leaving its scat juuusst over the line on our side of the DMZ. Our dogs, of course, just blithely ignore the provocation, not even knowing that they’re being challenged. My dogs are the Roadrunner in some real-life Looney Tunes competition with Wile E. Coyote, super-genius. The coyotes are scheming; my dogs have no idea what scheming is.

I feel bad for the real-life coyotes in exactly the same way that 7-year-old me felt bad for Wile E. Coyote and 30-year-old me felt bad for The Brain (not a coyote, of course, but still). They put SO MUCH EFFORT into their plans and machinations for taking over the world, and it all comes to naught in a world of Roadrunners, Pinkys, and dogs like my Sam the Sheltie.
I see myself in the coyotes. So do most people reading this note, I bet.

For the canonical compilation of all Pinky and the Brain “pondering” quotes, see Richard Watanabe’s magisterial site.

The truth is that domestication makes any animal dumb. You name the species — dogs, cats, cows, horses, sheep, pigs — human selection on “tameness” for thousands of years accumulates a wide array of traits, including floppier ears, shorter snouts, hair color variability and the like, most likely based on more basic inherited alterations in certain stem cell and stress hormone production patterns (see Domesticated: Evolution in a Man-Made World, by Richard Francis, for a great read on all this). Different species show these external traits to different degrees. But the trait that ALL domesticated species demonstrate relative to their wild species is a smaller brain. I’d bet it’s happening with humans, too, but that’s just an observation for another day.

Unfortunately, coyotes are too smart for their own good. They are, to use the wonderful Brit phrase, too clever by half. They are, to use a post-modern, TV reality show lingo, not good in the meta-game. And the meta-game has turned against the coyotes with a vengeance.

Case in point — in our pre-farm life, where we had a yard like any other yard and were part of a neighborhood like any other neighborhood, we still had run-ins with coyotes. There were three or four of them roaming around one fall, coming in from the local nature preserve, and it became something of an issue in our small town. Warnings went out on mom chat groups not to let your small children play outside alone, much less your small dog or cat (yes, this was back in the day when it was not a blatant act of animal cruelty in Fairfield County, Connecticut to let your house cat go outside when it wished). Fortunately, clear instructions were provided through various channels as to how to protect your family.

Don’t yell at the coyotes. Half fill an empty coffee can with loose change and shake it at them. This will frighten them and they will run off.

Again, this is Fairfield County, Connecticut, where even owning a BB gun is enough to earn a lifetime ban from any play dates for your kids. It’s a far cry from growing up in Alabama like me or Texas like my wife, but when in Rome …

A few afternoons later the coyotes came wandering around our yard. We had (very) small kids at the time. So my wife dutifully brought out the coffee can she had prepared, and rushed out into the yard to confront the coyotes, shaking the coffee can like a madwoman. At which point the lead coyote, a female we think, sloooowly looked up and just stared at my wife. It wasn’t scared. It wasn’t frightened. It recognized immediately that there was absolutely zero danger posed by this human female gesticulating wildly and making a bizarre clanking sound with her hands. The message from that coyote’s stare was clear — is that all you got? Really? Almost derisively, the lead coyote sloooowly turned around and sauntered back towards the woods, leading the others away.

It was an alpha move. Smart, cool, totally in command. I’m leaving because I want to, at my own speed, and only because you’re annoying me with that ridiculous noise, not because I’m scared.

It was also a really dumb move for the meta-game.

What’s the meta-game? It’s the game of games. It’s the larger social game where this little game of aggression and dominance with my wife played out. The meta-game for coyotes is how to stay alive in pockets of dense woods while surrounded by increasingly domesticated humans who are increasingly fearful of anything and everything that is actually untamed and natural. A strategy of Skirmish and scheming feints and counter-feints is something that coyotes are really good at. They will “win” every time they play this individual mini-game with domesticated dogs and domesticated humans shaking coffee cans half-filled with coins. But it is a suicidal strategy for the meta-game. As in literally suicidal. As in you will be killed by the animal control officer who HATES the idea of taking you out but is REQUIRED to do it because there’s an angry posse of families who just moved into town from the city and are AGHAST at the notion that they share these woods with creatures that actually have fangs and claws.

The smartest play for coyotes in the meta-game is never to Skirmish with humans. Never. And if you find yourself in a Skirmish-with-Humans game, then the smart play is to act scared, to run away at top speed from a jangling coffee can. But no, coyotes are too clever by half, plenty smart enough to understand and master the reality of their immediate situation, but nowhere near smart enough to understand or withstand the reality of their larger situation. It’s their nature to play the scheming mini-game. They can’t help themselves. And that’s why the coyotes always lose. It’s always the meta-game that gets you.

Okay, Ben, entertaining as ever, but where are you going with all this?

Almost there. Before I pull this charming discussion of too clever by half coyotes back into the real world of markets, there’s one other (supposedly) clever, non-domesticated animal I need to introduce into this story. That’s the raccoon.

Coyotes have a roguish charm and bring something interesting to the world with their independence and scheming. Raccoons are simply criminals. And they’re not that smart. I’d put our barn cat up against a raccoon any day on any sort of cognitive test. We think raccoons are clever because they have those anthropomorphic paws and those cute little masks and even a Marvel superhero with its own toy line, but please. Raccoons are takers, not schemers. They’re killers, often for the sheer hell of it. Raccoons steal and kill way beyond what they need, and they do so in a totally wanton, non-clever way. I hate raccoons.

When they push their scheming and stealing too far, coyotes and raccoons ALWAYS end up getting killed by the farmer — regretfully in the case of coyotes, remorselessly in the case of raccoons. It’s not a cute Looney Tunes death, either. There’s no little puff of smoke and immediate reincarnation for these Wile E. Coyotes and Rocket Raccoons. Just blood and sadness.

That’s true on the farm and it’s true in the real world, too. And that’s how we pull this allegory together.

Every truly disruptive discovery or innovation in history is the work of coyotes. It’s always the non-domesticated schemers who come up with the Idea That Changes Things. We all know the type. Many of the readers of this note ARE the type.

Financial innovation is no exception. And this is Reason #1 why financial innovation ALWAYS ends in tears, because coyotes are too clever by half. They figure out a brilliant way to win at the mini-game that they’re immersed in, and they ignore the meta-game. Eventually the meta-game blows up on them, and they’re toast.

Reason #2? Financial innovation, more than any other sort of innovation, attracts the raccoons — con men and hucksters at best, outright thieves at worst. They infest financial innovation. And they can’t control themselves, so they always push it too far. They’re never content with stealing a little. Or even a lot. No, raccoons want it ALL.

Example, please.

Financial innovation is always and in all ways one of two things — a new way of securitizing something or a new way of leveraging something.

Securitization is a ten-dollar word that means associating something in the real world (a cash flow from a debt, an ownership interest in a company, a deed on a property, a distributed ledger mathematical calculation, etc.) with a piece of paper that can be bought and sold separately from that real world thing.

Leverage is a ten-dollar word that means borrowed money.

That’s it. There’s nothing new under the sun. Finding new ways to trade things (securitization) or new ways to borrow money on things (leverage) is what financial innovation is all about, and there are vast riches awaiting the clever coyotes who can come up with a useful scheme on either.

The biggest market disasters happen when both leverage and securitization get mixed up with the same clever scheme, as when new ways of leveraging and securitizing U.S. residential mortgages were developed in 2001, resulting in the creation of a $10 trillion asset class that utterly collapsed during the Great Financial Crisis. There were a lot of coyotes involved in so gargantuan an Idea That Changes Things, but most illustrative for these purposes is the Gaussian Copula formula published by David Li in 2000, the “technology” which allowed the securitization of pretty much any mortgage portfolio (prior to this most securitization was limited to “conforming” mortgages securitized by Fannie Mae and other government-sponsored mortgage agencies) and also the leveraging of those securities through tranching (splitting up the security into still more securities, each of which can be used as collateral for more borrowing, particularly those tranches with higher credit ratings). I wrote a bit about the Gaussian Copula in “Magical Thinking”, and if you want to learn more you can’t do better than  Felix Salmon’s 2009 Wired magazine article — “The Formula That Broke Wall Street” — still my all-time favorite piece of financial market journalism.

The formula doesn’t look like much, does it? But this little equation made billions of dollars in profits for Wall Street through hundreds of clever coyote schemes. More than a few raccoons got involved along the way. And then it broke the world in 2008.

It’s what I’ll call “coyote-math”. The math behind blockchain and Bitcoin the Gaussian Copula and non-agency residential mortgage-backed securities (RMBS) is undeniable. It is a mathematical certainty that these securities “work”. Unless, of course, you have a government-led chilling effect on exchanges and network transactions a nationwide decline in U.S. home prices, in which case Bitcoin non-agency RMBS doesn’t work at all.

So what will does the aftermath of this classic example of financial innovation gone awry look like?

Blockchain The Gaussian Copula is still around. These things don’t get un-invented, and it’s still a very useful piece of code for certain applications. The truth about blockchain the Gaussian Copula is that it’s an Idea That Changes Things In a Modest Way, not an Idea That Changes Everything. It’s a modern algorithmic twist on letters of credit portfolio risk, and there are a few interesting uses for that. Just a few, but that’s okay. That’s still important. Just not as important as HODLers Wall Street thought it was.

As for the primary financial application that blockchain the Gaussian Copula spawned, Bitcoin non-agency RMBS is still around, too. The securitization of distributed ledger calculations non-conforming mortgages is something that market participants still want and still trade. It will NEVER be a $10 trillion asset class again, because the inherent flaws of this security have been well revealed. Turns out that Bitcoin a AAA-rated tranche of Alt-A mortgages wasn’t the store of value that coyote-math “proved” it was, to the detriment of individual institutional investors who put a significant portion of their portfolio into these securities, and to the ruin of those who used leverage to acquire these securities.

Many of the coyotes involved with this classic example of financial innovation gone awry are (professionally) dead. At the very least careers were permanently derailed, and entire coyote institutions, like Bear Stearns, were taken out into the street and shot in the head by animal control officers were merged into healthier financial institutions by government regulators as an example to other coyote institutions as a necessary measure for systemic stability. I miss Bear Stearns. The world is a poorer place for Bear Stearns not being in it.

Surprisingly few of the raccoons involved are (professionally) dead. In fact, more than a few of the financial hucksters involved with the run-up to the Great Financial Crisis are back to their old tricks with cryptocurrencies whatever the latest coyote innovation might be. This makes me VERY angry, and probably colors my view on blockchain financial innovation more generally. I wouldn’t miss the raccoons for a second if the animal control officers took them out, but somehow they never do.

And that brings me to what is personally the most frustrating aspect of all this. The inevitable result of financial innovation gone awry, which it ALWAYS does, is that it ALWAYS ends up empowering the State. And not just empowering the State, but empowering the State in a specific way, where it becomes harder and harder to be a non-domesticated, clever coyote, even as the non-clever, criminal raccoons flourish.

That’s not an accident. The State doesn’t really care about the raccoons, precisely because they’re NOT clever. The State — particularly the Nudging State — cares very much about co-opting an Idea That Changes Things, whether it changes things in a modest way or massively. It cares very much about coyote population control.

When coyotes play the Skirmish game, that’s all the excuse the State needs to come swooping in. And that’s exactly what is happening with Bitcoin what happened with non-agency RMBS.

What’s the alternative to playing Skirmish in the meta-game?

It’s this: to be an arborist.

It’s this: to be as wise as serpents and as harmless as doves.

Coyotes can change the world. Coyotes WILL change the world. But not if they misplay the meta-game. Not if they hang out with raccoons. Not if they fetishize ANY financial instrument as an intrinsic aspect of a commitment to liberty and justice for all. Because it’s not.

Render unto Caesar the things that are Caesar’s. Wise words 2,000 years ago. Wise words today.

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Horsepower

There is no animal more important in the ascendancy of Western Civilization than the horse, and no invention more important than the horse collar. It has nothing to do with warfare, and everything to do with farming and transportation.

Horses can work 50% faster than oxen, and they can go all day, particularly the draft horses of Northern Europe. But if you put an ox harness on a horse, the horse will choke to death. Very different bone structures, particularly with the shoulders.

When the horse collar was introduced into Europe in the 10th century (invented by the Chinese, of course, just like everything else of note prior to the Industrial Revolution) agricultural productivity skyrocketed. The resulting food surpluses led to a population boom, labor specialization and diversification, and the development of a merchant class. The horse collar (plus the horse shoe and the heavy plow) sparked a productivity revolution that totally reshaped European civilization and the history of the world.

A farm should have a foreman, a foreman’s wife, ten laborers, one ox driver, one donkey driver, one man in charge of the willow grove, one swineherd, in all sixteen persons; two oxen, two donkeys for wagon work, one donkey for the mill work.

Cato the Elder (234 – 149 BC), Roman senator, farming aficianado. Also Carthago delenda est.

I get about the same amount of work done with my John Deere 4610 as Cato accomplished with his sixteen people and five animals, particularly when I’ve got a 460 loader up front and a shovel mounted in back.

The parable of the man who has fled from an elephant

This is the story of a man who, in fear of an enraged elephant, has escaped into a pit, into which he has let himself down, hanging down and holding on to two branches at its edge. He looks down and there is a dragon, its mouth open, waiting for him to fall so that it can devour him. Then he raises his eyes to the two branches and sees two rats at their root, a black one and a white one, that are gnawing at the two branches untiringly and without flagging.

While considering his situation and worrying about his fate, he notices near him a beehive containing honey. He tastes the honey, and its sweetness preoccupies him and the delight of it distracts him from thinking about his plight, or from seeking a means to escape. Thus he remains diverted, unaware, preoccupied with that sweetness, until he falls into the mouth of the dragon and perishes.
Abdullah Ibn al-Muqaffa, from “Kalilah wa-Dimnah” (c. 750).

An Iranian who wrote in Arabic, Ibn al-Muqaffa had a knack for telling Persian fables with a political bent. He was killed for that, of course.

In 1917, Pierre Cartier bought the townhouse at 653 Fifth Avenue in exchange for his most valuable two-strand pearl necklace, valued at $1 million. Today, you can get a two-strand pearl necklace of similar length and pearl size from Macy’s for about $2,000. As for what 653 Fifth Avenue is worth today … well, it’s a lot more than $1 million.

Some of my happiest hours are spent on a tractor. The John Deere 4610 engine has 42.8 horsepower, which means that it generates the raw energy to lift 23,540 pounds one foot into the air in one second. That’s 32 kilowatts for people who think of energy in those terms. The tractor uses this raw energy to power both a drivetrain with enormous torque and a top speed of 30+ miles per hour, as well as a hydraulic system to which you can attach loaders and shovels and the like. It’s a beast, and the ability to control a beast like this is an absolute rush. My girls get this rush by riding and controlling an actual horse. I get it through a tractor that aggregates 43 horses into one hunk of metal.

The tractor isn’t just a powerful beast, but — like an actual horse — is also an incredibly versatile beast. It makes me a one-man wrecking crew if that’s what needs doing around the farm (and occasionally when it doesn’t need doing … I’ve inflicted my share of unintentional damage over the years). But my favorite and best use of the tractor is to Repair and to Make. Need to grade the quarter-mile driveway? Tractor. Need to carry the lumber and lift the roof to build the mustang’s run-in? Tractor. Need to shovel out the boot-sucking ankle-deep “mud” from the sheep and goat pen? Tractor. Need to brush hog a field and clear some trash trees to keep it healthy? Tractor. I am productive with my tractor to a degree and in a manner that I had no idea was even possible in my pre-farm life.

I’ve got two tractor-as-metaphor points I want to cover in this Note From the Field, one on investing and one on macroeconomics.

The investing metaphor is a simple one — a tractor leverages my personal strength a hundred-fold (assuming that I could lift 235.4 pounds one foot into the air in one second, which sounds about right for my maximum ability … on a good day … once … followed by a week in traction). I can accomplish amazing things with that untiring, never flagging, hundred-fold leverage. I can also kill myself.

In 2015, more than 400 people died in farm accidents in the U.S., and tractors accounted for about half of those fatalities. Interestingly, tractors only accounted for 5-10% of non-fatal farm accidents. When you screw up with a tractor, the consequences are deadly.

The source of a tractor accident (or in my case, thankfully, near accidents) is always one of two things: overconfidence or distraction. The machines themselves are phenomenally robust and well-engineered, which means that it’s never equipment error that gets you into trouble. It’s driver error.

Not coincidentally, the most careful, measured people I’ve ever met are professionals who drive big pieces of powerful machinery. There’s no bravado with these guys, no “sure, I guess you can stand on that, why not?”, no “yeah, be right with you, just wanna check my Twitter feed real quick.” It’s always measure twice, cut once, and if there’s anything that’s out of place or out of sight … the answer is no. They are, without exception, the antithesis of Donald Trump (in behavior I mean, not politics), which I suppose is a third tractor-as-metaphor story, given that the White House is the biggest piece of powerful machinery on Earth.

I’ve tried to bring this same sense of non-bravado professionalism to my farming activities, particularly whenever I’m around the tractor. I have to admit that it’s a work in progress, particularly on the overconfidence side. After all, I grew up in Alabama, where invitations like, “Hey, come on over, we’ve got a box of fireworks and a shotgun, so we’re gonna blow stuff up!” were not unknown. But there’s nothing like a slight feeling of “tippiness” while you’re sitting in that tractor chair with 2,000 pounds of gravel in the loader that you’re carrying juuuust a bit too high on a sideways slope that’s juuuust a bit too steep to refocus the mind into a more appropriate frame.

As importantly, and I think with more success, I’ve tried to bring this same measured sensibility to my investing activities, particularly whenever I’m around leverage. As with the tractor, the two devils to battle are overconfidence and distraction. That’s not to say that underconfidence — i.e., irrationally taking too little risk — isn’t a chronic problem for investment performance (Rusty Guinn’s recent notes are a must read on this!). An underconfident investor will inevitably suffer the cuts and sprains of underperformance. It’s the leading cause of high frequency, low severity investment accidents, and it’s hard to make a living in this business if you’re always banged up. But it won’t kill you. Not directly, anyway.

The tractor-as-metaphor is about fatal investment accidents, not non-fatal accidents. It’s about low frequency, high severity market events, which are almost always caused by the use of leverage in an overconfident or distracted manner. It’s not equipment error. It’s not a risk parity fund or an LBO fund posing some sort of inherent crash risk to markets. It’s the overconfident or distracted driver of a levered portfolio that poses crash risk to himself and to others, and that’s what we need to guard against in ourselves and in others.

How do we guard against overconfidence and distraction? By not confusing luck for skill (overconfidence), and by not getting bored with the long slog of compounded market returns (distraction). Or as expressed in Epsilon Theory-speak, by understanding the stochastic sea in which we swim. It’s not easy! And the smarter you are, the more prone you will be to hearing both devils whisper in your ear. Because you DO have skill, and it IS boring to invest with measured professionalism. But that’s the job. That’s the responsibility to yourself, your family, and your partners when you drive a tractor.

My macroeconomic story with tractor-as-metaphor also hinges on overconfidence and distraction, but the sources and mode are very different. The macroeconomic story focuses on the manufactured overconfidence and distraction that are intentionally imposed on us, creating a stable political equilibrium even as productivity growth grinds lower and lower.

Probably the biggest economic question in the world today is why productivity has stopped advancing, why we are no longer making more stuff with the people we’ve got.

US Labor Productivity Growth (2-year moving average)

Source: Bureau of Labor Statistics as of 7/13/17. For illustrative purposes only.

As I wrote in “Gradually and Then Suddenly”, how is it possible — with the most accommodative monetary policy in the history of the world, with the easiest money to borrow that corporations have ever experienced, with all the amazing technological advancements that we read about day in and day out — that companies have not invested more in plant and equipment and technology to improve their labor productivity? How is it possible that we’re not buying more and bigger tractors — not in the literal sense (although maybe that, too) — but in the figurative sense of doing more of what I do with my tractor on my farm: Repairing and Making in the U.S. economy.

My view: The reason companies aren’t investing more aggressively in plant and equipment and technology is BECAUSE we have the most accommodative monetary policy in the history of the world, with the easiest money to borrow that corporations have ever seen.

Why in the world would management take the risk — and it’s definitely a risk — of investing for real growth when they are so awash in easy money that they can beat their earnings guidance with a risk-free stock buyback? Why in the world would management take the risk — and it’s definitely a risk — of investing for GAAP earnings when they are so awash in easy money that they can hit their pro forma narrative guidance by simply buying profitless revenue?

Math is a funny thing. You can increase a ratio by enlarging the numerator OR by shrinking the denominator. But we are well and truly trained to focus on the earnings numerator of our most cherished metric for valuing stocks — earnings-per-share — not the share denominator. We’ve been well and truly trained to believe that’s what companies are supposed to do — grow earnings. So we don’t pay nearly as much attention to the total number of outstanding shares, either for a particular company or an overall market. In fact, the traditional meaning we attach to capital markets is that the total number of outstanding shares should naturally increase, either by new companies going public (IPOs) or existing companies issuing new shares to raise capital in order to buy “tractors” that will grow earnings faster than the cost of that new capital. This traditional meaning attached to capital markets — a transmission belt by which shares are issued for growth capital that increases the productivity of the firm — is dead and gone. Instead we have had a decade of shrinking share counts, as more companies leave public markets through acquisition or going private than enter through IPOs and as more companies use cash flow and debt to buy back shares. This — plus the aforementioned purchase of profitless revenue to satisfy a narrative of growth — is financialization. And it works. It increases both earnings-per-share and the multiple assigned to earnings-per-share (or revenue-per-share or bookings-per-share or whatever your market narrative demands) in a less risky and more predictable fashion than making more stuff at a lower cost and trying to sell it to more people at a higher price.

That’s what I think is going on with corporations, or at least the publicly traded companies that can easily tap into the magical elixir of financialization. Smaller companies and individuals don’t have this access. So why aren’t private companies buying more “tractors” to increase their productivity and make more money? Why aren’t individuals buying “tractors” to start a productive business where they make stuff to sell at a profit?

There are two popular explanations for this lack of productivity growth in the vast real economy of private companies and private individuals, both of which are two sides of the same coin, I think, as understood through the tractor-as-metaphor.

The first explanation is that we are measuring productivity all wrong today, that the glories of modern technology have succeeded in improving our quality of life even if they are not directly benefitting our gross national product. Put satellite position-tracking technology together with mobile telephony devices and electronic payment networks and voila! … on-demand driving services like Uber magically appear, making transportation a breeze. We’re not buying more cars, but we’re able to consume more driving. It’s what I’ll call “experiential consumption”, and it’s at the heart of all of these on-demand business models that absolutely dominate the modern economy, from transportation to education to food to retail to entertainment to politics. Yes, politics. Think about how you consume the experience of politics today, how it’s served up to you on a plate in on-demand fashion without requiring you to go out and actually participate in a political activity. If you don’t recognize that this is a conscious business model, no different than how Domino’s serves up pizzas in on-demand fashion, then I don’t know what to tell you.

The second (and related) explanation for productivity loss is that job growth since the depths of 2009 has been robust in low value-added sectors like healthcare services or leisure & hospitality, but meager in high value-added sectors like IT or financial services. By value-added we mean how much revenue or profits a human being, driving whatever “tractors” are common in that sector, can add to the firm’s coffers. A new hire in a software company or a bank, armed with all the leverage-increasing technologies and processes available in those fields, can add north of $300,000 to that company’s revenues. Unfortunately, there are fewer people working in IT today than there were in 2007 (!), and essentially no growth in financial services. On the other hand, a new hire in the leisure & hospitality sector adds only $50,000 or so to the hiring company’s revenues, but there are 20% more employees in that sector today than there were in 2007 (value added data from U.S. Commerce Dept. and job change data from U.S. Labor Dept.). The same phenomenon holds true for small business creation over the past decade, which has been dominated by low value-added gigs and personal services. It’s what I’ll call “experiential production”, and it’s at the heart of all the personal training and personal shopping and personal tutoring and “lifestyle” businesses that have cropped up after the Great Recession like mushrooms after a spring rain.

Over the past eight years we have thrown our money into relatively unproductive activities (experiential consumption), and we have thrown our bodies into relatively unproductive jobs (experiential production).

It’s as if we’ve intentionally returned to the recommended farming practices of Cato the Elder in 200 BC, where instead of a tractor with a 43 horsepower engine to get the work done, we’ve got “a foreman, a foreman’s wife, ten laborers, one ox driver, one donkey driver, one man in charge of the willow grove, and one swineherd”. Because god forbid we miss out on the experience of being a swineherd. Hey, with modern technology, you can drive for Uber herd swine whenever you like. Just imagine the personal satisfaction, not to mention all that extra cash, that comes with “being your own boss” as an on-demand swineherd.

It’s as if we’ve intentionally returned to the recommended farming practices of Cato the Elder because it IS intentional.

There is a very stable political equilibrium to be found in convincing a citizenry to trade, in Biblical terms, their birthright for a mess of pottage, or, in early 20th century terms, their townhouse for a string of pearls, or, in early 21st century terms, their sense of self-worth and self-actualization for the meme of “being your own boss” as an on-demand swineherd. There is a very stable political equilibrium to be found in convincing a citizenry to value experience and identity over stuff.

And yeah, I know this is coming across as all materialistic and crass. I know it’s rank heresy to say that it’s better to buy a tractor than to take your family on “the vacation of a lifetime”, that it’s better to stay an extra hour at work crunching on a project than to “take a little me-time” at the yoga studio. I know that it’s social suicide in red states to say that fighting over gender identity and who can use what bathroom is stupidity incarnate, just as it’s social suicide in blue states to say that diversity isn’t even a top three goal of anything that matters, much less an end-all-and-be-all goal, and by the way you’re bonkers if you think the Russians altered the 2016 election by one iota. These are all intentionally manufactured diversions of the first order, combined with a preening overconfidence generated by the wealth effect of intentionally inflated financial assets, creating a politically stable Western society of division, diversion, and debt. Yeah, that’s my heresy.

Why is it stable? Because it takes governments off the hook. Taken a ride on BART recently? The NYC subway? I have, and they’re appalling. But there’s no public outcry for Repairing and Making these systems and hence no need to spend the money that doesn’t exist or raise the taxes that can’t be raised or make any of the hard choices that can’t be made without running the risk of upending the entire municipal political system. There’s no public outcry because you’ve got an army of on-demand swineherds cruising the streets of the city providing driving services for everyone who wants to consume that experience. It’s the same tacit social equilibrium with EVERY government function and service in the modern Western world. Including defense. Including banking. Especially banking.

So what’s to be done?

Well … you’re not going to change this from the inside or from the top down. You’re going to change it from the outside and from the bottom up. It’s going to be a movement. It’s going to be a Maker movement and a Protector movement and a Teacher movement.

It’s happening now, at least on the Making side of things (Protecting and Teaching are a little more enmeshed with government monopolies, so that may take a bit of time). It’s happening with every Maker Faire and every public library with a 3D printer and every kid who learns to solder.

And every old guy with a tractor.

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