Markets
With the recent talk of reddit being cannibalized by bitcoin technology, I thought it a good time to post something I’ve been thinking about for a while. Could a completely decentralized startup one day rival the likes of Google, Facebook and Amazon?
Within the bitcoin world there’s a common understanding that the most valuable thing about bitcoin is not the monetary currency but the underlying “blockchain” technology that the bitcoin currency runs on. For those unfamiliar, you can check out three heavily-funded ventures creating infrastructure that would enable anyone to program applications on the blockchain that go way beyond monetary currencies: Ethereum,Swarm and Blockstream.
One such application is what’s known as a “Distributed Autonomous Organization,” which is an organization like a corporation, government or NGO, but which has no central leadership and uses internet technologies to organize and function. Examples of DAOs that you are familiar with include open-source software systems like Linux; terrorist organizations like Al Qaeda; communities like Anonymous; and …
Adjacent Possible, Agency, Alternative Institutions, Architecture, Computation, Crowdsourcing, Economics, Emergence, Incentives, Innovation, Investing, Markets, Politics, Socio-technical systems, Superorganism ,
My TED Talk on the Magic of Crowdfunding
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Adjacent Possible, Alternative Institutions, Cooperation, Crowdsourcing, Economics, Incentives, Investing, Markets, Scarcity / Abundance, Social Entrepreneurship, Social Networks, TED ,
I have a new column on Unreasonable.is, which is where this five part series is published:
- Part 1: The JOBS Act will unlock $30 Trillion in long-term investment capital that can legally be invested in startups and small businesses through crowdfunding portals.
- Part 2: Currently, investors have a stranglehold on the fundraising process. Once the JOBS Act is implemented, there will be a leveling of the playing field in which entrepreneurs and citizen-investors control the process.
- Part 3: Investment crowdfunding enables individuals to invest in companies they are passionate about, and in so doing, outperform professional investors.
- Part 4: “Do you want to sell sugar water for the rest of your life or do you want to come with me and change the world?”
- Part 5: There is a second revolution coming: investing directly in people. When it collides with crowdfunding, this will create a perfect storm….
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Adjacent Possible, Alternative Institutions, Cooperation, Crowdsourcing, Economics, Happiness, Incentives, Markets, Scarcity / Abundance, Social Capital, Social Entrepreneurship ,
In my last blog entry I talked about the perils and evils of debt for both the lender and debtor. Here I’d like to discuss an alternative which I believe could replace the entire concept of debt.
Revenue sharing, sometimes referred to revenue-based finance and income-contingent loans, is just recently starting to take off. The White House is making a big push for income-based repayment of student loans.* And at least two private (and highly capitalized) startups are launching soon to provide revenue-based financing options for individuals who agree to pay a portion of their future income in exchange for cash upfront.
With U.S. consumer debt topping $2.5 Trillion and student loans now totaling over $1 Trillion, it’s no wonder that there’s a lot of interest in revenue-based finance. Let’s look at several common debt scenarios and see how they could be different — and better for all parties — if they were based on revenue-sharing instead.
There are many ways to structure a revenue-share …
Alternative Institutions, Cooperation, Economics, Incentives, Interventions, Investing, Markets, Scarcity / Abundance, Social Capital, Trust ,
Here are some things I used to believe:
- The power of the free market comes from competition
- If you are nice to someone, you will be rewarded commensurately
- A penny saved is a penny earned
- The more scarce something is the more valuable it is
I no longer believe these statements to be true. To understand why, I’d like to share a little of my journey as an entrepreneur and investor.
In the mid to late ’90s I was working on a startup and getting my feet wet as an angel investor in Silicon Valley. I, like everyone I knew, was an adherent of the Chicago School of Economics and the Efficient Market Hypothesis. One of the mantras of this religion is that
The invisible hand of the marketplace will feed us all, but we have to compete vigorously with one another for it to work its magic.
Signing a Non-Disclosure Agreement on a first date — that’s not just good business, but a moral …
Adjacent Possible, Alternative Institutions, Competition, Cooperation, Economics, Incentives, Investing, Invisible Etiology, Markets, Scarcity / Abundance, Social Capital, Social Entrepreneurship, TED, Trust ,
- Startups add an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually. (ref)
- Without startups, job growth in the US would be negative 1.2 percent. (ref)
- Angel investments created 370,000 U.S. jobs in 2010, nearly half of the private sector jobs created that year. (ref)
- 265,400 individuals provided $20.1B in angel investment capital to a total of 61,900 entrepreneurial ventures in 2010. (ref)
- In contrast, the private equity industry invested $180B in 2010. (ref)
- Historically, angels invest $50B per year into 50,000 companies, representing 70% of capital for new ventures; 11 times more than the amount provided by Venture Capitalists. (ref)
- The long-term historical return of the U.S. Angel market is 27% annually, three times higher than the public stock market. (ref)
- Warren Buffett’s historical return is 24% annually. (ref)
- Venture Capital historical returns are around 20%, but over the
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Economics, Innovation, Investing, Markets ,
NPR’s On The Media recently had a series of interesting segments on the future of the internet:
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A theme that ran through was how the security and utility of the internet is threatened by the complete lack of built-in trust mechanisms. How do you know you can trust who you are dealing with online? How do you know what information to believe that you read online? How do you know your online accounts are not completely compromised by hackers right now, and that your bank account isn’t being drained as you read this?
Many people rightly fear that legislating or enforcing new internet protocols to address these issues would lead us down a slippery slope, trample our basic rights of free speech and freedom of assembly, and would ultimately toss …
Interconnectedness, Markets, Networks, Social Networks, Socio-technical systems, Trust Interconnectedness, Markets, Networks, Social Networks, Socio-technical systems, Trust,
The following quotes are from a book describing a real set of events:
[The incident] is an extraordinary example of what happens when you get… a dozen people with an average IQ of 160… working in a field in which they collectively have 250 years of experience… employing a ton of leverage.
It’s hard to overstate the significance of a [government-led] rescues of a private [corporation]. If a [company], however large was too big to fail, then what large [company] would ever be allowed to collapse? The government risked becoming the margin of safety. No serious consequences had come about in the end from the… near-meltdown.
Was the incident:
a) The savings and loan scandal
b) The collapse of Enron
c) The sub-prime mortgage meltdown
d) none of the above
First correct answer gets to invest in an exciting new bridge project I’m involved with in New York!…
Economics, Government, Incentives, Interconnectedness, Interventions, Markets, Non-linearity Economics, Government, Incentives, Interconnectedness, Interventions, Markets, Non-linearity,
I’ve been having a serious discussion with two colleagues of mine about closing the gap that exists between two groups:
- People of my generation (40 and older) who have capital they want to invest in innovation but only know the VC for-profit-only value model and don’t have any true view into or understanding of social entrepreneurship business models;
- People coming out of college today (27 and younger) who are actually creating untold value for the world without taking on investors because they don’t (a) know how to attract them, and (b) have heard too many horror stories
Jay and I fall into category 1 and Michael falls into category 2. All three of us agree that the gap above exists — due in part to rapidly declining startup costs — and represents a very real (and lucrative) investment opportunity if it can be closed properly.…
Alternative Institutions, Management, Markets, Social Entrepreneurship Alternative Institutions, Management, Markets, Social Entrepreneurship,
I have been having a 140 character discussion with Ciarán Brewster (@macbruski) via twitter. And while it’s kind of interesting to force complex subject matter into very few characters, it is limiting the discussion, so I will summarize it so far here and hopefully others can weigh in too.…
Alternative Institutions, Autism, Crowdsourcing, Limits of Knowledge, Markets, Science, Science 2.0, Socio-technical systems Alternative Institutions, Autism, Crowdsourcing, Limits of Knowledge, Markets, Science, Socio-technical systems,
A friend pointed me to a doubly prescient talk given by George Soros in 1994 about his theory of reflexivity in the markets. Essentially Soros notes that there’s feedback in terms of what agents believe about the market and how the market behaves. Not groundbreaking, but he takes this thinking to some logical conclusions which are in contrast to standard economic theory:…
Agency, Causality, Economics, Government, Interventions, Limits of Knowledge, Markets Agency, Causality, Economics, Government, Interventions, Limits of Knowledge, Markets,
I’m giving my “2009 Q1 award for most concise, lucid comment” to Paul Phillips for this gem:
Viewed from a thousand miles, the financial system has a incalculably large incentive to fail catastrophically as frequently as it can do so without killing the goose that lays the golden eggs.
As long as there is such a thing as “too big to fail” and trillions of dollars are available for siphoning, according to what logic can this cycle be dampened? Nobody has to explicitly pursue this outcome (although there are many who will) for it to be inevitable; the system obeys its own logic above all else.
[ commenting on Alfred Hubler on Stabilizing CAS ]
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Autocatalysis, Blog Comment, Economics, Incentives, Interconnectedness, Markets, Non-linearity, Stability Autocatalysis, Blog Comment, Economics, Incentives, Interconnectedness, Markets, Non-linearity, Stability,
A few articles on the economy that were sent my way recently.
“The era of transition that we are entering will be disruptive—but it may bring a world where markets are servants, not masters.” I urge you to read this entire article, and leave your ideological biases at the door. Despite the title, this is no polemic. Here’s the punchline:
Contemporary biology and social science has confirmed just how much we are social animals—dependent on others for our happiness, our self-respect, our worth and even our life. There is no inherent contradiction between capitalism and community. But we have learned that these connections are not automatic: they have to be cultivated and rewarded, and societies that invest large proportions of their surpluses on advertising to persuade people that individual consumption is the best route to happiness end up paying a high price.
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Culture, Economics, Epistemology, Incentives, Interventions, Limits of Knowledge, Markets, Non-linearity, Scarcity / Abundance, Social Entrepreneurship, Society, Stability Culture, Economics, Epistemology, Incentives, Interventions, Limits of Knowledge, Markets, Non-linearity, Scarcity / Abundance, Social Entrepreneurship, Society, Stability,
With his permission, I am posting an email thread between myself and Alfred Hubler. I had contacted him on the recommendation of John Miller when Kevin and I were posting on the possibility of dampening boom-bust cycles in the financial markets through policy or other mechanisms. Here’s what Hubler had to say:…
Alternative Institutions, Autocatalysis, Causality, Economics, Interconnectedness, Interventions, Management, Markets, Networks, Non-linearity, Politics, Self-Fullfilling Prophecy, Socio-technical systems, Stability Alternative Institutions, Autocatalysis, Causality, Economics, Interconnectedness, Interventions, Management, Markets, Networks, Non-linearity, Politics, Self-Fulfilling Prophecy, Socio-technical systems, Stability,
I asked this question on twitter/facebook and got a lot of variants of “I agree” and only one person who stated disagreement (but provided inadequate reason, IMO). Jay Greenspan put it this way:
Interesting question this morning, and something I’ve been wondering about. I’ve yet to see anyone really argue that state of non-regulation we’ve been in for the last years has been a good idea. I’ve heard some thoughtful conservatives talk about how their views have changed radically — coming to understand that forceful regulation is absolutely necessary.
The super-conservatives I’ve seen are talking more about taxes, avoiding the subject. I’d be very interested to see a credible argument for a hands-off approach.
So how about it, anyone game to take up a considered argument for not mandating that companies who get big enough to affect the global economy should be broken up or otherwise handicapped?…
Economics, Government, Interconnectedness, Interventions, Markets, Networks Economics, Government, Interconnectedness, Interventions, Markets, Networks,
1) The Quiet Coup
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
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Cognition, Economics, Government, Interventions, Markets Cognition, Economics, Government, Interventions, Markets,
I have a bet with a friend that Dow will exceed 14,000 at least once by October 12, 2012 (he says it won’t).
Click here to make your prediction on what year that will take place.
Comment below on why you think what you think.…
Economics, Markets Economics, Markets,
In a March 2009 Wired article, Daniel Roth calls for radical transparency in financial reporting as the path to recovery and a more secure financial system. He argues that the reporting requirements today allow companies to obscure what’s going on and that the way to fix things is as follows. Embrace a markup language with which bite-sized chunks of standardly defined pieces of financial data are thrown out to the world so that users can crowdsource the true picture of a company’s financial health.…
Common Knowledge, Crowdsourcing, Economics, Incentives, Interventions, Markets, Mutual Knowledge, Stability Common Knowledge, Crowdsourcing, Economics, Incentives, Interventions, Markets, Mutual Knowledge, Stability,
In Chasing the Dragon, I wondered aloud whether we could dampen boom-bust cycles in the financial system with an economic equivalent of a controlled burn. Kevin suggested that “generic countercyclical policies” might work. Underlying both mine and Kevin’s thinking is the idea that you can possibly do better (for the world as a whole) by (a) understanding the entire economic system better and (b) enacting policies which are in line with that understanding. In contrast to these assumptions are a point of view articulated by one of the readers on a different thread:…
Alternative Institutions, Economics, Incentives, Interventions, Markets, Memes Alternative Institutions, Economics, Incentives, Interventions, Markets, Memes,
Kevin just posted about a great article by Felix Salmon in Wired. I underlined three quotes in my reading of it:
- “Correlation trading has spread through the psyche of the financial markets like a highly infectious thought virus.” (Tavakoli)
- “…the real danger was created not because any given trader adopted it but because every trader did. In financial markets, everybody doing the same thing is the classic recipe for a bubble and inevitable bust.” (Salmon)
- “Co-association between securities is not measurable using correlation…. Anything that relies on correlation is charlatanism.” (Taleb)
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Alternative Institutions, Economics, Incentives, Interventions, Markets, Memes, Models, Non-linearity, Psychology, Stability Alternative Institutions, Economics, Incentives, Interventions, Markets, Memes, Models, Non-linearity, Psychology, Stability,
I typed “social entrepreneurship tax credit” into Google and the top result was this page on BarackObama.com. There are some good ideas there, and I hope they get implemented once he takes office. But I’d like to see even more.…
Alternative Institutions, Incentives, Markets, Social Entrepreneurship, Society Alternative Institutions, Incentives, Markets, Social Entrepreneurship, Society,
This is a response to Kevin’s post responding to my post.
Rafe makes an analogy to cells within a multicellular organism. How does this support the assertion that there will only be one superorganism and that we will need to subjugate our needs to its own? Obviously, there are many multicellular organisms. Certainly, there are many single-celled organisms that exist outside of multicelluar control today. So where is the evidence that there will be only one and that people won’t be able to opt out in a meaningful sense?
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Agency, Climate, Emergence, Government, Levels, Markets, Models, Networks, Singularity, Socio-technical systems, Superorganism, Technology Agency, Climate, Emergence, Government, Levels, Markets, Models, Networks, Singularity, Socio-technical systems, Superorganism, Technology,
Google Labs has a new service called “In Quotes” which might be tweakable to do a truth market of sorts. Here’s the suggestion I just emailed them on this topic:
I would love to use Google “In Quotes” to crowdsource measures of truth.
For instance, I just saw this:
“In a world of hostile and unstable suppliers of oil, this nation will achieve strategic independence by 2025,” said Mr. McCain during a campaign speech. [ Wed, 29 Oct 2008 Washington Times ]
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Crowdsourcing, Markets Crowdsourcing, Markets,
Best Reader Comment Award
I’m giving my “2009 Q1 award for most concise, lucid comment” to Paul Phillips for this gem:
…Autocatalysis, Blog Comment, Economics, Incentives, Interconnectedness, Markets, Non-linearity, Stability Autocatalysis, Blog Comment, Economics, Incentives, Interconnectedness, Markets, Non-linearity, Stability, 1