Crypto Traders Learn the Market is a Discounting Mechanism

Or, DOGE is (Probably) Not Going to a Dollar

Anybody who has spent a little bit of time thinking about the market has probably heard “the market is a discounting mechanism.”

Generally speaking, this means that the market takes into account all publicly available information and prices it in to the price of the asset. This is why your property values don’t suddenly spike when there’s a regularly scheduled NFL game happening next weekend. It’s also why Black Friday doesn’t cause a spike in retailer stocks unless it’s a surprisingly good and busy Black Friday. It’s also why a company’s stock sometimes slips when a company meets or beats earnings expectations — the market was already optimistic with respect to EPS for this company and that ratcheted up what needed to be shown to outpace what was priced in leading up to earnings.

Any information that is widely publicly available is probably already priced in. Unless you have true insider information, you’re probably not gonna make your gains purely on information.

Alas, this lesson is hard-earned for those just getting into new markets for the first time. Case in point is hype and subsequent implosion of Dogecoin leading up to and following Elon Musk’s appearance on Saturday Night Live. This would be funny if it weren’t for how many well-intentioned people got burnt by hucksters. And unfortunately, it won’t be the last example of people thinking they’re getting ahead of the market when they are the market.

Crypto has been particularly affected by this fallacious line of thinking as it’s become easier for novice traders to get started in the space and for a few influencers or big names to move entire markets given the small market caps and relatively high composition of the market being retail investors.

Never mind that many of the influencers peddling different altcoins disclose neither their personal ownership nor any compensation by the teams behind those coins, hucksters have easily cropped up shilling everything from has-been altcoin Litecoin to memecoin Dogecoin and derivatives like HOKK, SHIBA, Safemoon and other transparent scams or quasi-scams.

(Dave Portnoy of Barstool Sports endorsed Safemoon yesterday, even saying, “Is it a Ponzi scheme? I don’t know, but if it is, get in on the ground floor.” nb: that every Ponzi scheme says you’re getting in on the ground floor until it implodes. I appreciate his honesty, at least.)

There are plenty of problems with all of these new get-rich-quick schemes at what sure seems like the top of a manic crypto market. Coffeezilla has covered a few on his YouTube channel here (DOGE), here (Safemoon), and here (DOGE again). He does excellent work and is not unfair to the potential that cryptocurrency has in the future.

My issue in this post is with this fallacious and dangerous thinking that you’re somehow going to get ahead of the market on news that everybody else has. This is the idea that somehow Elon Musk is going to go on Saturday Night Live (?? As if that’s a real serious point of cultural influence in 2021?) and say something that will lead markets to flood with buy orders for DOGE.

There are real hucksters out there selling this idea to people. They are using FOMO (fear of missing out, for the uninitiated) to drive more retail investors into their pet projects to drive up the price before they dump it.

Case in point:

But just take a minute to think through what would have to happen for this to be true. Just take what seems like a conservative jump by this guy’s estimates: DOGE @ $1 (nearly doubling the market cap) after SNL.

Either:

  • Elon would appear on SNL and give a hugely credibly endorsement of Dogecoin that it floods more than $60B into the market from A LOT of retail investors; or,

  • Elon appearing on SNL would drive institutional money into this memecoin in the hopes that it would somehow keep going up.

Long-term institutional investors know that Dogecoin has no real technical underpinning, so any institutional money that does flood into the coin is just taking advantage of short term movements based on the mania driven by retail investors.

So both scenarios are absurd.

Do you know what’s less absurd?

People who own these cryptos telling you they are going to go up to a certain specific price based on publicly available information and anticipation, hoping that you’ll buy in, inflating the price, so they can back out (well below the price point they mentioned but well above a profit point for them).

Take for example SHIBA, which started flooding casual socials right after DOGE crashed following Elon’s SNL appearance. Same thing happened here: people who got in early and were influential in smaller, tight-knit communities told people, “this is the next Dogecoin,” right after money flooded out of Dogecoin. It spiked a few days later, these people cashed out, and left those coming in with the bag.

This doesn’t mean that news can’t influence asset prices, of course it can. Tesla taking Bitcoin spiked the price of Bitcoin. The FDA approving a drug spikes the price of the pharma company stock. What matters is that this news isn’t publicly known until it is. By the time everybody and your uncle is talking about the Dogefather Skit on the upcoming SNL episode, the news has been priced in.

Some new hitherto unknown news would have to be announced, like Tesla taking Dogecoin, to justify the mystical spike-that-never-happened that crypto influencers were selling their audiences.

The market prices this kind of stuff in.

Put a simpler way, when your Uber driver tells you about a stock or a crypto, it’s time to sell.

Chesterton's Fence

Or, When to Step Back and Think About Complex Problems

Imagine that you’re working on a project in the middle of the country. You stumble upon a fence on a plot of land. The fence doesn’t immediately appear to have any real purpose or sense of being there — it’s just getting in your way. Should you tear it down?

No, says GK Chesterton in his book The Thing. In fact, he says if you don’t know why it’s there, all the more reason to leave it up and work around it until you have a better sense of why exactly the fence is there:

In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, “I don’t see the use of this; let us clear it away.” To which the more intelligent type of reformer will do well to answer: “If you don’t see the use of it, I certainly won’t let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.

This idea of reform vs. destruction is more commonly known as Chesterton’s Fence and I like to think of it as a mental model to go alongside the Nirvana Fallacy. Where knowledge of the nirvana fallacy keeps us from falling into a status quo bias, Chesterton’s Fence implores a bit of humility and asks us to take a step back and think in terms of “reform” rather than “replacement,” at least until we hit a certain epistemic threshold.

This is a particularly helpful foil when thinking about solving very longstanding and complex problems, especially those that have some kind of cultural purpose. Solutions rarely come about as a function of top-hatted billionaires sitting in smoke-filled rooms and plotting some kind of conspiracy to create a terrible policy or product or system that will hurt lots of people. Rather, they’re spontaneous orders, the products of human action but only of human design on the smallest components. At the most meta-level of norms and mores, these things look more like language than they do formal rules developed in an academy. Hayek’s “Cosmos and Taxis,” a decidedly not conservative document, is one of the first to make me take a step back and realize that most of the saber-rattling that radical replace-not-reform movements have can have terrible consequences.

Meta Examples: Culture is Complex

Classic meta-examples of not following the warnings of Chesterton’s Fence are the horrors of the French Revolution and the fruits of new secularism today. The French Revolution was so radical in tearing down these fences that the Jacobins went as far as creating an entirely new calendar. The systems and norms they tore down only laid the groundwork for the Reign of Terror and eventually the rise of Napoleon.

I would go as far as to say that we’re living through a modern-day fence-destruction in how quickly Western societies have made useless religious institutions. In part as a rejection of supernaturalism and in part as a rejection of the conservative norms that these institutions brought with them (although I don’t think the sexual revolution explains everything here), the average American has decided that he no longer really needs to go to church, no longer needs to confess his sins, and no longer needs to teach his children about basic tenets of Western civilization encapsulated in the Judeo-Christian texts. It’s hard to draw a causal relationship, but this is likely a factor in increasing atomization, decreased optimism, decreased life satisfaction, and a whole host of other issues.

Practical Examples: Politics, Education, Technology

A few quick practical examples would include areas of politics, education, and technology generally.

Within politics, you’ll often see a push to clean up or destroy political machines. I see this most often from friends and acquaintances who are sick of losing with respect to their preferred political outcomes and decide to get up and leave to somewhere better. While exit here is likely preferable to destruction, there’s a complex game being played inside the political machines and just getting up and leaving doesn't 1) guarantee you won’t run into a political machine elsewhere; and 2) solve the initial problem of the political machines.

Political machines are, in my mind, complex regulatory mechanisms that allow a city or region to run with the interests of the people who are most invested in that region in mind. Sometimes this is good, sometimes it’s bad. Political machines are merely tools, not something good or bad in and of themselves. But what happens when you decide to clear out the political machine and just have “democracy” or whatever the purest equivalent is? I’m not convinced it isn’t either complete chaos, with the people who were formerly most invested in the political machine now having to resort to either outright corruption or grey markets, or something far worse: credentialist “meritocracy.”

Ask yourself: would you rather your city be run by the guy with deep local connections who is elected due to these connections (some of which you don’t particularly like) and his local knowledge or would you rather your city be run by a group of Georgetown MPPs and their JD friends who have been grooming themselves since 10 to run for office? Which do you think would actually better serve the interests of the people in the city?

Another example, one less fraught with peril and perhaps more applicable to a reader’s life, would be in education. I am one of the first people you’ll find saying that education needs to be reformed — I go as far as saying that school in and of itself has adverse effects on development and ambition. But it’s a mistake to come to frustrations in the educational system and imagine that that must mean that the whole system is silly or stupid or must be dismantled.

I actually think this is well illustrated by the reformer-destroyers of yesteryear when it comes to education: the folks who went to Prussia, studied the Prussian industrial education model, and brought it back to the States. It would have been easy for them to look at things like how much time children spent at home working around the farmstead or the market as inefficiencies and as time that could have been spent in the classroom. But this time away from the classroom is what made it possible for the family to run family businesses or a family farm. It’s no wonder that within a few generations — around the time of the Boomers — the desire or ability to take over the family farm or family business was essentially eradicated.

Today, I worry there’s a similar push with the desire for universal Pre-K or in the cultural practice of both parents working and having their child watched by strangers at an “educational” daycare center. Children, especially very young children, learn a lot from unstructured interactions with other people.1 They need this time to play and to have totally unstructured activity time with other young children. This is how they learn social rules, norms, and mores that are otherwise difficult or impossible to make teachable in the classroom. This time that otherwise looks “wasted” is actually a Chestertonian fence that shouldn’t be torn down, as we don’t know what the alternative outcome will look like.

And that brings me to technology generally. I consider myself a techno-optimist. I want to see a future where people live for 100+ comfortable years, where we feel that scarcity is a thing of the past, and where we think about taking our annual vacations to Mars. But I also don’t want smart and talented founders and prospective founders wasting their time on solutions in search of a problem. The over-academicization of everything is partially responsible for this. So much technology has to come out of university tech transfer programs that millions upon millions is spent on solutions looking for problems.

More simply, it’s not uncommon that I hear a pitch for a problem that I hear a lot. But nobody has been able to come up with a solution to that problem that seems to stick.

This tends to mean there are one of two scenarios going on.

Either:

1) This problem is so incredibly hard to solve that the person who does solve it will almost certainly become a billionaire; or,

2) This is a pseudo-problem — it looks like a problem but there’s actually a reason it exists.

The best way (that I’ve identified) for a founder to differentiate between these two is to get as far down into the weeds as possible into what the problem really is. Is there a very high-resolution way you can test for that problem and get people to part with some money or time to try your solution?

I’ll probably go deeper into this with a post on revealed vs. stated preferences and how this interacts with that foil, but a key takeaway here is that sometimes things that look like problems really aren’t. They may simply be imperfect solutions for even bigger or more unpleasant problems and trying to solve for them may be a fools’ errand.

(I see this a lot with marketplaces, especially those trying to disrupt broker-client relationships. Brokers often exist because they have a set of complex tacit knowledge that would be difficult to institutionalize in a software product.)

The key point of knowing Chesterton’s Fence is simply to take a step back and examine why frustrations or apparent problems may exist before launching into finding solutions. Get as granular as you can about what the problem is and try to ask yourself, “why might this annoying thing exist? Is it trying to solve something that I don’t understand myself?” And go from there.

1

See Peter Gray’s excellent book Free to Learn for a lot of information on this.

The Basics of Disaster Prep

Or, How to Prepare without Being a "Prepper"

This past weekend, I was invited to join a friend and his neighbors to discuss the fundamentals of disaster prep. I joked with them that I don’t know why they thought of me as I don’t have some kind of disaster prep credential.

Realistically, I have thought quite a bit more about this topic than the average person — especially the average person in the city I currently live in. This city is rather safe from natural disasters and even social unrest. I told the attendees that disaster prep is less about being the guy in your basement with 15,000 rounds of ammunition, 50 pounds of gold, and a Ron Paul banner and more about having the competence of a Boy Scout. And that disaster prep can mean being prepared for social unrest but it can also mean simply being prepared for losing power for two weeks.

For these specific people, I was actually very optimistic about their ability to manage survival for two weeks of some kind of unrest or disaster. They live in a close-knit neighborhood with a lot of other families and numerous people there have important niche skills like first aid, ham radio experience, hunting, and some own guns. While I think it would be ideal to be in a community like this in the country, being in a community like this period is more than most people can say

In 2015, I lived in Charleston, SC when Hurricane Joaquin swept through the region. The downtown flooded, food stopped showing up at grocery stores, and many folks were without power for 4, 5, or even 6 days. I had to flee town to Atlanta to a friend’s friend’s place. Had I not had that place to go to, I likely would have had to have gone even further to find a hotel with availability. I was not prepared for that scenario and it convinced me that I needed to be prepared for similar scenarios going forward.

The below is a short set of notes I wrote for the conversation — it’s very basic and likely could use some refinement, but I thought it would be interesting to share for you here.

To the discussion, I brought a BIC lighter and a 2021 USA road atlas for demonstrative effects. It’s too easy to get caught up buying fancy kits or weird survival! gear when in reality, you need to know how to use analog tools like a road atlas and the best tools will often be the simplest like a BIC lighter. You don’t need to break the bank to be prepared.


Being Prepared - Basics

So you want to be prepared. Congratulations! This is the first step towards capping your downside in the unlikely but totally devastating possibility of societal collapse, instability, riots, or other social unrest.

This short document will walk you through some of the “Preparedness 101” recommendations that I’ve developed over my years of increasing paranoia about being prepared. Remember, the point of preparation isn’t necessarily to do or find things that are currently useful -- it is to cap your downside in the unlikely possibility of utterly devastating events. You can think of preparedness like life insurance.

This guide will walk you through what you need to think of from a 30,000 foot perspective and what you need to order as soon as you go home. There are numerous “preparedness” scenarios for which you can be prepared, but we want you to have the bare minimum to navigate the base and most likely scenarios.

30,000 Feet: Preparedness, not Preparation

The motto of the Boy Scouts includes “BE PREPARED.” I want you to think about preparation as if you were embarking on being a Boy Scout (indeed, if you were actually a Boy Scout, many of the skills you learned through that program will come in handy). You want to be well-rounded enough that no matter the serious upheaval that comes your way, you will feel at least “prepared.”

Being prepared doesn’t mean being an expert. It means knowing enough to navigate your way through instability and not (and this is the important part) necessarily rely on another person.

In other words, consider Heinlein’s line from Time Enough for Love:

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyse a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects. (Emphasis added.)

As such, being prepared does not require you to become an expert in any one specific area. It just requires you to be competent enough to navigate a series of fundamental problems you may encounter during a period of increased social upheaval or instability.

Be prepared for two weeks of independent survival. 

Social Upheaval: The Breakdown of Bonds

You should think about any period of social unrest as being a general breakdown of artificial social bonds that hold polite society together. Governance is, loosely speaking, social bonds at scale. In un-scaled communities, governance is taken care of by neighbors and extended family (think of the night watchman neighbor or the uncle who keeps the peace in a small village). At scale, we hire people to help with these kinds of things. We hire policemen, utility workers, truck drivers, supply chain managers, grocery store employees, and so forth.

Social unrest cuts these artificial bonds. The police don’t show up when you call them because they’re overwhelmed. The truck drivers don’t appear at the grocery store because there’s no fuel for trucks. The food doesn’t stay on the shelves because intermittent electricity spoils that which requires refrigeration, and so forth.

So the very best thing you can start with to be prepared -- beyond basic supplies preparation (below) -- is to develop strong social bonds. Get to know your neighbors, have a plan for what to do if things get rough, have people you can call upon to help you with food, safety, childcare, and health most basically.

And as a general rule, forget about the lone prepper stereotype from zombie apocalypse movies. Nine times out of ten, you’re going to want more people around you, not fewer.

Defense: Home & Personal

One of the first things that comes to people’s minds in terms of preparing for any breakdown of social order is guns. But people overcomplicate this (gun aficionados don’t help here, with YouTube videos like Ten Guns You Need This Year!).

Simply put, you need something that will keep you and your family safe.

If you are uncomfortable with guns or are uncomfortable with having them in your home due to small children or somebody in the household, strongly consider making sure that one of your neighbors is comfortable with guns. 

Then consider ways you can minimize making yourself and your family a target in times of social unrest. Avoid anything flashy that would make looters or those who are desperate want to engage with you.

You may want to consider a dog. There are upsides and downsides to dogs -- they’re costly, take up space, must be trained, and mean you then need to prepare dog food and a plan to transport the dog if you need to flee. But they are also excellent home security accessories if you are inclined towards home ownership. 

If you are comfortable with gun ownership, don’t get too caught up in debates over The Best Gun You Can Have For X Purpose. A semi-automatic long rifle can double for home defense and hunting if necessary and is often easier to use than a shotgun (for some entertainment, look around for YouTube videos of women using 12 gauge shotguns vs. AR-15s after comments made by a prominent politician some years ago). Ammunition is often more expensive for semi-automatic rifles, though. .22 longrifle ammo is usually affordable and sufficient for basic defense and hunting needs if you are truly in a pinch. 

This is a very basic set of recommendations. It’s easy to write a series of essays on this topic alone. Happy to engage further on it privately.

Health & Wellness

This one is relatively simple.

Know how to dress basic wounds and have the supplies to do so. A family first aid kit is a good place to start, plus some rubbing alcohol. I recommend getting CPR certified, as well.

Have extended supplies of your prescription drugs on hand.

Food & Utilities

Have some basic preparation for food supplies if there are supply chain breakdowns, utility collapses, or anything that would prevent you from going to the grocery store to get food and then store it in a refrigerator. You want to have at least 2,000 calories/person/day. So for a family of 4 over two weeks, you’ll need 112,000 calories on hand.

Costco and Sam’s Club both sell emergency food kits. Probably good to get these. Also get rice, coconut oil, grains (oatmeal), and proteins that store easily.

Learn how to do basic hunting, fishing, trapping if you can. A good AR with lots of ammo can substitute for a hunting rifle if you need it but ammo is expensive.

Alcohol would likely be helpful in a period of supply chain collapse, at least for bargaining needs. You may want to consider stockpiling cheap alcohol that stores well, like vodka and whiskey.

What about chickens? During 2020, a lot of people expressed interest in getting chickens and growing their own little victory gardens. The reality is that if you live on a plot of land in a city, you’re probably not going to be able to farm enough calories to sustain yourself and your family for an extended period of time. A single egg is only ~50-70 calories and chickens are themselves calorically expensive. You’re better set storing extra shelf-stable food and checking it at least twice/year to keep it up to date.

Cooking: Do not forget about cooking needs. Do not assume utilities will remain on, even gas and clean water (clean water is a distressingly fragile supply chain). Get a supply of gas and burners on hand. Basic camping supplies will suffice for at-home and on-the-go.

The Nitty-Gritty: Your Personal Preparation Kit & Home

Go-Kit: 

  1. Guns

    1. Handgun

    2. Rifle

    3. Shotgun

  2. Ammo

  3. Food & Water supplies

  4. First Aid Kits

  5. Radios

  6. Flashlights

  7. Lighters

    1. BIC lighters

  8. Batteries

  9. Gas or Generators

  10. Maps

    1. Local and national

    2. Escape routes -- remember that highways will be crowded

  11. First Aid Kit

  12. Medicine & Prescription Drugs

  13. Entertainment

  14. Bible

  15. Legal documents

  16. Cash

  17. Alcohol

At Home:

  1. Guns

  2. Ammo

  3. Food & Water Supplies

    1. 15 gallons/person/two weeks

    2. Berkey Water Filter

  4. Backup energy

    1. Generator

      1. Fuel

    2. Solar if applicable to your area

    3. Batteries

    4. Lighters

      1. BIC lighters

  5. Medicine 

  6. First Aid

  7. Entertainment

  8. Religious Items

  9. Legal documents

  10. Cash

  11. Alcohol

An excellent source for extended material in this topic is ThePrepared.com. 

Please do not hesitate to contact me if you have any follow up questions. I do not attest to be an expert on this matter but do believe that anybody can be moderately well prepared with just a few hours of focused attention on this matter.

The Messages Cities Send

Or, Stop Trying to Make Every City "The Next Silicon Valley"

Paul Graham has an excellent essay on Cities and Ambition. The gist is more or less that great cities have imperatives that make them attract different kinds of ambitious people.

Think of what is impressive in each great city you've visited — or think about why people move there. And the imperatives behind each.

People move to New York to make it big (“if you can make it here, you can make it anywhere”) and “big” is often a function of wealth. “You should be richer.”

People move to Boston to pursue academics (even the tech scene there is very academically-oriented in life sciences). “You should be smarter.”

People move to Silicon Valley for power (“changing the world” is a kind way of saying, “accruing power along my specific vertical”). “You should be more powerful.”

(I actually don’t think DC’s is also “you should be more powerful,” but rather, "people should perceive you as more powerful.” DC is often called, “LA for ugly people” for this reason. It’s also a reason why DC and Silicon Valley often conflict in their visions for power.)

And people move to LA to become famous. “You should be famous.”

(All Graham’s examples.)

This framework of why different cities attract different people has been helpful for me in trying to suss out why some cities take a certain direction and other cities take another direction. As Americans and westerners, it’s too easy to imagine that “great city” only means a place like New York or the SF Bay Area. The reality is that most American cities are “great cities” in the objective historical sense. They have clusters of human capital and governments that, while often dysfunctional, rival those of entire countries centuries ago. We can extend the “cities and ambition” model of the city’s imperative to any city people chose to move to (sorry, Gary, Indiana).

Why has Austin, for example, not become a tech hub in the sense of SF or New York? It’s a great city with talent, money, smart people, major tech offices, and plenty of land, so those factors must not be the only factors that determine the direction the city takes. Or what to think about Miami, which at least appears to be meme-ing itself into a tech hub on Twitter. Or all the other “rise of the rest” cities like Atlanta, Pittsburgh, Denver, etc.?

I’ve spent time in all of these cities — some more recently than others (e.g., Miami & Denver/Boulder vs. Austin) — and have tried to stay aware of what message a city sends when you visit or think about moving there. You can think about this as, “what message does the city call out to me?”

Miami’s is something like, “you should have more fun.”

Austin’s is something like, “you should enjoy yourself more.”

(There is a distinction between these two — think of alcohol vs. CBD or THC. Or think of South Beach or E11even vs. Rainey Street.)

Many “normal” American cities say something like, “you should settle down.” This is evidenced by the fact that most people who move to these cities do so to start or grow their families. There are different flavors of this settling down — some more like Austin’s “enjoyment” thesis and others like a more corporate thesis.

Cities’ Imperatives are a Spontaneous Order

Despite the best efforts of cheerleaders and economic development agencies, the messages a city sends are mostly a spontaneous order. The product of human action but not of human design, the messages emerge after years of different kinds of people selecting in and out of a specific city.

Even the cases where cheerleaders do get a city to embrace a specific imperative, whether or not that imperative sticks is usually a function of what imperative has spontaneously emerged over the last several years of immigration to and emigration from that city. This is why any old city trying to claim the title of “the next Silicon Valley” often falls flat unless one of the main reasons people move there is to become more powerful.

And these imperatives create a cycle. Ambition begets ambition. Whether that ambition is to become more powerful, richer, cooler, have more fun, smarter, or even to start a family and a good family neighborhood, people bring their friends and family with them.

I think of my friends, many of whom entrepreneurs owning or operating outstanding lifestyle businesses, who have brought their friends to Austin over the last decade. Or the founders who drop everything to move to the Bay Area and work from a garage for two years. Or friends burnt out and exhausted by lockdowns and crime in the Bay Area who picked up leases in Miami. Or others who move from these kinds of cities to raise their families in Pittsburgh with the in-laws and their parents nearby.

These imperatives emerge as people bring friends and family with them. They double down as other cities get worse or double down on opposite imperatives.

The Flavors of Imperatives

A friend and I were talking about the trite “make X city the next Silicon Valley” narrative that pops up any time a tech company opens up a big office in a mid-American city.

“The thing is, X city doesn’t have to be the next Silicon Valley. We can be something like the next Austin instead. People can and should move here to build great businesses for themselves and their families,” he told me (paraphrasing).

Something like the next Austin would make a lot more sense for this city than “the next Silicon Valley.” Silicon Valley’s pursuit of power is largely incompatible with the existing imperative of this city: you should settle down. The pursuit of power is often all-consuming and subsumes goals like starting and raising a good family.

(Power : Silicon Valley-style startups :: enjoyment : Austin-style lifestyle businesses)

But something like “you should enjoy yourself more,” is not incompatible with “you should settle down.” As much as some tech folks may like to deride “lifestyle businesses,” a lifestyle business provides a way for people to enjoy themselves while pursuing other imperatives, like starting a family.

Flavors of imperatives thereby emerge. These imperative a city sends can have multiple layers with it, leading it to compete with other cities that share imperatives somewhere in the layer stack. What means does somebody employ to achieve the imperative end of the city? One can settle down with a lifestyle business funding their lives, or one can settle down with a comfortable corporate job. One can pursue power through building a world-changing startup, or one can pursue power through political or financial means. One can pursue fun or enjoyment through a high energy means or a steadier means.

So what does this all mean for you? Listen to the imperatives you feel when you visit a city, especially if you are considering moving there. What goals do you have in moving there? Does your ambition blend with the imperative of the city, or will you be fighting an uphill battle by moving to a place that wants you to strive for different goals than you want?

Listen to what imperatives a city gives you.

Nirvana Fallacy

Compare realistic alternatives against each other, not imagined perfect realities

“You want to homeschool your children? Don’t you worry about them being well-socialized?”

I’ve gotten some version of this question — either directly or as an aside — in about half of all conversations I’ve had about homeschooling. The implicit assumption here — usually unsaid — is that children who attend school are well-socialized (whatever that means). Even under a broad definition of “well-socialized,” this seems like a stretch in most cases. Children in traditional schools interact with people their own ages (+/- 1 year) from their own and nearby ZIP codes. Many are bullied. For many, this is the primary place they will experience violence at the hands of another person. I can go on, but this isn’t a post about homeschooling versus traditional schooling.

The interlocutor here is falling into a nirvana fallacy — they are comparing one alternative (i.e., homeschooling) against an unrealistic status quo (i.e., some world where the average student gets well-socialized in school).


In any conversation about the future, whether that’s a pitch for a new technology, policy discussions, or personal planning, we have to compare at least two choices against each other. Too often, people slide into comparing one alternative to an unrealistic alternative.

This makes discussion about future choices mindbogglingly difficult and unfair. Perfect-sounding counterfactuals can be found for any scenario or proposal, but the only useful counterfactuals are those that come from realistic alternatives. Not to be confused with status quo bias (I’ll probably cover in a future post or conversation), the nirvana fallacy is a function of painting a wonderful counterfactual that doesn’t actually exist. Sometimes this is the status quo, but sometimes this is just an alternative proposal that isn’t actually realistic based on the resources and opportunities currently on the table.

Consider:

“The homeschool sounds great, but aren’t you concerned they won’t be well socialized?”

This compares homeschooling (and a rather negative depiction of it — it’s not like homeschoolers sit in Chinese Rooms getting information slide under the door on pieces of paper from their parents for 12 years and are then released into the world) against an unrealistic (for many) vision of attending school. A fairer consideration here would be comparing what this family would likely be doing at homeschool with what kind of schooling environment this child would likely be subjected to. Unless the family is particularly well off or in an outstanding school district, the homeschooling option likely comes out ahead on the socialization front.

“Space exploration sounds interesting, but shouldn’t we be spending money on taking care of the planet here?”

This kind of line comes about any time there’s serious conversation about colonizing Mars, building a Moon base, or just generally making humanity a multi-planetary species. Often, it’s accompanied by the implication that companies like SpaceX shouldn’t be spending their resources on, well, space, and rather be giving that money to causes like alleviating homelessness and charity.

Those are good and admirable causes, of course, but it’s not like SpaceX can just overnight turn their facilities into homeless shelters, fire their staff, hire unpaid volunteers, and give their money to charity. A more insidious insinuation is often that the company should be so heavily taxed that it can’t do space exploration and that money should be spent on welfare causes. This seems to particularly fall into a nirvana fallacy. Where is this reality where the taxing-entity (usually the US government, but possibly the CA government) is actually skilled and adept at solving homelessness or other welfare problems? Where is the proposal alongside this conversation that it is merely a function of not having enough money (and that that money can be had from space exploration companies), so the solution must be seizing the assets of the few billionaires actually pushing for multi-generational technological leaps?

This would be a better objection if the question really were “space or charity?” But that’s not the question at hand. That’s an unrealistic alternative.

“Sure, you could start your own charter city, but aren’t you concerned the rich and powerful would take over?”

I’ve heard some version of this come up from well-intentioned friends who fear that charter cities will just be playgrounds for the rich and powerful. My response to them would be simple: look around. Political machines have existed in cities since time immemorial (you can read of the machinations of Ancient Israel in the Old Testament) and American cities are particularly affected. Heck, California is run by a Patrick Bateman-lookalike who got rich owning businesses like wineries, was appointed into politics by a corrupt mayor, and who takes bizarre photos laying on expensive rugs in lavish mansions in the most expensive neighborhood in northern California. That isn’t a place run by the rich and powerful?

To me, the point of recognizing the nirvana fallacy is to make clear just how much better things could really be if we tried. It’s too easy to nay-say by painting up realities that don’t exist or by airbrushing the current world to make it seem like things are actually pretty okay.

(Yes, it’s possible for the nirvana fallacy to go the other way — but I think this is not that big of a problem. Pitches and visions should be realistic and there are plenty of people who will push back against unrealistic pitches.)

When you compare realistic alternatives to each other, the world opens up. There are so many matrices upon which we can improve.

Maybe you see that schools actually are quite bad at socialization, so you set out to make it easier to get children into better educational environments that will help them flourish as well-socialized adults in the future. Perhaps you see just how much the rich and powerful — whether cartoonish governors or power-hungry zoning boards — control existing institutions, so you’re more inspired to go out and make it easier to build outside of their grasp. Maybe you just get better at ignoring the nay-sayers who throw peanuts from the stands to make you feel bad about not working on their pet issues when you’ve set out to build a company, a family, or a career of your own.

In any comparison, remember to compare realistic alternatives against each other.

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