April 23, 2012

Monopoly is more fun than competition

David Brooks writes:
The Creative Monopoly 
By DAVID BROOKS 
The question got [Paypal founder and Facebook investor Peter] Thiel thinking. His thoughts are now incorporated into a course he is teaching in the Stanford Computer Science Department. (A student named Blake Masters posted outstanding notes online, and Thiel has confirmed their accuracy.) 
One of his core points is that we tend to confuse capitalism with competition. We tend to think that whoever competes best comes out ahead. In the race to be more competitive, we sometimes confuse what is hard with what is valuable. The intensity of competition becomes a proxy for value. 

It just goes to show the success of free marketeer propaganda that Brooks is struck by Thiel's point that capitalists should compete as little as possible. The basic point of modern business strategy as written down in the 1970s by Bruce Henderson and the like is to find monopolistic advantages and exploit them.
In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too. 
Now to be clear: When Thiel is talking about a “monopoly,” he isn’t talking about the illegal eliminate-your-rivals kind. He’s talking about doing something so creative that you establish a distinct market, niche and identity. You’ve established a creative monopoly and everybody has to come to you if they want that service, at least for a time.

Uh, actually, I think he is talking about eliminating your rivals, which used to be fairly illegal but now is less so, for reasons nobody seems to talk about much. According to the transcript, Thiel said:
Generally speaking, capitalism and competition are better seen as antonyms than as synonyms. To compete isn’t what you should set out to do. That doesn’t mean you should slack off. To succeed you probably need to work intensely. But you should work on something that others aren’t doing. That is, focus on an area that’s not zero-sum. 
Sometimes, though, you need to compete. Monopoly is the theoretical ideal that you should always pursue.

That's just Econ 101. As an example of a perfect competitor, economists always used the example of a wheat farmer, which always struck me as pretty grim. Inventing a monopoly is a lot more fun, but the real money is in holding on to the monopoly.

Thirty-years ago, I went to work for a 2-year-old firm that was the first in the world to figure out how to use supermarket checkout scanner data effectively for market research. After five years of very hard work, there were three firms in the industry, tearing each other to pieces in a price war. My boss merged our company with the richer of the two competitors for a very nice price. The Reagan Administration shot down the merger on antitrust grounds because clients like P&G complained that the two remaining firms would make higher profits by not cutting prices as fast.

That seems so 20th Century by now.

The implications of all this for, say, immigration policy are obvious, but nobody gets them.

Thiel has some good nerds v. jocks thinking:
In thinking about building good company culture, it may be helpful to dichotomize two extreme personality types: nerds and athletes. Engineers and STEM people tend to be highly intelligent, good at problem solving, and naturally non zero-sum. 
Athletes tend to be highly motivated fighters; you only win if the other guy loses. Sports can be seen as classically competitive, antagonistic, zero-sum training. 
Sometimes, with martial arts and such, the sport is literally fighting. 
Even assuming everyone is technically competent, the problem with company made up of nothing but athletes is that it will be biased towards competing. Athletes like competition because, historically, they’ve been good at it. So they’ll identify areas where there is tons of competition and jump into the fray. 
The problem with company made up of nothing but nerds is that it will ignore the fact that there may be situations where you have to fight. So when those situations arise, the nerds will be crushed by their own naiveté. 
So you have to strike the right balance between nerds and athletes.

Back in the 1990s, I pointed out that nerds v. jocks is a useful framework.

In the same lecture, another Paypal founder offers some insights into diversity:
Max Levchin:  The notion that diversity in an early team is important or good is completely wrong. You should try to make the early team as non-diverse as possible. There are a few reasons for this. The most salient is that, as a startup, you’re underfunded and undermanned. It’s a big disadvantage; not only are you probably getting into trouble, but you don’t even know what trouble that may be. Speed is your only weapon. All you have is speed.  
So how do you move fast? If you’re alone, you just work really hard and hope it’s enough. Since it often isn’t, people form teams. But in a team, an n-squared communications problem emerges. In a five-person team, there are something like 25 pairwise relationships to manage and communications to maintain. The more diverse the early group, the harder it is for people to find common ground. 
The early PayPal team was four people from the University of Illinois and two from Stanford. There was the obligatory Russian Jew, an Asian kid, and a bunch of white guys. None of that mattered. What mattered was that they were not diverse in any important way. Quite the contrary: They were all nerds. They went to good schools. (The Illinois guys had done the exact same CS curriculum.) They read sci-fi. And they knew how to build stuff. Interesting to note is that they did not know how to build stuff the right way. It turned out that scaling up would be very challenging for PayPal because the 26 year-olds who were managing hundreds of thousands of credit cards didn’t make all the optimal choices from the beginning. But there was great clarity in the early communications. There was no debate on how to build that first database. And that alone made it possible to build it.

80 comments:

ivvenalis said...

I guess now that "everyone should be a college graduate" isn't working out, the narrative is moving on to "everyone should be Steve Jobs".

Anonymous said...

Doesn't sound much different to eighties HBS/MBA stuff by Porter, Peters et al.

Although the bit about diversity being hard to manage is provocative in a good way. I have found great perils in the much vaunted 'co-opetition' (and 'networking') buzzwords of the last couple of decades. Working together with strangers on some short term (propositional) corporate goal tends to be Sartrean Hell.
Gilbert Pinfold.

Anonymous said...

Monopoly? Just like the monopoly that some have on the media?

I am watching a Law & Order (or should that be Law and Ordure?) episode about Catholic Priests diddling little boys.

Funny thing is I have experience with Catholic priests, and none of that happened to me.

There are also these rampant rumors about another group ...

jody said...

this is pretty basic stuff though. once you create "that new thing", you only get a monopoly for a few years, until the copy cats show up, trying to steal the market which you created from scratch.

red bull is one of the only products i'm familiar with which has somehow kept a total monopoly over a new category which it created.

the knock offs haven't made much of a dent in the market, and all of the attempts by the huge beverage companies to copy red bull have failed.

Texan sharpshooter said...

Aw, that block quote from Levchin ended too soon. He goes further into diversity-world, with a story about a woman they hired who turned out not to be able to write in the requisite Lisp syntax or whatever. Incidentally Ken Auletta just did his Stanford-worshiping story yesterday. It's almost as if they all get put on the same beat by the assignment desk.

Anonymous said...

the knock offs haven't made much of a dent in the market, and all of the attempts by the huge beverage companies to copy red bull have failed.

All the other energy drinks are marketed terribly. They're all designed like they're for criminals, drug addicts, steroids users, etc.

Anonymous said...

btw if this amanuensis' slavish reconstruction is an accurate snapshot of the syllabus depth I think some ought to seek a refund from the Leland Stanford Jr. University. Unless of course the point of enrolling is just to hob-knob with famous rich guys, in which case: carry on.

Anonymous said...

Speaking of athletes:

http://www2.wkrg.com/news/2012/apr/23/man-beaten-mob-critical-condition-ar-3659891/

"According to police, Owens fussed at some kids playing basketball in the middle of Delmar Drive about 8:30 Saturday night. They say the kids left and a group of adults returned, armed with everything but the kitchen sink.

Police tell News 5 the suspects used chairs, pipes and paint cans to beat Owens.

Owens' sister, Ashley Parker, saw the attack. "It was the scariest thing I have ever witnessed." Parker says 20 people, all African American, attacked her brother on the front porch of his home, using "brass buckles, paint cans and anything they could get their hands on."

Police will only say "multiple people" are involved.

What Parker says happened next could make the fallout from the brutal beating even worse. As the attackers walked away, leaving Owen bleeding on the ground, Parker says one of them said "Now thats justice for Trayvon.""

Ex Submarine Officer said...

Anyone who would make some kind of characterization about aggressive jocks vs. passive nerds clearly has never operated in world-class tech companies where software is simply warfare by other means.

But for every one tech position like this, there are probably a hundred, if not a thousand or even more, mind-numbingly boring jobs doing enterprise this or that or some jerky web thingie and are populated by h1b slaves or the B/C team STEM beta male guys. Hence the stereotype.

But at the upper echelon of tech, it is ruthless, really, by definition, as is any other upper echelon.

Anonymous said...

Of course monopoly is more fun, especially if you use power and privilege to gain it, and get off on preaching to the other guys the moral virtues of dog-eat-dog competition....

Sideways said...

" I guess now that "everyone should be a college graduate" isn't working out, the narrative is moving on to "everyone should be Steve Jobs"."

Steve wrote about Malcolm gladwell's "everyone should be Bill Gates" book a few years ago.

Nanonymous said...

How is any of this Computer Science?

Anonymous said...

HSN was hit by QVC...Gilt Groupe has tons of competition from Ideeli, Hautelook etc etc

All this means is that one group invents things, then another more organized groups takes them over.

Life sucks.

Joe Six-Pack said...

The late 90s movie Pirates of Sillicon valley about Bill Gates and Steve Jobs rise to power has already showed this understanding of the tech market.

It's also a better movie than The Social Network.

Anonymous said...

"All the other energy drinks are marketed terribly. They're all designed like they're for criminals, drug addicts, steroids users, etc."

Not to mention that they all taste like shit. Didn't Mountain Dew have an energy drink for a while? It seemed to tase pretty decent, iirc.

Red Bull is mostly good for mixing with vodka, which gives you a stimulant and a depressant!

Anonymous said...

Most of the "athlete" or "jock" types in tech aren't that type outside of it though. They're beta nerds outside of it. It's always relative.

Anonymous said...

>>The implications of all this for, say, immigration policy are obvious, but nobody gets them.

I don't get it, could you explain?

Lugash said...

I am Lugash.

Going back to the previous thread, I find it interesting how little Scots-Irish leadership there seemed to be in OWS. Contrast how ineffective OWS was with, say the various protests of the 1960s where there seemed to be a whole bunch of Scots-Irish Leadership.

I am Lugash.

Anonymous said...

Really? I don't know.

Athletes, focused on winning, yes, rather than actually creating something as an ends to itself and pure discovery, like nerds.

But not zero sum in the sense that there are a finite amount of resources to be used or that sabotaging your opponent is always better than just making more goals.

Athletes are competing for a positional good, but they are competing for it by a mixed strategy of creating more "resources" and denying their opponent "resources" via skill.

A company composed of "strikers" (in terms of personality) would be saliently different than a company composed of "goalies" and "defense" (psychologically speaking).

Kai Carver said...

great link. Nerdy nitpick:

in a team, an n-squared communications problem emerges. In a five-person team, there are something like 25 pairwise relationships

No, just 10 pairs. It's only proportional to n² at the limit.
http://en.wikipedia.org/wiki/Metcalfe's_law#Network_effects

Kai Carver said...

PS: The implications of all this for, say, immigration policy are obvious, but nobody gets them.

True. I sure don't... (feeling dumb now)

Anonymous said...

">>The implications of all this for, say, immigration policy are obvious, but nobody gets them.

I don't get it, could you explain?"

If we can allow businesses to collude/merge/hold monopolies to drive prices up then Americans should obviously support slamming the borders shut to drive wages up(monopolizing the labor supply available to such enterprises). Of course I'd prefer competition + high wages, that worked out pretty well or so the statistics would have me believe.

dearieme said...

That reminds me of my young chum who works in The City - "Actually, we are a very diverse group: one from Peterhouse, one from Caius, one from Downing and one from Oxford." Or words to that effect.

Lugash. said...

I am Lugash.

Anyone who would make some kind of characterization about aggressive jocks vs. passive nerds clearly has never operated in world-class tech companies where software is simply warfare by other means.

Yep. High end 'nerds' have strong personalities, are competitive as hell and don't back down.

This article could have been titled 'Silicon Valley software startups are more fun than established industries'. The latter requires all the icky red tape and not fun stuff, as Elon Musk seems to be finding out. Pretending that non-software companies can be run this way is usually a disaster.

I am Lugash.

jody said...

1. Ryan Tate, a writer for the website Gawker, got more than he bargained for after sending Steve Jobs an email after a few drinks on a Friday night.
In May 2010, Tate contacted Jobs to complain about his use of the word "revolution" to describe the iPad on a television commercial, saying the product didn't have "the faintest thing to do with revolution".
At around 2am, Jobs sent Tate back a lengthy explanation, ending with the words: "By the way, what have you done that's so great?"
2. Greenpeace and other environmental groups targeted Jobs over his company's lack of ecological credentials, claiming that the company showed little dedication to reducing waste or recycling.
Eager to stamp out criticism of Apple's policies, Jobs took the unprecedented step of publishing an open letter to the campaigners.

DoJ said...

Kai:
- Technically it's proportional to n^2/2 in the limit.
One could argue that Max's memory was perfectly efficient here--he remembered the point that mattered, and absolutely nothing else. Depending on how one's own memory and attention works, this can actually be an important skill to cultivate.
- The application to immigration policy is that low-skill immigrants do not, on net, create prosperity for existing Americans. They beat down the wages of lower-class folks (and increase burdens on the school system and other social services) by about as much as they improve general welfare in the short term via lower prices (and even that "benefit" is an illusion when it crowds out automation). By definition, they do not have the ability to do much positive-sum monopoly invention.
- The jocks vs. nerds characterization is too simplistic. There are plenty of nerds who are highly competitive and love e.g. strategy games, and stuff like math/programming contests can also play to this drive. (I was certainly a lot more effective in a contest environment than in a classroom.) I think it's more accurate to say that nerds are averse to *people-related* competition, e.g. sales and internal politics; they're generally fine with technical competition.

stephen said...

Its hard to tease out a principle r/w to monopoly. If two is bad I dont see how three is any different.

I am curious: what do you think would have happened to your firm and that market had no anti-trust suit been brought, in say, ten years? After the internet?

Steve Sailer said...

"what do you think would have happened to your firm and that market had no anti-trust suit been brought"

There wouldn't have been as drastic a price war over the next dozen years, the two remaining firms would have made higher profits (or at least some profits) and our clients would have made slightly lower ones.

Nowadays, it's easier to get away with nuttier mergers, like Exxon-Mobil, as long as consumers are the clients, because consumers don't have many lobbyists anymore. Really crazy mergers like that proposed one between two cell phone companies, still get shot down, but the libertarian economists have mostly won on anti-trust.

Anonymous said...

Lugash, high-end nerds don't have strong personalities; they have the same Aspergery defense mechanisms as the betas. They just have more authority to yell louder.

peterike said...

Large corporate mergers are just one more example of the Elites warring on the middle class. If you have two companies, both successful and profitable, what does merging them do?

It generates enormous wealth for those at the top, and wipes out thousands of jobs for those in the middle. It is also often used as an excuse to launch "efficiency" initiatives, which in real-world speak means "replace as many whites as we can with browns and yellows."

Corporate mergers are yet another area where "capitalism" has gone off the rails. Capitalism freed from all ethnic nationalism is nothing but internationalist piracy. It's how the Orc Army funds itself.

Mr. Anon said...

Is this the denoument of another bait-and-switch? Like all that hogswallow about the service and IT economy, and how everything would be just fine if only those forty-five year olds who work in the soon-to-be-shuttered furniture or textile industry could retrain themselves to be software engineers (while at the same time, many forty-five year old software engineers considered themselves lucky if they could get jobs at Costco). One of the leading propagandists of this nonsense, Thomas Friedman, recently revealed that it was all a load of crap - that what the politicians, management gurus, journos, and captains of finance really meant by all that was: you're just going to have to adapt to being poorer, so suck it up, peon.

Perhaps this trial balloon being sent up by Brooks is similar: Hey, when we were slavishly praising laissez-faire capitalism as the highest good of western civilization, we were just trying to fool you into helping us implement it - we didn't believe all that crap. What we really just want is monopoly control over the economy.

Anonymous said...

zero sum in the sense that there are a finite amount of resources to be used or that sabotaging your opponent is always better than just making more goals.

Athletes are competing for a positional good, but they are competing for it by a mixed strategy of creating more "resources" and denying their opponent "resources"


Does this describe the two-pronged strategy of the Scots Irish?

Anonymous said...

Monopoly questions? Ask Bogel and Gates Law Firm! They can handle all your business related queries.

Get ahead of your competition the old fashioned way squeeze them out of existence. Or, to keep the Feds happy, you can keep a former competitor on a leash like a pet and feed them table scraps.

Propeller Island said...

What was so crazy about the Exxon-Mobil merger? Remember that at the time the oil price was below $15 and the industry was near death. Consolidation is natural under those conditions.

David said...

Competition is beating others as opposed to creating something, including a company. The competitive spirit ruins all: business, friendships, marriage, child-rearing, art, science. We are no better off because Newton acted like an ass toward Leibniz.

When we say of anyone: "He's very competitive," we are not saying he's a friend to people who come up with new ideas or products. He is only for stealing the ideas or products.

Of course, the exact opposite is taught to everyone from infancy. We are told Competition is the end-all and be-all, the fount of virtue and money. Good to see a person of genuine accomplishment pointing out that the emperor is naked.

The drive to achieve has nothing to do with competition. At most it has to do with impressing your peers in order to encourage them, creating virtuous circles.

The competitive types are the wolves on the edges of the campfire site, picking off the people who built the fire and then warming themselves with it. But they thus ruin the conditions under which fires are built, and why they are built.

The upward progress of man is to get away from the parasites - aggressive or passive. I.e., to make a space free from the invidious.

Ben Espen said...

Exploiting niches seems to be an effective method of attaining monopoly. Red Bull dominates the energy drink market, but Manoj Bhargava dominates the energy shot market with 90% market share. Bhargava's method was to find a niche that even Red Bull couldn't get into, and then aggressively crush the many copycats with intellectual property infringement claims.
The Mystery Monk Making Billions

Jeff W. said...

Socialists used to have a slogan, "Cooperation instead of competition."

One group says cooperation is good; another group says competition is good. Who is right?

Actually what is right is a system where everyone is allowed to find their own economic niche freely under a system of law the protects everyone and enforces sensible rules of competition.

Years ago it was forbidden for lawyers to advertise. It was a violation of professional ethics. Those rules were thrown out partly on the grounds that they stifled competition.

But the world is not in any way better off now that lawyers can advertise. I believe their advertising has been harmful in that it has just encouraged more people to sue.

Business competition under enlightened rules, fairly administered. It's probably an impossible dream.

Anonymous said...

Steve, you are correct that monopoly provides better profits than competition.

Best book on this subject is "Competition Demystified"

For those of your readers familiar with "Smart Fraction theory" one of the definitions of the smart fraction is the fraction of the population that can create technological monopolies. The smart fraction tends to want to live in a small number of dynamic parts of the USA. The parts of the USA where the smart fraction don't want to live are less expensive.

In fact, the average house in the USA requires only 12% of the average family's income be spent in monthly mortgage payments. The percentage of income spent to own the average house is lower today than at any time in the 200+ year history of the United States.

I also believe that housing costs as a percentage of income are lower in the USA than any other country in the world right now, That is to say, there is no place in the world where the average family can buy the average house for a smaller percentage of income than they can in the USA.

Steve, this may not be on your radar screen personally since you live in a very high cost area

Anonymous said...

Good news: There may not be a coming tidal wave of mexican immigrants after all:

The number of Mexican migrants to the United States dropped significantly while the number of those returning home increased, bringing net migration from Mexico to a statistical standstill, according to a report published Monday.

The shift over the last several years marks a significant change after four decades of historic immigration from Mexico, according to the report by the Pew Hispanic Center.

“The largest wave of immigration in history from a single country to the United States has come to a standstill,” the report says.

The downward trend in migration started about five years ago, according to the report.

During that time the number of illegal immigrants from Mexico residing in the U.S. fell sharply from 7 million to about 6.1 million. At the same time, the number of legal Mexican immigrants residing in the U.S. increased slightly from 5.6 million to 5.8 million. Those estimates are based on data from the U.S. Census Bureau.

The report attributes the changes to several factors, including the weakened economy, increased border enforcement, a rise in deportations, growing dangers at the border and a long-term decline in Mexican birth rates.


http://latimesblogs.latimes.com/lanow/2012/04/historic-wave-of-mexican-migration-comes-to-a-standstill-report-says.html?track=icymi

Anonymous said...

@ ivvenalis

its only slightly more unrealistic and ridiculous

Anonymous said...

http://sensesofcinema.com/2012/feature-articles/the-death-of-film-and-the-hollywood-response/

G Joubert said...

"Capitalism" is a macro concept, whereas the strategy of exploiting underserved markets is micro. Not inconsistent at all.

Ascapartic said...

I've gained respect for Thiel since he's spent the last few years going around criticizing the slow pace of innovation in America. We have lots of new social networks and coupon websites and cell phone games, but most categories of electronics and machinery are stuck in cycles of very marginal improvement (e.g. HDTV's are skinnier than they were 5 years ago but otherwise not that different). Considering the insane pace of new life-changing inventions throughout the 20th century, the 21st has been kind of a drag.

Anonymous said...

http://blogs.the-american-interest.com/wrm/2012/04/24/paradise-lost-in-sweden/

pat said...

I never knew Steve Jobs but the brains behind me worked for me briefly.

Jobs I suppose was a genius, if by that you mean a remarkably talented person. But he was a rather narrow genius.

Maybe his main talent was persistence or his ability to attract people around him who were more technically talented than he ever was.

I went to a convention of computer professionals once where he was the principal speaker. He came out alone on a large bare stage with his latest computer and put on a live demo. I have myself done live demos. You can always tell it's really live because the machine will inevitably blow up.

He was in front of huge projected image of his computer screen. About a half hour into the demo the screen went blank. He vamped and managed to get it working again. A few minutes later the screen went dark again. He didn't get rattled. I think he had had this experience before.

The computer was the NeXT. This now forgotten failure was supposed to launch him back into the limelight. But he would have to wait for Pixar to save him.

The NeXT had three unique features at the time. First it was a cube. Jobs his entire life was obssessed with the shape of the external box. The Apple II and the Mac being the most famous examples. Secondly it had this new thingee - a CD Rom. And finally - and this is really odd - every machine came with the complete works of Shakespeare on that ROM.

Naturally I rushed out of the auditorium and got to the hospitality suite where they had examples of this technical marvel on hand. I typed in "St Crispin" and "Saint Crispian" and a couple other variants. Shakespeare spells it three different ways in Henry V. Nothing. The damn thing didn't work.

I told others but they were all too dazzled by this techie celebrity. They wouldn't criticize him but of course they wouldn't buy a NeXT either.

This comment is getting too long. I tell the story about the birth of the Macintosh later.

Albertosaurus

Anonymous said...

Mel really is crazy

Anonymous said...

Don't you think you're being a tad bit unfair to David Brooks?

You're also misrepresenting his views.

Anonymous said...

Ron Paul 2012

smead jolley said...

one of them said "Now thats justice for Trayvon."

Just post hoc rationalization. They would have done it anyway. The new rule is you're not allowed to talk to blacks. Actually, black kids threatened to do that to me in 1987 when I asked them to quiet down in a movie theater.

Anonymous said...

To the guy with the 10th "vengeance for treyvon" story (renamed as per the harikarid cartoonist) - there will be no implications (and the media folk know it). I'm a jewish guy who judges individuals as individuals, has plenty good to say about plenty of blacks, etc, but the gig is still the gig, murderous packs of uppity blacks savaging non-blacks has no fallout beyond the occassional prosecution of some of the said blacks themselves. The defensive shooting of a savage black dude by a punctiliously lawful racially-blind busybody do-gooder however has implications the likes of which haven't been seen since the mountain came to mohammed.

And why not? We scuttle like bugs and offer half-hearted whines to each other leaving the solitary microphone in our midst either to neocons terrified to talk honestly of race at all (think Lowry), or to the genuinely deranged and insane (think Latte Island or Hunter Wallace).

The enemy cares not a whit about the facts of Treyvon v Whitey MkkkWhite as they align themselves in their battalions while the very BEST we can come up with is the ever-equivocating ("well, we don't know ALL the facts") Sailer and ("about that good samaritan bit...") Derb.

Don't get me wrong, thoughtfulness is generally a virtue - just not in a shouting match. There will be No Fallout for the savagery committed in treyvon's name. We're WAY too pussy to make there be any. Now back to my burger, beer and porn.

PS. As a Jew, and one with some talent, it's worth mentioning that when in search of some community with which to share my talents and for whom to advocate, being sane I stop short of the self abnegation required in joining the alt right. I'm happy enough to be a public, sane, vociferous advocate for citizenism but know damn good and well that achieving any successes there will offer me nothing more than the antisemitic rancor of following generations of alt-righters. Being able forsee plainly and clearly how my efforts (particularly should they be successful!) won't result in the embrace of Community a decade hence but rather in villification and enmity keeps me and mine from joining you and years, much as some of us, moi inclusive, feel drawn to.

Maguro said...

It just goes to show the success of free marketeer propaganda that Brooks is struck by Thiel's point that capitalists should compete as little as possible.

No, I think it mostly goes to show how vapid David Brooks is. Most of us free marketeer types understand that businessmen have a natural desire to eliminate or hamstring their competition. The thing is that they usually need the government's help to succeed in doing this.

Matt said...

"Technically it's proportional to n^2/2 in the limit."

To expand: each of the n people can communicate with any of the (n-1) remaining people. Divide by two to compensate for the fact that you're double-counting. (Person #1 connecting to person #2 is the same as #2 connecting to #1) There are thus exactly n(n-1)/2 relationships.

This is called an n-squared problem not because it's precisely equal to n^2 (even in the limit), but because it's O(n^2).

https://en.wikipedia.org/wiki/Big_O_notation

Wait, what were we talking about? ;)

Anonymous said...

Eustace Mullins covered this decades ago; of course David Brooks would never utter that name. Nor would Steve Sailer, for that matter.

beowulf said...

"Who Broke America’s Jobs Machine?
If any single number captures the state of the American economy over the last decade, it is zero. That was the net gain in jobs between 1999 and 2009—nada, nil, zip. By painful contrast, from the 1940s through the 1990s, recessions came and went, but no decade ended without at least a 20 percent increase in the number of jobs...
But while the mystery of what killed the great American jobs machine has yielded no shortage of debatable answers, one of the more compelling potential explanations has been conspicuously absent from the national conversation: monopolization... In nearly every sector of our economy, far fewer firms control far greater shares of their markets than they did a generation ago."

http://www.washingtonmonthly.com/features/2010/1003.lynn-longman.html

Anonymous said...

So is the connection between being more lax on antitrust and more lax on illegal immigration the rise of libertarian philosophy, or am I missing something?

Anonymous said...

http://www.latimes.com/news/local/la-me-immigration-20120424,0,27569.story

I'm beginning to like this recession.

Steve Sailer said...

Dear Albertosaurus:

Welcome back. We missed you.

Steve

candid_observer said...

Who but a libertarian, desperate to put a fine spin on the inevitable monopolies in technical spaces brought about by network effects, would come up with an absurd concept like "creative monopolies" to cover up the obvious deficiencies in their own brainless ideology?

Yeah, when we think about, say, Microsoft, the very first word to come to mind is "creative".

Apologists like this are as stone stupid and rigid as an Ayn Rand cultist; in fact, likely they are Ayn Rand cultists.

Anonymous said...

According to the Keirsey Temperament scheme, nerds are NTs and jocks are SPs. His other two temperaments are the idealistic NFs (religious/spiritual leadership) and the Guardian SJs, upholders of institutions. I guess you can see how the proportions would change post the agrarian revolution.

Anonymous said...

OT @ Albertosaurus:

I am not big fan of Jobs and his company but NeXT was great and way ahead of its time. I used it extensively in the early 1990s and it worked great. What killed it was not cube shape - it was that it was B&W only when everything else had colors. That, and the fact that the hardware required to run the thing was simply too expensive at a time. With color and no serious hardware limitations it would be basically today's Apple/MacOS X.

Anonymous said...

Whatever happened to the American ethic of simply building a better mousetrap? [As opposed to poisoning the wells of all the competing mousetrap manufacturers?]

Are there any historians on here who can cite an Andrew Carnegie or a George Westinghouse or a Thomas Edison spewing this kind of nihilism?

Anonymous said...

Albertosaurus, we missed you!

Anonymous said...

I've always enjoyed reading albertosaurus too but it was pretty plain that he kinna made up historical events in which he was an actor in pretty much every single post.

I recall the day somebody finally called him on it, complete with a list of his Forest Gump serendipities. I didn't enjoy that list as much as I enojoy the occassional list of whiskey wildly-off predictions regarding what would happen when communo-socialo-homo Obama took over, but I laughed anyway. I also recall that having been the day Albie stopped posting.

We missed out on a lot of good fiction from an ideologically pure mythical character (the old stuff is still available in The Googel i'm sure) but I don't miss the freedom from having to cringe knowing many of my fellow istevers were taking these "autobiographical vignettes" as anything other than what much of it almost certainly is, the creative fiction of a sorta bored old guy.

Anonymous said...

"PS. As a Jew, and one with some talent, it's worth mentioning that when in search of some community with which to share my talents and for whom to advocate, being sane I stop short of the self abnegation required in joining the alt right. I'm happy enough to be a public, sane, vociferous advocate for citizenism but know damn good and well that achieving any successes there will offer me nothing more than the antisemitic rancor of following generations of alt-righters. Being able forsee plainly and clearly how my efforts (particularly should they be successful!) won't result in the embrace of Community a decade hence but rather in villification and enmity keeps me and mine from joining you and years, much as some of us, moi inclusive, feel drawn to."

Wow, great proof of Jewish intelligence and verbal skill.

Steve Sailer said...

"Forest Gump serendipities"

Albertosaurus' stories almost always involve events taking place in the San Francisco Bay area from the 1960s onward, typically involving teaching at various local colleges, working in local government bureaucracies, doing some computer work, and the like. He's a supersmart guy who gets bored and changes jobs frequently, and he knows so much that he can tie his personal anecdotes into larger trends that have been widely written about. (Since the 1960s, the SF Bay Area has been covered closely by many of the top journalists of the era.)

Anonymous said...

I dunno - Albertosaurus's recollection of the NeXT matches my own pretty darned well.

BTW, what I loved were Albertosaurus's tales of the couple-swapping and the sex parties and the BDSM...

Steve Sailer said...

I'm more protective of the privacy of people I know, but I've got lots of anecdotes that connect to famous people. For example, once in 1988 my wife and I were staying in Seattle with a guy who used to work for me and his wife. My wife said, "Where shall we go tomorrow?" and my friend's wife broke into tears, and exclaimed, "We can't go anywhere with you tomorrow because we have to jump out of an airplane with Bill Gates and we're going to die!"

See, Gates had decided he wanted to try skydiving and he wanted to try it with his girlfriend of the moment, but she refused unless another woman jumped with her. So, Gates looked down the Microsoft company roster for somebody ambitious and married and picked by old employee. He in turn talked his terrified wife into doing it too because it would help him become friends with Bill Gates, which would be good for his career.

I tried to get my friend to promise to call me if Gates chute didn't open so I could sell Microsoft short before the news got out, but he thought that was against the insider trading law. I argued that skydiving was the quintessence of outsider activity, but he didn't buy my legal theory.

Now, that's a better story about Bill Gates than Albertosaurus's story about Steve Jobs, but they're equally true.

keypusher said...

The Reagan Administration shot down the merger on antitrust grounds because clients like P&G complained that the two remaining firms would make higher profits by not cutting prices as fast.

That seems so 80s now.


Steve, sorry, but you're misinformed. A merger in a three-company industry would be just as likely to get stopped today as 30 years ago. A recent example is H&R Block trying to buy one of two competitors in the digital DIY tax return-prep market. The DOJ went to court and blocked it. I see you already brought up AT&T-T-Mobile yourself. You can subscribe to the DOJ Antitrust Division website and see mergers challenged, altered or abandoned all the time.

But Facebook didn't get to where it is now via merger. And Exxon and Mobil didn't have the same kind of market share that your old employer did.

Anonymous said...

"I guess now that "everyone should be a college graduate" isn't working out, the narrative is moving on to "everyone should be Steve Jobs"."

The Patent Reform Act of 2011(which kicks in next March) will eliminate the patent protections that a young Steve Jobs depended on. So if one wants to do this, he has less than a year.

pat said...

Thank you Steve but I must correct you. I'm not super smart but I am easily bored.

Whoever said I was writing fiction by introducing myself into events is wrong. Everyting I have ever written here or anywhere else is true. OK, I have been known to instigate a couple preposterous Internet rumors from time to time but those should be obvious.

I am back here because my back has gone out and I'm stuck in a straight backed chair in front of the computer 16 hours a day. My little dog pulled me over a cliff at the beach. I'm trying to get an MRI. Hurts like hell.

I went away to sing and digitize Don Giovanni. I have about 130 videos posted on YouTube. Here is a very, very short excerpt for the skeptics.

Le Cor excerpt

I recently created a blog on homosexuality expanding on Greg Cochran's infectious theory. I was writing it as a book for publication but I wanted to get on record with my theory ASAP.

The real super smart guys on the web are Greg Cochran, Steve Sailer and Razib, not me. I was going to relate a story about another supersmart guy I met through opera - Jeff Raskin (the father of the Macintosh).

I'm not anywhere near as smart as any of them (nor William Schockley whom I also knew) but I try to be amusing.

Anonymous said...

I surmise that the next step change will be micro-manufacturing, growing out of the 3d printer concept. Then everyone who can't be Steve Jobs can at least be a sort of artisan.

Gilbert P.

DoJ said...

it's O(n^2)

Yeah, my wording was really sloppy since "proportional" doesn't care about the leading constant; something like "to be more precise, the first order term is n^2/2" would have been better.

Anyway, I was amused by how far off "25" was; the leading constant can't be ignored when you're giving a point estimate.

Anonymous said...

I was going to say welcome back Albertosaurus - but thats been covered.

what I loved were Albertosaurus's tales of the couple-swapping and the sex parties and the BDSM

Wtf?!

Ex Submarine Officer said...

I've gained respect for Thiel since he's spent the last few years going around criticizing the slow pace of innovation in America. We have lots of new social networks and coupon websites and cell phone games, but most categories of electronics and machinery are stuck in cycles of very marginal improvement (e.g. HDTV's are skinnier than they were 5 years ago but otherwise not that different). Considering the insane pace of new life-changing inventions throughout the 20th century, the 21st has been kind of a drag.

This is the tragedy of the Internet, it really is all about the cat pictures and buying dog food on line.

The mentality in the VC community, and hence, then the startup industry, is that this whole process has been rationalized. It really is like Hollywood, which does a pretty good job of regressing everything to the mean.

It is a particularly dispiriting form of capitalism, sort of a slash and burn, feral variety, where if you can't show the concrete, absolutely compelling use case in a few quarters, your idea is worthless.

So much for investing in long range, deep technologies. Hey, hasn't it been a while since we've gotten really excited over new releases of operating systems?

And now that both everyone is poorer and self abnegatingly worships at the altar of the Valley money men's superior genius, there are fewer going it alone, self funding "big ideas" that the establishment (the VC industry).

Taking a page from Thiel's book, the obvious place to be is where everyone isn't. If you can self fund a deep tech thing and you believe in your ideas, the competitive field for truly new IT technologies is much less crowded these days. Almost everyone else is now just trying to write apps to get their cat pictures on Facebook and Linkedin or some other quick buck, 6-18 month deal.

Generally speaking, when you are the only one working on an idea, it means one of two things - it is a really stupid idea, or it is an idea before its time. And the ideas before their time can also be stupid, but some aren't.

Given the thinning of the field for longer term, deep tech, the traditional calculation about a singular idea has reduced the odds of a new idea requiring long, deep dev being a bad idea than in the past.

Now is the best time ever for starting up these kinds of deep tech things almost since the beginning of the pc era just due to reduction in competition.

FWIW, my money is where my mouth is as I am working w/a small group, self funded, on a long-range, hare-brained idea.

Semi-employed White Guy said...

What's with all of the condescending tones concerning nerds? Almost all of you are nerds.

Roissy had an interesting analysis of a competitive alpha nerd.

Anonymous said...

"there was great clarity in the early communications. There was no debate on how to build that first database"

As someone in an IT shop that redefines "scatter-brained" every day (and also possesses quite a diverse showing in all the intelligence/culture/background/ethnicity/ideals qualities), this statement is incredibly accurate.

Anonymous said...

Where have you been Albertosaurus? Was worried about you...

Florida resident said...

I have, and actually have read in full, this book:
http://www.amazon.com/The-Diversity-Myth-Multiculturalism-Intolerance/dp/0945999429/ref=sr_1_2?s=books&ie=UTF8&qid=1335367515&sr=1-2
"The Diversity Myth: Multiculturalism and the Politics of Intolerance at Stanford" by David O. Sacks, Peter A. Thiel
Reasonably honest book.
Respectfully, Florida resident.

Jim Bowery said...

All economic rent should be sent out as citizens' dividends. Economic rent differs from what Thiel would call "monopoly" profits in that economic rent is the portion of Thiel's "monopoly" profits that arises from the Network Effect*.

A good example is virtually every dime Bill Gates made: The only reason MS-DOS was valuable was the Network Effect -- and this formed the foundation for 90% of all of Microsoft's future profits.

The remainder of Theil's "monopoly" profits are simply the marginal advantage that a particular owner brings to an asset -- and belong in his pocket as increased wealth -- tax free.

The citizens' dividend then forms the basis for societal cohesion which is basically the recognition that wealth and power concentrations of that society are legitimate. You don't have to worry about military or police in that situation -- the people will organize themselves into effective self-policing bodies and militias for defense of their corporate interest.

*A good approximation of this is the risk free interest rate of modern portfolio theory applied to the in-place liquidation value of the asset as established by escrowed bids.

Difference Maker said...

PS. As a Jew, and one with some talent, it's worth mentioning that when in search of some community with which to share my talents and for whom to advocate, being sane I stop short of the self abnegation required in joining the alt right. I'm happy enough to be a public, sane, vociferous advocate for citizenism but know damn good and well that achieving any successes there will offer me nothing more than the antisemitic rancor of following generations of alt-righters. Being able forsee plainly and clearly how my efforts (particularly should they be successful!) won't result in the embrace of Community a decade hence but rather in villification and enmity keeps me and mine from joining you and years, much as some of us, moi inclusive, feel drawn to.

Considering the activities of the Scotch Irish; in banking, in law, in media, we would be as loathe to accept your help as you are to offer it.

The solution is assimilation: you must consider this country as your own. To take its founding people as your own blood. You must sacrifice for this nation. To daily increase its strength, its health, its prosperity

To avoid doing so would be to abet the evildoers. You would be a mean man making ill use of his talents. You would be fulfilling all the stereotypes of Jews, that of an alien people, not part of their host nation and not having its best interests in mind. We wouldn't want that now, would we