Pension vs earnability (appended)

This excerpt from Philip Auerswald's contribution to the Kaufmann's "New entrepreneurial growth agenda" adds an interesting angle to my earlier "Pension vs. earnability". It's worth a read. 

Redefinition: From “Permanent Income” to “Dynamic Purpose”

The primary value of the foregoing analysis is to establish the context for a redefinition of the problem posed in The Great Man-Machine Debate. How do we get there?

Consider the following: In the immediate aftermath of the 2008 financial crisis in 2008, economists devoted a great deal of attention to the shortcomings of macroeconomic and financial models that, at best, failed to predict the breakdown, and, at worst, may have helped to bring it about. Hyman Minsky’s “financial instability hypothesis,” to which few previously had paid much attention, was newly celebrated; Eugene Fama’s “efficient-market hypothesis” was newly questioned. Yet, as events have unfolded, the profession has begun to take more seriously the structural factors that are shaping the twenty-first-century economy and driving economic outcomes that go beyond the business cycle. From the standpoint of the reconsideration of theory, this means shifting attention from macroeconomics to microeconomics and rethinking fundamental models of both consumption and production.

High on the list of models ripe for reconsideration is the “permanent income hypothesis,” introduced into the field of economics by Milton Friedman in 1957 in a book titled, A Theory of the Consumption Function. The idea, as we all know, is simple: Early in life, we as consumers optimize our lifetime earnings by going into debt to invest in education; education delivers the skills that form the foundation for a career. Early in our working lives, consumers stop investing in education and start to save. We keep saving increasing fractions of our income until, all at once, we retire. At that point, we spend down our savings, timing the depletion of savings to coincide perfectly with the depletion of … well, our lives.

The model Friedman developed of the arc of a human life is as technically sound today as it was in 1957. Furthermore—somewhat like the efficient markets hypothesis, which was also developed at the University of Chicago at about the same time—the permanent income hypothesis has become encoded in the operating system of the economy in such fundamental ways that we barely notice its influence. From the Pell Grants to the 401(k), the experience of consumers from youth to death remains framed by the notion that institutions are sufficiently slowly changing and we are sufficiently short-lived that we can invest (one time only) in education at the front of our lives to reap a reward that we ultimately enjoy at the end of life. Predictable and familiar policy prescriptions follow:

    • Too much student debt and too few quality jobs for recent graduates? . . . Need more and better education.
    • Too much unemployment and too little stability in the labor market? . . . Need to spend more on worker protections.
    • Too many retired people and too little saving? . . . Need more and better health insurance.

In a recent column for The New York Times, Robert Shiller wrote: “Most people complete the majority of their formal education by their early 20s and expect to draw on it for the better part of a century. But a computer can learn in seconds most of the factual information that people will get in high school and college, and there will be a great many generations of new computers and robots, improving at an exponential rate, before one long human lifetime has passed.” Colleges and universities have yet to respond adequately to these changes, Shiller concluded. “We will have to adapt as information technology advances . . . . We must continually re-evaluate what is inherently different between human and computer learning.”

Shiller is right: We need to update our thinking about the function of higher education. We also need to update our thinking about workforce training, retirement, and aging to fit the realities of the twenty-first century.

The VR/AR escalator

Two weeks ago I finally tried VR for the first time. I have been hooked since then. While I can feel the incredible potential of the tool, it is however too early, for me, to truly understand its implications.

Imagination of re-imagination is always limited at the beginning. The first ideas one gets are usually the obvious ones. In VR this means: better, more immersive, games, real-presence movies and documentaries, “live” apartment viewing. The difficult part is getting to the point where truly native experiences can be thought and developed.

Simon Lajboschitz, who runs Khora VR here in Copenhagen, helped me with two useful keys to frame expectations:

  1. Internet:Information = VR/AR:experience

If the internet, especially in its first phase, is the democracy of information (wikipedia being its poster child), VR and AR will be the democracy of experiences. As an extension, we can plot a likely path into the future of VR and AR by taking existing information and “translating” them into experiences. For example, if today the internet allows us to learn about something by reading about it, tomorrow VR will allow us to learn about the same topic by experiencing it.

  1. AR and VR as an escalator

Rather than being two different experiences, AR and VR are two directions of the same “escalator”. With VR, it is us going into the internet. With AR, it is the internet coming to us.

Both points share a critical element: the blurring of a clear demarcation between the “real” world and the web. I look forward to this change. In the last twenty years the internet has increasingly taken over our life. Yet the tool we use to access it are limited by a two dimensional form factor that feels like a straightjacket.

Our office environments are a clear example of this. Everyday we walk to a physical space and spend a large share (for most the majority) of our time facing a screen. With the exception of a few specific functions (coding, maybe, and design, at times) all other tasks don’t have an intrinsic need to be performed sitting at a desk, staring at a flat surface. Our working days have become way more stationary than they need to be, mostly due to the stationary nature of the web, trapped into our desktop computers and phones.

While for some VR can seem a further step in that direction, I expect it to be the opposite. Initially, wearing a mask (or a helmet) might feel like an additional step away from the “real” (debatable, naturally). Over time, it will liberate us from the constrains of the flat screen and bring back true freedom of movement (and interaction) to the workplace.

The age of VR and AR is starting. I feel excited.

Politics strikes back (appended)

In "Politics strikes back" I reported the feeling of a political renaissance among entrepreneurs. Two weeks later, I stumbled on this passage from an old essay by Albert Hirschman

Hirschman's words put my feelings into a framework. Consciously or not, there is today a broader understanding of the limits of economic and entrepreneurial activity as an agent of change. Their "marginal productivity" has reached a peak and further, meaningful, change will require getting our hands dirty with politics.

Now, what "politics" actually means remains an open question. Tobia De Angelis challenged me recently to broaden my own definition of politics. People are indeed doing politics to a much larger degree that we are normally ready to recognise. It just doesn't show itself in a traditional, party-led, way. 

I see that, and I have promised myself to pay more attention to politics by other means. I remain afraid that this might not be sufficient until the grip of conventional politics is totally severed (will it ever be?). In the meantime, I am happy my sentiment has found its explanation (more on that soon). 

Breaking non writing

In the last two years I have written somehow regularly on this blog. Writing is a masochist act. I want to do it, I love having it done, I find doing it extremely painful. But the most surprising aspect of writing is how quickly it can dry up. Every once in a while there are days when I simply cannot do it. Days of non-writing.

Cat chasing its tail. I get caught up in many other, mostly practical, tasks, the flow of ideas and reflections slows down, the blinking cursor on the empty screen gets intimidating. Stop.

I know what a good friend would say. This is not about inspiration, just sit down and write about something. Well, isn’t it what I am doing now?

I woke up early with the best intentions. I have a list of topics I’d like to know what I think about. That’s why I write. They are all difficult. I have no answer ready made. I am not here to teach something, to share an experience. I am here to figure it out.

Long awaiting topics:

  • Technology at the periphery
  • Experience, sentiment, explanation
  • Longing for adventures, and if adventures are commodities is no-adventure and adventure?
  • Tradition and modernity

New idea:

  • Doing tough stuff (see below)

And then there is that project: the Italian constitution, the value of work. I will get to that too. One foot in front of the other.

How many words now? 238. No, 240. I could actually go on like this and reach 500. Isn’t it 500 the magic number? 257. 258. Progress, how wonderful. 261.

I cheated. Got a message, answered, moved to another site, found something interesting, bookmarked, got even an idea for a new post: “doing tough stuff”. No, it wasn’t this. It sounded better before. Anyway, I’ll get to that one as well. I can add it above, done. I invented a time machine, and a circular reference. Maybe.

7.54, time to go. Must accelerate. I have a doubt now: that “anyways” above, I am not sure it’s right. ’s’ or no ’s’? Probably not. But if I look it up I’ll lose another 5 minutes, guaranteed. I hate grammar, I mean I hate doing it wrong. That’s probably not even grammar, it’s spelling. No, both words exist so it’s not spelling, it must be syntax. That’s for sure wrong, syntax is: “the set of rules, principles, and processes that govern the structure of sentences”. Not that. Yes, I looked it up: no ’s’. Something about the correct way and the slang way. I don’t buy that, but I buy this: “Furthermore, since “anyway” is an adverb and it is impossible for adverbs to be plural”. That’s it, it’s IMPOSSIBLE. Point. I could change it now, then this paragraph would make no sense. Done. Now I am smiling, this was fun. I have to do it again.

New, to-write, post:

  • stream of consciousness to break non writing

Academic title, too academic maybe? Is there another way to say it? Also, that has been done before. If you do something that was done before but it is not done so much because it was done already before does it get new again? Like, doing something “the old way” when everybody is doing “the new way” is actually doing something even newer. Need to include this in “tradition and modernity”. When I get to it. 570 571. Amazing, even strikethrough counts.

Politics strikes back

Last week, I participated in the Anthemis hacking finance retreat. It was my third time and I was happy to see a lot of old friends and get to know a lot of new people.

As usual, there were a lot of great discussions during the three days. One thing was clear though: Politics has made a clear come back. In the past we have discussed politics more as “regulation” or, at most, as a laggard in a fast-changing society. But this time the mood was clearly different.

It “helped” that in the few days we were there the attacks of Nice and the (still very unclear) attempted coup in Turkey happened. It also “helped” that we were right after the Brexit vote and before the republic convention will make the Trump joke into a not so funny one. The mood was generally pessimistic, trending towards dystopian. Somebody made the appropriate comment that we reminded the French second estate summoned at Versailles: politely discussing about the events unfolding outside the doors of our palace, while (possibly) misunderstanding them. The lack of one single Brexit or Trump supporter did smell of croissant.

Politics then. Because we are getting out of a period where economic and technologic developments have been assumed to be sufficient to bring the world forward and heal all problems. A cold sweat awakening for people in this group: of the possible dystopian scenarios, a politically led one (democratically, no doubt) is still the most plausible one.

But for another reason as well. Because it is clear to the most now that solving these same challenges will require more than return-seeking free enterprise. Because there are challenges where the numbers simply don’t add up and where the bottomline can turn black only after accounting for positive externalities.

In this spirit, I was happy to come across a couple of promising initiatives. The first is Code for America, an initiative to bring tech talent to tackle hard (and not investment worthy) public challenges. The second is this profile of the United States Digital Services. Again, these are only american examples (filter bubble anyone) but I am sure there is plenty of similar initiatives and thoughts in other countries.

This is the positive side we need to cling on, and push more. That more talented people will join the ranks of these initiatives and put their brains and hands to work for goals that can only be political in nature.

We might have been awaken to politics by the wrong reason. Let’s turn this into an opportunity to fix things.

Techno determinism

Techno-determinism is an attitude I see in many people within tech. It manifests itself as the total refusal to accept any criticism of technology and its effects. In particular, it objects to any attempt to offer a critical view of society as shaped by our current technology. 

It’s a weird phenomenon, as it contradicts one of the most fundamental belief of its own practitioners: human agency. Somehow, the same people who believe so deeply in the power of individuals to shape technology have no belief in the power of the same individuals to stir how technology shapes us. 

Its weapons are derision, mockery, and hand-picked anecdotes. If you say that we are glued to our screens, they will call you luddite and show an image of people reading the newspaper. If you think that automation could take away jobs, they will post a quote from similar (turned out to be unfunded) fears a century ago. If you believe that social media reinforce a culture of tribalism  and opposition they will claim people want to live in bubbles. 

Techno determinists are just as bad as the nostalgics they mock. In their blindness to the side effects of the technology they fund and build, they provide an easy target to their attackers. That’s not what the world needs. 

The technology sector has long ago graduated from its inferiority complex. It is now time to go beyond “revenge time” and assume instead the sense of responsibility that its power require. 

I am sure there are plenty of examples of people that at least try to pose themselves the right questions. I would just like to name 3 who deserve special praise for their ability to reconcile critical sense (awareness) and optimism. 

- Tim O’Reilly and his Next:Economy initiative

- Albert Wenger for his thoughtful analysis of post-capitalist world

- Tristan Harris and his “time well spent” movement 

Even more than their opinions, I share their attitude. We need more of that.

Elite who?

I am annoyed by the constant references to “elites” in the Brexit debate. As if city-dwelling, bachelor-holding, remain-supporting people were all part of some privileged class watching with contempt everybody else [1]. 

I see nothing “elite” about the millions Erasmus students living abroad, nothing elite about the waiters and chefs and startup employees populating London and Berlin and Barcelona and many other European cities. 

The vast majority of these people (and I put myself in this group) come from the same provinces, small cities and rural areas that in England have voted massively for Brexit and where anti-EU parties get most of their support in other countries. Their parents are factory workers, civil servants, shop owners, small entrepreneurs. They went to (free) public schools and travelled around thanks to EU supported programs like Erasmus, where they learned to speak a new language and maybe fell in love with a boy or girl from another country. 

The promise of Europe has nothing to do with privilege. And the majority of its supporter are the product of the inclusiveness, equality of opportunity, social and economical mobility that are the very heart of the European post WW2 identity. This is the exact opposite of elite. 

What is true, however, it that we are failing at this promise. Keeping it alive is the only way we can stop this reckless ride. The alternative is hard cold wall. 


[1] Some stats are here 

Beyond the pyramid principle

In my consulting days, Barbara Minto’s (in)famous Pyramid Principle had the status of a gospel. 

Consulting boils down to two essential things: persuasion and data. And given that data often can tell multiple stories at once (or that you can simply pick the data you want), persuasion is possibly the most important skill of a consultant. 

The Pyramid Principle is all about that. Clear, structured communication, with the only goal of delivering a recommendation, proving a thesis, obtaining a (favourable) decision. 

One of the main points in the “principle” is clearly structuring your thoughts before starting to write. The reason: once you have written something you are inevitably committed to it. Improving it after the ink has hit the paper becomes almost impossible. Even if no ink, and no paper, are involved.

Compare this approach with the open ended, exploratory nature of the “essay”, a style started by Montaigne and popularised in the tech circles by Paul Graham[1]. In this type of writing, not knowing (precisely) what you are going to write about is a deliberate decision, more than a simple stylistic choice. Writing in this form “doesn’t just communicate ideas; it generates them”, or in other words “ [the] writer writes to see what happens”. 

The comparison can be stretched beyond the realm of literary forms. In a way, the two styles reflect opposite views of society. The pyramid principle, like the profession it has helped creating, is an offspring of the industrial economy. Its fundaments are clear facts (content) and clear planning (structure). It is Taylorism applied to writing. The open essay, on the other hand, is attuned with the fluid nature of today’s organisations. With a creative process that values action just as much as speculation. A process rooted on the idea that creation itself generates your thoughts. That you cannot tell where you are going before you start walking. 

Barbara Minto is right, however, when warning against the risks of getting stuck in that unplanned first version. This is even more important in the explorative writing form. Using action to generate ideas assumes the ability to throw away dead ends, to completely re-write entire sections, to let the flow dictate the topic. Explorative writing is a metaphor of our “trial and error” society, a society that forces us to embrace uncertainty and where failure is the natural flip side of innovation. Learning how to destroy our creations becomes therefore a necessary skill, a resistance to pain that we all need to cultivate [3].

And so we are back to this post. I had started off writing about small stores based on a thought I had during the weekend as I was going out to buy some shorts. As I started, the post took a completely different turn, forcing me to think again about my initial idea and broadening it up to investigate whether people would pay a premium to preserve human jobs (it not only generates ideas, but also research topics). The post is still there and will take longer to finish. But it made me think about the value of writing, and the fundamental difference between this approach and writing simply to prove a point. Without starting on the small stores I wouldn’t have thought about the Pyramid Principle and this post would not exist. 

It is a beautiful metaphor of life in the age of uncertainty, a life we all need to learn how to embrace. So, write, even if you don’t know about what. 

[1] Paul Graham: Writing, briefly

[2] William A. Covino: The Art of Wondering

[3] A great example of this is Amazon, “The best place in the world to fail”, as stated recently by Jeff Bezos. Not surprisingly, Amazon is one of the most successful company of our times.

The new suburb

There are a lot of new developments in Copenhagen these days. An entire new suburb is being built by the water near where I live. It’s going to have its own metro stop and a new postcode. 

Tens of buildings are coming up at the same time, they all look different from one another. There are grey ones and red ones, modernist townhouses and tall blocks. A cylinder building has been wrapped around an old silo. In the middle of what looks like a square, a four storey parking stands proud like a church. It even has frescos. It is if each developer has been given some lego blocks, just different bags. Walking around feels like browsing through a science exhibition. 

There is something unique about the early days in a new suburb. Offices are occupied by real estate agents. Shops are showrooms where new home owners eagerly browse through tiles, lamps and wooden floors. Can you make your place unique by arranging them in a different way? Finished building stand side by side with construction grounds. An old lady’s neighbour is a crane. A little girl’s bedroom looks into a row of of containers where workers change and drink coffee. Only in the new suburb you can chose between an indoor toilet and an out door one.

Sometimes I go walk around in the new suburb. I want to see how life is born. The first person I come across is a young father trying to put his baby to sleep. Maybe she is the first native of that reclaimed land. A runner comes by, a couple is looking around, how would it feel to live there?

The day is ending, construction workers pack their stuff and are ready to leave. For months they have owned the place, but their rough jokes don’t belong there, the new suburb is going to be a fancy one. The first settlers are back from work and are busy trying to put life in their brand new apartments. Spices and flowers ornate the balconies from where they enjoy the sea view through the unfinished building in front. Today the sea, tomorrow another family watching tv. 

Time feels suspended in the new suburb. Will all building be finished in the future or were they finished in the past? Maybe it is not a new suburb. Maybe a hurricane took them away.  

Ideology for the future

A new society can be brought about only if a profound change occurs in the human heart.

These words from Eric Fromm’s “To have to to be?” encapsulate what I have been thinking for a while.

The more I look into the future, how we will overcome the challenges of this revolution, the more I go back to a single thought: rationality alone will not save us.

By “rationality” I mean the belief that everything can be explained through facts, through laws of supply and demand, through statistics and economic incentives.

As we debate the rise of ideological movements shaking the foundations of our society, it appears clearly that we lack an alternative ideology. We have taken for granted that material progress was everything we needed. It only takes a sputtering engine to throw us off balance.

I am not talking about nostalgia. Leave all illusions about resetting the clock. We need an ideology for the future.

P.S. Two book I recommend about this:

- E.F. Schumacher, A guide for the perplexed

- E. Fromm, To have or to be?