You are here

Albert Wenger

Content Written by Author

Saturday, December 15, 2018 - 10:26am

Our twins are about to wrap up their first semester and one thing is clear: 30 years after I went, and 20 years after the web exploded, college has barely changed. Sure, students all have smartphones and laptops, but they also carry around big text and heavy textbooks, go to lectures with frontal presentation from professors and take exams in blue books. They go for four years with maybe a semester (or possibly even a year) abroad if they are lucky. They declare a major at some point and the majority of students pick a traditional discipline.

Now I am sure that my n = 2 is not enough of a sample and there are maybe schools out there that are doing something dramatically new already, but clearly there is a ton of room for innovation. There is also a huge need for it with over $1 trillion in student debt and many students not able to earn back the expense of college. I am convinced that in another 30 years from now, higher education will have changed significantly. This strikes me as an instance of where it has been easy to overestimate the rate of change, but will also turn out now to be easy to underestimate the ultimate degree of change.

What are some of the things we might see? The biggest change I expect to see over time is a move away from four years in one location. There has been some pickup in two year programs which is a start. But much further unbundling will likely occur and Udacity’s Nanodegrees are an interesting innovation in that regard.

Another example of what the future may bring comes from a non-profit, University of the People, which Susan and I have supported. University of the People is US accredited but is tuition free. While initially financed from donations, the model is now self sustaining based on assessment fees. This works because the university has lots of volunteers and no physical infrastructure (students learn via online courses).

I am excited that USV portfolio company Top Hat is building some of the ingredients for a new experience. They provide a collaborative content authoring platform on which professors can work together to create engaging interactive content. They also allow for an engaging in-classroom experience that gives professors data on who among their students is coming along easily and who is falling behind. These are ingredients to a different learning experience and when I attended Top Hat’s Engage conference earlier this year, I was inspired by the way some professors are using the tools in really innovative ways.

If you are aware of a college or a startup that is doing something really innovative in higher education, I would love to know. We need lots of experimentation here to find a new system.

Wednesday, December 12, 2018 - 7:16pm

A startup founder I know likes to say that their leadership style is “frequently wrong, but never in doubt.” Often that expression is applied as a critique, such as in Cheryl Wheeler’s song Driving Home, but the founder meant it as a positive model along the lines of the idea that even a bad decision is better than no decision. Given the high degree of uncertainty inherent in startups, how to lead in its presence is one of the crucial founder/CEO challenges. So should a leader share their doubts about a course of action with the team?

That framing of the question has an implicit assumption: that the leader has doubts to begin with and hence needs to make a decisions whether to share those or not. To some this may seem like a preposterous question, after all, who doesn’t have doubts? Only an overly sure fool would seem not to. But the word doubt has a lot of connotations, including lack of confidence and even distrust. So what do we even mean by asking about doubt and sharing it?

To help narrow this down, I therefore want to use other words and distinguish between “second guessing” and “re-evaluating.” The former is questioning a decision without material new information. The latter is revisiting a decision after material new information has been obtained. It is second guessing which is destructive for morale, because it calls into question not just the decision but also undermines the legitimacy of the decision making process itself. A a leader you should keep any second guessing strictly to yourself.

Re-evaluating on the other hand is healthy but requires a good decision making process. In particular, there has to be a relatively clear way of assessing whether something is in fact material new information. There is a famous quote, often attributed to Keynes: when the facts change, I change my opinion – what do you do? If you have a good process for making decisions then it will be quite clear whether something is a material new fact and the team will be able to be quite dispassionate about re-evaluating the decision.

So as a good exercise, next time you feel doubt about a decision, ask yourself if you are second guessing or if you are re-evaluating. And if you find yourself second guessing a lot, then it likely says something about problems with the decision making process (and potentially about your own fears).

Monday, December 10, 2018 - 5:05pm

NOTE: I have been posting excerpts from my book World After Capital. Currently we are on the Informational Freedom section and the previous excerpt was on Internet Access. Today looks at the right to be represented by a bot (code that works on your behalf).

Bots for All of Us

Once you have access to the Internet, you need software to connect to its many information sources and services. When Sir Tim Berners-Lee first invented the World Wide Web in 1989 to make information sharing on the Internet easier, he did something very important [95]. He specified an open protocol, the Hypertext Transfer Protocol or HTTP, that anyone could use to make information available and to access such information. By specifying the protocol, Berners-Lee opened the way for anyone to build software, so-called web servers and browsers that would be compatible with this protocol. Many did, including, famously, Marc Andreessen with Netscape. Many of the web servers and browsers were available as open source and/or for free.

The combination of an open protocol and free software meant two things: Permissionless publishing and complete user control. If you wanted to add a page to the web, you didn’t have to ask anyone’s permission. You could just download a web server (e.g. the open source Apache), run it on a computer connected to the Internet, and add content in the HTML format. Voila, you had a website up and running that anyone from anywhere in the world could visit with a web browser running on his or her computer (at the time there were no smartphones yet). Not surprisingly, content available on the web proliferated rapidly. Want to post a picture of your cat? Upload it to your webserver. Want to write something about the latest progress on your research project? No need to convince an academic publisher of the merits. Just put up a web page.

People accessing the web benefited from their ability to completely control their own web browser. In fact, in the Hypertext Transfer Protocol, the web browser is referred to as a “user agent” that accesses the Web on behalf of the user. Want to see the raw HTML as delivered by the server? Right click on your screen and use “view source.” Want to see only text? Instruct your user agent to turn off all images. Want to fill out a web form but keep a copy of what you are submitting for yourself? Create a script to have your browser save all form submissions locally as well.

Over time, popular platforms on the web have interfered with some of the freedom and autonomy that early users of the web used to enjoy. I went on Facebook the other day to find a witty note I had written some time ago on a friend’s wall. It turns out that Facebook makes finding your own wall posts quite difficult. You can’t actually search all the wall posts you have written in one go; rather, you have to go friend by friend and scan manually backwards in time. Facebook has all the data, but for whatever reason, they’ve decided not to make it easily searchable. I’m not suggesting any misconduct on Facebook’s part—that’s just how they’ve set it up. The point, though, is that you experience Facebook the way Facebook wants you to experience it. You cannot really program Facebook differently for yourself. If you don’t like how Facebook’s algorithms prioritize your friends’ posts in your newsfeed, then tough luck, there is nothing you can do.

Or is there? Imagine what would happen if everything you did on Facebook was mediated by a software program—a “bot”—that you controlled. You could instruct this bot to go through and automate for you the cumbersome steps that Facebook lays out for finding past wall posts. Even better, if you had been using this bot all along, the bot could have kept your own archive of wall posts in your own data store (e.g., a Dropbox folder); then you could simply instruct the bot to search your own archive. Now imagine we all used bots to interact with Facebook. If we didn’t like how our newsfeed was prioritized, we could simply ask our friends to instruct their bots to send us status updates directly so that we can form our own feeds. With Facebook on the web this was entirely possible because of the open protocol, but it is no longer possible in a world of proprietary and closed apps on mobile phones.

Although this Facebook example might sound trivial, bots have profound implications for power in a networked world. Consider on-demand car services provided by companies such as Uber and Lyft. If you are a driver today for these services, you know that each of these services provides a separate app for you to use. And yes you could try to run both apps on one phone or even have two phones. But the closed nature of these apps means you cannot use the compute power of your phone to evaluate competing offers from the networks and optimize on your behalf. What would happen, though, if you had access to bots that could interact on your behalf with these networks? That would allow you to simultaneously participate in all of these marketplaces, and to automatically play one off against the other.

Using a bot, you could set your own criteria for which rides you want to accept. Those criteria could include whether a commission charged by a given network is below a certain threshold. The bot, then, would allow you to accept rides that maximize the net fare you receive. Ride sharing companies would no longer be able to charge excessive commissions, since new networks could easily arise to undercut those commissions. For instance, a network could arise that is cooperatively owned by drivers and that charges just enough commission to cover its costs. Likewise, as a passenger using a bot could allow you to simultaneously evaluate the prices between different car services and choose the service with the lowest price for your current trip. The mere possibility that a network like this could exist would substantially reduce the power of the existing networks.

We could also use bots as an alternative to anti-trust regulation to counter the overwhelming power of technology giants like Google or Facebook without foregoing the benefits of their large networks. These companies derive much of their revenue from advertising, and on mobile devices, consumers currently have no way of blocking the ads. But what if they did? What if users could change mobile apps to add Ad-Blocking functionality just as they can with web browsers?

Many people decry ad-blocking as an attack on journalism that dooms the independent web, but that’s an overly pessimistic view. In the early days, the web was full of ad-free content published by individuals. In fact, individuals first populated the web with content long before institutions joined in. When they did, they brought with them their offline business models, including paid subscriptions and of course advertising. Along with the emergence of platforms such as Facebook and Twitter with strong network effects, this resulted in a centralization of the web. More and more content was produced either on a platform or moved behind a paywall.

Ad-blocking is an assertion of power by the end-user, and that is a good thing in all respects. Just as a judge recently found that taxi companies have no special right to see their business model protected, neither do ad-supported publishers [96]. And while in the short term this might prompt publishers to flee to apps, in the long run it will mean more growth for content that is paid for by end-users, for instance through a subscription, or even crowdfunded (possibly through a service such as Patreon).

To curtail the centralizing power of network effects more generally, we should shift power to the end-users by allowing them to have user agents for mobile apps, too. The reason users don’t wield the same power on mobile is that native apps relegate end-users once again to interacting with services just using our eyes, ears, brain and fingers. No code can execute on our behalf, while the centralized providers use hundreds of thousands of servers and millions of lines of code. Like a web browser, a mobile user-agent could do things such as strip ads, keep copies of my responses to services, let me participate simultaneously in multiple services (and bridge those services for me), and so on. The way to help end-users is not to have government smash big tech companies, but rather for government to empower individuals to have code that executes on their behalf.

What would it take to make bots a reality? One approach would be to require companies like Uber, Google, and Facebook to expose all of their functionality, not just through standard human usable interfaces such as apps and web sites, but also through so-called Application Programming Interfaces (APIs). An API is for a bot what an app is for a human. The bot can use it to carry out operations, such as posting a status update on a user’s behalf. In fact, companies such as Facebook and Twitter have APIs, but they tend to have limited capabilities. Also, companies presently have the right to control access so that they can shut down bots, even when a user has clearly authorized a bot to act on his or her behalf.

Why can’t I simply write code today that interfaces on my behalf with say Facebook? After all, Facebook’s own app uses an API to talk to their servers. Well in order to do so I would have to “hack” the existing Facebook app to figure out what the API calls are and also how to authenticate myself to those calls. Unfortunately, there are three separate laws on the books that make those necessary steps illegal.

The first is the anti-circumvention provision of the DMCA. The second is the Computer Fraud and Abuse Act (CFAA). The third is the legal construction that by clicking “I accept” on a EULA (End User License Agreement) or a set of Terms of Service I am actually legally bound. The last one is a civil matter, but criminal convictions under the first two carry mandatory prison sentences.

So if we were willing to remove all three of these legal obstacles, then hacking an app to give you programmatic access to systems would be possible. Now people might object to that saying those provisions were created in the first place to solve important problems. That’s not entirely clear though. The anti circumvention provision of the DMCA was created specifically to allow the creation of DRM systems for copyright enforcement. So what you think of this depends on what you believe about the extent of copyright (a subject we will look at in the next section).

The CFAA too could be tightened up substantially without limiting its potential for prosecuting real fraud and abuse. The same goes for what kind of restriction on usage a company should be able to impose via a EULA or a TOS. In each case if I only take actions that are also available inside the company’s app but just happen to take these actions programmatically (as opposed to manually) why should that constitute a violation?

But, don’t companies need to protect their encryption keys? Aren’t “bot nets” the culprits behind all those so-called DDOS (distributed denial of service) attacks? Yes, there are a lot of compromised machines in the world, including set top boxes and home routers that some are using for nefarious purposes. Yet that only demonstrates how ineffective the existing laws are at stopping illegal bots. Because those laws don’t work, companies have already developed the technological infrastructure to deal with the traffic from bots.

How would we prevent people from adopting bots that turn out to be malicious code? Open source seems like the best answer here. Many people could inspect a piece of code to make sure it does what it claims. But that’s not the only answer. Once people can legally be represented by bots, many markets currently dominated by large companies will face competition from smaller startups.

Legalizing representation by a bot would eat into the revenues of large companies, and we might worry that they would respond by slowing their investment in infrastructure. I highly doubt this would happen. Uber, for instance, was recently valued at $50 billion. The company’s “takerate” (the percentage of the total amount paid for rides that they keep) is 20%. If competition forced that rate down to 5%, Uber’s value would fall to $10 billion as a first approximation. That is still a huge number, leaving Uber with ample room to grow. As even this bit of cursory math suggests, capital would still be available for investment, and those investments would still be made.

That’s not to say that no limitations should exist on bots. A bot representing me should have access to any functionality that I can access through a company’s website or apps. It shouldn’t be able to do something that I can’t do, such as pretend to be another user or gain access to private posts by others. Companies can use technology to enforce such access limits for bots; there is no need to rely on regulation.

Even if I have convinced you of the merits of bots, you might still wonder how we might ever get there from here. The answer is that we can start very small. We could run an experiment with the right to be represented by a bot in a city like New York. New York’s municipal authorities control how on demand transportation services operate. The city could say, “If you want to operate here, you have to let drivers interact with your service programmatically.” And I’m pretty sure, given how big a market New York City is, these services would agree.

Friday, December 7, 2018 - 5:55pm

When Brad Smith from Microsoft had called for the regulation of Facial Recognition technology in July I was concerned about where that might go, as it could easily result in stifling innovation. I was therefore relieved to see the principles that Microsoft put forth yesterday, which are for the most part quite sensible.


In particular, I agree and strongly support the due process suggestion on government’s use of facial recognition technology. Surveillance of an individual using facial recognition should require a court order.

I am also a big fan of requiring an API to enable third party testing. This is in fact the first instance I am aware of in which a large tech company proposes such a requirement which I have written about frequently before and is a central part of what I call “Informational Freedom” in my book World After Capital. A great approach here would be for an organization such as NIST to publish a reference data set against which all facial recognition systems could be tested.

The only section of the Microsoft proposal that I think is somewhat under specified and potentially subject to bad regulation is titled “Ensuring meaningful human review.” The goal of this section is laudable, which is to require a human in the loop for high stakes decisions instead of operating fully automated. But the criteria for when that might apply are broad and vague and could wind up encompassing a lot of the positive use cases. I would suggest limiting this part of the proposal to the exercise of government power.

Overall this is an incredibly thoughtful contribution from a technology leader to the discussion of how we can use our new capabilities for good.

Thursday, December 6, 2018 - 12:53pm

In investing there is uncertainty about returns. Some investments do well, others do poorly. But that is not the only risk that investors are concerned about when they are investing professionally on behalf of others. There is also the issue of perception: it is one thing not to make money in a sector, it is another not to make money in that sector when everyone else appears to be making money in it. Similarly, it is one thing to lose money on a trade, it is another to lose money on a trade that people have tried many times before and is now widely “known” to be a money-losing trade.

In each case the investor is not just taking return risk but also perception risk. If the others are right, then not only will returns be below the benchmarks but there is also the question: why did you think you were smarter than everyone else? And, well, nobody really wants to hear that. Beyond a bruised ego, the perception risk will eventually also impact one’s ability to raise money for a fund. Why? Because most of the money put into funds is put there by people who are also professional investors and hence face similar perception risk!

I believe perception risk explains why there is so much herding into popular sectors and why, conversely, some sectors go underfunded for long periods of time after big losses have been incurred. For example in 2001, Brad and I together with a mutual friend tried to raise a fund on an investment program roughly similar to what eventually became USV. Nobody wanted to give us money. I remember one meeting with someone at Goldman Sachs particularly well. After we had explained how the next value creation in the Internet would be at the application level (because so much had gone into infrastructure during the dotcom bubble), the person we were pitching looked at us and said “So you are saying you will invest in shitty little companies?”

It will be interesting to see how this plays itself out in crypto now. Longtime crypto investors like to point out how Bitcoin has had multiple previous big corrections. While that is correct from a return risk perspective, it fails to account for perception risk. None of the prior corrections had remotely the same level of public visibility. So to think that institutional investors will by piling in right now is to ignore perception risk. To invest now means taking both return risk and perception risk. That’s why climbing out of the winter of the burst Dotcom bubble took time and that’s why the same is likely to be true for crypto.

Tuesday, December 4, 2018 - 12:47pm

NOTE: I have been posting excerpts from my book World After Capital. The previous section introduced the concept of Informational Freedom. Today looks specifically at internet access.

Access to the Internet

On occasion, the Internet has come in for derision from those who claim it is only a small innovation compared to, say, electricity or vaccinations. Yet it is not small at all. If you want to learn how electricity or vaccinations work, the Internet suddenly makes that possible for anyone, anywhere in the world. Absent artificial limitations re-imposed on it, the Internet provides the means of access to and distribution of all human knowledge—including all of history, art, music, science, and so on—to all of humanity. As such, the Internet is the crucial enabler of the digital Knowledge Loop and access to the Internet is a central aspect of Informational Freedom.

At present, over 3.5 Billion people are connected to the Internet, and we are connecting over 200 Million more every year [88]. This tremendous growth has become possible because the cost of access has fallen so dramatically. A capable smartphone costs less than $100 to manufacture, and in places with strong competition 4G bandwidth is provided at prices as low as $8 per month (this is a plan in Seoul that provides 500 MB at 4G speeds, a 2GB plan is $17 per month) [89] [90].

Even connecting people in remote places is getting much cheaper, as the cost for wireless networking is coming down and we are building more satellite capacity. For instance, there is a project underway that connects rural communities in Mexico for less than $10,000 in equipment cost per community. At the same time in highly developed economies such as the U.S., ongoing technological innovation, such as MIMO wireless technology, will further lower prices for bandwidth in dense urban areas [91].

All of this is to say that even at relatively low levels, a UBI will cover the cost of access to the Internet, provided that we keep innovating and have highly competitive and/or properly regulated access markets. This is a first example of how the three different freedoms mutually re-enforce each other: Economic Freedom allows people to access the Internet, which is the foundation for Informational Freedom.

As we work to give everyone affordable access to the Internet, we still must address other limitations to the flow of information on the Internet. In particular, we should oppose restrictions on the Internet imposed by either our governments or our Internet Service Providers (ISPs, the companies we use to get access to the Internet). Both of them have been busily imposing artificial restrictions, driven by a range of economic and policy considerations.

One Global Internet

By design, the Internet does not include a concept of geographic regions. Most fundamentally, it constitutes a way to connect networks with one another (hence the name “Internet” or network between networks). Any geographic restrictions that exist today have been added in, often at great cost. For instance, Australia and the UK have recently built so-called “firewalls” around their countries that are not unlike the much better-known Chinese firewall. These firewalls are not cheap. It cost the Australian government about $44 million to build its geographic-based, online perimeter [92]. This is extra equipment added to the Internet that places it under government control, restricting Informational Freedom. Furthermore, as of 2017 both China and Russia have moved to block VPN (Virtual Private Network) services, a tool that allowed individuals to circumvent these artificial restrictions and censorship online [93]. As citizens, we should be outraged that our own governments are spending our money to restrict our Informational Freedom. Imagine, as an analogy, if the government in an earlier age had come out to say “we will spend more taxpayer money so that you can call fewer phone numbers in the world.”

No Artificial Fast and Slow Lanes

The same additional equipment used by governments to re-impose geographic boundaries on the Internet is also used by ISPs (Internet Service Providers, i.e. companies that provide access to the Internet) to extract additional economic value from customers, in the process distorting access. These practices include paid prioritization and zero rating. To understand them better and why they are a problem, let’s take a brief technical detour.

When you buy access to the Internet, you pay for a connection of a certain capacity. Let’s say that is 10 Mbps (that is 10 Megabits per second). So if you use that connection fully for, say, sixty seconds, you would have downloaded (or uploaded for that matter) 600 Megabits, the equivalent of 15-25 songs on Spotify or SoundCloud (assuming 3-5 Megabytes per song). The fantastic thing about digital information is that all bits are the same. So it really doesn’t matter whether you used this to access Wikipedia, to check out Khan Academy, or to browse images of kittens. Your ISP should have absolutely no say in that. You have paid for the bandwidth, and you should be free to use it to access whatever parts of human knowledge you want.

That principle, however, doesn’t maximize profit for the ISP. To do so, the ISP seeks to discriminate between different types of information based on consumer demand and the supplier’s ability to pay. Again, this has nothing to do with the underlying cost of delivering those bits. How do ISPs discriminate between different kinds of data? They start by installing equipment that lets them identify bits based on their origin. They then go to a company like YouTube or Netflix and ask them to pay money to the ISP to have their traffic “prioritized,” relative to the traffic from other sources that are not paying. Another form of this manipulation is so-called “zero rating” which is common among wireless providers, where some services pay to be excluded from the monthly bandwidth cap. And if permitted, ISPs will go even a step further: in early 2017 the U.S. Senate voted to allow ISPs to sell customer data including browsing history without prior customer consent [94].

The regulatory solution to this issue goes by the technical and boring name of Net Neutrality. But what is really at stake here is Informational Freedom. Our access to human knowledge should not be skewed by the financial incentives of our ISPs. Why do we need regulation? Why not just switch to another ISP, one that provides neutral access? As it turns out in most geographic areas, especially in the United States, there is no competitive market for Internet access. ISPs either have outright monopolies (often granted by regulators) or they operate in small oligopolies. For instance, in the part of New York City (Chelsea) where I live at the moment, there is just one broadband ISP, with speeds that barely qualify as real broadband.

Over time technological advances such as wireless broadband and mesh networking may make the Internet Access market more competitive. Until then, however, we need regulation to avoid ISPs limiting our Informational Freedom. This concern is shared by people in diverse geographies. For instance, India recently objected to a plan by Facebook to provide subsidized Internet access which would have given priority to Facebook services.

Sunday, December 2, 2018 - 8:42am

We have entered a new phase of the discussion on what to do about speech on platforms such as Twitter. On the plus side many more people are engaged. On the minus side the calls to treat Twitter as a traditional publisher are growing.

Let me start by repeating something I have written before: many of Twitter’s problems are self inflicted. In particular, Twitter has messed up its checkmark system and Twitter has been woefully slow to add moderation tools.  But we shouldn’t base decisions about what to do in the future on Twitter’s current state.

There are many related problems when it comes to speech on a large public platform and often they cut in different directions:

  1. Censorship and suppression of speech
  2. Direct harassment and threatening of individuals
  3. Hate speech
  4. Misinformation and manipulation
  5. Comments that are offensive to someone based on their beliefs
  6. Being trapped in a filter bubble

The idea that there could or should be a single central institution, let alone a commercial company, which as a benevolent dictator resolves all of these issues to everyone’s satisfaction is a complete non-starter. Yet that is essentially what Twitter is attempting at the moment and it is, unsurprisingly, failing badly.

Here is just one example of the kind of problems Twitter’s current approach runs into. David Pinsen just had his Twitter account temporarily suspended. I initially connected with David on Twitter years ago, we have met in person for an interview and stay in touch with over Twitter, comments on my blog and email. Here are the tweets cited in David’s suspension:

Now people might disagree about how useful these tweets are. Some people might even have a negative reaction, such as “why did he have to bring that up?” and those people should be free to mute or block David. But to have Twitter suspend him, even for some time, seems like too much centralized power exercising censorship, i.e. fails #1 above. The calls for Twitter to be a publisher would massively aggravate this problem. Even a large traditional publisher has a tiny number of writers compared to the millions of voices on Twitter.

What should be done? Well, my preferred go to answer is to shift more power to the network participants by requiring Twitter (and other scaled services) to have an API. That would allow endusers to programmatically create the best version of Twitter and would also make it easier to simultaneously use Twitter and new decentralized alternatives. But since we are likely years away from accomplishing that via new regulations or removing existing regulations, let me set out what could be done within the existing legal framework.

For starters, Twitter should fix its verification system by having it simply mean one thing: this account actually belongs to the person whose name appears on the account. Together with some simple other changes, such as requiring verified accounts to have the person’s (or organization’s) name as their name (not their handle) and not allowing verified accounts to change their name without re-verification this would go a long way to dealing with misinformation and manipulation. Twitter would also need to make it much easier to actually obtain verification than they did historically (e.g. DM Twitter an image of your driver’s license from the account you want to verify).

To understand the next set of my proposals it is important to differentiate between the existence of a tweet and its visibility. Consider two extreme book ends: a tweet that exists but you can only see it if you have the URL for the tweet; a tweet that is inserted into everyone’s timelines repeatedly so that eventually all users see it. Twitter as a centralized system controls this entire range of visibility.

Twitter should never delete a tweet, unless either the user chooses to delete it or Twitter is forced by law to delete it. The latter should be extremely rare because even if one country asks for deletion of a tweet, Twitter could choose to make that tweet inaccessible from that geography based on IP or other geolocation technology. As an aside,  Twitter could make tweets editable if it kept around all prior versions for the tweet as well and linked to them from the current version (it could also limit how many characters one can edit per iteration of a tweet and/or how many times one can edit a tweet).

Crucially, Twitter should significantly expand the features that let individuals and groups manage the visibility for tweets for themselves. There are already useful features such as muting a conversation or blocking an individual. These could be expanded in ways that allow for delegation. For instance, users should be able to say that they want to subscribe to mute and block lists from other individuals, groups or organizations they trust. One example of this might be that I could choose to automatically block anyone who is blocked by more than x% of the people I follow (where I can choose x). Ideally these features could be implemented at the tweet/conversation level and not just the account level.

The goal here is to retain Twitter as a platform for expression and empower individuals and groups to more clearly shape how they experience Twitter (but without immediately spilling over into what others can see). Now if a tweet is blocked or muted by more and more people belonging to widely different groups (something Twitter can tell through network analysis), Twitter could also gradually dial down the visibility of that tweet, but it would be doing so on the basis of a lot of signal.

There is one problem that this approach does not solve and may in fact worsen, at least initially. And that’s #6 above – people living in a filter bubble. This problem is endemic to any system that let’s people shape directly or indirectly (via algorithms) what they want to see. As it turns out people generally prefer having their existing beliefs confirmed rather than challenged. Asking any one system to overcome this deeply engrained human bias is asking a lot. This will require us to work on much broader changes along the lines that I propose in my book World After Capital. Nonetheless, with a delegated muting approach as proposed above, Twitter would have more data than ever that could also be used to selectively raise the visibility of some tweets in what I have called an “Opposing View Reader.”

No solution here will be perfect and it will take many iterations to get better. But to give up on platforms and revert to the publisher model would be a huge mistake.

Wednesday, November 28, 2018 - 2:32pm

I have been skeptical about Turing complete on chain computation for a long time. Many early proponents took the position that there is no issue because a mechanism such as Ethereum’s gas limits how long a computation can run. They argued that this means computation will always eventually run out of gas and then stop. But the danger of a program not stopping is not the only thing to worry about in a completely open and interconnected computation system. The more pertinent issue is: what will a new smart contract do to the total system state? With Turing complete languages, there is one and only one way of finding out and that is to actually go ahead and run everything.

Another way of saying this is that focusing on the Halting Problem in its most literal sense, as in “Will this program stop?” is too narrow a view of the issue. As I explain in the Halting Problem post from my old Tech Tuesday series, any question such as “will this program output the number 42?” or “will this program ever execute line 42 of its code?” is not answerable in the general case of Turing complete languages. For Blockchains an example question is: Will a new smart contract cause any existing smart contract to misbehave? And gas limits do not help with answering that question. In a system where any contract can refer to any other contract that question is not generally answerable for arbitrary Turing complete contracts other than by executing the system.

Some people have proposed formal verification as an answer. I absolutely believe that smart contracts systems should be built in a way that makes formal verification possible. That will help with some problems, such as detecting and preventing certain kinds of bugs that make possible attacks such as the one that drained one third of The DAO. But formal verification does not get around the problem that even trivial questions about how the system will behave as a whole with a new contract added cannot be generally answered.

So what is to be done? I am partial to having on-chain computation be non-Turing complete. If done correctly this will not impose a huge limitation on the kind of relatively simple and yet hugely helpful computations one would want to carry out as part of smart contracts, such as taking a conditional action. Such an approach would not only make formal verification dramatically easier, but it would make it so powerful that one could in fact answer questions about the impact of new smart contracts on the system as a whole.

Does that mean we have to give up on Turing complete computation entirely for blockchains? No. I believe the right place for Turing complete computation is off-chain. But the blockchain should natively support verification of zero knowledge proof certificates for off-chain Turing complete computation. In this scenario as long as a single off-chain node properly carries out a computation and submits a certificate, then following successful on-chain validation the results of that computation can be used as inputs for smart contracts.

There is no system today that provides this combination of non-Turing complete smart contracts with native support for on-chain validation of zero knowledge proofs for Turing complete off-chain computation. But projects are starting to experiment with and plan for such an approach and I expect to see some version of this become available over the coming year. 

Monday, November 26, 2018 - 12:24pm

NOTE: I have been posting excerpts from my book World After Capital. The last few excerpts have been about Universal Basic Income as a way of expanding Economic Freedom. Today’s section introduces the concept of Informational Freedom.

Informational Freedom

Can you read any book you want to? Can you listen to all the music that has ever been recorded? Do you have access to any web page at all you wish to consult? Can you easily see your own medical record? Other people’s medical records?

Historically questions like this would not have made much sense, as copying and distributing information was quite expensive. In the early days of writing, for instance, when humans literally copied text by hand, copies of books were rare, costly, and also subject to copy errors (unintentional or intentional). Few people in the world at that time had access to books, and even if some power had wanted to expand access, it would have been difficult to do so because of the immense cost involved.

In the age of digital information, when the marginal cost of making a copy and distributing it has shrunk to zero, all limitations on digital information are in a profound sense artificial. They involve adding cost back to the system in order to impose scarcity on something that is abundant. As an example, billions of dollars have been spent on trying to prevent people from copying digital music files and sharing them with their friends or the world at large [87].

Why are we spending money to make information less accessible? When information existed only in analog form, the cost of copying and distribution allowed us—to some degree required us—to build an economy and a society grounded on information scarcity. A music label, for instance, had to recruit talent, record in expensive studios, market the music (often by paying for radio airplay), and finally make and distribute physical records. Charging for the records allowed the label to cover its costs and turn a profit. Now individuals can produce music on their laptop and distribute it for free to the entire world, the fixed cost is dramatically lower and the marginal cost of a listen is zero. And with that the business model of charging per record, or per song, or per listen, and the extensive copyright protections required to sustain it no longer make sense. Despite the ridiculous fight put up by the music industry in the end we are winding up with listening that is either free (ad supported) or part of a subscription. In either case the marginal listen is free.

Despite this progress in music, we accept many other artificial restrictions on information access and distribution as a given because we, and a couple of generations before us, have grown up with them. This is the only system we know and much of our personal behavior, our public policies and our intellectual inquiries are shaped by what we and our recent ancestors have experienced. To transition into the Knowledge Age, however, we should jettison much of this baggage and strive for dramatically increased informational freedom. This is not unprecedented in human history. Prior to the advent of the printing press, stories and music were passed on largely in an oral tradition or through copying by hand. There were no restrictions on who could tell a story or perform a song.

Just to be clear: Information is not the same as knowledge. Information is a broader concept, including, for instance, the huge amounts of log files generated every day by computers around the world, much of which may never be analyzed. We don’t know in advance what information will turn out to be the basis for knowledge (i.e., information meant for other humans and which humans choose to maintain over time). Hence it makes sense to keep as much information as possible and make access to that information as broad as possible.

In this section we will explore various ways to expand informational freedom, the second important regulatory step to facilitate our transition to a Knowledge Age.

Friday, November 23, 2018 - 5:14pm

Wishing everyone a belated Thanksgiving. If you have some time today or over the weekend, I recommend watching this video of VP Mike Pence talking about the administration’s approach to China

Then follow it by watching this video by Hank Paulson who proposes a different approach but seem clearly pessimistic about where this is headed.

The deterioration of US-China relations is a massive tail risk. The recent sell-off in the stock market may be a partial reflection of that but doesn’t even begin to capture the potential downside. As an important reminder, China is the largest holder of US sovereign debt, which they could use strategically by selling treasuries. That could drive up US borrowing rates just at a time that the Trump administration tax cut is resulting in massive deficits, making borrowing more expensive.

I have talked to a number of American and Chinese entrepreneurs over the last few months about this. What was most surprising to me was how few seemed to have the possibility of a US-China cold war on their radar as a real risk.

Monday, November 19, 2018 - 12:56pm

NOTE: I have been posting excerpts from my book World After Capital. Today’s section wraps up the section on Universal Basic Income (UBI) by addressing a few common objections and arguing that it is a moral imperative.

Other Objections to UBI

I have already addressed the three biggest objections to UBI by showing that it is affordable, will not result in inflation, and will be positive for the labor market. There are some other common objections that are worth addressing. The foremost of these is a moral objection that people have done nothing to deserve receiving an income. That one is important enough that it merits its own section which follows in a bit and closes out this chapter on Economic Freedom.  

Another objection is that UBI diminishes the value of work in society. The opposite is true because UBI recognizes how much unpaid work exists in the world, starting with child rearing. We have created a weird situation where the word “work” has become synonymous with getting paid and using that to conclude that if you do not get paid for an activity (at least not in an obvious direct way), then it cannot be work. As an interesting counter to this, Montessori Schools use “work” to refer to any “purposeful activity” [Citation needed].

That leads us to a different objection, which is that UBI robs people of a purpose which–the argument goes–is provided by work. But work as the sole source of human purpose is a relatively new view that is largely attributable to the Protestant work ethic (which signals its focus on work by its name). Previously human purpose tended to be much more broadly based in following the precepts of religion, which might include work as one of many commandments, and being a good member of the community. Put differently, the source of human purpose is subject to redefinition over time and as I have argued earlier in this book, contribution to the knowledge loop is a better candidate for the future than work.

One other objection that is frequently brought up, is that people will simply spend their basic income on alcohol and drugs. This objection is often accompanied by claims that the casino money received by Native Americans is the cause of drug problems among that population. There is no evidence to support this objection and the accompanying claim. None of the UBI pilots and experiments have found a significant increase in drug or alcohol abuse (in the meantime we have, in the absence of UBI, the largest drug epidemic in U.S. history with the opioid crisis). And the research on casino money shows that, contrary to apparently widely held belief, casino money has in fact contributed to declines in obesity, smoking and heavy drinking [Citation needed].

And then there are people who object to UBI not because they think it will not work, but because they claim it is a cynical ploy by the rich to silence the poor, a financial version of “opium of the people” designed to keep people from rebelling against their situation. This criticism is voiced by some who genuinely believe it but is also used by others as a convenient tool of political division. Whatever the case, the impact of UBI is likely to be the opposite, as was recognized by Thomas Paine (see above). Today, in many parts of the world, including the United States, poor people are effectively shut out from the political process. They are too busy holding down one or more jobs to be able to run for office, or organize and sometimes even just to vote (as in the United States we vote on a week day and there is no requirement for employers to give employees time off from work to vote).  

UBI as a Moral Imperative

Finally, before proceeding to examine Informational Freedom, we should remind ourselves why individuals deserve to have their basic needs taken care of. Why should they have this right by virtue of being born, just as they do the right to breathe air?

None of us did anything to make the air. It was just here. We inherited it from the planet. Nobody ever asks, what did you do to deserve air? None of us alive today did anything to invent electricity. It had already been invented, and we have inherited its benefits. But you might say: electricity costs money and people have to pay for it. True, but they do not pay for the invention of electricity, just for the cost of making it. Yet, nobody asks: what did you do to deserve living in a world where electricity has already been invented? We can substitute many other amazing parts of human knowledge for electricity, such as antibiotics.

Human knowledge is our collective inheritance. We are all incredibly fortunate to have been born into a world where capital is no longer scarce. Using our knowledge to take care of everyone’s basic needs is therefore a moral imperative. And UBI accomplishes that by giving people Economic Freedom, allowing them to exit the Job Loop and thus accelerating the Knowledge Loop that gave us this incredible inheritance in the first place.

Monday, November 12, 2018 - 12:32pm

NOTE: I have been posting excerpts from my book World After Capital. Today’s section looks at the effects a Universal Basic Income (UBI) might have on the labor market.

Impact of UBI on the Labor Market

One of the many attractive features of a UBI is that it doesn’t do away with people’s ability to sell their labor. Suppose someone offers you $5/hour to watch her dog. Under a UBI system you are completely free to accept or reject that proposal. There is no distortion from a minimum wage. The reason we need a minimum wage in the current system is to guard against exploitation. But why does the opportunity for exploitation exist in the first place? Because people do not have an option to walk away from potential employment. With a UBI in place, they will.

The $5 per hour dog sitting example shows why a minimum wage is a crude instrument that results in all sorts of distortions. You might like dogs. You might be able to watch several dogs at once. You might be able to do it while writing a blog post or watching YouTube. Clearly government should have no role in interfering with such a transaction. The same is true, though, for working in a fast food restaurant. If people have a walk away option, then the labor market will naturally find the right clearing price for how much it takes to get someone to work in say a McDonalds. That could turn out to be $15/hour, or it could turn out to be $5/hour, or it could turn out to be $30/hour.

One frequently expressed concern about UBI is that people would stop working altogether and the labor market would collapse. Prior experiments with UBI, such as the Mincome experiment in Canada showed that while people somewhat reduced their working hours there was no dramatic labor shortage [NEED CITATION]. This should not come as a surprise as people will generally want to earn more than basic income provides and the price adjustment of labor will make working more attractive. That is especially true because UBI, in conjunction with the income tax change discussed in the previous section, removes the perverse incentive problem of many existing welfare programs in which people lose their entire benefit when they start to work, thus facing effective tax rates of greater than 100%. With UBI, whatever you earn is incremental to your UBI and you pay the normal marginal tax rate.

But what about dirty and dangerous jobs? Will there be a price of labor high enough to motivate anyone to do those? And will the companies that need this labor still be able to stay in business at that higher price? This is exactly where automation comes in: businesses will have a choice between paying people a lot more to do such work, or investing much more heavily in automation. In all likelihood, the answer will be a combination of both. But we should not fear that there is such a thing as an excessive price for labor. Because of the pressures created by technological deflation, we will not return to labor-price induced inflation.

UBI has two other, hugely important impacts on the Labor Market. The first has to do with volunteering. Today there are not enough people cleaning up the environment. Not enough people taking care of the sick and elderly. Not enough teachers. Labor is under-supplied in these sectors because there often is insufficient money behind the demand. For instance, the environment itself has no money and so the demand for clean up relies entirely on donations. As for the elderly, many of them do not have enough savings to afford personal care.

When you have to work pretty much every free hour just to meet your basic needs and/or have no control over your schedule, you cannot effectively volunteer. Providing people with UBI has the potential to vastly increase the number of volunteers. It won’t do this all by itself; we will also require changes in attitude, but historically people have thought differently about volunteering.

UBI’s second big impact on the Labor Market is dramatically expand the scope for entrepreneurial activity. A lot of people would like to start a local business, such as a nail salon or a restaurant, but have no financial cushion and so can never quit their job to give it a try. UBI changes that which is why I sometimes refer to it as “seed money for everyone.” More businesses getting started in a community means more opportunities for fulfilling local employment.

Once they get going some of these new ventures can receive more traditional financing, including bank lending and venture capital, but UBI also has the potential to significantly expand the reach and importance of crowdfunding. If your basic needs are taken care of, you will be much more likely to want to start an activity that has the potential to attract some crowdfunding, such as recording music videos and putting them up on YouTube. Also, if your basic needs are taken care of, you will be much more likely to use a fraction of any income you make to participate in crowdfunding.

Wednesday, November 7, 2018 - 2:20pm

NOTE: I have been posting excerpts from my book World After Capital. Today’s section provides some back of the envelope calculations to show we can afford UBI to provide economic freedom for all. 

UBI is Affordable

So with all of this as background, your might wonder what a Universal Basic Income should pay. My working proposal for the United States is $1,000/month for everyone over age 18, $400/month for everyone over 12 years old, $200/month for every child. These numbers might seem extremely low, but keep in mind, the goal here isn’t to make people well off; it’s simply to let them take care of their basic needs. We have mistakenly come to embrace unlimited wants, and we can free ourselves from this by re-establishing a clear distinction between wants and needs. We should also remember that our basic needs will get cheaper over time, and we won’t get UBI overnight. So my numbers are meant to work over time as other government programs are phased out and a UBI is phased in. Other policies I will discuss will also serve to help bring down the cost of education and healthcare.

Let’s dig further into these numbers. While everyone will spend their UBI in different ways, a possible allocation for a typical adult would roughly break down as follows: $300/month for housing, $300/month for food, $100/month for transportation, $50/month for internet access and associated equipment.

You might wonder why I am proposing a lower payment for children and teenagers. First, we can meet many of their basic needs even more cheaply than we can for adults (for instance, several kids in a family might share a room). Second, I propose a lower payment in recognition of historic evidence that the number of children people have is partially determined by economics. UBI should not give an incentive to adults to have more children so as to “skim” their income. That’s especially important with regard to slowing down and eventually stopping population growth: We want the birth rate to decline globally, as it has started to do in most industrialized nations in conjunction with economic progress and the decline in infant mortality. This will allow us to achieve peak population and put to rest the Malthusian fears of overpopulation and scarcity.

When you calculate how much money is required to provide a UBI for everyone in the United States based on the 2015 population size, you wind up with about $3 trillion annually [76] [77]. While that’s a huge number, it only represents about 17% of the size of the economy as measured by 2015 GDP, and only about 10% considered as a percentage of 2015 Gross Output (the latter measures not just final output but also intermediate steps) [78] [79] [80] .

Where will this money come from? There are two sources: government budgets (at the local, state and federal level) and money creation. I will examine each of these in turn.

In the U.S., in 2015 total government revenues from taxation and fees were about $6 trillion or about twice the UBI amount [81]. So in theory the money for a UBI could come entirely from redirecting existing budgets. There would then be another $3 trillion of money for critical government activities, such as local law enforcement and national defense (the latter was $0.6 trillion in 2015 [82]). There is a long debate to be had about the political process by which such a reallocation can be accomplished but there is no fundamental impossibility, such as perpetually increasing government debt.

Having a UBI can also substantially increase government revenues. How so? At the moment there are many people who work but fall below the level for paying federal income tax. In fact this is true for nearly half of all earners (Mitt Romney’s infamous 47 percent remark). Once people have a UBI, then every additional dollar earned should be taxed. For instance, if you are single and make $10,000 at present you do not even need to file a federal income tax return at all. With a UBI that could be taxed at a rate of say 25% generating $2,500 in new tax revenues. This effect could provide as much as $0.3 trillion or about a 5% increase in total government revenues. Of course people who are already paying taxes today would also effectively be paying back some of their UBI in the form or higher taxes. Applying a 25% tax rate for that group which would receive roughly half of all payouts, i.e. roughly $1.5 trillion, results in an additional $0.4 trillion. Another way of saying this is that the net burden of a UBI with a 25% federal tax rate applied to the first dollar earned is about $2.3 trillion.

Moreover, government revenues can be expanded in ways that accomplish other goals at the same time. For instance, we could and should be taxing pollution more than we are, in particular the emission of greenhouse gases into the atmosphere. Taxes are a well established way of dealing with negative externalities and we have made good use of that, for instance by aggressively taxing cigarette smoking, which has resulted in dramatically diminished consumption. Estimates of the revenue potential for a carbon tax are somewhere in the $0.3 trillion dollar range annually and potentially even higher. So between offsets via income tax (which will occur automatically) and a greenhouse gas tax (which we need in any case) we are down to about $2 trillion. Now that’s still a massive number. On the other hand, for comparison, Social Security and Medicare/Medicaid are about $1 trillioneach. So in the extreme UBI could be financed through a massive reallocation of existing programs.

There is another way though to provide much or all of UBI by changing how money is created in the economy. This involves moving away from fractional reserve banking and issuing money directly to people instead. In today’s fractional reserve banking system, commercial banks extend more credit than they have deposits. This carries with it the potential of a bank run and the Federal Reserve Bank (Fed) acts as the so-called “lender of last resort.” For instance, in the 2008 financial crisis the Fed stepped in aggressively by buying up potentially bad bank assets to give banks liquidity. Europe has had a policy of “quantitative easing” (QE) where the central bank makes it progressively easier for commercial banks to extend loans beyond their existing deposits.

Generally the idea is that as banks extend loans this will help grow the economy as the banks will lend to businesses that need to finance capital good or working capital. While banks have done that to some degree, they have also been lending to people who are already wealthy for acquiring second and third homes or for engaging in financial speculation. Conversely, bank lending to small businesses has actually been going down as banks have consolidated and have focused on larger customers. The net result of all of this has been that quantitative easing has amplified wealth and income inequality.

An alternative system would be to remove banks from money creation by forcing them to hold all of their deposits at the Fed. This is known as “full reserve banking” and eliminates all risk from the commercial banks. Credit extension could instead happen via marketplace lending as enabled by companies such as Lending Club, for individuals, and Funding Circle, for businesses (both former USV portfolio companies). This would allow money creation to happen by simply giving new money to people as part of their UBI payments, which is sometimes referred to as “QE for the people.”

What magnitudes are we talking about here? In the United States we have unfortunately stopped tracking the larger monetary aggregates, such as M3 and are only using narrower measures, such as M2 (M0, M1, M2, and M3 are different measures of how much money has been created in the economy). Even the M2 measure though has been growing by about $1 trillion annually over the last decade. The actual amount of money created in the economy by quantitative easing is likely to be much bigger. We can consider the development of debt more directly. U.S. households have about $8 trillion in mortgage debt [83], over $1 trillion in auto loans [84], over $1 trillion in student loans [85] and nearly $1 trillion in credit card debt [86]. Total household debt can go up as much as $1 trillion in a single year. U.S. business debt is a total of $25 trillion, of which about $15 trillion is in the financial sector and $10 trillion in non-financial businesses. These too have grown by as much as $1 trillion in a year.

As a first approximation the amount of annual money creation is in the trillions of dollars and thus in the same ball park as UBI. Historically, the idea of the government “printing” money is associated with fears of runaway inflation, such as occurred in the Weimar Republic. There are several reasons why this would not be the case with a proper UBI scheme. First, the amount of new money creation would be fixed and known in advance. Second, as we saw earlier, technology is a strong deflationary force. Third, the amount of net money creation over time can be reduced by also removing money from the economy. This could be accomplished through negative interest rates on bank deposits above a certain amount where the payment is collected by the central bank (and not by the commercial bank). This is known as “demurrage” and would be easy to implement in a full reserve banking system.

I expect that the path to UBI will involve some mix of changes to government budgets, taxation and the monetary system. One exciting possibility is that the change to the monetary system can come about through newly created crypto currencies. No matter how we eventually get there, what the back of the envelope math above shows is that UBI is in fact affordable. Economic freedom for all is possible, if we want it.

Friday, November 2, 2018 - 10:01am

This is an Uncertainty Wednesday post on a Thursday. By going over the Wednesdays from the last couple of years you could try to quantify the probability that I will not write an Uncertainty Wednesday post at all, or that I will write one, but a day late. You could graph this historic probability and most likely would find it to be rising over the last few months. You could then use that to predict what the next few weeks will look like. What would that be useful for? For instance, for deciding whether it is worth checking Continuations on Wednesday to see if there is a new post. Or to make a 1 dollar bet with a friend as to whether I will post or not.

Now what about betting your life savings on that? Or not just your savings but you life? Clearly not something you would consider, at least not if you are sane. It could easily be ruinous or deadly. I definitely don’t recommend it. And yet nonetheless we do take some level of life risk all the time. For instance, every time you cross a street you take some risk of getting run over.

So how should we reconcile these two? Well the probability of my not writing a blog post on any given Wednesday is quite high. The risk of any road crossing is quite low. There is clearly a threshold that’s so low that we are willing to accept the risk of ruin or even death. Understanding this explains why the innovation in air travel has been focused on safety over advances in speed. Those who complain that we have gone backwards in air travel by pointing to the Concorde and today’s lack of supersonic options fail to see that we have grown the number of flights by several orders of magnitude while at the same time shrinking the number of fatalities. That is extraordinary progress and makes much of modern life possible (ask yourself how much air travel we would have if there were 1 in 10 chance of not arriving, 1 in 100? 1 in 1000?)

What about risky activities, such as back country skiing? Or horse back riding? Or scuba diving? Every person has to decide for themselves what kind of risks they want to take. But there is an important fallacy here that is worth dispelling. And that’s the idea that because an activity is really dangerous it is not worth trying to reduce risk. People will point to famous horse back riders being thrown off their horse or famous skiers being swept away by an avalanche. If it can happen to them, then why even bother with safety precautions?

To understand why, consider the following math. Suppose there is a 1:100 chance of something bad happening in a specific activity, i.e. a 0.01 probability of a bad accident (potentially fatal). You will do this activity 100 times and the risks are independent. What is the probability of you not having an accident? Well, that would be 0.99^100 = 0.366 which is really bad news. Because it means that the probability of you having an accident is 1 - 0.366 = 0.734 which is 73.4%. Or put differently roughly 3 out of 4 people who do this activity for 100 times will have an accident. Most people will conclude that’s not acceptable (although people do go wing suit flying nonetheless — btw, I should point out I don’t know the accident rate for wing suit flying but it is apparently quite high). But now suppose that safety precautions reduce the risk of accident to 1 : 1,000 or 0.001. Now we are looking at 0.999 ^ 100 = 0.905 and hence the probability of having an accident is no 1- 0.905 = 0.095 or put differently roughly 1 out of 10 people. That’s a lot better than 3 out of 4. What if we can eliminate even more risk and get to 1 : 10,000 or 0.0001. Well that gives us 0.9999 ^ 100  = 0.99, meaning on average 1 in 100 people will have an accident.

In summary then everyone needs to figure out for themselves what kind of activities they want to engage in and how much risk of ruin (or loss of life) they want to take. But for any given activity there is a huge benefit to risk reduction within that activity. In investing, historically one answer against the ruin problem has been diversification, but there are alternatives such as constructing a bar bell portfolio or hedging. I will write more about this in a future Uncertainty Wednesday.

Monday, October 29, 2018 - 12:46pm

I have not been blogging a lot, other than the occasional updated excerpt from World After Capital and a few posts in my Uncertainty Wednesday series. The reason is that I am struggling with the relevance of much of what I would have said, when contrasted with the current political and social developments in the US and abroad. The positive longterm vision that I am laying out in World After Capital stands in stark contrast with where we are currently headed. As I write in the book, I am optimistic about where we can get to, but pessimistic about how we will get there. My pessimism about our transition out of the Industrial Age has only grown in recent weeks, making it difficult to write about anything that’s small, but could nonetheless be useful, such as a tip on how to run board meetings more effectively.

I came to America as an immigrant because I loved the sense of openness and opportunity. In retrospect I realize that many people who grew up here were no longer feeling the same. Their frustrations, which have by now been amply documented, were crucial to the rise of Trump. Trump exploited these frustrations by appealing to the tribalist instinct of hate for the other. Turning frustration into hate is unfortunately much easier than asking people to join into a long and arduous journey into an uncertain future. In this regard, the parallels between today and the early Industrial Age could not be more striking and frightening.

What is therefore urgently needed is a rebuke to the hate that is coming from the top. Hate will consume us all if it is allowed to grow. History tells us all too well that there is no bottom to how low we can sink when driven by hate. The events of last week were a sad but timely reminder of that.

So no matter how down you feel, you must get yourself up and vote in the Midterms. We must firmly rebuke Trump and those who have enabled or tolerated him. Tribalism and hate must be stopped.

Monday, October 22, 2018 - 12:16pm

NOTE: I have been posting excerpts from my book World After Capital. Today’s section is about technological deflation and how its interaction with UBI enhances economic freedom

Technological Deflation

If you are currently struggling to pay for your basic needs, the world will seem like an expensive place to you. Yet the data shows that a lot of things have become cheaper, and that this trend has been gathering steam for some time now. In the U.S., as the following chart shows, the prices for consumer durables have been falling since the mid 1990s. Not only can we see the decline in the prices for consumer durables; we can also see the rise in the cost of education and healthcare.

What has produced the decline in prices for consumer durables? Once again it is technological progress. We are getting better at making stuff and a big part of that is the ongoing automation of production and distribution. While this progress hurts you if you are losing your job or your salary is remaining stagnant, it helps you if you have money to buy things, and that money goes farther and farther over time. With Universal Basic Income, you will have the money, and over time, it will buy you more and more.

Thanks to the decline in prices for consumer durables, clothing has become easily affordable. Technology also has been driving down the cost of smartphones, which we will be essential to making education and healthcare much more affordable. The price decline in this area will only accelerate as we further increase automation and use technology such as additive manufacturing (also known as “3D Printing”) to manufacture products only when they are needed and close to where they are needed [67].

What about housing? Technology is definitely making it cheaper to put up a building. In early 2017, the first house printed using mobile 3D printing technology was built in Russia in just 24 hours! [69] Another factor making housing more affordable is the more effective sharing of existing housing assets through services such as Airbnb and Couchsurfing. Despite such progress, it still costs a fortune to live in certain places like Manhattan or San Francisco, where the demand for housing exceeds the available supply. Here UBI functions quite differently from other solutions that make housing more affordable, such as government subsidies. With UBI, people can live in parts of the country (or the world) where housing is much more affordable.

The city of Detroit is currently giving away houses as an alternative to tearing them down [70]. Or if you prefer a rural setting, you can buy or rent a home for as little as a couple hundred dollars per month [71]. Right now, many people can’t take advantage of these opportunities, since they can’t find a job in these locations and would be left with no income. By breaking the connection with a job, UBI provides geographic freedom. People would no longer be trapped in expensive locations just so they can meet their basic needs.

Already today, a large group of people is no longer constrained by the need for a job: Retirees. And sure enough, we observe that many retirees move away from expensive cities to places where real estate is much more affordable [72]. When considering the cost of shelter, it would be a mistake to analyze how much people need to live where they may be trapped today. Instead, we should look at the future cost in a world that has UBI. And that cost will be declining because of technology.

As for food, here too technology has massive gains in store for us. While some argue that GMOs hold the key to affordably feeding the planet, other near-term breakthroughs don’t carry some of the potential issues that GMOs pose. Indoor and vertical farming, for instance, allows for a precise delivery of nutrients and light to plants as well as huge increases in seeding and harvesting productivity. It also allows food to be grown much closer to its consumption, reducing the cost associated with transportation including spoilage. All this adds up to a dramatic reduction in the cost to feed a person.

Technology also promises to bring about a dramatic decline in the costs of education. At Union Square Ventures we became interested in education as an investment opportunity in 2009 when we held a one-day conference titled “Hacking Education.” Since then, the universe of online learning resources has grown rapidly, including many free or highly affordable ones, such as Duolingo for language learning (one of our portfolio companies). In addition to formal online courses such as edX or Khan Academy, millions of individual blog posts and even entire series of posts exist to explain a specific topic. And of course, YouTube is bursting with educational videos on subjects as broad as sailing and quantum computing.

Evidence exists that the exorbitant rises in tuition costs over the years in the U.S. are beginning to slow. When analyzing this data, we must remember that a huge amount of inertia exists in our educational system and job market. Many employers still believe they must hire from the best universities. This in turn drives up prices for higher education, with a ripple effect that extends all the way back to private nursery schools. It will be quite some time before most students will turn to free or extremely affordable online resources for all their learning needs. Still, the possibility now exists.

With healthcare, it’s a similar story. Healthcare spending in the United States per capita far exceeds that of other countries, having risen for many years much faster than the rate of inflation—but that hasn’t translated into better care. For instance, Cuba for years has had almost an identical life expectany to the U.S. despite spending less than a tenth on healthcare per capita [73].

Debates have been raging as to whether the Affordable Care Act or other legislative interventions will bring about lower healthcare costs or instead drive up insurance premiums further. Regardless of how this works out, progress with digital technology will push healthcare costs lower for a number of reasons.

First, technology makes prices on medical procedures more transparent, enabling more competitive pressures to exist that can push prices down. Second, to the extent that people better track their own health data through technologies associated with the “quantified self,” we will live healthier lives and require less care, especially over the long term (in the shorter term, folks who already enjoy above average health will most readily employ this technology). And third, technology will make possible faster and better diagnosis and treatment. If you want to feel inspired, just read some of the stories about how Crowdmed has helped people whose conditions went undiagnosed or misdiagnosed for many years. USV portfolio company Human Dx is also working on a system to help with diagnosis, and Figure 1 lets doctors exchange images and other observations. Flatiron Health is pulling together data on oncology patients to enable more targeted treatment. This says nothing of a whole group of companies that is bringing telemedicine into the app era, such as HealthTap, Doctor on Demand, Teladoc, and Nurx (another USV portfolio company). All promise to dramatically reduce the cost of delivering care.

One might object that so much of healthcare cost doesn’t result from doctors’ visits, but from pharmaceuticals. In fact, pharmaceuticals account for only about 10% of total spending [74]. Here too, we will likely see technology drive costs down. One successful pharma entrepreneur I spoke with described the potential for personalized treatment to dramatically improve the effectiveness for a wide range of conditions, including many cancers and even diseases such as ALS and Alzheimers. And on the horizon technologies such as CRISPR will give us unprecedented abilities to fix genetic defects [75] that today result in large ongoing expenses.

But Isn’t Deflation a Bad Thing?

Now, you may find it confusing to hear me describe technological deflation as a good thing. Economists, after all, have painted deflation as an evil to be avoided at all cost. Economists are primarily concerned about growth as measured by GDP, which they argue makes us all better off. Their logic about deflation goes like this: If people anticipate that prices will drop thanks to deflation, they will be less likely to spend money today, which means that output will be lower than it could be. This in turn leads owners of capital to make fewer investments, which results in less innovation and lower employment. That in turn makes people spend even less, thus causing the economy to contract further in a vicious cycle. Economists point to Japan as a country that has been experiencing both deflation and contracting output. To avoid this scenario, they argue for policies designed to achieve some amount of inflation, including the Fed’s so-called quantitative easing (cheap money), which is intended to expand the supply of money.

In a world of technological deflation driven by digital technology this reasoning is flawed though. GDP is increasingly not a good measure of progress because it ignores positive and negative externalities. For instance, everything I’ve said about making education and healthcare dramatically cheaper through free resources would serve to lower GDP while clearly making people much better off. We can also identify a second flaw in economists’ reasoning: It assumes that technological progress is tied to growth in production. But it is possible to achieve technological progress even as economic activity, as measured by GDP, appears stagnant. Increases in economic, informational and psychological freedom allow us to accelerate the Knowledge Loop which is the foundation of all progress. A great example here is open source software, which has driven a lot of technological progress outside of the traditional economic model.

Once we break out of the job loop with the help of UBI, then in fact technological deflation becomes desirable. For individuals it means that they can afford more with the payments they are receiving and for society as a whole it means that UBI is affordable.

Friday, October 12, 2018 - 5:47pm

Nouriel Roubini has done the crypto ecosystem a great service by pulling together pretty much all issues and criticisms in a single document. While he is prone to hyperbole (not unlike some people in crypto) and plays fast and loose with technical issues, everyone who cares about crypto should read the testimony in its entirety. Longterm success will require overcoming all of these objections. While I believe that is doable (at least in principle), it will not be easy and it will take a long time. The last thing anyone in crypto should be doing right now is dismissing Roubini as a crank or resorting to other ad-hominem attacks, instead of engaging at the level of substance. Bonus if you make it to the end of the document: an evisceration of permissioned blockchains (again, over the top but entertaining and as the rest providing important objections).

Wednesday, October 10, 2018 - 6:38pm

People worry about many risks, but generally about the wrong ones. We tend to be obsessed with personal and societal risk that is “fast.” What will the Fed Reserve announce next? Should I trust Tesla’s auto steering? These are risks where outcomes are realized quickly. That’s why I call them fast risks. As it turns out though some of the biggest risks today are slow. Outcomes will not be realized for decades or longer. The impact of nutrition and exercise on health is an example of a slow risk. The mother of all slow risks is climate change.

It has proven difficult, maybe impossible, to get people to care about slow risks. We all wear seatbelts now because being killed in a car accident is a fast risk. But we are blithely heading into a species level catastrophe with climate change. Even as the signs are all around us, they are still too dispersed (other people’s homes are flooded) and too similar to the past (we have always had hurricanes) to spur sufficient action. I don’t see that changing with the latest IPC report which is now arguing that dramatic changes will occur much sooner than previously forecast. But still a decade or two out. Hence still slow risk.

I continue to be amazed by how much fear and anxiety people are experiencing daily based on fast risk. Will I get a good grade on my exam? Will this investment succeed or fail? These risks completely pale compared to the climate change risk of global upheaval of life as we know it, with the potential for tens of millions of human deaths (and that’s being optimistic, the range of possible outcomes likely includes billions of deaths). Ironically, our obsession with fast risks is one of the things that distracts us from taking action on slow risk. We have already spent too much of our energy and attention!

A fair question then is what I am doing personally, if anything, about the slow risk of climate change. The most important thing so far has been to back research into geo-engineering. Because we are so bad with slow risks, I have concluded that we will not get on top of greenhouse gases in time. That means we will need more dramatic interventions to halt a further heating up of the atmosphere. I will write more about that in a separate post.

Monday, October 8, 2018 - 12:25pm

NOTE: I am resuming posting excerpts from my book World After Capital. The last post was the beginning of Part Three of the book. Today’s post is the the introduction to the concept of economic freedom and how universal basic income makes this freedom possible. Unfortunately the current online version is out of sync as I am experiencing issues with gitbook.

Economic Freedom

If you were to quit your job right now, could you still afford to take care of your basic needs? Could you pay for food, shelter, clothing, and so on? If you are retired, what if your company suddenly stopped paying your pension? If you are supported by a spouse or partner, what if you left that person?

If you could no longer meet your basic needs, then you are not economically free. Your decisions on how much of your labor to sell and whom to sell it to, whether to stay with your partner or not, which city or rural area to live in, are not free decisions. Many people in the U.S. today are not free in this fundamental sense.

A recent survey in the U.S. asked respondents if they had enough money to pay for a $1,000 emergency. Over two-thirds said they did not [59]. Other studies have found that about 75% of Americans over 40 are behind on saving for retirement and 31% of all non-retired adults have no savings at all [60] [61].

Crucially, if you are not economically free, you are not free to participate fully in the Knowledge Loop. Hence economic freedom is a cornerstone of the Knowledge Age. We must make people economically free so that they can participate fully in the Knowledge Loop. We want more people to be free to make music and create art that has the power to inspire. And we absolutely need people to have the time to learn new knowledge, from practical skills such as gardening to the latest theoretical physics. We need more people to create new knowledge using what they have learned. And finally we need more people to share their knowledge with the world for others to learn.

We have massive problems, such as climate change, to overcome and we need more participation in the Knowledge Loop than ever. To free us up to do so, we must be able to embrace automation, not fight it for fear of losing our livelihoods.

Universal Basic Income

Economic freedom is a reality today for some—those sufficiently wealthy, tenured professors, retirees with pensions and savings. How can we make it a reality for everyone? The answer is to provide everyone with a guaranteed ongoing income to cover basic needs, including housing, clothing, and food (see earlier chapter on Needs). This income would be unconditional, i.e. it would not depend on whether someone is married or single, employed or unemployed, rich or poor.

At first blush this idea of a so-called Universal Basic Income (or UBI) may seem crazy or outrageous. Getting money for having done nothing? Getting paid simply for being alive? Isn’t that communism? Or socialism? And where would this money come from? Won’t people simply descend into utter laziness and drug addiction? We will look at each of these objections to UBI in turn, but first let’s consider arguments for UBI as a way of achieving economic freedom.

Concerns about economic freedom are by no means new. When the American republic was in its infancy, economic freedom seemed well within everyone’s reach. There was plenty of land to be had (so long, of course, as one was willing to take it by force from Native Americans). As a result, any family could make ends meet by living off the land. Even back then, though, observers such as Thomas Jefferson and Thomas Paine understood that land would some day run out. They raised the specter of a time when citizens might be forced to trade labor to others in order to provide for their basic needs—when they would be economically unfree [62]. All the way back then they concluded that an alternative to land was to give everyone enough money to be free. The idea of a UBI in the U.S. thus goes back to the earliest days of the nation.

If you don’t find this historic argument for UBI compelling, consider the case of air. We all breathe air to solve our basic need for oxygen. We can all afford to breathe air because air is free and well distributed around the globe (important caveat: regulation is required to keep air clean, we had lots of trouble with air pollution during industrialization and in China right now it is estimated that more than one million people die every year from air pollution [63]). Our freedom is not restricted by having to find air. The power of UBI is to make us equally free when it comes to our other basic needs, by making food, housing, clothing (the solutions to our basic needs) affordable and accessible by everyone!

As I argued in the earlier chapter on Capital, as a species, we have developed our technologies enough so that we are now capable of meeting everyone’s basic needs. Farming can generate enough food for everyone. We can easily make enough clothing for the world. We can even provide everyone with shelter. All of this has been made possible by knowledge, the knowledge that humanity has created over millennia. And our technological progress is accelerating while global population growth is slowing down. So from here on out it will only get easier.

The question thus is not whether we have the ability to meet everyone’s basic needs, but rather whether an economy and a society that accomplishes the necessary resource distribution and allocation. That is exactly where UBI comes in. UBI enables the functioning of markets for basic needs such as food, clothing and shelter without forcing people into the Job Loop. UBI lets everyone freely participate in these markets. UBI thus frees up attention, frees up people to live where they want to and with whom they want to.

Industrial society presents us with two fundamentally different ways of distributing and allocating resources. One is individuals meeting their needs by participating in a market economy; the other is government providing solutions for people’s needs directly. Those options form the extreme ends of a spectrum with a variety of “hybrid” arrangements in the middle, such as government subsidized or rent-controlled housing for which people still need to pay some rent. UBI solve the allocation issue while avoiding reliance on an ever-expanding government sector. Put differently, UBI recognizes just how effective markets have been in the allocation of resources, and by contrast, how many distortions are introduced by direct government activity, such as government built housing. UBI is the opposite of communism and socialism in that regard. It is all about reducing the size of government activity.

After World War II in the U.S., only about 5% of people were employed by government, which in turn comprised about 42% of the economy [64] [65] [66]. In the Soviet Union, by contrast, nearly 100% of people were employed by the state, and the state owned close to 100% of the economy. We now know quite well which system was more effective at allocating resources. Nevertheless, the size and scope of government employment and the government sector have gradually expanded here in the U.S. and in Europe. In many European economies, the government sector now accounts for a half or more of the economy.

I have only mentioned food, clothing and shelter when talking about basic needs, but what about education and healthcare? Can UBI cover those as well? That might seem wishful thinking given how quickly education and healthcare costs have risen, especially in the U.S. Yet UBI can cover these basic needs as well, and to understand how, we need to look at how technology is driving down the prices of almost everything. Technology can make education and healthcare far more affordable than they are today.

Friday, October 5, 2018 - 6:11pm

I was in Berlin a couple of weeks ago and there appear to be at least half a dozen bicycle and scooter networks in the city. This makes for a terrible experience because you have to sort of guess which network you might want to use and if that one doesn’t have equipment nearby try another one. It also means that usage of equipment on any one network is far below what it could be resulting in lots of bikes and scooters sitting around on sidewalks.

What should be done instead? Cities should get together and publish an interoperability standard that every bike and scooter sharing company needs to adhere to. Then as an enduser, I could pull up a single app (either by one of the networks or by a third party provider) and see + book all available equipment.

This would mean that equipment providers would have to compete on the quality of their equipment (e.g. comfort, safety) instead of who has raised the most money to build the densest network themselves. It would also allow cities to have an easy birds-eye view of total capacity, utilization, etc. – which is the type of information needed for intelligent planning and regulation (eg where should the city create more bike and scooter lanes).

I believe a similar approach would work well for ridesharing networks, such as Uber, Lyft, myTaxi and others. 

Albert Wenger is a partner at Union Square Ventures (USV), a New York-based early stage VC firm focused on investing in disruptive networks. USV portfolio companies include: Twitter, Tumblr, Foursquare, Etsy, Kickstarter and Shapeways. Before joining USV, Albert was the president of through the company’s sale to Yahoo. He previously founded or co-founded five companies, including a management consulting firm (in Germany), a hosted data analytics company, a technology subsidiary for Telebanc (now E*Tradebank), an early stage investment firm, and most recently (with his wife), DailyLit, a service for reading books by email or RSS.