Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, free will, and whatever else made me think last week.

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In today’s post: the importance of recognizing when you are being too dismissive of new information; Shopify's logistics ambitions disappoint; what we can learn from algorithms, the brain's prediction engine, and the illusion of free will; the false narrative of shoplifting; how lightning forms; dino and bug fossils; the anthropic principle; reframing monetary stimulus as a misguided reaction to an aging population; and much more below.

Stuff about Innovation and Technology
PokéMaping Open AR Metaverse
Niantic, the AR game studio, was created under the Google umbrella by Geo/Maps leader John Hanke and spun out in 2015 with Hanke as CEO. Niantic has some wildly successful games, like Pokémon Go, but those AR games are a means to an end: collecting data for its “collaboratively built map” of the entire inhabitable world as a basis for new AR apps. Google drives cars all over neighborhoods, while Niantic leverages humans in search of Pokémon. Hanke believes an AR metaverse (real-world surroundings augmented with digital overlay) is more human compatible, as it supports natural environmental/social interactions vs. more sedentary, isolationist, and artificial VR (see also #309). One of the technical challenges of creating this immersive AR metaverse is advancing waveguides (the invisible-to-the-naked-eye nano structures that reflect light of different colors from the side of AR glasses to create the illusion of a digital object existing in the physical world) for use outdoors in bright sunlight. In this Verge interview, Hanke mentions several recent acquisitions aimed at pushing the tech forward, and he notes that first-gen AR glasses (like those anticipated to be released by a major phone maker soon) could be for indoor use only.

Hanke also discusses his vision of the AR metaverse as an open system à la Web3: “The world is ready to go back to a more decentralized internet built around interoperability. When we talk about the real-world metaverse — which is the version of the metaverse I’d like to see created — I do see it as a system where products and services from multiple companies would interoperate. That theme comes through in the Web3 movement. That desire to pull back from centralized control by a few companies to a more open system that puts more control in the hands of the consumer does rely more on interoperability at its core.” I’ve previously discussed how we’ve vacillated between walled gardens and a more open, search-based web. Currently, we are back to closed social networks, closed app stores, and increasingly hoarded troves of data. A tangent that struck me while I was listening to this interview is that the current capital system could easily be adapted to accomplish most of the Web3 goals without the sideshow of calling for anarchy (a topic I discussed in detail at the end of #323). What matters most in transparent, open systems is the degree to which a company is providing more value than they take, or the amount of non-zero sumness (NZS). This is a powerful concept from game theory that drives long-term outcomes in most evolving complex systems. There are ample Information Age businesses creating more value than they take that operate as traditional equity-based companies without Web3 technologies or systems. A shift from equity to tokenized businesses might bring entirely new and interesting levels of win-win, but it faces a steep cliff of regulatory pushback and behavioral changes. A baby step toward that goal would simply be companies being better citizens and continually creating more for less.

Iger’s Disney Ride Comes to an End
As the legendary Disney CEO Bob Iger wraps up his 47-year career at the company, he’s been on a swan song of a press tour (in a Twitter thread from 2019, I shared my takeaways from Iger’s book The Ride of a Lifetime). This Variety interview is a good one, and, on CNBC, Iger explained one of the factors that contributed to his decision to retire (after several aborted attempts) was his realization that he was becoming too dismissive of people’s ideas: “Over time, I started listening less and maybe with a little less tolerance of other people’s opinions, maybe because of getting a little bit more overconfident in my own, which is sometimes what happens when you get built up.” Iger sums up my single biggest fear as an investor – that I will become dismissive of new ideas, new information, or new perspectives. Keeping up with ever accelerating change in the world requires a constant, conscientious effort to avoid being rooted in old biases. I think about this vulnerability a lot when it comes to topics like Web3 (see above paragraph) which, if realized, would represent a rather profound evolution away from capitalism.

Shopify Intimidated by Logistics Challenge
Businessweek’s Brad Stone wrote a profile on Shopify founder Tobi Lütke. I was disappointed to learn that after announcing, in 2019, the Shopify Fulfillment Network and the acquisition of 6 River robotic warehouse technology, Shopify seems to be walking back its fulfillment ambitions. Nearly all of Shopify’s merchants are too small to handle their own end-to-end logistics, but neither can they withstand the UPS/FedEx strategy of charging more for the same (or less) service every year (see #320), which, taken to its logical conclusion, will effectively hand the entire ecommerce market to Amazon. Meanwhile, Amazon is rapidly expanding capabilities (including an apparent reboot of their merchant platform that competes with Shopify, as mentioned in the article) and capacity (see #324). Lütke’s apparent conclusion is that running a logistics network requires a “ruthless, Amazon-style efficiency” that’s incompatible with Shopify’s culture. He suggests Shopify will do logistics differently, but it's not clear what that means. If I take Lütke’s comments at face value, it seems like the real-world problems of drivers, vans, traffic, and the extreme efficiency needed to get to a sustainable delivery cost per box is too messy of a problem compared to writing ecommerce software. That’s a shame, because it would be a bummer if we end up with only Buy-n-Large controlling most of retail. Back in May 2021, Shopify’s president discussed shipping and logistics with The Verge and still seemed somewhat committed, though they continued to emphasize that their merchants don’t need faster than two-day shipping, and that consumers are very happy to pay for shipping. Even if that’s true, it likely applies to an increasingly small number of very long tail items. Why pay and wait when the alternative is free and fast? It’s possible Shopify is still committed to logistics, but, at this point, anything short of a decades-long multi-$10B investment probably won’t be enough to keep Amazon from accreting market share like an ecommerce black hole. The question is whether the value is in the ecommerce software, the shipping capabilities, or both? One day, many of Shopify’s merchants will be using fulfillment by Amazon when FedEx and UPS have priced themselves out of ecommerce delivery, and it may make more sense for them to ditch Shopify’s software in favor of Amazon. As I wrote in detail about Bezos and Musk at the end of #326, these real-world engineering problems are not for the weak at heart, and there may be only a vanishingly small number of rare entrepreneurs capable of taking them on.

Algorithmic Threat to Illusion of Free Will
To minimize energy input and optimize survival, the human brain evolved as a prediction machine, attempting to anticipate what might happen based on prior experiences, and then adjusting predictions to match input from our seven senses (the traditional sight, sound, touch, smell, and taste along with thoughts and emotions, which are best perceived as sensory inputs). One of the predictions our brains have to make is how other people will behave. And, of course those other people have their own neural algorithms making the same types of predictions about others as well. Historically, we’ve lived in small tribes with many shared experiences, and that’s important because the main factor the brain uses to make future predictions is prior knowledge. When people have a shared culture and common history, then they are likely to make more similar predictions, which makes life, well, more predictable. In the global, always connected world, we increasingly lack a common culture (see Digital Tribalism), which makes it more complex for the brain to predict the behavior of others.

Adding to this prediction complexity, we are now operating alongside a growing number of algorithms that are also making predictions about us and others based on prior behavior. These algorithms might determine whether your rental application/work resume is considered, who you date, what news you read, what medical care you receive, etc. Last week, the WSJ reported that more than 30,000 US churches are using data amassed by Colorado-based Gloo to recruit new members by targeting vulnerable individuals whose stats suggest they are experiencing personal struggles. For example, churches can home in on people who Gloo identifies as going through a divorce (based on connecting up credit card activity, travel bookings, and health attributes). Your browsing data might cause you to become a Baptist, a Catholic, or enter a rehab center depending on who pays the most for your data and is able to influence your brain’s future decisions through social network ads. Algorithms now even cause us to smile less, according to Allure Magazine, as people emulate the growing trend of influencers who emulate the models who stopped smiling in the 1990s for a variety of reasons.

This clash of complex prediction engines puts a spotlight on our already tenuous relationship with the concept of free will. While we feel like we have agency over our actions, neuroscience has informed us that the brain typically makes decisions well before we are consciously aware of them. In a small, isolated community, it’s perhaps easier to maintain that all important illusion of free will because everything seems more predictable and rational. But, there are two ways this new complex set of interacting prediction engines highlights the illusory nature of free will. First, because we increasingly lack common culture, we can now see many other people making decisions that we simply don’t understand (and they, in turn, may view our decisions with the same confusion!). Second, we are becoming more aware that black box algorithms beyond our control are making decisions and predictions that impact our lives, sometimes in profound ways. These external algorithms, it turns out, are not that dissimilar from our own internal neural daemons – they just have different inputs and programmers. Our brain is doing its best to guess it’s way through life in a way that preserves its all-important vessel (that would be us), based on information at hand from prior experiences, all the while giving our conscious self the sense that we are in the driver’s seat. The state of our free agency, however, is not completely as hopeless as it might sound. A couple weeks back, I mentioned Lisa Feldman Barrett’s suggestion that the best way to gain some control over your brain’s decision making process is to actively change your behavior today so that, in the future, your brain has new sets of patterns on which to base predictions. Put simply, good habits can pay off for your own behavior. But, what about the increasing control that these enigmatic external algorithms wield over our futures? There are no good habits we can adopt to alter their impact on our lives without completely forgoing use of technology.

With more and more black-box algorithms interacting and influencing us, I see five ways to respond to this increasing lack of predictability and control in modern life: 1) try to imagine – and then follow – good intentions and habits you want your future self to use as prediction-engine inputs; 2) try to create a landscape for good luck to come knocking, or, at the very least, learn to see good luck when it comes your way (e.g., by cultivating mindfulness as discussed in our essay: Time Travel to Make Better Decisions); 3) build adaptability into as many aspects of your life as possible so that you can respond flexibly no matter what unpredictable things happen; 4) realize that bad luck is just as likely as good, and if you see someone who is missing out on good luck, try to help them; and, lastly, 5) cultivating an awareness of these prediction machines, whether it’s your brain, someone else’s brain, or an external algorithm, gives great perspective on daily life.

Miscellaneous Stuff
Illuminating Lightning
It’s been 270 years since Benjamin Franklin flew a kite into a lightning storm, and we still aren’t quite sure what the genesis of lightning is. There are two primary theories, and recent radio telescope experiments have put evidence behind one of them. First, the theory that is not supported by the new data is that cosmic rays collide with electrons in clouds, which triggers a strengthening of the electric field via electron avalanches. Instead, the data suggest: “Turbulent collisions between the needle-shaped crystals brush off some of their electrons, leaving one end of each ice crystal positively charged and the other negatively charged. The positive end draws electrons from nearby air molecules. More electrons flow in from air molecules that are farther away, forming ribbons of ionized air that extend from each ice crystal tip. These are called streamers. Each crystal tip gives rise to hordes of streamers, with individual streamers branching off again and again. The streamers heat the surrounding air, ripping electrons from air molecules en masse so that a larger current flows onto the ice crystals. Eventually a streamer becomes hot and conductive enough to turn into a leader — a channel along which a fully fledged streak of lightning can suddenly travel.” Interestingly, lightning activity dropped 10+% during the first quarter of pandemic lockdown, likely due to reduced pollution levels affording fewer nucleation loci for ice crystal formation.

We Exist ● Because We Can ● We Exist
The anthropic principle is a bit of a circular reference that states humans are here in this Universe, governed by this particular set of physical laws, because these laws have allowed for conscious humans to exist. It follows that it shouldn’t be a surprise when we probe the laws of physics of this Universe and discover that they (potentially uniquely) allow for our existence. The so-called “weak” interpretation of the anthropic principle is a form of selection bias: essentially, of the many universes that could have existed (or exist alongside our own), we’re in the one we’re in because it allowed for us. In an interview with CERN Courier, cosmologist Edward Witten reflects on the discovery two decades ago that the universe is expanding (infinitely) and the more recent Higgs boson particle discovery: “Unfortunately, it has been very hard to find a conventional natural explanation of the dark energy and hierarchy problems. Reluctantly, I think we have to take seriously the anthropic alternative, according to which we live in a universe that has a ‘landscape’ of possibilities, which are realised in different regions of space or maybe in different portions of the quantum mechanical wavefunction, and we inevitably live where we can...I suppose I reluctantly came to accept that the universe was not created for our convenience in understanding it.” Witten allows for the possibility that naturalness might prevail – that we just haven’t yet observed the additional particles and forces that would give us a ‘unified theory of everything’ because they are beyond the reach of our current particle accelerators.

Headlining Crime Wave Doesn’t Hold Water
The Atlantic digs through the numbers to show that the supposed shoplifting/robbery crime wave is not supported by the data. There are many factors creating an illusion of more crime, including the rising prevalence of security cameras and smartphones supplying media fodder, retailers fear mongering in an attempt to get legislative and public money support, and law enforcement lobbying. While there is a y/y increase in crime for 2021 in some areas, that’s largely because of lockdowns and retail closures in 2020. When you compare data to 2019, crime is down. And, there is no evidence the large shoplifting scenes that have garnered much media attention are organized, despite law enforcement and retailer speculation. Behind the attention, retailers are opportunistically lobbying for stricter laws and public funding support. The LA Times further reports on the largely fungible and hard-to-pin-down claims made by retailers about increased amounts of theft, while FBI data for the country show a five-year decline in shoplifting. With an increasing amount of high value merchandise inconveniently going behind locked cabinet doors, the case for ecommerce and home delivery gets stronger.

China’s Fossil Fame
A 70M-year-old, rare, complete skeleton of a baby dinosaur inside an egg re-discovered at a stone company in China, after apparently being forgotten about, reveals an in-ovo “tucking” posture consistent with the modern day dinosaurs that we call birds. This pre-hatching behavior was thought to be unique to birds but could go back hundreds of millions of years. Many avian-related dinosaur fossil discoveries have been made in China in recent years as part of a gold rush in fossil hunting, thanks to a bounty of locales that were serendipitously conducive to fossil preservation. The boom has also come with an accompanying streak of counterfeits, as Smithsonian Magazine reported back in 2018. The perfect egg in this case was detailed in a peer-reviewed paper in iScience, which perhaps lends it modestly more credibility.

Monster Millipede
In other fossil news, a 326M-year-old, partial skeleton of a 2.7-meter-long giant millipede was discovered in northern England. Many giant insects roamed and flew above earth several hundred million years ago, theoretically due to higher atmospheric oxygen concentrations of 30+% compared to today’s 21%. It’s theorized that the onset of birds (or flying dinosaurs, depending on your disposition) 150M years ago started to curtail the giant bug population. The lack of fossils makes for much speculation, but, regardless of what initiated their disappearance, I’m rather grateful giant insects were relegated to the fossil record prior to our arrival on scene.

Stuff about Geopolitics, Economics, and the Finance Industry
Shake Shimmy
Before the pandemic, we published a paper titled The Evolution of the Meal. The essay was as much an effort to think about the changes facing the multi-trillion dollar food industry as it was an exercise in trying to analyze more generally what matters when an industry goes from analog to digital. Of course, at the time, we had no idea the restaurant industry was about to face one of its largest upheavals and potential accelerants for digital transformation. Back in 2019, I spoke to author and reporter Corey Mintz, who had read the paper and was working on a book about the food supply chain and restaurant industry. Mintz’s book, The Next Supper, is an exploration of various restaurant business models and how they are evolving. One of my speculative conclusions from our paper was that transforming delivery into a viable, large market opportunity would require a vertically-integrated, subscription-based, and milkman-like routed delivery system (and, even if such a system were to be implemented, the ultimate size of its market share would be open to question). Mintz’s book was recently published and looks to be an interesting read on the food industry. I’ve vainly only read the chapter so far that connects to my conversation with Mintz and was reminded of my Shake Shimmy comment: “Brad Slingerlend, cofounder of investment firm NZS Capital, doesn’t see any value being added in the delivery-app racket. He does see potential in the tech companies’ ability to vertically integrate the food brands they distribute…‘Do I want a Shake Shack burger, or do I just want a good burger? If all I want is just a good burger, delivered in a way that’s fresh, then I don’t care if it’s Shake Shack or Shake Shimmy by Uber.’”

Crypto Bulls' Real Concern: An Aging Population
Long-time readers know I am a nut for demographics. While I love searching for explanations and patterns, I also know that the hunt is largely futile because the world is too complex for neat and tidy explanations. Over longer periods of time, however, sometimes patterns seem real and explanatory. The anemic US population growth, at a record low of just 0.1% in 2021, is one demographic topic I am overly obsessed with. It’s a consequence of a complex combination of anti-immigration policies, younger generations delaying marriage and having fewer kids, and all sorts of other impossible-to-pin-down shifts that seemed to start with an aging group of Gen X’ers and continued with Millennials and Gen Z. And, it's impacting all developed economies to various degrees. Further, slowing population growth is connected to sluggish household formation, which is at 9% for the last decade – the lowest growth on record since data collection began 160 years ago.

Population and household formation are key long-term drivers of economic pie growth. Households with parents in their thirties, forties, and fifties are the biggest driver of consumption, especially in households with children under 18. Without these critical consumption enablers, the pie has a much harder time growing, and instead will be redistributed in a way that either increases or decreases inequality. Growth in population also spreads out the burden of eventually repaying the debt that GDP increasingly relies on for growth. Broad-based economic growth is a relatively new phenomenon in human history, enabled over the last ~500 years by lending, the scientific revolution, and capital investments based largely on hope for a larger future pie. Over the course of modern human history, this growth may turn out to be more of an aberration than a natural state.

Beyond trying to mitigate economic cycles, monetary and fiscal stimulus is another way to grow an economy if population growth isn’t pulling its weight. Excess twenty-first century governmental fiscal and monetary stimulus could be viewed as an attempt to artificially buoy an economy whose real battle is a decelerating population growth (although few politicians have publicly made the connection between a sluggish economy and slowing population growth; also, here I am discussing monetary policy interventions, which should not be confused with the natural trajectory of declining rates). Seen from this perspective, it becomes more obvious that while anti-inflation crypto bulls are raging against governments printing money, they might be missing the root cause of those printing presses: an aging population and its negative consequences for economic growth. Speaking on the Lex Fridman podcast last week, Elon Musk expressed an interesting take on an information theory of money, and how crypto wants to change it:
“The government effectively has editing privileges on the money database. And they use those privileges to make more money whenever they want. And this increases the error in the database that is money. Money should really be viewed through the lens of information theory. Like an internet connection. Like what's the bandwidth, total bit rate, latency, jitter, packet drop, errors in network communication...what system from an information theory standpoint allows an economy to function the best? ...Crypto is an attempt to reduce the error in money that is contributed by governments diluting the money supply as a pernicious form of taxation. People think of money as having power in and of itself. It does not. Money is information...money is a database for resource allocation across time and space. In what form should that database be most effective?”
This explanation from Musk needs to go a step further back in the causal chain: crypto isn’t necessarily an attempt to keep governments from diluting the money supply, it’s an indirect expression that we should address the reality of an aging population rather than printing money to artificially grow the economy. Either that, or an expression that wealth as it exists today should be redistributed in a different way than it would naturally follow.

As I said at the start, it's nearly impossible to ever know what the outcome of complex demographic trends are, but an aging population and weak household formation are important to keep an eye on. There is still no reason to be pessimistic or cynical. Increased productivity and technology can be powerful engines of progress even without meaningful population growth and without risk of inflating the money supply. A shift from growing-the-pie mentality to instead making the economy more efficient is likely to be far more fruitful than a theological battle between sovereign vs. crypto currencies.

✌️-Brad

Disclaimers:

The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC.  This newsletter is an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry. 

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