Discovery, Innovation, and Crisis

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Our most intractable problems cannot be solved with behavior modification, conservation, or our existing technology, regardless of its advanced or widespread applications.

Only new knowledge creating innovative solutions can address our most intractable problems. This can only be achieved through basic scientific discoveries and then combining these discoveries with enterprise-based innovation, commercial discipline, and competition. Innovation, creativity, and competitive dynamics create the most effective innovations, the best solutions, and the most sustainable companies. Developing the best public policy as well as the best structure to enable innovative and creative solutions, as well as the economic incentive to scale these opportunities and make them economically sustainable.

Central planning, bureaucratic industrial policy, government-led economic management, and dictatorial focus have always failed, and always will.

Industrial Policy – Stupidity by Another Name

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Zero-sum thinking has begun. Despite comparative advantage, mutual cooperation, and specialization proving indisputably more beneficial than any other approach to economic interaction, this ideal is under threat. Rules and norms for economic integration lifted hundreds of millions of people out of poverty, created an order-of-magnitude increase in the average wealth of the Western population, and benefited countless hundreds of millions enabling a way of life otherwise unimaginable post-World War II. Now that system is under threat as developed countries subsidize alternative energy, attract manufacturing via expensive subsidies, and restrict the flow of goods and capital. Mutual benefit is out; national gain is now the highest priority. In other words, stupidity and zero-sum thinking have taken over. A handful of bureaucrats, regardless of how brilliant each may be, can never equal the mind of the market. Management and control usually spell disaster eventually. Managed focus on technological development for products and services the central government believes have greater substantial benefit to the overall society may not be calamitous, but the law of unintended consequences has not been repealed. It will be inefficient, substandard, and create potentially dangerous side effects. Innovation, creative freedom, and unstructured thought are essential components to the development of any technology of substance and disruptive benefit.

The Next Ten Years

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The onslaught of market-making bad news seems almost a daily event. A gloomy picture of slowing economic growth, elevated inflation, and confusing fiscal and monetary policy has added a lethal mixture to the market’s performance. Fiscal stimulus is sidelined, and monetary policy is constricting economic growth and entrepreneurial innovation. It makes for a gloomy outlook and an even more depressing long-term perspective. The next 10 years look more like a lost decade. High-growth company valuations have been significantly discounted, and over time as discount rates drop, their valuations are likely to increase substantially. Higher-yielding fixed income securities will be a standout performer as interest rates are reduced, the higher-yielding BDCs, REITs, leveraged loan securities, and high cash flow instruments, along with high-dividend equities, will prove extremely attractive and are currently available at bargain prices. Providers of value and users of value will be the winners for the next decade. Those generating real cash flow and disruptive innovation will define the next decade.

Predictions and Nonsense

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Predictions usually end up being nonsense. We simply draw a trajectory from what we know today. But innovation is a discontinuity. Things are unpredictable because innovation does not come from consensus thinking. It comes from small groups and individuals with a spark of entrepreneurship, intelligence, and vision.
One of the fundamental tenets of predicting technology is that most forecasters get things spectacularly wrong.

A Monster Is on the Loose

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The rewards for innovative success have become enormous and unpalatable, especially among the five technological giants (Amazon, Apple, Facebook, Google, and Microsoft) forcing these firms to spend absurd amounts of money on lobbying in Washington DC. It’s an expensive and wasteful distraction, but essential in this brave new world. If nothing else, it clogs innovation. It is to our detriment – and the world is literally burning while politicians fiddle – and even more disastrously – impede innovative activity. Applying friction to free thinking and new ideas never ends well.

Does the Future Need Us?

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Brilliance combined with quirkiness and rule-breaking perpetuates an image of daring entrepreneurs and risk-taking capitalists generating outsized wealth. This simply doesn’t happen unless what is created matters. While we might question how much one needs to play a videogame or interact with social media, an advanced society needs advanced solutions to the intractable problems it faces. As John F. Kennedy said, “Our problems are man-made, mankind can solve them, as well.” Perhaps. The harsh reality is that brilliant, hard-working entrepreneurs and thoughtful investors lose much more often than they win. We need their risk-taking and willingness to lose. It’s how we win. We need the benefits technological innovation delivers even if we don’t understand that innovation’s ultimate purpose.

A Solution and a Sideshow

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Innovation is unpredictable and astonishing – it can address the world’s most critical issues today, from hunger to efficient energy, to devastating diseases. It is also too often misguided, inefficient, and meaningless – creating nothing more than distractions and wastes of time cloaked in an image of technological wonder. Misguided and manipulative business plans sit side-by-side with the groundbreaking disruptions that may address society’s greatest problems.

Innovation is Essential and a Misguided Sideshow

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Remarkable things can happen. Or not. Can we solve climate change, food shortage, limited healthcare, and other global stresses – all with TikTok videos? Innovation is unpredictable and astonishing – it can address the world’s most critical issues today, from hunger to efficient energy, to devastating diseases. It is also too often misguided, inefficient, and meaningless – creating nothing more than distractions and wastes of time cloaked in an image of technological wonder. Misguided and manipulative business plans sit alongside the groundbreaking disruptions that may address society’s most significant problems. We don’t have time. Even though there is no clear argument for resources going to a new video-sharing platform or immersive game, that is beside the point. Technology delivers something, nothing else can. It is the only way to find solutions to otherwise intractable and potentially devastating global crises. . The freedom to pursue solutions is the essential first step. Letting the best people do their best is still the best policy. It will also generate the best outcome.

May You Live in Interesting Times

May You Live In Interesting Times

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Risk is higher. Markets are more unpredictable, and valuations more volatile. So, when anyone says “this time it’s different” it usually makes good sense to stop listening. However, these days the markets have given us more frequent and intense volatility. The NASDAQ is down almost 30% so far this year, and shocks from the pandemic, the Ukrainian war, massive central bank interest-rate maneuvers, and China’s zero-covid policy, are all ongoing inputs for turmoil that will continue for some time. Persistent uncertainty creates higher costs of capital and less affordability, weakening business investment, slowing GDP growth, and reducing investment returns. Hyperbolic “this time it’s different” statements are turning out to be true. This time days look darker, uncertainty greater, economic growth lower, vulnerability to additional shocks higher, and investors fear many more dark days to come. More frequent and intense volatility will not be calmed anytime soon. It really may be different this time.

Sweltering, Chills, and Discontent

Sweltering, Chills, and Discontent

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While most of Europe and the United States suffer sweltering heat, darkening economic skies and bitter winter of discontent are looming. Threats to the world economy are chilling. Rising interest rates are slowing activity for discretionary spending while rising prices for nondiscretionary spending are also slowing economic activity. It would be miraculous if the compounding of both effects would not lead to a recession in both Europe and the US. China’s growth has stalled. The Ukraine conflict will resolve itself to the West’s dramatic disadvantage and the West seems to be willing to let it happen – much to each economy’s long-term disadvantage. Don’t count on anything miraculous.