Archive | economics

The Herpes Theory of Government

A new virus tends to kill everything it touches. Think Ebola. Big news, hazmat suits, death everywhere.

If a new virus doesn’t kill everything then it probably isn’t a new virus, and it certainly isn’t news. Therefore for you to know about it, it has to kill everything, otherwise you’d never hear about it. The same way you don’t hear about the nuclear war that didn’t happen yesterday.

It’s a problem if a virus kills everything. I mean of course, for the virus.

For a virus to survive it has to hop around and reproduce by finding new victims. If it doesn’t, then it dies along with it’s host. So it can’t be too deadly because then it’ll never spread.

A virus has to find a sweet spot where it can come along for the ride and kill you but not before you help it find someone else to infect. Ideally, it should be so benign as to never kill you. That way it can infect everyone you meet. Yay!

So the virus starts off by being very deadly. Through mutation and evolutionary selection new strains will appear. Some will be even more deadly! And some won’t.

The ones that aren’t as deadly will spread more since they have more time to spread before killing you. Over time they get less and less deadly.

And thus we arrive at Herpes. We’ve lived with variations of Herpes for millions of years. Over a billion people have the nice version (cold sores). Two thirds of the world has had some kind of Herpes.

It starts off killing everyone and being very unpleasant. Imagine how much fun the not-nice version of Herpes would be for you, living in 1690 or whatever. Then over time it evolved in to something basically benign – cold sores.

Cold sores (Herpes Simplex) have no cure and no vaccine. You’re stuck with it. It’s kind of annoying, but it doesn’t kill you or render you permanently unattractive to the opposite sex.

And thus to government.

Governments used to basically kill everyone. Think kings and queens and Napoleon. Big wars, random reasons for those wars, lots of death. Let’s all build a bunch of ships and kill people.

Over time, government has figured out that if you keep killing everyone then it gets hard to have anyone left over to tax. This is just like a virus evolving to be benign.

Government evolved from arbitrary rulers and rules in to modern democracy. Government no longer kills everyone all the time, but just taxes people instead in a far more stable symbiotic relationship.

There are still random flare ups, just like Ebola: Occasionally governments (especially far away stupid governments) will randomly kill everyone like Venezuela or Syria in their own ways are doing today. But on average, they’ve evolved to exist with their citizens in benign partnership.

I’m not sure how much farther the analogy can be pushed, but it’s an entertaining thought experiment.

Lending Club & OpenStocks

Lending Club

I’ve been researching a few stocks recently including LendingClub which I now own. It got me thinking – why isn’t there a wiki of all this information?

For example, one of the interesting things for me to follow is the SEC Form 4 filings of a firm. This is where people who have some major position in a public company have to make public if they buy or sell shares. For example, if you learnt that the CEO was selling or buying shares that would be useful to know. It’s an indication of whether they’re personally invested or not. Similarly, if the whole leadership team is buying or selling then that tells you more and so on.

I just read through all of LendingClub’s Form 4s going back to when they went public in December 2014. I’ve summarized them in the OpenStocks wiki here. Each Form 4 is pretty dull. It contains who’s selling or buying, what it is they’re selling or buying (stocks, options etc), when and for how much. There can be footnotes to explain transfers and other things like that.

Aren’t there things that automatically parse these forms and spit this stuff out? Not really. Yes, they exist, but they tend to be terrible at interpreting the information. For example when someone in the leadership team of a company gets some shares they will often put them in a bunch of trusts. This can make the automated software misreport their holdings and lead you to think they have less at stake than they do.

What we’re doing is compressing information and time. It took about 4 hours to read the Form 4s for the last year, wikifi them, do a bit of research on the people and so on. We need to compress that time and energy in to a buy/sell. The first intermediary step is to tell a story using the Form 4’s as recovered DNA in Jurassic Park, and then filling in the holes. And hoping no dinosaurs eat you.

Thus. LendingClub went public after giving hundreds of millions of shares to their VCs who acquired rights to them in the A, B and C rounds. Some of the VCs also bought some at discount. The IPO price was $15. Six months or so later they gave a bunch of shares to their board. Then the VCs started selling them in lots of 2 or 10 million shares here or there. All this selling probably depressed the price, but the VCs have to do it to return capital to their investors. It’s likely this selling will continue.

In the last couple of months a few insiders have been selling shares for “new Tesla” to “new apartment” levels of cash ($100k to $500k or so). But those sales are dwarfed by their options and holdings across their trusts and so on. They’re sitting on tens to hundreds of millions of dollars. Incidentally, all the leadership team plus their board have excellent careers and lots of credibility to lose. This kind of selling looks acceptable. Maybe they just want a new Tesla or to send a child to college or whatever.

The quarterly earnings were a few weeks ago. They turned a small profit of about $1MM on profit of $110MM or so on $2.something billion in loans for the quarter. The decimal places don’t matter to me much. The graph with all the numbers screaming upward does.

The costs are all flat as a percentage of revenue if you go look at their filings. But, the revenue has been going up. A lot. So they’re hiring like crazy. If you look at glassdoor, the reviews are all pretty good modulo complaints about the rate of growth. At some point they’ll amortize the staff and other costs over growing revenues (e.g. they won’t need to keep hiring).

The earnings call laid lots of heavy hints about a new product in 2016. My bet is that will be mortgages. Eventually LendingClub will offer every aspect of finance and they want to ship 2 products a year. So far they have personal loans and business loans. There’s a lot more out there from credit cards to kickstarter. Mortgages just feel kind of big and obvious and leverage the existing client base really well. Plus, they have so much (p2p) money they need to find places to put it.

LC aren’t at war with the banks, which is very nice. Instead they’re partnering all over the place to help banks find uses for their capital and help their customers find loans. All very win-win.

There’s negative stuff to find too which I leave as an exercise for the reader.


So – why not put all this stuff in a wiki? I can’t find anything like it so I built one at OpenStocks. It’s very early.

It’s interesting to think what an open source community would look like, blended in to the investment space. Well it would have a wiki, and a mailing list right? And it would have some sort of chat area and a github repository. And it would have code and tools.

I view the wiki as the first step, informing the next things to be built. It’s fairly obvious that the public lack the tooling to understand investments, and open source code would fix that. If you’re a huge investment bank then you can pay people to read all those forms or write code to summarize them. It would be interesting to see what happens when you do that in a community.

Part research tool, part opinion, part software, part community. And google ads or something to pay for it. Mainly it’s just the things I want available when figuring out to buy or sell.


Via blogging about this I found Rank and filed, Sumzero and Value Investors Club which are all way more advanced and already running compared to the wiki idea.

License Ascent

Copyright when first envisaged granted a limited-term monopoly on a work which then later fell in to the public domain, or PD. This would give the author some amount of time to make money and pay the mortgage, balanced with allowing people later on to take the work and build upon it. So you write a book, you can sell it but nobody else can, and then some number of years later everybody can do as they please with your book.

This is no longer the case. Copyright is effectively infinite. This means that while we can take old works and build upon them (Pinocchio) we cannot do the same with even pretty old works (Mickey Mouse). Edge cases exist of course, for example you can in many places use old works for parody.

Some people wish to make their work available under less restrictive terms than owning it forever. For them, there are a set of licenses which they can use to release their works.

  • They can claim attribution. Broadly, this means you can use my work but you have to say where it came from.
  • They can claim share-alike. Broadly, this means you can use my work, but any derivative works need to also be sharable. So you can’t take my book and then rewrite portions and claim it for yourself.
  • They can claim commercial rights. Essentially this means you can use my work for anything but profit.
  • You can use some combination of the above.

Thus instead of claiming copyright forever for your new book, photograph or software, you could instead for example say “use it however you wish but all changes must be shared-alike and you can’t use it commercially”. This allows individuals and companies to put works out there and allow them to spread more easily than if they retained all the copyrights.

Two basic methods of making money have emerged while using these open licenses:

  1. The intellectual piece is free, but any physical product costs money. For example, 3D Robotics software for drones is freely downloadable and you can change it. But if you want a physical, flying drone then that costs money. Very similar is this: the basic software is free but some critical piece required for some use case requires payment.
  2. The work is available publicly under a difficult open license, but privately under some commercial agreement. This is known as dual licensing. The downside is that to encourage commercial usage, the open license tends to be as painful as possible. This way, a student at home is unaffected but a company might find a license difficult. Perhaps it requires a legal review, or places burdens on the company like open sourcing everything they do. To avoid this pain, they pay for the commercial license.

The trouble here is we still don’t have things leaking in to the public domain over time. It’s seen that once a work is licensed under some license that it’s stuck there until the end of man.Capture

What if we changed that?

I propose we engage in some kind of license ascent over time. Perhaps descent would be better. Under this scheme, some work starts out under a restrictive and painful license and over time makes it’s way in to the public domain. For example:

  1. I write a book. For the first year, it is available under a attribution, share-alike non-commercial license.
  2. After the first year, it is available attribution, non-commercial.
  3. After the second year, it is available under attribution.
  4. After the third year, it is available public-domain.

We are reintroducing the concept of the work leaking in to the public domain gradually. So when I first create some piece of work I own it outright and then over time it becomes less and less burdened.

For static works like a book, the timelines may be longer. Say, two or five years per step. For works which changed all the time, like datasets about the world, perhaps each step lasts a year. Why would we want to do this? Two reasons: Because otherwise it’s really hard to make money from open source, and otherwise open projects don’t benefit the public domain.

There are classes of works which require “giving back” like OpenStreetMap in order to attract people to contribute. That is, why would you contribute to OSM if you couldn’t access the data? OSM has now existed for 11 years and the state of mapping in the public domain is still essentially the same as it was 11 years ago. But what if OSM data dropped in to a more liberal license, or the public domain, over time? Perhaps we could have a PD version of OSM but it was 5 years old. It wouldn’t compete with OSM itself, but it would enrich what people could build on without restrictions.

Put another way, do we want OSM to be perfect in another 10 years and the public domain still be essentially unusable? Wouldn’t it be nice to improve both OSM and (for free!) the public domain maps available?

Now imagine you have some new project which requires crowdsourcing to succeed. Dual licensing has the downside that picking the open license has many difficulties. You want to pick something that encourages people to contribute yet allows you to retain space to sell things, and this isn’t easy. If instead you practiced license ascent then everybody gets the data at some point in the future. Perhaps if you are a PD person you wait 3 years, and a share-alike person you have to wait two years. But either way, it’s better than never getting the data under a license that you would consider useful.

And, it does this whilst allowing the project or company to make money off the freshest data. It also creates an incentive to make the data fresher, all the time, because otherwise the old data will be good enough for people.

Now you could argue that any project should be open from the start, but open projects tend to have significant downsides. Open projects are terrible at user interaction and experience. They’re terrible at design. They tend to be incoherent. But they are great at innovation and collecting data. At the other end, private companies which collect data tend to be great at design and so on, but terrible at innovation and collecting data because they don’t have volunteers. I posit that license ascent is a way to achieve both and that it’s better than just picking a license or selling widgets on the side.


Open Company

Here’s a crazy idea: It would be interesting to build a kind of “open” company.

Most companies are closed in the sense that you have limited contact with them and little insight in to their internals. It would be interesting to create something where there was some high degree of openness both within and without, a flat structure and deep feedback loops.

Valve doesn’t have managers (flat structure) and people just work on whatever they want to, with peer pressures as a check. Amazon has a lot of the same customer and feedback goals but more traditional management. A blend of these would be interesting.

The problem is capital. Valve has a big office in Bellevue and people. Amazon have bigger offices in Seattle and lots more people.

But what if we flip that? 37signals has some large number of remote employees and that appears to work just as well. Why not make all your employees remote? No more office-related costs.

People are, generally, expensive. Well, they are in Bellevue, WA. What if we don’t mind if you work in Timbuktu? What if they don’t work full-time? Suddenly employee costs drop off a cliff. For not much cash, you could hire 5 or 10 people on upwork to get started.

It’s never been cheaper to go do this. We could make the company handbook v 1.0 just be Valve’s handbook.

Amazon started with books, Valve with Half-Life. What if you start with nothing at all but people interested in the experiment, and employees own ideas of what to work on?

Could you make the company an entertainment in itself? People love following along kickstarter projects and watching Dragons Den / Shark Tank. People are already therefore paying dollars and time to be part of the experience in creating something.

An Open Company could put you right there with the people making things happen. You can follow along and influence who gets hired and what people work on. It would be like The Sims, only more entertaining because it’s real. You could help choose the company logo, be an “associate CEO”, vote on product wireframes… or not be involved at all and just watch (in your “OpenCompany” t-shirt).

Worst case, it would be an entertaining art project. Best case, it would be fun and create something of value.

Sound fun? Sign up for more at or here:

Peak Apple

AAPL’s valuation is currently $355B and will likely go up a while. In terms of dollar value, it can continue to do so. In terms of being the largest company, or second largest on the planet, it cannot. Once you’ve made first place you can’t make zeroth. The only way is down. The question is when?

I’m fairly bearish. Last weeks event appeared to be the bottom of the barrel in scraping around for things that they’ve been sitting on for a while. Shipping the Pencil and iPad Pro was nice (people actually laughed in the audience, they thought the Pencil was a joke), but there are no new markets here. We’re now in to “copy Microsoft” territory (Surface). Once meaningful phrases are now fairly vacuous – “the only thing that’s changed is everything” would apply to iPhone but not iPhone 6S.

Share buybacks, splits and dividends – throwing money at people – will support the stock for a while. Casting around for more prototyped things to ship will too. However, the days of focus, small product selection and quality are gone. iOS and MacOS are no longer a step above their competitors, they fall apart all the time.

(Yesterday I had to kill iMessage because it wouldn’t stop recording an audio message, the swipe-to-show-delete doesn’t work either and the delete button keeps disappearing. This is about as good as Modern Mail on Windows 10 at present).

It feels like a committee is in charge of what apple should be like if it were still apple. The pre/post Jobs discussion isn’t useful. “What would Jobs do?” isn’t a useful discussion. What is useful is, “what will the new committee do?”

I predict the new committee will continue shipping nice enough incremental improvements. The machine will still print money for quite a while. But it will go the way all committees do eventually. People will turnover, long-term will give way to short-term thinking and there will be a painful descent when, eventually, the revenue doesn’t support millions of people creating the artifact.

The amount of specialization under Apple’s roof is incredible and it’s led to to an amazing core product that pays for everything (the iPhone). But it’s also very fragile. All of this is maybe a decade away. Maybe more, maybe less. That’s the trouble with predictions.

Inverting the question, what would I do differently? I would stop the dividends. I would stop giving money to charity. I would stop showing up to Cisco launch events. I would be very fearful and focus on the next thing, because the iPhone is going to die eventually just like the Mac did. And when it happens, it will be quicker and more brutal than the ascent. It will probably still be a nice business, just like the Mac is, but it’s going down eventually.

Rumors fly that the next thing is a car. The question isn’t “Will AppleCar do well?” – it’s “What should apple do next?” – they could copy SpaceX just as well as copying Tesla. Or they could start building houses or boats. I’m sure there’s a VR prototype at Apple along with a drone prototype. They could ship any of these things, and they’d be pretty good products.

But once you’re in that territory of copying or improving there’s limited upside. I’m sure an AppleCar would be marginally (maybe even meaningfully) better than a Tesla and it would sell lots. That isn’t the point. It’s this – where do the new things come from if not from Apple?

Google keeps throwing out cool new things, but they don’t tend to make any money. Microsoft seems much more aware that Office and Windows are going away and the focus shifts to HoloLens, which has a genuine shot at pornography and from there to mass market adoption. Both could be considered variations on the above theme but with different strategies.

No – for all this bearish talk I think the bullish should focus on Amazon.

Amazon’s algorithm appears to be this:

  1. Don’t spend any money
  2. Try things
  3. If success, expand
  4. If failure, kill
  5. GOTO 1.

Fundamentally the big four – Google, Microsoft, Apple and Amazon all have to be trying new things. The only thing we can do in life is try new things and see if they work. Little semi-scientific experiments to make more money.

Some large fraction of those things will fail. I posit that Amazon’s competitors are okay at steps 2-5. None are very good at step 1. The other fundamental difference at Amazon is how organic and bottom up the process is. Anyone comes up with ideas and has the ability to very frugally try them internally and externally. This isn’t exactly the case elsewhere.

Amazon isn’t perfect, neither are the rest of them. But keeping everything else roughly constant (management teams, culture and so on) Amazon is going to win. And it won’t do it by copying Surface or giving phone operating systems away for free. They don’t tend to sit around copying people. They’ll win because they’re like a big commercial arm of the US Marine corps. Everyone is iterating their OODA loops across individual, team and unit scales.

Per dollar, Amazon is able to try more things than anyone else (I posit). That would scare the crap out of me if I were their competitor. And since they want to compete with everyone, everywhere, it should scare everyone. The only people who can try more things, in aggregate, are startups. It’s arguable whether they can do it cheaper (my guess is not). In startups we drop billions of dollars with a ~5% success rate. But there is no feedback, I become a lucky ticket holder then I sell my company and go whale watching or helicopter snowboarding. Amazon keep the feedback, not dissimilarly to Berkshire Hathaway.

Today the valuations look like this ($billions) :

  1. AAPL 655
  2. GOOG 438
  3. MSFT 343
  4. AMZN 244

My prediction is this:

  1. AMZN
  2. {everyone else}

Because AAPL, GOOG and MSFT are all mere subsets of AMZN’s market and they’ll eventually eat them and everything else. We haven’t even talked about Wal-Mart. Amazon will try things cheaper and quicker and be able to ship at a lower price point. They don’t necessarily have to make more money, they can also just outlive everyone. Blue Origin’s motto Gradatim Ferociter! (step by step, ferociously) is just as well applied to Amazon.

John Boyd posited that merely executing your OODA loop faster than your competition made you certain to win. And that’s all I’m relying on here.

Or maybe I’m wrong! Either way, now’s the time to tell you I have money in AMZN.

Platform as a Service

It was not long ago that MacOS and iOS were far and away the best platforms to both develop on and use. Pleasurable might be the word. They had the JustWork(TM) feature, which is the killer app.

Development had its pain. It’s arguable that a degree in particle physics would help you comprehend Objective C but Swift looks nice enough. As others have noted, the general build quality of MacOS and iOS overall has dropped substantially. Maybe we should call it the “fit and finish”. I type this on a Mac that is no longer responding to hot corners or clicking on the dock. Literally, I click on an app in the dock and it doesn’t bring it to the front. I move the cursor to a hot corner to start the screensaver or show all windows, and it does nothing.

I have similar anecdotes for my iPhone. How did we get to the point where application context switching doesn’t work? It’s (almost) literally the most important thing you need to do. It’s the whole point we have Windows, Icons, Mouse and the Pointer, what we used to call WIMP. And it doesn’t work on my mac. My Mac was $3,000 or so when it was new, and I can’t click on applications.

Perhaps a reboot would fix it? What is this, Windows 3.11?

I’ve been using a lot of platforms recently. My Mac, my iPhone. My Surface Pro 3. My WinPhone win Win10 preview on it. A Nexus 5 and a Nexus 7.

What’s striking is how little there is between them. They’re all black rectangles. They all have Office. They all can make phone calls and take pictures. They all have notifications and calendars and twitter. They’re all the same platform with slightly different boot up logos.

The distinguishing feature is now the fit and finish.


Let’s talk Android. Boy is it confusing. What committee designed this thing? Why does the Android Lollipop clock icon look like a very low-contrast pie chart? We must give up, since there is no logical reasoning behind anything I can see on Android. Maybe that’s somehow on purpose. Some kind of lock-in so you get used to swiping one way for media and one way for cards and get confused when that isn’t there any more and keep you locked in to these behaviors.

Maybe Android is iOS-by-committee? It’s hard to find a mental framework to understand it all. The development environment is the same way, maybe there is some causality there.

Which is a shame, since there is so much potential there. When the material design works, it works really well.


And so Windows. The bastard child of history trying to do everything, all the time, everywhere. Amazingly it’s actually pretty good (Windows 10, that is) both on the phone and the desktop. How the heck did that happen? What happened to Windows 8’s mess? Win10’s design is clean, the thing works, things are where you expect them. It even boots quickly. And it’s cheaper than the other guys. Huh.

But they miss the apps. The apps on WindowsPhone tend to be somewhere from dire to awful. So Microsoft have tried to build an app store covering everything from Xbox to Windows to WindowsPhone – or Windows Mobile, or whatever it’s currently called. Great idea on paper but it has some technical challenges.

Except, when you go investigate and actually build something in Visual Studio it all works pretty well. There’s remarkable cross-platform targeting that doesn’t really exist on the Mac or Android/Chrome. Not just for native apps, but Cordova and everything else you can imagine. There’s this ridiculous multi-decade history of the CLI allowing you to target it with everything under the sun, and then magically run that code on everything from the Xbox to Windows to the phone.

The clever thing is Microsoft have a fairly mature stack to make Android apps work magically on Windows, and the iOS stuff that shipped recently will get there. But think about this – they only need one of them to work. Twitter has a great android app and a great iOS app, they don’t need to port both of them to Windows. One will do.

And Visual Studio really is fun. It’s like… have you tried Open/Libre/Office vs. Office? That’s what it’s like after using Eclipse. Why would you ever go back to Eclipse?

And the only way is up. It’s hard to see the Windows Mobile share go down much more, where do you go after 3%? 2%?

Future Choices

So let us say you’re in the market for a new phone or computer. Is there really some compelling reason to buy iOS over Android? It doesn’t look like it any more. They’re both ok, they both have apps, and Android is cheaper.

Not long ago I helped my father-in-law get a iMac. Today, he regularly has trouble with it. Including, if you can believe this, web-based malware that locks out Safari and asks you to pay money to an 1-800 number you have to call. It somehow pops up a MsgBox and you can’t get rid of it by rebooting, quiting Safari or 100 other ways. It’s remarkably tough to get Safari to quit, kill the network connection, close the tab and restart the browser to get out of this lock-out. It’s like Windows98 with IE.

Win10 is surprisingly compelling and I’d probably recommend that today. It’s cleaner and cheaper and it works.

Platforms as a Service

If you’re trying to accomplish real work on top of any of this mess, today it feels like you may as well pick randomly. Office, email and your calendar is available on everything. They even all look the same. It doesn’t matter if you buy iOS, Android or Windows for any actual work task. They all work with some marginal pros and cons.

I think that makes the future very interesting.

It’s not particularly sustainable for all three to have their own everything. If you go look, Apple, Google and MSFT all have something like 100,000 people give or take. They’re all making development stacks, they’re all mapping the world, they’re all working on search, they’re all building cloud things, they all have spreadsheets. It goes on and on.

It doesn’t feel particularly sustainable or rational. At some point, something will give and the cash cows that pay for all of this will fall over. One of them will not have the cash to sustain it all, then there will be two. Like some medieval city-state after a drought, it’ll become some kind of Sun Microsystems or SGI. How many decades away is that? Hard to predict.

Unless memory fails, Nassim Taleb predicted a while ago that Italy was more robust and sustainable than Syria. Syria had a long period of stability under dictatorship. Italy was a mess of factions and in-fighting. People thought he was nuts, but then Syria fell over.

These 100k people organizations can be understood like that. There’s a deep fragility in everyone building these huge stacks. Apple taking device revenue and building maps, or Google taking search revenue and building laptops. Unless you make the leap to profitability, independent of the start up capital from your cash cow, eventually something will give. Apple and Microsoft have done that multiple, multiple times. Google has not as yet.

It’s also interesting how vertical Google and Apple are, compared with Microsoft. Microsoft has those same vertical stacks as those guys, plus all the horizontal services across Android and iOS. It’s unbelievable how decent Outlook is on iOS. It’s hard to see Google or Apple responding by making their services work great on each others platforms in the same way.

The attack on Android

It’s hard to see Microsoft making a frontal or otherwise attack on iOS. It’s too locked up and they locked out Google as much as they could. On the other hand going after Android isn’t going to be that hard. Plus the reality is a massive amount of cooperation between Apple and MSFT.

By building this big suite of services out on Android it’s going to be very easy for a manufacturer to jump ship to a Microsoft Android. Pretty much all the pieces are there; office, email, calendar, maps. I suspect Windows Mobile is Plan A by expanding Windows in to phones and Plan B is Microsoft Android. Or why not do both? Android support is a great way to go run interference that is hard to respond to. It’s much harder for Google to go run interference on Microsoft’s revenue streams today, but it’ll get easier with build out.

Also interesting to note is that Windows Mobile will probably disappear. Windows itself runs very well on low end hardware. We aren’t far from a phone being just a low-end Windows device. It almost feels like, playing with it, that Windows 10 Mobile is like the days when Windows and NT were separate products. It takes time, but then they’re the same thing.


Thus I think the future is very unstable. Note I don’t think instability is a bad thing.

Being forced in to a corner and losing all marketshare in the big emergent space of mobile has forced Microsoft to be extremely innovative. It doesn’t face the same barriers to thinking or entry of the other two. It has nothing particularly to defend in the mobile space and everything to gain. And it has the same money and smart people the other guys do.

The barriers to Apple or Google going horizontal and supporting each other today are going to hurt them. They’ll both keep doing what they’re doing. iOS will gradually get more messy and flaky and Android will continue to commoditize whatever iOS does. Next up, fingerprints, or whatever it is.

In the end the consumer wins.

Try it and see

Whatever you favorite flavor of ice cream is, if you haven’t tried the other two I’d urge you to go do that. Old iPhones, Nexus devices and Lumia devices are all pretty cheap on eBay.

The world will only get weirder

Another month, another terrible and bizarre aircraft incident.

As far as the media are reporting, Andreas Lubitz decided it would be a great idea to fly a fully functional A320 in to the side of a mountain and kill 150 people a few days ago.

Six months ago a fully functioning 777 was flown in to the sea wall at SFO.

A year ago a fully functioning 777 made some interesting maneuvers and disappeared in the South Indian Ocean with 239 people on board.

Aircraft are an interesting set of examples because they’re so well studied and corrected. We don’t spend time correcting hospital mistakes with nearly the speed and detail we do aircraft accidents, for example.

It used to be that airliners broke up in the sky because of small cracks in the window frames. So we fixed that. It used to be that aircraft crashed because of outward opening doors. So we fixed that. Aircraft used to fall out of the sky from urine corrosion, so we fixed that with encapsulated plastic lavatories. The list goes on and on. And we fixed them all.

So what are we left with?


As we find more rules to fix more things we are encountering tail events. We fixed all the main reasons aircraft crash a long time ago. Sometimes a long, long time ago. So, we are left with the less and less probable events.

We invented the checklist. That alone probably fixed 80% of fatalities in aircraft. We’ve been hammering away at the remaining 20% for 50 years or so by creating more and more rules.

We’ve reached the end of the useful life of that strategy and have hit severely diminishing returns. As illustration, we created rules to make sure people can’t get in to cockpits to kill the pilots and fly the plane in to buildings. That looked like a good rule. But, it’s created the downside that pilots can now lock out their colleagues and fly it in to a mountain instead.

It used to be that rules really helped. Checklists on average were extremely helpful and have saved possibly millions of lives. But with aircraft we’ve reached the point where rules may backfire, like locking cockpit doors. We don’t know how many people have been saved without locking doors since we can’t go back in time and run the experiment again. But we do know we’ve lost 150 people with them.

And so we add more rules, like requiring two people in the cockpit from now on. Who knows what the mental capacity is of the flight attendant that’s now allowed in there with one pilot, or what their motives are. At some point, if we wait long enough, a flight attendant is going to take over an airplane having only to incapacitate one, not two, pilots. And so we’ll add more rules about the type of flight attendant allowed in the cockpit and on and on.

Why, why, why, why, why

There’s a wonderful story of the five whys.

The Lincoln Memorial stonework was being damaged. Why? By cleaning spray eroding it. Why? Because it’s used to clean bird poop. So they tried killing the birds. Didn’t work. Why are the birds there? To eat insects. Let’s kill the insects! Didn’t work. Why are the insects there? Because the lights are on after dusk. So let’s just turn the lights off. That works.

This is a clean and understandable example of why adding more layers, and more rules, to a problem doesn’t always work. If you stop at some level then you’re missing out on the ultimate solution.

If we’d stopped at killing insects, we’d spend more money and still have the same problems. If you keep asking why, then you get to solve problems.

Similarly the US Constitution, as a set of rules, fixed most problems with government. That document alone probably fixed 80%+ of governmental problems and now we’re reduced to rules making it illegal to be a hairdresser without a government license, or whatever.


And so, with more rules we have solved most of the problems in the world. That just leaves the weird events left like disappearing 777’s, freak storms and ISIS. It used to be that even minor storms would be a problem but we have building codes now (rules). Free of rules, we’d probably have dealt with ISIS by now too.

Ultimately, this is why the world is getting weirder, and will continue to do so. Now with global media you get to hear about it all.

What to do?

The primary way we as a society deal with this mess is by creating rule-free zones. Free trade zones for economics. Black budgets for military. The internet for intellectual property. Testing areas for drones. Then after all the objectors have died off, integrate the new things in to society.

The worry should be we end up with so many rules we become sclerotic like Italy or France. We effectively end up with some kind of Napoleonic law – everything is illegal unless specifically made legal. Luckily we’re far from that in the US.


On a personal level we should probably work in areas where there are few rules.

To paraphrase Peter Thiel, new technology is probably so fertile and productive simply because there are so few rules. It’s essentially illegal for you to build anything physical these days from a toothbrush (FDA regulates that) to a skyscraper, but there’s zero restriction on creating a website. Hence, that’s where all the value is today.

If we can measure economic value as a function of transactional volume (the velocity of money for example), which appears reasonable, then fewer rules will mean more volume, which means better economics for everyone. So it used to be very hard to create an airline, now it’s easy, we have more choice and more flights and so on.

Rules stop you making transactions (monetary or otherwise). With fewer transactions we have a lower flow of value from where it is, to where it’s best usable.


And thus we arrive at speed. As everything is getting weirder, it’s also getting faster. In film, Christopher Nolan has explored a lot of this across his movies.

Almost literally, everything that has ever happened has happened in the last decade or less.

Nick Bostrom nails it in his book:


Nothing happened from the beginning of time up until something like 1980. Maybe the industrial revolution. You get to pick. The explosion in transactions came from a feedback loop of an explosion of population and ideas.

It’s going to take a lot of rules to slow that down, but it is possible.

Contrarian, or the Opposite Movement

The worlds richest software engineer doesn’t live in Silicon Valley but Bellevue, Washington. The worlds richest investor doesn’t live in New York City, but Omaha, Nebraska. Even the world’s richest actor doesn’t live in Hollywood, but Long Island.

It appears that the best metric for success in everything is to go figure out what most people do and then do the opposite. Everyone watches TV, throw it out. Everyone eats pizza and drinks beers, don’t do that. Everyone has credit cards, go debit. Everyone needs permission to do anything, don’t ask for it. Everyone bitches and moans, be positive. Everyone drives a car, walk. Everyone goes to University, run away screaming.

Or, write software anywhere but in Silicon Valley, invest anywhere but in Wall Street and act anywhere but in LA.

The opportunity here, if you can live with yourself, is awesome. Sell the idiots TV shows, pizza, loans, self-help permission books, negative news, ridiculous cars and school loans. Or by proxy, invest in those things if (to echo Ben Graham) they are underpriced and offer a margin of safety.

What I want to do is find a way to short anyone who just copies. China copying American infrastructure (skyscrapers to airports to freeways) instead of the constitution. Bing copying Google instead of building Siri. Students going to college thinking a degree is a differentiator. Everyone making black rectangles that look like an iPhone.

Then I want to write a book on all this mimicry that is everywhere, and why it’s so problematic.

Sustainable Open Source

Pure open source projects for the most part fit on a spectrum between “dead” and “permanently about to die.”

The vast majority are dead. This silent evidence can be found in random search results popping up old sourceforge projects not updated in a few years.

The two obvious questions are why is this so, and does it matter?

The why is pretty easy. Without a rational set of incentives to continue a project, the irrational takes over and the project blows up. If you’re not working to help your customers so you can pay the rent, you’re there for some other reason. It’s fun, the ideology is attractive or some other reason. This is why non-profits are full of crazy. The challenge is that things are only fun for so long and then you leave.

The great churches of open source might be linux in all its forms and wikipedia. Wikipedia is clearly about to die, because they tell you every time they run a new fund raising campaign. The various linux things are all about to die: Debian gave way to Ubuntu which is apparently giving way to Mint.

Now, should we care?

I argue we should. Having slightly more stable open projects would have a number of benefits. Most of these benefits are hard to prove and intangible. For example, imagine Debian becoming Ubuntu without creation of intermediary projects and all that wasted effort. To the end user there’s a little less friction in using one distribution rather than switching. But, if there was stability and better incentives, maybe all linux distributions wouldn’t look like Windows 98 – maybe designers would be incentivized to contribute meaningfully instead of running away screaming.

Or, Wikipedia without the period funding spam. It’s hard again to quantify the inconvenience of the banners asking for money as opposed to something else like advertising or reddit’s community-driven ads to fund the project rather than donations.

It appears that open projects typically get taken over by the ideological extremists who want everything to be free, everywhere and all the time. This makes it difficult to achieve anything so the middle group leave to form some new project. The original dies and then the new one eventually gets taken over and so on repeatedly. The people with a profit motive aren’t usually there in the first place, since they’re happily using a mac, windows or whatever the proprietary version is of the project.

The lack of profit motive has other side effects. It means UI/UX in open projects is stuck around the Windows 98 era as I mentioned. It means that reddit owns the community and content that wikipedia should be embracing. It means new improved things typically aren’t open projects. Open projects are typically open copies of existing things, cheaper and faster and less bugs. But still copies.

The other models for creating Intellectual Property have their own downsides of course. VC-backed stuff (open or closed) tends to blow up 90+% of the time. Closed projects don’t get widespread input and improvements where it matters.

I think hybrid dual-licensing is the future. It worked ok for MySQL. It’s working for many other projects too, and it doesn’t look as draining as doing purely open projects while still paying the rent.

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