West Coast Stat Views (on Observational Epidemiology and more)
Comments, observations and thoughts from two bloggers on applied statistics, higher education and epidemiology. Joseph is an associate professor. Mark is a professional statistician and former math teacher.
When asked why he kept writing for television despite all the aggravations, Harlan Ellison would cite the story of the moron who liked being beaten in the stomach with a sawed-off baseball bat.
"Why did he like being beaten in the stomach with a sawed-off baseball bat?"
"Because it felt so good when they stopped."
Or even just paused, apparently.
The news probably doesn't justify the reaction of the markets bad at this point, not bad is good enough, showing the central importance of lowering expectations.
Josh Marshal predicted Trump would cave one week ago:
As a matter of political predictions, I don’t think this will be sustainable. We’re starting the fun with even the most die-hard Trump reps saying they sure hope it will be awesome through gritted teeth with beads of sweat already forming on their brows. We’re already seeing headlines that talk about the biggest trade regime revolution in a century, a new global age of trade restriction, etc. Again, I don’t think it’s sustainable. There are other new ages that we’re definitely already in. We’ve already wrecked the post-war Atlantic alliance and done irreparable damage to the post-war world order which rests upon it. But this is different. These tariffs could help usher in a new era of protectionism and break past economic and trading alliances. They certainly will push us further in a direction of a high-fear rather than high-trust global order. I’m simply saying that I don’t think these tariffs themselves will last. The pain will be too widely distributed, the ideological hold is too thin and the path to overturning them too clear.
It is almost impossible to overstate how unpopular this policy was, particularly with one group that almost always has Trump's ear. Here was how things looked when the market closed Monday.
Here's where their fortunes stood at Monday's market close:
1. Elon Musk
Net worth: $298 billion
3-day change: down $35 billion
Year-to-date change: down $135 billion
Tesla and SpaceX CEO Elon Musk
Graeme Sloan for The Washington Post via Getty Images
Elon Musk's net worth has fluctuated wildly in recent
months. Excitement about his proximity to the president has been
replaced by concern, as anger has grown toward the White House's DOGE
agency, and public backlash against Tesla has hammered the automaker's
stock.
The world's richest person
derives his wealth primarily from his stakes in Tesla and SpaceX. His
other businesses include SpaceX, Neuralink, X, The Boring Company, and
xAI.
Trump's second favorite real billionaire
7. Larry Ellison
Net worth: $147 billion
3-day change: down $21 billion
Year-to-date change: down $45 billion
Larry Ellison is Oracle's cofounder.
Elizabeth Frantz/REUTERS
Larry Ellison is the cofounder, executive chairman, and
chief technology officer of Oracle, one of the world's largest software
and cloud computing companies.
Ellison is also a major investor in Tesla and owns a large portion of Lanai, a Hawaiian island.
Along
with OpenAI's Sam Altman and SoftBank's Masayoshi Son, Ellison is
spearheading Project Stargate, a $500 billion AI infrastructure
initiative supported by Trump.
And to add insult to injury...
4. Warren Buffett
Net worth: $154 billion
3-day change: down $14 billion
Year-to-date change: up $12 billion
Warren Buffett is the chairman and CEO of Berkshire Hathaway.
Reuters/Mario Anzuoni
Warren Buffett, 94, is the chairman and CEO of Berkshire
Hathaway. His conglomerate owns scores of businesses including Geico and
See's Candies, and holds multibillion-dollar stakes in public companies
such as Apple and American Express.
The legendary investor's
track record of capitalizing on market crashes, and his company's scale
and diversification, have made Berkshire a haven for investors who've
pushed its stock up 8% this year.
Humanoid robots are certainly having their day. We are seeing a flood of articles and think pieces discussing how these mechanical men are about to change our lives any day now. What’s much harder to find are serious discussions about whether making a robot look like a human makes any sense.
This post by Brad Porter, someone with considerable experience making robots that actually do things, is a good start.
There
are three specific problems with humanoid robots. One first I believe
will be overcome with continued advances in AI. The second might be
overcome with enough investor dollars. The third is the Achilles heel.
The
AI isn’t there yet. We lack the generalized controls necessary for
robust balancing systems to work in production environments.
Hardware
investments when the AI isn’t there are bad investments. The dollars
required to bring a humanoid robot to production quality are likely to
be well over $1B invested.
Biomimicry isn’t the right approach. Humanoid robots aren’t the right design solution for most production tasks.
Stephen Boyd, one of the true luminaries in the space of controls research and engineering gave an interesting talk. In fairness to Dr. Boyd, I’ll summarize my take-aways which may be different than what he hoped to convey. But overall the talk compared a number of controls techniques, including reinforcement learning, and articulated clearly how they could be reduced to problems of convex optimization, greatly simplifying the problem space. But then he said something interesting (paraphrasing, but hoping I got this right), “so just get the dimensionality under 6 and these problems become classically solvable.”
That was a big a-ha for me. This is exactly what we do in robotics. We reduce the dimensionality of the problem down below 6 degrees of control actuation and we derive a controller using some combination of math, convex optimization, RL or equivalent techniques. Quad-copter drones are 4 degrees of actuation and generally an IMU. Cars are throttle, brake, steer. Airplanes are generally aileron, rudder, elevator, throttle. What Agility has done beautifully is simplify the physics of walking such that the controller can be modeled as a spring-mass system. What Boston Dynamics has done, impressively, is demonstrated the ability to transition from one control regime to another seamlessly, but each controller is simplified. Successful hand controllers in production have reduced the dimensionality with eigenhands, or lower-dimensional controls spaces.
...
As I said up front, I think advances in ML/AI will address this problem. We will eventually get more robust robotics controllers, but there’s a reasonable argument that this problem is as hard, or maybe even harder given the open-ended nature of the world, as developing a self-driving car. For instance, self-driving cars are passively stable. They don’t care if they’re transporting liquids or solids, mass sloshing doesn’t affect them. But if a humanoid robot is carrying a box with a bowling ball in it, the controls problem just got very very hard. Humans stabilize our bodies with a lot of different muscles, including our neck muscles which subtly refine the position of our head to keep our center of mass above our feet. That’s super hard to do! And look, we still can’t put a timeline on robust AI for self-driving cars.
This
brings us to our second problem. Hardware is expensive. And complex
hardware is really expensive. Combining complex hardware engineering
costs with open-ended, unsolved AI problems, means the funding
requirements are open-ended. And it’s not like you can do some work with
a humanoid without solving the balancing problem. I suppose some
humanoids are just using a wheeled base, but they’re not intrinsically
stable… their center of mass is still too high to be safe.
Is
there enough money in the venture ecosystem to make a dent in this?
Probably, though Softbank has some of the deepest pockets and thrown a
lot of money at robots. Google as well. The returns for those
investments to date are more than a little disappointing.
But
the biggest problem is that humanoids are the wrong solution for most
tasks. Not all tasks, I do think Disney’s animatronic actors will become
more and more sophisticated and impressive. In Toyko, there’s a hotel
where animatronic dinosaurs check you in. An animatronic human might be a
little friendlier than a dinosaur. But when it comes to doing real work
in the world around us, biomimicry isn’t the answer.
...
Wheels are the right answer in logistics, in manufacturing, in
hospitals, in airports, in stadiums, on the sidewalk, in office
complexes, and in nearly every commercial environment. Also, passive
stability, having at least 3 points of contact on the ground, preferably
4, is extremely valuable. Keeping the payload inside the cone of
stability rather than cantilevered in front of a robot is better as
well.
Synapse claimed to keep customer deposits in FDIC
insured bank accounts, and argued that this provided a comparable level
of depositor protection to conventional bank accounts. However Synapse
was not a bank, and so did not provide FDIC protection for depositors
against its own bankruptcy.
The company was backed by Andreessen Horowitz [we'll be coming back to this in a future post (spoiler alert: Marc Andreessen is an arrogant, entitled idiot) -- MP] and had roughly 100 direct business relationships, indirectly serving 10 million retail customers through those relationships.
Following the bankruptcy declaration, "tens of thousands of U.S.
businesses and consumers" lost access to Synapse's services, leaving
questions as to the location of funds. In May 2024, former FDIC Chair Jelena McWilliams,
appointed as bankruptcy trustee, said there was a “shortfall” between
Synapse’s records and those of the banks, estimated at $65 million to
$96 million.
The CEO of Yotta Savings
– a fintech company which relied on Synapse to manage customer deposits
– released financial data in November 2024 showing that 13,725 former
customers lost deposited money due to the Synapse bankruptcy. They were
refunded $11.8 million, a fraction of their $64.9 million deposits.
How do you follow up destroying the life savings of your customers? We'll let Patrick Boyle tell the next part of the story. [ChatGPT proofed from the transcript.]
In plain English—Synapse, which built the technology to know whose money is whose, has run out of money and no longer has any employees who can figure it out.
Well, where have they all gone? Sankaet Pathak, the founder and CEO of Synapse, announced in August that he had raised $11 million in VC funding for a new robotics startup called Foundation. In his Twitter video, he said that he had been working on the startup for three months—basically since the bankruptcy announcement—and his goal is to automate GDP through AI and robotics to free people from labor jobs, allowing them to pursue their passions.
He explains that declining birth rates will lead to severe labor shortages in 20–30 years, risking civilizational collapse, making this mission urgent. So yeah, I get that some people are worried about having lost their life savings—but Sankaet is battling civilizational collapse through AI robots… a noble cause indeed.
His near-term goal, he says, is to have a walking humanoid robot by year-end—that will be quite a breakthrough. If he needs one quickly, I’d buy that Honda one that was running around and kicking a football ten years ago.
It's a sign of the times. This guy drives his company into the ground then immediately gets investors to give him millions of dollars for an obviously thrown together knock-off of an Elon scheme that was itself a transparent con.
We're going to be picking on Noah Smith a lot, and I feel genuinely bad about it. These are not crocodile tears. It seems profoundly unfair to go after someone not because they are stupid or despicable, but because they are the smartest, most articulate person advocating an important school of thought.
Smith speaks for an influential group that is generally Bay Area-centered, mainstream center-left, technocratic techno-optimists. Marc Andreessen is arguably their intellectual leader, though few of them share, and in some cases even acknowledge, the extreme libertarianism at the core of his ideas. They are also decidedly prone to hero worship.
This group is small in terms of absolute numbers, but it includes lots of billionaires and it has a wildly disproportionate impact on the discourse through journalists like Ezra Klein. To make matters worse, the group tends to get something of a free pass from the press at large. All of this makes the need for genuinely critical scrutiny all the more pressing.
In
recent months, a number of progressive commentators have
suggested that Musk’s support for Donald Trump is part of a
campaign to become a “Shadow President”. Many people I talk to in
the tech industry also believe this — but they think of it as a
good thing. Many of them, even the conservatives, despise Donald
Trump as a human being, but they hope that with Trump aging and
fading, Musk and J.D. Vance will be running the show in a competent
technocratic manner. Put a superhero in charge, the thinking goes,
and you get super-results — just as happened with SpaceX and Tesla.
Apologies to longtime readers who have heard this before, but we need a quick reality check here. SpaceX has achieved some highly impressive, albeit largely incremental, advances with former TRW rocket scientists building off TRW technology. Outside of making some admittedly very good hires, Elon Musk's contribution to this consisted almost entirely of hyping the company and bringing in extraordinary amounts of funding for an operation that was, and probably still is, hemorrhaging cash.
Tesla is a niche automaker that, for a while, managed to dominate a small corner of the market while turning a small profit, due primarily to government subsidies. Musk's most notable accomplishment with that company was an extraordinary and unprecedented stock pump, keeping the P/E ratio well over 100 even after the company started shrinking.
But even if we were to accept the myth of SpaceX and Tesla, why would we expect Musk to have any special powers when it came to running the government? His only relevant experience with the institution has been getting it to give him large amounts of taxpayer dollars. The answer is because Smith and the rest of this group believe Musk is omnicompetent, that he's a secret genius, and a founding lord of Ithuvania.
These myths of supermen among us were incredibly popular for most of this century, but it's time we acknowledged how costly they could be.
Probably not, and even if he does, certainly not for the reasons being given.
This is a perfect Politico story, providing juicy insider details to make readers feel that they're getting the straight dope while downplaying aspects that will embarrass her sources.
President Donald Trump has told his inner circle, including members of his Cabinet, that Elon Musk will be stepping back in the coming weeks from his current role as governing partner, ubiquitous cheerleader and Washington hatchet man.
The president remains pleased with Musk and his Department of Government Efficiency initiative but both men have decided in recent days that it will soon be time for Musk to return to his businesses and take on a supporting role, according to three Trump insiders who were granted anonymity to describe the evolving relationship.
...
Musk’s defenders inside the administration believe that the time will soon be right for a transition, given their view that there’s only so much more he can cut from government agencies without shaving too close to the bone.
...
Both men subsequently hinted publicly at a transition. When Fox News’ Bret Baier asked Musk on Thursday whether he’d be ready to leave when his special government employee status expires, he essentially declared mission accomplished: “I think we will have accomplished most of the work required to reduce the deficit by $1 trillion within that time frame.”
Marshall is calling bullshit on both the idea that Musk is ready to go or that anyone thinks DOGE has reached a stopping point.
Thirdly, Elon Musk is now in the position of every dictator whose
already killed too many people. They have to hold on to power because
giving it up is too dangerous. Will the Justice Department stop wielding
national police power to defend Tesla’s market cap? Unlikely. And
without Elon’s presence and the fear he inspires, more facts about the
crimes and the consequences of his wilding spree will dribble out. DOGE
has always run on fear and Musk inspires the fear. Will people decide
that they can go back to maybe buying a Tesla? I doubt it, because of
items one and two and item three as well.
Fourthly and lastly, there’s far too much damage and blood on the
ground for Elon to step aside. Would anyone have cared if bin Laden had
decided to “step back” in November 2001 and focus on his other terror
affiliates? Unlikely. What had happened had happened. There was no going
back. This is all the more the case now because the details of what has
already happened, the consequences and pain for ordinary Americans. The
laws broken, the money squandered, the national assets plundered are
only now beginning to become clear. That won’t stop. And as we saw in
Wisconsin, Musk cannot help but put himself front and center even when
it’s objectively crazy to do so. That’s who he is and no one ceases to
be who they are.
Before we get into the question of what Elon Musk is likely to do, a few notes on the Politico piece.
For
starters, the piece acknowledges an elephant in the room but possibly
not the biggest one. Obviously, the timing of all these Elon’s leaving
stories has everything to do with the events of Tuesday night. The
Politico piece discusses the Wisconsin half of those events, but it
leaves out perhaps the more frightening Trump and the GOP.
The
Republicans held on to the two seats up in Florida—any other outcome
would have been politically cataclysmic—but the numbers were really bad
in context. In Florida's 6th District, the Republicans saw almost a 10%
drop in support in a district that has been Republican for the last 35
years. In the Deep Red Panhandle’s First District, they saw a similar
drop, giving them their worst percentages of the 21st century.
Yes,
n=2, but those two elections took place in the context of a lot of
other data points that generally told the same story, and keep in mind,
that was before "liberation day" and the resulting carnage in the
markets. Every member of the House GOP who won their last election by less than 10% is taking a long hard look at these results and at the parts of the administration that are dragging them down.
Elon has turned out to be a huge political liability and Trump would certainly be willing to toss him overboard. The question is would he go?
Musk is a narcissist/bully with a messiah complex. He's clearly
enjoying himself, so this is not a gig that he would be eager to leave,
even without the opportunities for self-enrichment. That said, there are some powerful incentives for him to go.
One aspect that both Bode and Marshall don’t seem to fully factor in is just how precarious the situation with Musk’s finances has become.
Tesla is one of the all-time great examples of the principle that the market can stay irrational longer than you can stay liquid, but eventually all bubbles pop, and the news for this company has been brutal over the past few months. In addition to the self-inflicted doge wounds, the second generation of products has performed really badly. Sales were flat or trending down even before Musk hooked up with Trump, and competitors, particularly BYD, are absolutely kicking their ass.
Despite all of this, Tesla is still valued for explosive growth. With these prices, even if profits increase by a thousand percent over the next five or so years, investors have basically just broken even. Even under normal circumstances, it takes a great deal of pumping to keep a stock that high. When the company appears to be shrinking rather than growing, that level of hype becomes almost superhuman.
On top of that, if Musk is still reluctant to step away, Trump has tremendous leverage he can apply. The profitability of Tesla depends on regulatory credits. With SpaceX, the situation is even more dire, particularly given the difficulty of justifying the Artemis program while cutting far more popular government programs to the bone. If Elon were to make him mad enough, Trump could completely destroy his financial empire, ironically in the name of government efficiency.
But here's where it gets really interesting. Very much like his co-president, Elon Musk is an angry and vindictive man given to lashing out in self-destructive ways when he feels he's been made a victim. The CEO of an ad-supported company publicly telling advertisers to go f*** themselves is possibly the stupidest thing you'll ever see, but it was entirely on brand. Musk also has a history of mounting coups against partners, often in the most gratuitously vindictive and petty way possible. The way he forced out the actual founders of Tesla is a perfect example.
With all that in mind, remember that JD Vance is Peter Thiel's, and by extension, Elon Musk's, man in the White House.
Normally, conversations about the 25th Amendment are rightly treated as non-starters, but these are far from normal times. Given the circumstances and the personalities involved, Elon Musk and the rest of the tech billionaire wing of the Republican Party would almost certainly at least think about forcing Trump out should he become sufficiently inconvenient.
As the old curse goes, may you live in interesting times.
We need a thread on robots, and within that thread, we need a thread on robots that look like people.
I apologize for continuing to hammer this point, but the voices that dominate our discussion of the future—the tech messiahs, the Silicon Valley visionaries, the techno-optimists—are all working from a worldview that comes from and in most cases is largely limited to that of post-war popular science fiction, particularly the stories that made their way into comic books, pulp magazines, movies, and TV shows. One of the most striking examples of this is the continued allure of the bipedal humanoid robot, a template these retro-futurists keep coming back to despite it violating pretty much every principle of engineering and design.
One of the great ironies of this is that, though in classic science fiction pretty much any species will evolve along these lines given enough time, the reality of how we got this way appears to be more Rube Goldberg than inevitable destiny. It's possible we only look the way we do because the savannas had hot sun and tall grass.
A humanoid form is unquestionably a poor design for a robot. There is, however, some question as to whether it's a good design for a human.
One such example is Ardipithecus, which was a forest biped that walked along branches. For two-thirds of the natural history of hominins (six to two million years ago), our ancestors, cousins, and relatives rightly preferred a hybrid solution: an arboreal life so they could protect themselves from predators (with persistent ancient traits such as curved fingers and long arms) and the prudent bipedal exploration of open glades in search of food. Lucy lived in this way, and died when she fell out of a tree. This was by far the most intelligent strategy at the time for those that were yet to become brave hunters, but were delicious prey for felines and giant eagles. Today, baboons and many other primates do the same. So let us forget the story of human evolution that begins with the heroic “descent from the trees” to conquer the savanna on foot. Only in the early days of the genus Homo did we become complete bipeds.
And many of our companions still curse that day. Walking upright on your legs becomes a big risk if your diet changes in the meantime, your brain starts to grow, and you have to give birth. The pelvis cannot expand much because if it did, you would not be able to stand upright. Consequently, the baby’s head passes with considerable difficulty. If you could reset and go back, the ideal engineering solution would be to give birth directly from the abdomen, but this is not possible because our birth canal is a modified version of that of reptiles, which lay eggs, and of early mammals, which give birth to tiny offspring via the pelvis. So compromises are improvised, fixing pregnancy at nine months and giving birth to helpless babies whose brains are only one-third developed, with the remaining two-thirds being completed later. It remains a truly imperfect solution, however, if we think not only of how many mothers and babies have died during childbirth, but of how painful it is for women at the best of times.
The transition to bipedalism generated negative consequences in almost every part of the body. Human feet, with their plantigrade locomotion, have to tolerate high stress levels. Our neck, with that heavy, swinging bowling ball balanced on top, becomes a weak point. The abdomen, with all of its internal organs, is exposed to all sorts of trauma. The peritoneum is being pushed down by the force of gravity, provoking a predisposition to hernias and prolapses. You might even feel the consequences on your face. The next time you have a cold and feel the mucus pressing into every orifice of your face, think about the fact that your constipated maxillary sinuses have their drainage channels pointing upward toward the nasal cavities — against gravity! This makes them completely inefficient and easily clogged up with mucus as well as with other slimy substances. This seems like a bad design, but the fact is that in a quadruped, the opening of the maxillary sinuses faces forward, which works well. Yet for former quadrupeds like us, our faces have only recently adopted a vertical position, and this is the result.
Archaeologist André Leroi-Gourhan was right in saying that the history of humanity began with good feet, before great brains. But it was an ordeal, particularly in the beginning. Then we grew to like it, and with those legs we became migrant primates, with a strong sense of curiosity and no more boundaries to hold us back.
A companion piece to Brian Klaas's secret geniuses and our Ithuvania thread. More relevant now than when Levy first wrote it.
Tuesday, September 12, 2017
More magical heuristics -- Levy's omnicompetence
Yesterday, I introduced the term magical heuristics
(still open to a better name) to describe nonrational mental tools used
by many journalists and investors particularly when discussing science
and technology. I laid out four general categories for these heuristics:
magic of association; magic of language; magic of attitude; magic of
destiny.
This post
from Alon Levy (one of the most important contributors to the Hyperloop
debate) perfectly fits with two of these categories, magic of
association and magic of destiny (the idea that there are chosen ones
among us destined for greatness). The whole thing is very much worth
reading, but I've selected below the paragraphs that are most relevant
to this thread and added emphasis to bring home the point:
There is a belief within American media that a successful person can succeed at anything. He (and it’s invariably he) is omnicompetent, and people who question him and laugh at his outlandish ideas will invariably fail and end up working for him. If he cares about something, it’s important; if he says something can be done, it can.
The people who are already doing the same thing are peons and their
opinions are to be discounted, since they are biased and he never is. He
doesn’t need to provide references or evidence – even supposedly
scientific science fiction falls into this trope, in which the hero gets
ideas from his gut, is always right, and never needs to do experiments.
...
I write this not to help bury Musk; I’m not nearly famous enough to even
hit a nail in his coffin. I write this to point out that, in the US, people will treat any crank seriously if he has enough money or enough prowess in another field. A sufficiently rich person is surrounded by sycophants and stenographers who won’t check his numbers against anything.
...
The more interesting possibility, which I am inclined toward, is that
this is not fraud, or not primarily fraud. Musk is the sort of person
who thinks he can wend his way from starting online companies to
building cars and selling them without dealerships. I have not seen a
single defense of the technical details of the proposal except for one
Facebook comment that claims, doubly erroneously, that the high lateral
acceleration is no problem because the tubes can be canted. Everyone,
including the Facebook comment, instead gushes about Musk personally. The thinking is that he’s rich, so he must always have something interesting to say;
he can’t be a huckster when venturing outside his field. It would be
unthinkable to treat people as professionals in their own fields, who
take years to make a successful sideways move and who need to be
extremely careful not to make elementary mistakes. The superheros of
American media coverage would instantly collapse, relegated to a
specialized role while mere mortals take over most functions.
This culture of superstars is a major obstacle frustrating any attempt to improve existing technology.
It more or less works for commercial websites, where the startup
capital requirements are low, profits per employee are vast, and
employee turnover is such that corporate culture is impossible. People
get extremely rich for doing something first, even if in their absence
their competitors would’ve done the same six months later. Valve, a
video game company that recognizes this, oriented its entire structure
around having no formal management at all, but for the most part what
this leads to is extremely rich people like Bill Gates and Mark
Zuckerberg who get treated like superstars and think they can do
anything.
We haven't had much occasion to mock the education reform movement recently (Michelle Rhee hasn't had many feature stories lately). Fortunately, we can always count on McKinsey and Company for newmaterial.
[Not sure what happened to the formatting. Perhaps it's Blogger playing a prank on us.]
When [David] Coleman attended Stuyvesant High in Manhattan, he was a
member of the championship debate team, and the urge to overpower with
evidence — and his unwillingness to suffer fools — is right there on the
surface when you talk with him.
Andrew Gelman has already commented
on the way Balf builds his narrative around Coleman ( "In Balf’s
article, College Board president David Coleman is the hero and so
everything about him has to be good and everything he’s changed has to
have been bad.") and the not suffering fools quote certainly illustrates
Gelman's point, but it also illustrates a more important concern: the
disconnect between the culture of the education reform movement and the
way it's perceived in most of the media.
(Though not directly relevant to the main point of this post, it is
worth noting that the implied example that follows the line about not
suffering fools is a description of Coleman rudely dismissing those who
disagree with his rather controversial belief that improvement in
writing skills acquired through composing essays doesn't transfer to
improvements in writing in a professional context.)
There are other powerful players (particularly when it comes to
funding), but when it comes to its intellectual framework, the education
reform movement is very much a product of the world of management
consultants with its reliance on Taylorism,
MBA thinking and CEO worship. This is never more true than with David
Coleman. Coleman is arguably the most powerful figure in American
education despite having no significant background in either teaching or
statistics. His only relevant experience is as a consultant for
McKinsey & Company.
Companies like McKinsey spend a great deal off their time trying to
convince C-level executive to gamble on trendy and expensive "business
solutions" that are usually unsupported by solid evidence and are often
the butt of running jokes in recent Dilbert cartoons. While it may be
going too far to call fools the target market of these pitches, they
certainly constitute an incredibly valuable segment.
Fools tend to be easily impressed by invocations of data (even in the
form of meaningless phrases like 'data-driven'), they are less likely to
ask hard questions (nothing takes the air out of a proposal faster than
having to explain the subtle difference between your current proposal
and the advice you gave SwissAir or AOL Time Warner),
and fools are always open to the idea of a simple solution to all their
problems which everyone else in the industry had somehow missed. Not
suffering fools gladly would have made for a very short career for
Coleman at McKinsey.
As you may have read over the weekend, Elon Musk found a company that agreed to take the social platform formerly known as Twitter off of his hands. Perhaps not coincidentally, the buyer happened to be another company controlled by Musk.
Elon Musk on Friday evening announced he has sold his social
media company, X, to xAI, his artificial intelligence company. xAI will
pay $45 billion for X, slightly more than Musk paid for it in 2022, but the new deal includes $12 billion of debt.
Musk wrote on his X account that the deal gives X a valuation of $33 billion.
“xAI and X’s futures are intertwined,” Musk said in a post on X.
“Today, we officially take the step to combine the data, models,
compute, distribution and talent. This combination will unlock immense
potential by blending xAI’s advanced AI capability and expertise with
X’s massive reach.”
Musk didn’t announce any immediate changes to X, although
xAI’s Grok chatbot is already integrated into the social media platform.
Musk said that the combined platform will “deliver smarter, more
meaningful experiences.” He said the value of the combined company was
$80 billion.
Musk has made a slew of changes to the platform once known as Twitter since he purchased it in 2022, prompting some major advertisers to flee. He laid off 80% of the company’s staff, upended the platform’s verification system and reinstated suspended accounts of White supremacists within months of the acquisition.
While X’s valuation is lower than what Musk paid for the social outlet, it’s still a reversal of fortunes
for the company. Investment firm Fidelity estimated in October that X
was worth nearly 80% less than when Musk bought it. By December, X had
recovered somewhat but was still worth only around 30% of what Musk
paid, according to Fidelity, whose Blue Chip fund holds a stake in X.
Since both of these are privately held businesses, the details are even murkier than usual, but Patrick Boyle does a good job of cutting to the chase.
While the news reports that Twitter is back above the $44 billion price that Elon Musk paid for it in 2022, many investors are highly skeptical about this valuation, as user numbers and advertising revenues have declined significantly since 2022. The transaction that values the business at $45 billion was X AI, another Elon Musk company, buying it. A person who saw the documents described the earnings number reported as being wildly adjusted to the FT. It's not obvious that an unrelated party would pay anything like that to buy the 12th most popular social network.
This transaction is similar to when Tesla bought SolarCity in 2016, where Musk folded a company that's been losing value into one that's been gaining value. He owned 54% of the AI company and used it to buy Twitter, in which he owned 80%.
The other investors in XAI shouldn't be too happy with this, as they owned a clean investment in an AI company that is now saddled with a social media app that has lost its relevance.
About that SolarCity deal, here's what we had to say back in 2021...
One of the essential texts for understanding how Musk became the world's richest man is this long-form expose
by Bethany McLean (best known for her reporting on Enron). We've talked
about this piece before, but it's worth revisiting given recent events.
Remember
Musk's fortune is almost entirely based on the sudden spike in Tesla's
stock price and his holdings in the company (though the bonus deal
didn't hurt). I'm not a finance guy, so I may be missing something, but
it appears that a big chunk of those holdings came from this deal (keep
in mind, Tesla was trading around $40 at the time of the merger. As I'm
writing this it's at $742).
Emphasis added.
SolarCity was founded by two of Musk’s cousins, Lyndon and Peter Rive, who grew up with him in South Africa. Musk, who put in $10 million,
was the largest shareholder and chairman of the board. The initial
idea, the Rives explained, was not to be a manufacturer but rather to
control the entire consumer experience of going solar, from sale to
installation, thereby driving down costs. For a time, SolarCity was a
hot stock, growing almost tenfold from its public offering in 2012 to
its peak in early 2014.
...
But the initial success of the
company’s stock masked some difficult realities. SolarCity’s business
model was to front the costs of installing solar panels and allow
homeowners to pay over time, which created a constant need for cash.
That required raising money from outside investors, often big banks, who
were then entitled to the first chunk of the payments homeowners
made—leaving SolarCity in a never-ending scramble to raise more debt. The real engineering that took place at SolarCity, in short, was financial, not environmental.
On
the consumer side, SolarCity was plagued by complaints about misleading
sales tactics and shoddy installations. As the problems mounted, some
workers began to feel manipulated by the company’s talk about being a
force for good in the world. “I turned a blind eye to a lot of the
silliness because of the idealism,” says one former senior employee. “I
don’t know when the Rubicon was crossed, but there were micro-crossings
every day.”
...
On October 28, 2016, just before
shareholders were set to vote on the acquisition of SolarCity, Musk
strode onto a platform erected on the set of Desperate Housewives at
Universal Studios’ back lot in Los Angeles. He talked about the
existential threat presented by global warming and the desperate need
for sustainable energy. Then he gestured to a group of houses that had
been set up around him. They might look normal, he said, but they
actually featured a revolutionary new product called the Solar
Roof—shingles that would last longer and cost less than a regular roof,
even before factoring in electricity. Tesla expected production to begin
the following summer.
The next month, shareholders approved
Tesla’s acquisition of SolarCity. “Vote tally shows ~85% of unaffiliated
shareholders in favor of the Tesla/SolarCity merger!” Musk tweeted. The
deal doubled Tesla’s debt load, but it was good for Musk, who converted his stake in SolarCity into more than $500 million in Tesla stock.
By preventing SolarCity from collapsing, he also shored up his most
valuable asset: investor faith in his own genius. If any piece of his
empire had faltered—if Musk were shown to be fallible rather than
superhuman—it would have cast doubt on the narrative that enables him to
raise cheap capital for his money-losing enterprises.
“Thanks for believing,” Musk tweeted to his shareholders.
That
October, as Musk was making his pitch about the Solar Roof, a former
Fortune 500 executive was watching it online at a friend’s barbecue. The
former executive, who had spent years researching solar technology,
understood what it took to make the Solar Roof work—and he was confident
that Musk hadn’t figured it out. “He spewed total BS,” says the
executive, who asked not to be identified. “I was flabbergasted. I was
convinced in the moment that the shingles were fake.”
Adopting
the Twitter handle @TeslaCharts, the executive began drawing on his
Ph.D. in science, and his background as a financial analyst, to share
infographics that detailed Musk’s overreach. His follower count
mushroomed, and he became a core member of a group of outspoken Tesla
critics who go by the Twitter hashtag #TSLAQ—Tesla’s stock symbol
followed by the Q that companies pick up when they are delisted due to
bankruptcy.
Many of them, in fact, were first drawn to Tesla by
SolarCity, with its pile of debt and mountain of losses. “If it weren’t
for SolarCity, #TSLAQ wouldn’t exist,” says @TeslaCharts. He points out
that Musk faced a catch-22 of sorts: If he hadn’t bailed out SolarCity,
his whole debt-laden empire might have cracked. Yet without the bailout,
Tesla would be far more healthy. “When the history of Tesla is
written,” he says, “the acquisition of SolarCity will be seen as the
moment where the narrative took a decisive turn.”
Others shared
@TeslaCharts’ suspicions about Solar Roof. Robinson, who covers
SolarCity for the Buffalo News, had flown to Los Angeles for Musk’s
presentation. Afterward, he asked an engineer for the company if the
tiles Musk had pointed to were real. “Oh no,” the engineer
replied. “These are dummies. We just popped them up here to show you.”
Robinson wasn’t outraged—it made sense that Musk would show a
prototype—but he took note of the contrast between the rhetoric and the
reality. “They made it sound like they had figured out how to get it to
work,” he says.
And Tesla continued to make it sound that
way. In early 2018, the company announced that production of the Solar
Roof had begun in Buffalo. That fall, Tesla told Bloomberg News it was
“gearing up for tremendous growth in 2019. We have a product, we have the customers, we are just ramping it up to a point where it is sustainable.”
But in its quarterly letter, a month earlier, Tesla had confessed that the product wasn’t actually ready yet.
“We continue to iterate,” the company wrote. In a legal filing, Tesla
acknowledged that the much-hyped technology it had acquired from Silevo
wasn’t all that it was cracked up to be. And last May, an investigation
by Reuters revealed that most of the solar cells being produced in
Buffalo were being sold overseas, not used in the Solar Roof, because
demand was so low.
Customers who tried to purchase a Solar Roof took to Twitter to share their horror stories: Kevin
Pereau, a California homeowner, said he paid a deposit of $2,000 to
have a Solar Roof installed more than two years ago—then never heard
from the company again. He got his money back only after he started tweeting at Musk every single day.
Musk,
meanwhile, is still making promises. Last March, he proclaimed that
2019 would be the “year of the Solar Roof.” In late July, he tweeted
that Tesla is “hoping” to turn out 1,000 Solar Roofs a week by the end
of the year. But even onetime believers have become doubters. The MIT
Technology Review, which included the Solar Roof in its list of 10
“breakthrough technologies” in 2016, now calls it a “flop.” In a recent
analyst note, JP Morgan warned that Solar Roof will be a “niche” product
at best. Musk has “sustained a kind of Kabuki theater in which the
Solar Roof ramp is always imminent, but never here,” wrote investor John
Engle, a #TSLAQ member.
Boyle also makes a rather profound point about not just this proposal but about our age of bad ideas.
In another example, the price of a “boutique hiking hotel room” was marked up to $1,866 per night, from $489 per night. I don’t know what a boutique hiking hotel room is either—but I’m guessing it doesn’t come with a parking space.
One way or another, these adjustments helped push the project IRR [internal rate of return -- MP] up to 9.3%, which is above MBS’s target of 9%.
That’s the great thing about spreadsheets: just like you can design any building you want in CGI, you can achieve any IRR you want in a spreadsheet.
There are some winners, however. Consulting giant McKinsey & Company is reportedly earning more than $130 million annually for its services, despite some controversy surround its role, given the firm’s involvement in both the planning and validation of some of the project’s financial projections, per the story. A McKinsey spokesman tells the WSJ the firm has “strict protocols to prevent conflicts of interest in our engagements.”
Before diving into Wall Street attitudes toward Tesla, we have to remind ourselves that there are at least three different measures of success for a car company: sales, profitability, and stock price. With respect to the first two, Tesla has been, at best, marginally successful, largely due to various government loans and subsidies. With respect to the third, however, it has been absolutely phenomenal. That is always at least part of the context for the buy recommendations. This is a stock that has defied gravity for so long, and has burned so many short sellers, that it seems foolhardy to point out the fact that it has never justified the price people were paying for it.
Of course, analysts can't just come out and admit that this is the rationale for their recommendations. They have to come up with reasons that can at least slip by investors who are pre-inclined to buy anyway.
At the moment, with things looking ever darker for the company, the bull case mainly comes down to this from Jim Cramer:
Cramer's case is characteristically incoherent— they paid the man for his expressive skills, not his analytic ones. For a clearer presentation of the same basic ideas, you'll need to turn to Cantor Fitzgerald:
Analysts at Cantor Fitzgerald led by Andres Sheppard upgraded the
stock to"Overweight" from "Neutral" in a note on Wednesday, arguing that
the recent share price decline represented an "attractive entry point"
for investors.
"We believe the recent selloff represents an
attractive entry point for investors with >12-month investment
horizon (and who are comfortable with volatility," Sheppard wrote.
He listed seven material catalysts that he sees boosting the stock in the long term. Those include:
"The introduction of Robotaxi segment (June 2025)."
"Rollout
of FSD in China (started in 1Q25)." FSD refers to Tesla's Full
Self-Driving software package, which costs $8,000 per vehicle.
"Rollout of FSD in Europe (we expect 1H25 pending regulatory approval."
"Introduction of lower-priced vehicle in 1H25 (we expect initial price of ~$30,000 inclusive of tax credit."
"High volume production of Optimus Bot (2026)."
"Initial deliveries of Optimus to customers (we expect 4Q26E/1H26)."
"Introduction
of Semi Truck." The firm said it expects the truck to start production
in the second half of this year or early 2026.
Sheppard wrote that his bullishness on Tesla was crystallized after he visited the company's Gigafactory and AI data centers in Austin, Texas.
...
"Waymo's vehicles have reported >25M cumulative autonomous miles
driven on public roadways as of 12/2024," the analyst wrote. "Tesla on
the other hand, has reported >3B cumulative autonomous miles driven
(on supervised Full Self Driving)."
Now this one we can have some fun with. Let's take them in order. As we go through these, remember that the company is priced so high that its profitability has to increase by something like an order of magnitude in the next 2 to 5 years to justify holding on to the stock, let alone buying more.
1. Despite wildly optimistic estimates, it is not at all clear how big the self-driving taxi market is going to be. What is clear is that Tesla is nowhere near being the leader in this field. Waymo, some Chinese competitors, and one or two other companies are well ahead. As for those supposed billions of miles of autonomous driving, this is another one of those cases where quality counts more than quantity. Waymo has far better data, including lidar. This means that the AI actually knows when that thing that looks like a white van in the fog is actually there.
2. FSD is similar to BYD's "God's Eye" with one important difference: BYD includes the system for free with all of its cars.
And while on the subject of Tesla's tech vs. BYD's... (From the LA Times Hiltzik)
Tesla’s reputation for cutting-edge technology is eroding; the company’s
largest Chinese rival, BYD, just announced a new charging technology it
says can add about 250 miles of range to an EV in five minutes — even
less than the time it takes to fill a conventional car’s gas tank to the
same level. Tesla says its top-of-the-line superchargers need 15 minutes to add 200 miles of charge.
3. A couple of points: First, any estimate based on pending regulatory approval in the next 3 months is by definition optimistic. Second, Tesla's and, more to the point, Elon Musk's reputation in Europe may present something of a problem here.
4. Putting aside the issue of a tax credit in the current environment, the low-priced Tesla has been a year away for more than a decade now. The company recently scrapped its long-promised low-cost Model 2. The plan now appears to be to launch a stripped-down Model Y, which, as former Tesla bull Fred Lambert points out, will probably mainly serve to cannibalize the already shrinking demand for existing Model 3/Y sales.
5. And 6. Where do we start? The general stupidity of humanoid bipedal designs for robots? The dubious market? Or the fact that the company is at least a decade behind its competitors in this field?
7. The prototype for the Tesla Semi was introduced in 2017, with production supposed to start 2 years later. The vehicle went years over schedule. The reviews from engineers and design experts were brutal. Its performance has been spotty, and at one point, it shut down I-80 for 16 hours after catching fire. During that time, it spewed out toxic smoke and took 50,000 gallons of water to extinguish.
These seven reasons appear to be repeated verbatim from Musk and other representatives of the company. Of course, credulously accepting the dubious claims of Elon is a long-standing tradition in the financial press; however, this particular case has an interesting backstory.
The judiciary is under attack; Fannie Mae just added a cybersecurity engineer at SpaceX and social media group X to its board of directors (though he left two days later); and Cantor Fitzgerald’s former chair and CEO Howard Lutnick has been pushing Elon Musk’s Starlink to federal officials.
...
Coincidentally, Cantor senior equity analyst Andres Sheppard on Wednesday upgraded Tesla to “overweight” from “neutral”, his change of view triggered, he says, by a trip to the car company’s Austin gigafactory and AI data centers earlier this week.
...
Lutnick divested his business interests in Cantor Fitzgerald upon becoming Trump’s secretary of commerce precisely to avoid any potential conflicts of interest. His sons Brandon and Kyle were promoted to chair and executive vice chair at the same time.
Lutnick didn’t disclose during that appearance that the investment
firm he headed before taking his government job, Cantor Fitzgerald, held
about 740,000 shares of Tesla as of Dec. 31, according to its latest government disclosure.
The
holdings were valued that day at $403.84 each, or about $299 million.
Their value has declined to about $174.8 million as of Thursday’s close.
I was sorting through my draft folder when I came across this post by Brian Klaas. I'm embarrassed that I didn't get around to posting this when I first saw it. It's a natural fit with our ongoing Ithuvania thread.
Fortunately, it's more relevant now than when it first came out.
But those who doubt The Secret Geniuses, or express skepticism about their methods or their madness, must simply not be smart enough to see the bigger picture. If you question the Secret Geniuses, then all you’re doing is exposing yourself as one of the stupid proles, someone unable or unwilling to Think Big.
If you can’t understand why it was secretly smart for Elon Musk to pick a fight with the advertisers who used to give Twitter billions of dollars of annual revenue, well then you’ll just have to live with the fact that you’re too conventional and too conformist. We pity you for not seeing the bigger picture, they say.
...
But there’s something else going with the Secret Geniuses. Venture capital is a world where the most effective way to get investors is to convince them you’re different—a one in a million visionary. This phenomenon is amplified because many investors are assuming that most of their bets will fail, but that every so often, one of their bets will produce a fat tail that leads to vast riches, as was the case with Facebook. When that happens, all the previous failures become meaningless, because the billions produced by the one success dwarfs the millions poured into the businesses that collapsed.
Everyone in venture capital is looking for their Secret Genius.
So, what’s the rational thing for an ambitious, money-obsessed narcissist with a start-up to do? Sell them one. Give them the myth they want to believe.
Elizabeth Holmes, I suspect, knew she wasn’t really a Secret Genius, and could admit to herself that what she was selling was fraudulent, a failed technology dressed up in technical language that would trick people into believing it was the real deal, with the help of her confident smoke and mirror show. Elon Musk, I suspect, is high on his own supply and takes it as granted that everyone else (and especially his critics) is much stupider than he is.
But whether the Secret Geniuses believe they are geniuses or not doesn’t really matter. What matters is what their investors think.
That dynamic creates strong incentives for already eccentric narcissists to indulge their worst impulses. Set yourself apart from the crowd in ways that dazzle people and you can create a self-fulfilling prophecy with other people’s money. Using signalling theory, the Secret Geniuses develop ways to stand out, hoping it will convince doubters that they just don’t understand the genius (this is likely why Mark Zuckerberg has a terrible haircut mimicking Julius Caesar and always wears the same shirt).
...
Power, like wealth, is a magnet that attracts dangerous hucksters, and then rewards them. As I’ve written in my latest book, Corruptible,
three traits known as the Dark Triad tend to, unfortunately, produce
success. The three traits (Machiavellianism, narcissism, and being a
psychopath) are disproportionately correlated with obtaining power, and
by extension, wealth. I’ll leave it to your judgment to determine how
many of the three apply to, say, Elon Musk.
Then, there’s overconfidence and over-promising. For whatever reason, we almost never punish rich people who over-promise and under-deliver.
...
The Gates Foundation, which rewards grant money to applicants,
subjected its awards to scrutiny and found something fascinating. The
grant applications that promised the moon were more likely to get funding
than those that promised more modest, realistic results. But when the
proposals actually got funded, those that over-promised frequently
delivered similar results to those who accurately depicted their
research.
The language used mattered a lot. If someone
referred to their research as “innovative,” or “game-changing,” for
example, they would be more likely to get funding than if someone
accurately depicted it as an important, but incremental step toward
better knowledge. And guess who tended to use over-confident language
that promised the moon?
Men.
The study
therefore showed that one reason for gender bias in grantmaking isn’t
due exclusively to sexism, but also to the fact that men were more
willing to sell a big idea with more expansive, over-confident promises.
Now,
imagine that instead of the more sterile world of Gates Foundation
grant applications, you’re sitting around a table in Silicon Valley with
a bunch of super-rich tech bro investors who are looking for their
Secret Genius. Who do you think gets the most money?
When stock markets closed on January 19, 2021, Netflix posted a press release with its end-of-year financial results. Business is booming, the message went. About a year into the coronavirus pandemic, the company had provided “escape, connection, and joy” to more than two hundred million subscribers. A New York Times journalist had an hour to review Netflix’s earnings report: eleven pages, half corporate-speak, half dense tables filled with accounting metrics—some of them standard, some invented. During after-hours trading, Netflix stock began to rise.
The pressure was on to explain the numbers while standing firm against salesmanship. In its release, Netflix had highlighted operating income. That excluded hefty interest on its debt (the company had borrowed sixteen billion dollars to fund a spree of shows) and the expense of taxes (a year before, Netflix had quadrupled its profit by emptying a tax reserve that it had only recently stuffed). But Netflix’s finance whizzes had turned straw into gold. The Times story duly noted the company’s rising operating income, not the fact that profit was down 8 percent for the quarter—and the drop looked even steeper when compared with the burgeoning sales. (Netflix declined to comment for this piece.) Profit wasn’t discussed in the release; the number appeared as the bottom line of a required financial statement.
But in Silicon Valley, where Netflix is based, growth is king. The pandemic had delivered a boost to subscriptions and paused new productions; without crews to pay, Netflix had piled up extra cash. The company announced, in bold type, “We believe we no longer have a need to raise external financing for our day-to-day operations.” The Times noted that Netflix would still have ten billion to fifteen billion dollars in debt, but said that the company “made enough revenue to pay back those loans while maintaining its immense content budget.” Netflix now makes enough to repay its debt, the story went; “the gambit seems to have worked.”
The article was written, edited, and posted in seventy-eight minutes. Alas, it was wrong. Netflix, in fact, had said that it would pay off only the part of its debt coming due—a billion dollars—and “explore” using the rest of its cash to buy back its stock. (A Times spokesperson said that the paper stands behind its reporting.)
Netflix has been misrepresenting its performance and business model for about as long as it's been in the streaming business.
The two great traditions of creative accounting are found in Hollywood and Silicon Valley, so it is hardly surprising that the company that occupies the intersection in the Venn diagram has done some particularly interesting work. You can find plenty of stories about questionable reporting and dubious viewership metrics. There is, however, curiously little attention paid to the big lie that started it all.
The original Netflix narrative, the story that drove the stock to such spectacular heights and won over virtually all business and entertainment journalists covering the story (at least on the East Coast), was that of a tech visionary disrupting yet another industry and making the studios obsolete.
In defense of Netflix, the current system, where a handful of companies have a stranglehold on the industry, is desperately in need of some disruption. To the extent that this was a conflict between Netflix and Disney, Warner, et al., there's really not a side to root for. It's more of a Godzilla-versus-Rodan situation. All you can do is sit back and enjoy the destruction.
The citizens of Tokyo, in this analogy, might be the investors who bought the stock based on the claim that Netflix was about to produce so much high-quality programming that they would be completely self-sufficient in a few years. The company would have so much great stuff that they could drop everyone else's movies and shows and their subscribers wouldn't mind.
The idea that Netflix was building a content library this massive was always absurd. The current IP landscape is a distillation of almost 100 years of shows, movies, characters, and franchises produced by an international industry. The best of these properties have held or even increased their value decade after decade. Furthermore, the secret to creating new valuable properties was—and is—essentially a black box. No one knows how to create the next Batman, James Bond, or Friends.
It was silly of these journalists to believe that Netflix could do this. It was stupid and negligent of them to believe that Netflix was actually trying.
Here was the dirty little secret of the first few years of Netflix's original programming: while convincing gullible souls at places like The New York Times that they were building this massive content library, they were, in fact, buying nothing. They didn't own House of Cards. They didn't own Orange Is the New Black. They didn't own Unbreakable Kimmy Schmidt. Other than the name "Netflix," they owned virtually nothing. It was true that they were spending billions of dollars producing new programming, but all they were getting for that money was the right to exclusively air those shows for a few years. If Netflix wanted to continue streaming these shows after the license agreement ran out, they would have to either pony up whatever the owners demanded or watch these shows move to other venues. Case in point: Daredevil and the rest of The Defenders are now available on Disney+.
This is a variation of one of the oldest scams in the book: passing off leases as ownership. A business projects an air of success and affluence by giving a false impression of sizable assets. After one of these operations collapses, it is commonly—and in this case, somewhat ironically—known as a house of cards.
Netflix showed no interest in actually acquiring IP until some West Coast journalists and a few obscure bloggers made this enough of a story for investors to start getting concerned. At that point, the company began to make a great show of buying programs outright, though even then the new policy had far more exceptions than Netflix would have people believe. To this day, subscribers spend most of their viewing hours on the service watching pre-existing content like NCIS, Suits, or Gilmore Girls. But even among original programming, many—if not most—of their biggest hits, such as Lucifer and She-Ra, are still owned by other companies.
Perhaps we can't blame Netflix too much for this and other distortions and misrepresentations. They were, after all, just following the age-old mantra of Silicon Valley: "Fake it till you make it." We can and should, however, blame respected and supposedly responsible journalists who continue to let themselves be suckered by the faking time and time again.
[A quick side note. Bob Chipman, a film critic and pop culture historian whose work I enjoy and which I cited recently is no longer with the Escapist. If you want to keep up with his work, you can check out his blog here.]
The following is a nice example of putting popular culture in a business
context. It also relates to an ongoing discussion I've been having with
Joseph.
Joseph and I were discussing this very point about collectibles a few
weeks ago as part of a larger conversation about investments and
compensation, specifically cases where people made decisions in the hope
of events repeating despite the fact that they were almost certainly a
one time payoffs.
Growing up in Arkansas my go-to example is the Walmart millionaire box
boy. Years before the stock took off, Sam Walton's wife convinced him to
start a program that rewarded employees with either stock or stock
options. When the boom came, a number of long-term employees found
themselves very well compensated. As a result, virtually everyone in the
area either knew someone or knew someone who knew someone who had
become a millionaire from working a fairly low-wage job at Walmart.
These stories floated around for decades. They helped enourmously with
morale and recruitment. People will tolerate a great deal for the
possibility of a multimillion dollar payday down the road, but of course
the boom was a one time event. By the time that people heard about the
multimillionaire box boys, the last one of these had already been
minted.
Joseph and I both saw a similar phenomenon working for you high-growth
company in the early part of the millennium. The corporate folklore was
filled with examples of people who had either gotten tremendous payouts
from stock options or who had gone from the bottom to the top ranks of
the company with shocking speed . Interns and secretaries who had become
millionaires and vice presidents in the space of a few years.
For the most part, these anecdotes were true but that was largely beside
the point. A few years earlier the company had been a start up now it
was a major corporation. The career path and compensation associated
with that particular transition were huge but there was no way they
could be replicated once the company had arrived.
Of course, these stories didn't just spread by themselves. The companies
in question did their best to make sure their employees knew that in
the past there have been big pay offs . The result was a kind of false
compensation. "We are not saying that your menial job here will lead to
great wealth and position, but it has happened before." It is probably
not a coincidence that Walmart's increasing labor problems seem to have
picked up steam as the legends of millionaire cashiers faded.
We could go back and forth about how much this is a joke or how much self-awareness it shows, but the main thing you should take away from this is that, as previously mentioned, Elon Musk and most of the other heralded Tech Messiahs got the vast majority of their ideas from postwar science fiction magazines, movies and TV shows.