A Podcast & Some Quick Thoughts on Value Capture

a rare non-essay update for Summer 2024!

It’s been 2 years since my last podcast appearance and I was overdue! After my recent essay on the causes of societal violence, Escalation Theory, I was invited onto Dain Fitzgerald’s podcast. We had a few audio issues and the podcast is in 2 parts, each 30 minutes long, linked below.

While the first section involves a discussion of my essay and what motivated it, the latter parts delve into some topics I’ve yet to write about and I thought it fitting to include a few transcribed highlights below in order to improve later searchability…and perhaps also to encourage a few of you to give it a listen!

Find Part I here, starting 1m11s in:

Find Part 2 here, starting 1m03s in:

Part I

Podcast Start & Intros — 1m11s

Discussing Escalation Theory: Compliance, Violence, and Overachievement in Society

Link: 3m33s

Most of the focus on what drives crime is on the psychology of the Criminal themselves. Even though there's a lot of disagreement at the surface level I think there's actually tremendous agreement on the meta-level lens to bring to bear on the subject. And, you know, I think most of that stuff's probably fair. I'm sure you could run some nice meta studies and get some results to that effect. There's probably reasonable elements to all of it.

But.

I think the part that's radically underexplored is to turn the lens not on the people who do the crime, but on the people who —  for better or worse — comprise the elite of any given society and therefore set the tone for a lot of what happens, they set the incentive structure, they set the culture, they have outsize influence on the media. Essentially your regional culture is heavily dictated by their preferences.

On the unpleasant reality of the Aristocracy’s Meritocratic origin

Link: 12m18s

One of the most depressing realizations that I had was writing this long essay called The Full Stack of Society five, six years ago now when I was trying to figure out for myself, okay, I don't really agree with the big picture narratives that most people have around how Wealth is created at a macro level —  I just think that it’s so, so simplistic and those narratives don't back-test very well on history —  but I didn't understand what was going on. So I wrote this long Magnum Opus piece on the different ways that successful societies have built wealth. 

And the thing that I came to is the first layer — I call it Feudal layer, call it whatever you want, but really it's a guy with a sword, picking up that sword and saying: “all right this is my area. I'm going to [----], this is my place, and you guys are going to work the fields.”

I read this tweet two weeks ago from someone that was like: “History was not a meritocracy. Then, circa the modern era, it became a meritocracy.” 

And it's always funny to me how the instinctive aversion that we all have as modern people to the idea of a hereditary aristocracy — or even just aristocracy meaning rule of the best — which is a totally legitimate aversion that we have as mostly liberal, mostly republican-slash-democracy liking people.

But if you roll the clock back 2,000 years and you just lived in the jungle, what was the measure by which somebody became a Lord and somebody didn't? Yeah, you can imagine it: the merit of violence. It's like the base, sort of awful, pre-enlightenment, pre-civilization level of society. 

It’s horrific and you can even sort of see this thing in the tiniest microcosm on the playground or in any scenario. If somebody asserts dominance and you like that person and you think they're reasonable and they're not going to be a total jackass about it, a lot of people will be like: “all right, cool, let's just go along with the flow and get with the program, and then we don't have to have any fighting.”

I just kind of had this realization that in a true Jungle of society, pre-modernity, the guy with the Lord title actually kind of earned it in a very unpleasant way. But he did earn it. And there's a lot of repercussions to that realization. One of them being: the Venetian Nobles earn their elite status in a very different way from modern San Francisco elites.

The unbreakable rule about when violence is acceptable in elite spaces

Link: 16m47s

If you ask people to explain when violence is acceptable in a way that will never get you condemned or put you at risk of cancellation in an elite circle, the answer is very simple. “Never.” Violence is never acceptable.

Which is, conveniently, the same answer that gets you through all the marshmallow tests from age 5 through to 25.

On Code Switching in the school playground & the consequences thereof

Link: 26m35s

I talked about Code Switching in a section I cut from the essay & later repasted into a comment reply. What ends up being most heavily condemned is not somebody who might be inherently predisposed towards violence and signals that proactively. No matter how successful you’ve been at passing marshmallow tests, you’ve been exposed to someone like that before. You’ll have been exposed to violence or the threat of it.

You’ll know what I’m talking about when I say: some kids were just quicker to hit you. Or to hit others.

And you all learned hacks for how to navigate your life around those kids. Because they tended not to be very hard to model mentally and tended to be pretty predictable. You could do certain things that would minimize the chance you provoked them.

I’m describing simultaneously the experience I had as a child in middle school…and also walking around San Francisco. These are the same set of behaviors that you learned: downcast eyes, avoiding confrontation, being silent, trying to be with other 3-4 people. These are basic human behaviors and they help make life more predictable when you’re around someone who might be more likely to hit you.

And in predicting that psyche or behavior, it becomes understandable, and in understanding it, it tends to be less condemned.

The thing that actually gets you kicked out of the system is to be one of those kids: one of the gaggle of 3 or 4, one who averts your eyes, one who doesn’t hit anyone. You don’t engage in the boisterous confrontation that many younger boys use to figure out social status. Until one day you do.

And that boy — the one who does it one day, seemingly at random, and violates everyone’s social expectations — gets condemned much more readily by the system than if he’d never done it, yes, but also than if he’d been displaying violence the entire time!

He reveals himself in that moment to have been wearing a mask and to be able to Code Switch between the mask and not, somehow, and to have previously been able to pass marshmallow tests, and then to decide, consciously, not to.

Those are the people I find tend to get condemned most harshly by our culture today.

Editor’s note: I was talking live and forgot by the end, but initially intended to juxtapose this modern culture with C.S. Lewis’ famous description of the idealized nature and Necessity of Chivalry.

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Part II

The tragic tradeoff of State violence vs. Criminal violence

Link: 1m03s

The conceit on one side is that using State violence to minimize citizen violence doesn’t work. You can’t do it. That’s the make believe idea that would be so wonderful if it were true. Because it would mean that it wouldn’t even be practically good to use the state capacity for violence. It could achieve nothing.

That would be wonderful.

It just so happens that it’s mostly not true, although there’s obviously nuance there. But if you go from what San Francisco was doing before Newsom’s crackdown to importing 500 armed police and, well. It was crazy what he did in 2 weeks.

And if you do that, it turns out to have a significant effect on the direct kinds of crime you were targeting, and then all these other indirect kinds that you weren’t explicitly targeting.

And this is an interesting tension because I don’t want to be subject to State violence! I don’t want to live in a society that has to do that. And I know not everyone feels that way, but it’s not particularly psychologically pleasant to be shouted at by armed police who could end many parts of my career or life if they were having a bad day. And I’m sure none of them would! But what recourse would I have?

It doesn’t feel great. And so you have this very tragic tradeoff that was made real to me. You can in fact run Singapore. Use state violence to reduce crime. 

But there’s a cost to it! Do you want to live in that society forever? Most people in the elite professional class will say: “No! I don’t want to put up with that forever!” But then you’ve got the tradeoff. It’s apparent.

You want to not live in a police state. You want to not have every possession you own robbed.

In defense of American liberalism and the inability of revolutions to succeed in America

Link: 4m04

Dain: “There’s a saying or a thought — if liberals don’t do something about crime, fascists will. So you want to make sure things don’t get so bad that people ARE willing to tolerate armed guards everywhere.”

Maybe I’ll alienate some people who follow me, but I feel like that sort of stuff is like a bit of edgy cope. There’s a flipside of it, which is the liberal position around wealth distribution and communists — “if you don’t pay your fair share of taxes, communists will make you!”

And I think mostly in America it’s not actually true.

We can in fact run milquetoast versions of whatever you want, forever, even down until things degrade. If you’re on the left, we could run full Corporatism in this country forever with limited redistribution and no amount of that will get the revolution that you want. I’m sorry, it’s not coming.

And if you’re on the right, you can live in San Francisco, you can see the scenario. There’ll be people who lobby for policies that get called ‘right-wing’ but mostly look like building housing and being a bit tougher on crime. And it will sort of work itself out in a nuanced, democratic, iterative electoral process.

And it’ll all be downstream of whatever the median voter, weight-adjusted for the wealth-generating effects that I describe in my essay, happen to believe. So the Google employees get overrepresented simply due to the nature of the wealth-effect.

Which is to say there’s no universe where I think you get your glorious revolution or your fascist police state in America.

Materialist approaches to understanding the world without getting stuck in spreadsheets

Link: 10m38s

Yes! I’m basically saying all of the non-materialist stuff is incredibly important and super relevant.

And then all of that is downstream of materialist factors!

On the unpalatable idea that nobody is truly incapable of self-restraint

Link: 11m50s

The Last Psychiatrist was talking about this same thing. He puts it very bluntly. Hopefully I can read the quote aloud without myself seeming awful. Here’s his quote:

“The sad logical retort to this comes from a place of compassion, though when I write this out explicitly it just sounds like classism: ‘it’s best just to back down from them because that’s the way thems are.’”

And that kind of is the psyche you encounter. And it’s the mode that you adopt when you’re in a system where, if you don’t get involved poorly, you will print generational wealth for yourself and your family. 

I don’t mean to defend the quote. It is classist and whatever. But when you talk about crackdowns…it comes from a place of compassion, yes, but it also does not view the criminal as, well, as you said: “for somebody who was capable of restraint.” Implicit in that is that the other person is not capable of restraint. And therefore, what?  That they are somehow different, right?

And it’s interesting because I’d be happy to argue against the classism of that view at length! I was listening to this rap song that came out recently and the first line of it is:

People always pick and choose

Depending on 

Whether or not they think you’re willing to

And I actually think part of what I was trying to get at in my Escalation Theory essay was a repudiation of the view that ‘those people aren’t capable of restraint’, and to try and shine some light, perhaps, on a very different way of looking at the world. One where these people are always running a calculation in their head: “is this person who I’m seeing across the street or the playground from me willing to escalate conflict if I get involved with them?”

On Remote Work undoing regionalism and the importance of San Francisco

Link: 16m23s

On the remote work and virtualization stuff I'm probably less bullish than I would have been a few years ago I think. There are just so many factors at play that regionalize and centralize some of the flows of capital, especially in technology.

The case for San Francisco to become a true Rust Belt would not be virtual work to me — it would be the decline of the internet and Tech sector entirely in the same way that the cotton mill sector no longer exists. Or that the US car industry as a share of global productivity is a shell of itself.

Just because I think of all the factors at play, net net most of them are on the side of centralizing the tools for productivity. As in — even if you virtualize the whole thing…it won’t actually rust belt itself.

The metric for that would be: the startup ecosystem dies, Big Tech ossifies 30 years from now into a handful of companies, they lay off most of their workforce or at least stop growing, which is usually how it works. Something like that. It would all be very horrible.

But believing in that worldview is such a pessimistic framing for what the Tech sector is…I wouldn’t write any checks on it. The Tech sector is one of the few sectors in this country’s that’s grown post Great Recession. And I expect that to continue.

And if it is going to continue, then the gains from centralizing labor and capital are very high. Which is not to say that you can’t be incredibly productive and generate wealth from elsewhere. But. Things will tend to centralize.

On the likely endurance of the Bay Area’s Tech Scene even in the face of deterioration

Link: 20m45s

Not to use a cheesy military metaphor but there is so much friction to the process of building something valuable in this in this country, where friction is some of the lowest in the world!

There is just so much organizational and institutional friction to doing things, and I think it's very hard for people who aren't involved in the process of building companies and growing them to fully understand how just spiritually and philosophically and empirically crushing it can be to truly try and build something that's growing and that's able to grow.

I mean there's a reason everyone gets gray hair from doing the process. It is incredible. There's so much friction and anything you do that can increase that friction…it’s like 5x’ing is the chance of your organization dying or being co-opted and skin suited.

If the value of collocating or centralizing — I like the word centralizing a lot — capital and labor is…even if it's less than it was 10 years ago, it still reduces friction.

It looks easy from the outside but building companies is not smooth, even when it goes quickly. Everything breaks and everyone breaks. And there's just friction. And I think as long as you believe in technology, then you should believe in San Francisco and the Bay Area even if it happens to look like it's falling apart.

 I'm very cynical, but at my heart I'm an optimist, you know? It's the duality of man.

Editor’s note: cheesy military metaphor or no, Boyd on Clausewitz et. al. is highly recommended reading for understanding startups, in my experience.

Particularly ones in the modern era, by which I mean startups with multiple highly capitalized, technically proficient competitors.

Clausewitz, coined the term: "Friction," he wrote, is "the concept that differentiates actual war from war on paper," those surprising things that happen during wartime that make “even the simplest thing difficult."

In Defense of Rent Extraction, Tech companies, and the union of Value Creation and Value Capture

Link: 26m02s

A good friend was condemning another industry for being rent extractors and I put to them that when we make profits and we make margin in Tech what's the difference, from an economic standpoint, between those profits that your company makes and the profits that someone else's makes that you think of as rent?

Most of what passes for Value Creation is also tied up with Value Capture — and that's this Thielian Insight that’s contrary to the spirit that you learn from Adam Smith in Microeconomics 101.

Dain: “A great point. I think that's part of why we've seen the demise of the term ‘Crony Capitalism’, because there's sort of this new realism about capitalism just frankly being crony, if you will, but that's just how you become a success. You want to become a monopoly and so forth.

Yeah I mean whether or not you have cronies is a thing that should probably be looked into and, you know, I'm all about cracking down on the cronies! But the heart of capitalism is value capture! This is the Thiel point. 

Adam Smith is a wonderful academic and I love all of his ideas. But I'm here to make a surplus, actually, that is actually the goal. That is the point of business.

The whole point is to build value and capture value, and to do it in ways that are fair. I think Tech is so wonderful because if you're in the right kind of tech, doing the right kind of industry, in the right kind of value-add way, you can capture some portion of the value you create without your customers going: “hang on a minute, are you screwing me over?!” — because you just Capture less than you Create!

In a lot of other Industries there’s not enough margin involved in the process to…well. It’s like there's only one slice of pie left, and either we get it or they get it.

Whereas in Tech, you're able create a big enough slice of pie and then you can split it with your customer. And I think that's wonderful because it means we get some Surplus too. And the way you figure out who gets what portion — that's all leverage. It's truly why the thing was called political economy. It's just deciding where the slice goes. And there are a lot of economics and business reasons to decide it one way or another, you know? I think it's a fun game.

Contra the Nudge Theory of Economics & Contra the inherent Sin of Mercantile Enterprise

Link: 30m05s

Nudge Theory is this idea that you just give a lot of small nudges to the populace at large with messaging to try and get them to take the right course of action, instead of making the facts very transparent and clear and interpretable by a rational mind. You just kind of nudge people a lot.

It's become popular in the last decade or two.

Anyway, I mention it because obviously it's interesting on its own merit, but I think it relates to how a huge portion of how certain kinds of people engage with economics — especially societal economics, and not the economics of their own business — but more like: what is the right thing we should do for the nation?

It’s this sort of Nudge Theory framework of Economics. And I think it's interesting. There is some outcome that people want, that they don't believe is necessarily inherently produced by capitalism.

And when I say people here I'm referring to a broad union between everyone from Neoliberals to Libertarians to Neocons. Basically, no matter what side of you're on, as long as you went through Microeconomics One and Macroeconomics One at the college level and agreed with it. As long as you were like, “yes, economics is legit and making things is good.”

If you went through that process and then you went off into the world and developed your own takes and perspectives and got your experience, you come back to a lot things and intuitively ask: “How can we nudge society's businesses into doing what we want?!”

This is the natural thought pattern of anyone who’s properly learned the lessons of those classes.

And to the extent that Nudge Theory has taken some beatings in the Public Communications Department, I feel like it has not taken enough in the Economics Department.

The core conceit of it all is that the people who are doing the nudging are more capable than the people doing the building.

And I find that rarely to be the case.