Longreads + Open Thread

Coinbase, Big Short, Amazon, Canva, Influencers, Emerging Markets, The Valley, Growth

Longreads

  • Tyler Cowen interviews Coinbase CEO Brian Armstrong. Early in the essay, Armstrong says that an important priority for Coinbase is to make sure its engineers outnumber its lawyers (Edit: I had this reversed earlier, apologies!). And later: "I actually feel like half of the innovation we do is on technology and the other half we do is on regulatory compliance and policy and things like that..." This is an interesting parallel to how economies slow as they grow: a shift from manufacturing to services reduces productivity growth, but usually coincides with higher overall wealth. In Coinbase's case, that shift is mediated by the fact that it's a business positioned between a purely technological artifact (the Bitcoin source code) and a highly regulated business (banking).

  • Aaron Brown and Richard Dewey on shorting bubbles, and on why people who knew subprime was overpriced in 2005, and knew about using CDS to express the trade, still thought the risk/reward was poor. They also discuss a trade with a better risk/reward, which I've calledThe Big Pair Trade.

  • Eugene Wei on why Amazon didn't report high profits. This was written in 2013, and it's interesting to view their more recent performance as an indication that the company's current level of ambition has finally been outstripped by the natural profitability of its older lines of business. (Disclosure: I own shares of AMZN.)

  • Kevin Kwok on Canva, but really on how to analyze products from an atomic concepts framework. Important quote: "One exercise I’ve often found useful for CEOs to do with their co-founders and team is to ask an important question about the company—and see how much everyone’s answers differ. People are always shocked at how much they differ from even their co-founder."

  • Influencers may matter less than you'd think in a world where ads work even slightly well. This is a model that naturally simplifies the way the world works, but it's a useful way to break things down. If all knowledge is peer-to-peer, highly-central nodes matter a lot, but their importance diminishes rapidly when there are other kinds of media. One way to look at this is that on a per-product basis, there's some variance in how much individual endorsement matters relative to advertising, so there's always an efficient frontier between paying someone on Instagram to tout something versus running ads on TV.

  • Verdad has a great report on crisis investing in emerging markets. In theory, investing in emerging markets should be a high-risk/high-reward proposition, but over the last three decades it's been a high-risk/low-reward one, in part because the drawdowns are so brutal. But Verdad has found a set of circumstances where investors' odds are pretty good.

Books

  • The Code is a history of Silicon Valley with a focus on how government policy encouraged the tech industry. This is not just an argument that defense spending made the initial network of companies crystalize when and where they did (though that is, of course, true); a significant factor in the Valley's 70s and 80s resurgence was a combination of deregulation and tax cuts that made VC a more attractive business.

  • Fully Grown is a book well-summarized by its subtitle: "Why a Stagnant Economy Is a Sign of Success." The book takes the Great Stagnation argument and tries to break it down into its major components, which is a useful exercise. But it does make some assumptions about the relative importance of a high standard of living relative to kids—assumptions that can be debated, sure, but not ones that should be treated as a given. And the "Fully" part is still mediated by technology; the economy grew faster when we were deploying cars, electricity, indoor plumbing, and other nice things to every household—so it would be growing faster if there were other widely-adoptable technologies that were still in the deployment phase.

Open Thread

  • One of the best Onion articles was this piece from their notorious post-9/11 issue: a crisis does, indeed, change the subject. What are some topics that were salient in 2019, were set aside in 2020, but will be important again this year?

  • What are the non-obvious benefits of a radical drop in the cost of getting things into orbit? Are there any businesses that are viable now, but haven't been implemented just yet?

  • As always, feel free to drop in links and open questions of your own that would be of interest to Diff readers.