In this issue:
Why Did One Internet Subculture Spot Covid-19 So Early?
Programming note: The Diff is written from Austin, TX, which is currently experiencing some very extreme weather (see below). Access to electricity and Internet will be intermittent for a few days, so the newsletter will be shorter and on a less consistent schedule. Apologies for the inconvenience. Everything should be resolved within the week.
Why Did One Internet Subculture Spot Covid-19 So Early?
One of the consolations of living through interesting times is that you learn who the good pundits are. As Paul Graham once pointed out, usually there's a long gap between when someone makes a prediction and when it's borne out. In fact, one extension of this observation is that pundits are most likely to make predictions when discussion peaks, but discussions peak at a moment of maximum uncertainty, not maximum importance. A pundit always gets a higher reputational weight on their prediction than on the outcome; more people cared about Iraq in 2013 than do today.
Covid-19 is less salient today than it was in March of 2020, for the very simple reason that as of March of 2020 it was the most significant news item in human history. But now that we know that it happened, and that it was a big deal, but that it's increasingly under control, an important question is: who figured this out early, and what can we learn from them?
There were a few individuals and institutions that stand out for talking about Covid very early on, without having firsthand experience: hedge funds like Elliott Associates, venture capital funds like A16Z, various tech companies, Costco shoppers (who faced a lower marginal cost from getting paranoid fast). But one cluster of people who were pretty uniformly early to sound the alarm were the self-styled "rationalists," an Internet subculture devoted to identifying and overcoming cognitive biases.
Rationalism is a complex subculture that is hard to summarize in a few paragraphs. In one sense it's just a collection of sites that link to one another frequently, but in another sense it's a group of people who have to repeatedly insist that they're not a religion or cult despite having sacred texts, myths, unusual diets, distinctive family arrangements, and marriage rituals.1
One thing rationalists explicitly prize is making quantifiable estimates of low probabilities. In fact, one important branch of their community, Effective Altruism is devoted to making charitable donations from a utilitarian perspective. These decisions are highly sensitive to their underlying assumptions; if you change the moral weight ascribed to chicken suffering, you get a very different answer. In philosophical terms, it's an admirable effort to make first principles explicit, but in practical terms it doesn't get rid of the need to have those principles in the first place.
One thing rationalists implicitly prize is rigorous, quantifiable arguments that lead to very counterintuitive beliefs, such as: we probably live in a computer simulation, it would be a good idea to freeze your body or brain when you die, reducing the risk that a poorly-specified artificial intelligence destroys humanity is the single most important problem anyone could work on, or, in early 2020, that the respiratory disease outbreak in Wuhan was a big deal that would kill vast numbers of people if it wasn't stopped, perhaps by disregarding the expert consensus on masks.
Predicting Covid played almost perfectly into the rationalists' strengths: a utilitarian calculus would say that low-probability, high-impact events are very important: if the death toll has a 99% chance of being in the thousands and a 1% chance of being in the tens of millions, it's the mean death toll that matters, and that mean death toll justifies aggressive action even though the most common outcome is that it's an overreaction. This prediction was not just a case where rationalists had an absolute advantage, but one where they had a relative advantage, too: many other predictors are judged based on how bad things turned out to be, not how bad they could have been, and thus have a bias towards looking at the modal outcome rather than the extreme ones.
It's this attachment to the factual consequences of predictions, and detachment from their social consequences, that makes rationalists relatively good at predicting the future but comparatively worse at influencing it. They can spend political capital in cost-effective ways, but earning it often requires perversely counter-rational decisions.
This puts the rationalists in a uniquely prosocial position. They're a sort of distributed, mostly open-source monastic order, spending a lot of time contemplating the world and passing down important observations, but less time directly interacting with it. The influence of people who read rationalist blogs, but don't self-identify as rationalists, is quite wide—the blogs are very widely followed in technology circles, and anecdotally have a large audience in the more quantitative branches of finance. Identifying as a rationalist is a losing move, because non-rationalists will think it's weird (objectively true!) and rationalists will be relatively indifferent to a personal label
The southern US, especially Texas, is currently experiencing some severe weather, leading to record power consumption, followed by blackouts. It's a timely reminder that short squeezes are a common financial phenomenon, and what sets equity markets apart is the absence of naked shorting, not its presence. A regulated electrical utility is implicitly short in the wholesale market; if it's going to provide the level of service it's promised, it will pay the going rate to get the raw materials it needs. Normally, this short position is covered in a simple, straightforward, and profitable way, but at times, high demand from price-insulated consumers can cause extreme price fluctuations.
As long as grids are able to handle peak loads, it's easier to have utilities bear the immediate cost. But cases like this one make floating prices for consumers more sensible. When power is temporarily restored, there are two possible consumer behaviors:
Ration it carefully, so no one loses power later, or
Take advantage while you can.
At the consumer level, any activity that requires electricity as an input functions as a battery when power access is intermittent. Brewing a pot of coffee or running a load of laundry is a way to store up electricity when it's available, and then use it when it's not.
Like many short squeezes, it's related to a confluence of events—in this case, a storm that simultaneously increased power demand (as more people turned up the heat) and decreased supply (by freezing wind turbines and causing delays at coal and gas plants). And, like other short squeezes, the net result will probably be a slightly over-capitalized supply system that can survive more extreme swings in demand.
In the interest of full disclosure, I know Will and Divia, and I know this speech was at least somewhat tongue-in-cheek.