Optimism about the margin is sometimes pessimism about the infra-margin

Let’s say you believe that a flood of forthcoming warrior-entrepreneurs will create exciting new products and earn high rates of return on their capital; associated venture capitalists will benefit too.

That might sound quite optimistic, and in one regard it is.  But the high returns also indicate that the status quo ex ante is in some way deficient.  Had the earlier entrepreneurs done better, the opportunities for these new creators might have been less.  In a sense, the prediction is also an (implied) pessimistic take on the current world as it stands.  The overall state of affairs may be less positive than many others believe.

The mood states of “optimism” and “pessimism” are often misleading ways of classifying or thinking about people’s views on the economy, or indeed about other matters too.  Those descriptors do not distinguish between attitudes toward likely final outcomes, as opposed to attitudes about benchmarks and constraints.


But the high returns also indicate that the status quo ex ante is in some way deficient.

Hmmm, I think that's less true than you're arguing, as it verges on the zero-sum fallacy. More often one advance creates the conditions necessary for the next, e.g. social media was partly a product of advances in telecommunications that caused cost per bit per mile to crater and numerous advances in EE, fracking became viable due a number of technical advances in sounding and injection, your local store became viable because of your housing development. Today's opportunities are usually more the fruit of successful past investments than of their lack.

OTOH constraints probably are a dominant factor outside the OECD -- e.g. Maoism was pretty clearly a disaster, and the constraints in China changed quite a bit to allow some of those enormous value-creation opportunities to be exploited. Of course, well-founded pessimism about the present isn't helping most poor countries bridge the gap...

"More often one advance creates the conditions necessary for the next"

Yep. I've seen this called the 'adjacent possible'. Few things could have been invented much before they actually were -- until conditions became such that they became all but inevitable (with multiple inventors all on the verge of making the same discoveries at the same time).

TallDave, Agree. Good comment.

If a supply shock occurs, that could create opportunities that your warriors could exploit. It need not only about playing catch up.

Peter Thiel is branded as a pessimist, but I think he's an optimist. He believes that the world ought to be a lot better than it is, and he's advocating that we figure out how to get there. "We’ve spent 40 years wandering in the desert, and we think that it’s an enchanted forest." That's more properly the optimistic view; it's the pessimist who thinks that everything is already wonderful.

I think a lot of people who see a brighter outcome that has obtained are often labeled pessimist. I suspect part of that is driven by "messenger" rather than "message" derived from communication style. The message in the post seems a bit pessimistic though -- as has a lot of TC's themes (cannot say writings as I've not read the books) but perhaps that's the dismal science rhetoric ;-)

Interesting take- since Thiel is interested in Girard I bet he's also read some Chesterton- in a lot of ways Thiel is a reverse engineered Chesterton. Chesterton would say we are stuck in the desert let's pretend it's an enchanted forest Thiel works to deconstruct that view.


First, this just seemed to part of the same mind set that felt that governments planning for war was good for growth, but it seems even emptier than that. (The headline 'The Lack of Major Wars May Be Hurting Economic Growth' seems to be a bit over the top, at least compared to what was written - https://www.nytimes.com/2014/06/14/upshot/the-lack-of-major-wars-may-be-hurting-economic-growth.html?_r=0

Nonetheless, the U.S. has certainly experienced a fair bit of growth causedprior_test2 by the need for warrior-entrepreneurs, where the warrior distinctly means a desire to use war for personal gain, to ensure a solid ROI.

And just for fun, here is a top three google result for 'warrior-entrepreneur' - http://warriorentrepreneur.libsyn.com/ Inspiring stories of just the sort that one hopes will not find disfavor those occasional times someone just happens to glance at the comments before removing inappropriate content. For example, episode 008 - featuring a 'journey from the mail boy at a large corporation, to owning a Lamborghini, and creating the largest Privately held Wireless contractor in the Western United States.' No complacency there, right?

Wow - something caused prior_test2 to be inserted - so much for prior testing in that case.

By this reasoning it is optimistic to say that the glass is half empty, because it implies someone has had the pleasure of drinking the missing half.

This is what sleep deprivation will do.

Now testing whether proper reply placement is broken - one can assume, at least after the 8 hours of sleep I enjoyed and thus deprived of the sleep time of the typical MR commenter, that the comment this is replying to was itself intended as a reply. (One could have the suspicion that a new intern is being broken currently, but there are plenty of likely explanations to choose from.)

Well, so much for that theory.

Both optimism and pessimism imply a view of the future, not the past, everything before the present moment. While evaluations of the past might be positive or negative, they're not properly expressed as being pessimistic or optimistic.

Comparing high "rates of return on their capital" of future entrepreneurs with the low "rates of return on capital" of today's entrepreneurs isn't a fair comparison because the goal of today's investors isn't the "rate of return on their capital": it's asset appreciation. Cowen's Great Reset will fix that problem. When I studied economics in college as an undergraduate (back in the dark ages) the professors used the same hypothetical of the entrepreneur making and selling widgets. Today's students would likely ask: "What's a widget?" I'd ask that student: "What's a rate of return on capital?"

Asset appreciation is part of the rate of return on capital.

If Trader Joes, Target, Costco, Wal-Mart and Amazon are each doing what they do very well, that does imply that a future big winner will have to do something different.

I think it was automation but also daily mobility that drove out the underperforming local markets, cheesy mail order businesses. Once you've seen a Target coffeemaker line up you don't want to pay more for fewer options. Once Amazon created a marketplace of sufficient size, they owned it.

And so the new big winners like Airbnb and Uber have to do something that has never been done before. So will the next billion dollar startup.

Yes, that implies an optimism about the present.


"The result is that highly skilled and well-educated workers flock to companies that can afford to offer generous salaries, benefits, and perks — and further fuel their companies’ momentum. Employees in less-successful companies continue to be poorly paid and their companies fall further behind.

I believe that much of the rise of between-firm inequality, and therefore inequality in general, can be attributed to three factors: the rise of outsourcing, the adoption of IT, and the cumulative effects of winner-take-most competition."


Those "winners taking all" are high performers, and high performers are hard for a startup to knock off - certainly if the startup tries to compete with a similar plan and on execution.

Note also that national high performers shoot to hell metrics on numbers of startups. Wal-Mart was one startup. Amazon was one startup. Their impact was certainly not captured by the number of startups in their respective years.

Re: " But the high returns also indicate that the status quo ex ante is in some way deficient. Had the earlier entrepreneurs done better...",

Don't agree with the statement. Incumbents you describe may have market power, and have little incentive to invent or innovate. They did just fine by not innovating, and simply extracting monopoly rents.

Innovation and invention is the creative destruction that knocks the firm which sits on its hands to be knocked off its chair. They made a choice to sit on their hands. Under a Schumpeterian view of the world when you see creative destruction by small scale innovators you know that Schumpeterian competition works, and always will. So when you see it at work, don't assume that the incumbent doesn't have the same knowledge set (IBM or ATT always knew about as much as a challenger) but rather assume they chose to sit on their hands while MCI and Microsoft with Intel decided to alter the playing field with innovation.

Microsoft​ and Intel were beaten by Apple, but non mano a mano in PC battles. Apple won by doing something that didn't exist before.

(Technically there were previous smartphones, but Apple was the first to deliver at scale. A benefit of their cu$tomer relation$hip.)

Still not buying stagnation. That happened very fast. As did no apps to too many apps.

"Technically there were previous smartphones, but Apple was the first to deliver at scale. "

I'm not sure what 'deliver at scale' means, but Nokia and RIM had built large, valuable businesses on Symbian and Blackberry smart phones in the decade before the iPhone. Microsoft (with Windows CE phones) and Palm were quite successful as well. But none of them had gotten rid of physical keyboard and stylus input or had finger-friendly touch screens and operating systems.

While I don't mind diluting Apple's achievement, the iPhone and its app store did turn a corner, from nerds with Palms and businesses with BlackBerry, to a consumer revolution.

Their customer relationship, hordes ready to drop $$$ on a consumer must have, made it happen more than the underlying tech.

To return to new vs competing, Apple tried to make that happen again with the watch. Failed. Rumors of a new AR attempt. TBD.

If warrior-entrepreneurs succeed by blowing holes in a rent-seeking regime's 'benchmarks and constraints' then optimism is warranted because the game is becoming positive sum. We may see rents to a hereditary or credentialized elite fall as profits rise.
If current entrepreneurs are satisficing or 'X inefficient' then optimism is still warranted unless there is evidence that 'warrior-entrepreneurs' have the same genotype and are bound to turn lazy a little further on in their life cycle. Even if this is the case, pessimism is not a good response. We simply need to put in a mandatory retirement rule or devise a way in which it becomes normative.
Suppose football players own the clubs they play for. It could happen that we get stuck with elderly stars of yesteryear making a mockery of the sport in which they once excelled. However, the remedy is simple. Incessant public ridicule.

"But the high returns also indicate that the status quo ex ante is in some way deficient. Had the earlier entrepreneurs done better, the opportunities for these new creators might have been less."

Maybe they're not pessimistic about the status quo. Maybe they're just not complacent.

"The mood states of “optimism” and “pessimism” are often misleading ways of classifying or thinking about people’s views on the economy, or indeed about other matters too."

If only there were some alternative framing that focused more on complacence than relative optimism...

This is too close to the philosophical argument that if there were a benevolent omnipotence, it would already have moved each atom in the Universe to some optimal position, and further change would cease.

"Cynical Optimism". That's the philosophy I have always said describes my outlook: being realistically cynical about the flaws in the status quo, but with the attitude and believe that they can be improved in the future. We must recognize the flaws and problems in order to fix them.

I also disagree with the basic premise, but for a different reason. The basic assumption is: "Let’s say you believe that . . .entrepreneurs will create . . . and earn high rates of return on their capital; associated venture capitalists will benefit too." While that may be true, it is overly limited. For every "warrior-entrepreneur" who succeeds, you have hundreds who fail, and thus the venture capital does not benefit so much as dreamers wish.

As for deficiency of the status quo - when you have a technological innovation, the status quo can always be regarded as deficient in some aspect.

philosophical argument

If you think of it as diverse individuals and organizations either a) pushing towards the technological frontier (or proudction possibility curve if you prefer) or b) actively expanding that frontier.

Very few firms are involved in pushing out the technological frontier. Most are involved in sustaining previous knowledge, applying it, and regularly adopting other proven innovations.

Somehow that seems relevant in tempering the sort of pessimistic interpretation offered for the purpose of questioning optimistic outlooks derived from such observations or expectations.

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