“Innovators” in pursuit of exponentials
I love Wall Street, the 1987 classic from Oliver Stone. It’s one of my desert island movies, of which I have many. I don’t know if I could boil down my collection to fewer than 50.
Oliver Stone has spoken about the movie being taken in a way he did not intend. He had meant the character of Gordon Gekko, played by Michael Douglas, as a cautionary tale. Instead, Gordon Gekko became a model and an aspiration.
I worked in Wall Street between 2005 and 2007, and I found that there were characters right out of the movie. More than once I had Gekko wannabes quote me The Art of War by Sun Tzu, like in the movie. There were also replicas of Lou, the wise old character played by Hal Holbrook who dispenses cryptic epigrams. But many people I met, perhaps most, just wanted to do their job and make a living.
There’s a particular aspect captured by the movie that I want to talk about. A
big plot point is Gordon Gekko purchasing a majority stake in an airline. He’s
been clued in by Bud Fox, the main character, played by Charlie Sheen, that the
airline stands to win a favorable court ruling, and that once that happens, it’s
an attractive investment.
Bud wants to revamp the airline with Gekko’s capital. His father, played by
Martin Sheen, is a union leader for the airline’s maintenance workers, so for
Bud this is personal; he wants to make his father proud.
But Gekko can’t help himself. Noticing the large pension fund for the airline
employees, he decides to sell the airline for parts and liquidate the pension
fund for a quick and tidy profit. Bud learns of his intentions in time to thwart
him, at great personal cost.
There you have it: Gekko the financial genius is after easy money. This is a
general truth about many of the big-name investors and billionaires of today.
For all their talk about wanting to make the world a better place, for all their
image as straight shooters who take risks with ice coursing through their veins,
they are remarkably risk averse.
They are looking for a guaranteed return on investment.
As Gekko says
I don’t like losses, sport. Nothing ruins my day more than losses.
The love of exponentials. “Number go up”
Yesterday, the Financial Times had an article written by Sam Altman, the CEO of OpenAI, makers of ChatGPT1.
It was at the same time sounding the alarm on the risks of AI, and tamely
proposing an oversight board with governmental/private membership. He stopped
short of nominating himself for leadership of that board.
He compared the impact of AI with that of electrification or nuclear energy.
However, he did not explain what AI is good for at the moment.
This is something of a classic these days. The modern tech magnates pivoting to justify governmental and tax-payer involvement, because we’re talking of the good of humanity here, or because the US cannot be allowed to fall behind China. Elon Musk is the pre-eminent beneficiary of public money for his enterprises.
I don’t blame them. If I wanted to ensure a risk-free return on investment, I’d want to get tax-payer involvement. We saw in the financial crisis of 2008 that private companies that are deemed “too big to fail,” in effect have public insurance. I don’t blame the tech magnates, I just despise them.
The world was spoiled for many decades with the rise of computers, software, the internet, smart phones. For a while, progress really was exponential, as computer chips became smaller, faster, and cheaper following Moore’s law2.
For years now, progress in chip improvement has slowed, and the tech industry is
not on an exponential curve. How do investors get exponential returns on their
investment? Taking a page from pyramid schemes and betting houses, they bet on
the existence of this new tiger whose tail we need to hold onto, this abstract
“AI” that is so dangerous that it could wipe out humanity, but so powerful that
it will solve cancer and global warming.
The smaller companies are told that if they don’t invest in AI, they’ll be
obsolete very soon. Here, “invest in AI” means getting a license from one of the
big AI vendors. It all has an air of The Godfather.
There’s a post I like a lot by Matt Stoller where he talks of The Number Go Up Rule3. I find that if clarifies many things.
The reason behind the rule is simple. The biggest generation in American history, the baby boomers, are still in power. […] As a result they are culturally and politically dominant.
Asset control and power in America is centered among old people with lots of assets. And they associate protecting the stock market with protecting America.
Finance has become the lens through which our elites understand what is and is not a problem. If it affects “number go up,” it’s worth solving. If not, it’s just whining.