James F. "Jim" Moore

September 30, 2004

What the Bubble Got Right, by Paul Graham

Filed under: Economics and cybenetics — jimmoore @ 4:50 pm

You have to love Paul Graham–this is one of the most thoughtful pieces I’ve seen on “the bubble”
as well as on how social movements deeply change society.  This is
also the sort of paper that is very effective when published on the
Internet–and such papers are part of how the Internet is changing
society. 
The Second Superpower
does thoughtful analysis and reflection, and recognizes it when it sees
it.  The Second Superpower struglles to know itself, in order to
be more effective.  The reason this paper is powerful, methinks,
is because it helps us recognize things about ourselves that we want to
keep doing, and improve upon.  And these things are difficult to
identify clearly without contributions like this paper.  By the
way, this recursiveness is reminiscent of LISP, a language Paul has worked in and continues to develop with Arc.  Ah, plays within plays within plays.


Here is my favorite excerpt from the paper:

face=”arial, helvetica”>Notice, though, that even with all the fat trimmed off its market
cap, Yahoo was still worth a lot. Even at the morning-after
valuations of March and April 2001, the people at Yahoo had managed
to create a company worth about $8 billion in just six years.

The fact is, despite all the nonsense we heard
during the Bubble about the “new economy,” there was a
core of truth. You need
that to get a really big bubble: you need to have something
solid at the center, so that even smart people are sucked in.
(Isaac Newton and Jonathan Swift both lost money
in the South Sea Bubble of 1720.)

Now the pendulum has swung the other way. Now anything that
became fashionable during the Bubble is ipso facto unfashionable.
But that’s a mistake– an even bigger mistake than believing
what everyone was saying in 1999. Over the long term,
what the Bubble got right will be more important than what
it got wrong.

1. Retail VC

After the excesses of the Bubble, it’s now
considered dubious to take companies public before they have earnings.
But there is nothing intrinsically wrong with
that idea. Taking a company public at an early stage is simply
retail VC: instead of going to venture capital firms for the last round of
funding, you go to the public markets.

By the end of the Bubble, companies going public with no
earnings were being derided as “concept stocks,” as if it
were inherently stupid to invest in them.
But investing in concepts isn’t stupid; it’s what VCs do,
and the best of them are far from stupid.

The stock of a company that doesn’t yet have earnings is
worth something.
It may take a while for the market to learn
how to value such companies, just as it had to learn to
value common stocks in the early 20th century. But markets
are good at solving that kind of problem. I wouldn’t be
surprised if the market ultimately did a better
job than VCs do now.

Going public early will not be the right plan
for every company.
And it can of course be
disruptive– by distracting the management, or by making the early
employees suddenly rich. But just as the market will learn
how to value startups, startups will learn how to minimize
the damage of going public.

2. The Internet

The Internet genuinely is a big deal. That was one reason
even smart people were fooled by the Bubble. Obviously
it was going to have a huge effect. Enough of an effect to
triple the value of Nasdaq companies in two years? No, as it
turned out. But it was hard to say for certain at the time. [1]

The same thing happened during the Mississippi and South Sea Bubbles.
What drove them was the invention of organized public finance
(the South Sea Company, despite its name, was really a competitor
of the Bank of England). And that did turn out to be
a big deal, in the long run.

Recognizing an important trend turns out to be easier than
figuring out how to profit from it. The mistake
investors always seem to make is to take the trend too literally.
Since the Internet was the big new thing, investors supposed
that the more Internettish the company, the better. Hence
such parodies as Pets.Com.

In fact most of the money to be made from big trends is made
indirectly. It was not the railroads themselves that
made the most money during the railroad boom, but the companies
on either side, like Carnegie’s steelworks, which made the rails,
and Standard Oil, which used railroads to get oil to the East Coast,
where it could be shipped to Europe.

I think the Internet will have great effects,
and that what we’ve seen so far is nothing compared to what’s
coming. But most of the winners will only indirectly be
Internet companies; for every Google there will be ten
JetBlues.

Swing voters, or non-voters?

Filed under: Presidential politics — jimmoore @ 4:42 pm

It seems obvious to most political commentators that focusing on swing
voters in swing states makes sense.  These people are going to
vote.   They are looking for input to their choice  In
our electoral-college-dominated process of national presidential
elections, these voters seem to hold the only key to success.

But consider this:  Non-voters make up about half of the
electorate. Studies of young people who are non-voters show that they
are often quite civically engaged–they volunteer time, they join
values-and-faith-based organizations, and they even contribute
money.  Perhaps this is true of many non-voters of all ages. 
Perhaps non-voters care very much about the nation, and about the
future, but they find no reason to vote or participate in electoral
politics.

Swing voters are about %5 of the total potential electorate nationwide, and non-voters are about %50.

Does anyone else see an opportunity?  If just %10 of the
non-voters became voters, their numbers would equal the current swing
voters.  If %20 of the non-voters became voters, we would have an
electoral revolution.  Hmmm.

This is a lot of people to influence, but on the other hand, the
behavior change we are asking for is not difficult.  It involves
filling out a small form in advance of election day, and then filling
out another form–an absentee ballot–or spending a few minutes in a
neighborhood poling place on election day.  We are not asking
folks to give up smoking, or even to use seat belts regularly. 
Physically, we are asking for a small change.

The current national campaigns of Republicans and Democrates together
are on track to spend about a billion dollars this round.  Most of
this expenditure has been focused on re-assuring swing voters that all
candidates share the same “center” position on issues, and then seeking
to differentiate these highly similar candidates in order that some can
defeat others.

Does any else see the contradiction here?  As a marketing manager,
how would you like to have the job of simultaneously convincing people
that Bud lite is just like Miller lite except that Miller light is evil
and Bud light is good?  Hmmm.

The two parties have just spent a billion dollars doing just
that.  For the first time in history, Democrats have spent almost
as much as Republlicans–but it has been spent likening and then
differentiating Bud from Miller.  Are we surprised that no headway
has been made?  Are we surprised that many citizens are confused
by the message?

What would have happened if Democrats had gone after the non-voters
with an authentic message and with creative approaches to our most
important problems? What if Democrats had invited people in?

Howard Dean and Dean for America did engage non-voters and turned many
of them into activists.  Our message was “you have the power.”
While we had our internal failings, the Democratic establishment killed
us. They killed in large measure by redesigning the primary process to
give extraordinary   power to Iowans.  This reward
campaigns that were focused on anything but the non-voter.  In
Iowa, the caucus process puts up a very high barrier to polical
participation–one that is daunting to most Iowa voters, and much more
to non-voter.  In Iowa a small group of very active
politicos–those who are willing to spend several hours on a cold
January night arguing publicly for their candidate–prevail. And these
active politicos represent members of  a rural state with an
aging, declining population.  Iowans are nice people–I grew up in
Cedar Rapids–but they are very different in lifestyle, age, and values
from most people in the rest of the nation.

The Democratic party took the candidate that won Iowa–that won with
hard-core Democratic activists in a rural state–and planned a program
to go after middle-of-the-road swing voters in states ranging from
Florida to Maine, to Ohio to Washinton State. 

This campaign ignored by design most of the nation–including
non-voters.  It ignored “red states” as unwinable, and ignored
“blue states” as unloseable. 

The Democratic campaign’s strategy was to spend massively on a few
states–in order to win a large share of the small numbers of swing
voters.  Unfortunately, these swing voters were also targeted by
an even more powerful Republican campaign, on behalf of a sitting
president.  Democrats attacked a defended hill, and found
themselves in a war of attrition where neither side would win a
decisive victory.

I would have prefered to attack the undefended hill, particularly given
that the hill of non-voters is ten times larger than that of swing
voters.  I would have preferred to spend heavily to engage a small
share of this much, much larger population of non-voters.  I would
have prefered to flank the Republicans by engaging with citizens that
they too have ignored.

As a strategist, I believe such a strategy could have won the
election for Democrats.  Perhaps as importantly, this strategy would have
advanced citizen empowermennt, dialogue and political participation in
the country.  Win or lose, this initiative would have improved our
democracy.  Win or lose, this initiative would have improved our
party.  We would have created in the Democratic party the ability
to speak to new people, the ability to bring non-voters in and include
them, and the ability to learn from these people new ways to address
the challenges facing our country.  All of these things, by the
way, were at the core of the capabilities being developed in the Dean
campaign.

Even if the Kerry Democratic campaign succeeds, its strategy has left
out most of the electorate.  It has left out the “base” of the
Democratic party, which is to the left on the conventional
spectrum,.  It has left out the larger number of non-voters–who
live on spectra the Democratic establishment has not even tried to
understand.

Leaving out people is a poor way to prepare the ground for
governing.  Little relationship has been made with most citizens.
Yet political engagement is at the heart of what a democracy requires,
not only to pick leaders, but to be willing to follow them.  Tough
choices always have to be made by leaders, and people must be moved to
contribute to making these choices successful. Being left out of the
electoral process does not encourage such later participation.

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