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As someone in the "tech industry", I find it pretty ridiculous that companies in all sorts of markets are all lumped together in "tech". Why is Tesla a "tech" company and not a car company? Isn't Space X an aerospace company? Why would you lump them together with Apple, a consumer electronics company?

Now we have all these "fintech" companies which, without the "tech" suffix, would obviously just be scams. In my opinion, people shouldn't call any company a "tech" company. It's a totally useless adjective. I can buy a bahn mi from my phone, might as well make the bahn mi shop a "tech" company while we're at it!

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Jul 27, 2022Liked by Noah Smith

I have yet to see an argument that there is a better move for retail investors than “park money in a low-fee index fund and wait”.

https://web3isgoinggreat.com/ is a great way to keep up on the dumpster fire of crypto.

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Jul 27, 2022Liked by Noah Smith

Everywhere I see the phrases "smart guys" or "smart people" I think "people that spend 50+ hours a week doing this". I'm not at all convinced that the active traders on Wall Street are especially brilliant, they just do this stuff for a living.

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Jul 27, 2022Liked by Noah Smith

"It’s much easier for the original seller of a token or asset to extract value from retail traders if the asset is in a thin, illiquid market where it’s hard to short-sell. In liquid markets with easy short-selling, the short-sellers can come in and trade against the over-optimistic retail traders and take their money. But when shorting is hard, the price of the asset is set by the most optimistic traders (actually it’s even higher, because of the option value of being able to re-sell it to optimists over and over!), so the original seller of the token can make out like a bandit. That’s why these thin, illiquid crypto token markets are such an attractive way for entrepreneurs to extract value from retail traders."

Oh, this explains so much about property values in metropolitan cities as I'm witnessing firsthand. Not just that, the property market is international and Asians (mostly Chinese) are going around buying stuff everywhere.

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Jul 27, 2022Liked by Noah Smith

I wonder if this data puts any of the efficient markets theorists to wonder.

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Jul 27, 2022Liked by Noah Smith

Nail on the head, Noah. And don't forget somewhat similar issues with things like WeWork and Uber where staggering sums were spent on markets that could never repay the investment. Tremendous amounts of capital and talent directed at taking suckers' money - both traders and investors. A bad thing, and the worst parts of it (the crashes) are yet to come.

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I wonder though about the hardware and materials engineers who are plugging away outside the substack ecosystem, individuals and small companies immune from the entrepreneurial energy absorbing financial tech world. Their stories are less glamorous but maybe worthy of being told?

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Jul 27, 2022Liked by Noah Smith

I agree. However, I would note that the shine on crypto has been wearing off lately, and most people in tech I talk to have been souring on it for at least the last few years.

Just anecdota but it makes me more optimistic about it. Besides, blockchains are actually cool - maybe by the time the buzz dies down we'll have some real value-adds for them.

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What is the common thread here? Cheap capital.

What else, except the finanacialization of everything, can we expect when money is so cheap for so long? How else can you stay ahead of the dollar printing press?

Retail isn’t dumb, per se. But they usually don’t have the street-wisdom PHD that is required to protect their wealth from the rug pull that is fiat monetary policy. Is it any wonder that these investors, mounting in dread over the loss of their purchasing power, end up speculating on unwise investments that have the same patina as Bitcoin?

Retail investors are distressed, and therefore easily conned. And by the way, there’s more incentive to be dishonest when the government dishonestly debases the entire world’s savings to pay for everything. If the alternative to a speculative investment is holding fiat dollars marching inexorably downward, why wouldn’t you roll the dice on something that sounds like it will keep you ahead of inflation? DOGE is intensely stupid, but Elon Musk endorsed it, which is good enough for anybody who knows nothing.

I love this article and appreciate the insights from all of it. But contrary to this article, I do not believe this is a series of unfortunate coincidences of capital misallocation. It is systemic, and the dishonesty starts with the fiat printing press. The greedy scammers are just a symptom.

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Jul 27, 2022·edited Jul 27, 2022Liked by Noah Smith

NS: "extracting money from retail traders simply doesn’t strike me as much of a technological achievement."

:-). :-)

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Jul 27, 2022Liked by Noah Smith

I'm wondering now where airline miles and other long-lasting virtual "currencies" like that fit in all this. I've heard that at various points recently, these rewards programs have been structured as separate corporations that had a market valuation far above the market valuation of the airline itself.

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Jul 27, 2022·edited Jul 27, 2022Liked by Noah Smith

Thank you for this piece! It needed to be said.

A side question: You mentioned how government support had benefited car companies such as Tesla, but they can be hit-or-miss sometimes (think the big three auto manufacturers). Is there a framework for thinking about governmental subsidies and when they foster innovation and competitiveness?

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Great insights here, although it reinforces my views about the dangers of these financial "innovations". Dining-Kruger is in full effect when it comes to native years.

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Jul 27, 2022Liked by Noah Smith

Great column, and really worrysome. One thing that research typically shows is that retail investors typically lose money through i. picking stocks that lose money, and ii. overtrading and losing money in transaction costs (the latter is also why women tend to be better retail investors: they tend to trade way less). Apps like Robin Hood do as much as they can to encourage overtrading, which really hurts exactly the people it is aimed at: the people that otherwise don't have access to financial markets.

It would be really nice if there were some kind of nudge where people are directed to the types of investments that are typically good for most people: Widely diversified passive index funds or ETFs.

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Jul 27, 2022·edited Jul 27, 2022Liked by Noah Smith

I don't know if the point made can be in gdp and economic terms and be considered as the decline of manufacturing and the growth of financial services with block chain being a very specific type of services.

In the Uk it is the same. Manufacturing has collapsed reflected in the trade deficit but people say but look at our services exports so out trade deficit is not so serious.

Another point is that poor countries like China had no spare cash around to risk on services so their money went into the basics of manufacturing for import substitution first then exports. Only after that do they think of services. Services being more of a luxury product in an economy and indication of lots of saving in an economy.

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I suspect the story on drones may have something to do with American lawsuit aversion. Or that their most useful application is military and US military acquisition is very conservative, the big defense makers aren’t interested in $1,000 sales.

But having worked through the dot-com boom and 2008 and etc, I remain unconvinced that 20-25% of VC going to total negative-value bullshit is unusual or any real cause for concern. You learn stuff even when you work on bullshit (one of the things you learn is how to recognize bullshit)

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