Ted Audio Collective
Hello everyone, you're listening to After Hours, I'm Felix, I'm here and it's our year
and episode.
Yes, one of my favorite ones.
Time for us to look back and think about what happened.
The best stories of the year, maybe some things that didn't work out so well.
Indeed.
Well, I can tell you already who the winner is.
What do you mean?
Like the best story?
No, no, the more important competition, which is it's actually a three-way tie.
There was the parsnip hummus, there was the bria, savaran, and there were the rum cookies.
So all three of those from the annual Felix and Lisa Shindig, which was last night, were
amazing.
Oh, thank you.
And you know, it's the first time that I made the parsnip hummus, which I guess is a contradiction
in terms because this is chickpeas.
And so it doesn't have chickpeas, but if anyone ever wants to try that, you boil the parsnips
and then they substitute for the chickpeas.
And it's quite amazing.
The other part of it that I loved was I have now come to your annual Shindig several
years in a row, and the great thing about these kinds of parties is I meet some of your friends,
but I don't meet them otherwise.
Oh, meaning this party becomes the occasion to spend time with these people and hear what
they've been up to.
So that is the other wonderful thing about these annual holiday parties, Felix.
You and Lisa do it remarkably well.
I think the rest of 2023 and all of 2024 is just going to be downhill from that party.
I hope not.
So before we do that, let's remember some of the great stories that we have for 2023.
Let's do it.
All right, Felix, I am delighted to have you start, but I have to say there's always this
weird fear in these episodes that we're going to pick the same topic, and that's somehow
your idea will get snatched.
So let me just say two words before you say your first topic, which are Taylor Swift.
Oh, you are totally safe.
I was not going to talk about Taylor Swift.
Okay, actually, I don't really want to either, but I did need to say those two words first
in any year and episode so that they get said and I get credit for saying that.
My response is what you always wanted to hear.
Taylor Swift is all yours.
It's really just what my daughter's want to hear, but anyway, okay, good.
So what's your first big story, Felix?
I think the story of artificial intelligence is one, at least of the most important stories
of 2023.
Yeah.
And it's interesting to me because when you think about what is actually new in AI,
because this has been going on for such a long time, AI in one form or another was in
our lives.
If you talk to Alexa, any one of your devices, of course, those devices were AI powered,
and it didn't really feel like we were using AI.
It maybe didn't help that Alexa wasn't that great at responding.
But now this has really changed.
I can think of three things that are different.
The first is just this democratization that now in the context of JAPOTS, at least everyone
gets to experience AI and the power of AI and these models have become much better.
So that's maybe one dimension.
A second is the multimodality, I think that is really impressive.
So from text to images, from images to sounds, it is quite remarkable what the models
now can do.
Absolutely.
And maybe the third thing that I've mostly seen on the corporate side, because you can
now combine these large language models with corporate data that you have, there is this
universe of opportunity, so many possibilities we've known from research for a very long
time that every company has a lot of data.
Most companies are not very good at using the data that they have.
So that seems a third frontier that is now moving very quickly and gives many people
lots of optimism about the effects of AI, both on productivity and then ultimately
on profitability as well.
Yeah, that just strikes me as clearly the most important story of the year in many ways.
But also Felix, of your three versions, I'm particularly interested in that third version.
The interactivity with artificial intelligence in order to process your unique proprietary
data.
That strikes me as just being absolutely transformative for productivity and all kinds of things.
And so in some sense, the first two are a little bit more of the shiny new toys, but
the third one is the more interesting one.
And the reason that's important is because I do feel like we're living through this fourth
version of some kind of a hype cycle or fifth version of some kind of a hype cycle that
has come to dominate the economy.
So the VC world and the equity markets have gotten so good at hyping things like blockchain
and crypto and Web 3.0 and the metaverse.
And the issue is that in many ways we know that for those hype cycles, the ratio of hype
to reality was something like 20 or 30 to 1.
Now with AI, it's not 20 to 1.
The reality is really, really big.
And what I'm not entirely clear about is the ratio one to one, roughly speaking, the hype
is appropriate for the reality.
Or is it like 2 to 1 or 3 to 1?
Even if it's 3 to 1, it's amazing.
But it's definitely not 20 to 1.
So trying to understand what the hype is and what the reality is, given these cycles
that we've been through, I think it's been some of the hardest part of understanding.
That's completely fascinating to me here.
And I think there is a little bit of that in AI as well because when you think about the
chatbot environment, what is this really?
Well, it's glorified auto-complete.
And you auto-complete two, three words in an email that's mildly useful, but nothing
really that miraculous.
And then even summarization, yes, it's helpful.
It's probably going to change consumer behavior in some ways, but is it going to make life
much better?
Is it really going to move the needle?
So so much attention is on chatbots, but I actually think the most promising opportunities
are elsewhere.
So think about deep minds, alpha-fold.
So the AI that predicts the shape of proteins and how proteins fold in particular, which
happens to be absolutely critical for new drug development.
We already have two new malaria drugs that are now in in-person testing as a result of
these advances.
And so what I like about your observation is, yes, it's less hype relative to real opportunities,
but the hype is directed at something that is maybe already embedded in products, maybe
easier to monetize.
But it's not where the big change will come from.
Yeah.
It is really interesting.
I think that's the next wave of this is to try to understand where the substance is.
So one way I've thought about this is with financial markets, because I think in many
way, financial markets are the canary and the coal mine, which is we've lived through
a decade of financial markets being transformed by artificial intelligence and machine learning
because of quantitative trading, algorithmic trading.
And that has been transformational for the behavior of financial markets, but also for
who wins and loses.
But then there are other parts of initial markets that haven't changed.
And I think the answer is, what is the dimensionality of the information problem?
So in quantitative trading and in high frequency trading, there's a lot of information.
It's coming at you all the time.
You have to process it very quickly.
There it matters.
And then there's other parts of the world where the dimensionality of information problem
is just not that fast-changing and not that complex.
Protein folding is an example of a really hard problem.
So I think in some ways, finance kind of tells us about how AI and ML will work more broadly.
But what we really have to discover is the parts of the economy and the productivity driven
tasks that AI and ML will really drive through.
And that I think is the next leg of this revolution.
And as you talk about it, even in finance, obviously, eking out these small information
advantages is incredibly valuable.
But then if we step back and we think about the big picture implications, how much did
it really improve the allocation of capital in the world?
Probably not that much.
And maybe even worse, individual actors get smarter, meaning they're able to eke out
these returns, but the world gets a little dumber because prices start to reflect these
short-term trends.
Now I don't think that's going to be true in protein folding because that is really
all upside.
But this is the part of AI that we have to really figure out.
A lot of martial arts stuff and how to pay attention to the stuff that really matters,
as opposed to maybe some of these more glistening things on the side.
Great.
So what is your story after year?
Me here.
What do you see when you think of 2023?
For many years on this podcast, I've really tried to champion life sciences because I
just think they are so important.
And I think I'm going to just stay with that horse, which is, I think this is the year
of life sciences.
And in particular, of course, we had Lillian, Novo Nordic, Deliver, Ozempik and Manjari
and these drugs that have very quickly come to be shown to do dramatic things, to be
widely adopted and really transform healthcare and our lives.
And it's not just them.
Vertex and CRISPR have come out with a remarkable technology for sickle cell, which is a really
important disease for an underserved population.
There is going to be new stuff on diabetes.
So life sciences is really kicking in.
And the interesting thing to me about it is, first, while the hype cycle in tech is huge,
I think in some sense, the hype cycle in life sciences is underhyped.
And so we are coming to terms with how transformative it can be.
And then it's not really some sexy new approach to drug development.
Like there's going to be a platform, Ginkgo Bioworks company that's going to change
pharma discovery into software, it's actually traditional drug discovery in really powerful
fascinating ways and it just happens to pay off.
And so I love this story because I think it's truly transformational.
I think we'll be talking about these GLP1 inhibitors for a long time.
People's lives are changing today because of these things.
And I think it's just the beginning.
And I think that is really exciting.
And a newfound strength is this multitude of approaches.
So you have the big pharmaceutical companies doing fairly traditional research.
You have the mRNA platform.
And then of course, that gets taken over a little by COVID because COVID is both such a
big business opportunity, but also was so important to get done in a short period of time
that we don't quite know yet at this point in time how promising it will be.
For instance, in oncology, but so far the signs are pretty positive.
And then this advance in the processing of information, making better predictions that
powers companies who play across both of these fields.
If you look at the product pipelines now at Pfizer and Merck and Eli Lilly, the next
couple of years will really be quite astounding.
The number of drugs, the kinds of diseases that we can now tackle, hopefully effectively,
it will of course generate huge questions about the financing of healthcare, how we deal
with all of a sudden much more rapid innovation as a society.
But all in all, boy, I couldn't agree more with you.
It is incredibly promising, incredibly exciting to see what happens in this sector.
And I think it's striking that you talked about these three modalities, traditional drug
discovery, the mRNA platforms, and then of course, AI and ML.
And I think the real winners are people who can make those combine.
Those are not parallel paths.
I think the real power is coming from the self reinforcing nature of those three trends.
And so that is why this is so exciting.
And that is why I think it's got longer legs than just a one off, ozemic kind of story.
Yeah, I think the lesson is broader, which is AI and ML may be a new path towards technological
change.
But I think it's much more likely to be something that reinforces traditional paths in interesting
ways.
And so we should understand it as something that is going to amplify things as opposed to
something that is in and of itself, something remarkable.
And that doesn't mean it's not super powerful.
It just is a different way to understand why I think it's powerful.
Yeah.
So Felix, what else has been on your mind?
I think 2023 is also the year of the employee, the year of the worker.
And you see it across many different sectors of the economy.
You see it in many different phenomena.
For instance, we had many more strikes than we traditionally have a couple of years ago.
So there were more than 30 strikes involving more than a thousand workers.
But still completely unusual.
We saw similar levels of strike activity in 2000 and 2001, for instance.
And of course, it's much, much smaller.
So if you go all the way back to the 50s and the 60s, we used to have 300, 400, 500 strikes
or so.
But still the direction, I think, tells us something deep and profound about this reorientation.
And maybe I want to call it a reorientation away from customer primacy to now thinking
more holistically about where both the financial firepower, but then also just the value creation
opportunities.
Where do these really come from?
We used to be somehow very lopsided in focusing on customer so much and forgetting a little
bit about that competition for employees is at least as important.
Right.
Now, you can look at it and you can think, okay, this is just going to be completely
transitory.
We went through COVID.
We were reluctant to come back so we had to raise wages.
People eventually came back now unemployment is super, super low.
And as a result, we have to dish out the goodies to attract more people.
But I actually don't think that's a very good description of what is happening.
And in part, it's because I see so many companies that have started thinking about ways to attract
and retain workers in much more creative ways than I would have observed five or ten
years ago.
There's this measure called the American Opportunity Index, which tries to think about which
companies are really good at providing mobility inside their organizations for workers.
And there you see really interesting trends.
For instance, companies that do this really, really well, they hire three times as many
people who don't have a college degree.
Companies that excel at this opportunity index, they hire four times as many workers at
the entry level and then develop them inside the organization.
They have many more internal promotions and so on and so on.
And then you look at the names and you see those same names that are incredibly successful
financially.
So service now is probably the company across all of these different categories.
They're just doing an amazing job.
And that points to a moment that is much longer than we happen to be in a situation where
the labor market is tight.
I think this is just a great story, Felix.
And I think you're right to kind of place it in the context of the pandemic and well,
wait, maybe it's all just a temporary shift in bargaining power towards workers.
And I think you're absolutely right to think about it as a longer term secular movement.
I always think of you and I think about this shift from customer primacy to employees
and thinking about employees because you've thought really hard about this.
The thing I love about this story is maybe twofold.
First, it's really a story about the bottom half of the income distribution, maybe more
than the top half.
It's nice if a software engineer gets paid a little bit more, but it's hard to get excited
about that much.
This is really about folks at the lower end of the income distribution, getting both wage
gains and then getting flexibility in the nature of their employment contracts.
And I think that is really exciting.
And of course, that's what's been missing in many ways from labor markets for a long
time.
The other thing that strikes me about it is there are all these weird consequences and
interactions that happen.
So I was recently talking to the entrepreneur who is interested in earned wage access.
A Fintech company that's trying to get people earned wage access.
And it turns out the game changer in that industry was Uber who moved to Insta Pay for their
drivers.
So you could get paid right away and access your earnings right away.
And the reason, of course, that's so powerful is because in this labor pool, what's happening
at the end of the month, you're trading off your ability to supply labor with immediate
spending needs.
And so what employers are finding is that, well, if they can shift to Uber to get paid
right away, then that has consequences for everybody, which is you actually have to follow
and you have to innovate in the way that Uber innovated on Insta Pay.
And it's not just about wages.
It's about this whole heterogeneous set of responses that employers can use.
In many ways, I think about this is making the nature of a contract with an employee much
richer and much more widespread and many more dimensions.
And when you do that, of course, you get better matching.
You get better employee satisfaction.
You get so many things.
So we have so uniquely focused on wage that one manifestation of it may be rising wages.
But that may not be the most important manifestation.
And it may actually be quite multilayered in interesting ways.
I love that observation we hear.
And the second reason why I think it's not temporary is more on the corporate side.
So say you take in people who don't have a college degree, which may be a couple of years
ago, you wouldn't have done because you were not sure how productive can these people
be, how expensive is it going to be to train them.
And now you discover, oh my god, they're amazingly productive.
The expenses to train them are not extraordinary.
That will not go away when the next recession comes along.
These discoveries that we make in competitions, it's competition for one, but then also what
we learn in competition, those insights will stay with companies.
And I think they will produce a different kind of labor market compared to what we used
to have.
In a way, it's a manifestation of how the pandemic shook the economy.
And it shook it in a way that made people try new things.
And actually some of it is long lasting.
It's not just a temporary thing because we got used to doing things in certain ways.
And then the second thing is there are these broader trends about demographics and about
the age structure of the population and about immigration that make one thing hard about
labor markets as being structurally different, maybe going forward, which I think is the
other piece of this that can actually really be important.
So in many ways, a really great news story, Felix.
Yeah, I think so.
You have another story for us here.
Yeah, it doesn't sound like a great news story, but I think it might be.
So sometimes something happens and you don't even notice it.
And I don't think we even talked about it during the whole year, but it's really quite remarkable.
So roughly 12 months ago, Sam Bankman-Freed was a free man in the Bahamas.
18 months ago, he was arguably the most important person in financial markets.
And today he is in jail and he's about to get sentenced for what may be several decades.
And it is just a remarkable thing that has happened.
And remarkable for several reasons.
One is the swiftness with which justice was served here.
I kind of am a big believer in justice delayed is justice denied.
And with remarkable speed, somebody who was at the center of the world is now going to
jail.
That is a remarkable.
Second, it's kind of remarkable that this was delivered by the justice system as opposed
to legislators or regulators.
And this kind of goes back to our conversation about brokers and understanding how the justice
system can very quickly rewrite the rules of behavior and make people think hard about
what they're doing.
And the final thing that strikes me about this is, you know, over the last several years
I got quite concerned that the grift that is important to capitalism, the grift is always
there, the con is always there, but it usually operates on the periphery of capitalism.
And I had gotten worried that it had moved to the core of capitalism.
And I think we had to really remedy that.
And watching somebody go to jail for decades is maybe a really important part of that.
I think this story in some ways happened without us even knowing that it happened.
One facet that's so interesting to me is the lack of regulatory action, at least so
far, when you compare it to other episodes, so say, think, and run, that then produces
this big regulatory response that, of course, makes it much more difficult to do the
kinds of damage that they have done to the economy, but also at remarkable costs to
everyone else because dealing with regulations often very expensive.
Sure it strikes me, maybe because we have this theory at the center of a story is a person
without morals.
A person who didn't care about the legality success was everything that interested him.
It makes it more personal.
And as a result, you have less pressure to think about what's wrong with the world that
this was possible, that this happened, that we didn't or couldn't prevent it.
Often fact, the regulatory response remains what it is today other than the collapse of
the company itself, of course, the collateral damage might actually be much smaller compared
to other previous scandals.
You're raising an important point, which is the disjunction between the legal solution
and the regulatory solution.
And back in the early 2000s, the regulatory apparatus went to work in a big way, and
that does not appear to be happening here.
And I'm not sure why that is, but one possibility is that there's a genuine problem here where
we're trying to separate out the wheat from the chaff.
Meaning there is something that is worth while about crypto.
About crypto.
And we just might not know what it is, but there's something now with Jeff Skilling and Andy
Fashtow and World Comment, all those people, there was no wheat.
It was just all chaff.
It was just really, really bad behavior.
So maybe part of what is happening here is that regulators are being more cautious about
addressing something because they want to preserve whatever that value is.
That would be a good news version of it.
The bad news version of it is, sorry to be cynical, but they maybe have been bought and
sold and they're not willing to make those kinds of changes that maybe we actually do need.
I'm not sure which of those is true, but that maybe can help explain the disjunction.
And the last thing I want to say about this is the reason I think it's important is because
many young people take their cue from iconic people in the economy and SPF was an iconic
person in the economy.
And that is also not true in Skilling in Fashtow.
Much less so.
You have to address that swiftly because otherwise there's a generation of people who are taking
their cues from those people.
And that is why I think in a way this story is so important.
Yeah.
And that might be another reason why we don't get the wide regulatory pushback because it's
not as though hundreds and hundreds of people have tried what the few important people in
crypto have tried with sometimes questionable results.
Yeah.
What else happened in 2023, me here?
Well, I'm somewhat obsessed as you know about the connection between financial markets
and the real economy.
And I'm also a little bit obsessed and have been obsessed with pricing.
And I think those two things have really come together in an interesting way in 2023.
So obviously pricing got very complex because of inflation and then rising prices and then
decelerating inflation.
But the other thing that has happened and this was provoked by a conversation with one of
my daughters who noticed that this editing software they were using is no longer free.
And I think what is going on and has gone on and will continue to go on is the pressure
in financial markets for young companies and in the venture world to focus on profitability
and cash flow and more traditional metrics is changing business models.
And that in turn is changing pricing and that in turn is impacting people all through
the economy.
So I think there is the sense in which we are noticing things.
I'll give you some obvious examples.
So Netflix is changing pricing and they are changing shared subscriptions and they are
changing their content and it's a manifestation of these pressures.
You see this in the way snowflake is pricing some of their enterprise software.
You see this in which cybersecurity is being pricing their contracts and it's happening
to my daughter who's having her editing software change.
So consumers are now being faced with the impact of all of these changes in financial
markets and it's migrating all the way through to the way we experience products.
And I think that is a really fascinating part of what has happened in 2023.
Yeah, super interesting.
Other than your daughter needing more pocket money, I still think it's largely a good new
story because the super low interest rates that we had so long that took just pressure
off of companies.
We don't usually think it that way but one implication is of course that many people stuck
to business models, stuck to business ideas that didn't really have a future except the
future didn't matter all that much and so you spent a year or two years, three years
doing something.
When in fact you could have worked on your next venture, you could have worked on a more
promising business idea.
So overall this weeding out of the strong and the weaker efforts at building companies
I think it's a really great new story.
The part that is most fascinating to me about the pricing side is there's two reasons
now to raise prices.
One is just the business pressures and I agree that's buying larger, good thing is consumers
we should get the right signals about what we do when we use a particular set of services.
But of course it's also true that pricing often happens in herds.
One of the concerns that I have is with these big swings in pricing models that some companies
have all the right reasons to raise prices and maybe other companies not so much but since
everybody does it I might as well raise my prices as well.
And so it'll be fascinating to see which prices are ultimately unsustainable because they
don't really reflect competitive advantages.
I price my product the same as yours because you just raise prices.
But really my product is just not quite as good as yours and shouldn't have the same price.
And that I think we will probably learn over the next year or two just seeing who just
floated along with everyone else and who actually had good solid value creation based reasons
to raise their prices.
I think that's interesting for many reasons Felix.
So first I think you're right which is in some sense we're reacting against this crazy
period and it could be good for this behavior to happen.
But then the really interesting part is you're raising is actually but there's maybe a different
effect which is companies kind of overlearn their lesson and then they overshoot.
And of course the reason that's problematic is because pricing is complex and it's a little
asymmetric which is it's hard to reduce prices.
And so there is certainly the scenario here where we in some sense learn the lesson of the
last decade too well and then it has its own consequences.
And the other thing I think that you raised is I don't think we fully come to terms.
It's not just product markets that were infected by these financial markets but it's labor
markets.
Do you go choose to pursue that startup or do you go choose to join that company?
There's a lot of decisions that got twisted.
Yeah consumer decisions are one but there's also labor market and it's all kind of unraveling
and that I think is super interesting and to the good.
Hopefully as long as there isn't that kind of over correction that you're pointing to.
And we have something similar in the conversation around the Fed and inflation expectations.
Our focus is so much on how did inflation rates change in the last quarter or so or maybe
a year or so.
And that's very quick and very important to measure the response of the economy to the
pressures that the Fed brings to bear.
But of course it has very little to do with the long run ideas and experiences of consumers
frankly like when I go to a restaurant even now I know I shouldn't be surprised.
I know when I sit down I will see prices in I don't know their 20s their 30s or so
but every time I go to the rest I oh my god it's gotten really expensive.
It's not new.
I shouldn't really respond to it.
And yet somehow there is the distinction that you point to between what happens in financial
markets and then how we incorporate those experiences and the news and our understanding
of financial markets into everyday lives.
That's just complicated and I'm very good at it.
Well I'm so glad you said that because I have felt the same way and the way I've thought
about it is if I am that confused about inflation and then about what it means for inflation
to have happened and for it to get reduced but not to go to zero and I'm still suffering
from those kind of shocks.
Imagine what we expect people who are not economists to understand about inflation and
it's so absurd when you think about it that way.
So if you look what else about 2023 really struck you?
There's one observation that I think is much more troublesome than what we spoke about
so far.
And that is we have a resurgence in the number of armed conflicts.
So after 30 years of relative calm all of a sudden the number of armed conflicts now
has risen quite dramatically.
So these are both wars but these are also sometimes non-state actors that act against
the police, the army, civilians and our attention of course is on the big three roughly.
It's the war in Ukraine, it's the Middle East and then it's Sudan but below that level
the world has gotten much less safe.
So we're not even at the end of the year and more than 200,000 people have died as a result
of armed conflict.
And it's interesting and worrisome to me because if you look over the longer term there
are these condensed periods of intense violence.
For instance you have it in the late 1960s at the early 1970s and then it dies down.
And then it comes back in the mid 1980s when all of a sudden the number of conflicts and
the number of people who die in wars shoots up dramatically.
I don't really understand why we get dispunching in time.
I don't really understand what's driving it, is it migration related to climate change?
I don't really know but seeing it research worries me quite a bit in particular knowing
about these historical patterns.
Felix, you're right to bring this up and it is obviously remarkably depressing and
very true and unfortunately something that I don't think is a one year off kind of a
thing.
I'm kind of fascinated by your question about why and I don't know if I have good answers
but I'll give you a couple of theories.
So the first is maybe what has happened recently is the ability of political leaders to mobilize
people based on their anxieties and on their discomfort has become greater because of technology.
So social media you can mobilize people in a new way.
Maybe the second is there are more actors in the world who want to create trouble and
they're powerful and they're able to create trouble.
That could be what's kind of going on.
Being intervening in various conflicts around the world and exacerbating them.
And then the final possibility is there has been this sense that populism is spreading
and populism reflects some underlying deep disappointment with the nature of what is going
on in the world.
Some people think about it as the revolution of rising expectations.
I'm constantly feeling grievance because I'm not getting my fair share.
And that of course, I think it's mobilized by these leaders through these technologies
and by these foreign actors who kind of put it all together.
I don't know if that knits together the three episodes you're talking about but it kind
of knits together I think what is happening today.
Yeah.
Populism in particular is connected in interesting ways to polarization.
So in the United States, obviously the two go hand in hand so we have increases in polarization
which by the way, interestingly, precedes the rise of social media.
So Americans did not really see eye to eye even before we had social media and then definitely
the influence of social media was not a positive but it's not true everywhere.
You have populist movements in Europe for instance where we have no polarization.
What does strike me as right is that the sense that I'm getting less than I'm entitled
to.
I should somehow be better off and it's the fault of someone who prevents me from getting
ahead.
That strikes me as remarkably similar across many of these contexts.
Sometimes between groups in the population, sometimes it's class I think also that plays
a big role here but general grievance culture.
The part that puzzles me is I'm sure if we went out and we carefully collected data through
the years, we could always find people who think they're getting much less than what they
deserve.
Right.
And it doesn't always spill over into armed conflict and now all of a sudden it does.
Given that we have these longstanding grievances, what's changed now that makes it much more
prevalent?
Yeah, I don't know.
That is totally fascinating.
In stitching together those three, I'll offer you one theory which is the 60s and 70s
as you mentioned is kind of the decline of imperial power and the colonization project.
It's a shift in the nature of order and when the nature of order changes, disruptions
happen.
Of course the 80s was the decline of the bipolar world which held together and suppressed
conflicts.
And today maybe it's the end of the unipolar world of the US as a hegemon and that is now
being manifest in conflicts around the world as other powers rise and then seed conflict
and then that is maybe part of what's going on.
But I confess this is really troubling.
I'm afraid it may not be the worst of it in 2023 and that I think is really important
to think about as we go forward.
And even more stories from 2023.
We hear.
So I think one of the striking things about 2023 has been the economy and financial markets
writ large.
So what if we observed the US economy certainly is chugging along and in fact is doing what
it did for the last couple of years and there haven't been big changes at the same time
financial markets have just been remarkably violent.
So 2022 equity markets were down 25 to 30% bond markets were down 20 to 25%.
And then what happens in 2023?
Well first equity markets are remarkably up and then down and then again remarkably
quickly up.
And of course bond markets we did an episode about when rates touched 5% and low and behold
a month later six weeks later they're back at four and below.
So we have this remarkably violent set of moves in financial markets and remarkably steady
economic reality.
Now of course you'd expect financial markets to be more violent than economic fundamentals
because financial markets try to look forward and they capitalize all that.
Forward looking stuff into prices today but just the degree to which that divorce between
economic fundamentals and financial markets has happened is really striking to me.
And I think part of it reflects a little bit of what you mentioned earlier which is in
some sense it's all become about inflation and interest rates and everybody is keying
off of that.
So all that really matters has been well what is going on in the bond market and then
everything else is just a manifestation of that as opposed to economic fundamentals really
dominating the way financial markets move.
Yeah so interest rates definitely are this really big force.
I do see very similar movements with specific companies.
So remember Tesla in 2022 the company lost 70% of its value.
Yeah I'd be the first one to say Tesla was overvalued to begin with but what happened all
of a sudden the company's 70% less valuable than it used to be not so long ago.
That's ridiculous or think about on the positive side Microsoft.
Yes of course there's this collaboration with OpenAI that's very smart.
The Activision Blizzard deal finally went through but really you're telling me this monster
of a company this huge company is now 50% more valuable than it used to be at the beginning
of the year.
It's just unreasonable.
So somehow uncertainties or stories or maybe this is sort of a brother meme stock phenomenon
that now plays out not only among companies where play some individual investors and some
hedge funds have different ideas but maybe it's much broader.
There being on the right train at the right time is everything and underlying values or
maybe to some extent even the influence of interest rates just does not matter that much.
We used to think about the meme stock thing as again operating on the margins and not
being terribly central but there is a way to understand the last 12 months as those basic
dynamics coming into the largest companies the so-called magnificent seven that have come
to dominate markets and if that's true that's really crazy and that I think is what we're
going to have to find out because otherwise it's hard to make sense.
Now of course there is an alternative narrative which is AI is going to be so powerful and
it's going to drive so much change and it's going to drive so much productivity and the
big players win and that can make everything make sense which is what's so much fun about
finance because you can tell a different story but I think those competing narratives to
use your language I think have been fascinating this year and we will see how that shakes
out in 2024.
I think one of two things either you're going to believe that positive story or there's
going to be the come-up of that negative story going forward.
Yeah.
The question as always is how long are you going to hold on to your investments given that
in the very short run which is unlikely to see the kinds of changes that prices would
lead us to believe are in the works.
Yeah.
Well we'll find out that will be something to watch.
For better or worse.
You know I have a small one and a little negative one it's not as negative as yours Felix
but I just wanted to raise this because I've kind of become obsessed with this which
is about school absences.
So it turns out school absenteeism has absolutely skyrocketed in the US, in the UK and in a lot
of places.
And it's deeply troubling on its own but I think it's deeply troubling in a larger sense.
So just to give you some sense pre-pandemic levels of absenteeism and particularly chronic
absenteeism was something like 10-15% and in some districts it's rising to 30-40% and
it's in particularly low income districts where it's even higher.
So obviously that has remarkable consequences for human capital development which was already
sabotaged by the pandemic.
So one narrative is that kids are more anxious and they're more anxious about going to school
and so that anxiety is rippling into lower attendance.
The alternative explanation is actually that parents are now working more remotely and
are more willing to pull kids from school, for example to take a midweek vacation.
But we really don't know.
The reason I think it's interesting to me, especially if that first story is true, is
the pandemic had these remarkable effects on us and of course we think of 2021 and 2020
as manifesting those effects.
But there are these longer run effects of the pandemic on our mental health and on basic
practices and norms that I think are still working themselves out and I think school
absenteeism is one such version of it.
So we don't understand it fully.
So that's interesting.
But I do think of it as a manifestation of I don't want to use the language of a long
tale but it is a little bit of that long tale of societal changes.
We talked about the labor market as being maybe a good version of that.
But I'm worried that there are these less good versions of it and school absenteeism is
one version of it.
Yeah, I didn't know these numbers and frankly I'm a little shocked.
It was 10, 15 percent even before the pandemic indeed.
That's in inexplicably high.
If it really describes chronic forms of absenteeism, it makes me wonder about whether the small, small
tinkering that we often do in schools, you know, have slightly better textbooks or better
forms of pedagogy.
Because there isn't really something that is a much bigger and much more important target.
If we have 10 or 15 percent of kids or now of course even worse, if we now have 30 percent
of kids who often don't show up, that's terrible.
That's right.
Because we know so much of what you learn, builds on what you should have learned last
year.
So say you miss the entry into reading or you miss the entry into doing math.
How can you ever recover because those tools are going to be present in every single lesson
that you will have going forward.
So it strikes me as a huge challenge and really worry that perhaps even parents are part
of the reason why it's happening.
I'm reminded of this remarkable work in India where school performance is really dictated
by absenteeism.
We think of it as a developing country problem and a low income country problem.
There in some ways the problem is different.
It's about teacher absenteeism.
Teachers don't show up.
Yeah, that's what happens in village schools.
It's very difficult to get teachers to show up.
And so you have to figure that problem out.
It becomes a monitoring problem.
This isn't a way a much harder problem because it's a cultural problem conceivably where
you really have parents and children changing their behavior.
And by the way, we also know homeschooling has gone way, way up.
Now that could be good, it could be bad.
It's harder to say something about.
And it reminds me of a story that I heard from a friend who's a principal at an elementary
school and they banned phones in their school.
Yeah.
And they weren't super sure what he would do with kids rebel.
Would it actually lead to the gains that the research says you would gain and the experience
has been overwhelmingly positive.
Problem number one, parents.
Parents have gotten so used to being able to be in touch with their kids at any moment
in time that this idea that they're not reachable now is the single biggest problem for this
school.
But in fact, on every dimension, no phones, no electronics in the classroom has been just
about the best thing that happened on that campus in a long period of time.
And then you have all and now we have to deal with the parents who apparently absolutely
need to be able to text our kid that they will be five minutes early to pick him up.
This by the way, is a very good news story about education, which is I think we've turned
the corner on thinking that digital devices are great for kids.
Yeah.
Now, you're absolutely right to point out that the obstacle seems to be the parents.
But I think that is a good news story in education, which is I think we've turned that corner
where 10 years ago it was all about more digital devices in school all the time.
I think we've really figured out that that was wrong.
And I hopefully will follow through on that in years to come.
Okay.
Felix, one last one.
Yes.
Of course, we have to talk about the comeback of the year.
And no, it's not Taylor Swift.
She's been on the role for quite some time.
It's Simone Biles.
Oh, already?
The courage that she had during the Tokyo Olympics to talk about mental health and talking
about what did she say the weight of the world on her shoulders and how it's very hard
to perform under those circumstances.
But then, frankly, also just to see her come back and perform at that level, like walk
away with four gold medals at the world gymnastic championship.
It's one of these moments where you so hope that someone will win and then she does it.
And it's just the best story ever.
I totally agree.
First off, the level at which she is performing has been performing historically and again,
is performing at.
We're not talking just at the top of her game.
She was like, one of the greatest athletes of all time.
And then the magnitude of what she has gone through in public is just terrible.
I mean, this obviously relates to sexual abuse scandals that happened within the gymnastics
world.
And her ability to persevere, I totally agree.
She looks what a great final story.
And honestly, not getting the attention it deserves.
What a remarkable, a great story.
And that continued engagement now, how she talks about foster care and foster families
and her experiences.
She's just amazing.
Like she can do it all.
Yeah.
Biles for president, 2024.
Yeah.
Yeah.
Yeah.
Yeah.
And we have recommendations.
Me here.
What do you have for us?
Well, so I don't know how useful this will be in the short run, but maybe it'll be
useful long run.
So I do all my Christmas shopping late.
And so I have just done some Christmas shopping.
And I had two retail experiences that I think were just really wonderful.
And I encourage people to do.
So the first is, you know when you walk into a store and you're just shocked by how much
stuff you really love.
Okay.
That's an infrequent feeling for me.
Let me put it that way.
And I had two recent experiences.
The first is the Momma Design Store is such a spectacular retail establishment.
And maybe that's partly my aesthetic.
But you go into that store.
You find stuff at different price points.
That's wonderful.
And it's just so bankable.
And then the second and related one I had is if you love bookstores, we've talked in
the past about Barnes and Noble and its revitalization.
But I got to tell you, I went to the new flagship McNeally Jackson store in Midtown, Manhattan.
And man, is that a beautiful bookstore?
Oh, really?
Yeah.
I haven't been.
The kinds of bookstores that exist, frankly, in the UK, in Japan, in India.
There are some beautiful bookstores in those countries, at least that I know.
I haven't walked into a US bookstore and felt that sense of wonder and awe.
The way there are books everywhere, but they're organized really well.
The way that the employees are enthusiastic and people who you want to talk to.
And it's operating at scale.
It's not like some nitchy little location.
This is like a big footprint.
It was just so wonderful to see someone do retail of books.
And to do this kind of design retail so well.
So my recommendations are McNeally Jackson and MoMA design stores for shopping.
I know that's not that useful because you've probably already done with all your shopping,
but maybe after Christmas sales, you should go and figure those two out.
Wonderful.
And what do you have Felix?
I wanted to recommend a YouTube video by Andre Kaparthy.
He's at OpenAI.
And he has this roughly one hour long lecture on large language models.
I think it's called Intro to Large Language Models.
And it's the best thing I've seen so far.
In part, it's good not only because you can tell, oh, here is someone who has actually
looked under the hood of large language models and understands how they're constructed
and where they come from.
But also, it's just technical enough that you can get an intuitive sense of what's involved,
what the issues are with some of these models, how the actual work.
Like when we say, oh, people are working on large language models.
What does this really mean?
And interestingly, he uses one of Meta's models.
And the reason is that Meta unlike almost everyone else has put theirs in the public domain.
So we actually know the code, we know how it works.
And we can talk a little bit about some of the things that are easy to understand.
And then some of the puzzles also.
So why is it that you type into a large language model the same query twice?
And the answer is not the same.
How can that be?
And so if you're interested in a little more than just knowing roughly, it spits out predictions
about what were this likely going to follow in other words, his lecture is really quite
nice.
It's such a great recommendation because we need explicators at this time.
We need people who can explain things deeply and profoundly.
My version of that is the substack by Timothy Lee, who also does, I think, a great job
explaining AI.
But it's the same principle I look forward to this video.
That sounds like a great pick.
And this is it for tonight.
Thank you everyone for listening.
This was After Hours from the TED Audio Collective.
