In this issue:
energy as the ultimate currency
“middle manager” fiction
Friends,
A year ago I wrote a piece called Capitalism Is a Temporary Condition. Buried in it was a thought:
An investor in an age of acceleration watches as commodity prices, real things, hover in familiar territory while “future cash flows discounted” reward attention — in some cases because of optimistic stories, in some cases because the company exchanges cash for BTC (an act which adds no economic value), and in some cases for nostalgic lolz.
Today, it’s embarrassing to think of actual value. The most basic form is stored energy**. An obvious example is oil. Slightly more abstract —a building is a collection of atoms that took energy to arrange and provides utility. It’s proof of work. Same with a good reputation.
The ** footnote:
I increasingly think that a durable concept of a risk-free or least-risky rate is more likely to come from Vaclav Smil than U Chicago.
I knew about Smil from a profile piece that celebrated his suffer-no-fools rigor in making sense of the world.
I’m finally getting around to How the World Really Works, and I dig how quickly it’s zeroing in on what I anticipated to be the biggest muscle movement of all. I’ll let it unfold as he does the book’s intro.
Smil asks us to imagine an alien probe watching Earth, programmed to wake up whenever something important changes in the way energy is captured or used.
For a very long time, it sleeps.
Then life figures out photosynthesis: sunlight can be captured and stored as chemical energy. Much later, humans learn to control fire. Then agriculture. Draft animals. Wind and water.
The gaps are enormous. Billions of years. Millions. Thousands.
Then they start collapsing.
Coal gives humans access to immense stores of ancient solar energy. You can see a parallel to wealth in that phrase alone. Steam will turn that energy into mechanical work, replacing what he calls prime mover energy (human and animal labor). Oil makes enormous amounts of energy portable while electricity makes it transmissible and almost infinitely adaptable.
Smil puts numbers on this.
In 1800, the world had access to roughly 0.05 gigajoules of useful energy per person each year. By 1900 it was 2.7. By 1950, about 10. By 2000, 28. By 2020, roughly 34.
In a little over two centuries, useful energy per person increased nearly 700-fold.
The average person today commands roughly the energy equivalent of 60 adults working continuously, day and night. In affluent countries, the equivalent is closer to 200–240 permanent laborers.
And the averages hide enormous differences.
Measured in primary energy, someone in one of the world’s poorest countries may use less than 10 GJ a year. India is around 20–30. The global average is roughly 75–80. China is above 100. Western Europe and Japan generally sit around 120–160. The United States is closer to 250–280.
It sounds a lot like how GDP per capita is distributed. We measure GDP in dollars, but money can be printed, thus distorting its exchange rate versus the stored value of work. In that sense, energy may be civilization’s only uncorruptible currency.
If we continue pulling on the thread, wealth might be thought of as an account from which we can spend to hold entropy at bay.
A 72-degree house in Scottsdale.
Mango salad in during a Minnesota January.
Clean water pumped up the Hollywood Hills.
A sterile operating room.
Skyscrapers defying gravity.
Data centers (I couldn’t resist).
Much of the AI commotion revolves around what it means for humans to directly turn electricity into intelligence. That the product is intelligence which can recursively accelerate knowledge instinctively unsettles us because it violates our sensibilities around balance. Like energy is somehow not being conserved, leading to the type of divergence we associate with chain reactions.
I’m actually struggling to put my finger on the right analogy, which validates another point Smil makes. He argues that at precisely the moment when we have become capable of commanding extraordinary quantities of energy, most of us have become almost completely detached from how any of it happens.
Smil calls this our “comprehension deficit.”
Modernity is a black box. Light comes from a switch, and meat comes from a carton lined with a maxi pad. It’s all so effortless. Students of economics read I, Pencil to appreciate how capitalism’s profit-motive and competition actually lead to complex chains of cooperation. The side effect of the story is a (demoralizing?) inference that the world is so invisibly complicated now that you should feel good in your choice of major because it’s strategic to be a symbol-pusher since details are hopelessly infinite. (Sorry, did I go to far here? I’m an econ major, so it’s kind of like Chappelle using the n-word. Kinda? Nevermind.)
Smil’s punchy take on specialization:
You could meet real Renaissance men on Florence’s Piazza Signoria in 1500, but not for too long after that…By the middle of the 18th century, Diderot and d’Alembert could still assemble a group capable of summing up much of their era’s knowledge in the Encyclopédie…In 1872, a century after the appearance of the last volume of the Encyclopédie, any collection of knowledge had to resort to the superficial treatment of a rapidly expanding range of topics…today, it is impossible to sum up our understanding even within narrowly circumscribed specialties…experts in particle physics would find it very hard to understand even the first page of a new research paper in viral immunology …Highly specialized branches of modern science have become so arcane” that many practitioners must train into their thirties “in order to join the new priesthood.
All I’ve done is read the introduction to the book, but the “comprehension deficit”, which he’s fixin’ to remedy with respect to how the world works (at least from a physics/chemistry macro point of view), is just a fascinating idea of its own. Before the printing process and hyper-connectedness, it was hard to learn much of what was a relatively small body of knowledge, but since then, even though you could learn more in a lifetime, it was a smaller percent of what could be known.
But that I can sit here in an air-conditioned house on a 90-degree day typing contemplations about abstractions like how wealth is really the temporary abatement of nature’s randomness and how the accounting of such wealth should be denominated in units of work, which is traditionally measured by money and its continuously leaking exchange rate to said work is itself a wild collective achievement fueled by eons of carbon remnants from lives I never knew.
I guess I feel like I owe it to the universe to be curious about its ways even if it’s a Sisyphean fantasy to close the comprehension deficit. Looking forward to continuing:
A thought worth sharing more widely from hemispheres this week’s post about discretionary trading:
In this AI era, brains and consciousness are major topics du jour. I increasingly see us as technology centaurs with both a meat and silicon brain mediating structured and unstructured data, which in turn can be private or public.
On the private side, I have Claude connected to:
my personal knowledge management or PKM (Notion)
MCP to moontower.ai data
git repos across work and personal
email (which means it can access all my writing)
project management software (Linear)
Google drive
Google calendar
And of course, the entire world of public info lives in the model’s training data and ability to go online.
You can be taking a walk with voice mode on spec’ing a prototype that will connect to data with nearly any context you want to provide from your private knowledge, the internet, or what’s in your head that moment.
The future is here for anyone who feels haunted by dozens of ideas a day that they previously couldn’t or wouldn’t act on.
And a discretionary trader is nobody if not someone who starts 50 sentences a day with “I wonder what happens if…”
Related:
Money Angle
I ask for your indulgence, for what follows is an informal word-wall connecting conversations I’ve had with some W2 friends.
Pick your favorite gospel on disruption. Schumpeter’s creative destruction, Christensen’s innovator’s dilemma. Most companies, sometimes even industries, will eventually recognize themselves as a melting ice cube.
In a great talk back in 2009, media investor Peter Chernin warned:
One of the things I always used to say to the people who work for me is that you can’t protect your business, and your job is not to protect your business. Your job isn’t to protect. Your job is to maximize your business at any given time, but your real job is to grow new businesses faster than the old ones decay.
He uses record labels as the cautionary example. They set out to protect their business, but "to the degree you're going to try and do it you're going to get killed because technology is going to liberate audiences in such a way that they're going to get what they want regardless."
It feels like there are only bad choices for companies that are now run-off businesses. Re-investment feels too speculative, but panic will preclude any chance of a soft or at least dignified landing. Navigating these moments well is a sign of grace, but if grace were easy we’d call it something else.
Instead we get to witness corporate pathology.
The ice cube is melting. But it started as a very big ice cube. Big enough to bridge a middle-aged middle-manager’s soft landing into an early retirement if they can claim a larger share of a shrinking cube. Welcome to corporate hunger games on steroids.
The middle manager is a risk-averse incrementalist. That’s WHY they are middle managers. They will do no such thing as grow new businesses faster than the old ones decay. They need an accomplice to secure their spot on the life raft. This accomplice comes from an unexpected place. The partners.
You see, entrepreneurs have deranged brain chemistry. My friend Jason Buck and I were drinking coffee in my backyard on Wednesday when he described an entrepreneur as someone who works 100 hours a week for themselves to not have to work an hour for someone else.
The entrepreneur, the founder, the partner is a delusional optimist. A melting ice cube can be refrozen if you just find the right segment to sell to, the one that somehow eluded you when things were going well. The middle manager latches on to this hope.
He crafts a business plan to do things “radically” differently. Of course, radical in this context is a mere gesture in comparison to the extinction-level shift in the business environment. The partners, never ones to back down from a fight, support this can-do attitude from the manager who stepped up.
The manager, energized and enabled, moves to consolidate influence. By promoting their plan, any plan, doomed as it is, they portray unsupportive colleagues as quitters by virtue of their dissent.
“If you’re not on board with my [dumb] plan, you clearly hate the company and are not a team player.”
There’s no serious appraisal of the dissenting argument’s merit. And that’s probably because the dissenting argument is “Umm, we’re f’d, so we should focus on retention, not growth, because [insert analysis that actually makes sense]”. Any analysis that maximizes EV in a losing game will be hard to sell against a bad strategy employed with hope. We gamble to get back to even and we’re risk-averse when we’re ahead.
Our middle-manager doesn’t just knife out the dissenters. They fully larp optimism with expansion. They hire loyalists, veterans of this obsolete-but-not-yet-obviously-so strategy. The loyalists are relieved. They, themselves, were cooked seeing the same writing-on-the-wall, but they just got thrown a lifeline by the last firm running the old plays. The only plays they’re familiar with. The reunion with their middle-manager buddy is as predictable as you expect, complete with brown liquor and nostalgia for those nights during training when they were chasing tail in Murray Hill and scarfing khati roll together if they struck out that night. Ah, Indian food before bed. To be young again.
The loyalist cluster is pragmatic. Every year of health insurance and private school tuition extends the polyester harmony that is their home life. But for the middle manager, the loyalist cluster is strategic. He’s like an old piece of tile covering himself in linoleum. It’s all wrong but a bigger nuisance to remove. Become hard to kill by entangling yourself deeper in a hierarchy that you created and from which you are a convenient buffer between partners and minions whose names they never want to know.
The misalignment, politics, and the waste of human life force in the name of self-preservation of an artificial environment (that’s a big one to unpack, but y’all might have to come have coffee or maybe something a bit stiffer for that convo) are regrettable.
But you know what I find worse?
That our middle-manager protagonist was not as cunning as he seems. That his primary offense was stupidity. That he sincerely mistook the situation for something he could fix instead of a noble impulse towards calculated self-preservation.
Stupidity is uncivilized. It’s unpredictable. “Say what you want about the tenets of national socialism, at least it’s an ethos. These guys are nihilists.” That’s how I feel about our manager if he is stupid. That’s a barbarian. It might be unpleasant, but you can reason with the merely deceptive.
I’m not sure if our middle-manager character (whose likeness to any real-life individual is purely coincidental) is sincere and stupid or just trying to survive, but those accomplices on high, blinded by desperate optimism, channeled the old guy at the club instead of having the courage to reinvent or the grace to just go home.
Then again, being who they are is what got them to giant ice cube status in the first place.
Money Angle For Masochists
A recommendation
Besides writing, part of my role here is to find good stuff to share with you.
One of my favorite online discoveries this year has been the X account of @SowingAlphaSeed. It’s an anonymous account that goes by “Farmer”.
The bio says:
Retail investor w/ a stretch goal of 2 Sharpe + 30% CAGR.
Please DM me if you have fund recommendations.
Live portfolio and track record on my website.
The main draw is that this account has steadily been learning and doing “in public”. It’s a constant source of interesting and smart ideas. It’s also focused on what it says in the bio, so the percentage of useful posts to total posts is extremely high.
Tip of the hat to Farmer (who I never met and don’t know).
An observation:
1-year collars in MU are close to the cheapest they’ve in the past year. If you’re bullish you can budget a trade that can offer multiples of return per dollar bet. If MU already made you rich, the cost to hedge is actuarially small.
Then again, you didn’t get rich by hedging amirite
Either way:
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The comprehension-deficit thread was the part that stayed with me. A system can become easier to use while becoming harder to understand. That feels especially relevant to AI-assisted development: removing manual work is valuable, but I still want to be able to explain what changed and why the result should be trusted.
“Ancient solar energy”
If you dig a bit into the history of solar we’ve wasted 100 years not developing the almost infinite source in the sky, and we’d have even more abundance with I would guess way fewer negative externalities. Vested interests coinciding with bad luck. Value vs monetisation.
Also disagree with the limits of knowledge extrapolation: yes of course the depth and specialisation, but the jargon and spurious complexity is pure self justification and self preservation (nicely referenced in your manager story, just as applicable to much of academia). Relatedly: yes we don’t all know the fracking process, but that’s no excuse for not reading Yergin or taking the most cursory interest in understanding how the world works and appreciating how interconnected it is. Smil is not the only source, and I find his approach a little narrow. Maybe we’re all too busy at work or on stack / tweeting / Netflix (“we compete with sleep” chilling indeed).
On the work to money point: money is not really value, viz the classic line “price of everything and value of nothing”. A cursory look at plunging rates of family formation, affordability crises in “rich” DM countries, etc should give enough evidence that total utility is not inflecting anywhere near as much as the eacc or “technofuedalists” would have it.
I would recommend more political economy rather than straight econ. I always found the latter alarmingly disinterested in explaining how the world works, and more interested in fancy models and math (again to the self serving specialist mode).
Bit of a ramble but that’s my riposte to your enjoyable rambles.
Thanks Kris.
(P.S. enjoyed the leverage piece on SA, not enough discussion of right sizing out there. Would welcome any insight to the auction / winning bid levels on the unwind. That must’ve been fun. Smells a bit like the luna takedown imho.)