With Exchange 2024 less than three months away, I’ve started mapping out “the weird session” at the event: my 100-minute block on the “Silent Disco”-style stage. There, we’ll dive deep on critical, existential issues facing financial advisors and investors today. Last year, we diagnosed the “polycrisis.” This year, however, I want to do more than diagnose the state of the world. I want to focus directly on what we can do about it.
If you’re interested in seeing last year’s session, you can find it on our YouTube channel. All the related articles I wrote on the key themes are available on my author page or here: https://85bb65.com/future-of-finance-content.
But in case you don’t want to dig through 10,000 words of old content, let me sum up the polycrisis.
Making Wise Decisions Starts With Models
Every generation thinks the world is ending. There are never a shortage of doomsayers. I want to be really clear that I do not consider myself some kind of Cassandra here. I have no interest in simply pointing out what’s wrong.
But at a minimum, we need to have as accurate a model of the world as we can if we want to make good decisions. That is, if we want to make wise decisions, where wisdom is simply “knowing the right thing to do.”
Any model we build will be wrong, but some will be useful, as George Box pointed out in his brilliant explanation of Bayesian inference as the base of all knowledge.
All models are wrong, but some are useful.
To build that model, we must start, at the very least, by paying attention. Yet with so much information coming in from the world, what do we pay attention to?
My rubric is to focus on the responses of individual actors in the Western Democratic Capitalist system (an intentionally vague phrase that includes North America and its proxies, Europe and its proxies, Australia, maybe-Japan, and other countries connected to their same tides of supply, demand, innovation, extraction, and democratic governance.)
My focus is here not because it’s the only system; in fact, by population, it’s a minority system. Rather, if I’m being honest, it’s the one I know. I’m not an expert in anarcho-syndicalist communes, but I do have a reasonable handle on American capitalism.
Polycrisis: What Do We Pay Attention To?
Capitalist institutions exploit resources to generate, store, and transform power, just like an ant colony:
Capitalism is fantastically efficient at this. To this point, the human race has come up with no more efficient way to extract and move power through the world than the capitalist version of money.
The problem is that efficiency and fragility go hand in hand (which is a decent part of Nassim Taleb’s arguments in AntiFragile). If you are maximally efficient at doing ONE THING, then almost by definition you expend very few resources continuously investigating whether the ONE THING is still worth doing and/or looking for alternatives.
What happens with ants also happens with human systems. When an efficient collective-action engine, like a company or an anthill, starts running into issues, inevitably some ants come streaming back from the end-point — the pop tart, the business model — and start spreading panic. Literally spreading it, via pheromones, gossip, whatever. That then sends some ants to go off and do wild and unpredictable things and cause big disruptions, until new resources are found, and the colony continues to grow:
To land the metaphor: in this case, the ants coming back from the pop tart of global capitalism have streamed back letting us know that things are wrong. And they’ve been doing so for some time.
The Three Structures At Risk in the Polycrisis
I’d funnel these various “doomerisms” into three buckets, each based on a “structure” at risk:
- Infrastructure: The “base” of human productivity and physical well being is under threat. Climate change? Fundamentally an infrastructure problem. It has massive impacts on how we think about energy, agriculture, risk management, housing, transportation, and so on. Genetically modified crops? Same. Localizing manufacturing? Food distribution? Rare earth metals? Even the most basic applications of robotics and AI? All interact at the infrastructure level. There are real, scary problems here. You can disagree about this or that set of facts or predictions, but the issues are real.
- Social structure: Meaning, how any two humans interact with one another. Our incredibly divided and polarized world, exacerbated by social media? Yeah, that’s a social-structure problem! Breakdowns in democracy around the world? Yep. Over/under regulation of almost anything? That’s a problem, too. And let’s not forget markets and economics! All of the legal, monetary, capital, technological, and political systems that bind our interactions together towards some idea of a common good? You and I might disagree about which part is a problem and who’s to blame, but again, I think we all see that there are real issues.
- Superstructure: Rarely discussed in finance circles and containing a veritable train-yard of third-rails, this refers to all the right brain, “soft” stuff that actually holds us together as communities: families, countries, religions, tribes. When people talk about finding “meaning” in life, or the opposite — deaths of despair — this is what we’re talking about. It’s the collection of stories we tell ourselves about what it means to be us – culture, religion, spirituality, mythology, that’s all in there, and definitely on the fringe, if not on the outs in modern Western Democratic Capitalism.
I tend to think about these groups in one of two ways, depending on whether I’m remembering my 1980’s era Sociology or Psych textbooks:
Each Structure Overlaps The Others
From the sociologist’s (or Marxist economist’s) point of view, collections of humans build literal infrastructure (road networks, food systems, electricity). This both enables and is informed by certain social structures (laws, norms, relationships, communities). This infrastructure both exists in service to and relies on super structures (religions, ethics, aesthetics, culture, mythology, folklore, art).
Meanwhile, from the Maslow’s Hierarchy perspective, human flourishing requires building on ever more abstract levels of human engagement, from the bottom (food) to the top (enlightenment or self-transcendence).
Important to both ways of thinking is that the three “structures” directly inform and overlap each other. The invention of the plow may primarily have been an infrastructure development. However, it had profound, millennia-long effects on everything from gender roles to the Magna Carta. The Christianization of Europe wasn’t just a superstructure replacement for local religions, but a complete rewrite of the social structure of the continent, and so on.
Personally, I find it useful to create this layer of abstraction for one very simple reason. It’s overwhelming to think of the individual issues all at once.
Any of us could (and many of you do) spend all our efforts on just working through one of these issues. And my bookshelf is full of incredibly well researched recent diagnosis, from Jonathan Ward’s “Decisive Decade” outlining why we’re really up against it with China, to Neil Howe’s “Fourth Turning” model of demographic destiny or Peter Zeihan’s “The End of the World is Just the Beginning: Mapping the Collapse of Globalization”. There are literal mountains of it, and some really amazing thinking being done in all sorts of weird corners of the world (like Daniel Schmachtenberger’s Consilience Project, or the entirety of the Santa Fe Institute).
How Do You Solve The Big Structural Problems? Collective Action
However, even if we narrow down the diagnosis to a single problem, It can be incredibly difficult to figure out how to actually change anything.
This is actually kind of the human superpower though. We do it through collective action. As social creatures with big brains, when we actually coordinate in a positive-sum manner, we’re capable of amazing things. Moonshots. Curing diseases. Mass-scale innovation. Pokemon Go.
In fact, the capitalist ant colony efficiently extracting resources is a prime example of how good we are when we all pull in similar directions.
The challenge is that in order for more than a squad of folks — call it more than 6-15 individuals — to collectively work on the same action, we generally require some sort of institution to coordinate those efforts.
So we have companies to run capitalism, governments to run social rulesets (laws, norms, etc.), we have churches and ashrams and zen centers to (ostensibly) teach wisdom practices. We have TikTok, and Reddit, and Twitter, and the New York Times, and Fox News — all institutions collecting human effort together to achieve some goal.
Trapped In The Local Optimum
In many ways, however, humans are too good at this. We’ll exploit any system until we find a local optimum: some point at which we’re doing well enough to no longer justify the effort to do something different in order to improve.
Capitalism in particular is really good at getting trapped in these local optima. Think of the Global Optimum as the most efficient you can be at manufacturing a widget. In that case, individual actors will inevitably become “stuck” in ways of doing things that are efficient enough that implementing any new methods requires a temporary reduction in efficiency. And you can’t sell that to an analyst on a quarterly call. Anyone familiar with Clayton Christiansen’s “Innovator’s Dilemma” knows this dynamic well.
Worse, achieving the local optimum for something almost always means leaning into whatever multi-polar traps are present in the system. A multi-polar trap emerges in a complex system where the optimization of the individual runs counter to the optimization of the whole. In other words, if the cost of making widgets includes just dumping your garbage in the river, and there’s no penalty for doing so, economic or otherwise, then the winner in the widget race will always be the one dumping the garbage instead of paying the trashman. Even if the individual now has to drink contaminated water.
Change Requires Energy And Reframing
Moving off of local optima and avoiding multipolar traps requires two things: energy and reframing.
- The energy for a big change can come from tons of directions. In many cases it’s literally energy. That is: If the cost of solar power dropped 90%, then a renewable power transition becomes easier. But it can also come from innovation (what else would you call an exogenous force that increases productivity?) Capital? Just another form of energy, stored and deferred.
- The reframing of multi-polar traps, however, often requires a more structural shift in the “how” of doing things as a collection of individuals. If the widget industry is a bad enough polluter, then a different institution (the government) can change the actual rules. They can make it un-economic to pollute, enforce those rules with jail time. Voila — we don’t dump PCBs into the river any more.
But, if I’m being honest, I don’t particularly feel empowered, as an individual, to do either of these things as it stands. Sure, I can vote. I can lobby for a law change. I can allocate my personal energy (money, time) towards things I think make change happen. But I’m just one person: one agent in a giant system
But Elon Musk? Or President Biden? Or Marjorie Taylor Greene? They’re more than just “agents.” They’re hyper-agents. They have the ability to change the actual rulesets in ways most of us don’t. They also have the ability to marshal energy in the ways most of us don’t.
Say Elon Musk woke up tomorrow and decided to devote all his time and energy solely to curing cancer. He might not succeed. But as a species, we’d probably make more progress than if he didn’t.
So What Do The Rest Of Us Do About the Polycrisis?
What does any investor, advisor, or for that matter, human, do in the face of these cascading crises? How can we influence the hyper-agents towards societal “good”? How can we help engender the real collective actions we know will be required?
Heck if I know. But on stage, on February 12th at 1PM, at Exchange in Miami I’ll hop on stage for 100 minutes and try to wrestle with this question with some folks way smarter than me.
I’ll be joined by a growing cast of thinkers. At the moment I’m pleased to announce that Tom Morgan from Sapient Capital and Adam Butler from Resolve Asset Management will return to the conversation.
I’m especially pleased that the incredible Kyla Scanlon has agreed to join us as well. Kyla’s simply the best, most curious finance writer of her generation. Her writing this year on the fundamental bargain between capital and labor has been provocative and engaging. She’s also explicitly exploring the super structure issues around how capitalism required the aggrandizement of individualism at the expense of the whole. It’s great stuff.
And we’ll be adding one or two more folks to the discussion in the coming weeks.
Here are the questions we’re going to hash out on stage:
- In each of these three spheres — infrastructure, social structure, and superstructure — how can the individual make an impact?
- Are there places where a “phase shift” can cause rapid, positive change, as they often do in complex adaptive systems? And is such a phase shift as simple as establishing “Common Knowledge” about the future we want, as Ben Hunt from Epsilon Theory has been suggesting for a decade?
- Should advisors (and the rest of us) focus on nudging the hyper-agents of western democratic capitalism (the billionaires and influencers)? Or should we root for their demise?
- Is it possible to “invest” from this side of the gap, knowing (sadly, but with some certainty) that some of these crises will not be resolved in a positive way? Pick your crisis; some of these ships have sailed.
- Can existing systems that re-enforce or even encourage multi-polar traps be changed to encourage better societal outcomes without ekpyrosis — that is, burning it all down?
- We are in a world of nearly-negative institutional trust in every organ of power from corporate America to the federal government to academia and religion. How can we create communities of purpose to actually make a difference? Is it all about DAOs and pop-up philanthropy?
- How do we keep our filters open enough to update our models, without falling victim to the maelstrom of disinformation and despair?
100 Minutes Into the Future
I’ll be honest, we won’t have all the answers to these questions. But I do think we can have a constructive dialogue, and maybe, just maybe, find the seeds of hope that project us past the gap in front of us from each of the varied tendrils of the polycrisis.
Ultimately, that dialogue itself may be the important part — because if we can’t learn from each other, what hope can we possibly have?
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