A Tsunami of Innovation: Here’s Comes the War of 2020
“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” —Ronald Reagan.
2020 is going to see a continuation of the great confrontation between the technology players and the money men.
This clash reverberates around the globe, from Washington to Beijing.
What drives economies is entrepreneurship and innovation, learning curves and accumulated knowledge. As my readers know by now, measuring the accomplishments of enterprise are the time-prices of goods and services, how long it takes the average worker to earn the money to buy them.
With real time-prices dropping by 72% or more over the last 40 years, and accelerating as we write, innovation has utterly quelled inflation with abundance. Central banks everywhere flail fecklessly against the advance of human creativity. But forget the fictitious CPIs and inflation targets. We are in the midst of a worldwide boom of enterprise signified by plummeting prices everywhere human creativity is free to flourish.
Hiding many of the era’s greatest accomplishments are smog’s of rancorous politics and veils of vaporous money.
Looking at the media, or visiting the universities, you would never guess that we are living in a golden age. You might think that the big event of the day is the coming extinction of the human race by rising waters, mounting between our horrified toes at the utterly unmanageable rate of six to seven-tenths of an inch every year remorselessly and unanswerably. Or perhaps more menacing still is the impending incineration of the race by temperatures rising at a rate so small that it is scarcely measurable as we emerge from the little ice age of a century ago.
Manifesting the hypertrophy of finance is the expansion of debt and money and banking profits and currency trading and GDPs, all guaranteed by governments.
Uncovering the Root of Failed Paradigms
The clue to a failed paradigm is a government guarantee, whether of banks too big to fail or universities too prestigious to teach or students too touchy to foreclose. In the corpulent arms of governments, the big banks have retreated from financing main street enterprise and the big universities have converted from havens of teaching and learning into centers of indoctrination and re-education. Now big businesses can be created, such as MainStreet and Whitebox, merely by financing entrepreneurs across the country.
Judging by what you read, you might imagine that what matters is money and interest rates, repo-games, yield curves, money supplies, and exchange rates.
The money men — the essentially nationalized bankers of the world — are collaborating with governments in new forms of socialism carried out by treasuries and central banks.
Conducting trade wars and money machinations, they are exacting tolls on the world’s entrepreneurs. Up to 40% of profits go to the engines of financial speculation.
Between the zones of manipulation and the realms of enterprise stretches out a vast wasteland of politics, where ignorant armies clash day and night amid a tintinnabulation of plaintive twittering. Some of our most brilliant minds preoccupy themselves with the mismeasurements of government money rather than with the creations of enterprise.
To David Stockman and Kyle Bass, both shrewd and savvy analysts, China seems a gigantic Ponzi. The wild emissions of new money by its central banks exceed even the US Fed’s zero rate bonanzas. China seems to combine an economy of mainland socialism based on an unconvertible Renminbi and run by the Communist party with international trading scams channeled through Hong Kong, and global infrastructure aggressions spread through the third world in its Belt and Road Initiative.
Chinese cities are said to be Potemkin arrays of fake facades and empty towers, Chinese technology a product of thievery and government subsidies, Chinese policies a mixture of vast surveillance in “smart cities” and concentration camps in Xinjiang province.
Go to China, though, and what chiefly impresses anyone with an eye for technology is its runaway entrepreneurial progress: A hundred new cities with more than a million people apiece in 30 years. The people may not be free to criticize the government, but the companies are free to do what they want to compete in a riotous arena of innovation. They have three times more IPOs than the US, comparable levels of venture capital, far more startups, millions of more engineers and faster technological advance.
Not to be invidious, but the “re-education camps” in Xinjiang, created after jihadists killed five hundred or more Chinese in “protests,” may be better than US Indian reservations and university student reservations. Rather than climate myths and diversity rites, at least, the Uighur Muslims are learning Chinese and other skills useful for an advanced economy.
The so-called surveillance state, with its “social credit” scores, has little impact on the daily lives of most Chinese (many profess not to know about it). But it is producing “smart city technology” that eliminates traffic jams, banishes crime, obviates cash and results in a futuristic scenario of commercial progress.
Chinese politics is oppressive and its opinion ban is reactionary and counterproductive. But to me, it seems that Communist Chinese control of business is less crippling and oppressive than US regulatory control.
Full of engineers who understand technology, the Chinese government is not suing all its leading tech companies for spurious monopoly power or CO2 emissions or diversity violations. It is not stultifying and intimidating investment with insider trading rules under an SEC mandate of “don’t invest in anything you know about.” It is not afflicting its telecom industry with heavy taxation in the form of spectrum auctions, as if the government owns the entire electromagnetic spectrum.
The entrepreneurs of the world continue to work and disrupt, innovate and invent. If they are suppressed in one country, they erupt in another. Switzerland, Taiwan, Estonia, and Israel become the centers of world economic leadership.
During my recent Israel trip, I meet with venture capitalist Jonathan Medved. In his current portfolio, called “Our Crowd,” he has assembled many of the world’s leading companies.
All of them are led by Israelis, but they locate wherever they need to be, from Boston to Beijing. In many ways, they constitute the “hard-problems” branch of Silicon Valley. Israel is a center of world software innovation, but with 60,000 missiles aimed at you, you cannot imagine that “software eats everything.”
OurCrowd became briefly known for an early investment in Beyond Meat, which had its IPO at $25 and moved up six-fold in six months. Beyond Meat is the kind of project that impresses American media.
More important in the portfolio, though, are companies that next year will cure Parkinson’s with acoustics, zap malignant tumors with gamma rays without inflicting damage on surrounding tissue, improve weather prediction granularity by orders of magnitude, test autonomous cars without driving them, encrypt light waves, identify you uniquely without biometrics or passwords, and revolutionize chemistry on a chipset. And much more.
All these gains manifest themselves in ever lower time-prices signaling ever greater abundance.
2020 will be a turning point. We will acknowledge the triumph of the entrepreneurs over the money manipulators who try to fool them.
Everywhere, people will end their preoccupation with water between their toes, and come to recognize the dimensions of the vast tsunami of innovation that is sweeping through the world.
Editor, Gilder’s Daily Prophecy