TiB 150: How did the world get so weird?

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I’m going to do something different this week, which I’ve only done once before, and dedicate the whole newsletter to a single topic. Normal service will resume next week. I want to attempt a (partial, first draft) answer to a question we’ve addressed before (e.g. TiB 135) - why has the world become so weird?

The immediate prompt is, of course, WallStreetBets-meets-GameStop-meets-Robinhood, but that’s just the latest installment in a series of increasingly bizarre events that have submerged many of the world’s great institutions since age least 2015-ish. (If you’re looking for commentary on GameStop itself, the best is is inevitably Matt Levine’s - Mon, Tue, Wed, Thu, Fri - and if you’re not subscribed to Matt Levine’s newsletter already, well, this is the best tip you’ll get all week).

The short answer to the question is that GameStop is the latest example of variance-amplifying institutions (VAIs) triumphing over variance-dampening institutions (VDIs). These institutions differ in what behaviours they promote and what characteristics they select for. VDIs select for norm adherence, predictability and consistency. They create negative feedback loops; bureaucracy is the canonical example. VAIs select for extremeness, surprise and virality. They create positive feedback loops; the internet is the canonical example.

One way to think about the triumph of modernity is as the gradual reduction in variance across most aspects of our lives. From the Peace of Westphalia to the welfare state, we’ve gradually built institutions that make life more predictable and narrow the range of outcomes to which we’re exposed (with some catastrophic failures along the way, of course). That era is coming to an end.

For the last few centuries, politics in the West has been increasingly dominated by VDIs. The history of pre-modern politics is largely a history of violence - violence gradually constrained and today (more or less) eliminated. Constitutions and norms that govern, among other things, the transfer of power increase predictability and reduce variance. VDIs have become important at every stage of the political process. For example, until a decade ago the dominant model for understanding US presidential primaries was that “The Party Decides”, not the voters. The odds for wildcard candidates were low.

We saw a similar phenomenon in other areas of life. We talked in TIB 146 about the old world of overlapping corporate board memberships that allowed elite consensus to spread widely and rapidly - a classic VDI. In finance, central banks have played a dampening role for centuries and are now - alongside another VDI, Keynesian fiscal policy - the default instrument for maintaining financial calm in crisis. 

Why have VDIs been so successful and persistent? Long time readers will not be surprised that I think part of the answer is that VDIs have built a symbiotic relationship with the most ambitious people in society (see my previous essay on the topic). VDIs have provided a more or less predictable, more or less meritocratic (again, with obvious and tragic exceptions) mechanism for ambitious people to convert talent into power, wealth and status. 

One important consequence of this is that for many decades, most ambitious people have not been doing catastrophically destabilising things. You might not like McKinsey, Goldman Sachs, Google, et al, but hierarchical institutions are an ambition shock absorber. The people competing to get to the top of each are (generally) following rules and channeling their ambition into non-violent, non-destructive activity - a happy anomaly in historical terms. This makes for fairly coherent, homogeneous elites (which again you might dislike) who are committed to societal stability. 

The internet changes all this. It is the ultimate variance-amplifying institution. It inverts many of the core features of the VDIs that preceded it. Above all, it is permissionless and uncapped. On the internet anyone can do anything and, in theory, can reach any scale. Unlike the hierarchical institutions we have become used to, the internet does not select for the least disruptive or the most conforming, but for the most meme-able, share-able and bandwagon-able. And the internet has spawned a legion of offspring VAIs: Reddit, Robinhood, Twitter, and many more.

This changes the elites we get and how they behave. As I’ve argued before, startups - archetypal VAIs - are an increasingly attractive path for the most ambitious, precisely because they allow for extreme outcomes on impatient timelines. This creates a subset of elites who owe little to conformity and norm adherence. In general, the winners of internet-scale contests look and behave nothing like the winners of hierarchical contests - compare Elon Musk to Pierpont Morgan; Donald Trump to… any pre-Trump presidential candidate. This, in turn, accelerates the feedback loop.

More importantly, VAIs allow everyone to a shot at greatness - or, at least, a day in the Twitter trends. Just because you can’t climb an institutional hierarchy doesn’t mean you can’t “meme a president into existence” or bankrupt Wall Street. Of course, it is truly an uncapped game, in both directions, which means that in a VAI some days you’re u/DeepFuckingValue and some days, tragically, you’re Alex Kearns. It may be that r/wallstreetbets contains more college graduates than “deplorables”, but in a world of intra-elite competition and predatory precarity, even the upper middle class has the incentive to roll the dice.

The variance genie can’t easily be put back in the bottle, at least not without severe repression. There is no “pre-2016” world to return to. A free internet entails a world more variance and more tail risk. We must learn to live with it. We learned to live with the printing press too - an undoubted boon for the world (though not before it had helped wreak destruction across a continent). The solution must be countervailing institutions - new VDIs that can stabilise outcomes without a kill switch. We need the Peace of Westphalia of the internet age. Let’s hope it doesn’t take us quite so long.

Thanks for reading this unusual edition. Feedback especially welcome this week. This is a rather hurried draft, but I think there’s something to it and would love your thoughts.

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Until next week,

Matt Clifford