Misallocation is a massive problem. I think a significant amount of money is going into advertising, pointless startups, entertainment and social media.
Basically, we are spending huge amounts of money getting numbed out of our minds instead of solving real fundamental problems.
In general, I think it reveals a deeper problem about capitalism; none of us understand value anymore (we have more junk in our lives than we could possibly need)... So we struggle to allocate capital properly. We just blindly follow trends. The people who are getting rich now are not those who want to make the world a better place; the winners are those who just want to make quick cash (short-term thinkers who take insane risks).
Does society prefer Snapchat or a cure for cancer? In the current economic environment, investors prefer Snapchat because Snapchat is pretty likely to get a ROI within the next 5 years.
The return on investment for a cancer cure is probably small (especially given the large amount of recurring revenue that big pharmaceuticals are currently making by selling cancer drugs). Also, it's much riskier than Snapchat... Could take 5 years, 10 years or 20 years.
Ultimately, we are satisfying people's short-term 'wants' at the expense of their long-term needs. We're a society of addicts who just want to get a quick buzz.
Capitalism has never been about making the world a better place. All systems deal with humans and humans inevitably prefer helping out themselves and people close to them over others, which leads to corruption regardless of the system. And capitalism seems the best method for controlling innate human corruption (see China's incredible economic growth once socialism was all but abandoned for capitalism in the 80's pulling a billion people out of abject poverty).
As for investors preferring Snapchat to curing cancer? The amount of money invested in cancer dwarfs Snapchat's investments by magnitudes. You don't just cure "cancer" you find cures for the hundreds of different diseases that fall under the umbrella of cancer. There's so much money invested in cancer there are often not enough candidates for a new clinical trials.
If we have a shortage of anything, it is medical research scientists. And the way to get more of those is to change the regulations so there is more room for profit medical research.
> capitalism seems the best method for controlling innate human corruption
Capitalism seems better than past failures. But it is surely a local maximum. We have thousands of years of social evolution in front of us. Experiments have hardly been exhaustive, and material conditions seem to be changing faster than ever.
I agree. Although it will be hard to separate the need for transparency to one's rights to privacy. You can deem that some actions inherently leave you no rights to privacy, but I'm afraid it'll be only a matter of time till everything you do is under the watchful eyes. On the other hand, humans are at the best when they know theyre being watched. Its a difficult tradeoff.
The printing press was one of the main factors making the reformation possible, which later on led to the thirty year's war. So it's actually a good example of how technology has unintended consequences.
Recent historians have been looking at how the printing press was more an instrument of state power than anything else. Remember that printing shops were state-controlled and heavily censored (_The Great Cat Massacre_ has a chapter on print shops in 18th-century Paris); most of their output was royal decrees, propaganda pamphlets, and books friendly to the regime in question.
The Reformation began for good reasons -- the Church had been dragging its feet on internal reforms for hundreds of years, and finally implemented these reforms in the Council of Trent, after the Reformation began -- but its spread was normally something that governments did to their people, not something that people chose for themselves. It wasn't an extension of liberty. Henry VIII and Edward VI flooded England with mercenaries, for example; in the Germanies, whether to turn Protestant or not was a decision made by rulers (who were legally entitled to compel their subjects to follow them; some converted to Lutheranism, seized Church property, and then switched back to Catholicism, and persecuted subjects who were slow to make the change each time). First-wave Protestants -- Lutherans and Anglicans -- generally had less religion rather than a different religion; even today, there are conservative branches of the Lutherans and Anglicans who are negotiating with the Catholic Church to return as whole congregations.
Calvinism was (if I remember rightly) never imposed from the top down, and typically took power through revolts by the middle class or the lower aristocracy; but Calvinist states tended to be oppressive, warlike, aggressively-middle-class theocracies -- very bad places to be poor or dissident. (_Albion's Seed_ is revealing on this; the modern Islamic Republic of Iran is a less theocratic, less anti-commercial, less oppressive place than 17th-century Puritan Massachusetts was.)
This is not very constructive. I can tell you're being sarcastic, but if you disagree with the parent comment, then perhaps you could enlighten us why?
The fundamental problem is trying to cast individuals in heroic narratives. The mechanism for status is beside the point. People in Russia had ikons of Stalin.
I feel like somehow biasing towards nonfiction is one way to improve this, but that may just be bias speaking.
We can't be all that coherent about "greed" anyway - if we do create consumer surplus through business, then this is a good thing. If we enrich ourselves by rent-seeking and cheating, it is a not. Deciding which is which is pretty hard.
Didn't Jimmy Carter just go into complete remission from what used to be a death sentence, stage 4 melanoma? It was in his brain and liver, and now it's undetectable. He's 91 years old and a decade ago he would have stood almost zero chance of recovery.
I'm sorry the situation is so bad in research, but it does produce miracles.
The drugs that helped President Carter has a 33% success rate for people in his condition. It's only been around since 2011 and brought the survival rate up from near 0%. That's some real progress.
Yep, the miracles are what draws people to the work in the first place, but they can't sustain people forever, generally. With enough lucky breaks, it's possible.
I have to disagree with you about research funding. There is not nearly enough-most people are dissuaded from pursuing research as a career because it is unbelievably competitive to get research grants, which is why we don't have enough research scientists.
The caveat is that we are training more than enough research scientists, but we simply don't have enough jobs for them. There are some jobs in industry, but biology is not like engineering-you can't know when you will find the next breakthrough. Pharma companies are more focused on iterating on established pathways and targets (much lower risk and higher short-term ROI) and are absolutely dependent with government-funded basic research.
The clinical trials bit that you mentioned is a red herring-recruiting patients is often challenging for completely unrelated issues. I've also never heard of being unable to conduct a clinical trial for lack of patients.
When Value is defined as "more money", then this will happen.
Money often functions as a lack of efficiency and is prone to re-produce itself.
For example: if cancer was cured with a pill, forever, the total revenue from curing cancer is pill sales price * people born, which would be less than current treatment costs.
The problem is that technological disruptions like this pose a threat to the economy as it is organised and run today. In particular, modern economy cannot cope with unemployment. The masses of laid-off people would either have to engage in yet more pointless jobs, or "disrupt" the social order. This is very unlikely to increase efficiency overall.
Why would a cure for cancer be a small return on investment? You're assuming that the only people who could enter the market and find a cure would be the current players who are profiting from the current treatment or some global conspiracy to keep the cure hidden. If someone were to discover a very effective treatment, they would surely profit nicely. Hepatitis C was recently cured, a brutal disease that affected some of the most marginal people in society [0]. And it was done thanks to a profit motive. Barring extreme price controls on drugs by politicians, this type of progress can be greatly encouraged by the profit motive.
[edit] I would also like to add, the non-profit approach [IMO] has failed to produce anything but the abundance of the color pink and self congratulatory galas for wealthy donors. Perhaps the profit motive and choice that has served society so well in practically all aspects of our lives can be equally leveraged on solving hard problems like disease.
Whenever I think of profit motives being a good thing I'm reminded of the Steve Job biography where it speaks of his time at a commune. He would sleep under the kitchen table and watch people sneak in at night to take food from the fridge which was supposed to be shared. People want as much as they can get for their work, and not a single apple less.
>If someone were to discover a very effective treatment, they would surely profit nicely.
That would depend on how much it cost them to develop the treatment, and how much money the patients can pay. It's not sure that it would be profitable.
It's not about 5 year return, it's about the fact that the potential cancer cure simply has low returns and huge risks. People are absolutely willing to make long term bets (e.g. snapchat, which has negligible revenue right now, and is entirely just hope for the future), they just need to be good bets.
Molecular targets are getting harder to find. Getting a drug through the FDA is insanely difficult, costs huge amounts of money, and often fails. Further, there is significant political risk once you get it through - very few countries will pay full price for your drug (mostly just the US), and who knows where the US is going?
Pharma is both a scientific and a regulatory challenge - making money involves the stars aligning.
If you want more cancer cures, make it easier to become very rich by selling them.
Is this because we've already harvested the low-hanging fruit? Are there any new paradigms on the horizon that could change this?
> If you want more cancer cures, make it easier to become very rich by selling them.
It's an odd thing about Americans, though. They really don't seem to mind if Jobs or Zuckerberg get insanely rich (although there was some grumbling about Gates back in the day), but they loose their collective fecal matter if an evil capitalist with a cure for cancer even tried to recoup the capital invested in its development.
"People are dying because it is not free!", they would screech. And the (US) government would cap the price because by that time they will be the sole domestic channel for any new therapy's delivery and done and done. Big pharma knows this, and if they don't, their investors do. Better off improving female viagra or something.
It's mostly a combination of low hanging fruit all being plucked, and also the fact that it's harder to measure smaller deltas in efficacy.
I.e., if there is already a drug that cures 75% of cancers and a new drug cures 85%, a clinical trial to detect that 10% difference will require a lot more people (and cost a lot more money). Additionally cost-efficiency is not a valid reason to allow a new drug (according to the FDA), you've got to be better than the last one.
> if there is already a drug that cures 75% of cancers and a new drug cures 85%, a clinical trial to detect that 10% difference will require a lot more people (and cost a lot more money).
That makes sense. Thank you.
> Additionally cost-efficiency is not a valid reason to allow a new drug (according to the FDA), you've got to be better than the last one.
Really? I did not know that. On the face of it, that seems absurd. If Treatment A cures at a 75% rate and costs $1M and Treatment B cures at a 72% rate (worse) and costs $10, it seems as if it would still be valuable to the market, no? Or am I mis-reading you?
I don't think you can look at a subset of capital expenditures and then conclude "capital is misallocated."
You would have to look at all the businesses funded and see where the money is going. Also I would caution you about falling into the trap of confusing "valuation" with "capital". SnapChat might have had a $16B valuation but really only "allocated" a bit more than a billion dollars.
If you subscribe to the 'too much money is idle' point of view like continuations does, then you should be very bullish on the startup eco-system growing for all kinds of businesses, and that gives the capital a chance to be allocated to something useful, like another Watsi.
If you see a large amount of money (as in 100+ of billion) flow in and significantly substandard returns then it was misallocated. The VC industry has seen substandard returns over the last 20+ years. So, it's not a good allocation of money.
PS: Some people get rich at Vegas, that does not mean gambling is a good investment.
I don't disagree but would like to understand your metric, "substandard returns" suggests you have a metric in mind, how do you arrive at the 'standard' ?
Risk adjusted ROI. The bond market is the classic example, if you look at the class of bonds paying 10% vs 2%. If your risks where in line with the 10% bonds, but the payouts where inline with the 2% bonds it's a low ROI investment.
Now, looking ahead you don't know what the risks are. But, you can examine the ROI for 1990 investments and you can see which 2010 investments have already failed.
Ok, fair enough, but today's Risk Adjusted ROI is quite low. And comparing returns from a couple of decades in the past with current returns seems unhelpful to me.
My point is that your standard has to be for your choices of the capital today versus historical returns. So if you compute for expected value of a million dollars sitting in a bond fund today, versus sitting in a basket of startups, are the returns less in the latter case?
You can't compare things to today’s bond market, because you don't know what the risks are. It's all historical data vs. other historical data.
As to solid returns today, regulated public utilities companies have ok returns and low risks. It's not zero risks and the upside is limited, but many people consider them the benchmark for low to moderate risk investments. (Though you still need due diligence as leverage can still kill them.)
Effectively zero risk investments on the other hand have a huge price premium.
PS: The 2/20 aka 2% management fee and 20% performance is the real killer. Huge VC funds are a great way for VC's to get rich so they are all about selling them. There are also a few back channels to do insider deals.
But we used to have a large number of $20-$40 million-per-year companies where people had decent jobs and worked. When that becomes a marque of a schmuck then we have a problem.
I think some of these overvalued... frankly, Pet Rock companies aid and abet this. Don't get me wrong, WE are the problem here but the effects are not good.
I read this that you have a preference for a number of mid-cap companies which employ modest numbers of people at "decent" jobs. (decent in quotes because as a subjective description it's hard to pin down what a given individual considers decent and another individual doesn't).
The current economy supports a large number of those. And they provide steady employment for a large number of people. But often times in this forum (HN) companies providing jobs which are considered "CRUD" are not held in high esteem and so you don't hear about them. So perceptions can be biased as well.
I worry more about non-allocation when you can't get credit from banks and you companies sit on giant hordes of cash. That slows the economy down and makes it hard for new experiemental companies to get going.
A little girl and her grandfather, an economist, are walking down the street. Suddenly, the little girl tugs on her grandfather's tweed blazer and says, "Look, Grandpa! There's a $20 bill on the sidewalk! Somebody must have dropped it!"
"Nonsense!," said the grandfather. "If that were a real $20 bill, someone would have already picked it up!"
I think two big contributing factors are the so called "active investors" and corporate taxes.
Active investors force companies to optimize for short term gain which of course hurts growth.
Corporate taxes are too low. The private sector is not generating enough growth and to fix that the government does the exact opposite of what it should do. It hands the private sector more capital instead of taking it away. The private sector is already at a loss with the capital it already has at its deposition. I bet most of it goes into speculative Wall Street financial vehicles and I do not think any of it ever gets to entities that are short on capital or it goes to the wrong entities that are short on capital because most academics would be more than happy to get 0.01% of the capital that goes to social media startups.
Yes. Water, water, everywhere but only a handful are allowed to drink. We live in a contradictory age where more capital has accumulated than ever before (and thus can be said to be plentiful), but where it has at the same time become increasingly concentrated within a relatively small socio-economic network. Capital continues to evaporate away from the 99% to the 1%, but no longer precipitates back out.
' I think a significant amount of money is going into advertising, pointless startups, entertainment and social media.'
My suspicion is that a lot of it is going into housing, driving up the costs for home buyers with no productive benefit for the economy.
Well that is obvious after 2008. Last I checked there are around 5 vacant houses for every homeless person in America. According to anthropologist David Graeber, the real original (pun intended) meaning of the phrase "real estate" was royal estate, referring to the British monarchies' royal estate in the 17th century.
The number of people who Do Things That Matter is just dwindling - most people are basically seat-fillers. This is especially true of say, a Congrefsperson or other equally high-profile functionary like a CEO. Even high status professional work like medicine and law is just rubber-stamp boredom with moments of sheer terror.
Things That Matter are more or less on autopilot - see "How It's Made". So the differentiator becomes rent-seeking in nature. This makes things volatile - how is there anything like a "fundamental" to Snapchat - and this increases uncertainty. But “All of humanity's problems stem from man's inability to sit quietly in a room alone.” - B. Pascal.
Preferences are real and we don't understand them ( in the sense of "I cannot understand myself" in Zen). But we can certainly see their aggregated effect.
and in a way, it's worse even than that - cure cancer. Now something else comes along to replace it. Maybe that's Alzheimers. Cure Alzheimer's? Something else.
Advertising, startups, entertainment, and social media (ie thinly-veiled consumer research) all produce material of value directly or indirectly.
Their value is generally high because the output of a small number of individuals has an impact on a very large number of people. In addition to the services they provide directly, they usually create secondary benefits for society such as releasing new technologies into the open source community.
If you want to tackle waste, you'd be better off by looking into non-profits. How many funnel a significant portion of their funding into 'administrative costs'? How many exist to dodge corporate taxes in the name of 'good will'? How many are thinly-veiled advertising agencies for political special interest groups? How many aim to provide value to the greater populace rather than a very small subset of the population?
What about religion? Not banging on people who follow any specific religion, but nobody ever asks just how much value they're capable of extracting from their followers. How much of that funding goes to providing non-religious services such as entertainment, or backdooring funding to political special interests that support their own worldview.
How about subsidizing post-secondary education that abuses pricing as an entry barrier to exclusivity? Why have degrees become a default requirement for most/all middle class jobs? Why the hell does it still follow a strict 4-year rule for undergrad degrees? Why does everybody still waste the first 2 years learning arbitrary 'core requirements' unrelated to their specialty? How can we realistically subscribe to a fire-and-forget model that assumes everything can be taught up front prior to a lifetime of work. The 'waterfall' model has been proven ineffective in technology, why is it still overwhelmingly supported in education?
I live in San Diego, a hub for biotech research companies. From what I've seen talking to people who work in the field, funding isn't the issue. If anything, there's already too much capital floating around and the larger companies are swallowing the smaller companies en masse to eliminate competition.
I personally knew a guy who works in bleeding-edge cancer research. New advances won't come in the form of a pill or operation. The next generation of treatments hack biology in a way that makes cancer visible to the host's immune system. In addition, cancer is a blanket term to label a class of diseases so one treatment will only treat one/few forms of cancer. Throwing more money at the problem is like trying to hasten software development by throwing more developers at a project.
ROI for healthcare is huge, especially now that insurance is mandatory and basically charged as a 'tax for being alive'. The cost for Snapchat is minimal/nothing whereas healthcare via insurance + medicare/medicate costs make up a significant percentage of individual income.
Basically, we are spending huge amounts of money getting numbed out of our minds instead of solving real fundamental problems.
In general, I think it reveals a deeper problem about capitalism; none of us understand value anymore (we have more junk in our lives than we could possibly need)... So we struggle to allocate capital properly. We just blindly follow trends. The people who are getting rich now are not those who want to make the world a better place; the winners are those who just want to make quick cash (short-term thinkers who take insane risks).
Does society prefer Snapchat or a cure for cancer? In the current economic environment, investors prefer Snapchat because Snapchat is pretty likely to get a ROI within the next 5 years.
The return on investment for a cancer cure is probably small (especially given the large amount of recurring revenue that big pharmaceuticals are currently making by selling cancer drugs). Also, it's much riskier than Snapchat... Could take 5 years, 10 years or 20 years.
Ultimately, we are satisfying people's short-term 'wants' at the expense of their long-term needs. We're a society of addicts who just want to get a quick buzz.