How a new elite thinks

 I finished Nate Silver's On the Edge a week ago, but I didn't write this planned post then because I was too preoccupied with a forthcoming piano recital that took place yesterday (and, I am happy to report, was well received by a small audience.)  I plan to tape a studio version of it and make that available on line.  I will not be able to do justice to On the Edge here, but I highly recommend it.  It deals with complex and very important topics, lays out key different ways of thinking in today's world--especially among the younger generations--and is very entertainingly written.  I plan to summarize it very quickly and then turn to what I regard as its most significant contribution--an attempt to see inside the souls of a younger generation of entrepreneurs and thinkers like Peter Thiel, Elon Musk, and the now-infamous Sam Bankman-Fried, who wield enormous power in our society today.

Silver, to begin with, identifies two distinct communities, "the River" and "the Village," into which, it seems to me, the elite of Gen X and Millennials are divided.  The River includes gamblers (like himself), venture capitalists, tech giants like Jeff Bezos and Musk, and "effective altruists"--a hot new term--who want to use new tools and ways of thinking to improve the world.  The River thinks and acts according to probabilities, especially probable expected value (EV), upon which it relies to make decisions. The Village includes most of our academic and journalistic elite and most of the Democratic Party, and relies far more on a particular set of moral values that it reflexively applies to every problem--values also known as woke.  The two are often at odds, which may explain why Silicon Valley, a center of the River, is now split politically, with an important minority favoring Donald Trump.   Based on my own increasingly ancient perspective I think that Silver has certainly identified real groups, but they seem to me far from all-inclusive.  I am certainly closer to the River than the Village in how I think, but I don't think that wokeness is the only possible set of moral values, much less the best one from which to question the relentless value-maximization of the River.  The problem with EV in the marketplace, it seems to me, is that the V for value represents anything that people will spend money on--the more the better.  That includes addictions such as gambling and drugs, which are playing a bigger and bigger role in our lives and our economy, with disastrous consequences.  Our whole health care system, including Big Pharma, is now largely focused on increasing its expected value, and that is not improving the health care we are receiving or making it cheaper and more efficient--even though, to take a Village perspective, the health care industry is increasingly diverse.  I'll return to this problem a little later.

The first four chapters of the book survey the gambling scene--casinos and sports betting--and the kind of thinking that goes into it.  Two chapters are about poker, and show how mathematical sophistication--the kind of analysis familiar to many via the book and movie Moneyball--has to be balanced with game theory, which relies on identifying with one's opponent and trying to figure out exactly what he is trying to do.  Then the casino business gets a fascinating chapter, telling us that slot machines are the most important casino profit generator, because the house has the  biggest edge, as well as the most addictive casino product.  There is even a way to try to beat certain slot machines that tend to pay off big when they haven't given much to the customers for a long time--if one can identify them.  Then comes a highly technical chapter on sports betting, which among other things illustrates Silver's particular perspective.  Despite the deluge of sports betting ads on every televised sporting event nowadays, few people realize, I suspect, that the new books and the sports books at casinos will either severely limit or stop taking a customer's action if they turn out to be consistent winners.  This "only losers need apply" strategy--which casinos also use to try to ban card counters from blackjack--is, to me so incredibly unfair that it's amazing that no state has tried to ban it.  Silver talks a lot about what he and others do to try to get around it, but he simply accepts it as a fact of life.  In decades past, illegal bookmaking operations relied on their 10 percent commission on all bets to make money and manipulated the odds and tried to lay off bets to insure against risk.  (The manipulation of the odds was designed to get the public to bet equal amounts on both sides.)   I do wonder why none of the legal books seems to be using that strategy now.

           The second part of the book is about risk and risk management, beginning with a chapter on venture capitalists and largely focusing on Silicon Valley.  Having written that sentence it occurs to me that this tells us a lot not only about the book, but about today's economy, which is marked by truly fantastic concentrations of capital.  Silver isn't looking at how people design superior products.  He's looking at how zillionaires try to profit from superior product designs.  And the answer is, it seems, that they take a chance on a lot of new ideas, knowing that most of them will fail but that a very few will be worth billions.  And that leads me, now, to my main critique of the book, which is really a critique of contemporary capitalism.

             The ideas that will be worth a lot of money are those that will appeal to the public.  The problem is that they may appeal to the public's worst instincts, or even to their minds' and bodies' capacity for addiction to things like gambling, social media, or prescription drugs.   Silver acknowledges this in various asides but without spending much time on what might be done about it, or even speculating about whether the legalization of gambling in the last half century or so has been a good thing.  (He does repeatedly mention that it is a very regressive tax on poor people.)  In the same way, one might ask whether superhero movies are good for the public, even though they have become the studios' most reliable sources of profits.  Silver seems to me to believe in free markets but they unfortunately free consumers to give into, and merchants to exploit, the worst human instincts--and that in turn can have very negative social and economic consequence.

            And that leads me to the next few chapters of the book, which focus on the spectacular rise and fall of Samuel Bankman-Fried.  The son of two Stanford law professors and an MIT graduate himself, SBF, as Silver refers to him, founded a quantitative trading firm specializing in crypto-currencies in 2017, when he was 25.  Two years later he founded his own cryptocurrency exchange, FTX.  Crypto, of course, is a new form of asset, and I do not claim to understand it fully.  Its main advantage seems to be complete freedom from government oversight or regulation, and that, in addition perhaps to its novelty, has induced investors to put many billions of dollars into it.  It has already had wild swings of value and it may turn out to be one of the legendary bubbles of all time.  While things were going well, SBF made enormous contributions to various charities and many political candidates.  He was a disciple of Effective Altruism, which hopes to use new digital techniques, including Artificial Analysis, to solve all humnaity's problems quickly and cheaply.  In late 2022, however, FTX went bankrupt and SBF was arrested for a series of huge frauds relating to its operations, which had siphoned off a lot of the money investors spent on its digital assets.  Late last year he was convicted on multiple counts and he has been sentenced to 25 years in prison.  Silver spends quite a few pages wondering how all this could have happened, but without speculating, as far as I can see, that the episode reveals how much of our spectacular new economy may ultimately be built on sand.  He evidently knows a good deal of history, but not quite enough, I suspect, to be able to put our mad world in a real historical context.

Another chapter goes into the controversies over AI, and whether it has a good chance of extinguishing human life on the planet. While Silver declares himself, relatively speaking, an optimist about AI, he thinks that that danger is a real one.  I was very frustrated, though, that he never got around to explaining exactly how AI might bring the death of humanity about.  I see a somewhat different danger. Because of the collapse of history education in both high school and college, the younger generations--even the graduates of our most distinguished universities--have grown up without any sense of the kinds of great catastrophes that have befallen humanity in the past, even as recently as the first half of the twentieth century. Having grown up amidst extraordinary technological and economic progress, they think that this will never end.  That was what nearly everyone thought in the first decade of the twentieth century as well, and for the same reasons.  

Silver does raise important questions about values in his last few pages.  People, he says, need agency--the ability not only to make choices, but to make good ones that avoid pitfalls like addiction.  Plurality,  he says, means giving different points of view seats at the table, and rejecting any totalizing ideology--although whether that would include free market ideology isn't altogether clear to me.  And lastly, he calls for reciprocity, which amounts to treating other people as we would like to be treated, instead of just trying to manipulate them for one's own benefit.  This is an echo of Orwell's great essay on Dickens, where he argued that moral criticism of society's values could be just as revolutionary as structural criticism of its institutions.  

I learned a great deal from this book--and I have many questions about the future.  The changes we are living through provide capital with enormous new opportunities, which may or may not rebound to the public good.  They have also created a new aristocracy of which Elon Musk is now the most spectacular example--and he is not using his great power for the greater good.  Humanity is embarked upon a new great adventure which could end very well or very badly.  This will be an enormous challenge for all those now under 50, and those not yet born.