“I would again draw an analogy to venture capital,” observes Ben Thompson, in a typically incisive Stratechery post eviscerating the new streaming service Tidal. “The importance–and amount–of venture capital has never been greater.1 The truth is that because so many folks can now get started it is that much harder–and more expensive–to cut through the noise.”
Indeed. Music, movies, books, and other arts have always been “tournament” industries, in which most success accrues to a minority of blockbuster hits, as described by a power law. For every billionaire J.K. Rowling, you find ten thousand frustrated unpublished novelists.
That’s why movie studios, record labels, and book publishers have stubbornly refused to wither and die. While technology has made it cheap and easy for anyone to create and distribute their books/songs/videos, that fact brings more and more contestants to the tournament, while the number of winners remains very small. This in turn makes the boost contestants can get from a studio/label/publisher ever more valuable.
Oh, a few statistical outliers succeed without such support, but those rogue champions are mostly stochastic noise. The arts are becoming more and more winner-take all, as their power-law curve grows ever steeper–
- Books: in the UK, “the median earnings of a professional author [are] down 29% in real terms [compared to] 2005.”
- Movies: “25% more [huge-budget would-be blockbusters] than a decade ago.”
- Visual arts: “In the arts, as throughout the middle class, the professional is giving way to the entrepreneur.”
The great Nassim Taleb calls these kinds of tournament industries Extremistan, as opposed to Mediocristan. In Mediocristan, you work fixed hours for a fixed wage. In Extremistan, success is enormously lucrative, but failure is far more common … and, for artists, condemns you to a life of grinding poverty and/or working outside of your chosen field.
Of course tech startups also live in Extremistan. So too does venture capital itself, a meta-tournament of picking winners, in which enough money is (hopefully) made from the few big hits to outweigh the inevitable failures–
–and so too will we all, soon enough.
I’ve argued before that, because software is eating the world, “technology is slowly dragging us all, economically, away from Mediocristan and into Extremistan.” The power of software is such that it gives ever-smaller numbers of people ever-greater leverage. Meanwhile, much of yesterday’s rote Mediocristan work can and will be automated tomorrow.
As a result, our economies are moving (slowly, in fits and starts) to a power-law Extremistan future: one which features ever more entrepreneurs, ever more creative work, ever more self-employed contractors, ever more startup launches … and economics ever more like those of tournament industries such as startups and the arts.
This might be one reason why “average [American] wages have remained unchanged for the last eight years, and remain below what workers earned in the 1970s,” even as the economy has steadily grown. It could be one reason why this has happened to median household income:
In Extremistan, we are all tournament players, investing our limited time and money in unpredictable ventures that may succeed or fail, quickly or slowly. Wins are fewer, but bigger; losses are more common; and, importantly, volatility is high.
Economic volatility has indeed been increasing in the USA. The classic “American dream” is a narrative of steady economic progress, but since the 1980s, America has seen “a big increase in the number of people who saw big drops in their income.”
At some point in their working lives […] as many as 30 percent reached the equivalent of $200,000 in 2009 dollars, or roughly the top 4 percent. Similarly, nearly 80 percent at least temporarily plunged into a red zone, where their income dropped near or below the poverty line, or they were compelled to gain access to a social safety net program.
Joseph Stiglitz argues: “The American dream is a myth … CEO pay has risen to 300 times the average worker’s income, up from 30 times … minimum wage jobs are increasingly held by a family’s primary breadwinner.”
But I don’t think that’s quite right. The American Dream hasn’t died; it’s just moved from Mediocristan to Extremistan. That’s a transformation, not a demise. There are ways to keep it alive.
Educuation, you say? I don’t think so. Not education as we know it, at any rate–because education as we know it is itself very much an Extremistan tournament, one arguably more vicious and more important than any job that follows.
As Peter Thiel says: “What if higher education is really just the final stage of a competitive tournament? … Higher education sorts us all into a hierarchy. Kids at the top enjoy prestige because they’ve defeated everybody else in a competition to reach the schools that proudly exclude the most people.”
Similarly, from a grim New York Times piece about high-school suicides in Palo Alto: “children are picking through the static to hear the overriding message that only the best will do — in grades, test scores, sports, art, college… “I hear students tell me that if I don’t get into X, Y, Z college, I’ll wind up flipping burgers at McDonald’s.””
Trying to deal with the move to Extremistan by turning our educational system into an ever-more-high-stakes tournament is exactly the wrong move. Instead, what’s needed is a strong safety net so that increasingly common individual losses/downturns aren’t irrevocably catastrophic, and a life spent in the long tail of the power-law curve is still a life morally worthy of great and wealthy nations.
Ironically, the largely libertarian Silicon Valley tech industry actually provides us with an excellent example of this. The Valley is deeply entrepreneurial, and its startup scene is pure Extremistan — but while most startups fail, most of their founders (especially engineers) know that they can easily fall back on the safety net of a full-time tech job.
What we need is some kind of safety net like that, writ larger; a kind of economic trampoline that gives everyone new chances, even if their last attempt to achieve their dreams failed ignominiously. I believe the ultimate answer is a universal basic income — and that sooner rather than later, technology (and world-eating software) will make the developed world wealthy enough to easily afford such a net.
1That isn’t strictly true–total VC investment last year was still less than half that of 2000—-but the amount has more than doubled since 2009, which is remarkable.