Nicolo Machiavelli famously asked "Whether it be better to be loved than feared or feared than loved?" The often repeated answer is that "[I]t is much safer to be feared than loved." What the quotemasters of "The Prince" often leave out is the coda, "Nevertheless a prince ought to inspire fear in such a way that, if he does not win love, he avoids hatred." Last week's piece on the cultural challenge of speaking the truth about growth ended with a list of modern fears.
Earlier in this series, I began a piece on the manmade causes of stagnation with an apologia for using "man" as a stand in for "human." It is a singular tyrant, often male, who may deprive people of freedoms. The four manmade causes I posited (lack of public goods, inequality, financialization, government overreach) are the common economic arguments, but they also imply that someone (NIMBYs, the rich, Wall Street, politicians) is responsible for stagnation. Now we are half way through the cultural explanations (meritocracy here and measurement here, risk aversion now and democratic capitalism next). Unlike man versus man, man versus society does not imply singular blame. This is both good and bad. Good because immolating one witch is never the answer, but bad because the widespread responsibility can set off a frenzied witchhunt.
Culture is a tricky concept to nail down, so we have used Shakespeare's romances (Othello and Midsummer Night's Dream) as guides. Romances (of the Jane Austen, not classical, definition) are the ideal prism for cultural analysis because attraction, courtship and marriage separates out a society's beliefs, morals and institutions, known as customs, for our display. In the analysis of Midsummer Night's Dream, we dove into the play-within-a-play, Pyramus and Thisbe. In Pyramus and Thisbe, the structure of the play is the same as Romeo and Juliet, but in the former the audience is the king's court while the latter appeals directly to the theatergoer. In Pyramus and Thisbe the buffoonish actors draw jeers from the crowd, but the benevolent king jokes with the players, not at them, modeling for his subjects how to turn tragedy into farce. Romeo and Juliet is one of Shakespeare's few plays that uses a chorus to speak to the audience. The very first lines of the play caution catastrophe and invite the audience to alleviate tragedy saying,
The fearful passage of their death-mark'd love,
And the continuance of their parents' rage,
Which, but their children's end, nought could remove,
Is now the two hours' traffic of our stage;
The which if you with patient ears attend,
What here shall miss, our toil shall strive to mend.
The contrast in how group behavior can shape entirely different outcomes from essentially the same plot is a clear lesson. Culture is fickle and subtle actions can have ripple effects that subsume or unleash hysterical violence. Machiavelli not only agrees, but instructs his readers to direct that violence away from themselves.
For a deeply disturbing demonstration of this phenomenon, let's examine another play-within-a-play, the 1979 Ba'ath party purge. Saddam Hussein came to power in 1979 by assuming the presidency of Iraq from an ailing revolutionary. Following the schism with the Syrian Ba'ath party, Hussein consolidated power in 1979 by holding a televised conference (do watch the link, which you should be warned is mentally disturbing, if not physically violent). At the conference, the alleged leader of a coup, with ties to the Syrian Ba'ath party, publicly confesses to betrayal and reads off the 68 names of his coconspirators. These individuals were escorted one-by-one out of the room by guards as their names were called. Each name ratchets up the tension in the room, and you can see fear grip the crowd until suddenly, outbursts of fealty and prayers for Hussein rupture the eerie roll call. This bit of political theater decisively secured Hussein's grasp on power by acting in exactly the opposite manner as the king in Midsummer Night's Dream.
One final example of culture, fear and violence before we assess risk aversion as a cause of stagnation. Philosopher Slavoj Zizek likes to tell the joke about prohibited prohibitions:
Imagine a session of the central committee where someone stands up and starts to criticize Stalin. Now, everyone knows this was prohibited. But that’s the catch.
Imagine someone else standing up and saying: ‘But listen, are you crazy? Don’t you know that it’s prohibited to criticize comrade Stalin?’ I claim the second one would be arrested earlier than the first one. Because although everybody knew that it’s prohibited to criticize Stalin, this prohibition itself was prohibited.
The appearance had to be unconditionally maintained that it is allowed to criticize Stalin, but simply why criticize him since he’s so good. My point is that the appearance of a free choice had to be sustained
Here we get to the crux of culture and fear. Man may oppress, but fear is a social phenomenon. Humans are adapted to deal with individual, not existential, risk, but as a group, we generate and observe signals and form institutions that provide selfish risk heuristics. Romeo and Juliet know that they are taking great risk in violating social norms. Machiavelli rightly noted that "it is safer to be feared than loved," but he also warned against inspiring hatred. American culture has shifted sharply over the last 50 years towards safety and fear over thumos. Whether this is a symptom or cause of stagnation is the subject of the rest of this piece.
What Fear Is This Which Startles in Our Ears?
We begin our exploration of risk aversion with some anecdotes about society. Already in 1965 the term "nanny state" had been coined by British politician Iain Macleod to protest 70 mph speed limits and government plans to reduce construction. It was an early warning of the origins of the U.K.'s housing crisis that Sam Watling outline in Works in Progress, a magazine I first mentioned in my piece about rentier capitalism. The phrase and sentiment soon found its footing in America and eventually became the primary critique of New York Mayor Michael Bloomberg's attempt to regulate the size of surgery beverages.
The resounding success of the anti-smoking campaign in the U.S. has it roots in post-war Britain as well, with the work of Dr. Richard Doll. Doll had reopened the question of the health effects of tobacco after the subject became taboo due to successful German anti-smoking campaigns in the 1930s and 40s. In 1964, the U.S. Surgeon General's report on smoking was a major turning point for the movement. The mid 1960s was the culmination of many long decades of successful social programs to address poverty, education and healthcare. It is no coincidence that the social programs of the 1930s, 40s and 50s expanded to encompass ethical concerns such as federal support for the civil rights, women's rights and the student movement. These social and ethical programs overlapped with other federal technocratic initiatives like the Manhattan Project and the space program. Mid 20th century American government heralded the successes of technocratic utopianism.
And then in 1963 President John F. Kennedy was assassinated. In a piece in Life Magazine published exactly two weeks from the assassination, journalist Theodore White interviewed First Lady Jacqueline Kennedy and wrote,
She came back to the idea that transfixed her,
"Don't let it be forgot,
that once there was a spot,
for one brief shining moment
that was know was Camelot"
and it will never be that way again.
Setting aside the irony of America's first Gaelic president identifying with the Romano-British legend, and Jackie's historiography, this moment marks a sudden shift in American culture. JFK's accomplishments as president were few, due to his short tenure. Achievement is made through sustained effort, but failures may take place overnight. Foreign policy missteps such as The Bay of Pigs and the ensuing Cuban Missile Crisis, intelligence failures in Iraq (that led to Saddam Hussein), the Congo Crisis, the challenged Alliance for Progress in South America, and most importantly, Vietnam, all diminished America's surplus of post-WWII good will. JFK's accomplishments, on the other hand, are well known: civil rights, the moon landing and the Partial Nuclear Test Ban Treaty. This last one is perhaps the most important, and we will revisit it later to discuss why.
More profound than Kennedy's policy achievements were his mythical achievements. He came to power through rhetoric and his assassination had a generational effect on the American psyche, but we are saving the psychological/spiritual causes of stagnation for a future piece. Lyndon Johnson's presidency epitomized the combination of technocratic utopianism with post-JFK anxiety. The pillars of Johnson's "Great Society," urban renewal, modern transportation, clean environment, anti-poverty, healthcare reform, crime control, and educational reform were a response to new fears caused by cultural upheaval. To address these issues, he created the Department of Housing and Urban Development and the Department of Transportation, signed the Clean Air Act and the 1968 law on wiretapping and Quantico, initiated the War on Poverty, established Medicare/Medicaid, and great expanded federal involvement in education. To be clear, I am not blaming either Kennedy or Johnson, and the United States is much better off with many of these programs.
Still, the massive growth of the social safety net is indicative of a change in American attitudes towards risk. What began under Franklin D. Roosevelt's reaction to the Great Depression and WWII grew to a behemoth by the 1960s. The argument about government overreach was previously addressed here, so what I am interested in is less rehashing those public policy points and more about the ethos and symbolism of this shift. This tracks with the changes in meritocracy, beginning in universities, which we previously examined. In Greg Lukianoff and Jonathan Haidt's "The Coddling of the American Mind" they coin the term "safetyism" a phenomenon they assert began in academia with safe spaces and language policing. Their explanation is psychological and fits better in the coming section on that topic, but the term "safetyism" is useful in relation to two other cultural issues, which have yet to come up, parenting and crime.
Two households, both alike in dignity
On the one hand, parents are far more involved in their children's lives today than in the 1960s, and simultaneously, there has been a dramatic drop in crime (since at least the 1980s, if not the 60s). The term helicopter parent was coined by psychologist Haim Ginott in 1969 and gained currency in the 2000s as millennials approached high school and college. The over concern with the habits and activities of one's offspring is indicative of a lack of control in the parents' lives. Above I have alluded to the connection between risk aversion and stagnation through the relationships with rentier capitalism, government overreach and meritocratic decline, but let us be explicit.
History professor Christopher Lasch described the shift in American values in his book "The Culture of Narcissism." Lasch takes aim at tenants of modern thought such as free-markets, feminism, self-improvement, the cult of identity and our overall withdrawal from civic life into personal satisfaction. The book sets the stage by explaining,
Storm warnings, portents, hints of catastrophe haunt our times. The 'sense of ending,' which has given shape to so much of the twentieth century literature, now pervades the popularly imagination as well. The Nazi holocaust, the threat of nuclear annihilation, the depletion of natural resources, well-founded predictions of ecological disaster have fulfilled poetic prophecy, giving concrete historical substance to the nightmare, or death wish, that avant-garde artists were first to express.
The historical tangent on JFK and LBJ above demonstrates the moment between the idealism of utopian plans and the manifestation of dystopian terrors. America was largely insulated from the utopianism of European communism and fascism, but though utopianism arrived late to our shores, it arrived nonetheless. By the early 1970s America was facing the backlash of Vietnam protests, race riots, Watergate investigation, the oil crisis and more. The seeds of this distress was planted during the American rise, only to yield sour grapes at the exact moment the baby boomers were entering adulthood. In an attempt to redirect this violence elsewhere, Americans withdrew from civic life and stopped pursuing progress.
This generation then sought to shelter their millennial children from the vicissitudes and uncertainty of modernity though a steady stream of extracurriculars, constant oversight, overbearing interest in their lives, lack of responsibility and above all, preservation of optionality. This occurred at the same time as the greatest drop in crime and violence society has ever seen, as presented by Steven Pinker in "Better Angels of Our Nature." And yet, millennials did enter adulthood at a time that bears striking resemblance to their parents with the Global War on Terror, the Global Financial Crisis, and the reemergence of political, racial and gender conflicts.
There are many theories about the drop in crime, from studies about the prevalence of lead poisoning to the substitution of digital for violent crime (and advent of cell phones). The reduction of serial killers of the 1980s and the drop in frequency of wars:
Pinker's causes include the state, the market, feminization, global culture and rationality. Whether these are valid or a complete set of causes is not relevant to our discussion here, but what is relevant is Pinker's observation that we paradoxically feel that the world more dangerous, perhaps due to new forms of communication. Lasch, Pinker and Haidt's views merit greater exploration, but a deeper look takes two paths that we must save for the future. The first turns Freudian and enters the psychological, while the second focuses on communication and media, which we will discuss next week in a piece about democracy and capitalism. Let us turn, then to another type of risk, financial risk.
There Is Thy Gold, Worse Poison to Men’s Souls
We have previously discussed the fall in public R&D spending as a percentage of GDP. I have also argued, in the piece on mismeasurement, that the growth in private R&D numbers are a product of accounting, not innovation. Ben Southwood points out that corporate R&D labs are defunct over at Works in Progress. He pins his hopes on Google and big tech, but I am less sanguine. One reason for this is the lesson I learned in business school about the capital asset pricing model (CAPM), a theory created to describe risk and reward in financial markets.
The theory transmutes risk into volatility, that is stock price swings, which can be divided into market risk and idiosyncratic (or specific) risk. Market risk describes the tendency of stocks to move as a whole in response to economic, political and technological trends, while specific risk is unique to an asset. CAPM demonstrates that a well diversified portfolio can balance the specific risks. This is sound advice for nonprofessionals, but in stark contrast to Warren Buffett's approach of concentrated investing. The lesson of CAPM has, however, taken hold of private wealth and asset management businesses. Who, but a finance professional, has time to evaluate financial filings of their 401(k), and what kind of professional manager would want to stand out from the crowd or risk losing to the index?
Another financial bellwether of risk aversion that may contribute to slower economic growth are total insured losses since 1970. More and more capital is being put aside to protect what we already have from loss, rather than to grow our productive capacity.
Insurance in and of itself is a great innovation, but the material gain from insurance requires sharing of risk and change in behavior. Moral hazard is ever present in the insurance industry, and the best insurance is one that doesn't view policyholders as a counterparty, while understanding their incentives. Furthermore, since the 1970s we have implemented all sorts of social insurance that is not really insurance at all, but prepayment. Everyone gets sick and eventually consumes healthcare goods and services. We all age into social security. Even education is described as insurance, but is more like a tournament. Simply shuffling money around or charging for a product where there is an asymmetry of understanding between buyer and seller isn't producing value.
This brings me to venture capital. If we take less risk today, how can the asset class of venture capital be so much bigger than ever before? Isn't that a sign that stagnation isn't real or at least isn't as bad as we think? Here's a chart from the American optimist Joe Lonsdale:
Unfortunately, venture capital is often more like the audience than the king in Shakespeare's plays. In the 1960s and 70s venture capitalists funded companies like Fairchild Semiconductors, DEC, Intel, Sun Microsystems, Genentech and Apple. Today the vast majority of venture capital goes to software, with rare exceptions like Tesla. Software has the enviable business model of zero marginal costs, and with software-as-a-service, recurring revenue. Perversely, the high rate of failure among startups requires the rare successes to be huge. Investments in software are cheaper to make and often have winner take all dynamics. Biotech is sometimes held up as an exception to the software rule in VC, but biotech accounted for just 7% of deals done in 2022 (a post-covid high watermark), and to make matters worse, biotech venture investors often exit the company before clinical trials, and well before a product can go to market. Risk capital just isn't what it used to be. Part of the reason for that are the cultural, not just technical barriers, to innovation outside of software.
Adversity’s Sweet Milk, Philosophy
"People are afraid to have children, afraid of nuclear energy, afraid of driverless cars, afraid of 3D printed guns, afraid of vaccines, afraid of capitalism, afraid of government..." is how last week's piece ended. The first third of this piece focused on cultural issues with the state, the market and the family, but that's only part of the problem. There are a plethora of innovations that could help solve our political, economic and household problems, if only we could develop the technology.
Driverless cars are a great example, since it is the most realistic of utopian technologies, and yet still so unattainable. A recent Odd Lots episode spoke to this issue with guest Timothy Lee, who has written four posts on the subject over at his newsletter Understanding AI. In his piece for Are Technica he breaks down the fears of driverless cars, both unrealistic and realistic. There are, of course, risks to autonomous driving, and we should carefully weigh those risks, but what makes driverless cars so tantalizingly unattainable are the cultural risks.
The loss of jobs, the threat to the taxi license holders, the expense of an autonomous car, the insurance and liability, the redistribution of parking and land value are all culturally charged issues. There are many reasons that various factions would seek to scapegoat autonomous driving when it could benefit the whole of society. There are many opportunities for regulatory capture, which we discussed briefly before and will return to in next week's piece on democracy and capitalism, but for now let's continue to focus on the cultural question of fear versus love in innovation.
One topic that inspires both fear and love is nuclear power. It's been mentioned on this site in regards to the natural causes, low-hanging fruit and resource depletion. The past few years has seen a resurgence in debate around nuclear, from the Green New Deal to recent events in Germany. The successes of anti-nuclear activism since the 1970s and the disasters of Chernobyl and Fukushima Daiichi did a lot to make nuclear energy unpopular. The activists, however did not accomplish this feat alone. They had help from an unlikely ally, the oil and gas industry. Economist Bruce Yandle calls the phenomenon where fear and greed forms a coalition bootleggers and baptists.
Yet the greatest impediment to cheap, safe and abundant nuclear energy isn't technological or even political, but social. The tragedy of nuclear weapons and the indelible impression the bombings of Hiroshima and Nagasaki left on the world cannot be undone. The fear of nuclear proliferation led JFK to oppose the joint Israeli and French effort to develop their nuclear programs. Ultimately, both countries achieved their aims while deceiving JFK by staging a play for inspectors. The coalition of fossil fuel and national security is well established, but another wing of the security establishment, concerned with climate change and non-proliferation, is advocating for wind and solar, instead of nuclear or fossil fuels. Here we have the perfect setup for a blood feud.
Finally, we must speak about the topic de jour, artificial intelligence. There is much to say about the various arguments for or against progress in large language models. Here I'll turn to Byrne Hobart and Tobias Huber, who wrote a piece against safetyism for Pirate Wires:
Here, we detect a dark undercurrent of safetyism — in many instances, safetyism simply represents a tool for top-down control, which increases centralization, and, as [Nick] Bostrom suggests, even might bring about “global governance.” Safetyism not only shifts control from AI engineers and programmers to a cabal of ethicists and policymakers, but the centralization of tech development in the name of safety also compromises the entire system in question.
This isn't Hobart and Hubrer' last word on safetyism either, as they have a forthcoming book on safetyism published by Stripe Press. There is far more for me to say on this topic as well, and given the domain name of this site, I'm sure it won't be my last effort, but we have come to a convenient place to pause before addressing the systemic issues and top-down control that Hobart and Huber reference above. Next week's piece will examine capitalism and democracy, the twin pillars of classical liberalism, which will conclude the cultural causes of stagnation.
The final set of causes are psychological/spiritual, which seems to touch all of the previously discussed categories of causes, particularly risk aversion. Whether it's the psychic trauma of the Kennedy assassination, the Freudian generational analysis of Lasch, or the Shakespearian tragedy of Romeo and Juliet, the change in our cultural attitude towards risk has deep roots worth investigating, but only after we first address, capitalism and democracy, America's two most enduring institutions.