Moving into the Information Age (Part 1)
Takeaways from the First Half of The Sovereign Individual (Davidson and Rees-Mogg)
I’ve been reading a book entitled The Sovereign Individual: Mastering the Transition to the Information Age, by James Dale Davidson and Lord William Rees-Mogg. I’d seen this title pop up again and again in crypto and financial Twitter circles, and I finally caved and bought myself a copy of it. I’d resisted reading it because the content that I had seen shared from it seemed a bit extreme and even downright frightening, but I figured that this was as good a reason as any for me to read it for myself. In this edition of the newsletter, I will share and reflect upon what I’ve learned from this book thus far.
First some background on the authors: James Dale Davidson is a venture capitalist and entrepreneur, well-known for investing in tech projects. Lord William Rees-Mogg, now deceased, was the former editor of The Times of London, former vice-chairman of the BBC, and a director of the Private Bank of London (all according to the book’s jacket).
The book, originally published in 1997, makes a number of incredibly insightful observations and predictions, but it also includes its fair share of complete misses, like just how convinced the authors were that the Y2K computer bug would cause mass devastation (e.g., the shutting down of the electricity grid, the collapse of the banking system, granting terrorists access to nuclear arsenal systems), while it didn’t even end up causing a hiccup in electronic systems. Also, Davidson, in The Plague of Black Debt - How to Survive the Coming Depression, published in 1993, assured readers that Bill Clinton would be a one-term president, as he would be voted out for running up the national debt by trillions of dollars. As it turned out, Clinton did the complete opposite. He balanced the budget. It’s important to note the misses, so that all of the authors’ points be taken with a grain of salt.
With that said, there were also many direct hits - like “You sunk my battleship”-type direct hits. I will get to those a little further down in the newsletter, though. The basic premise of the book is that we are moving into the “fourth stage of human society”, the Information Age. The preceding three ages were the Hunter-Gatherer Age, the Agricultural Age, and the Industrial Age. The authors posit that as we shift from the Industrial Age to the Information Age, many of our institutions will crumble, including even the nation-state itself, as microprocessing will erode borders. The authors believe that the power of the nation-state will recede as we move into the Information Age, just as the power of the Church receded as we moved into the Industrial Age. Their argument is that where nation-states absorbed the power of the Church as we moved into the Industrial Age, the individual will begin to absorb the power from the nation-state as we move into the Information Age. The authors advise to watch for the following as the transition takes place:
Falling incomes among common people
Clashes between adherents to old and new values
Transitions to new ways of organizing livelihoods and ways of obtaining income
Social chaos and heightened violence due to the breakdown of the old system
Corruption and inefficiency
The growing importance of and reliance upon technology
Lack of trust in antiquated institutions
Sound familiar? Yeah, I thought so. Eerie, no? Governments will attempt to stop this change because it challenges their power. Just as the Church tried to suppress the printing press (which led to the development of causal connections and the scientific method, which obviously challenged the Church’s power), the nation-state will attempt to suppress the free flow of information. This sentiment was echoed on the latest episode of the All-In Podcast, as Brad Gerstner, CEO of Altimeter Capital (a technology-focused investment firm), made the point that “Democracies maintain power via information control.” What he didn’t mention is that authoritarian regimes do so even more, which proves the point that a key tenet of maintaining centralized power is having a monopoly on information. Yet, we live in the age of Twitter, a platform through which information can spread freely. This information has the power to do everything from catalyze the Arab Spring to pump up the price of Doge Coin. To stop the spread of such information, you’d have to shut off the Internet itself. This makes nation-states vulnerable.
Centralized systems (nation-states) should also keep in mind that many modern businesses are not tied to land. As the Davidson and Rees-Mogg state, a software company can simply back up its laptops and move to a more favorable tax jurisdiction. In the Information Age, the power resides in mobile companies and individuals, as they are not tied to a state or region the way that factory owners or farmers were in previous ages. We are already seeing investment firms and software companies within the U.S. move from highly bureaucratic and inefficient states like California and New York to states like Texas and Florida. The authors claim that governments will be forced to cater to businesses in the Information Age, as it will be their primary form of leverage to lure talent and, therefore, capital. Francis Suarez, the mayor of Miami, seems to understand this better than any political leader in the U.S. these days. (See my piece on him here.)
I’m going to put a pin in the more macro ideas from the book to touch on a few of those aforementioned battleship-sinking points below:
“The cybereconomy will inevitably be shaped by this profound mathematical truth. It already have obvious expression in powerful encryption algorithms…these algorithms will allow the creation of a new protected realm of cybercommerce in which the leverage of violence will be greatly reduced” (p. 156).
The above quote made me think of this Tweet:
And oddly enough, Davidson and Mogg-Rees also argue that bloated military budgets would be yet another sign of the collapse of the nation-state.
“the Information Superhighway will require widespread adopting of public key-private key encryption algorithms” (p. 194)
The above is literally what Bitcoin/cryptocurrency is. Wild that they saw this over a decade before Bitcoin’s inception, at a time when could still go to a store to rent VHS tapes.
In the Information Age, “Your Phone Becomes a Bank” and “You will be able to earn credits to your account with all manner of transactions and carry your phone box with you. Your PC will be the branch office of your bank and global money brokerage” (p. 204)
“Phone box”. I love it.
In the Information Age, “You will no longer be at the mercy of Dan Rather or the BBC for the news that reaches you. You will be able to select news compiled and edited according to your instructions” (p. 205)
I could go on and on listing such foresights the authors had, but I am getting tired now and I want to go for a bike ride soon. Anyway, you likely get the gist.
The main question that this book has made me consider thus far is: “Can democracy survive this transition into the Information Age if so many of its corresponding institutions do not seem to be holding up so well?” The authors’ argument is clear. Their answer is, “No. It cannot.” Which brings me back to the point I made earlier about the content of this book being frightening. When coupled with the following points also made on the latest episode of the All-In Podcast (linked above), I am left a bit shook in regard to the direction in which we seem to be headed…
“We’re learning that institutions aren’t reliable, number one, and then the second is that we’re learning those institutions are static.” -Chamath Palihapitiya (See this edition of the newsletter to learn more about Chamath)
“When we have these moments that the institution doesn’t serve the stakeholders that it is meant to serve, you have this breakdown of trust in the institution and institutional fallout begins, whether that’s the financial system and the evolution of decentralized finance and Bitcoin…The original intention of many of these institutions was to create a system by which there are rules and values that we all ascribe to and those values go out the window when those institutions fail. -David Friedberg
My last thought on this text for now: I don’t think the nation-state loses all power, nor does it disappear completely, just as neither happened to the Church. However, the services with which the nation-state can or can’t provide us will likely change as we move into the Information Age, and there are some pros and cons to this. However, I don’t foresee the transition into the Information Age being smooth and seamless, which is part of what the second half of the book focuses on. I will report on what the authors have to say about the social implications of this transition once I read it.
Idea of the Week
Again, on the latest episode of the All-In Podcast (I linked it again just in case you don’t want to scroll up), Gerstner (mentioned above) proposed building an “Invest America” account. An Invest America account would be a fund to which the very, very wealthy contribute their wealth to give “low-income, person(s)-of-color, minority person(s) in America,” in Chamath Palihapitiya’s own words, a $2000 head start when they are born. Gerstner believes that he and Palihapitiya can raise $100 million for this fund within the next three months. Gerstner continued to argue that this be done privately as opposed to through government, because people do not believe the government will use the money wisely or follow through with such a plan. This $2000 would be invested in an index like the S&P 500 for every person born in America. To contextualize this, putting $2000 into a 401K for every American on the day of their birth would turn into about $300,000 if it increased at a compounded rate of 8% per year by the time the person turned 65 years old. Putting $500 into a 529 (college savings account) would give someone about $25,000 to put towards their college education by the time they turned 18. Beyond these hard numbers, there are positive psychological effects to consider, as well. Warren Buffet has discussed the idea of having savings or money invested as it pertains to behavioral economics, and he has argued that if you have some savings, you tend to save more. This money could also help people feel like they are part of the system, or part of the game, instead of feeling like they are locked out of it, which causes them to rebel against it.
Final Thought: Why did Bitcoin just “crash” so hard?
Bitcoin’s hash rate collapsed because of a blackout in the Xinjiang region of China, a region of China where, apparently, a great deal of Bitcoin is mined. According to Willy Woo, an exceptional Bitcoin data analyst, Bitcoin’s price and its hash rate have “always been correlated.” Therefore, lower hash rate = lower Bitcoin price.
Furthermore, when the price of Bitcoin drops, those trading with leverage (financial derivatives that have the potential to provide further upside on trades, but also cause further downside when trades go south) got liquidated BIG TIME. Investors lost over $10 billion in just 24 hours. To put this in layperson’s terms, the losses created a domino effect. Leveraged losses led to more losses which led to bigger and bigger losses which resulted in an over 20% drop in the price of Bitcoin. My guess is that people and institutions will buy this dip with little haste and that the price will rebound within a few days.
Man, did this edition of the newsletter take some energy out of me. As always, I hope it was helpful, and thank you for reading. I am off to enjoy this sunny day…
Best,
Frank
Twitter: @frankcorva
Just Watched: No Safe Spaces (on Amazon Prime)