Longreads

• Jerry Neumann wrote a post on startups as an attempt to manage uncertainty. It was written in late 2019, but is even more relevant today. If the successful ones are organizations that have adapted to uncertainty, then that's another way to understand why tech companies performed relatively well during the pandemic. They may also be more adaptable than they look to a new regulatory environment.

• Marc Rubinstein on where the clearing business came from. It's one of those businesses whose necessity is evidenced by the fact that many of its users don't know it exists. They illustrate the blurry distinction between payments businesses and credit providers; in one sense, every clearinghouse is in the business of making a series of very short-term loans with low credit, but not zero, credit risk.

• The Chinese Communist Party faces a new form of domestic unrest—from Marxist workers.

• Hopefully this is not a timely essay, but I enjoyed this piece on capital preservation during wars. It's dark, but useful.

• Ben Landau-Taylor on literally crazy entrepreneurs. There may be survivorship bias—crazy people will find themselves in more unusual situations, so unusual people are more likely to be slightly crazy. But it's a good narrative about how different establishments either harness or reject high-variance people.

Books

• The Last Bull Market is a history of the 1960s markets, written just before the next bull market (the book was published in 1980—and in the last pages, the author does say that if inflation ever gets under control, stocks will go up). One thing the book emphasizes is how much the 60s market was driven by defense stocks. Xerox and Polaroid are two growth stocks that get mentioned a lot from that period, but many more tech companies in that era got most of their revenue from the government: Litton, LTV, Teledyne, General Dynamics, and others were heavily or mostly defense. Even IBM, which didn’t sell much directly to defense, sold plenty of computers to defense contractors. This led to a qualitatively different definition of a “growth stock” and a “technology company”: once they had a working product, the first customer likely to buy it was the biggest customer in the world. That’s a good way for small companies to scale up from ~$0 to Fortune 500 membership. (Also, amusingly, the book talks about the theory that stocks were propped up in the 60s because foreign investors with dollars were worried that they wouldn't get a good real return from holding cash, and chose equities instead. With a few more links in the chain, that's one argument that holds true today: global savings eventually find their way into US equities.)

Open Thread

• Feel free to post any interesting links or open questions.

• One question to get people started: since consumption patterns changed so much in 2020, and will change again in 2021, what price changes can we reasonably use to measure inflation? (i.e. if you're in the "dangerously high inflation" camp in 2021, what prices will verify this or make you change your mind?) I ask in advance because the debate over what inflation will look like in 2021 will, as the year goes on, turn into the debate on what the real rate of inflation is; I'd like to crowdsource some indicators in advance.