The Digest #170
The Digest #170
The Precautionary Principle, GEICO Layoffs, Superlinear Returns, TIPS for Retirement, Rockefeller's advice to his son, Impact of GLP-1 agonists, Tesla's IPO, Conference call transcripts, and more ...
The Precautionary Principle
Marc Andreessen recently published The Techno-Optimist Manifesto, a lengthy defense of the benefits that technology has provided to humanity. The vast majority of his arguments are difficult to disagree with. Despite the tendency of technology to cause short-term displacements in the economy, in the long run society is far richer than we would be in an era of technological stasis.
Technology is a very broad term encompassing all types of human progress, some of which is mundane while others represent revolutionary change. The majority of technological progress, even in cases with short-term economic displacement, does not represent irreversible systemic threats. However, certain types of technological change can potentially involve threats to the overall system.
The idea of taking precautions when it comes to technology that could involve irreversible systemic threats seems prudent, so I was surprised to read this very strong statement about the precautionary principle:
“Our enemy is the Precautionary Principle, which would have prevented virtually all progress since man first harnessed fire. The Precautionary Principle was invented to prevent the large-scale deployment of civilian nuclear power, perhaps the most catastrophic mistake in Western society in my lifetime. The Precautionary Principle continues to inflict enormous unnecessary suffering on our world today. It is deeply immoral, and we must jettison it with extreme prejudice.”
This statement is not a tweet but part of a very long essay and it seems fair to assume that if the author wanted to provide more nuance, he could have done so. Instead, we have a blanket statement about the precautionary principle that not only criticizes the concept but calls it “deeply immoral.”
It is true that the precautionary principle can be misused to block progress. This is particularly apparent when entrenched interests seek to block a technology that represents an economic threat. However, labeling such blocking maneuvers as an application of the precautionary principle seems to be a misreading of what Nassim Taleb and others have advocated. The following excerpt from the abstract of a 2014 paper on the precautionary principle as applied to GMOs illustrates the distinction:
“The precautionary principle (PP) states that if an action or policy has a suspected risk of causing severe harm to the public domain (affecting general health or the environment globally), the action should not be taken in the absence of scientific near-certainty about its safety. Under these conditions, the burden of proof about absence of harm falls on those proposing an action, not those opposing it. PP is intended to deal with uncertainty and risk in cases where the absence of evidence and the incompleteness of scientific knowledge carries profound implications and in the presence of risks of ‘black swans’, unforeseen and unforeseeable events of extreme consequence.” [Emphasis Added]
In other words, the precautionary principle, properly understood, is not about blocking “virtually all progress since man first harnessed fire” as Mr. Andreessen asserts. Instead, the principle is about exercising great caution only in the subset of technological changes that conceivably involve serious negative systemic effects.
Of course, today’s great controversy is about artificial intelligence. Mr. Andreessen’s manifesto calls AI “our alchemy, our Philosopher’s Stone” and he clearly is opposed to efforts that would slow progress in this area. However, other technologists, notably including Elon Musk, have recommended far greater caution.
As we observe this ongoing debate, I think that we should carefully examine the economic motives of those on both sides of the AI debate. More often than not, the fiercest advocates of regulation are those who would lose economically in the absence of regulation. This is called regulatory capture and large companies have used this protectionist tactic very successfully in the past.
Just as we should not fall into the trap of allowing clearly biased economic actors to justify self-serving regulations based on the precautionary principle, we should not dismiss the principle itself and we certainly should not consider it immoral. In cases of potentially severe and irreversible technological change, society must be careful.
Articles
Tough times for insurers prompt GEICO to cut 6% of workforce by Alex Crippen, October 20, 2023. In an internal company memo, GEICO’s CEO Todd Combs described difficult industry conditions with high inflation, longer repair times due to shortages of parts and labor, and rising medical costs. (Warren Buffett Watch)
Superlinear Returns by Paul Graham, October 2023. “You can't understand the world without understanding the concept of superlinear returns. And if you're ambitious you definitely should, because this will be the wave you surf on.” (PaulGraham.com)
Inflation-Proof Your Retirement Savings Now by Laura Saunders, October 20, 2023. This article is about using Treasury Inflation Protected Securities (TIPS) to save for retirement. I expressed a more skeptical view in The Digest #167 on October 5. (WSJ)
Change Your Focus, Change the Future by Jim O'Shaughnessy, October 2023. “Today’s society is overrun with useless distractions that misdirect your attention—life is filled with focus being wasted on the trivial and unimportant. If you let them, these distractions will sap your mental and even physical energy. They will exhaust you by chasing what amounts to sugar highs.” (OSV Quarterly)
AutoZone: The Real Cost Of Stock Compensation by
, October 21, 2023. AutoZone has bought back over 100% of the then outstanding shares of stock since 1998 making the company’s current $46 billion market capitalization is a good illustration of the cost of stock-based compensation. (Eagle Point Capital)The Victorian Internet. Notes on a book covering the history of the invention of the telegraph. The story covers the early use of the optical telegraph, the creation of the electric telegraph, and how the new technology reshaped society. (Novel Investor)
Interest Rates, Some Books etc. by
, October 20, 2023. This post includes thoughts on Walter Isaacson’s biography of Elon Musk, which I am currently reading, along with several other interesting books. (Brooklyn Investor)Podcasts
John D. Rockefeller (38 Letters Rockefeller Wrote to His Son), October 21, 2023. 1 hour, 46 minutes. Rockefeller’s private correspondence with his son contains very candid advice and guidance we can all benefit from. (Founders Podcast)
Tesla - 2010 Prospectus, October 19, 2023. 1 hour, 5 minutes. Jacob McDonough analyzes Tesla’s prospectus issued prior to its IPO. (10-K Podcast)
Consumer Packaged Goods, GLP-1s, and Big Tech as the New Staples, October 17, 2023. 1 hour. A discussion of the consumer packaged goods sector in light of the introduction of GLP-1 agonists such as Ozempic. (This Week in Intelligent Investing)
Olin: Chemistry and Cash Flow, October 18 2023. 58 minutes. Transcript. Olin is a key player in industrial chemicals industry. (Business Breakdowns)
Ho Nam - Lessons in Venturing Differently, October 23, 2023. 1 hour, 46 minutes. Transcript. Ho Nam (@honam), co-founder of Altos Ventures, discusses his background and experience backing over 200 companies. (Art of Investing)
Conference Call Transcripts
The low cost of transcription services would make it trivially inexpensive for public companies to file transcripts of conference calls with the SEC. @QuisitiveInvest filed a petition with the SEC to require disclosure via 8-K reports in April 2019 but the SEC has not acted. This proposal would serve investors very well.
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Thanks for sharing the precautionary principle, this was the first time I’ve encountered it.
You may enjoy Brian Arthur’s The Nature of Technology...
The problem with the Precautionary Principle is that claims about catastrophic impacts of technology have been legion and are explicitly made by assertion. That is why it is called the Precautionary Principle. There is no evidence one way or the other and ideological garbage is actually demonizing technologies by non-reasonable means. MA’s example of nuclear power is the best available to show why PP doesn’t work and can lead to the reverse outcome claimed. Instead of stopping a world apocalypse, the anti-nuke brigades prevented/prevent fundamental improvements in the life’s of billions of peoples suffering from energy poverty. Precautionary Principle is a kind of special pleading about risk. It would be the same in the markets if you simply said that there was a Precautionary Principle in investing and therefore you should be banned from trading in “sin” stocks, but the determination of what constitutes a “sin” is made up by a council wearing robes of fancy suits.