Fintech and Flourishing

Ingenuism Weekly 46b

“There is only one thing stronger than all the armies of the world: and that is an idea whose time has come.” –Victor Hugo

MEDIA

Ingenuism at war – Silicon Valley Examined 35

In this week’s episode of the Silicon Valley Examined podcast, Don Watkins and Yaron Brook discuss what war teaches us about progress, the role of technology in war, and how to achieve military and economic security in a connected world.

Listen on Spotify or iTunes.

INSIGHT

Fintech and Flourishing

Don Watkins

A healthy and dynamic financial industry is intimately tied to progress and prosperity. After reviewing the literature, banking and finance economist Ross Levine concludes that:

the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. A growing body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process.

But for finance to play this role, it can’t stand still. It has to improve and innovate as well:

[G]rowth itself makes the “old” financial system less effective at screening and monitoring the new, more complex technologies. Without commensurate improvements in financial systems, economies become less effective at identifying and financing growth-inducing endeavors. Laeven, Levine, and Michalopoulos (2011) show that financial systems that rapidly adopt and adapt improved screening methodologies exert a positive effect on growth, while more stagnant financial systems slow economic progress.

The reason finance is so important—and the reason why the growth of FinTech is so important to the future of progress—is rooted in finance’s basic role: to put savings to productive use. Or, as economist Luigi Zingales has put it, “matching money with talent.”

The more savings you can connect to the best ideas, the more progress you get.

This is easiest to see with Venture Capital. As we’ve discussed, VCs use their ingenuity to fund other people’s ingenuity, and the result is that high-risk but high-upside companies like Apple, Amazon, Google, can launch and acquire the resources to innovate and grow. Which then enables the next batch of innovative fast-growing companies: Uber and others needed something like the iPhone to thrive. Like money earning interest, progress compounds over time.

If we want to get richer faster, then we want VCs (and others like them) to have more capital to deploy and to become better and better at deploying it. Which is a challenge: it isn’t clear that the traditional Silicon Valley VC model scales such that the industry can allocate $100 billion a year as effectively as it allocated $10 billion a year.

Enter FinTech—technology that aids and enables financial transactions.

Think of the Robinhood app, which makes it cheap and easy to invest in the stock market. In the 1980s, if you wanted to buy some stock, you’d have to call up your broker and pay him $45 on average to execute a trade. On Robinhood? You pay $0. That innovation makes investing in the stock market more appealing and it means that more savings stays in the market rather than going into the pockets of middlemen. More capital productively deployed means more progress.

And FinTech also helps us deploy capital intelligently. Venture capitalists, for example, are increasingly complementing human judgment with big data and artificial intelligence to make investment decisions. The benefits so far have mostly been in increased efficiency, but longer term the hope is that VCs can up their success rate so that they pick more winners and waste money on fewer losers.

More capital + better ideas = more progress.

Fintech’s “under the hood” contribution to human flourishing is extremely important and will be a topic we explore further. At the same time, it’s important not to ignore the more direct improvements to human well-being that come from making our financial lives faster, cheaper, and easier.

Thanks to FinTech, I’ve visited a physical branch of my bank only once in the last 15 years. Thanks to FinTech, I’m able to instantly make and accept payments using apps like Venmo and PayPal. Thanks to FinTech, many people in the underbanked world now have access to credit and loans: see, for example, Brazil’s Nubank.

Mr. Vélez designed Nubank to offer consumers its no-fee card via an online application. No credit history, no problem. Card users’ limits start small but as a record of paying back debt is established, those limits grow. Building a credit history is beneficial for the cardholder; for those who pay off their balances every month, the card is a hassle-free, no-cost convenience.

To put it in Ingenuist terms, FinTech has increased financial connection and made those connections smoother. It’s never been easier or cheaper to buy, sell, invest, trade, and borrow.

And things are only going to get better.

QUICK TAKES

“Find a way, or make one”

That was the motto of Sir Ernest Shackleton’s team, which set out to be the first to cross the Antarctic. But their ship, the Endurance, became stranded, leading to one of the most harrowing and inspiring survival stories of all time.

Here’s an excellent documentary on YouTube.

Anyway, after more than a century, researchers found their abandoned ship nearly 10,000 feet below the Antarctic surface. The New York Times describes the search efforts:

The hunt for the wreck, which cost more than $10 million, provided by a donor who wished to remain anonymous, was conducted from a South African icebreaker that left Cape Town in early February. Aside from a few technical glitches involving the two submersibles, and part of a day spent icebound when operations were suspended, the search proceeded relatively smoothly.

The battery-powered submersibles combed the seafloor twice a day, for about six hours at a time. They used sonar to scan a swath of the smooth seabed, looking for anything that rose above it. Once the wreck was located several days ago, the equipment was swapped for high-resolution cameras and other instruments to make detailed images and scans.

I love how technology can be used to resurrect history.

The deadliest disease is…

If you guessed aging then congratulations. But as we noted last week, this is actually a problem we’re making progress on!

In that vein, the Astera Institute has launched a new blog “to help the aging field as a whole by producing comprehensive atlases of the effects of various aging interventions in aged, genetically diverse mice.”

They elaborate in a later post:

The Rejuvenome will characterize aging interventions in mice, both established and nascent, for which there is evidence of improved health in aged individuals (i.e. rejuvenation). Experiments will be conducted in genetically diverse mice that mimic our diverse human population, and health will be assessed longitudinally (repeated over time in the same individual) and noninvasively with assays encompassing an array of organs and functional systems. Multiple categories of cellular and molecular measurements (i.e. multi-omics, hence Rejuven-ome) will be collected at several time points before and after intervention initiation to assess both acute changes and long-lasting improvements, enabling us to track changes at an individual level. Lifespan measurements will help link molecular and functional improvements to longer life and disentangle which treatments extend vitality (increase healthspan) versus merely extending time in ill-health.

The central goal of Rejuvenome is to determine which combinations of aging-interventions synergize best, resulting in greater rejuvenation than any alone. The hard truth—no matter what appears in mass media—is that currently there exists no treatment to significantly reverse aging in humans. Nonetheless, that is a worthy goal simply because that is the best way to keep people healthy. Even partial successes on this road could have enormous benefits for quality of life and disease prevention. A thorough understanding of individual interventions and how they work across the body could allow for the rational combination of those interventions.

Long live the rodents!

Diversification, not “independence”

In this week’s podcast, Yaron Brook made a profound point about how we should think of the supply chain vulnerabilities that come from living in a connected world. He argued that the solution to this problem isn’t to pull back from globalization and try to make everything ourselves—it’s to diversify.

“Independence” really means poverty: it means refusing to take advantage of a world of talent.

Yes, it’s really bad if you depend on hostile nations for crucial goods. And it’s really bad if you depend on a single vulnerable nation for crucial goods. But if you get your crucial goods from a variety of friendly countries, you gain the benefits of a connected world while minimizing your risks.

So, this is good news:

Intel selected the German city of Magdeburg on Tuesday for its next big chip manufacturing site, continuing a significant expansion aimed at reducing dependence on Asian factories for the vital components.

The Silicon Valley company said it expected to build at least two semiconductor factories worth about 17 billion euros, or roughly $19 billion, in the eastern German city, mirroring a plan announced in late January to begin manufacturing in Ohio. As it did in Ohio, Intel said the Magdeburg site, along with investments in France, Ireland, Italy, Poland and Spain, could receive close to $90 billion in funding over a decade to build additional factories.

Other industries, take note.

The killer app of space

James Pethokoukis asks NASA’s chief economist Alex MacDonald what the “killer app” of space exploration will be? Here’s MacDonald’s answer:

It is a perennial question. I'll give you two answers. If you look at the current commercial space economy, by far the majority of commercial space activity is communication satellites. The current investment in tens of thousands of unit satellite constellations for space internet tells you that is not looking like it's going to decrease as a share of the total commercial space economy. Right now, the killer app for space, as successfully predicted by Arthur C. Clarke in the first half of the 20th century, is communication satellites.

However, I would also say that the other killer app for space is humans. We continue to launch humans into space because of all of the different things that both humans are able to do in space, but also that humans in space inspires [us]. … There's often been a question as to why we launch humans into space, amongst people who don't find that particular field of astronautics as exciting. Yet I would argue that we go into space in large part because there are enough of us on this planet who are sufficiently inspired by the concept of human spaceflight that we continue to organize our resources to make it happen. That idea of humans traveling out into space, of potentially living in space permanently one day, I would say that that story itself is one of the killer apps.

We’ve discussed this question a number of times, and our core answer has always been: who knows? But there are sure to be huge benefits from finding cost-effective ways to travel to space.

The reason we’re so confident is because expanded knowledge and capability always have benefits that we never could have predicted at the outset.

Morning Brew gives us a really great example in a piece titled, “Without the James Webb telescope, Lasik could be stuck in stone age.” Key quote:

Lasik—one of the most common forms of laser vision-correction surgery—would not be possible in its current form without the scanning Shack-Hartmann system, a sensor tech initially created for NASA’s James Webb Space Telescope, which was launched in December 2021. Last year, more than 800,000 people received laser vision-correction surgery.

Considered the world’s most advanced space telescope—100 times more powerful than the Hubble—the Webb took NASA 30 years and $10 billion to build. It’s common for long-term NASA projects like this to cast off innovations that later advance a number of unrelated fields, as was famously the case with the Apollo program and tech like GPS, microchips, and satellites. Webb’s effect on Lasik is yet another example of this link between space tech and its earthly applications.

There’s a famous line from the Jurassic Park movie: “Your scientists were so preoccupied with whether they could, they didn't stop to think if they should.” 

While we definitely agree that progress should be done intelligently, with due attention to the risks, the reality is that all else being equal, the fact that we can do something does mean we should do it. The learning and capability we gain almost guarantees an improvement in human flourishing.

Progress is never a straight line

In January, I noted that the first pig heart transplant had been successfully completed. Unfortunately, the recipient, David Bennett, has died.

Bennett’s son praised the hospital for offering the last-ditch experiment, saying the family hoped it would help further efforts to end the organ shortage.

“We are grateful for every innovative moment, every crazy dream, every sleepless night that went into this historic effort,” David Bennett Jr. said in a statement released by the University of Maryland School of Medicine. “We hope this story can be the beginning of hope and not the end.”

I hope so, too.

Until next time,

Don Watkins

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