How cheap money and social media algorithms ruled the past decade

February 1, 2021 1:40 AM

Goodbye 2010s: techno-optimism edition The Margins is a financial newsletter by former Uber engineer Can Duruk and former currency trader Ranjan Roy, covering the intersection of Silicon Valley and Wall Street, previously of Pizza Arbitrage fame. In this retrospective they explain how cheap money and contentious social media algorithms shaped our past decade. Their two case studies: Kylie Jenner and Elon Musk.

Zero interest rate policy flooded the economy with enough cash to incentivize increasingly weirder and riskier undertakings from urban scooter graveyards to AirBnB. (The associated article, "ZIRP explains the world", is well-worth reading in full.) Algorithms rewarding antagonistic, dishonest behavior have been a major driving force in how content is delivered to social media users. (Further reading: The Conflict is the Point.) Those who take advantage of these two forces are not caught for dishonest behavior, but instead propelled to success. "Impunity is also perfectly representative of the 2010s."

posted by Apocryphon (8 comments total)

Thought provoking article, thanks.

One of the bits I though interesting was the foregrounding of the change of Facebook's feed from time based to algorithm. This annoyed me at the time and I am no longer on FB. Twitter also introduced this feature but still allows you to revert to a strict chronological view of your timeline. Does anyone know what % of people on Twitter opt for the strict timeline view, and which accept Twitters nudging and resetting to the algorithmically curated "Home" setting?

While I feel somewhat righteous and smug about not being on FB, not letting Twitter choose what I see from my followers, not following knee-jerk provocateurs, this is of course pissing in the wind from a macro perspective. The stuff I see in my feed will be the creation of people that are consuming their news and takes algorithmically anyways so I swim in that effluence all the same.

Off to read the associated ZIRP article linked.
posted by Gratishades at 2:39 AM on February 1, 2021 [2 favorites]

I have to wonder if the vast majority of users aren’t aware of the option to set it to chronological. On the mobile app it’s not too hidden away, but unless you knew it existed you wouldn’t go looking for it. And when you have such a vast userbase, that isn’t a negligible hurdle at all.

A lighter take on chronological vs. algorithmic social media feeds.
posted by Apocryphon at 8:10 AM on February 1, 2021 [1 favorite]

nothing operates as it would without that thirsty capital. It changes the economics for competitors that do not welcome in the dollars...Uber made rides seem cheaper so we stopped taking public transportation

I wish there were more stories on this part of the trajectory. Because this is effectively where the long term damage is at its most acute: relatively durable institutions / public assets get disintermediated and then fall by the wayside.

The next step after that is the current politics of immiseration. It's not that different from losing British coal, but this time the offshored factory is digital.
posted by Reasonably Everything Happens at 8:51 AM on February 1, 2021 [3 favorites]

I really can't recommend the ZIRP article enough. The 2010s retrospective is a fun high-level view of some of Margins' major theses, but their grand unified theory of present-day economics is definitely worth examining. And debating, if it's dubious.

ZIRP stands for zero-interest-rate policy[...] when a nation's central bank pushes nominal interest rates to 0% using monetary policy. [...]

Money is always swimming towards yield. Millions of investment professionals are taking tens of millions of actions, every day, to help drive capital to its sustenance. The entire global capitalist economy rests on this constant flow.

So what happens when you lower interest rates (especially to zero)? All those millions of little dollar-organisms have to change course. They need to find a new source of life. [...]

The more risk you take, the more yield you should get. [...]

So all these dollar-organisms all start swimming towards riskier waters. Treasury investors shift to corporate debt. Public equity hedge funds shift to late-stage private equity. Late-stage private equity shifts to mid-stage, mid-stage to early stage. Seed rounds become bigger. Angel investors become a thing. Unicorns, unicorns, and more unicorns. Ashton Kutcher. [...] Cutting interest rates spurs demand and risk-taking. The changed denominators of a million financial models make every investment idea look more enticing. If an interest rate is the cost of money, ZIRP means capital is now free.

When that much money finds its way into places not used to that much money, weird things happen.[...] You don't create a ridesharing service, but a service that oddly loses money on every ride with a promise to figure out some future business. [...] if you want to start a scooter rental business, you don't just buy some scooters and rent them out. You take hundreds of millions of dollars in venture and rapidly expand across cities. Money finds its way. [...]

[W]hy do companies do mental gymnastics to call themselves a tech company. It’s because venture as an asset class traditionally invested in technology because that is what presented the growth and return characteristics that matched their risk profile. So you try to call a desk rental or mattress seller a tech company. Then, for the companies that attracted the money had to spend it. Salaries inflate. Cultures change. Consumers are subsidized. Sure, some technology is created, but overall, nothing operates as it would without that thirsty capital.

Facebook’s advertising revenue has exploded thanks to heavily-funded companies acquiring customers, allowing the platform to resist any financial pressure which could force them to address fundamental platform issues. Uber made rides seem cheaper so we stopped taking public transportation. All this capital completely distorts things at the micro and macro level.

My co-host Can previously wrote how much of what we consider technological innovation is, in fact, business model innovation. I’d add that a lot of what is perceived as innovation is also some form of ZIRP-fueled arbitrage. Everything is ZIRP.

posted by Apocryphon at 9:51 AM on February 1, 2021 [2 favorites]

I really can't recommend the ZIRP article enough...worth examining. And debating, if it's dubious

So which reason made you post this? Because it's fun or because it's dubious?

Your follow up endorsement seems a little convoluted.
posted by Reasonably Everything Happens at 10:05 AM on February 1, 2021

It does aspire to be a grand unified theory, so there's always the danger of following an oversimplified explanation for a complex state of affairs. Also, around the time when the pizza arbitrage piece when viral last year, I did see a (now deleted) tweet from a Senate Budget Committee advisor account describing Margins as a "ZIRP truther", so there appears to be detractors out there besides the competing theories mentioned in the article.

As a layperson, I don't want to completely endorse an appealing theory, but I certainly do wish to invite discussion about it.
posted by Apocryphon at 10:19 AM on February 1, 2021 [1 favorite]

I have to wonder if the vast majority of users aren’t aware of the option to set it to chronological.

I'm one of those. I've had a Twitter account since 2007, but since I've only used 3rd party clients, I've never seen anything but chronological order. I've must have heard the 1st party client/website people complain about ordering, but I guess I forgot.
posted by sideshow at 10:33 AM on February 1, 2021

Said in response to a well intended person who said that if he saw evil in an alley, he would fight it.

It was a surprise to me when I responded, "If there is such a thing as evil, it doesn't care whether it wins or loses. It gets it's juice off the fight"

That was in 1998.
posted by goalyeehah at 11:35 AM on February 1, 2021