A VC - Latest Comments in What If Your Model Is Wrong?

Re: What If Your Model Is Wrong?

Pat — Thu, 29 Jan 2009 16:52:04 -0000

hmm... no. FDR was very different than Herbert Hoover.

Herbert Hoover was focused on decreasing government outlays to match decreasing tax revenues.

FDR was focused on using government deficit spending to put people to work. In particular, the WPA (and its ilk) were focused on providing gainful employment. These were not "make-work" jobs. The US infrastructure was dramatically improved. I come across many bridges and roads with a construction stamp from the 30's that were the result of FDRs projects ( not Herbert Hoover). Look at buildings in the National Parks, many of those buildings were built as part of FDRs programs to spend money and put people back to work.

Herbert Hoover on the other hand was convenience that government should not do anything to help. The Marget God would solve all ills.

Re: What If Your Model Is Wrong?

Guest — Wed, 21 Jan 2009 19:45:50 -0000

Just got done listening to the Jan. 13 conversation with Paul Krugman at the 92nd Street Y and immediately thought of this blog post. The talk is long (about 1.5), but if you scroll to about the 1:22 mark the interviewer David Brancaccio asks Krugman about thinking creatively/innovatively about use of bailout funds. I thought you'd be interested in his response.

http://blog.92y.org/index.p...

Re: What If Your Model Is Wrong?

briantroy — Tue, 20 Jan 2009 17:17:15 -0000

Inflection points (where the rules of the game change) are difficult to see except in hindsight. WE had no idea in 1890 that the rules of the agrarian society no longer applied in an industrial age... but we found out. It is at least plausible that we are at a similar inflection point between the industrial/information ages...
The stimulus is - in many ways - designed to support an industrial/manufacturing economy. The assumption being that the old rules apply. I've been thinking about this recently as well. Given that I'm re-reading Titan by Ron Chernow perhaps my radar for an inflection is too high... but maybe not.

Re: What If Your Model Is Wrong?

kidmercury — Sun, 18 Jan 2009 09:53:29 -0000

i second your endorsements here of those blogs. i'd also add stefanmikarlsson.blogspot.com and europac.net.

Re: What If Your Model Is Wrong?

Terry Thorsen — Sun, 18 Jan 2009 01:31:52 -0000

The blogs everyone here should be reading are http://globaleconomicanalys... and http://www.georgereisman.co.... Your gut is telling you Krugman is wrong. A little reading on Austrian economic theory will explain to your mind what your gut already has figured out.

Re: What If Your Model Is Wrong?

fredwilson — Thu, 15 Jan 2009 10:17:55 -0000

Yeah, that was a great piece

This is the future of education for sure

Re: What If Your Model Is Wrong?

fredwilson — Thu, 15 Jan 2009 08:38:10 -0000

I was one of those people declaring a ³new economy² in the late 90snwho had
their head handed to them. But the thing is, I never stopped believing it
and I still do.

Re: What If Your Model Is Wrong?

Chris Dodge — Wed, 14 Jan 2009 13:07:47 -0000

Sorry, revisiting an old post. I assume you saw this in the NYT about our alma mater:

http://www.nytimes.com/2009...

Think something like this could work at a high school level?

Re: What If Your Model Is Wrong?

Morgan Brown — Wed, 14 Jan 2009 03:56:44 -0000

Interesting post Fred. The problem I have with it is that it cuts both ways. To wit, the day before the collapse of Bear Stearns you had the CEO of Goldman joking that his parents were still waiting for the depression to come back. It seems to me that the more we choose to believe that things are truly different the more trouble we seem to get ourselves in.

Two examples come to mind, the dot-com bubble, where everyone was declaring a "new" economy and "new" way to do business, ready to drag old revenue-generating companies out behind the woodshed. We know what happened there. The second is the current economic crisis, which really comes down to credit, debt service and liquidity. The master alchemists on Wall Street found they could churn billions in fees out of the market by loading borrowers up on unsustainable debt with new financing models, and packaging those instruments every which way to sunday to sell to investors. It was proclaimed a new model, that the old way of lending had died, and of course, we can see that's wrong from were we now stand.

I do believe that technology and globalization will help mitigate this some, but the world isn't that free of American influence yet. The manufacturing indexes of the major economies around the world are all moving in lockstep down with American manufacturing. That said I do think they'll help lessen the effects and hopefully help us avoid people living in cardboard boxes on mainstreet and waiting in soup lines across the country.

Re: What If Your Model Is Wrong?

slowblogger — Wed, 14 Jan 2009 02:16:07 -0000

Marx is cool. I accept that.
But he was wrong. Well you don't have to be correct to be cool. Maybe the opposite...

Re: What If Your Model Is Wrong?

BillSeitz — Tue, 13 Jan 2009 20:17:09 -0000

I thought Rob got his BS from NYU, though he did various unconventional things on both sides of that.

Or did I mis-read something?

Re: What If Your Model Is Wrong?

fredwilson — Tue, 13 Jan 2009 19:52:18 -0000

He may have but he did it very unconventionally

Re: What If Your Model Is Wrong?

fredwilson — Tue, 13 Jan 2009 18:17:21 -0000

It¹s not up to me, it¹s up to her. But if it were me, I¹d do what rob kalin
did instead of what I did. University education has vastly increased in
price in the past 20 years and it¹s less useful in the real world. That¹s
not a good dynamic.

Re: What If Your Model Is Wrong?

fredwilson — Tue, 13 Jan 2009 09:25:18 -0000

Read the bits of destruction post if you want to understand my thinking on technology disruption

The starbucks and microsoft examples are from umair, not me, and are about dna, not tech disruption

Re: What If Your Model Is Wrong?

Rick Webb — Tue, 13 Jan 2009 02:17:14 -0000

While there's nothing inherently wrong or illogical with this line of thinking, the problem is that 99% of the time that we talk about how the old models might be wrong and maybe we're going through something new, the reality is it's just wishful thinking. In my 15 years of watching technology and economics, the technological advances have still not managed to shake the foundations of any economic models. While maybe *now* is the time that's about to change, statistically I'd say it's pretty unlikley.

Your examples also conflate economics with MBA-think business-running. Starbucks didn't follow any perfectly rational economic approach, they followed the MBA-think of the day. Traditional Economics only peripherally touches on things like "brand" and "adjacent markets." Ditto for standards-owning.

Re: What If Your Model Is Wrong?

fredwilson — Mon, 12 Jan 2009 21:40:21 -0000

Is the feedback quick enough for that to work in economics?

Re: What If Your Model Is Wrong?

fredwilson — Mon, 12 Jan 2009 20:51:25 -0000

I don¹t like the idea of the government running anything to be honest

Re: What If Your Model Is Wrong?

Guest — Mon, 12 Jan 2009 20:29:04 -0000

I know this sorta missing your point, but I think Krugman would argue that what's going on today isn't necessarily a "21st century" crisis or, if it is, it's a crisis precisely because we've cast aside rules that were developed over the course of the 20th century.

What's "21st century" about a housing bubble? (In fact, in Krugman's latest talks he says the Internet bubble was more justified than the housing bubble because pricing internet stocks was so new, whereas people have been pricing houses for a long time).

On the other hand, institutions that are chartered as banks ("20th century banks") have limitations on leverage and capital/reserve requirements. Krugman points out that when hedge funds and other institutions act like banks ("21st century banks") but don't face those "20th century" restrictions, they can get into big trouble.

So maybe the "20th century" models aren't incorrect; maybe it's just that "21st century" technology "scales" those models beyond what anyone could have contemplated in the 20th century.

Re: What If Your Model Is Wrong?

Guest — Mon, 12 Jan 2009 20:27:57 -0000

Fred,
you are right about Obama getting sucked into conventional thinking. Everything about his transition screams: "Enough with the screw-ups, responsible adults are in charge now." Where's the "audacity"?

We have a big problem if we think that 2000-2008 problem of a "incompetent, lazy, dishonest, stupid Administration with grand delusional visions" is with the "vision" part. It's not! The problem is with "incompetent, lazy, dishonest, stupid and delusional". We still need visions.

Another problem, reflected in the comments here, is how do we implement Krugman's recipe of a $1T govt. "borrow and spend" when borrowing was the root cause of the economic crisis? Krugman may very well be right, but it is a tough sell for the people to accept.

So, you are generally right, you need something bold and visionary.

Here's an idea: Transform the car industry into the fabless semiconductor model. First, nationalize Ford, GM and Chrysler, and then divest of all the marketing and R&D functions. Make them into the equivalent of a semi foundry. I believe government can run a factory, it is with creativity they struggle. If you have enterpreneual start-up companies design and market vehicles that are built in state-owned factories, I believe that in a very short time America will be producing the best cars in the world.

That's just an example of unconventional thinking, I am sure there may be more ideas like this...

Re: What If Your Model Is Wrong?

kidmercury — Mon, 12 Jan 2009 18:44:50 -0000

i bet it was the redesign and domain name change that did it. going pop was bound to lose some of your hardcore fans. like when dylan went electric. what can you do, can't please everyone.

Re: What If Your Model Is Wrong?

khanan grauer — Mon, 12 Jan 2009 16:51:10 -0000

Fred,

It's a first time I'm posting on this blog. Great material here.

I somewhat follow the latest intellectual thinking about the stimulus. The latest research has actually brought questions to Keynesian thinking, specifically on spending vs tax cuts. Greg Mankiw has done a nice job putting this to light: http://gregmankiw.blogspot.... - this brings up a host of questions to conventional thinking.

Re: What If Your Model Is Wrong?

kidmercury — Mon, 12 Jan 2009 16:50:44 -0000

yes i noticed the disappearance of jackson, which is a shame, with the exception of his anti-digital music propaganda that he would try to brainwash us with he seemed like a good fellow. i am honored to try to fill his void. that's even a bigger promotion than being community bouncer!

Re: What If Your Model Is Wrong?

fredwilson — Mon, 12 Jan 2009 16:46:15 -0000

Yes, the Mankiw piece was good

Re: What If Your Model Is Wrong?

fredwilson — Mon, 12 Jan 2009 16:44:29 -0000

He comes around every now and then but I think we've gone in a direction with this blog that doesn't interest him so much

Re: What If Your Model Is Wrong?

Debunkr — Mon, 12 Jan 2009 15:49:19 -0000

I don't think we have a money supply problem. We have a "lendable credits" problem that is driving a deleveraging situation. There are natural boundaries to how much debt an entity can take and it's clear we blew by many of those signposts awhile back on the way to Vegas. You can put as much money as you want into the banks, but if on the other hand we're asking them to reinstitute sane lending practices, then the money supply will still contract and the banks have nothing left to fund except their performance bonuses.