Maybe we're in a bubble but it doesn't matter | Hacker News Reader

Maybe we're in a bubble but it doesn't matter

justinkan.com

89 pointszaveri61 comments

Justin is fundamentally missing what people are saying the bubble is. From my perspective, no one is arguing that high tech and programming won't be more and more important in the future.

"Anyone who tells you that you shouldn’t be in tech, or that the current market situation will create an oversupply of people in tech, is doing you a massive disservice."

Who is saying this? I don't think anyone is trying to dissuade people from getting high tech skills.

I believe that the bubble consists of the massive amount of startups that do not actually provide a valuable service. Do we really need another social network or sharing site or "X for Y"? No, we don't, but it seems like 90% of the startups getting funded by incubators are just rehashes of that.

I believe that point is explained very well here: http://scripting.com/stories/2012/04/19/itsDefinitelyABubble...

The key points are here:

========

2. We're bundling young people into things called startups, and selling them to investors for ever-increasing amounts of money.

3. In an effort to bring more suckers in, they just passed a law that makes it legal to pimp these startups to people who don't know anything. You will be able to take their investment by swiping a credit card. Probably using a $4 billion valuation Square dongle for an iPhone.

4. They have started incubators in every major city on the planet. Unfortunately it hasn't been stylish to learn how to program for a number of years, so there aren't that many programmers available to hire. And it takes years to get really good at this stuff.

5. Even if they could find enough programmers, there aren't that many businesses to start to satisfy the demand for investment vehicles. A lot like the situation with mortgages in the last bubble. So the VCs and angels and no doubt some very shady folks are putting together deals with people who can't program with no actual idea for the business. Don't look to Y-Combinator, they're the quality act here. But there are incubators in every city from Santiago to Beirut.

========

The most important sentence there is "A lot like the situation with mortgages in the last bubble. So the VCs and angels and no doubt some very shady folks are putting together deals with people who can't program with no actual idea for the business."

And that is the bubble. Startups being founded with people who can't program with no actual idea for the business. Just like the last mortgage bubble.

And to be fair to Justin, I think twitch.tv is great. It is novel, has a clear path to monetization, and provides a service that people actually want. We need more venues for professional gaming and twitch.tv is a great step in that direction.

I'm not a big fan of protecting people from themselves. Who are you to tell me I shouldn't be allowed to invest in a startup because I'm too dumb to make that decision for myself? Whether or not you are right about the bubble is besides the point.

Well, aside from well-meaning paternalism... everyone who overextended themselves with a too-large mortgage did it of their own free will and hypothetically were only screwing themselves. But when things go to shit, the effects of a large number of people screwing themselves spill over to a bunch of complete innocents (well, people who are innocent of everything except existing in our contemporary economy).

I agree with your observation but I still disagree with the conclusion that we should protect people from themselves for the simple reason that people do not have a responsibility towards the economy. If half Silicon Valley stops going to work tomorrow, the economy will unquestionably take a massive hit. Should we have a law preventing people from stopping going to work? If Zuckerberg decided not to build Facebook, should he be held accountable for all the jobs he could have created but did not?

In practice for this particular instance, I agree with you on the correct policy position: the amounts of real-world money that would be being put at risk are small compared to the real estate bubble, and the financial nervous centers of our economy are more insulated from this bubble than the one in 2008.

I do think your general principle for appropriate government action is too strong and leads to some questionable results, but that ends up getting too involved in abstract political principles for this particular thread.

I think we would all be better off if the Comptroller of the Currency, the Office of Thrift Supervision, the FDIC, and the Fed had been much stricter in keeping banks and others from making liars' loans.

I suspect that the reason that a large number of people screwed themselves over is because sometime in the past some smaller subset was protected from slightly screwing themselves over.

It's called information asymmetry. As an individual, you do not have the power to get all the necessary information to make a sound decision, but working through the government - which in a democracy ideally represents you and others like you - you can get that information.

I'm not opposed to laws preventing corporations from providing false/misleading information, witholding relevant information, etc. I'm just saying people should be free to make the final judgement of whether or not they want to invest after having been presented with all relevant facts.

There's also the issue of enforcement. If a company gives you false information, you may not have the resources to sue them if it's only a civil matter, or if the local prosecutor declines to prosecute.

This is an important point. You could provide a valuable service to the new angel class by running a site that provides startups with easy to fill out forms that translate into useful, actionable, understandable explanations of their new businesses.

I'm sure the standard brokers will provide guidance like this for a price, but you could establish norms as to what information is most important for every single new company to get out there, or take standards set by the government and make that information accessible.

It's not themselves they should be protected from, but the people who are going to try to sucker them.

Now if you lay out all of the facts in front of the mark, and he/she dismisses them as pessimism or a conspiracy - I'd say society's responsibility should end there. But I think that the less credulous people in a society should institute enough oversight over situations that could be potential scams so that the more credulous can have the best picture of the situation that a neutral party could provide.

Statistically, a large amount of people will always be too dumb to make that decision for themselves, so we should try to ply them with all of the supplementary smarts that it's pragmatically possible to muster:)

From the perspective of the 2000 bubble though, that's exactly what people thought. Pre-crash people thought everything needed to go online, post-crash people thought you couldn't succeed unless you were 'clicks and bricks' but really just bricks was better. Now we're looking at some over-valuations in social companies that will probably burst but people won't be reevaluating whether you can really have a business on the internet or not. And yes the 2000 bubble had a big impact on the careers that kids choose.

The mortgage bubble was a great time to sell a house. The dotcom bubble is a great time to sell tech (companies or your labor). Just be wary of what you buy. I am bubbling all the way to the bank.

It's funny to look back at news articles when past bubbles were forming and compare it to the articles that are popping up now about startups. It's hard not to see similarities. Take this 2005 NYT times article, titled "Trading Places: Real Estate Instead of Dot-Coms", for instance (http://www.nytimes.com/2005/03/25/business/25boom.html):

'Premonitions of a bubble on the verge of popping do not ruffle those who are bullish on real estate. In Miami, Ron Shuffield, president of Esslinger-Wooten-Maxwell Realtors, predicted that a limited supply of land coupled with demand from baby boomers and foreigners would prolong the boom indefinitely. "South Florida," he said, "is working off of a totally new economic model than any of us have ever experienced in the past."'

It seems like a lot of the same kinds of thinking in Justin's article, "we might be in a bubble, but for you it doesn’t matter. The reality of the world is that software, specifically Internet enabled software, is becoming a part of every business. Marc Andreessen said “software is eating the world,” and by that he meant that as time goes on, every industry is becoming a software industry...You want to be in the tech game, because in time it will be the only game in town."

When I read things like this, I have to wonder if the people saying it are really naive or sheltered enough to believe it:

"You want to be in the tech game, because in time it will be the only game in town."

Well, no...because tech won't be big enough to employ more than a relatively small percentage of the population. And it won't matter that companies want to pay tech workers to help automate people out of jobs. Because once everyone is unemployed, no amount of tech will keep a company in business if nobody is making enough to buy its products.

Without a doubt, things are going to change. Just like they always have. Some industries will gain, and some will lost. Some people will find their skills in high demand, and some will find their skills obsolete. We won't, however, end up in world where you either work in tech or you're unemployed.

It's an especially odd statement coming from the founder of a company that employs people to run errands for other people.

exactly. Everything they do will be replaced by machines.

I guess my point was that I'd rather be the guy making the software that directs people around running errands then one of the guys running errands. To that end, I needed to have software engineering and product skills (otherwise I wouldn't have had the opportunity to even be in the position to start this company).

To the grandfather's point, I might be naive but when we automate away large numbers of people's jobs of course we will have to figure out some sort of wealth redistribution to give those people spending power (we do this right now in social welfare). However, my bet is that if you are one of the people doing the automating you'll be a lot better off than one of the people on welfare, because we've never in the history of humankind had perfect wealth redistribution.

http://marshallbrain.com/manna1.htm

Mechanical Turk will have an endless supply of two-bit tasks...

Another point to add to Justin's:

Few skillsets grant you more of an ability to be self-reliant than the ability to understand and write software -- even if there's no job description written for what you do, or no company who will hire you. In almost any field of entrepreneurship, if you have tech savvy which your competitors don't, you have an inherent advantage against them and an ability to crack open the market.

Are you a DJ or party promoter who understands SEO/SEM and social media? You've got a leg up. Are you the only person in your area who understands both fashion apparel supply chains and software? You could be providing immense value.

I don't think knowing how to write software is needed to understand SEO/SEM

True. I could have been more careful with my phrasing.

The original point, stated differently:

Understanding software and the modern web -- even short of being able to write it -- can still give someone a sizeable advantage in many fields.

> Most people aren’t self aware enough to realize what is happening that is making their jobs disappear: a strong trend in software automation to make business processes more efficient.

This reminds me of a really helpful salesperson at the Apple store that was really excited/proud to tell me that you can now walk in and purchase an item without ever talking to a salesperson...

I'm guessing he was excited because he knew very well that the majority of people at an Apple store have no idea what they really want to buy and need the salesperson's expertise. Probably the same reason that BestBuy hasn't been killed by Amazon yet.

Right, I truly think it was genuine pride for the excellent addition of technology to the process. The guy rocked, but the point remains - the addition he's excited about will likely result in frictional unemployment in his particular position.

Give it a minute...

Wut. I had NO IDEA you could do this.

off to the Naperville Apple store

This article conflates two issues: the secular trend that is "software eating the world" and the local trend which is a valuation spike.

»The truth is that the technology sector as a whole over any length of time is a positive-sum game

Actually, no - a bubble means people aren't investing on fundamentals but on momentum; the expected value of the investment is negative. If we were in a bubble (as in bubbles past) we wouldn't be in a positive sum game. Saying that it would be a net positive game over "any period of time" is economically and empirically ridiculous.

I happen to believe that we are not in a bubble. But if we were it would matter - it would mean that when the bubble pops opportunities in the field would decrease in frequency and magnitude. Since career scars early on have more persistent effects than displacements later in life it follows that an aspiring tech star cannot ignore the market realities of what they're going into.

We are mortal, we can't just ride the secular trend. The local time scale matters, too.

> News sites with a better grasp of how the Internet works, like HuffPo or Mashable, are worth hundreds of millions.

I've been wondering - when all the old media inevitably die off, where are these aggregators going to find their content?

From AP and Reuters, who they pay for the privilege.

HuffPo and Mashable are no more aggregators than old media. Most of their content is original.

Most articles you see in traditional papers are not original. We're going from offline news aggregators to online news aggregators.

The first thing you have to do to understand why bubbles happen is to stop believing everyone in it is being 100% rational.

The reality is that for most investors the vague notion that they might be missing a great opportunity far outweights any well documented evidence that they are walking into a sinkhole.

Many investors from the dotcom bubble simply left the market and new ones took their places. If there's money to be made some people will always be there, it doesn't gets more complex than that.

So basically you shouldn't stay out of tech right now just like you shouldn't stay out of tech in 1998. You should've done that in 2001 when everything started to collapse. Funny that Justin mentions Amazon because that company took a nosedive back then.

Question is, how long we have until the next 2001?

When that happens many people, including "negationists" and wantrepreneurs will GTFO from tech as fast as they can rip the copper wire from their office walls.

Theres just so little value in the stuff being produced. Its absurd.

Where are the people who are designing actual tangible items?

Why is so much of this stuff only fluff and entertainment?

Because it's what people want to pay for

^ bingo. This could change and I hope it does to some extent but for the time being it is what it is.

I don't hope it does. I'd rather we have fluff made of ones and zeroes that costs virtually no marginal energy to produce than fluff that you have to ship from China at great energy expense. Unless you live in a tent and eat nothing but cornmeal, tofu, and nutritional supplements everything you own is fluff.

because our deepest needs are unfulfilled and entertainment is opium for the masses.

Correct me if I'm wrong, but fluff and entertainment has a much lower barrier to entry than tackling real, tangible problems. Writing software is "free" in that I can sit and code for a few months in my free time, and put out a halfway decent game or piece of "fluff" software as you call it. Inventing the next battery technology, on the other hand, requires several PhD's and millions in funding.

True, but I don't see why we shouldn't critique the fact of the matter.

Because the parts of the economy providing food and housing take up a small fraction of the total work available to be done. The rest of the work (ie surplus) can go to one of three things:

1. "Storing food for the winter". R&D to prepare us for challenges we'll face in the future. Ex: alternative energy research. This sort of thing is extremely difficult to fund in a capitalist society. We need more of it.

2. Waste. Accounting and lawyering and sales and such.

3. Entertainment. Everything from movies to luxury goods.

If given a choice between 2 and 3, I'd pick 3 any day. I'd like for there to be more of 1, but I guess that makes me a socialist :).

I don't see any functional difference between a Farmville cow and a ceramic cow that sits on a mantlepiece. They have exactly the same practical use, but one cost way more energy to produce than the other. My argument for how Farmville will save us from global warming is a post for another time.

tl;dr: Value is what the market says it is, not what you say it is.

Accounting and practicing law is a waste?

Have you ever met an accountant that gets up in the morning excited to get to accoutning? Have you ever heard someone say: "Today is my lucky day! I get to go see my accountant!"?

I'm not saying they're not necessary. But if the economy were a mechanical system, law and accounting would be the friction between the belts and the wheels that produces waste heat.

I wouldn't call it waste. I would call it overhead, which is very different than waste.

This may sound crazy, but there are people drawn to accounting or insurance who are simply numerate, who love numbers and precision and carefully designing rules that accomodate the fascinating special cases of the real world, and who do enjoy that kind of work. It sounds dreary and gray, and we like to scoff at it as bean-counting, but it does appeal to a certain detail-oriented mindset that isn't all that far off from some forms of engineering.

Here's another view: Accounting is the instrumentation that lets you make sure the machine (the business) stays calibrated, and that the inputs match up to the outputs.

There's plenty of action occurring outside of consumer Internet, but it doesn't get much coverage on general interest sites like HN since we need specialized knowledge to understand why those companies are interesting, special and valuable.

Because heavily regulated industries are much harder to disrupt. The risk and barrier to entry to medicine, food/nutrition, finance, etc. is very high mainly due to heavy regulation and cronyism.

Two factors are going on. That result in the current social media gold rush.

# Factor 1

The first is the fact that the people who have disposable income already own more tangible items than the ultra wealthy of our cave dwelling ancestors did. In terms of value.

# Factor 2

Since people already own most of the tangible things needed to live a comfortable life, consumer focused companies need methods to find the specific consumers that are currently interested in buying tangible things, or who can be convinced to be interested. They then need to profile these people and then present them with messages engineered to elicit feelings of hope for fulfillment (I say hope, because often the fulfillment does not come). This is describing classic consumer research and classic advertising. This is currently a costly process*.

U.S. ad spending grew 6.5% in 2010 to $131.1 billion, according to new data from Kantar Media.

# The Result

A huge market has been created. A very real market. As an aggregate our private information and attention (market research & advertising) is quite valuable. Not to say this market is so vast it eclipses all others. Facebook is valued at over 100 Billion according to some. Selling tangible goods like oil or Apple products seem to still be larger than this market. So a few individual markets are larger than social networking market?

We live in a world where the ability to line people up, study then and then use psychological tactics to hook into their desires and wants, on an aggregate, is worth more than the products on an individual case are worth.

# An Analogy

If this is hard to wrap your brain around, think of this analogy. Imagine a world where the automobile, plane, boat etc were never invented and no roads exist. However a few Rail Road companies exist. The FB RR, the Twitter RR, Instagraam RR and the Pinterest RR company. The FB RR just bought Instagram RR. Companies like Coca-Cola sell tangible products (sugar water) And before the 4 mentioned Rail Roads existed Coca-Cola did quite well selling its sugar water. It has become a billion dollar business. By way of Pony Express (Television, magazines, research groups) many people have chosen to buy Coca-Cola. However, from its point of view it could sell more and hiring men to carry large sums of sugar water long distances on horseback is expensive. And worse now that Rail Roads are popping up in small towns competing companies such as Pepsi, Jones soda, etc are delivering their sugar water for cheaper.

The truth is if no Rail Road existed and no Pony express, you or I would be fine. We would drink water, we would tend our farm and trade carrots for apples. Which we would use to make apple juice. Evolutionary speaking we don't need Coca-Cola. And the heads of Coca-Cola know this. If they don't start paying the FB, Twitter, Instagram and Pinterest RR to ship their sugar water to local towns people will stop buying Coca-Cola. A billion dollar business is at the mercy of these 4 Rail Roads. But it’s not just Coca-Cola. There are millions of businesses in the same boat.

So yes, social networks provide intangible goods to you and I, however, to consumer focused companies they are essential for Sugar Water Co to be a billion dollar company in today's economy.

The result is a gold rush, and though you may feel morally against this gold rush, you can’t deny it’s not real money, real value being created. A better mouse trap has been built. It creates wealth. In this case this mouse trap tracks you, analyzes you and convinces you to spend your money on Sugar Water. This is a tanigable, valuable and desirable good to many rich people.

On the other hand, there might come a time where software becomes so important and pervasive that it won't make sense anymore to call yourself a software engineer or a software company. I'm guessing there was once a time where the next big thing was to become a mathematician. However, mathematics has grown so central to so many fields that very few people nowadays call themselves mathematicians or dream of building mathematics companies. I wonder if programming will not simply become an increasingly important tool within other disciplines or if everyone is really just going to start studying CS/software engineering. This is probably more an argument on semantics than a rebuttal.

I completely agree with this post, soon people are going to open their eyes and programming will be taught from elementary school to high school. Not being able to program will be equivalent to what being illiterate was.

100% agree

My child will be bilingual. English and 10010101001.

I agree with this, but I think we're closer to Pharaonic Egypt than the Enlightenment in terms of code literacy. We're going to be the scribes for a long, long time.

I agree, but I'll point out that programming has been part of the curriculum in this locality since at least the time my dad was in high school. He tells of writing programs on punch cards. We started with BASIC when I was in elementary school.

Despite that, I don't know of anyone who I went to school with that could write a single line of code today. Of them, I do have one friend who is also in the software business, but his skills lie in other area of production. He admits he cannot program.

For your vision to come true, programming will have to become much more fundamental, to the point that something else will have to be cut. Which other subject should get the axe?

I thought I would add some support for the argument of choosing the tech sector as a career. If you look at the statistics it seems that 5 out of the top 10 jobs of 2012 according to this survey is in the tech sector with software development being number 2. And the estimations for the coming years are pretty staggering. Tech is probably not a bad field to be in, lucky me, I think. http://money.usnews.com/careers/best-jobs/rankings/the-25-be...

Really insightful article, especially for someone like me: a EE/CE student wondering about whether or not the current trends in tech jobs will continue into the future. I know I can get a job when I graduate in either hardware or software design, but I've been uncertain as to how quickly the industry will saturate and whether or not jobs will still be around (or pay well enough to be satisfied with the additional educational investment) in 5-10 years. Glad to see some insightful, well-informed confidence in the future of the industry.

Software is indeed eating the world. What's going to devour it?

HARDWARE + SOFTWARE.

think nest, tesla (yes, it's a huge software play), and the like.

I agree 100% with the article, but to me it disagrees with the headline. He's arguing that we shouldn't worry because we're not, in fact, in a bubble.

proof positive we're in a bubble: http://wag.com/. http://pets.com/ is back!

Wag.com (and soap.com, diapers.com, etc) are wholly-owned, very profitable subsidiaries of Amazon.

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