Dwarkesh Patel: observation

Transcript context

…Well, I guess I’m more of a statesman than most economists, but I don’t come close to Keynes in the breadth of his high-level achievement in each of those areas. Okay, let’s talk about those achievements. So, chapter twelve, General Theory of Interest, Employment, and Money. Here’s a quote. “It is probable that the actual average result of investments, even during periods of progress and prosperity, have disappointed the hopes which promoted them. If human nature felt no temptation to take a chance, no satisfaction, profit apart, in constructing a factory, a railway, a mine, or a farm, there might not be much investment merely as a result of cold calculation. ” Now, it’s a fascinating idea that investment is irrational, or most investment throughout history has been irrational. But when we think today about the fact that active investing exists for winners’ curse like reasons, VCs probably make, on average, less returns than the market, there’s a whole bunch of different examples you can go through, right? M&A usually doesn’t achieve the synergies it expects. Throughout history, has most investment been selfishly irrational? Well, Adam Smith was the first one I know to have made this point, that projectors, I think he called them, are overly optimistic. So people who do startups are overly optimistic. People who have, well, entrenched VC franchises make a lot of money, and there’s some kind of bifurcation in the distribution, right? Then there’s a lot of others who are just playing at it and maybe hoping to break even. So the rate of return on private investment, if you include small businesses, it’s highly skewed. And just a few percent of the people doing this make anything at all. So there’s a lot to what Keynes said. I don’t think he described it adequately in terms of a probability distribution, but then again, he probably didn’t have the data. But I wouldn’t reject it out of hand.…

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