Fixing the Expertise Misallocation Problem

Over and again, all of these people who are held up by the media as geniuses or experts keep being wrong, whether it’s about Covid (specifically, the ‘health experts’ vastly overestimating the efficacy of masks and vaccines at stopping the spread of Covid), investing (such as Cathie Wood, who was hyped by the media in 2020-2021 before her fund lost 75% of its value, erasing all its 2020-2021 gains), cryptocurrency (Yahoo Finance and Twitter hyping crypto and giving a platform to crypto shills and scammers), Ukraine vs. Russia (the experts were certain it would be like WW2 again), Trump (the experts in 2016-2017 thought he would start another world war, would hurt diplomatic relations, would tank the US economy, etc.), GameStop (the media predicted in January 2021 that the stock price would be low double digits or single digits by now, yet it’s still at $140/share), Tesla (that the stock would also crash), etc.

In 2021-2022 Peter Thiel, Marc Andreessen, Chamath, Barry Silbert and other VCs, held up by the media as ‘geniuses’ and ‘experts’, steered their combined millions of social media followers into buying cryptocurrency and NFTs at the peak of what would be the beginning of a 70-90% crash to follow, that shows no sign of abating as of writing this. At least a trillion dollars has been lost so far in less than 8 months (since November 2021) in cryptocurrency and NFT losses, in addition to bankruptcies such as Celsius and Voyager. This massive miscalculation or misallocation of expertise led me in part to write this post. Probably thousands of students, retirees…average people financially ruined or damaged as these VCs and ‘experts’ walk away with their reputations, wealth, and professional careers intact–zero repercussions or accountability. You literally could not have chosen a worse investment in late 2021- early 2022 than crypto. The performance is even worse than most banking stocks in 2007-2008. What went wrong and how can it be fixed.

Here is Peter Thiel’s Bitcoin keynote on April 2022, before Bitcoin would go on to lose another 50%:

Even I with my zero years of VC experience and sub-billion net worth could have told Thiel, Andreessen and others that crypto was a bad idea and not at all like the ‘next Facebook’. Despite recent setbacks, Facebook makes tens of billons of dollars annually in profit; Bitcoin only burns energy.

People get things wrong often because they don’t have a good understanding of how things work, by having poor mental models for understanding the world (garbage in, garbage out, as it’s said), and or biased due to ideology or conflicts of interest. It has nothing to do with wealth, credentials, status, or fame…none of those things are shown to help (except for perhaps the ‘hard sciences’ like math or physics, in which experts are seldom wrong). In fact, those could be a detriment by instilling a false sense of overconfidence and insulation from criticism. I have observed repeatedly that it’s the no-name, no-status people who know the most. On Reddit or Hacker News discussions, it’s not uncommon for an ’eminent scientist’ or an ’eminent journalist’ to have his or her findings or arguments taken apart in the comments section by much smarter, astute no-name people who find all the logical and factual mistakes.

I have observed the same on r/wallstreetbets. There are many ordinary, no-name individuals who demonstrate actual skill at consistently making huge sums of money, which cannot be explained by just luck or survivorship bias. Here’s one such example of someone who turned $30k to $450k pulled from the front page today. There are many like this…it’s not like I had to dig through pages of archives to find successful traders. Yes, there are big losers there, but this does not preclude the possibility of demonstrable, statistically robust skill too. Meanwhile hedge funds, active managers struggle at even matching the S&P 500. People with huge YouTube followings make money with ads and shilling cryptocurrency instead of actually trading it.

I think this is indicative of a huge economic inefficiency/mismatch, which is potentially retarding GDP growth, because the people who are finding the errors should be in charge and running companies and dictating policy, not on the sidelines in the comments. Likewise, traders on on /r/wallstreetbets who are making 5, 6, or even 7 figures consistently should be managing capital [not necessarily by making huge, risky bets, but the ability to consistently make so much money on a smaller scale demonstrates superior understanding of trends, risk, and other factors that are applicable to capital management on a larger scale for hedge funds], not some guy with an MBA who was promoted for his credentials and connections more so than skill. Or at least, we need better experts. Overall, the poor performance of experts represents a major possible misallocation of human capital, because it’s evident that many of these esteemed experts/professionals are coming up way short. As it’s said, “science progresses one funeral at a time”. These entrenched experts who won’t quit or retire but linger for decades long after they stopped being useful, assuming they ever were, are impeding society. The ‘market forces’ of selection which weed out the bad in the private sector, are absent here.

My proposal would be something like the Manhattan Project 2.0 but for the social sciences and government, including finance and economics. It would be funded by the government or the private sector. Get one hundred of the smartest, most accurate [all of this information is public, such as Twitter posts, so it would be possible to determine who’s the most accurate] people on social media such as Twitter, on Substack, Reddit posters, bloggers, etc. and put them in high positions of power [and pay them enough money to entice them to join]. And compare how they perform to conventional experts. These would be people who were right about Covid, politics, Ukraine/Russia, inflation, the stock market, etc. I think it would be a big success.

Eric Weinstein has proposed such an idea for physics, but I don’t see why it wouldn’t work for other areas, such as the social sciences. The difference is, you are looking for people who don’t have conventional credentials yet demonstrate a superior grasp of things, whether it’s politics, various macro and social trends, stock trading/investing, economics, forecasting etc.

We don’t need to limit our options for expertise to only the wealthy or the credentialed. Thanks to social media and other forms of transparency, we can see who the most accurate are in real time and pick them out. I remember Cernovich 6-9 months ago saying to sell your crypto and buy a fixed rate mortgage. Even if you think his politics suck, talk about great timing: inflation would surge and crypto would crash, the exact opposite of what the overrated, overpaid billionaires and useless experts were predicting. In summary, we need to stop relying on credentialed and overpaid ‘experts’, who are better at self-promotion and resume padding than actual advice or foresight. There is a huge reservoir of untapped talent just beneath the surface.

1 comment

  1. Maybe start some kind of tracking program. You probably couldn’t use the persons names because they could file a law suit. Some sort of appropriation of labor. They’d want a cut of any revenue.

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