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Culture War Roundup for the week of April 10, 2023

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Did the FED create wokeness?

I graduated with a CS degree ten years ago, and I still regularly meet my old class-mates. Some are right-wing, often libertarian types, while some have gone full woke including some unexpected ones. The main factor separating the two seems to be what industries they are in. Those who write software for the electrical grid, defence contractors, or industrial machines seem to have moved rightwards over the past decade. Those who work in industries propped up by low interest rates have all gone radically left. Spotify's headquarters are close to my office, and I am good friends with several of their employees. Their business-model is essentially dependent on an extreme individualist philosophy. If music is an integral part of culture, something that is typically experienced live and locally, the business of making cents per thousand listens is infeasible. Spotify is built on billions of people listening to the same pool of music. No nations, no borders, just atomized consumers is a suitable ideology for such a company. Grubhub, uber, twitter and Netflix make small sums of money off vast quantities of people. In a more nationalistic world, they wouldn't be nearly as valuable. My woke friends nearly all went for a company that has millions of clients all over the world, generating tiny profits off each client. The art stemming from these companies tends to be bland and placeless. Strong collective identities such as nationalities, ethnic groups, traditions and gender roles doesn't flow well with a world consisting of users.

These companies had another pillar holding them up besides global homogenization, low interest rates. Spotify, Netflix, Uber, and Twitter have lived for over a decade without any real profits. They have consumed monstrous amounts of cash without generating much revenue. This has only been possible because of low interest rates. If bonds were yielding 8% a year, borrowing money for fifteen years and dumping it into spotify wouldn't have been an attractive investment. These companies have lived on cheap credit and a globalized world pooling wealth into a few major cities. A global financial hub is going to be multicultural, it won't be able to have a strong culture or strong norms, and it will be inherently individualistic. NYC needs rich arabs buying expensive apartments. Those working in finance insurance and real estate benefit from Saudis buying lavish apartments which are empty 95% of the time. A janitor trying to buy a house is less amused by Saudi oil flooding the NYC housing market.

Those coding for the electrical company are more interested in people who are committed long term to their society. They don't need a global market, as their market doesn't extend further than the grid. Their interest is people with high skin in the game in terms of the society they live in and who are willing to make long term investments in the grid.

Those on the left seem to still view the elite as those managing local businesses. They see the elite as conservative, and having the values of my friends working at industrial companies. They seem to have missed the growth of a new elite that is international by nature. This elite builds its wealth on taking a 0.1% fee for managing the investments of millions of people, or charges a few cents per payment on their fintech app. My suspicion is that they don't want to see the nature of the new elite, since so many of them make their living serving it. Universities need foreign students, journalists need international readers. The blue tribe is urban because they make their living teaching, entertaining and managing with funding coming from tech/finance. The bookmakers at the coliseum in Rome were more dependent on Rome as a vast empire than the farmers were. Thousands of people betting on gladiator fights required an empire to sustain it. Farmers on the other hand didn't like competing with slaves.

Interest-rates are rising and tech lay-offs are in the news. Spotify, twitter and Facebook are slashing employees. Meanwhile, new nuclear power is in the news and thousands of coders will be required. Defence contractors are trying to hire all the people they can find. Reindustrializing has lead to a surge in jobs in manufacturing, and the machines require code. Government, health care and other sectors are in dire need of developers and there is no shortage of jobs. We are seeing a shift away from 10 cent per thousand adds to agricultural machines.

With higher interest rates San Fransisco, LA, NYC, and London will decline as portions of GDP and manufacturing hubs will increase their portions of GDP. We are seeing a shift away from a global woke class to manufacturing, both in rust belts in the west, but also in China and various developing countries. The end of occupy Wall street is often viewed as the start of the great awokening, the end of the global financial crisis was the FED printing money. The great awokening occurred roughly at the same time as zero interest rates started to have a tangible effect on the economy.

The Spotify situation seems related to exemplify the problem of streaming services in general, considering that video streaming seems to suffer from the opposite problem. Sure, the major labels have the streaming services by the balls because if they pull out the streamers lose about 1/3 of their total content. But if there were more competition from the content production end of things, it would end up like video streaming where there are 12 different services that all offer different content. The advantage that Spotify, Apple, Amazon, etc. have is that, despite their differences, they all have pretty much the same stuff available, which is basically all the stuff that it's easy to license in bulk.

A few years back, right around the time that content creators were announcing plans to start their own streaming services, Bill Simmons interviewed a media analyst type who argued that this was a huge mistake that Netflix begat by paying huge sums to host exclusive content. He said essentially that content creation and content distribution are two totally different animals that should be separate. If you're a company like Netflix that specializes in distribution then you already have pretty much a monopoly and you're better off spending you money making sure your library has as wide a variety of titles as possible. Since there's no advertising high streaming numbers don't do you any direct good and having exclusive series or films isn't going to increase your subscriber base as much as being able to boast the biggest library. There might be some effect from a big hit, but not all projects are going to become big hits. The hundreds of millions you spend developing content that may be hit or miss is much better spent on long-term licensing deals with major studios, which will ensure that you have a larger library than any competitor. If you're a studio the calculus is simply the reverse—Disney or NBC or whoever offering their own streaming service is assuming that the difference between what they spend on technical development plus the loss of licensing fees and what they take in in subscription fees for a service whose library will necessarily be limited will be more than what they could have made by simply licensing their content to Netflix or whoever. Not to mention that the proliferation of these things will necessarily lead to lower subscriber numbers for each one.

The issue for Spotify is that the incentives are totally reversed from what they had been prior to streaming. In every era, from Edison Cylinders to iTunes, the industry's best customers were the ones who were the most into music. It goes without saying that a real music junkie who buys every new album his local record shop gets in on the day of release makes more money for the business than someone who buys one or two albums a year; it's almost tautological. Yet Spotify has completely upended this business model, which holds for practically everything else. The music junkie who wants to hear everything is Spotify's worst nightmare—since they have to pay al the various stakeholders per stream, it's possible that he's actually costing them money. The best Spotify customer is the one who pays for a subscription but never uses the service!

There are also a few other weird quirks that are side effects of Spotify's business model. First is the fake artist problem. Look at any Spotify-created playlist, particularly one with a mood-related name, like "Jazz in the Background". Who would you expect to find in such a playlist? Legends like Miles Davis and John Coltrane? Maybe more introspective stuff like Bill Evans or Ahmad Jamal? How about newer stuff like Jon Batiste, Brian Blade, or Kamasi Washington? Nope, you're going to hear names like Hara Noda, The Wildflower Trio, and CMC 3. I'm a pretty big jazz fan and I've never heard of any of these. More importantly, critic Ted Gioia hasn't heard of any of them either, and he's widely recognized as an expert on the subject. Upon further investigation, little to no information is available about any of these artists. They all have "albums" with only 2 or 3 songs, and the one that's on the playlist has several million listens while the other has only a few thousand, i.e. nobody's listening to them outside of the playlist. Most importantly, they're all Swedish. In fact, they're probably all, if not the same band, then varying configurations of the same musicians. People who listen to Spotify-curated playlists intended as background music aren't interested in hearing anything in particular provided it fits the mood. So instead of curating playlists with music from real musicians whom they would have to pay, they brought local musicians into the studio to record for a flat fee, slapped fake artist names on the songs, and now they can advertise playlists that don't cost them anything for people to listen to. And then there's the band that tried to break the system by recording an album full of a bunch of short songs. Spotify pays royalties by the song, not the total play time, so artists are incentivized to make their songs as short as possible to maximize revenue. One artist took this to the extreme and released an album called 1000x30 - Nobody Makes Money Anymore, which included 1000 30 second songs. This was more of a protest against low royalty rates than a serious cash-in attempt, but songs are becoming shorter.

I honestly don't have any idea how this ends. For the video streaming services the obvious solutions is realignment between streamers and content providers, but Spotify doesn't seem to have any viable way forward. They'll probably hang around in limbo for another decade or so until the next thing comes out. Or maybe they'll just go out of business and established companies like Apple and Amazon will take over and just treat music streaming like a loss leader. Or maybe they'll switch to a model similar to video streaming where they'll pay a flat fee for content instead of paying by the stream. It's an exciting time to look forward to. I still won't have a subscription.