On Efficiency

2024.11.03

LXXII

This post is an exploration of what I’m calling the Efficiency Worldview. At worst, it’s a fun thought experiment, at best, it’s another way of viewing the world. And, I think the way to judge the latter is if it retroactively and proactively explains cause and effect.

I’d doubt if what follows is original in any serious sense; still, I hope you’ll find th presentation is novel & engaging. 

Presuppositions 

The Efficiency Worldview is based on two axioms: 

1. All currencies, means of trade, and anything of “value” represent stored energy. 

2. Efficiency is a measure of how little energy it takes to achieve some end. 

The first just says that the only real currency is energy and everything is a proxy for it; anything that is valuable is either stored energy or a means of creating energy. And no, I don’t mean energy in the hippie, vibey sense, I mean energy in terms of physical energy. 

• Food is chemically stored energy consumable by living creatures. 

• The computer I write this on is mechanically stored energy that allows you to disseminate instructions for the exchange of energy in various formats. 

• Information is an efficient way to store energy–discovering the information takes energy, and now it takes less energy to store that information than it does to “rediscover” it. 

• Conventional explosives are chemically stored energy capable of rendering the earth asunder. 

You can expend energy to work in a field; the energy you expend will create a store of energy, crops, and because of this, you’ll receive cash when you go to sell that energy. You can use the cash to pay for electricity, clothes, books, etc.

Given Axiom 1, Axiom 2 becomes exceedingly interesting. If energy is the universal currency, efficiency as defined above becomes the end to which all economic endeavors are undertaken. 

How can you “multiply” the work you can perform with the given unit of energy?

Hedge Funds

An example of energy multiplication from when I was running a hedge fund was a tool that helped us do some math associated with our trading strategy. We’ll call the tool The Calculator. Vague, I know.

This math was totally doable by a human, but it would take considerable effort (energy). If I were to do it with pencil, paper, and a (normal) calculator across the relevant part of an options chain, it may take me 15-30 minutes. By the time I was done, the variables likely would have changed anyways. Looking at even 5 such options chains would take hours and yield potentially stale information. Since we benefited from doing the math so regularly, performing it manually would have been a full time job.

To solve this, we expended a considerably greater amount of energy all at once* leveraging engineers** and existing math to build out The Calculator. Now, a few hundreds lines of code could do in an instant, over and over again, what it would take me 15-30 minutes to do, at almost no continued cost. 

This is the sort of efficiency Axiom 2 discusses.

*Lots of time, some money

**I could not yet seriously code

Zero To One Companies

Peter Thiel has a notion of Zero to One companies. These are companies that create a new market, have no competition, and thrive as a monopoly. 

I think even among such companies, the Efficiency Worldview is congruent. Take a few:

• Google’s search engine represents a substantially more efficient way to find information on the internet.

• PayPal represents a substantially more efficient way to transfer money on the internet. The fact that it was so much more secure meant that the probability of bad actors interfering with a transfer went down, and therefore the expected value of me sending you $1 over the internet became much closer to $1. 

• SpaceX is creating insanely efficient ways to get things into space. The reusable rockets are the only ones in existence of their kind; still, Elon did not “invent” rocketry. Rather, he made it commercially viable at a new scale. 

This angle demystifies the problem of building a unique, monopolistic company. Rather than having to do something entirely “new,” you have to tackle an existing challenge in a way that multiplies the efficiency of existing methods. Even these zero to one’s take existing things; they just do them way more efficiently.

Information

In the Efficiency Worldview, information becomes one of the most powerful stores of energy, especially if we permit a third axiom: 

3. The natural order of things is to decay. 

It is one thing to be in possession of a physical device, like a nuclear reactor, that can provide energy more efficiently than most other man made artifacts. However, if one does not know how to maintain such a thing, on a long enough time scale, it will fail.*  

The information needed to maintain something becomes valuable as a means to maintain energy output itself, but not as valuable as the information needed to actually create such technology. That seems to be the greatest leverage there is.

I would much rather be able to create one nuclear plant every five years than to own three right now. 

Moreover, knowing how a nuclear plant works well enough to know how to make one surely must be a better path to improving the process of creating nuclear plants than would owning even 10 nuclear plants. 

So, not only is understanding an efficient process well enough to reproduce it valuable in that you can reproduce the process and fight against decay, it also appears to be the gateway to improving the process.

*Yes, I am reading the Foundation novels now and have been converted, through science fiction, into a nuclear energy bull.

More Examples 

Some other fun examples:

• Martial arts teaches you how to most efficiently incapacitate another human

• A healthy cardiovascular system is valuable in that it makes your body more efficient.

• Firearms are an efficient way to store and then transfer energy in a very targeted manner.

• Books are stores of information and sometimes wisdom that it took another human considerable intellectual energy to distill into a coherent text and then considerable mechanical energy to print into a physical book

• A wool coat is the energy a sheep went to great pains to store; it increases the efficiency of our body’s temperature control.

• As Jack and I learned this week, social media is a more efficient way to distribute information than fliers and word of mouth alone.

What’s the Point?

Again, worldviews are useful insofar as leveraging them gives you a functional understanding of the world. Meaning, a worldview is good if you do what it suggests you should do to get the result you want and then you actually get the result you want. 

It doesn’t mean much yet, but this worldview is pretty congruent with the positive indicators that Jack and I have been getting for BirdDog on two levels:

1. The less energy a user has to expend on our platform to find what they’re looking for, the more valuable it seems to be.

2. As our code needs less energy (time, computational resources, money) to find the same amount of info, the more info we can find and the more valuable and commercially viable the product is.

And, by the Efficiency Worldview’s own standards, the worldview’s pretty efficient, given that it explains life in only two or three axioms. 

This view has been at the top of my mind for the last couple of weeks. There’s definitely more to say, especially about the information bit and decay.

Maybe you’ll hear about it again soon.

Live Deeply,