Reviews | The Collapse of Cryptography and the End of Magical Thinking

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The real economy could not escape the infection. Companies have thrived by inflating their reach and ambition to fuel the desire for magical thinking. WeWork, a mundane company that offered flexible workspaces, was touted as a spiritual company that would reshape the human condition. Its valuation has soared, masking the dubious activities of its founders. Facebook and Google rebranded themselves as tech powerhouses, renaming themselves Meta and Alphabet respectively. They were looking for broad abilities that they could expand at will in the metaverse or with their lunar projects when in fact they are prosaic (albeit extremely efficient) advertising ventures. They are now grappling with many of their fantastic efforts.

More generally, many companies have come to adopt broader social missions in response to the desire of young investors and employees to use their capital and employment as instruments of social change. Another manifestation of wishful thinking is to believe that the best hopes for progress on our greatest challenges, climate change, racial injustice and economic inequality, are corporations and individual investment and consumption choices rather as political mobilization and our communities.

I confess that this screed reflects my own experience. For the past decade, being a finance professor meant being asked about crypto or new valuation methods for unprofitable companies and being smiled at (and ignored) when I thwarted traditional instincts. Every business problem, I am told, can be solved in radically new and effective ways by applying artificial intelligence to ever-increasing amounts of data with a dash of design. Many graduates coming of age in this time of financial vertigo and growing corporate ambition have learned to chase these glittering objects with their human and financial capital instead of investing in sustainable pathways, a habit that will be harder to break. instill in later ages.

Embracing novelty and ambition in the face of huge problems is to be praised, but the messy variety of such admirable traits we’ve seen so much of in recent years is counterproductive. Business fundamentals have not changed simply because of new technologies or low interest rates. The way to thrive is always to solve problems in new ways that bring lasting value to employees, capital providers and customers. Over-promising the scope of change created by technology and the possibilities of business and finance to a new generation will only lead to disaffection as those promises falter. All of these new crypto investors and owners may harbor a grudge against capitalism, rather than understanding the evil world they were born into.

The end of wishful thinking is upon us as cryptocurrencies and valuations plummet and that’s good news. Special interests will resist this trend by continuing to propagate fiction. But rising rates and a return to more routine economic cycles will continue to provide the rude awakening that began in 2022.

What happens afterwards? Hopefully a revitalization of this great American tradition of pragmatism will follow. Speculative assets without any economic function should be worth nothing. Existing institutions, however imperfect, should be improved rather than displaced. Risk and return are inevitably linked.

Businesses have social value because they solve problems and generate wealth. But they should not be seen as arbiters of progress and should be balanced by a state that mediates political issues. Compromises are everywhere and unavoidable. Navigating these compromises, rather than ignoring them, is a recipe for a good life.

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