In 2020, as previously obscure and extreme policy actions have gained mainstream support, it appears the Overton Window has shifted.
But what is the "Overton Window" and how does it work?
Here's Overton Window 101!
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1/ First, a few definitions.
The "Overton Window" is the range of policies that are politically acceptable to the mainstream in a given society at a given moment.
If you place all policies on a spectrum of extremes, the Overton Window covers a subset of that spectrum.
2/ The term is named after Joseph Overton, the late executive at the Mackinac Center for Public Policy, a free-market, small-government think tank.
As part of fundraising for the organization, Overton created a brochure for potential donors explaining the role of a think tank.
3/ In the brochure, Overton argued that politicians only propose policies that fall within the window of what is politically acceptable to the mainstream at that moment in time.
The role of a think tank, therefore, is to propose ideas outside the window in hopes of shifting it.
4/ So it was that the Overton Window was born.
The viability of a proposed policy is highly dependent on whether or not it falls within the current range.
Importantly, the Overton Window is not fixed, but dynamic.
Let's look at a simple illustration to show how this works.
5/ On any policy matter, we can place potential responses on a spectrum from "Unthinkable" on one extreme to "Unthinkable" on the other extreme.
The Overton Window covers a subset on either side of the status quo.
This illustration from @david_perell captures it nicely.
6/ The window is dynamic.
It can widen symmetrically or asymmetrically, moving beyond the popular to cover the sensible or acceptable.
Ideas can move on the spectrum (i.e. become less extreme in the public eye) to fall within the window.
It sways with the political winds.
7/ The concept of the Overton Window is foundational to the strategies that politicians and policymakers on both sides of the aisle have developed and executed in recent years.
Let's look at some examples of how it comes into play and impacts the economy, markets, and our lives.
8/ Progressive Economic Policy?
MMT and other progressive policies (e.g. Medicare for All, 70%+ marginal tax rates) are classic examples of a long-term shift in the Overton Window.
Once viewed as wildly radical ("Unthinkable"), they appear to be entering the general lexicon.
9/ How did the Overton Window shift in this way?
It was gradual - the result of long-term efforts from policymakers and economists set against a backdrop of rising economic inequality.
You can disagree with the policies, but it is undeniable that the Overton Window has shifted.
10/ While this (and most) examples of shifts in the Overton Window happen gradually, they can also happen abruptly.
Example: Helicopter Money.
Milton Friedman's parable of a helicopter dropping money to the people felt like an extreme thought experiment, not a future reality.
11/ But in 2020, a deflationary "Black Swan" event - COVID-19 and the ensuing lockdowns - precipitated an abrupt shift in the Overton Window.
The notion of direct checks from the government to the people became mainstream.
Even Republican "budget hawks" got behind the idea.
12/ Historically, economic shocks have a tendency to rapidly shift the Overton Window.
The roots of current mainstream public sentiment on bailouts and aggressive Central Banking policy can be found in times of economic shock.
There will be more examples in the years ahead.
13/ So as we recover from this shock, keep an eye on the Overton Window and its shifts.
A few policy areas to watch for as they teeter on the edge of the Overton Window:
1⃣ Central Bank Digital Currencies
2⃣ Big Tech Breakups
3⃣ Dissolution of the 2-Party System
14/ This was an (admittedly) America-centric discussion, but the Overton Window applies globally.
I would love to hear from my international followers with examples of shifts from other countries!
So that was Overton Window 101. I hope it was useful.
15/ If you're interested in learning more on this topic, I recommend the articles below, all of which were instructive in developing my own understanding.
16/ And for more educational threads on business, money, finance, and economics, check out my meta-thread below. I generally only post 2x per week, so please turn on post notifications so you never miss a thread.
With Bitcoin's return to the spotlight, debates on its long-term viability are raging. Its proponents contend @nntaleb's Lindy Effect says the technology is here to stay.
But what is the "Lindy Effect" and how does it work?
Here's Lindy Effect 101!
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1/ First, a few definitions.
The Lindy Effect is a theory that the future life expectancy of specific non-perishable items, like a technology or idea, is proportional to their age.
Put simply, the longer it has already lasted, the higher the likelihood it will continue to last.
2/ The term "Lindy effect" is a reference to Lindy's, a New York deli frequented by comedians in the 1960s.
While author Albert Goldman used the term "Lindy's Law" in a 1964 article, it was mathematician Benoit Mandlebrot who moved the dialogue towards the current definition.
Many of the world's greatest thinkers and doers - from @naval and @elonmusk to @nntaleb and @chamath - tout the importance of first principles thinking.
But what is "first principles thinking" and how does it work?
Here's First Principles 101!
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1/ First, a few definitions.
A "first principle" is a foundational assumption or proposition - it is foundational in that it cannot be deduced from other assumptions or propositions.
Think of a first principle like an element. It cannot be broken down further. It is pure.
2/ "First principles thinking" (or "reasoning from first principles") is a problem-solving technique that requires you to break down a complex problem into its most basic, foundational elements.
The idea: to ground yourself in the foundational truths and build up from there.
With a wave of complexity and unknowns smashing into the financial and political worlds, the elegant simplicity of Occam's Razor is primed for a revival.
But what is Occam's Razor and how does it work?
Here's Occam's Razor 101!
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1/ Occam's Razor is a classic problem-solving principle and mental model.
It says that when you are weighing alternative hypotheses, the one with the fewest necessary assumptions should be chosen.
Put simply, the simplest explanation is often the best one.
Simple is beautiful.
2/ The benefits of Occam's Razor can be extensive.
Going with the hypothesis with the fewest number of necessary assumptions means it is easier to prove/disprove. There are fewer assumptions to vet in your process.
It allows one to follow the critical path to an outcome.