by BRIAN P. HOOVER JANUARY 1, 2019
There’s a natural, hormone-mediated life cycle to a businessman’s career: when he’s young, he goes for broke (and often goes broke). He borrows big, fights hard, doesn’t take no for an answer, and builds up an empire. In middle age, the business still expands, and the CEO’s waistline expands, too; he’s more content with steady growth, and doesn’t feel a need to do anything especially revolutionary. As he slows down, so does the business; retirement is a blessing.
All this closely tracks levels of testosterone: in addition to its well-known effects on variables like muscle mass and body hair, testosterone affects personality. People with higher levels of testosterone are more willing to take risks. They’re more assertive.
Hoover goes on to name names of three tycoons in particular he suspects are hitting the T.
… The power of artificial hormonal supplementation is creating a new generation of corporate leaders who will remain Young Men In A Hurry well into their seventies. We should expect more bold ventures, more oceans of tactically spilled red ink, epic financial feuds, and, of course, a staggering rise in inequality.
Mixing Drugs and Business—Two Precedents
But we can zoom back for a bit: this thesis seems extreme. Drugs have led to social changes, but have they changed business?
I present, as a case study, the Dopaminergic Theory of Financial Bubbles.
The theory works like this: dopamine is a neurotransmitter that we think of as the pleasure signal, but it’s more the anticipation of pleasure signal. And speculation is just a form of competitive anticipation: you make a bet on treasuries, or oil futures, or a hot penny stock; somebody else takes the other side, and whoever anticipates the best wins.
So it’s no surprise that, in finance, drugs that affect dopamine have pretty high uptake. Generally intranasally.
There are two bubbles that we can attribute pretty directly to the availability of exciting new dopaminergic drugs. In the 1980s, the U.S. was flooded with cocaine. It wasn’t cheap, but yuppies were rich, so to the yuppies it went. The 1980s were also the era of the hostile takeover: find some sleepy old company, borrow 95% of the value of the company’s assets, buy it up, shut it down, liquidate the pension, and walk away with a big chunk.
This is total cokehead behavior, and in the 1980s, coke was ubiquitous on Wall Street. There’s probably a banker somewhere who didn’t even remember that he worked on the RJR-Nabisco deal until he read Barbarians at the Gate, just like Stephen King with Cujo. A few major Wall Street figures at the time either got caught doing cocaine, or quietly spent some time in rehab.
After the 80s, cocaine use declined, and the merger world changed. There were still blockbuster deals and stupid acquisitions, yes, but they lacked the hyperkinetic mile-a-minute nature of the Hostile Takeover Blizzard.
Two decades later, there was another hot net drug, not so much on the street as on The Street. It as another dopaminergic drug, with a slower release and a longer half-life: Adderall. Adderall is the drug of choice for rote, repetitive tasks that still requires some brainpower. Term papers, say. It’s not a good drug for boldness, but a great one for artful precision. And in the 2000s, the big boom wasn’t in swashbuckling buyouts: it was in complex credit derivatives.
To deal in credit derivatives, you need to deal in minutia. The difference in returns between two credit products might be 0.5% per year, but if you’re borrowing thirty times your equity, that’s a respectable 15%. Adderall helps people power through boring tasks, but it comes at a cost: as anyone who has popped a pill hoping to get some work done and wound up cleaning their room for six hours can attest, it doesn’t help you work on the right thing. …
I don’t know if this is true, but it’s definitely interesting to speculate about.