The Only Republican in San Francisco

Spend now?

Les Jones offers this analysis, with graphics, of the incredible amount of new money that has been pumped into the economy. To be clear, I don't mean new wealth: I mean new money.

In any reasonable time, doubling the amount of money in circulation would necessarily mean that the existing money would be worth half of what it was. It's like diluting a stock by issuing new shares.

And yet, as Les points out, the inflation hasn't come.

Therefore, I am tempted to believe that we are at a high-water mark for the value of dollars -- that the value of your money must drastically decrease in coming years, after the current deflationary fears have passed. So what to do?

Buy now. That seems to be the logical conclusion. Put your current dollars into something that will retain value when your money inevitably loses its value.

For me, I am buying talent which will contribute to the value of my startup. Not employees, but project-based freelancers (designers and programmers) whose work will be the basis of what I hope will be a long-term product. It might also be a brilliant time to buy real estate or outfit a factory. (Though it might feel like trying to catch a falling knife.)

I wonder if this dynamic -- a realization by the market that future purchasing power will decline -- will be the thing that kicks off "real" spending and leads to recovery.

It would be a roundabout Keynesian dynamic: a flood of money into the market does result in new wealth creation, but not for the reasons we might expect.

Has anyone else speculated on this?

A Fairness Doctrine for Whitehouse.gov?

Talk of a return of the Fairness Doctrine (or something similar) continues, as we see in these exchanges with attorney general nominee Eric Holder. One wonders: should the whitehouse.gov site be required to offer space for alternative viewpoints?

The original imposition of the Fairness Doctrine was based on the use of public airwaves in disseminating news and opinion. Internet sites are often consumed over those same public airwaves.

For example, we have the current 3G networks, upcoming networks built on newly-licensed spectrum, and, if the "stimulus" bill passes, new wireless deployments that are publicly subsidized. The federally-mandated DTV transition will coincide with federally sanctioned “white spaces” to be used for broadband.

And if network neutrality legislation is forthcoming, one can reasonably say that news and opinion are flowing over government-managed networks and thus should be subject to Fairness Doctrine constraints.

Whitehouse.gov is a primary means of communication from the federal government to citizens, and is a tax-funded resource. Of all places that should be subject to federal speech requirements, shouldn't it be at the top of the list?

Promises for the next generation

If you’ve been through a few elections, you know that it’s a cliché to “fear the next generation will be worse off than ours.” It’s uttered as if it’s a sad new insight and that this time, it really could happen.

Each time, it’s been wrong. Every generation since WWII has shown enormous progress on health, education, wealth, prosperity, and peace.

Government-provided services (such as K-12 education) still stagnate, of course. But where each generation has been looked upon with pity by politicians, each generation -- the ones working outside of government -- has made great leaps.

And so today, in that tradition, President Obama said:

Less measurable but no less profound is a sapping of confidence across our land -- a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.

However, I am inclined to believe the cliché this time. In fact, the new president may fulfill his own prediction. Why? Because he intends to preside over $2,000,000,000,000 of new debt in his first year.

(This is not all Obama’s fault of course. The $850,000,000,000 of new pork is authored the Democratic Congress. And $700,000,000,000 has been evaporated by the now-previous administration.)

An opportunity for the new president

Mr. Obama could use his bully pulpit to emphasize to Americans how wealth is created. You'd like a Prius. Toyota would like $20,000. You’d rather have the car, they’d rather have the cash. In a voluntary exchange, both sides get what they want. Both parties are improved by the transaction: this is new wealth.

When money is seized from one person and spent from another, wealth creation is unlikely. It's not proved empirically. Ask yourself: for the new benefits that the government will offer you next year, would you have voluntarily parted with $13,000? If not, then your wealth is being destroyed.

President Obama will preside over the first generation in which the suburbs of Washington DC -- populated by tax recipients -- are the wealthiest in the nation. It will be the first generation in which more people are employed in government than are employed in manufacturing. These new directions of the flow of wealth look a lot like the formation of black holes.

How it will play out

It’s also a cliché to say that we are burdening future generations with our spending. We accept it on the tacit understanding that we will just keep passing the debt along, and that no one will ever really have to pay; that it’s not real money.

And guess what? It’s largely true. In the absence of real wealth creation, government can only print new money to pay off debts, future and current. That’s the strategy behind the current stimulus/bailouts.

And that’s the real price that future generations will pay: money that is largely divorced from wealth, and which can not buy them prosperity.

The price will not take the form of a 100-page tax bill being plopped on my grandkids’ lawn, as we might imagine. Rather, it will take the form of stasis.

We will notice that no new Googles have been created in 20 years. That the pipeline of life-saving drugs has tapered to zero. That homes are not well-kept because ownership does not offer a return on investment. That New York stinks of old money instead of young vitality.

We'll survive just fine. There won't be soup lines. But people will be dying of cancers that we decided not to cure. We will stay in the socio-economic strata that we are born into instead of making crazy moves to Silicon Valley or Beijing. Our jobs will look a lot like our parents’; we will huddle around race and family since we’ve removed the economic incentive to reach out to others.

Sadly, these are the historical norms for humans. My generation has lived in a time when they were transcended -- an exceptional time when an unprecedented number of humans are born with the assumption of freedom. Can it continue?

Maybe we’ve been here before and emerged, and that I am too young to remember. Maybe the Keynesians know more than I do about the relationship between wealth and money. Here’s hoping.

If I had a billion dollars; or, a proxy fight for America's future

You know the Bare Naked Ladies song with a similar title? If I had a billion dollars to spare and an enormous sense of charity, here's what I would do:

Buy a controlling interest in GM and shut it down. Their market capitalization (as of this writing) is a little under $2.5b -- considerably less than, say,  Bed Bath & Beyond. So for a mere $1.25b, one could control 51% and vote to liquidate.

GM is going out of business. They are bankrupt even if a bailout masks this fact. The question is, how much collateral damage will be done in the process of their failing?

I would argue that keeping them alive past their viability date is much more harmful than letting them go under now. They won't consume taxpayer dollars indefinitely. Their assets (brands, employees and facilities) will move to other firms who can better utilize them.

Megan McArdle points out that GM's sales forecasts are dropping, making their business even less viable than it was when they got their bailout a month ago. So the bailout is becoming more wasteful every day. It's taxpayer money being burned.

Practically speaking, a single person needn't buy up a 51% stake. Maybe a handful of civic-minded raiders could make it happen -- call Carl Icahn.

Even better: 1.2 million individual donations of $1000 each. I'm in.

And talk about multipliers: this $1.2b investment would save taxpayers tens of billions in current and future bailouts. A 10x multiplier! Someone call the President-elect...

Sweatshops, privilege and projection

Nic Kristof over at the NYT comes across something that Milton Friedman noticed some time ago -- that sweatshops are a step up for many people in the world. In this example, he looks at Phnom Penh:

Talk to these families in the dump, and a job in a sweatshop is a cherished dream, an escalator out of poverty, the kind of gauzy if probably unrealistic ambition that parents everywhere often have for their children. [...]

I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty.

Americans object to sweatshops because we project our level of privilege onto them. Would you work in a sweatshop? No! It's far beneath you and and the standards of living that you know. You'd be worse off.

But what if the sweatshop were a step up for you? We have a hard time imagining it -- in essence, imagining the situation of a person less privileged.

Thus the privileged world does harm when it intends to do good. Which represents more social progress: a nice, air conditioned factory, paying $5 an hour in China, to those who are not worried for their survival? Or a hot, crowded factory in Cambodia, paying $2 to those whose main alternative is living in garbage and dying of dysentery?

Here is Friedman making a similar point (forward to around 9:40).

PS: consider this when listening to rich urbanites' attitudes toward Wal-Mart. :)

An actual liberal

Camille Paglia sexes my mind every time I read her. What I love about her, in addition to her independence of mind, is that she is a liberal.

I am a liberal. As in, liberalization, liberty, and liberation. Ms. Paglia is too. She is a Democrat, and she reminds us that party affiliation has become, essentially, a brand choice. Coke and Pepsi. PC and Mac. Markers that serve little except to send social signals. Beyond that, the differences are vestigial.

Is there anything more "conservative" than the belief that the authorities make the best choices? On health care, on personal economics, on education, on speech, the Democrats are truly the conservative party.

This is not a defense of Republicans, I hope the kind reader understands. I also hope the kind reader understands that if the world were full of Democrats like Camille Paglia, this blog would have a different name.

The response I wish Prof. Mankiw made

Greg Mankiw was recently on Fresh Air with Terry Gross and was asked what's not to like about Obama's proposed stimulus package. Her question implied that it's a win-win: new economic activity which puts people to work and builds needed infrastructure.

His response was along the lines of, how do we know this is money well-spent? Fine, but far too mild and greatly understating the opportunity costs. Here's what I wish he said.

Every dollar of government stimulus is a dollar taken away from citizens, now or in the future. There is no free lunch -- all of it is money that was yours, and now isn't.

$1 trillion of government spending is $1 trillion dollars of new debts to be paid by the same citizens who are supposed beneficiaries of the stimulus.

Without the stimulus, we are already expecting a federal deficit of $1.2 trillion this year -- not least due to plummeting tax revenues as the wealthiest taxpayers saw their incomes decline in 2008. Add the stimulus to that and we will see $2 trillion of new government debt for 2009.

That's over $6600 of new debt for every man, woman and child in the country. But only about half of US citizens are taxpayers, however. So really, if you pay taxes, that's over $13,000 of new debt, payable by you, newly added in 2009. (If you happen to make above-median income, that share is even greater. And you're paying interest on it.)

Can you think of a good use for that $13k, personally? I can. But it's off the table.

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As social policy, this is $1 trillion that will be spent according to the priorities of senators, instead of the priorities of citizens. Perhaps you would like to pay down debts, save for college, or build a new business. All of these things are economically helpful for you and your fellow citizens, but are now out of your hands.

The need for infrastructure in 2009 is not greater than it was in 2007 or 2003. The idea that infrastructure spending is a better investment now does not hold water.

The current economic climate is quite scary. It can only be solved by real, productive, wealth-creating economic activity. To my mind, "productive" must be defined by citizens setting their own priorities.

A lot of our current state was created by government's monetary and fiscal irresponsibility. To believe that greater government spending will get us out of it requires quite a leap of faith.

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Update: here are some more thorough numbers on who is paying for the stimulus.

Obama's FCC pick: a full-employment act for litigators?

President-elect Obama has chosen Julius Genachowski to head the FCC. Genachowski is widely regarded as smart, capable and experienced. Unfortunately, he also seems to be an advocate for some sort of net neutrality regulation.

This is troublesome for many reasons which I've rattled on about in the past. But let's get specific about why such well-intended regulations will inevitably be a problem.

First, it puts moves the technical structure of the Internet out of the hands of engineers and consumer-accountable companies and into the hands of government. Infrastructure companies can now be sued for technical decisions.

In this litigious country of ours, the merits of a lawsuit are a very small barrier to initiating expensive litigation. This means that, with new, exploitable regulations on the books, we can expect a new flood of lawsuits by those who feel that they should be getting more from their Internet providers (and would accept a nice settlement as compensation). For telecoms lawyers, this is a godsend.

Building infrastructure and acquiring customers now becomes a much riskier proposition -- each new customer or mile of fiber now carries a non-zero threat of a lawsuit. This reduces the overall ROI of building new pipes, thus diminshing new initiatives.

A corollary of this is that companies now must devote more resources to lawyering and lobbying -- moving resources away of building more bandwidth.

Ironcially, this dimishes competition instead of enhancing it. Ask yourself -- who has the means to staff up of lawyers and lobbyists? Certainly not any would-be startup that might compete with the telecoms dinosaurs.

No, it's the dinosaurs themselves who have such means. New regulations thus entrench existing players instead of opening markets.

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A secondary concern of mine is this: Mr. Genachowski comes from Silicon Valley (as I do). Now, this is great for understanding how a certain sector of the tech industry works and where innovation comes from.

But Silicon Valley consists almost entirely of "content" companies -- those that sell web sites and services -- as opposed to infrastructure providers who build the pipes to carry them around the country.

Silicon Valley's support of net neutrality regulation coincides nicely with their bottom line, by effectively inducing price controls on the bandwidth providers.

Students of economics (and the 1970's!) will recognize that price controls diminish investment and cause scarcity. I am sorry to conclude that corporate proponents of neutrality regulation are acting primarily out of self-interest, at the expense of the rest of us.

All signs are that Mr. Genachowski is open to valuing issues on their merits. I hope that he can put his Silicon Valley bias behind him to recognize that we need to build infrastructure, not legal teams.