Category: Uncategorized

We are just one hundred days from the general election, so I thought it would be a good time to revisit the stakes. This moment has taken on enormous significance because it is not just about right now. It’s not just about the next four years. It’s about how we rebuild after our country has been ravaged. Old companies are dying by the dozen and millions have lost their jobs. What we do now will echo forward in time. We will set in motion the economy of the future, catapulting us to new heights and cementing us as the leader of the free world or we will try to reanimate the decaying corpse of the economy of yesteryear and we will fade away. People will speak of Pax Americana and the pre-eminence of a free society as a golden age of years past or they will revel in the new places it will take us.

President Trump has both changed the global image of us and weakened us to the point that the US is scarcely recognizable as the country it was 4 years ago. His administration has pushed to weaken environmental standards and subsidize dying industries. The future is an uncertain place, so he looks to grasp at the fading past. Rather than solving problems, he wishes only to blame others. Even in a moment bigger than anyone could have imagined, he has spent more time trying to deflect responsibility than deflect a deadly disease from infecting American citizens. Other countries are beginning to recover while we are plumbing new depths. If he is re-elected, our prospects are dim.

Vice President Biden is not a new figure on the political scene, but he has released a new plan that is what this moment requires. He would seek to modernize our infrastructure and spur growth in new clean industries that are rising to prominence at the expense of those Trump would attempt to revive. By investing in these industries now, we will ensure that we have the skilled workers to implement and improve them later. We will keep the intellectual property here and the innovation here. We will set ourselves up for success no matter what else happens because we will be investing in the human capital of our own citizens and attracting the best and the brightest of global citizens to come live here.

This week, President Trump suspended work visas for the remainder of the year including work visas that would go to skilled workers. It’s his most extreme anti-immigration push yet. This is a response to that.

America is not just the land on which we stand, nor is it the blood and bones of our ancestors. If those were the things that made our nation, we would be nothing, for many of our ties to the land are weak. As a nation, we are young. Most of us have, at most, a couple hundred years of ancestry here. The Old World measures these years in the thousands. No, what makes America great is the idea of America. It’s the idea that no matter who you are, no matter how rich or how poor your parents are, no matter what you look like or the color of your skin, you can make yourself anything you set your mind to if you work hard enough.

‘We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.’ The idea is simple. Provide people with the freedom to carve their own names into the tree of life in any way they would like, and the progress that we have made because of that, not only as a nation, but as the human race, has been nothing short of spectacular. The sheer power and variety of all the accomplishments here are breathtaking, and it’s all made possible because of an idea. Yet, there are threats to the continuation of this open society. Authoritarian governments are on the rise again and these new forms of Kings and Queens would like nothing more than to see America, the world’s oldest Democracy, falter.

This we cannot abide. We must, as we always have, recruit new soldiers in the War for a Better World. If we do, we will be the greater for it and we will rise, nay grow, to the challenge. Our qualifications as Leader of the Free World are undisputed. These qualities are what magnetize us; people will fight to come here because of them.

Donald Trump would have you believe that the threats to our Democracy are new faces, but I am here to tell you that the threat comes not from those who wish to pledge fealty to American Ideals, but men like Xi Jinping and Vladimir Putin who see the world not for what it could be, but what they can take from it. We should not fear newcomers because it is their help that will deliver us to the greatness we so desire.

Bankruptcy is going to visit many firms over the coming months, but it does not have to be a mystical, fear-inspiring word. The grim reaper will not come to visit you at night and Rumpelstiltskin will not be coming to take your firstborn if your business goes bankrupt. The full term is bankruptcy protection. It prevents debtors from being pursued after they have gone through the process. So, say the firm you work for (or an important firm in your community) has filed for bankruptcy (protection). What happens next?

Contrary to popular belief, a bankrupt firm does not get swallowed by the ground and turn into nothing. Almost every business has valuable assets; the existence of high levels of debt does not change the value of the assets in the business. Even service businesses have valuable assets such as intellectual property and processes for utilizing human capital. When a firm enters bankruptcy, the pile of paperwork that a corporation really is becomes worthless (it’s more complicated than that, but this is sufficient explanation for our purposes). However, the things that were used by the business to make money are unchanged. Those assets will be sold off to pay back creditors or, in some cases, a new structure is created utilizing the same assets. Regardless, they are repurposed for a (hopefully) more productive new life. There’s a good chance most employees will keep their jobs with the primary difference being that their labor is put to more productive uses than servicing a massive pile of debt. In the event employees do lose their jobs, it is also important that our safety net is strong enough to catch them, but that’s a separate conversation.

Who, then, loses in a bankruptcy? Equity holders, certainly. Most of the time they lose their entire investment. Creditors would also take a hit, but depending on the seniority (priority for receiving payment) of the debt, they could recover most of their investment. This is all natural; equity holders take the biggest risk, but they also have the best upside. It also enforces responsible business practices. Businesses that take on high levels of debt are generally approached with more caution by investors and this is how the market encourages responsibility.

All of this can cause pain. Well-run businesses can be victims of circumstance and the collapse of a poorly run firm can still negatively impact a community. In a perfect world, government steps in and gives people a helping hand while assets get restructured in a business cycle downturn. We do not, unfortunately, live in a perfect world. Rather than helping people and letting poorly run companies die, we prop up the companies and assume they will take care of the people. Firms may be treated differently based on political connections, too, and advantage goes to older, well-established firms in the bailout lottery. There is nothing insidious going on with that. The squeaky wheel gets the oil, after all. It’s not capitalism, though, and what happens afterwards is continued high pay for poorly performing executives (for more on executive pay, check out my post on CEO pay here), and layoffs still come for lower-level employees as cost-cutting becomes the name of the game. So, who is really getting the biggest benefit here? You’ve probably guessed it: shareholders! That includes people with 401(k) retirement accounts and pension funds, but the people with the largest proportion of their money in stocks are those with lots of it. Wealthy people are getting the advantage in this game.

That’s not to say there is no place for intervention. During brief periods of extreme distress, some reassurance is important to keep things like payroll functioning (corporations often rely on short-term debt markets to bridge their needs for cash even if they have healthy books). Still, it’s also important that we do not overuse this tool, because it exacerbates inequality and puts younger firms at a disadvantage. The pace of innovation slows and we all suffer. The danger is turning our market economy into a quasi-command economy.

‘The definition of genius is taking the complex and making it simple.’
-Albert Einstein

The US government currently employs about 23 million people (including federal, state, and local). They work to implement a legal code that has grown into a leviathan over time. Interpreting and enforcing the legal code becomes an impossible task when that legal code written in anything but the most simple and explicit language possible.

Consider the chart above (These are just the federal ones, mind you. We also have 50 states and thousands of municipalities each with their own sets of regulations). Without getting into the necessity of all the regulations on the book, it’s not difficult to conceive of the difficulty in implementing them. If we want those that do exist to at least be implemented in a fair, systematic, way, we need to consider the logistics of how they will work when creating them.

If this all seems daunting, that’s because it is. Difficulty understanding laws is not limited to the unsophisticated. Examples abound, so we’re going to talk about the Public Service Loan Forgiveness program. You may have heard about the scandal surrounding the program, but you can be…forgiven (sorry)… for letting it pass you by. Essentially, it’s a program designed to encourage public service by promising loan forgiveness upon faithful repayment over the course of 10 years. You might be on a public sector salary, but you’re doing good and at least your student debt will be sunsetted after enough time (at least that was the intent).

Instead, minor errors in paperwork meant that thousands of people in the program were kicked off of it with no notification – and reached the end of their repayments schedule only to discover that it was far from over. This was clearly not the intent of the program; in fact, when news of it surfaced, Congress sprung into uncharacteristic bipartisan action to rectify the situation. That is not the end of the story; it’s an ongoing issue with the Department of Education still struggling to implement a seemingly simple directive, but you get the picture.

This also happened at the federal level where every lawmaker has large teams at his or her disposal. Clarity at the state or local level? Fuhggetaboudit. This clip encapsulates that pretty well (I know Louis CK has been embroiled in scandal, but this is just too accurate a depiction to pass up):

How do we avoid messes like this? We lay out what is intended by a law with concise, explicit direction. We have nearly 1.2 million people working in the legal services industry making up nearly $300 billion per year. This does not even include those working for the government. The point is: interpreting the law is big business. Perhaps rather than haphazardly letting an unreadable law enter the books, we could devote more resources towards ensuring the legibility of a law for all readers. Leave nothing to the imagination; the less room for interpretation, the fewer resources it will cost when it’s time to actually work within the framework.

It may take genius to take the complex and make it simple, but if anyone has the resources to pay for that genius, it’s the US government. Given the size of our government, it’s inevitable that not everything will work properly. The 23 million employees couldn’t possibly all be on the exact same page. Running anything that size is a monumental task under any circumstances. Without clear operating instructions, it is an impossibility.

While we’re in lock-down, it’s difficult to see the upside. We can’t spend time with our friends or see family that is farther out. However, as this is likely the state of our lives for quite an extended period of time, it’s important that we evaluate cost and opportunity in an honest way. The risks are clear. What about the opportunities? There are two steps to a successful public response; Now and Later. Now is about helping people get through it and Later is about paving the way for the future. The Later is going to be much more successful if we spend some of the Now preparing for it.

For individuals and businesses, chaos, as Lord Baelish of Game of Thrones would say, is a ladder. This crisis is exposing institutions that previously seemed venerable to be precarious. Warren Buffett, the renowned investor, has said that when the tide goes out you find out ‘who is swimming naked.’ The tide has retreated and we are starting to see some naked swimmers. Restaurants have been the first to fall (and for a particularly interesting take on this I highly recommend this interview with Nick Kokonas of Alinea fame), but everything will be impacted. Unless there are going to be monthly bailouts, untouchable titans will be felled. It’s sad in many ways, but in that tragedy comes opportunity. New businesses will rise from the ashes. What form they take is anybody’s guess.

That process, in many ways, is natural. The market is a competition for resources in the same way that all life is a competition for food. Fire and flood are natural parts of many ecosystems. Remember the fire in the Disney classic, ‘Bambi’? With the following spring came blooms even more bountiful than before. In the same way, the fires of the business cycle downturn make way for the blooms of the next. It is for the entrepreneurs of tomorrow to decide what those blooms look like. The only thing we can do now is make sure the transition phase is as painless as possible and that the regrowth phase has the fewest obstacles we can give it.

Government response is a bit trickier. Every policy has a downside, but there are some things that we KNOW we can do better. US Healthcare, for example, leaves much to be desired. A light has been shone down on it particularly brightly by this situation and that bright light should be able to help us understand what parts are most in need of improvement. The biggest opportunity for government improvement, though, might lie in infrastructure. Our entire infrastructure is desperately in need of updating, repair, and expansion.

One of the biggest obstacles to improving that infrastructure, though, has nothing to do with the construction itself. It’s a wall of paperwork. A pipe or a railroad will be laid across many jurisdictions, each with their own set of regulations and their own set of government departments that need to be worked with. This process takes an enormous amount of time, and that’s before you even consider the effects of NIMBYism. You could have a perfectly well-thought-out plan to build a railroad, but if there’s a majority from a single municipality blocking it, the whole thing could be put in jeopardy. There are many benefits from the governmental experimentation that takes place under our federalist system of government, but building infrastructure is not one of them.

What does this have to do with our current situation? I would posit that the number of municipalities that would protest to the consolidation of infrastructure planning would be a small fraction of that of normal times and that if we included a Federal lifeline extended to cities in states in dire financial straits would bring that pretty damn close to zero. It’s one opportunity I would venture to say that is too good to…pass up.