Dana Blankenhorn

Democracy's Business Model Problem

When I started as a reporter, 40 years ago, there was a strict separation between “data” and “service.” There was usually just one layer of data.

The service was a phone call. The data was the time, duration and number called. The data was used to generate a bill for service. AT&T still mails customers this data.

There was also another layer of data, hidden beneath the services data, namely the content of the call. This was only available to law enforcement, with a warrant. A number might be tapped or (when technology permitted) a subject might have all the numbers they used tapped. This data was secured. It could only be used in criminal investigations. Civil cases could be tossed if this data were misused.

In print, there were similar splits between service and data. Editorial was the service. Subscriber lists were the data.

Facebook and the Fall of Free

Facebook has no friends.

Mark Zuckerberg thought he had billions of friends. He was wrong.

That’s one of the clear lessons of the Facebook scandal.

The way competitors, celebrities and the media are piling on Facebook is something to behold. I said they were vulnerable to something like this at the start of the month.  I was right.

Facebook is uniquely vulnerable because it has no customers. It doesn’t sell anything to people. Amazon sells stuff to people, and so when Trump goes after Amazon, Jeff Bezos sees his customers defending him. The same thing is true of Apple, which is why Tim Cook didn’t hold back on attacking the heart of the Facebook business model when given the chance on MSNBC.

Microsoft and Google have (so far) kept quiet about Facebook’s troubles, and for the same reason. Both run services supported by advertising. Microsoft has been backing away from this throughout the century (the MS on MSNBC is like the Cheshire Cat’s smile as it disappears). Google has been trying to diversify into products and autonomous cars. But their dependence still exists.

There’s one more important point to make about all this.

Winning The 1978 Game

We are approaching 10 years since the financial crisis that launched a new generation in American political history. As was true before, we’ve had the election of a President from the wrong party, one devoted to policies that defy the will of the rising business class, because older voters refused to leave the stage.

This happened because our government allowed deflation to run riot, which sent the benefits of productivity scurrying to the top of the economic pyramid, leaving those who should have been the beneficiaries with nothing. The nature of our crisis is to broaden the base, recycling the wealth of deflation into inflation, generating economic power that can meet the needs of the world’s people.

It so happens that 1978 was also the year I entered the work force. I was in Houston, then a wide-open town growing like gangbusters, much like Silicon Valley today. Houston was driving the economy but not getting what it needed from policymakers, who were more interested in the fate of manufacturing cities like Detroit than in the resource industries.

What Jeff Bezos Can’t Do

Word that JP Morgan Chase, Berkshire Hathaway and Amazon.Com were exploring ways to “fix” health care caused a lot of reporters to quickly make asses of themselves. 

They had little choice. The announcement was deliberately opaque. The goals are amorphous. The aims of the players are different. Warren Buffett is looking for a legacy, Bezos for a profit, Dimon for cash flow.

All very fine, but it will come to nothing if they can’t make progress against the key driver of health care costs, non-compliance. Some 75% of health care costs today are for chronic conditions that could be prevented, like diabetes and heart disease. If people took care of themselves, if they even took their medicines as prescribed, we would save trillions.

Some doctors are just as bad. Surgeons don’t use checklists, physicians don’t use best practices, others prescribe the high-priced drugs patients saw on TV where cheap generics would work just as well. Still others think a medical license means they can push any quack nostrum that comes into their head. It’s not just malpractice. It’s abuse of the system in the ordinary course of business, most of it perfectly legal, even ethical.

On Net Neutrality

If you have been reading this blog for any length of time, you no doubt believe that I’m a radical. A liberal. A fanatical criminal. 

In some ways this is true. On foreign policy I’m an internationalist who believes in peace. On social policy I believe people should be free to love who and what they want, and to kill themselves in any way that suits them.

This is not true in economic policy. I still consider myself a liberal here, but business was always a liberal force before the Nixon era. Progress is a business word, still often used in advertisements to denote the aims of oil companies and manufacturers, as well as tech outfits.

My economic beliefs are based on those of Adam Smith, who saw wealth inclining the wealthy toward the common good. I consider Trump and his acolytes to be Nietzscheites. (Ayn Rand is just Nietzsche in a skirt.)

More to the point, I consider them Fascists, and resent that I can’t use the word in public without being condemned.

So, when it comes to the subject of net neutrality, I’m sure you’re thinking, Dana is going to tell us that the FCC is wrong, that Democrats are right.

I’m not.

Beating Fascism in Our Time

Before this era is over there will be a global demand to “eat the rich,” at which point the Kochs, the Mercers, the little Trumps and Peter Thiel expect this nation’s intellectuals to save them from the guillotine.

The rich do have their purpose. Wealthy people supply capital for opportunities that create jobs. They stand by the banks that provide liquidity to the system. But they were amply paid for these services before they launched all-out war on the poor (and middle class), starting with Nixon, accelerating with Reagan, becoming obvious under Bush and climaxing under Trump. 

At Christmas 2017, the day of victory over these forces seems far off. The rich and their castles of money seem as impregnable as the castles of stone were for their 14^th century forebears. Everywhere you look, it seems, fascism reigns supreme. Russia has taken down America, China is “communist” only in name, the Middle East is ruled by the Saud Kings, and throughout the developing world absolute rulers of all stripes know the great powers have their back.

The world is much like it was in 1942, except that democracy and capitalism are being squeezed from above, not from the sides.

But victory is in sight.

The Price Must Be Paid

On the same day that he achieved his greatest triumph, Barry Lynn got fired.

Lynn was a scholar for the New America Institute, a Clinton-era think tank meant to stand against conservative groups like the Heritage Foundation. There, Lynn developed a strong case against monopolies and their control over politics.

Monopolies, by their nature, see their first job as maintaining their own status, and the monopoly “rents” they obtain from consumers as a result. AT&T is a great example of such a monopoly. They create a whole raft of political front groups, which chime in whenever the company starts making political demands, on a state or federal level, even before courts. The original name for this site was based on my support of a 2005 book by Bruce Kushnick detailing this. 

Here is what I have learned since then.

All business trends toward monopoly. We have known this for over a century. This is because monopolists create efficiency. Standard Oil lowered costs and made oil production “cleaner” than it had been in the Wild West Days of the industry, the late 1860s, when drillers filled old whiskey barrels with the product, loaded up horse-drawn carriages, and whipped those poor horses down mud to small refiners. By contrast, the Standard delivered product efficiently, via pipeline, to large refineries and delivery systems that could invest in creating many different products from it, then ship the results around the world.

Amazon.Com vs. Trumpistan

Given that this past week was Prime Day, it’s worth noting that if there is one company to blame for the troubles of Trumpistan, it’s Amazon.Com.

Amazon is behind all the trends that are destroying the lives of Trumpistanis, before their very eyes.

The Amazon cloud, sold as Amazon Web Services, powered the app trend that destroyed the jobs of suburban gatekeepers, the insurance agents and real estate agents, the travel agents and editors who are now apps. This took the leadership out of many suburbs, as effectively as a decapitation.

Amazon’s store, and its marketplace, have since destroyed retailing. This was another big source of suburban jobs.

How Google Must Take Responsibility

If I could blame any single company for the mess America finds itself in today it would be Google.

Don’t be evil? All that is required for evil to triumph is for good men to do nothing. When you gain great power, you also gain grave responsibility. You can be evil by doing nothing, just as the people who watched Kitty Genovese be murdered in 1964 became evil by doing nothing. Just as the good Germans who watched Hitler’s rise and did nothing became evil by doing nothing, or the southerners who stood by while generations were lynched became evil by doing nothing. It’s a stain that does not wash out.

In this case, evil is at the heart of Google’s business model, and that of Internet advertising generally, which has become divorced from the content it sits beside.

This is something I’ve covered before, but briefly Google eliminated the advantage publishers previously got from aggregating audiences.

That 1999 Feeling

I was awakened recently with a feeling I have only had a few times in my life, most recently in 1999.

It’s the feeling of a major market top, of the deep breath before the plunge.

I spent most of 1999 screaming about it through my newsletter, a-clue.com. When the top came, the purchase of Time Warner by AOL showing the highest possible valuation for Internet assets, I knew the top had been reached and the Internet boom was over.

This did not save me. I lost all my work, just like everyone around me. In 2002 and 2003 I made zero dollars. My investments plummeted along with everyone else’s. It took years for me to get back to even.

After the fall, it took me a long time, and a lot of reporting, to find an investment thesis that would work, and that would get me on the path of positive economic change. But clouds, and devices, have been that path.

What’s been growing this decade are those companies that can justify the capital expense of cloud through cash flow earned somewhere else. Amazon does this with commerce, Apple does it with phones, Google does it with search, Microsoft does it with software, and Facebook does it with social. In China, Alibaba does it by making markets between producers and consumers, Baidu does it with search and Tencent does it with chat.

These are the market’s winners. Everyone else is a loser. Retail is a loser, oil is a loser, resources and manufacturers are losers no matter what Trump may do, transportation is a loser, and any kind of service that can be turned into an app is a loser. Ultimately, even Tesla is a loser. All the great tech names of the past – HP, IBM, the phone companies, they’re all going away, or have gone away. They’re dust in the wind. Computers scale in ways people do not. You are either there or you’re nowhere.