Dana Blankenhorn

Aladdin’s Bank

Jeff Bezos doesn’t really have over $100 billion, not in the way you may have $1,000 in a bank. Amazon.com isn’t worth $900 billion, in the way your house is worth $250,000.

Both valuations are based on a lie, the idea that Bezos could sell out his stock, or that ready buyers would take out all shareholders at the current valuation. The value of a stock-based fortune, or a company’s market cap, is based on the price paid at the last trade.

So it is that we return to Aladdin’s Cave, which I wrote about in 2013.

Had Aladdin come out of that mythical cave, with all its gold and jewels, and tried to sell them, the value of gold and jewels in that town would have plummeted. He would have brought only a fraction of the value.

On the other hand, what if Aladdin were a Hamiltonian?

The Crash of 2019

Right now, in early April of 2019, the U.S. economy seems to be in great shape.

Inflation is minimal. Money is cheap. Unemployment is down. Wages are rising.

Here is why I think this is all going to collapse, and that right soon.

Deflation.

As I have said here many times, technology creates deflation. Deflation is the primary subject of my Moore’s Law book, which I’m getting ready to rewrite for 2020.

To understand deflation in action, look in your hand.

Technology’s Dilemma

There is a bug at the heart of innovation, of technology, and of capitalism itself.

It lies in the incentives we give innovators.

It lies in stock ownership.

What liberals have condemned is the fact that nearly all the profit from innovation is going to a very small number of people. The winners’ founders, and their venture capital partners, get fortunes measured in the billions of dollars. Their key people also wind up as multi-millionaires. Everyone else, whether they’re line staff or just ordinary schmoes, can pound sand.

Sure, we all get some of the benefits. It’s cool to have cat litter delivered. It’s amazing that I can learn anything I want to know within moments. I can call my kid in Europe free. The software and hardware my son accesses, to automate cutting-edge medical tests is amazing. As a result, we’re starting to understand not only the genetic code, but what lies beneath it.

Still it’s true. The rewards are all going to a very small number of people. Jeff Bezos will never be able to spend the $150 billion he has access to. Bill Gates will never be able to give away the fortune he has won. Philanthropists are taking on the role of governments, self-appointed boards deciding the priorities on the nation’s wealth.

World War III, The Internet War

World War III is an Internet war. It has been ongoing for over a decade.

When the conflict was between countries like Pakistan and Ireland, or Ukraine and Russia, we could afford to ignore it.

Then it came to our own shores. November 8, 2016 was this war’s Pearl Harbor.

Yet we still haven’t reacted, because once the enemy is in the tent the media thinks going after them is friendly fire.

There’s nothing friendly about it.

Sure, there are efforts underway at Google and Facebook to boost “real news” and dissuade “fake news.” Yes, there are efforts underway in Congress to control online political spending. Yes, there is the Mueller probe.

But these are nothing. We still see the Internet War as something we can stop with higher firewalls, or bigger budgets.

We can’t.

The 1979 Game

When you win the popular vote by 9.5% but still lose ground, as Democrats did November 6, your problems are systemic.

The result underlies tech’s obligation to come out of its shell and fight for the political system that birthed it.

Tech moguls have done some things. Jeff Bezos bought The Washington Post, Marc Benioff bought Time Magazine, Laurene Powell Jobs bought The Atlantic. The key to gaining more power will be in creating journalism business models beholden to tech interests.

Tech must do to Bizarro Carter what oil did to Jimmy Carter, and for the same reason -- to protect its self-interest.

Trump’s War

I’ve been guilty of this myself.

I’ve said that George W. Bush had to have been a worse President than Donald Trump because he lied us into war and Trump didn’t.

Well, Trump did. Trump has. Trump has unilaterally declared a trade war, based on nonsense, and a lot of people are going to be hurt by it.

And it’s all based on lies. (Sculpture by Kimber Fiebiger.)

First. A trade deficit isn’t money you have to borrow. It lowers your cost of goods sold. It’s deflationary and allows you to sell finished products for less than before. It makes the whole global economy more productive and efficient. This idea that we “owe” China for its trade surpluses is, simply, a lie.

Second. Trump is going to war on behalf of industries that deserve to fail. Coal hasn’t been a growth driver since the 19^th century. Steel hasn’t been vital since World War II. Supporting failing industries is bad industrial policy.

Third. Trump is going after China in precisely the wrong way. If he did want to hurt China economically, he would open the H-1B visa floodgates and encourage every Chinese student coming here to remain. What drives economic growth in the 21^st century, as I’ve said many times, is human capital, trained and willing minds. Freedom is our trump card in any conflict with China. Sending them down the demographic cliff while we stay above it, remaining youthful by bringing in the world’s best and brightest, is the only way we’re going to stay in the economic game.

The Eye of the Hurricane

The 1978 election, my natural analog for 2018 based strictly on economic history, was not a great one for Republicans.

True, they won 15 House seats and two in the Senate. But Democrats retained control of Congress, both houses.

If history were to repeat itself in 2018, this would give Democrats the Senate and keep the House in Republican hands. History rhymes, it doesn’t repeat.

Jimmy Carter was very popular at this point in his term, in the wake of the Camp David accords. His approval rating was 56%. The fact that Republicans won in 1978 despite this shows their issues had saliency. The Wikipedia entry on the election notes that it set the stage for the Reagan Revolution, and that the Republicans who won were far more conservative than those they replaced. 

Peak Carter, Peak Trump

One thing that has surprised me over the last two years is how almost no one understood my point right after the 2016 election, that Donald Trump is a sort of Bizarro Carter. 

By that I meant he is completely the opposite of Jimmy Carter. Carter was a Democrat. Trump is an Autocrat. Carter believed in human rights. Trump believes in the divine right of kings. Carter championed the environment. Trump trashes it. Carter said he’d never lie to us. Trump lies 6 times before breakfast.

What they have in common is they represent the end times for the Political Thesis that birthed them. Carter was elected 44 years after Franklin Roosevelt and was the last President to run on those principles. Trump came 48 years after Nixon and will be the last President elected under the Nixon Thesis of Conflict. 

The 1978 Game: Our New Political Overlords

At this point in 1978, no one in politics saw oil coming.

I was getting ready to graduate from Northwestern, and would spend the next several months, mostly unemployed, back home in Houston, the capital of oil, before getting the job resulting in the picture to the right. People were becoming accustomed to the strange man in the White House and his scandals. His “Georgia Gang” of cronies was being derided as a political gang that couldn’t shoot straight.

But beneath the surface, economic change was brewing. Oil had been handed political power under Lyndon Johnson and found a ready embrace in the Nixon years thanks to former Governor John Connally, whose decision to switch sides seemed at the time like a small story but would later prove massive.

Oil didn’t want to become a Republican bulwark. They wanted to play both sides against each other. Carter, and his more liberal detractors, forced them into the Republican camp. During the 1978 campaign, and beyond, this would prove decisive.

We’re at a similar historical junction now. Washington is becoming accustomed to a strange man in the White House, and his scandals. His “Wall Street Gang” is being derided as a political gang that can’t shoot straight.

But beneath the surface, change is again brewing.

Why Prejudice Doesn’t Pay

The current economic era is unique.

In the past, economies were driven by human labor, by land and its resources, by financial capital, or by infrastructure.

Technology is different.

Technology doesn’t require land, it can replace resources, and it doesn’t require massive amounts of low-skilled labor. Singapore (right), Hong Kong, Israel and Silicon Valley have none of these things.

What these and other tech centers have, is trained minds in abundance. They can create them. They can attract them. They nurture them. They give them what they need to thrive.