I wrote about cryptocurrency a lot, late in the last decade.
I finally decided it was trash.
There’s no there, there. I can find no blockchain applications superior to what you can do in other ways. Bitcoin and Ethereum claim they’re better than other coins, but the market remains crooked and opaque.
All this came crowding in this week when FTX collapsed. FTX was the creation of a 20-something (now 30) named Sam Bankman-Fried, whom my son now calls Bank Man Fried, as in French fries.
What’s most distinguishing about the 2022 economy is how capital is taking the hit.
We all know about the bear market in stocks, down over 20% from their peak. Bond investors are also down over 15%. Real estate is rolling over. This is where capital gets its money.
Meanwhile, ordinary Americans are doing OK. It’s true that inflation is outpacing wage gains, but there are wage gains. Jobs remain plentiful. Last year’s stimulus was mainly aimed at firming incomes. More relief is coming from the Inflation Reduction Act.
This has created pure fury on Wall Street. I follow financial Twitter for my job, and the anger is palpable. Investors are predicting the imminent downfall of the whole economy. They’re demanding that the poor pay the penalty for their mistakes with money. They really can’t get their heads around the current situation.
Drug companies keep pushing America toward its next health care crisis.
Biogen is the primary offender. Last year they delivered an Alzheimer’s drug called Aduhelm, pricing it at $56,000/year. If Aduhelm cured Alzheimer’s, a high price would be justified. But it doesn’t. It isn’t even proven to reduce symptoms.
Now they’re back, with a new medicine mainly developed by Eisai, the Japanese company that developed Aduhelm. This claims to improve cognition about 20% in people with early signs of the disease. That’s good. But it’s nowhere near a cure. There is every indication Biogen will demand a huge price on this medicine too.
There are two problems here, one business and one scientific.
Joe Biden is proving to be the economic nationalist Trump only pretended to be.
America isn’t just back, baby. We’re rolling over the world. The dollar is as high as it’s been in 40 years. Inflation is headed down, even if markets don’t yet know it. We’re at full employment. Even manufacturing is coming back.
But there can be too much winning. When everyone else, including your friends, is losing, winning makes you the bully.
That’s what is going on now. That’s the real message of the Swedish and Italian elections. Voters there are turning on the U.S. as an economic bully. We’re exporting inflation to them, and they’re looking at a very long, cold winter.
When you treat your friends like adversaries, they become your adversaries. It’s one thing to crush your enemies. Russia is being crushed. China is in very bad shape. But when everyone is on the ropes it’s time to be a good winner.
What built American prosperity is we were good winners. We won World War II, then instituted the Marshall Plan, aid and loan forgiveness meant to give democracy a chance against the Soviet Union. We were magnanimous toward Japan, too, so that by the time of the Korean War they were mostly in our corner.
This is another such time. The Fed’s interest rate hikes, which quadrupled what the best borrowers pay for money over just three months, are going to cure inflation. Many prices are already coming down. But we don’t have to treat inflation as Sherman did Georgia to win. It’s time to take the foot off the gas, not on behalf of America but on behalf of England, of Germany, of Japan, even of China. They’ve had enough.
Once you understand this you can understand the 21st century economy and Federal Reserve policy. If you can’t, rich people will lead you to believe things against your interest, like government debt is your mortgage or a trade deficit is money we owe other countries.
What follows is a simplistic explanation. A longer one can be found here.
The amount of money in circulation should approximate what’s needed to sustain economic activity. In a normal time, you can see how much you need by its price and what’s happening to prices in the economy.
When there’s not enough money, as was true in the Great Depression, the Great Recession and under COVID, economic activity grinds to a halt. People don’t buy stuff thus people can’t sell stuff. In the first two events, there was too much stuff for the money available. In the latest case, there wasn’t enough money to buy the stuff.
Nearly three years ago, after attending the Heidelberg Laureate Forum honoring great mathematicians and computer experts, I wrote a three part series on the big technologies of this decade:
This is a good time to revisit the trends. A recession is also the best time to start a new tech company. Incumbents are faltering and you get a clean sheet of paper to write the future on.
Continue reading "The Three Big Challenges Boiled Into One" »
Even 50 years on, we don’t understand Moore’s Law.
Moore’s Law accelerates the pace of change in every direction. It’s not just about silicon. It’s not just about technology. It’s about what is enabled.
Two things that are enabled by technology are deflation and change. The first is a subset of the second. Technology lets consumers and businesses adjust to change rapidly. This is true not just because technology is improving, but because its adoption keeps increasing.
Moving technology from a desktop to a smartphone is a step change in its adoption. Smartphones let us compare prices inside a store. They let us route around traffic jams. They bring the office to the job site. You can find whatever you need to know, from anywhere, using a smartphone.
A world of instant answers means a world of instant adjustment. Demand can adjust faster than supply, but supply can adjust too. We all went into lockdown together, we all came out of it together, we all demanded products together, then we demanded services together. There was a lag, but by and large the economy has kept up.
Some changes are permanent. We don’t need offices the way we did. You can appear on TV from your living room, kitchen, or bedroom. What I’ve seen, as a business reporter, is that the economy can now react ahead of policymakers. Even the Federal Reserve, which can adjust policy every month or even within a month, can no longer keep up.
There are many problems that, owing to political polarization, seem intractable.
The housing “crisis” is one. Since too many people want to use the “issue” to score “political points,” obvious fixes aren’t tried because they’re complicated.
There is no housing crisis. There are plenty of homes. Everyone should be able to get one.
The problem is that private equity is holding too many of them, as vacation homes, for lease, or for AirBnB. You can get more from a house as a hotel, occupied just a week or two, than you can on a lease.
The answer is straightforward. Change the tax laws. Encourage private equity to increase the supply of housing. Discourage private equity from holding houses for lease or rent. Encourage home ownership. Discourage second home ownership.
This must be done carefully, deliberately. Any sudden change in the tax laws could cause housing prices to crash. Even modest tweaks will get pushback from owners of existing homes, because for houses to become affordable their values must come down.
Oil prices have been falling in recent weeks, and analysts have been telling investors to “buy the dip.”
They’re wrong.
The current “energy crisis” is a short-term phenomenon, caused by Russia’s invasion and falling production. Few people seem to comprehend that the falling production has a cause. The cause is a clear understanding that renewable energy prices are coming down.
The new buzzword is “grid parity.” The definition is that solar and wind energy equal the cost of fossil fuel energy, without subsidy. That doesn’t just require panels and turbines. It also requires storage, so power levels can be boosted and lowered at will.
President Biden’s move to cut gasoline taxes is doomed to failure.
That’s not because Congress won’t like it, or that it will take money from infrastructure. It’s because price is how we ration short supplies. No one has suggested an alternative rationing mechanism.
My family has done its bit for conservation. We bought a Toyota hybrid. We keep the thermostat at 77 during the summer. Except for our recent vacation, we’re not driving much because we’re working from home.
Privileged people can do this. Those without privilege, or those who think they’re without it but are, have a harder time. Poor people who live far from work get chewed up by inflation at times like these. Middle class folks who’ve bought giant pick-ups, boat trailers and homes in the exurbs are also hurting. There’s rising anger on both sides. Conventional wisdom says Republicans benefit as the “out” party.
I don’t want this to be about politics, however. I’m a finance reporter.
Recent Comments