Dana Blankenhorn

Human Capital and the 1980 Game

In 2020, we will be 12 years removed from the first political triumph of technology, the generational election of Barack Obama. All his progress is now being undone, much as a generation ago oil’s gains were threatened by Jimmy Carter and his cardigan sweater.

As we prepare to play the 1980 Game the question becomes, who is Ronald Reagan now? (It’s usually phrased, “Who Can Beat Trump?”) The answer lies in what drives our economy today, and in what drove it then.

I remain confident in the ultimate triumph of Democracy because, today, human capital is the gating factor to economic growth.

Where Elizabeth Warren is Wrong

Like a lot of people, I admire Sen. Elizabeth Warren of Massachusetts, or as the great Charlie Pierce calls her Senator Professor Warren (SPW).

But, again like most people, I can’t vote for her for President.

The reason, in my case, is Warren’s attitude to the Cloud Czars. Warren is staking a big part of her candidacy on running against them.

Let’s set aside, for a moment, the fact that the Czars – Microsoft, Apple, Amazon, Google and Facebook – now command a combined market cap of nearly $4.5 TRILLION. Never mind that they dominate the business world, or that democracy always follows the Golden Rule – he who has the gold makes the rules. Democrats aren’t going to win the White House over the objection of the Czars and the bulk of the technology industry.

My beef here has to do with her proposal to break up the Czars, starting with Amazon.

Her argument against Amazon is that the company can see which brands people are buying, then put an Amazon version into the market and wipe out the other seller. It’s like she never heard of store brands.

Store brands have been a feature of American retailing practically since brands. Kroger does it with food. Target does it with clothes. Walmart does it with both. Walmart calls their store brands “Great Value.”

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.

The Demand of 2020: Law and Order

Regulations are the guardrails of corporate law.

They kick in before people are hurt. They’re usually aimed at corporations, not individuals. Everyone is punished by the paperwork. The penalties come in the form of fines.

Regulation is the best protection business can have.

When regulation isn’t imposed by government, it comes in other forms. It comes in insurance requirements. It comes from the plaintiff’s bar. Fines come in the form of differing rates to protect truck fleets, different prices for handling transactions, and in jury awards.

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.

Capitalistic Feudalism

The central problem of our time is the march toward feudalism.

It began among capitalists.

Democracy is essential because it lets people change their minds and, upon changing them, reform the institutions that control their lives. That’s what the Declaration of Independence is about. It argues that despotic systems must be overthrown when they threaten our “life, liberty” or pursuit of happiness.

Many people, including me, have argued that the current attack on democracy began with The Jim Crow Project.

But long before one of our major political parties abandoned democracy, business did. It happened as these things usually do, with the very best of intentions.

As I noted last week, the system that came into effect in 1789 had only property owners voting.  The true genius of succeeding generations has been to expand the right to vote, thus the pool of those who can effect change, to more and more people. This work continues, and it’s important.

But there’s another kind of democracy, corporate democracy. It may be even more important than electoral democracy because even functional democracies operate by the Golden Rule – he who has the gold makes the rules.

Before we can hope to have electoral democracy, then, we must have corporate democracy.

We Are All Founders

There are two distinguishing features to the existential crises in American history.

The first is it makes us return to first principles, causing us to re-examine, criticize, and eventually deify the past.

In the run-up to World War II, a crisis that really began four score and seven years ago, in 1932, there was a vogue for Abraham Lincoln. Henry Fonda and Raymond Massey did popular biopics, and his memorial became a sort of Ground Zero for what was best in our political natures.

In our time, Lin Manuel Miranda did this to Alexander Hamilton while Ron Chernow, who did the biography of Hamilton on which the movie was based, proceeded to resurrect U.S. Grant. The purpose of both these pieces of art was political. Miranda wanted to highlight the importance of immigrants in getting the job done. Chernow wanted to push back against a Confederate-inspired view of history that still, 150 years later, has those who supported human rights being disparaged while those they fought are exalted.

We love to call America the world’s oldest democracy. We revere the founders as giants.  We even call them the Founders.

But the original Constitution was profoundly anti-democratic. Women couldn’t vote. Neither could blacks, nor native Americans. The franchise was reserved for white males, and not even all of them. You had to be a property owner.

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.

Fixing Health Care

The key to fixing our broken health care system is deceptively simple.

Give those who collect the income firm control of the outgo. There is no such thing as an unlimited draw from a limited pool.

We know this works by looking at the market as it exists right now.

The Veterans Administration takes the biggest risks, people who’ve served our country. They come to the system with terrible problems, and they age out in terrifying ways. Yet the per-patient cost of delivering health care to these people is a fraction of the cost of our other delivery systems, because the government controls both income and the outgo.

The VA is a single-payer system. It gets its money direct from the government, it has a clear mission and requirement to treat people, and it can bargain for the best prices. VA hospitals aren’t fancy, many of the doctors are new to the profession, the staff is stressed, and the whole system is rickety, but it works. And when the Trump people try to privatize it, when they seek to destroy it, this will become very clear to all veterans, even those who would otherwise love them some Trump. They won’t love them some Trump, or any other privatization-mad Republican, ever again if he succeeds in destroying their VA.