A Reluctant OptimistJune 18, 2021
Optimists are overrated. With Big Tech, Covid-19, or Putin, would we have been better off listening to the optimists or the pessimists? People think it takes optimism to be an entrepreneur. Not so — in my case, it just required the self-awareness to know I didn’t have the skills to succeed in a big company. Optimism is required to be an early stage investor, however. I typically invest in later stage growth firms, as my reaction to every startup idea is “there’s NFW that will work.”
I believe pessimists make better operators. I, no joke, sit awake at night and imagine everything that can go wrong in my firm(s). Then I start emailing people to ensure it won’t. On a livestream last night with two other entrepreneurs, someone asked about our management styles. The other two panelists gave Hallmark Channel answers about helping people find their purpose and encouraging failure and some other bullshit. Then it was my turn.
“I’m fucking all over everybody all the fucking time.”
If you’re looking for justice in the corporate world, you’re going to be disappointed. It’s tempting to put successful business leaders or political figures on a pedestal and mistake adulation for analysis. The lack of realism in our country has been damaging. We gave Donald Trump, Sheryl Sandberg, 3D printing, and Hayden Christensen the benefit of the doubt. And we were wrong. The next casualty of our optimism? The midlife-crisis-fueled ascent of … private space travel. Tourists/explorers to space/Mars will be disappointed/dead, respectively. Worse, they will produce poor shareholder returns.
However, recently, I’ve been experiencing an alien sensation. I hate the world/myself/everyone … less. I’m still bearish on space travel, but at sea level, things feel … better.
Back in March, on the one-year anniversary of Covid going global, I published an ode to pessimism in the Economist. America’s maladroit response to the pandemic, I argued, was a symptom of a deeper issue: We’ve lost respect for the role of civil institutions, in favor of a misguided obsession with individualism. The result “is rising inequality, decreased economic mobility and an economy that has gone from dysfunctional to dystopic in 12 months.” Yep, that sounds like me.
This frustration with the feeble American pandemic response was rooted in the knowledge that we’re capable of much better. Since WWII, the U.S. federal government has been the most powerful player on the global stage and the catalyst for some of the century’s key successes, from the Marshall Plan to the eradication of smallpox to the internet.
You’re likely reading this newsletter on the product of two generations of government accomplishments. As economist Mariana Mazzucato has shown, the iPhone is a museum of government-funded research: DARPA pioneered voice-controlled AI, the Air Force developed GPS — almost every piece of its technology has the government behind it.
There’s a thin slice of hope in the Economist article: that we might register a societal immune response to this crisis and emerge stronger. There’s evidence this is happening. The vaccine rollout in the U.S. has gone well: As of June 17, 54.4% of the population has received at least one shot. We’re doing so well that Biden has answered calls to export our success. The G-7 will provide upward of a billion doses of vaccines to the developing world by the end of 2022. A start.
G-Men Strike Back
The past month has seen win after win for public servants.
After the DarkSide hackers (probably/likely/definitely Russia) initiated a ransomware attack on Colonial Pipeline, the fuel-delivery operator paid 75 bitcoins (at the time about $5 million) to get gas flowing again. But FBI agents tracked that ransom through 23 accounts until they arrived at the digital wallet where the money was stored and seized 63.7 of the 75 bitcoins. It turns out, despite evidence to the contrary at congressional hearings, our government has a deft command of technology. It helps that bitcoin was invented by the CIA as a covert vehicle for tracking illicit behavior. The last sentence is not true. But it is. Anyway …
The day after recovering Colonial’s bitcoin, the FBI announced it had reaped the rewards of Operation Trojan Shield, a three-year sting operation. In coordination with the Australian police, the FBI had been secretly selling an encrypted messaging system to criminals around the world, with a hidden feature — it sent every message back to FBI HQ. Since the project’s inception in 2018, law enforcement has intercepted more than 20 million messages in 45 languages, and last week the cops made over 800 arrests based on that information.
And this week, Lina Khan, the author of “Amazon’s Antitrust Paradox” was confirmed by the Senate (with 19 Republican votes) as Federal Trade Commissioner. In a surprise move, Biden even appointed her Chair of the Commission. A 32-year-old, British-born woman of Pakistani heritage is now facing down the most powerful corporations in history, backed by the full might of the U.S. government.
I. Am. Joyous.
Our existing antitrust laws are heavy ammunition, but they’ve been weakened by business-friendly judges and aren’t optimized for our digital world. So Congress is working on Antitrust 2.0, with a legislative package that would address Big Tech’s habit of buying the competition, their monopolistic platforms, and their restrictions on consumer data portability. Significant parts are still a long way from passage, but still … progress.
Ms. Khan will get more resources as well. Biden has proposed an 11% funding increase to the FTC, boosting its spending from $351 million to $390 million. The president’s proposal will also see the FTC increase its headcount to 1,250 — its largest staff since it was eviscerated in the early 1980s. The DOJ’s Antitrust Division will receive a budget increase of 10%.
Government action requires revenue, and many have called for a reinvigoration of our tax-collection capabilities. There’s a lot of discussion about how tax laws favor the wealthy. But there’s another side to the story: lax enforcement. Over the past decade, the IRS’s budget and workforce have been gutted. From 2010 to 2017, the agency’s operating costs took a $2 billion cut, its enforcement budget sunk 23%, and the number of auditors was slashed by a third, to 9,510. The last time the IRS had fewer than 10,000 auditors was in 1953, when our economy was seven times smaller and our population half the size.
The wealthiest Americans have enjoyed the lack of supervision and enforcement. In 2020, over 637,000 returns were filed showing more than $1 million in income, but only 11,000 of them — just 1.7% — were audited. This reflects a stark drop in the agency’s scrutiny of wealthy filers over the past decade.
The good news is that Biden wants to invest $80 billion in the IRS over the next decade. That’s a 70% increase in the agency’s entire funding over the past decade, and it could net our government another $700 billion in tax revenue.
G to the Seventh
Last weekend, the U.K. hosted the 47th summit of the Group of Seven. In recent years, these leadership conferences have been alternately disappointing and pointless, if not embarrassing. Trump’s refusal to honor the dead at Belleau Wood because it was raining and his gross obeisance to Putin at Helsinki come to mind. This year, however, international cooperation is back.
The G-7 nations (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.) promised that by 2022, they would end international funding for coal projects that don’t include technology to capture and store CO2 emissions. They also promised an “overwhelmingly decarbonized” electricity sector by the end of this decade.
Finance leaders at the summit also agreed to back a new global minimum tax rate of 15%, regardless of where a company is headquartered. A global tax agreement would reinforce Biden’s domestic plan to raise the corporate tax rate from 21% to 28% — companies won’t be motivated to move their operations offshore.
Biden also proposed an international loan financing project, “Build Back Better for the World” (B3W), that could rival China’s Belt and Road Initiative. Biden urged his G-7 counterparts to offer developing nations hundreds of billions in financing as an alternative to relying on Beijing for new roads, railways, ports, and communications networks. This comes just as the Senate passed a huge industrial policy bill to bolster U.S. competitiveness with China.
Before finishing this post, I checked in on my boys, mid-slumber. It was restorative. If we can see our kids safe and sleeping, blessed with good health and surrounded by people who love them, it’s harder to feel angry or pessimistic. We’re transported to a better place. But I know I’m just a tourist in this better place.
I look at the climbing wall we installed in my youngest’s room and worry they won’t develop the grit to compete in today’s world. If I’d had what they have, the only certainties in my life would have been a Range Rover and a cocaine habit (I’m 1 for 2).
I worry that my youngest might relapse into device addiction and wonder what kind of parents work at Facebook, how they could have the dearth of empathy to think “Instagram Kids” is a good idea. I walk downstairs and pause at pictures of my parents and wonder how I became so obsessed with relevance, so desperate for affirmation.
I begin thinking about de-risking in my portfolio. We’re clearly headed toward a correction, if not a crash, given the consensual hallucination we’ve entered, believing there is a free lunch and that we just need to keep printing money — aggregating more and more dry brush and accelerant.
The optimism retreats behind a cloud, things get darker. I’m back, I’m home.
Life is so rich,
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