Andy Kessler

WSJ: Is the Dollar in Danger?

Follow @andykessler

https://www.wsj.com/articles/is-the-dollar-in-danger-china-russia-ruble-yuan-reserve-currency-foreign-sanctions-11647195545

The U.S. is sitting on top of a horizontal empire, capitalism’s self-organizing, incentive-based structure with its layers of value. It’s not the Marxist mush of “to each according to his needs.” You gotta earn your spot. Think of the U.S. dollar as the thread or even the duct tape that binds the layers together. Nearly 60% of the $12.8 trillion in worldwide currency reserves are dollars. Is America’s “exorbitant privilege”—the almighty dollar as the world’s leading reserve currency—under threat? Should you even care?

Sanctions have bitten Russia. A huge chunk of its $630 billion in foreign reserves are frozen. Oligarchs’ yachts have been seized. Visa, Mastercard and American Express suspended service in Russia. Apple and Google Pay stoppage stranded cashless travelers on Moscow’s metro. From Netflix to Nike, voluntary sanctions are in force.

Was cutting Russia out of the global financial system the right move? Naysayers think this is the beginning of the end of the dollar as the reserve currency because Russia will cozy up to China and adopt the yuan or pivot to cryptocurrencies. China may start dumping dollars. In fact, since 2014 China and Russia have severely reduced their dependence on the dollar for bilateral trade.

The dollar has been the world’s reserve currency since the Bretton Woods Agreement in July 1944, with the dollar pegged to gold and other allied currencies pegged to the dollar. This wasn’t some bureaucratic pronouncement. The U.S. was in a position of strength after funding the allied effort in World War II. America almost lost this privileged status in 1971 when deficits from war and welfare led President Richard Nixon to drop the gold standard.

Today countries still keep America’s virtual Benjamins in their virtual bank vaults—modern banking’s gold. China has more than $1 trillion in Treasurys. Russia has about $100 billion in dollars of about $500 billion in their increasingly frozen foreign exchange.

But why do these countries keep dollars? What backs the currency?

Read the rest here.

WSJ: Putin’s ‘Vertical’ Empire Will Fall

Follow @andykessler

https://www.wsj.com/articles/putins-vertical-empire-fall-ukraine-russia-business-kleptocrat-oligarchs-value-companies-11646581296

Vladimir Putin obviously didn’t get the memo. The kleptocrat handbook has changed. You don’t invade countries anymore because after the smoke clears, you have to fix their plumbing and heating and cell service. Instead, you hire them.

Some estimate Mr. Putin may be worth $100 billion via hidden holdings in Gazprom, Russia’s state-owned energy company. But Jeff Bezos and Bill Gates are worth more and they don’t control any tanks. Their success shows the world is now divided into horizontal slices, with the most productive sitting on top. The American empire, if you want to call it that, is a horizontal empire. Mr. Putin’s attempt to re-create the Soviet Union’s vertical empire is doomed to fail.

As digitization allowed design and control to be separated from manufacturing, the world got horizontal, organizing into stacks of companies, industries and even countries to which markets provide capital based on their value-add.

IBM vertically integrated computers, while Microsoft, Intel, Dell, Singapore-made disk drives and Japanese memory chips dominated slices of the personal-computing stack. AT&T was vertical, the Internet horizontal, with Google and Amazon sitting on top of the data-center, fiber-optics and cable-modem slices. Apple adds its operating system to smartphones after paying Foxconn to assemble Korean screens and Taiwanese chips in China. Successful companies give up owning everything to expand opportunities.

As long as the U.S. provides the stuff at the top, its horizontal empire will endure, creating societal wealth and enough technology and taxes to defend itself and its allies. These include Japan, South Korea and Taiwan, all of which have far higher gross domestic product per capita than vertical commodity-dominated Russia. Especially in trade, horizontal topples vertical.

Under the guise of reuniting the Soviet Union’s footprint, Mr. Putin wants to control oil and gas distribution to clueless nuclear-reducing, wind-dependent, energy-deprived European countries.

Read the rest here.

WSJ: Make Populism Pop Again (The Biden Bonuses)

Follow @andykessler

https://www.wsj.com/articles/populism-biden-approval-rating-rapid-testing-homelessness-nfl-foreign-policy-state-of-the-union-sotu-11645977952

Tuesday night’s State of the Union address arrives with Joe Biden’s approval rating in the dumps at about 42%. Chaos continues. There’s pain in Ukraine. Inflation rages. “I did that” stickers with Mr. Biden pointing at high prices are showing up on gasoline pumps across the country.

But with so many issues most Americans roll their eyes—sanctions, antitrust, climate, zzzz. Out of sight, out of mind. For 79-year-old Joe Biden’s political survival, he needs a new slogan: “Out with the old, in with the bold.” He should forget the Beltway babble and pivot hard to do something right in front of our faces.

Here’s what I’d do: Announce the Biden Bonuses, a set of gestures providing “everyday Americans,” as Hillary Clinton called us, exactly what we want. Yes, it’s time to put some pop into populism.

Use the bully pulpit. Start with masks. A few control freaks still love them, but the rest of us know they’re a charade—spit diapers, beard hats, facial disgracials. Encourage masking but declare it completely optional, especially on planes. HEPA filters and rapid circulation probably make planes the safest place to be near other people. At the same time, flood the zone with Covid tests to prevent hoarding. Make them as plentiful as green M&Ms. Every home and office should have a bowl of rapid Covid tests. Two years on, this should have happened already.

Speaking of travel, stop making us remove our shoes and belts or take our laptops out at airport security checkpoints. Everyone knows it isn’t effective. Let’s do random screening—every 20th passenger or so gets a thorough exam. And have the Federal Aviation Administration stop requiring that seat backs be returned to their upright uncomfortable position for takeoff and landing, though it’s no problem if there’s at least 37 inches of legroom, like in United’s Economy Plus. Make standing up before it’s your row’s turn to exit a misdemeanor. And while travelers can wear headphones and eye masks to dull the senses, please forbid enchiladas, tuna-fish sandwiches or any olfactorily offensive meal on planes. Nearly all Americans will agree.

Speaking of food, announce the end of calorie labeling at restaurants.

Read the rest here.

WSJ: Who Built That Spaceship?

Follow @andykessler

https://www.wsj.com/articles/spaceship-exploration-entrepreneurship-elon-musk-jeff-bezos-innovation-and-competition-act-nasa-friendship-7-r-and-d-spaceflight-intel-11644766616

Sixty years ago on Feb. 20, astronaut John H. Glenn orbited Earth three times. The Mercury capsule Friendship 7 placed on top of an Atlas LV-3B launch vehicle (a modified intercontinental ballistic missile) reached a height of 162 miles and a speed of 17,544 miles an hour. After 4 hours and 55 minutes, it splashed down 800 miles southeast of Bermuda. Soviet cosmonaut Yuri Gagarin did a single orbit the year before.

So yes, the space race was on. “Come on Space Truckin’.” By the 1969 moon landing, it was clear the U.S. had beaten the Soviets, though oddly by using a Soviet-like command-and-control structure, which “Star Trek’s” Romulans and “Star Wars’ ” Galactic Empire would endorse.

Remarkably, Glenn had no computers on board, only a few thrusters controlled by gyroscopes. There were a few issues and Glenn briefly took control of the spacecraft. Semiconductor-based computers were later used in the Gemini program, and the National Aeronautics and Space Administration became an important early customer of Silicon Valley. The invention of integrated circuits lowered costs for commercial computers and the space program. In the 1980s, the military funded the Very High Speed Integrated Circuit to develop fast chips, leading to talk that the U.S. government created Silicon Valley. Hardly. Even though semiconductors are now a more than $500 billion industry and computers in the multitrillions, we still hear echoes of Barack Obama’s July 2012 campaign speech: “If you’ve got a business, you didn’t build that, someone else made that happen.” That thinking is as outdated as phone booths.

Last year Jeff Bezos ’ Blue Origin took 90-year-old William Shatner—Captain Kirk!—into space, though not into orbit, and they surely didn’t “boldly go” on a “five-year mission to explore strange new worlds.” A few months before, Richard Branson’s Virgin Galactic pilots flew slightly off course during a July flight. Even still, I’m trying to reserve an economy-plus seat. The Mercury program cost $2.2 billion in current dollars, more than $300 million a launch. Elon Musk’s SpaceX announced last week that launches into orbit will cost $10 million within two or three years. Could a Bezos-like private company have funded the space program in the 1960s? It’s doubtful, but that doesn’t make the space program a model for public or private investment decisions.

Let’s look at the numbers. In 2019 U.S. research and development spending was $656 billion—three quarters by business, the remaining $170 billion divided among the federal government, universities and nonprofits. Google spent $26 billion on R&D in 2019, Microsoft about $17 billion, Apple $16 billion, Intel $13 billion. I guess they did build that. For the record, federal money for research goes, in order, to the departments of Health and Human Services, Energy, and Defense, and then NASA.

A lot of that nonbusiness R&D spending is for basic research, as it should be.

Read the rest here.

WSJ: Wealth Is Knowledge

Follow @andykessler

https://www.wsj.com/articles/wealth-is-knowledge-information-economics-industry-computers-george-gilder-capitalism-musk-zuckerberg-11644175297

The stock-market carnage came fast and furious, wrecking GameStop -like memes and get-rich-quick crypto schemes and cracking SPACs. The ringleader, Robinhood, fueled by stimulus checks, is a good proxy for the excess. Its stock is down almost 80% from its August peak. It is a fine time to ask: What is wealth? Is it Justin Bieber dropping $1.3 million on a Bored Ape Yacht Club nonfungible token? Ha! More important, how do you keep wealth?

How to create lasting wealth is surprisingly simple: Do more with less. Always has been true, always will. The Industrial Revolution resulted from applying knowledge to replace messy horses with steam power, lowering both the cost of comfortable clothing and global shipping. Computers, with information embedded in cheap silicon, still aren’t done displacing librarians, secretaries, doctors and more. These productivity gains are the engines of progress, much to the chagrin of degrowth, sustainability-soaked, divvy-up-pieces-of-the-pie anticapitalists.

Here’s a paradox. If you didn’t sleep through Econ 101, you were taught about supply and demand curves and that when prices drop, supply needs to come down to reach equilibrium. Yet in today’s digital economy, when costs go down, we actually get more supply, as with silicon chips, data storage and bandwidth.

I asked the author and economist George Gilder about wealth creation. “Wealth is most essentially knowledge,” Mr. Gilder says. “Let’s face it, the caveman had access to all the materials we have today. Therefore, economic growth is learning, manifested in ‘learning curves’ of collapsing costs driven by markets.” Yet these learning curves get waved away by economists. Mr. Gilder says information, not materials, drives growth: “Crash a car and all its value disappears, though every molecule remains.”

Another paradox is the belief that entrepreneurs like Tesla CEO Elon Musk and Meta CEO Mark Zuckerberg are driven by greed despite capitalism’s charitable characteristics. Rep. Alexandria Ocasio-Cortez of New York, showing her misunderstanding of economics, said in 2020, “No one ever makes a billion dollars. You take a billion dollars.” Have you ever noticed that those who criticize capitalists the most are too lazy to be capitalists?

Mr. Gilder counters:

Read the rest here.

WSJ: "Get Smart" About Biden's Chaos

Follow @andykessler

https://www.wsj.com/articles/get-smart-about-bidens-chaos-exaggeration-conspiracies-existential-threat-11643557700

What’s with all the chaos conspiracies lately? In President Biden’s Atlanta speech earlier this month he said that on Jan. 6, 2021, “a dagger was literally held at the throat of American democracy.” Literally? Sorry about that, Chief. And of his opponents: “They want chaos to reign.” Last Memorial Day, Mr. Biden declared, “Democracy itself is in peril, here at home and around the world.” He constantly warns of “the existential threat” of climate change. Always chaos!

Why does that ring familiar? Ah yes, it reminds me of Kaos vs. Control from the TV series “Get Smart” which ran from 1965 to 1970. Mel Brooks and Buck Henry wrote the wisecracking spoof of James Bond—one episode was even named “Bronzefinger.” Maxwell Smart, Agent 86 played by Don Adams, kept a straight face delivering the best lines: “Missed it by that much.” “Sorry about that, Chief.” “I asked you not to tell me that.” My favorite? “And loving it!”

In “Get Smart,” like Mr. Biden’s dagger, exaggeration rules. Chained to a wall with Agent 99, played by Barbara Feldon, Smart tells doubting Kaos agents that the warehouse was surrounded by 100 cops with Doberman Pinschers. “Would you believe 10 security guards and a bloodhound?” Smart asks. “I don’t think so,” a Kaos agent replies. “How about a Boy Scout with rabies?”

Kaos was billed as an “international organization of evil” bent on world domination with a vice president of public relations and terror and the Contrived Accident Division. To fight Kaos, the counterespionage organization Control had the greatest technology, most unfathomable in the 1960s. Most famous were Maxwell Smart’s shoe phone and the cone of silence for secret conversations.

Entrepreneurs today could still make a living inventing all the show’s gadgets: Pocket Disintegrator Pen, Sleeping Dirt, Invisible Chalk, Sleeping Foot Powder and New Face Spray. Sadly still missing from store shelves: the Absorbo pill to soak up alcohol.

No one actually likes chaos. Well, I do, having spent most of my life in the mosh pits of Wall Street and Silicon Valley, where stasis is death.

Read the rest here.

WSJ: 90% of Everything Is . . . Take a Guess

Follow @andykessler

https://www.wsj.com/articles/90-percent-of-everything-is-crap-venture-capital-marc-andreessen-mosaic-web-silicon-valley-tech-investment-innovation-11642970894

It used to be that 90% of the time, you accessed stuff only on your computer’s local network. Then in 1993 at the University of Illinois, Marc Andreessen developed Mosaic, the first internet browser, which allowed users to wander around the World Wide Web 90% of the time. He moved to Silicon Valley and founded Netscape. Mr. Andreessen is now a general partner at a top-decile venture-capital firm, better than 90% of its peers. Andreessen Horowitz recently raised $9 billion in new funds.

Last week I spent some time sitting on Mr. Andreessen’s back porch pondering the magic of 90% and how it created Silicon Valley and continues to rule it. “In venture capital, you think a lot about so-called adverse selection,” Mr. Andreessen says. “ ‘Why am I so lucky as to be the person you’re trying to raise money from?’ You want to get to positive selection, the best people coming to you.”

But how? Mr. Andreessen starts with the replication crisis in scientific studies, especially in psychology—over half of studies can’t be replicated. I suggest “studies show” are the two most dangerous words in the English language. Mr. Andreessen quickly adds, “The corollary is ‘experts say.’ ”

Mr. Andreessen’s friend in the scientific research world told him about a historical study of heart and lung drugs that were approved but were not effective. Mr. Andreessen learned that “one of the things you do to counter a replication crisis is a ‘preregistration of hypothesis’—instead of pretending after the fact that you have a hypothesis, that you’re cherry-picking data to prove.” The result of this preregistration? There were fewer new drugs approved because researchers could no longer fudge the data. “Of course, what this implies is that most drugs that are already on the market today probably don’t work.” His friend agreed and said forget 50%, it’s 90% of research that is bad to begin with.

Then Mr. Andreessen says, “I had heard of this, aha, Sturgeon’s law!” Theodore Sturgeon (1918-85) was a science-fiction author annoyed that people were saying all sci-fi was bad and wanted to stand up for the 10% that was good, saying, “90% of everything is crap.” Mr. Andreessen says “90% of music is crap.” The same is true of “paintings, writing, TV shows and movies.” I would add ideas, stocks, opinions, politicians—the list goes on.

That is “the nature of creative work. There are only a few people in each field that know what to do,” Mr. Andreessen says.

Read the rest here.

WSJ: Is Climate Change in Your Problem Top 10?

Follow @andykessler

https://www.wsj.com/articles/is-climate-change-in-your-top-10-urgent-issues-gop-democrats-problems-worry-global-warming-environment-don't-look-up-11641741976

At a recent dinner, I sat between two men talking past each other. “Mr. Redd” was complaining about our borders and how President Biden’s policies have led to the arrest of nearly two million illegal immigrants. “Mr. Bleu” jumped in, “First of all, they’re unauthorized migrants. Second, I can’t believe you’re worried about that. It’s not even on my top 10 list.” Not one to let a good brawl whimper out unnecessarily, I asked sheepishly, “What’s No. 1?” “Climate change,” he replied. I couldn’t resist. “Really, over failed schools? The homeless? Opioids? Structural unemployment? China?” I asked. “Yup, follow the science,” he said. Ugh. He probably thought the dim-witted eco-allegory “Don’t Look Up” on Netflix was a documentary.

Sure enough, if you check the latest Quinnipiac poll of “the most urgent issues facing the country today,” you get the same divide. For Republicans, the answer is immigration (28%), the economy (24%) and the federal debt (10%). For Democrats, it’s Covid-19 (28%), healthcare (14%) and climate change (13%).

A few years ago, my family was hiking in Point Reyes, north of San Francisco, with our Rhodesian Ridgeback off-leash. Yes, I know, a politically incorrect canine. We spotted a coyote up in the hills and quickly leashed our dog. As we approached another group with a dog, we warned them about the coyote. Instead of a “Thank you,” we got a smug “Well, they were here first.” Really? I may have wished the coyote would eat their mutt for breakfast.

To me, that exchange sums up the current state of environmental thinking. They were here first; let’s go back to the old days. I have no time for this “degrowth” movement. Progress, not retreat, solves problems. While the climate may be changing, meteorologists can’t even model snowfall in Virginia accurately this winter, let alone over decades. We should adapt to change, not slam the brakes on growth. Climate change is the latest manifestation of a tiresome throwback—shift-into-reverse thinking. It’s all back to nature, rewind the clock, fear of overpopulation, and let coyotes roam. This “limitarianism” may prove to be as deadly as other 20th-century “isms.”

Americans have plenty of other problems. Crime is on the rise, and cities are a mess. I asked a resident of Manhattan’s Upper West Side what she thought about New York’s new mayor, Eric Adams, a former captain in the New York Police Department. “We hope he’s like Michael Bloomberg, ” she said. “Isn’t he more like Rudy Giuliani, law and order?” I asked. “Ick,” she replied. “So, you like crime?” I asked sarcastically, knowing that murders in New York City were up over 50% in 2021 compared with 2019. Her answer? “Hey, we live in New York City, we expect it. Plus, we don’t have much crime in our neighborhood anyway.” Right.

When was it that we gave up? San Franciscans gladly struggle to drink through paper straws but divert their gaze from brazen smash-and-grab robberies.

Read the rest here.

WSJ: Can Social Media Alter a War?

Follow @andykessler

https://www.wsj.com/articles/can-social-media-alter-a-war-nato-russian-bots-colonial-pipeline-national-security-ukraine-cyberwarfare-hack-invasion-11641130267

The Cornell-Harvard hockey matchup is legendary. Harvard home fans used to play square-dance music and throw hay on the ice making fun of bumpkins from upstate New York. In retaliation, Cornell fans at Lynah Rink in Ithaca would throw fish on the ice (they still do despite being searched on entry), and for many years they even tied a live chicken to Harvard’s goal. I spoke with a recent graduate who explained how students have modernized taunting. Using fake social-media accounts with pictures of attractive coeds, hecklers would inevitably “friend” Harvard’s goalie and learn details about his personal life. During the game, the crowd would taunt him about his aunt Millie, dog Muffin or recent breakup. Eventually the goalie would turn and stare at the crowd in confusion. Successful psy-ops!

The same tactics are leaking into war planning. Psychological operations are nothing new: We’ve had Tokyo Rose, pamphlets dropped from planes, and Iraq’s Information Minister Baghdad Bob’s spewing lies on CNN. Now Instagram? In February 2012, I wrote a column titled “When Will Social Media Elect a President?” Most readers said never. Well, that ship has sailed. It’s time to ask: When will social media alter wars?

In 2019 during a military exercise, the North Atlantic Treaty Organization’s Strategic Communications Center of Excellence deployed a “red team” to see if it could disrupt 150 soldiers. Spending only $60 on Russian bots and using only open-source data, researchers were able to learn the usernames, phone numbers, emails and identities of soldiers. They also engaged with them on Facebook and Instagram, mapped their connections with other armed-forces members, determined their location within a kilometer, and even got soldiers to send selfies with their equipment. Apparently even soldiers believe that if it isn’t on Instagram, it didn’t happen.

According to the report on the exercise, they could “pinpoint the exact locations of several battalions” and track troop movements. Here’s the scariest part: “The level of personal information we found was very detailed and enabled us to instil [sic] undesirable behaviour during the exercise.” Janis Sarts, a director of NATO StratCom, told me: “Every time we attempted to manipulate behaviors, we succeeded.”

Facebook did shut down some of the researchers’ fake accounts due to suspicious activity. But many groups and fake profiles weren’t suspended. This raises the question: Is Facebook ready or even willing to help during a hot war?

Let’s say, hypothetically, that Russia invades Ukraine and the U.S. sends in troops.

Read the rest here.

WSJ: The Metaverse is Already Here

Follow @andykessler

https://www.wsj.com/articles/the-facebook-mark-zuckerberg-metaverse-is-already-here-virtual-reality-headset-oculus-11640525817

Are you ready to live in a 3D-navigable, socially connected, conscience-curving, carefree virtual world? Facebook’s pursuit of this metaverse dream as its next platform is bold, though it may be like swapping out a car’s engine while it’s going 100 mph—hard to do without crashing. Look at Apple as it transitioned from computers to iPods and iPhones. Facebook even changed its name to Meta. “The dream was to feel present with the people we care about,” CEO Mark Zuckerberg explained. He also promised “immersive all-day experiences.” Facebook may need a new platform anyway if the Biden administration dismantles its current one in the name of antitrust.

This has been tried before. A virtual space called “Second Life” launched in 2003. You could buy digital property and clothes with real money and hang out with other blocky avatars. It was early days. Naysayers in Silicon Valley liked to say that “Second Life” was for those who didn’t have a first one.

The metaverse marks another interface transition. Green and amber text monitors gave way to Apple’s and Windows’ graphical user interface, making computers much easier to use. Then slow modems connected us to the internet and we used the barren search-page interfaces of Yahoo and Google. Eventually graphics and photos sneaked in, especially as blogs and social networks boomed, and smartphones with cameras turned many into photo bugs. Then video was added, peaking this year with TikTok and multi-tile Zoom calls. Each interface iteration means humans spend less time navigating the computer and more time harnessing its power.

Think of the metaverse as another change of perspective. Videogames have 3D worlds already, a big jump from 2D Tetris. Epic Games, maker of “Fortnite,” has more than 350 million registered users. Roblox, for younger gamers, has more than 160 million active users. There are thousands of 3D games on smartphones. An estimated 2.5 billion people play videogames daily, a $150 billion market. My guess is this is where Facebook will go shopping—after it begs for permission from the Federal Trade Commission.

No one reads a videogame instruction manual; players learn by doing. Entire generations have learned how to interact with computers by playing videogames, even if they were mostly killing one another virtually.

Facebook paid $3 billion for virtual-reality headset maker Oculus in 2014 and likely has poured in billions more.

Read the rest here.