Andy Kessler

WSJ: Marxism at the Museum

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https://www.wsj.com/articles/marxism-at-the-museum-new-york-washington-capitalism-socialism-marx-smith-wealth-productivity-schwarzman-donors-11664712471

Polls show more than half of 18- to 24-year-olds in the U.S. have a negative view of capitalism. More than half have a positive view of socialism. I wonder where they got that.

I recently strolled through the New York Public Library’s “Treasures” exhibit, which would delight readers and writers alike: Charles Dickens’s writing desk, a manuscript delivered in a box from former newspaper columnist Mark Twain, draft cover art for Jack Kerouac’s novel “On the Road,” and an illustrated page from Tom Wolfe’s “The Bonfire of the Vanities” manuscript. Pretty cool stuff.

Ah look, a first edition of Adam Smith’s “The Wealth of Nations” from 1776—the free-market bible. I was in awe until I read the description: “Adam Smith believed, as did Karl Marx the following century, that national prosperity was best measured by a country’s labor power rather than by how much gold lay in its treasury.” I guess the description is technically correct, but Karl Marx? In the same breath as Adam Smith, who called free markets “the obvious and simple system of natural liberty”? Unlike Smith, Marx naively saw a static world without productivity, only labor exploitation. He completely missed that labor is more brain than brawn. Add exhibit curators to the list of socialist tub thumpers.

I wonder what Stephen Schwarzman, CEO of the rather capitalistic private-equity firm Blackstone and giver of $100 million to the New York Public Library, whose name is etched in stone outside, thinks about the Marxist agenda of the library’s curators.

Wouldn’t you know it, next to “The Wealth of Nations” was none other than manuscript notes for “Das Kapital” by Karl Marx with this description: “The work has exerted an immense and lasting influence on world events: over the past century, its ideas have not only maintained a secure place in the realm of economic and political theory, but also inspired anticapitalist revolutions across the globe.” OK, but it was a lasting negative influence. And of course there was no mention of the hundreds of millions of people impoverished and slaughtered by Marxist regimes.

The description goes on: “Karl Marx’s foundational account of capitalist production and its manifold effects on human lives still inspires argument, insight, and resistance.” Inspires?

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WSJ: A Nation of Quitters

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https://www.wsj.com/articles/a-nation-of-quitters-great-enabling-exodus-working-age-men-parents-stimulus-covid-quit-retirement-bohemian-videogame-11664112795

The unemployment rate was 3.5% in July, the same as in February 2020, but the U.S. has three million fewer workers. Where did everyone go? This in an economy with 11.2 million job openings. It’s mostly men 25 to 54 who haven’t come back to work. Now a McKinsey study suggests that 40% of workers are thinking of quitting their jobs. Does anyone want to work anymore?

Everyone has an explanation for the Great Resignation: extended unemployment benefits, eviction moratoriums, baby boomers retiring, work-from-home complacency, anxiety, long Covid. Sure, all reasonable excuses. Here’s my theory: Too many got a taste of not working and liked it. A lot. Until recently, many people could make more money by not working and became glued to screens, Insta-Tok-ing and living the easy life by sponging off the rest of us. What’s not to like? Parisians called those with unconventional lifestyles “bohemians.” Now we have unemployed, perpetually plugged-in, dopamine-addled Cyber Bohemians—let’s call them Cy-Bos.

Before you send me hate mail, I’m only talking about the underachievers, including those who traded crypto and NFTs and lost all their stimulus and unemployment money after the crypto crash. Now Cy-Bos, with nothing better to do, are streaming away, including the first five of an eventual 50 hours of Amazon’s new “Lord of the Rings” show—“and in the darkness bind them.” I’ve also discovered that a huge idle couch-bound class spends its days playing the battle-royale videogame “Fall Guys,” the latest craze, with 50 million players. It’s nonviolent, almost cuddly, and—be warned—ridiculously addictive fun.

Zoned-out Cy-Bos, at least in 19 states, can buy weed at dispensaries (Twinkies optional), including Oakland, Calif.’s descriptively named Smoakland, which delivers! Yes, while you’re working, many 20- and 30-somethings are giggling and wasting away playing mindless games and humming along to those classic Styx lyrics, “Is it any wonder I’ve got too much time on my hands?”

It is cultural malaise, motivational submission. Society now promotes mediocrity and calls it equity—witness the scarcity of SAT test-score requirements for college. Sadly, once you get a taste of the easy life, it is difficult to pull up your socks and try hard again—self-induced avolition.

Why so many quitters? And who’s paying for DoorDashed dinners and the exorbitant rent for all these un- and underemployed?

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WSJ: A Faraday Is Worth 1,000 Faucis

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https://www.wsj.com/articles/a-faraday-is-worth-1-000-faucis-science-electricity-computer-dynamo-equity-fairness-stem-pandemic-pew-trust-experts-11663505143

The public’s trust in scientists is way down this year, according to the Pew Research Center. Ya think? “Fifteen days to slow the spread” and “flatten the curve” may have something to do with it. Some airlines still hand out disinfecting wipes as you board—to combat an airborne virus. Real scientists, like Michael Faraday (1791-1867), whose birthday is this week, would be rolling their eyes.

What did Faraday do? Well, if there was no Faraday, there would be no modern economy. A former bookbinder who studied magnetics, in 1820 he noted that electricity applied to a loop of wire could get a magnet to move through it, an insight that produced the electric motor found in every fan, vacuum cleaner, washing machine and electric car. Faraday then turned his own thinking inside out. In 1831 he invented the dynamo, an inverse motor. Moving a loop of wires around a fixed magnet can induce electricity. Place a dynamo next to running water, like Niagara Falls, and you can generate reliable electricity.

No Faraday, no communications. By running electricity down a long wire to an electromagnetic relay switch, you can ring a bell. This innovation became the telegraph, telephone and today’s wireless devices, which are all based on Faraday’s induction.

No Faraday, no computers. The 1945 Eniac computer used those same electromagnetic relays, open representing zero and closed representing one. While today’s semiconductors are based on the quantum effect—thank theoretical physicists Niels Bohr and Max Planck for that—they need gobs of electricity for power, which Faraday’s work helps generate.

Faraday took science seriously: “Conclusions are drawn from data, and its principles supported by evidence from facts.” Facts! Imagine that.

Why is science so maligned these days? To me, the turning point came in 1984, with (fictional) Columbia professor and ghostbuster Dr. Peter Venkman, played by Bill Murray, who when questioned said, “Back off, man. I’m a scientist.”

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WSJ: The Hot-and-Cold Economy

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https://www.wsj.com/articles/the-hot-and-cold-economy-federal-reserve-inflation-interest-rate-hikes-wages-earnings-multiples-jobs-layoffs-recession-mortgages-11662809991

F. Scott Fitzgerald wrote that “the test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” George Orwell labeled the ability doublethink or indoctrination. Psychologists call it cognitive dissonance. I call it the current economy.

There are mixed signals everywhere. Inflation is running hot at an 8.5% annual rate—subtract food and energy and it’s 5.9%. Despite a string of long-overdue Federal Reserve rate hikes, credit is still loose and will be until short-term rates rise above inflation. At 2.25% to 2.5%, we have a way to go.

Prices are popping. Restaurants everywhere seem to have New York prices. Haircuts are more. Same for doctor’s bills, furniture and Uber rides. There’s still $5 rotisserie chicken, and the $1.50 hot-dog special, but it sure feels like Costco added a couple of bucks to every other item.

More heat: The U.S. economy added 315,000 jobs in August, and unemployment is 3.7% as workers are hard to find for the 11.2 million available jobs. Stores are closing or limiting hours owing to a lack of workers. And unionization is back, burdening Amazon, Starbucks and even Google’s cafeteria. A national railroad strike might hit soon.

Once wage hikes start, they are hard to stop. John Deere increased workers’ pay by 10% last November. Lowe’s is giving out $55 million in bonuses this quarter. I expect more pay increases of 10% to 15% over the next year. The new- and used-car market is still tight because of chip shortages, but that’s almost over. Container ships now are idling outside East Coast ports, as I observed flying into New York recently. Hot, hot, hot.

Policy makers keep pouring gasoline on the inflation bonfire. California Gov. Gavin Newsom signed a law that would increase fast-food worker wages up to $22 an hour next year from $15.

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WSJ: Live the Contrarian Way

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https://www.wsj.com/articles/live-the-contrarian-way-zuckerberg-musk-complacency-skepticism-investing-expectations-debate-thinking-thought-11661651369

I have to admit it: I’m a contrarian. It’s who I am. Dorothy Parker once said, “The first thing I do in the morning is brush my teeth and sharpen my tongue.” Me too—one needs to be sharp for contrarianism.

I started early. In college, I was a charter member of the Poachers Society. We would threaten to bite alligators off the Lacoste shirts that seemingly everyone else was wearing. I may have no fashion sense, but I got good at figuring when something was overdone, “so in that it’s out.” Or even better, seeing the future coming and sensing what was “so out that it’s in.” I declared that disco was dead the first time I heard it. I was right . . . though a bit early, an important lesson.

Many think contrarians are skeptics. Or curmudgeons. Or just crusty. I often get tweet-bombed after many of this column’s rants, sometimes with an image from “The Simpsons” showing a newspaper headline: “Old Man Yells at Cloud.” Au contraire, we are more like nonconformists, leaning against prevailing moods. And no question, Twitter really is a cesspool of snark, though it’s useful as a Parkerian tongue-sharpener.

Being contrarian isn’t about playing devil’s advocate. The devil is too doctrinaire. It isn’t about being cynical either, though a dose of both surely helps. It’s more about seeing things a bit different, like Apple’s old “Think Different” ads.

At an airport recently, I saw a woman wearing a T-shirt that read, “ ‘Nah.’ Rosa Parks 1955.” I want one.

Don’t think contrarians are stuck in the mud. We know that change is constant and that progress happens via surprises that should come as no surprise. This is where most good things happen. Richard Feynman, who won the Nobel Prize in Physics, once said, “There is no harm in doubt and skepticism, for it is through these that new discoveries are made.”

It takes work.

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WSJ: Guess My Job! Here’s How

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https://www.wsj.com/articles/guess-my-job-heres-how-word-clues-lingo-activist-lawyer-balance-justice-community-private-equity-consultant-parties-11661094160

Barbecues, cocktail parties, weddings—they’re back. Let the games begin! After chatting with someone at a party, I used to whisper to my wife, “That guy’s going to be out of a job in six months.” It annoyed her so much that I switched to, “I can name that profession in just one or two words.” You can play along.

You’re in a social scrum and someone is babbling on about who-knows-what but keeps using the word “balance,” as in “we need to find a balance.” I’ll bet you dollars to doughnuts that person is a lawyer. In fact, if I had a nickel for every time a lawyer says “find a balance,” I could actually afford a lawyer.

People use certain words so often that they serve as a tell about what they do for a living. And, yes, anyone who uses the word “tell” clearly plays too much poker. My ears are sensitive to word clues. I hear “leverage” in casual conversation, even if the context doesn’t involve money, and I can tell the person is in private equity or maybe real estate. Private-equity folks are usually better dressed.

It’s fun to play! Some words are giveaways. “Covers” is a restaurateur. When you hear “hands on” it’s probably a doctor or a Hollywood producer. Marketing folks leave an impression by always talking about “impressions.” Someone droning on about “bugs”? That’s either a software coder or a farmer, so check his fingernails, Sherlock. Last year, the cockiest person in the room was the startup founder, who this year is nervously whispering “help” as funding has dried up.

Financial types are easy to spot. Hear “quota” and it’s usually someone in sales. In rare instances, it might be someone in college admissions. If you also hear “holistic”—voilà, admissions. Hear “round” and unless the speaker is buying one or bragging about golf exploits, it’s probably a venture capitalist. “Deal” means investment banker or again, if shabbily dressed, a realtor. “Externalities”? Duh, an economist.

You already have enough to win this cocktail-party game, but here’s some inside scoop.

 

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WSJ: The Semiconductor Boondoggle

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https://www.wsj.com/articles/the-semiconductor-boondoggle-chips-act-subsidies-industrial-policy-sand-fabs-taiwan-tsmc-intel-china-11660487881

President Biden last week signed the $280 billion Chips and Science Act, or Chips+, to subsidize domestic semiconductor production and ease shortages. Big mistake. This comes on the heels of China’s banning exports of natural sand to Taiwan in retaliation for Speaker Nancy Pelosi’s visit. Sand!

There should never be a shortage of semiconductors. Semiconductor chips are made by melting sand and slicing it into thin wafers for processing. Shortages? Just go to the beach. Yet shortages still happen, though the current one is almost over.

You can’t just throw money at the problem. Yes, to process those wafers companies spend billions on fabrication facilities, or fabs, and expensive ultraprecise machines that stay state-of-the-art for maybe five years. They spend constantly on lithography, implanting, annealing, sputtering and polishing, with constant tinkering to improve yields. In semiconductor manufacturing, a tiny fleck of dust is like an asteroid hitting a city. One speck can ruin months of work. Intel founder Andy Grove once told me the story of someone who accidentally spilled ink into a fab’s distilled-water supply. Engineers freaked out, but bizarrely yields went up. Making chips is more art than science. It isn’t only sand plus capital; brains play a huge role.

I once visited a fabrication plant in Dayton, Ohio, where General Motors had decided to make its own chips. GM was shocked when the plant couldn’t produce any usable chips. Nothing worked. It turned out the tweezers that employees used to hold and move wafers were kicking up contaminants.

In the early 1990s in Taipei, I met with Morris Chang, founder of the new fab-for-hire Taiwan Semiconductor Manufacturing Co. He proudly showed me enclosed carriers for their wafers, no tweezers needed. That’s really how TSMC got its start.

A new “fabless” semiconductor model emerged.

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WSJ: RIP Big Bull Market (1982-2022)

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https://www.wsj.com/articles/rip-big-bull-market-1982-2022-bear-stocks-investors-productivity-tax-rates-supply-side-innovation-apple-ibm-intel-silicon-valley-machine-intelligence-11659889307

The bull market started 40 years ago this week. I say “the” bull market, not “a” bull market, because even though we’ve had several bear-market drops of more than 20%—the 1987 crash, dot-com implosion, post-9/11 drop, 2008 financial crisis and Covid—this was the Big One, a secular, interest-rate-plummeting, multiple-expanding, earnings-exploding market bonanza that ushered in the modern digital era.

On Aug. 12, 1982, the Dow Jones Industrial Average bottomed at 776.91, around where it was in January 1964, though it had bounced off 1000 five times in the interim. It peaked on Jan. 4, 2020, at 36800, a gain of 47 times, or a 9.6% annual rate, until inflation slew the super bull. I’m really going to miss it.

Were there any clues that a rip-roaring bull market was starting? In 1982 the federal-funds rate was 10%, down from a peak of 19% a year earlier, and it began a long, steady drop until hitting zero in December 2008. It was still zero this March. Not anymore. The price-earnings multiple in 1982 was 7.7.

The biggest clue was that most investors in 1982 were either complacent or had sworn off owning stocks after years of awful returns. Reminder: Bear markets are no fun. Stocks often go up in the morning and down in the afternoon. And there are bull traps—stocks rally for months, enticing gullible momentum investors, only to be followed by gut-wrenching drops.

The bull born in 1982 got some help. Investors started to seek higher returns than bonds. President Reagan cut taxes, especially on capital gains, driving capital formation. Lower interest rates meant a lower cost of exploring new ideas. And explore we did.

It is no coincidence that the IBM PC was introduced exactly a year earlier, with its whopping 16 kilobytes of memory standard.

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WSJ: You’d Be Stupid Not to Evaluate Risk

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https://www.wsj.com/articles/youd-be-stupid-not-to-evaluate-risk-crypto-financial-crash-high-yield-ge-price-earnings-interest-rates-dividends-11659270592

Before the 2008 financial crisis, one of my neighbors took out a home-equity loan from Wachovia, paying around 5%. Wachovia never sent an appraiser to the house, but that isn’t the weirdest part of the story. My neighbor asked his financial adviser what to do with the money left after he’d paid some expenses. The adviser suggested a money manager who guaranteed 12% returns, explaining “you’re borrowing at 5% and getting paid 12%—you’d be stupid not to do this.”

It was stupid, all right. The money manager was buying homes and hockey teams, and his Ponzi scheme soon collapsed. No warning label said: “The more enticing the interest rate, the higher the risk.” Risk is often nebulous, hazy, unmeasurable—so it is usually ignored. Years of zero interest rates have caused havoc, but with the Federal Reserve raising short-term rates, investors should be extra careful shuffling money around.

Bernie Madoff promised an 11% average annual return and faked brokerage statements before he made off with investors’ money. You can almost hear the cocktail-party conversations in New York and Palm Beach: “You’d be stupid not to do this.”

Same for the crypto scheme known as Anchor Protocol, which offered 19.5% yields—practically screaming risk—with tokens backed by nothing but hot air. It soon imploded. So did crypto hedge fund Three Arrows Capital whose founder told the Journal, “The Terra-Luna situation caught us very much off guard.” The word lunatic is too kind.

Recently, bankrupt crypto lender Celsius was offering interest of up to 18.6% annually to attract deposits. Celsius’ assets reached $25 billion last October. You would have been stupid not to invest—except, well, the company now has $4.3 billion in assets and $5.5 billion in liabilities, mostly owed to depositors.

It reminds me of July 2007, when Citigroup CEO Chuck Prince told the Financial Times, “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

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WSJ: ‘Effective Altruism’ Is Neither

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https://www.wsj.com/articles/effective-altruism-is-neither-bankman-fried-givewell-philanthropy-taxes-capitalism-artificial-intelligence-pandemic-pet-projects-11658658039

Talk of movements makes me nervous. The latest swirling in tech world is “effective altruism.” Elon Musk had a brush with it. Its biggest proponent is crypto king Sam Bankman-Fried, CEO of FTX, who very quietly was the second-largest donor in support of the Biden campaign at $5.2 million. Be warned, he said on a podcast, he might donate $100 million to $1 billion in the 2024 election cycle.

So who is this guy? Mr. Bankman-Fried, 30, made his first killing doing bitcoin arbitrage, taking advantage of different prices in Japan and the U.S. He also leveraged a “kimchi premium”—a 30% gap between the American and South Korean prices. Then he created one of the largest crypto exchanges. Profiles of him dutifully note he’s a vegan, drives a Toyota Corolla, and sleeps on a beanbag next to his office chair. FTX bought the naming rights to the Miami Heat’s arena and lots of umpire and referee uniforms. Since May, he has been bailing out failing crypto firms, and he noted recently that FTX has a “few billion” left to help. Hope that’s enough. Oh, and he plans to give away everything except for 1% of his annual income to “long-termist” causes, guided by effective altruism.

Others active in this movement include Facebook founder Dustin Moskovitz and his wife, Cari Tuna. So what is effective altruism? In 1972 philosopher Peter Singer suggested using metrics rather than emotion to direct charitable giving. On the surface it makes perfect sense. There is even a framework to be effective: Giving must scale, be aimed at causes neglected by mainstream philanthropy, be directed at solvable problems, and be a good personal fit for the giver. Sounds great so far.

But like everything else, high thoughts often devolve to personal biases. While claiming that effective altruism is a worldview and a way of life, Mr. Singer also said “there are glaring things wrong with the way people are living.” Effective altruism also seems to be related to the “work to give” movement. Workers will rationalize high-paying jobs by giving most of their income away. Actually, when you work, you already give to society, but that is too complex for some to understand. Animal rights and veganism are big in the movement as well.

For true believers, it must be hard to find worthy projects. No problem! An organization known as GiveWell will tell you what charities are effective. I did a little digging, and I’m not so sure they’re effective at all. Yes, they direct money toward malaria nets and treatments for parasitic worms, but they also supply supplements for vitamin A deficiency, though genetically modified “golden” rice already provides vitamin A more effectively. Hmmm, seems like a move backward. GiveWell also suggests direct cash transfers to solve extreme poverty, similar to universal basic income.

William MacAskill, a major effective-altruism booster, told the Washington Post that more should be spent on “preparing for low-probability, high-cost events such as pandemics.”

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