The new divide

New friends and idealogical foes, but at least we can all meet at our club

Photo by William Gibson on Unsplash

Hello,
Welcome to Known Unknowns, a newsletter that may be in the political wilderness — but that’s where the good stuff happens.

Our new political divide
These are tough times for New York–based Pension Geeks. Voters here seem determined to destroy one of the world’s great cities. I understand many residents — especially those frustrated that their liberal arts degree and creative non-profit job do not afford them even a middle-class lifestyle in New York — want to see change. The affordability issue is real. But clearly, our education system has failed many people if they think socialism and more price controls are the answer.

Pretty much every position New York’s next probable mayor holds deeply offends me. It’s hard to know where to start. I’m told I should take comfort that many of his policies can’t be enacted anyway. Though we saw in the de Blasio administration that a mayor who is hostile to the police (and actually wants more homeless people on the subway?!) can have a very noticeable and catastrophic impact on public safety — and that hurts the poorest New Yorkers most.

More worrying, this is not just New York. I wrote for Bloomberg about the big political realignment and its impact on the economic policy debate. Many people have observed the horseshoe theory at work in left/right populism: the extreme left and extreme right seem to agree on a lot these days. They love price controls, are obsessed with power (they just disagree on whose power they want to destroy — for the right it’s our institutions; for the left it’s the rich and corporations) and have a zero-sum view of the world.

Centrists on the right and left are also starting to sound more alike. I recall those salad days when we debated the finer points of how to balance government and the private sector to deliver health care. Everyone was a capitalist, but the center right and center left (who were mostly in charge) disagreed intensely about the right level of intervention. Even today, center leftists have discovered the supply side. They want to create abundance by removing regulations that keep the government from being more effective. I also want to expand the supply side by getting rid of wasteful regulations — but I think we can create more abundance by removing barriers that hold back the private sector. A lifetime ago, this would’ve felt like a major difference of opinion. Now, compared to Zohran/Yale Law School Bros’ zero-sum world, the difference between the center right and left feels like semantics.

And maybe it doesn’t matter anyway, because for now, neither the center right nor left has much power. We will need to work harder to explain why the basic and hard-earned economic truths we know are still important. We ignore them at our peril.

What would Milton Friedman make of big data?
But if the populists don’t destroy our economy, there are some bright spots — especially the pace of innovation happening with how data powers our world and makes us more efficient. It’s even changing warfare, though I must admit this industry does challenge me in some ways.

Pension Geeks know I’m a big believer in shareholder value — the idea that corporations should stay out of politics as much as possible, not pursue bigger social goals, and just stick to profits. But can corporations truly be neutral when their business is data, either acquiring or interpreting it? Can Meta help China monitor its citizens? Can Palantir work with our government without taking some moral stand? It seems there is no neutrality and pure profit here.

I suppose shareholder value still rules — it just takes companies having a mission statement that’s consistent with their business model. Budweiser doesn’t have to take a side on many global affairs, but Palantir does.

Private equity peak
I am calling peak private equity — and that may not be the worst thing. I am not a hater. I don’t see a private equity investment and assume it’s all corporate raiders destroying livelihoods and selling them for parts. I even think private equity buying up residential real estate is not a bad thing. The evidence suggests historically, a private equity investment improves productivity, profitability, and delivers high returns for investors.

But lately, not so much. And that may be because the industry just got so big. There is an optimal size for any industry; where it is, no one knows. But disappointing returns and less productive investment suggest private equity may have exceeded this size. I reckon it got too big because of near-zero rates. That always messes with markets. Now that rates are higher, the right size may be even smaller. So maybe there will be some shakeout here — and that may be for the best. Just keep it out of your 401(k).

Membership has its privileges
I should reveal I often write this newsletter from a members’ club. I really don’t see myself as a club kind of person — I am of the people; I didn’t vote for Zohran. But, well, I need a pleasant place to write during the day, and members’ clubs tend to be nicer (and cheaper) than a co-working space.

Members’ clubs are hardly new — from the uptown, fancy, exclusive clubs in New York City that date back to the Gilded Age, to country clubs all over the country. They all served an economic function by screening members so people could meet like-minded, even trustworthy, others to socialize and do business with. Yet until recently, these clubs were on the decline. That is, until the pandemic — and now they are everywhere. The new generation of clubs is different, however — less exclusive in some ways (there is not much social capital required), but more in others (but money is). It’s a commodification of elitism, if such a thing exists. And that, in many ways, reflects how our economy is shifting. In some ways more democratic — anyone with a podcast mic can be a star… but not really.

It is another strange realignment of our economy. Though I suspect this one will be less harmful than the political one.

Until next time, Pension Geeks!

Allison