Ezra Klein and the ‘supply-side economics’ of Joe Biden
Also: A few thoughts on the new Peter Thiel biography
“My generation was promised colonies on the moon, instead we got Facebook” - Peter Thiel
In This Issue
The Micro Reads: Carbon taxes, nuclear fusion, lots of humans in orbit, and more . . .
The Short Read: A few thoughts on the new Peter Thiel biography
The Long Read: Ezra Klein and the ‘supply-side economics’ of Joe Biden
The Micro Reads
🛢 Democrats Rethink Climate Measures, Consider Carbon Tax - WSJ | Which are the best approaches and technologies for tackling climate change? A carbon tax would encourage the private sector, rather than policymakers, to figure that out by making emissions more expensive. Think of it as a force multiplier for markets. A $40 per ton carbon tax — Democrats and staff are discussing a tax of between $10 and $20 per ton — that grew annually by 5 percent above the rate of inflation would cut US emissions to half of 2005 levels by 2035, if implemented ASAP. And better to raise revenue this way than through higher corporate taxes.
⚛ MIT-designed project achieves major advance toward fusion energy - MIT | Somehow this slipped by me the other day, but it certainly seems like yet another significant step forward toward achieving “net energy.” That’s where a fusion reactor generates more energy than the amount needed to start and sustain the reaction. (I’m going to write more about this soon, by the way.) Said one researcher: “It’s really a watershed moment, I believe, in fusion science and technology.”
🧇 The Promise of Carbon-Neutral Steel - The New Yorker | (Editor’s note: There’s no “steel” emoji. Also no “iron” emoji. But there is a “waffle” emoji that comes up, as in “waffle iron.” So there you go.) From the piece: “Instead of using carbon to remove the oxygen from iron ore, creating CO2, we can use hydrogen, creating H2O — that is, water. Many companies are working on this approach; this summer, a Swedish venture used it to make steel at a pilot plant. If the technique were widely employed, it could cut the steel industry’s emissions by ninety per cent, and our global emissions by nearly six per cent.”
🔬 The Rise of Scientific Research in Corporate America - Ashish Arora, Sharon Belenzon, Konstantin Kosenko, Jungkyu Suh, and Yishay Yafeh, NBER | Among the the interesting findings about corporate science in the interwar period: First, “for companies choosing to do so, investment in corporate research seems to have paid off.” Second, “[we] also find that companies in monopolistic or concentrated industries were more likely to engage in basic research.” The latter is especially intriguing given current complaints about too much corporate concentration, especially among Big Tech companies, which do loads of R&D.
📱 Tweet of the Issue:
The Short Read
🚀 A few thoughts on the new Peter Thiel biography
Facebook is worth a $1 trillion today, but its prospects looked dreary, maybe even dire, back in 2012. When the social media company went public in May of that year, the stock didn’t pop. And then it fell by half over the next few months. With insiders selling their shares, skepticism about Facebook’s future increased. As more people started using Facebook on their smartphones rather than a PC, many analysts wondered if it could make money showing ads on small screens. “Without an earth-changing idea,” MIT Technology Review concluded soon after the IPO, “it will collapse.”
So to buck up Facebook staff, the company brought in Peter Thiel, it’s longest-serving investor (although he’d also been selling shares), to give a pep talk. Here’s how that scene went down, according to Bloomberg Businessweek technology report Max Chafkin in his fascinating new biography The Contrarian: Peter Thiel and Silicon Valley’s Pursuit of Power (from which that MIT quote also came):
“My generation was promised colonies on the moon,” [Thiel] said, after being introduced by Zuckerberg. “Instead we got Facebook.” Employees looked at one another with astonishment. Thiel — America’s great public intellectual, the Godfather of Silicon Valley — had just told one of the most successful companies of the past decade that they kind of, sort of . . . sucked. They’d heard the old Founders Fund line, “We were promised flying cars, instead we got 140 characters,” which had been funny since it had taken a dig at Facebook’s competitor, Twitter, which nobody at Facebook took seriously anyway. “A clown car that fell into a gold mine,” Zuckerberg had once called it. But Thiel had adapted his line to insult Facebook instead. Was there such a thing as a non-motivational speech? Thiel’s point seemed to be that in the scheme of things Facebook was basically inconsequential — not a world-changing or world-breaking technology — just another social network. Therefore, he said, it wasn’t worth stressing out. This too would pass, and the staff should let criticism from the press and investors slide off their backs; the stakes were low.
That isn’t a vignette that’s been highlighted in the early reviews of Contrarian. The ones I’ve seen instead focus on Thiel’s cagy self-branding as a philosopher-builder or his relationship with Donald Trump and the alt-right or his war on Gawker … or this catty sentence: “A person who has talked to each man about the other put it more succinctly: ‘Musk thinks Peter is a sociopath, and Peter thinks Musk is a fraud and a braggart.’” And I suppose if I were writing a proper review, I would focus on that stuff, too.
But I’m more interested in Thiel’s tech-solutionist ethos, one that’s embodied in “My generation was promised colonies on the moon, instead we got Facebook” and “We were promised flying cars, instead we got 140 characters.” Chafkin is correct to emphasize that those lines are less about dismissing the importance of social media — although that’s now how Facebook’s staffers took it back in 2012 — than emphasizing how Silicon Valley is failing to move humanity forward in great leaps. (Some politicians have also those lines to attack Big Tech.) Those short, sharp lines are powerful and successful memes that capture a sense of what we’ve missed and yet also provide inspiration to do more.
Indeed, we now seem to be seeing more entrepreneurship and innovation in atoms and genes rather than just bits — including energy, genetic editing, and space — although Thiel’s biggest interest these days seems to be cryptocurrency (though also maybe longevity). I think he deserves credit for identifying a key societal challenge and persistently evangelizing it in such a compelling way.
The Long Read
📈 Ezra Klein and the ‘supply-side economics’ of Joe Biden
Toward the end of President Biden’s 2022 budget proposal you’ll find this bit of language that might seem like economic boilerplate: “In the current economic environment, the Federal Government has the fiscal space to make critical investments to expand the productive capacity of the economy, while also keeping real interest cost burdens low by historical standards.”
Seems pretty uncontroversial, right? But the emphasis on expanding “productive capacity” shouldn’t be overlooked, especially given the recent thrust of Democratic economic thinking. Concerns about a rise in income and wealth inequality have led the party’s policymakers and pundits to stress redistribution as the key to faster economic growth. This idea is central to “middle out” economic theory pushed by many progressives. It’s central claim is that increased demand for goods and services is the primary driver of growth. And because wealthier Americans save more than everyone else, policy should focus on funneling a greater share of economic output to the “middle class,” — say, the bottom 80 percent — so they can spend it. Call it “demand-side” economics.
But there’s also “supply-side” economics, a term that when used by economists has little do with Republican economic orthodoxy since President Reagan. (God put Republicans on Earth to cut taxes, conservative columnist, Robert Novak, once said, and failure to do that means “they have no useful function.”) Boosting the economy’s supply side means expanding labor supply and raising worker productivity. Pro-supply-side policies could include business tax and regulatory reform, but also policies such as education reform and public investment in infrastructure and science research.
I’ve often complained that Democrats and left-liberals care too little about the economy’s supply-side and innovation-driven productivity gains. (Like wealth creation just sort of happens, and incentives don’t matter.) And now Ezra Klein, the left-of-center New York Times columnist, apparently agrees:
This is the driving theory of most of the progressive policy agenda, most of the time: give people money or a money-like voucher they can use to buy something they need or even just want. . . . But progressives are often uninterested in the creation of the goods and services they want everyone to have. This creates a problem and misses an opportunity. The problem is that if you subsidize the cost of something that there isn’t enough of, you’ll raise prices or force rationing. You can see the poisoned fruit of those mistakes in higher education and housing. But it also misses the opportunity to pull the technologies of the future progressives want into the present they inhabit. That requires a movement that takes innovation as seriously as it takes affordability.
In his column, “The Economic Mistake the Left Is Finally Confronting,” Klein highlights a Niskanen Center paper by Steven Teles, Samuel Hammond, and Daniel Takash that looks at the “spiraling costs for core social goods — health care, housing, education, child care — which [have] made proposals to socialize those costs enormously compelling for many on the progressive left.”
Housing is one example of this phenomenon that I’ve highlighted frequently in the short life of this newsletter. Housing regulation limits supply and drives up prices — with all sorts of nasty consequences undermining economic growth and opportunity. Niskanen’s “Cost Disease Socialism,” explains how “subsidies for supply-constrained goods or services merely push up prices, necessitating greater subsidies, which then push up prices, ad infinitum.”
Great verities are always worth repeating, but this cost dynamic is well known to economists, as well as analysts like me who focus on ways to boost productivity. And if regular folks want a real-time example, they just have to look at the current economy into which government is flooding cash. But that burst of demand along with strained supply chains is boosting prices. This from Capital Economics:
Delta has further scrambled global supply chains, as factories have shut down in Southeast Asia when workers got sick, and China has intermittently locked down port activity in an effort to contain the virus. The vehicle industry has been especially disrupted as the severe shortage of semiconductors coming from Asia has forced vehicle plants to close. With few vehicles to sell — inventories are at record lows — sales have plunged and vehicle prices have gone parabolic. Homebuilders struggling with shortages and higher prices for everything from lumber and paint to fixtures and appliances, have had no choice but to pull back on construction, despite vacancy rates that are about as low as they have been since World War II and headed lower, and soaring house prices and rents.
Indeed, inflation fears have nudged Team Biden to focus on how its infrastructure package can boost the long-term productive capacity of the economy — making it better able to meet demand — rather than just touting all the “good jobs” it would create. Just as important as being an “antidote” to inflation pressures, an economy with greater productive capacity, especially if driven by faster technological progress, will drive faster real wage growth and help solve big problems, from cancer to climate change. To quote Klein’s fellow NYT columnist Paul Krugman: “Productivity isn't everything, but, in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”
Now, if we could only get Biden onboard with a broad deregulatory agenda that boosts productivity without compromising health and safety. Klein has little, by the way, to say about regulation, other than zoning reform. Or what a pro-growth tax code that encourages investment would ideally look like. All that stuff matters, too — even if it sounds like the other kind of supply-economics.