Political intelligence that matters to markets

A business or an investment fund is simply a betting pool for people who have coin or credit. The bet represents all the information that the investor has acquired over some period and the dollar amount of her bet represents the minimum cost of the information acquired. This means that the actual cost of creating the investment fund, asset, or business means nothing to the investor.

All that matters is an outcome that recovers her cost for accumulating information that helps her determine whether her preferred outcome-a return of and on her capital-will be realized. Information on sunk costs mean nothing to her (much to the chagrin of the run-of-the-mill economist).

For information traders entering information markets what should matter is providing information that addresses existential threats to profits and revenues. The information trader must have awareness of the outcome the investor is interested in.

Investors watching political markets are interested in whether a decision poses an existential threat to a firm or a firm’s profits or revenues. Existential threats posed by government come in the form of a revocation of a license, denial of access to natural resources, or denial of access to financial capital. The investor wants to know the likelihood of the occurrence of these events.

In hind sight this is why the Trump Effect became vacuous. The expectations surrounding the Trump administration’s impact on investment never took into account government’s prime operational mandate which is to exploit the natural environment of a physical area. It does this by managing the extraction of resources from that physical area. In the case of American government, it has determined that extraction would best be carried out by a private sector driven by a profit motive.

Businesses provide efficient methods for extracting resources and converting the resources into “taxable events” i.e. goods and services for sale. Businesses convert human resources into taxable events by employing labor thus making humans available for taxation by government.

The subsequent uncertainty experienced by the financial markets post Mr Trump’s inauguration was the result of investors listening to the “emotional marketing” of the 2016 campaign. Rhetoric regarding bringing back manufacturing jobs into a political economy that favors information as its primary resource or building more bridges to nowhere via infrastructure knowing that the multiplier effect is limited by a project’s termination date was baseless but pulled on enough heartstrings of investors that they forgot or were forced to overlook even further government’s prime mission.

Also, the financial markets can’t risk forgetting that the U.S. is a federal system and states have to be considered when assessing the American economy. States have to be on board with any policies that address contraction or expansion of licensing or access to natural resources. For example, it is one thing for the federal government to increase access to radio frequencies by mobile telephone companies. But if the states do not put in place rights-of-way policies that allow mobile phone companies to deploy tower facilities, then having a license to transmit wireless signals is meaningless and the firm faces a scenario of less revenues.

When discerning what information matters, the focus should be on political information that threatens the continued existence of a firm or threats to its revenues and profits. Investors need to discern between the emotional or campaign marketing noise and substantive political intelligence that addresses a firm’s existence.

When local government meets high tech sovereigns

Sometimes I think city government is sleeping at the wheel when it comes to technology and capital flows. During its lucid moments, government will fall back on its 1960s playbook of economic development by announcing plans to bring back manufacturing jobs that pay better wages than the service sector jobs that replaced factory work and eviscerated wages. This narrative may have worked in a locality that was created to take advantage of proximity to a local natural resource where factories could then convert the resources into goods for local and other markets, but for a city like a 21st century Atlanta, that narrative is disingenuous.

Atlanta’s “natural resource” today is information. Workers who know how to find, extract, organize, and distribute information are going to be the one’s who obtain employment and the higher wages that come along with work in the information sector. This demand for an information-centric political economy, I believe, is being driven by the changing tastes of capital. Capital wants its goods and services delivered conveniently and its production customized.

Information technology allows capital to target funds directly to high-value driven information entrepreneurs that can deliver a product that was designed, manufactured, packaged in, and delivered from multiple jurisdictions. Capital has no love for mass appeal. Why deal with crowded banks, malls, car dealerships, or grocery stores when extra minutes of leisure can be carved out by the manufacturing and service delivery efficiencies provided by Tesla, Uber, Grubhub, and Insta-cart.

Along with these efficiencies in product manufacturing and delivery come smaller work forces or work forces outside of the jurisdiction of local governments. Local governments have been the front line defense of investor capital from disgruntled labor. They regulate labor union speech during strikes. Where there is violence they arrest the rowdy. However, in an information age where there are a greater number of tech shops employing smaller numbers of non-unionized information workers versus a handful of large factories employing thousands of unionized lower-skilled workers, there is less demand for the police powers of local government. Disgruntled employees at today’s tech shops simply take their information knowledge somewhere else or create their own firm.

Eventually government starts tossing and turning in its sleep. It sees its “labor clamp down” requests severely diminished. Higher incomes start translating into reduced need for government services from garbage removal to security. Higher income earning citizens may consider pooling resources to support campaigns of candidates who agree to reducing tax burdens are, too the extreme, support carving out or “leasing sovereignty” to higher income communities.

Question is, how will those with no capital react to the erection of this wall of individual sovereignty?

A reining in of the political media should be expected under a nation-state model

Forbes reported today about a statement of work issued by the U.S. Department of Homeland Security on 3 April 2018.  The statement of work seeks prospective vendors capable of providing the Department’s National Protection and Programs Acquisition Division with the capabilities to monitor traditional and social media. The specific objective of the services is:

“Services shall enable NPPD/OUS to monitor traditional news sources as well as social media, identify any and all media coverage related to the Department of Homeland Security or a particular event. Services shall provide media comparison tools, design and rebranding tools, communication tools, and the ability to identify top media influencers.”

The statement of work does not get into any specifics as to why the Department would need such a program. It could be one of three reasons. One reason could be a push back by the Trump Administration on what it calls “fake news.” Mr Trump has shown a disdain for what he terms as unfair reporting typically from media perceived to be left leaning. He has no love for CNN, a lack of love expressed with so much disdain that he came out against the Time Warner-AT&T merger, one that is now being challenged by the Trump Justice Department.

The second reason for the proposed statement of work may be to create another tool for dealing with the media attacks a Russian troll service has been accused of. By monitoring media influencers, the United States could make a preemptive strike against journalists, bloggers, broadcasters, etc., that spread fake news and set the stage for divisiveness in American politics.

The third reason I see is that the political media has to be reined in by the nation-state. Part of the nation-state’s political ordering of and for society should include keeping the collective in order by controlling the messaging. While some spin is allowed in order for news organizations to establish some type of brand differentiation, i.e., MSNBC leans liberally forward while FOX is conservatively fair and questionably balanced, the general messages issued by the nation-state via the political media must be uniform enough to keep the masses in line or distracted. Too much spin to the left or to the right creates chaos in the collective, a disturbance in the force that the nation-state cannot afford.

I believe reason three is the purpose for the Department’s statement of work. Some Americans may see the proposal as an attack on a free press, but has the press ever really been free? Except for the occasional “breaking news” (which amounts to a press secretary given their favorite reporter or a reporter they can use the first shot at a story), most political news is initiated by a state actor with the media being tasked for commercial and political reasons for distributing it.

Probably over the weekend we may see some discussion on the meaning of a “free press.” Given that this story is not even trending on Twitter anymore has me wondering how seriously the media is taking the Department’s action.

Is broadband access less about connectivity and more about individuality?

My sister recently experimented with Whole Foods‘ delivery service. As an Amazon Prime member, she could take advantage of no cost delivery to her home in the West End. This is a smart move on the part of Whole Foods to deliver to the West End, an area where the median household income is lower than the rest of Atlanta’s sectors. My observation has nothing to do with the wishful thinking that Whole Foods is practicing altruism, but the probability that Whole Foods is betting on the continued gentrification of the area; that it makes sense to plant a flag in the area so that when higher-income, cheap rent seeking young white couples move into the area, Whole Foods will be there to greet them. And while increasing the area’s investment value may not have been on the top of Whole Foods’ agenda, current property holders can at least tell their friends living in other areas of the city that they have not been left out of high-end food delivery options.

Going online and ordering your groceries is an example of what the long-term purpose of broadband connectivity is all about, especially for those with capital. If we accept the Facebook model of broadband and the internet, then we support the argument that broadband and the internet are about connecting people for the sake of creating a larger global community that leads to more democracy, peace, and understanding. This is one of the premises underlying net neutrality; the creation and maintenance of an open internet.  Two billion people connecting on Facebook may be deemed evidence that the globe is demanding this type of connectivity and community development on the world wide web, but such a view fails to account for the “politico-economic physics” of broadband and the internet. I believe the true value of broadband access lies in the empowerment that broadband access creates in the individual. The universe revolves around her and not the other way around.

The internet, at least for those with capital, is about bending the four-dimensional characteristics of space time and enhancing her sovereignty; creating a self-sufficient lifestyle for her. High value individuals don’t see the platforms upon which they move through space and time as flat or linear. The platform is geodesic; a curved line that provides the shortest distance between two points. In this case, between capital and the products and services that capital can acquire. The closer broadband technology brings her to sources of goods and services, the tighter her enclosure around her. She is not creating inclusiveness, or a bigger tent. In actuality, her tent becomes tighter, filled with other high value resources including friends and business associates. Creating a sovereignty blocks out the noise that the internet is becoming increasingly known for.

I would argue further that as her capital and value grows the more space-time bends around her. She creates a gravitational pull attracting even more resources, income, and opportunities. Those who argue for equality and democracy on the internet overlook this important value element. High value, capital holding consumers on the internet bend space-time toward them and high value content and service deliverers will point their commercial starships in the direction of high value.

How should policy react? It can either acknowledge the individual’s use of broadband to create a sovereign individual while transmitting her consumer energy into her tight commercial space or it can regulate her relationship with the points of commercial light within her internet space and risk forcing her to engage with value deficient “black holes” that threaten to reduce her incentive to engage in e-commerce or change her engagement in such a way that the value she receives and transmits is reduced. Policy should opt for protecting her choice for engaging with the value providers of her choice.

America doesn’t have a race problem. Blacks have an expectations problem

Black people expect to be loved. A couple days ago I was standing in a cashier line at a neighborhood grocery. A man ahead of me lamented to the cashier that whites were trickling in to the majority black West End section of Atlanta. He found their perceived behavior toward him and other blacks disturbing. “They look at us as if to say, ‘Why are you here?'” The cashier responded, “Well, they can’t make you move?”

The cashier is right in that blacks cannot be forced to move, but the reality of the economy is that more blacks in West End may have to as Atlanta’s political economy continues to experience demographic shifts. More whites are moving to the Atlanta metropolitan area and the core city can no longer be referred to as “Chocolate City.” It is increasingly mocha, strawberry, and vanilla.

To the gentleman who was line with me, he probably perceives that whites have a distaste for dark chocolate. To some white palates the taste of chocolate is bitter and for many blacks this signals a race problem. If, as a black person, I am not accepted by whites, then there is a national problem with race. I don’t think so. Rather, I argue that white society’s attitude towards blacks is in keeping with their expectations as to how the American political economy is supposed to work. Black expectations as to being accepted and loved holds no water because blacks were never a part of the American political economy’s marketing plan from the beginning.

Citing data from the Federal Reserve, The Washington Post reported last October that one in seven whites in America had a net worth of one million dollars versus one in fifty black Americans enjoying the same status. What is more telling is that the percentage of white households enjoying this status has doubled over the last 25 years while the percentage of black households worth at least a million has remained stagnant during this same period.

I wouldn’t expect many whites to be shocked at this number. They will be the first to tell you that this is a result of hard work and discipline mixed in with a little luck. They and their ancestors took the opportunity provided them in this land to increase their wealth and income. Blacks, they might argue, did not.

And these expectations and attitudes are reinforced by real social networks. Citing research from the Public Religion Research Institute, The Washington Post reported that out of 100 friends, the average white person will have 91 white friends and one black friend. Blacks are a bit more friendlier. Out of 100 friends, 83 are black and eight are white.

Blacks, in my opinion, expect the creed as expressed in either the airy words of Thomas Jefferson’s Declaration of Independence or Dr Martin Luther King’s “I Have a Dream” speech to be lived up to, especially in the 21st century where the United States has elected a president of East African descent and descendants of slaves imported from West Africa now have multi-million dollar sport contracts and hundreds of vice-presidents in corporate human resources departments driving a BMW or a Mercedes Benz.

But even with the lofty speeches and the one-zee, two-zees of Black material success, full incorporation into the American political economy has not occurred and won’t because an invitation was never issued to blacks. For whites, race is not a problem not only because they don’t see race as they have done a good job creating an exclusive bubble but because the liquor flowing from the open bar that was promised to them is still flowing their way. The social contract between whites and the American political economy is still being honored.

Blacks should expect no real love ….

A brief history of nation-states and currency

The following brief outline on global trade, world, and U.S. history will help your children, grandchildren, nephews and nieces get through two semesters of a boring college lecture ….

“To celebrate a fiat currency is to celebrate poverty and theft. It is an acknowledgement that nation-states, central banks, merchant banks, and government treasuries were created to launder money.

Original wealth is the result of theft. When property was created, the desire to steal increased. Land means ownership of productive power. To increase your wealth, you stole land and shared some with your cohorts who would then form a moat around you and protect you from commoners and other barbarians.

Trade is a method by which you claim a stake in another tribe’s resources. As trade with peoples outside your tribe and later kingdom increased, there had to be a way to exchange value without giving another tribe direct claim to your land. The solution: issue currency. The more currency you have, the greater claims to wealth you can make.

The first mistake made was assuming that merely producing more coin by digging for more gold would lead to more wealth. The only thing that caused was inflation. Inflation erodes value and spending power and also invites war because other tribes don’t like the idea of their buying power being eroded because you went off, worked South American native inhabitants to death, and shipped home more gold. In order to slow down the erosion, tribes, now countries, created central banks and merchant banks to launder money.

In order to launder money, the king had to seek out new channels for spending and investing gold. He laundered it by issuing debt from his treasury through his central bankers at which time the original holders of wealth i.e. land holding thieves with coin backed by land, could convert gold into bonds. The king also laundered coin by granting charters and investment capital to stock companies, companies that would sail to foreign ports and establish trading posts. They would purchase raw materials and slaves in one port, transfer the raw materials and slaves to another port, and finally transfer finished product to your country. Sales and taxes on those sales would increase your treasury and pay back your bond holders.

In order to further increase your booty, you would use different types of promotions and incentives i.e. freedom to practice religion, freedom from prolonged imprisonment, freedom from a nagging wife, etc., to get more people from various tribes to move to your new colonies voluntarily where they would produce more goods and services and pay taxes, hence increasing your largesse. These colonies, filled with various free and enslaved people who other wise would not give a shit about each other, would become a nation-state, which simply boils down to a forced confederation of people who have little in common and giveth not a shit about each other.

Later on, someone, probably a disgruntled cousin, would get the ridiculous idea to form a democratic government, but even with that tweak in how the oligarchy controls the economy and currency, the model remained intact.

The takeaway. Whether slave or freed person, your being here was a manufactured event based on false premise along with the creation of an artificial country. The nation-state is the result of money laundering.

Will Congress regulate.@facebook like a public utility? Given its potential benefit to partisan politics, probably not. #socialmedia

The Wall Street Journal’s Holman Jenkins, Jr. posted an article last Friday about Facebook’s apparent maturity as a business given its focus on regulatory issues such as the potential of Congress to regulate the social media company like a public utility. Mr Jenkins points out that Facebook’s fear of regulation, a fear shared by other “tech” companies, comes from the attention that large companies draw to themselves as the result of centralization of power. In this case, Facebook is perceived as one of the few central nodes of power in the digital space (along with fellow FANGs; Amazon, Netflix, and Google). Issue is, does Facebook have a monopoly status that justifies “public utility” regulation. My answer is no.

The classic argument for regulating a firm as a public utility is that the public has an interest in benefiting from the use of the public’s rights-of-way including the efficiencies that flow from making such uses exclusive to one firm in a given territory. Electric and water utilities quickly come to mind when we discuss public utilities and rights-of-way. Would you rather see your streets and driveways dug up to provide multiple pipes from multiple water or electricity suppliers or would you rather one supplier who is forced to comply with a pricing model that creates a competitive price and rate of return on the assets used by the utility to produce a good? For the most part, society has settled for the latter. We don’t like the idea of having an excess number of utility lines running overhead or into our residences for aesthetic or safety reasons.

Does Facebook fall into this public utility model? No, it does not. According to Facebook, the company makes almost all of its revenue from the sale of advertisement. Facebook uses its algorithms to identify potential viewers of content or purchasers of services for its advertisers and display ads these ads to content viewers and services purchasers in exchange for an advertising fee. Ad services, including the delivery of advertisements to consumers, by Facebook’s admission is a competitive business. Unlike electricity transmission and distribution, ad delivery is not a monopolized industry. As Mr Jenkins points out in his piece, ads are ads, digital or otherwise, and Facebook is no where near dominating a $540 billion advertising industry.

Even if Facebook had a monopoly on the delivery of advertisements or advertisement services, would a regulator risk creating a state action by regulating Facebook’s advertising services? Bearing in mind that the latest buzz around Facebook ads was spawned by the delivery of advertisement messaging produced by Russian nationals allegedly designed to disrupt and defraud the American electorate, would Congress require that Facebook vet the firm generating advertisement content? Would Congress risk the overturn of legislation requiring Facebook vet advertisers if found violating the First Amendment?

I think that even advertisers confident that their messaging does not violate the public interest would think twice about placing advertisements on Facebook’s platform. More important, from the perspective of the regulator, an administrative agency would not to create the risk of creating First Amendment violations and having to defend those violations in court. As the U.S. Supreme Court held in Edenfield v. Fane:

“The commercial market place, like other spheres of our social and cultural life, provides a forum where ideas and information flourish. Some of the ideas and information are vital, some of slight worth. But the general rule is that the speaker and the audience, not the government, assess the value of the information presented. Thus, even a communication that does no more than propose a commercial transaction is entitled to the coverage of the First Amendment.” 113 S.Ct. 1792, 1798 (1993)

Finally, political parties may not want to impede the returns to electioneering that social media has been providing for the past decade. According to the Brookings Institution, since the 2008 national elections, political parties have been determining how best to convert the amplification and engagement created by social media during a campaign season into two-year and four-year governance.  Political parties have been encouraged to use social media in a number of ways including the following:

  • Acknowledging that the electorate is using social media as a “trust filter” of political news and information;
  • Realizing that politicians have decreasing control over debate topics and that control is shifting to social networks;
  • Making continued use of social media platforms to directly engage constituents;
  • Using social media platforms as “virtual surveys” of constituent sentiment and gauging feedback from the surveys; and
  • Leveraging ordinary citizens’ use of social media to persuade the electorate.

It is 2018 and Congress should view social media that has greater benefits as an electioneering tool if it is not regulated. From a regulatory perspective, there is no economic or legal justification for regulating social media as a public utility.