Tag Archives: Finance

Why is State Farm leaving California?

note: I had intended to publish this months ago. But I never finished it, and now I’m struggling to get a post out in time, so I’ve tried to make this one acceptable.

There was recently news that State Farm insurance is leaving California, and will no longer accept new customers. Perhaps they may even kick old customers off their plans and refuse to do any business in California at all. This caused a wave of reactions, from consternation that a company could be so mean to California, to demands that State Farm “reimburse” customers who have paid for years with no claims, to calls to nationalize the insurance companies because “clearly” they’re just stealing from the little guy.

All these reactions will be addressed in turn, but first, let’s talk about how insurance works. If you recall my post from way back about Ric Flair and his gym, insurance is just a way to reduce your downside risk in exchange for a small lose of your upside gain. You pay a little every month and in exchange if your house or business is destroyed, you get some money back.

What’s important is that insurance is structured like a bet: the insurance company is betting that nothing bad will happen to your property during the period of your insurance, if they win the bet they keep your money and you get nothing in return (except maybe peace of mind). While they only pay out if they lose the bet and your property *is* damaged. Because of this, many people see insurance as a scam. Why would I ever pay if I don’t expect my property to be damaged? Well you’re mitigating risk, maybe there’s only a 1% chance your home is destroyed, but that’s a 1% chance that you lose *everything* and are left utterly homeless unless you have insurance to cover the cost of rebuilding your home. Isn’t it worth it to pay a little to ensure you aren’t homeless from an act of God?

Now first, I want to quickly call out a very dumb line of reasoning I’ve seen floating around regarding insurance. I’m not quoting any one tweet or post, but synthesizing what I’ve seen in many places at many times:

Why isn’t there a refund check for insurance like taxes? I’ve paid so much without using the policy, and even if I make a claim, they find ways to avoid paying. Total scam!

This sentiment belies a complete failure to understand insurance on even the most *basic* level. To start with, if you want a refund because you’ve paid in without using the policy, should the insurance company be able to demand more money if you paid in and then *did* use the policy? Of course not, you’d call them insane and selfish. But realize that it’s the identical situation, in reverse.

An insurance policy is simple: you pay regularly and they pay if certain conditions are met. Of course “certain conditions” can be interpreted differently by different people. And insurance companies are profit-maximizing (like all companies) they’ll try to avoid paying when they can. But this is a necessary evil, better the company try to limit payouts than it go bankrupt overpaying it’s customers. Because then every *other* customer would suddenly lose their insurance.

So finally, why is State Farm leaving California? Because they can’t make a profit. Most states regulate insurance incredibly heavily, to the extent that they put price caps on insurance premiums. That way the company cannot raise prices without the state’s say so. And if the state won’t let a company raise prices to cover rising costs (and costs ARE rising because of inflation and climate change), then the insurance company is not obligated to subsidize a state with coverage cheaper than costs.

As is so common, people blame the free market for a government-run system.

The point of government isn’t just to spend money

It’s election season, so I’m being inundated with election spam on every social media and traditional media I use. I know election posts probably aren’t people’s favorites, but this is the streams of my consciousness and I just wanted to vent.

To start with, some of the twitterati are pulling an absolute masterclass in doublethink. Centrists in the commentariat have been crowing for the last 4 years about how Biden has pumped more oil than any president in history. They’ve been dunking on Republicans about how despite Trump and the GOP’s rhetoric, Biden is more carbon friendly than Trump was.

Now, every words of this is true. I pointed out years ago how despite a small pandemic dip oil production has steadily increased during both Biden and Trump’s presidencies. Biden has inherited a fracking boom, and has not done anything to clamp down on it, so record-setting oil production is to be expected.

But the same commentariat that will crow about Biden’s oil boom will screech in anger and confusion when climate groups like the Sunrise Movement announce they won’t support Biden’s re-election. How can they do that? How can they refuse to support the president who has pumped more oil than any other in history? Gee, maybe because Democrats have said that Climate Change is an existential threat for years, and these folks actually believe it? Seems pretty obvious to me why the Sunrise Movement and other climate groups wouldn’t be happy with Biden’s energy policy.

As a defense, the commetariat likes to point to Biden’s massive spending bills. Billions and billions of dollars are being pumped into the green energy sector, and Democrat columnists are producting hockey-stick graphs comparing Biden’s green spending to previous presidents as proof of his climate success.

The problem with this is that the point of the government isn’t just to spend money. The point of the government is to get results. How much has that billions of dollars actually achieved?

For example, we all know that switching to electric cars is hard when there’s so few charging stations. Biden’s climate bills were supposed to build charging stations across the country to combat this. How many charging stations have Biden’s Billions actually created? As of May this year, just 8. But don’t worry, that number is growing! In March it was just 7! With a rough estimate of 1 charging station every 2 months, can anyone say these billions (trillions!) of dollars are being well spent?

This is exactly the kind of thing that If We Can Put a Man on the Moon… discussed. Politicians are incentivized to declare victory immediately for their re-election campaign. This leads to them touting metrics like “amount of money spent” instead of something actually useful like “miles of track laid” or “amount of actual EV infrastructure.” And since “money spent” is the only metric politicians are focusing on, that money gets spent extremely badly.

Years later, when the money is all spent and the infrastructure is still crumbling, a new campaign will of course arise, saying we now need to spend even *more* money to fix this thing that should have been fixed with the first tranche.

Let me be clear: I believe that climate change is a problem we need to address. But I do not think government spending is the best way to address that. In the last year, Tesla has built around 40 times more EV charging stations than Biden’s infrastructure bill, and they didn’t use taxpayer money to do it.

So why does it *have* to be government spending? I think it’s honestly because a lot of politicians don’t believe that companies can ever accomplish things. When you spend your entire life in government, every problem looks like a taxpayer-funded nail.

The government *can* solve these problems, but it doesn’t need to spend billions to do so. You really want to improve charging infrastructure? Tax gasoline. Tax oil. Tax every step of the refinement process. You will see how quickly consumers shift to electric cars, and how quickly companies spring up to service those electric cars. Hell, a network of gas stations already exists all across the country. If gas was taxed and consumers switched to electric cars, those stations would quickly be forced to switch from offering gas to offering fast electric charging.

You may say that a gas tax would hurt American consumers, but it would hurt them no more than the spending-fueled inflation that America has right now.

Here’s the funniest thing: politicians have adopted the language of the market and claimed that government spending is an investment. We are investing in green energy. But investment expects a return, and if the return on billions of dollars investment is 8 or so EV stations, that isn’t an investment, it’s a ripoff.

Biden chose to keep oil cheap and burn money on 8 EV charging stations. Is it any wonder climate activists don’t appreciate him? When success if measured in dollars spent, then failure is assured.

China is getting the trade war it deserves

And the US is getting the inflation it clearly wants.

Contrary to the title, this post will only be about America, because I don’t have any real insight into the CCP that hasn’t been covered elsewhere. But I read this article running cover for Biden’s disastrous policy of protectionism, and wanted to post my thoughts.

The central premise of the article is that cutting off trade with China is good because they’re a fascist and expansionist foreign adversary. Now, that’s also a great reason to cut off trade with Saudi Arabia, but America’s trade policy isn’t actually about foreign policy, as you’ll soon find out.

Even more importantly, tariffs don’t hurt the country you’re tariffing, or at least they hurt them *less* than they hurt your *own country*. Even Biden knows that, just ask the Biden of 2019

Tariffs are a great way to push up your own country’s inflation by taxing supply without reducing demand. Furthermore, even if you don’t buy Chinese products you will be paying for this inflation because of substitution effects: someone who is no longer able to buy a Chinese EV may instead purchase an American car, increasing demand for American cars and therefore driving up their price.

There’s two great ways to understand how terrible tariffs are. First, think of the oil shock in the 1970s: middle east nations cut off America’s access to oil and gas from their countries, causing spiraling prices and runaway inflation. By blocking America’s access to energy, they were able to put an economic squeeze that defined the decade.

China is being tariffed on solar power, wind power, and green industries of all kinds, and China makes up more of our imports than the middle east ever did. Spiraling prices are yet again on the menu.

Furthermore, think of Britain’s strategy against Germany during both World Wars. Britain used its powerful navy to prevent Germany from importing goods. This caused shortages and spiraling inflation, leading to riots that overthrew the government in the First World War and overwhelming shortages during the Second.

Tariffs are a way for us to do to ourselves what our enemies would do to us in war: restrict the import of needed goods.

Finally, consider Biden’s empty words about the “existential threat” posed by Climate Change. If Climate Change is dire, then why is Biden raising tariffs on solar power, wind power, and EVs, rather than Chinese oil and Chinese airplanes? Biden is essentially setting up an “anti-carbon tax,” in which polluting industries are exempt from a tax being paid by green industries.

The truth is that none of this is about national security, anymore than the Japan Scare of the 1980s was about national security. Just look at how Japan’s peaceful economic expansion was seen back then:

“The Danger from Japan.” Mr. White warned that the Japanese were seeking to create another “East Asia Co‐prosperity Sphere”-this time by their “martial” trade policies, and that they would do well to “remember the course that ran from Pearl Harbor to the deck of the USS Missouri in Tokyo Bay.

Biden is a 1980s style politician, with the (failed) economic outlook of that time. When he sees foreigners being successful it makes him scared, so he raises tariffs to “protect” American industries. But far from protecting industries, tariffs only harm them.

Industries rely on consumers to sustain them, but tariffs are a tax on consumers, sucking up consumer surplus and leaving less money for consumers to spend on domestic industries. Politicians think that domestic industries can magically appear to replace all the foreign ones, but simply put: no man is an island and nor is any country. Autarky is the failed economic policy of fascism, not an economic model for democracies.

Just look at a country like Brazil. Heavy tariffs were supposed to promote domestic industries and help consumers. Instead, consumers pay exorbitant prices for things like video games, while Brazil’s gaming industry remains anemic relative to the nation’s size and wealth. Brazilian cars, Brazilian microchips, and Brazilian steel are not the envy of the world.

And it isn’t because Brazilians are bad at industry, its because their government is doing everything it can to stop them. The high tariffs on everything from steel to cars to microchips are supposed to spur domestic industry, but who’s going to open up a factory when you have to pay those high tariffs just to import the machines and inputs needed to make your products?

Biden is a protectionist because he’s a protectionist. Not because China or Canada are scary or because he needs to fight climate change. But to be fair, Trump is just as protectionist as Biden if not more-so. It’s clear that the current crop of American politicians supports higher inflation and poorer consumers. And that bodes ill if you want to see America succeed and its enemies fail.

Vibes and the economy

I don’t want to get too political, but it’s an election year (in several countries) and The Discourse is inevitable. But I want to quickly push back on something I’ve seen all too often on social media recently.

In America, the numbers for the economy look “good.” Unemployment is low, *really* low. Inflation is high, but wage growth is higher. And the stock market is up. So why are Americans’ perceptions of the economy so poor? Why is consumer confidence lower than it *should* be?

Some partisans and twitterati have decided that Trump Was Right and the problem is fake news. Legacy media and social media are both driving relentlessly negative press and this is brainwashing people into believing that the “good” economy is “bad.”

But instead I’d like to take take a step back and see if polls are telling us something that “the numbers” just aren’t. And I think I have good evidence that they are.

First, here’s a graph from the Federal Reserve Bank of Dallas. It shows that housing affordability is lower than at any time since the 80, lower even than during the housing bubble that precipitated the Great Recession. If you’re a millennial or a zoomer, *never in your life has housing been less affordable than it is today*.

And housing isn’t just a “nice-to-have,” it sits at the bottom of Mazlo’s Hierarchy of Needs for a reason. A stable housing situation is (for most people) a necessary ingredient before they feel confident starting a family, putting down roots, or just feeling like they “belong” to where they live.

Now, you *can* have a stable housing situation in an apartment, but it’s much harder. Rent increases can drive you out, and rent-controlled apartments are hard to come by. Apartments also aren’t always conducive to the types of living that people want in their life.

So the price of housing is driving a *real crisis* in millennial and zoomer living, as people with otherwise high earnings are unable to obtain what lower-earnings folks could get in the past, namely a house to live in.

Then there’s the fact that datapoints about “all” millennials are missing key differences *between* millennials. See the next graph

The *median* millennial is doing worse than the median boomer was at this point in their life, in terms of net wealth, net assets, and housing. But the top 10% of millennials are doing way better than the boomers ever could, so taken together it seems like millennials are doing well overall. It’s like looking at a city where 1 person is a billionaire and 99 are destitute and saying that overall the city is very wealthy.

These kinds of mean/median differences are well-known to people in liberal circles, because they signal high inequality. But because a liberal is currently president, these differences are ignored by much of the twitterati.

I could say more about this topic, and I wish I had the energy to, but I’ve been so tired lately with my new medicine. Nevertheless, next time you see someone like Will Stancil screech that the kids are all morons and that everyone is rich, note that he is a member of that top 10%, not the median.

When people’s answers in polling are different than what “the fundamentals” suggest, it may be that the people are just stupid. But it’s far more likely that polling is capturing something that your data is ignoring. And right now that’s housing costs and growing inequality.

Surge Pricing and Dirty Deals

I’m sorry I haven’t been posting weekly like I promised to. February has not been kind to me. But I wanted to quickly fire off a post relating to two topics I’ve recently seen in the news.

The first has to do with the infamous Wendy’s “surge pricing” announcement which the company has already walked back on. As I know not all my readers are American, I’ll explain both Wendy’s and surge pricing.

Wendy’s is a fast food burger chain just like any other American chain. Surge pricing meanwhile is what Uber and Lyft do when there is a very high demand all of a sudden, prices shoot up during that time, leaving customers to balk at paying 50$ for a ride home from a baseball game, when getting into downtown may have costed just 30$. Many Wendy’s customers likewise were furious at the price of a burger going up and down during the day, possibly meaning they’d pay for their food than someone who’d walked in just a few minutes earlier.

The story got so much traction that Senator Elizabeth Warren even tweeted about it, trying to play up her corporate greed narrative. Little does Warren know that we’re now living in the era of Corporate Generosity.

Nevertheless I’m always surprised that someone with the credentials of Warren is so economically illiterate. Surge pricing has been going on for decades, perhaps centuries even. The earliest examples I can think of are matinees, theatre productions (or movies) that are shown during the daytime for a cheaper cost than the evening. It costs exactly the same to run the shown at either time, so why is the daytime show cheaper? And if you’ve ever seen a bar with a “happy hour” or a restaurant with an “early bird special,” or Halloween candy sold half-off in November, you’ve also seen surge pricing in action.

What’s going in here is simple supply and demand. The price of a good or service is *not* based on the cost to make it, the price comes from the interplay of supply and demand. The price fluctuates even if the cost does not because sellers are trying to clear the market. Lower demand? Lower price.

But a restaurant also has service and shifts. Any server serving one customer must necessarily be not serving another. Yet at the same time, servers paid for 8 hour shifts, and few people would work a job where they’re only paid minimum wage for 2 hours. The cost of transport alone would eat into your wage. What this means is that if everyone only comes to eat during dinner (let’s say a 2 hour period from 4-6pm), then the servers are sitting around for 6 hours doing nothing, then madly scrambling for 2 hours. During those 2 hours, many customers might come in only to find the line is too long, or they might be able to eat but find the service poor due to overworked servers.

Thus, for decades restaurants have lowered prices during the “slow” parts of the day to entice people to eat at those times instead of during the rush. This is exactly the same mechanism as Wendy’s “surge pricing,” only it’s framed differently. But it’s still the case that they’re charging more at dinnertime even though their costs are the same.

Surge pricing like this is actually a very good thing. It evens out demand in service industries, allowing more people to be served during a day while still letting the wait staff work full 8-hour jobs. And certain customers can take advantage of this, getting a lower price at the cost of not eating during a “normal” time. Warren (and other outraged twitterati) are simply jumping on a poorly framed policy to score very stupid political points. In fact, Burger King decided to dunk on Wendy’s poorly framed surge pricing policy by highlighting their own better-framed surge pricing policy. Every restaurant is like this, and it’s actually A Good Thing.

Speaking of restaurants but not about Good Things, Gavin Newsom is quite nakedly corrupt. I had only heard mild criticisms of Gavin before, but there were some Democrats I know claiming he was basically the candidate-in-waiting should Biden not run. He is Governor of America’s largest and wealthiest state, and would surely win election because the only thing Republicans could ever say against him were tired tropes about “Commiefornia.” But actually it turns out here’s corrupt.

I know this because he handed a political kickback to his buddy who owns at least two dozen Panera Bread restaurants. California is set to raise the minimum wage to 20$/hr, except at restaurants that serve freshly bread baked. No, bagels and pastries do not count as “bread.” Panera is one of the very few restaurants that does this, and so they will still be allowed to pay their employees just 16$/hr.

You might think this would cause many restaurants to start opening up bakeries, but it gets even more corrupt: the restaurant must have been serving freshly baked bread in September 2023 to qualify. So only Panera is grandfathered in. Essentially, Gavin Newsom decided to directly use a government law to enrich his friend and confidant, and no one seems to really care.

Now of course he wasn’t handing his friend state money. But he was writing legislation that imposes costs on every single one of his friend’s rival businesses, while shielding his friend. That will allow his friend (whose name I just looked up is “Greg Flynn”) to profit much more than anyone else from fast food, since he can keep the same prices while paying his staff 80% less than the competition.

Some of the twitterati have tried to defend Gavin indirectly, saying that it’s obviously corrupt but that this carve-out won’t actually do anything. They say that since every other restaurant will have to abide by the 20$/hr minimum wage, it means no one will ever work for Panera for less than 20$/hr either. But that ignores that people take jobs based on more than just the wage. Maybe the Panera is closer to you than the Taco Bell, maybe you hate the smell of fried foods and are loathe to work at McDonald’s, maybe you don’t own a car and the Panera is the only restaurant in walking distance. Or maybe you have classes and Panera can offer you hours that better fit your schedule.

And Greg Flynn knows this. He knows that he will likely be able to find at least some workers willing to work for just 16$/hr, that’s why he asked Gavin to put that in the bill. But corruption and friend-dealing has never been punished too strongly in America, no matter how much partisans rage about how “the other side” is corrupt. Still, the naked corruption on display may have hurt Gavin in a national election, so Democrats are probably happier he didn’t decide to challenge Biden.

Are analysts’ opinions anti-correlated with the market?

This time 2 years ago, we were still riding high on the post-pandemic surge, and analysts were expecting the S&P could break 5,000. This time last year, we were still in what felt like the 2022 doldrums and analysts were predicting a recession. This time 3 months ago, people were declaring inflation was whipped. And then a few days ago, CPI and PPI came in hot.

I’ve written before about how the Efficient Market Hypothesis may imply that there is *no* correlation between analyst opinion and the stock market. Analysts are just as likely to be wrong as right, but people only remember the examples which agree with their biases. On the other hand, I read an article recently (I’m sorry I cannot find it to link) arguing that analyst opinion is in fact *anti*-correlated. That is, the Short Cramer ETF is correct, and analysts are so stupid you should do the opposite of what they say.

Speaking of, the Short Cramer ETF “SJIM” is down about 20% from when it began. But no matter, should you do the opposite of what analysts say or is that as irrational as following their advice?

One argument is that analysts are inherently *backward-looking*, they generally assume trends will continue forever. Some are perma-bulls or perma-bears, but on average when the market is down analysts predict a down year, and when it’s up they predict an up year. In this case, if the market is a random walk then it’s very unlikely to simply continue it’s current trend, thus an analyst is more likely to be wrong than right.

On the other hand, shouldn’t wisdom of the crowds have an affect? On the aggregate, many gamblers who bet on real world events (either sports of politics) are betting on what they *want* to happen, and many have no real knowledge whatsoever. Yet Nate Silver and others have argued that betting markets are often more accurate than not, whether it’s politics, sports or what have you. Some how, a million idiots adds up to something better than our smartest mind.

If that’s the case why don’t all the analysts of the market add up to something smart?

It just reminds me to be humble, because all too often I’ve seen people caught out badly by a trend. The late 2023 “inflation is beaten, start thanking Joe Biden” narrative won’t seem as smart if inflation stays persistently hot, any more than the “recession around the corner” narrative of 2023. Overconfidence when you really know nothing is the hallmark of an analyst, and maybe that’s why they’re so often wrong.

Is it culture? Or is it incentives?

The Internet in general is US-centric. So even on the European parts of the Internet it’s common for countries (or the entire continent) to compare themselves to America. There are thousands of things you could compare, but the most contentious is probably the economic comparisons. America has recently grown much more strongly than Europe, and it doesn’t take an economist to realize that nearly all of the world’s top companies and startups are located in America. San Fransisco alone has more billion-dollar startups than entire countries, and before you say “that’s just silicon valley,” New York and Boston aren’t far behind.

There are a million ways to explain this discrepancy and plenty of reasons why Europeans may even think it’s good. We could talk all day about whether worker’s rights are fundamentally incompatible with cut-throat capitalism, and if Europe has therefore chosen the better path. But the most flawed reason I see bandied about is that Europe just has the wrong culture for this kind of stuff.

Europe is more laid back, less aggressive. Their investors prefer same, consistent gains. The European mindset isn’t focused on innovation, and culturally Europeans aren’t focused on business the way Americans are.

I think these explanations are wrong and dumb, and I’d use more expletive words if I hadn’t made a New Year’s Resolution not to do so in my writing. I don’t think Europeans are culturally less attuned to startups and Big Business, I think the legal framework prevents it.

Not long ago, Europe was seen as the beating heart of innovation and technology. Industrial progress, scientific progress, just go to any chemistry or physics class and see how many formulas are named for Germans. But now America dominates the industries, and I think it’s because of government, not culture.

The American business framework provides significant bankruptcy protection. People mocked Trump for his many bankruptcies, but most investors know that 90% of good ideas fail and the last 10% have to cover those loses. Bankruptcy is a way for investors to mitigate their downside, and thus allows for bigger risks to be taken.

The American financial system also gives significant benefits to investors, giving them greater flexibility in buying and selling their company to whomever they wish. Until Biden and Trump brought protectionism back to the fore, it was not uncommon to see American companies sold to foreign investors with little fanfare. Nativists and racists may complain about *gasp* Chinese people owning an American company, but from the investor’s perspective selling the company is a good way to cash out his winnings from the investment. Foreign buyers compete with American buyers, and this increase in demand means prices go up. This means the sale price of companies goes up, and that increases the returns on an investor’s investment.

But long before Trump, Europe was made famous in the tech world for blocking foreign buyers from its companies. Again, nativists wrongly think that this strengthens the European tech industry by “keeping it in European hands.” But when an investor sells out, they get cash in return. What do you think they do with that cash? They don’t hoard it like Smaug the Dragon, they reinvest it. Because they’re investors. By blocking foreign buyers, you reduce buying pressure, you reduce how much money investors can get out of their investment, and you therefore reduce their upside potential. Is it any wonder then they’d prefer a safer investment, when Europe is happy to cap the gains on any risky tech investment they make?

And Europe prides itself on fining big tech companies for any reason whatsoever. But surely it’s obvious that a government hostile to profitable tech companies would scare off anyone wanting to make a profitable tech company near them. Better to start in America or get out of Europe ASAP. Microsoft and Apple can afford billion dollar fines, but such sanctions could be lethal to a smaller European tech company. So again investors are scared off, entrepreneurs are scared off, and Europe wonders why it doesn’t have a tech sector.

“But what about ASML and Spotify!” And what about them? For every single, solitary European company that manages to rise above the hostile governing environment, there are 10 American companies that rose under easier circumstances. Spotify started in 2006, and since then Massachusetts alone has started Draft Kings, Moderna and Intellia Therapeutics, all of comparable value to Spotify. And Massachusetts has half the population of Sweden.

People respond to incentives, and the incentives for risky tech investment are very poor in Europe. Bankruptcy is easier in America, returns are (or were before Biden and Trump) less likely to be capped by protectionist policies, and (before Biden) the government generally has taken a more lax approach to dealing with corporations. You can debate if these things are good or bad, but I find them far more likely reasons for America’s tech dominance than “culture” or “attitude.”

Nationalization

Nationalization (or rather Nationalisation) was a big part of Jeremy Corbyn’s manifesto during the 2017 and 2019 General Elections. If Labour won, it promised that anything and everything would be nationalized, usually at below market price.

I’ve always been skeptical of claims that nationalization leads to any kind of savings. The claim is that since a Government company doesn’t have to worry about profits for shareholders, it can be more efficient than a private company. All the profits that are paid out as dividends are instead re-invested into the company to provide better service at a lower cost.

But there truly isn’t any law saying a company ever has to provide dividends and profits. If Corbyn, McDonnell and co truly thought that companies could run better and more efficiently without profit, they could always just do that themselves without need of the government. Private citizens can always set up a non-profit corporation, they can take money from people (God know’s Corbyn was a fundraising machine) and set up a company that doesn’t pay dividends to shareholders, but instead re-invests everything to provide better service at a lower cost.

If such a non-profit did truly provide better service at a lower cost, then customers would flock to it over the for-profit companies that already exist. And again since this non-profit doesn’t hand out dividends, then Corbyn Co could easily be the fastest growing company in the world as it takes on more and more customers and reinvests into being better and better.

So why did they need nationalization? Why couldn’t they give the British people good services as a low price by just setting up a non-profit company and out-competing the for-profit ones? Why do socialists only ever think they can succeed by taking from someone else?

I think they simply didn’t have enough economic literacy to realize how their whole idea was such a shambles. Non-profit companies haven’t taken over the world because for-profit companies are actually way more efficient. They’re more efficient than non-profits and more efficient than Government companies, but socialists prefer to deny the lessons of history and keep acting like it’s the 1970s.

Not only are nationalized companies less efficient, but the act of nationalization creates inefficiencies. The idea that the government can force a sale of a profitable enterprise creates a chilling effect as investors become less likely to invest knowing it can all be taken from them at any moment. People don’t want to be forced to sell to the government, even at a “fair” price. Most eminent domain projects throughout history were done at a “fair” price, with people being paid the market value for their homes and then kicked out to make way for freeways and whatnot. But “fair” price or not, no one likes a forced sale.

And Corbyn Co wanted to take things a step further by paying below market value for the companies they wanted to nationalize. So not only was the government forcing a sale, but they were also committing theft at the same time.

I write all this because nationalization became a big word again during the recent bout of inflation, and I’ve seen way to many people jump on the bandwagon saying we need to nationalize energy companies, housing companies, and everything else to keep prices down. But prices don’t rise because companies are greedy, they rise because of fundamental shortages and inefficiencies. A nationalized company would have just as much trouble with inflation as a for-profit one, only a nationalized company could push its losses onto the taxpayers rather than be forced to raise prices and cut costs.

High prices are a signal that there is a shortage and that alternative avenues should be sought. When the price of gas rose, I decided I couldn’t justify driving to work every day so I tried to bike whenever possible. But would a nationalized American Gas company instead pass that cost onto the taxpayer? Wouldn’t they keep prices low so that I kept using as much gas as I always did? In that case every taxpayer who tries to be a good world citizen and use less carbon would be subsidizing me personally as a drove a distance that I could easily bike instead.

As inflation tapers off, it seems clear that nationalization was not the answer, and we are entering the Era of Corporate Generosity. But I doubt we’ve silenced forever the calls of nationalization, no matter how many times it leads to omnishambles. Still, I hope no serious nationalization proposal is put forward for a long time yet.

Tariffs are taxes, I’m tired of pretending otherwise

Every politician says they’re lowering taxes. Or if they raise taxes, it’s only on the rich, poor people definitely deserve lower taxes. So do middle class people (where “middle class” equals “everyone less than rich” and “rich” equals “everyone richer than my current audience and me”). Taxes are unpopular and taxes shouldn’t be raised.

But tariffs are fine apparently. In a new wave of protectionism, Biden and Trump have jacked up tariffs on everything from solar panels to lumbar. And despite claims of “national security” and “containing China” these tariffs have most strongly hit America’s allies such as Canada and Germany. The national security claims are bunk, these tariffs hit allies far more than they hit enemies.

But still Biden doesn’t get pushback for raising taxes because “tariffs” aren’t seen as taxes. Wrongly, most people don’t realize that slapping a tax on imported goods raises the price of all of those goods, even the locally made ones. Think of it like this: if Biden slapped a tax on Pepsi such that every Pepsi now costed 5$, would Coca-Cola sit back and keep their prices? Of course not, as a greedy company Coca-Cola knows that customers will flock to its lower-priced products, and this will give it the ammunition to raise prices to juuuuuuuust under what Pepsi has. So now 4$ Cokes will become the norm.

So too does it happen with tariffs. When you raise the price of Canadian lumbar, American lumbar companies also raise their prices because they know the consumer has no choice but to take it. When you raise the price of German steel, American steel raises its prices. These taxes on foreign goods have raised the price on all goods. They then raise the price of what those goods are used for, for example lumbar tariffs are raising house prices. And what do you call it when the price of goods rises over time? Inflation.

Biden’s tariffs are adding to inflation. Trump’s tariffs are adding to inflation. Tariffs are nothing more than a tax on goods, a tax that the poor and middle class pay most as they are the ones most damaged by inflation. I’m tired of house prices soaring in part because of these new taxes. I’m tired of solar panel prices soaring as well. It’s all very two-faced of the Biden admin to claim global warming is an existential threat and then do everything in their power to kill the solar industry with new tariffs. Taxing it into the ground only makes global warming worse.

So I’m tired of these tariffs, they’re nothing more than a tax. And I’m not going to pretend otherwise.

Have IPOs become more speculative?

This post is very late because I didn’t feel good about my conclusions, but here it is.

I’ve been wondering if IPOs have become more speculative of late. Rumors abound that OpenAI (makers of ChatGPT) may IPO soon and they’ve been quoted as having a billion dollars in revenue and a valuation of 80 billion. 80 times profit is already a pricey valuation, 80 times revenue is even moreso. And other even more speculative IPOs have happened in recent memory. Companies like CRISPR Therapeutics and Beam Therapeutics IPO’d when they have essentially no revenue, just patents.

It was once said to me that IPOs are “supposed” to be for a company that is profitable. The company shows the world that it is profitable and can thus afford to pay a dividend. The investors of the world will then pay for stock in the company in order to grow their money. So the company gets a big pile of cash by selling shares, and the investors get shares which pay a dividend and may grow in value also.

The above is a very 20th century view of investing, these days dividends aren’t all that popular to begin with. So too does it seem that many companies will IPO long before they can afford a dividend, and long before they are profitable at all, so why are investors investing and buying these stocks?

It isn’t necessarily a bad move for investors to buy stock in OpenAI if it does IPO. The investors are speculating that while it’s not profitable now, it will be in 10 or 20 years. In essence, an IPO like this lets investors play the role that venture capitalist play. Venture capitalists invest in many startups long before they see revenue or profit, and they bank on the fact that while 10 startups may fail, the 1 that succeeds will let them see more than 10x gains. With companies IPOing early, normal investors can now also play this game. Beam Therepeutics, CRIPSR Therapeutics, and OpenAI may all fail, but if you invest in them and 10 other speculative companies, then maybe 1 will succeed which will give you gains that wipe away all your loses.

So I can’t say that companies IPOing earlier and earlier is a bad thing. As long as they don’t lie on any of their forms, then investors know exactly what they’re getting into. Investors know that they’re buying into a very speculative, pre-profit, maybe even pre-revenue company. But if it works out, they can make big gains. And remember that “investors” here isn’t just faceless, deep pocketed billionaires. Investors is also every person with a 401k or IRA. They too can buy into these companies using their own money and play at being venture capitalists. And if its so profitable for venture capitalists to do this, then why shouldn’t the rest of us do the same?

But while I cannot say this is a bad thing, I also cannot say if this trend is even happening. Remember I started this story by asking if IPOs are happening earlier and earlier. Is it true that in the 20th century, most IPOs were of profitable companies, and in the 21st century most IPOs are of unprofitable ones? Or is that simply recency bias at work? I tried and tried but couldn’t find hard numbers on this kind of thing, which is why it took me so long to write this post.

Either way, if OpenAI does IPO I might toss a few dollars their way. Intellectually I know I probably can’t beat the market, but emotionally it’s fun to pretend I can. And where’s the harm in that?