Brexit

Why this is the wrong way, and why the populists have a point

The Brexit will be an historic milestone. It will be a marker, pointing out what not to do as humanity moves forward. It will bring the limitations of both democracy and capitalism into sharp focus. It will signal the death of the nation state.

On the other hand, it must be acknowledged that the populists are reacting to something real. The nation state already has less sovereignty. And the market system is rightly losing the peoples’ trust as greed and malfeasance at the top distort the market to the advantage of the one percent.

What next?

Stocks tank. The United Kingdom becomes England as the Scots, Irish, and possibly the Welsh vote to remain in the European Union. The great London financial hub goes the way of Jersey as a money magnet. If you can find a way to short London real estate, go for it.

Pretty bleak, right?

Yes – in the short term. Boris Johnson, in his clever and cynical ploy to become England’s next prime minister, was orating on the radio yesterday morning. It reminded me of Henry V’s famous speech before the Battle of Agincourt. Only . . . well, 600 years have gone by, and Boris will lose the battle for England in one way or another.

The Long View

But what is really going on here? For that we have to look at the larger and longer picture.

We have all heard of globalization and global warming. Global means global. All of us. All of humanity.

The Brexit is the result of English voters voting parochially because politicians pander to their (very real) fears in order to get or keep power. Democracy, thus bent, ceases to look good. But the idea, even after all this time, still has merit. True, England has voted what it perceives as English interests, and will suffer as a result. But the new democracy cannot be that of nation states. The new job of political leaders is to make democracy a global concern, voting humanity’s interests.

Ditto capitalism. The MBA culture has separated “management” from entrepreneurship. Entrepreneurs make stuff and do stuff. They put together teams that expand the world’s knowledge and hands-on ability. The MBA culture has led to the loss of knowledge and ability. Andy Grove (the last of the great managers) called it “breaking the chain of experience.”

What do we do?

The great challenge facing humanity is no less than learning to manage our Earth as a closed system for the benefit of all the people of the Earth. It will be a damn close thing. So the challenge includes our moving into space, and managing habitats other than the Earth as closed systems.

The good news is that these two systems management problems are essentially the same. Solve one, and you are most of the way to solving the other.

For examples of the new political and entrepreneurial leadership, look no further than President Barack Obama and Elon Musk. The president draws criticism because he is acting in the larger interests of humanity and not protecting temporary parochial interests. Elon Musk is sometimes condescended to because he does not take the money and run. Instead he re-invests – in electric cars, land-able rocket boosters, and now habitats on Mars.

Money Under the Mattress

Why are interest rates so low? Why is spending so low? Why is our infrastructure crumbling? And why, with all this, is there no inflation? In Monday’s column, The Diabetic Economy, Paul Krugman tells us about the idea that low rates are like insulin for a diabetic, necessary to manage the symptoms of a chronic disease. That got me thinking about what this chronic disease might look like.

It’s true that our infrastructure is crumbling. Both Paul Krugman and Bernie Sanders have been saying we need to spend more. Interest rates are low, which should mean that spending on infrastructure is possible, even desirable. But government (read Congress) doesn’t want to spend, because that would mean higher tax rates. And everybody knows that you can’t borrow: you have to balance the budget. So what about the little guy? Maybe he could borrow, and get our economy moving again. But how does the little guy borrow? On his credit card, at 21% interest. He borrows only when he is in denial.

If the government is broke, and the little guy is broke, where is all the money? And what is investment? Who is investing? And in what?

We have come to look at investment from the side of the investor, without asking what the invested money does. We ask only how safe is this? and what is the return? Banks used to offer savings accounts which returned interest. Then the banks in turn would make loans to entrepreneurs who wanted to make something happen in the real economy. But as anyone with a bank account knows, that is not how it works today. So what happened?

Enterprises got larger. They issued stock: part ownership of the enterprise. The stock market provided a way to trade stock. It was a means of exchange. But in the last fifty years the financial world has changed. Finance has become “the financial industry”, a purposefully confusing rag-tag of banks, investment banks, venture capital and private equity companies, hedge funds, and insurance companies which issue contracts on wagers.

The underlying motive is of course to make money, but for whom? How is the money made? And what is produced?

The answer is that nothing is produced. The money is made by privatizing the profit and socializing the risk. In other words, by skillfully separating risk from profit. (Fraudulently, in my opinion. See or read The Big Short, the movie made from the novel by Michael Lewis.). And who makes the profit? An ever-smaller cadre of top managers. Fiduciary duty appears to be a thing of the past.

The result is that money is siphoned out of the real economy, the economy that makes the wheels go around. It is siphoned into private coffers, whence it seeks to find “investment” that makes a return for itself. Then that return goes right back into the coffers, without changing a thing in the real world. Is it surprising that this hoard money is having trouble finding a real home?

Through history, what has happened to that other means of exchange – money – when the people doing the trading lose confidence?

Weimar Germany. Inflation. Money loses its value. When people lose confidence in a shared convention, it doesn’t work anymore.

We are witnessing a similar phenomenon in the financial world. The “smart people” are manipulating money to produce money for themselves, leaving the real world starving for investment. In this they have been spectacularly successful. (See Bernie Sanders for details.) But the world – the real world – is losing confidence in finance. The vast hordes of cash held by the top 0.1% of individuals (and companies!) have nowhere to go. Chinese money is bidding up real estate in California and Vancouver. North American money is fleeing North America for the tax shelters of the world, or begging countries with stable currencies to take their money at minus 0.8%.

What now? We have to look with fresh eyes at what investment means. Sure, it is return on money we park somewhere. But the real meaning is in what the money does when it is parked. Does it produce something? Does it change our future? Look no further than Elon Musk. He used his stake in PayPal to start Tesla. He hasn’t shut down Tesla yet because he wants to make half the cars in America electric by 2020. He used his stake in Tesla to start SpaceX. SpaceX is taking over the work of the Space Shuttle. SpaceX just landed a booster on a barge. And SpaceX is going to colonize Mars. Purpose. Humanity is moving ahead.

Bottom line: money under the mattress serves no one. It is if it didn’t exist.

Open Letter to Elon Musk

Dear Elon,

Congratulations on trying to land every booster. The lessons learned will be invaluable in space. An congratulations on posting the failures as well as the successes on your site. Thanks for the video, for your observations, and for your humor.
You are right comparing the problem to landing on a carrier. If you would allow a few observations from a pilot, here goes:
As you say, the barge is translating and rotating. The rotation is in three axes: pitch and roll as well as yaw. After touchdown the tail of the booster is effectively fixed to the barge, but the nose (because of the pitch and roll of the barge) must describe an ellipse. Somehow forces must be generated to a) accelerate the nose around the ellipse, and b) counteract gravity (because the long axis of the booster is not parallel to the gravity vector), and c) compensate for the moment of the long axis if there is any translation at touchdown. Forces a, b and c act in the same direction, so the force required can be as large as their sum. The required correcting forces can be a) transmitted through the landing legs, or b) generated by the nose thrusters, or both.
In the video I can’t see the nose thrusters (last time, in the Atlantic, I could), nor do I know their thrust. However, you should be able to calculate the maximum size of the nose ellipse, as well as the maximum lateral velocity at touchdown, with the thrust available from the nose thrusters.
Last time I wrote I also suggested that the nose ellipse be flown prior to touchdown, to minimize these forces at touchdown. Also, a little more time in the vertical deceleration schedule might be advantageous, especially in the last ten meters or so (if the video is in real time).
The carrier landing analogy, then, is interesting but incomplete. The pilot of an F-18 can, for all practical purposes, consider his aircraft (and himself) as one mass acting at their combined center of gravity. The booster – a long shape touching down on its tail – cannot.

I wish you and your ventures well. No – more than that. They are our future.

Sincerely,

Chris