Coyote Blog

It is something you see all the time -- large companies asking to be regulated, at first glance against self-interest.  Those most interested in expansion of the government and the regulatory state will shout, "See!  Even large evil companies know they need to be subject to government oversight."

But in fact what is usually going on is that the large company knows that regulation will actually cement its position in the industry, making it harder for rivals and new entrants to compete.   Toy-maker Mattel turned a lead scandal of their own making into a coup by creating a regulatory framework that pounded its competitors.  Walmart and Costco often support minimum wage in retail legislation because they know that with their higher sales per employee, they can survive higher minimum wages than their smaller ma and pa competitors.

Mark Zuckerberg, who I am increasingly convinced is the most dangerous man in America, and his testimony to Congress begging for regulation, should be seen in this context.

So in Facebook’s case, they will advocate some institutionalized changes in the way social media should work. Every change will involve compliance costs. Facebook will make sure that it can comply...and that its competitors cannot without great expense. That will give them a distinct advantage in the marketplace, make it more difficult for startups to compete, and guarantee this platform a leading place by law.

This is why Mark readily agreed to be regulated. Regulations always work to the advantage of the largest market players....

Nor should this come as some sort of shock. This is the way government regulations have always worked, from the meatpackers in the early 20th century (who crafted and enforced meatpacking legislation), to all labor legislation (it’s labor-union lawyers who exercise the dominant influence) to Bitcoin regulations (the major exchanges are always involved) to digital technology today (no way are Google and Facebook going to be excluded from writing the regulations that govern their industries).

There is a civics-text myth that imagines government workers and politicians as all-knowing, crafting rules that benefit everyone as opposed to particular players. It imagines that major market players are suffering as government forces new rules that require their operations put greed on hold and serve the public. The on-the-ground reality is otherwise. There is not a single regulation on the books that does not have an author who is unattached in some way to the regulated industry in question.

Milton Friedman called this regulatory capture. The problem is the influence of industry is there from the beginning. It’s absolutely not the case that capitalists are champions of capitalist competition, as the career and policies of Donald Trump should make clear. Lots of people are good at using markets to make money; only very special people become defenders of open competitive processes.

Right now, Facebook faces massive competition from other platforms in social media, copycats, and alternative uses of people’s time. In some ways, it’s the best possible moment to call on government to institutionalize Facebook as a form of public utility. That might actually be the end game that Zuckerberg has in mind. Then the politicians can update their timeline status: today we passed regulations that brought this wayward company to heel.

Zuckerberg said from the very beginning that he was dismissive of individual privacy and he has created the Facebook honeytrap to kill it.  He now is setting his sights on free speech, begging the government to tear up the First Amendment.  He is a one-man individual rights wrecking crew.

Update:  I am actually going to include this from the Reason article about Mattel, because the situation is so similar -- a failing at a large company is used to create a regulatory framework that greatly aids the large company against rivals

Remember the sloppily written "for the children" toy testing law that went into effect last year? The Consumer Product Safety Improvement Act (CPSIA) requires third-party testing of nearly every object intended for a child's use, and was passed in response to several toy recalls in 2007 for lead and other chemicals. Six of those recalls were on toys made by Mattel, or its subsidiary Fisher Price.

Small toymakers were blindsided by the expensive requirement, which made no exception for small domestic companies working with materials that posed no threat. Makers of books, jewelry, and clothes for kids were also caught in the net. Enforcement of the law was delayed by a year—that grace period ended last week—and many particular exceptions have been carved out, but despite an outcry, there has been no wholesale re-evaluation of the law. Once might think that large toy manufacturers would have made common cause with the little guys begging for mercy. After all, Mattel also stood to gain if the law was repealed, right?

Turns out, when Mattel got lemons, it decided to make lead-tainted lemonade (leadonade?). As luck would have it, Mattel already operates several of its own toy testing labs, including those in Mexico, China, Malaysia, Indonesia and California.

So while most small toymakers had no idea this law was coming down the pike until it was too late, Mattel spent $1 million lobbying for a little provision to be included in the CPSIA permitting companies to test their own toys in "firewalled" labs that have won Consumer Product Safety Commission approval.

The million bucks was well spent, as Mattel gained approval late last week to test its own toys in the sites listed above—just as the window for delayed enforcement closed.

Instead of winding up hurting, Mattel now has a cost advantage on mandatory testing, and a handy new government-sponsored barrier to entry for its competitors.

I was listening this evening to the excellent Hidden Forces podcast on Tesla and they said something that really resonated with me -- its hard to discuss Tesla because there is so much crazy stuff going on:  A CEO who in many ways channels Donald Trump's worst characteristics; multiple SEC investigations, an ongoing contempt hearing; a story yesterday about thuggish behavior towards a whistle blower; strategic moves that are made, unmade, and then changed again in just a few weeks; astoundingly high turnover in management ranks, including an esteemed general counsel who couldn't hung around for even 60 days and then purged all reference to Tesla from his CV; fantastically passionate bull and bear communities; expansive promises that are seldom kept; outright fraud -- all in a company valued at $60 billion dollars and whose stock price rose 2% today under a barrage of negative news that would melt companies that have 100-year track records.  I have been meaning to do an update on Tesla but where to start?  How can I even bring readers unfamiliar with the story up to date?  I have started and stopped this article about three times, but now I am going to plow through and get something out.  If it is not entirely coherent and far from complete, my apologies.  If you want more, go to @teslacharts on Twitter as a starting point and you will discover a lot of really smart people who are, believe it or not, even more obsessed by the Tesla train wreck than I.

In the past I have limited myself to two issues.  The first is the outright fraud of the Tesla acquisition of SolarCity, another Musk company that was going down the drain until Tesla bailed it out.  The transaction appeared (even at the time) so transparently self-serving to Musk and his family that it just screamed fraud, and time has only made this clearer.  Musk sold the synergy-less acquisition to Tesla shareholders based on a solar shingle technology he portrayed as ready to go, but that still has not seen the light of day 2 years later.  In retrospect, it is crystal clear the solar shingle was a sham that was fraudulently hyped to make the deal go through.  This fire and forget approach to new product announcements has become very familiar at Tesla -- Musk scored extra subsidies from California with a battery swap technology he demonstrated one time and then has never been seen again, and Musk announced a new Semi truck and harvested a number of deposits for the vehicle and then has not even mentioned the product for months.  Since the acquisition, SolarCity new installations have fallen precipitously every quarter, demonstrating that Tesla had no real commitment to the enterprise, and this is only going to get worse as Musk announced that its last remaining sales channel is going to be closed.

The second Tesla issue I have tangled with is the strategic dead end that Tesla has reached, and the bizarre fact that a company in a capital intensive industry that is valued as a growth company has, over the last 12 months, virtually shut down R&D spending and now does less capital spending for its size than does even staid companies like Ford.  I won't cover all this ground again, I refer you to posts here and here-- If you are new to the Tesla story, start with these.   But in short, Musk made the fateful choice to take what was already destined to be an uphill climb for a new company to penetrate an extraordinarily capital intensive industry and made it an order of magnitude more capital intensive by his strategic decisions.  Specifically, Musk chose not only to start up car manufacturing from scratch, but to also build out his own sales and service network AND build out his own fueling network.  Kia was the last brand I can remember that penetrated the US market, and it only had to worry about investing in building cars -- it relied on third parties like Roger Penske and Exxon to build the sales, service, and fueling networks.  But Tesla is committed to building out all three.

This strategic decision really began to drag on the company in 2018.  Tesla's decision to do its own manufacturing -- in freaking California no less -- held back its growth as it spent years relearning auto manufacturing lessons already well-known to other players.  It has fallen behind in Model 3 production vs. its own stated goals and there is no apparent progress adding manufacturing capacity for a raft of announced but still theoretical products (semi, coupe, Model  crossover, pickup truck, revamped S&X).   A better approach might have been to contract for manufacturing like Apple does with the iPhone, especially since there seems to be a lot of excess capacity right now in Chinese auto production.  Even worse, as their fleet grew with the Model 3 ramp, Tesla was not able to invest fast enough to grow its sales, distribution, and service networks in proportion, leading to a lot of disgruntled customers that had bad delivery and servicing experiences.  The same is true for their charger network, where they have again not been able to keep up with investment and are now falling behind technologically as new entrants have faster charging times, times Tesla can't match without a major investment in upgrade of its network.  More manufacturing capacity, a better distribution network, more sales locations, more servicing capacity, more body shop capacity, more parts production capacity, more chargers and massive charger upgrades -- Tesla fell behind on ALL of these in 2018.

And then the really weird thing happened.  Sometimes growth companies fall behind when they grow to fast, but Tesla seemed to have stopped even trying to keep up with capital needs in the second half of 2018.  Their R&D fell, despite many promised new products that were a long way from delivery.  Their Capex levels fell to barely maintenance levels (what might be expected to just keep current plant running) and were reduced to levels as a percentage of sales that were lower than staid, traditional, non-growth auto makers.  Right when they really needed to make a capex push to make their strategy a reality, they stopped spending.

Tesla claimed, and claims to this day, that any slowdown is just the result of efficiency and responsible management.  But this is crazy.  Growth companies slow down and focus on profitability when the market is saturated and the growth phase is over.  Uber has not slowed down.  Even Amazon 20+ years in has not slowed down.  Slowing down is death for the stock price of a growth company, and Musk is -- if anything -- obsessively focused on the stock price.  Tesla is currently valued north of $60 billion. Without enormous growth expectations, a $20 billion valuation might be too high.  Added to this is the fact that after having the luxury EV market to itself for years, competition is finally coming from nearly every luxury care maker.  Tesla's 10-year moat is down to maybe 6 months.  It needs to be updating the S & X and rushing new products out ahead of competitors.  But they have almost given up on the S & X and Audi has beaten them to the market by at least a year and maybe two with a crossover model (the e-tron), a very popular format in the US right now.

And at first there does not appear to be any reason for this slowdown in spending.  Tesla has a stock that a dedicated group of fans gorge themselves on.  With a $60 billion valuation and a passionate fan base that thinks the company is still undervalued by at least a third, this company should be able to raise billions of capital easily.  They could theoretically raise $5 billion with less than 10% dilution -- Tesla almost dilutes itself that much every few years just from employee stock-based compensation.  Add its lofty valuation to what was reportedly $3.5 billion or so of cash on their balance sheet at the end of last year and consumer demand that the CEO describes as near-infinite, and this does not look like a company that should be slowing down.

How do we reconcile these facts  -- a near halt in growth investments despite lots of cash and a sky-high stock valuation?  Here are a few things going on under the surface:

• While Tesla had over $3 billion in cash, they also had over $2 billion in payables.  The company has a reputation of stretching payables to the absolute limit.  It may well be that the end of year cash number was the result of a lot of window dressing.  In fact, Tesla skeptics have looked at the interest they earned on their free cash in the fourth quarter and have argued that for this number to be as low as it was, Tesla's average cash balance must have been much lower than their end of year reported number.
• Savvy observers (of which I am not one) who know Wall Street argue that Tesla may well have either regulatory (e.g. SEC investigations) or practical (e.g. information they do not want to disclose in a prospectus) barriers to raising capital, and that the lack of a capital raise for many months can only mean that for some reason Tesla can't raise.
• Tesla just had to pay off nearly a billion dollars in convertible bonds when the stock price was not high enough to trigger the conversion
• Demand for Tesla cars in the US has fallen substantially in the first 2 months of this quarter.  Musk liked to portray the huge Model 3 sales ramp in 3Q18 and 4Q18 as the start of an S-curve, but now those quarters look more like a one-time bulge as Tesla blew through over 2 years in orders in just a few months.  Aggressive pull-forwards of demand by Tesla in the fourth quarter as well as the reduction in US and Dutch EV subsidies have also hurt.  [I have to add one note here just for color.  The Tesla fan boys have argued to me on Twitter that Musk has already explained this to their satisfaction -- that Tesla is diverting cars away from the US for their European Model 3 introduction.  This makes ZERO strategic sense.  What company ever enters a new market by giving up hard-won market share in their core market?  There is plenty of evidence that everyone who wants to buy a Tesla in the US is getting one with a very short lead time, implying this is a real demand drop and not Musk's typical supply-constraint story.]

A month or so ago I thought it very possible given these headwinds that Tesla may soon be facing a cash crunch if it cannot do an equity raise.  However, new events that have occurred over the last week convince me that this cash crush is almost a certainty.  There is no way I can explain Tesla's most recent actions as anything but a company desperately trying to stave off a near-term bankruptcy.  These actions include:

• In early March, Tesla's February sales numbers in the US were announced, and they were a disaster.  Within mere hours of this reveal, Musk teased an announcement (on Twitter, where else).  This event turned out to be a quasi-secret invite-only conference call involving what appeared to be hand-selected media members who had historically been generous to Tesla (only a later uproar by bulls and bears alike forced Musk to release a transcript. On the call Musk announced two things --
  1. Tesla would begin taking deposits for the long-awaited $35,000 Model 3 (though delivery dates were hard to pin down).  Musk had said not too long ago that Tesla was not able to make this car yet profitably, and he refused to discuss margins on the vehicle.  Skeptics like myself suspected that the car can't be made right now for a positive gross margin, and instead this was a back-door attempt to gain new financing via customer deposits.  A couple hundred thousand (theoretically) deposits of $2000 each could yield some real money for a cash-strapped company.  The only thing Musk would say about controlling costs on this product was #2:
  2. In a totally unexpected (even to most of Tesla employees and management) announcement, Musk said Tesla was closing its stores and going to an online-only sales model.  This would supposedly save 6% of the cost of the new cheaper Model 3's, ignoring of course that SG&A reductions do nothing to fix a zero or negative gross margin.  Everyone, including most especially Tesla store employees and maybe even the Tesla BOD, was stunned.  Here is a company whose US sales are going over a demand cliff and they respond by ... eliminating their stores and sales force?
• Simultaneously, Tesla has been announcing a series of price cuts on, worryingly, many of their highest margin products including the S and X and high-margin upgrades like paint and autopilot on the Model 3.  Almost no one can see how the company makes any sort of viable gross margin at these prices, and they have the look of desperation.  All these cuts did was aggravate buyers who had just paid the higher prices and who faced a suddenly lowered resale value for their car.
• Within days of the store closing announcement, the WSJ and others published stories about how Tesla was unlikely to see much savings from these closures as their leases all had expensive cancellation clauses that Tesla could still be on the hook for as much as $1.5+ billion.  Incredibly, this seemed to come as a surprise to Musk and helped reveal just how slapdash these announcements were.  Since then Tesla has announced that maybe some stores would stay open and maybe some sales people would not be fired but just have their bonus eliminated.  As I write this, no one really knows what Tesla is going to do, but to many observers this move looks more like what one does in a bankruptcy than in the normal course of growing a business (in fact, bankruptcy is the one time lease cancellation costs can sometimes be evaded).
• Tesla, furthering their management Abbot and Costello act, partially reversed their price cuts saying that prices would now rise a few percent, barely days after they were cut.  The net of the two announcements still result in vehicle prices substantially lower than in 4Q2018.
• In an incredibly bizarre move (and there is a pretty high, or low, bar with Tesla for saying something is truly bizarre), it was recently revealed that Tesla last November bought a trucking company, or really they bought a bunch of trucks, with stock.  Essentially, this is a $60 billion company with supposedly $3+ billion in cash and they are paying their suppliers in stock.  Oh, and by the way, remember when I said above that Tesla had already vertically integrated too much and could not afford their capital needs already?  Well, this is yet another silly vertical integration.  Tesla has no business being in the trucking business, a highly competitive business with a lot of incentives to offer good deals and great service for an incremental bit of demand from a growing company like Tesla.  My sense was always that there is plenty of 3rd party trucking capacity out there, but that truckers just did not like serving Tesla because Tesla pays its bills so slowly and acts so unpredictably and imperiously.
• Tesla continues to produce Model 3's near full volume (around 5500 a week, despite what the nutty Bloomberg model says) even given a fall in demand.  Tesla seems to be building inventory, and certainly the recent price cuts are not a sign they are supply constrained (as Musk continues to insist).  Tesla skeptics believe that Musk has signed a number of supplier deals where Tesla got rebates and price cuts in exchange for volume guarantees, and that Tesla is stuck over-producing cars or it will have to return a lot of money.  [update: @Paul91701736 who goes by Machine Planet on Twitter spends a lot of time observing and researching Model 3 production and says "there's one thing in this piece I can't agree with, a 5500/wk Model 3 production rate. I think ~4700 is the absolute max sustainable rate and it's been well below that most of the quarter"]
• Tesla is asking customers in Europe, as they did late in 4Q18 in the US, to pay Tesla the full price of the car even before they see it or schedule a delivery.  Frankly, I am staggered anyone would buy a car this way, especially with the fit and finish problems Tesla model 3 customers have found on delivery.
• Tesla added about $500 millon to its asset-back bank line of credit and continues to roll over some SolarCity debt.
• When it was obvious that the Model 3 announcement had not created enough deposit activity, Musk then announced they would introduce the long-awaited Model Y crossover, in a reveal set for Thursday afternoon March 14.

Tesla has admitted that it still has not even decided where to build the Model Y, much less started building the plant and tooling up for it.  Given that, the car HAS to be 18-24 months away.  So why reveal now?  Remember that Musk and Tesla have a history of using new product reveals as fund raising tools.  The fake solar shingle product got Tesla to buy SolarCity.  The fake battery change demonstration got Tesla millions in added subsidies from California.  The complete vaporware Tesla semi reveal gained Tesla millions in deposits from corporations that probably didn't expect to ever get the truck but wanted to virtue signal their green credentials (Tesla seldom mentions this product and has announced no plans for actually building it).  The announcement in April, 2016 of early reservations for a $35,000 Model 3 which turned out to be over 2 years ahead of it ever being available in volume occurred just ahead of a funding round.  I am sure experienced Tesla observers could list many more examples, but the point is that there is very good reason to believe that the Model Y reveal (and maybe a pickup reveal in the same way the coupe was thrown in on the semi reveal) is a cynical, desperate attempt by Tesla to raise some cash from consumer deposits.  My guess is that it will not work so well -- the recent $35,000 Model 3 announcement garnered few deposits and Tesla had disappointing deposit activity when they opened up Europe.  Surely folks have observed that putting down a deposit does not get one a car any faster, and just makes one an unsecured creditor of the company (and may even, as was the case recently, sign one up to pay a higher price than folks who come in only a few weeks later).

As an aside, you folks know that as a libertarian I do not advocate for a lot of extra regulation so take the following as a prediction rather than necessarily a recommendation.  Tesla has pioneered the deposit-taking, go-fund-me model for new car introductions, and I think that when this all blows up and the dust clears, one of the results will be tighter regulation of how companies handle deposits on their books.  I would expect the SEC to require better transparency on deposit numbers and that customer deposits be escrowed in some way and not co-mingled with general operating funds.  And while we are at it, I will recommend one regulatory / accounting change -- the ability of car companies to leave ZEV credits off their balance sheet entirely and use them like magic pixie dust out of the blue to spice up random quarters needs to end.  These are real assets and need to be disclosed on the books like real assets.

Disclosure:  I am short Tesla via long-dated puts.  Shorting Tesla seems to make a lot of sense but it can be dangerous and harrowing.  Yesterday we were looking at news of Elon Musk acting like a Mafia thug with whistleblowers and still dealing with the fallout of Tesla's rapidly changing and contradictory strategic announcements, and the stock was up 2%.  Be careful.

I have a small bit of experience with Congressional hearings (I have been a witness at two) so I wanted to answer a question asked at Engadget after the Facebook hearings:

Throughout the hearings, Congressional leaders repeated questions that had already been asked. We heard them ask again and again whether the company would work with Congress on legislation that would impose regulations on social networks like Facebook and others. We also heard many leaders ask when exactly Facebook learned that Cambridge Analytica had improperly obtained user data. This repetition continued with questions about changes to policy, Facebook's dense terms of service and whether users have been notified if their data were purchased by Cambridge Analytica. If time was so precious to these individuals -- and it should be, four minutes flies by and this is an important topic -- wouldn't they try to avoid repeating the same questions ad nauseam?

I have two answers for this

1. Congresspersons don't really care what the answer is to these questions.  OK, they may care a little, but probably only a little because they seldom leave any time for answers after they are done with their public posturing.  What they really care about is that their constituents back home see that they CARE and are DOING SOMETHING about a timely issue of concern to ordinary people.  Representative Loony is playing to his local media in East Random, WV.  The Representative from East Random doesn't care if four other Representatives have asked the same hard-hitting question.  Those other repetitions are not going to show up on the local news in East Random.  What is going to show up is Representative Loony asking the question.  He will look like he CARES and like he is DOING SOMETHING.  He is likely not really concerned that he is mocked in the Washington Post for wasting his questioning time, because no one who is going to vote for him in East Random reads the Washington Post anyway.
2. Many (but not all) Congresspersons are not that bright.  I remember sitting in the committee hearing listening to the questions they were asking me and the other folks testifying and thinking, "how did these folks get here?"  I decided the only common denominator had to be pure will.  Because they were not all smart, not all charismatic -- not even as a group particularly impressive**.   Anyway, whether bright or not, most do not really understand technology and related issues.  And so their staffers write their questions for them.  And if someone else asks the questions first?  Some have the ability to improvise but I can tell you for a fact that for some, all they can do is just proceed and read the questions their staffers gave them.

** Postscript:  Ayn Rand used to write that everyone assumes that people in power got that way by beating out everyone else, such that they must be excellent at something.  Rand always said this was false, that people in power were the zero where conflicting forces cancelled out.  Their being in power (vs. someone else being there) was a happenstance due to external factors and having little to do with that particular individual.  I never really understood this the first few times I read it but in modern times I am starting to understand it better.  Donald Trump strikes me as following Wesley Mouch's career arc.

My managers often get frustrated with the government entities for whom we operate facilities.  They frequently try to escalate trivial issues.  I then attempt to explain to them that they only have a limited number of "points" they can spend in trying to get action in conflicts, and that spending these points on trivial problems is both a waste of time and counter-productive to solving larger problems that crop up later where we really do need to go to the mattresses.  I frequently ask them "Is this the hill you want to die on?"  I feel like this is a concept that no one ever taught Donald Trump.  He seems willing to die on any hill that happens to wander into his path.  Maybe that is why his core of supporters love him, I don't know.

Some time ago I was sued by a large corporation over a negative review I posted on this site.  The case was eventually settled, and I am not allowed to talk about the terms or mention the company's name any more.  But I will say the review is still up and unchanged and sits on the first page of results on Google for that company's name, so draw what conclusions you may.

But the case generated over $50,000 in legal expenses for me.  I probably would have paid that out of pocket just because I am curmudgeonly and was not going to back down, but in fact the legal costs were 100% covered by my personal liability and umbrella insurance.  Basically an umbrella means that if anything goes over the coverage limits of your policies, or slips through the cracks of your policies' various coverages, the umbrella kicks in.  The cost for the umbrella is close to a rounding error on my other insurance costs.   I am not even sure I asked for it initially, my helpful insurance guy just threw it in there for a few extra bucks.

A lot of people have to knuckle under to bullsh*t legal threats from corporations and the wealthy (think about all of Donald Trump's silly libel suites) because they can't afford to fight.  Arm yourself with the financial tools to fight such things.  Now, there may be (as with most insurance) good versions of this policy and bad ones.  I am sure we have some insurance folks in our readership who can say more in the comments.

Next month I go to Hawaii, apparently (if I believe CNN) the imminent target of a North Korean nuclear attack.  While I am certainly not willing to bet my life on Donald Trump's ability to de-escalate an international conflict, I will bet it against North Korea's ability to hit a target the size of Hawaii with their current missiles  (A better strategy for them would be to detonate one somewhere generally to the west of Hawaii and let the fallout sew panic in the media).

After that, I head to Yellowstone, to sit on top of the Super Volcano that (if I believe CNN) is ready to blow.  Well, I am willing to take those odds.  Actually, the tilting and partial draining of Yellowstone Lake some years ago was probably more scary than the current spate of small earthquakes.  Besides, if it is really going to blow and pretty much destroy agriculture in this country, I would rather go quickly than slowly starve to death in some kind of road warrior style post-apocalyptic America.

Many libertarians like state's rights because it creates 50 different tax and regulator regimes, and libertarians assume that people and businesses will flow to the most free states.  However, California progressives have discovered they like state's rights as well, though they are in more of the antebellum South Carolina category of desiring state's rights in order to be less free than the Federal government allows.

After a bid to launch a California secession movement failed in April, a more moderate ballot measure has been approved, and its backers now have 180 days to attain nearly 600,000 signatures in order to put it up to vote in the 2018 election.

The Yes California movement advocated full-on secession from the rest of the country, and it gained steam after Donald Trump won the presidential election in 2016. However, as the Sacramento Bee noted, that attempt failed to gather the signatures needed and further floundered after it was accused of having ties to Russia.

But as the Los Angeles Times reported this week:

“On Tuesday afternoon, Atty. Gen. Xavier Becerra’s office released an official title and summary for the initiative, now called the ‘California Autonomy From Federal Government’ initiative.”

The new measure that seeks to set up an advisory commission to inform California’s governor on ways to increase independence from the federal government. It would reportedly cost $1.25 million per year to fund “an advisory commission to assist the governor on California’s independence plus ‘unknown, potentially major, fiscal effects if California voters approved changes to the state’s relationship with the United States at a future election after the approval of this measure,’” the Los Angeles Times reported.

With Becerra’s approval, its backers can now seek the nearly 600,000 signatures required to place the measure on the 2018 ballot.

As the outlet explained:

“The initiative wouldn’t necessarily result in California exiting the country, but could allow the state to be a ‘fully functioning sovereign and autonomous nation’ within the U.S.’”

According to the Attorney General’s official document on the measure, it still appears to advocate secession as the ultimate goal — even if it doesn’t use the term outright.“Repeals provision in California Constitution stating California is an inseparable part of the United States,” the text explains, noting that the governor and California congress members would be expected “to negotiate continually greater autonomy from federal government, up to and including agreement establishing California as a fully independent country, provided voters agree to revise the California Constitution.”

Some Conservatives are miffed that Trump is apparently not going to move the US Embassy in Israel to Tel Aviv

In March 2016, addressing the American Israel Public Affairs Committee conference, Donald Trump said that, as president, he would move the U.S. embassy in Israel to Jerusalem. Trump called that city “the eternal capital of the Jewish people.”

Now, however, President Trump has decided to keep our embassy in Tel Aviv. A senior White House official explained: “We don’t think it would be wise to [move] it at this time” because “we’re not looking to provoke anyone when everyone’s playing really nice.”

This promise to move the US Embassy in Israel is evergreen, and is always broken.  A similar promise by candidates such as Barack Obama to declare the Ottoman treatment of the Armenians to be genocide is another promise of symbolic action that is never actually implemented in office.  These mostly symbolic gestures are really powerful in campaigns, because they will tend to energize certain groups and make them more likely to vote for you.  But it turns out that each of these actions would tend to tick off unpredictable, scary, violent parties, the negative consequences of which might well outweigh the benefits of the gesture.  Even ignoring violence and irrationality, these actions impose an opportunity cost, likely limiting progress on other diplomatic fronts with these same parties.

This is why the vast majority of actual government actions reside in the lower left square in the framework below -- don't believe me?  Look at the legislative output from any particular session of Congress.  The vast majority of the actions taken are to declare some special day, a low-cost symbolic action meant to make some group feel warm towards some politician.

I just cannot understand how politicians can be called "populist" for favoring a few hundred thousand domestic steel workers and steel company equity holders over 300 million domestic consumers who depend on low-cost steel for their jobs or buy steel products.  But there seems to be something about the steel industry that causes folks who normally would scream about corporate welfare to just roll over.

At noon, Donald Trump will sign an executive order calling for a probe whether imports of foreign-made steel are hurting U.S. national security. The order will revive a decades-old, rarely used law to explore imposing new barriers on steel imports, in this case aimed loosely at China.

Trump will sign the memorandum related to section 232 of the Trade Expansion Act of 1962 at an event in the White House that will include leadersd of several U.S. steel companies; the law will allow the president to impose restrictions on imports for reasons of national security. Trump’s directive will ask Ross to conduct the probe “with all deliberate speed and deliver the results to the president with his recommendations."

An official cited by Reuters sad that there are national security implications from imports of steel alloys that are used in products such as the armor plating of ships and require a lot of expertise to create and produce.

Why do I suspect the national defense argument is a total sham?

Update:  “For every steelworker, there are 60 workers in steel-using industries,” said Lewis Leibowitz, a Washington attorney who has worked on trade cases involving steel in the past. “You need competitive steel prices for those industries to be competitive and to export.”  source:  WSJ

As a libertarian, I find myself constantly saying to folks something like:  "private actors (corporations, businesses, individuals, etc. are inherently more trustworthy than government because they cannot legally interact with you through force or fraud -- the government is free to do both.  If you don't like what a private actor is doing, you can simply refuse to interact with them further, an ability one does not have with the government."  This seems like such an obvious point but few people, particularly on the Left, will ever agree with me.  But I have recent proof that in their hearts, most people understand this perfectly.

What is my proof?  The universal, bipartisan freakout over the man who was dragged off by force from a United flight.  People are focusing on this event for the very fact that this example of a private company deploying force against its customers is so incredibly rare.  The Internet is filled with similar or in fact much worse examples of the government abusing its authority -- false arrests, petty harassment, asset seizures without due process -- but people just yawn and these videos gets 236 views  vs. millions for the United video.  Because, presumably, people have come to expect such abuses from the government but not from private companies.

And to a large extent, this particular example of private violence is the exception that will prove the rule.  Because United is going to experience real accountability.  It is already getting a firestorm of bad press that will cost them current and future business.  They will face lawsuits and possible government action.  But the average police officer or government official (or VA or IRS administrator) who abuses their power retain their jobs for life with no negative consequences from their actions.  Also, we should note that it was a government agent in this case who was the one who actually used force and dragged the passenger off, not a private United employee.  Almost every time one looks deeply at an abuse by private companies, at the end of the day that company is enabled or protected in doing so by so some sort of crony relationship with the government.

So I suppose we should ask, if people really in their hearts understand that private "power" is much less menacing than government power, why do they still support increasing the power of government over private actors?  And the answer must be that they believe (or hope, or expect) that use of this government power will achieve some end they want that they cannot achieve without force.  The problem with this of course is that it is naive -- it assumes that once you give great power to the government, government employees will use this power in the way you would use it, for the same goals and ends.  But this is seldom the case, certainly over the long haul.  I argued for years that the Left under the Obama administration was supporting Presidential power on the assumption they would hold the White House forever and thus get to wield all this power.  Which is why, I suppose, there has been so much freakout over Donald Trump's victory.

Postscript:  Here is an example video of government brutality just from my news feed today.  It will get no real traction because everyone has come to expect the government to act in this manner.

I have written many times that someday we will look back on the early 21st century and decide that the obsessive focus on Co2 and global warming gutted the environmental movements effectiveness for a generation.  While we focus on overblown fears of global warming, warming that may be more expensive to stop than it actually hurts us, real environmental problems we know how to solve go neglected.

The World Health Organization (WHO) released its first report on children's health and the environment, showing that the effects of pollution are felt most strongly by the very young. Of the deaths of children under five, a quarter are caused by smog, second-hand smoke, inadequate hygiene, unsafe water and other environmental risks. "[Young children's] developing organs and immune systems, and smaller bodies and airways, make them especially vulnerable to dirty air and water," said WHO Director-General Margaret Chan.

Much of this is sadly preventable. WHO said that 570,000 children were killed by respiratory infections like pneumonia that are attributable to second-hand smoke and indoor and outdoor air pollution, for instance. 361,000 were killed by diarrhea caused by a lack of access to clean water, sanitation and hygiene. 270,000 infants died in their first month from conditions like prematurity, caused by unclear water and air.

WHO said many deaths are caused by environmental hazards like electronic waste that exposes kids to mercury, lead and other toxins. Air pollution is another obvious problem, especially in large cities like Beijing and Paris

I often observe that American politics have become tribal.  It is an unfortunate human tendency to divide up into groups and then decide that some other group over there is really, really awful and an existential threat to your own group.  This is where I see politics today.  Sure, there are still real policy disagreements, but these can shift so much one has to wonder if people are taking a position based on real, rational evaluation or simply because the rival tribe has taken the opposite position.  Just look at shifting red/blue attitudes on Russia.  The Left hated drone strikes under GWB but have gone silent on them with Obama, despite Obama actually ordering more of them.   Republicans denounce Obama's executive orders on immigration as unconstitutional but welcome them from Trump.  Policy issues are no longer things to be solved, but are merely props to generate outrage and over which to score points in the left-right tribal warfare.

This post from Warden at Ace of Spades, which is  being greeted with cheers on the Right, is the best example I have seen in a while of political tribal warfare:

This same indifference that helped Trump carry the election has continued into the early days of his administration. With it comes a refreshingly freeing state of mind. Personally, I don't feel in any way responsible for Trump, nor do I feel compelled to defend him against attack.

Why? Because I voted for retribution.

"He's think-skinned and petty!" shrieks the left. "He takes everything personally!"

Good, I say. I want him to take attacks personally and deal out payback. I know I won't be the target, you will be.

"He's unpresidential! He'll destroy the integrity of the office!"

No, that's already happened. Remember, you elected a shit-talking jackass who takes selfies at state funerals when he's not giving stealth middle fingers to his opponents during debates. There is no dignity of the office, not after Clinton and Obama.

"He's a narcissist! He's got totalitarian impulses!"

Yes, he's basically a mirror version of Obama. Except now, he'll be working for what I want. The end justifies the means. You taught me that

....

I literally don't care what Donald Trump does because nothing he can do is worse than what they've already done.

Donald Trump isn't the bully; he only insults and abuses people in power who have attacked him. They're the fucking bullies. The left, with their smears, their witch hunts, their slanders, their insults, their riots, their violence, and their weaponizing of the federal bureaucracy.

There aren't any rules anymore because the left only applies them one way. And in doing so, they've left what once was a civil compact between the two parties in smoldering ruins.

I have no personal investment in Donald Trump. He is a tool to punish the left and roll back their ill-gotten gains, no more and no less. If he succeeds even partially in those two things, then I'll consider his election a win.

Further, I no longer have any investment in any particular political values, save one: The rules created by the left will be applied to the left as equally and punitively as they have applied them to the right. And when they beg for mercy, I'll begin to reconsider. Or maybe not. Because fuck these people.

Here is an example of the approving reception for this on the Right

We personally hope, as we’re sure that Warden does, that President Trump goes on to accomplish much greater things. All of our futures depend on it, after all. But even if all he does is to make the Prozis feel the pain that normal Americans have had shoved in their faces for 8 damnable years, if all he does is finally wake the limp wrists on our side up to the simple fact that it’s not wrong if you’re just turning the tables on the swine, using their own methods against them until they come crawling on their bellies, begging for peace, then we’ll take it as a solid win.

It’s wrong to kick somebody in the nuts, we’ve taught our Heirs that ever since they got old enough to potentially get in a fight, but it’s NOT wrong to do so if the dishonorable piece of shit facing you tries to do it to you first. And if he tries and succeeds, then you need to work on your technique and reflexes.

It’s never, ever wrong to use the enemy’s rule book against himself. He wrote it, not you, he made the choice when he deemed it acceptable to use his methods against you, when he showed up to a debate armed with a rifle, he made it OK to shoot him in the face with your own, and if you insist on resorting to limp notes of disapproval, then you’re the idiot, not him.

The other element I see in both statements is a strong flavor of the playground justification "the other guy started it!"  This is self-serving crap.   There is no good justification for violating the norms of rational civil discourse, or worse, for violating the rule of law.  None.  Every tyrant in all of history has justified their actions based on "the other guy started it".  Up to and including Hitler, who justified brownshirt tactics on the violence of communist groups who "started it".

I read blogs from the Left and Right in equal measure.  I have friends from both the far Left and far Right.  Hell, I have family from the far Left and far Right.  And I can tell you something -- every member of the Left and Right absolutely believe, without possibility of contradiction, that:

• Their side loses too often because the other side use bare knuckle tactics and their side is too polite.
• Their side does bad things only because the other side started it.

One of the homilies one hears all the time from economists is "Never reason from a price change."  What does this mean?  Prices emerge in the market at the intersection of the supply and demand curve.  Often, when (say) a price of a commodity like oil decreases, pundits might reason that the demand for oil has suddenly dropped.  But they don't necessarily know that, not without information other than just the price change.  The price could have dropped because of a shift in the supply curve or the demand curve, or perhaps some combination of both.  We can't know just from the price change.

Which gets me thinking about the last election.  Trump won the election in part because several states like PA and WI, which had been safe Democratic wins in the last several elections, shifted to voting Republican.  Reasoning from this shift, pundits have poured forth today with torrents of bloviation about revolutionary changes in how groups like midwestern white males are voting.  But all these pundits were way wrong yesterday, so why would we expect them to suddenly be right today?  In my mind they are making the same mistake as reasoning from a price change, because the shift in relative party fortunes in a number of states could be because Trump is somehow doing better than Romney and McCain, or it could be because Clinton is doing worse than Obama.  Without other information, it is just as likely the story of the election is about a Clinton loss, not a Trump win.

Republican pundits want to think that they are riding some sort of revolutionary wave in the country.  Democratic pundits don't want to admit their candidate was really weak and like how they can spin white supremacist story lines out of the narrative that Trump won on the backs of angry white men.

The only way we can know the true story is to get more data than just the fact of the shift.  Let's go to Ramesh Ponnuru (and Kevin Drum from the other side of the political aisle makes many of the same points here and here).

The exit polls are remarkable. Would you believe that Mitt Romney won a greater percentage of the white vote than Donald Trump? Mitt took 59 percent while Trump won 58 percent. Would you believe that Trump improved the GOP’s position with black and Hispanic voters? Obama won 93 percent of the black vote. Hillary won 88 percent. Obama won 71 percent of the Latino vote. Hillary won 65 percent.

Critically, millions of minority voters apparently stayed home. Trump’s total vote is likely to land somewhere between John McCain’s and Romney’s (and well short of George W. Bush’s 2004 total), while the Democrats have lost almost 10 million voters since 2008. And all this happened even as Democrats doubled-down on their own identity politics. Black Lives Matter went from a fringe movement to the Democratic mainstream in the blink of an eye. Radical sexual politics were mainstreamed even faster. White voters responded mainly by voting in the same or lesser numbers as the last three presidential elections. That’s not a “whitelash,” it’s consistency.

As I know all too well, a portion of Trump’s online support is viciously racist. Conservative and liberal Americans can and must exercise extreme vigilance to insure that not one alt-right “thinker” has a place in the Trump administration, but it’s simply wrong to attribute Trump’s win to some form of great white wave. Trump won because minority voters let him win. The numbers don’t lie. The “coalition of the ascendant” stayed home.

Trump had roughly the same vote totals as Romney and McCain, and did relatively better with non-whites and Hispanics.   The difference in the election was not any particular enthusiasm for Trump, and certainly not any unique white enthusiasm, but a total lack of enthusiasm for Hillary Clinton.   Look at the numbers in Drum's post -- Hillary did worse with every group.  For god sakes, she did 5 points worse than Obama with unmarried women, the Lena Dunham crowd that theoretically should have been her core constituency.  She did 8 points worse than Obama with Latino women!

This is not a story of a Trump revolution.  This is a story of a loss by a really weak Clinton.  Obama would have dusted the floor with Trump.

Granted this was not that brave of a call, but nevertheless from July 20:

Back in the depths of WWI, the Germans woke up one day and found that their erstwhile ally Austria-Hungary, to whom they had given that famous blank check in the madness that led up to the war, was completely incompetent. Worse than incompetent, in fact, because Germany had to keep sending troops to bail them out of various military fixes, an oddly similar situation to what Hitler found himself doing with Italy in the next war.  ... Anyway, Germans soon began to wonder if they were "shackled to a dead man."

I am reminded of that phrase as I see that the Republicans have officially nominated Donald Trump for the presidency, perhaps the worst choice the party has made in its history, Nixon included. I don't think "shackled to a dead man" is quite right. I think that "shackled to a suicide bomber" is more apt. Trump is not only going to lose big in this election to an incredibly weak Democratic candidate, but he is also going to kill the Republicans in the House and Senate and any number of down-ballot elections.

Back in the depths of WWI, the Germans woke up one day and found that their erstwhile ally Austria-Hungary, to whom they had given that famous blank check in the madness that led up to the war, was completely incompetent. Worse than incompetent, in fact, because Germany had to keep sending troops to bail them out of various military fixes, an oddly similar situation to what Hitler found himself doing with Italy in the next war.  (This is a really interesting book if you have any doubts about how dysfunctional the Hapsburg Empire was in its waning days).

Anyway, Germans soon began to wonder if they were "shackled to a dead man."

I am reminded of that phrase as I see that the Republicans have officially nominated Donald Trump for the presidency, perhaps the worst choice the party has made in its history, Nixon included. I don't think "shackled to a dead man" is quite right. I think that "shackled to a suicide bomber" is more apt. Trump is not only going to lose big in this election to an incredibly weak Democratic candidate, but he is also going to kill the Republicans in the House and Senate and any number of down-ballot elections. Nutty over-the-top crazy talk that might have been mildly entertaining in the primaries is not going to be very funny to voters trying to pick who sits at the other end of the red phone.

As I said on twitter this morning, I almost wish I had not left the Republican party 30 years ago so I could quit today.

This is honestly one of the weirdest acquisition proposals I have seen in a long time:  Elon Musk's Tesla offers to buy Elon Musk's Solar City.

This makes zero business sense to me.    This is from the press release:

We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.

I am sure there are probably some hippy-dippy green types that nod their head and say that this is an amazing idea, but any business person is going to say this is madness.  It makes no more sense than to say GM should buy an oil production company.  These companies reach customers through different channels, they have completely different sales models, and people buy their products at completely different times and have no need to integrate these two purchases.  It is possible there may be some overlap in customers (virtue-signalling rich people) but you could get at this by having some joint marketing agreements, you don't need an acquisition.  Besides, probably the last thing that people's solar panels will ever be used for is charging cars, since cars tend to charge in the garage at night when solar isn't producing.

One might argue that some of the technologies are the same, and I suppose some of the battery and electricity management tech overlaps.  But again, a simple sourcing agreement or a battery JV would likely be sufficient.

So what do these companies share?  I can think of three things.

The first is Elon Musk.   When one sees a deal like this, one is immediately suspicious that there is some kind of game going on where the owner combines holding A with holding B and somehow in the combination ends up with more wealth.  This is a game conglomerates played in the 1960's -- you could create a lot of (paper) value if you had a high PE (stock price to earnings ratio) company and went around buying low PE companies, instantly creating paper wealth if you could buy their earnings cheap and then have them suddenly valued at your higher PE.   Its hard to guess if this sort of game is going on here, as neither company has earnings (or rather both lose a lot of money).   Further, I have no read on Mr. Musk's personal ethics.  If this were Donald Trump, we would all immediately be suspicious such a game was at play.

The second thing these two companies share is that they have business models based on consuming massive amounts of government subsidies.  They get subsidies directly (each by selling various sorts of tax credits or fuel economy credits to power companies and auto makers), they have both gotten sweetheart deals from governments for production facilities, and their customers get subsidized as well in the purchase.  However, while there certainly are economies of scale for cronyism (large companies have the pull to get the loot), I shudder to think that there might be even more for these two companies to grab if they were larger.

The third thing these two companies share is that they both have huge financing needs, are losing lots of money, and are burning through tons of cash.   And here I think is the real heart of this deal, and if I am right, we may be able to answer the question on Elon Musk's ethics.  While both companies are burning through cash and are constantly going out to the market for more money, Tesla still has a (not totally justified in my mind) fabulous reputation with investors** and people seem to be falling over themselves to throw money at it.  With Apple languishing and Google old news, there is no hipper, trendier company out there.   On the other hand, SolarCity is starting to suck wind.  A few months back JP Morgan downgraded the stock:

SolarCity is having trouble attracting new investors, as the company has launched and canceled programs and altered its accounting methods, JPMorgan wrote in a note, according to MarketWatch.

Additionally, some of SolarCity's lower-income customers could be at risk of "slow-pay or default in the event of an economic downturn," the firm continued.

...SolarCity's weaknesses include its generally high debt management risk, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins.

They are also seeing more competition from local contractors and, perhaps most worrisome for their business model, various government subsidies are being scaled back and many states are changing their power metering rules to pay customers only the wholesale rate, rather than the retail rate, for power they put back in the grid.  They have said in most of their annual reports as a risk that their business model likely would not be viable (if it could be called that even today) without current or higher levels of government subsidies.

I have no inside information here, but this is the best hypothesis I can put together for this deal.  SolarCity has huge cash needs to continue to grow at the same time its operating margins are shrinking (or getting more negative).  They are having trouble finding investors to provide the cash.  But hey!  Our Chairman Elon Musk is also Chairman of this other company called Tesla whom investors line up to invest in.  Maybe Tesla can be our investor!

The reason I call this two drunks propping each other up is that Tesla also is also burning cash like crazy.  It is OK for now as long as it has access to the capital markets, but if it suddenly lost that, Tesla would survive less than 6 months on what it has on hand.  Remember, SolarCity was a golden child just 3 years ago, just like Tesla is today.  Or if you really don't believe that high-flying companies that depend on access to the capital markets can go belly up in the snap of a finger when they lose their luster with investors, I have one word for you:  Enron.

There is a substantial minority of the investment community that thinks that Tesla's headed for chapter 11, even before taking on the SolarCity albatross.  Here is one academic paper.  Here is another such opinion.  Non-GAAP reporting has proliferated like a cancer among public companies, with so many creative non-GAAP numbers that I am not sure the Enron folks would go to jail nowadays.  Tesla is a master of this game.    Even if Tesla is not headed for chapter 11, the absolute last thing Tesla needs to be doing is taking on a new acquisition that burns a lot of cash, while simultaneously diluting their management focus.

When I watch SpaceX launches, I so want to love Elon Musk.  But I am increasingly convinced that this is a terrible deal, an insider game he is playing to try to keep one of his investments alive.  I am seldom a fan of most minority shareholder lawsuits, but if I were a minority shareholder of Tesla I would be suing to block this acquisition.

By the way, many investors must be reading this the same way, because SolarCity stock prices are up and Tesla stock prices are down (at lot) today.

Disclosure:  I have been short Tesla for a while.  I shorted SolarCity this morning when the acquisition was announced, after its price popped up.  I consider this merger announcement as the moral equivalent of announcing that SolarCity is in financial distress.  These investments are tiny, the equivalent of a bar bet rather than any substantial investment on my part.

**Footnote:  I have to say this every time -- The Model S is a great car.  I would love to have one, if Santa put it under the tree for me.  But just because they have one great product does not mean that the company will be a success or is a great investment or that it is worth massive amounts of my tax money in subsidies.

I am not sure that many politicians are good on this score, but Hillary Clinton and Donald Trump are likely as bad as it gets on crony capitalism.  Forget their policy positions, which are steeped in government interventionism in the economy, but just look at their personal careers.  Each have a long history of taking advantage of political power to enrich themselves and their business associates.  I am not sure what Cruz meant when he said "New York values", but both Trump and Clinton are steeped in the New York political economy, where one builds a fortune through political connections rather than entrepreneurial vigor.   Want to build a new parking lot next to your casino or start up a new energy firm -- you don't bother with private investors or arms length transactions, you go to the government.

With that in mind, I particularly liked Don Buudreaux's quote of the day:

First, we labor under a ubiquitous threat of being shackled by crony capitalists.  [Adam] Smith wondered how internally stable a free market could be in the face of a tendency for its political infrastructure to decay into crony capitalism.  (The phrase “crony capitalism” is not Smith’s.  I use it to refer to various of Smith’s targets: mercantilists who lobby for tariffs and other trade barriers, monopolists who pay kings for a license to be free from competition altogether, and so on.)  Partnerships between big business and big government lead to big subsidies, monopolistic licensing practices, and tariffs.  These ways of compromising freedom have been and always will be touted as protecting the middle class, but their true purpose is (and almost always will be) to transfer wealth and power from ordinary citizens to well-connected elites

The American Left generally spends most of its time telling us how much better things are in Denmark or France.  I can't find a lot of reasons to like Trump, but he has apparently convinced the Left that they need to defend the American economic model against other countries.  This post by Kevin Drum at Mother Jones reasd more like what one might expect from Mark Perry at AEI.

"We're a poor country now." I wonder how many people believe that just because Donald Trump keeps saying it? In case anyone cares, the actual truth is in the chart on the right. There's not a single country in the world bigger than 10 million people that's as rich as the US.

I agree!   In fact, not only are American rich richer, but the American middle class is richer and the American poor are richer.  From an earlier post, here is the purchasing power of individuals across the income spectrum in the US vs. Denmark

I thought this was a fascinating article on how political reformers may be underestimating the moderation of voters

Most voters support some liberal policies and some conservative policies. Academics have long taken this as evidence of voters’ underlying centrism.

But just because voters are ideologically mixed does not mean they are centrists at heart. Many voters support a mix of extremeliberal policies (like taxing the rich at 90 percent) and extremeconservative policies (like deporting all undocumented immigrants). These voters only appear “centrist” on the whole by averaging their extreme views together into a single point on a liberal-conservative spectrum....

Donald Trump’s rise exemplifies these dangers.

Political scientists and pundits alike argue that it would improve governance to devolve political power from the political elites who know the most about politics and policy to the voters who know the least. Polarization scholars hold these uninformed voters in the highest esteem because they look the most centrist on a left-right spectrum. They are also Donald Trump’s base.

Yes, you read that right. Political scientists have long exalted the centrist wisdom of those who now constitute some of Trump’s strongest supporters — the poorly educatedauthoritarianxenophobes who are attracted to a platform suffused with white supremacy, indulge in unapologetic nationalism and use violence to silence opponents. As commentator Jacob Weisberg has written, these extreme voters’ views are a mix of “wacko left and wacko right” — the key credential one needs to qualify as centrist by scholars’ most popular definition.

A large part of the problem is the left-right political spectrum with which we are saddled.  This spectrum was pushed on us by Marxist academics of the 1950's-1970's.  It is meant to show a spectrum from really bad (with fascism at the far Right) to really good (with their goal of communism on the far Left)**.  For some reason non-Marxists have been fooled into adopting this spectrum, leaving us with the bizarre scale where our political choices are said to lie on a spectrum with totalitarianism on one end and totalitarianism on the other end -- truly an authoritarians "heads I win, tails you lose" setup.  In this framework, the middle, whatever the hell that is, seems to be the only viable spot, but Brookman is arguing above that the middle is just a mix of untenable extreme positions from the untenable ends of the scale.

The Left-Right spectrum is totally broken.   Trump is unique in the current presidential race not because he appeals to centrists, but because he simultaneously demagogues both the Conservative civilization-barbarism language and the Liberal/Progressive oppressor-oppressed narrative.  The fact that his supporters find appeal in extreme versions of both narratives does not mean they should average to centrists.  A libertarian like myself would say that they are extremists on the far authoritarian end of the liberty-coercion axis  (I, of course, am an extremist as well on the other end of this scale).

** Postscript: This is part of a long history of the Left trying to define political terms in their favor.   I love the work on totalitarianism by Hanna Arendt, but you will sometimes hear academics say that Arendt was "repudiated" (or some similar term) in the 1960's.  What actually happened was that a new wave of Leftish professors entered academia in the 1960's who admired the Soviet Union and even Stalin.  They did not like Arendt's comparison of Nazism and Stalinism as being essentially two sides of the same coin, even though this seems obvious to me.  Nazism and Stalinism were, to them, opposite sides of the political spectrum, from dark and evil to enlightened.  Thus they dumped all over Arendt, saying that her conclusions did not accurately describe the true nature of life under communism.  And so things remained, with Arendt pushed to the margins by Leftish academics, until about 1989.  As the iron curtain fell, and new intellectuals emerged in Eastern Europe, they cast about for a framework or a way to describe their experience under communism.  And the person they found who best described their experience was... Hannah Arendt.

I really don't like the meme that Bush lied about Iraq (on WMD's, possession of yellow cake uranium, whatever).  Here is why:  the implication is that if we just had smarter, more honest politicians, all of our interventionist foreign policy would work great.  But beyond the fact that we never have smarter and more honest politicians, this meme prevents us from learning the right lesson from the Iraq war.

If I were a candidate in the debate asked to comment on Trump's "Bush lied" comment, I would say this:

While politicians lie all the time, I think it is entirely possible that the Bush administration honestly believed Saddam had WMD's at the time of the Iraq war.  In fact, it appears that as a minimum, Hussein was bluffing like hell to make the world think he had such weapons.  But the issue of whether it was a lie or not is all a distraction.  The real issue for me is that we have no idea what we are doing when we intervene in these nations.  Typically in the rush of political sound-bites, we oversimplify ancient, five-sided conflicts as black and white, and even our most well-intentioned efforts to eliminate certain problems (such as Saddam Hussein or Qaddafi) tend to result in unanticipated consequences that might be many times as problematic as the original issues.  In Iraq, in Egypt, in Afghanistan, in Syria, in Libya -- we had hundreds of people in and out of government who act like they know it all but in fact we as a county had no idea what we were doing.  And we simply can't know.

The lesson from the Iraq War is not that our foreign policy would be perfect if only we purge liars from the government (and good luck with that).  The lesson from the Iraq War is that we are never going to have a sensible foreign policy until we adopt some humility -- a lot of humility -- about our ability to understand other countries and manipulate them by force.  Is this really what you expect out of Donald Trump?  More humility?  While there is still a role for America's strength in the world, we need to set a much higher bar for when we use that strength.

Postscript:  They say that a converted Christian is more passionate that those who have been Christian all their lives.  I will confess that I am a convert to foreign policy humility.  I grew up in a Texas conservative Republican family, though I shed a lot of the social conservative baggage, as well as any team allegiance to the Republicans, decades ago.  I did hold on to sort of neo-Conservative forceful foreign policy, though.  I am embarrassed to say that I was a participant in my generation's August madness**, getting all rah-rah about the Iraq invasion.  At least I admit it, unlike a number of other folks *cough* Hillary and Trump *cough* who try to whitewash history.  I will use a famous quote here from Robespierre, though in the end he did not follow his own advice:

The most extravagant idea that can be born in the head of a political thinker is to believe that it suffices for people to enter, weapons in hand, among a foreign people and expect to have its laws and constitution embraced. No one loves armed missionaries; the first lesson of nature and prudence is to repulse them as enemies.

** There are surprisingly few good online sources I can find discussing the August Madness.  It refers to the public celebrations that occurred in the first month of World War I in nearly every combatant country.  The beginning of the war was met by a surprising amount of enthusiasm, even from groups (e.g. the Socialists) who were expected to actively oppose a general war.  Growing nationalism combined with a certain strain of 19th century romanticism and even a certain amount of progressive social Darwinism all came to a head to create general (though not universal) enthusiasm for the war.

I am out of the country (currently in Thailand for a wedding).  I read this in the local Asian WSJ, an article about money and patronage in the Malaysian political process.  And while I suppose I was supposed to think "wow, Malaysia is sure screwed up" -- all I was really left with at the end of this article was "how is this any different from the US?" How does 1MDB differ from, say, various green energy funds at the Federal level or community development funds at the local level?

Malaysian Prime Minister Najib Razak was fighting for his political life this summer after revelations that almost $700 million from an undisclosed source had entered his personal bank accounts.

Under pressure within his party to resign, he called together a group of senior leaders in July to remind them everyone had benefited from the money.

The funds, Mr. Najib said, weren’t used for his personal enrichment. Instead, they were channeled to politicians or into spending on projects aimed at helping the ruling party win elections in 2013, he said, according to a cabinet minister who was present.

“I took the money to spend for us,” the minister quoted Mr. Najib as saying.

It still isn’t clear where the $700 million came from or where it went. But a six-month Wall Street Journal examination revealed that public entities spent hundreds of millions of dollars on a massive patronage machine to help ensure Mr. Najib’s United Malays National Organization stayed in power. The payments, while legal, represented a new milestone in Malaysia’s freewheeling electoral system, according to ruling-party officials....

The effort relied heavily on the state investment fund Mr. Najib controlled, 1Malaysia Development Bhd., according to minutes from 1MDB board meetings seen by The Wall Street Journal and interviews with people who worked there.

The prime minister, who is chairman of 1MDB’s board of advisers, promised repeatedly that the fund would boost Malaysia’s economy by attracting foreign capital. It rolled up more than $11 billion in debt without luring major investments.

Yet Mr. Najib used the fund to funnel at least $140 million to charity projects such as schools and low-cost housing in ways that boosted UMNO’s election chances, the Journal investigation found.

The minutes portray a fund that repeatedly prioritized political spending, even when 1MDB’s cash flow was insufficient to cover its debt payments.

This illustrates one (of many) reasons why those lobbying to reduce campaign spending are on the wrong track.  Because no matter how much one limits the direct spending in elections, no country, including the US, ever limits politicians from these sorts of patronage projects, which are essentially vote-buying schemes with my tax money.

The reason there is so much money in politics is because supporters of large government have raised the stakes for elections.  Want to see money leave politics? -- eliminate the government's ability to sacrifice one group to another while subsidizing a third, and no one will spend spend a billion dollars to get his guy elected to public office.

By the way, in this current Presidential election we are seeing a vivid demonstration of another reason campaign spending limits are misguided.  With strict spending limits, the advantage goes to the incumbent.  The only people who can break through this advantage are people who are either a) already famous for some other reason or b) people who resort to the craziest populist rhetoric.  Both of which describe Donald Trump to a T (update:  Trump has spent virtually no money in this election, so he should be the dream candidate of clean elections folks, right?)

I thought this was a pretty good observation:

Why then, do so many people know about the tax treatment of carried interest? Because it is the epitome of a Washington Issue. A Washington Issue is something that sounds terrible, has little meaningful impact on more than a handful of people, and most importantly, allows you to pretend that you are addressing a different, very difficult issue that would impact a large number of people if you actually tried to make meaningful change -- people who might get angry and do something rash, such as voting for your opponent.

The carried interest issue is thus a convenient way for Democrats making stump speeches to claim that they’re really going to do something about inequality and cronyism, and maybe fund some important new spending on hard-working American families. With the entrance of Jeb Bush and Donald Trump into the arena, it is also a way for Republicans to seem tough on rich special interests while simultaneously proposing tax plans that will help affluent Americans hold on to a lot more of their income and wealth.

As with most Washington Issues, my actual level of concern about carried-interest taxation hovers somewhere between “neighbor’s bathroom grout drama” and “Menudo reunion tour.” Nonetheless, I’m beginning to wish that Congress would get rid of it without demanding anything in return, just to force politicians to talk about something that actually matters.

My tax proposal, as a reminder:

1.  Eliminate all deductions in the individual income tax code

2.  Eliminate the corporate income tax.

3.  Tax capital gains and dividends as regular income.

4.  Eliminate the death tax as well as the write-up of asset values at death

I was thinking about the crazy populist nuttiness of Donald Trump and the misguided focus of Black Lives Matter and the musty socialism of Bernie Sanders.  As I drive around Europe and see ruins of castles and palaces, it occurred to me that we had almost always been saddled with an aristocracy exercising power over us.  Sometimes they won that position through violence and military action, and sometimes by birth.

But it struck me that we have a new sort of aristocracy today:  the Aristocracy of Hucksterism.  These new aristocrats are just as wealthy and powerful as the old sort, but they have found a new way to gain power -- By suckering millions of people to simply hand it to them.   And when they inevitably fail, and make things worse for everyone, they additionally manage to convince people that they root cause of the failure is that they had not been given enough power.

Business licensing and awarding of government contracts is supposed to be entirely viewpoint neutral and related only to factors explicitly listed in the licensing legislation (e.g. training attained, cleanliness, whatever).  Of course, I believe that licensing is generally total BS and is basically a way for incumbent businesses to restrict potential competitors and throttle supply.

Of course, defenders of licensing laws piously intone that they are only there to protect consumers and are enforced in a totally neutral way that has nothing to do with viewpoints or political pull (lol).

Trump is a complete loss as a candidate but he is at least proving once and for all what total BS this is.  Both of the following are via the definitely indispensable Overlawyered.

Boston mayor says Trump will never get any city permits because of his political views.

If Donald Trump ever wants to build a hotel in Boston, he’ll need to apologize for his comments about Mexican immigrants first, the Hub’s mayor said.

“I just don’t agree with him at all,” Boston Mayor Martin J. Walsh told the Herald yesterday. “I think his comments are inappropriate. And if he wanted to build a hotel here, he’d have to make some apologies to people in this country.”

New York mayor says Trump will never get any city business because of his political views.

New York City Mayor Bill de Blasio said Monday that his city may not be able to break its business contracts with Donald Trump but will avoid future deals with the 2016 GOP contender.

"My impression is that unless there has been some breaking of a contract or something that gives us a legal opportunity to act, I'm not sure we have a specific course of action," the Democratic mayor told reporters Monday, according to CNN and Capital New York.

"But we're certainly not looking to do any business with him going forward," de Blasio added.

De Blasio indicated Monday that he has yet to receive a final analysis on whether the city could get out of several contracts with Trump, a celebrity real estate developer turned presidential candidate.

New York City officials began reviewing the contracts, including a Central Park carousel, two rinks and a Bronx golf course, several weeks ago in light of Trump's controversial remarks on immigrants.

Republicans before the election worked to convince Libertarians that a vote for Gary Johnson (or any other third party) was a wasted vote -- that Libertarians needed to be voting against Obama and therefore for Republicans.  Some libertarians have argued that the only way to change the Republican Party is from within.  Libertarians need to join the party and then work to make the party less statist.

I thought this was a crock at the time and think so even more now.  Here is the key thought:  Republicans are not going to change their platform and their candidates and their positions to woo voters they are already getting.  After the election, no one in the Republican leadership was talking about what a mistake it was to run a big government Republican like Romney -- the ex-governor of Massachusetts for God sakes -- who authored the predecessor to Obamacare.  No one was wondering about Gary Johnson as a 2016 candidate.

What the GOP did do is panic at the shellacking they got among Hispanic voters.  The ink was not even dry on the ballots before Republican leadership was considering abandoning their anti-immigrant stance in order to win more Hispanic voters.  I am not sure that will get them Hispanic voters, but whether they are right or not, that is the conversation they were having.  They were asking, "How do we attract voters WE DID NOT GET" -- not, "how do we attract voters we are already getting".

The turn of the century Progressive Party (William Jennings Bryant, free silver, etc) never won a Presidential election but both the Republicans and Democrats co-opted many of their platform positions because they sought to attract voters they were losing to the Progressives.

I don't see how Libertarians can look at a party that has fielded John McCain (author of speech restrictions) and Mitt Romeny (author of the proto-Obamacare) as any sort of long-term home.  Heck, the Republicans more seriously considered Rick Santorum and Donald Trump than Gary Johnson or Ron Paul.  I respect what Mr. Paul has done in bringing libertarian issues to the debate, but as long as he keeps reliably delivering his voters to whatever lame statist candidate the party fields, the GOP is never going to seriously address libertarian concerns.