A Reasoned Response to Being Stuck in the Middle

Mark Suster wrote a nice piece on Medium exhibiting his frustration with the primary election process. I agree with a lot of what he says, but I come to a very different conclusion. I’d also like to point out that both of us are graduates of Chicago Booth which prides itself on smashing ideas together so here goes some smashing.

Mark ends with this; “Nobody gains from this. Let us be rational. And whatever you think about the last woman standing, we have only one choice: to reject the fools to the left of us and jokers to the right.” This sounds like a tacit endorsement of Hillary Clinton. She would be an absolutely horrible President for the United States and at least 47% or more of her own party recognizes that.

Personally, I cannot vote for Hillary for a lot of reasons. She lied to the American public about Benghazi. Even worse, she was part of the decision making team that abandoned Americans in a desperate situation when they could have tried action. Hillary’s policy toward Israel is a mess. Her policy in the Middle East is a total failure and we need good policy in this part of the world to combat terrorism. She also sold out the Secretary of State’s office for money. Follow donations to the Clinton Foundation and see decisions she made. Coincidence? Only the most naive would say it’s not. Lastly, her views on domestic economic policy would be a disaster for most of the citizens of the US. Of course, the current alternative isn’t exactly palatable to me either.

Like Hillary, I am from Illinois. Public official corruption and crony capitalism was invented here. Currently, my home Chicago has about $30 billion in unfunded public pension liability. The state is a fiscal mess. Our governor Bruce Rauner has tried to change things but has run into a monolith. We are a microcosm of the nation, although a lot more gerrymandered to make sure the “right” people get elected!

Mark is correct, Donald Trump and Bernie Sanders have found the soft spot where Americans were most fearful. Most Americans don’t understand the full benefits of international trade, and more importantly free trade. They don’t understand automation, artificial intelligence or its implications. Mark does a good job explaining it, but try to sit in a blue collar bar and explain it to someone that has had their job automated or lost . They don’t think logically. They are fearful, and only worried about how they are going to survive.

Terrorism has also caused Americans to be fearful. International terrorists have successfully attacked time and time again in America post 9/11. They have not been large scale attacks. Continued shootings by fanatical people have left a large dent in the American psyche. Again, logically it makes sense to not have abject fear of all Muslims. Scott Adams of Dilbert comic strip fame had a nice piece on it here. As he wrote, But what if only 1% of Elbonians are terrorists? If you let in a million Elbonians, that gives you 10,000 terrorists. Are you good with that risk in return for maintaining the ideal of equal treatment for all? Fear causes people to think illogically. We are in an illogical time.

These fears translated into a wedge issue that Trump could build off of, immigration. Again, it’s a subject that is not particularly well understood by most Americans. We know we are a nation of immigrants. At the same time, the bulk of Americans see a lot of immigrant groups not assimilating. They are suspicious-it’s more than skin color. The Obama administration subverted the Constitution to get what they wanted. A Federal court recently tossed aside his executive order and like most things, they will appeal it. On the political left, Obama received a pass because the core of their idea was probably the right thing to do.

Most Americans probably would agree that immigrants are good for our country. However, they certainly don’t agree on how to get them here.

The US needs a good immigration policy and we don’t have one today. I would encourage anyone interested in changing the policy to listen to this talk by deceased professor Gary Becker. It’s brilliant. To try an sum up a one hour talk about a difficult emotional concept is hard but I will try. There is demand for immigration, and there is a supply of immigrants. The intersection of the two derive a “price”. Charge a price for immigration. When it comes to crisis like the civil war in Syria, we can handle those externalities. But, realize every issue isn’t a crisis and a nation without borders isn’t a nation at all.

Mark also highlights global warming. This is only an issue that is important to the Democratic Party. As Peter Thiel highlighted, the Democrats have offered up really bad solutions to the problem. Democrats have focused on regulation, taxes, and subsidies for renewable energy. If global warming is really the crisis that they say, the only clear way out is nuclear power. Nuclear power is cheap, reliable, and strong enough to send enough electrical current and will sustain the Information Economy.

As for the “science is settled” argument, I would suggest that people check out the blog Watts Up With That and challenge their opinion. I’d also ask the question, “What data would cause you to change your opinion on global warming to discounting it-or believing it?” This is important because then you are indeed data dependent. As Mark and I both learned at Chicago Booth, it’s awfully easy to manipulate statistics so when you look at data it’s important to know the underlying assumptions and null hypothesis.

One thing that is clear to me. Under President Obama’s policies, we have not had one quarter of GDP growth over 2%. Instead of pointing to the increased level of government regulation, increased size and scope of government, increased centralization of many services, and increased taxes, people make excuses or blame the Congress. Since 2009, we have had 0% interest rate policy and extraordinary efforts by the Federal Reserve. World wide, other central bankers have engaged in monetary policy that can only be described as obtuse-or today desperate.

These policies have resulted in a two tier economy. For the already wealthy, the economy is pretty decent. They might be enjoying a GDP of 4% or more. They can take advantage of the cheap money and build more wealth. For the upper middle class on down to the poor, it’s been terribly difficult to eek out a living. For the elderly living off fixed income and savings, low interest rates have been a disaster. Their GDP is 1% or less.

Government policy has also made it hard to move up from class to class. It’s easy to slide down to a lower class. However, it’s hard to move from state to state because of changes in healthcare. The incentive to work has been changed because of policy. Increased minimum wage policy has made it tougher to find fill in work, or a starter job. Corporate tax policy has made it highly difficult to justify the internal hurdle rates necessary for new investment. Virtually every sector of our economy has become highly regulated and dominated by a series of large corporations. Finance, Farming, Medicine, Insurance, Communication, Energy, Food, Banking, and any other business sector you can think of has a few large corporate giants that benefit from having a strong government regulator and a very heavy handed government. This sort of government is crushing the middle class and they know it.

When it comes to Republicans, clearly they are tone deaf. Yesterday, both former President Bush’s declined to endorse Trump. Prominent Republican leaning publications like the Wall Street Journal and Weekly Standard continually write negative articles on Trump. They don’t understand that Trump voters have had enough with the Republican (and Democratic) establishments inside the Beltway.

A great venture theme to invest in is “Network beats Hierarchy” and voters all over America are proving it.

Today, unemployment numbers were released and we only had growth of 160,000 in non-farm payrolls. This anemic number wasn’t the cause of automation, artificial intelligence, free trade, global warming, or immigration. The bulk of America knows it. There is no production in America and that’s because the private sector has been shackled by bad public policy.

I have driven all across America the last few years. From Nebraska south to Texas and across to Florida, South and North Carolina, West Virginia, Pennsylvania, New York and back through Ohio, Michigan, and home to Chicago. I have seen first hand how people in small towns all over America are struggling to make it. They have lost hope.

They know that establishment politicians in both parties will continue the current shell game. Because they are in such dire straits, they are willing to take a chance on a risky hire like Trump.

When I see tweets from Paul Graham about how a startup has contacted lawyers to see about moving out of the US if there is a President Trump, I know the world is whacked. Should startups be similarly afraid of Hillary Clinton’s policies to increase taxes, spending, and to heavily regulate all business? To be clear, most of America is hurting. Republican and Democratic Establishment politicians have used social issues to drive a wedge and segment the political market for gain. 95% of America doesn’t give a care about social issues or who can use who’s bathroom when they are finding it really hard to put food on the table and don’t know where their next paycheck is coming from.

Trump is not my cup of tea when it comes to a political candidate. All the ones I liked or even wrote a check to dropped out of the race before it got down to the final three. But, he is there at the end and the one the bulk of the voters have chosen.

I don’t think it’s easy to point to one specific factor and say that is the reason for Trump’s rise. From my travels around the country I know people don’t trust big government institutions, and have little faith in big mega corporations. I do know they trust people, or at least want to.

What’s the solution? It’s time to unleash the private sector. Markets allocate resources better than any entity known to man. Mark and I both were taught that at Chicago Booth. Sure, markets can fail once in awhile. But, they are always consistently better at making decisions and distributing capital than any centralized bureaucracy. If we want to revive the American Dream, which in my opinion is not dead, we have to do different things and think a lot differently. If we want economic growth, it’s really simple. The answers are there. As a country, we just have to do it.

The question remains, who can get it done? We know it’s not anyone that subscribes to the current policies.