Silicon Valley’s Incoherent Idealism

A friend linked me to Why does Silicon Valley seem to love Democrats and dismiss the GOP? A Q&A with journalist Greg Ferenstein which contains an interesting summary of the philosophy of many Silicon Valley entrepreneurs with regards to an ideal society and the role that government can play in bringing it about:

The high level elevator pitch is that Silicon Valley and, broadly, urbanized professionals, represent an entirely new political category — not libertarian, not Democrat, and not Republican. I argue that they are pro-capitalism and pro-government and their belief is that the government should be an investor in citizens to make them more educated, entrepreneurial and civic, rather than act as a regulator of the two parties.

[T]he internet was created by a government lab. Much of Silicon Valley is based on government funding, whether it be basic research or education or outreach for free trade the internet requires pretty substantial government involvement.

[T]hey are not fans of libertarians. Libertarians have threatened to cut funding for economic studies, basic research in the sciences, education. These things are absolutely crucial to emerging industries and governments roll [sic] in it.

[C]rucial to what is distinct between libertarians and valley folk that Silicon Valley’s ideology is pro-market but it is not pro-liberty. Liberty is not a value. They are highly, highly, collectivist. They believe that every single person has a positive obligation to society and the government can help people or coerce people or incentive into making a unique contribution.

Silicon Valley is all about inequity and unpredictability. They really believe that some people are much more productive or inventive than others. One of the ways in which this manifests itself is performance based funding, where they will encourage competition among schools and will give some schools more money than other.

If anyone wants to make best friends immediately with Silicon Valley, say you’re going to fix housing. It is a crisis out here; we’re talking about median rents over $4,000, people are getting evicted left and right, and it’s because the super-left progressive wing in San Francisco has basically made it impossible to build anything but single family homes, and it can take years to get anything approved. It is a regulation jungle.

What they want to do is they basically want everyone to live like they lived in college, where you get to play all day long, discover new things, you don’t have to work much, maybe you have a part time job and you just get to chill. The working phrase for this is automated luxury communism. And the way for automated luxury communism to work, and this is a real thing that could be happening within our lifetimes, is that robots replace most work and you just get a check from the government every month that allows you to spend as you want. And it comes from a very, very high tax on the relatively few workers who do have economic value.

When the Atlantic’s James Bennet asked Zuckerberg what his political ideology was, “are you a conservative or a Democrat”, he said, no I’m pro-knowledge economy. And the knowledge economy is a distinctly different beast. Boeing and the other things are also technology companies — missiles and planes. The act of creating information, and believing that information alone can be a solution is a distinct ideology. Most companies will not be information technology companies, and that is why it will remain a distinct way of life.

I will attempt to summarize this into a few key stances, the Silicon Valley philosophy is described by:

  • Pro-capitalism; competition will provide the best solution
  • Pro-government; government can improve people and outcomes by subsidizing the right activities rather than trying to control interactions and exchanges
  • Anti-libertarian; libertarians want to restrict the size and role of government which they see as critical to building the infrastructure and knowledge networks they view as critically important to society’s well-being
  • Anti-liberty; individuals have positive obligations to society to make it better and should not have the freedom to shirk their responsibility
  • Pro-collectivism; “We’re all in this together, play as a team”
  • Anti-egalitarian/pro-elitism; recognize the inherent differences in ability and talent and let competition raise society on the coat tails of the winner
  • Anti-scarcity; they believe economic scarcity is an artifact of technological constraints which are being removed by the march of progress
  • Pro-taxation; high levels of taxation are a leveler and generate resources for government to use to promote the well-being of society as a whole
  • Pro-housing; affordable housing is a fundamental human right and government should assist in providing it

Let’s look at some of these principles and the fundamental contradictions they represent.

First, pro-capitalism and pro-government are antagonistic ideas. Capitalism is a voluntary, competitive market resting on the institution of private property. Government is an involuntary, monopolistic institution resting on the institution of public property. If capitalism produces a competitive outcome where the best idea wins, government handicaps it by taking resources from these competitive winners and using them to subsidize the runners-up.

Libertarians are pro-capitalism. Libertarians believe in individual freedom derived from individual property rights. To be anti-libertarian is to be pro-government and anti-capitalism. Libertarians aren’t against infrastructure and knowledge networks– they’re against provisioning these things via government, that is, taxation and monopoly force. Why does it require violence to build a road, or a telecom network? What does it say about the true value of these things if that really were the only way to build them?

Anti-liberty means to be anti-capitalism. The competition of capitalism entails allowing people the liberty to pick their own valued ends and then to select the most efficient means they can think of to achieve those ends. If you are anti-liberty, then you are into telling people what ends they may or may not value and quest after. It also means you are for taking the resources, the scarce means, that they’d employ to chase those ends and forcing them to be happy watching them get used for something else.

Pro-collectivism is anti-capitalism. Competition entails differences amongst individuals, if “we’re all in this together” then there is no value to competition and no one to provide it. If everyone is on team A, there is no team B to face off against. You can have cooperation and competition existing simultaneously, but you can not have collectivism and competition existing simultaneously.

Anti-egalitarian/pro-elitism is pro-libertarian, anti-collectivist and pro-capitalist. If the best are allowed to shine, it means the worst are allowed to suffer what they will. Libertarians don’t believe in handicapping society’s most able or serving the “least common denominator”; they do not believe in sawing off the legs of the tall to create fairness for the midgets. If the midgets want to get stilts that’s fine, but let the tall slam dunk as much as they want. Being pro-elite and anti-egalitarian is decidedly not pro-collectivist because recognizing differences implies there is no “team” on which we all play.

Anti-scarcity is anti-capitalism. Capitalism doesn’t CREATE scarcity, it is a method of dealing with the reality of it. If scarcity doesn’t exist, there is no need for exchange or competition because everyone can have all they need without the help of anyone else. Anti-scarcity is actually anti-physics, too, because it implies that discrete material matter can occupy multiple segments of space-time simultaneously.

Pro-taxation is anti-capitalism and anti-elite/pro-egalitarian. “Leveling” social outcomes is another word for denying competition and the existence of meaningful differences between people, which is implied in anti-egalitarianism. Using taxation to steal what the most able create under the competitive dynamics of capitalism is to destroy the process of capital accumulation which leads to higher productivity economy-wide. Accumulated capital is a time saver, and saving time means doing more work and thus having more goods in the same amount of time. Being pro-taxation is pro-poverty because you’re making society poorer than it otherwise would be if capital could accumulate according to capitalist outcomes.

Pro-housing is actually pro-scarcity. If goods and services aren’t scarce, there is no need for government to subsidize their production or distribution, now is there?

This “ideology” is completely incoherent. It is so bafflingly confused, it almost makes you wonder if it is intentionally so to hide the real ideology. This ideology also isn’t new. What the Silicon Valley folks are advocating is crony capitalism, the vaunted “middle way” the eternal quest of social philosopher charlatans since time immemorial. What Silicon Valley wants is the right to innovate, compete and become wealthy for themselves, but then once they’ve gotten some for themselves, to put in place restrictions, controls and limits for everyone else that will protect their gains. Government is a tool for restricting competition and buying off people who might upset the apple cart, while using resources you’ve taken from other people to do it.

I think the Silicon Valley ideologues have innovated a non-solution to many non-problems. Here is a quick summary of what I think is a real solution to some of their perceived problems, which I will refer to simply as “the private property society”.

Democrats and Republicans claim to be on different sides of the issues, but the place where they align strongly is their shared belief in the necessity of violent interference in social affairs, that is, using government (a monopoly on violence) to achieve desired social ends. Anyone who shares the philosophy that government is a reasonable tool for solving social problems, especially economic problems, is ideologically aligned with the Democrats and the Republicans. The truly radical position is to recognize violent interference in social affairs as a moral and practical non-starter. You can not make people better by force.

For government to invest in one person, it must de-invest (tax) another. This is a zero sum game and in fact it’s likely worse because by definition every time the government takes from the original owner of a resource by taxation and gives to an arbitrary recipient it has selected a less-valued state of affairs; if this were not true, it would mean individuals were routinely engaging in exchanges they perceived to make them worse off and getting poorer and poorer each time they did so.

It is not the role of the government to build the internet, to provide education, to fund basic research in science, etc. The government has no objective way of knowing which of the many projects it might support are actually more valuable than the projects which would’ve been supported by freely chosen, voluntary exchanges amongst the individuals who would be taxed to provide what the government hands out.

Liberty IS a value, although not a value unto itself. Liberty is valuable specifically because of what liberty allows, for each person to pursue those plans he deems most beneficial to his well-being. Without liberty, individuals are forced to accede to the demands and the plans of government, and these demands and plans may not only be worse than the ones they had in mind, but against their very values and ideas of right and wrong.

It is true that people are unequal– unequal in their starting position in life and unequal in their ending position, for every person will die at a different time and place and under different circumstances. People have different abilities, and different means, and their abilities and means will change continually over the course of their lives. The question is not “How can we make people more equal?” but rather “Will people be allowed to be the primary determinant of those inevitable changes, or will they be forced to change according to the pattern of a will other than their own?” The inequality of life provides all the incentive, encouragement and reward necessary for the best to strive to be better, and the worst to do what they must. Nothing can be added to that equation without inadvertently taking something else away.

Housing is a particular problem in San Francisco and Silicon Valley because that part of the country is particularly in love with the promise and power of government. In a competitive market environment, scarcity results in higher prices; this is the “housing shortage” the Silicon Valley crowd is witnessing and experiencing. Normally, higher prices would incentivize an increased supply. Is it not profitable to build housing in the Bay Area? If it is profitable, why aren’t more investors/business people trying to take advantage by increasing the supply of housing? The fact that a problem that is normally solved by investor activity chasing profits is not only occurring, but getting worse and worse every day in the midst of one of the densest communities of super-investor/business people in the entire country suggests that housing in the Bay Area is not controlled by market forces but political forces. The solution is simple– get the political forces out of the way. Eliminate zoning restrictions, eliminate permitting, eliminate taxes on the sale of land and housing, etc. Let markets work.

Information and knowledge are not new to the economy. And knowledge is not valuable without the liberty to pursue what one has learned. Silicon Valley should be strongly aligned with the private property society and the liberty to employ valuable knowledge that comes with it. The fact that they are not raises my suspicion and concern.

Ron Paul’s Ten Principles Of A Free Society

I thought this deserved a separate post from my recent review of Ron Paul’s Liberty Defined.

At the end of the book, Ron Paul listed “ten principles of a free society” and I have slightly edited them below:

  1. Rights belong to individuals, not groups; they’re derived from nature, not political agreements
  2. Consent is the basis of social order; any arrangements built on voluntary consent are permissible
  3. Private property is owned by individuals and their voluntary organizations; it is not rented or permitted by political organizations
  4. Government is not a tool for redistributing wealth or granting special social privileges to certain individuals or groups
  5. Individuals are responsible for their own actions and can not be protected from their consequences without shifting the cost to others
  6. Money should be determined by the market and not monopolized and counterfeited by government fiat
  7. Aggressive and preventive wars are incompatible with the voluntary social order of the free society; embargoes are a form of warfare
  8. Juries may nullify (judge the laws, not just the facts) at will
  9. Involuntary servitude is not permissible, this includes: slavery, conscription, forced association, and forced welfare distribution (ie, taxation and “deputizing” private businesses and their resources to perform regulatory functions such as tax collection, immigration enforcement, etc.)
  10. Government agents must obey the same laws and moral codes as private citizens

I think this is a pretty good list. It definitely could get a conversation going. However, I wonder about some of the items on this list being redundant. I think the list might be able to be further circumscribed. I also think that the list goes back and forth between prohibitions, and declarations of principles or conditions or reality (thankfully, it doesn’t contain any positive obligations!) While the list seems fairly complete, I wonder if it captures all essential issues of a free society.

Who Is YCombinator Trying To Fool With Their New Cities Research Project?

Two friends independently linked me to YCombinator’s “New Cities” blog post and it interested me enough that I thought to write about it in brief. The idea of a new city started “from scratch” excites me as an advocate of the private property society. I have a hard time imagining how my preferred values and ideas for peaceful, voluntary social arrangements will come to be implemented incrementally within the existing coercive institutions we call “city governments”. Starting with a bare plot of land, wholly-owned by one or more sympathetic parties and going from there seems like the only viable option for realizing this ideal and building a working model.

I was excited, then, to see that some well-known and resourceful people in the Silicon Valley VC community seem to be on to the same idea. But then I started reading their short post and I ended up with a lot of questions, the primary one being “What are they really trying to accomplish with this?”

I’m having trouble trusting their motives as sincere because of this: if they’re trying to build new cities, and they think they need to conduct “research” to figure out things like…

  • How can we make and keep housing affordable? This is critical to us; the cost of housing affects everything else in a city.
  • How can we lay out the public and private spaces (and roads) to make a great place to live? Can we figure out better zoning laws?
  • What is the right role for vehicles in a city?  Should we have human-driven cars at all?
  • How can we have affordable high-speed transit to and from other cities?
  • How can we make rules and regulations that are comprehensive while also being easily understandable? Can we fit all rules for the city in 100 pages of text?
  • What effects will the new city have on the surrounding community?

…they could prop open a free copy of Rothbard’s Man, Economy and State, Scholar’s Edition (with Power and Market) and start reading the basic economic theory underlying these questions, with special emphasis on the sections about “The Economics of Violent Intervention in the Market” which specifically deal with the problems they mention which relate to artificial scarcity of housing, zoning laws, street use permitting, mass transit policies and legislative efficiency. All the brainwork has been done for them, there is no need to reinvent the wheel and “discover” these effects independently if only they will consider what Rothbard has to say on the matter.

In fact, anyone who has read such material would immediately look at the “high-level questions” the YC Research project hopes to think through and notice the flawed premises evident in asking them. For example, asking “What should a city optimize for?” implies a city has some kind of monolithic identity and singular purpose, rather than being an unplanned, spontaneous outcome of the individual plans and values of the multitude of people who compose it. In asking the wrong questions, this project is doomed to arrive at arbitrary answers that are worse than wrong– they will be unknowledge which will set people back in believing it to be true and acting on it.

I don’t expect anyone at YCombinator or the research project to take a concern like this seriously, because I don’t believe their stated motivation is authentic. If it was, I would expect them to study the conclusions of 350+ years of economic pondering on these very unoriginal curiosities before proceeding with their experiment, which will never happen.

So my question remains. What are they really trying to accomplish with this? (And their Basic Income research project, which almost seems like expertly engineered trolling for the same reason I question the motivation of this New Cities project.)

 

The Long War: Changing Ownership, Management Incentives & Reporting Practices

Ian Cassel, founder of MicroCapClub.com, made a comment on Twitter today which grabbed my attention:

If a company is over $25m market cap they should have to have earnings conference calls w/ Q/A. Coalition Against Private Public Companies.

Shortly thereafter, he was asked by Jeff Moore of the Ragnar Is A Pirate blog:

How about if they have more than 100 shareholders?

To which Ian replied:

yes another good idea

At this point, I asked:

so you guys are for imprisoning and fining people because they won’t give you info you want?

Ian considered it and responded:

do I think every public company should, Yes. Force probably not, but cld be part of a tiered listing standard

I think this whole idea is worth a comment so I’m now going to give it one.

The first angle with which to approach Ian’s compulsory conference call proposal is the moral one and concerns the question, “Should managers of public companies, whatever their size, be compelled by force of law (ie, threat of fines or imprisonment for non-compliance) to provide the investing public conference calls regarding their earnings releases?”

The answer to such a question would hinge on whether or not, by refusing to hold such calls, these managers were committing an act of violent aggression against the investing public, such as theft, assault or fraud. If refusing to hold an earnings call is an act of theft, assault or fraud, clearly there is justification for compelling such behavior in order to remedy this affront to the rights of the individual members of the public and the answer would be “Yes”; similarly, if refusing to hold an earnings call does not represent the initiation of the use of force against members of the public, the answer to this question is clearly “No”.

I don’t want to waste anyone’s time going into a lengthy exploration of the facts on hand. I think it’s obvious that refusing to hold an earnings call is not an act of aggressive force and I don’t think Ian provided or attempted to provide any evidence that it was. In fact, he suggested this was not an issue to be handled by the law at all. I elaborated as much as I did, anyway, because there may be people reading this who did not understand the issue in this way and may have been confused prior to reading it. For their benefit, I state plainly now, the answer to the question is “NO”.

The second angle of approach is institutional. As Ian suggested in his final comment, the solution to this perceived problem could be handled at an institutional level (in this case, the voluntarily adopted rules and internal regulations of the listing exchanges) by adopting Ian’s preference for mandatory earnings calls at a certain market cap threshold as an observed “best practice” or condition of doing business on the exchange. If a company doesn’t want to follow it, they have the option of not being listed on the exchange observing such a rule. From a moral standpoint, there is no issue as there is no coercion, and compared to the alternative of creating a top-down, one-size-fits-all-companies-and-exchanges external regulation backed by force of law by government, this solution is indeed preferable because it at least allows for the possibility that some companies would not follow this practice and would find other avenues for listing their shares and allowing for equity exchange.

This leads to the third angle which, for lack of a better term, I’ll simply refer to as the “practical” considerations, of which there are several. For starters, I wonder if this is really an issue? In Ian Cassel’s (and Jeff Moore’s, perhaps?) world, it certainly seems to be. Ian Cassel’s world would be a happier place if all the public companies whose market caps were $25M or greater provided the public (of which he is a member and would stand to benefit) an earnings call upon release of each earnings statement. But embedded in such a proposal seems to be the belief that the world should reflect Ian Cassel’s preferences, and everyone else should bear the cost and expense of preparing and providing this information to Ian Cassel (and others of like mind).

Is this reasonable? If having better earnings communications from small companies is important to Ian, and if dialoging with management is a valuable commodity, Ian already has a course of action available to him to pursue such goals: he can make his own independent effort to email, write, call or visit in person the management of these companies and create a relationship whereby they would provide him answers to some of the questions he has in mind; or, he could acquire a sufficient number of shares of the company such that he is the owner of the company and the management is now fully responsible to him and he can have any and all information about the company that he pleases.

Neither of these actions require anyone being compelled to change their current practices. Both require nothing more than the expenditure of Ian’s own effort, time and wealth. If certain companies prefer not to establish such relationships or provide such information to people like Ian, Ian always has the option of walking away from them. And if he doesn’t have the financial resources to acquire such an ownership stake so as to make them more responsive to his inquiries, that would be a problem for him to solve by finding ways to produce more wealth for himself he could exchange with others for the privilege – it is not the responsibility of the company, its shareholders or anyone else.

Another practical consideration is the arbitrariness of the threshold for compliance. There’s nothing magic about a $25M market cap (nor a 100+ member shareholder base). The first number seems to be an attempt at defining “resourcefulness”, implying that a company with a certain sized market cap “should be able to afford” such accommodations. But market caps are not determined by managements and company resources, they are determined by the passions and dispositions of the investing public. It’s entirely conceivable that a company of truly inadequate resources (say, a book value of $50,000, just to harshly illustrate the point) could be bid up to a market cap of $25M in some bizarre turn of events. The fact that it has been so valued doesn’t make it more able to provide additional clarity about its business– and even if it did, it still doesn’t have an obligation to provide anyone anything like this. The shareholder base threshold is simple populism and the democratic principle– 99 of the shareholders could own one share at a penny a piece, with the remaining shareholder holding substantial control of the rest of the shares, making them truly insignificant in the ownership structure. But by creating arbitrary rules like this these individuals would create for the company sudden obligations simply by their existence.

Another practical concern is why a person, operating in the microcap space where an edge is often gained specifically because of the lack of consistent, clear information about these companies, would want to see measures taken which would serve to increase the “efficiency” of the market and thereby eliminate a lot of these mispricings and the opportunity to cheaply invest along with them. Sure, once you’ve put your money in you might have a self-interested reason to see everyone else suddenly figure out what a great company you’ve invested in because they have these wonderfully translucent earnings calls, but before that point you’d want to see opacity. Such a rule (compulsory earnings calls) would work to eliminate those opportunities before one could make their initial investment, not just after. As microcap investors, what we’re getting “paid to do”, essentially, is to find these opaque opportunities, get in there, agitate for change company-by-company and work to clear the dirt and smudges off the glass, so to speak. We want that to happen AFTER we get involved and BECAUSE we got involved, not before and regardless.

My final issue is with the cutely-named imaginary organization “Coalition Against Private Public Companies”. The implication is that public companies run like private companies constitute some kind of social ill. But if we look at the facts, it is often the owner-operator/private companies of the world which are most efficiently managed and whose business is best looked after compared to the alternative of entrenched, professional managers and disconnected, alienated and disinterested public shareholders (see this outstanding research piece by Murray Stahl [PDF] for a convincing argument, for instance). Indeed, it is often the public companies which are most dysfunctional– how is it preferable to have a management team obsessed with short-term earnings results, attempts to influence and gain the approval of Wall Street analysts, etc.? It’s perhaps syntactically confusing but what is really worth rebelling against is public private companies, not private public companies.

A public private is a company that SHOULD be private, but is in fact publicly traded and as a result the minority partners in the business, that is, the various outsider shareholders from the investing public, are treated like nuisances or smurfs whose capital is to be dissipated at the insider owners’ discretion. Such managers have no incentive to responsibly steward the outside shareholders’ capital because it doesn’t belong to the insiders and the outsiders are, in most cases, afforded an ambiguous and difficult, if not impossible, legal process to attempt to assert their equal status as capital owners. The most benefit they can receive from the capital is to issue some of it to themselves as generous salary or bonus payments, to use it as a tool for conducting ego-gratifying acquisition strategies or by sitting on it as a kind of future retirement/pension package to ensure they can care for themselves even in old age by remitting it to themselves as needed.

A private public company, on the other hand, is a company whose capital ownership is diversified and constituted by numerous members of the investing public, but which is managed and operated with the efficiency, passion, dedication and noble conservatism such as one would expect from a competent family dynasty or other limited, owner-operator control group or person. This is a company that treats capital as a precious commodity and always seeks to maximize the returns on its use which all members of the investing public so involved stand to benefit because they are treated as equals even though they have minority status. The fact that this company is publicly traded does not influence the decisions of the management and serves only to benefit all shareholders in the instances in which the management can buy back undervalued shares or issue significantly overvalued shares to raise cheap capital.

Truly, there are very few enterprises on all of planet earth that really provide their owners (shareholders) with outstanding additional benefits by virtue of their being publicly owned and exchanged. The more I think about the issue, the more I wonder why most public companies are public in the first place. Almost every IPO seems to represent an opportunity to cash in on delusional hopes and ignorant dreams rather than a genuine opportunity to “share the wealth” in exchange for some long-term capital necessary to fund profitable growth.

If I were to join a group agitating for change, I’d like to imagine it’d be called the “Coalition To Privatize Public Companies.” But honestly, I have no use for imagination, nor for agitation. I don’t seek to have others bear my cross, even as a joke or a day-dream. No, this is in fact a principle (one of several) of my efforts as a private, individual investor in the public market place and I intend to pursue it throughout my career.

It’s part of my long war.

David Friedman’s The Machinery Of Freedom, Illustrated

 

 

David Friedman narrates an illustrated look at the world of the private property society, where law and security are provided by voluntary contract and the legal system is pluralistic with trends/incentives toward monolithic standards in areas of major social importance. The source of the material is his book, The Machinery of Freedom.