Wednesday Briefs – 3 March 2021

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THIS WEEK: One Year of Wednesday Briefs; Work from Home; Peak Elon; Conservatism.

One Year of Wednesday Briefs

It has been one year since the first Wednesday Briefs appeared on this site just as the pandemic was accelerating. Thank you to our readers from all over the world. If you are learning or otherwise benefiting from the Wednesday Briefs, please recommend them to your colleagues and friends. Word of mouth makes a big difference. The Briefs will continue to evolve and improve over the next year and beyond. Stay tuned.

Work From Home

No one will say that it has been easy. But compared to the last big pandemic in 1918-19, the present one has been far less severe, except for people who lost a loved one. Consider that a large number of the victims back then were soldiers returning from Europe, that medicine was rudimentary compared to what we have today, that telecommunication was nascent to nonexistent, that homes were not as spacious, comfortable or sanitary.

One of our current blessings has been the ability to shop, socialize and work from home thanks to high-speed broadband. Except for medical and essential workers, everyone was able to shop from home, be entertained at home and work at home. Depending on the person and the task, working from home was more productive or less productive. Because this is obvious, it is also obvious that employers and employees are taking notes on the best way to move forward. Some people prefer or need a flexible work from home (WFH) schedule. Others thrive on the energy and structure of an office environment. Some firms need everyone on site. Others want to save money by reducing office space.

Now that the virus is subsiding, the question then is what happens to WFH. It will not be a one size fits all answer, but several answers. For each individual career, a problem will arise when someone prefers WFH but his firm wants him in the office, or vice-versa. For those who opt for WFH, be careful what you wish for. We could soon have two-tier or two-speed employment, the office worker on the faster track to promotions and raises, and the homebound worker on the slower track. Both may be fine if that is what a person wants, or not fine if they feel that the arrangement does not fit their life needs or ambition. Looking on the bright side, there are now options that fit different personalities and needs.

Peak Elon

Was it Elon’s grilling of the Robinhood CEO (“the people demand answers”)? the tweets during the GameStop madness? Tesla’s investment in Bitcoin? the invitation to Putin to appear jointly on Clubhouse? For a while, Elon Musk was everything and everywhere and on everyone’s mind. Ubiquity is often the sign of a top, as we know from the tale of the shoe shine boy who obsesses about stocks. Which begs the question: Did early 2021 just give us Peak Elon?

There is more to Musk than Tesla but Peak Elon could in theory coincide with Peak Tesla. That the stock is overvalued is beyond contention. Bearish estimates put the valuation at somewhere between $50 and $250, depending on how much you allow its cars to be a software product instead of an automotive product with a long-range battery.

Competition is coming fast with all the majors rolling out electric vehicles (EVs). It may be that none of them match Tesla’s cool factor, or that Tesla’s battery can travel farther on a single charge, but these considerations alone will not prevent the likes of Volkswagen and Ford from making significant inroads in Tesla’s market share in EVs. Competition is coming fast in software too, with Google, Apple and others all developing automated driving software. Meanwhile the profit picture is unclear. Carbon credits helped the company turn a profit in 2020 (and join the S&P 500) but they are expected to fade in 2021.

Much depends on the macro environment. With free money gushing out of Congress and the Fed, Tesla stock could make new highs throughout the rest of the year if long term rates do not rise too quickly. And it is then evident that Elon would also break new all-time highs.

Conservatism

Not everyone agrees on the definition of a conservative. The old school may not be entirely on board with thrice divorced talk show hosts (Limbaugh) or former casino operators (Trump) calling themselves conservatives. For the younger crowd puzzling over the word, there is Merriam-Webster and it has these definitions of conservatism: 1) disposition in politics to preserve what is established, 2) a political philosophy based on tradition and social stability, stressing established institutions, and preferring gradual development to abrupt change, and 3) the tendency to prefer an existing or traditional situation to change. In short, it is a combination of resisting change and of upholding what is already there.

William F. Buckley Jr., a conservative circa 2000.

Do today’s conservatives check all these boxes? They do in the resisting but they don’t as much in the upholding. They do, in opposition to the more militant trends on the left, but they don’t, in the definition of their own positions, in particular with regards to “tradition and social stability”, “established institutions” and a preference for an “existing traditional situation”. The talk of overhaul and the skepticism about established institutions are common within the Trump base. That base may be more Trump than genuinely “conservative”. But then, how many people are left who are under 50 and truly conservative?

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The Boom in Certainty

Sinclair Lewis called it “the sedate pomposity of the commercialist”. Now it has spread to many parts of society, not always in its sedate form.

Back in our final days as architecture students in Austin, our class had a farewell gathering with a professor who had been a valued mentor to several of us. As was habitual on such occasions, the professor was discussing with us the work of various architects when the subject of a newly-constructed building came up.

“I hate that building”, one classmate said flatly.

After an awkward silence, the professor mocked: “you mean, strongly dislike?” Off guard, the offending party protested that his use of the word was innocuous then and there. The professor conceded as much but explained that it was a visceral word, the kind of word that forestalls further discussion and that hardens the speaker’s and listener’s opinions. It is difficult to walk back or to change your mind from “hate”, and easier to do so from “dislike” or even from “strongly dislike”, he argued. His advice was to leave in one’s words an open path for retreat, in essence to never burn one’s rhetorical bridges.

This led to another discussion about certainty and about people who speak with certainty. The professor said that he had a reflexive dislike for certainty and that he felt a profound distrust towards people who speak with certainty. There is very little that is certain in life, he said, even among things of which we are convinced at a given point in time. Opinions change, science changes, research advances. New discoveries change our beliefs. Knowledge doesn’t just flow or evolve gradually like a river; it shifts laterally and sometimes suddenly like an earthquake.

In the same vein, he said that he disliked the phrase “common sense” because he believed that common sense is constantly shifting. What is viewed as common sense today will appear tomorrow as nonsense or, worse, as prejudice, he argued. He saw people who speak with certainty as demagogues seeking to maximize their profit in the present, as self-festooned markers of the common sense of today that will be washed away tomorrow. Years later, I encountered the same distrust of certainty in the pages of Main Street where Sinclair Lewis decried “the sedate pomposity of the commercialist”.

Sinclair Lewis in 1914.

100%, the Best!

Yet to us in early 2021, “sedate” sounds good. Most of us would take sedate in a heartbeat because the pomposity of the commercialist has ceased being sedate several decades ago. In earlier times, the wealthy tended to speak publicly in more measured tones, and the successful bore scars from their earlier humbling setbacks.

But not any more today. Today, we have widespread loudness and certainty. A large segment of our culture admires “straight talk” and “straight shooters” who “cut through the nonsense”. More and more, it views nuance and analysis as nothing but feckless and paralyzing casuistry. It glorifies action over thought. Worse, with social media, loudness and certainty are being deployed effectively to amplify wealth and success. Online provocateurs get more followers and more attention. As a result, we witness a public tantrum by a big or middling celebrity on a frequent basis.

Our economy too offers on average vastly greater rewards to those who are successful the easier way (and work in rent-seeking sectors) than to those who are successful the hard way (say doctors or engineers). Banking requires certainty and confidence but it does not require as complex a skillset as for example surgery. Yet the average banker is wealthier than the average surgeon. And a top banker is wealthier than a top neurosurgeon by a factor of 10x or more. It is not unusual in New York City for a middle-aged doctor to be outbid for a luxury apartment by a banker half his age.

30-year and Risk-free

We should have no objection to such people so long as corrective market mechanisms can function freely. In the old days, wealth distortions were periodically corrected by recessions during which fast money risk takers lost much more than slow money earners. Then, the overconfident youngster would sometimes wind up panic-selling his New York apartment to the same doctor at a much reduced price and renting a studio to wait out the crisis until the next wave raised his fortunes again. That was the fable of the tortoise and the hare.

But now the hare wins at first and then keeps on winning. The corrective mechanisms are now a thing of the past. Bailouts upon bailouts have all but eradicated failure for the fast money and ensured their rising prosperity ad infinitum. Any major setback would have been an existential threat in another time, but in 1994, 1998, 2001, 2008 and 2020, the market corrections were only temporary headaches alleviated and cured by Congress and/or the Federal Reserve again and again. The Greenspan put is a distant and quaint precursor of what has subsequently transpired.

Moral hazard has widespread consequences, not only in the markets but in the culture and in the conduct of men and women. The net effects are a decrease in self-restraint and an absence of moderation, in language and in actions. At the same time, there has been an increase in manufactured certainty and in burning bridges. The cost for being wrong on that certainty has been brought down to close to zero. All high-flying players have been reassured that every crisis is only a temporary setback before they are rescued and the good times return. If as a result, some people are certain of some things that are demonstrably false, it is not because they are blind or lack lucidity. It is because we have rewarded certainty over facts for a long time, and rewarded people who speak with certainty, irrespective of whether their facts are truthful.

Cool Entrepreneur to Mob Inciter

And then the pandemic came along. No matter how much certainty any of us may feel, a deadly virus will kill any of us who don’t take the right precautions to preserve ourselves. Covid-19 cannot be bullied or cajoled or impressed. It doesn’t care how poor or rich anyone is, or what they post on Twitter. The pandemic was in fact the ultimate certainty slayer. So the certainty pushers laid low for a while, if reluctantly. They tried to deny the virus, to evade its existence or minimize its importance. But in the end, they had no choice but to hunker down. The virus was looking for them as for anyone.

But now that we have vaccines and declining infection numbers, they are back again in full force as if to make up for the time they lost in confinement. However, “they” are no longer just the rich and powerful who benefited from bailouts. Social confinement has reduced contagion from the coronavirus but it has increased the contagious spread of certainty. This particular ailment now afflicts people from all walks of life, from the billionaire who cusses liberally online all the way to the little guy (as some call themselves) fighting to get his fair share.

Interestingly, some celebrities have knowingly or unwittingly assumed the role of mob inciters, egging the mass of little guys to rise up and topple the prevailing order, whatever that happens to be in their eyes. Here social media is inadvertently playing an important role in facilitating the broadcast of incendiary messages, brief and insubstantial as befits true propaganda, to tens of millions of people at once. Is this what social media has become, a place for some celebrities to incite followers?

The pomposity and certainty of the commercialist have pushed some rioters to invade the Capitol, and others to raid the stock market. They did so loudly and with certainty and they burned many bridges, allegedly in the name of a just and overdue rebellion. When their conduct is criticized, they posit this question: “if the elites cheat in order to win, why shouldn’t everyone else?” We covered this theme previously: cronyism opens the door to mass disillusionment and/or to socialism.

This madness may not end until the loud and certain at all social and income levels experience some setbacks that are not immediately backstopped by government or other action. And it may not stop for as long as some people with large followings on social media incite mass actions of any form.

President Trump was only half right in his prediction. We are not tired of winning. We are tired of some people breaking things in order to win. The rich break things through cronyism. The less rich break things through mass movements and riots. The second justify their actions by pointing to the first. In both instances, everyone loses in the long run. We need more uncertainty in order to restore risk and sanity. And to sedate the pomposity.

Photo of Sinclair Lewis by Arnold Genthe.