Jeff’s Newsletter, Volume 7
Thanks for joining for Week 7! This week I spent over 20 hours driving and thus consumed a lot of podcasts. The most fun part of this was burning through the back catalogue of the Stratechery podcast. I was a late arrival to Stratechery but can’t recommend it highly enough if you’re interested in technology and/or business strategy. On one level Ben Thompson is just an industry analyst, providing bull and bear views on the familiar tech giants. But he has an uncommonly deep view of the long-term evolution of the tech industry and is able to relate weekly product releases to this multi-decade narrative. It got me wondering: are there any similarly good analysts in other industries? Healthcare comes to mind because it’s so complicated. I would really value some weekly analysis putting pharmaceutical, hospital, insurance, and device company prospects in broader perspective. If you follow a great analyst in any industry, I’d love to hear about it. I’ll share interesting answers next week.
Through all that listening I started to uncover Ben Thompson’s underlying theory of how the tech industry evolves. His most important concept is a distinction phrased alternatively as thick vs. thin clients, vertical vs. horizontal companies, or devices vs. services. A vertical company sells devices which they hope some customers will use exclusively. A horizontal company sells services which they hope everyone will use, regardless of device. At the peak of its dominance, Microsoft was a horizontal company: Windows on every PC, whether Compaq, Dell, or HP. In the next phase, vertiginously vertical Apple became the dominant company on the back of MacBooks and iPhones. Thompson’s theory of evolution is that the industry alternates between epochs of horizontal and vertical orientation, and that the dominant company in one era will always fail to adapt for the subsequent one. History accrues like a Jenga tower: horizontal and vertical layers stacked, alternating, on top of each other. He sees the iPhone as the peak of the current device era, carrying inside it the seeds of its own destruction. With the iPhone came immense data bandwidth. You no longer need a fast computer in your pocket; all the computation can take place in the cloud and stream results to cheaper devices as needed. So Thompson thinks there will never again be a product as expensive or dominant as the iPhone; instead we are entering a long horizontal era where the dominant companies will be those that provide cloud-based services.
In his view, this is the recipe for a world divided between Facebook and Amazon. The former dominates media and the latter dominates commerce. Both share a key similarity: they are very good at providing open-ended infrastructure (services) on which the rest of the world operates. To see how fundamental this idea is to all of Amazon’s ventures, check out this recent interview with Jeff Bezos. Amazon Web Services is the infrastructure for the web; Fulfillment by Amazon is the infrastructure for logistics; Alexa is meant to serve as the infrastructure for third-party AI assistant products; and Blue Origin as the infrastructure for third-party space entrepreneurship. If you buy all of this analysis, one move might be to sell Apple, which has only thrived in a device-centric world and has product worship built into its DNA. I adhere pretty strongly to investing in index funds and avoiding the hubris of stock-picking. This week, for the first time, I cracked and bought a few shares of Amazon.
2. Against against democracy
With less than a week to the election and the menace of Trump still afoot, it’s a fitting moment to reflect on our system of government by the people. In the New Yorker, Caleb Crain reviews the philosopher Jason Brennan’s recent bookAgainst Democracy. Brennan’s starting point is the observation that most people don’t know or care very much about policy. From this he concludes that a preferable system would be epistocracy: rule by the knowledgeable. Votes might be weighted by education level, or only a subset of the population would be allowed to vote. If this sounds regressive, you won’t be mollified by Brennan’s assumption that African-Americans would disproportionately not make the cut. Literacy testing rears its ugly head (Brennan says the distinction is that literacy tests were intentional exclusion, while his program would just entail incidental exclusion).
There are several strong philosophical objections to Brennan’s view. Crain channels Hannah Arendt to question the basic premise that some people have exclusive access to the Truth: claims to truth “preclude debate, and debate constitutes the very essence of political life.” Even if you grant that some people know better than others, you might still deny that this imparts political authority, as the philosopher David Estlund suggested: “You might be right, but who made you boss?” To these objections I would add Jeffrey Green’s book The Eyes of the People, which I discusseda few weeks ago. It’s striking to note how that book and Against Democracy depart from the same initial observation that the people don’t have consistent, informed preferences. But Eyes of the People makes an important distinction: giving power to the people does not necessarily entail magnifying their voices at the ballot box. In Green’s ocular model for democracy, the people wield power by scrutinizing politicians in public fora and shaming them for bad behavior. In any case, I think ignorance is not the biggest problem with the American electorate. More serious is the social gap between the Blue Tribe and Red Tribe, and the lack of a coherent vision of national unity and national interest that results. If you don’t value your fellow citizens and see each other as stuck in the same boat, no amount of instrumental rationality will help.
3. MTV Cribs, inside my ballot edition
One reason voter ignorance is not crippling is that we mostly have a representative democracy. When we veer closer to direct democracy, the problem grows. Welcome to the spooky, scary world of California ballot propositions. This week, I filled out my vote-by-mail ballot. That process required researching 17 statewide ballot propositions. I thought I’d share my decisions; if not slightly useful for undecided California voters, hopefully interesting for the rest of us to consider what kind of policy can emerge from direct democracy. I will state right away that I am generally opposed to ballot initiatives, as should be clear from my comments on ocular vs. vocal democracy. Most initiatives are written by special interests and the public does not have the time to read the fine print. Complex policymaking should be left to the legislators we elect for that purpose, even when it’s inevitably frustrating that they don’t move fast enough. That said, working through these 17 propositions helped clarify for me the circumstances in which propositions are valuable. I’ll summarize my working theory at the end. For each proposition, I’ll share my yes/no vote, an argument, and an opinion on whether this is a fair question for the ballot. In researching this, I owe thanks toBallotpedia, which puts together a great resource with arguments pro/con and excerpts from newspaper endorsements, and to Kevin Drum, who shares much of my policy orientation including a staunch opposition to ballot initiatives.
- Prop 51: $9 Billion Bond for School Construction. I like funding schools. But this is a handout to developers and construction companies; ongoing funding for school maintenance should be built into the budget rather than one-off bonds; and large, savvy districts will disproportionately dip into this statewide pot–precisely those districts most capable of issuing their own bonds. I vote No. Should not be on the ballot.
- Prop 52: Medi-Cal Hospital Fee. This would prevent the state from moving any money that comes in through hospital fees out of Medi-Cal (Medicaid) and into the General Fund. Medi-Cal is an important program, but voters shouldn’t be running the state budget. That’s the legislature’s job. I vote No. Should not be on the ballot.
- Prop 53: Voter Approval for all Revenue Bonds Over $2B. This would require voters to weigh in on all large bonds. We don’t want to let voters handcuff the state from getting anything done! I vote No. Interestingly, this is probably an appropriate ballot question because it’s a meta-level question about the role of voters vs. the state.
- Prop 54: Legislative Transparency. This would require all amendments to state bills to be published online 72 hours before a vote. It would interfere with legislators’ ability to get last-minute deals together (and give lobbyists time to intervene). We should also be skeptical that this idea is funded nearly 100% by a single billionaire, Charles Munger Jr. Is this really a problem anyone else noticed? I vote No. As a matter of legislative process, I acknowledge that yes, this is a fair thing to have an initiative about.
- Prop 55: Extending Top Income Tax. this would extend a previous proposition that temporarily raised income taxes in the highest bracket. I support this kind of tax, but we need more stable fixes to the tax structure and should not get in the habit of devising tax policy through the ballot. I vote No. Should not be on the ballot.
- Prop 56: Cigarette Tax. California has relatively low cigarette taxes; this would increase them by $2/pack. This will save lives. It’s too bad the revenue is earmarked for specific programs. But I vote Yes. This shouldn’t be on the ballot, but given that it exists I’ll do the right thing.
- Prop 57: Parole for Nonviolent Felons. CA is under federal order to reduce its overcrowded prison population. This is a sensible way to do it. I vote Yes. This is a fair question for the ballot, particularly because it has such simple, transparent implications.
- Prop 58: Allow Non-English Education. This would repeal a previous ballot initiative which–say no more. I vote Yes. In that it repeals a proposition, this is a fair question for the ballot.
- Prop 59: Advisory Question to Overturn Citizens United. This would “encourage” the state to do what it can to overturn Citizens United. This is a waste of time. There are lots of other ways to signal your opposition to Citizens United, like voting for senators and presidents. I vote No. This should not be on the ballot.
- Prop 60: Require Condoms in Pornographic Film. What it sounds like. This is such a specific regulation; clearly an example of ballot overreach. There is also some evidence that it’s bad on the merits in the context of other health precautions that exist in the pornography industry. But that’s the point–few of us know enough to casually regulate that industry. I vote No. This should not be on the ballot.
- Prop 61: Prescription Drug Pricing Standards. This would forbid California agencies from paying any more than the VA does for individual prescription drugs. See Ted Lee’s excellent article to explore the complicated implications–national implications–of this proposal. There are likely to be major unintended consequences for drug prices and drug availability in California and nationwide. Such a thing should not be resolved by initiative. A legislative approach gives more latitude for amendment and revision. I vote No.
- Prop 62: Repeal Death Penalty. The simplicity of this proposal makes it appropriate for the ballot. Moreover, it’s the kind of moral question which our full citizenry is better equipped to decide than technocrats. And I agree strongly on the merits. I vote Yes.
- Prop 63: Background Checks for Ammunition. This probably won’t accomplish much since the legislature just passed a similar law, but it can’t hurt. I’ve heard the argument that even those of us concerned about gun violence should vote no because this will disproportionately criminalize minorities. Unfortunately, that argument applies to any otherwise sensible increase in policing dangerous activities. We should strive to make policing more equitable, not refuse to police. I vote Yes. But I think this is probably not a good ballot question.
- Prop 64: Legalize Marijuana. This one was surprisingly tough for me. I support it from a criminal justice standpoint, am worried about it from a public health standpoint, and get the sense this proposition is badly written from a regulatory standpoint (in deciding how to tax marijuana and how to apportion the proceeds). Some opponents say marijuana is already semi-legal, so why rush to legalize it through the ballot? But there are stillplenty of felony marijuana arrests, even while misdemeanors have plummeted. Perhaps the deciding factor for me is the likely implication for Mexican cartels–prices will continue to drop, and they’ll be driven out of the marijuana business (on the other hand, there is evidence that they are already switching to heroin). I vote Yes. I think this is a fair ballot question with respect to matters of legality and illegality, but dangerous with respect to taxation and regulation.
- Prop 65: Earmark Proceeds for Plastic Bag Ban. Assuming Prop 67 passes, this would earmark the proceeds of a bag tax to specific causes. Again, I oppose ballot-box budgeting. I vote No. This should not be on the ballot.
- Prop 66: Death Penalty Procedures. This would supersede Prop 62, keep the death penalty, and create new procedures for handling death row cases. Obviously I am opposed on the merits. I vote No. And since this goes beyond the simple yes/no question on the death penalty and gets into details of how the legal system should work, I do not think this should be on the ballot.
- Prop 67: Plastic Bag Ban. This is just a referendum to uphold something the legislature already passed. I don’t really care about the plastic bag issue, but it seems reasonable to uphold something the legislature evidently cares about and that only the plastic bag industry is fighting. I vote Yes. Because of the simple legal/illegal distinction, I think this is a fair ballot question.