Live from New York, Etc.

By John Mauldin

I am writing in the middle of a whirlwind week in New York. 

We are going to discuss what I’m learning, some takeaways from the conversations I’ve had, changes in my personal portfolio, and thoughts around the topic of the day: inflation. 

As well as a few random things that I have read this week. 

All delivered to you within my 3,000-word limit. 

Let’s jump in…

Changes in My Personal Portfolio

Recently I’ve mentioned some changes in my own investments. 

This generated questions from readers who want to know more. 

So now is a good time to elaborate.

Years ago, my partner in our money management business, Steve Blumenthal of CMG, and I developed what we called the 80/20 portfolio. 

Conceptually, that means 80% of your portfolio goes into core positions intended to grow to 100% of the original portfolio in five years. 

These are typically nonaggressive cash flow and similar products yielding somewhere in the 5% neighborhood.

We then position the other 20% to “explore” stocks and assets able to grow at a much faster pace, albeit with more risk. 

Think technology, certain real estate positions, etc. 

You spread your risk over multiple such positions, taking a longer-term view but watching them closely.

The 80/20 split is a guideline, not a hard and fast rule. 

The older and less risk tolerant you are, the more you allocate to core positions. 

Younger investors with good income might think more along 70/30 lines—realizing that your business and/or job is a key risk as well.

Now, this is a “do as I say not as I do” description. 

Five years ago, my own portfolio was probably more like 70/30. 

That was a bit aggressive for somebody then in his mid-60s, even though my income stream was comfortable. 

Given my personality and access to deal flow, it seemed quite reasonable.

Today, my portfolio is about 40/60, for good reasons. 

My explore portfolio has done very well over the past few years. 

It will come as no surprise to long-term readers that the bulk is in biotech. 

It’s where I somehow have access to deal flow, familiarity with the technology, and a really exceptional team of advisors/friends. 

I admire people like Cathie Wood and Ron Baron who can source and understand technology and businesses over a wide array of opportunities. 

I let managers like them source “explore” technologies in AI, robotics, etc. 

I’m enthusiastic about the entire space, but I simply don’t have the personal ability to drill down and figure out who’s going to be the winner. 

Everybody talks a good game, but only a few managers actually get the ball past the goal.

There is a school of thought that says I should rebalance. 

I could do so, but I simply have no real reason to, at least currently. 

Most of the companies I own are still in the growth stage. 

There’s one, still private but my largest single position, that I put a great deal of due diligence on. 

I believe in the management team and their technology. 

To the point that I have told Shane that if something untoward happens to me, don’t sell that stock until Steve Blumenthal does. 

Everything else is fair game but I think this is my personal bet on a long-term monster multiple. 

I think it is just on the cusp, even though we’ve already seen some very nice growth in the last few years.

If I were starting today, my portfolio would probably look closer to 80/20. 

My core allocation has averaged mid- to high single-digit returns for the last seven years. 

Much of it is in a variety of multi-strategy hedge funds, which may sound risky simply because of the word hedge fund, but are actually fairly boring mainstream fixed income substitutes. 

We have been able to track it as a portfolio since 2014. 

My worst year was -0.2% and my best year was, well let’s just say really good as everybody hit a homerun that year. 

I don’t expect to repeat that very often.

I do have one fairly aggressive hedge fund, whose manager I personally know very well. 

I told him recently that one of my biggest mistakes was not giving him more money. 

I knew when he launched his fund about five years ago it would be volatile, and it has been—40% drawdowns have been common. 

But the up years have been very, very good. 

That was less than a 2% position when it started. 

Now it’s closer to 7–8% and I actually think about rebalancing, but he is in a drawdown. 

I hate to take money from what I ultimately think is a very good winner and I like his current positioning. 

But at some point…? (By the way, he is closed to new money, and he is too volatile for me to recommend to clients. 

I don’t want to have to hold someone’s hand in a 40–50% drawdown. 

Some months I don’t even look at the monthly returns, trying to focus more on the quarterly and annual returns.)

My point is not to encourage taking more risk, especially at this point in the market, but to get you thinking about creating your own core positions so you can feel comfortable taking a few “explore” options. 

The key is having a core portfolio that is adequate to sustain Shane and me. 

If it weren’t, then the level of my current explore portfolio would be irresponsible. 

Yet my explore portfolio has grown to the size it has, position-wise, organically, for all sorts of good reasons. 

I should note that I certainly don’t hit 100% in my riskier choices. 

I’ve had my share of goose eggs, more than I want to think about. 

Which is why I’m a little bit pickier about my explore choices today.

Just food for thought as over the last few weeks I have been talking with the management of some of my explore choices and it is at the top of my mind right now.

Whither Inflation?

I have had numerous meetings and discussions about inflation over the past few weeks. 

It is clearly the hot topic. 

I’ve written about it a little bit over the last few months. 

I’ve also been able to talk with a number of analysts and researchers this week in New York.

Let me go out on a limb and say the chance of an 8% handle on CPI inflation in the first quarter of 2022 is nontrivial. 

As my friend Peter Boockvar noted, it becomes harder in April and May 2022 to show high year-over-year inflation as it was already at 4% at those points in 2021. 

Here’s a chart and some thoughts by Joseph Brusuelas at RSM (which we shared with Over My Shoulder members this week).

“A deeper look at the data shows that the increase took place primarily in the sectors of the economy hardest hit by the pandemic, implying some relief ahead as supply-chain bottlenecks are undone. 

The Fed will not be so concerned about these factors, many of which will abate in the coming months.

Source: RSM

“But the second straight 0.4% increase in owners’ equivalent rent—up by 3.1% on a year-ago basis—requires scrutiny by policymakers. 

The inflation that flows through this component and the broader shelter sector tends to be more persistent than the increase in the volatile food and energy components and in the pandemic-impacted industrial supply space.”

Source: RSM

Note that inflation early last year was quite low. 

So the year-over-year comparisons give us the current 6.1% inflation we have today and could easily grow to 8% in January and February, especially if the OER (owner’s equivalent rent) is properly accounted for.

(Sidebar: OER as a measurement tool for inflation is simply broken. 

We need a better measure. 

Bad measurements end up in bad policy, as we saw with the Fed not reducing QE and raising rates earlier this year.)

“So inflation is back to where it was in Oct/90 and July/08. 

Guess what? 

The economy was recession-bound both times, the Fed’s next move was not exactly to raise rates and Treasury bond yields plunged in the coming twelve months (and by a lot!). 

Bob Farrell’s Rule #9 reigns.”

The economic growth we’ve seen came not from the Fed and quantitative easing but from the massive fiscal stimulus provided by Congress, leading to the current inflation. 

Now that it is mostly spent, future growth will be inhibited. 

My friend David Bahnsen sent this chart:

Source: David Bahnsen

This is not the stuff that 3% GDP dreams are made of. 

It should give us pause in our exuberance of hopefully being past the COVID crisis, that the real economy is still governed by supply and demand, and demand depends on income.

I think it is quite possible we will have a very low-growth 2022 accompanied by uncomfortably high inflation. 

Fed officials are way behind the curve. 

They have now painted themselves into a corner. 

How do you tighten to the extent needed when GDP growth is only 1–2%?

An entire generation of portfolio managers and investors have never dealt with inflation, except in the theoretical context of an economics book. 

Inflationary periods have often not been kind to stock market investors. 

I literally have no idea what Jerome Powell (assuming he is reappointed) will do. He will only have bad choices. 

Doing nothing is a bad choice. 

Reducing QE, let alone raising interest rates, will likely prove uncomfortable for markets, to say the least. 

I would have your hedges and portfolio positioned for a lot of volatility over the next 14 months.

There’s No Free Lunch

Speaking of David Bahnsen, Tuesday night I was at his book launch party. 

He’s written a brilliant collection of 250 quotable economic thoughts throughout the centuries, with his own commentary appended. 

The short quotes are all sound economic thinking in today’s world of very dangerous ideas. 

The book is called There’s No Free Lunch .

One of the quotes is actually mine.

Source: David Bahnsen

A few other samples:

Source: David Bahnsen

Source: David Bahnsen

Source: David Bahnsen

Some Interesting Data on Viruses

I read a wide variety of letters and research. 

Recently, Justin Stebbing pointed me to the fascinating question of whether viruses are actually “alive.” Can you put them somewhere on the tree of life? It’s a very complex and controversial subject. But this part really struck me:

“An estimated 10 nonillion (10 to the 31 st power) individual viruses exist on our planet,  enough to assign one to every star in the universe 100 million times over…

“Yet, most of the time, our species manages to live in this virus-filled world relatively free of illness. The reason has less to do with the human body’s resilience to disease than the biological quirks of viruses themselves…

“These pathogens are extraordinarily picky about the cells they infect, and only an infinitesimally small fraction of the viruses that surround us actually pose any threat to humans.

“Still, as the ongoing COVID-19 pandemic clearly demonstrates, outbreaks of new human viruses do happen—and they aren’t as unexpected as they might seem.” ( National Geographic ).

That speaks to the fragility of life. 

But before you begin to obsessively wash your hands and decide to live in a clean room, here’s a bit of good news from two young Australians who write a rather quirky newsletter called Future Crunch

They highlight good news from around the world that you just don’t read about. 

I like reading them just to make myself feel good.

This week they had some rather good news on the virus front, which probably didn’t make it to your inbox:

“One of the four major flu viruses that circulate in humans [in Australia at least and maybe the world— JM ] might have gone extinct thanks to the COVID-19 pandemic. 

The Yamagata virus has not been detected since April 2020 anywhere in the world. 

Together with the Victoria virus, it used to be responsible for somewhere between 290,000 and 650,000 global deaths every year.” ( ABC )

Thanksgiving and More Travel

Shane and I will head to Dallas for Thanksgiving and I’m already starting to plan a return trip to New York and a few other cities. I really enjoyed this whirlwind week. Some thoughts on my trip:

New York’s crowds, traffic, tourists, and restaurants are finally back. And for me at least, it was good to find a lot of friends, both old and new, in the investment world to be able to share ideas with.

Sunday and Monday were filled with meetings. 

We closed out Monday evening with a client dinner at Bobby Van’s. 

One of our guests pointed out that JP Morgan’s bank vault was underneath Bobby Van’s. 

With a few polite questions, we were led outside and down to an extraordinarily large bank vault, with all the drawers and numerous side vaults, taking me back to what it was over 100 years ago, imagining what it would’ve been like to be in J.P. Morgan’s office during the Panic of 1907.

Source:  John Mauldin

Tuesday was an all-day meeting with my partners Olivier Garret and Ed D’Agostino talking about Mauldin Economics. 

We have done much better than expected the past two years and we will launch some very exciting new programs in the next few quarters as well. 

One of the best decisions I’ve ever made was when I decided I am simply “talent” and should let management run the business. 

My life is so much better and simpler. 

The business is run much better, too.

Wednesday at lunch I met with my good friend Ian Bremmer and Andrew Yang for a fast-paced 90 minutes. 

Any discussion with Ian is always full of fascinating insights, but Andy is just a powerhouse full of ideas. 

He has a new book called Forward: Notes on the Future of Our Democracy

He is quite passionate about developing an alternative to the two-party system, which will be an uphill battle, but frankly, a few additional choices might help. Interestingly, he wasn’t arguing for his own candidacy but rather that there needs to be a platform for others to run. 

I won’t mention the names he dropped, but they would make for an interesting, if not entertaining, 2024 race.

Wednesday night I had dinner with David Bahnsen and Sam Rines, Thursday meetings with potential clients and friends, and then dinner with a host of friends capping off an incredible five days in New York. 

As you read this, I will be back in Puerto Rico. 

You have a great week and spend some time with friends if you can.

Your getting ready to talk about economics and inflation analyst,

John Mauldin
Co-Founder, Mauldin Economics

What is the least we need from COP26?

If global carbon emissions are to fall quickly, negotiators must bear the following in mind

Martin Wolf 

© James Ferguson

What pledges must be made by the parties meeting at COP26 in Glasgow if there is to be a good chance of keeping the increase in temperatures above pre-industrial levels to less than 1.5°C, as the Intergovernmental Panel on Climate Change recommends? 

The answer, as I argued last week, is that they must be much more ambitious: above all, they need to cut emissions far faster.

It is not enough to offer St Augustine’s vow of “chastity, but not yet”. Pledges of “net zero” thirty years from now are too easy. It is necessary to cut emissions by close to 40 per cent by 2030, instead. 

The curve of emissions must be bent downwards now. 

That is economically and technologically feasible, albeit hard. 

Ten years hence, it will be too late to avoid irreversible damage without resort to the risky geoengineering recently discussed by Gernot Wagner.

Between 2017 and 2021, the proportion of global emissions covered by some form of “net zero” target jumped more than 65 percentage points, to more than 70 per cent. 

Yet the “nationally determined contributions” (NDCs) agreed at COP21 in Paris, in 2015, are far from tight enough to achieve the needed reductions in emissions, especially by 2030. In that year, pledged emissions will exceed the upper limit imposed by the recommended 1.5°C ceiling by 20-23 gigatonnes of CO2 equivalent. (See charts.)

So, what must be done? 

The Energy Transitions Commission’s Keeping 1.5°C Alive: Closing the Gap in the 2020s, published last month, addressed this question. 

It recommended a six-point plan that should provide the benchmark for discussions in Glasgow.

This plan consists of: first, significant and rapid reductions in emissions of methane, an extremely potent greenhouse gas, albeit one that stays relatively briefly in the atmosphere; second, halting deforestation and beginning reforestation; third, decarbonisation of the power sector and, above all, phasing out reliance on coal far more rapidly than now planned; fourth, accelerated electrification of road transport; fifth, accelerated decarbonisation of heating of buildings and of “hard to abate” sectors, such as steel, cement, chemicals, long-distance aviation and shipping; and, finally, accelerated improvements in energy efficiency across the economy, notably in new buildings, but also by retrofitting many old ones.

The report makes clear that most of this will be complex. 

But it is also possible, with suitable support from incentives, regulation, enhanced transparency, encouragement of the needed finance and generous assistance to emerging and developing countries.

Consider some concrete implications of this ambitious approach to the next decade. 

One is particularly obvious: the NDCs need to be made far tighter and more detailed right now. 

Another is that the most important emerging countries — China, above all, but also India and Indonesia — need to commit themselves to halting the construction of new coal-fuelled power stations from today.

Yet another implication is that ending deforestation and beginning to end our existing use of coal, especially in power generation, will require a substantial and continuing flow of grants and subsidies from high income to developing countries, probably of about $100bn a year. 

This is essential if agreement is to be reached. 

But it is also just, given the dominant role of high-income countries in past emissions and their continued relatively high emissions per head.

Again, it will be essential to finance investment in green electricity systems in the developing world. 

Equity capital and debt finance are too expensive and limited. 

A crucial element will be risk-sharing between the private sector and the global public sector. Multilateral development banks must play a central role. 

The needed flows might be $300bn a year, rising to $600bn by the end of the decade, according to Adair Turner, co-chair of the Energy Transitions Commission.

A further implication is reinforced international agreements, in order to accelerate the journey to net zero in the hard-to-abate sectors listed above. 

The EU’s proposed “carbon border adjustment measure” is a vital element in this. It is not protectionist. 

It is designed to ensure that internalising a global externality in some economies does not lead to expansion of more polluting firms elsewhere. 

The ultimate objective of such border taxes should be to achieve worldwide sectoral agreements.

The final implication is that electrification is central, with electricity supplied in carbon-neutral ways, including by nuclear power, should good alternatives to it be unavailable.

These, then, are the things that need to be done if the goal of cutting emissions sharply by 2030 is to be achieved. 

Yet, still more broadly, negotiators need to remember three further things.

First, the price mechanism is not only an effective incentive. 

It can also generate the revenue needed to compensate losers. 

Yet, at present, carbon prices are generally far too low and coverage is too incomplete, as the World Bank’s “carbon pricing dashboard” demonstrates.

Second, policymakers have to remember that however the adjustment occurs, the lights must stay on and homes remain heated.

Finally, we really are in this together. No country can fix this on its own, though China, the US, the EU, India and Japan will be central. 

Individual countries will pioneer feasible paths. 

But agreements must be reached, especially between China and the US. 

Similarly, rich countries must help poor ones, as the prime minister of Bangladesh has pointed out in the FT.

The technologists have done a wonderful job in showing that we can decarbonise our economies quickly enough. 

Now leaders must show they understand the implications. 

Act quickly. 

That is how to avoid disaster.

Facebook in the Crosshairs

Berlin Hoping to Tighten the Reins on Social Media Giants

The internal Facebook documents made public by Frances Haugen have raised eyebrows around the world. The whistleblower is coming to Berlin to meet with leading German politicians - and many political leaders in Europe are eager to take action against the company. Will anything come of it?

By Maik Baumgärtner, Markus Becker, Patrick Beuth, Sophie Garbe, Veit Medick und Ann-Katrin Müller

Whistleblower Frances Haugen in London: "I hope that Germany feels the historical responsibility to act." /  Foto: Drew Angerer / Getty Images

Mark Zuckerberg spent Thursday evening doing what he likes best: talking about "the next version of the internet.” 

Speaking at the opening of an annual Facebook conference, the company founder gushed about his newest project, the "metaverse.” 

It is a place, he says, where physical reality will meld with virtual life, where people will work as avatars, go to concerts, play games, speak to each other or even teleport themselves to a place they’ve always wanted to go.

The detour into the future was likely just what Zuckerberg needed. 

The present for Facebook, after all, isn’t particularly enjoyable. 

The company – which is now changing its name to Meta – is mired in crisis. 

A mistake during routine maintenance procedures earlier this month shut down the entire system – including Instagram and WhatsApp, which Facebook owns – and the company’s stock price has been slumping. 

More to the point, though, are the explosive internal documents that have been circulating for several weeks, unveiled by Frances Haugen, a former product manager at Facebook.

Facebook’s reputation has never exactly been spotless, but the information released by Haugen has cast it in an even dimmer light – as a company that harms children and youth, divides society and undermines democracy. 

And Zuckerberg? 

The documents made public by Haugen suggest he is fully aware of this but has done nothing to fix it.

The mood at company headquarters in Menlo Park is correspondingly miserable, and Facebook and Zuckerberg both need to repair their image. 

But the affair has also made political waves, with governments in many countries now facing pressure to finally explain how they intend to rein the company in, what rules they plan to implement, and why it has taken so long.

"Nothing More Than Lip Service"

After all, plans aimed at controlling Facebook and making its platform, with their billions of users, less dangerous have been around for years. 

U.S. Congress has several proposals on its docket but has yet to pass a single one. 

In Brussels, the European Union is in the process of developing two legal packages, but movement has been slow, and they aren’t likely to become law before 2023. 

Germany, meanwhile, passed the Network Enforcement Act back in 2017 to curtail hate on the internet and other criminal content. 

But new cases have shown that the law is only of limited use, since Facebook doesn’t even obey its own regulations pertaining to the rapid deletion of dangerous content.

Zuckerberg's avatar. Facebook doesn't even follow its own guidelines. Foto: META HANDOUT / EPA

The Facebook Papers have now thrust the issue into Germany’s coalition negotiations, as the country continues to move toward assembling a new government following September’s elections. 

The three parties involved in current coalition talks – the center-left Social Democrats (SPD), the business-friendly Free Democrats (FDP) and the Greens – want to appear proactive on the issue. 

Together, they now intend to up the pressure on Brussels and want Germany’s European partners to finally take action and pass binding laws.

"The market power of digital platforms has reached worrying dimensions,” says Konstantin von Notz, a domestic policy expert for the Greens. 

Political leaders, he says, have "allowed them to get by for far too long with non-binding commitments and cursory references to community standards they came up with themselves.” 

Jens Zimmermann, the digital-policy point man for the SPD group in German parliament, agrees. 

"Only strict regulation leads to results,” he says. 

"All the promises and assertions made by Facebook in recent years were nothing more than lip service.”

Some members of the political parties involved in coalition negotiations in Berlin are thus planning to meet with Frances Haugen next week. 

Prior to leaving Facebook, Haugen spent several weeks collecting internal documents which she ultimately made public. 

They include reports from Facebook’s own research group and drafts of presentations, some of which were intended for Zuckerberg himself. 

There are analyses indicating that Instagram, a platform primarily focused on sharing images and videos, makes one in three girls with body image issues feel even worse. 

The data dump also includes memos that seem to show that the company has ignored many prominent violations of its own guidelines.

The representatives from the SPD, Greens and FDP hope that Haugen can tell them more about some of the details that have been made public and perhaps even share additional problems.

The battle between Haugen and Facebook has been fascinating to watch. 

On the one side is a giant, publicly traded company that is doing all it can to play down the disclosures. 

Facebook is insisting that many of the documents are out of date or have been taken out of context. 

On the other is Haugen, an astute, former employee who is now being treated like a popstar by the media. 

She made an initial public appearance on the U.S. broadcaster CBS, then gave testimony to a Senate committee and, on Monday of this week, appeared in British parliament. 

And now Berlin. 

The plan calls for her to meet with Justice Minister Christine Lambrecht of the SPD along with a secretary of state from the Justice Ministry and additional representatives from the three parties involved in the coalition negotiations.

The parties likely to be part of Germany’s next government were eager to meet with Haugen in part because the attitude in the country toward social media platforms is relatively clear-cut. 

According to a representative study performed by the public opinion research institute Pollytix – a survey which has not yet been made public but which DER SPIEGEL has seen – internet users in Germany are fed up with social media networks. 

Fully 81 percent of survey participants would like to see the new government "do more to force social media platforms to take action against fake news and incorrect information.” 

The message is clear, and ignoring it would be a significant political misstep, particularly for a coalition hoping to make digital issues a centerpiece.

"Real Teeth"

Haugen is visiting Berlin because she believes pressure from Germany would have a significant effect on Facebook. 

The company’s business model exposes "the most vulnerable groups to the biggest harms,” she told DER SPIEGEL. 

"I hope that Germany feels the historical responsibility to act to protect democracy and to show the world that Europe's rules and standards for Big Tech will have real teeth.”

The idea of the German government taking the global lead on digital policy may sound arrogant, but the Social Democrats like to point out that Olaf Scholz, who has spent the last several years as German finance minister and is now likely to become chancellor, played a key role in pushing through the global minimum corporate tax rate.

Furthermore, the president of the European Commission, Ursula von der Leyen, is from Germany – and there is certainly room for the Commission to be more proactive when it comes to Facebook and other social networks.

Haugen, for her part, has placed great hope in Brussels, where two projects are currently under development: a law pertaining to digital services, and another to digital markets. 

The Commission is hoping that the legal framework will prevent tech companies like Facebook, Amazon and Google from abusing their market power in the first place, rather than having to play catch-up afterwards, as has thus far been the case.

Large online platforms could lose important leeway as a result. 

They are to be prohibited, for example, from featuring their own offerings more advantageously that those from the competition. 

Furthermore, Facebook and the others will be forced to provide deeper insight into the algorithms they use, remove illegal content more quickly, and provide users with the ability to file complaints. 

They would also be required to produce regular risk analyses to promote early recognition of where their systems might be open to abuse and they be obliged to finally provide external researchers with access to their data.

Increased oversight on the national and EU levels is also part of the package.

It remains unclear whether these ideas will ever become law. 

EU member states agreed this week to parts of the legal package, but it is questionable whether the European Parliament will grant its approval. 

The laws, after all, touch on competition, freedom of opinion and issues of discourse and decision-making – all of which are sensitive, especially in Europe. 

As such, the negotiations have been difficult. 

National interests have thus far stood in the way of a quick solution, as have open questions about which companies the laws should apply to. 

Only to Facebook and other internet giants? 

Or also to booking services, job portals and streaming companies?

A new name at headquarters: Facebook is now Meta Foto: META HANDOUT / EPA

It also remains unclear who will be responsible for enforcement. 

The Commission would like to oversee compliance, and plans call for the hiring of around 80 new staff members for the purpose. 

Critics, though, say that won’t be nearly enough, which is one reason why national agencies also want to be involved in enforcement. 

That, though, could result in new conflicts with the European Parliament. 

Many in Brussels want to keep things completely in the Commission’s hands, if only to ensure a consistent approach.

"We must ensure that the law succeeds,” says Andreas Schwab, a member of European Parliament from Germany’s Christian Democratic Union (CDU). As rapporteur of the parliamentary negotiations, he plays a key role in moving the law forward. 

He is certain that if EU introduces regulations, other parts of the world will follow, including the U.S. 

He believes Congress in Washington is essentially on the same page as Brussels.

More Urgency

Still, it will be quite some time before any new rules become binding. 

EU sources say that Facebook and other companies have stepped up their lobbying efforts, with the apparent goal of at least delaying things. 

The official Commission timeline calls for the laws aimed at regulating large internet platforms to go into effect in early 2023.

The Facebook Papers and the visit from Haugen, the whistleblower, are lending more urgency to the debate. 

The company must be "strictly” regulated, says Green politician Konstantin von Notz. 

"Whether it’s hate speech, or hidden influence on the public debate and the process of building democratic consensus, all the way up to elections – there are numerous problems with which we, as a digital society, find ourselves confronted, and they are a direct result of a lack of regulation.”

We need "binding transparency and accountability” as soon as possible, says Mario Brandenburg, an expert on digital issues with the FDP who is his party’s tech delegate in the coalition negotiations. 

It is important that the European plans "quickly become reality,” he says. 

Zimmerman, his counterpart from the SPD, agrees, saying: "We have to speed up.” 

If necessary, he adds, Germany might need to proceed at the national level. 

"If we move ahead with digital regulation, other countries will be emboldened. 

It would just accelerate the process.”

The Justice Ministry has already developed specific proposals. 

Lambrecht, the justice minister, wants to completely ban personalized ads from being served to minors, for example. 

She is also insisting that large platforms be forced to lift the veil on their algorithms, in part, no doubt, to ensure that they don’t give free rein to hate speech. 

"No private company can be allowed to decide on its own what is covered by freedom of speech,” Lambrecht says.

Lambrecht, who is said to want to remain in her current role in the new coalition, seems to enjoy standing up to Big Tech. 

In 2019, shortly after being appointed to her current role, she pushed through amendments that strengthened the Network Enforcement Act despite strong opposition from the companies it applies to. 

Many of those amendments have already entered into force, and starting in February 2022, operators will be required to forward certain forms of criminal content to Germany’s Federal Criminal Police Office, along with all available information pertaining to the creators of that content.

That push brought Lambrecht plenty of media attention, but also problems. 

Critics pointed out that the judiciary didn’t have sufficient capacity to carry out all the new investigations the new law would require. 

Furthermore, they said, investigators would continue to be strongly dependent on the cooperation of the platforms themselves.

And relying on Facebook these days is a fool’s errand. 

The company isn’t even able to apply its own standards. 

Shortly before the German election, Facebook said it intended to step up its efforts to combat "threatening networks,” and had therefore deleted sites run by "Querdenker” groups, a movement that is essentially a collection of anti-vaxxers and conspiracy theorists that has deep ties to the extreme right. 

But there are quite a few such groups, organized according to members’ telephone number prefixes. 

DER SPIEGEL found that while Querdenker groups 241, 615 and 711 had been deleted, those of groups 341, 521 and 721 were still online, even though the content is essentially identical.

Also, the guideline requiring the blocking of people and organizations that glorify or participate in violence is only half-heartedly enforced, if at all. 

Even allegedly criminal and right-wing terrorist groups openly use the platform. 

Even though raids were recently conducted in several German states against the right-wing extremist Berserker Clan, a Facebook page of that name was still accessible at the end of this week. 

A Facebook page called Revolution Chemnitz ANW was likewise long reachable. 

Indeed, it was still online even after members of the right-wing extremist group Revolution Chemnitz had been arrested. 

The neo-Nazi terrorist organization Oldschool Society also had a Facebook page. 

It was only deleted after security officials went after the group. 

Facebook, it would seem, tends to be far more reactive than it is proactive.

Next week, Frances Haugen, who lives in Puerto Rico, will no doubt learn more about the challenges Germany faces in its interactions with Facebook. 

And then her journeys will continue: Her calendar is packed. 

After Berlin, she will be heading to Portugal for the Web Summit, before then heading to Brussels for a Nov. 8 appearance before the European Parliament Committee on Internal Market and Consumer Protection.

Her travels are being paid for by an NGO that supports whistleblowers, Haugen has said. 

But she isn’t particularly concerned about money for the moment, she told The New York Times, adding that she had the foresight to become an early cryptocurrency investor.

Charts For A Baffling World: Frappuccino Shock

So you’re driving to work, obsessing about how much it just cost to fill the tank of your SUV and how much it sucks to have to return to the office after a year of working at home in your jammies, when you pull into the Starbucks drive-through to order your usual, only to find that the price is up, again.

You try to be zen about life’s sudden complexity, and keep repeating to yourself that this inflation thing is temporary. 

But damn, that java chip frappuccino has been costing more for, like, a year now.

frappuccino shock

Even though gas and coffee are what really rankle since they occupy so much of your new normal day, you’ve been hearing about how much more expensive food has become in general.

frappuccino shock

You’ve also been hearing about other things that you didn’t even know had prices, soaring for unexplained reasons. 

Ammonia, for instance. 

Is everyone cleaning their windows all of a sudden?

frappuccino shock

And coal. 

Didn’t solar power make coal obsolete back in the 2000s? 

Guess reports of its death were exaggerated.

frappuccino shock

CNN keeps blaming everything on “the ports.” 

Which doesn’t make sense but is really no more confusing than any of the rest of it.

frappuccino shock

The only thing that does make sense – and really the only consolation in the mess that is your life – is that your stocks are way up. 

You recently saw a chart – in a very pretty shade of blue – showing that stocks are as high by whatever measure the chart makers were using as ever in history. 

That’s good, right? 

At least you can count on Tesla.

frappuccino shock

The True Costs of Government Spending

While all politicians exaggerate, US President Joe Biden’s claim that his proposed $3.5 trillion spending package “costs zero dollars” rises to a higher plane, and Americans aren’t buying it. Even if the legislation was fully covered by tax increases, the costs for the economy would be significant.

Michael J. Boskin

STANFORD – US President Joe Biden insists that his $3.5 trillion ($5 trillion without the budget gimmicks) “human infrastructure” bill “costs zero dollars” – nothing, nil, nada. 

While every president makes foolish statements, this must be the most economically illiterate presidential utterance since Jimmy Carter’s demand that the US Federal Reserve lower interest rates in the midst of surging double-digit inflation. 

In Carter’s case, the result was a dollar crisis. 

What will come of the Biden administration’s foray into nonsense?

Biden, along with other Democratic leaders such as Speaker of the House Nancy Pelosi, claims that the plan will be “fully paid for” with tax hikes. 

Apparently, the administration thinks that only budget deficits impose costs (which runs contrary to the “deficits are costless” argument offered by other “progressives”). 

Yet it has long been clear that the bill would leave a $1.5-3 trillion hole to be filled with debt even after the tax hikes.

In any case, Americans aren’t buying it. 

Polls show that roughly half want less government and lower taxes, and that three-quarters of Americans doubt that the $3.5 trillion bill would make them “better off.” 

Perhaps not surprisingly, a majority now disapproves of the Biden administration.

Students in introductory economics learn that the social cost of something is the value of the goods and services that could have been produced with the same resources (labor, capital, land, energy, materials). 

Usually, this “opportunity cost” can be measured by market prices – though sometimes these must be adjusted to account for other factors, such as pollution or monopolies.

From a basic economics standpoint, there are three fundamental errors in Biden’s “zero-cost” argument. 

First, there is the suggestion that the proper measure of cost is the impact on the federal fiscal position. 

The notion that a country’s wealth lies in the value of the sovereign’s Treasury was destroyed by Adam Smith 245 years ago. 

He showed that wealth comes from the country’s ability to produce goods and services that people need and want. 

For any country, the cost of government spending is the value of the foregone opportunities from shifting resources from the private sector to the government. 

Less private consumption and less private investment leads to less housing and fewer factories.

Second, taxes are far from costless, because they, too, divert resources from the private sector and thus impose an opportunity cost. 

Just as sales taxes primarily affect consumption, corporate income taxes affect investment. 

The cost is the value of the displaced private consumption and/or investment.

The third fundamental flaw in Biden’s approach is the notion that the cost can be measured just by the dollar amounts involved. 

In reality, these are far higher than stated. 

Not only are there administrative and compliance costs, but there is also the economic damage that taxes cause by distorting incentives. 

For example, income taxes reduce incentives to work and to save (though this is partially offset by tax-deferred savings accounts); corporate taxes reduce incentives to invest; and progressive tax rates decrease incentives to invest in one’s skills.

Every introductory economics class teaches that the harm these distortions cause rises with the square of the tax rate and the responsiveness of the taxed activities. 

Doubling the rate quadruples the inefficiency cost (what economists call deadweight loss) of the tax.

The effective tax rate takes into account all taxes on the activity, for example, state, local, and federal income taxes.

This is not a doctrinal issue; it is simply a description of what is happening in the areas under the supply and demand curves on a graph. 

Spending $5 trillion will cost the economy about $6.5 trillion, because the marginal cost of federal dollars is estimated to fall in the $1.30 range. 

For a government spending program to be considered sensible, it must provide benefits of at least $1.30 per dollar of spending.

Especially damaging to the economy would be the proposed tax hikes on capital income, as this introduces a tax distortion that compounds over time as horizons lengthen. 

That would both harm economic growth and create bigger obstacles to more people getting ahead financially – building their own wealth, reducing their dependence on government, and, yes, becoming rich.

The promises of universal pre-school, free community college, and other entitlements are deeply misleading. 

Taxpayers, after all, will pay for the salaries, the facilities, the computers, and the electricity needed for these ongoing services. 

It would be more truthful for Biden to say: “I know these costs are huge, even larger than the estimated budgetary impact. 

Here is my rationale and evidence, program by program, that the efficiency or distributional benefits so outweigh these costs as to justify taking the resources from families and firms, now or in the future.”

Exactly when exaggeration crosses a line into deliberate deception is debatable. 

President Barack Obama either knew, or should have known, that he was issuing a blatant falsehood when he said, “If you like your doctor, you can keep your doctor, period. 

If you like your health-care plan, you can keep your health-care plan, period.” (To his credit, he later reversed his claim that the 2009 stimulus bill would soon create lots of construction jobs, admitting in 2010 that “there’s no such thing as shovel-ready projects.”) 

And, of course, President Donald Trump made a habit of excessive claims.

Political hyperbole is par for the course. 

But like so much else, it seems to have gotten worse, and with fewer consequences. 

We would all be better off if more elected officials followed the example of Fiorello La Guardia, the mayor of New York City from 1934 to 1945, who, in admitting error, boasted, “When I make a mistake, it’s a beauty.”

Michael J. Boskin is Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. He was Chairman of George H.W. Bush’s Council of Economic Advisers from 1989 to 1993, and headed the so-called Boskin Commission, a congressional advisory body that highlighted errors in official US inflation estimates.