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Values are High, Economics Doesn’t Work, & Politics As A Spectator Sport
What I’m Reading, Watching, & Listening To
Alan Pentz
July 26, 2024
Welcome back to The Small Business Mentor!
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Moses Sternstein at Random Walk writes:
While banks aren’t lending quite as much, investors have attempted to step into the breach. Private credit and other debt investors have been all the rage, willing to go where the banks won’t go, offering speed and flexibility that banks will not.
It’s funny because while investors are very sure that they don’t want to actually buy any of the fringier companies (that typically make up PE/VC paths to exit liquidity), they are very eager to lend to these companies.
So eager, in fact, that spreads have compressed to historic lows, and one begins to wonder whether everyone piling into the private credit trade is such a great idea.
This supports my thesis that we are at the beginning of an inflationary period that will bring down the value of most assets: houses, commercial real estate, businesses, etc. Private equity and venture capital firms know their investments have declined in value but they are doing whatever they can to not realize those declines. Private credit is stepping in to help them play for more time. More on this coming soon in the newsletter.
Arnold Kling at In My Tribe is an economist who does a great job telling you why economics doesn’t work. Here he is on the important topic of measuring productivity. He writes:
What is the value of a smart phone produced in 2024 compared with a smart phone produced in 1974, when the “productivity slowdown” supposedly began?
It’s a trick question. There were no smart phones in 1974. There was no general public access to the Internet in 1974. In America, telephony was still an AT&T monopoly in 1974. No one made video calls in 1974. You had to pay for long-distance phone calls by the minute in 1974.
The term “productivity slowdown” is used to claim that the rise in living standards was higher between 1924 and 1974 than it was between 1974 and 2024. This may be true in some sense, but to me it is an apples-and-oranges comparison.
Productivity is what allows standards of living to rise. As we get better at making things, we get better stuff and we get higher wages as we make that stuff more efficiently and there’s more money to go around. Turns out we can’t measure it though so that makes it hard to learn how to do it better and to make policy.
Yascha Mounk interviews the political scientist, Eitan Hersh, on his podcast The Good Fight on the scourge of political hobbyism. Hersh complains that Americans who are highly politically engaged are doing so only as hobbyists. More specifically they spend their time passively consuming political news and then post righteous opinions on social media. No one goes to a city council meeting anymore. Can you blame them? They’re always on a Tuesday at 7 or 8 when I want to be drinking a glass of red wine and watching House of the Dragon.
Still I agree and am planning a post on our problems with politics as a species. We don’t like arguing, fighting, and compromising. It feels dirty and maybe beneath us? Making vague pronouncements about the public good that are short on detail is much more satisfying.
To me it’s similar to talking about business ideas over beers. It sounds so simple and elegant when you don’t have to think about the actual real customers, employees, payroll, and risk. But getting in a doing it and getting dirty is the only way to get anything done in business or in politics.
Keep growing,
Alan
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