“No man can consider himself truly married until he understands every word his wife is not saying.”

- Lord Mancroft

“Now, now my good man, this is no time for making enemies.”

- Voltaire, on his deathbed in response to a priest asking that he renounce Satan

"Instead of asking how many tasks you can tackle given your working hours, ask how many you can ditch given what you must do to excel."

- Morten Hansen on an alternative way to do exceptional work

A. The Deficit Myth

1. Joe Biden will be releasing his economic plan on Thursday.

I thought it timely to review Stephanie Kelton’s book: The Deficit Myth, which will become the intellectual defence for continued deficit spending in the next few weeks.

Stephanie Kelton is an American economist and academic. She is currently a professor at Stony Brook University and a Senior Fellow at the Schwartz Center for Economic Policy Analysis at the New School for Social Research.

In December 2014, Kelton was designated as Chief Economist for the Democratic Minority Staff of the Senate Budget Committee, a post that she held till 2016, when she left that position to become an economic advisor to the Bernie Sanders campaign (a role which she also served in 2020).

POLITICO called her one of the 50 Most Influential Thinkers in 2016, Bloomberg listed her as one of the 50 people who defined 2019, Barron’s named her one of the 100 most influential women in finance in 2020, and Prospect Magazine listed her among the world’s top 50 thinkers in 2020. 

The main thesis of her work is:

• “in almost all instances federal deficits are good for the economy. They are necessary. […] Rather than chasing after the misguided goal of a balanced budget we should be pursuing the promise of harnessing what MMT calls our public money, or sovereign currency to balance the economy so that prosperity is broadly shared and not concentrated in fewer and fewer hands”.

• “the idea that taxes pay for what the government spends is pure fantasy”

• “the limits are not in our government’s ability to spend money, or in the deficit, but in inflationary pressures and resources within the real economy. MMT distinguishes the real limits from delusional and unnecessary self-imposed constraints”.

You should watch the short video below:

The main implications of her work are that the metrics of financial health which apply to currency users (households and individuals), such as income-expenditure deficits or debt-to-income ratios, don’t apply to currency issuing entities.

Currency issuing sovereigns can simply issue currency to discharge their debts, the only constraint they face is inflation. If inflation starts to accelerate, the government is spending too much. Subject to that sole constraint, any amount of government expenditure is acceptable, regardless of the deficit or debt burden.

In fact, she argues that it is government’s responsibility to run a deficit so others can run a surplus. We can solve real problems using this money, with little crowding out of the private sector.

Where will governments be spending and what problems will Biden look to solve?

As MMT goes mainstream, our playbooks need to adapt.

B. Net Zero Meets G-Zero

Two recent reports I read helped to add a new prism with which to see the headlines on Net Zero Emissions, Green Technology, EVs and ESG, and understand the new Great Game.

One by the Eurasia Group in their Top Risks of 2021, and the other by Marko Papic at The Clock Tower Group, who’s book Geopolitical Alpha we have covered before.

Quoting the Eurasia Group report:

The Biden administration’s approach will lead to a new wave of long-term climate commitments and targets, many of which will be aimed at achieving net-zero emissions by mid-century. The UN climate conference at the end of the year in Glasgow will provide a focal point for these announcements and overtures. In short, climate commitments will matter in 2021 like never before.

But beyond the headlines, the energy transition will be dominated by competition and a lack of coordination. India, Australia, and Brazil will fiercely protect their carbon intensive assets from international pressure and competition. Europeans will remain the biggest climate investors at home and abroad, and they will also prepare to start taxing imports from high(er) carbon countries such as China, Russia, and the United States. China will launch a massive domestic decarbonization program as part of its 14th five-year plan while using its state capitalist model to dominate global supply chains for new technologies. And as the US scrambles to catch up to China in what will quickly become a global clean energy arms race, it will make climate and the energy transition a matter of industrial and national security policy.

The bottom line: In 2021, climate will go from a playground of global cooperation to an arena of global competition. Across a range of clean technologies— but especially batteries, power control systems, and other commanding heights of the 21st century energy economy— China’s longstanding industrial policy approach will be met by its new US counterpart across the Pacific. Some parts of the clean energy supply chain will come under bifurcation pressures not unlike those seen in 5G, particularly where the security of ever-more complex grids is involved, such as with transformer equipment.

Make no mistake, the push for net zero will create enormous opportunities for private capital, especially the growing pool of environmental, social, and governance dollars and euros. But politics will be decisive, and winners and losers will be determined by factors other than market forces.

Marko’s report takes a historical perspective, outlining the transition from the Race to Scale, where the goal was to control more land, more people, more resources, more factories. We fought multiple wars over scale.

He sees us transitioning into a world, where it’s a Race to Zero.

Quoting Marko:

Zero what? Zero everything… Zero negative externalities, zero carbon emissions, zero inefficiencies, zero energy imports, zero foreign-sourced inputs, etc. Over the next decade, we posit that the orientation of policymakers, researchers, entrepreneurs, innovators, and – perhaps most importantly – the Great Powers engaged in geopolitical rivalry will turn to the Race to Zero. 

For Marko, the combination of the Buenos Aires Consensus (or Project Zimbabwe), combined with a multi-polar world and climate change as existential risk, will accelerate the Race to Zero.

Of this multi-polarity is an interesting thought because (quoting Marko):

The leadership in Race to Zero technologies will give the ascendant Great Power a considerable geopolitical advantage in the twenty-first century. Taken to the natural extreme, many of the technologies currently in development make autarky possible.

Autarky means complete economic independence through application of technologies that massively boost domestic efficiency. While such a goal can only be asymptotically approached, the process itself will give the country in the lead huge advantages.

Take China, which currently imports 70% of its oil needs via maritime routes that remain at the mercy of the US Navy. For China, de-carbonization is not just about saving the Earth and mitigating rampant pollution. It is about geopolitical independence, which starts by moving away from dependency on imported unit of carbon by emphasizing domestic efficiency.

In the twentieth century, such efficiency was nearly impossible to contemplate and thus was not attempted by any Great Power – although France and Japan made a valiant effort via nuclear energy.

In the twenty-first century, however, technologies are now at the disposal of policymakers that allow for import substitution strategies through greater efficiency. 

Over the next decade, China, the EU, and Japan plan to spend around $2.2 trillion on green initiatives and technology. Add to that figure Joe Biden’s $2 trillion plan.

Psychologically, the government intervention around COVID and it’s financing of numerous COVID vaccine programmes smashes the concerns that government cannot fund innovation or technological progress. This could only encourage policymakers to seek out other problems to solve with fiscal largesse. 

To understand the sheer scale of the Green initiatives, the chart below illustrates where we are in terms of committed fiscal expenditures on Green initiatives in comparison to past efforts.

Is it possible that Green Tech has significant upside ahead?

A related book I am half way through on and will have more to share on in February on the subject is:

C. A Few Things Worth Checking Out:

1. The amazing Ram Parameswaran of Octahedron Capital was on the Invest Like the Best Podcast discussing Internet Scale Businesses. I shared it last week and I’m sharing it again, because you need to listen to it. 

2. I believe our media system was broken a few years ago. Matt Taibbi, best known for calling Goldman Sachs “a great vampire squid wrapped around the face of humanity” while writing at Rolling Stones, recently published a great piece discussing: We Need a New Media System.

Quoting him:

We need a new media channel, the press version of a third party, where those financial pressures to maintain audience are absent. Ideally, it would:

• not be aligned with either Democrats or Republicans;

• employ a Fairness Doctrine-inspired approach that discourages groupthink and requires at least occasional explorations of alternative points of view;

• embrace a utilitarian mission stressing credibility over ratings, including by;

• operating on a distribution model that as much as possible doesn’t depend upon the indulgence of Apple, Google, and Amazon.

Great short video on the Media’s Role In Dividing Us:

3. Everybody is talking about vaccines and the first mRNA-based approved medicines these days, we very much enjoyed the interview with Moderna CEO Stéphane Bancel on the a16z podcast. Within a short episode the concept of mRNA is simply explained in a manner understandable to non-scientists.

4. Another great one by the a16z team was on the rise of biotech platform companies. What are they and why they are important (thank you Check).

5. Ari Paul, the CIO of BlockTower Capital (crypto hedge fund) did an update call for their clients, you can watch it here (pwd: BT2021!!).