Posts from Politics

I was talking to a friend about AOC’s proposal to increase marginal federal rates to 70% to fund investments in fighting climate change. My friend said he was disappointed that she didn’t propose a top federal rate of 83.25% so that the marginal rate in NYC would be 100%. He was joking but his remark is important because it speaks to the nuance of the marginal rate, something AOC and her followers don’t really understand as much as they claim.

It reminds me of a heated conversation I had with my kids and their friends during our family ski trip over the year end break. Our kids, like most millennials I know, are struggling with the notion of capitalism at any cost and the massive income and wealth inequality that we are witnessing.

This headline I came across on Twitter today kind of sums it up well:

.@AOC: Economic system that allows billionaires is “immoral” https://t.co/qINA2oXiwu pic.twitter.com/Z3mSVRXuti

— The Hill (@thehill) January 22, 2019

I am in the business of helping founders start companies which results in some of them becoming billionaires. Contrary to what some think, my wife and I aren’t in that club ourselves. But I know a fair number of billionaires and I have had a front row seat to the process of them going from not having a penny in their pockets to billions on their balance sheet.

And we are participants in the “economic system that creates billionaires.” I do not think it is immoral and I do not think billionaires are immoral. I do think the inequality that we allow in our country is immoral.

To me, these are two different things. And that is the gist of the discussion I was having with my kids and their friends over the year end holiday. They asked me why I don’t believe in massively raising taxes on the rich to pay for all of these new social programs that the candidates on the left are proposing.

I am a fan of many of these social programs, like medical care for all, like more affordable education for all, like new approaches to what we once called “welfare” and now is taking shape as Universal Basic Income. I have been called a communist, a socialist, a liberal, and more on this blog and all of those labels could be accurate in someone’s mind. I believe that society must find ways to support the basic needs of everyone, which include wellness, knowledge, and income. That we do not is immoral. That we allow billionaires is not.

I am a capitalist and a business person. I understand that increasing taxes on the wealthiest leads many of them to move their income and assets to lower tax jurisdictions and can be counter productive, particularly when you go beyond a certain threshold. I also understand that government is bloated and there are many places where we could cut spending to fund these new innovative programs that could help counter the immoral wealth imbalance we have in our country.

I believe that technological revolutions, like the industrial revolution and the information revolution, create opportunities for entrepreneurs to reimagine how the economy should operate. Those entrepreneurs, like Rockefeller, Carnegie, Morgan, Bezos, Page, Zuckerberg, build very powerful monopolies and amass billions.

As these revolutions reimagine how the economy should operate, many people lose jobs, can’t find jobs, find themselves in lower paying jobs, and there is real dislocation that results. And you get this “immoral wealth imbalance.”

The one part of the economy that seems immune to re-imagination is the government. If we were to force it to go through the same technological revolution that the private sector is going through, we would see massive efficiencies, and massive job losses, that would free up a huge amount of capital that could be used to pay for things like medical care for all, affordable education for all, and some amount of income for all.

That is what I am for. That is what I explained to my kids and their friends that I am for.

Times of change are times of change. And we can’t change some things but not everything.

I will end with a story from a book I read a few years ago. The book is called The Prize that was written by Dale Russakoff and is about the effort by Chris Christie, Cory Booker, and Mark Zuckerberg to fix the broken Newark NJ public school system.

The story takes place at an anti-charter school rally. Dale meets a woman who is protesting against the charter schools that are replacing the district schools. As she is talking to this woman, she explains that she is late to the rally because she had to spend all morning in line trying to get her child into the new charter school in her neighborhood. Dale is perplexed. Why would she be protesting charter schools if she is that committed to getting her child into one? The woman explains that most of her family works in the district schools and will lose their jobs if the city moves to charter schools.

And that’s where we are. We are not willing to move away from the things of the past to get the things of the future. So our elected officials decide to try to give us both and we struggle with how to pay for it all.

I am not for the emerging progressive Robin Hood narrative. I am certainly not for the entrenched conservative Let Them Eat Cake narrative. I am for a new narrative that understands that everything must change if we are to find ways to support everyone in our society.

Hi Everyone. Happy 2019.

Today, as is my custom on the first day of the new year, I am going to take a stab at what the year ahead will bring. I find it useful to think about what we are in for. It helps me invest and advise the companies we are invested in. Like our investing, I will get some of these right, and some wrong. But having a point of view, a foundation, is very helpful when operating in a world that is full of uncertainty.

I believe and have been telling those around me that I think 2019 will be a “doozy.” I think we will see major dislocations in the leadership of the United States, a bear market in stocks, a weakening economy, a number of issues with the global economy including a messy Brexit and a sluggish China. All of this will lead to a more cautious stance by investors in the startup economy. And crypto will not be a safe haven for any of this although there will be signs of life in crypto land in 2019.

Let’s take each of those in the order that I mentioned them.

I believe that we will have a different President of the United States by the end of 2019. The catalyst for this change will be a devastating report issued by Robert Mueller that outlines a history of illegal activities by our President going back decades, including in his campaign for President.

The House will react to Mueller’s report by voting to impeach the President. Which will set up a trial in the Senate. That trial will go so badly for the President that he will, like Nixon before him, negotiate a resignation that will lead to him and those close to him being pardoned for all actions, and Mike Pence will become the President of the United States sometime in 2019.

I believe this drama will play out through most of 2019. I expect the Mueller report to be issued sometime in the late winter/early spring and I expect an impeachment vote by the House before the summer, leading to a trial in the Senate in the second half of the year.

The drama in Washington will have serious impacts to the economy in the United States starting with our capital markets.

The US equity capital markets enter 2019 on shaky ground. Though the last week of the year brought us a relief rally, the markets are dealing with higher rates, some early indications of a weaker economy in 2019 (possibly due to higher rates), and, of course, the potential for the drama in Washington that we’ve already discussed. Here is a chart of the S&P 500 over the last five years:

I expect the S&P 500 to visit 2,000 sometime in 2019 and then bounce around that bottom for much of the year. This would represent a decrease in the S&P’s trailing PE multiple to around 15x which feels like a bottom to me given the recent history of the equity markets in the US:

Interest rates have been rising gradually in the US for the last three years. The Fed has taken its Fed Funds rate from essentially zero three years ago to almost 2.5% today:

The rates that are available to consumers and businesses have followed and I expect that to continue in 2019. Here is a chart of the interest rates on the three most popular mortgage products in the US:

When it gets more expensive to borrow, marginal projects don’t get funded. And what happens at the margin has a much larger impact on the economy than most people understand. No wonder the President wants to fire the Fed Chairman.

I expect the combination of higher rates, uncertainty in Washington, and storm clouds globally (which we will get to soon) will cause business leaders in the US to become more cautious on hiring and investment. Consumers will make essentially the same calculations. And that will lead to a weaker economy in the US in 2019.

The global picture is not much better. The eurozone is about to go through the most significant change in decades with some sort of departure of the UK from the EU (Brexit). It remains unclear exactly how this will happen, which in and of itself is creating a lot of uncertainty on the Continent. I don’t expect most businesses in Europe to do anything but play defense in 2019.

Probably the biggest unknown for the global economy is the resolution of the ongoing trade tensions between China and the US. It seems inevitable that China will make some concessions to the US to resolve these trade tensions. But, of course, what happens in Washington (first issue) may impact all of that. In the meantime, the uncertainty around trade and exports hangs over the Chinese economy. China’s GDP has been slowing in recent years as it achieved relative parity with the US and the Eurozone:

Any significant trade concessions from China could impact its growth prospects in 2019 and beyond, which will take the most powerful engine of global growth off the table this year.

So all of that is a pessimistic take on the broader macro environment in 2019. How will all of this impact the startup/tech economy?

The startup/tech economy is somewhat immune to macro trends. Many startups and big tech companies were able to grow and expand their businesses during the last financial downturn in 2008 and 2009. Some very important tech companies were even started in those years.

The tech/startup economy is driven first and foremost by technical and creative (ie business model) innovation. And that is not impacted by the macro environment.

So I expect that we will continue to see big tech invest and grow their businesses and do well in 2019. I expect we will see IPOs from big names like Uber/Lyft/Slack, although I also expect those deals will get priced well below the lofty expectations they have in mind right now. Some of that will be because of weak equity markets in the US, but it is also true that most of the IPOs in 2018 also priced below the lofty “going in” expectations of founders, managers, boards, and their bankers. The public markets have been much more sanguine about value than the late stage private markets for a long time now.

However, I do think a difficult macro business and political environment in the US will lead investors to take a more cautious stance in 2019. It would not surprise me to see total venture capital investments in 2019 decline from 2018. And I think we will see financings take longer, diligence on new investments actually occur, and valuations to come under pressure for even the most attractive opportunities.

But all of that is going to happen at the margin. I expect 2019 to be another solid year for the tech/startup sector as we are in a possibly century-long conversion from an industrial economy to an information economy and the tailwinds for tech/startup vs the rest of the economy remain in place and strong.

Any set of predictions for 2019 from me on this blog would not be complete without some thoughts on crypto. So here is where my head is at on that topic.

I think we are in the process of finding the bottom on the large, liquid, and lasting crypto-tokens. But I think that process could take much of 2019 to play out. I expect we will see some bullish runs, followed by selling pressures taking us back to retest the lows. I think this bottoming out process will end sometime in 2019 and we will slowly enter a new bullish phase in crypto.

I think the catalyst for the next bullish phase will come as the result of some of the many promises made in 2017 coming to fruition in 2019. Specifically, I think we will see some big name projects ship, like the Filecoin project from our portfolio company Protocol Labs, and the Algorand project from our portfolio company Algorand. I think we will see a number of “next gen” smart contract platforms ship and challenge Ethereum for leadership in this super important area of the crypto sector. I also expect the Ethereum open source community to ship a number of important improvements to its system in 2019 and defend their leadership in the smart contract space.

Other areas of crypto where I expect to see meaningful progress and consumer adoption happen in 2019 are stablecoins, NFT/cryptoassets/cryptogaming, and earn/spending opportunities, particularly in the developing world.

There will also be pressure on the crypto sector in 2019. The area I am most concerned about are actions brought by misguided regulators who will take aim at high quality projects and harm them. And we will continue to see all sorts of failures, from scams, hacks, failed projects, and losing investments be a drag on the sector. But that is always the case with a new emerging technology that allows anyone to set up shop and get going. Permissionless innovation produces the greatest gains over time but also comes with the inevitable bad actors and actions.

So that’s where my head is at on 2019. Do I sound pessimistic? I suspect I do, but I am not. I am incredibly optimistic, like my partner Albert and can’t wait to get going and make things happen in this new year. It is going to be a doozy.

This video is an advertisement in support of a group of women running for national office in these midterms.

I am compelled by this advertisement and these women. I am very hopeful that women like these will increasingly lead our congress and our country.

Today is primary day in New York State. The polls open at 6am and stay open until 9pm.

There are primary races for the Governor, Lieutenant Governor, and Attorney General as well as a bunch of statewide races for State Senate and State Assembly.

In NYC, and to a lesser extent in New York State, the primary can be the election as the city and state lean left.

So I encourage everyone in New York State to go out to the polls and vote today.

It all comes down to voting in a democracy. Marching feels great. Tweeting feels great. Polls make the news. But voting is the political action that really counts unless you can give gobs of money to candidates which most voters cannot and don’t do.

I plan to get to my polling place early on the way to an early start to the workday.

I always feel great pulling that lever. I hope you do too.

I was born at and spent a fair bit of my childhood at the United States Military Academy where my father taught engineering.

It’s a magnificent and beautiful place, full of history and meaning.

The motto of the academy, enshrined in its coat of arms, is “Duty Honor Country”.

In 1962, when I was less than a year old, General Douglas MacArthur came to West Point to accept the Sylvanus Thayer Award and gave the famous Duty Honor Country speech, in which he said:

“Duty, Honor, Country” — those three hallowed words reverently dictate what you ought to be, what you can be, what you will be. 

I am reminded of those words upon the passing of John McCain, a man who embodied them in the world of politics that is mostly bereft of them.

Though I did not vote for John McCain when he ran against Barack Obama in 2008, I always appreciated the way he conducted himself in a political system that mostly seems to bring out the worst in people.

He was a sharp contrast with our current President, who exhibits none of these values.

Rest In Peace John McCain. You were a great American.

I will be attending a press event today in NYC where Airbnb is announcing a $10mm program to support local efforts that improve the lives of New York State residents.

Airbnb calls this program A Fair Share and it estimates that the $10mm is just 10% of what a home sharing tax in New York State would produce for the city and state governments.

The $10mm in financial support is going to seven organizations. They are:

• The New York Immigration Coalition

• New York Mortgage Coalition

• New York State Rural Housing Coalition, Inc.

• Win

• GMHC

• CSNYC

• Abyssinian Development Corporation

These are all organizations that benefit from city and state tax dollars but need to tap into the generosity of others to deliver their services.

Take CSNYC, where I am leading the $40mm CS4All private sector capital campaign to bring computer science education to every public school building in NYC. CS4All is a ten-year $80mm effort develop over 5,000 public school computer science teachers. Half of that $80mm is coming from the NYC taxpayers. The other half is being raised from private donors. Airbnb’s generous support helps us meet our budget this year and beyond and we are very grateful for it.

But there is a larger point being made here and one that I want to highlight. Airbnb wants to operate legitimately in New York City and New York State. It wants to collect taxes on behalf of hosts of non-hotel accommodations in New York. And it wants to be a positive force for the economy in New York. But its opponents, largely the hotel industry and its employees, are standing in the way of that. This is politics getting in the way of good sense. And that is irritating to me as a citizen of New York City and New York State.

I am thrilled to accept the generosity of Airbnb on behalf of CSNYC and I am also happy to be a participant in helping Airbnb make a larger point about what is right and what should happen here. I hope that A Fair Share helps them do that.

More and more of the news around tech these days is about the relationship between technology companies and government. That was not the case a decade ago when regulators and elected officials took a largely hands off approach to technology, particularly the Internet, web, and mobile.

While I am not a fan of many of the moves that regulators and elected officials have made over the last few years, including the NYC City Council’s recent bills to clamp down on home-sharing and ride-sharing in NYC, I do believe that the tech sector and tech companies must engage with the public sector and they must do it earlier in their development.

It is hard to be an advocate for the tech sector and tech companies with the public sector, a role I play fairly regularly, when the companies in question have not been the best actors themselves.

The good news is that the tech sector no longer naively believes that it can opt out of the public discourse and political engagement.

The bad news is it is playing catch-up and is on it’s heels. That is going to take time and money to fix.

Emerging sectors like crypto and machine learning should pay heed to what has happened here and not make the same mistakes as their predecessors.

I backed this project earlier this week. Atlantic City is a cautionary tale about our President and how he operates.  I hope you will join me in bringing this project to life.

Comments are closed for this post.

There is a bill in front of the NYC City Council called Intro 981 that will impose reporting requirements on Airbnb and their hosts in NYC. There will be a public debate on that bill this coming week.

The backdrop here is the growing housing affordability crisis in NYC and the idea that Airbnb is a significant contributor to it.

While I am not an expert in the economics of housing, I have lived in NYC for the past thirty-five years (my entire adult life), and my wife and I are also landlords in several of the neighborhoods in Brooklyn where rents have been rising most quickly. I have a layman’s understanding of the issue and an on the ground feel for it.

It is my view that we have a fundamental supply and demand problem at work in the rapidly gentrifying outer boroughs of NYC (most acutely in Brooklyn, Queens, and the Bronx). NYC has added almost 500,000 residents this decade alone, a 5.5% increase in population from 2010 to 2017. This is driven by multiple factors but there are more people choosing to live in the five boroughs and less people choosing to leave them.

A major change in the last fifteen years is the emergence of the boroughs of Brooklyn, Queens, and the Bronx as the preferred place to live for many young professionals. They moved into these communities in their 20s to escape an increasingly unaffordable Manhattan and have stayed and are now raising their families in them.

This sea change in demand for housing has not yet been met with an equal increase in supply. There are cranes all over Brooklyn and Queens so I am optimistic that we will see the increases in supply that we need, but there is a lag in the supply of housing coming to market. And we need two kinds of supply, market-rate housing for those that can afford it, and subsidized housing for the displaced families that no longer can afford market rate housing.

And so where does Airbnb fit into this picture? It’s a reducer of supply to some extent as landlords take rental units off the market and list them on Airbnb instead. But having looked at multiple studies on this issue, I believe that Airbnb is a marginal player in this story, not the root cause of the problem. If Airbnb decided to stop operating in NYC (a terrible outcome in my view), I do not believe we would see a material change in the affordability issues that plague NYC.

And yet, elected officials in NYC and NY State have chosen to make Airbnb the poster child of the problem and impose restrictions and constraints on their operation. And, of course, the industry that Airbnb most threatens, the hotel industry and its labor unions, have fought back aggressively and effectively. It is hard to know what is good policy and what is good politics. I suspect we are seeing a lot of the latter and not enough of the former.

I am for reporting of listings as required by Intro 981. But I am not for the city using that data to come after hosts and harass them. Similar reporting requirements that have been enacted in SF, Chicago, and Seattle have included those protections for hosts. Intro 981 should too.

But more than that, I am for a comprehensive solution to the issues that short-term rentals raise. I am in favor of requiring a mechanism for neighbors to register complaints. And I am in favor of requiring Airbnb to collect taxes on short-term rentals in NYC and NY State, which is estimated to produce $100mm of incremental revenues for the City and State. A comprehensive bill that would legitimize the short-term rental market in NY State and NYC would unlock those revenues but the forces at work against Airbnb are fighting it. That makes no sense to me.

It is time to accept that Airbnb is here to stay in NYC and NY State. It is time to legitimize the practice of short-term rentals. It is time to put sensible complaint mechanisms and reporting requirements in place. And it is time to start collecting the taxes on this activity and using those revenues to solve other pressing issues like transportation, schools, and most importantly, our ability to house those who can’t afford to pay market rents.

I would encourage our elected officials to do all of that.