Notes from Felix

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Thursday, March 22, 2018 

Nota bene: How Mark Zuckerberg should change the world, again

Mark Zuckerberg has changed the world once, and he wants to do so again. Right now, his plan for doing so is to sell billions of dollars’ worth of Facebook stock, funnel the proceeds to the Chan Zuckerberg Initiative, and, um, well, after that it gets a bit vague, but somehow, by the time it’s all said and done, we’ll have cured all diseases, just for starters.

There’s no lack of ambition here, but there is a lack of what Silicon Valley types like to call “product-market fit”. What makes Mark Zuckerberg’s billions uniquely capable of curing all disease? Many people have billions of dollars; only one person singlehandedly controls Facebook, which is one of the most powerful corporations the world has ever seen. If Mark Zuckerberg really wants to change the world again, he should use Facebook to do so, rather than simply reducing his stake to a fungible commodity like dollars.

There is one thing Zuckerberg could do in particular: He could end all targeted advertising on Facebook (and Instagram, too). No one else on the planet is capable of doing this, not even Zuckerberg’s successor as Facebook CEO. Facebook made $40 billion in advertising revenue in 2017, all of it from advertisers who love to be able to buy narrowly-targeted ads. If anybody other than Zuckerberg tried to kill that golden goose, the board would fire them on the spot. But Zuckerberg can’t be fired. In fact, he can singlehandedly fire the entire board, if he wants, and if they don’t get behind his vision.

To be clear: The no-targeted-ads vision would certainly mean vaporizing billions of dollars in revenue, and also in market capitalization. Tens of thousands of jobs would be lost, both in Facebook and in the broader adtech universe. But those are all highly employable people, who will be just fine.

And even if Facebook ended targeted advertising on its own platform, Zuckerberg can’t uninvent the idea. Publications like, say, the Financial Times, which harvests detailed data on exactly who its subscribers are, will still be able to sell an ad seen by a CEO for much more money than the same ad seen by a student using a university subscription.

But Facebook has an ad-targeting business unmatched by anybody else, and if they turned it off, there would be huge positive externalities in the rest of the world. Companies like Cambridge Analytica could no longer use their databases to skew elections; politics around the world would become much more transparent and democratic; and, of course, media companies would be able to compete in the advertising market again, after years of being marginalized by the Facebook-Google duopoly. The news would send up the mother of all cheers in newsrooms around the planet.

This move would, to be sure, cost Zuckerberg much of his fortune. He has made billions from building up Facebook’s advertising machine; he would lose billions by tearing it down. But remember that he has already said that he wants to give away 99% of his wealth before he dies. One way to do that is to sell stock and then spend the proceeds; another is to simply drive the stock back down towards zero.

Zuckerberg can (and would probably have to, for legal reasons) make the case that abandoning targeted advertising was in the long-term best interest of the company, but I’m sure he could manage that if he tried, given the demonstrated harm that targeted advertising has already caused and the risk it poses to Facebook in terms of heavy-handed regulation from any number of governments. This move would make Facebook the good tech giant overnight, and would help lay the path for a freemium strategy where most of Facebook was free for most people, but some users paid a subscription fee for premium features. Facebook might lose a lot of its revenues, but it wouldn’t lose its enviable user base, and it’s almost impossible to imagine that a service as big as Facebook couldn’t make a lot of money doing just about anything.

In recent days, Zuckerberg has been talking about the Facebook he set up in his dorm room in 2004, and how he never could have imagined, back then, being in the kind of position he finds himself in today. Well, Mark, here’s your opportunity to go back to your dorm-room ideals. Connect the world; do it at scale; and monetize it by non-evil means. You alone can make that change. Instead of funding medical moonshots with a low probability of success, do something dramatic where you have complete control of the outcome. It’s a far more effective intervention, and the world will applaud you for it greatly.

Tuesday, March 20, 2018 

Nota bene: Gallows humor

Did you laugh when you saw this tweet? I’ll admit that I did.

I mean, if you told me that it’s not funny, I’d agree with you! Some things just aren’t funny, as PG Wodehouse discovered during (or, more to the point, after) World War II.

And yet, The Death of Stalin is doing OK at the box office, after a great run in the UK last year; it’s an uproarious Armando Iannucci comedy about such lighthearted matters as torture, child rape, and summary execution.

Anthony Lane captures the mixed feelings you have when you watch this movie:

It is grossly neglectful of the basic decencies, cavalier toward historical facts, and toxically tasteless… What the hell is there to laugh at, you may ask, in this sump of depravity?

The damnable problem, however, is that it’s funny; ten times funnier, by my reckoning, than it has any right to be.

The Death of Stalin is not enjoyable in the way that In The Loop was; it’s not something I look forward to rewatching in the way that I will happily re-consume W1A or Veep Season 5. It’s much darker, much more troubling. (But still, very funny!)

What fascinates me is not so much that Iannucci went there, and more the places where he and his distributors have pulled back. As Lane notes, Lavrentiy Beria “was a serial rapist of young girls, but the film, thank heaven, chooses only to glance at that habit”. And then there’s the question of the official poster for the film:

Here, Beria is very conspicuous by his absence. Beria is to The Death of Stalin as Ian Fletcher is to W1A: the protagonist through whose eyes almost everything is seen. The movie is an ensemble piece, to be sure, but Beria is first among equals, at the very center of the film. He’s also, by far, the cruelest and most evil of all the characters. To leave him out of the poster, especially in the UK where Simon Russell Beale is a famous actor, is to flinch exactly where the movie doesn’t.

Or consider the film’s Matryoshka dolls: Once again, no sign of Beria.

In the US, Beria did make it onto the poster, squeezed in at the far left, but only as part of a switch-out whereby the problematic Jeffrey Tambor gets erased in favor of a woman. The film marketers, in other words, have displayed sensitivities which the filmmakers decidedly don’t. (There is no way in which this is a politically correct movie; it doesn’t even come close to passing the Bechdel Test, for instance.)

I suspect that The Death of Stalin is ultimately too dark to be a big hit in the US, and that the distributors are correct to try to keep it within the realm of social respectability. And much as I loved the movie, I’m weirdly glad about that. Right now it’s more important than ever to feel queasy in the face of evil. And few films have ever succeeded by making their audience feel queasy.

Monday, March 19, 2018 

Nota bene: Toys don't fung

If you live in the USA, your local Toys R Us is closing down, with the loss of all the associated jobs. And if your Twitter feed looks anything like mine, you will have see a link to a Jeff Spross essay blaming the demise of the company on “vulture capitalists”:

 If Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through. As recently as last year, the company still accounted for 20 percent of all U.S. toy sales.

Instead, the legacy of the leveraged buyout turned this into an existential crisis, and Toys 'R' Us filed for bankruptcy midway through last year. Then, when holiday sales didn't pan out, the company's leadership decided to sell or shutter all its stores. And 33,000 working people could lose their jobs.

This is… half true. If Toys R Us hadn’t been bought by private equity in a leveraged buyout, then, yes, it would still be muddling along. The massive debt burden from the buyout caused the bankruptcy, and the bankruptcy caused the liquidation.

On the other hand, it wasn’t the company’s leadership which decided to shutter all those stores, it was the company’s creditors. The company’s leadership would have loved to keep on running their business, under different ownership; it was the creditors who decided to opt instead for a liquidation.

As Bloomberg has covered in depth, the amount of debt in the retail sector is staggering — which is bad news indeed if you own equity in highly-leveraged retailers, or in shopping malls, or really in anything exposed to that sector.

But when an industry is over-levered, bankruptcy is the perfect solution! Or should be, anyway. If a company like Toys R Us is struggling under $6 billion of debt, then once you take away that debt burden, it should be light and nimble and able to go out and beat the world! And in the retail sector, specifically, there’s the added advantage that bankruptcy can help companies renegotiate onerous lease obligations. If Toys R Us is paying above-market rents in certain malls, bankruptcy should help fix that problem.

All of which raises the question: Why is bankruptcy bad for retailers, when by rights it should be good?

I suspect the answer is that Wall Street has become too specialized. The leveraged loan market has two sides — the borrowers and the lenders — and those two sides have significantly different skill sets. While the lenders can judge the borrowers’ ability to run companies, they don’t particularly like to run companies themselves. Creditors generally have very little say in how companies are managed, and that’s how they like it; they don’t have the time or the ability to start hiring managers, holding them to performance targets, owning shares, and the like.

The result is that unless creditors can see a clear path to being able to sell their equity quickly and pretty easily, they’re generally going to prefer to liquidate.

A similar dynamic plays out at VC-backed startups facing difficulty. Once the VCs realize that they’re unlikely to make monster returns on their investment, they tend to swing for the fences, and urge drastic changes (a/k/a “pivots”) which have a low chance of success and which will leave the company worthless if they fail. That’s vastly preferable, from the VC perspective, to simply carrying on a relatively small yet sustainable business which it would be hard to make lots of money on. A small return, or a 1X return, just isn’t worth a VC’s time. Much better to take a high chance at a zero return, if it comes with the slimmest possibility of something greater.

All of this is deeply inefficient, and represents a clear failure of capital allocation. But it’s also very, very hard to fix. Back when Capital owned companies and Labor ran them, a process like bankruptcy could be incredibly effective. Now, however, Capital has been sliced up into all manner of different flavors: debt, equity, leveraged loans, venture capital, you name it. They’re not fungible: you might say they don’t fung. And that carries a large human cost.

Tuesday, March 13, 2018 

Nota bene: Where anti-gun activists should focus next

It’s anti-gun season, and not a day too soon. Tomorrow students around the country will walk out of their schools for 17 minutes, in advance of the March 24 March For Our Lives and an April 20 student walkout which will be a day-long affair.

These protests are explicitly political, and have clear political demands. In short: Assault weapons should be banned; anybody buying a gun should have to pass a background check; gun-owners showing a propensity to harm themselves or others should have their guns removed; and police should stop being militarized. The protestors also oppose mooted legislation which would arm teachers, or allow concealed carry nationwide.

There have already been legislative successes, especially in Florida. And there have been popular-opinion successes too. America’s biggest gun retailers have raised the minimum age for buying guns, and if you were a corporate partner of the NRA last month, there’s a very good chance you’re not any more. At the margin, that’s going to make it a little bit harder for the NRA to attract paying members, and therefore will cause a little less money to flow through the NRA’s coffers.

Which leaves just one major avenue: The gun manufacturers themselves. This one will take a little bit of time, but is possibly the most promising of all, just because Remington, one of the largest gunmakers, is about to go through Chapter 11 bankruptcy.

People often think of bankruptcy as what happens when a company dies — and that’s true, almost all corporate deaths end in bankruptcy. But not all bankruptcies are corporate deaths; many of them boil down to an expensive way of changing ownership. And that’s what’s going to happen in this case. The old owners were a private-equity shop named Cerberus. (Yes, after the monstrous three-headed dog which guards the gates of hell.) The new owners will emerge from the ranks of Remington’s creditors, and will include Franklin Templeton and JPMorgan Asset Management.

Hence the opportunity. Franklin Templeton and JPMorgan won’t hold on to Remington for long: they’re bond investors with zero interest in owning one of the most controversial companies in the world. But they’re going to own it, whether they like it or not, and that means they can transform it, for the better, while they do.

JPMorgan, for one, doesn’t seem to have a huge amount of appetite for taking such an active role: in a statement, they said that “any holding we have would be minority, passive and temporary”. (My emphasis.) But that doesn’t really pass the smell test. If you’re actively trying to sell a company to the highest bidder, you by definition are taking an active interest in it. And part of that interest can and should be to shut down its most toxic and socially destructive activities.

As Rob Cox says, Remington’s new owners “could, for instance, insist on an end to the production and marketing of AR-15s and similar hardware, encourage smart-gun safety technology, or even urge reduced funding for the National Rifle Association’s political campaigns.” I’d say they should do all three.

There would be costs to such actions: by antagonizing the NRA, Remington would be risking a boycott from the very people who buy most of its guns. What’s more, it would be very hard to take such actions in an irreversible manner. Once JPMorgan and the other creditors sold Remington to its new long-term strategic owner, that owner could simply revert to the status quo under Cerberus.

Still, it’s worth a try. Remington’s temporary owners will, after all, have full control over whom they sell it to, and they can vet that owner quite carefully in terms of its social mission. There’s definitely a possible future world in which Remington stops making assault rifles, starts making smart guns, concentrates on the sport market, and wears the NRA’s disapproval as a badge of honor. That might be risky, but with risk comes opportunity: the NRA is increasingly marginalized, assault-rifle sales are down sharply (everybody who wants one pretty much has one, at this point), and a lot of sports shooters would love to be able to upgrade to an instrument that only their fingerprints could unlock.

By embracing that future, Remington’s current creditors may or may not maximize the return on their equity. But they would certainly be making America a better, safer country. It seems to me that JPMorgan and Franklin Templeton, then, should be the focus of a lot of activism in coming months. The cost, to them, of doing the right thing could be pretty small; the benefit, to the country and the world, would be enormous. So don’t let them off the hook. If you want to make a difference, on the guns-in-America front, put real pressure on Remington’s new owners. Not all positive change comes through legislation, after all.

Sunday, March 11, 2018 

Nota bene: Ignorance is bliss

By now you’ve probably read Sam Dolnick’s lovely piece about Erik Hagerman, “the most ignorant man in America”. If you haven’t, you should! It’s great! Both on its own terms, and also as a view into what you might call the journalist’s-eye view of the world.

Dolnick, of course, is a member of the Sulzberger clan, steeped in journalism (and specifically the New York Times) since birth. As you read his article, you see the utter incomprehension with which he approaches Hagerman, a rich, successful, well-educated man who has decided to cut himself off from the news entirely.

He is now more than a year into knowing almost nothing about American politics. He has managed to become shockingly uninformed during one of the most eventful chapters in modern American history. He is as ignorant as a contemporary citizen could ever hope to be.

The message is clear: For Hagerman to be uninformed about current events is, in some sense, to be un-American, and when there’s lots of news going on around him, it’s downright shocking.

Hagerman isn’t particularly ignorant on any axis except the news. He can talk about English architecture, or Kant, or the Cleveland Cavaliers. He reads the art reviews in the New Yorker. He can even criticize his own decision, saying that he’s “a crappy citizen” and that his actions are “the ostrich head-in-the-sand approach to political outcomes”.

Yet there’s no reason not to believe him when he says, firstly, that he feels emotionally healthier than ever, and, secondly, that he “never did anything” with most of the news that he ingested in the past. He’s a liberal Democrat; when it comes time to vote, I’m sure he will do exactly what he would do had he been following the news closely, and vote for the Democrat in all of his state and federal elections. In that sense, his priors don’t need reinforcing. And while his news blockade certainly precludes him from becoming politically active, the fact is that the vast majority of Americans are not politically active. By all means celebrate the activists, but don’t kid yourself that they’re the norm.

What makes Dolnick’s article so good is that it raises an uncomfortable question for journalists: if Hagerman is not harming anybody by his actions, and if he himself is better off as a result of them, why do we find them so shocking? Why the anger?

The most common answer to that question is some variation of the “privilege porn” response. As Dolnick puts it:

To avoid current affairs is in some ways a luxury that many people, like, for example, immigrants worried about deportation, cannot afford.

This is a little bit unsatisfying. Can immigrants worried about deportation afford to be ignorant when it comes to Dolnick’s list of issues? (“James Comey. Russia. Robert Mueller. Las Vegas. The travel ban. ‘Alternative facts.’ Pussy hats. Scaramucci. Parkland. Big nuclear buttons. Roy Moore.”) Yes, they can.

There are, to be sure, certain very narrow and targeted pieces of information which can help those immigrants try to minimize their chances of deportation, both before and after they are arrested. But that’s a separate issue from being broadly informed on the news of the day. And when Hagerman needs narrow and targeted pieces of information himself, he gets them — he was told about the Equifax breach, for instance, by his brother, in a manner not dissimilar to the way that immigrants find out about strategies enabling them to remain in the country.

All of which is to bring up a truth which is rather uncomfortable, for journalists: while a vibrant free press is certainly a social necessity on a national level, it’s far from being a necessity on any given individual level. Unless you work in one of a pretty small group of occupations (journalism, politics, activism, international diplomacy, that kind of thing), you really don’t need to stay on top of the news. And even if you are in one of those occupations, you probably consume significantly more news than you really need to do in order to do your job.

What’s more, on a personal level, news consumption really isn’t good for most people. Especially not right now. Yes, if the news makes you angry, and then you channel your anger into the kind of political activism which ends up improving the future of the country, that’s great. (On the other hand, if the news makes you angry, and then you channel your anger into the kind of political activism which ends up electing Donald Trump, that’s not so great.) But if the news just makes you angry and cranky and generally ill-humored, then at some point it’s worth asking: Why are you reading so much of it?

The Hagerman response — to listen to white noise at the coffee shop so as to avoid even overhearing a conversation — is, to be sure, extreme, and far from admirable, and something which requires a substantial degree of privilege. Still, I’m reminded of one of my favorite lines from William S Burroughs:

If, after having been exposed to someone's presence, you feel as if you've lost a quart of plasma, avoid that presence. 

I’m a journalist, I’m loathe to tell anybody to avoid exposing themselves to journalism. Expose yourself to more! As much as possible! And pay for it!

Even if, I guess, doing so isn’t actually very good for you.

Notes from Felix

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