Perry Bryant: Historic Climate Legislation Passed (text only)

 Historic Climate Legislation Passed

by Perry Bryant

        The US Senate has historically been the place where climate legislation has died: cap and trade legislation in 2009, the Kigali Agreement phasing out hydrofluorocarbons, etc. Not this time. The Senate passed and President Biden has signed into law the Inflation Reduction Act (IRA), providing almost $370 billion in funding over the next ten years to significantly reduce America’s greenhouse gas emissions.  

        Princeton University’s Zero Lab projects that the IRA will cut the United States’ emissions by 40% by 2030. Without the IRA, our emissions would only have been reduced by 27% by 2030. The 40% cut in emissions puts the US close to meeting our Paris climate goals of a 50 to 52% reduction in emissions by 2030. 

        As important as these reductions in US emissions are -- and they are vitally important -- the IRA also reasserts American world leadership on climate issues increasing the chances (although there’s certainly no guarantee) that China, India and other countries will up their commitment to fighting the climate crisis during the upcoming November UN Conference of Parties in Egypt. 

        There’s a lot to the IRA. This article will summarize the major energy and environmental provisions and then provide some details on the tax credits that are available to individuals for purchasing an electric vehicle (EV) and the rebates available for retrofitting homes for energy efficiency.  

Energy Production

        For homeowners who install a solar array or a wind turbine, there is a 30% tax credit for the cost of installing these system, and that tax credit is available for the next ten years (until 2032). Battery storage, which currently does not qualify for investment tax credits, becomes available for the 30% tax credit in January and is also available over the next ten years. 

        Utility-grade solar, wind, geothermal, and batteries will also qualify for the 30% investment tax credit if the developer pays prevailing wages and has an apprenticeship program. These solar and wind projects can qualify for additional tax credits if they are located in “energy communities” that include brownfield sites, communities with high unemployment, and census tracts were a coal mine closed after 1999 or a coal-fired power plant retired after 2009. Altogether it appears that a facility could qualify for a 40% tax credit if it met all these add-ons including using domestically produced material in construction of the facility. 

        By 2030, the amount of solar energy produced in the US is expected to increase fourfold; wind energy threefold; and battery storage fourteen-fold. The IRA could well make the 2020s the decade of renewables. That is not too soon for addressing the climate crisis.

Electric Vehicles (EVs)

        Transportation is the largest source of greenhouse gas emissions in the country. Moving to electric vehicles (EVs) is an essential step towards reducing these emissions. During the negotiations on the IRA, Senator Manchin expressed concerns about providing incentives that would encourage EV purchases with batteries made in China and reliance on critical minerals mined in countries outside North America. The final version has significant restrictions on the EV tax credits that reflect his concerns about importing batteries and minerals from China and other countries.

        If you are considering buying an EV, or want to understand the restrictions on EV tax credits, the details of these tax credits are outlined at the end of this article. Both the tax credits and the restrictions on the EV tax credits are significant and may well impact how successful the EV tax credits will be in promoting the sale of electric vehicles.

Energy Efficiency

        The IRA revives a tax credit program for homeowners installing energy efficiency measures and establishes two new rebates to help pay homeowners to retrofit their homes to make them more energy efficient. The tax credit program, now called the Energy Efficiency Home Improvement Credit had lapse. The benefits are now made retroactive to 2022 although it will only pay 10% of the improvements. Beginning in 2023, the benefits increase to 30% and annual and lifetime caps are improved. 

The new rebate program promoting electrification (tax credits for electric heat pumps, e.g.) is income based. While one almost always wants higher income levels so more people qualify for these rebates, the income levels are not unreasonable, in my opinion. 

The second program – Home Owners Managing Energy Savings (HOMES) – provides enhanced benefits to low-income households, but is available to all households regardless of income. This program provides larger rebates depending on how much energy is projected to be saved from the retrofit. The details on all three of these energy efficiency programs, including eligibility guidelines and what will pay for (they are extensive) are at the end of this article. 

Both of these new rebate programs will be run by the state. The state will need to submit a draft program to the US Department of Energy for approval before benefits will be available. It is unclear how soon that will happen. By contrast the tax credit program, the Energy Efficiency Home Improvement Credit, is in effect now with enhanced benefits in 2023.

Just Transition

        As the country transitions away from coal and towards renewables for electric generation, there undoubtedly will be additional loss of coal mining jobs. One the best alternatives to mining jobs is to provide a true or just transition by creating good-paying manufacturing jobs. The IRA provides $10 billion in tax credits for manufacturing clean energy components such as solar panels, wind turbines, parts for EVs, etc. This funding through section 48C of the IRS tax code provides a 30% tax credit for manufacturing clean energy components, and $4 billion has to be spent in “coal communities.” This includes communities where a coal mine has closed since 1999 or a coal-fired power plant retired after 2009. Funding for a specific 48C project isn’t assured; funding is awarded on a competitive basis. This is a golden opportunity to diversify the state’s economy, particularly in southern West Virginia. One can only hope that state government and manufacturers take advantage of this once-in-a-lifetime opportunity. 

Methane Fee

        Methane is a very powerful greenhouse gas. Over a 100-year period, methane is 25 times more potent at trapping heat in the atmosphere than carbon dioxide (CO2). However, unlike CO2 which impacts the atmosphere for hundreds of years, methane dissipates in 10 to 12 years. So, reducing methane emissions can have some of the most immediate (in climate time) impact on global warming. 

The oil and natural gas industry is a top source of U.S. emissions of methane. They emit methane at every step in the production of oil and natural gas: drilling, processing, and distribution. 

        The IRA imposes a fee on methane emissions of $900 per metric ton beginning in 2024. The fee increases to $1,500 per ton by 2026. The fee only applies to large methane emitters, exempting small operators who emit as much as 60% of all methane emissions according to the Congressional Research Service. The IRA provides the oil and natural gas companies with $1.5 billion in grants and other incentives to help them reduce their methane emissions. And if companies can comply with an anticipated EPA regulation on methane emissions, they will be exempt from the methane fee. 

Environmental Justice

        The IRA contains numerous provisions supporting low-income communities and communities of color. Listed below are just two examples of the environmental justice provisions in the IRA. The Greenhouse Gas Reduction Fund sometimes referred to as the “Green Bank,” provides $27 billion in funding to EPA. These funds are intended to leverage private funding to develop low- and zero-emission projects. $20 billion will be available to nonprofit financing institutions, and 40% of these funds ($8 billion) must be invested in low-income and disadvantaged communities. 

        The Environmental and Climate Justice Block Grants provide EPA with $3 billion for environmental justice projects for disadvantaged communities. Eligible activities include pollution monitoring, transportation emissions reduction, and pollution prevention. 

Black Lung

        The tax on the mining of coal that historically funded the black lung program expired last year. The IRA permanently restores the tax on coal mining to fund the black lung program. 

 

Fossil Fuels

The IRA reflects Senator Manchin’s “all of the above” strategy for energy development. For example, the bill prohibits the Interior Department from approving renewable energy development on federal property over a ten-year period unless it also opens lands to oil and gas development. 

Specifically, in order for the Interior Department to issue rights-of-ways on federal property for solar and wind development, they are required to lease as much as 2 million acres onshore each year and at least 60 million acres offshore each year for oil and gas development. (Inside Climate News, July 28, 2022.) There is leasing reform along with this leasing. These reform measures include, “raising royalty rates and rental rates to hold a lease, eliminating non-competitive bidding, (and) raising bonding requirements.” (West Virginia Rivers Coalition, August 9, 2022.)

The IRA also provides enhanced benefits for carbon capture and storage (CCS). CCS is a technology that removes CO2 from emissions from the flue gases at coal- or gas-fired power plants or industrial facilities (e.g., cement or steel plants). CCS technology is not currently economically viable and demonstration projects have struggled or failed. The IRA increases the amount of tax credits that a company can claim from the current $50 per ton of CO2 to $85 per ton of CO2. 

Senator Manchin secured agreement from legislative leaders to also pass permitting reforms as part of his support for passing the IRA. At least two proposals for permitting reform have been suggested. One would move judicial review of the Mountain View pipeline from the 4th Circuit Court of Appeals to the DC Court of Appeals. The other would limit agency reviews under the National Environmental Policy Act to two years, and restrict judicial review once an agency has made a NEPA decision. 

Agriculture and Forestry 

        The IRA provides $20 billion to help farmers reduce and store greenhouse gases. There is an additional $14 billion to help rural electric co-ops to transition to renewable forms of energy production.

        The US Forrest Service will receive $1.8 billion to reduce fuel in the wildland-urban interface, as well as $50 million to complete an inventory of old-growth forest and to protect old-growth forest. 

Conclusion

        Whew. There is a lot in the IRA, and this review only touches on some of the more important provisions. One weakness of the IRA is that it does not require action by individuals or most industries. There are plenty of carrots in the IRA but few sticks. Developing the sticks will fall on President Biden’s shoulders. One can only hope that the combination of the IRA carrots and President Biden’s regulatory action will be enough to make the monumental transition away from fossil fuels to renewables; a transition that the International Energy Agency, the world’s energy experts, has called the most difficult in human history. 

In making this transition, the IRA is foundational. It is the most significant and comprehensive climate legislation ever passed by Congress. It creates the opportunity for the US to lead the world on climate reform and conceivably hold global warming to an increase of 1.5 degrees Celsius -- a very daunting challenge. But at least we have an opportunity to meet this challenge thanks to the IRA. 

Details on the EV Tax Credits

Currently, the tax credit for EVs is limited to the first 200,000 customers for each car manufacturer. Tesla and General Motors have already reached that limit and Toyota will shortly. The IRA eliminates this cap, but requires all EVs be assembled in the North America in order to qualify for the tax credit. Any tax credit that is available can be applied at the point of the sale, rather than waiting to file a tax return the following April.

        The EV tax credit in the IRA is up to $7,500 per vehicle, and is split equally into two buckets. The first bucket provides up to half of the tax credit ($3,750) and requires that batteries be manufactured or assembled in North America. In 2023, when the new EV tax credit becomes effective, 50% of the batteries have to be manufactured or assembled in North America. That increases over time until 2029 when 100% of the batteries must be manufactured or assembled in North America in order to qualify for the tax credit.

        The second bucket of up to $3,750 is contingent on where minerals used in the batteries are mined or processed. Beginning in 2023, 40% of these minerals (e.g., lithium, cobalt, and nickel) must be mined, processed or recycled in North America. This increases each year until 2027 when 80% of the battery’s minerals must be mined, processed, or recycled in North America. 

        It is unclear how quickly EV manufacturers can develop supply chains to meet these requirements. The US is heavily dependent on China for lithium-ion battery cells (80%) as well as graphite used for battery electrodes. EV manufacturers that can break this reliance on China will have a competitive advantage over EV manufacturers that are unable to do so. 

        There are also limits on the cost of the EVs and income limits on taxpayers who can qualify for EV tax credits. EV cars cannot cost more than $55,000 and SUVs and light trucks cannot cost more than $80,000 and still qualify for the tax credit. Additionally, individuals earning more than $150,000 and couples earning more than $300,00 do not qualify for the EV tax credits. 

        Used EVs sold by a car dealer also qualify for tax credits of up to $4,000 or 30% of the sales price, whichever is less. The sales price cannot exceed $25,000 and the EV must be at least two years old. Individuals who purchase a used EV cannot earn more than $75,000 (joint filers $150,00) a year. These tax credits take effect January 1, 2023.

Details on the Energy Efficiency Rebates

        There is one revived tax credit program for energy efficiency and two new rebate energy efficiency programs in the IRA. 

        The tax credit program, now called the Energy Efficiency Home Improvement Credit, had lapsed. It has been revived and made retroactive to 2022, although with only limited benefits: 10% tax credit on qualified efficiency measures with a $500 lifetime cap. Beginning in 2023, the tax credit increases to 30% and the lifetime cap on benefits is replaced with a cap of $600 per measure, and a $1,200 annual cap. Exceptions to these caps are included in the chart below.

        Eligible services and home improvements must be highly rated by Energy Star or other rating system, and include:

Heat pumps and heat pump water heaters ($2,000 credit)

Insulation and air sealing

Energy audits ($150 tax credit)

Energy-efficient HVAC systems (including furnaces, boilers, and central AC)

Electrical panel upgrades; must be at least 200 amps capacity

Energy-efficient windows and doors ($500 tax credit for doors)

The High-Efficiency Electric Home Rebate Program is one of the two new energy efficiency rebate programs. This one focuses on electrification. It provides rebates (not tax credits) to low-income homeowners for 100% of the amount listed below for installing electrical upgrades:

Heat pump water heater

$1,750

Heat pump for HVAC

$8,000

Electric stove or heat pump clothes dryer

   $840

Electric service upgrade 

$4,000

Insulation and air sealing

$1,600

Electrical wiring

$2,500

        Low-income homeowners are defined as households that earn less than 80% of the area median income as determined by the US Department of Housing and Urban Development (HUD) (see the chart below). Multi-family properties qualify if 50% of the residents meet this income requirement.

        Moderate-income households qualify for 50% of the maximum benefit listed above. For example, a moderate-income family could receive a rebate up to $4,000 for installing a heat pump. Moderate-income households are defined as earning between 80% and 150% of the area median income as defined by HUD (see the chart below). Households earning more than 150% of the median income do not qualify for rebates under this electrification program. Multi-family properties qualify if 50% of the residents meet these income requirements.

        According to the HUD website,[1] estimates for what 80% and 150% of the median income for West Virginia in 2021 for various household sizes are shown below. Please note that these are 2021 figures and will change. And they represent the best data available and should be considered estimates. 

Household Size

80% of the median income in West Virginia

150% of the median income in West Virginia

1

$33,750

$63,300

2

$38,600

$72,300

3

$43,400

$81,450

4

$48,250

$90,450

        The second energy efficiency program in the IRA is the HOMES program, and is a more traditional energy efficiency program. It provides rebates for the cost of a project depending on how much energy is saved through the project.

For retrofits that are projected to save 35% or more of the household’s energy, the rebates are $4,000 or 50% of the project costs, whichever is less. The benefits increase to $8,000 or 80% of the cost of the project whichever is less for households earning less than 80% of the area median income. 

For retrofits that are projected to save between 20% and 35% of the household’s energy, the rebates are $2,000 or 50% of the project costs, whichever is less. The benefits increase to $4,000 or 80% of the cost of the project whichever is less for households earning less than 80% of the area median income. 

For retrofits that achieve energy savings of at least 15%, they will receive “a payment rate per kilowatt hour saved…equal to $2,000 for a 20% reduction of energy use for the average home in the state.”[2] Benefits increase for households earning less than 80% of the area median income. 

Benefits from these two energy efficiency programs cannot be combined. Both programs will be run by the state. The state will need to submit a draft program to the US Department of Energy for approval before benefits will be available. It is unclear how soon that will happen.         

________________

[1] See https://www.huduser.gov/portal/datasets/il/il2021/2021summary.odn?inputname=STTLT*5499999999%2BWest+Virginia&selection_type=county&stname=West+Virginia&statefp=54.0&year=2021 

[2] I have no idea what this language means. But it is verbatim from the IRA statute.

Dean Baker on Industrial Policy

 a good essay on "industrial policy", otherwise known as planning -- :)

via Patreon

Thoughts on Industrial Policy

Dean Baker

There is much confusion surrounding the concept of industrial policy, starting at the definitional level. If we think of industrial policy as a set of policies designed to favor certain industries, then we are always doing industrial policy.

For example, the decision to have the government finance the construction of airports supports the airline industry, as well as air freight, just as the decision to build the highways 70 years ago supported the auto industry and the suburbs. We spend over $50 billion a year on biomedical research, which is a huge subsidy to the pharmaceutical and medical equipment industries.

In short, industrial policy is not an on-off switch. We are always practicing industrial policy; the only issue is which industries we choose to favor and how we structure the mechanisms.

Recent legislation approved by Congress, the CHIPS Act and the Inflation Reduction Act (IRA), have been seen as big steps in advancing industrial policy. While there is much positive in these bills, there are three important areas where the legislation falls short:

1) The ownership of intellectual property

2) The price of clean energy products supported through the IRA

3) The false promise of manufacturing jobs

These are taken in turn.

Ownership of Intellectual Property

The treatment of intellectual property in these bills, and in fact in policy more generally, is badly misguided. The government is quite explicitly funding research in a wide range of areas. However, it will allow the companies benefitting from this research to claim ownership of patents and other forms of intellectual property based on the research it has funded.

This is an absurd subsidy that could redistribute a huge amount of income upward in the decades ahead. It would be comparable to the government paying a company to build a factory, and then giving it ownership of the factory. While the absurdity of this sort of giveaway in the case of a physical product is apparent to anyone, for some reason, it seems natural that we have the government pay for research and then allow companies to gain patent monopolies or other forms of protection to control the product and sell it at a monopoly price.

There is a huge amount of money at stake in this. In responding to the pandemic, Operation Warp Speed gave Moderna close to $900 million to develop and test a coronavirus vaccine. It then allowed Moderna to keep control of the vaccine, adding tens of billions of dollars to its market capitalization and creating at least fiveModerna billionaires.

This sort of outcome should outrage anyone who cares about inequality. The idea that we only pay companies once for their work is not radical. If we pay for the research, then companies should not also be able to get control of the output.

Ideally, all the results of publicly funded research would be in the public domain. This means that anyone could produce a product based on the results, or build on the research to produce a better product. There are other rules that could still allow some further gain by those who did the work, such as compulsory licensing, or an agreement to accept shorter patent monopolies, but keeping the research in the public domain would be the simplest and most equitable route.[1]It would also be important to prohibit non-disclosure agreements by companies working on taxpayer supported research.

Keeping the Price of Products Low

While we want to keep down the price of all products wherever possible, this is especially true of the items being developed to slow climate change. In principle, we would like solar panels, electric car batteries, and other green products to sell at the lowest possible price.

Patent monopolies and other forms of protection push prices in the opposite direction. In many cases, the cost associated with patent monopolies can be a very large share of the price. This is especially true with prescription drugs where the patent is responsible for close to 80 percent of the price of protected drugs on average, and in some cases more than 99 percent.

The share of the price associated with patent protections with items like solar panels or batteries is likely to be considerably lower, since these products do involve a complex manufacturing process and more physical material than drugs. Nonetheless, patents and related protections could still raise the price of these items by 20 to 30 percent. Furthermore, locking up technologies behind patent protection may slow innovation, since other companies will have less access to it.

Since our goal in promoting clean technology is to have it adopted as widely as possible, as quickly as possible, we should very much want to see prices lowered by having all research in the public domain. If the price of solar panels would fall by 25 percent by eliminating any intellectual property claims, this would have the same effect in increasing demand as an additional government subsidy to purchasers of 25 percent of the sale price. This is a big deal.

The False Promise of Manufacturing Jobs

Much of the discussion around both the CHIPS bill and the IRA highlighted provisions in the bills that would lead to more manufacturing in the United States. The view that we should be seeking out jobs in manufacturing specifically, rather than jobs in other sectors of the economy, rests on a misunderstanding of the current nature of manufacturing jobs.

Historically, manufacturing had been a source of relatively good-paying jobs for workers without college degrees. Jobs in manufacturing paid substantially more than jobs in other sectors, after controlling for factors like age, education, and location. This is no longer true. The manufacturing wage premium has fallen sharply in recent decades, so that it is now close to zero.

Trade has been a big factor in the reduction of the manufacturing wage premium. The country lost millions of jobs to imports in the 90s and 00s. The jobs that remained often paid far less than the jobs that were lost. A big part of this story was the decline of unionization in manufacturing. In 1980, close to 20 percent of the manufacturing workforce was unionized. This had fallen to just 7.7 percent by 2021, only slightly higher than the private sector average of 6.1 percent.

Furthermore, there is little reason to believe that the return of manufacturing jobs will mean a substantial increase in unionized manufacturing jobs. From the recession trough in 2010 to 2021, the manufacturing sector added back over 800,000 jobs. However, the number of union members in manufacturing actually dropped by 400,000 over this period.

In short, our trade policies had a devastating impact on manufacturing workers and workers without college degrees more generally, but reversing these policies now will not help the problem. We want these workers to be able to get good paying jobs, but they are no more likely to find them in manufacturing than in any other sector. (It is worth noting that manufacturing employment is still more than 70 percent male.)

There is an issue about the need to have more domestic production for national security reasons, as well as protection against events like the pandemic. This point is true, but often exaggerated. Clearly there is a national security issue when most of our semiconductors come from Taiwan when a conflict with China could quickly choke off this source of supply. However, we could be reasonably comfortable importing semiconductors from Canada, Mexico, and many other countries.

The pandemic did disrupt imports from our trading partners, but we also had many domestic factories shut down during the pandemic. Furthermore, if we think of the range of potential disasters, certainly there are many areas in the United States where production could be stopped for extended periods by hurricanes, floods, or other extreme weather events. What we really need are diverse sources of supply, not just domestic production. A focus on domestic production that doesn’t recognize the need for a diversity of sources, will not create resiliency.

Conclusion – Better Industrial Policy Would be Good, but We Need to Approach it With Clear Eyes

There is much that is good in the recent legislation that has been touted as industrial policy. However, these bills have not been well-structured from the standpoint of reducing income inequality. They also won’t necessarily help to make the economy more resilient in the ways many have claimed.

Industrial policy cannot just be a mantra, whereby calling something industrial policy implies better outcomes. It has to be carefully designed to meet specific goals. If we want to reduce inequality and speedup the adoption of clean technology, we can do much better than the CHIPS Act and the IRA climate provisions.

[1]There would need to be some agreement on sharing research costs and findings internationally, but we already have this problem with the existing IP system. Patent obligations and related protections have been a major source of conflict in the negotiation of recent trade agreements

Louis Menand: American Democracy Was Never Designed to Be Democratic

American Democracy Was Never Designed to Be Democratic

The partisan redistricting tactics of cracking and packing aren’t merely flaws in the system—they are the system.

August 15, 2022

Louis Menand, 

The New Yorker

To look on the bright side for a moment, one effect of the Republican assault on elections—which takes the form, naturally, of the very thing Republicans accuse Democrats of doing: rigging the system—might be to open our eyes to how undemocratic our democracy is. Strictly speaking, American government has never been a government “by the people.”


This is so despite the fact that more Americans are voting than ever before. In 2020, sixty-seven per cent of eligible voters cast a ballot for President. That was the highest turnout since 1900, a year when few, if any, women, people under twenty-one, Asian immigrants (who could not become citizens), Native Americans (who were treated as foreigners), or Black Americans living in the South (who were openly disenfranchised) could vote. Eighteen per cent of the total population voted in that election. In 2020, forty-eight per cent voted.



Some members of the loser’s party have concluded that a sixty-seven-per-cent turnout was too high. They apparently calculate that, if fewer people had voted, Donald Trump might have carried their states. Last year, according to the Brennan Center for Justice, legislatures in nineteen states passed thirty-four laws imposing voting restrictions. (Trump and his allies had filed more than sixty lawsuits challenging the election results and lost all but one of them.)

In Florida, it is now illegal to offer water to someone standing in line to vote. Georgia is allowing counties to eliminate voting on Sundays. In 2020, Texas limited the number of ballot-drop-off locations to one per county, insuring that Loving County, the home of fifty-seven people, has the same number of drop-off locations as Harris County, which includes Houston and has 4.7 million people.

Virtually all of these “reforms” will likely make it harder for some people to vote, and thus will depress turnout—which is the not so subtle intention. This is a problem, but it is not the fundamental problem. The fundamental problem is that, as the law stands, even when the system is working the way it’s designed to work and everyone who is eligible to vote does vote, the government we get does not reflect the popular will. Michael Kinsley’s law of scandal applies. The scandal isn’t what’s illegal. The scandal is what’s legal.

It was not unreasonable for the Framers to be wary of direct democracy. You can’t govern a nation by plebiscite, and true representative democracy, in which everyone who might be affected by government policy has an equal say in choosing the people who make that policy, had never been tried. So they wrote a rule book, the Constitution, that places limits on what the government can do, regardless of what the majority wants. (They also countenanced slavery and the disenfranchisement of women, excluding from the electorate groups whose life chances certainly might be affected by government policy.) And they made it extremely difficult to tinker with those rules. In two hundred and thirty-three years, they have been changed by amendment only nine times. The last time was fifty-one years ago.

You might think that the further we get from 1789 the easier it would be to adjust the constitutional rule book, but the opposite appears to be true. We live in a country undergoing a severe case of ancestor worship (a symptom of insecurity and fear of the future), which is exacerbated by an absurdly unworkable and manipulable doctrine called originalism. Something that Alexander Hamilton wrote in a newspaper column—the Federalist Papers are basically a collection of op-eds—is treated like a passage in the Talmud. If we could unpack it correctly, it would show us the way.


The Bill of Rights, without which the Constitution would probably not have been ratified, is essentially a deck of counter-majoritarian trump cards, a list, directed at the federal government, of thou-shalt-nots. Americans argue about how far those commandments reach. Is nude dancing covered under the First Amendment’s guarantee of the freedom of expression? (It is.) Does the Second Amendment prohibit a ban on assault weapons? (Right now, it’s anyone’s guess.) But no one proposes doing away with the first ten amendments. They underwrite a deeply rooted feature of American life, the “I have a right” syndrome. They may also make many policies that a majority of Americans say they favor, such as a ban on assault weapons, virtually impossible to enact because of an ambiguous sentence written in an era in which pretty much the only assault weapon widely available was a musket.

Some checks on direct democracy in the United States are structural. They are built into the system of government the Framers devised. One, obviously, is the Electoral College, which in two of the past six elections has chosen a President who did not win the popular vote. Even in 2020, when Joe Biden got seven million more votes than his opponent, he carried three states that he needed in order to win the Electoral College—Arizona, Georgia, and Pennsylvania—by a total of about a hundred thousand votes. Flip those states and we would have elected a man who lost the popular vote by 6.9 million. Is that what James Madison had in mind?

Another check on democracy is the Senate, an almost comically malapportioned body that gives Wyoming’s five hundred and eighty thousand residents the same voting power as California’s thirty-nine million. The District of Columbia, which has ninety thousand more residents than Wyoming and twenty-five thousand more than Vermont, has no senators. Until the Seventeenth Amendment was ratified, in 1913, senators were mostly not popularly elected. They were appointed by state legislatures. Republicans won a majority of votes statewide in Illinois in the 1858 midterms, but Abraham Lincoln did not become senator, because the state legislature was controlled by Democrats, and they reappointed Stephen A. Douglas.


VIDEO FROM THE NEW YORKER

The Act of Coming Out


Even though the Senate is split fifty-fifty, Democratic senators represent forty-two million more people than Republican senators do. As Eric Holder, the former Attorney General, points out in his book on the state of voting rights, “Our Unfinished March” (One World), the Senate is lopsided. Half the population today is represented by eighteen senators, the other half by eighty-two. The Senate also packs a parliamentary death ray, the filibuster, which would allow forty-one senators representing ten per cent of the public to block legislation supported by senators representing the other ninety per cent.

Many recent voting regulations, such as voter-I.D. laws, may require people to pay to obtain a credential needed to vote, like a driver’s license, and so Holder considers them a kind of poll tax—which is outlawed by the Twenty-fourth Amendment. (Lower courts so far have been hesitant to accept this argument.)

But the House of Representatives—that’s the people’s house, right? Not necessarily. In the 2012 Presidential election, Barack Obama defeated Mitt Romney by five million votes, and Democrats running for the House got around a million more votes than Republicans, but the Republicans ended up with a thirty-three-seat advantage. Under current law, congressional districts within a state should be approximately equal in population. So how did the Republicans get fewer votes but more seats? It’s the same thing that let Stephen A. Douglas retain his Senate seat in 1858: partisan gerrymandering.

This is the subject of Nick Seabrook’s timely new book, “One Person, One Vote: A Surprising History of Gerrymandering in America” (Pantheon), an excellent, if gloomy, guide to the abuse (or maybe just the use) of an apparently mundane feature of our system of elections: districting.

We tend to think of a “gerrymander” as a grotesquely shaped legislative district, such as the salamander-like Massachusetts district that was drawn to help give one party, the Democratic-Republicans, a majority in the Massachusetts Senate in the election of 1812. The governor of the state, Elbridge Gerry, did not draw the district, but he lent his name to the practice when he signed off on it. (Seabrook tells us that Gerry’s name is pronounced with a hard “G,” but it’s apparently O.K. to pronounce gerrymander “jerry.”)

Gerry’s gerrymander was by no means the first, however. There was partisan gerrymandering even in the colonies. In fact, “the only traditional districting principle that has been ubiquitous in America since before the founding,” Seabrook writes, “is the gerrymander itself.” That’s the way the system was set up.


Partisan gerrymandering has produced many loopy districts through the years, but today, on a map, gerrymandered districts often look quite respectable. No funny stuff going on here! That’s because computer software can now carve out districts on a street-by-street and block-by-block level. A favorite trick is moving a district line so that a sitting member of Congress or a state legislator is suddenly residing in another district. It’s all supposed to be done sub rosa, but, Seabrook says, “those in the business of gerrymandering have a tendency to want to brag about their exploits.”





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You might think that you can’t gerrymander a Senate seat, but the United States Senate itself is a product of gerrymandering. One factor that determined whether a new state would be admitted to the Union was which political party was likely to benefit. We have two Dakotas in part because Republicans were in power in Washington, and they figured that splitting the Dakota territory in two would yield twice as many new Republican senators.

For there’s nothing natural about states. Portions of what is now Wyoming were, at various times, portions of the territories of Oregon, Idaho, Dakota, Nebraska, and Utah. Before 1848, much of Wyoming was Mexican. Before that, it was Spanish. We don’t have Wyoming because people living within the territory felt a special affinity, a belief that they shared a “Wyoming way of life,” and somebody said, “These folks should have their own state.” To the extent that Wyoming residents feel stately solidarity, it’s because the federal government created Wyoming (and two more Republican senators), not the other way around.

In the case of the House, reapportionment takes place every ten years, after the census is reported. When this happens, most states redistrict not only for Congress but for their own legislative offices as well. This means, usually, that the party in power in state government that year draws district lines that will be in place for the next decade. Republicans, when they are running the show, try to make it harder for Democrats on every level to win, and vice versa. And why not? It’s human nature.

Even the census, on which apportionment is based, is subject to partisan manipulation. Was it at all surprising to learn recently that the Trump Administration tried to interfere with the 2020 census in order to reduce the population in Democratic districts? Trump officials must have calculated that they had little to lose. If they failed (which they largely did, after the Supreme Court suggested that the Administration was lying about its intentions and officials at the Census Bureau pushed back), no harm, no foul. If they succeeded and someone called them out on it, what was anybody going to do about it? Administer a new census?

The name of the game in partisan redistricting is vote dilution. In a two-party race, a candidate needs only fifty per cent plus one to win. Every extra vote cast for that candidate is a wasted vote, as is every vote for the loser. You can’t literally prevent your opponents from voting. Even the current Supreme Court, which has hardly been a champion of voting rights since John Roberts became Chief Justice, would put a stop to that. So wasting as many of the other party’s votes as possible is the next best thing. And, in most states, it’s perfectly legal. The terms of art are “cracking” and “packing.”

You crack a district when you break up a solid voting bloc for one party and distribute those voters across several adjacent districts, where they are likely to be in the minority. Once it’s cracked, the formerly solid district becomes competitive. This is sometimes called “dispersal gerrymandering.”

When you pack, on the other hand, you put as many voters of the other party as possible into the same district. This arrangement means that their candidate will usually get a seat, but it weakens that party’s power in other districts. From a civil-rights point of view, districts in which members of minority groups are in the majority might seem like a good thing, but Republicans tend to favor majority-minority districts because they reduce the chances that Democratic candidates will win elsewhere in a state.


Partisan redistricting is why Republicans won five of Wisconsin’s eight congressional seats in 2020 even though Biden took the state. Biden carried the Fourth Congressional District, which includes Milwaukee, by fifty-four percentage points. Was that district packed? Not necessarily. The tendency of Democrats to concentrate in densely populated urban areas naturally tends to dilute their votes statewide. But partisan redistricting helps explain why Republicans won sixty-one of ninety-nine seats in Wisconsin’s State Assembly and ten of the sixteen contested seats in the State Senate. Wisconsin is justifiably considered a major success story by Republican redistricting strategists.

Partisan gerrymandering is also why, for most of the past half century, the State Senate in New York was Republican and the State Assembly was Democratic—a formula for gridlock, backroom dealing, and the inequitable distribution of resources. Seabrook explains that New York’s districting was solidified under a handshake agreement that gave each party control of the process for one legislative chamber. The parties therefore created as many safe districts for their candidates as possible. Seabrook calls New York a “criminal oligarchy” and notes that, between 2005 and 2015, at least thirty state officials were involved in corruption cases.

Eight years ago, by constitutional amendment, New York established a bipartisan independent redistricting commission and made partisan gerrymandering illegal. This cycle, the commission deadlocked, and the Democrats, who have a supermajority in both houses of the legislature, tried to build a loophole in the law and drew their own maps. The State Senate and congressional maps were promptly thrown out as illegal partisan gerrymandering by the New York State Court of Appeals, and a lower court presented new maps, which govern the 2022 elections. The result is that New York Democrats now find themselves competing with one another for the same seats. The new district lines may force one candidate to move in with his mother, in order to maintain residency. Chaos? Just business as usual in New York State government.

Understanding the gerrymander helps us understand what Jacob Grumbach, in “Laboratories Against Democracy” (Princeton), describes as a country “under entrenched minority rule.” Grumbach is a quantitative political scientist, and his data suggest that, although some state governments have moved to the extremes, public opinion in those states has remained fairly stable. What explains the political shift, he thinks, is that all politics has become national.

“The state level is increasingly dominated by national groups who exploit the low-information environments of amateurish and resource-constrained legislatures, declining local news media, and identity-focused voters,” Grumbach maintains. These national groups aim to freeze out the opposition, and redistricting is a powerful tool for that. “Antidemocratic interests need only to take control of a state government for a short period of time,” Grumbach points out, “to implement changes that make it harder for their opponents to participate in politics at all levels.”

Partisan redistricting often favors rural areas. Obviously, the Senate and the Electoral College do this, too. One thumb on that scale is what is called prison gerrymandering. There are more than a million incarcerated convicts in the land of the free. Except in Maine, Vermont, and D.C., none can vote. But in many states, for purposes of congressional apportionment, they are counted as residents of the district in which they are imprisoned.


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Seabrook says that seventy per cent of prisons built since 1970 are in rural areas, and that a disproportionate number of the people confined in them come from cities. Counting those prisoners in apportionment enhances the electoral power of rural voters. It’s a little like what happened after Emancipation. A Southern state could now count formerly enslaved residents as full persons, rather than as three-fifths of a person, and was reapportioned accordingly. Then it disenfranchised them.

Changing the Senate would require a constitutional amendment, and there is little chance of that. There is a movement under way to get states to pass laws requiring their Presidential electors to vote for whoever wins the national popular vote, which is a way of reforming the Electoral College system without changing the Constitution. This, too, is a long shot. Elected officials have no incentive to change a system that keeps electing them.

Suppose, however, that we went over the heads of elected officials and appealed to our lifetime-tenured Supreme Court Justices, who, wielding the power of judicial review (not mentioned in the Constitution), can nullify laws with the stroke of a pen and suffer no consequences? The Justices are not even required to recuse themselves from cases in which they might have personal involvement. No other democracy in the world has a judicial system like that, and for a good reason: it’s not very democratic.

But, precisely because they have no stake in the electoral status quo, the Justices might decide that gerrymandered vote dilution triggers, among other constitutional provisions, the equal-protection clause of the Fourteenth Amendment. It seems pretty clear that your right to vote isn’t very “equal” if someone else’s vote is worth more.


In 2016, the North Carolina Democratic Party, the watchdog group Common Cause, and fourteen North Carolina voters sued the state legislators who had led a partisan redistricting effort designed to create ten congressional seats for Republicans and three for Democrats. The case, Rucho v. Common Cause, was joined with a similar case from Maryland. In that one, it was Republicans who sued, contesting a redistricting plan that reduced the number of G.O.P. congressional seats from two or three to one. The North Carolina plaintiffs won in district court.

In 2019, however, the Supreme Court, in a 5–4 decision (Ruth Bader Ginsburg was still alive), vacated the lower court’s decision and ordered that the suits be dismissed for lack of jurisdiction. The Court’s opinion was written by Roberts, who has been a critic of expanded voting rights since his time as a special assistant to the Attorney General in the first Reagan Administration. Roberts did not deny that the partisan gerrymandering in North Carolina and Maryland was extreme; he simply ruled that federal courts have no business interfering.

Roberts invoked what is known as the political-question doctrine, arguing that the degree of partisanship in redistricting is a political, not a judicial, matter. It admits of no judicial solution. “Excessive partisanship in districting leads to results that reasonably seem unjust,” Roberts conceded. “But the fact that such gerrymandering is ‘incompatible with democratic principles’ . . . does not mean that the solution lies with the federal judiciary.” The matter was deemed “nonjusticiable.”

It might seem shocking that the Court could take cognizance of an undemocratic practice and then decline to do anything about it. But Rucho should not have been a surprise. In 1986, the Court said that gerrymandering could violate the Constitution, but it has never struck down a partisan gerrymander. The Warren Court’s famous one-person-one-vote cases, highly contentious in their day, culminated in Reynolds v. Sims (1964), which held that legislative districts for all state offices, including State Senate seats, “must be apportioned on a population basis.”

These cases made malapportionment illegal, but not gerrymandering. In fact, Seabrook thinks, the one-person-one-vote rule is responsible for what he calls “the Frankenstein’s monster of the modern gerrymander.” As long as district populations are equal, you can crack and pack all you like; you just need the right software, and the Supreme Court will look the other way.

There is one major exception, however. Federal courts will strike down a gerrymander intended to dilute the votes of racial minorities. You can redistrict by political party, in other words, but not by race. That is plainly barred by the Fifteenth Amendment and the 1965 Voting Rights Act. In Cooper v. Harris, from 2017, the Roberts Court invalidated a North Carolina districting plan on the ground that it grouped voters to weaken the minority vote.

Shouldn’t this approach extend to state voting regulations as well? Houston has a large nonwhite population (but will likely have only one drop box); Southern Blacks have a tradition of voting after church services on Sundays (but may no longer be able to do so); and nonwhites are more likely than whites to have to stand in long lines in order to vote (and thus be grateful for some water). Are these new regulations really race-neutral?

In 2021, in Brnovich v. Democratic National Committee, the Court upheld a new Arizona law making it a crime for anyone other than a postal worker, election official, caregiver, or family or household member to collect and deliver an early ballot—targeting a practice common in minority communities. The Democratic National Committee sued, claiming that the law had a disparate impact on, among other groups, Native American Arizonans, many of whom live on reservations that are distant from a polling place. The Court held that the restriction was legal. “Mere inconvenience,” it said, “cannot be enough” to demonstrate that a group’s voting rights have been violated.

Is the motive for redistricting partisan, or is it racial? In a nation in which race is often a determinant of party identity, this will be a tricky needle to thread. Still, the Court isn’t wrong to point out that there is a political solution to the movement to restrict voting rights. Under the Constitution, although the states prescribe the “Times, Places and Manner of holding Elections,” Congress “may at any time by Law make or alter such Regulations,” and thereby make voting easier. What do you think the chances are of that happening? ♦

The Strong Dollar Is Wreaking Havoc Globally — And It’s Just Getting Started - Bloomberg

The Strong Dollar Is Wreaking Havoc Globally — And It's Just Getting Started


https://www.bloomberg.com/news/articles/2022-07-28/how-a-strong-usd-dxy-is-pushing-the-global-economy-to-recession?sref=woWS9Szx

ByRuth Carson and Cormac Mullen
July 27, 2022 at 8:00 PM EDT



George Boubouras was at his home in east Melbourne, taking in a cricket match, when his phone suddenly blew up.

It was late on July 13, about 10:45 p.m., and there was an urgency to the texts and calls that came flooding in. The euro had just crashed through parity against the dollar, a level once almost unthinkable, and everyone — clients, fund managers, traders — wanted to know what Boubouras, the head of research at K2 Asset Management, recommend they do. His response was simple: "Don't fight the dollar right now."

Just over an hour later, another jolt came. The Bank of Canada, struggling like the European Central Bank and other central banks to keep its currency steady against the dollar, delivered a full percentage-point increase in interest rates. Almost no one saw it coming. Ten hours later, another shock: the Monetary Authority of Singapore jumped into the foreign-exchange market, announcing a bid to push its currency back higher against the dollar.

At this point, Mitul Kotecha's phone began buzzing alerts non-stop, too. A Singapore-based strategist at TD Securities, Kotecha was vacationing with his wife at a resort in Thailand. It was their 25th anniversary and he was lounging on the beach and the whole scene seemed a little surreal to him. "It was all happening in a crazy short period," he says. "I couldn't believe the mayhem."

The dollar, the currency that powers global trade, is on a tear that has few parallels in modern history. Its ascent is the result primarily of the Federal Reserve's aggressive rate-hiking — it raised by another 75 basis points on Wednesday — and has left a trail of devastation: Driving up the cost of food imports and deepening poverty across much of the world; fueling a debt default and toppling a government in Sri Lanka; and heaping losses on stock and bond investors in financial capitals everywhere.

The greenback now stands at an all-time high, according to some gauges. It's up 15% against a basket of currencies since mid-2021. And with the Fed determined to keep driving rates up to quell inflation — even if it means sinking the US and global economies into recession — there's little that most long-time currency watchers see to brake the dollar's climb.

It's all a bit reminiscent of the Fed's Paul Volcker-led anti-inflation campaign in the early 1980s. Which is why chatter is growing about the possibility of a redux of the Plaza Accord, the agreement that international policy makers cut to artificially rein in the dollar back then. A similar deal may look like a long shot right now, but with some market metrics suggesting the dollar could easily climb the same amount again — gains that would convulse the global financial system and trigger all sorts of additional pain — it's likely only a matter of time before that talk heats up.

"There is no kryptonite to blow up the dollar's strength immediately, with the Eurozone hampered by the war in Ukraine and China's growth uncertain," said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. "There is simply no alternative to the dollar no matter where you look and it's pummeling everything else as a result — economies, other currencies, corporate earnings."

The US currency's rapid ascent is being felt in daily life around the world because it's the lubricant for global commerce — roughly 40% of the $28.5 trillion in annual global trade is priced in greenbacks. Its relentless rise risks creating a self-sustaining "doom loop."

"You have recession concerns leading to dollar strength, and then tightening financial conditions leading to more recession concerns," said Joey Chew, strategist at HSBC Holdings Plc in Hong Kong. "There's no immediate solution around this."

Demand for the dollar has been hot for a simple reason: when global markets go crazy, investors look for a safe haven. And as the Bank for International Settlements put it, that security is "fulfilled now primarily by the US dollar." The size and strength of the US economy remains unparalleled, Treasuries are still one of the safest ways to store money and the dollar makes up the lion's share of foreign-exchange reserves.

US Treasury Secretary James Baker III speaks to reporters at New York's Plaza Hotel on Sept. 22, 1985, as five industrialized nations agreed on steps to strengthen key European currencies and the Japanese yen against the US dollar.

Photographer: Mario Cabrera/AP Photo

Some of the top dollar gauges reveal its capacity to rise further. While the Bloomberg Dollar Spot Index hit a record this month, it is only measured from the end of 2004. The narrower ICE US Dollar Index — its performance against developed peers — is still well below levels seen in the 1980s. It would take a 54% rally to get it back to its peak in 1985, the year of the Plaza Accord. 

Surging Dollar Stirs Markets Buzz of a 1980s-Style Plaza Accord

Yet circumstances are different this time, said Brendan McKenna, strategist at Wells Fargo Securities in New York. The dollar's strength is not as pronounced — at least not yet —  and the Fed should cut rates at some point next year when the economy cools, easing pressure on the greenback. "Coordinated action to devalue the dollar and support G-10 currencies is probably not as much of a priority at this point,'' he said.

Even so, many of those big economies' currencies are suffering. In addition to the euro's slump, the Japanese yen has plunged to a 24-year low as investors flock to higher yields.

For many emerging markets the damage has been even worse. The Indian rupee, Chilean peso and Sri Lankan rupee have touched record lows this year, despite efforts by some central banks to try to slow the fall. Hong Kong's monetary authority has bought local dollars at a record pace to defend the city's currency peg, while Chile's central bank began a $25 billion intervention after the peso sank more than 20% in five weeks.

"It's not going to work," said Luca Paolini, strategist at Pictet Asset Management Ltd. that oversees $284 billion. "This rise in inflation, the dollar are generation-defining events and it's not something that central banks in emerging markets can do much about."

A strong US dollar is a blessing for Americans traveling to and shopping in Europe. Photographer: Cyril Marcilhacy/Bloomberg

A strong dollar boosts profits for oil producers and exporters of raw materials as well as international companies such as Toyota Motor Corp. that book a large chunk of their earnings in the US. It's also a blessing for American tourists such as 33-year old Fresno-based schoolteacher Mila Ivanova. "It helps having a stronger currency stretch my budget," said Ivanova in London before heading to Scotland and Ireland.

But a mighty greenback hammers almost everyone else.

Tech behemoths that repatriate part of their global earnings back to the US have taken a hit. Microsoft Corp. said the dollar was eating away at its profits, while International Business Machines Corp., which gave Microsoft its first big break back during the last major bout of inflation in the 1980s, blamed the strong dollar for perpetuating a cash-flow squeeze.

'Dollar Ate My Profit' Is Corporate America's Lament Once Again

For anyone looking to challenge the greenback's supremacy right now, Wall Street has a message: Don't bother. A survey of fund managers from Bank of America Corp. show bullish positions on the dollar have surged to their highest level in seven years.

"Only when investors are prepared to embrace high risk assets again do we expect the dollar to turn and this may not happen until the market is convinced that the Fed has changed course," said Jane Foley, head of FX strategy at Rabobank.

There have been bouts of dollar strength before, such as in 2016 or 2018 when the Fed sought to tighten policy, but with the latest data indicating US inflation is at a four-decade high, there's less wiggle room for the Fed. Indeed, Fed Chair Jerome Powell and Treasury Secretary Janet Yellen have barely remarked on the greenback's recent gains.

Dollar Smile

Against this landscape of soaring prices, a hawkish Fed and the risk of global recession, the dollar smiles. That's according to a widely-adopted idea coined by former Morgan Stanley currency guru Stephen Jen. The theory is that the currency rises at the two extremes — when the US economy is either in a deep slump or growing strongly — and weakens in the middle, during periods of moderate growth. 

Boston-based Garrett Melson of Natixis Investment Managers thinks the greenback's grin this time may be a little darker. 

"Macro forces this year have really seen the dollar smile revert back to the 2010's regime, which was more of a vicious cycle than a dollar smile," Melson, whose firm oversees over $1.3 trillion, wrote in a note. US growth is relatively more robust, leading to dollar demand, which pressures the global economy, triggering demand for dollars and US assets as a haven, "and around and around we go." 

What could break the cycle? Investors from Singapore to New York are theorizing about catalysts such as a slowdown, clarity on when the Fed will stop hiking rates, or a material revival in China's economic growth. But it isn't clear when any of these will happen. The US consumer price index climbed to a new generational high of 9.1% in June, and the Fed hasn't hiked rates this quickly since the mid 1990s. Since then, the world economy has changed dramatically. For three decades, China's manufacturing ascent kept a lid on the prices of millions of manufactured products, even as raw material costs rose. As the Asian nation's supply of cheap labor and capital finally began to dry up, price pressures began to build again. Then came the trade war with the US, the pandemic and Putin's invasion of Ukraine, throwing a finely balanced global trade system into disarray and causing energy prices to soar. With the world's second-biggest economy still clinging to its Covid-zero policy, even at the cost of slower growth, a return to normal seems distant.  

With so many uncertainties, central banks from Australia to Canada have little choice but to follow the US and raise borrowing costs to combat inflation. Expectations of fresh rate hikes are being revised higher by the week. And without more clarity on when the cycle may end, few investors anywhere are willing to bet against the greenback yet.

"Even if it's at a historic high, it still does not mean everyone is going to take off their position," said HSBC's Chew. "We don't think there is a turnaround at this point."

Noah Smith: The financialization of tech vs Chinese industrial policy.

r The financialization of tech China is racing ahead in semiconductors and drones while we're building better ways to separate retail investors from their savings. Noah Smith Jul 27 Fifteen years ago, if you wanted to make it in America — if you wanted to get in on the ground floor of that smooth upward escalator — you went into the finance industry. Lots of people were upset about this. Our best and brightest, they said, were dedicating their effort and their intelligence to finding new ways to sell each other complex financial products instead of building the technologies of tomorrow. When the financial house of cards collapsed in 2008, everyone who complained naturally felt vindicated. In the decade that followed that crash, it seemed like the problem was fixing itself. Wall Street crashed, and the Dodd-Frank legislation tamed the high-flying sector. Talent streamed out of investment banking and headed west, to Silicon Valley and the burgeoning tech industry. Google and Amazon and Facebook were the new Goldman and Morgan Stanley and Merrill Lynch, and startups were the new hedge funds. And it seemed to work to society's benefit. Sure, some folks groused about Facebook ads and the occasional goofy startup. But the second tech boom gave us electric cars that actually sold, smartphone cameras good enough to make professional movies, e-commerce that sustained us through the pandemic and helped create a small business boom, video conferencing and workflow apps that made remote work a reality, convenient payment apps, cheap rockets that can take off and land, better batteries, mRNA vaccines, and much more. We had successfully redirected national resources from finance to tech, and we were getting tangible benefits. And most Americans appreciated those benefits. During the later years of the second tech boom, however, I started to notice another trend. Tech companies were increasingly getting in on the finance game. Not so much in the lending space, but in payments and trading. Payments are a utility — the plumbing of the financial world — and here the tech industry was producing a lot of real value (a prime example being Stripe, which lets me receive payments for this blog). But trading — which along with lending drove much of the finance industry's expansion from 1980 to 2008 — is another matter entirely. In recent years, trading has taken an increasingly prominent place in the fintech world. Platforms like Robinhood have onboarded a whole ecosystem of retail investors (that's finance-ese for "regular folks") into the markets. And cryptocurrency and web3 are hard at work creating new assets for people to trade, and new markets in which to trade them. Both fintech and crypto/web3 saw enormous, record inflows of VC funding in 2021. Here's TechCrunch on the fintech boom from January 2022: In 2021, global fintech funding jumped to a new record of $131.5 billion across 4,969 deals. That compares to $49 billion across 3,491 deals in 2020. As you can see, the pace at which capital was invested into fintech startups in 2021 grew much more rapidly than total deal count, leading to larger rounds on average. The CB Insights data that we're citing here also helps put the pace of fintech investing into context compared to its peer startup groups, with financial technology companies raising one in every five venture capital dollars last year, or some 21%. And here's Blockworks on the crypto boom, also from January 2022: In 2021, venture capitalists invested over $33 billion into crypto and blockchain startups, according to a report by Galaxy Digital… About $22 billion, or 67%, went into rounds with deals over $100 million. Companies that focus on digital asset trading or building in Web3 raised the most capital overall, the report found.  And of course these numbers are proxies for the real resources being redirected toward trading tech — smart engineers, bold entrepreneurs, high-end computer chips, and so on. Of course these numbers will come down — along with everything else — in the wake of this year's tech crash. But when I look at the redirection of the technology industry's resources toward trading, I see an uncomfortable echo of the financialization boom of the 2000s. Finance — especially behavioral finance — gives us plenty of reasons to question whether trading, past a certain point, is simply a way to separate foolish retail investors from their hard-earned savings. And it's disturbing to think that while China is leaping ahead in semiconductors and leading the world in drone technology, America's brightest minds are spending their time and energy thinking of new ways to trade tokens back and forth.