One Amendment

Free markets, investing and rugby.

[One Amendment @Justbenice76]

@Handre Keep up the great work!

[Handre @Handre]

$17 billion for 3.4 miles of subway tunnel. That works out to roughly $5 billion per mile, making the Second Avenue Subway the most expensive transit construction project in human history, per mile, by a significant margin. Madrid built its entire metro expansion in the early 2000s at under $100 million per mile. You are not misreading those numbers.

The Metropolitan Transportation Authority spent 86 years planning Phase 1 (the stretch from 96th Street to 63rd Street, opened in January 2017) before finally breaking ground in 2007. Decades of studies, committees, environmental reviews, and public hearings. Nobody personally paid for those delays. Nobody got fired. No executive absorbed the cost of a decade's worth of inflation, redesigns, and contractor overruns. When you insulate decision-makers from financial consequences, you get exactly this: paralysis followed by extravagance.

Free market economists have a term for what drives this: the calculation problem. Without real prices generated by voluntary exchange, planners cannot rationally allocate resources. The MTA doesn't discover the most efficient tunnel route through competition. It negotiates with unions whose contracts prohibit obvious efficiencies, hires consultants paid by the hour with zero incentive to finish, and answers to politicians who measure success in ribbon-cutting photos rather than cost per passenger mile.

The deeper issue is who pays. New York State taxpayers, federal taxpayers, and future riders through fare revenue all absorb the tab. The people who made the decisions that produced $5 billion-per-mile costs face no personal liability. A private developer whose budget overruns sees his equity evaporate. He has skin in the game. The MTA's leadership has a salary and a pension.

Phase 2 (96th Street to 125th Street, 1.5 miles) carries a projected price tag above $7.7 billion and has just broken ground. The political class will tell you this is what world-class infrastructure costs. What they won't tell you is that Tokyo, a city with arguably the most sophisticated rail network on earth, builds subway lines at roughly $250 million per mile, using private operators who survive only if they perform.

[Handre @Handre]

John Maynard Keynes was born in Cambridge in 1883, the son of an economist, educated at Eton and King's College, and groomed from birth to run things. He joined the British Treasury during World War One, represented Britain at the Paris Peace Conference in 1919, and quit in disgust over the Versailles reparations terms. He wrote "The Economic Consequences of the Peace" in six weeks. The book made him famous. He spent the next two decades making himself indispensable to every government that would listen.

You have to understand the world he entered. The 1930s Depression had shattered confidence in markets, and politicians were desperate for intellectual cover to spend money they didn't have. Keynes gave it to them. His 1936 book "The General Theory of Employment, Interest and Money" told governments exactly what they wanted to hear: your deficits are stimulus, your debts are investments, saving is a vice during downturns, and the state can manage aggregate demand better than millions of free individuals making voluntary decisions. It was flattery dressed up as economics.

The mechanics of what he proposed are worth examining carefully. Keynes argued that when private investment falls, government spending fills the gap through a "multiplier effect," where each dollar spent cycles through the economy and generates more than one dollar of output. Free market thinkers like Henry Hazlitt dismantled this in 1959 in "The Failure of the New Economics," page by page, showing that the model ignores where the money comes from. Government spending crowds out private investment. You don't create wealth by shuffling it through a bureaucracy.

Keynes himself was no ideological fanatic. He speculated heavily in currency markets, managed an investment fund for King's College, and made a personal fortune. He understood money intimately. Which makes his public policy prescriptions even harder to excuse. He once wrote that "in the long run we are all dead," offering it as a justification for ignoring the long-run consequences of inflation and debt. Generations of politicians tattooed that line onto their fiscal policy.

What Keynes actually built was a permission structure, not a science. He handed the 20th century's expanding state a vocabulary sophisticated enough to silence critics and simple enough for a Finance Minister to repeat at a press conference. Every sovereign debt crisis since 1945 carries his fingerprints.

[Handre @Handre]

On a Sunday evening, August 15, 1971, Richard Nixon interrupted the broadcast of Bonanza to inform Americans that the dollar they held was now backed by nothing but his word. He called it "temporary." Fifty-plus years later, you are still waiting for the temporary part to end.

Understand what actually happened. Under Bretton Woods, foreign governments could exchange their dollars for gold at $35 an ounce. The dollar was a receipt. Gold was the money. Washington printed receipts far faster than it dug gold out of the ground, financing Vietnam and Lyndon Johnson's Great Society with the same press. De Gaulle noticed. So did others. France sent a warship to collect its gold, and the run was on.

Nixon had two honest choices: stop spending, or admit the dollar was overissued. He chose a third option. He defaulted, then blamed "international speculators" for the mess his own Treasury created. Classic.

Notice the language he used. He promised the dollar's action would "stabilize" prices. Consumer prices roughly quadrupled over the next forty years. A 1971 dollar buys you about fourteen cents of goods today. That is confiscation in slow motion, and it hit wage earners and savers hardest, the people holding cash rather than assets that float upward on the new tide of credit.

Here is the mechanism sound money advocates warned about for a century: Sever money from a physical anchor and you hand politicians an unlimited overdraft. Every deficit, every bailout, every war since 1971 rode on that Sunday broadcast. Ludwig von Mises died in 1973, having spent decades explaining exactly this.

Nixon called it "protecting" the dollar. He meant emptying it. You have been paying the invoice ever since.

[Infodex @infodexx]

How to Say "John" in Europe.

[One Amendment @Justbenice76]

@Economics21st @Handre Agree contingent assets.

Patents accepted part of society. Property rights, of ideas.

Property rights fundamental characteristic of perfect competition.

If you think of something, even for first time, does that give you right to claim ownership. Maybe we should say, 'no'.

[One Amendment @Justbenice76]

@Economics21st @Handre A new asset. The Wright brothers showed what a destructive force that new asset, perhaps similar to a Marlboro cigarettes, could be for the rest of society.

[Handre @Handre]

The Wright brothers invented powered flight at Kitty Hawk in December 1903, and then they spent the next decade making sure nobody else in America could improve on it.

After building the first airplane, they built an army of lawyers, not better airplanes. Orville and Wilbur secured U.S. Patent 821,393 in 1906, a patent so broad it claimed the very concept of lateral control, and they used it as a club. When Glenn Curtiss developed ailerons (a genuinely superior system to the Wrights' wing-warping), they sued him into oblivion. The litigation dragged from 1909 through 1917. Curtiss burned his energy on courtrooms in Buffalo instead of wind tunnels.

Let's measure the result. By August 1914 France fielded roughly 1,400 military aircraft. Germany had around 1,000. The United States, birthplace of the airplane, mustered fewer than 30 serviceable machines, and most of them were obsolete.

Patents are state grants of monopoly, and monopoly does what monopoly always does: it freezes the incumbent in place and taxes everyone who wants to build on his work. In France, Louis Blériot, Gabriel Voisin, and the Farman brothers competed openly, copying and refining each other's designs. Competition compounds knowledge. Legal privilege hoards it.

Washington eventually noticed that its "arsenal of democracy" couldn't produce a decent warplane. So in 1917 the government forced a patent pool, the Manufacturers Aircraft Association, to break the logjam it had created in the first place. The government fixed the wreckage of its own privilege. You will see that pattern again.

The lesson holds. Patents stifle innovation. It always has and always will. Innovation is not a thing you protect. It is a thing you permit. As always, government intervention makes things worse, not better.

[One Amendment @Justbenice76]

@Handre Very good point. I always thought Roosevelt ended the gold standard. Friedman wasn't a gold purist, maybe he expected the best out of people.

[Handre @Handre]

Benjamin Graham published The Intelligent Investor in 1949, and generations of value investors have treated it as scripture ever since. They are half right to do so. Graham teaches you discipline. He drills into your skull the difference between price and value, and he gives you Mr. Market, that manic-depressive business partner who offers you wildly different quotes every day depending on his mood. Buy when he panics. Sell when he gets euphoric. That much is timeless.

But keep in mind that times have changed since 1949.

Graham built his margin of safety on a stable measuring stick. He assumed the dollar in your hand today buys roughly what it bought a few years ago. In 1949 that assumption held. Gold anchored the system, loosely, and prices behaved. But Graham lived to see the whole thing rot. Nixon shut the gold window in August 1971, and the dollar became a pure political instrument. Since then the currency has lost over 85 percent of its purchasing power. Your "margin of safety" evaporates when the yardstick shrinks in your pocket.

Graham's defensive investor holds high-grade bonds. Read that again. He recommends lending your savings to governments and corporations at fixed rates during an era when central banks manufacture inflation on demand. The Federal Reserve creates money out of nothing and hands it to Wall Street first, and the retiree clutching his AAA bonds gets paid back in devalued paper. This is slow-motion confiscation.

Graham never had to take into account the Cantillon effect. He treated markets as a closed casino where careful arithmetic wins over time, ignoring that the house prints the chips. The 2008 bailouts and the 2020 money flood would have baffled him: how does a company with garbage fundamentals moon? Because liquidity, not earnings, moves prices when the printer runs hot.

So read Graham. Absorb the temperament, the patience, the contempt for crowd psychology. Then overlay this onto a timeline of extensive monetary expansion. A man who understands the business cycle knows the game is rigged at the monetary root. You want a real margin of safety? Hold assets the state cannot debase at will. Graham gave you the mindset, but he never had to question the money.

[One Amendment @Justbenice76]

@Gothamist Only the government can celebrate it taking 8 years to fix a broken ceiling.

It took JPMorgan only 4.5 years to build their new 1,400 feet tall, 60 stories head office.

[One Amendment @Justbenice76]

@DarkfireCapital Can I still reply...

[One Amendment @Justbenice76]

@greg_ip 3. Federal reserve is overrated. If It was abolished today, JPM would still lend and earth would still round the sun. As Scotland showed in its boom years, a central bank is not needed to give us best in class economics growth and Adam Smith!

[One Amendment @Justbenice76]

@greg_ip 2). civil war. Only post World War II did the new deal and Keynes' ideas bring big federal govt. 5. Geographically, by the Second World War the US had grown enough pass the rest of the world, due to its two Oceans.

[One Amendment @Justbenice76]

@greg_ip 1) Nice article. I would say the reason for the American success. 1. Democracy 2. The entrepreneurial mindset and the Jefferson freedom of individual dogma 3. Sheer brain power and work ethic of the people that filled the USA. 4. Small government, federal govt was 2%of GDP pre

[One Amendment @Justbenice76]

@Gothamist NYC schooling budget is 53bn. That's 53 thousand million! And now you want the parents donations too. Shame on you.

[One Amendment @Justbenice76]

@EvaLovesDesign But the 100 most used words in English..... almost all German.

[Handre @Handre]

Rome fed 200,000 families free grain by 46 BC, and it called this generosity. Julius Caesar inherited a dole of 320,000 recipients and trimmed it, not out of principle but because the treasury was bleeding. This was the annona, the grain distribution that started as emergency relief under the Gracchi in 123 BC and hardened into a permanent entitlement. Once free grain became a right, no politician could touch it and keep his head.

You already know how this works, because you watch the same play run today. A subsidy arrives as mercy. It stays as an expectation. Then it becomes the thing men vote for instead of working for.

The Roman citizen once farmed his own land, served in his own legion, and expected nothing from the state but courts and roads. By the time Trajan was staging 123 days of games in AD 107, slaughtering 11,000 animals and pairing 10,000 gladiators for the crowd, that citizen had become a spectator. He no longer fought Rome's wars: hired auxiliaries and Germanic mercenaries did. He no longer fed himself: Egypt and North Africa did, shipped in on the public account. He no longer chose his rulers in any meaningful sense: he cheered them in the Colosseum and collected his ration.

The free grain and the free games purchased compliance, not compassion. A man dependent on the state for his dinner and his entertainment does not organize resistance to that state, and every emperor from Augustus onward understood the arithmetic. Panem et circenses was a bribe paid in exchange for civic surrender, and the mob accepted the terms gladly.

Here is the mechanism the welfare enthusiast never grasps. Virtue is not a feeling. It is a practice, and practices atrophy when the incentive to perform them disappears. Take away a man's need to provide, defend, and decide, and you domesticate him rather than liberate him. Rome spent four centuries proving it, then handed the ruins to Odoacer in AD 476 without much of a fight, because the men who might have fought had long since learned to wait for the grain ship instead.

[Finding Compounders @F_Compounders]

“If you can talk to a CEO, ask them this question: If you were stuck on a desert island for 10 years, which of your competitor’s stock would you buy, and which one would you short”

- Warren Buffett