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Jan. 27, 2022

Bruce Mehlman on Policy Risks to Watch in 2022

Bruce Mehlman on Policy Risks to Watch in 2022

Bruce Mehlman is the founding partner of Mehlman, Castagnetti, Rosen & Thomas, one of Washington's premier lobbying and government relations firms. Bruce has over two decades of experience in public policy, business, and the law, helping leaders in organizations understand, anticipate, and navigate political risk. He is a highly sought-after speaker on policy and political trends. His slide decks analyzing major issues and trends are consistently picked up by national news media and eagerly consumed by tens of thousands of readers around the world, including us. Among his many previous positions, he was Assistant Secretary of Commerce for Technology Policy in the George Bush administration.

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Transcript

Tom Lenard:

Hello, and welcome back to TPI’s podcast, Two Think Minimum. It’s Friday, January 14th, 2022. I’m Tom Lenard, President Emeritus and Senior Fellow at the Technology Policy Institute. I’m joined by Scott Wallsten, TPI’s President and Senior Fellow, and Senior Fellow Sarah Oh. Today, we’re delighted to have as our guest, Bruce Mehlman, for a return visit. 

Bruce is the founding partner of Mehlman, Castagnetti, Rosen & Thomas, one of Washington’s premier lobbying and government relations firms. Bruce has over two decades of experience in public policy, business, and the law, helping leaders in organizations understand, anticipate, and navigate political risk. He is a highly sought-after speaker on policy and political trends. His slide decks analyzing major issues and trends are consistently picked up by national news media and eagerly consumed by tens of thousands of readers around the world, including us. Among his many previous positions, he was Assistant Secretary of Commerce for Technology Policy in the George Bush administration. Welcome back to Two Think Minimum, Bruce.

Bruce Mehlman:

It’s great to be back with you, although it was more fun in person, Tom.

Tom Lenard:

It was, but I can hardly even remember those days when we did it in person <laugh> 

Well, the subject of your most recent slide deck analysis is anticipating the top 2022 risks in politics and policies. So, let’s start there. You divide the risks into four categories: existential risks, economic risks, political risks, and business risks. And you know, obviously just given the names, I guess the existential risks are the most important, but abstracting from that point, if you can prioritize them, which do you think are the most important?

Bruce Mehlman:

You know, the problem with trying to… it’s not quite like which of your children do you like the most. These are all worries that we have, but the challenges are, it sort of depends on who you are and what your job is. So, if you are a Democratic campaign official, sure, COVID and supply chains and other stuff matter. But what you really worry about is the fact the House of Representatives is going to flip, and the Senate is as likely as not, if not more likely, to flip. 

If you’re running supply chain for a multinational corporation, you’re really laser-focused on the shortages and the inflation and the workforce and energy challenges. As a result, it’s a menu that hopefully has something for everyone.

But I don’t know that I would say there is a single most, I suppose we’ve got to hope that this Omicron foolishness, if not the last variant, is at least the last freak out. But the scariest thing right now is the idea that the Theta variant, or you know, the Omega variant, when they show up are station 11. If we can get past that, I sort of feel like everything else gives me a little bit of time. Although, I do have one in there observing the real risks of a war in Ukraine or even Taiwan, and that’s kind of scary too. 

Tom Lenard:

<Affirmative> So, if you’re in the tech sector, you know, what are you looking for in 2022?

Bruce Mehlman:

Yeah. So, as you and I both know, tech sector is a really broad category. 

Tom Lenard:

Right, right. 

Bruce Mehlman:

And if I’m one of the really big platforms, I am maybe so busy counting my stock wealth that I’m not worried about anything. But we’re seeing around the world in the federal… at Congress, bipartisan, all the federal agencies, a lot of US states, the EU, China, India, Australia, all around the world, there’s the sense that the big tech platforms are too big and too powerful and insufficiently accountable. So, those guys have a bit of a wagon circled. A lot of policymakers don’t understand that even those giant guys are always scared to death that there’s going to be a faster gun who shows up and turns them into AOL or Yahoo or Blackberry, all of whom were once upon a time thought to be dominant and kind of forever ensconced as the big, top folks.

A whole lot of the tech people that I deal with are really concerned about supply chains. You know, in the short term, there are some shortages that are problematic as a result, both of COVID and of policies. They worry about what this means in the medium term with respect to inflation and economic nationalism rising. But then in the long term, with respect to the fact that what used to be tailwinds for global supply chains increasingly are headwinds.

Tom Lenard:

So, you know, as you say, there’s this almost unprecedented level of antagonism towards the big tech platforms, but it’s unclear to me, you know, when I think about it, it’s unclear to me exactly what’s going to come of it. How much is going to come with it? Obviously, there’s lots of talk about, you know, antitrust cases and regulation and all of that, but, you know, at the end of the day, what do you think is going to come of it all?

Bruce Mehlman:

You know, when I’m either confused or depressed, I try to read a lot. You know, you look back in history and I think what you can find is it’s not like these big tech platforms don’t have precedents. You know, if you go back in the Gilded Age, whether it was the new steel makers or the oil companies or transportation type companies, you had extraordinary amounts of innovation changing how Americans in the late 1800s and the early 1900s worked, lived, played, and learned. And what happened is there were broad reforms. And so, for example, you know, we look at Rockefeller or Carnegie, the Bezos and Google guys of their day, they invented antitrust law to better protect consumers and competition in the very late 1800s, and I think 1913 or 1914 was the second big one.

Likewise, you know, there was no Food and Drug Act until the Progressive Era. It feels to me that we are at a period of maybe a decade with policymakers getting their hands around understanding how the world is changing and then deciding either how to ensure better diffusion of amazing innovations so they’re available for all Americans, look what we’re doing with broadband infrastructure right now, for example, and/or a recognition that that these new technologies have become too systemically important to leave entirely without gatekeepers. And, in my mind, I think of crypto right there, where you just can’t simply say ‘Well, there’s a new way to get paid for ransomware and arms sales, and there’s just nothing anybody can do but throw up your hands. Oh, well.” That’s just not how that ends.

Scott Wallsten:

So, it’s actually kind of an optimistic view over the long run because you’re comparing it to what happened in the past. And you’re sort of, or maybe I’m just hearing this, that they’ll take time and, you know, over a decade or two, will come to answers that are, you know, more or less the right ones. Is that really the direction you see things happening right now?

Bruce Mehlman:

Well, it is Scott, but I’m also taking a pretty wide lens to it all. So, I guess my idea is, I think if we were having this discussion 50 years from now, maybe that’s the next time Tom invites me back. 

Tom Lenard:

It’s going to be every quarter, Bruce. 

Bruce Mehlman:

Oh, brilliant. Perfect, awesome. Well, I feel like when we look back at the Fourth Industrial Revolution Period, we’re going to find that policymakers have gotten their arms around, you know, where we need new gatekeepers, where maybe there are no gatekeepers and where existing gatekeepers are just fine. Maybe they need to get smarter, have different resources or tweak the rules, but I think that’s a multi-decade process. I think it’s really disruptive, and so I am a medium- and long-term optimist kind of about everything in life.

But I don’t think that means everybody can just chill out and everything will be great, and just give it, you know, a Congress or two, and the best possible rules will be put in place. Just even thinking about antitrust, you know, I think it was what 1895 maybe, and then 1914 or 1913, and then you went through a period after the Wilson administration where things sort of slowed down and then they really put their foot on the gas with FDR and the New Deal, and so some folks might say it took about 50 years to kind of get to a new normal, and then if you guys ever had Matt Stoller on, who I don’t agree with on a lot of stuff, but he’s fascinating. He is a really interesting guy that, you know, just in the interest of lively debate, you ought to have on. He’d tell you with Bourque and the and the Chicago rules, he thinks that somebody turned off the switch with antitrust. I’m not sure I totally agree with that. I think technology evolved in a way that makes that ought to make folks concerned about competition, go back to some first principles and assess what to reinvent and what is fine.

Tom Lenard:

Talking about antitrust as well as, I mean, a lot of people are also talking about some sort of regulation for the tech sector. And I guess that brings up the question about, whether they’re likely to make some mistakes. And to me, a lot of the discussion seems to be kind of devoid of any awareness of what the history of regulation actually is. And in fact, we have more recently than the Wilson administration, examples of regulatory regimes that did not work out particularly well for consumers, and in fact, were subsequently eliminated. So, your initial comments were kind of optimistic that we’re going to get some sort of regulation that’s going to be good and everything, but you can also make mistakes. When you look at the debate now, what’s your assessment of the probability that the mistakes will not be too major and that the benefits of whatever happens will be greater than the costs?

Bruce Mehlman:

Well, without a doubt, mistakes will be made. I mean, the only law that you don’t ever repeal is the law of unintended consequences. And when you have policymakers who are often, you know, ill-informed about the nature of the new technologies, it’s hard for them to instinctively get it right. Especially when we often starve a lot of the government agencies of the depth of expertise that might help them stay abreast and really think it through. That said, look, we’re going to overregulate some stuff. We will and probably have been underregulating other things. A lot of folks make pretty compelling cases that, the old Washington consensus starting with at least Bill Clinton, arguably H.W. Bush, is, you know, that the more we engage with China, the better everyone will be.

That was, you know, bipartisan Washington consensus. And if you didn’t agree with that, you were a fuddy-duddy and you just didn’t get the new world and The End of History with Francis Fukuyama, and turns out, it didn’t quite work out that way. You know, it turns out that they could get rich and powerful in China without necessarily losing the authoritarian streak. If anything, they’ve kind of come up with a way to play the rules and to play us. In my mind, it doesn’t mean it’s time to go to a new, full-on cold war. It means let’s take a look at the post US-Soviet Cold War, hyper-globalization, figure out what’s still working well, and what’s not working well, and make some intelligent course adjustments, and we’ll get it right. 

I feel the same way about a lot of technology. You know, there are ways in which social media is awesome. There are ways in which it’s truly the wild west. You know, the social media suffers from some of the same problem that frankly, cable TV suffers from. They’re in competitive businesses, and the way they get money is if you click and if you watch, and yet human nature is such that we click and we watch on things that are more outrageous, things that make us angrier. So, the nature of the businesses that they’ve built are they get paid more if they can make us angrier and more outraged, and weirdly the hope for me, you look at TikTok, they’re the one that don’t piss you off. You know, the problem with TikTok is they’re just so entertaining that, you know, hours go by and then you’re like, “Uh oh, what the hell did I just… I was laughing for an hour, and now it’s an hour later.” 

Scott Wallsten:

Although, some of us might be pissed off that their kids are spending hours on it instead of homework, for example.

Bruce Mehlman:

No, and look, Scott, you’re totally right. That’s the great question. Although at least that’s not anger-tainment. That is hard to put down the entertainment. But my 2 cents are policymakers on the right and on the left are going to make mistakes. It doesn’t mean because they make mistakes that we should just presume that, you know, the people who are becoming billionaires off this stuff have our best interest in heart. At the end of the day, you need policymakers, you need regulators, you need people like you guys, you need smart think tanks that take a critical look at everybody.

Sarah Oh:

Looking ahead, there’s been talk lately about rising interest rates, because inflation is so high. So, the Fed will start increasing rates, and that actually puts pressure on the tech companies because their valuations go down. The low-interest rate environment has helped tech a lot and maybe caused a bubble in the market. But what do you see coming forward in 2022 fiscal policy, monetary policy inflation? These are kind of like throwbacks to the seventies and eighties.

Bruce Mehlman:

Yeah, you’re right, Sarah. A lot of people think that there are a lot of parallels with the seventies. I guess I’d start with the humility of observing that I have correctly called 10 of the last two recessions. So, I’m always convinced… 

Tom Lenard:

They used to say that about John Kenneth Galbraith. <laugh> 

Bruce Mehlman:

Well, I just, I mean, I’ve been worried about, you know, America has, the deficits are too big and there’s too much debt and, you know, it felt like QE infinity couldn’t possibly last, and I would note there are Nobel Prize winners on both sides of the debate, and I am decidedly not. In fact, I took Econ 101 and 102 in college, got Bs, and decided I’m going to stick to history where I could write a paper and get an A, and otherwise, it wouldn’t slow down my social schedule.

So, with that as a good reason for folks to use this as a moment for a bathroom break, it sure looks to me that it’s more than transitory. You know, the core of what’s going on right now are shortages that are pandemic shock sparked but are bigger. They’re also policy-induced. And so, with respect to labor, Democratic governors have said, “Let’s pay people not to work if they’re scared of the virus.” Republican governors have said, “Let’s pay people not to work if they’re scared of the vaccine.” You know, with the level of wealth where it is, we’ve had an acceleration of retirement and suddenly there is a workforce shortage right now. That often self-perpetuates. We’re seeing wages go up, which is good, but we’re seeing prices go up faster, which is bad. 

You then take a look at energy, you know, energy policy, especially in the west. So, the US and the EU have really prioritized decarbonization. So, we’ve seen under-investment in traditional fossil fuels. Well, that’s good on a medium and long-term look at decarbonizing, but it’s bad if I don’t know the wind’s not blowing in Europe and suddenly they’re not getting the kind of wind power that they were expecting to get. So, suddenly Putin gets to set the price of natural gases, and, you know, that’s really problematic. You know, there again, I don’t see that flipping a switch and everything getting back to where you maybe want it to be. Same with semiconductors, where some of that is as a result of the short-term shock of all the demand that was services becoming goods. All goods these days having chips and everybody wanting smart stuff, the digital transformation happening faster, fine. That put a short term hit on it, but there’s also the ongoing trade wars where if you really wanted to solve semiconductors, you would want more production of the legacy nodes out of Chinese factories, just for purposes of satisfying cars that need legacy chips, but that’s not really where the trade wars are going.

So, that tells me inflation is more likely to be persistent and sustained, and I think the Fed, therefore, needs to fire some raise rate cannons. But what I don’t know, Sarah, is okay, so then what? It feels like maybe, hopefully, the meme stocks blow up, because that, let’s be honest, is insane. But if you’re still looking to where you’re going to park money for value, boy, the S&P, you know, 100 sure looks like where I’d want to put my money. If I had to bet on the future right now, where else do you bet?

Scott Wallsten:

So, let me ask a similar question or about a similar issue on a more prosaic topic. With the labor shortages and supply chain constraints, do you find people and clients who are thinking about future campaigns or other issues, are they concerned about how those will affect the way the infrastructure plan, for example, plays out. I mean, if there’s no labor, who’s going to be building the new roads and more broadband, where is the cement going to come from, and the semiconductors for this kind of build-out? Do they think that it’s going to be an issue either, depending on which side you’re on, it was a huge success or a failure as a result, or are they not thinking that way?

Bruce Mehlman:

You know, I’m not sure. I have folks who automatically marry infrastructure build-out and workforce, per se. All the tech guys have long worried about workforce. You know, we’re hundreds of thousands of skilled workers in cyber, for example, short of what we need to better secure our hopelessly, not secure networks. You know, that, to me, of all the things in my risks, that’s the one that still keeps me up at night, is the idea of taking down our networks. Then what? Everything is so dependent [on them]. I mean, I think of lots of things. I don’t know how I would do half the things that I do if GPS isn’t working, if the Internet’s not working. The traditional tech guys are worried about access to skilled workers, so less the labor shortage and more the people who are so hostile on immigration. 

Tom Lenard:

I was going to ask you that. Both skilled and less skilled labor, I mean, there’s shortages all around. You know, one obvious answer is to reform immigration policy. Do you see any prospect of anything meaningful happening on that front?

Bruce Mehlman:

In the short term? I don’t. It’s become such a bloody shirt, such a, you know on the right, such an “absolutely not” issue. And on the left, if you have nuanced immigration reform, then you will get attacked by the far left from selling out. And so, for the far left, it’s only all. And for the far right, it’s only nothing. And those are the tails that wagged the dogs, both on Twitter, and on this issue, even in Washington. Infrastructure was an awesome bipartisan compromise. I’m still keeping my hopes up that USICA can be a bipartisan compromise, but immigration to me feels like in the short term, a nasty fight. You know, maybe Sarah’s persistent inflation becomes the catalyst that we need. But that would presume that people are listening to business, and the far left and the far right are not.

Maybe if we go from an era where the stock market, instead of going up 25% a year, is going down 25% a year, and people suggest that it is the demographics, the workforce driven inflation that are killing us. Maybe that puts enough of an economic gun to the head that people start looking at the immigration solutions. For now, it’s the tech folks complaining about it, but you know, their stocks aren’t reflecting it and the GDP growth isn’t reflecting it. So, I find it’s more of a culture war issue at the moment and it needs to be more of an economic issue if we want to get it done. 

Tom Lenard:

So, explain for our audience who may not know what USICA is.

Bruce Mehlman:

Yeah, it’s the US Innovation and Competition Act. I don’t know what the hell the “E” stands for. I should remember. But it, so hopefully you guys, Sarah, or somebody can quickly Google it. Because I forgot the acronym. What it is though, is an effort to massively increase research and development in the United States as a response to China’s approach to I would argue in industrial policy. Maybe you call it industrial policy lite, or it’s at least an American approach recognizing that China, as a matter of national urgency for a decade or two, has attempted to occupy the commanding heights of the Future Fourth Industrial Revolution, and that includes things like batteries and solar, and AI and quantum, and the US historically has dominated not because the government has picked the winners and funded things, although the DOD has done certainly its share of funding, but rather because we’ve had a very robust private sector and a very robust public-private partnership to often enable and facilitate the commercialization of things, perhaps initially figured out with government funding. mRNA vaccines leap to mind is a pretty awesome example of that in the short term. Satellite communications, wireless internet, are other good examples.

So, there’s a whole lot of money that’s been proposed. It includes a wonderfully big slug, $52 billion in the so-called CHIPS Act to try to help greater domestic semiconductor manufacturing, because part of China’s successful plan has been to try to position itself in a way that they’re a choke point in some of the supply chains for the critical materials or critical elements of the tech future. 

Scott Wallsten:

Do you worry that we’re going to swing too far towards having industrial policies similar to China? I mean, if you look back to the eighties there were even the same problems with semiconductors, except then it was Japan that was going to take over the world. And we built several programs to deal with that for greater and lesser success. Do you worry about similar outcomes? Have we learned what and what doesn’t?

Bruce Mehlman:

So, I do worry a lot about government over-rotating into industrial policy. At the same time, I don’t know that I picked the eighties per se, because you know, Japan Inc. was ultimately a bubble, and it popped. And SEMATECH, I might argue, is an example of a successful public-private partnership. You know, give Andy Grove and Intel a whole lot for making a great bet. Micron as well, in running a really smart and effective company. And, in semiconductor innovation, we continue, I might argue, to reap the benefits of some of that public-private partnership. It’s against American DNA, it feels like, to go so far into the government’s going to pick the winners and that’s that. So, I start a little bit less worried that we’re changing everything.

If the US government’s going to put more money into research, I tend to think that’s almost always a positive thing because the fruits of it have flowed downhill. I start getting worried when there are efforts to then tie government ownership of the fruits of whatever is developed over time. I mean, to me, the taxpayer return, as often as not are jobs, and are the greatest GDP in the world, and our robust infrastructure and, you know, and our mRNA and the ability of national labs to help solve our national and our global problems.

Scott Wallsten:

So, you know, you mentioned the mRNAs, and they were a result of, or at least speeded up a lot by operation Warp Speed. They knew they were going to be getting a lot of money for this. And that was one new way of promoting a particular innovation in a particular area. Do you think there is some appetite for trying new methods of encouraging innovation like that?

Bruce Mehlman:

You know, I do. Although what’s interesting, this history of mRNA, it was a DARPA spend. Operation Warp Speed deserves a ton of credit, but I wouldn’t say it was for innovating. It was for commercializing. What they did is, you know, mRNA existed. They had figured it out, but by prepaying those massive amounts for all the contracts, they brought the wherewithal for the people who were receiving the contracts to punch it. And Hell, it makes me wonder if we had gone back, Scott, you know, at the tail end of Reagan, and early Bush, and obviously you always wish you knew then what you know now, but I wonder if we had done this for AIDS, how many millions of fewer folks might have died around the world?

It’s sort of like Tom’s earlier question, am I worried we’re going to overregulate? Sure. Am I worried when we throw a ton of money at innovation that we’re going to have some [inaudible] interests? Yeah, well we are, but so do VCs, and the flip side is to look at the price of solar over the last decade. You know, it’s just fallen 90%. So, I’m personally ready to overspend on some research initiatives that maybe prove fruitless. My bigger fear is that both on the right, on the left, people trying to score political points lead to a level of caution that we don’t make big, bold bets. That we don’t accelerate the innovation, that we’re too worried. You know, one of the things you probably know, and you’ve probably had people on the podcast, universities sometimes get so worried that they’re not going to benefit from innovations that happen in the universities, that they make it harder to commercialize them than they should. And one of the reasons Stanford dominates is because Stanford took the approach of let’s just commercialize it, and not worry that people might call us suckers for missing out on every dollar we could have squeezed out. I’d rather be Stanford than a university that maybe captures a greater share of monetization, but it’s a much, much, much smaller pie.

Tom Lenard:

So, let’s shift to politics a little bit, but also in relation to some of the things we’ve been talking about. So, obviously just the conversation of the last few days, the declining confidence in our electoral system is a serious problem. And we can talk about where it comes from. I think it comes from a variety of sources, but there’s a decline in confidence in that. There’s obviously increased polarization. But I think there’s also just a decline in confidence, from talking about government going into new areas, in just in the competence of government, government getting things done in even a quasi-efficient way. First of all, do you agree with those statements or…

Bruce Mehlman:

It’s kind of hard not to agree with that, Tom. I mean the end of the day, I’m not sure our I would say that the last two decades of Middle East policy is a smashing home run. You know, it’s again, one of those in retrospect, maybe not going to Iraq, take out Osama bin Laden with more force the first time in Afghanistan. Again, easier to say. I’m not sure I’d say that our financial policies of kind of deregulate and ignore were validated by the Great Recession. It feels like that was a miss. You know, it’s again and again, I think the rationale behind populist anger makes sense to me. And I think the issue writ large is that we are living with laws, institutions, policies, parties that were designed in and for the 20th century, but we’re in the 21st, and people don’t feel protected. They feel fragile. They don’t feel like they’ve got control. So, they’re voting for populists, not just here. Although you’ve got Bernie and Trump as offerings here, but Bolsonaro in Brazil, AMLO in Mexico, Modi in India, Boris Johnson and the Brexit tears in the UK. Whether it’s the Gilded Age or otherwise, this is neither unique to the United States, new as a result of just Donald Trump, it’s a global phenomenon because the operating system is 20th century, and the reality is 21st.

Tom Lenard:

But do you think it’s largely resentment of you know, the billionaires, or is that the major source of the populists? 

Bruce Mehlman:

So, I don’t know… For some, it’s the billionaires. For others, it’s a broader… the big global elite have rigged the game in the minds of many folks. For the left of center, it’s the billionaires, but for the right of center, it’s the media, or it’s kind of big tech or the Davos set. And I think there is a sense that, you know, ultimately free trade raises GDP, but not evenly for everybody. You know, right now McKinsey Global Institute says we’re living in a super economy. If you have better education, better skills, access to capital, you live in one of the right power cities, you are killing it right now. But for a whole lot of folks, you know, the factory left town. There’s an opioid epidemic in its wake. I think if you boil it down, the inequality is the symptom, and the culprit in the minds of those looking to populist champions is the big global elite rig the game in finance, rig the game in trade, rig the game in tech, and unless and until there’s the sense that we’re dealing more people in with a more inclusive approach to growth, we’re going to keep having people with torches and pitchforks.

Scott Wallsten:

And it seems like everything about COVID goes in the opposite direction towards more inequality.

Bruce Mehlman:

Yeah, it does seem like, you know, it certainly is helping those of us who can do our jobs on Zoom, for sure. It’s helping people who already had assets because the Fed’s prime directive for several decades now has been, don’t let asset bubbles go away, or you know, reflate them pretty quickly. So, I think you’re right about that. You know, that said again, the optimist that I am, poverty is down in America. Wages have risen the fastest for those at the bottom 25%. I mean, there are some hopeful, you know, between where I thought things were going to go when this all started and where things have gone, I’m actually kind of thrilled. I didn’t think we’d get a vaccine for a new disease faster than the historic record, four years. We got one in less than one year. It’s been made available to everybody. I was really worried that we were about to hit a new Great Depression, or at least the new Great Recession. You know, my 401k’s looking like I actually have any idea what I’m doing

Tom Lenard:

Well, let me get back to the question of actually where I was going, the question of government competence, I guess. You know, we’re spending massive amounts of money, and a good portion of it is going through your old agency, the Department of Commerce. So, the Department of Commerce has… I guess, you know, we’re spending 60 some odd billion dollars on broadband. Most of which is going through the Department of Commerce. We’ve never spent that amount of money, but we spent still large sums of money in the past, and nobody can entirely figure out where it went. So, what do you think are the prospects of us getting our money’s worth, or something close to our money’s worth, this time around?

Bruce Mehlman:

Look, I am hopeful that this will be smart investments. As for getting the money’s worth, you know, I always chuckle when I read that they can’t audit the Defense Department. Like nobody has their arms around that $700 to $800 billion a year. So, are we getting our money’s worth? Like, I don’t know. I guess my metric for that is we haven’t been invaded by the Russians yet. So, mission accomplished.

I think as with all government programs, Alan Davidson’s leadership, the new NTIA Director of broadband grants, there are going to be some that are spectacular successes. You know, some that help accelerate trends that might have preexisted, but I’m glad they get accelerated. There’s probably going to be some that don’t do a whole lot, but maybe don’t cause harm. And then there’re going to be some examples where I’m like, “You know, how did that joke of a fly by night company pretending that they are meritorious get funded to do something, or how did that profitable company get funded to do something they were already going to do?”

The challenge is, I’ve never seen a VC only invest in things that are going to be home runs. And just like, I’ve never seen, a broad-brush government initiative only get the high ROI. And, as per Scott’s question, I’d rather see the government take a [stance of] we really want to close the digital divide and it will be good, bad, ugly. As opposed to, you know, it’s so important that none of these prove to be failures that we add all of this red tape and all of this slowdown. We’ve seen the failure of getting broadband to everybody. Let’s just get on with it, and we’ll worry about the few mistakes that are made, I think, afterward.

Tom Lenard:

Well, why do you think, I mean, not to press the point too much, why this is, and not just in a DOD. Why do you think that there’s so little evaluation and accountability with government programs, not just broadband, but in other things? I mean, we just passed the $1.9 trillion COVID act and you know, did they retrofit the ventilation systems in the schools? Apparently not. What did they do with all that money? I mean, nobody seems to be gathering the data that would allow you to do any of that.

Bruce Mehlman:

Well, first, what do they do with the $1.9 trillion? Based upon my last purchase of Abbot Binax tests, I think they just bought like 11 Binax tests, because the price of those things and the N95 masks are crazy. I sort of feel like the premise of the question, Tom, is a little bit unfair. I think those who think government programs are always mistaken and always fail and never show a return, I just don’t think that’s fair. I think the history of DARPA is the history of some really dumb, horrible, missed bets. The history of some things that we kind of wish that they that they hadn’t come up with, like Napalm, and then the internet, and then some extraordinary things in robotics and machine learning.

And, if anything, while I’m all for greater accountability, I worry that accountability is at least as often used for purposes of scoring political points and trying to dunk on your opposition and winning the next election, as it is for encouraging better bets and more boldness in government investments. I like research bets, but research bets miss a lot. And they go to professors who maybe, you know, aren’t woke, or maybe are too woke. You know there are lots of reasons to object to them, and not to say I don’t want to cut the overall spend of the government as a taxpayer. I’m sure there’s a whole lot of programs that are decades past their prime.

And it’s not a lack of transparency. It’s a lack of we don’t really need to keep funding that, but, you know the problem isn’t that that we don’t know where the dollars went. The problem is that the people who are getting the dollars know exactly where they go, and they are effectively blocking government from being smarter. Look at the defense. How many programs are we still buying because the members of Congress who have the jobs in their district demand that we buy them when defense says we don’t need those?

Tom Lenard:

We’re running a little short of time, but I wanted to get back to something that’s obviously a major issue, perhaps the major foreign policy issue that we touched on a little bit earlier, which is China, and what should our posture be? Obviously, there are the military issues. I don’t necessarily want to get into that, but in terms of our economic relations with China, what should our posture be? I mean, we talked about not being dependent on them for various goods and competing with them, but…

Bruce Mehlman:

To me, first let’s run faster. So, that means the type of research funding that’s in USICA is smart. Let’s, crank up our research efforts to 11 because historically that’s allowed us to be very strong and dominant. Let’s, as we talked about, get our head out of our ass on immigration. High-skilled immigration makes America stronger. It makes our economy better. The priorities of the left and the right are advanced, but yet, that workforce policy is stuck. My kids were required to learn, I think their choices were French or German or Latin, and they might have had the chance to learn Chinese. Why isn’t coding an acceptable language that you could learn or even a mandatory thing? We don’t do great on digital literacy. So, in the first bucket of being smarter, whether it’s government research funding, or more 21st-century education, or better workforce and immigration policies, I think all of those things are good, number one. 

Number two, let’s not go into full it’s a new cold war mode. Because while I don’t like the Chinese Communist party, I think it’s a very different world and it’s a very different relationship. And there are plenty of American companies that are selling reasonably commoditized, whether tech products or non-tech products to China, and access to those markets for farmers, or for maybe automakers, or for people who are making memory chips, or things that aren’t advancing their state of the art. That’s good. It’s good for American innovation. It’s good for American jobs. It’s good for American leadership. So, let’s not get into a straight-up, you know, no more Chinese restaurants. We can interface with those guys. 

But then third, let’s be smarter. Let’s be honest, everything that’s been in place the 20 years isn’t working the way we want it to work, and this leader is not Deng Xiaoping. You know, the chessboard has moved from where it was before. We’ve got to be smart about export controls and about import restrictions and about how we make sure that China’s not using big checks funded through pretend venture funds to access American technology, you know, where university professors think that their ship came in, and in reality, it’s transferring technology through the back door. And so, there are things that we can do be smarter about too. 

Again, I’m hopeful we’ll get it right. America tends to have red scares. This is the fourth by my count, where we get really worried about communism. Sometimes that motivates us to be smarter. Sometimes that leads to overexuberance and we’re hurting ourselves. 

Tom Lenard:

It has been great having you on the podcast again. These issues are not going away, and we will definitely have you back.

Bruce Mehlman:

Well, I promise to solve nothing between now and the next time you invite me. So, that’ll be a reason to have me back.