A Reliable Marker of Socialism: Politicians Accusing Private Individuals of "Hording"

When socialists destroy markets, shortages inevitably follow.  The current situation in Venezuela is a great example, where just about everything from food to toilet paper has disappeared off store shelves.   Rather than take a step back and say, "Wow, our policies sure have created a mess," socialists inevitably blame the shortages they created on private individuals.  Nothing says "I am a socialist" like a politician denouncing their citizens for hording.

Here is today's example from the state of New York.  New York has totally screwed up its real estate markets by making it nearly impossible to build new housing and putting rent controls on the housing that exists.  Which has inevitably led to shortages.  Which is of course blamed by politicians on individuals who are "hording"

State Assemblywoman Linda Rosenthal, one of the [anti Airbnb] bill's sponsors, disagrees, claiming that it targets "people or companies with multiple listings. There are so many units held by commercial operators, not individual tenants. They are bad actors who horde multiple units, driving up the cost of housing around them and across the city."

Was Brexit About Racism or Tea Kettles?

Everyone on the Left is absolutely convinced that the Brexit vote was all about racism.  In part, this is because this is the only way the Progressives know how to argue, the only approach to logic they are taught in college for political argumentation.

Yes, as an immigration supporter, I am not thrilled with the immigration skepticism that dominates a lot of western politics.  I struggle to cry "racism" though, as I confess that even I would be given pause at immigration of millions of folks from Muslim countries who hold a lot of extremely anti-liberal beliefs.

Anyway, I would likely have voted for Brexit had I been in Britain.  I think the EU is a bad idea for Britain on numerous fronts completely unrelated to immigration.  The EU creates a near-dictatorship of unelected bureaucrats who seem to want to push the envelope on petty regulation.  And even if this regulation were just "harmonizing" between countries, Britain would still lose out because it tends to be freer and more open to markets and commerce than many other European countries.

By supporting Brexit, I suppose I would have been called a racist, but it would really have been about this:

The EU is poised to ban high-powered appliances such as kettles, toasters, hair-dryers within months of Britain’s referendum vote, despite senior officials admitting the plan has brought them “ridicule”.

The European Commission plans to unveil long-delayed ‘ecodesign’ restrictions on small household appliances in the autumn. They are expected to ban the most energy-inefficient devices from sale in order to cut carbon emissions.

The plans have been ready for many months, but were shelved for fear of undermining the referendum campaign if they were perceived as an assault on the British staples of tea and toast.

A sales ban on high-powered vacuum cleaners and inefficient electric ovens in 2014 sparked a public outcry in Britain.

EU officials have been instructed to immediately warn their senior managers of any issues in their portfolios that relate to the UK and could boost the Leave campaign were they to become public....

Internet routers, hand-dryers, mobile phones and patio jet-washers are also being examined by commission experts as candidates for new ecodesign rules.

As a free trade supporter, the downside would be the loss of a free trade zone with the rest of Europe, but I am not sure it can be called a "free trade zone" if they are banning toasters.  Britain will negotiate new tariff rates with the EU, just as Switzerland and Norway (much smaller and less important trading partners) have done.

The real crime from a US perspective is the actions of our President.  Mr. Obama has told the British that by voting for Brexit, they go to "the back of the line" for trade negotiations with the US.  This is, amongst a lot of stupid things politicians say, one of the stupidest I have ever heard.  My response as president would have been to move Britain to the front of the line, offering them a free trade treaty with the US the day after the Brexit vote.  Like most politicians, unfortunately, President Obama does not view trade as a vehicle for the enrichment of individuals but as a cudgel to enforce his whims in the foreign policy arena.  Why on Earth has President Obama threatened to undermine America's strong interest in trading with the UK merely to punish the UK for not staying in the EU, a transnational body this country would certainly never join?

Government, Arrogant Ignorance, and the Power of Incentives

As most of you know, my company operates parks on public lands, so I work with government agencies a lot.  Years ago, from this experience, I coined a term called "arrogant ignorance."  It comes from numerous times when government employees will be completely ignorant of some process, perhaps even their agency's own rules and procedures, but will fight to the death any suggestion that I might be able to enlighten them or that they are doing something wrong.

For a while, people had me believing that I had just rediscovered the Dunning–Kruger effect.  But I am now convinced that this is not the same as my "arrogant ignorance".  And the difference between the two highlights a key point about failure of government I have made for years, which is that government does a bad job not because the people are bad, but because it hires good (or at least average) people who have terrible incentives and information.

First, here is Dunning-Kruger per Wikipedia:

The Dunning–Kruger effect is a cognitive bias in which relatively unskilled persons suffer illusory superiority, mistakenly assessing their ability to be much higher than it really is. Dunning and Kruger attributed this bias to a metacognitive inability of the unskilled to recognize their own ineptitude and evaluate their own ability accurately.

Like most people, I see Dunning-Kruger all the time.  But I see it equally frequently in private and public settings.  I don't think it is necessarily unique to the public sphere, and may be over-represented there only to the extent that it is much harder to eliminate under-performers from public rather than private jobs, so they may tend to concentrated more in public positions.

But my concept of arrogant ignorance is not really a cognitive effect, I think, but rather a symptom of incentives.   The problem with most government jobs is that they have no service or output metrics so that they are instead judged mainly on conformance to procedure.  And even that is not quite correct, because most agencies I work with do not even have formal standards or quality review processes for their employees, at least below the executive level.

I want to take an aside here on incentives.  It is almost NEVER the case that an organization has no incentives or performance metrics.  Yes, it is frequently the case that they may not have clear written formal metrics and evaluations and incentives.  But every organization has informal, unwritten incentives.  Sometimes, even when there are written evaluation procedures, these informal incentives dominate.

Within government agencies, I think these informal incentives are what matter.  Here are a few of them:

  1. Don't ever get caught having not completed some important form or process step or having done some beauracratic function incorrectly
  2. Don't ever get caught not knowing something you are supposed to know in your job
  3. Don't ever say yes to something (a project, a permit, a program, whatever) that later generates controversy, especially if this controversy gets the attention of your boss's boss.
  4. Don't ever admit a mistake or weakness of any sort to someone outside the organization
  5. Don't ever do or support anything that would cause the agency's or department's budget to be cut or headcount to be reduced.

You ever wonder why government agencies say no to everything and make it impossible to do new things?  Its not necessarily ideology, it's their incentives.  They get little or no credit for approving something that works out well, but the walls come crashing down on them if they approve something that generates controversy.

So consider the situation of the young twenty-something woman across the desk from me at, say, the US Forest Service. She is probably reasonably bright, but has had absolutely no relevant training from the agency, because a bureaucracy will always prefer to allocate funds so that it has 50 untrained people rather than 40 well-trained people (maintaining headcount size will generally be prioritized over how well the organization performs on its mission).  So here is a young person with no training, who is probably completely out of her element because she studied forestry or environment science and desperately wanted to count wolves but now finds herself dumped into a job dealing with contracts for recreation and having to work with -- for God sakes -- for-profit companies like mine.

One program she has to manage is a moderately technical process for my paying my concession fees in-kind with maintenance services.  She has no idea how to do this.  So she takes her best guess from materials she has, but that guess is wrong.  But she then sticks to that answer and proceeds to defend it like its the Alamo.  I know the process backwards and forwards, have run national training sessions on it, have literally hundreds of contract-years of experience on it, but she refuses to acknowledge any suggestion I make that she may be wrong.  I coined the term years ago "arrogant ignorance" for this behavior, and I see it all the time.

But on deeper reflection, while it appears to be arrogance, what else could she do given her incentives?  She can't admit she doesn't know or wasn't trained (see #2 and #4 above).  She can't acknowledge that I might be able to help her (#4).  Having given an answer, she can't change it (#1).

You may think I am exaggerating -- how could people react so strongly to seemingly petty incentives.  But they do.  In my example above, this is probably her first job.   The government is the only employer she has known.  The confidence you might have to ignore these incentives to do the right thing likely come from jobs and experience that this woman has not had.

I will give you a real example.  One government contract manager asked us to spend $10,000 to do something, promising that the agency would reimburse me.  I told her that I had never heard of this type of spending being reimbursable, but she said we would be reimbursed.  So we did it.  Later, her boss's boss heard about the reimbursement and said it was not correct under the rules.  Eventually, our contract manager was challenged on it.  You know what she said?  She said our company spent the money without permission and that we were never promised reimbursement.  She sacrificed her honor out of the fear of #1 and #3 - the incentives were that powerful for her.  She knowingly lied and -- by the way - cost me personally $10,000 and a reprimand in our contract file.  When I called her afterwards and asked her, "what the hell?" -- she apologized to me in tears and said she just would be in too much trouble once her boss's boss was involved to admit she had authorized the expense.

So, I try to learn from this.   One thing, for example, I always do is ask myself when someone who works for me screws up, "Is this really my fault, for not training them well."  A surprising number of times, the answer is a reluctant, "yes".

What's The Deal With the State of New York and Free Speech?

Sorry, I am a bit late on this but it came out while I was out of the country.  While the New York AG is going after ExxonMobil and a number of think tanks to try to prosecute them, or at least intimidate them, for their past speech on climate issues, apparently the state of New York is also going after college students who want to boycott Israel.

I have never thought much of the BDS movement -- while like most western governments Israel certainly has its flaws, I find it bizarre that the BDS movement treats Israel like it's the worst government on Earth.  In particular, I am amazed that BDS folks frequently, while they condemn Israel, act as apologists for neighboring Arab nations whose human rights records are objectively far worse.

All that being said, if they don't want to have anything to do with Israel and want to advocate for others to take the same approach, they are welcome to do so in a free country.  But now there is this:

Continuing Gov. Andrew Cuomo's crusade against New Yorkers who don't support Israel, state Sen. Jack Martins (R-Nassau County) wants to ban public colleges and universities from funding pro-Palestinian student groups. A new bill sponsored by Martins would require state and city schools to defund any campus organization that supports efforts to "boycott, divest from, and sanction" (BDS) Israel over its treatment of Palestinians. The BDS movement has become popular on U.S. and U.K. campuses.

Martins' bill would also prohibit the funding of campus groups that support economic boycotts of any American-allied nation, although this bit seems designed to distract from his true goal: preventing anti-Israel sentiment on campus. In an interview with the New York Daily News, Martins referred to calls to boycott Israel as "hate speech" and "anti-Semitism" and said the state legislature has "no choice but to step in and prevent taxpayer dollars being used to promote" such sentiment.

If a state institution is going to fund student groups, then it needs to do so in a viewpoint neutral manner.

The only teeny tiny good part of this story is that perhaps a few campus Leftists who want to ban everything that they consider hate speech might have an epiphany that giving the government this sort of power is a bad idea, since one can never guarantee that one's own fellow travelers are going to be writing the hate speech definitions.

Tesla and SolarCity: Two Drunks Propping Each Other Up

This is honestly one of the weirdest acquisition proposals I have seen in a long time:  Elon Musk's Tesla offers to buy Elon Musk's Solar City.

This makes zero business sense to me.    This is from the press release:

We would be the world’s only vertically integrated energy company offering end-to-end clean energy products to our customers. This would start with the car that you drive and the energy that you use to charge it, and would extend to how everything else in your home or business is powered. With your Model S, Model X, or Model 3, your solar panel system, and your Powerwall all in place, you would be able to deploy and consume energy in the most efficient and sustainable way possible, lowering your costs and minimizing your dependence on fossil fuels and the grid.

I am sure there are probably some hippy-dippy green types that nod their head and say that this is an amazing idea, but any business person is going to say this is madness.  It makes no more sense than to say GM should buy an oil production company.  These companies reach customers through different channels, they have completely different sales models, and people buy their products at completely different times and have no need to integrate these two purchases.  It is possible there may be some overlap in customers (virtue-signalling rich people) but you could get at this by having some joint marketing agreements, you don't need an acquisition.  Besides, probably the last thing that people's solar panels will ever be used for is charging cars, since cars tend to charge in the garage at night when solar isn't producing.

One might argue that some of the technologies are the same, and I suppose some of the battery and electricity management tech overlaps.  But again, a simple sourcing agreement or a battery JV would likely be sufficient.

So what do these companies share?  I can think of three things.

The first is Elon Musk.   When one sees a deal like this, one is immediately suspicious that there is some kind of game going on where the owner combines holding A with holding B and somehow in the combination ends up with more wealth.  This is a game conglomerates played in the 1960's -- you could create a lot of (paper) value if you had a high PE (stock price to earnings ratio) company and went around buying low PE companies, instantly creating paper wealth if you could buy their earnings cheap and then have them suddenly valued at your higher PE.   Its hard to guess if this sort of game is going on here, as neither company has earnings (or rather both lose a lot of money).   Further, I have no read on Mr. Musk's personal ethics.  If this were Donald Trump, we would all immediately be suspicious such a game was at play.

The second thing these two companies share is that they have business models based on consuming massive amounts of government subsidies.  They get subsidies directly (each by selling various sorts of tax credits or fuel economy credits to power companies and auto makers), they have both gotten sweetheart deals from governments for production facilities, and their customers get subsidized as well in the purchase.  However, while there certainly are economies of scale for cronyism (large companies have the pull to get the loot), I shudder to think that there might be even more for these two companies to grab if they were larger.

The third thing these two companies share is that they both have huge financing needs, are losing lots of money, and are burning through tons of cash.   And here I think is the real heart of this deal, and if I am right, we may be able to answer the question on Elon Musk's ethics.  While both companies are burning through cash and are constantly going out to the market for more money, Tesla still has a (not totally justified in my mind) fabulous reputation with investors** and people seem to be falling over themselves to throw money at it.  With Apple languishing and Google old news, there is no hipper, trendier company out there.   On the other hand, SolarCity is starting to suck wind.  A few months back JP Morgan downgraded the stock:

SolarCity is having trouble attracting new investors, as the company has launched and canceled programs and altered its accounting methods, JPMorgan wrote in a note, according to MarketWatch.

Additionally, some of SolarCity's lower-income customers could be at risk of "slow-pay or default in the event of an economic downturn," the firm continued.

...SolarCity's weaknesses include its generally high debt management risk, weak operating cash flow, generally disappointing historical performance in the stock itself and poor profit margins.

They are also seeing more competition from local contractors and, perhaps most worrisome for their business model, various government subsidies are being scaled back and many states are changing their power metering rules to pay customers only the wholesale rate, rather than the retail rate, for power they put back in the grid.  They have said in most of their annual reports as a risk that their business model likely would not be viable (if it could be called that even today) without current or higher levels of government subsidies.

I have no inside information here, but this is the best hypothesis I can put together for this deal.  SolarCity has huge cash needs to continue to grow at the same time its operating margins are shrinking (or getting more negative).  They are having trouble finding investors to provide the cash.  But hey!  Our Chairman Elon Musk is also Chairman of this other company called Tesla whom investors line up to invest in.  Maybe Tesla can be our investor!

The reason I call this two drunks propping each other up is that Tesla also is also burning cash like crazy.  It is OK for now as long as it has access to the capital markets, but if it suddenly lost that, Tesla would survive less than 6 months on what it has on hand.  Remember, SolarCity was a golden child just 3 years ago, just like Tesla is today.  Or if you really don't believe that high-flying companies that depend on access to the capital markets can go belly up in the snap of a finger when they lose their luster with investors, I have one word for you:  Enron.

There is a substantial minority of the investment community that thinks that Tesla's headed for chapter 11, even before taking on the SolarCity albatross.  Here is one academic paper.  Here is another such opinion.  Non-GAAP reporting has proliferated like a cancer among public companies, with so many creative non-GAAP numbers that I am not sure the Enron folks would go to jail nowadays.  Tesla is a master of this game.    Even if Tesla is not headed for chapter 11, the absolute last thing Tesla needs to be doing is taking on a new acquisition that burns a lot of cash, while simultaneously diluting their management focus.

When I watch SpaceX launches, I so want to love Elon Musk.  But I am increasingly convinced that this is a terrible deal, an insider game he is playing to try to keep one of his investments alive.  I am seldom a fan of most minority shareholder lawsuits, but if I were a minority shareholder of Tesla I would be suing to block this acquisition.

By the way, many investors must be reading this the same way, because SolarCity stock prices are up and Tesla stock prices are down (at lot) today.

Disclosure:  I have been short Tesla for a while.  I shorted SolarCity this morning when the acquisition was announced, after its price popped up.  I consider this merger announcement as the moral equivalent of announcing that SolarCity is in financial distress.  These investments are tiny, the equivalent of a bar bet rather than any substantial investment on my part.

**Footnote:  I have to say this every time -- The Model S is a great car.  I would love to have one, if Santa put it under the tree for me.  But just because they have one great product does not mean that the company will be a success or is a great investment or that it is worth massive amounts of my tax money in subsidies.

The Middle Class Is Shrinking Because They Are Becoming Rich

I have made this point before, but Tyler Cowen has a great chart from a new study.  The explanation is here, but basically they have defined the bands based on some income break points corrected for family size and inflation over time.

upper-middle

A reader sent me a nice note with this link, saying that I had been right many years ago when I began making this point.  That's good, but I will also confess to be wrong on a related point -- I said 8 years ago that the one good thing about having a Democratic President was that the media would become much more positive suddenly about the economy.  On that, I was wrong.  The media still has a strong bias towards telling everyone that their life is getting ever worse, even when no such thing is true.

Citizens United Haters, Is This Really What You Want? John Oliver Brexit Segment Forced to Air After Vote

A lot of folks, particularly on the Left, despise the Citizens United decision that said it was unconstitutional to limit third party political speech, particularly prior to an election (even if that speech was made by nasty old corporations).  The case was specifically about whether the government could prevent the airing of a third-party produced and funded documentary about one of the candidates just before an election.  The Supreme Court said that the government could not put in place such limits (ie "Congress shall make no law...") but Britain has no such restrictions so we can see exactly what we would get in such a regime.  Is this what you want?

As Britain gears up to vote in the EU referendum later this week, broadcasters are constantly working to ensure their coverage remains impartial. One such company is Sky, which has this week been forced to delay the latest instalment of John Oliver's Last Week Tonight HBO show. Why? Because it contains a 15-minute diatribe on why the UK should remain part of Europe.

Instead of airing the programme after Game of Thrones on Sky Atlantic on Monday night, like it does usually, Sky has pushed it back until 10:10pm on Thursday, just after the polls close. Social media users are up in arms about the decision, but in reality, Sky appears to be playing everything by the book.

Sky's decision allows it to adhere to Ofcom rules that come into effect during elections and referendums. "Sky have complied with the Ofcom broadcasting restrictions at times of elections and referendums that prohibit us showing this section of the programme at this moment in time. We will be able to show it once the polls close have closed on Thursday," a Sky spokesperson told Engadget.

In March, the regulator warned broadcasters that they'd need to take care when covering May's local elections and the subsequent Brexit vote. Section Five (which focuses on Due Impartiality) and Section Six (covering Elections and Referendums) of Ofcom's Code contain guidelines that are designed stop companies like Sky from influencing the public vote. Satirical content is allowed on UK TV networks during these times, but Oliver's delivery is very much political opinion based on facts, rather than straight humour.

By the way, the fact vs. satire distinction strikes me as particularly bizarre and arbitrary.

When will folks realize that such speech limitations are crafted by politicians to cravenly protect themselves from criticism.  Take that Citizens United decision.  Hillary Clinton has perhaps been most vociferous in her opposition to it, saying that if President she will appoint Supreme Court judges that will overturn it.  But note the specific Citizens United case was about whether a documentary critical of .... Hillary Clinton could be aired.  So Clinton is campaigning that when she takes power, she will change the Constitution so that she personally cannot be criticized.  And the sheeple on the Left nod and cheer as if shielding politicians from accountability is somehow "progressive."

 

If I Were President, On The Day After Vote for Brexit...

I would propose a free-trade agreement with the UK.    No loss of sovereignty, no stupid EU regulations and bureaucrats, no restrictions on what can be called "sausage" -- just trade.  I would offer a similar deal to anyone else who wanted to leave.

Actually, when Obama visited, I would have been tempted to offer it to Britain at that time.  Why was the US President so hell-bent on encouraging closer ties between Britain and Germany when he should have been working to improve the relationship between the UK and the US.

I will admit that I am not thrilled with the anti-immigration tone of the Brexit vote, but the EU is a package deal, and there is a lot of bad with the good in the package.  Here is a good list of reasons to vote for Brexit (hat tip maggies farm)

Job Turnover and the Minimum Wage

Don Boudreaux criticizes an academic article that puports to tell business people that they should be able to easily absorb minimum wage hikes without consequence:

The authors are above not doing economics, properly speaking.  Instead, they offer business advice – or, rather, present themselves as possessing knowledge and information that is salable as business advice.  The authors write as if they are management or business-operations consultants rather than economists.  Pollin and Wicks-Lim here implicitly assert that their information on the details the state of the market and their knowledge of the particulars of how to run actual, real-world businesses are so real, full, and trustworthy that we should accept their conclusion that higher minimum wages will not cause businesses to change their operations in ways that result in fewer hours of paid work for low-skilled workers.

Indeed, the trust that we are asked to put in Pollin’s and Wicks-Lim’s alleged business acumen is so high that we are supposed to accept their conclusions as justification to unleash the force of the state to alter the actual, real-world business decisions of actual, real-world people who are actually operating – with their own actual money – in actual, real-world markets.

In his comments, I focused on one issue in the academic analysis -- that pro minimum wage folks in such analyses always give businesses a big profitability boost from reduced turnover due to higher wages, and it is reduced turnover and resulting increased productivity which provides the resources to "pay" for the wage increase.  I think there is something inconsistent in this thinking:

I can't see how the assumption of turnover reduction is consistent with the assumptions made by pro-minimum wage folks. There are two possibilities. First, assume the turnover is due to employees moving on at their own choice, presumably for a better deal. But how is this consistent with the frequent assumption of monopsony and that employees have no bargaining power? If employees are imposing high turnover costs on employers and frequently shifting jobs for better deals, there can't be a monopsony. It would mean that folks are taking these jobs for a short period of time to gain job skills and experience, and then moving to higher-skilled, better paying jobs, exactly how things should work in a free market without an absurdly high price floor on wages (I remember the old stat form the 80's that 10% of all Fortune 500 CEOs had their first job at McDonald's).

OK, assume the other possibility that the turnover is due to the employer choices, that all the employees they hire are unacceptable because their skills or demeanor or productivity is insufficient in some way. Well if they were unacceptable at $7, how are they suddenly going to be acceptable at $15? Proponents seem to assume some magic occurs when one raises wages, that unskilled employees who can't show up on time will suddenly become attentive and skilled. In my experience, it never happens.

For the record, given our 50% wage costs (and costs tied to wages like payroll taxes), we have had to increase prices 10% for every 20% increase in the minimum wage, and even then we have seen our profits fall, as we never see the magic productivity increase that is supposed to come with suddenly paying the same people higher wages and at the same time we do see a drop in customer demand due to the higher prices, which reduces our fixed cost coverage.

A Journalist Actually Addresses "Compared to What" When Discussing Child Labor in the 3rd World

And in Engadget, no less, a site I frequently mock for its economic ignorance.  This is from an article about Adidas totally automating the shoe-making process with robots:

But there's a dark side to all of this, which is what's going to happen to those communities when the sweatshops eventually close. In 1992, US Senator Tom Harkin proposed legislation that would block imports of goods produced by children under the age of 15. A year later, the Bangladesh garment industry dismissed 50,000 children in anticipation of the bill, which was never passed. A 1997 report by UNICEF tracked those children, and found that their situation had gotten worse, not better. As the report explains, the children wound up in "hazardous situations" where they were "paid less, or in prostitution."

 

The Asymmetry of How the Government Values My Time

I was struck recently by a stark asymmetry in how the government values the time of private individuals.

On the one hand, they insist on a high value for my time, with the state of California ruling that no one may sell their time for less than $15 an hour.

On the other hand, in numerous ways, the government values our time at zero.  They, for example, treat recycling as "free" and ignore the value of the millions of man-hours spent sorting trash.  The IRS certainly values our time at zero, as does most tax agencies.  Certain sales tax agencies do provide a collection and paperwork credit (since technically the business is acting as an agent of the state in collecting the tax) but that credit generally amounts to pennies per hour of labor.  Mono County California changed their tax filing process in a way that created thousands of extra man hours of private filing labor all to save a few dozen of their hours every 3 years on audits.

And then there is this.  Germany is considering eliminating their unlimited autobahn speed limits to save energy:

…the head of Germany’s Federal Environmental Office, Andreas Troge, says a speed limit of 120 km/h on motorways “costs nothing and would immediately reduce C02 emissions by 2.5 million tonnes per year”.

That is it "costs nothing" as long as you value private individual's time at zero dollars an hour.

Private Businesses in Europe Understand the Cost of Labor, But Public Agencies Don't Seem To

Most folks know that labor costs in Europe are high, both because of high minimum wages, high required benefits, and various government regulations that raise the cost of labor (e.g. making it impossible to fire anyone).

My observation so far is that private businesses understand this perfectly.  Given higher labor costs than in the US, most service businesses have fewer employees.  In restaurants in the US a waiter might cover 4-6 tables -- in most European restaurants I have been in the waiter covers the whole restaurant.  In fact, two of the places we have eaten are 12 table restaurants run entirely by a couple, with one being the totality of the waitstaff and the other being the totality of the kitchen staff.  In this case, the married owners of a small business might be hiring nobody.

But for reasons I don't know but I can guess, public agencies -- which presumably have higher labor costs than in the US -- are simply profligate with labor.  The example I will cite is trash pickup, both in Amsterdam and Bruges.  In these two lovely cities, every business and residence throws their trash on the curb in bags and boxes and even loose in piles.  Here is a portion of the 9 streets district in Amsterdam, an important upscale shopping area that lives and dies by attracting tourists.  Look how ugly the streets are:

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In Phoenix we all put our trash into standard cans which are a heck of a lot more attractive than basically just throwing garbage on the street.  These cans are then emptied by a truck with just one employee, a driver that has an arm that reaches out and grabs each can and dumps it in the truck.

In Amterdam, trash is picked up far slower and requires three people, a driver and two guys running around like crazy picking up trash and throwing it in the back.  The compactor on this truck was terrible and slow and so the truck compactor could not keep up with the workers, who had to bend down and pick up the same trash two or three times to get it to stay in the truck.

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It looked like a total custerf*ck

My Standard Response to Link Removal Requests

I have been getting a lot of link removal requests from companies that have in the past spammed my comment section.  Most of them threaten that somehow their past spamming might threaten my google rating, when in fact they are actually worried about their own google search ranking.  Here is my standard answer:

I might or might not get to it, depending on how I feel and how hard it turns out to be.  I only have limited sympathy as your company placed those spam links on my site against my wishes and against the usage guidelines for the site and on posts that largely were irrelevant to your product.  I had to go to considerable expense to move my server and add new software specifically to fight spam of the sort you were dumping on me.  All I can say is that you reap what you sow. And as to your threats that my Google ranking is somehow in jeopardy due to your past behavior,  I believe Google is fully aware of whether your site or my site should be penalized for such spam, and it is not going to be my site.

If I do bother to remove the spam, I usually add an update to the post itself saying that "[company with link] has confessed to being unapologetic spammers in the past and a link to their site [and I include the link] has been moved from the comments section at their request and moved to the main post to give their bad past behavior more visibility."

Random Notes from First Few Days in Europe

  • Bruges was a terrific little town, frozen in time about 400 years ago.
  • Bruges has this sort of computer-game type retail economy, seemingly based on just 3 products:  Chocolate, Beer, and Lace
  • The Lace Museum in Bruges was amazing. I would never have gone on my own, but having been dragged by my wife, it was truly fascinating.  I don't know if I had ever thought of how lace was made but it was more complex than I might have guessed.  There was a local lacing club (for lack of a better word) meeting upstairs and we got to watch a bit of the process.  The examples of extraordinary lace in the museum were simply amazing, I had never seen anything like it.  Likely way more fine and delicate and detailed than you have ever seen.  The machines, which knit clumsier lace products, were also quite a thing to watch in action
  • After Bruges, Amsterdam was an unbelievable contrast.  Despite being a tourist town, Bruges was quite quiet.  Amsterdam is... frenetic.
  • People have written many times about the bicycle thing in Amsterdam, but one does not really get a feel for it until it is actually experienced.  Coming out of the train station there was a storage area with literally thousands of bikes.  Bikes were everywhere.  One had to watch every step to make sure one is not hit by a bike.
  • Amsterdam has some kind of weird Logan's Run things going on -- zillions of people in the street, but they are all under 30.
  • As a libertarian, I love that Amsterdam has legalized marijuana and prostitution.  But as the only city in Europe that has effectively done so, it does create a problem in that it has become to Europe what Las Vegas is to the US.  Its streets are full of bachelor parties and drunken college kids.  The town has a lot of old-world splendor with its stately canal houses but it loses some of its charm as a visitor only casually interested in partaking of the debauchery.

Huh? Punishment for Taking Out A Loan You Couldn't Afford is... You Don't Have To Pay the Loan Back?

I really was not going to blog this week but this article exceeded by fury threshold, which is pretty hard to do nowadays.

The report, shared with MarketWatch, states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable. The scope of the audit report, issued by the island’s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by J.P Morgan

So government officials break the law by taking out a loan they shouldn't have taken out, and the punishment is that they get to keep the money and not pay it back?  This is absolutely absurd.  That means that completely innocent third parties are essentially being fined $4.4 billion for the malfeasance of Puerto Rico's government officials.  Were the creditors truly innocent?  Well, the same report goes on to further criticize the government officials for not telling their creditors that what the government was asking for was illegal

Puerto Rico did not inform bondholders that its constitution forbids it from using debt to finance deficits. That, the commission’s report says suggests “substantive” noncompliance with the letter of the constitution

So in fact, incredibly, the creditors' very innocence is used as part of the proof that the debt was illegal, and thus that creditors should be expropriated.

I thought that this couldn't possibly be the law, except that the Supreme Court has already upheld the same outcome in other cases:

The U.S. Supreme Court has said in the Litchfield v. Ballou case and, more recently, in litigation related to Detroit’s bankruptcy that borrowing above a debt ceiling may allow the issuer to declare debt invalid and, therefore, unpayable. Detroit went to court to invalidate $1.45 billion in certificates of participation, debt issued by two shell companies called “service corporations.” The parties settled before the case went to trial, but, while refusing two initial proposed settlements, the judge stated that Detroit’s argument had “substantial merit” and that the suit would have had a “reasonable likelihood of success.”

This is they type of thing that occurs in banana republics.  No honest nation with a strong rule of law operates this way.  And what is to prevent other distressed government bodies with limited ethics (e.g. the State of Illinois) from carefully borrowing money in a way that is subtly illegal and then repudiate it a few years later?

Some Gaming News

A few random notes on computer games for those who share that interest:

  1. For those Diablo fans who loved Diablo II but were disappointed that Diablo III was not exactly the sequel they'd hoped for, I have a suggestion:  Path of Exile from Grinding Gear Games.  It is set up as an mmrpg (so you have to be online to play) but it plays just fine single player and all the map areas are dedicated instances such that you aren't fighting other players for kills and loot drops.  The skill tree is famously enormous.  A certain group of you will buy the game 2 minutes after clicking on the next link (I did).   Here is the whole tree, it is absurd (the highlighted areas are the selections for one of my characters).  The customization ability is simply staggering.   Choosing a class like fighter or mage (they have different names in this game, but essentially these base classes) just changes your starting point on this map.  But this is not the end of the customization.  There is also an elaborate skill gem system where your attack and defense skills are based on your gem choices, both the main gems and support gems one adds to it.  Seriously, the actual combat is not much more elaborate than the debuff then hack and slash and loot drop of other Diablo style games, but this game has more ability to fine tune and experiment with character design than any I have ever played.
  2. My absolute favorite, by far, board game has finally come out as a PC game -- Twilight Struggle.  It is on Steam and I can't yet fully recommend it because I have not played through all the way online.  I am told the AI needs to be tougher but it should be fine for noobs.  There is also online person to person play.  I love the gameplay and it has also been a platform for my son and I to have a lot of discussions about recent history.  If you are a total noob, here are a few lessons for the Soviet player (which I have the most experience playing)
    • The Soviets have to rush.  The game has three periods, and you have big advantages in period 1 and disadvantages in period 3.  You HAVE to build up a lead early or you are toast later on.  I have seen a 15 point lead evaporate in the last third of the game.  The best outcome is to win the game outright by the smear rule (20 point lead) by turn 7.
    • Your first move is to coup Iran.  Asia is yours in the early game if you succeed.  The only alternative is to first turn coup in Italy, but that is a riskier strategy and can only be justified if your first turn hand is really tuned to that approach.
    • Coup every turn ASAP.  Coups are your most powerful weapon (other than events) and couping first thing every turn denies that ability to the US
    • The space race is for dumping your worst cards, not an end in and of itself (always exceptions, of course).  Twilight Struggle's best dynamic is how you end up with your opponents cards in your hand that you end up having to play for them-- the space race is one way to dump the worst of these cards (e.g. grain sales to the Soviets).  Since the cards you can play become more restricted as you advance in the space race track, there are even some advantages to failing your rolls early on.
    • If you play the China card, it needs to be for a BIG goal - like improving your scoring of Asia right before you play the Asia scoring card.  In many cases, it is better to not play the China card at all than to have it pass to the Allies.
    • Cards that allow you to play influence on any country should be used to get access to places where you have no adjoining influence -- don't use it to add to existing influence or enter countries to which you already are adjacent.   This is the only way in initially to places like South America and much of Africa..  Decolonization is your friend.
    • Learn to love this site.  Not only does it give you a LOT of strategy, but it also answers complex card interaction questions for every card.

Nice Link From Megan McArdle

In Bloomberg, Megan McArdle gives me a nice link to my climate series that begins here.  Some of you may wonder if I know about such things in advance.  The answer is no.  The only way I really knew was that I woke up in my little hotel in Bruges and fired up my email on my 300 baud hotel internet connection and found about 20 loooong emails wishing to discuss some aspects of climate in detail.   Which I actually really enjoy, except that I was sort of unprepared for the deluge.

I will get back to everyone in time.  I do enjoy the feedback, and consider myself pretty persuadable on climate topics.

PS-  If you have not seen the movie "In Bruges", it is not particularly well-known but is a good film, imho.

Disney Wait Times Are Among The Most Transparent Service Numbers Anywhere

How often does Amazon fail to deliver Prime shipments in two days?  I have no idea -- I know it has happened to me sometimes, but they don't publish the metric.  What is the average wait time on the phone with the IRS?  We don't know.  What is the average wait time at a TSA checkpoint?  We don't know.

One thing we most certainly do know, and can know any time on any day, is the current wait time for any Disney ride.  I bring this up because some goofball in the Obama Administration made this absurd statement trying to justify the lack of transparency for VA wait times:

When you go to Disney, do they measure the number of hours you wait in line? Or what’s important? What’s important is, what’s your satisfaction with the experience?” McDonald said Monday during a Christian Science Monitor breakfast with reporters. “And what I would like to move to, eventually, is that kind of measure.”

Bruce McQuain rightly points out the downside of a longer wait for Space Mountain is just a tiny bit lower than the downside of waiting for heart surgery.

But I want to add that this statement is not even close to being factually correct on its face.  Here is an example of a site that has Disney ride wait times in real time, but there are dozens of apps and sites with this info because Disney makes the data public in an API most anyone can access.  (My favorite is Touring Plans, which has built a whole Disney trip planning business on top of Disney published wait time data -- as an aside, if you are a Disney fan or future visitor, you should join).

But I would go further.  I know for a fact that Disney spends a ton of time internally planning and improving ride throughput and capacity entirely with an eye to reducing wait times (and also, by the way, to making design changes that make ride waits more enjoyable with in-line activities).  They have a sophisticated operational research staff working on this all the time, and they are constantly tweaking their Fastpass system which would not even begin to work correctly if they did not understand ride wait times down to the second decimal place.  And by the way, if their management found out that some folks in their organization were fudging line wait time data, I am pretty sure the offenders would not be working there any more (as they are at the VA).

Postscript:  I am still amazed by the fail here.  Anyone who has been to Disney even once will know that all wait times are displayed all over the park on boards, and that at each ride, every few minutes a customer will get an electronic card at the beginning of the ride that precisely times their wait.   Seriously, where do they get folks like this who can blithely utter nonsense as if they know what they are talking about.  The whole premise is screwed up.  Yes, good service companies measure overall satisfaction. This is marginally useful data, but what does one do with it?  To really fix and improve the experience, one also has to measure many important bits of the experience.  Saying that one should pay attention to only one output metric and nothing else would get you laughed out of any quality course I have ever been to.

Update:  Also, I would add that there is a lot of market pressure on the wait time issue pushing Disney to improvement on lines, market pressure that does not exist on the VA (which is one reason they totally lack any accountability).  Disney has its FastPass system for helping guests manage ride waits, but both Universal and Six Flags have their own different systems (Universal has a higher level ticket you can buy that gets you preferred access to all rides, Six Flags Magic Mountain has a pager system where you tell it which ride you want to do next and they page you when your place is ready).

Is Trump Smart Because He is Rich? Or Rich Because He Is Smart? Is He Even Rich?

I told my wife a number of times that my guess is that Trump won't release his taxes because they don't show nearly enough income to justify his ego.  Time and again I see he and his cohorts and even the media throwing around eye-popping revenue numbers for him.  Well, I can tell you from long, sad experience that merely having large revenue numbers won't get you anywhere - they have to actually be higher than expenses to be meaningful.  I was a part of several early Internet startups that rode tens of millions of revenue right into liquidation.

Here is my hypothesis of what makes Trump rich:

  1. He started with family money.  No shame in that, lot's of people have done productive things with the capital accumulated by prior generations of their family.  But in Texas we used to have  a saying -- the best way to make a million dollars is to start with $10 million.  Is Trump's fortune larger today than it would have been if, say, he had just shoved all of dad's money into stocks?
  2. He has the political clout to swing real estate deals average people cannot.  Real estate in New York and Atlantic City is entirely driven by crony capitalism, and Trump is a master.  Let's say I have a piece of land that is worth X.  It would be worth X+Y if I could build the building I want on it, but I can't get the permissions I need.  Trump can, buys it for X, and then makes Y profit from his political pull.  The example of his getting his cronies in the Atlantic City government to condemn a woman's home so he could pave it over for limo parking is just the ugliest of many, many such examples.
  3. He extracts rents from investors, even when investors lose money.  I don't know if there is an economic name for this, but there should be.  Trump's investors, particularly his bondholders, have frequently lost millions on his real estate and casino investments -- both in his many bankruptcies and his frequent debt restructurings, which he brags about on the campaign trail.  These investments are losing money and going bankrupt, so they can't be generating free cash flow.  Somehow Trump is saddling investors with the losses AND extracting income for himself personally.  Steven Job's lifestyle was paid for by people who voluntarily bought iphones and valued them enough to pay more for them than it cost to make them.  I hypothesize that Trump's lifestyle is paid for out of invested capital, and not out of profits.  Which of course leaves open the question of why investors continue to sign up for this treatment.  I understand why donors give to the Clinton Foundation despite the fact that the Foundation does relatively little actual charity work -- donors are looking for influence with the Clintons.   But why do Trump investors keep dumping in more money?  Could it be charisma?  Certainly Trump has an excess.
  4. Trump's best investments seem to be ones where his charisma comes into play -- his TV shows come to mind.  Beyond the TV shows, there is a long string of business failures, from steaks and schools to casinos.

Postscript:  To be fair, I will add that I have in the past been a fan of his hotel on the strip in Las Vegas.  The hotel provides a screaming good value (you can almost always get a huge discount off rack rate) for an exceptionally nice room in a good location -- and in a non-casino hotel to boot.  I used it for years as a low-cost location for manager meetings.  The staff there is great -- the only problem is one has to look past the tacky gold gilding on everything and the goofy Trump-branded swag in the gift shop.  I will add, though, apropos to this post, there is no way on God's green Earth that this hotel makes money, at least if it is paying all of its capital costs (it is possible there was a bankruptcy at one point where Trump said "you're fired" to the bondholders).  If you ever stay there, by the way, it has the best view of the strip in Vegas because it is right at a bend and can look straight down the street.  Ask for a high room on the south side.

Update:  LOL, looking at #3, I think we do already have a name for this phenomenon of extracting rents from investors even when the investments are losing money -- it is called a hedge fund.  Given that hedge funds generally do not consistently outperform the market and result in outsize compensation for their managers even when the fund loses money (pretty sure Chelsea Clinton's and her husband did not give back any of the management fees they pulled down despite their hedge fund tanking most of their investor's money).

Update #2:  Being a billionaire is no guarantee that one knows anything about even basic economics:  Nick Hanauer argues the way to prosperity is to impose a $28 minimum wage.

Denying the Climate Catastrophe: 9. A Low-Cost Insurance Policy

This is Chapter 9 (the final chapter) of an ongoing series.  Other parts of the series are here:

  1. Introduction
  2. Greenhouse Gas Theory
  3. Feedbacks
  4.  A)  Actual Temperature Data;  B) Problems with the Surface Temperature Record
  5. Attribution of Past Warming:  A) Arguments for it being Man-Made; B) Natural Attribution
  6. Climate Models vs. Actual Temperatures
  7. Are We Already Seeing Climate Change
  8. The Lukewarmer Middle Ground
  9. A Low-Cost Insurance Policy  (this article)

While I have shown over the previous chapters that there is good reason to be skeptical of a future man-made climate catastrophe (at least from CO2), I am appalled at all the absolutely stupid, counter-productive things the government has implemented in the name of climate change, all of which have costly distorting effects on the economy while doing extremely little to affect man-made greenhouse gas production.  For example:

Even when government programs do likely have an impact of CO2, they are seldom managed intelligently.  For example, the government subsidizes solar panel installations, presumably to reduce their cost to consumers, but then imposes duties on imported panels to raise their price (indicating that the program has become more of a crony subsidy for US solar panel makers, which is typical of the life-cycle of these types of government interventions).  Obama's coal power plan, also known as his war on coal, will certainly reduce some CO2 from electricity generation but at a very high cost to consumers and industries.  Steps like this are taken without any idea of whether this is the lowest cost approach to reducing CO2 production -- likely it is not given the arbitrary aspects of the program.

For years I have opposed steps like a Federal carbon tax or cap and trade system because I believe (and still believe) them to be unnecessary given the modest amount of man-made warming I expect over the next century.  I would expect to see about one degree C of man-made warming between now and 2100, and believe most of the cries that "we are already seeing catastrophic climate changes" are in fact panics driven by normal natural variation (most supposed trends, say in hurricanes or tornadoes or heat waves, can't actually be found when one looks at the official data).

But I am exhausted with all the stupid, costly, crony legislation that passes in the name of climate change action.   I am convinced there is a better approach that will have more impact on man-made CO2 and simultaneously will benefit the economy vs. our current starting point.  So here goes:

The Plan

Point 1:  Impose a Federal carbon tax on fuel.

I am open to a range of actual tax amounts, as long as point 2 below is also part of the plan.  Something that prices CO2 between $25 and $45 a ton seems to match the mainstream estimates out there of the social costs of CO2.  I think methane is a rounding error, but one could make an adjustment to the natural gas tax numbers to take into account methane leakage in the production chain.   I am even open to make the tax=0 on biofuels given these fuels are recycling carbon from the atmosphere.

A Pigovian tax on carbon in fuels is going to be the most efficient possible way to reduce CO2 production.   What is the best way to reduce CO2 -- by substituting gas for coal?   by more conservation?  by solar, or wind?  with biofuels?  With a carbon tax, we don't have to figure it out.  Different approaches will be tested in the marketplace.  Cap and trade could theoretically do the same thing, but while this worked well in some niche markets (like SO2 emissions), it has not worked at all in European markets for CO2.   There has just been too many opportunities for cronyism, too much weird accounting for things like offsets that is hard to do well, and too much temptation to pick winners and losers.

Point 2:  Offset 100% of carbon tax proceeds against the payroll tax

Yes, there are likely many politicians, given their incentives, that would love a big new pool of money they could use to send largess, from more health care spending to more aircraft carriers, to their favored constituent groups.  But we simply are not going to get Conservatives (and libertarians) on board for a net tax increase, particularly one to address an issue they may not agree is an issue at all.   So our plan will use carbon tax revenues to reduce other Federal taxes.

I think the best choice would be to reduce the payroll tax.  Why?  First, the carbon tax will necessarily be regressive (as are most consumption taxes) and the most regressive other major Federal tax we have are payroll taxes.  Offsetting income taxes would likely be a non-starter on the Left, as no matter how one structures the tax reduction the rich would get most of it since they pay most of the income taxes.

There is another benefit of reducing the payroll tax -- it would mean that we are replacing a consumption tax on labor with a consumption tax on fuel.  It is always dangerous to make gut-feel assessments of complex systems like the economy, but my sense is that this swap might even have net benefits for the economy -- ie we might want to do it even if there was no such thing as greenhouse gas warming.   In theory, labor and fuel are economically equivalent in that they are both production raw materials.  But in practice, they are treated entirely differently by the public.   Few people care about the full productive employment of our underground fuel reserves, but nearly everybody cares about the full productive employment of our labor force.   After all, for most people, the primary single metric of economic health is the unemployment rate.  So replacing a disincentive to hire with a disincentive to use fuel could well be popular.

Point 3:  Eliminate all the stupid stuff

Oddly enough, this might be the hardest part politically because every subsidy, no matter how idiotic, has a hard core of beneficiaries who will defend it to the death -- this the the concentrated benefits, dispersed cost phenomena that makes it hard to change many government programs.  But never-the-less I propose that we eliminate all the current Federal subsidies, mandates, and prohibitions that have been justified by climate change.  Ethanol rules and mandates, solar subsidies, wind subsidies, EV subsidies, targeted technology investments, coal plant bans, pipeline bans, drilling bans -- it all should go.  The carbon tax does the work.

States can continue to do whatever they want -- we don't need the Feds to step on states any more than they do already, and I continue to like the 50 state laboratory concept.  If California wants to continue to subsidize wind generators, let them do it.  That is between the state and its taxpayers (and for those who think the California legislature is crazy, that is what U-Haul is for).

Point 4:  Revamp our nuclear regulatory regime

As much as alternative energy enthusiasts would like to deny it, the world needs reliable, 24-hour baseload power -- and wind and solar are not going to do it (without a change in storage technology of at least 2 orders of magnitude in cost).  The only carbon-free baseload power technology that is currently viable is nuclear.

I will observe that nuclear power suffers under some of the same problems as commercial space flight -- the government helped force the technology faster than it might have grown organically on its own, which paradoxically has slowed its long-term development.  Early nuclear power probably was not ready for prime time, and the hangover from problems and perceptions of this era have made it hard to proceed even when better technologies have existed.   But we are at least 2 generations of technology past what is in most US nuclear plants.  Small air-cooled thorium reactors and other technologies exist that could provide reliable safe power for over 100 years.  I am not an expert on nuclear regulation, but it strikes me that a regime similar to aircraft safety, where a few designs are approved and used over and over makes sense.  France, which has the strongest nuclear base in the world, followed this strategy.  Using thorium could also have the advantage of making the technology more exportable, since its utility in weapons production would be limited.

Point 5: Help clean up Chinese, and Asian, coal production

One of the hard parts about fighting CO2 emissions, vs. all the other emissions we have tackled in the past (NOx, SOx, soot/particulates, unburned hydrocarbons, etc), is that we simply don't know how to combust fossil fuels without creating CO2 -- CO2 is inherent to the base chemical reaction of the combustion.  But we do know how to burn coal without tons of particulates and smog and acid rain -- and we know how to do it economically enough to support a growing, prosperous modern economy.

In my mind it is utterly pointless to ask China to limit their CO2 growth.  China has seen the miracle over the last 30 years of having almost a billion people exit poverty.  This is an event unprecedented in human history, and they have achieved it in part by burning every molecule of fossil fuels they can get their hands on, and they are unlikely to accept limitations on fossil fuel consumption that will derail this economic progress.  But I think it is reasonable to help China stop making their air unbreathable, a goal that is entirely compatible with continued economic growth.  In 20 years, when we have figured out and started to build some modern nuclear designs, I am sure the Chinese will be happy to copy these and start working on their CO2 output, but for now their Maslov hierarchy of needs should point more towards breathable air.

As a bonus, this would pay one immediate climate change benefit that likely would dwarf the near-term effect of CO2 reduction.  Right now, much of this soot from Asian coal plants lands on the ice in the Arctic and Greenland.  This black carbon changes the albedo of the ice, causing it to reflect less sunlight and absorb more heat.  The net effect is more melting ice and higher Arctic temperatures.  A lot of folks, including myself, think that the recent melting of Arctic sea ice and rising Arctic temperatures is more attributable to Asian black carbon pollution than to CO2 and greenhouse gas warming (particularly since similar warming and sea ice melting is not seen in the Antarctic, where there is not a problem with soot pollution).

Final Thoughts

At its core, this is a very low cost, even negative cost, climate insurance policy.  The carbon tax combined with a market economy does the work of identifying the most efficient ways to reduce CO2 production.   The economy benefits from the removal of a myriad of distortions and crony give-aways, while also potentially benefiting from the replacement of a consumption tax on labor with a consumption tax on fuel.  The near-term effect on CO2 is small (since the US is only a small part of the global emissions picture), but actually larger than the near-term effect of all the haphazard current programs, and almost certainly cheaper to obtain.  As an added benefit, if you can help China with its soot problem, we could see immediate improvements in probably the most visible front of man-made climate change:  in the Arctic.

For those who have hung with me this entire series, many thanks for your interest.  If you have questions, concerns, or outraged refutations, you are welcome to email me at the link above.

Government vs. Government, Gender War Edition

A while back I joked that the SJW's should stop the recent proposed rules to greatly expand corporate race and gender reporting (the current EEO-1 report) because the Feds only provide two categories (male and female) for gender.

As it turns out, this might actually be a real problem in New York

The NYCHRL [New York City Human Rights Law] requires employers[, landlords, and all businesses and professionals] to use an [employee’s, tenant’s, customer’s, or client’s] preferred name, pronoun and title (e.g., Ms./Mrs.) regardless of the individual’s sex assigned at birth, anatomy, gender, medical history, appearance, or the sex indicated on the individual’s identification.

Most individuals and many transgender people use female or male pronouns and titles. Some transgender and gender non-conforming people prefer to use pronouns other than he/him/his or she/her/hers, such as they/them/theirs or ze/hir. [Footnote: Ze and hir are popular gender-free pronouns preferred by some transgender and/or gender non-conforming individuals.] …

Examples of Violations

a. Intentional or repeated refusal to use an individual’s preferred name, pronoun or title. For example, repeatedly calling a transgender woman “him” or “Mr.” after she has made clear which pronouns and title she uses …

So the Feds require me to categorize an employee as a male or female but New York makes it illegal to do so if the employee does not want to be in one of those categories.   Hmmm.

 

Minimum Wage Pits Employees vs. Customers, Not Employees vs. Management

This post earlier on the customer service downsides of the new salaried overtime rules got me thinking more broadly about the impact of minimum wage type laws.  Progressives justify such laws by saying that there is a power imbalance between management and employees, and that the government needs to have minimum wage laws to make up for the fact that employees lack power.

But from my experience in the service world, it is wrong to look at the situation as a power struggle between managers and employees.  It is much more correct to look at this as a power struggle between employees and customers.  Let me explain.

Service and retail firms tend to live on razor-thin margins.  Retailers typically live on single-digit profit margins, and those of companies like Wal-Mart are as low as 2% of revenues.  Our company in the service business has a similar experience, averaging profit margins of 3-5% of revenues over the last 10 years.

This is not an accident.  Most service and retail businesses depend on simple service-delivery models using relatively low-skilled workers.  There are many low-skilled workers in the world.  If a company were to start making huge profits with a service model using such workers, it would be easy for others to copy it and hire the same types of workers and undercut them on price.  Margins tend to get competed down to the bare minimum.

No matter how much progressives would like it to be so, when California raises its minimum wage, it probably is not going to come out of company margins, at least in the near term.  Over the 10 years from about 2013 to 2022, California will have raised its minimum wage over 87% from $8 an hour to $15.  Wages and costs like workers comp premiums that are tied to wages are about half my costs.  This means an 87% labor cost increase will increase my total costs 44%.  How is that going to come out of a 4% margin?  It is not.

There are really only two things we can do, individually or in combination.  First, we can raise prices 44%, just to try to stay even.  Of course, some customers will balk and stop buying, and then we will lose business and perhaps have to close (we have already closed over half our businesses in California for just this reason).  Or second, we could cut staff in half to keep wages under control.  Of course, this means customers get served much more poorly, which also may drive customers away.  Other companies like fast food restaurants have a third option of automation, replacing people with machines -- I wish we could do this but right now we have run out of ideas for automating bathroom cleaning and landscape work.

Hopefully, you can see what is going on here.  The real tension here is between employees and customers.  When the state mandates a minimum wage in low margin service businesses (such laws are largely irrelevant to high-margin technology companies and such), compliance is paid for by the customer, either in the form of higher prices or worse service or both.

The Customer Service Downside to the New Federal Overtime Rules

I and others have written a number of times about the many downsides to new Federal rules that will force most junior salaried managers to start punching a timeclock.

I run a service business and these rules affect us substantially.  Like many retail operations, we have hourly employees who work for a local manager who is salaried and generally earns less than the new $47,476 annual cutoff.   We are not entirely sure how we are going to comply, but in the near-term compliance will likely involve a combination of hard hour limits for managers, some devolution of manager tasks to minimum wage workers, and price increases to customers.  In the long-term, we may have to consolidate manager positions.

But there is one additional change that is almost certainly going to occur -- a reduction in customer service.  To understand why that is, you need to understand the retail and services world.

In the service world, sh*t happens.  The ice machine suddenly breaks.  An important worker just does not show up.  A customer complains that no one is cleaning the bathroom.  Because of razor thin margins, service work loads are carefully scheduled.  There simply is not a lot of slack.  So when something unusual happens, it is usually the local manager who takes up the slack.  They fix the problem, somehow, even if it means they have to clean the bathroom themselves.  Not one of my managers has bathroom cleaning as part of their duties, but every single one of them likely cleans bathrooms every month, because they are covering the performance gaps left by other employees.

When managers are subject to overtime, this changes.  We only get 40 hours a week of that person's time (at least at a reasonable rate) and so every hour must count.  Every hour must suddenly be carefully husbanded and spent only on value-added tasks, like balancing the register and merchandising the shelves.  We can't waste them on the manager covering for employee shortcomings.

So who will clean the bathroom when the employee assigned to do so fails?  Who will cover the second register when an employee just does not show up for work?  Who will expedite the ice machine replacement so customers don't have to go long without ice?  I don't know.  Maybe nobody.  Or at least nobody as long as prices charged to customers aren't raised substantially.

Postscript:  If you are not in retail or a service business, you may read this and say, "well, if you hired better workers, they would be more reliable and you wouldn't have to cover for them."  I have two responses.  First, only someone who never worked retail could say that.  People are individuals and have their own needs and lives, and those sometimes conflict with getting the job done, no matter how well we screen.

Second, let me tell a story from this last weekend when I was at the graduation ceremony for Amherst College.  Amherst could reasonably be considered among the 10 most selective schools in the nation.   It is consistently ranked as the #1 or #2 small liberal arts college in the nation.  This weekend they selected an outstanding student from this outstanding bunch to make a presentation at graduation.  In it, she told a story of never, ever being able to get to a certain class, that is held at 12:30 in the afternoon, on time.  She said she was late every single time.   This is supposedly one of the elite young people in the country who would never even consider accepting a "menial" service job with my company, but never-the-less can't get to a class on time.

Denying the Climate Catastrophe: 8. The Lukewarmer Middle Ground

This is Chapter 8 of an ongoing series.  Other parts of the series are here:

  1. Introduction
  2. Greenhouse Gas Theory
  3. Feedbacks
  4.  A)  Actual Temperature Data;  B) Problems with the Surface Temperature Record
  5. Attribution of Past Warming:  A) Arguments for it being Man-Made; B) Natural Attribution
  6. Climate Models vs. Actual Temperatures
  7. Are We Already Seeing Climate Change
  8. The Lukewarmer Middle Ground (this article)
  9. A Low-Cost Insurance Policy

In this chapter we are going to try to sum up where we are and return to our very first chapter, when I said that we would find something odd once we returned to the supposed global warming "consensus".

First, let's return to our framework one last time and try to summarize what has been said:

Slide75

I believe that this is a pretty fair representation of the median luke-warmer position.  Summarized, it would be:

  • Manmade CO2 warms the Earth, though by much less than most climate models claim because these models are assuming unrealistic levels of positive feedback that over-state future warming.  One degree C of warming, rather than four or five, is a more realistic projection of man-made warming over the next century
  • The world has certainly warmed over the last century, though by perhaps a bit less than the 0.8C in the surface temperature record due to uncorrected flaws in that record
  • Perhaps half of this past warming is due to man, the rest due to natural variability
  • There is little evidence that weather patterns are "already changing" in any measurable way from man-made warming

The statements I just wrote above, no matter how reasonable, are enough to get me and many others vilified as "deniers".  You might think that I am exaggerating -- that the denier tag is saved for folks who absolutely deny any warming effect of CO2.  But that is not the case, I can assure you from long personal experience.

The Climate Bait and Switch

Of course, the very act of attempting to shut people up who disagree with one's position on a scientific issue is, I would have thought, obviously anti-science.   The history of science is strewn with examples of the majority being totally wrong.   Even into the 1960's, for example, the 97% consensus in geology was that the continents don't move and that the few scientists who advocated for plate tectonics theory were crackpots.

But that is not how things work today.  Climate action advocates routinely look for ways to silence climate skeptics, up to and including seeking to prosecute these climate heretics and try to throw them in jail.

The reason that alarmists say they feel confident in vilifying and attempting to silence folks like myself is because they claim that the science is settled, that 97% of climate scientists believe in the consensus, and so everyone who is not on board with the consensus needs to shut up.  But what exactly is this consensus?

The 97% number first appeared in a "study" by several academics who sent out a survey to scientists with some climate change questions.  They recieved over 3146 responses, but they decided that only 77 of these respondents "counted" as climate scientists, and of these 75 of the 77 (97%) answered two questions about climate change in the affirmative.

Slide82

We will get to the two questions in a second, but note already the odd study methodology.  If the other 10,000 plus people sent the survey were not the targets of the survey, why were they sent a survey in the first place?  It makes one suspicious that the study methodology was changed mid-stream to get the answer they wanted.

Anyway, what is even more fascinating is the two questions asked in the survey.  Here they are:

  1. When compared with pre-1800s levels, do you think that mean global temperatures have generally risen, fallen, or remained relatively constant?
  2. Do you think human activity is a significant contributing factor in changing mean global temperatures?

The 97% in this survey answered the questions "risen" and "yes".

Do you see the irony here?  If you have been following along with this series, you should be able to say how I would have answered the two questions.  I would certainly have said "risen" to 1.  The answer to question 2 is a bit hard because "significant" is not defined, but in a complex system with literally thousands of variables, I would have said one of those variables was a significant contributor at anything over about 10%.  Since I estimated man's effect on past warming around 40-50%, I would have answered "yes" to #2!  In fact, most every prominent science-based skeptic I can think of would likely have answered the same.

So you heard it right -- I and many prominent skeptics are part of the 97% consensus.  Effectively, I am being told to shut up and not continue to say what I think, in the name of a 97% consensus that represents exactly what I am saying.  This is so weird as to be almost Kafka-esque.

This is what I call the climate bait and switch.  Shaky assumptions about things like high positive feedback assumptions are defended with the near-certainty that surrounds unrelated proposition such as the operation of the greenhouse gas effect.

In fact, merely arguing about whether man-made warming exists or is "significant" falls well short of what we really need in the public policy arena.  What we really should be discussing is a proposition like this:

Is manmade CO2 causing catastrophic increases in warming and warming-driven weather effects whose costs exceed those of reducing CO2 production enough to avoid these effects?

It is about at this point when I usually have people bring up the precautionary principle.  So that I am not unfair to proponents of that principle, I will use the Wikipedia definition:

if an action or policy has a suspected risk of causing harm to the public, or to the environment, in the absence of scientific consensus (that the action or policy is not harmful), the burden of proof that it is not harmful falls on those taking an action that may or may not be a risk.

The principle is used by policy makers to justify discretionary decisions in situations where there is the possibility of harm from making a certain decision (e.g. taking a particular course of action) when extensive scientific knowledge on the matter is lacking. The principle implies that there is a social responsibility to protect the public from exposure to harm, when scientific investigation has found a plausible risk. These protections can be relaxed only if further scientific findings emerge that provide sound evidence that no harm will result.

I believe that, as stated, this is utter madness.  I will give you an example.   Consider a vaccine that saves thousands of lives a year.  Let's say, as is typical of almost every vaccine, that it also hurts a few people, such that it may kill 1 person for every thousand it saves.  By the precautionary principle as stated, we would never have approved any vaccine, because the precautionary principle does not put any weight on avoided costs of the action.

So take fossil fuel burning.   Proponents of taking drastic action to curb fossil fuel use in the name of global warming prevention will argue that until there is an absolute consensus that burning fossil fuels is not harmful to the climate, such burning should be banned.  But it ignores the substantial, staggering, unbelievably-positive effects we have gained from fossil fuels and the technology and economy they support.

Just remember back to that corn yield chart.

Slide123

Bill McKibbon wants us to stop using fossil fuels because they may cause warmer temperatures that might reduce corn yields.  But there is a near absolute certainty that dismantling the fossil fuel economy will take us back to the horrendous yields in the yellow years on this chart.  Proponents of climate action point to the possibility of warming-based problems, but miss the near certainty of problems from elimination of fossil fuels.

Over the last 30 years, something unprecedented in the history of human civilization has occurred -- an astounding number of people have exited absolute poverty.

Slide124

Folks like McKibbon act like there is no downside to drastically cutting back on fossil fuel use and switching to substantially more expensive and less convenient fuels, as if protecting Exxon's profits are the only reason anyone would possibly oppose such a measure.  But the billion or so people who have exited poverty of late have done so by burning every bit of fossil fuels than can obtain, and never would have been able to do so in such numbers had such an inexpensive fuel option not been available.  We in the West could likely afford having to pay $50 a month more for fuel, but what of the poor of the world?

Perhaps this will give one an idea of how central inexpensive fossil fuels are to well-being.  This is a chart from World Bank data plotting each country based on their per capital CO2 production and their lifespan.

Slide79

As you can see, there is a real, meaningful relationship between CO2 production and life expectancy.  In fact, each 10x increase in CO2 production is correlated with 10 years of additional life expectancy.  Of course, this relationship is not direct -- CO2 itself does not have health benefits (if one is not a plant).  But burning more CO2 is a byproduct of a growing technological economy, which leads to greater wealth and life expectancy.

The problem, then, is not that we shouldn't consider the future potential costs and risks of climate change, but that we shouldn't consider them in a vaccuum without also considering the costs of placing severe artificial limits on inexpensive fossil fuels.

Slide78

People often say to me that climate action is an insurance policy -- and they ask me, "you buy insurance, don't you?"   My answer invariably is, "yes, I buy insurance, but not when the cost of the policy is greater than the risk being insured against."

As it turns out, there is an approach we can take in this country to creating a low-cost insurance policy against the risks that temperature sensitivity to CO2 is higher than I have estimated in this series.  I will outline that plan in my final chapter.

Here is Chapter 9:  A Low-Cost Insurance Policy

If Bernie Sanders and His Supporters Get Their Way, This Would Be the Food Line

Update:  Food lines in socialist Venezuela

food

Progressives are going to try to memory-hole their support for Chavez and Venezuela, but don't you forget that most prominent progressives were enthusiastic supporters of the imposition of socialism by Chavez in Venezuela.  It is only now, when its predictable failures are becoming too obvious even for the American media to ignore, that progressives have gone silent on Venezuela.  Give them a few years and they will likely develop a meme that this was some sort of failure of free markets.