This Guy Should Be The Patron Saint of Coders

(source)

“Once, in the last century, in the Cambria Iron Works at Johnstown, Pennsylvania, after working for months to build an unorthodox new machine for steel production, the engineer in charge, John Fritz, said at last, ‘All right boys, let’s start it up and see why it doesn’t work.’

Government Housing Policy: Restricting Supply and Subsidizing Demand

I am always amazed that folks, say those in government in places like San Francisco, consistently support restricting the supply of new housing while subsidizing home buyers and then are surprised when prices and rents keeps rising.  From the Market Urbanism Report via Walter Olson.

But a look at the numbers shows that, on the contrary, housing construction (or lack thereof) seems to be the driving factor behind whether or not large U.S. metros remain affordable.

This would be the conclusion from 7 years of data from the Census Bureau, which publishes annual lists on the number of new privately-owned housing units authorized in each metro area. Between 2010 and 2016, when overall national housing permits ticked up each year following the recession, most major metros have issued housing permit numbers in the high 4- or low 5-figures annually. But three metros have stood far above the rest.

The Dallas-Fort Worth-Arlington MSA issued 273,853 housing permits over this 7-year period; New York-Newark-Jersey City issued 283,814; and Houston-The Woodlands-Sugar Land topped every metro with 316,639 permits. Combined, the 3 metros accounted for 13.5% of the nation’s approved housing units.

Other metros weren’t even close to these three....

These statistics are glaring, and show that the urban housing affordability crisis, and its solution, is far simpler than many pundits suspect. In their ongoing quest to satisfy their anti-growth biases, they’ve settled on demand-side responses (read: government subsidies) that ignore or worsen the fundamental problem of under-supply; while they continue to blame various third party boogeymen, including developers, landlords, Airbnb hosts, techies, hipsters, Asian families buying second homes, and migrants in general.

But, again, the Census data sheds light on the actual nature of the issue: some metros in America are building a LOT of housing. Other metros may think they are, but actually are not. And housing prices within given metros are either stabilizing or skyrocketing based on this decision.

 

Mueller Is Revenge on Republicans for Bill Clinton Impeachment

When special prosecutor Ken Starr finally presented charges to Congress against Bill Clinton, it was for lying under oath about his sexual escapades with Monica Lewinsky.  Did someone really originally authorize Starr to look into this?  No, his original mission was to look into any criminal wrongdoing associated with the Clintons and the Whitewater Development Corporation from Clinton's days in Arkansas.  But he got nowhere with that, so like a typical prosecutor he looked for something else illegal so he could still score a "kill".

The other day, special prosecutor Mueller staged a very high-profile raid on President Trump's long-time attorney.  His original brief was to look into whether the Trump campaign conspired with Russians to win the election.  Readers will know I have always been skeptical of this.  I believe while the Russians were spinning propaganda about the election, its effects were incidental and likely not coordinated with Trump, though he may have benefited.  I think one could craft at least as strong a story about Clinton connections with the Russians as you can about Trump connections.

Anyway, the raid the other day made it clear that Mueller is getting no farther with Russia than Starr got with Whitewater.  He raided Trump's attorney's office (a pretty aggressive move) to get evidence of ... lying about details related to Trump's Stormy Daniels affair and perhaps for details about the famous Trump Access Hollywood tape.  While I am skeptical that there is much in the Russia story, I am more than willing to believe that there may be lying and fraud related to Trump's business and sex lives.

If history does not repeat itself, it certainly echoes.

Postscript:  When Republicans see the far Left slate of candidates the Dem's are likely to field for President in 2020, they are going to long for Bill Clinton.  Heck, I could list a lot of states that would happily run Clinton as their Republican candidate for Congress in 2018.

Our Double Standard on White Collar Fraud

Nobody really liked Jeff Skilling of Enron and he sits in jail for 20 years.  We think Elizabeth Holmes is attractive and cool so that despite the fact that she committed serial fraud in lying about her company's technology and financials (far more baldly and egregiously than Skilling) and actually put people at risk through faulty medical testing, she got only a slap on the wrist.

And then there is Elon Musk.

I am not sure how I got in the role of fact-checking Elon Musk, but given the company's stated results to date and announced operating plans and strategies, there is simply no way for the Tesla to be profitable and cash flow positive in Q3, barring some deus ex machina like a massive energy credit or California subsidy windfall.  It's possible I could go in there and shut down R&D and model 3 production and milk the Model S and X for cash and might make this be true, but that is certainly not their announced business plan.  On their current path Tesla has to continue to burn cash through the rest of this year.  I am not even sure that if you stated their gross margin the same way that other automakers state their numbers that even it would be positive right now -- there is an argument to be made they are still losing money at the margin on every car they produce**.  I would add that in this point of their ramp, if you want to see Tesla the huge success that is baked into its current stock valuation, you don't want Tesla to be cash flow positive in the third quarter, you want it continuing to invest.   Amazon rules the world because it deferred profitability for years in favor of growth.

Tesla pretty much never ever lives up to Musk's promises, at least for the dates he promises them.  That is probably OK with things like deliveries of new products -- people understand he is pushing technology and new products can be delayed and they forgive entrepreneurs for being -- shall we say -- overly enthusiastic about such things.   But on financial stuff like this his statements are bordering on fraud.  But he'll never get called on it, because we like him in a way we didn't like Skilling.

I will add that if Musk wants to get snippy about the media's guesses about his company's prospects, and thinks we are all getting it wrong, he could sure be a lot more transparent about Tesla's financials and plans.  Go watch an Exxon-Mobil analyst presentation and compare it to Musk's quarterly arm-waving.  Also, one final memo to Musk:  responding to your critics on Twitter emulating Trump's style is not recommended.  Though it might be interesting to compare the irrational populist wave behind Trump with the populist wave behind Tesla.  Though the two Venn diagrams of supporters probably do not overlap much, the whole relationship feels similar to me.

Disclosure:  I have been short TSLA in the past but right now have no position.  To be honest, I am going to let Musk urge his fanboys to pump the stock a bit further before I short again.  The fanboy effect makes TSLA a dangerous short, as TSLA stock holders will defy reality for far longer than will holders of say GE or XOM.

 

** gross margin at TSLA is interesting because TSLA has no dealer network, something I like them for.  GM discounts its cars to their dealers (10% or so?) but in turn they offload a bunch of selling and support costs to the dealers.  In their gross margin, TSLA banks in their gross margin the extra 10% from not having to discount their cars but in turn does not charge gross margin for a lot of the extra sales and support costs they have to take on -- instead they drop these costs into SG&A overhead. The situation with gross margin is even more complicated because Tesla not only has to build out and operate its own warranty service, sales, and delivery network to replace traditional dealers, it is also building out its own fueling service to replace gas stations.  Here is one guy who thinks Tesla gross margin is really negative.  I have zero idea who he is but for the last year his predictions about Tesla have been a lot more reliable than Musk's statements.

Thank God Arizona Not In The Running For Amazon (part 2)

Can you imagine the insult to Maryland businesses that $5 billion of their hard-earned money as they struggle to make their businesses work is going to be just handed over to another business because that business creates better press releases for politicians?

In one of the most aggressive attempts to cajole Amazon into selecting their state as the location for the e-commerce giant's second headquarters, the Maryland General Assembly just passed a bill offering the company a $5 billion incentive package should Amazon choose to settle in Maryland's Montgomery County.

Montgomery County is competing with Washington DC, Northern Virginia and 17 other areas that made Amazon's HQ2 "short list", which was released earlier this year. Specifically, Amazon is eyeing the site of the former White Flint Mall.

The "Promoting ext-Raordinary Innovation in Maryland’s Economy," or PRIME (yes that misplaced capitalization was intentional) would require Amazon to create at least 40,000 qualified jobs (with an average comp of at least $100,000). The company would also need to spend $4.5 billion on "eligible costs" like capital projects, the Baltimore Business Journal reported.

Note that governments pretty much never police these jobs or investment requirements after the fact.  High-profile businesses in states from New York to Michigan to California have pocketed the money and then failed to add the promised jobs or investment without a hint from anyone the money was going to be taken back.

California Progressives Go Full Authoritarian

I almost titled this article "go full fascist" but the f-word is so used and abused in public discourse that I now try to avoid it.  Presented largely without comment because I would have assumed five years ago that any thinking person in this country would understand why this was a bad idea.  State law proposed by California Senator Richard Pen, SB 1424

Existing law prohibits a person, among others, from making or disseminating in any advertising device, or in any manner or means whatever, including over the Internet, any statement concerning real or personal property or services that is untrue or misleading, as specified.
This bill would require any person who operates a social media, as defined, Internet Web site with a physical presence in California to develop a strategic plan to verify news stories shared on its Web site. The bill would require the plan to include, among other things, a plan to mitigate the spread of false information through news stories, the utilization of fact-checkers to verify news stories, providing outreach to social media users, and placing a warning on a news story containing false information.

Because having the government decide what is and is not true, and what can and cannot be criticized, always works out so well.

Update:  This seems relevant, from China (bold added).  This is what happens when the state "fact-checks" social media:

When does a corporate apology become a political self-confession, or jiantao (检讨), an act of submission not to social mores and concerns, but to those in power? The line can certainly blur in China. But the public apology today from Zhang Yiming (张一鸣), the founder and CEO of one of China’s leading tech-based news and information platforms, crosses deep into the territory of political abjection.

Zhang’s apology, posted to WeChat at around 4 AM Beijing time, addressed recent criticism aired through the state-run China Central Television and other official media of Jinri Toutiao, or “Toutiao” — a platform for content creation and aggregation that makes use of algorithms to customize user experience. Critical official coverage of alleged content violations on the platform was followed by a notice on April 4 from the State Administration of Press, Publication, Radio, Film, and Television (SAPPRFT), in which the agency said Toutiao and another service providing live-streaming, Kuaishou, would be subject to “rectification measures.”

Read through Zhang’s apology and it is quickly apparent that this is a mea culpa made under extreme political pressure, in which Zhang, an engineer by background, ticks the necessary ideological boxes to signal his intention to fall into line.

At one point, Zhang confesses that the “deep-level causes” of the problems at Toutiao included “a weak [understanding and implementation of] the “four consciousnesses”. This is a unique Xi Jinping buzzword, introduced in January 2016, that refers to 1) “political consciousness” (政治意识), namely primary consideration of political priorities when addressing issues, 2) consciousness of the overall situation (大局意识), or of the overarching priorities of the Party and government, 3) “core consciousness” (核心意识), meaning to follow and protect Xi Jinping as the leadership “core,” and 4) “integrity consciousness” (看齐意识), referring to the need to fall in line with the Party. Next, Zhang mentions the service’s failure to respect “socialist core values,” and its “deviation from public opinion guidance” — this latter term being a Party buzzword (dating back to the 1989 crackdown on the Tiananmen Square protests) synonymous with information and press controls as a means of maintaining Party dominance.

Zhang also explicitly references Xi Jinping’s notion of the “New Era,” and writes: “All along, we have placed excessive emphasis on the role of technology, and we have not acknowledged that technology must be led by the socialist core value system, broadcasting positive energy, suiting the demands of the era, and respecting common convention.”

In the list of the company’s remedies, there is even a mention of the need to promote more content from “authoritative media,” a codeword for Party-controlled media, which suggests once again that the leadership has been unhappy with the idea of algorithms that wall users off from official messaging if they show no interest in such content.

 

 

Some Thoughts on Congressional Hearings

I have a small bit of experience with Congressional hearings (I have been a witness at two) so I wanted to answer a question asked at Engadget after the Facebook hearings:

Throughout the hearings, Congressional leaders repeated questions that had already been asked. We heard them ask again and again whether the company would work with Congress on legislation that would impose regulations on social networks like Facebook and others. We also heard many leaders ask when exactly Facebook learned that Cambridge Analytica had improperly obtained user data. This repetition continued with questions about changes to policy, Facebook's dense terms of service and whether users have been notified if their data were purchased by Cambridge Analytica. If time was so precious to these individuals -- and it should be, four minutes flies by and this is an important topic -- wouldn't they try to avoid repeating the same questions ad nauseam?

I have two answers for this

  1. Congresspersons don't really care what the answer is to these questions.  OK, they may care a little, but probably only a little because they seldom leave any time for answers after they are done with their public posturing.  What they really care about is that their constituents back home see that they CARE and are DOING SOMETHING about a timely issue of concern to ordinary people.  Representative Loony is playing to his local media in East Random, WV.  The Representative from East Random doesn't care if four other Representatives have asked the same hard-hitting question.  Those other repetitions are not going to show up on the local news in East Random.  What is going to show up is Representative Loony asking the question.  He will look like he CARES and like he is DOING SOMETHING.  He is likely not really concerned that he is mocked in the Washington Post for wasting his questioning time, because no one who is going to vote for him in East Random reads the Washington Post anyway.
  2. Many (but not all) Congresspersons are not that bright.  I remember sitting in the committee hearing listening to the questions they were asking me and the other folks testifying and thinking, "how did these folks get here?"  I decided the only common denominator had to be pure will.  Because they were not all smart, not all charismatic -- not even as a group particularly impressive**.   Anyway, whether bright or not, most do not really understand technology and related issues.  And so their staffers write their questions for them.  And if someone else asks the questions first?  Some have the ability to improvise but I can tell you for a fact that for some, all they can do is just proceed and read the questions their staffers gave them.

** Postscript:  Ayn Rand used to write that everyone assumes that people in power got that way by beating out everyone else, such that they must be excellent at something.  Rand always said this was false, that people in power were the zero where conflicting forces cancelled out.  Their being in power (vs. someone else being there) was a happenstance due to external factors and having little to do with that particular individual.  I never really understood this the first few times I read it but in modern times I am starting to understand it better.  Donald Trump strikes me as following Wesley Mouch's career arc.

 

Business Lesson From the Vietnam War

I just finished watching the PBS series on the Vietnam War and found the experience powerful and educational.  My only disappointment was that every soldier they interviewed and followed through the war ended up in the anti-war movement (or in the case of one POW, his wife did).  I agree with their perspective, and see the whole war as a giant waste, but unlike most people on campus nowadays, I like hearing from people with points of view that are different than mine.  I get nervous just having my expectations reinforced.  Surely there are veterans who thought the war was winnable and the US largely honorable -- I know some of these folks -- but we really do not get to hear their voices very often.   But with this proviso, the series was terrific.

One of the most important -- and hardest -- lessons of business is to think at the margin.  Perhaps the toughest corollary to this is: Sunk costs are sunk.  I don't care how much we have already spent on that factory -- that money is gone -- if it is going to take another $100 million to finish, are the benefits of the factory worth that $100 million? If not let's stop work on it no matter how much has already been spent.   I have worked to teach this to my wife.  I don't care how much the tickets for the show on Sunday night cost -- that money is gone -- isthe enjoyment we expect to get from the show worth the remaining costs we face (getting in the car, fighting for parking, etc)?

Transit projects thrive on the sunk cost fallacy.  Agencies explicitly try to get some money, spend it, and then claim the rest of the money has to be spent because we have already "invested so much".  Here is an example:

But what is really amazing is that Chicago embarked on building a $320 million downtown station for the project without even a plan for the rest of the line -- no design, no route, no land acquisition, no appropriation, no cost estimate, nothing.  There are currently tracks running near the station to the airport, but there are no passing sidings on these tracks, making it impossible for express and local trains to share the same track.  The express service idea would either require an extensive rebuilding of the entire current line using signaling and switching technologies that may not (according to Daley himself) even exist, or it requires an entirely new line cut through some of the densest urban environments in the country.  Even this critical decision on basic approach was not made before they started construction on the station, and in fact still has not been made.

Though the article does not mention it, this strikes me as a typical commuter rail strategy -- make some kind of toe-in-the-water investment on a less-than-critical-mass part of the system, and then use that as leverage with voters to approve funding so that the original investment will not be orphaned.

It amazes me that no politician in California has shut down the insane California high speed rail project, but I will bet you any amount of money that when they do the rail agency will be screaming that it can't be shut down because they have already spent billions of dollars and shutting them down would waste all that money.  Sorry, but that money has already been wasted, the point is to avoid all the additional money that will be wasted going forward.

The government decision-making around the Vietnam War seemed like nothing so much as a series of sunk cost fallacies.  We can't give up now, not after so many brave men have already died!  That last sentence could be the title of about half the episodes.   But sunk costs shouldn't matter in a go-forward decision -- but they do matter to ego and prestige.  Politicians talk about things like "the nation's honor" but what really matters at its heart is their own ego and perception.  Abandoning sunk costs, for the real humans making decisions (whether Presidents or CEOs) is about confessing past errors of judgment.  Its a hard thing to do, so hard a lot of extra people had to die in Vietnam before it could happen.  I can't find a transcript but Kissinger had some amazing quotes in Episode 9 that pretty baldly outline this problem.

 

 

A Geographic Fact Many Find Surprising

One of my odd niche interests is that I am fascinated by the Panama Canal and its construction.  I probably have read 10 books on the topic.  My kids know never to ask anything remotely about it because they will get a 1-hour lecture.

So here is your fun fact that all but other canal aficionados will find surprising:  The Atlantic entrance to the Panama Canal is west of the Pacific entrance.  The canal actually runs largely north-south rather than east-west as we imagine.

The other thing most people have wrong in their minds when they think about the canal is that they picture ships traveling through a narrow excavation.  Pictures of boats are almost always at the locks or at the Culebra Cut.  But for most of the route the sort of median view is of a ship sailing across a peaceful lake in the middle of a rain forest.  The canal was made by damming two rivers and creating two lakes (one of them enormous) that spread out to cover most of the isthmus.  The digging was then to connect the two lakes through the spine of the country (the Culebra cut) and to build flights of locks at each end up and down from the lakes.  Thinking of the canal as a bridge over the land rather than a cut is a more accurate picture.  This design solved the twin problems of too much digging (we'd still probably be digging in the Culebra Cut if people had insisted on make the canal at sea level, a vision that was surprisingly hard to get past) and the Chagres River which could become an incredible torrent in the rainy season and flood out everything in its path.

 

Another Reason I like Phoenix -- With Some Advice for Tourists

Much of Phoenix is generally pretty flat but at the same time we have peaks rising from right in the middle of the city to as high as 1400 feet above the mean ground level of the surrounding city (we are also ringed my mountains around at least three sides of the city, which is why we call ourselves the valley of the sun).  Anyway, here is a view from Camelback Mountain taken just the other day, probably the last day under 75 degrees we will have for 6 months.  This is a 360 degree panorama (you can see the same dude with bright yellow shirt on both ends).  You can click on it to get the full effect.

We took the Echo Canyon trail which is pretty challenging (there are several long stretches where one is basically climbing from rock to rock rather than just marching up a trail).  It is worth it though - it's pretty unusual to have this sort of climb and end up dead in the middle of a major city.  The one block of undeveloped space at the right end of the picture is actually prime real estate and would be all city-fied were it not for the fact that it is Native American tribal land, one of the fortunate tribes (unlike the Navajo) who were shoved onto cr*p land but land which eventually ended up near a major city and so became valuable.

Ironically, while most cities don't have any feature like this, we have at least two:  Not even 5 miles away is Piestewa Peak that is just a few feet shorter, has an easier trail, and oddly has a totally different geology (you can see it just to the left of center in this photo).  Piestewa Peak used to be known as, and is still referred to by locals, as Squaw Peak -- a name that has been officially deprecated for moderately obvious reasons of wokeness.  The city struggled for years with changing its name, not knowing what to change the name to, when opportunity emerged out of tragedy when a young, local Native American woman serving in the US Army was killed in the Middle East.  Piestewa Peak is surrounded by a large tract of open space that is hilly and largely pristine desert landscape (around the center of the photo).  It is so large that one hike in it and, despite it being right in the center of the city, one can completely lose sight of the city in all directions and really get a desert hiking experience without actually going out of town.

The Electric Vehicle Mileage Fraud, Updated: Tesla Model 3 Energy Costs Higher than A Prius, Despite Crazy-High eMPG Rating

Nearly 8 years ago (can it be so long?) I wrote a series of articles about what I called the electric vehicle mileage fraud at the EPA.  Rather than adopt sensible rules for giving electric vehicles an equivalent mpg rating, they used a horrible unscientific methodology that inflated the metric by a factor of three (in part by ignoring the second law of thermodynamics).  All the details are still online here.  I am not omniscient so I don't know people's true motivations but one is suspicious that the Obama administration wanted to promote electric vehicles and put their thumb on the scale of this metric (especially since the EPA in the Clinton Administration has already crafted a much better methodology).  To be fair, smart people screw this up all the time -- even Eric Schmidt screwed it up.

Take for example the Tesla model 3, which has been awarded an eye-popping eMPG of between 120 and 131.   Multiplying these figures by .365 (as described in my linked article) gets us the true comparative figure of 44 to 48.  This means that in terms of total energy consumption in the system, the Tesla is likely better than most gasoline-powered vehicles sold but less energy efficient than top hybrids (the Prius is listed as 53-58 mpg).  At the end of the day, electric cars feel cheaper to fuel in part because they are efficient, but perhaps more because there is no little dial with rotating dollar numbers on the electric cables one attaches to charge them  (also, there are still places where one can skim electricity for charging without paying).

Basically, I have been a voice in the wilderness on this, but I just saw this note on the Tesla Model 3 and its operating costs from Anton Wahlman writing at Seeking Alpha

there are attractive and spacious hatchbacks yielding at least 55 MPG for under $25,000, without taxpayer funding needed. Just to be conservative and give the opposite side of the argument the benefit of the doubt, I’ll refer to these as 50 MPG cars, even though they perform a little better. Rounding down is sufficient for this exercise, as you will see below....

To find out [the price to charge a Tesla], you can go to Tesla’s Supercharger price list, which is available online: Supercharging.

As you can see in the table above, the average is close to the $0.24 per kWh mark. So how far does that $0.24 take you?

The Tesla Model 3 is rated at 26 kWh per 100 miles according to the U.S. Department of Energy: 2018 Tesla Model 3 Long Range.

In other words, almost four miles per kWh. It’s close enough that we can round it up to four miles, just to give Tesla some margin in its favor. That squares with the general rule of thumb in the EV world: A smaller energy-efficient EV will yield around 4 miles per kWh, whereas a larger EV will yield around 3 miles per kWh.

That means that at $0.24 per kWh, the Tesla Model 3 costs $0.06 per mile to drive.

How does that compare to the gasoline cars? At 50 MPG and today’s nationwide average gasoline price of $2.65, that’s $0.05 per mile. In other words, it’s cheaper to drive the gasoline car than the Tesla Model 3.

This result that the Tesla is slightly more expensive to fuel than the top hybrids is exactly what we would expect IF the EPA used the correct methodology for its eMPG.  However, if you depended on the EPA's current eMPG ratings, this would come as an enormous shock to you.

Electric vehicles have other issues, the main one being limited range combined with long refueling times.  But there are some reasons to make the switch even if they are not more efficient.

  1. They are really fun to drive.  Quiet and incredibly zippy.
  2. From a macro perspective, they are the easiest approach to shifting fuel.  It may be easier to deploy natural gas to cars via electricity, and certainly EV's are the only way to deploy wind or solar to transportation.

 

The Number One Reason the Ivy League Schools Are Broken

Ivy League schools are broken, at least to the extent they are true to their word that they are trying to serve mankind and not simply their own prestige.  Consider this from the WSJ:

Harvard hit a new low this year—in terms of its acceptance rate.

The university admitted 4.6% of applicants, or 1,962 students for the class set to begin this fall. Last year, it admitted 5.2% of applicants.

The eight campuses making up the Ivy League notified applicants on Wednesday evening about who will make up their first-year undergraduate class come fall. Seven of the eight posted record-high application numbers, while Dartmouth had its highest number in five years; seven recorded their lowest-ever acceptance rates, as Yale tied with its prior record.

Many of the applicants looked perfect on paper. At Princeton, more than 14,200 of the 35,370 applicants had a 4.0 grade point average. Brown boasted that 96% of its admitted students are in the top 10% of their high school classes, while at Dartmouth that rate hit 97%.

Yale admissions officers were “impressed and humbled” by the volume of qualified candidates, said Jeremiah Quinlan, dean of undergraduate admissions and financial aid. That school tied its record-low 6.3% admission rate this year.

These schools invest the vast majority of their impressively-large capital funds in continuing to improve the quality of education by some fraction of a percentage.  In contrast, none of them have made meaningful investments in increasing their capacity to bring their already super-high level of education to more students (by this I mean doubling or tripling the size of its school-- Princeton to its credit did increase its capacity several years ago by something like 15%).   The number of clearly Ivy-qualified students has increased perhaps by an order of magnitude over the last 30 years but Ivy capacity has increased only trivially.

Let's say an Ivy has 5,000 students and a 10 point (on some arbitrary scale) education advantage over other schools.  Let's consider two investments.  One would increase their educational advantage by 10% from 10 to 11 (an increase I would argue that is way larger than the increase from investments they have recently made).  The other investment would double the size of the school from 5,000 to 10,000 but let's say that through dilution and distraction it dropped the educational advantage by 10% from 10 to 9.   The first investment adds something like 5,000 education points to the world (5,000 kids x 11 minus 5,000 kids x 10).  The second adds  40,000  points to the world (10,000 x 9 minus 5,000 x 10).  It's not even close.  In fact, the expansion option is still favored even if the education advantage drops by 40%.

I have written this suggestion in various forms to every Princeton President in the last 20 years and have finally just given up trying.  I have come to the conclusion that the administration and faculty don't actually care so much about Princeton's net contribution to the world, and care more about prestige.  In their hearts, I would bet that most of the administration and faculty -- very rationally from their personal incentives -- want to be associated with what is arguably the top undergrad school in the country, and might even consider cutting the class size in half if that is what is required to get stay there.  They get rewarded for being associated with a school with an educational advantage that is as high as possible, and no one's evaluation of that associated prestige is affected by whether that education is provided to one person or one thousand. If you buy Bryan Caplan's argument that college education is mostly all signalling, then we alumni should have the same attitude.

I did have one Princeton President engage me on this (Shirley M. Tilghman, who also oversaw the modest growth in Princeton's size I mentioned above).  The counter argument I hear is that it is really hard to keep these institutions great while tripling them in size and taking online students or whatever.  But that is a cop out, in my view.  The people who run these institutions preen that they are the thought-leaders in education.  Well any fool can run a capital campaign at Yale and build a new molecular biology building.  One of these folks should take on a harder task.   I have had my issues in the past with Arizona State (ASU) President Michael Crow, but I think it can be argued that he is contributing more to the world trying to figure out how to improve the education of 100,000 kids than is the Harvard President educating the same hand-picked 5,000 undergrads with incrementally-increased intensity.

Why Modern Car Dashboards Suck

The WSJ has an article today about digital dashboards in cars, focusing on how software glitches are making cares undriveable, the motoring version of the blue screen of death.  I have no particular comment on the reliability issue, but the article reminds me that for a while I have wanted to post a rant about modern car electronics.

Specifically, my issue is with the user interface, and that user interface sucks.  I have a 2007 model car and am in no hurry to replace it in large part because I cannot find a car with a user interface for the sound and climate systems that I can tolerate.   I will illustrate this with a look at my wife's car, a Mercedes that is a couple of years old.  Her radio still has 10 preset buttons (actual physical buttons, thank god for small favors) but for them to work, her radio has to be in radio preset channel mode.  So let's say it is there and I get in the car and want to listen to Sirius channel 80 (ESPN).  That is not one of her presents,  I have to get out of preset mode and get into satellite radio mode.  To do that I have to hit the back button, then with this dial thing I have to bump the dial up to get the top menu, turn the dial to get audio options, click the dial to select audio options, then turn the dial again to select satellite radio (vs. other choices like FM or AM) and then click the dial to select.  Now I am in satellite radio mode and I can twirl the dial to go up and down the stations.  I have to do similar contortions navigating layers of menus to get into navigation mode or pull up a map.  All while I am trying to drive.

Compare this to my 2007 car.  If I am in some other radio mode, I jam the physical button marked "sat" and I am in satellite radio mode.  No layers of menus to navigate.  I can hit the FM or AM buttons to immediately reach those.  If I want the map, I hit the physical button marked "map" or the button marked "nav".  No navigating through layers of windows while I am trying to drive.  Some of the rental cars I get are even worse.  They have integrated systems that cover not just the sound system and navigation system but the climate control.  It is incredibly irritating and distracting to have to try to navigate layers of menus just to change the fan speed on the A/C.  My wife and I have had whole trips where we never discovered how to do certain things in the car because we couldn't figure out the obtuse interface.

So this is what I don't understand.  If car designers are getting rid of physical buttons in favor of multilayered menu systems because it saves them a bunch of money, fine.  Bad trade-off in my mind, but there is at least a reason.   But if they are getting rid of physical buttons because they think that modern users prefer navigating multiple screens to access commonly used functionality, this is simply insane.  No one can top me for pure technophilia, but technical wizardry should not come at the expense of reduced usability.

Postscript:  And don't tell me "well, you can use voice commands."  The voice interface in my wife's Mercedes is still unreliable and results in her yelling at it a lot.  And while they have a lot of upside, most voice interfaces still have the same problem that Alexa has, which is that you have to memorize a syntax for each command.  You can't say natural language, "Alexa I need lights" or "turn the lights on Alexa" it has to be "Alexa, bedroom lights on."  Sort of the verbal equivalent of WordPerfect, where users had to memorize what cntl-alt-shift-R does.

Why Tesla Agreed to Pay Elon Musk So Much

Tesla agreed to give Elon Musk what is potentially the richest executive compensation package ever.  I will give my (*gasp*) cynical reason why I think they did this.  I can show you in one chart (Tesla Model 3 production, from Bloomberg):

I would argue that Elon Musk is the only one in the world who can run a company with so many spectacular failures to meet commitments and still have investors and customers coming back and begging for more.  A relatively large percentage of Teslas get delivered with manufacturing defects and their customers sing their praises (even while circulating delivery defect checklists).  Tesla keeps publishing Model 3 production hockey sticks (apparently with a straight face) and consistently miss (each quarter pushing back the forecast one quarter) and investors line up to buy more stock.  Tesla runs one of the least transparent major public companies in this country (so much so that people like Bloomberg have to spend enormous efforts just to estimate what is going on there) and no one is fazed.  Competitors like Volvo and Volkswagon and Toyota and even GM have started to push their EV technology past Tesla and actually sell more EV's than does Tesla (with the gap widening) and investors still treat Tesla like it has a 10-year unassailable lead on competition.

All because Elon Musk can stand up at a venue like SXSW, wave his hands, spin big visions, and the stock goes up $3 billion the next day.   Exxon-Mobil has a long history of meeting promises, reveals its capital spending plans in great detail, but misses on earnings by a few cents and loses $40 billion in market cap.  GE lost over half its market value when investors got uncomfortable with their lack of transparency and their failures to meet commitments.   Not so at Tesla, in large part because Elon Musk is PT Barnum reincarnated, or given the SpaceX business, he is Delos D. Harriman made real.

Disclosure:  I don't currently have any position in TSLA but over the last 2 years I have sold short when it reaches around $350 (e.g. after Elon Musk speaks) and buy to cover around $305 (e.g. when actual operational or financial data is released).  Sort of the mirror image of BTFD.

Cinema Visual Effect Before CGI

I really love this blog about visual effects, particularly various forms of matte painting, in movies before CGI.

This is Genius

Things I May Have Been Wrong About

Ace of Spades writes, in response to a NYT article on the death of a homeless woman:

In Sunday’s NYT there is a long article about a homeless woman who lived on a grate near Grand Central Terminal. She was seemingly intelligent, a Williams grad, and had a promising future snuffed out by mental illness....

What is ironic is that the majority (probably all) of the people involved and interviewed probably support the deinstitutionalization craze that has gripped America since the 1970s. I wonder whether a firm public policy of forced commitment would have helped this woman. My suspicion is that it would have. That is not to say that our institutions were wonderful, but an all-or-nothing approach makes no sense. We have moved the mentally ill out of sometimes awful psychiatric facilities into the revolving door of the street, prison and an early death.

I was among those who has opposed forced institutionalization.  The practice used to be rife with abuse, and when it was really being challenged in the 1970's it was with recent knowledge of how institutionalization for supposed mental health issues had been used in the Soviet Union as a tool against dissent.  And in a world where political partisans still routinely assign negative mental health diagnoses to their political enemies and have even suggested using mental health diagnosis-from-a-distance to unseat the current President, there is still a lot of possibility for abuse.  But seeing that most of those who would have been in state mental hospitals are now in prison or living (and dying) on the streets, I am open to having made a mistake.   I am still not sure, though, who advocates for such people who are without friends and family and would help guard against their abuse.

The Problem With Social Justice Today -- Dividing Rather than Unifying

This article about pronouns on campus embodies all that is wrong with social justice warriors today, but perhaps not for the reason you might guess.

I personally have no particular problem if you want to identify as a male or a female or gender 6 or a zebra.  But here is the real problem:  When I write about you, I don't know how you self-identify.  And when I write about a random hypothetical person, gender is effectively meaningless.  I want one simple third person pronoun that can be applied to everyone.  I currently use "they" even for the singular, rather than the more awkward "he or she" or just picking a random one each time, though this usage is still controversial.  I don't care what the damn word is, just let's agree on one.   The shift in the 1970's from using Mrs. and Miss to just using Ms. was awesome -- if you have ever struggled with trying to guess gender from a name like "pat", think about what a pain in the butt it was to try to guess marital status before addressing someone.   The only thing that would be an improvement would be to just go to M. for everyone, male or female.

But the proposal in the article has, at my count, 11 different third-person pronouns.  Ack.  This is going in exactly the wrong direction.  It is the same thing that social justice warriors have done on race.  Twenty years ago, perhaps even 10, most everyone would have agreed the ideal goal was to have post-racial or race-blind society.   Sure, celebrate your ethnicity and cultural uniqueness, but when dealing with each other we should think of each other first and second and third as humans, with race being as relevant to how we react to people as hair color.   But of course we have gone in the opposite directly, with Progressives actually arguing for more and more separation and barriers between the races.  So now we are doing the same thing on gender.

The whole point of the pronoun things seems to be not to get us to some sort of harmony but just the opposite, to create new opportunities to shame and abuse people.  After all, if we launch tidal waves of outrage at people for picking the wrong pronoun out of two choices, imagine how much vitriol we can vent with 11 choices to get wrong.

Problems With Pigouvian Taxes

Pigouvian taxes are taxes meant to help markets and prices better account for certain externalities that wouldn't otherwise be priced in.  A good example is that to the extent one thinks that CO2 is having a deleterious effect on the environment, a carbon tax would be a pigouvian tax.  This brief note at Cato discusses some problems with Pigouvian taxes.  This note reminded me of another issue:  in real life, Pigouvian taxes are more likely to reflect biases and faulty assumptions and virtue signalling of politicians rather than real science and economics.  Here are two situations that come to mind, presented without comment:

Maybe This is Why Model Railroading is Dying

I am a long-time model railroader (yes, I need to post an update soon) but the hobby is basically dying.  It is just not relevant to young people any more.

Maybe it's because no one produces awesome starter train sets any more like these from the 1980's.

The Best New Technologies Don't Just Unseat Incumbents, They Grow the Market

I love Mark Perry's blog but I think he missed an opportunity to point out something awesome in this chart:

We spend a lot of time discussing how Uber and its app-based peers are upending the traditional taxi monopoly.  And no one enjoys seeing a government enforced crony monopoly overturned more than I.  But let's not miss the other story here, which is the tremendous increase in customer well-being and mobility.  Forget the mix for a second and add the two lines.  Monthly passenger rides, which were stuck in the 12-13 million a month range for years, have almost overnight doubled to about 25 million rides with the advent of ride-hailing and the entry of many ordinary folks without taxi medallions into the drive-for-hire business.  This is amazing!

A Failure of Skepticism and Common Sense: Elon Musk's Skepticism Dampening Field

I continue to marvel at the nearly 100% positive press Elon Musk gets for his Hyperloop project.  For those who do not know, that is his concept for a high speed transportation system that can achieve high speeds in part because it is in a vacuum sealed tube.  Here is an update on the project and a picture of a prototype below:

So here is the story so far:  We know that the main barrier to high speed rail projects is that they are astonishingly expensive to build and maintain given the high cost of the right-of-way acquisition and building track to the very high standards necessary to support safe high speeds.   See for example California high speed rail, which is following some sort of crazed Moore's law where the cost estimate doubles every 18 months.

So we are going to fix the cost problem by ... requiring that the "track" be a perfectly smooth sealed pressure vessel under vacuum that is hundreds of miles long?  What about this approach isn't likely an order of magnitude more expensive than rail?  The prototype above which allows only one way travel cost about a billion dollars per mile to build.  And with a lot less functionality, as current prototypes envision 10-20 person sleds, one step beyond even the worst airline middle seat in terms of likely claustrophobia, and less than half the capacity of a bus.  It would take 15-20 of these sleds just to move the passengers from a typical aircraft.   Not to mention the fact that there is no easy way to do switching and a return trip requires a second parallel track.  All to reach speeds perhaps 20% higher than air travel.

Sure, I can be wrong.  For example, if the hyperloop handled grades better than a train, that would reduce costs somewhat.   But why does no one seem to ask obvious questions like this?   It's like Musk exudes some sort of skepticism dampening field around him (look at Tesla:  the company is fraught with issues and the stock price was falling until Musk did one of his hand-waving presentation specials at SXSW and the stock goes back up 30 points).  But if you read carefully, most of the hyperloop progress in the article linked is for getting handouts from government (something Musk excels at) including money for scoping studies of lines that will never exist and money for new buildings and workshops.

 

 

It Pays To Have Good PR: Compared to Jeff Skilling, Elizabeth Holmes Gets Slap On the Wrist for Outright Fraud

Jeff Skilling was convicted of fraud and fined $50 million dollars and given 20+ years in jail.  Elizabeth Holmes -- for fraud that is way more obvious and for which she is clearly directly accountable -- will get no jail time, a fine of a half million dollars, loss of some voting shares in the company, and a ten year moratorium on being a director or officer of a public company.  From the SEC press release:

The complaints allege that Theranos, Holmes, and Balwani made numerous false and misleading statements in investor presentations, product demonstrations, and media articles by which they deceived investors into believing that its key product – a portable blood analyzer – could conduct comprehensive blood tests from finger drops of blood, revolutionizing the blood testing industry.  In truth, according to the SEC’s complaint, Theranos’ proprietary analyzer could complete only a small number of tests, and the company conducted the vast majority of patient tests on modified and industry-standard commercial analyzers manufactured by others.

The complaints further charge that Theranos, Holmes, and Balwani claimed that Theranos’ products were deployed by the U.S. Department of Defense on the battlefield in Afghanistan and on medevac helicopters and that the company would generate more than $100 million in revenue in 2014.  In truth, Theranos’ technology was never deployed by the U.S. Department of Defense and generated a little more than $100,000 in revenue from operations in 2014.

These are only the highlights of the many, many repeated knowingly grossly fraudulent statements made by Holmes over a span of several years, and this does not even include her harassment of whistle blowers who tried to go public with the fraud.  This isn't a case of creating an offshore JV that shifted some debt off the balance sheet -- its the case of lying blatantly about the company's technology and financials for years and years.

Addressing the Pro-Tariff Arguments

Don Boudreaux and and Mark Perry have been doing a great job making the case against Trump's trade sanctions.  But it is always a danger only to learn about opposing views from those who disagree with you, so in the spirit of Bryan Caplan's "Ideological Touring Test" I wanted to address directly some of the arguments in support of Trump's sanctions.

I followed several links to this article by Spencer Morrison.  After reading the whole thing, I fear I have made the intellectual error of choosing a poor representative of the opposing side's argument, but I am committed now, so here goes.

Consider that China steals more than half a trillion dollars in American intellectual property every single year. This is one of the reasons America’s trade deficit with China is so massive. For example, in 2010 Chinese companies stole high-speed rail designs from American firms, thereby depriving them of hundreds of billions in potential revenues. Such theft occurs in nearly every industry, whether it’s software programs or branded consumer goods. And the worst part? We let it happen.

I find the author's figure absurd, and likely untrustworthy given his example.  Following his high-speed rail design "theft" link one quickly finds that 1) Americans were not involved at all, which is not surprising since we really don't have high-speed rail manufacturing industry or expertise in this country; 2) the technology seems to have been acquired or copied legally; and 3) the real competitive issue for non-Chinese companies seems to be that the Chinese have extended and improved the technology.

This one paragraph essentially summarized the theme of the article, that technology is the key to increased well-being and that the US is poorer when they cannot monopolize the best technology.  The first is true, the second is dead wrong and flies in the face of 200 years of history.

I won't spend time on the mass of the article where describes the economy in very production-based terms which I don't totally agree with, but his basic point is one I can partially accept -- that real economic growth over time comes from  productivity growth.  I agree that technology is part of the productivity equation, but unlike the author I also see other drivers such as trade (which he calls "noise").  Trade is a critical factor in productivity improvement as specialization and comparative advantage greatly increase productivity.

But where I think he really goes off the rails is to say that because technology is wealth-creating, we need to monopolize that technology in the US.

The core issue remains: we continue to  offshore our advanced industries at an alarming pace, which will only increase the likelihood that the “next big thing” will be invented abroad. If we do not reverse this trend, we will soon be on the outside looking in.

It would be entertaining to discuss the origins of the American textile industry in the late 18th and early 19th century with the author, which were largely based on spinning jenny and powerloom designs that were literally stolen from manufacturers in the UK (countries don't own technologies, only individuals and their companies do).  The UK at the time had strict technology export restrictions of which I am sure the author would have been approving.

So did the UK suddenly become poorer as America built a lively cloth industry?  No, in fact the UK boomed along with the US.  It turns out that spreading new technology and productivity techniques around more widely made everyone richer.  This only makes sense.  Would the West really be wealthier if they had kept all technology from spreading, and thus were surrounded by countries dominated by subsistence farming and medieval crafts?  A skeptic might argue that the UK did eventually become poorer relative to the US and upstart Germany, but Andrew Carnegie could have told you why at the beginning of the 20th century.  He went back and toured manufacturers in his old home and was horrified at how little they reinvested in new technology.

Which brings me back to Chinese high speed rail, the example he started with.  Clearly the Chinese have a growing high-speed rail manufacturing industry, and they DIDN'T invent the technologies originally in China.  This is what trade is all about.  Rather than keep technologies locked up in a secret underground bunker in the Rockies, as the author seems to prefer, it spreads technologies around the world.  Production then shifts around the world based on a variety of factors such as comparative advantage in ways that are hard to predict, but seldom has a strong relationship to the country in which the technology was first invented.  One place production does NOT shift, though, is towards countries whose government has artificially raised critical raw material prices through border taxes on its consumers called tariffs.

Which reminds me, if the problem is China "stealing" things like high-speed rail technology, then why in the hell are we imposing steel and aluminum tariffs?  What the heck does this have to do with technology transfer?  In fact, if the US really had a high-speed rail industry we were worried about, or if one were exclusively concerned with the auto industry, the author is essentially telling them "we are sorry you had your technology stolen so to help you out we going to substantially raise the prices of your two largest purchases (steel and aluminum) so that you can be even less competitive internationally."  Ahh, I can feel the economic growth from that already.

If the author wants better intellectual property protections for US companies and individuals, I am generally supportive of efforts to achieve this (as long as we don't over-specify intellectual property and end up again with endless patent troll suits).  For all its flaws, though, joining the TPP seems to be a better path to this end (it actually addresses, you know, intellectual property protections rather than just raise steel prices for consumers).

To conclude, I love this quote from his article because, despite being anti-trade, he in fact is echoing the pro-trade observation by Steven Landsburg.

Yet our trade policy does exactly the opposite. After the North American Free Trade Agreement took effect in 1994, U.S. corn exports surged, as did our imports of automobiles. The problem is that automobile manufacturing is much more likely to benefit from disruptive technology than is growing corn—under NAFTA, the preponderance of long-run benefits went to Mexico, not the United States. The same is true with America’s trade relationship with China: America’s advanced goods trade deficit with China now tops $120 billion. Meanwhile, our biggest export is soybeans.

Free trade is, quite literally, turning America into China’s mercantile resource colony: we buy their value-added, manufactured products, and we sell them raw materials.

This is freaking awesome!  We grow and sell soybeans and get back advanced technology products.  Brilliant!  No wonder we are the richest nation on Earth.

Postscript:  So to save the time clicking through to Steven Landsburg, here is a part of what he said (via Carpe Diem):

There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw material from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships eastward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.

International trade is nothing but a form of technology. The fact that there is a place called Japan, with people and factories, is quite irrelevant to Americans’ well-being. To analyze trade policies, we might as well assume that Japan is a giant machine with mysterious inner workings that convert wheat into cars. Any policy designed to favor the first American technology over the second is a policy designed to favor American auto producers in Detroit over American auto producers in Iowa. A tax or a ban on “imported” automobiles is a tax or a ban on Iowa-grown automobiles. If you protect Detroit carmakers from competition, then you must damage Iowa farmers, because Iowa farmers are the competition.

The task of producing a given fleet of cars can be allocated between Detroit and Iowa in a variety of ways. A competitive price system selects that allocation that minimizes the total production cost. It would be unnecessarily expensive to manufacture all cars in Detroit, unnecessarily expensive to grow all cars in Iowa, and unnecessarily expensive to use the two production processes in anything other than the natural ratio that emerges as a result of competition.

That means that protection for Detroit does more than just transfer income from farmers to autoworkers. It also raises the total cost of providing Americans with a given number of automobiles. The efficiency loss comes with no offsetting gain; it impoverishes the nation as a whole.

Markets in Everything: Pizza Ordering Sneakers

Since I have not seen Marginal Revolution do this feature for a while, I will try to fill in.  "pie tops" -- sneakers with a button for ordering a pizza.