Archive for June 2016

Amazon's Shipping Estimates Are Becoming Fraudulent

I have noticed for the last 6 months or so, at least here in Phoenix, that Amazon frequently does not deliver items when they promise.  It is not just an issue with the shipper, in the last two cases the item did not even ship until 1-2 days after the date they promised for delivery.

This has reached a head in the last week, when I ordered a number of items to be delivered immediately  -- I am leaving town and wanted some items to take to my son's apartment.  They are useless to me even a few hours after I depart home.  I ordered seven items on Monday with my prime membership, and all promised delivery that same day (one for free, two with a nominal upcharge).  Of these, none arrived on Monday.  One arrived on Tuesday and as of 4PM on Tuesday, the other six have not even shipped, and Amazon is showing them here on Wednesday at best.

I would not have bought these from Amazon had they given me accurate delivery estimates.  I am wondering if they are using fake, overly optimistic delivery estimates to try to woo business from bricks and mortar stores, whose one advantage is immediate fulfillment.

UK: The Kids Are All Right Post-Brexit

There has been a lot written about "chaos" in UK government and financial markets since the Brexit vote, so much so there are supposedly folks who voted for Brexit who want a do-over.

A few thoughts:

  • Short term changes in financial asset prices, like bank stock prices or currency futures, are largely irrelevant in the long-term.  The recent supposed "big drop" in US equities markets, for example, took the market all the way back to where it was in... March, barely 3 months ago.  You will see buying in these assets in the coming days and the drop of the last few days will be largely forgotten soon.   Financial markets don't react well to being surprised, but they will get over it.
  • I don't see how the UK and the pound are necessarily weaker post-Brexit.  The US is fine.  The Swiss are fine.  Heck, the Swiss have to constantly fight to keep their currency lower.
  • Unlike other EU nations, the majority of UK trade is with non-UK nations.  While trade with the EU will likely be on worse terms in the future (though the Swiss and Norwegians have pretty good deals), UK will be unshackled from the EU bureaucracy in negotiating new deals with the rest of the world.  If the US President had any vision whatsoever, he would already have offered the UK a free trade deal, rather than being petty and saying the UK goes to the back of the line for exiting a transnational body the US would never join itself.
  • Much of the "chaos" in British government can be traced 100% to the anti-Brexit folks.  The Anti-Brexit folks very explicitly refused to craft any Brexit contingency plans, using threats of post-Brexit chaos to try to up the pressure against the Brexit vote.  President Obama did the exact same thing with Obamacare, refusing to create contingency plans if the SCOTUS overturned key parts of the ACA, hoping to ratchet up pressure against that outcome.  Had their been at least the outlines of a plan, they would be checking down it right now.  Things I would do as PM on the trade front:  1.  Demand the Swiss deal from the EU for Britain.  2.  Approach major trading partners with offers of free trade deals.  A British commonwealth free trade zone is a great idea.

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

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 "hoarding"

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.