Posts tagged ‘game’

My Apologies to Colin Kaepernick

A while back, I implied that Colin Kaepernick's refusing to stand for the National Anthem may have been in part a strategy to avoid being cut from the 49ers.

I apologize.  Even if that were true -- and it was pure speculation on my part -- he has done everyone in this country a favor.  Until a month ago, there was no ceremony much more empty than the pro forma singing of the National Anthem at sporting events.  As I wrote before,

I am not a big fan of enforced loyalty oaths and patriotic rituals, finding these to historically be markers of unfree societies.  For these sorts of rituals to have any meaning at all, they have to be voluntary, which means that Kaepernick has every right to not participate, and everyone else has every right to criticize him for doing so, and I have the right to ignore it all as tedious virtue-signalling.

In the past, people stood for the national anthem because that is what you do.  Mindlessly.  It was, for many, a brief ritual before you got to the good stuff.  It was singing happy birthday before you got the cake. (I am speaking for the majority of us, I know there are folks who have always approached the anthem as a deep and solemn rite).

But this weekend, suddenly, and perhaps for the first time at a ball game, everybody who stood up for the National Anthem at an NFL game likely thought about it for a second.  They were not standing just because that was what everyone else was doing, they were standing (or sitting) to make some sort of statement, and what exactly that statement was took a bit of thought.  Standing for a ceremony that has 100% dutiful participation means zero.  Standing for a ceremony with even a small number of folks who refuse has a lot more meaning.

So thanks, Colin.

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 Downside of Web/Cloud Enabled Devices (Including My Oddest Analogy of the Week)

Google's parent Alphabet is abandoning support for Revlov's Smart Home Hub (which they bought a while back).  In and of itself this part of an irritating strategy (pursued enthusiastically both by Alphabet and Apple) of identifying edgy new devices with enthusiastic user bases, buying them, and then shutting them down.   I was a SageTV fan and user back in the day until Google bought it and shut it down (as a potential competitor to GoogleTV and its other streaming products).  The bright side is that this pushed me to XBMC/KODI, which is better.  The dark side is that I am sure Google could easily write those guys a check and then they will be gone too.

Anyway, after SageTV was shut down by Google, I could still use the hardware and software, it just did not get improved or updated or supported any more.  But increasingly new electronic products are requiring some sort of cloud integration or online account activation.  To work, the product actually has to check in with the manufacturer's servers.  So what happens when those servers are shut down?

Alphabet-owned company Nest is going to pull the plug on the Revolv smart home hub and app on May 15, rendering the hardware unusable next month.

Just to be clear on how much of a big deal this is, the company isn't only out to stop support but to really disable the device and turn the hub into a $300 teardrop-shaped brick. How much does a pitchfork go for nowadays?

...Needless to say, existing users are outraged by the development, and they have very good reason to be so."When software and hardware are intertwined, does a warranty mean you stop supporting the hardware or does it mean that the manufacturer can intentionally disable it without consequence? Tony Fadell seems to believe the latter. Tony believes he has the right to reach into your home and pull the plug on your Nest products," Arlo Gilbert, CEO of Televero and formerly proud owner of a Revolv hub, says, emphasizing that "Google is intentionally bricking hardware that he owns."

Video game enthusiasts have worried about this for years, and have started to encounter this problem, as the new most-favored copyright protection scheme is to require an online account and an account-check each time the game is run.  They try to say the online component is adding value, and they do a few things like leader boards and achievements, but the primary rational is copy protection.    Personally I find this generally easier to work with than other types of copy protection that have been tried (I really like Steam, for example) but what happens when the login servers are shut down?

This sort of reminds me, oddly enough, of cemeteries.  There used to be a problem where private cemetery owners would sell out the cemetery, fill it up, and move on.  But then the cemetery itself would fall apart.  It's not like the owners are still around to pay association dues like condo owners do.  Once people figured out that problem, they quickly began demanding that cemeteries have a plan for long-term maintenance, with assets in trust or some such thing.  Perhaps the hardware and software industry will do the same thing.  I could see a non-profit trust getting set up by the major players to which manufacturers pay dues in exchange for having the trust take over their servers after a product is abandoned.

The Fed Wins!

I have observed before that the central bank of every major industrialized country is trying to devalue its currency.  Since in some sense this is a zero sum game, they are all locked into a race to the bottom, a competition to see who can be most successful in hammering their consumers and individual savers in order to boost sales of their domestic companies dependent on export markets.

It looks like the US is winning!  Yay for us, we have destroyed our currency the fastest!  Our government has been most successful in making our domestic consumers relatively poorer vs. those of other nations.  Who says the Obama Administration can't do anything right?

The article goes on to point out something I have been saying for years -- that the unprecedented monetary and fiscal stimulus steps that governments are taking today at the peak of the economic cycle (though admittedly a relatively weak peak) is going to leave the tank completely empty when it comes to the next downturn.

While the ECB’s initial move to cut interest rates into negative territory in June 2014 sparked a sharp plunge in the euro, further cuts last December and last week have had little effect on the currency.

“The ECB’s hand has been played out,” said Alan Ruskin, head of G-10 foreign-exchange strategy at Deutsche Bank AG. “The currency market isn’t as responsive to the ECB anymore.”

Similarly, markets have ignored the Bank of Japan’s hints at its monetary-policy meeting this week of more rate cuts to come. Not only has the mechanism transmitting ultraloose policy into the real economy appeared to be broken, but some unconventional policy tools—such as negative interest rates—have been deleterious to banks and rattled financial markets.

And maybe that's OK - maybe at some point some government starts thinking about fixing structural regulation, taxation, and government resource reallocation policies that are the true source of economic weakness.

Advice and Consent

I will begin by saying that I am the last one in the world to bemoan Congressional "gridlock".  I have this argument all the time, but I just don't see that we Americans are facing some imminent shortage of laws and so lack of productive lawmaking by Congress doesn't pose any great problem for me.  And gridlock certainly is not an adequate reason for rule by Presidential fiat, as I have seen argued a number of times in the past couple of years.  There is no Constitutional clause allowing Executive action if Congress won't pass the President's preferred legislation.  The narrow party split in Congress is a reflection of a real split in American voters --  gridlock on particular issues in Congress will pass, as it always has, when the electorate coalesces into a majority on the issue.

All that being said, I have always thought that the Senate's advice and consent functions should be exempt from the filibuster.  Presidential appointments need to get an up or down vote in some reasonable amount of time.  It is fine if the Senate wants to say "no" to a particular judge or appointment, but there needs to be a vote.  I say this obviously in the context of the current Supreme Court vacancy.  I am almost certain not to like Obama's appointment, so I say this now before I get tempted to move off my principles here in the exigency of politics.  But not voting on a Supreme Court nominee for a full year is just stupid  (btw Republicans, for all your love of the Constitution, show me anywhere in the document where it says "lame duck" presidents have less power).   If Republicans want to run out the clock by voting down one candidate after another, then they can of course do that, and suffer the political consequences -- positive or negative -- of doing so.  And suffer the future precedent as well (if a one year wait is the precedent now, what about 2, or 4, next time?)   If Republicans wanted to pick Supreme Court nominees in 2016, they should have won the last Presidential election.

Politics is a multi-round game that goes on for decades and centuries.  This is one reason the filibuster still exists.  Both parties have come achingly close to eliminating it when they had slim majorities in the Senate, but both walked away in part because this was a move that worked for one round of the game (whatever vote was at hand) but has downsides in a multi-round game (where one's party will be in the Senate minority again and will want the filibuster back).  It just infuriates me that the current participants in this game seem bent on making decisions that seem indifferent to future rounds of the game.  GWB and Obama have both done this with expansions of executive power - the Left is cheering Obama on to govern by fiat but will they really be happy with these precedents in a, for example, Cruz administration?  Ditto now with the Republicans and trying to run a full year off the clock on a Supreme Court nomination.

Postscript:  By the way, the very fact a Supreme Court nomination is so politically radioactive is a sign of a basic governmental failure in and of itself.  The libertarian argument is that by giving the government so much power to intervene in so many ways that creates winners and losers by legislative diktat, we have raised the stakes of minutes points of law to previously unimaginable levels.  In a world where the government is not empowered to micro-manage our lives, a Supreme Court nomination would be as interesting as naming the postmaster general.

OK, Stat Geeks, Here is A Really Nerdy Game For You

Guess the Correlation

That's it.  They plot a distribution, you guess the correlation in the form of R.  If you are close, you keep going.  Too many misses and its game over.  Via Flowing Data.  Played around with it a bit, high score at 52 now.

statgame

 

Media Demonization of Koch Money is Pure Partisanship

The media does not like people spending money to elect non-Democrats.   That is the only conclusion I can draw from the fact that all of their articles on "dark money" seem to focus almost exclusively on the Koch brothers (who to my eye are more libertarian than Republican).  One would get the impression that the Koch's are the #1 giver of money to election campaigns, but in fact according to OpenSecrets.org they were #14 in 2014 and #49 in all elections since 2002.  Why wouldn't the media illustrate election-spending articles with someone in the top 10?  It's as if the sports media spent all its time talking exclusively about quarterback Ryan Tannehill (14th in 2015 in NFL passing yards per game) without ever mentioning Tom Brady or Drew Brees.

If the Koch brothers deserve to be excoriated for their election spending, then the organizations that give more than they must really be evil, right?  If one were cynical, one might think that the media ignores the top 8 or 10 because they mostly all give to Democrats.   Well, here is the list from 2014 via OpenSecrets.org.

2014-electrion-spending

Update, from a reader and via Instapundit:

Consider this: in 2013, the left wing Center for Public Integrity reported that “Four foundations run by [the Koch brothers] hold a combined $310 million in assets…” By contrast, the Ford Foundation’s endowment is more than $12 billion — about 38x larger than the Koch Foundations.

On a list of the top 100 US Foundations (by asset size), the Ford Foundation is #2. The various Koch Foundations don’t make the list, nor do they make the list of top 100 Foundations by annual giving.

Yet, the news media and transparency groups constantly harp on the Koch’s massive organization and its “insidious,” “dark money” influence on American politics, while almost completely ignoring the far larger left-wing political Foundations.

In part, this is due to the perception in the media that money from conservative/libertarian/free market leaning organizations must be tainted, while funding from left-wing Foundations is free of such bias. It may also be due to the fact that the left wing Foundations fund many media organizations — I’m looking at you, NPR, PBS, Washington Post, LA Times and others — sometimes even funding them to cover “[other people's] money in politics.”

 

Postscript:  If you really want dark, check out the website for hedge fund Elliott Management.   There is not a single byte of information in the publicly accessible pages, only links to contact forms.

The West Has A Continuous History of Becoming more Liberal Only Because We Have Changed the Definition of "Liberal"

Kevin Drum writes, "the entire Western world has been moving inexorably in a liberal direction for a couple of centuries."

If this is true, it is only because the definition of "liberal" has changed.   After becoming increasingly less authoritarian and intrusive and controlling for hundreds of years, government is again becoming far more authoritarian and intrusive.  Only with a change in the definition of "liberal" over time can one consider attempting to ban, for example, the eating of certain types of foods as "liberal"

Until a few years ago, I would have said that Drum was right that there is a continuity of liberalization in the social realm.  I celebrate the increasing acceptance of differences, from race to sexuality.  But even here people who call themselves "liberal" are demanding authoritarian limitations on speech and expression, try to enforce a dictatorship of hurt feelings.

The whole post of his is a really interesting insight into the Progressive mind.  Apparently, the (purported) lack of compromise in government is the fault of just one of the two sides.  I am not sure how that is possible, but that seems to be the Progressive position (you will find an equal number of folks on the Right who believe the same thing, though they blame the opposite group).

Essentially, you can see in this post the strong Progressive belief that the default mode of government is to constantly generate new prohibitions, rules, strictures, taxes, regulations, and penalties.  And that anyone who stands in the way of this volume production of new legal entanglements must be overcome, even if one has to break the law to do it.

A few days ago Matt Yglesisas wrote a #Slatepitch piece arguing that Hillary Clinton "is clearly more comfortable than the average person with violating norms and operating in legal gray areas"—and that's a good thing. In a nutshell, Democrats can't get anything done through Congress, so they need someone willing to do whatever it takes to get things done some other way. And that's Hillary. "More than almost anyone else around, she knows where the levers of power lie, and she is comfortable pulling them, procedural niceties be damned."

Unsurprisingly, conservatives were shocked. Shocked! Liberals are fine with tyranny! Today Matt responded in one of his periodic newsletters:

A system of government based on the idea of compromises between two independently elected bodies will only work if the leaders of both bodies want to compromise. Congressional Republicans have rejected any form of compromise, so an effective Democratic president is going to try to govern through executive unilateralism. I don't think this is a positive development, but it's the only possible development.

So Democrats are within their rights to lie, cheat and steal -- to do whatever it takes -- to break through the gridlock.  I wonder:  The worst gridlock this country has ever had was in the 1850's, when no compromise could be found on slavery.   If Democrats are empowered today to lie, cheat, steal to break the gridlock, should they have been similarly empowered in 1850?

Of course, no one would want that.  But it raises an important point.  If you define the game as one with nietzsche-ist / Machiavellian rules, no one ever seems to consider that it is just as likely the other side will win as yours will.  In fact, if you truly represent liberality, I am not sure this kind of anything-goes game is stacked in favor of the truly liberal players.

For folks who think that the end justifies the means here, and that we need to break the rule of law in order to save it, I would offer this paraphrase to an old saying: you can't sell your soul and have it too.

Arizona Near Last in Local Food Consumption -- Good!

Our local fishwrap laments:

The local food movement in Arizona needs just that – movement.

While some shoppers enjoy spending their Saturday mornings at local farmers markets, new research indicates Arizona lacks per-capita sales in the local food industry.

The 2015 Locavore Index found that of the 50 states and Washington, D.C., Arizona has the second lowest per-capita sales for local foods.

Here is a scoop for you:  We live in the middle of the freaking Sonoran desert.   It is a terrible place to grow most foods.  In fact, it is an environmentally awful place to grow food.   Local food folks somehow have gotten locked into transportation costs as the key driver of food sustainability that they want to focus on, but transportation costs are 10% or less of most food costs.  A small savings on transportation is absolutely dwarfed, from a productivity and resource use standpoint, by the productivity of the soil and the fit of the climate with whatever is being grown.

Here is one way to think of it -- yes, locally grown food may not have to be transported very far, but every drop of water for food grown here in the Phoenix area has to be brought hundreds of miles from declining reservoirs to grow that food.

The movement seems to imply that locally grown food is more healthy.  Why?  Why is an Arizona tomato healthier than a California tomato?

Finally, the micro-trade-protectionism is pretty funny:

If local Arizonans start buying more local food, the economy may benefit as well.

When buying local grown food, “the money stays here in the local economy, as opposed to buying something in a national chain,” said R.J. Johnson, a sales representative for Blue Sky Organic Farms in Litchfield Park. “You buy something locally, 75 percent of that money stays here in town.”

This is so economically ignorant as to be beyond belief.  If more people are growing food here locally (something that is likely a fairly unproductive task given our climate), what productive tasks are they giving up.  And this is a national effort -- are they really with a straight face telling every single state that they should buy more locally so their money stays at home?  Isn't that just one big zero sum game (actually a negative sum game because you lose benefits of specialization and comparative advantage).

A Few Thoughts on Branding After Travelling in Europe

In Europe, we stayed several times in rental apartments we found through the invaluable VRBO website.  One advantage of these apartments is that we can cook breakfast, avoiding the high-priced breakfasts at many hotels.

So I found myself shopping for orange juice in Austria, with a number of choices at hand, but none recognizable to me.  Skeptics of capitalism often point to branding and brand-based advertising as particular wastes of resources.  But I would have loved to see an orange juice brand I recognized.  Brands are essentially a guarantee of  predictability -- whether I like the taste or not, I know what a Big Mac will taste like in Omaha or Beijing.  Brands are an enormous aid to shopping and making choices, and in this manner create real value for us as consumers.  I missed recognizable brands when I was in Europe.

PS-  Coca-Cola and Pepsi are obviously the exceptions to this predictability game.  Diet Coke, called Coke Light in Europe, tastes entirely different in Europe than it does in the US -- in fact it tastes more like what Diet Pepsi tastes like in the US.  Which is ironic, and fitting I guess, because Diet Pepsi in Europe tastes a lot like American Diet Coke.

China Slashes Costs for American Consumers

My headline is probably the most accurate description of how China's devaluation of the yuan yesterday affects this country.  But I bet you will not see it portrayed that way in any other media.  What you are going to see, particularly as the Presidential election races heat up, are multiple calls to bash China in some way to punish it for being so generous to American consumers.  Why?  Because the devaluation of the yuan will negatively affect the bottom line of a few export sensitive companies.  And if we have learned anything from the Ex-Im battle, things that GE and Boeing like or hate are much more likely to affect policy than things that benefit 300 million consumers.  Make no mistake, protectionist measures are the worst sort of cronyism, benefiting a few companies and workers and hurting everyone else (look up concentrated benefits, dispersed costs).

By the way, aren't the worldwide competitive devaluation sweepstakes amazing?  If everyone is doing it, then devaluations have no substantive effect on trade (except to perhaps decrease its magnitude in total), which just adds to the utter pointlessness of the game.  And it is hilarious to me to see US elected officials criticizing China for "manipulating" its currency, as if the US Fed hasn't added several trillion dollars to its balance sheet over the last few years in a heroic attempt to manipulate the value (downwards) of our own currency.

So How Can Anyone Be Opposed to Non-Discrimination Laws

First, let me establish a few background facts.  Several years ago I headed an attempt to put a Constitutional amendment legalizing gay marriage on the ballot here in Arizona.  As far back as 2004 I had a gay couple running a campground, and faced a customer petition demanding we remove them because they promoted moral degeneracy by being gay (it's for the children!).  I told those customers to camp somewhere else, as we were not changing our staffing.  Since then I have probably hired more gay couples to run campgrounds than anyone else in the business.

So how could I possibly be opposed to this:

After a period of foreshadowing and rumor, the Equal Employment Opportunity Commission has now gone ahead and ruled that employment discrimination on the basis of sexual orientation is forbidden under existing federal civil rights law, specifically the current ban on sex discrimination. Congress may have declined to pass the long-pending Employment Non-Discrimination Act (ENDA), but no matter; the commission can reach the same result on its own just by reinterpreting current law.

There are multiple problems with non-discrimination law as currently implemented and enforced in the US.  Larger companies, for example, struggle with disparate impact lawsuits from the EEOC, where statistical metrics that may have nothing to do with past discrimination are never-the-less used to justify discrimination penalties.

Smaller companies like mine tend to have a different problem.  It is an unfortunate fact of life that the employees who do the worst job and/or break the rules the most frequently tend to be the same ones with the least self-awareness.  As a result, no one wants to believe their termination is "fair", no matter how well documented or justified (I wrote yesterday that I have personally struggled with the same thing in my past employment).

Most folks grumble and walk away.  But what if one is in a "protected group" under discrimination law?  Now, not only is this person personally convinced that their firing was unfair, but there is a whole body of law geared to the assumption that their group may be treated unfairly.  There are also many lawyers and activists who will tell them that they were almost certainly treated unfairly.

So a fair percentage of people in protected groups whom we fire for cause will file complaints with the government or outright sue us for discrimination.  I will begin by saying that we have never lost a single one of these cases.   In one or two we paid someone a nominal amount just to save legal costs of pursuing the case to the bitter end, but none of these cases were even close.

This easy ability to sue, enabled by our current implementation of discrimination law, imposes a couple of costs on us.  First, each of these suits cost us about $20,000 to win (insurance companies are smart, they know exactly how this game works, and will not sell one an employment practices defense policy without at least a $25,000 deductible, particularly in California).  It takes a lot of effort for the government, even if neutral and not biased against employers as they are in California, to determine if the employee who was fired happened to be Eskimo or if the employee was fired because he was an Eskimo.  Unfortunately, the costs of this discovery are not symmetric.  It costs employees and their attorneys virtually nothing to take a shot at us with such discrimination cases, but costs us$20,000 each to defend and win (talk about Pyrrhic victories).  Which is why we sometimes will hand someone a few bucks even if their claim is absurd, just to avoid what turns out to be essentially legal blackmail.

Second, the threat of such suits and legal costs sometimes changes our behavior in ways that might be detrimental to our customers.  A natural response to this kind of threat is to be double careful in documenting issues with employees in protected groups, meaning their termination for cause is often delayed.  In a service business, almost anyone fired for cause has demonstrated characteristics that seriously hinder customer service, so drawing out the termination process also extends the negative impact on customers.

To make all this worse, many employees have discovered a legal dodge to enhance their post-employment lawsuits (I know that several advocacy groups in California recommend this tactic).  If the employee suspects he or she is about to be fired, they will, before getting fired, claim all sorts of past discrimination.  Now, when terminated, they can claim they where a whistle blower that that their termination was not for cause but really was retaliation against them for being a whistle-blower.

I remember one employee in California taking just this tactic, claiming discrimination just ahead of his termination, though he never presented any evidence beyond the vague claim.  We wasted weeks with an outside investigator checking into his claims, all while customer complaints about the employee continued to come in.  Eventually, we found nothing and fired him.  And got sued.  The case was so weak it was eventually dropped but it cost us -- you guessed it -- about $20,000 to defend.  Given that this was more than the entire amount this operation had made over five years, it was the straw that broke the camel's back and led to us walking about from that particular operation and over half of our other California business.

Customers Love Uber, But It Can Be Great For Drivers as Well. Here is an Example.

I see a lot of folks wanting to poo-poo the notion that Uber's flexibility in terms of hours driven and such is good for drivers.  Folks on the Left have in their head that any job that does not punch in and punch out at fixed hours with a defined lunch break and actually rewards working more than the minimum is somehow exploitive.

This got be thinking about a Kickstarter update I received a while back (for a computer game project).  The entrepreneur wrote:

Looking back, most of the year was spent trying to recover from the 2013 Robotoki saga which delayed development by almost an entire year, left me financially devastated, and almost sunk this project beyond recovery. We’ve had our ups and downs and I’ve always found a way through, but man, these were not fun times. I was actually living out of my car when I signed the private investment contract a few months ago, so it’s been a little bit of a rough year.

This project and I are currently surviving on that private loan, my personal credit cards, and whatever I can make driving for Uber, but at least we’re getting close to launch now. I hope this doesn’t come off as a “whoa is me” kinda thing. I only mention all of this because I want to put the project into perspective and give some deserved answers about what has been going on. I know it sucks that the game is severely late and I hope you know that I’ve done everything in my power to not give up.

This entrepreneur is trying to fund his game development effort in part by working during the day on the game and driving for Uber in his spare hours.  There is no way he could work really anywhere else because he would have to be an official employee and keep a regular schedule -- you can't imagine someone just showing up at McDonald's to cook whenever they feel like it.  But that is what he can do for Uber.  And now California is trying to kill that flexibility.

 

Brink Lindsey Proposes a Growth Plan with Appeal Across The Political Spectrum

It turns out that small government libertarians like myself and large-government progressives actually have something in common -- we both fear accumulations of unaccountable power.  We just find such power in different places.  Progressives fear the accumulation of power in large corporations and moneyed individuals.  Libertarians fear government power.

I won't try to take Caplan's ideological Turing test today, but will just speak from my own perspective.  I wonder how Progressives can ignore that government has guns and prisons while corporations just have the ability to sell you something or hire you (though perhaps not on the terms you prefer).  When pressed to explain why the Left is more comfortable with government power, their explanations (to my taste) depend too much on assumptions that competent versions of "their guy" pull the levers of power, and that power itself and the vagaries of government incentives will not corrupt this guy.

On the other hand, progressives ask me all the time, "how can you trust corporations so much" and then list off a justifiably long list of examples of them acting poorly.  This, I think, is where the real difference comes in, and where the confusion often comes int he public discourse.  I will answer that I don't trust anyone, government or corporations.  What I trust are the incentives and the accountability enforced in a market where a) consumers can take their money elsewhere if they get bad products or services; b) employees can take their labor elsewhere if they are treated poorly; and c) entrepreneurs can make a fortune identifying shortcomings in incumbent businesses and offering consumers and/or employees a better deal.

Unfortunately, when a person or organization finds itself very successful in this game, there is a natural tendency to want to protect their winning position.  But nothing in the market can stop a challenge from a better product or service, so successful entities tend to turn to the government (which has a monopoly on guns and prisons and asset seizures and the like) for protection against upstart challengers.  If successful, these restrictions tend to hobble growth and innovation -- imagine if IBM had successfully used government influence to halt the PC revolution or if AT&T had blocked the growth of cell phones.

This dynamic is at the heart of Brink Lindsey's new white paper at Cato (pdf).   As has been his wont in several past works, Lindsey is looking for proposals that bridge the gap between Left and Right.  So, rather than stake out the 98th salvo in an area where there seems to be a hopeless ideological divide (e.g. minimum wage or low-skill immigration), he focuses on four areas one could imagine building a broad coalition.  Lindsey focuses on attempts by successful incumbents to use government to cement their position and calls them "regressive regulation" because they tend to benefit the already-successful at the expense of everyone else.

In the following sections, I examine four major examples of regressive regulation: (a) excessive monopoly privileges granted under copyright and patent law; (b) protection of incumbent service providers under occupational licensing; (c) restrictions on high-skilled immigration; and (d) artificial scarcity created by land-use regulation. In all four examples, current government policy works to create explicit barriers to entry. In the first two cases, the restriction is on entry into a product market: businesses are not allowed to sell products that are deemed to infringe on a copyright or patent, and individuals are not allowed to sell their services without a license. In the other two cases, actual physical entry into a geographic area is being limited: on the one hand, immigration into the country; on the other, the development and purchase or rental of real estate.

One can immediately see how this might appeal across ideologies.  Libertarians and market Conservatives will like the reduction in regulation and government scope.  Progressives should like the elimination of government actions that primarily help the wealthy and powerful.**

I said "cross ideologies" above rather than bi-partisan because things get messy when actual politics intrude.  All of these protected constituencies wield a lot of political influence across both parties -- that is why the regressive regulation exists in the first place.  And they all have finally honed stories about how these restrictions that prevent new competition and business models are really there to protect the little people (just watch the battles between Uber and the taxi cartels and you will see what I mean).

Never-the-less, this strikes me as a pretty good list.  For whatever barriers there may be, it is a hell of a lot easier to picture a bipartisan agreement on any of these issues than on, say, low-skill immigration.  I haven't finished reading to the end -- I have to get on now with my day job -- so I have yet to see if there are any concrete proposals that look promising.

 

**The ideological problem here, of course, is that libertarians think that these restrictions are the primary way in which the wealthy unfairly benefit while most Progressives would (I suppose) see it as a side issue given that they believe that even the free-est of market capitalism is inherently unfair.

A Whole New Era in Baseball

Many of us casual fans were introduced to the culture war in baseball (i.e. Bill James / data-driven analysis vs. grizzled old scouts looking for five-tool players) by the book Moneyball.

Well, with the recent news that the St. Louis Cardinals may have been caught hacking the Houston Astros data base, it is pretty clear which side won.  This article explains why the until-recently hapless Astros were the target of hacking by one of the last decade's most successful teams.

If you remember the scene in the movie Moneyball where there were a bunch of traditional old scouts sitting around the table debating players, compare that image to this:

When the Astros plucked Colorado's Collin McHugh off the waiver wire after the 2013 season despite his career 8.94 ERA, the move might've surprised some folks. But today's major league stadiums are wired with systems such as PitchF/X and TrackMan that use Doppler radar to track the ball in three dimensions. For every pitch thrown in every game, teams now know the location, acceleration, movement, velocity and the axis of rotation of the ball. The Astros grabbed McHugh because they saw that while his sinker didn't play well at Coors Field, he had a superior curveball that rotated about 2,000 times a minute, or 500 times more than an average curve spins.

It was the baseball equivalent of noticing a needle in the data haystack.

Once he was in Houston, the coaches told McHugh to change his arsenal by throwing that terrific curve more and replacing the sinker with a high fastball.

The result? His ERA nosedived to 2.73 in his first season with the Astros.

By the way, given the technology described here, and the tech I see deployed on the typical baseball TV broadcast, why do we still have human beings calling balls and strikes?

So Ellen Pao is About to Discover the Roger Goodell Problem

Roger Goodell is the President of the NFL, and despite huge love for the NFL itself, Goodell is hated by many, even most, fans.  At the NFL draft, which attacts arguably the biggest fans of the NFL, Goodell gets booed every time he walks on stage.  One reason for this is the decision Goodell made a number of years ago to "police" player behavior.  Tired of bad headlines about this or that player being involved in some sort of (alleged) criminal activity, Goodell decided to crack down.  No longer was it enough that the criminal justice system had a process for punishing people who break the law, Goodell wanted the NFL to be seen to be layering on extra punishment.

I said from the very beginning that this policy was fraught with problems.  If the NFL wanted a conduct policy, it should establish simple mechanical rules tied to outcomes in the justice system.  For example, a rule that says that if convicted of a misdemeanor a player would get a standard X game suspension.   Goodell's role should be limited to correcting the inevitable unfair situation where mechanical rules lead to poor outcomes.

But no, Goodell, like many smart people, fell into the trap of thinking he was smart enough to mete out punishments himself.  This has led to a real mess.  The public compares each punishment (and non-punishment) to all other such decisions and immediately get upset about perceived inconsistencies.  Worse, having established the precedent of policing conduct, he is being pushed by various vocal constituencies to police even non-crimes, like  unwelcome speech.  On average day in sports talk radio, you are as likely to hear a discussion of Goodell's conduct rulings as you are about anything on the field.

In taking over Reddit, Ellen Pao is heading into the same technocratic trap.  She has begun to ban certain forums and types of speech on the platform, but she has not established any consistent public rules for doing so other than her own judgement.  She appears to be deleting things that offend her personally (and early mass deletions of content critical of herself personally seems a really bad way to start).  And as with Goodell, two bad things are already happening (even beyond the more fundamental Reddit user issue that she is violating a core ethic of Reddit by censoring).  First, she is being called out for lack of consistency with folks saying "how can you ban X and not Y."  And second, she is apparently already getting pushed by various constituencies to be more and more aggressive at censoring certain classes of speech.   Once she established herself as censor in chief, she became an immediate lobbying target for many, many groups, and that is going to just get worse.  Just look at how much of Goodell's time is now sucked up into personal conduct issues.

Kudos to Jeff Flake on Cuba

I missed this story originally but saw it pop up on our local news again.

Mr. Flake, who has spent a decade in a lonely battle against his party to push for easing restrictions on Cuba, is the chief Republican defender of the new Obama policy. White House officials are counting on him to make their case to his party’s rank and file, even as Republican leaders and Cuban-American lawmakers, like Senator Marco Rubio, Republican of Florida, threaten to keep the president from appointing an ambassador or funding an embassy in Havana.

At a Capitol Hill hearing presided over by Mr. Rubio on Tuesday, the two men sat next to each other, somewhat awkwardly, as Mr. Rubio grilled administration officials on a policy he has called a “concession to tyranny.” But even before the hearing, Mr. Flake had moved ahead: Last week he filed a bill to end the decades-old ban on American travel to the Communist island nation.

Good.  The Cuba embargo has been a big, obvious, sustained failure.  While we have embargoed them they have moved no closer to freedom, while scores of countries with which we actively engage have become more free, in large part due to the effect of engagement by their citizenry with the West.

Flake really is an engaging guy.  I watched him at a taping of the NPR game show "Wait, wait, don't tell me" and he charmed an audience of NPR Democrats.

Things I Didn't Know, Baseball Edition

If I read this right, there apparently already is a rule in baseball that the pitcher must throw every 12 seconds.  If true, that has to be the most ignored rule since the 55 MPH speed limit.

According to this site the rule reads

When the bases are unoccupied, the pitcher shall deliver the ball to the batter within 12 seconds after he receives the ball. Each time the pitcher delays the game by violating this rule, the umpire shall call “Ball.”

 

What, No Bailout?

I wish we saw this attitude more often, particularly among large corporations (from an article discussing aftermarket ticket prices for the Super Bowl).

"This is really something we never anticipated," said Will Flaherty, director of growth at SeatGeek. "The cheapest seat on SeatGeek right now is $8,000, but no site seems to have any inventory." Flaherty believes speculative buying is behind the spike. Ticket brokers frequently sell "air" to their customers, taking orders before they have tickets in hand. "We've noticed significantly more speculative selling activity than in recent years," Flaherty said. "Over the last few days, those sellers have been scrambling to buy up tickets to fill their orders, resulting in the Super Bowl ticket version of a short squeeze. Brokers with tickets in hand have been taking advantage of their leverage, raising prices dramatically and arbitrarily withholding some of their inventory."

Ety Rybak, co-founder of the high-end brokerage Inside Sports & Entertainment Group, has spent more than anticipated this time around to fulfill orders before the game. "I can tell you some ugly horror stories about what I have had to pay. But that’s part of the business," he said. "If I sold you tickets for $2,500, and I have to pay $7,500 to do it, unfortunately that’s the world that I chose to live in." The flip side to the high costs is a brisk business in late orders.

Maybe the US sugar cartel, among many other groups, could discover this approach to individual responsibility.

My Obama Inauguration Column, Six Years Ago Today

It is hard to remember, or even believe today, the absolute hysteria that accompanied Obama's nomination.  Even folks who should have known better were sucked in.  I seemed to be the only surly one that day who found the adulation, the near Imperial coronation, sickening.  Here is an excerpt.  I stand by it six years later:

Folks are excited about Obama because, in essence, they don't know what he stands for, and thus can read into him anything they want.  Not since the breathless coverage of Geraldo Rivera opening Al Capone's vault has there been so much attention to something where we had no idea of what was inside.  My bet is that the result with Obama will be the same as with the vault.

There is some sort of weird mass self-hypnosis going on, made even odder by the fact that a lot of people seem to know they are hypnotized, at least at some level.  I keep getting shushed as I make fun of friends' cult behavior watching the proceedings today, as if by jiggling someone's elbow too hard I might break the spell.  Never have I seen, in my lifetime, so much emotion invested in a politician we know nothing about.   I guess I am just missing some gene that makes the rest of humanity receptive to this kind of stuff, but just for a minute snap your fingers in front of your face and say "do I really expect a fundamentally different approach from a politician who won his spurs in .... Chicago?  Do I really think the ultimate political outsider is going to be the guy who bested everyone at their own game in the Chicago political machine?"

Well, the spell will probably take a while to break in the press, if it ever does -- Time Magazine is currently considering whether it would be possible to put Obama on the cover of all 52 issues this year -- but thoughtful people already on day 1 should have evidence that things are the same as they ever were, just with better PR.   For God sakes, as his first expenditure of political capital, Obama is pushing for a trillion dollar government spending bill that is basically one big pork-fest that might make even Ted Stevens blush, a hodge-podge of every wish-list of leftish lobbyists that has been building up for eight years.  I will be suitably thrilled if the Obama administration renounces some of the creeping executive power grabs of the last 16 years, but he has been oddly silent about this.  It seems that creeping executive power is a lot more worrisome when someone else is in power.

It has been suggested by some that today is less a cultish corronation but a big victory party in the battle against racism.  Well, I am certainly willing to accept it on those terms.  I have been arguing for years that it is time to declare victory on the worst aspects of race and gender discrimination, and move on to problems of interest to all races (like individual freedom or giving kids options to escape crappy public schools).   Unfortunately, I fear that too many folks in power are dependent on the race/gender/class wars continuing, so you and I may think we are declaring victory, but those with power over our lives have not.

$400 Million Dollars in Public Money for a Building Used 30 Hours a Year

I love to watch the NFL but that organization and its team owners are some of the worst cronies in the country.  A huge portion of their teams' increase in net worth over the last 30 years has come from public funding of its stadiums.  These NFL stadiums are used by their teams for 8 regular season games and at most 2 pre-season games a year, or for a total of about 30 hours a year.  Taxpayers are being forced to buy buildings with a 0.3% occupancy.

St. Louis is the next to propose a taxpayer fleecing, proposing to spend $400 million before they have even paid off the enclosed stadium they built 20 years ago.  What a farce.

Years and years ago I described this as an awful sort of prisoner's dilemma game.  If governments colluded in a promise not to subsidize teams, we would still have NFL teams in roughly the same cities but without the billions of dollars in taxpayer money having been passed on to 32 billionaires.

Poof. There Goes My Free Time

The new installment in the Civilization computer game series is out.  This review dings it a bit for being too like the last installment (Civ 5), but I am sure I will like it because I still evidence addictive behavior whenever I go back to Civ 5.  Just one more turn....  After how badly the Sim City franchise has been trashed in recent installments, I will take a Civ game that is safely similar to the old Civ games.  Though my life, the Civilization game series is probably second only to having children in terms of sucking up my free time.

Fake but Accurate: How I Know Nobody Believes that 1 in 5 Women Are Raped on Campus

How do I know that average people do not believe the one in five women raped on campus meme?  Because parents still are sending their daughters to college, that's why.  In increasing numbers that threaten to overwhelm males on campus.   What is more, I sat recently through new parent orientations at a famous college and parents asked zillions of stupid, trivial questions and not one of them inquired into the safety of their daughters on campus or the protections afforded them.  Everyone knows that some women are raped and badly taken advantage of on campus, but everyone also knows the one in five number is overblown BS.

Imagine that there is a country with a one in 20 chance of an American woman visiting getting raped.  How many parents would yank their daughters from any school trip headed for that country -- a lot of them, I would imagine.  If there were a one in five chance?  No one would allow their little girls to go.  I promise.   I am a dad, I know.

Even if the average person can't articulate their source of skepticism, most people understand in their gut that we live in a post-modern world when it comes to media "data".  Political discourse, and much of the media, is ruled by the "fake but accurate" fact.  That is, the number everyone knows has no valid source or basis in fact or that everyone knows fails every smell test, but they use anyway because it is in a good cause.  They will say, "well one in five is probably high but it's an important issue anyway".

The first time I ever encountered this effect was on an NPR radio show years ago.  The hosts were discussing a well-accepted media statistic at the time that there were a million homeless people (these homeless people only seem to exist, at least in the media, during Republican presidencies so I suppose this dates all the way back to the Reagan or Bush years).  Someone actually tracked down this million person stat and traced it back to a leading homeless advocate, who admitted he just made it up for an interview, and was kind of amazed everyone just accepted it.  But the interesting part was a discussion with several people in the media who still used the statistic even after they knew it to be outsourced BS, made up out of thin air.  Their logic:  homelessness was a critical issue and the stat may be wrong, but it was OK to essentially lie (they did not use the word "lie") about the facts in a good cause.  The statistic was fake, but accurately reflected a real problem.  Later, the actual phrase "fake but accurate" would be coined in association with the George W. Bush faked air force national guard papers.  Opponents of Bush argued after the forgery became clear to everyone but Dan Rather that the letters may have been fake but they accurately reflected character flaws in the President.

And for those on the Left who want to get bent out of shape that this is just aimed at them, militarists love these post-modern non-facts to stir up fear in the war on terror, the war on crime, the war on drugs, and the war on just about everyone in the middle east.

PS-  Neil deGrasse Tyson has been criticized of late for the same failing, the use of fake quotes that supposedly accurately reflect the mind of the quoted person.  It is one thing for politicians to play this game.  It is worse for scientists.  It is the absolute worst for a scientist to play this anti-science game in the name of defending science.  

 

Healthcare Deductibles Rising -- Why This is GOOD News

Things like Obamacare cannot be discussed, it seems, in anything but a political context.  So if you don't like Obamacare, everything that happens has to be bad. But I actually think this is good news, and goes against my fears in advance of Obamacare.  I had been worried that Obamacare would just increase the trends of more and more health care spending being by third-party payers.  And my guess is that this is happening, when you consider how many people have gone from paying cash to having a policy, either a regular policy or expanded Medicaid.

A report out today puts numbers behind what hit many workers when they signed up for health insurance during open enrollment last year: deductible shock.

Premiums for employer-paid insurance are up 3% this year, but deductibles are up nearly 50% since 2009, the report by the Kaiser Family Foundation shows.

The average deductible this year is $1,217, up from $826 five years ago, Nearly 20% of workers overall have to pay at least $2,000 before their insurance kicks in, while workers at firms with 199 or fewer employees are feeling the pain of out-of-pocket costs even more: A third of these employees at small companies pay at least $2,000 deductibles.

“Skin-in-the-game insurance” is becoming the norm,says Kaiser Family Foundation CEO Drew Altman, referring to the higher percentage of health care costs employees have to share.

Honestly, this is good news, sort of.  I don't like the coercion and lack of choice, but the main problem with health care is that the person receiving the benefits is not the person paying the bills, which means there is no incentive to shop or make care tradeoffs.  Higher deductibles mean more people are going to be actively shopping and caring what health services cost, and that is a good thing for prices and health care inflation.

So In The End, The VA Was Rewarded, Not Punished

Remember the whole VA thing?  It has mostly been forgotten, though we will all remember it again, or more accurately get to experience it ourselves, once the Democrats manage to get single payer passed.

People talk about government employees being motivated by "public service" but in fact very few government agencies have any tangible performance metrics linked to public service, and when they do (as in the case of the VA wait times) they just game them.   At the end of the day, nothing enforces fidelity to the public good like competition and consumer choice, two things no government agency allows.

I will admit that government employees in agencies may have some interest in public welfare, but in the hierarchy of needs, the following three things dominate above any concerns for the public:

  • Keeping the agency in existence
  • Maintaining employment levels, and if that is achieved, increasing employment levels
  • Getting more budget

But look at the VA response in this context:

  • The agency remains in existence and most proposals to privatize certain parts were beaten back
  • No one was fired and employment levels remain the same
  • The agency was rewarded with a big bump in its budget

The VA won!  Whereas a private company with that kind of negative publicity about how customers were treated would have as a minimum seen a huge revenue and market share loss, and might have faced bankruptcy, the VA was given more money.

Murry Rothbard via Bryan Caplan:

On the free market, in short, the consumer is king, and any business firm that wants to make profits and avoid losses tries its best to serve the consumer as efficiently and at as low a cost as possible. In a government operation, in contrast, everything changes. Inherent in all government operation is a grave and fatal split between service and payment, between the providing of a service and the payment for receiving it. The government bureau does not get its income as does the private firm, from serving the consumer well or from consumer purchases of its products exceeding its costs of operation. No, the government bureau acquires its income from mulcting the long-suffering taxpayer. Its operations therefore become inefficient, and costs zoom, since government bureaus need not worry about losses or bankruptcy; they can make up their losses by additional extractions from the public till. Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a mere annoyance to the government someone who is "wasting" the government's scarce resources. In government operations, the consumer is treated like an unwelcome intruder, an interference in the quiet enjoyment by the bureaucrat of his steady income.