Posts tagged ‘game’

The Irony and Internal Contradiction of Passive Investment Management

My relatively snarky post on hedge fund fees and passive management got a lot of response, including a few of challenging emails from friends and acquaintances.  So I wanted to cover a few followups here.

One of the interesting features of passive investment management is that it doesn't work if everyone does it.  I vaguely remember there is some name for this in the game theory world but I can't for the life of me remember.  Anyway, passive investment is based on the theory that the market for financial products is relatively transparent and efficient.  While one stock will certainly perform better than another, it is almost impossible (or at least really expensive) in a mostly-efficient market for a regular investor, or even an average fund manager, to parse this out.  As a  result, high fees or expenses one might incur to find these opportunities generally don't pay for themselves, and it is better to just invest in a broad basket of securities and accept the average market return.

But note that this is predicated on the assumption that someone, somewhere is actively managing.  Someone must be looking for good stocks and bad stocks and buying the former and selling the latter.  Without these folks actively managing, it would not be an efficient market.  [I am reminded at this point of the old joke about a man walking down the street with an economist.  The economist steps right over a $100 bill on the sidewalk without stopping.  The man asks the economist, "why didn't you stop and pick up that money?" and the economist answers, "in an efficient market it can't really be there."]

I remember a while back reading economic research about shopping.  What percentage of customers have to be active price-shoppers to make a market efficient?  I personally don't price shop for the small stuff.  If I need a bunch of cheap bulk stuff, I just run to Wal-Mart or Costco and buy it with confidence I am getting a pretty good price.  But why can I do that?  Because I trust these large corporations to honor their promise for low prices?  Hah!  No way.  What I trust is that there are people who clip coupons and price every dang item to the penny, and it is these folks who keep Costco and Walmart honest.  Government interventionists like to talk about the free rider problem all the time, but most all of us are free riders on these hard core shoppers.

The same is true with us passive investors.   I like to get snarky about the fees certain active investors charge, but I am still dependent on their work.  And I don't particularly doubt that there are hedge funds and private equity firms that make consistently above market returns, but I do think they are a minority.  I would equate it to max-contract players in the NBA.  No one doubts Lebron James merits a max contract -- any of the teams in the NBA would sign that deal in five seconds.  But a max deal for, say, Chandler Parsons?  Joakim Noah?  The problem with hedge funds is that the few of these folks who merit the two and twenty max contract have very likely been closed to new investors for years, in the same way it is impossible to get LeBron James to play for Memphis.  It is frustrating for me to see public and private institutions chasing yield and continuing to pay 2 and 20 to folks with an unproven algorithm and a marketing plan.  If I am going to pay 2 and 20, its more likely to be to someone in private equity or an LBO fund who is doing more than stock picking.  That's because I do think that stocks are generally well-valued on the market based on their current management, investment plans, culture, etc.  But they may contain opportunities for smart people who can come in and, for example, apply different management and culture and strategy to the people and assets.  A box that is half Kale and half candy corns might not sell for a good price because no one wants the combination, so value can be created splitting it up.

A couple of other thoughts that came up in discussions since yesterday:

  • I am willing to believe that passive investing looks so good vis a vis active investing because central banks have inflated assets and compressed volatility.  If all the boats are rising with the tide of state actions that are raising the tide, then one is less likely to be fussy about which boat he is on.  What's the point of value investing when the market treats stocks as commodities?  But I can certainly see that in markets like the late 70's or pre-market-boom early 80's that stock pickers might have had more room to differentiate themselves.
  • I am also willing to concede that passive investing may turn out to be a terrible trend for corporate governance.  If all your shareholders are just holding your stock as part of a basket of 500 stocks, who is going to hold you accountable?  It is very awkward for a Vanguard agitate for changes in a company, even when they might be the largest single shareholder.  Also, ironically, passive investing may be opening the door for single lone wolf activist investors to impose their will on companies, sometimes to the other shareholders' detriment.  If one person with 5% cares a lot and the other 95% are passive, that one person might be able to raise a lot of hell.

As a final note, I am a screaming hypocrite on the whole passive investing thing, since with most of my net worth I am the ultimate in active investors.  I have most of my savings in one company, the one I run.

Movie Game: Spot the Rifle

My kids and I drive my wife crazy when we are watching a movie at home.  We have all kinds of conversations going, conversations we would never even consider in a theater (another reason, beyond screen size and sound systems, why I consider the home movie watching experience distinct and not entirely competitive with the theater experience).   No movie can be watched without a dozen IMDB lookups of what else so and so actor was in.

One game we play is spot the rifle.  This probably does not mean what you think it means.  It refers to Checkov's rule (the writer, not the astrogator) never to put a rifle on stage in Act 1 if someone is not going to use it in Act 3.  Our game assumes that movies are following this rule, so we look for elements sometimes awkwardly thrown into Act 1 so they can be used later.  Note this is distinct from a macguffin, and is really not the same as foreshadowing either.  The "save the clock tower" fund raiser early in Back to the Future is an example.  Calling your shot in this game, like on Jeopardy, requires the answer to be in a specific form, ie "Never put a lightening strike on a clock tower on stage in Act 1 if you are not going to use it in Act 3".  It goes without saying that winning answers must be shouted out in Act 1, not Act 3.

My daughter, who is quite an aficionado of romantic comedies, texted me an updated corollary:  Don't put a pregnant woman on stage in act 1 of a comedy unless she is going to go into labor at the most inconvenient moment in act 3.

Postscript:  The "Q" armorer dynamic in James Bond is a version of this on steroids.  The rules of Q were:  1.  Every tool he gives Bond gets used and 2.  No matter how odd or arcane the tool (e.g. high powered electromagnet built into a condom) it turns out to be exactly the niche tool Bond needs to escape at some point.   For example, one and only one time is Bond issued with a CPR device but that one time he needs it to save his life (Daniel Craig version of Casino Royale).

My New Rules

Well, I guess it should be obvious that I have not totally given up blogging.  I thank everyone for the nice emails and the nice comments.

However, I am going to try some new rules for the next month, less on my blogging and more on how I engage with the news.

  1. No more Twitter.  For those of you who use Twitter as a news aggregator, my posts will still appear on twitter and from time to time I will post things there that fit on twitter better than in a full blog post.  But I am not going to read my feed, and I am really not going to engage with things in my feed.  Everyone is trying to piss me off, and worse, a few times they have been successful and I have posted juvenile retorts that I later regretted.  I am going to keep a Civ 6 game on my computer and every time I am even tempted to open twitter I will play a couple of turns of Civ 6, worrying instead how to keep Gandhi from nuking me again.  Ironically, I just today ticked over 1000 followers on Twitter, so thanks very much for the support, but if you tweet at me over the next month I won't see it.
  2. Paring down my RSS feed.  I have read partisan political blogs on both sides of the aisle for years.  In fact it has been a point of pride that I read from both sides.  But these folks are all crazy, all the more so because they waste so many electrons arguing their side is sane and the other is crazy.  Everyone on these blogs is trying to just make me angry or afraid.  I am not going to play.  I can get angry and afraid all by myself.  All the political blogs are going out the window for the next month.  The more polemical climate blogs are going out.  Anyone who uses the words "Comey" or "Russia" or "Impeach" or "Benghazi"  in two out of three posts is gone.  Unfortunately, this means, at least for this month, that I cast off Instapundit as well, which is hard for me because Professor Reynolds really gave me my first traffic and helped promote my book.
  3. I have been reading the same stuff for years.  Over time I need to find some like-minded folks interested in discussing policy while still capable of assuming that folks who disagree with them may actually be people of good will.  But I don't want to spend my time in full wonk mode either.  I will call Megan McArdle my benchmark of what I am looking for, and I am accepting recommendations for folks Left and Right of her to read.  Kevin Drum for example on the Left was pretty good on this dimension when his guys were in office but he is much more in team politics mode now (Mother Jones banning me didn't help, particularly since they banned me for referring to the "NRA" in a comment -- particularly funny since I was referring to FDR's National Industrial Recovery Act and not to the much-hated-by-progressives National Rifle Association).

My wife never reads my blog and probably is not too in touch with my existential blogging angst of late, but out of the blue the other day she suggested it would be fun to set up a salon where we could bring together folks across the political spectrum to have discussions of issues of the day.  I thought this was a great idea and have been thinking about how to pull this off.  Unlike what seems to be fashionable today, we actually have friends across the political spectrum -- something that has been easy considering one of our families consists of Massachusetts Progressives (from Antioch, no less!) one is of Texas Conservatives (with oil company executives, no less!).  Our families always got along great but I worry that a few of my friends my be at each others' throats if we have them talking politics in the same room.  So we have to figure out how to discuss policy, not politics.

Thinking About Checking Out of Blogging

I am not sure I am able to continue blogging in the current environment.  When I began blogging over 12 years ago, it was to report on my various adventures in trying to run a small business.  It soon morphed into a platform for me to think out loud about various policy issues.  For example, while I didn't really understand this when I started, it became a platform for me to think through mistakes I made in my initial enthusiasm for the Iraq War.  You can see me in the early years evolve from a kind of knee-jerk global warming absolute denier to a lukewarmer with much more understanding of the underlying science.  I think of myself as an intellectual (though one who cannot spell or proof-read) who likes to discuss policy.

But I am not sure this is the time for that.  The world seems to be moving away from intellectualism.  I say this not because Trump voters were somehow rejecting intellectualism, but because intellectuals themselves seem to be rejecting it.  They act like children, they are turning universities into totalitarian monoculters, and they compete with each other to craft mindless 140-character "gotchas" on Twitter.  I challenge you to even find a forum today for intellectual exchange between people who disagree with one another.  In politics, Trump clearly rejects intellectualism but for whatever reasons, the Democratic opposition has as well.

We have a tribal war going on in this country that has officially gone beyond any real policy issues.  While the US and the Soviet Union had real differences in philosophy and approach, most of their confrontations were in proxy wars which bore little resemblance to these values.  That is what politics are now -- a series of proxy wars.  We spend several days focusing attention on Jeff Sessions, but spend pretty much zero time talking about real issues like approaches to the drug war, and police accountability, and sentencing reform.  Instead all we can focus on is the political proxy war of this stupid Russia hacking story.   Obama's birth certificate and Hillary's servers and Russian hacking and Trump's real estate sales -- all we fight are proxy wars.

And like most tribal warfare, the two tribes are incredibly similar.  I have called them the Coke and Pepsi party for years.  Go talk to the the rank and file and sure, one group may like Nascar and barbecue while the other likes Phish concerts and kale, but you will see them asking for the same sorts of things out of government.   Take the minimum wage, a traditional blue tribe issue.  In Arizona, a heavily red state (we have a super-majority in the legislature of the red team), a $10 minimum wage referendum passed by nearly 60% of the vote last year.  The members of the two tribes absolutely hate each other, but they support the same laws.  I guess I should be happy they don't get together, since as a libertarian I think many of these things they want are bad ideas.

People tell me I need to just deal with the adversity.  But I don't mind opposition per se.  I love when I get a chance to respond to real criticism.  Hell, I wrote 5000 words or so here in response to such criticism.  It's fun.  But more likely nowadays I will write a couple thousand words on school choice and the response will be, in total, "Your a Trump cuckservative."  Several years ago I wrote a long article on rail in response to a Joel Epstein piece.  Epstein had argued the US rail rail system was inferior to those in Europe and Asia because we don't have enough passenger rail.  I argued with a series of charts and analysis that the US rail system was superior because it focused on freight over passengers, and that shifting freight to rail had far more environmental benefits than shifting passengers to rail.  Epstein's entire response to my article was, "You should get out of the country more often."  This is the classic intellectual argument of our day.  It was smug.  It implied my article was based on being part of the wrong tribe, the narrow-minded denizens of flyover country rather than the coastal set that have been to Gstaad but not Tulsa.  At it did not even bother addressing the issues raised.

Or look at Black Lives Matter.  BLM actually had what looked to me to be the outlines of a pretty good plan.  To really achieve their goals, though, was going to take a lot of work jurisdiction by jurisdiction, establishing some model legislation and best practices and bringing it to various municipalities.  It didn't even try.  It abandoned this plan in favor of just disrupting sh*t and shaming the unwoke for saying that "all lives matter."  Today, invocations of BLM consist pretty much 100% of virtue signalling for one's own tribe or shaming of the other tribe.  Its the equivalent of dueling fans at a game yelling "Yankees suck!" "No, Red Sox suck!"

People also tell me to just deal with it, that if I love the policy stuff I should ignore these problems.  But let me give you an analogy.  Let's say you absolutely love English Premier League football, but every time you try to go to a game, you miss most of what happens on the field because hooligans are fighting around you in the stands.  Do you keep going for your love of football or at some point is the mess that surrounds it just too much?

Anyway, I am highly tempted just to say "screw it" for a while and focus on something else entirely.  I am trying a different approach as a change of pace, trying to write a more formal policy piece for a think tank, but I am having a surprising amount of trouble doing it well.  Writing such pieces was not really my forte at McKinsey when I was a consultant and I am not sure it is now.  Not disciplined enough in my writing, I think.

Anyway, on a positive front, I now have a dedicated (though very small) room for my model railroad and I installed the first bit of benchwork.  This is sort of like laying the keel for a new ship.  Coyoteblog readers, I know, will be hanging on the edges of their seats for further updates.

From Parks and Recreation:

Jean-Ralphio: Why don’t you use that time to go after one of your passions? Like model trains, or toy Gandalfs or something.

Ben: I don’t know why you jumped straight to model trains. I mean, it’s accurate…

Creating the Government Monster Truck

A reader sends me this (I never can remember which folks say its OK to use names -- if you want me to credit you, please say its OK in your email).

"The politician creates a powerful, huge, heavy, and unstoppable Monster Truck of a government," P.J. O'Rourke writes in his new book, How the Hell Did This Happen? (Atlantic Monthly Press). "Then supporters of that politician become shocked and weepy when another politician, whom they detest, gets behind the wheel, turns the truck around, and runs them over."

Which sounds like what I have written for years, eg here

Technocratic idealists ALWAYS lose control of the game.  It may feel good at first when the trains start running on time, but the technocrats are soon swept away by the thugs, and the patina of idealism is swept away, and only fascism is left.  Interestingly, the technocrats always cry "our only mistake was letting those other guys take control".  No, the mistake was accepting the right to use force on another man.  Everything after that was inevitable.

Arizona and the Case For School Choice

From the Arizona Republic:

Five of the nation's top 10 high schools are in Arizona — and they're all branches of the same charter school.

According to U.S. News and World Report, Basis Scottsdale is the nation's top-performing high school, followed by Basis Tucson North and Basis Oro Valley. Basis Peoria and Basis Chandler were ranked fifth and seventh, respectively.

The rankings consider students who exceeded state standards, graduation rates and college preparedness, according to U.S. News.

Two additional Arizona charter schools, along with two "special function" public schools, made the top 100.

Arizona was one of the earliest adopters of charter schools in 1994, and it continues to be at the forefront of school choice. However, the state has some of the lowest school funding and teacher pay in the U.S.

I love that last line.  Makes one question if the obsession on teacher pay and funding for bloated school administrations really is the key to education improvement.  I wonder if when the Arizona Republic writes their inevitable next article on Arizona having lower teacher pay they will add a clause that says "However, the state has five of the nation's 10 top charter schools".

This is a fascinating article and I encourage you to read the whole thing.  The article gives plenty of space to opponents of school choice and charter schools:

[Arizona Education Association President Joe] Thomas said any public school district in Arizona could replicate the Basis model if they were also allowed to work only with a small number of high-achieving students and "force the rest out of your school."

This inference that Basis gets its results by carefully cherry-picking students is undermined by facts from the same article:

There are no entry requirements or exams to get into a Basis school — just a game of luck. An annual lottery determines which new students are accepted.

Already, Basis schools have received 15,000 applications for 1,000 open spots for next school year, Bezanson said.

To be fair, since Basis does not participate in the free school lunch program and the city school bus program won't deliver kids to Basis, there are kids that probably are not able to apply, but again, this is far from a case of cherry-picking.  It is a case of setting very high expectations and expecting kids to achieve that.  Thomas's comment on this reflects the different philosophy of teachers unions vs. school choice folks:

Thomas said Basis schools are great for the small minority of kids who can succeed in the high-pressure environment. But most students don't — and public schools have the expectation to teach all students.

This is partially true, the Basis approach is not right for all kids, but given they have 15 applications for every 1 open lottery spot, it is right for a lot apparently.  But the difference in philosophy is that public school advocates want to force the Basis kids that are able to achieve at a high level into dumbed-down, plodding schools, moving no faster than the lowest common denominator.  School choice advocates, on the other hand, also acknowledge this difference, but rather than enforcing a one-size-fits-all public solution, advocate for a thousand flowers to bloom with many different school solutions.

There are many other charter schools in town that do a great job with kids of different needs.  My wife and I support a Teach for America teacher at a charter school in South Phoenix.  The kids in her class are mostly all Hispanic, many have parents that do not speak English and a high percentage are on the school lunch program.  These kids may not be quite at the Basis level, but they out-achieve most of the Phoenix public school system and are well beyond what kids from similar demographics are doing in local government schools.

Losing the Prisoner's Dilemma Game: Economic "Development" Incentives are a Total Waste of Money

From today's WSJ:

The race to woo companies has intensified as state and local governments struggle with a slow economic recovery, sluggish new business formation and job losses resulting from automation. Many older industrial cities see tax incentives as one of the few levers they can pull.

The fight to attract and retain companies “is probably as competitive as it has ever been in the 30 years I have been doing this type of work,” said Lawrence Kramer, managing partner with Incentis Group, the consulting firm that helped Riddell with incentive negotiations.

Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990, according to an analysis of incentives covering more than 90% of the U.S. economy.

By 2015, the total annual cost of these incentives was $45 billion, according to the analysis, by Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. The study looked at 47 cities in 32 states plus the District of Columbia.

Total incentives are likely higher because the analysis didn’t include some used by cities, including Elyria, such as city income tax rebates for companies.

Seriously, how absolutely pointless is this:

When Elyria Mayor Holly Brinda learned that Riddell Inc. was looking to leave this small city in northeast Ohio, she came up with a $14 million package of tax incentives and offered to lease land to the company for $1 a year.

It wasn’t enough. Riddell, which makes the football helmets used by many NFL and college players, decided to move its roughly 320 employees just over 2 miles down the road to a neighboring town, which offered its own bundle of incentives and lower corporate and individual income-tax rates.

You can't even argue you are trying to save jobs for local people, because the same people are working, just with a 2 mile delta in their commute.

One of the very earliest posts on this blog, waaaay back in 2005, was to compare local economic development spending to a prisoner's dilemma game:

politicians who are approached by a company looking for a handout for business relocation face what is called the prisoner's dilemma.  Many of you may know what that is, but for those who don't, here is a quick explanation, via the Stanford Encyclopedia of Philosophy:

Tanya and Cinque have been arrested for robbing the Hibernia Savings Bank and placed in separate isolation cells. Both care much more about their personal freedom than about the welfare of their accomplice. A clever prosecutor makes the following offer to each. "You may choose to confess or remain silent. If you confess and your accomplice remains silent I will drop all charges against you and use your testimony to ensure that your accomplice does serious time. Likewise, if your accomplice confesses while you remain silent, they will go free while you do the time. If you both confess I get two convictions, but I'll see to it that you both get early parole.  If you both remain silent, I'll have to settle for token sentences on firearms possession charges. If you wish to confess, you must leave a note with the jailer before my return tomorrow morning."

The "dilemma" faced by the prisoners here is that, whatever the other does, each is better off confessing than remaining silent. But the outcome obtained when both confess is worse for each than the outcome they would have obtained had both remained silent.

I hope you can see the parallel to subsidizing business relocations (replace prisoner with "governor" and confess with "subsidize").  In a libertarian world where politicians all just say no to subsidizing businesses, then businesses would end up reasonably evenly distributed across the country (due to labor markets, distribution requirements, etc.) and taxpayers would not be paying any subsidies.  However, because politicians fear that their community will lose if they don't play the subsidy game like everyone else (the equivalent of staying silent while your partner is ratting you out in prison) what we end up with is still having businesses reasonably evenly distributed across the country, but with massive subsidies in place.

Of course, garnering positive press releases for politicians' re-election campaigns is part of the equation as well.  Actually, the game is worse than a prisoner's dilemma game because politicians playing it enjoy all the positive benefits while the price is paid by others (taxpayers).

It would be great to ban this stuff entirely.  But you know what, Arizona already did!  In its Constitution no less.  And we still can't stop this BS.  Our Constitution reads that neither the state nor any municipality in it may “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”  This seems pretty definitive, but as I wrote here

This has been interpreted by the courts as meaning that if a state or municipal government gives money to a private company, it must get something of value back - ie it pays money to GM and gets a work truck back.  But politicians will be politicians and have stretched this rule in the past out of all meaning, by saying that they are getting "soft" benefits back.  In other words, they could subsidize the rent of a bookstore because reading is important to the community.

The Goldwater Institute in AZ keeps filing suit and has been pretty successful in blocking some of the most egregious subsidies, but it takes constant vigilance, and at the end of the day, if politicians want to throw money at private companies in order to help their re-election chances, they are going to do it.

 

The Politicization of Everything -- Is Escapism Even Possible Any More?

Tired of politics?  Want to escape for a while?  Maybe talk sports, take in a movie, play a computer game, or go to a show.  Well good luck.

Over the last year, I have turned off ESPN Radio, which I used to listen to all the time, because I got bored with all the discussion of politics and social justice.  It wasn't even that I necessarily disagreed with the content, it is just that I was tuning in to listen to discussion about the merits of various NFL defenses and not some ex-jock's views on politics.  If I want politics and social justice, I have other sources for those (I actually think there are some fascinating race and gender issues in sports, I just don't need to hear about them in every damn show).  The same thing is happening in almost all entertainment fields.  Over the last month at least a third of Engadget.com's blog posts have been purely about politics with no technology hook at all.  If you go to a Broadway show, there is a chance you will get lectured on social justice by the actors.  And God forbid one tunes into a music or movie awards show and expects to, naively, see non-political content about music and movies.  You can't pay me enough to watch the Oscars any more.

Computer Gaming Update

Well, I have now spent scores of hours playing Factorio and have almost completely ignored, so far, the excellent new Civ 6.  I was about done with Factorio when I discovered Bob's Mods, a set of game mods that about triple the number of resources and chemical intermediaries and make the game one or two orders of magnitude even more complex.

This is going to have incredibly niche appeal, so be forewarned.  If you spent most of your time in SimCity or City: Skylines trying to optimize road flow rather than making a pretty city, or if you like Space Engineers, this may be your game.

Computer Gaming Updates

I have played through a half a game on Civ 6 and am thrilled.  Like original-cast Star Trek movies, every other episode is really good.  This one feels excellent.

I have a new geek obsession called Factorio.  Basically, you have to create an ever more complex production base with zillions of different intermediate products zipping this way and that on conveyors, all while fighting off aliens.

I played Stellaris for quite a while but got bogged down in the end game.  Tons of potential, maybe Stellaris 2 will crack the code.

Speaking of that, I did enjoy Endless Space, judging it good but not great (ie not totally addictive).  The pre-release version of Endless Space 2 has dropped and I am just starting to try it out.  Endless Legend was a really good alternate take on the Civ model and I am hoping that Endless Space 2 will do the same for space 4x.

"How Do I Explain This Election to My Kids" Is Much Easier for a Constitutionalist

Last night, Van Jones (among likely many others on the Progressive Left) lamented, "How am I going to explain the election [Trump's victory] to my kids?"

Well, as someone who has always respected the Constitution, I would tell my kids that the folks who wrote the Constitution spent a lot of time thinking about how to make the system robust against tyrants.  Their solution was a system of checks and balances that prevented a single person in the Presidency acting against the general wishes of the country.  The President is bound both by Congress and the judiciary, but also by law (particularly restrictions in the Bill of Rights).

The last couple of Presidents, with the aid of a sometimes supine Congress and judiciary, have pushed the boundaries of these limitations, expanding Presidential power, and in certain spheres attempted to rule by decree.  Folks like Van Jones were way up in the forefront of folks cheering on this power grab, at least under President Obama, as long as it was their guy grabbing for power.  What should Jones tell his kids?  Perhaps he could say that for well-intentioned reasons, he helped increase the power of the President, but in doing so forgot that folks he disagrees with would likely someday inherit that power.

As I wrote years and years ago:

  • Technocratic idealists ALWAYS lose control of the game.  It may feel good at first when the trains start running on time, but the technocrats are soon swept away by the thugs, and the patina of idealism is swept away, and only fascism is left.  Interestingly, the technocrats always cry "our only mistake was letting those other guys take control".  No, the mistake was accepting the right to use force on another man.  Everything after that was inevitable.

Sarah Baker has some nice thoughts along these lines at the Liberty Papers, but I will leave you with her first one:

This is how libertarians feel after every election. We learn to live with it. So will you.

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.