OK, So Why Won't Government Employees Admit Even the Smallest Error?

I got some attention with a post the other day about an example of something I see constantly -- government employees unwilling to admit even the smallest error.

One reason is that even as someone who runs a company that partners with government agencies frequently, I am still an outsider and a member of the general public.  And government agencies train everyone in their organizations never to give any information to the public that is not fully vetted and controlled.  Government agencies have had their training budgets slashed, but the one training everyone still gets (along with diversity training) is training on how to reveal (or really, not reveal) information to the public.

But I think there is a more important reason for this behavior, and it is one I want to spend a bit of time on in part because it is one of my favorite business topics: incentives.   There is nothing in an organization that is harder to get right than incentives.  And this is doubly true of government agencies because most government agencies don't have, or don't choose to measure, any output variables.

What do I mean by output variables?  Organizations tend to measure both what I call input and output variables.   Let's consider a sales person.  An output variable is a business result, e.g. number of units sold, number of new customers added, revenue of products or services sold, gross margin of products sold, satisfaction rating from customers.  An input variable is a measure of how well process steps leading to that sale were completed, e.g. percent conformance to pricing guidelines, number of sales calls made, number of quotes produced.  If well selected, input variables tend to lead to the output variables but they don't in themselves pay the rent.

Because I am most familiar with them, I am going to use government recreation agencies like a state parks organization as an example.  I have yet to find a government recreation agency that measures its employees primarily on output variables, e.g. customer satisfaction of park visitors, fee revenue collected at park, net income of the park, change in deferred maintenance accounts, etc.  Instead their metrics are -- at best -- based on conformance to process, e.g. was the budget completed on time, was the planning process done right, was all necessary reporting done on time, etc.  I say "at best" because most government agencies have no formal performance metrics at all.  And this is where I get to my favorite incentives / metrics topic of all -- informal performance metrics.

An organization never has no performance metrics at all. They may have no formal, written standards, but every organization has to evaluate and promote talent.  If there are no formal standards, there have to be some informal or unwritten standards that are applied.  And I would argue from my experience that even when formal standards do exist, there may still be informal standards that are more important.

One informal incentive that exists naturally in almost every organization is "don't get caught in a mistake."  On its face this is one of those incentives that seem good -- sure, I would love to have an organization where no one makes mistakes.   But many companies have found that in competitive markets, allowing this informal incentive to become powerful can spell a company's doom.  It has at least two negative effects:  it limits honest communications, because people start hiding their mistakes which in turn keeps information from the rest of the organization that may need it; and it limits risk-taking, which is necessary for most companies to survive in competitive markets, because almost everything a company does to improve contains risks.  Powerful formal performance systems are one way to limit counterproductive informal incentives like this.  But many companies also put a lot of work into their communications and culture to help employees be more open to taking risks and making mistakes.   A vast portion of my communication with my own managers and employees are on this topic.  We try to make very clear the subset of mistakes that are career fatal and where we DO want risk aversion (e.g. racism, harassment, abuse, etc) and treat everything else as a learning exercise.  My response to one of my manager's mistakes is very likely to be, "sorry, that was my fault, I did a bad job of training you (or preparing you, or whatever) for that issue."

Recognize though that all of these corporate steps to head off problems with the informal incentive "don't get caught making a mistake" have largely been lessons of the marketplace.  Time warp back to the 1950's when American companies were fat and happy and not yet really faced with scrappy global competition, and you might well have found highly risk-adverse cultures where people were afraid of being caught in a mistake.  I do not have experience at companies like GM, but I would not be surprised at all to learn that risk aversion dominated the culture and that faced with market extinction, it has spent much of the time since the 1970's trying to purge this risk aversion from its culture.

But in large part, a government organization doesn't face these market corrective forces.  If an agency becomes weak and senescent, it does not get competed into oblivion, it simply goes on and on.  Maybe it gets more tax money to make up for its inefficiency, or maybe it cuts somewhere (such as deferred maintenance in public parks) to make ends meet.   Which means that in most government agencies I have worked with, informal incentives -- particularly "don't get caught in a mistake" -- are extremely powerful.

Most people are familiar with the fact that the default government answer to anything new is "No".  But did you ever wonder why?  I have heard a lot of folks say that it is because government employees are jerks or lazy under-performers or have evil intentions.  But that is really not the case.  With just a couple of small exceptions**, people who enter government are no different than people who enter private organizations.  If they do things that seem bad, it is not because they are bad people but because their information and incentives cause them to do things we perceive as bad.  Take the case of saying "No".  Without any output metrics, most government employees have no incentive to say "yes".  There is no incentive to, say, generate 20% more visitor revenue in parks so there is no incentive to approve new visitor facilities or services that might generate that revenue.  And there is every reason so say "no".  "No" is almost always safe, particularly if one does not actually say "No" but instead say something like, "well, that is an interesting idea but we need to do X, Y, and Z intensive 20-year studies first."  There is virtually no way for any government employee to get caught in a mistake saying that.  So that is the answer most of us get from the government.

Coming back to the original question, I hope this helps explain why agency employees who don't admit error act the way they do -- they are not bad people, they are normal people reacting to a bad incentive.   Imagine in my business if I, say, reversed two numbers on one of the 25 state and local sales tax returns we file each month.  When pointed out to me, I have no problem admitting the mistake because I know it is easily correctable and that it has little to do with my true performance.  But in the government world, things are completely different.  They don't have output variables.  Executives can have full successful careers running parks where the infrastructure is allowed to fall apart, the headquarters become bloated, and visitation stagnates.  But they can be fired for getting something wrong in the process.  Not very often, but just enough pour encourager les autres, particularly in an environment where there are really no other formal metrics to override this fear.

 

**postscript:  I have found two ways that people who enter government are different from people who enter private business  (people are more different at the end of their careers after they have been shaped by the incentives and culture for a long period of time, but I am talking about upon entry into work).  First, people who enter government tend to prioritize security (e.g. good benefits, difficult to fire) over other aspects of employment.  Note that this just tends to reinforce the risk aversion to making or admitting a mistake even more.  Second, people who enter government tend to be more confident of government solutions to problems and more skeptical of private solutions than people who enter private business.  This latter is another reason why my company, that offers private solutions for traditional government functions, hears "no" a lot.

 

Am I The Only One Who Finds This Paul Krugman Tweet Weirdly Ironic?

Maybe one character could be an economist who entered the world of political punditry and subsequently walked away from many of his earlier economic beliefs when they conflicted with his party loyalty.

e.g. here, here

Postscript:  By the way, my first Venn diagram, which Mark Perry has credited as the inspiration for what he has since turned into an art form, involved Mr. Krugman:

Auto-Post to Twitter Has Been Broken. Deluge of Tweets of Old Posts in the Queue May Follow

For some reason, over the last 30 days auto-posting my blog to Twitter has not been working, so for those of you who follow the blog via Twitter, you may not have seen much going on. Hopefully that is fixed.

Why Monopsony Employer Power Is Virtually Irrelevant to the Impact of a Higher Minimum Wage on Employment

Most of us who took Econ 101 would expect that an increase in the minimum wage would increase unemployment, at least among low-skilled and younger workers most affected by the minimum wage.  After all, demand curves slope downwards so that an increase in price of labor should result in a decrease in demand for that labor.

There is a great body of work on employment effects of minimum wage, and surveying this corpus is beyond the scope of this paper, but a good starting point might be the recent detailed and careful study by Jardim et. al. of the University of Washington, which analyzed the employment effects of the increase in minimum wages in Seattle from $11 to $13.  They found that while average hourly wages for lower-paid workers went up by 3%, the total hours worked went down by 9%, resulting in a net reduction in total wages for lower-paid, lower-skill workers at the same time that other sectors of the Seattle economy were booming.

Monopsony Power & The Labor Market

Supporters of the minimum wage, however, argue that these employment effects are exaggerated, because employers have something called monopsony power when hiring low-skill workers.  What a monopoly is to customers – it limits choices – a monopsony does to suppliers, in this case the suppliers of labor.  The argument is that due to a bargaining power imbalance, employers can hire workers for less than they would be willing to pay in a truly competitive market, gaining the company added savings that increase its profits.  Under this theory, minimum wage laws help to offset this power imbalance and force companies to disgorge some of their excess profits in favor of higher wages.  If this assumption is true, then demand for labor would not be reduced due to a minimum wage increase because, prior to the wage increase, companies were paying less than they were willing to pay and thus are still willing to continue to pay the wages at the new higher rates.

While economists argue about this monopsony theory, my intuition as an employer makes me skeptical.  However, rather than argue about whether my little company that scrambles to staff itself every year somehow wields excess power in the labor markets, I am going to argue that the existence of monopsony power is irrelevant to the employment effects of a minimum wage increase: Even if companies are able to pay workers less than they might via such bargaining power imbalances, whatever gains they reap from workers will end up in consumer hands.  As a result, minimum wage increases still must result either in employment reductions or consumer price increases or more likely both.

Why? Well, we need to back up and do a bit of business theory.  Just as macroeconomics (all the way back to Adam Smith) spends a lot of time thinking about why some countries are rich and some are poor, business theory spends a lot of time trying to figure out why some firms are profitable and some are not.  One of the seminal works in this area was Michael Porter's Five Forces model, where he outlines five characteristics of markets and firms that tend to drive profitability.  We won't go into them all, but the most important of the forces for us (and likely for Porter) is the threat of new entrants -- how easy or hard is it for new firms to enter the marketplace and begin competing against an incumbent firm?  If new companies can enter into competition easily, a profitable firm will simply attract new competitors, and keep attracting them until the returns in that market are competed down to some minimum level.

Let’s consider a company paying minimum wage to most of its employees.  At least at current minimum wage levels, minimum wage employees will likely be in low-skill positions, ones that require little beyond a high school education.  Almost by definition, firms that depend on low-skill workers to deliver their product or service have difficulty establishing barriers to competition. One can’t be doing anything particularly tricky or hard to copy relying on workers with limited skills. As soon as one firm demonstrates there is money to be made using low-skill workers in a certain way, it is far too easy to copy that model.    As a result, most businesses that hire low-skill workers will have had their margins competed down to the lowest tolerable level.  Firms that rely mainly on low-skill workers almost all have single digit profit margins probably averaging around 5% of revenues (for comparison, last year Microsoft had a pre-tax net income margin of over 23%).

If there were some margin windfall to be obtained from labor market power that allowed a company to hire people for far less than their labor was worth to it, and thus earn well above this lowest tolerable margin,  new companies would try to enter the market, probably by lowering prices to consumers using some of that labor premium.  Eventually, even if the monopsony premium exists, it is given away to consumers in the form of lower prices.  If the wholesale price of gasoline suddenly falls sharply, gasoline retailers don't get to earn a much higher margin, at least not for very long.  Competition quickly causes the retailer's lowered costs to be passed on to consumers in the form of lower retail prices.  The same goes for any lowering of labor costs due to monopsony power  -- if such a windfall exists, it is quickly passed on to consumers.

As a result, the least likely response to increasing labor costs due to regulation is that such costs will be offset out of profits, because for most of these firms, profits have already been competed down to the minimum necessary to cover capital investment and the minimum returns to keep owners interested in the business. The much more likely responses will be:

  • Raising prices to cover the increased costs. While competitors that are subject to the same laws will likely have similar increases, the increase may not be acceptable to consumers and almost certainly will result in some loss in unit sales.
  • Reducing employment. There are a variety of ways in which a minimum wage increase could result in employment losses.  A company might raise its prices to compensate for higher costs, only to find its unit volumes falling, necessitating a layoff in staff.  Or the staff reductions may also be due to targeted technology investments, as increases in labor costs also increase the returns to investments in capital equipment that substitutes for labor
  • Exiting one or more businesses and laying everyone off. This may take the form of exiting a few selected low-margin lines of business, or liquidation of the entire company if the business is no longer viable with the higher labor costs.

A Real-World Minimum Wage Increase Example

A concrete example should help. Imagine a service business that relies mainly on minimum wage employees in which wages and other labor related costs (payroll taxes, workers compensation, etc.) constitute about 50% of the company’s revenues. Imagine another 45% of company revenues going towards covering fixed costs, leaving 5% of revenues as profit.  This is a very typical cost breakdown, and in fact is close to that of my own business.  The 5% profit margin is likely the minimum required to support capital spending and to keep the owners of the company interested in retaining their investment in this business.

Now, imagine that the required minimum wage rises from $10 to $15 (exactly the increase we are in the middle of in places like Seattle and California).  This will, all things equal, increase our example company's total wage bill by 50%. With the higher minimum wage, the company will be paying not 50% but 75% of its revenues to wages. Fixed costs will still be 45% of revenues, so now profits have shifted from 5% of revenues to a loss of 20% of revenues. This is why I tell folks the math of supposedly absorbing the wage increase in profits is often not even close.  Even if the company were to choose to become a non-profit charity outfit and work for no profit, barely a fifth of this minimum wage increase in this case could be absorbed.  Something else has to give -- it is simply math.

The absolute best case scenario for the business is that it can raise its prices 25% without any loss in volume. With this price increase, it will return to the same, minimum acceptable profit it was making before the regulation changed (profit in this case in absolute dollars -- the actual profit margin will be lowered to 4%). But note that this is a huge price increase.   It is likely that some customers will stop buying, or buy less, at the new higher prices. If we assume the company loses 1% of unit volume for every 2% price increase, we find that the company now will have to raise prices 36% to stay even given both the minimum wage increase and the lost volume. Under this scenario, the company would lose 18% of its unit sales and is assumed to reduce employee hours by the same amount.

In the short term, just for the company to survive, this minimum wage increase leads to a substantial price increase and a layoff of nearly 20% of the workers.   Of course, in real life there are other choices.  For example, rather than raise prices this much, companies may execute stealth price increases by laying off workers and reducing service levels for the same price (e.g. cleaning the bathroom less frequently in a restaurant).  In the long-term, a 50% increase in wage rates will suddenly make a lot of labor-saving capital investments more viable, and companies will likely substitute capital for labor, reducing employment even further but keeping prices more stable for consumers.

As you can see, in our example we don’t need to know anything about bargaining power and the fairness of wages. Simple math tells us that the typical low-margin service business that employs low-skill workers is going to have to respond with a combination of price increases and job reductions.

Hmm, I Think the Elephant in the Room on this Business Relocation is Being Ignored

Apparently some hot new auto company called Nikola Motors (in the class of companies to my mind like Tesla and Fiskar that have a sexy idea and a lot of cash burn) is relocating to the Phoenix area.  Ugh.  You know what that probably means:

Arizona Governor Doug Ducey and Nikola Motor Company today announced the company has selected Buckeye, Arizona for its Nikola Motor Company hydrogen-electric semi-truck manufacturing headquarters facility. The new 500 acre, one million square foot facility will be located on the west side of Phoenix and will bring more than $1 billion in capital investment to the region by 2024.

"After 12 months, nine states and 30 site locations, ArizonaGovernor DuceySandra Watson and Chris Camacho were the clear front runners. Arizona has the workforce to support our growth and a governor that was an entrepreneur himself. They understood what 2,000 jobs would mean to their cities and state," said Trevor Milton, CEO and founder, Nikola Motor Company. "We will begin transferring our R&D and headquarters to Arizona immediately and hope to have the transition completed by October 2018. We have already begun planning the construction for our new zero emission manufacturing facility in Buckeye, which we expect to have underway by the end of 2019."

Nikola Motor Company designs and manufactures hydrogen-electric vehicles, electric vehicle drivetrains, vehicle components, energy storage systems and hydrogen stations. The company is bringing the nation's most advanced semi-trucks to market with over 8,000 trucks on preorder.

Nikola Motor Company selected Buckeye, Arizona due to numerous factors including the state's pro-business environment, engineering schools, educated workforce and geographic location that provides direct access to major markets.

How much do you want to bet that the number 1 reason for moving to Phoenix was left off the list: taxpayer subsidies.  Yep, I have not seen the deal, but my guess is that yet another company is going to get a piece of my profits transferred over to them because they make a better photo op and press release for politicians.  I am pretty sure that the statement "[arizona] understood what 2,000 jobs would mean to their cities and state" is code for "they offered us a pile of cash".

Postscript: By the way, I do like their idea of a hydrogen truck better than Musk's all-electric truck -- that is, if they can figure out how to scale up a hydrogen distribution system.

One Unintended Consequence of the Transgender Movement for Women

I am not particularly in opposition to or enthusiastic about the current transgender movement.  On one hand, I have no problem with people managing their lives however they wish.  I met Dr. Renee Richards in 1982, for example (she was coaching a Princeton tennis player I knew) and liked her.  Deirdre Mccloskey is freaking brilliant, I wish I had met her.   On the other hand, as with most social movements on the Left nowadays, mere tolerance and live-and-let-live acceptance is not enough -- the movement demands complete conformity, and mercilessly shames anyone even the least bit slow to discard 5000 years of social norms around gender.  And the movement tends to descend into self-parody from time to time, such as demanding that tampons be provided to people who cannot possibly have a menstrual cycle.

Anyway, most of that is beside the point and is just background to an issue I was reminded of this weekend when I was visiting San Diego.  As many of you know, my company operates public parks and campgrounds for the government.  As such, we were largely subject to Obama-era orders that in Federally-owned bathrooms, people had to be allowed to use the bathroom that matched whichever gender they self-identified as (not necessarily the one matching their birth sex).  Unlike in past rules, there was no requirement that the person had taken any surgical or hormonal steps to transition -- only a self-declaration was required.

I will have to admit that the most entertaining part of this new requirement was explaining modern gender theory to my employees and managers, who tend on average to be over 65-years-old and without a college degree.  There were a lot of wide eyes and "wtf' expressions in the room.  Their main concern seemed to be potentially allowing male sexual predators into the women's room.  I explain to my employees that the extra risk here is trivial for a variety of reasons, but mainly because in practice this comes up vanishingly few times.  There just are not that many transgender people in the world, and campground bathrooms have never been targets for a lot of sexual predation.  Every single time I can remember our employees even being asked about our policy it turned out to be an activist testing us, probably to see if they could create grounds for a lawsuit.

From my experience, then, most public fears about transgender bathroom rules have turned out to be overblown. But, it turns out there is one issue that no one is talking about that could be a real, though not particularly serious, downside for women.  Let me explain.

The one major change in the public bathroom world as a result of the transgender movement is the accelerating shift from having multi-stall female and male bathrooms to having single-stall, gender-neutral bathrooms.  If bathrooms are all single-stall, then all the culture wars over gender and bathrooms are completely sidestepped.   Every public bathroom I have seen a government agency build over the last 5 years has been of this new design, and our company's policy is only to build this sort of facility rather than the old two-sided male/female bathrooms.  Here is an example from new construction at the children's pool in La Jolla:

OK, I am going to have to criticize one gender here but since I am going to criticize males, I will be OK.  Men's bathroom habits are terrible -- we tend to pee all over the place.  Even if the median guy is careful, the marginal guy is not and makes a total mess.  We had this problem when my kids were young -- my wife would ask me to take our toddler daughter to the men's room with me and I would tell her that was impossible, that the men's toilets were likely awful.   I can say from experience from cleaning over 1000 public bathrooms a day that men's rooms take way more cleaning than women's rooms.

So if one has these single stall bathrooms, they have to be cleaned a lot.  On busy days, our staff cleans ours 4,5,6 or even more times a day.  But there are many public agencies that apparently do not have the focus or resources to clean on this kind of frequency.  The City of San Diego, or whoever cleans these bathrooms in La Jolla, clearly does not clean enough, because these bathrooms were disgusting.  I did not really want to go in there and I could stand and do my business.  My wife would never have gone in there.

So there you have it women -- something else to look forward to.   That irritating long women's room line may become a thing of the past, but it could be replaced with much dirtier bathrooms.

 

So the IRS Threat Phishing Scam Seems to be Back

I have gotten three calls in three days with an automated voice message telling me that, in essence, the IRS is seriously pissed at me and I need to call a certain number in 24 hours to resolve it.

The message in some ways is reminiscent of the old Nigerian email scams in that the English sounds like a really bad translation of another language.  I wish I had a recording.  Some of it uses stilted English, as if it is trying to emulate bureaucratese.  But some of the message hilariously uses slang in ways that the IRS would never do in its official communication, most memorable of which was the admonishment that if I did not respond immediately, the IRS would "send the local cops to arrest me."  The IRS would never use the word "cops".  I can't remember an agency every using the word "police" even.  Government officials almost always use the term "law enforcement".

Suffice it to say, the IRS does not generally make calls like this.  If you think it might be legit, ignore whatever number that was left in the message and call the IRS customer support line on their web site.  This latter is always good advice for almost any collection or customer support call.  I get a number of calls and emails, for example, from credit card companies that say they suspect fraud and want to review some transactions.  I always ignore whatever number they leave me, or if they reach me with a live person tell them I will call back, and then I call the number printed on the back on the credit card.

Great Moments in Public Spending

Our two largest Arizona public colleges are spending over $18 million in public funds just to get rid of their football coaches.

I use the words "public funds" knowing exactly what I am saying.  The schools dispute this, saying:

...no tuition dollars nor public money will fund the buyouts. Both universities have self-sustaining athletic departments

But this is total cr*p.  Money is fungible.  They can pretend that this money comes from athletic program revenues, just as certain electricity customers pay extra to say that their undifferentiated kilowatts from the grid came from a particular solar plan or windmill, but its not true in either case.  Marginal spending is paid for in the end by the marginal source of funds, and the marginal source of funds for universities is tax money.  That is $18 million that could have been spent for about anything in these public education institutions but was prioritized towards trying to upgrade the football coach.

Is Sever Weather Really Getting Worse?

I Agree With the Assessment: This is Just So Banana Republic

Police hand out cards to friends, family, and political supporters that allow the holder to avoid legal consequences of various infractions.

This actually got me thinking about policing and race.  When I was growing up in the South, having white skin could confer similar privileges, though less reliably (I still managed to flirt with losing my license on a couple of occasions).  The tiny village where my high school was located (Houston at the time had a number of small villages inside its boundaries) actually hired one of the Houston Police officers who was fired for killing Joe Campos Torres as its police chief.   Today, I would hope things are much better than they were in the 1970's South but blacks today are still arrested for marijuana use way more often than whites despite similar usage patterns.

Government Agencies Have An Almost Pathological Need To Not Admit Error, No Matter How Trivial

When we operate public campgrounds, we are generally self-sufficient and can do most everything we need to do without any interaction from the government agency.  However, our contract or operating permits require that we submit and get approved an annual operating plan and a couple of other financial agreements.  Most of this is relatively pro forma because we start with the documents from the previous year and things just don't change that fast.

Last year, we had a number of areas where this did not happen.  The agencies we worked with were convulsed with staff shortages and organizational changes that meant that in many cases, there simply was nobody in the key positions that would do these tasks.

So this year, at least two of these locations have gotten staffed up and we have had good early contact with the key agency people.  However, in both cases, instead of saying something like "sorry about the poor response last year, but we had our staff transferred and then were caught short by the Trump hiring freeze which prevented us from filling these open positions for a long time", I get conversations like this:

Agency:  You did not get your operating plan completed last year.  You have a contractual requirement to get this done.  You need to do a better job this year.

Me:  Uh, I submitted the draft operating plan to your office on multiple occasions and never had a response.  Here are copies of at least 12 emails and letters with me begging for a response on our draft plan submission.

Agency:  So hopefully you can do a better job this year.

Update:  Here is my update as to why I think this happens.  Hint:  it is not because government people are bad, it is because they are normal people with bad incentives.

On the Short-Sightedness of Politicians

The Republicans are running around counting coup, crowing that the Democrats totally caved on the continuing resolution and talking about how much bigger their political cojones are than the Democrats', or something.

My question is -- given that this entire negotiation has to happen again in 3 weeks -- how does this make even a small bit of sense?  All they are doing is firing up the Democrats to fight harder the next time this happens which is ... in 3 freaking weeks.  This is like the Cleveland Browns publicly calling out Tom Brady for being overrated just before their next game.  Are politicians so desperate to win one 12-hour news cycle that they are willing to bollix up the playing field for the next battle?

Expert Consensus

Do you disagree with any of these propositions?

  • increases in minimum wages almost always causes job losses among the poor and unskilled
  • GMO's and genetically modified foods have zero proven negative effects on the body or the environment
  • homeopathy is completely useless and has zero medical benefits beyond any potential placebo effects

All of these are super-majority consensus statements in their respective fields.  It's fine if you are skeptical of any of them (and even better if you can justify this skepticism with a reasonably intelligent scientific argument).  But don't tell me that I am somehow inherently wrong to challenge the climate orthodoxy.

Classic Government Economics: Subsidize Demand, Restrict Supply.

Name the field:  Housing, education, health care.  In most any industry you can name, the sum of the government's interventions tend to subsidize demand and restrict supply.  In health care for example, programs like Medicaid, Obamacare, Medicare, and others subsidize demand while physician licensing, long drug approvals and prescription requirements, certificates of need, etc restrict supply.

If you are wondering why, it turns out that most government regulatory processes are captured by current incumbents, who work to get the government to subsidize customers to buy their product or service while simultaneously having the government block upstart competitors, either foreign or domestic.  For example in housing, existing homeowners form a powerful lobby that limits housing supply through restrictive zoning while demanding that the government subsidize mortgage interest (as well as low-cost mortgage programs) and give special tax treatment to capital gains from homes.   The result in every industry is supply shortages and rising prices.

Yesterday, we saw another classic example.  Federal, state and local governments have spent billions of dollars over the last decades subsidizing solar panel installations in homes and businesses.  But now, they are also simultaneously restricting the supply of solar panels:

President Donald Trump is once again burnishing his protectionist bona fides by slapping imported solar cells and washing machines with 30% tariffs - his most significant action taking aim at the world's second-largest economy since he ordered an investigation into Chinese IP practices that could result in tariffs.

Acting on recommendations from US Trade Representative Robert Lighthizer, Trump imposed the sliding tariffs. Solar imports will face a 30% tarifffor the first year, then the tariff will decline to 15% by the fourth year.It also exempts the first 2.5 gigawatts of imported cells and modules, according to Bloomberg.

And... who would have guessed that Elon Musk would be on the receiving end of another government crony handout?  The patron saint of subsidy consumption will get yet another, as Tesla's solar city is currently building a large domestic panel manufacturing plant, an investment decision that makes little sense without tariff protection.

"No Arizona cities named as a finalist for Amazon's second headquarters"

Thank God.  One less occasion for my business to be taxed more in order to hand money to another business, merely because their business's name is better known and makes for a good press release for politicians.  The final 5 or whatever they get it down to is going to be a just stunning exhibition of politicians throwing average people's money in huge amounts at a wealthy corporation.

On Political Reality

I am seeing a lot of headlines today like "Furious Progressives Slam Democrats For Caving On Shutdown."  When Republicans were in the minority, their partisans used to accuse the R's of the same failure / weakness.  The reality is that there is only a limited amount that the minority party can do.  Democrats back in the day were unwilling to allow Ted Cruz to derail Obama's signature issue (health care reform) and Republicans seem unlikely to allow Democrats to do derail their plans on Trump's signature issue of immigration (as much as I would like to see those plans derailed).  I think reasonable people would like a system where the majority party sets most of the agenda but the minority party does not get completely shut out.  That is basically where we are, though you can argue over the balance.

I will ask the Left to remember that effectively it was they that established the precedent in people's minds that having the minority party shutting down the government over issues tangential to the budget itself was tantamount to the apocalypse.  Having established this precedent, Democrats have to live with it now that the shoe is on the other foot.  I also, by the way, seem to remember Progressives just a few years ago arguing that Congressional gridlock over issues like this was sufficient justification for the President to more forcefully exercise Executive power.  Pretty sure no one on the Left is arguing that today.

A Good Point Seldom Made about "Experts"

I think via Tyler Cowen, this abstract:

How can political actors identify which putative expert is truly expert, given that any putative expert may be wrong about a given policy question; given that experts may therefore disagree with one another; and given that other members of the polity, being non-expert, can neither reliably adjudicate inter-expert disagreement nor detect when a consensus of experts is misguided? This would not be an important question if the problems dealt with by politics were usually simple ones, in the sense that the answer to them is self-evident. But to the extent that political problems are complex, expertise is required to answer them—although if such expertise exists, we are unlikely to know who has it.

Who'd Have Thought? Scarce Resources Are Still Scarce Even (Especially) When They Are Free

Via Mark Perry, this chart from socialized Canadian medicine:

In his article Mark also has a letter to a woman telling her the wait for an appointment would be 4.5 years.

 

Any Sufficiently Advanced Skill Is Indistinguishable From Magic

I was on a plane with my daughter flying back the other day from Florida where I had run my marathon.  She was just doodling around on her Mac notebook, just using the track pad to do some drawing.  This was the result:

Thoughts on Challenging the Climate Orthodoxy

I have over several months been answering questions about my climate positions -- I think for a woman's school project but I honestly can't remember any more.  Anyway, I answered a question for her today and though I did not spend a ton of time on it, I thought I would share.

She asked:

Why do you find it unproductive to argue for something based on how many experts are agreeing to it? Wouldn't it be hubris to dismiss the fact that a number of experts are contradicting you on a subject that is pretty complex and is something that isn't nesessarily understood intuitively?

http://www.climate-skeptic.com/2010/05/my-interview-on-climate-with-esquire-middle-east.html .You state “I find judging science by counting scientists to be unproductive.”.  

Why do you believe it is unproductive to take such a point into serious consideration?

The way I see it. there is this kind of logic:

A math student works on a very complicated math problem from his homework and has all his justifications for his answer. However, it turns out that his math professor has a different answer-- which is saying something important. It would be a slippery slope for the student to posit that his answer is right and the professor's answer is wrong just because the justification he came up with on his own always leads him back to the same answer. (That is, unless he found out an explanation for why his professor got that answer, like say-- maybe the professor never worked out the problem by himself and looked at an answer key which was wrong.)

My off the cuff responses to the student:

  • This is not a simple math problem.  It is a super complex multi-variable chaotic system in which we are trying to attribute changes in one output variable (temperature) to a single input variable out of thousands or millions (CO2).  I think the majority of the hubris (given the state of our knowledge) is on the certainty side, not the doubting side.  I would observe, by the way, that many of the exact same people who use this "you must respect the experts" argument against climate skeptics themselves challenge many expert assertions, e.g. that minimum wages reduce employment or that GMO's are safe, that are supported by at least as many experts in those other fields.  You would be unusual if you personally do not disagree with some proposition that most of the "experts" support.
  • The way folks often describe science when trying to criticize climate skeptics sounds to me a lot more like religion than science.  Saying that there are fundamental assertions that one cannot challenge is a feature of religion, not true science.  Science is about having a theory, making predictions from that theory, and if those predictions consistently turn out to be true, then gaining confidence in the theory.  Many of global warming predictions have been wrong -- they have overestimated temperature increases to date, hurricanes and tornadoes are not getting more frequent, droughts are not getting more frequent, etc (do not confuse the frequency of these events in the news with their actual underlying frequency -- go live with the data at the NOAA to see that all these severe weather trends are dead flat).  But no one goes back and relooks at the model or theories and those that do point out these shortcomings, eg. skeptics, are threatened with censure.  Does not sound like science to me.
  • I am not without relevant expertise.  Though I don't have as deep of climate knowledge as some, I know a lot about modeling chaotic multivariable systems (in finance and economics) and know exactly what the shortcomings of models are and can recognize the patterns of many mistakes in climate that I have seen in other fields of modeling.  Further, the key difference skeptics have with alarmists is the expectation of strong positive feedbacks in the climate accelerating temperatures greatly.  My major and research work in college were in dynamic systems and feedbacks.  Climate scientists are positing that there is more positive feedback in the climate system than exists in any other stable natural system we know about.  That is worth some skepticism if one understands feedbacks.
  • The experts in climate would be a lot more credible if they were more transparent and open to discourse.  Instead, they frequently refuse to release their data (even on government-funded projects) for replication and carefully engineer peer review panels so no one who actually disagrees with them are on it.  It has been years since any climate "expert" has agreed to participate in a public debate.
  • The most important answer is that what the "experts" are saying and what the media and the general public are saying the experts are saying is completely different.  There is a bait and switch going on, where the majority (though maybe not the most vocal) of the experts are very careful and conservative (little c) in their claims, but they are portrayed as being all-in en masse on the most outrageous and spectacular of the claims by activists.  I would refer you to this article, but I will reprint below the key part to your question:

So let's come back to our original question -- what is it exactly that skeptics "deny."  As we have seen, most don't deny the greenhouse gas theory, or that the Earth has warmed some amount over the last several year.  They don't even deny that some of that warming has likely been via man-made CO2.  What they deny is the catastrophe -- they argue that the theory of strong climate positive feedback is flawed, and is greatly exaggerating the amount of warming we will see from man-made CO2.  And, they are simultaneously denying that most or all of past warming is man-made, and arguing instead that the amount that is natural and cyclic is being under-estimated.

So how about the "97% of scientists" who purportedly support global warming?  What proposition do they support?  Let's forget for a minute a variety of concerns about cherry-picking respondents in studies like this  (I am always reminded by such studies of the quote attributed, perhaps apocryphally,  to Pauline Kael that she couldn't understand how Nixon had won because no one she knew voted for him).  Let's look at the actual propositions the 97% agreed to in one such study conducted at the University of Illinois.  Here they are:
 
1. When compared with pre-1800s levels, do you think that mean global temperatures have generally risen, fallen, or remained relatively constant?
 
2. Do you think human activity is a significant contributing factor in changing mean global temperatures?
 
The 97% answered "risen" and "yes" to these two questions.  But depending on how one defines "significant" (is 20% a significant factor?) I could get 97% of a group of science-based skeptics to agree to the same answers.
 
So this is the real problem at the heart of the climate debate -- the two sides are debating different propositions!  In our chart, proponents of global warming action are vigorously defending the propositions on the left side [see chart in the original], propositions with which serious skeptics generally already agree.   When skeptics raise issues about climate models, natural sources of warming, and climate feedbacks, advocates of global warming action run back to the left side of the chart and respond that the world is warming and greenhouse gas theory is correct.    At best, this is a function of the laziness and scientific illiteracy of the media that allows folks to talk past one another;  at worst, it is a purposeful bait-and-switch to avoid debate on the tough issues.

I could have also said that there were several times in class when I challenged the teacher on a math problem answer and I was right and they were wrong.  My wife-to-be was actually in one of these classes and can testify to the fact.

By the way, I find the last point I made about bait and switch to be surprisingly similar to problems I have arguing net neutrality.  The problem is that the FCC's actions under Obama were NOT net neutrality, they were applying early 1900's telephone regulation which pretty much killed innovation in that industry to the Internet.  Unfortunately, everyone calls those regulations "net neutrality" so if you oppose these dumb counter-productive regulations one is somehow against net neutrality when in fact it is nothing of the sort.

Transparent and Visible Cross-Subsidy: Unethical; Invisible Legally-Mandated Cross-Subsidy at the Behest of a Special Interest: A-OK

From Engadget, apparently the EU has banned retailers for adding a surcharge on credit card purchases.  Since it is an absolute fact that credit card sales cost retailers at least 3% more (due to merchant processing fees) than cash sales, I likely would have written about this story something like "EU knuckles under special interest lobbying from credit card processors and forces non-customers (ie those paying in cash) to subsidize credit card purchases."  Of course, given the consistent and predictable economic ignorance of Engadget, that is not how the story actually was written:

Thanks to new EU regulations, you won't have to put up with irritating card surcharges for much longer. Unfortunately, minimum card spends you come across in small shops and such will stick around, but from January 13th, the Payment Services Directive comes into play. This stops retailers from charging you more for, say, using a credit card than a debit card, or generally just passing the transaction fee onto the customer. It won't, however, make your Just Eat delivery any cheaper. That's because yesterday, ahead of the new EU rules being implemented, Just Eat did away with its 50p fee for paying by card, and instead created a new 50p "service charge" that applies to all orders.

What's particularly cheeky is pay-by-cash customers now also have to fish between the sofa cushions for an extra coin -- a move Just Eat calls "fairness for all" (lol) -- meaning it's making even more moolah while sticking a middle finger up to the spirit of the EU directive. Just Eat told the BBC it had previously thought about tweaking charges, while also totally confessing that "the change to legislation did play a part in prompting the review." A spokesperson also said, predictably, that it'll enable the company to keep providing its stellar services: "The 50p charge simply means that along with our restaurant partners, we can continue to deliver the best possible takeaway experience."

The law essentially forces cash customers to subsidize credit card customers.  I know what retail profits look like (think small single digits) and the lost surcharge is not coming out of profits, it is going to be covered by establishments in generally higher prices paid by everyone, including cash customers.  In my mind, this retailer is a hero, by actually making this legally-mandated cross subsidy transparent.

Dolphin Intelligence -- Simply Amazing

This has been shared around a lot but I was very impressed with dolphins following strategies of deferred gratification that some humans I know would be challenged by.

At the Institute for Marine Mammal Studies in Mississippi, Kelly the dolphin has built up quite a reputation. All the dolphins at the institute are trained to hold onto any litter that falls into their pools until they see a trainer, when they can trade the litter for fish. In this way, the dolphins help to keep their pools clean.

Kelly has taken this task one step further. When people drop paper into the water she hides it under a rock at the bottom of the pool. The next time a trainer passes, she goes down to the rock and tears off a piece of paper to give to the trainer. After a fish reward, she goes back down, tears off another piece of paper, gets another fish, and so on. This behaviour is interesting because it shows that Kelly has a sense of the future and delays gratification. She has realised that a big piece of paper gets the same reward as a small piece and so delivers only small pieces to keep the extra food coming. She has, in effect, trained the humans.

Her cunning has not stopped there. One day, when a gull flew into her pool, she grabbed it, waited for the trainers and then gave it to them. It was a large bird and so the trainers gave her lots of fish. This seemed to give Kelly a new idea. The next time she was fed, instead of eating the last fish, she took it to the bottom of the pool and hid it under the rock where she had been hiding the paper. When no trainers were present, she brought the fish to the surface and used it to lure the gulls, which she would catch to get even more fish. After mastering this lucrative strategy, she taught her calf, who taught other calves, and so gull-baiting has become a hot game among the dolphins.

My First and Last Marathon: After-Action Report

I achieved my goal and completed my first (and last) marathon on Sunday, roughly in the time I expected.  I wasn't going to actually discuss the time (to people who ask my time I usually answer "daytime"), but upon reflection I think it would be good to do so to encourage others who might be slow but considering running a marathon.

I ran the race from first to last almost dead-on 13 minutes a mile.  That is pretty damn slow, even for an amateur, but for me given I was suffering from osteo-arthritis in both knees and pretty bad plantar fasciitis in my right foot, it was about what I expected.  I was more proud that I kept on pace for the whole 26.2 miles -- my second 13 miles was 1 minute faster than my first 13, and my last mile was faster than the first.  This was a big change from half-marathons I have run in the past when I pretty much died in the last 20% of the race.

The real difference was Galloway's run-walk-run method.  I used 3-minute cycles where I would run at about 10-1/2 to 11 minute mile pace for 2 minutes and then walk for 1 minute.  I stuck with the program for the whole race, and as a result I was passing a lot of people in the last few miles who passed me in the first few.  At one low point around mile ten a 13-year-old girl in a wonder woman outfit zoomed past me, but I ran her down around mile 24 and beat her to the finish line.  A very satisfying triumph.

In terms of managing my body problems, there were surprising positives and negatives.  The cortisone shots I had two weeks before the race on my knees worked fabulously and my knees were never an issue.  My plantar fasciitis was mostly kept in check by the arch support I was wearing, though it hurt like bloody hell the next morning when I woke up.  I never did find the perfect solution to my underlapping toe and I had to stop twice to take my shoe off and re-tape my toes.  I did not have the hunger pangs I experienced on earlier long runs -- the carbo loading for several days in advance really helped and I ate two of these on the way and they were a surprisingly good food for the purpose.  The real problem I had in the last 4-5 miles was that my back started to really hurt.  Oh, and I also had to resist temptation as I ran past several frozen margarita stands in the last 2 miles (though at the finish I saw a fair number of folks had stopped and bought a cocktail for the last mile).

That last point brings me to some encouragement for those thinking about doing this but who are intimidated by being too slow.  It took me over 5-1/2 hours to finish and I finished in the top half of all finishers and the top half of all men.  I was something like finisher 9,500 out of 20,000.  People were still crossing the finish line 2 hours after I finished.  Oddly, the only subgroup I did not finish in the top half of  were men 55-60, as there seems to be an odd dynamic in these distance races such that there are not very many older folks, but the ones that are there are very serious and on something like their 50th marathon.

Some of this prevalence of slow runners is due to the fact it is a Disney marathon and you get a certain crowd for RunDisney events, but I wouldn't be surprised if the same kind of numbers did not obtain in races like the PF Changs.  In fact, I can't recommend the Disney races enough.  They are well-organized, low-key, and full of interesting distractions along the way such as characters and bands and of course running through theme parks.  And the medals are way better at Disney than other amateur races, and you get the fun of many runners in costume.  In this race there is even a tradition of having a roller coaster in operation (Expedition Everest) at the halfway point for runners who can jump on the coaster for a ride and then jump back off to finish the race.

Postscript:  The one problem with the Disney races is that they start at 5:30 AM, though my corral seldom gets to the start line until about 6:00.  In this race, the temperature at the start was about 40F, which is super cold for this Arizona boy, and was about 65F at the finish, which means I donated about 4 pieces of clothing along the way as I had to strip as I ran.

Marathon Update -- 2 Steps Forward, One Step Back

So, five days to my first and last marathon.  Some progress (and setbacks):

  • Got the cortisone shots in my arthritic knees.  They feel about as good as I could hope
  • Had my plantar fasciitis come back in my right foot.  I ran 16 miles on it at its worst so I can do it but it was not fun.  Tried the night boot again and it really helps but I just can't sleep in that thing (imagine sleeping in a ski boot).  But it turns out this sock does almost as good of a job at stretching the foot out in my sleep and I can sleep with it.  The combination of that sock at night with this arch support in the day has almost licked it.
  • Once I started going past 16 miles my small toes on my right foot really started hurting.   I had not had this pain in these toes since I used to snow ski.  I thought it was just the shoe being too narrow and pinching the toes.  But I finally discovered that the fourth toe was crossing under the third toe.  As you can imagine, that hurts.  All these years and I had never figured out what was causing this pain -- just thought ski boots were all uncomfortable.  Apparently this is fairly common since I see a zillion toe spacer products on Amazon.  But all I needed was a bit of athletic tape -- taping toe 3 to toe 1 and 2 and toe 4 to toe 5 totally solves it.  Amazing to solve a problem so simply after so many years.
  • Have a sore back after packing up Christmas decorations yesterday, but am hopeful that will be gone by Sunday.
  • Training almost irrelevant at this point.  I know I can do the miles, even if not that fast.  As you can see from the above, more an issue of trying to hold my body together.

The Good and Bad of Unions

Private employees unions (I will leave out public employee unions from this discussion, as they are a different animal) enter the public discourse a lot less frequently than they did in my youth, say in the 1970's.  At that time, union power and actions and negotiations and strikes were very frequent stories on the evening news.  However, one thing I have noticed throughout my life is that commentators seems to be either all-in for or against unions.  I actually think the issues are more subtle, and that unionization is a mixed bag.

On the pro side, unions are basically free association.  It is the right of any set of individuals to band together for negotiating leverage.

On the pro and con side is the role of government.  Early on, the government acted to stop individuals from exercising their free association rights and forcibly break up unions and bar their activities.  Today, I would probably argue the government has slid the other way by writing rules to tilt negotiating power away from employers towards unions (the obvious counter to this is if it is true, why have private unions withered over the last two decades).

On the con side, and it is a big con, is the tendency of unions to push beyond just wage and working condition negotiation into advocating for productivity destroying rules (e.g. featherbedding, strict job categories, etc).  These productivity destroying rules have helped to undermine whole industries, and, ironically, the unions themselves.  They embody an inherent contradiction in that the wages gains the union wants require productivity gains to support, productivity gains which are impossible under union-preferred work rules.

Here is a great example of the negative side of these union rules, from a NYT report on why New York subways cost so much more to build than do similar projects in the rest of the world

It is not just tunneling machines that are overstaffed, though. A dozen New York unions work on tunnel creation, station erection and system setup. Each negotiates with the construction companies over labor conditions, without the M.T.A.’s involvement. And each has secured rules that contractors say require more workers than necessary.

The unions and vendors declined to release the labor deals, but The Times obtained them. Along with interviews with contractors, the documents reveal a dizzying maze of jobs, many of which do not exist on projects elsewhere.

There are “nippers” to watch material being moved around and “hog house tenders” to supervise the break room. Each crane must have an “oiler,” a relic of a time when they needed frequent lubrication. Standby electricians and plumbers are to be on hand at all times, as is at least one “master mechanic.” Generators and elevators must have their own operators, even though they are automatic. An extra person is required to be present for all concrete pumping, steam fitting, sheet metal work and other tasks.

In New York, “underground construction employs approximately four times the number of personnel as in similar jobs in Asia, Australia, or Europe,” according to an internal report by Arup, a consulting firm that worked on the Second Avenue subway and many similar projects around the world.

That ratio does not include people who get lost in the sea of workers and get paid even though they have no apparent responsibility, as happened on East Side Access. The construction company running that project declined to comment.

The article also touches on one of my frequent themes, about why Progressives still support huge public sector payrolls when these actually reduce the government services they are passionate about:

Public officials, mired in bureaucracy, have not acted to curb the costs. The M.T.A. has not adopted best practices nor worked to increase competition in contracting, and it almost never punishes vendors for spending too much or taking too long, according to inspector general reports.

At the heart of the issue is the obscure way that construction costs are set in New York. Worker wages and labor conditions are determined through negotiations between the unions and the companies, none of whom have any incentive to control costs. The transit authority has made no attempt to intervene to contain the spending.

“It’s sad, really,” said Lok Home, owner of the Robbins Company, which manufactured much of the tunneling equipment used for East Side Access. “Because if they controlled the costs, they could do twice as many expansion projects and still have more money for maintenance.”