Unicorns and the Societal Benefits of Short Selling

I will refer you to my post last December on how much of society seems to hate short-sellers, and on some of the virtues of short selling.

For this post I just wanted to make a more narrow point -- one reason that unicorns (private startups with valuations north of $1 billion) like WeWork and Uber and Peloton had their valuations get so out of whack is because there is no way to short stocks in the private equity world.

Companies like Lyft and Uber and WeWork have seen private funding rounds at ever-increasing valuations.  These are done outside the accountability of the broader market and untethered to any sort of normal valuation metrics like earnings or even revenues.

Lots and lots of investors, perhaps the vast majority of them, believed that the last private round that valued WeWork at $45 billion was insane.  Many folks, including myself, would have gladly shorted the stock at this price had we been able.  Heck, many of us would have shorted back at $10 and $20 billion valuations for the company.  Because there is no short selling in this private equity world, unicorn valuations are +based on information from a very limited number of the most optimistic company supporters.  And because of this faulty price discovery, billions of capital that could be doing something more productive have been wasted in many of these companies, poured into business models that don't work or, worse, the tequila and drug fueled Gulfstream flights of the founders.

As I wrote over a decade ago, short selling broadens the group of people who can "vote" on a company's value

At the start of the bubble, a particular asset (be it an equity or a commodity like oil) is owned by a mix of people who have different expectations about future price movements.  For whatever reasons, in a bubble, a subset of the market develops rapidly rising expectations about the value of the asset.  They start buying the asset, and the price starts rising.  As the price rises, and these bulls buy in, folks who owned the asset previously and are less bullish about the future will sell to the new buyers.  The very fact of the rising price of the asset from this buying reinforces the bulls' feeling that the sky is the limit for prices, and bulls buy in even more.

Let's fast forward to a point where the price has risen to some stratospheric levels vs. the previous pricing as well as historical norms or ratios.  The ownership base for the asset is now disproportionately made up of those sky-is-the-limit bulls, while everyone who thought these guys were overly optimistic and a bit wonky have sold out. 99.9% of the world now thinks the asset is grossly overvalued.  But how does it come to earth?  After all, the only way the price can drop is if some owners sell, and all the owners are super-bulls who are unlikely to do so.  As a result, the bubble might continue and grow long after most of the world has seen the insanity of it.

Thus, we have short-selling.  Short-selling allows the other 99.9% who are not owners to sell part of the asset anyway, casting their financial vote for the value of the company.  Short-selling shortens bubbles, hastens the reckoning, and in the process generally reduces the wreckage on the back end.

I am not advocating some goofy plan to bring short-selling to private equity.  What I am saying is that prices set in markets with a robust ability to sell short are going to be much more trustworthy than prices set where short-selling is not an option.

Sustainability Is Baked Right Into the Heart of Capitalism

A while back I was having a back and forth on Twitter with a Tesla supporter.  They had said that Tesla was the poster child of sustainability, I presume because since Teslas are electric that they are presumed to use less energy and produce fewer emissions.  I learned a long time ago not to try to have discussions with Tesla supporters on energy consumption -- even if the fan in question understands that electricity is not magic pixie dust summoned for free out of nowhere, they seldom understand issues with geographic variability of electrical generation sources or the difference between electrical sources for the average vs. marginal incremental load.

So I just said the company can't be very sustainable because it spends far more than it earns, ie it consumes more valuable resources than it produces (a ratio made even worse if one factors in all the taxpayer subsidies the company consumes as revenue).  The person I was tweeting with replied that this fact had nothing to do with environmental sustainability.

I would argue that financial stability has everything to do with environmental sustainability (though I will admit that this comparison is a bit hard since environmentalists seem to bend over backwards to NOT define "sustainability" very precisely).  In fact, I think that sustainability is baked right into the heart of capitalism.

The reason for this comes back to the magic of prices.  Of all the amazing, wondrous things we celebrate in the world, prices may be the most overlooked.  Just think of it: with no governing structure or top down ruling board, a single number encapsulates everything most everyone in the world knows about a particular product: both its utility and relative scarcity, both now and as anticipated in the future.  It is a consensus derived voluntarily between millions of people who never meet with each other and likely never communicate with each other.

It is amazing to me that people who talk so much about their concern for scarcity tend to be the same folks who ignore prices and even eschew markets and capitalism.  But in prices we have a number that gives us a single metric telling us the world's consensus on the current and future scarcity of any commodity.

We do know that prices can miss some things.  Perhaps most relevant today, they can fail to include the cost of emissions (ground, water, air) associated with that commodities extraction, refining and processing, and use.  But compared to the effort of trying to create some alternate structure for managing product scarcity, this is a relatively simple problem to fix (simple technically, but not necessarily politically).  Estimates of these pollution costs can be added as a tax (e.g. a carbon tax on fossil fuels to take into account climate effects of CO2 emissions) and prices will continue to work their magic but with these new factors added.

Along these lines, Andres McAffee writes about some research work by environmental scientist Jesse Ausubel.  He writes in Reason:

In 2015, Ausubel published an essay titled "The Return of Nature: How Technology Liberates the Environment." He had found substantial evidence not only that Americans were consuming fewer resources per capita but also that they were consuming less in total of some of the most important building blocks of an economy: things such as steel, copper, fertilizer, timber, and paper. Total annual U.S. consumption of all of these had been increasing rapidly prior to 1970. But since then, consumption had reached a peak and then declined.

This was unexpected, to put it mildly. "The reversal in use of some of the materials so surprised me that [a few colleagues] and I undertook a detailed study of the use of 100 commodities in the United States from 1900 to 2010," Ausubel wrote. "We found that 36 have peaked in absolute use…Another 53 commodities have peaked relative to the size of the economy, though not yet absolutely. Most of them now seem poised to fall."

The charts are great and I encourage you to read the whole thing:

Postscript:  Going back briefly to Tesla, if the company consistently spends more money that it takes in, then it means the resources it employs could be used elsewhere more productively.  Talented people who design cars could be using those talents more productively at another car company.  Or defined differently, talented people who are passionate about saving the environment could have more impact working on something else that helps the environment.  Scarce (and environmentally suspect) cobalt and other Lithium ion battery resources could be used to more impact in other applications (many of which also may be to transition the world's energy economy from fossil fuels but do it better or faster).

I Think I Would Prefer to Pay Commissions

Several years ago, a new brokerage called Robinhood successfully began penetrating the millennial market for stock trading with a zero brokerage fee model.  In recent weeks, Fidelity, TD Ameritrade and Interactive Brokers have all followed suit (I have accounts with the latter two).  This sounds cool until one sits back and wonders how these companies expect to make money instead.

We know one way Robinhood does it -- they route consumer stock orders to large companies who pay for this order flow.

Payment for order flow is a decades-old practice that can be traced to the early years of electronic trading. It was pioneered by Bernie Madoff at his regulated securities firm. (He later became infamous for a multibillion-dollar Ponzi scheme he ran on the side.)

Read more: How high-speed traders are transforming the stock market 

Here's how it works: Retail brokers like Robinhood focus on recruiting customers and building the trading interface, but don't actually execute their clients' orders. They outsource that to firmsincluding Citadel, Two Sigma and Wolverine Securitiesthat pay for the right to handle those trades. While orders from large, sophisticated investors can burn the market maker who executes the trade, retail trades are considered relatively safe.

These firms earn a tiny bit of money off each transaction, often 1 cent or less per share. Some see payment for order flow as a critical piece of market infrastructure—facilitating the fast and cheap buying and selling of stocks. But critics of high-frequency trading have long argued that the practice actually hurts the little guy, to the advantage of large firms.

Federal rules dictate that brokers must seek the best execution for clients’ trades, but finding the best price possible is not necessarily a requirement. Consumer advocates say the system creates an incentive for brokers to route orders to the market maker that pays the most.

During last year’s fourth quarter, regulatory disclosures indicated that Robinhood shipped virtually all of its orders for stock trades to four high-speed market makers. The bulk was bought by Citadel, which paid Robinhood an average of “less than $0.0024 per share" on the trades it was routed in that quarter. Those small numbers add up—Robinhood’s users have executed more than $150 billion in transactions.

While companies like TD Ameritrade also accept money for order flow, these payments are far less than the ones helping to keep Robinhood afloat, though that may change now.

I am sure if I bothered to Google search, I could find articles and studies that go both ways as to whether this directed order flow costs a retail investor (in the form of a slightly worse transaction price) more or less than a $5 or $12 commission.  Here is my default on this, and it goes back to the saying that if you don't see the sucker at the poker table, then you are it.  If something is opaque in the financial world, it is not very likely it is breaking in favor of the retail investor.  As such, I would MUCH rather a cost a I see that is well defined than one I do not.

Why You Are Seeing All Those Videos of Teslas Wandering Dangerously Through Parking Lots

As I promised readers of this blog, I have mostly taken my Tesla obsession offline from this blog and, when I need to, scratch that itch on Twitter.  But there is an interesting story developing in the Tesla world that I think gets at the heart of the unseriousness, perhaps even amorality, of its management.  For those of you who follow all things $TSLAQ on Twitter, there is likely to be little new for you here.

When last I blogged about Tesla, it was struggling to still be the growth company that its equity valuation implied.  Last year I wrote a fairly comprehensive take on why I thought Tesla was done as a growth company (I argued, among other things, that Q32018 might be their high water mark -- remember that in a second).  That was intended to be my last post as my kids were worried about my obsessive behavior, but I just couldn't resist posting in May when Musk announced that Tesla was no longer really a car company and would be a robotaxi company by 2020 with a million automated rideshare vehicles on the road.

That was not the end of Tesla news this year.  Since that time it has become increasingly clear what I have said form the very day the acquisition of SolarCity was announced, that that transaction was a thinly-veiled bailout of Musk and his family to the detriment of Tesla shareholders.  And for added bonus points, Tesla was recently sued by Walmart when its SolarCity installations on the roofs of various Walmart stores started catching on fire and threatening to burn the stores down.  And I don't even think I have mentioned on this blog the Musk fake $420 buyout announcement or the Musk "pedo" lawsuit by the Thai cave diver hero.

So obviously I continue to be tempted out of my vow of silence.  And it is happening again.  Several days ago, in fact just before the end of Tesla's 3rd quarter, Tesla released by OTA update a "Smart Summon" feature in its cars, part of a package of autonomous driving features Tesla has promised for years and for which many Tesla owners paid in advance with their purchase (many years ago).

Smart Summon is a sort of automated car valet.  When one comes out of, say, the mall she can pull out the Tesla app, hit a button, and have their Tesla start up and drive itself to them.   Unfortunately, this feature sometimes works and sometimes is a real fail (here and here, for example).  Already people are reporting damage claims to their car when in summon mode, though Musk and his enablers in the hipster media claim its all operator error. This by the way is right out of the Musk playbook:  go on social media and hype Tesla autonomous driving uses that go beyond the terms and conditions, and then defend themselves in court that users violated the terms and conditions (Musk taking his hands off steering wheel in a 60 Minutes show demonstration and Musk retweeting people having sex in a Tesla while in autonomous driving mode are just two examples).

So why would Tesla release what appears to be at-best beta software that could easily lead to people getting hurt?  One reason is that Musk is totally steeped in the Silicon Valley "fake it before you make it" culture, all the way back to Paypal.   Given its paint and reliability issues, the Tesla Model 3 should arguably have been tested for much longer than it was before release, just as one example.  And certainly there was a lot of pressure on Musk as he has been promising this release as imminent for months, and some folks have been waiting literally years since they first paid for the feature to actually get it.

The problem with this is that there is a difference between the consequences of screwing up at Paypal and screwing up with a motor car.  A half-baked Paypal feature might have led to someone not being able to pay for their beanie baby they bought on eBay.  A half-baked summon product can lead to children getting run over (just as a half-baked Theranos product led to thousands of people with potentially life-threatening diseases getting false and misleading blood tests).  At some point there is going to have to be a reckoning of where to draw the line against this culture -- perhaps Tesla will give us that opportunity.

But I (and many others) think there is another reason this was rushed to market.  To understand this reason, we need to put together four pieces of data

  • Tesla has collected over a billion dollars in pre-payments for autonomous technologies like Smart Summon.  Because customers have not gotten an actual product, these sit on its balance sheet and have not been recognized as revenue in Tesla's financial reports.  Releasing Smart Summon could allow Tesla to recognize some of this billion dollars as revenue in the quarter it was released, which happens to have been, just barely, the third quarter.
  • In the third quarter of 2018, Tesla really starting selling the Model 3 in mass.  It had a big quarter as it worked through years of pent up orders, and a profitable quarter in part because it focused all its production on fulfilling only the highest margin variants in the order queue.  Remember what I said above -- because it was blowing through all its pent up orders and selling an unusually profitable mix, I predicted Q32018 might be its high water mark.  Even with record unit deliveries in Q32019, Tesla's revenue and profit is likely to be down year over year.
  • Tesla's stock, while down substantially over where it was a year ago, still trades at sky-high valuations for a company that is a) in the auto industry, which typically trades for very low multiples; and b) loses billions of dollars with little prospect of making any money.  The reason it has such high valuations is expectations of growth that Tesla fans have for the stock.  Obvious evidence of stalled growth could knock a huge percentage of the value off the stock, perhaps even driving it below Musk's margin call price.
  • In the SolarCity story linked above, we found out just how far Musk is willing to go and how many ethical corners he will cut to defend his investment in a failing growth company.

My hypothesis is that Musk demanded that Tesla rush release of Smart Summon, whatever condition it was in, to market before the end of the third quarter so he can book hundreds of millions of dollars of customer pre-payments as revenue in the quarter and perhaps prevent a year over year revenue decline.  Yes, that would be super cynical, but this is the man that essentially faked the solar shingle product in order to get Tesla shareholders to bail him out of his soon-to-be bankrupt SolarCity position.

Trade carefully.  As disclosure I am current short Tesla via long-dated put options.

Why Prohibition Only Makes Things Worse

Many politicians seem to be jumping on the "ban vaping" bandwagon due to a series of respiratory illnesses potentially associated with vaping that are still being investigated.  Politicians absolutely love to ban sh*t during public panics like this irrespective of logic and unintended consequences, especially in an election cycle.

I think most thinking human beings understand that banning vaping could hurt those trying to give up cigarette smoking (which is at least an order of magnitude more dangerous than vaping) even if they don't think this outweighs the risk of vaping.  OK, all except this knucklehead.

But here is another unintended consequence.  Start with this:

Media outlets, following the lead of the U.S. Centers for Disease Control and Prevention (CDC), continue to blame recent cases of severe respiratory illnesses among vapers on "vaping" and "e-cigarettes" in general, falsely implying a link to legal nicotine products. This misinformation is fostering public confusion that may lead to more disease and death, both from smoking and from the black-market products that have been implicated in the lung disease cases.

Based on the available information, the overwhelming majority of patients with respiratory illnesses had used black-market cannabis products. While a small percentage of patients say they vaped only nicotine, they may be reluctant to admit illegal drug use, and they may not know what they actually vaped if they purchased cartridges on the black market. If nicotine products are involved in any of these cases, it is almost certainly because of additives or contaminants in counterfeit cartridges or e-fluid, since legal e-cigarettes have been in wide use for years without reports like these.

So if vaping is banned (or at least flavored vaping is banned), won't that take these dangerous street black market products from a tiny percentage of the market to 100%?  If you want to vape in the future under these bans, the only product available to you will be exactly the dangerous street products that led to the ban in the first place.  Effectively the ban will cover all safe products and effectively exempt all unsafe products.

WeWork Looks To Be The New Pets.com

The spectacular flame-out of Pets.com is the event that many folks of my era use to mark the end of the late 90's internet bubble.  In turn, it looks like WeWork is vying to mark the end of the current Silicon Valley unicorn bubble.  I won't go into all the problems of its IPO, but suffice it to say that they can't get retail investors to bite anywhere near their last private funding round valuation, and in fact are scrambling to maybe go public at half the value that companies like Softbank invested at.

The incredible thing about WeWork is that it is really a minor repackaging of a quite mature real estate model.  Companies like Regus have for decades leased large blocks of space and then released it in small blocks to individuals and small businesses, sometimes packaged with additional services.  WeWork just took that model, then added some new age language and some espresso machines.

While WeWork is growing rapidly, the service it offers is not new. The Belgian company IWG, which operates under the brand name Regus and a variety of other, smaller brands, utilizes the same business model of leasing office space, refurbishing it, and sub-leasing it under shorter terms to tenants.

IWG has more square feet of office space than WeWork, earns more revenue, and actually earns a profit. However, IWG has a market cap of just $3.7 billion, less than 10% of WeWork’s most recent valuation. The primary difference between the two is that WeWork describes its business model in the faux-tech lingo of “space-as-a-service” and its mission as “elevating the world’s consciousness.”...

Another difference is that WeWork operates with a much higher degree of risk by taking on significantly more operating lease commitments with longer terms and more geographic concentration.

I compared this to Pets.com but actually I think a better analogy is to the late 70s/early 80s Texas real estate and S&L bubble.  In the runup to the S&L crash, land investors played a game wherein they flipped a piece of real estate back and forth between related parties, raising the price with each sale.  Having pumped up the value on paper, they then got some S&L to lend at 100% or even 105% LTV and when the land values all crashed, S&L's were left holding the bag.

This process of pyramiding the value of an illiquid asset in private sales is very similar to what is going on in the Silicon Valley unicorn world.  Companies like Lyft and Uber and WeWork have seen private funding rounds at ever-increasing valuations.  These are done outside the accountability of the broader market and untethered to any sort of normal valuation metrics like earnings or even revenues.

These unicorns often promote custom metrics like engagements or users rather than any traditional financial metrics, because their financials generally are awful.  WeWork, for example, consistently spends $2 for every $1 of revenue it brings in.   All you have to know about the complete corruption of valuation metrics can be gained by looking at WeWork's preferred metrics:

More than its cash-burning ways, WeWork’s IPO will test investor tolerance for made-up accounting metrics. You might recall “Community Adjusted EBITDA,” the gauge WeWork devised to measure net income before not only interest, taxes, depreciation, and amortization, but also “building- and community-level operating expenses,” a category that includes rent and tenancy expenses, utilities, internet, the salaries of building staff, and the cost of building amenities (which WeWork has described as “our largest category of expenses”).

  • ARPPM (annual average membership and service revenue per physical member). “[R]epresents our membership and service revenue (other than membership and service revenue generated from the sale of WeLive Memberships and related services) divided by the average of the number of WeWork Memberships as of the first day of each month in the period.” (Note: this is not just creative accounting, but also creative acronym construction.)
  • Adjusted EBITDA before Growth Investments. “[A]n additional supplemental measure of our operating performance, which represents our Adjusted EBITDA further adjusted to remove other revenue and expenses (other than revenue that relates to management fee income from advisory services provided to Branded Locations) and what we define as ‘Growth Investments,’ which are sales and marketing expenses, growth and new market development expenses and pre-opening community expenses.”
  • Location Contribution. “[R]epresents our membership and service revenue less total lease costs included in community operating expenses, both calculated in accordance with GAAP, excluding the impact of Adjustments for Impact of Straight-lining of Rent included in community operating expenses.”

Or, you could just throw your money on the street.

This has been a pyramid scheme, pure and simple (with more than a touch of founder self-dealing at WeWork).  There is no way Softbank could have imagined that WeWork was actually worth $47 billion if they were to hold it and manage it for 30 years.  The only way they thought $47 billion made sense was that they were sure they could unload it on the next group, probably retail investors, for a higher number.  This is greater fool investing, and works right up until there is not another fool available.

Postscript:  WeWork founder Adam Neumann reminds me a lot of Donald Trump in his business life.  All the investors will lose money. The company will likely go bankrupt.  Building owners will have leases broken and banks will lose money on defaulted loans.  But Adam Neumann will walk away from it all with hundreds of millions of dollars.  That is the typical Trump deal in a nutshell.

Trump Argues Any Current Business Problems are "Bad Management"

From an interview the other day

Q I can read you the tweet, Mr. President. You said that, “Badly run and weak companies are smartly blaming these small tariffs instead of themselves…”

THE PRESIDENT: Yeah. A lot of badly run companies are trying to blame tariffs. In other words, if they’re running badly and they’re having a bad quarter, or if they’re just unlucky in some way, they’re likely to blame the tariffs. It’s not the tariffs. It’s called “bad management.”

The first answer to this is, LOL.  This is the man with a string of failed businesses (steaks, college) and multiple bankruptcies in his core business.  In fact, I would list one of Trump's most useful business skills is his ability to get other players in the capital structure to take the losses for his bad business decisions and management.

But as far as trade is concerned, if one is worried about bad management in US businesses, then the right thing is certainly not to protect those businesses from competition.  The US auto business in the 60's and 70's as well as almost the entirety of the British industrial base in the 20th century are good examples of the problem.  Protecting businesses from international competition, as is Trump's objective, only shelters those businesses from accountability and reduces the pressure to fix whatever bad management may exist.

As a special bonus, I would argue that many of the bad habits of large US companies today are directly attributable to the stimulative Federal Reserve policy which Trump wants to increase.  Returning profits to shareholders in the form of share buybacks rather than dividends is a perfectly valid strategy, particularly when the tax code favors capital gains over dividends.  But when companies borrow billions just to buy back more of their own stock, rather than reinvest it in new opportunities, something is broken.  A large part of the blame are twin Federal Reserve policies of low interest rates and a QE-created equity and asset price bubble.

Why California Forcing Uber Drivers to Become Employees May Hurt Many Drivers

Apparently California is close to a new law mandating that Uber drivers (and other "gig" economy workers) be treated as employees rather than independent contractors.  Progressives are cheering this as a victory for the drivers:

I have explained before why this will likely kill Uber (e.g. here) but let me summarize quickly the argument of why this is bad for most drivers (self-plagiarized from a Twitter thread).  The key issues are driver productivity and driver agency.

Let's define worker productivity as far as Uber is concerned as the amount of customer revenue a driver brings in per paid hour. In the current model, this is not a real concern for Uber as they are only paying Uber drivers when they are actually driving customers.  Essentially, Uber drivers and Uber have a revenue share agreement to split customer revenue. Uber has set the share low enough to maximize its revenue (of course) but high enough to still attract drivers. It tweaks this formula fairly frequently.  Uber driver productivity as we have defined it is essentially locked in by the formulas in this revenue share agreement.

Given this arrangement, note what Uber does NOT have to worry about. It does not have to worry that drivers are working hard enough or are positioning themselves in productive locations and productive times of day.  Uber drivers can drive anywhere they want at any time they want.  An Uber driver currently can turn on the app at 4am in the suburbs of Peoria and Uber does not care, even if this positioning is unlikely to get many rides. Why? Because Uber only pays if there is a ride.  It doesn't care if the driver is sitting around unproductively, because it is not paying the driver for that time.

So today, it is left up to the driver to make trade-offs between the most productive time & positioning and the demands of their own personal schedule & life choices. This sort of flexibility has real value to many drivers. It is agency that many hourly workers don't have, and that has attracted many people to become Uber drivers.  My neighbor, for example, sits in his living room all day with the app on and runs out to the car whenever he accepts a ride (and then turns the app off so he can come back home).  He gets few rides in our area but he is happy with the lifestyle and the little bit of extra money he makes from Uber.

But this all changes if drivers must be Uber employees and subject to wage and hour laws.  The key difference under such wage and hour laws is that Uber would have to pay drivers whether they have a passenger or not, as long as the app is turned on.  Suddenly, forced to pay for labor whether the labor is working or not, Uber is going to get real interested in driver productivity.

If Uber pays by the hour, my neighbor's preferred way to drive is a dead loser for the company. In fact, if I am a driver and paid by the hour, I could go find a library in an out of the way place at an odd time of day and sit and read and collect hourly paychecks -- All without having to drive much. Now, instead of productivity choices being in the driver's hands because it's the driver that makes more or less money with greater or lesser productivity, these choices now land in Uber's lap. Uber can no longer allow so much driver agency.

If making Uber drivers hourly workers does not kill Uber altogether, then Uber is going to be forced to monitor driver productivity and do one or both of two things:

  1. Establish productivity rules, such as driving time windows and allowed geographic ranges and/or
  2. Set a minimum productivity threshold below which Uber will have to let those drivers go

Interestingly, like a lot of labor regulation, this one will benefit the middle while hurting the lower-paid drivers.

  1. Top drivers will be unaffected, because they already make the minimum
  2. Middle drivers may get a small boost
  3. Lower-earning drivers will lose their driving jobs entirely

A better way to characterize this law is that it will greatly reduce the flexibility many Uber drivers love, while causing the lowest paid drivers not to make more, but to lose their driving gig altogether.

I wrote a great deal more about how much of labor regulation actually hurts the lowest rungs of unskilled workers in an article here for Regulation Magazine.

A Quick Privacy Quest Update

  1.  The Brave browser is terrific and an essentially seamless transition from Chrome.  I depend too much on Lastpass and needed a browser it would work with, and it works just fine in Brave.  I am sure Brave is more vulnerable than they let on but it is an almost no-brainer upgrade from Chrome.
  2. DuckDuckGo is okay but well short of Google for search.  I don't find the search results are as good and related Google functionality like Google Finance (e.g. when you search a stock price) and I quickly missed Google places and maps.  I am continuing to try to make it work but I keep a Google tab open and find myself going back to it frequently.
  3. I have been using Express VPN.  I am not knowledgeable enough about how these things work to say if it is better than other VPN services but it seems to work fine for me.  Really almost invisible except that websites that depend on your browser or computer being recognized (e.g. some banks) will put you through verification hoops every single time you log in.
  4. Stuck with Gmail.  Our company uses Google Apps to host email and some other services for our company and switching costs are high.  Particularly since I have a grandfathered free account for up to 100 users, which saves a ton of money.

Trump Tariffs May Have Been Protecting A Goldman Sachs-led Aluminum Price Fixing Ring

The very first tariff President Trump imposed in 2008 was a 10% tariff on aluminum imports.  Because those desperate aluminum makers in the US needed protection from foreign competition.  Or someone did.

It turns out that earlier in the decade Goldman Sachs is accused of leading a price fixing ring that attempted to corner the market for domestic aluminum and aluminum warehousing

Purchasers accused banks and commodity trading, mining and metals warehousing companies of conspiring to hoard aluminum inventory earlier this decade, after prices had declined because industrial activity fell during the global financial crisis.

The purchasers said the alleged conspiracy led to delays in processing orders and higher storage costs, ultimately inflating the cost to produce cabinets, flashlights, soft drink cans, strollers and other goods containing aluminum.

One way to avoid this sort of thing is to allow robust import markets where consumers can seek alternatives when those of domestic suppliers are unreasonable, for whatever reason.  I would trust a free trade regime to far more than the FTC or the US courts to sort this sort of thing out in a timely manner.

Amazon Fires, Summer of the Shark, and the Unintended Consequences of Stupid Climate Policy (ie Ethanol Mandates)

I know I have told the story of the "Summer of the Shark" before, but I need to repeat it again because it is so relevant to the Amazon fire story

let's take a step back to 2001 and the "Summer of the Shark." The media hysteria began in early July, when a young boy was bitten by a shark on a beach in Florida. Subsequent attacks received breathless media coverage, up to and including near-nightly footage from TV helicopters of swimming sharks. Until the 9/11 attacks, sharks were the third biggest story of the year as measured by the time dedicated to it on the three major broadcast networks' news shows.

Through this coverage, Americans were left with a strong impression that something unusual was happening -- that an unprecedented number of shark attacks were occurring in that year, and the media dedicated endless coverage to speculation by various "experts" as to the cause of this sharp increase in attacks.

Except there was one problem -- there was no sharp increase in attacks.  In the year 2001, five people died in 76 shark attacks.  However, just a year earlier, 12 people had died in 85 attacks.  The data showed that 2001 actually was  a down year for shark attacks.

The Amazon fire story is like the Summer of the Shark stories back in 2001, except on steroids due to the influence of social media.  Just like with Summer of the Shark, everyone is convinced that this is the worst summer ever for Amazon fires.  And just like back in 2001, the media is bending over backwards to claim a trend without actually giving any trend data.

The Washington Post deftly avoided actually showing any trend data by having a couple of "experts" claim that this summer is the worst ever in their memory

“I cannot remember any other big fire episode like this one,” said Vitor Gomes, an environmental scientist at the Federal University of Para.

Ricardo Mello, head of the World Wide Fund for Nature’s Amazon program, struggled to find the words to describe his pessimism on Thursday.

“It’s historically — this is highest number [of fires] I’ve ever seen,” he said.

It turns out that trend data is actually pretty easy to come by.   NASA for example captioned a recent satellite photo of the Amazon fires by writing

 “As of August 16, 2019, satellite observations indicated that total fire activity in the Amazon basin was slightly below average in comparison to the past 15 years. Though activity has been above average in Amazonas and to a lesser extent in Rondônia, it has been below average in Mato Grosso and Pará, according to the Global Fire Emissions Database”

Wait, there is actually a global fire emissions database?  Wow, that seems like something that could be more useful to an article about trends than the anecdotal memory of two people.  It turns out the picture is complicated.  It is close to a 20-year high in the Amazonas region but much closer to average in the 9 other measured Amazon regions.   And with the exception of the Amazonas region, the basic picture is of the last 10 years having generally fewer fires than in the first decade of the century.  The level of fire is worrisome but far short of an unprecedented catastrophe.   As the Times wrote:

The number of fires identified by the agency in the Amazon region so far this year, 40,341, is about 35 percent higher than the average for the first eight months of each year since 2010.

The decade before that included several years in which the number of fires identified during the first eight months was far higher.

But the most interesting part is to consider the effect of short-sighted US climate policy.  It would be hard to imagine any climate policy stupider than ethanol mandates and subsidies.

One of the interesting things about the Amazon fires is that most folks agree the fires are largely limited to cleared farmland within the Amazon basin.  For example, here is the NY Times:

Natural fires in the Amazon are rare, and the majority of these fires were set by farmers preparing Amazon-adjacent farmland for next year’s crops and pasture.

Much of the land that is burning was not old-growth rain forest, but land that had already been cleared of trees and set for agricultural use....

Brazil was actually doing pretty well slowing the clearing of the Amazon

The new Brazilian President rightly deserves blame for increasing rainforest clearning

While campaigning for president last year, Mr. Bolsonaro declared that Brazil’s vast protected lands were an obstacle to economic growth and promised to open them up to commercial exploitation.

Less than a year into his term, that is already happening.

Brazil’s part of the Amazon lost more than 1,330 square miles of forest cover in the first half of 2019, a 39 percent increase over the same period last year, according to the government agency that tracks deforestation.

But one of the forces that has been at work for years has been US ethanol policy, essentially the government mandates and subsidies to divert a large amount of food and cropland to fuel production.  An article in Grist and Foreign Policy in 2010 discusses this issue in depth

In the FP piece, author Nikolas Kozloff jumps right to the point in his lead:

While sugar cane ethanol is certainly less ecologically destructive than some other biofuels, the industry’s boosters have overlooked one key fact: You’ve got to plant sugar cane somewhere. One couldn’t pick a worse place to harvest cane than Brazil’s Atlantic rainforest. There, sugar cane crops have led to deforestation and, paradoxically, more carbon emissions.

Both articles go on to discuss the shift in sugarcane from the Atlantic to the Amazon rain forests.  I would argue that by raising world food prices, corn ethanol in the US also has an effect, by creating the economic incentive to clear more farmland in the Amazon to plant crops essentially subsidized by US ethanol mandates.

The Knives May Finally Be Coming Out for Elon Musk: Vanity Fair Discovers the Tesla-Solar City Sham

Back in June, 2016 Tesla (a car maker) made an offer to buy SolarCity (an installer of rooftop solar). One does not need 3 years of distance to figure out the acquisition made no sense, I (along with many others) thought it was crazy at the time:

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.

SolarCity was burning cash like crazy -- not only was it selling below cost to grow market share, but it was paying all the costs of the solar installations up front and only getting repaid over time by homeowners through power purchases.  Further, it was losing its access to the capital markets as investors became more skeptical about its management and business model.  Frankly, it was facing chapter 11.

But wait! SolarCity's Chairman and largest investor, Elon Musk, was also the Chairman and majority investor in Tesla (Musk's cousin was SolarCity's CEO and founder and the two companies shared several other board members, including Musk's brother Fredo Kimbal).  Tesla was hot in the way that SolarCity had been several years prior and still had access to the capital market and a stock with a sky-high valuation.  So a combination was proposed.  Tesla investors were skeptical, despite their being largely in the bag for Musk, so Musk then did a much ballyhooed solar shingle reveal.  This seemed to be the technology of the future and helped close the deal.

Readers know I write a lot about Tesla and Musk but this deal was the beginning of my interest.  At the time, in that original article, I knew little about Musk and his reputation and was reluctant to call this deal a self-dealing fraud (as I would today).  Years of Musk's lies and outrageous promises have convinced me he is untrustworthy -- for just one example, the solar shingle reveal turned out to be a total fraud and to this day, three years later, there is still not a sell-able product.

In the community of Tesla critics, frustration #1 seems to be how bulletproof Musk's reputation is in the media.  For many folks he is still a genius**, Tony Stark made real, the man of vision who is changing the world.  Adding to his protective bubble is his ability to wrap himself in saving-mankind virtue.  Critics of Tesla or Musk are immediately labelled as paid oil company operatives or uncaring enemies of the planet.  Maintaining this image is important, because his companies all milk billions of subsidies from the government, from the state subsidies to build his various manufacturing plants to the subsidies for electric car sales to the subsidies for solar roof installations.  A failure of his image might cause taxpayers to question all their money he is taking.

Well, you know this might be coming to an end when Vanity Fair, which is more likely to prop up a flawed virtue-signalling Left-leaning celebrity than dig up dirt on them, comes down hard on Musk and the SolarCity acquisition.  This is a fabulous article that mainly focuses on the SolarCity acquisition and the Buffalo Gigafactory 2's $750 million in state subsidies generating about zero jobs there.  But it also ventures briefly into many other niches of the Musk/Tesla fraud story.  I recommend the whole thing.   Most all of this has been discussed in the Tesla skeptic community for years but kudos to Vanity Fair for starting what I hope will be a general trend of increased skepticism in major media about Musk and Tesla.

 

**Postscript:  I am absolutely convinced Musk is not an engineering or scientific genius (he may be a promotional genius, though).  He is a master at saying things that sound smart to the average person, but sound ridiculous to an expert in that field.  Tesla skeptics even have a word for it, the "revelation," and stories abound of people saying, "I thought Elon Musk was a genius until he started talking about something I knew a lot about...."

While PT Barnum is sometimes suggested as an analogy for Musk, the best analogy I can come up with is Ferdinand de Lesseps, leader of the effort to build the Suez canal and author of the French disaster trying to build a canal in Panama.  De Lesseps, after Suez, was the greatest hero in France -- he was considered a genius and called the "great engineer."  But in fact he was not an engineer at all, but a dogged promoter and money raiser with big visions.  If you want to understand Elon Musk, read the first third of the David McCullough book "The Path Between the Seas" which covers the French efforts at Panama (then read the whole book because it is all wonderful).

Postscript #2:  My moment of revelation was Musk's hyperloop, which seems to entrance politicians and Popular Science types but which has never made a bit of sense to me.

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

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

Postscript #3:  I hope this (from the Vanity Fair article) is true, but I doubt it:

Everyone in Albany, says the longtime lobbyist, has accepted that the Buffalo plant is a “disaster”—a poster child for why government giveaways to big companies don’t work.

Postscript #4:  To be fair, Lynette Lopez is a reporter that has had her eyes open to Tesla for quite a while and has done some good reporting.

Postscript #5:  I should have mentioned that Bethany McLean, author of the Vanity Fair article, cut her teeth on helping to bring down Enron.

Why I (Mostly) Don't Blog About Climate Anymore

Recently the journal Nature published a "study" arguing that climate contrarians got too much media attention and that, essentially, the media needs to stop quoting them.  A part of the study included a list of climate skeptics and their media influence scores.

It was a little off-putting to be left off this black list, though I feel certain that 10 years ago in my active period I could have easily made the cut.  Nevertheless, it is clear that I have fallen by the wayside.

And that is by choice.  I simply do not have the ability in this blogging hobby to play decades-long games of wack-a-mole with the same arguments over and over.  In a different sphere, I see folks like Mark Perry and Don Boudreaux take on the same anti-trade arguments for years.  I respect them for it and appreciate the effort, but I don't know how they do it.

From my observation, the world of climate remains the same old sh*t.  No one has come up with a better approach for estimating the all-important value of the temperature sensitivity to CO2 concentration.  Alarmists are still assuming massive amounts of positive feedback in the climate system but have done nothing new to prove this is really true.  Trends are still extrapolated from individual weather events, and trends are often claimed in the media without actually showing any trend data.

And the whole thing has become tribal as hell.  The other day I tried to engage Kevin Drum on twitter about a chart he used that I thought was bad.  I was trying to make the point that there is no scientific reason to believe that worldwide increases in atmospheric CO2 concentration would have 3x their average effect in a 25 mile radius around Phoenix (as the chart seems to show) and that the more logical explanation is that the chart is based on at least somewhat corrupted data.  I said nothing like "and thus global warming is all a scam."  In fact, the only conclusion I drew was a very modest one everyone interested in global warming should be able to agree with, that it has been a mistake not to have invested in a better surface temperature network given how important the issue is to us.

But even that was too much -- you could tell Drum was automatically treating me as a denier and anti-science.  Take this exchange for example


Kevin Drum is one of my favorite people to read because he is one of the few folks in Left or Right who will occasionally question his own tribe.  This is not Kevin Drum thinking, this is Kevin Drum giving the tribal answer because anyone poking even modestly at the edges of climate orthodoxy has put his fur up.

So I move on to other things.  To be honest, this may just be a personality trait of mine related to ADD/limited focus.  I find myself bored with the whole Tesla critic community as well, seeing the SOS ever day.

Postscript:  For those who do not follow me much, here is my current position on global warming

  • Man-made global warming is real but likely exaggerated, in particular from unrealistic assumptions about massive amounts of positive feedback in the otherwise long-term-stable climate system.  The chance of large (>2C) warming is remote but non-zero
  • Most of the claimed relationship of extreme weather events to manmade CO2 are a crock.  Time and again the media and activists claim trends (e.g. in hurricanes, droughts, and tornadoes) that simply are not there when you actually look at trend data.  Where we do see trends, such in sea level rise, those trends have often been going on since the mid 1800's, making it difficult to attribute them entirely to man-made CO2 produced mostly after 1950.
  • It is possible to create a low cost climate insurance plan that might actually be a net economic improvement over the current regulatory environment, even before considering environmental benefits.  That plan is here.  Speaking of tribalism, it does not run one way.  This plan essentially got me shunned in much of the skeptic community.

Postscript #2:  The skeptic list from Nature has some odd names.  Don Boudreaux and Ron Bailey stuck out to me.   Boudreaux to my knowledge is not engaged in the climate debate at all and I know Bailey is an AGW believer.  Both, however, are anti-authoritarian and pro-market, and in the era of the Green Great Leap Forward, or whatever it is called, I suppose that is enough to put one athwart the climate change alarmists.

Can We Never Learn From The Our Failures With Cuba?

Apparently the American embargo and blockade of Cuba have worked so well that Trump wants to try the same thing with Venezuela

Axios is calling it President Trump's Venezuela naval blockade "obsession" based on accounts of unnamed administration officials: "President Trump has suggested to national security officials that the U.S. should station Navy ships along the Venezuelan coastline to prevent goods from coming in and out of the country, according to 5 current and former officials who have either directly heard the president discuss the idea or have been briefed on Trump's private comments," according to a new report.

He's said to have repeatedly raised the idea in private as a way to finally deliver regime change in Caracas, after prior attempts - including a short-lived push for military coup - failed earlier this year. Supposedly, the plan would be to station US Navy ships along the coast such that all vessels would be blocked from entering or exiting the South American country.

I am trying to think of an example of an authoritarian regime brought down by a blockade or embargo, and I am struggling to do so.  We have embargoed the Cubans for 60 years and the communists still sit there merrily running that county.  We have embargoed Iran off and on for 40 years and yet essentially the same regime is in power.  And don't even get me started on the 1940 embargo of Japan**.  The closest I can come is the fall of apartheid South Africa, though that was never a full embargo -- it was more of an international public shaming that worked in part for the reason that the people of South African remained engaged with the world in trade and other matters.  Also I think giving too much credit to international players for the changes in South Africa is to reduce the agency, persistence, and bravery of the internal opposition.

I will say that an attempted blockade of Venezuela will definitely have three entirely predictable outcomes

  1. It will hurt the citizens who we are trying to help
  2. It will give Marxist apologists an excuse for Venezuela's economic disaster (ie "it wasn't socialism, it was the evil American blockade)
  3. It will lead to unnecessary confrontations with other countries.  What happens the first time the US Navy puts a shot across the bow of a French or Russian or Chinese merchant ship?

I have a strong bias towards engagement as a palliative for authoritarian regimes.  Let their folks interact with the quasi-free West long enough and pressure will come for change.  You know who agrees with me?  The leaders of North Korea, which is why they would rather live in the Middle Ages than allow their folks any interaction with the West.

** Postscript:  Readers might respond that the wartime embargo of Japan was extremely effective.  Eventually the US Navy was able to strangle the Japanese economy.  This indeed was effective at reducing the Japanese warmaking ability, at the cost of abject misery for much of the Japanese people.  But note that it never even came close to forcing a regime change.  Only the American atomic bombs combined with the Russian declaration of war eventually (barely) led to Japanese surrender.

Who Could Have Possibly Predicted This? Solar Roads a Failure

I seem to have established a couple of tiny blogging niches for myself, as there are two things with an absolute certainty that readers will email me -- solar road stories and pictures of steam plumes used to illustrate pollution articles.

So as not to disappoint my loyal readership in these two niches, Popular Mechanics as the story of a 5 million euro solar road in France.  And, surprise, it turns out that putting solar panels flat on the ground in a cloudy region and then driving over them does not work very well.

The noise and poor upkeep aren't the only problems facing the Wattway. Through shoddy engineering, the Wattway isn't even generating the electricity it promised to deliver. In 2016, the builders promised it would power 5,000 households.

There proved to be several problems with this goal. The first was that Normandy is not historically known as a sunny area. At the time, the region's capital city of Caen only got 44 days of strong sunshine a year, and not much has changed since. Storms have wrecked havoc with the systems, blowing circuits. But even if the weather was in order, it appears the panels weren't built to capture them efficiently.

“If they really want this to work, they should first stop cars driving on it,” Marc Jedliczka, vice president of the Network for Energetic Transition (CLER), which promotes renewable energy, told the Eurasia Times.

By the way, I called this particular project out as madness when it opened, so all of this was certainly foreseeable.  Just so we don't let those responsible slink away from their bad judgement, this was from an article when the road was first opened

A 1km (0.6-mile) route in the small village of Tourouvre-au-Perche covered with 2,800 sq m of electricity-generating panels, was inaugurated on Thursday by the ecology minister, Ségolène Royal.

Royal has said she would like to see solar panels installed on one in every 1,000km of French highway

More of my solar road articles are here.

Democrats Pounce

Republicans, not completely without justification, frequently argue that papers like the New York Times and Washington Post often frame mis-steps by Democrats in terms of the Republican response.  So instead of "Biden makes racist gaffe" the headline might read "Republicans pounce on Biden over his latest statements."  I will confess that I don't really notice this so much but Conservatives in my feed are often posting examples.

For balance, I thought it would be useful to demonstrate that Conservatives are perfectly willing to do the exact same thing.  Take this story by Rick Moran.  The headline is "Trump Has Democrats Acting Like Pavlov's Dogs."  After a couple of grafs describing Pavlov's famous work, he writes:

Donald Trump gets Democrats hysterical with just about anything he tweets. It's a classic Pavlovian response and Trump plays his opponents like a well-tuned fiddle. He doesn't even have to say anything necessarily controversial. Whatever he tweets, his opponents see 1) racism, 2) fascism, 3) white supremacy, or 4) his enabling one or more of the previous. Trump tweets, Dems salivate. It's classic.  He knows exactly which buttons to push, which subjects are liable to turn liberals into sputtering, spitting, stammering piles of gelatinous goo.

It's not until like the 13th paragraph that we find out what the article is actually about, which is this:

Trump shared a tweet and video from  conservative comedian Terrence Williams that claimed without evidence that former President Bill Clinton and former Secretary of State Hillary Clinton -- Trump's 2016 presidential election rival -- were responsible for Epstein's death. The Federal Bureau of Prisons and Attorney General Bill Barr said Epstein died in an "apparent suicide" while in federal custody.

I consider myself to be one of the last people in America who can evaluate Trump's actions on a case-by-case basis without resorting to a default tribal position.  And I will say that this is ...  pretty f*cking egregious.  On a number of dimensions.  First and and foremost, the DOJ has already announced an investigation into this matter, so Trump is effectively commenting on an active Federal investigation in its very early stage.  I encourage you to check Mr. Google and search for times where Conservatives criticized Obama for commenting on an active investigation.  I remember a number of such occasions, e.g. here.

Second, not only is he commenting on an active investigation, he is suggesting a suspect.  Yes, I know the comic is having fun with the Clintons-knocking-off-their-opponents meme.  That is fine for a comic, but it is unacceptable for the person at the top of the federal law enforcement establishment.  This is how people like Richard Jewell had their lives ruined.  The fact that the suspected targets here are a former US President and Mr. Trump's opponent in the last election just make this all the worse.

This behavior of Trump is indefensible, which I suppose is why Mr. Moran chose to play the "Democrats pounce" card.

Sometimes I Wonder If People Just Need to Have An Enemy

I find this depressing:

We seem to NEED an enemy.  We hop from one enemy to another -- Soviet Union to Iraq to Al Qaeda to Russia to Iran and now to China (with a certain minority always having Israel as their enemy).   I find this depressing.  As I told a reader in a private email the other day, for whatever cynicism I project here, I am actually a sloppy optimist, a pacifist, and a conflict avoider.  Maybe that is part of the appeal of Canada or New Zealand in surveys -- I mean, its hard to imagine them having enemies.

We had a Chinese exchange student back when my kids were in high school who frequently visits us here in the US.  The first day we saw here in America she looked exactly like Honey in the Doonesbury comics -- Mao jacket and hair and glasses and all.  After four years of college at Michigan, she is as American as my kids.  She and her friends want so much to be like us in so many ways, without rejecting her Chinese cultural heritage.

This country has so much positive soft power -- everyone around the world wants to be here and partake of our culture.  I don't think either Republicans or Democrats really understand the real reasons behind this pull.  Republicans seem to believe folks are lining up at the border for welfare checks while I don't know what Democrats believe any more, as their Presidential candidates all reject many of the great things about this country I would have thought attracted people.  Maybe that is why politicians of both parties so consistently piss away this potential goodwill.

I am not naive about China -- they are an authoritarian state desperately in need of reform.  I just don't think going into cold war tension mode with them is going to help.  I tend to believe in the power of engagement by ordinary people with the rest of the world to drive change, which we should have been trying years ago in Cuba.  Isolating authoritarian regimes is really just doing their work for them.

This Isn't A Map of Global Warming, It's A Map of Corrupted Temperature Stations

Kevin Drum published this map on his blog, which he says was originally from the Washington Post.  He does not include a link so I can't give any more background on the chart.  For example, I have no idea which surface temperature data set it is based on.

The fact that smart guy like Kevin Drum can publish this uncritically just demonstrates how little even vociferous global warming advocates actually understand about the issue.  Because all this chart does is reinforce a skeptic argument that the global surface temperature data set is corrupted and can exaggerate warming trend data.

Let's start with this:  I have read much of the IPCC reports and have skimmed the rest, and I can say with certainty that these reports contain no theory about how increasing the concentration of atmospheric CO2 from 0.03% to 0.04% causes warming of 2C or more focused in hotspots as small as a 50 mile radius.  There is absolutely no theory, and I would argue no way, that a general global warming trend of 1-1.5C per century is causing warming 2-3 times that rate narrowly over San Jose, California or Phoenix, AZ.

The fact that many of these hotspots are focused over urban areas is a good indicator that this temperature data set is corrupted with urban heat island biases.  This is a different kind of man-made effect but one which is local and is not the result of a global warming trend, and thus should not be in a database aimed at measuring this global warming trend.

Something like 10 years ago I saw a similar chart online based on USHCN measurement stations.  At that time, the chart showed a hotspot over Tucson

At the time, Anthony Watt was running his Surface Stations project to document the conditions of all the USHCN temperature stations (the crosses on the map) that formed the basis of the US global warming / temperature trend numbers.  So I drove down to Tucson to see the temperature station in the middle of that hotspot.  What I found was that the temperature station that 100 years ago was in a rural open field was now measuring the temperature of an asphalt parking lot in the middle of a large city:

As an aside, this was a fun project as I still see this picture reproduced in random places from time to time.  After this picture got some publicity, the government shut this station down and moved it to a better location.

But the point is that the hotspot on the temperature change map was both real and fake.  Real in the sense that Tucson was definitely hotter due to the change in land use, as are most all cities (just watch the weather in a city and they will often say that it will be a low of 45 in the city, and 40 in the outlying areas).  My son and I measured the urban heat island in Phoenix for a high school science project.  We found it to be as high as a 6-8F difference between city and the surrounding countryside at certain times of day.

But the hotspot was fake because this had nothing to do with global warming from CO2, and thus including this hotspot in the temperature data was exaggerating the global warming trend.  This is especially true since there are only a few data points, so this reading for Phoenix was averaged into the reading all over the Southwest and tended to raise the official temperatures for much of Arizona, not just in Tucson.  Where temperature stations are sparse, such as in northeast Montana, a single bad surface temperature station can corrupt the data for a large area.  This effect is even further exaggerated in places like Africa, where temperature stations can be hundreds of kilometers apart.

This is one reason satellite temperature measurement makes so much sense, as it is not subject to these sorts of biases (though it has other issues, including sensor drift and the fact that satellites can shift orbits and eventually die).  Whenever you see high temperature records today, they are usually set in the city at the airport, a big paved facility in the center of an urban area that 50 years ago was probably an open field.  There is a good chance the record has more to do with urbanization around the temperature measurement station than with global warming.

I believe the scientific community at NOAA and GISS have been almost criminally negligent with the surface temperature network over the last 30 years.  In the late 80's, when we became concerned with global warming, experts knew all to well about vast problems in how we measure surface temperatures.  We have invested tens of billions of dollars to fight global warming, but practically zero to measure it better.  We should have invested in a better, more reliable, less biased (in the scientific not political sense of that word) measurement system.  The amount of money we wasted in Solyndra would have paid for the upgrades, but we still have done nothing.  As a result, much of the warming signal is actually manual corrections to the raw data, undermining the signal to noise ratio of this critical metric and calling into question the bias (in the political not scientific sense) of these manual corrections (eg here and here).  For example, it turns out the past continues to cool.

Postscript Bonus:

The Danish Meteorological Institute, which has a key role in monitoring Greenland’s climate, last week reported a shocking August temperature of between 2.7C and 4.7C at the Summit weather station, which is located 3,202m above sea level at the the centre of the Greenland ice sheet, generating a spate of global headlines.

But on Wednesday it posted a tweet saying that a closer look had shown that monitoring equipment had been giving erroneous results.

“Was there record-level warmth on the inland ice on Friday?” it said. “No! A quality check has confirmed out suspicion that the measurement was too high.”

 

This Is Why I Resist Pleas for More Spending on Government Schools

I am perfectly willing to believe that some school districts somewhere have spending too low to ever provide the education we expect in 2019.  But after sending my kids to a private school that did a fabulous job with kids and whose tuition was lower per student than the spending in most public schools, I have become suspicious of pleas for more and more money.  It seems that lack of money is ALWAYS the claimed problem at public schools.

In fact, I am increasingly convinced the problem is not lack of money but how the money is spent.  As the percentage of staff in most public schools who are administrators rather than teachers climbs over 50%, many public schools are doing exactly what every other government bureaucracy does -- starve spending for actual public services in favor of feeding a growing, increasingly well-paid administrative staff.

Here is this week's example.  Via Zero Hedge:

The Baltimore Teachers Union (BTU) has set up a donation page on their website to raise money and supply classrooms with fans this school year because of 60 Baltimore City School (BCS) buildings don't have air conditioning.

"It's no secret that Baltimore's students have had to weather the spectrum of extreme temperatures in their classrooms. We've all seen the photos of kindergarteners sitting in their coats and mittens at their morning circle. The reverse is true when school is back in session at the end of summer, when schools' internal temperatures have been measured at over 100 degrees. The Baltimore Teachers Union knows that educators' working conditions are students' learning conditions," BTU said on the donation page under the title "Donate to the BTU Fan Drive."

You see this all the time -- teachers begging the public for donations to help them through shortages of basic school supplies.  The blame is always put on public funding -- obviously Baltimore public schools are starved for cash and forced to beg for simple infrastructure items like fans.  But wait:

Of the 100 largest school systems based on enrollment in the United States, the five school systems with the highest spending per pupil in 2017 were New York City School District in New York ($25,199), Boston City Schools in Massachusetts ($22,292), Baltimore City Schools in Maryland ($16,184), Montgomery County School District in Maryland ($16,109), and Howard County School District in Maryland ($15,921). Maryland had one additional school system in the top 10, making it four of the top 10 school systems in the United States.

In the public recreation field, I call this borrowing from the infrastructure.  Infrastructure maintenance and spending is starved in favor of richer deals for growing administrative staffs.  That is why most major parks agencies have billions of dollars in deferred maintenance.  Transit agencies apparently do the same thing.

 

My Preliminary List of Things That Irritate Me The Most About Modern Discourse

In no particular order, and sure to grow as I ponder it more:

  1. Tribal rather than thinking responses to any argument
  2. Using the wackiest person that can be found as representative of an entire group
  3. Judging the individual by the group to which they belong ("racism" and "sexism" used to be examples of this but apparently these words are defined very differently in practice today)
  4. Bad headlining (can include social media summaries) that obscures complicated situations with definitive black and white judgments.  When was the last time you clicked through from a social media headline to the underlying article and ever found it to actually say what the headline claimed?
  5. Using tortured logic (or even no logic at all) to claim the worst possible interpretation of a person's arguments
  6. Attacking a speaker's hypothesized motives, rather than their actual arguments
  7. Using ad hominem attacks rather than rational responses to arguments  (the prior #6 is really a subset of this, but the claimed ability magically be able to read opponent's minds is so prevalent that I wanted to break them apart).
  8. Post-modern "fake but accurate" facts. "It does not matter if fact X is wrong because it fits in so well with narrative Y we have created."  e.g. "this story about AOC turns out not to be true but it pretty accurately illustrates how uninformed she is."
  9. Stretching definitions of words to try to tar lesser crimes with the opprobrium meant for greater crimes (modern examples include "sexual assault" and "racism."
  10. Only learning about the arguments of person X from people opposed to person X (a sure path to failing the ideological Turing test).  Examples:  Relying on Rush Limbaugh as one's only source for knowing what Hillary Clinton's political positions are.  Never reading climate skeptics directly but only learning about what they supposedly say from those opposed to climate skeptics.
  11. Failure to be skeptical about any story or argument that support's one's own position or "side."  (I know I struggle with this in my personal reading."

Trump's Trade War Strategy Seems Doomed to Fail

Folks know I completely disagree with the whole premise of Trump's trade actions with China.  Tariffs on foreign goods hurt this country and its consumers even if the other country does not reciprocate with lower tariffs.

But let's put this all aside and think strategy.  A trade war is about creating enough pain for the other side's leadership that they agree to give in to your demands.  So the game is about American leadership outlasting Chinese leadership in dealing with unhappiness of its citizens due to the trade restrictions.  Put in this light, doesn't it seem like the strategy is doomed?  When would you ever expect the leadership of a democracy to be able to outlast an authoritarian government in terms of living with unhappiness from its citizens?

My New Award Winner for Worst Customer Service -- AT&T's ACC Business

ACC Business is apparently a subsidiary of AT&T that provides high speed dedicated data lines (think T1 lines if they still call it that).

Long rambling customer service nightmares are hard to describe in a coherent or engaging manner, so I will mostly avoid it.  The episode began innocently, 6 months ago, with an ACC Business salesman calling us asking if we would like to take advantage of lower pricing.  We said yes, signed off, and that should have been that.  Unfortunately the sales person filed the papers incorrectly internally as a new service, setting us off on a kafka-esque adventure were two accounts were created for the same service and it seemed to be impossible, given ACC's internal systems, to merge the accounts without terminating the physical service in the field.  Every month ACC Business merrily billed us twice for the same service, and threatened immediate extinction if we refused to pay one or the other bill.

After spending over a dozen hours of my personal time on the phone with this company I discovered the ACC Business unwritten customer service rules:

  1. No matter how many people told you that the person you are contacting is (finally) the right person, the person you are talking to is NEVER responsible for whatever it will take in their internal systems to fix the mess
  2. Any past mistakes made by ACC (e.g. their creating a second account by accident) are actually the customer's mistakes, somehow
  3. No matter how much time you spend on the phone with them, all past conversations are forgotten and inaccessible to the person you are talking to and thus require you to start from scratch trying to describe the issue and history to yet another new person.

I turns out there is a whole cottage industry of paid consultants whose entire job is to try to act as an intermediary between customers and ACC Business to fix these kinds of (apparently) frequent SNAFU's.  The very existence of such people should tell you all you need to know.  Such a consultant fixed my problem 2 months ago, I thought.

Until I got a note this morning from their disconnect department, saying in part:

If the information is not received within 2 business days, your request will be cancelled. At that time, you will be required to start the process over by contacting our Customer Care Department.

If you need assistance completing the required information or have any questions, please contact our Customer Care Department at 888-286-2686

Of course, per standard ACC Business procedure, the people at that phone number provided me in the email knew nothing about the email, and disavowed any involvement whatsoever with the disconnect department.  This is roughly equivalent to American Airlines telling you that you need to contact them about your upcoming reservation and then giving you a contact number in the catering department.   ACC Business customer "service" could not give me a direct number for the disconnect team or any way to contact them about this email.  So I called my consultant again and prepared to write them another check.

If there is any other way, any way imaginable, to achieve your goals without involving ACC Business I would highly recommend that alternative.

Postscript:  ACC Business has to be bad to displace my previous awful customer service award winners, which were several dying Yellow Page companies that went to quasi-fraudulent ends to try to avoid stopping my ad and ceasing to bill me.  Seriously, your customer service really has to be bad when your otherwise legal business model has worse customer service than a company resorting to fraud.

The Coming College Adversity Score Scam

As I wrote before, the College Board is going to award "adversity" scores to its college-bound test-takers (essentially the inverse of a privilege score).  As I wrote earlier, beyond self-identification questions that can't be trusted, the best data for this will be the student's address.  I predicted that rich people would quickly hack this system:

The obvious hack for this is for parents to buy or lease an empty room somewhere in a high adversity zip code and report this as their child's address.  To get away with this, probably will need to have also given this address to the school, which might be hard for public schools but is perfectly possible at a private school.   "Ah, Ms. Huffman, what was it like growing up in Watts?"  I am sure there are already folks gearing up to sell this service.

Several people, including my wife, criticized this concern as overwrought.  First, I would like to say I am not only not overwrought, I am not even wrought.  Frankly, I am past caring what happens to colleges.  I consider their model so broken that they deserve whatever they get.  The faster their whole model falls apart, the faster we can rebuild advanced learning (only part of which should be on a campus).

Second, read this and tell me that my hypothesis was exaggerated:

Well-off Chicago residents have been exploiting a legal loophole to obtain need-based college financial aid and scholarships by giving up legal guardianship of their children. 

The tactic, which has been used by dozens of families (and maybe more according to Propublica Illinois), involves handing over guardianship to a friend or relative during the student's junior or senior year in high school - allowing them to declare themselves financially independent from their families. This qualifies them for federal, state and university financial assistance, according to the report.

"It’s a scam," said Andy Borst, director of undergraduate admissions at the University of Illinois at Urbana-Champaign. "Wealthy families are manipulating the financial aid process to be eligible for financial aid they would not be otherwise eligible for. They are taking away opportunities from families that really need it."

Based on this, if anything my suggestion was too modest.  Accommodation address?  Hah, that is for middle class wannabees.  We are going to rent an inner city family to take guardianship of our kids.   "Wanted:  single-parent impoverished household with history of drug problems and homelessness wanted for temporary adoption of our honor student.  Past incarceration a plus.  Whites and cis-gendered need not apply."

Postscript:  Yes, I did read Kurt Schlichter's novel People's Republic and found it a bit light fairly entertaining, though I am a sucker for dystopia novels of most all flavors.  At the time I thought his privilege score idea to be, uh, overwrought, but it appears he was fairly prescient.

Postscript #2: I am trying to figure out what conspiracy theory I can craft and spread on social media based on the fact that "dystopia" is not included in the Chrome (or the Brave version of Chrome) spell check dictionary.

Postscript #3:  A reader reminds me of this story of the disproportionate abuse by rich people of special needs test taking accommodations.

From Weston, Conn., to Mercer Island, Wash., word has spread on parenting message boards and in the stands at home games: A federal disability designation known as a 504 plan can help struggling students improve their grades and test scores. But the plans are not doled out equitably across the United States.

In the country’s richest enclaves, where students already have greater access to private tutors and admissions coaches, the share of high school students with the designation is double the national average. In some communities, more than one in 10 students have one — up to seven times the rate nationwide, according to a New York Times analysis of federal data.

In Weston, where the median household income is $220,000, the rate is 18 percent, eight times that of Danbury, Conn., a city 30 minutes north. In Mercer Island, outside Seattle, where the median household income is $137,000, the number is 14 percent. That is about six times the rate of nearby Federal Way, Wash., where the median income is $65,000.

Is Home Ownership An Unalloyed Positive?

Tyler Cowen pointed out this article on the widening gap between white and black home ownership rates.  Black home ownership rates have fallen pretty steadily since the financial crisis -- apparently when banks are castigated by activists and government officials for "exploiting" blacks by giving them easy credit, blacks no longer get as much easy credit.

For people trying to rise in their economic status, there are a lot of things wrong with home ownership.  The most important is that it limits geographic flexibility.  Home owners have much higher costs to pick up and move, making it harder and less likely to exploit opportunities for better work and/or lower living costs in other parts of the country.   And as someone who just had an $8000 air conditioning unit fail in 110 degree heat, I can testify that home ownership also involves more risk of large unexpected expenses than does renting.  All things considered, in a free market, there are a lot of reasons home ownership might be a bad idea for folks trying to rise in income.

The complicating factor, as usual, is it is not a free market.  Public policy has tipped the scales such that home ownership has become probably the most important of all middle class savings vehicles.  Part of this is a human behavioral issue -- people contribute to homes every month because the bank makes damn sure that they do so (sort of like having a really tough personal trainer).  No other savings vehicle has such strong incentives not to cheat on monthly contributions.  But even so homes would still not be such a great investment vehicle.  In a 30 year mortgage, the percentage of your monthly payment in the early years that goes to equity is trivial.  There is really no reason that a home should be anything more than a depreciating asset, like a car or a boat.

Which brings us to the public policy angle -- a myriad of policy interventions all conspire to make sure that home prices rise continuously.  On the demand side, demand is subsidized via special government mortgage programs, special treatment for mortgages on bank balance sheets, the mortgage interest tax deduction, as well as a number of direct subsidies for lower income folks.  We even had QE where the government was buying up mortgage bonds to keep interest rates low.  On the supply side, supply is constrained through growth boundaries, density limits, zoning restrictions and a zillion other local regulations.  The net effect of this subsidized demand and constrained supply is (with a few interruptions) ever-rising prices.

While many of us decry crony capitalism, most every homeowner in this country (including me) is a crony.  We benefit from this program that like most all other crony capitalist programs, benefits incumbents at the expense of new entrants.  In this case, those of us with houses get to enjoy a good rate of return on our home investment while those without homes are shut out of the market by rising prices.

On Tribalism and Discourse -- The Best Paragraph I Have Read For Quite A While

Today on Twitter I sought to give our Senator Krysten Sinema some support for her opposition to tariffs (kudos for Donald Trump for working to turn Democrats into free traders, though to be fair Sinema herself has come a long way from her radical roots).  I got this response:

I wanted to write about what a non-sequitur this response appears to be, as it is completely unresponsive to the issues at hand.  All the commenter is really saying is, "I notice you are not of my tribe."

But a detailed response on my part is unnecessary, given this awesome paragraph from Kevin Williamson:

Which brings us to the problem of trying to have a productive conversation with people who are caught up in the vast sprawling electronic apparatus of self-moronization. It does not matter what anybody actually has said or written. The rage-monkeys have an idea about what it is they want you to have said, or what people like you are supposed to think about or y. I cannot count how many times I have had some person respond to something critical I’ve written about some lefty fruitcake with “What about Trump, huh?” When I point out that, among other things, I wrote a little book called The Case against Trump, the response is: “Well, Republicans . . .” And then when I point out that I am not one of those, either, the retreat into ever-vaguer generality continues incrementally. The fundamental problem is that what’s going on in “conversations” such as these is not conversation at all but a juvenile status-adjustment ritual. These people do not care about ideas — they care about who sits at which cafeteria table in the vast junior high school of American popular culture.

Gad, I wish I had written that last sentence.