Will Office Real Estate Recover, and If Not, What New Services Will Substitute?

Real estate investment trusts (REIT's) have had their stock values pounded in the last six months, and is it any wonder?  Many have tenants who aren't even allowed to open, who are slowly (or quickly) going bankrupt and not paying their rent bills.  Industrial REITs are doing OK (particularly those that specialize in data centers and e-commerce warehouses), but will shopping malls ever come back under the Amazon/COVID 1-2 punch?  Will office real estate survive now that many companies are getting more comfortable with work at home?

I picked up a few REIT stocks at the bottom I thought had been pounded too far, and was lucky to have Warren Buffet jump into one of them after me ($STOR).  Which got me to looking at office REITs.  We have seen stories like the ones of REI giving up their entire headquarters for work at home.  Many people reading this may still be working at home.  Large companies may continue to pay their rent until their leases run out, but will anyone be renewing those leases in the future?

At first, my answer was that the commercial office real estate business was going to suck for many years, and I have not totally changed my mind on that (relatively obvious) conclusion.  But then I started to think about a few things that have happened to me in the last few weeks

  • My banker, who was working at home, was unable to complete a couple of tasks I needed from him because Bank of America would not allow him to handle certain confidential information in his home or via his home computer
  • I rented an extra office for a new HR director I have added to my own company -- not because she really wants an office or uses it much -- but because we had to have a secure locked location to store confidential employee files
  • Working with my attorney on a deal has been inefficient because he does not have access to files and certain resources at the law firm

This raises a question -- is some amount of commercial real estate necessary just for security concerns (banking, financial data, employee data, HIPAA, legal correspondence)?  Perhaps in the near term.  But if we really get more comfortable with working remotely, then the ultimate solution is not to keep expensive office space for file cabinets and secure networks but to create document and data management models that secure data even when everyone is working remotely.  There are a lot of pieces to this, but some of them include

  • Hardware/Software solutions to secure notoriously poorly secured home networks and computers
  • More commitment to HRIS and on-boarding systems to move all employee paperwork off paper and into the cloud
  • A return to some of the "paperless office" services that really did not catch on.  For example, services that receive all company mail and scan it and then distribute it digitally.
  • For old dead tree documents, which I guarantee will still exist, more use of 3rd party / remote file management and storage solutions

I am quite convinced there are going to be some new businesses here -- and so far we have zoom and not much else.  If I was in technology, I would be thinking if I had the technology or the position to solve problems in this space.

One company that intrigues me is Iron Mountain ($IRM).  They have said nothing that I have seen in their marketing about post-COVID opportunities, but their business model (a combination of paper and digital document management and storage solutions) seems a good fit.  I think they are sitting in a very interesting spot to benefit from the post-COVID work environment, and I have bought a block for my portfolio (which is not that painful to hold on the come because it also pays an 8.5% dividend).

PS-  I am not an investment advisor and just have fun casually thinking out loud about investments and markets, from time to time.  The vast majority of my money is invested in my own business, which, through absolutely no foresight on my part, happens to be in one of the few retail segments and virtually the only hospitality segment to see record revenues this year (camping).  I am trying to think about long positions because, like someone who only recently gave up smoking, I am trying my absolute best to give up on shorting stocks -- it is just too painful in this nutty market *cough* Tesla *cough*.   With my skepticism I bring to most things, shorting is a natural fit for me but there is only so much pain I am willing to endure to fight an overly-active Fed and an overly-dormant SEC (this article plus my personal experience caused me to capitulate).  I do still have a few shorts on the books, including $tsla of course for tradition sake, but these now amount to what are essentially bar bets.

A Good Illustration How Much TV Has Changed From My Youth

I saw this story in my feed reader today:  

the Dallas Cowboys cheerleader reality show — consider it the Hard Knocks of cheerleading — is back for its 15th season. CMT announced today it’s bringing back Dallas Cowboys Cheerleaders: Making the Team for one of the more interesting seasons in show history due to COVID-19.

I have never even heard of this show, much less seen it, and it is on its 15th season**.  In my youth, any show on its 15th season would have been known to all, whether one watched it or not.  Fewer than 10 prime-time series before the year 2000 even made it to 15 seasons, and even the ones that made only 9 or 10 seasons were part of the national zeitgeist and familiar to about everyone (e.g. Gunsmoke, MASH, Cheers, Hawaii 5-0, Perry Mason, Beverly Hillbillies, etc.).  It's amazing to me how niche shows can find an audience and continue to make economic sense today in a totally different way than used to be possible.

Modern music, of course, has been through roughly the same changes.  Of the eleven albums with the longest runs as Billboard #1, only one (Adele 21) was released in this millenium and only one other after 1990.

Quick:  According to Wikipedia, what is the longest running show on cable at 44 seasons?  That is 5 more seasons than ESPN SportsCenter.  I could not have named it if you had given me 200 guesses.

 

** I am not dissing the show or its audience.  If you love this show, there likely is another example out there of a show on its 15th season of which you have never heard.

Phoenix Light Rail Fail: @valleymetro 2020 Report

Well, it is that time of the year when Valley Metro, the Phoenix area transit authority, publishes its fiscal year (July-June) ridership numbers, and boy are they awful this year.

In past installments, I have pointed out how our shift to funding a ridiculous light rail system in one of the least dense cities in the world has killed transit ridership.  Since rail costs more than 10x per passenger mile to move riders vs busses, the shift to light rail tends to starve bus funding in every city it has been tried, leading to net losses (even pre-Covid) in total ridership numbers -- yes even in Portlandia.  This is all discussed more in our 2019 transit report.  Here is a brief bit:

The problem with light rail (and the reason it is popular with government officials) is that it is an upper middle class boondoggle.  There can be no higher use of transit than to provide mobility to poorer people who can't afford reliable automobiles.  Buses fulfill this goal better than any mode of transit.  They are flexible and can reach into many corners of the city.  The problem with buses, from the perspective of government officials, is that upper middle class people don't like to ride on them.  They like trains.  So the government builds hugely expensive trains for these influential, wealthier voters. Since the trains are so expensive, the government can only build a few routes, so those routes end up being down upper middle class commuting corridors.  As the costs mount for the trains, the bus routes that serve the poor and their dispersed commuting destinations are steadily cut.

Without further delay, here are the updated numbers including 2020. (Tellingly, Valley Metro has for some reason failed to update its chart on its ridership web page to include 2020 numbers.   I wonder why?)

As you can see, even before COVID we were trending towards a total system ridership decline vs. the days before the commitment to light rail.  And we certainly had killed the growth in system ridership we had seen prior to light rail.  But now, with 3-4 months of COVID in the numbers, ridership has fallen off the map.  Boy, I sure bet we would be better off right now with a bus only system where capacity is easier to add, subtract, and relocate vs. light rail whose costs and routes are literally sunk in the ground.  I have no opinion on whether transit ridership will return to pre-COVID levels but I am sure that such massive disruptions in the system are far easier to economically manage in a bus network than in a rail network.

But you will be happy to know that Valley Metro is still spending money to put rails in the ground -- in fact, it has accelerated its spending post-COVID if you can believe it:

Phoenix is ramping up its light rail system despite record-breaking declines in ridership spurred by COVID-19.

Light rail ridership is down a little over 50% from where it was pre-COVID-19, according to Valley Metro CEO Scott Smith. Bus ridership is down about 40%.

Light rail construction hasn't slowed, however. In fact, Valley Metro has accelerated some projects, taking advantage of less vehicle traffic on the road while more people stay home.

Does this make a bit of sense?  Here is the defense:

But with ridership at all-time lows and no indication as to when ridership will return at pre-pandemic levels, is it smart to continue with pricey expansion of the light rail system?

"I think if we used that same logic, we'd say 'Let's go tear down all the movie theaters and all the stadiums.' Nobody expects this to be around forever. We're going to at some point in time, whether it be in the next month or the next year, return to some normalcy," Smith said.

Ooh, @Scott_SmithAZ has obviously had an expensive education that includes lessons in how to defend a bad position using logical fallacies.  Comparing expanding light rail to tearing down movie theaters is a false analogy.  No one is talking about tearing out light rail (well, maybe except for me).  The appropriate comparison is to ask if anyone is saying "let's go build a bunch of new movie theaters and sports stadiums" right now, and the answer is definitely no.

But don't despair, Phoenix taxpayers.  Because Valley Metro is clearly carefully considering its routes and is only building those to locations they are sure will be super popular both during and after COVID.  For example, one current expansion is to connect the existing network to... an aging shopping mall.

An Update on the "Failing at Fairness" Gender Myth

A couple of years ago I wrote about the 1994 Myra Sadker book "Failing at Fairness,"  a book that tried to make the case that girls were getting hosed (as compared to boys) by the US educational system.  Leaving aside my general sense that all kids of all races and genders are getting hosed by the current public school system, the idea that girls were doing worse in education was already wrong in 1994 and is demonstrably ridiculous today.  I showed these charts at the time.  First from the indispensable Mark Perry:

In this second chart, even the New York Times has noticed

Really, one only needs to go look at the unemployed knuckleheads living in their parents' house and rioting for Antifa to know we have a boy problem today, not a girl problem.  But I wanted to add one more piece of data, from some research I cannot vouch for in Self.  The income results for young women are about what you would expect from the education data above, and the crossover (somewhat coincidentally because it is dependent on start date chose) almost exactly matches the crossover in the education data.

Perhaps it has always been so, but we live in a time when our social science mythology is really divorced from social science data.

Have Landlords Given Up, Or Is It Just Mine?

Granted, I am not a large tenant in my building.  I have about a thousand square feet of office space, but we are doubling the size of the company and I sent a note a number of days ago to my building management asking if I could look at getting perhaps twice as much space.

The building is at least half empty and many of the tenants they do have look to be checking out.  So I sortof expected some response, but today I had to follow up to a list of several people at my landlord with an email that said

Uh, hello?

I know I am a small tenant but with a half empty building and COVID uncertainty I sort of expected some sort of positive response

The one thing I have learned is that there are definitely some odd incentives in the real estate world.  One that I have found striking is that, at least for my landlord, maintaining growing average rental rates is more important than occupancy or cash flow.  In several cases, in a perennially half-empty building, they have let even large tenants walk and leave space open for years rather than give on rates.  Is this maybe an agency problem, where the rental staff have different metrics and incentives than the owners?  Or maybe it is a function of trying to sell the property, where a new owner who thinks they are good at filling space will care more about average rental rates than occupancy?

Big Flashing Market Top Signal

Note the new ETF products:

GraniteShares has listed 18 ETPs offering three-times leveraged and inverse exposures to popular US-listed stocks.

The 18 leveraged and inverse ETPs are listed on the London Stock Exchange (LSE) with a total expense ratio of 0.99%.

The stocks covered include most of the momentum Robinhood favorites, including Tesla, Uber, and Apple.  Nothing says "top of the market" like investing in the "GraniteShares 3x Long Tesla Daily ETP (3LTS)" whose underlying stock has a PE of like 1200 or even better in the "GraniteShares 3x Long Uber Daily ETP (3LUB)" whose underlying stock has never even come close to being able to calculate a PE.

This was my favorite line, "The ETPs enable sophisticated investors..."  LOL, I am pretty sure that sophisticated investors are able to much more efficiently leverage their trades if they want this much leverage (in any market, but particularly a volatile one, the math of the daily resets means not only a lot of fees, but also a steady value leakage from the fund -- see postscript).

The game is given away in the next line which says, "The range of ETPs is listed at $5.00 per share while most of the underlying stocks trade at prices in excess of $200".  Right, because sophisticated investors can't come up with $200 for a single share.   This product is obviously aimed, entirely inappropriately, at new Robinhood style NOOBS day-trading with their unemployment check and who grew up in an era when stocks only go up (and whose value is, like Bitcoin, untethered to any fundamental).

This is sleazy as hell -- avoid it at all costs.

Postscript:  Here is an example of the result of the leakage math that just gets worse in a volatile market like we have had this year.  Consider two existing S&P500 3x leveraged funds, SPXS is triple short and SPXL is triple long.  The S&P is up 8% for the year, so the average investor would think, "so, SPXS is down 24% and SPXL is up 24%"?  But that is not right, because of the daily recalculation in a volatile market.  We will ignore the math (sometime I might post a spreadsheet) but the result is this:  With the S&P500 up 8% YTD, the SPXS is down a whopping 60% and the SPXL is DOWN (not up) but down almost 9% -- you can see this right on their web site.  You would have been better off in either case just to buy or short SPXX with leverage.   You might have even been better with options -- making leveraged bets on momentum stocks generally means one expects volatility, and at least options increase rather than decrease in value with volatility.  You have to deal with expiration and theta in options, but as we have seen these leveraged funds have their own theta-like behavior over time.

Warning:  I am not, not, not an expert nor a licensed investment advisor or any other sort of advisor.  But take my word for it -- don't buy these.

Why the SEC is Investigating GSX

Chinese online educational company GSX announced today that the SEC had opened a probe into their finances, potentially reminiscent of the Luckin Coffee and Wirecard investigations that revealed all sorts of fraud inflating reported revenues and profits.  In all these cases, private investors and journalists began reporting the fraud long before government agencies ever got interested.

I have always found stories of business frauds to be fascinating.  I am not sure why this is, but it may be in part because I really got sucked into the Enron cult, in part due to my working briefly with Jeff Skilling at McKinsey on Enron.  It took me a long time to accept the core of the Enron fraud (thanks to combined efforts of Smartest Guys in the Room and Conspiracy of Fools)** and since then I have taken a won't-get-fooled-again approach, I think.   So much so that I have probably become unhealthily skeptical, unable to get excited about investing in much of anything in this market and shading towards the Zero Hedge permabear stance.

Anyway, I like a good business fraud and discovery story (Bad Blood about Theranos and Billion Dollar Whale about Jho Low and 1MDB are good recent examples).  To that end, I found that the Muddy Waters Research paper on GSX is pretty interesting, detailing how they came to the conclusion that most of GSX's customers are actually bots rather than real paying customers.

Disclosure:  I am short GSX

A Framework for Thinking About Lockdowns and Why They Are Counter-Productive

Warning:  I am not a trained expert on infectious diseases, just a well-informed person with scientific training and a bias towards skepticism.   If you are a scientific Catholic (meaning your science can only come from officially-designated authorities) rather than a scientific Protestant (which allows you to take responsibility for your own understanding of the universe) then you might as well skip to the next article.

Hypothesis 1:  It is impossible for a large population in a modern society to hide from the disease.  It might be possible to delay or slow the onset of the disease in the larger group, but until some sort of herd immunity exists, reservoirs of the disease will still remain and spark new infections.   For God sakes we still have whooping cough outbreaks in this country.  Look at COVID disease curve shapes for states and counties -- Some locked down early, some late, some hard, some not at all.  Some required masks and some didn't.  But all the curves look the same shape.

Corollary 1:  All lockdowns do is delay the onset of the disease, not avoid it, and thus add severe economic dislocation, increased poverty, domestic violence, alcoholism, suicide and any number of other negative lockdown effects to the inevitable toll of the disease.  If we are doing anything at all to affect the course of the disease, we are stretching out the misery.

Hypothesis 2:  Individuals can, with some decent probability of success, hide from the disease.  There are those who see a conflict between hypotheses 1 and 2, so let me address that.  There is a very old joke about two men who are camping and are awakened by a very large, angry, hungry bear.  One man starts putting on his tennis shoes.  The other says to him, "you can't outrun that bear" and the first man responds, "I don't have to outrun the bear, I just have to outrun you."  In this story, no matter how much running or hiding is done, its likely unavoidable that 50% of the men will get chomped, but individual action can influence who that 50% is.

Corollary 2:  While we cannot do much about ultimate COVID case counts, because the disease is so selective in who it tends to kill we CAN do a lot to limit the death toll.  We should be protecting seniors and other vulnerable people.  Everyone nods their heads to this.  But logically we should also be encouraging everyone else to get the disease and get us to herd immunity.  I don't want to overstretch the bear analogy, but imagine now that one of the two men were wearing a Kevlar suit.  That person needs to face the bear while the other runs -- the experience may not be pleasant for him, but he will probably survive and thus the total bear death toll will be reduced 100%.

A while back when I was active on Twitter, I wrote that instead of closing colleges, we should have opened them for 8 weeks this summer with no teachers and administrators -- Just leave them alone with a few truckloads of alcohol and condoms.  Soon an entire generation would be immune.  The death rate from COVID in healthy 20-year-olds is microscopic (it appears to be lower than the flu, which killed my 25-year-old nephew btw).  Instead we sent them all home from infection hotspots of NY and Boston to potentially infect grandma.

The best way to test a series of hypotheses that are crafted from historic data is to see if they continue to make sense going forward.  So I bring you this recent story on COVID and Hawaii:

After initially defying fears that its proximity to Japan and popularity with tourists might lead to a massive outbreak, Hawaii is finally facing its very own COVID-19 reckoning.

The state is now struggling with a genuine surge in the month of August after remaining at or near the bottom of the US league tables for the first four months of the pandemic.

For a small state with just 1.4 million residents, Hawaii has a total of 7,260 confirmed cases, 5,549 of which were confirmed within the last month, according to Johns Hopkins data. The state has gone from last or near last to No. 19 in terms of new cases reported daily over the past few weeks.

From mid-March to mid-June, the state saw an average of just 7.9 new cases reported per day. Last week, that average number climbed to 219.

This is terrible news for a state that, at the end of July, had the highest unemployment rate in the US (more than 13%) due to its reliance on tourism.

For me, given my hypotheses about virus responses, this is the least surprising story ever.  But apparently the "experts" are scratching their heads

One infectious disease specialist says the surge is surprising given Hawaii's geography, and the plunge in tourism-related traffic.

"As a public health professional, I expect this to look like New Zealand," he said, referring to the Pacific island nation that isolated itself and had few Covid-19 cases.

Postscript:  I am not a fan of "check your privilege" retorts, but if one accepts that framework for a moment, one might notice just how privileged the exhortation to "Lock down, work from home, and stay in touch with friends over Zoom" really is.  Listen to the folks rooting for lockdowns and you will find that the vast majority

  • have professional jobs that can be done from home
  • continue to get paid even when they don't work at all (e.g. teachers and politicians)
  • have a lot of savings

A large number also tend to ignore the rules they foist on everyone else.

Update:  Relevent to my sort of tongue in cheek college suggestion above

Good News on COVID No One Will Likely Report

  • Arizona ICU beds in use for COVID patients fell to 16%, the lowest number of beds in use for COVID since April 10.
  • COVID patients, even at the nationally ballyhooed Arizona peak, never reached 60% of ICU beds.   Total ICU capacity utilization never exceeded 91%  (note that these likely overstate the numbers, as a shooting victim who tests positive for COVID can be listed as a COVID patient).

Source

There is something weird about the COVID test and/or test process we are using in AZ.  We are still testing a lot of people every day and the test positive rate for the state is still high, like 5-8% each day.  But the number of new cases is falling rapidly to levels we last saw in May, and the number of hospitalizations have fallen into early April levels.  So what gives?

One anecdotal data point is an employee of ours who tested positive without symptoms (he has other medical issues that brought him into the hospital).  Weeks and weeks later he continues to test positive on followup tests and continues to be entirely asymptomatic.   My hypothesis is that we are retesting the hell out of people and using a test that is overly sensitive and does not really indicate disease activity.

One other note on this same fellow -- he and we are in somewhat of a bind on his employment.  We are working under contract to a division of the Federal government and they require that employees test negative before they return to work.  Many corporations have the same internal policy.  So what do folks in this situation do?  They are likely perfectly safe to everyone but can't get a negative test.  Do they ever get to work again?

AZ Finally Comes Up With A Better Way to Show COVID-Related Hospital Capacity

Now that the COVID wave in Arizona is receding, the ADHS Data Dashboard finally has come up with a better way to show COVID-related hospital bed use.  Had this been in use at the peak, I think the general panic about overwhelmed hospitals might have been reduced.  I would consider this serious but not disastrous, with some squeezing out of less urgent or delay-able procedures but still with substantial non-COVID capacity remaining.

 

Postscript:  I have an acquaintance, a man in his late 70's, who passed away this week.  He had a long history of heart issues and had something go wrong again.  The ICU in his area of California was apparently full -- could have been COVID, could have been the fires in the area, but he had to be flown to another.  He passed away at the new location, and I don't know if the ICU shuffle was the cause or a contributor but it certainly did not help.  So I am not arguing ICU loads are not important -- this is why we all were mostly OK with "flatten the curve" (but not necessarily with "hide for months or years until the disease completely goes away").  But the situation has been grossly exaggerated to scare people and that makes me angry.

Could We Buy the @WSJ Editors a Thesaurus?

Campaign Zero: Doing the Hard Work on Police Accountability

In many other posts, I have credited BLM for bringing attention to police accountability issues but have criticized them for not doing the hard local work to start fixing things ("defund the police" and looting Apple stores both being, to my mind, equally ineffectual approaches).

My son made me familiar with Campaign Zero, which does seem to be doing the hard local work to change laws and union contracts.  They have state by state and city by city progress lists at passing key pieces of their reform agenda, model legislation, etc.  I also like the fact that while they acknowledge racism as part of the problem, they frame the issue more broadly as a general issue of police violence and accountability.  I don't agree with 100% of their program but as a libertarian I long ago got comfortable making common cause at less than 100% levels of agreement.

Their solutions page is really very impressive, and head and shoulders above most of the popular discourse I see on this topic.  here for example are subpoints under "End For Profit Policing", just one of their 10 action planks.  I love the links to actual model legislation where it exists.  This is how change will happen on this issue.

Police should be working to keep people safe, not contributing to a system that profits from stopping, searching, ticketing, arresting and incarcerating people.

POLICY SOLUTIONS

interview.jpg

End police department quotas for tickets and arrests

Ban police departments from using ticket or arrest quotas to evaluate the performance of police officers

(Ex: Illinois law)

Limit fines and fees for low-income people

Pass policies requiring local governments to:

  • ban issuing fines or arrest warrants for civilians who fail to appear in court for a traffic citation (Ex: Ferguson Policy)
  • ban generating more than 10% of total municipal revenue from fines and fees (Ex: Missouri law)
  • allow judges discretion to waive fines and fees for low-income people or initiate payment plans (Ex: Pennsylvania law)
  • prohibit courts from ordering individuals on parole or probation to pay supervision fees and other correctional fees

Prevent police from taking the money or property of innocent people

Prohibit police from:

  • seizing property of civilians (i.e. civil forfeiture) unless they are convicted of a crime and the state establishes by clear and convincing evidence that the property is subject to forfeiture
  • keeping any property that has legally been forfeited (instead, this property should go to a general fund)
  • participating in the federal Equitable Sharing program that allows police to engage in civil asset forfeiture

(Ex: New Mexico law)

Require police departments to bear the cost of misconduct

  • Require the cost of misconduct settlements to be paid out of the police department budget instead of the City's general fund
  • Restrict police departments from receiving more money from the general fund when they go over-budget on lawsuit payments

The Hard Work That Must Be Done to Improve Police Accountability

As I observe it currently, the three strategies currently being taken by Progressives to increase police accountability are

  1. Demonizing all police officers, good and bad
  2. Making large cuts to police budgets and/or salaries
  3. Looting Apple stores

I have lamented before that none of these approaches are likely to succeed at reforming police accountability or more broadly at helping black Americans.  Remember that while black Americans disproportionately come in contact with police and the justice system, they also are disproportionately victims of crime.  All the current approaches listed above are unlikely to improve the police and justice system but may make crime worse.

One of the seldom discussed differences between Progressives and libertarians in this country is their skill set for change.  Progressives are very good at creating a "moment" where everyone in the country is forced to look at an issue and potentially agree that change is needed.  Progressives can grab both the streets and the headlines.  But they often suck at the hard work making real change happen in a Democratic system.  They don't seem to have an interest in the drawn out 3-yards-and-a-cloud-of-dust offense needed to make reforms city by city.  Libertarians are just the opposite.  We suck at building mass desire for change -- we write 5000 word think pieces with lots of graphs but you don't see us in the streets.  But we can be good at actually getting change to happen -- I think of ALEC (which is really more Conservative than libertarian, but work with me here) and how it works.  Let's say we decide it would be a good thing to have legal authority and process to build private toll roads.  ALEC goes out there city by city and starts working the local government process.  It finds a location, no matter how small, where it makes progress and gets laws changed.  It then bundles this work into case studies and model legislation and takes it to other communities.

This is exactly the hard ground work that is needed to take the goodwill BLM has built up with the public and convert it to real change.  And, correct me if I am wrong, I have seen exactly zero interest out of anyone in BLM to do this -- it's all street protest and, among the richer folks, high-profile virtue signaling.

Walter Olson had a link on Twitter to an article my Mailee Smith that really gives one an idea how hard the local work is going to be:

Reformers are calling for broad changes. Many of the contemplated reforms—such as making it easier to fire problem officers—are meant both to protect citizens from police brutality and to protect the vast majority of police officers who serve honorably from having their reputations tarnished by the conduct of a few.

These efforts could prove meaningless, though, in states like Illinois that give public-employee union contracts greater power than state law. Buried deep in the Illinois Public Labor Relations Act, which gives collective bargaining power to police unions, is Section 15, entitled “Act Takes Precedence.” Section 15 explicitly provides that when a government-union contract conflicts with any other law or regulation, the contract prevails.

It would be unthinkable, in any other context, to permit an agreement negotiated by unelected third parties to trump state law—but that’s exactly what Section 15 demands. Illinois could enact the best police reforms in the nation, but those reforms won’t matter if they run contrary to a police-union contract.

Good God, this is awful.

Postscript:  There are a couple of added barriers, I think, beyond just skills and interest that keep Progressives from digging down into these issues

  1. Public employees unions have always been a keep political bulwark of the Left, and I think folks on the Left struggle to challenge a public employee union
  2. A cynical interpretation is that hard-core Progressives want to chuck democracy altogether, and thus see no reason to do the hard work of making change happen in a democratic system

Update:  One idea that has been raised by Progressive of late is unbundling the police force, taking social work or civil enforcement tasks from them into other groups.  These seem like approaches worth considering -- I always have wondered why traffic or parking enforcement have to be police functions.  However, this would not have addressed recent high-profile shootings that are driving a lot of the anger

Do Teachers Next

@kevindrum writes this yesterday at his blog:

How long will taxpayers put up with threats to stop doing their job every time police forces are asked to make even the smallest change or sacrifice? It’s childish stuff and before long it’s likely to create a backlash that does the police no good.

Long time readers know at this point I am fed up with everyone in the debate on police.  I have been frustrated for years, long before the advent of BLM, at the structural and cultural barriers to holding police accountable for violence against citizens.  But I am equally frustrated at BLM and the Left for frittering away the moment, focusing on violence and looting Apple stores rather than the hard, city by city work of real reform.

Drum is right that the police and their unions tend to oppose even the smallest reforms.  But I do think he is unfair in that he is leaving out the background that the Left is demonizing their entire profession and threatening to cut budgets and salaries -- a lot of folks would get snippy if the world were suddenly demonizing their profession.

But it is an interesting exercise to take the two sentences I quote from Drum and substitute "teachers", another group of government employees currently refusing to fully do their jobs, for "police".

Postscript:  It is interesting to note in this comparison that no one has suggested that police stay home and get paid because of COVID threats, even though their risk is certainly far greater than that of teachers.  I can't believe it, but after years of being a critic of abuses of police and prosecutorial power, the Left is this close to having me leap to the defense of police.  Incredible.

It Looks Like Trump Is Going to Put My Business in a Vise

Years ago I was arguing with my mother-in-law about Executive power and the Presidency.  She, like many Obama supporters, was arguing that gridlock in Congress over legislation she considered critical was sufficient justification for President Obama to wield new executive powers and go around Congress.  I told her this was a terrible precedent, and asked if she would be just as happy to have President Lindsey Graham wielding such power (this being the prime Republican bogeyman for her, neither of us even imagining Trump).

So now, Obama (and Bush) precedents firm in hand, Trump is reacting to deadlock in Congress over further stimulus by picking up his pen and firing off some executive orders.  I want to discuss one of these, which is to allow at least temporary non-collection of the employee share of social security and Medicare taxes (a bit over 7.6% of wages).

Leave aside as to whether this is really appropriate stimulus for the current economic problems.  A tax break to people who still have jobs might help in certain recession scenarios, but the current situation of having large numbers of people unemployed because their workplaces have been forcibly closed by the action of various governors probably will not be helped a lot if the employed have more money in their pockets -- the problem is that local government officials are not allowing them to spend it. (I will note that no one ever suggests reducing the employer share of these taxes, which might actually increase employment by reducing total employment costs in a way that changing the employee share does not).

The problem I want to discuss is the terrible situation this potentially creates for businesses like mine.  All Trump can do is defer collection of the tax -- he cannot actually set it to zero or forgive it, which must be done by Congress.  This means that if our business does not withhold these taxes from employees, they accrue and build up as a debt still owed to the government by the employee.  Six months from now, when a new administration takes over and ends the deferral, our employees (who are paid twice a month) might get a deduction in their next paycheck not for 7.6% of wages but 91.2% of a paycheck (12 missed paychecks times 7.6%).

But here is why our company is really screwed:  We have 400 employees today, but since we are a summer seasonal business we will have fewer than 100 in January.  If there is a catch-up repayment in January (meaning Congress chooses not to forgive the taxes altogether), most of my employees who would need to repay the tax will be gone.  Do you think the government is just going to say, "oh well, I guess we lost that money"?  Hah!  You don't know how the government works with tax liens.  My guess is that for every employee no longer on the payroll for whom back employment taxes need to be collected, the government is going to say our company is responsible for those payments instead.  We could be out hundreds of thousands of extra dollars.  President Biden will just say, "well I guess you should not have participated in a Trump program."

So this is the vise we are in:  Either we participate in the program, and risk paying a fortune in extra taxes at some future date, or we don't participate, and have every employee screaming at us for deducting payroll taxes when President Trump told them they did not have to pay it anymore.  And what happens if Congress does come along later and forgive the taxes, what kind of jerk am I for not allowing my employees to benefit from the tax break?

Essentially I am forced to guess what legislation might be in the future.  Sort of the opposite of ex post facto law.  Pre facto law?

Update:  LOL, I r stupid, had "vice" instead of "vise"

Unbundling the College Experience

I thought this was a really interesting idea.  The COVID lockdowns and colleges going to remote classes has revealed a pretty strong preference among folks paying for the college experience -- they want the classes (or at least the piece of paper that comes from attending the classes) and they want the social experience.  With classes going online, many college students are deferring college for the year, hoping to get both parts of the package next year.  But what if someone unbundled the experience, providing the group social experience in location A while all their customers were taking classes remotely at colleges B, C, E, etc.

As the coronavirus pandemic continues to temporarily — or perhaps permanently — alter the college experience, two Princeton graduates have come up with a new idea: instead of students taking online courses from their bedrooms and couches, they'll take them from a luxe "bubble" hotel full of other students in the same boat.

It's called The U Experience; come fall, it may be hosting 150 students at hotels in Arkansas and Hawaii — and it's currently accepting applications.

The idea began, according to 24-year-old cofounder Lane Russell, when Harvard said it would shift to remote learning for the fall, but would continue to charge full tuition.

"It really made us think about, 'What is the thing that college is offering, and what are students getting out of it?" Russell said. "And we think that, even if a college is announcing something that indicates that the experience is actually worth $0, a lot of students probably do value it much higher than that."

And in the social and extracurricular void that colleges shifting to remote learning leave behind, "disruption and unbundling is called for," according to 27-year-old cofounder Adam Bragg.  That "unbundling" will take the form of two bubble "campuses": one in Waikiki, Hawaii, and the other in Fayetteville, Arkansas. Both are in hotels that Bragg and Russell said they have bought out.

"Something like this could have never been done before — mainly because the separation of a college experience from colleges was never possible. They held the college experience for ransom, and now that they've shifted to online learning, there is an opportunity to do something like this," Bragg said. He added that, pre-pandemic, a complete buyout "wasn't necessarily an interesting thing for a lot of the hotels, or at least they didn't know they had the interest for this thing. And so on both sides, the levels of coordination are a lot higher than was ever possible before."

Postscript:  yes, I know that with poor execution this becomes the Fyre Festival, but I am always a sucker for unbundling models

Speech Hypocrisy: A Prominent Conservative Sees the Appeal of Cancel Culture

Here is John Hinderaker at Powerline:

In 2017, Professor Knijnenburg wrote that “all Trump supporters, nay, all Republicans, are racist scum.”...

Why should the people of South Carolina fund this bigot? Why should they allow him to teach their children? They should fire him. Yeah, sure, tenure. But tenure should not protect a professor who is guilty of this kind of overt bigotry.

I am racking my brain to figure out how Hinderaker's plea for a public institution to fire a tenured professor is any different from the run-of-the-mill Leftist cancel culture that the Powerline bloggers often lament?  Narrowly defining an Overton window based on one's own beliefs and then demanding that anyone whose speech falls outside that window should be muzzled and denied a living sure sounds like cancel culture to me.   And there is not even a hedge here like, "well it's a private institution so the 1A does not apply" -- this is a public institution.

I have only seen selected bits of Professor Knijnenburg's academic work that have been cherry-picked by critics such as Hinderaker, but I am willing to believe that this professor does not represent the values I would want to see upheld in an institution of higher learning.  But the solution is to ignore Professor Knijnenburg as the trivial scholar he likely is and go after the folks that run these institutions and demand that they justify their standards for putting together the faculty and awarding tenure.  The problem here is not speech, but the absurdly low standards that obtain in much of academia, even at Ivy League Universities.

Well, So Much for Medical Privacy

I got this in my email today from the state of New Mexico:

Dear Employer,

As of Wednesday, August 5, 2020, the New Mexico Environment Department (NMED) filed an emergency rule that requires employers to report positive COVID-19 cases to NMED within four hours of being notified of the case. The employer must notify NMED by email at:

Email: NMENV-OSHA@state.nm.us

This kind of thing actually makes it harder for us to keep our workplace safe.  We depend on our employees completing a daily health self-assessment each day and the only way we could coax a number of them into being honest on this survey was to promise them that a) we would take care of them financially through any quarantine and b) their self-assessment would remain confidential.  But now it can't remain confidential in NM.  This is going to make it much harder for us to get honest information from our employees on potential infection, as they are all worried about  -- as they put it -- getting into some government system.  Arguing that this fear is irrational (and I am not sure it is entirely in a world where mayors are turning off power and water to homes they don't obey them) is beside the point, as it is a fear they have and will prevent an honest discussion with some.

Trump Attempting to Establish the Worst Regulatory Rule Ever

Inspired perhaps by back episodes of the Sopranos or his experience with payoffs required in New York to get any real estate development project going, Donald Trump is attempting to establish a regulatory regime right out of any kleptocracy

President Trump confirmed Monday he is open to a deal in which Microsoft Corp.  or another U.S. company buys the video-sharing app TikTok, but said the government should receive payment for clearing a purchase.

“I did say that ‘If you buy it…a very substantial portion of that price is going to have to come into the Treasury of the United States, because we’re making it possible for this deal to happen.’ Right now, they don’t have any rights unless we give it to them.”

Mr. Trump, a former real-estate developer, compared his demand for a piece of the purchase price to the “key money” a tenant who wants a lease pays a landlord.

“It’s a great asset,” Mr. Trump said of TikTok. “But it’s not a great asset in the United States unless they have the approval of the United States,” he said, reiterating that the Treasury should get “a lot of money.”

Great.  Already there are too many regulatory hurdles to doing about anything, and Trump wants agencies to use regulatory approvals to hold up corporations for payments.   And you can be sure this is a precedent the Democrats will be only too happy to latch onto -- want a pipeline built, where's our vig?  Who wants to be that this is the first Trump decision AOC comes out in support of?  The Republican Party sure has come a long way in my lifetime.

Wait, You Mean That the Economic Damage From COVID Lockdowns DOES Matter?

As I mentioned last week on twitter, I have retreated from that platform for a variety of reasons and will focus again on long-form blogging of the style this site has been pursuing for 16 years.

For the last several months, I have been a lockdown skeptic, at least for the healthy population under 55 or 60 years old.  I will confess my early tendency toward skepticism was driven as much by the behavior of lockdown hawks as any data or knowledge on my part.  Whenever I hear appeals to authority, use of non-transparent computer model results as facts, politicization of scientific positions, and restrictions on dissent in any scientific issue, I immediately get skeptical of the orthodox position.  As I have watched things unfold, I am increasingly convinced that this virus is (like most new viruses in history) going to run its course until large sections of the population have gained immunity.  Lockdowns, while they may have salutary effects in preventing hospitals from being overwhelmed, just seem to be delaying the inevitable -- when we come out of hiding, reservoirs of the disease are still there and infections mount again.  "Flatten the curve" made sense to me, but that seems as far in the past of political rationals as does the Tiger King mania.

But to some extent my opinion on lockdowns does not matter.  The one thing I AM sure of is that, whether lockdowns are effective or not, it is perfectly reasonable to balance the costs of such interventions against their benefits.  But I remember clearly when this commitment to making thoughtful tradeoffs marked one as practically Hitler.  Many of our intelligentsia, particularly on the Left, argued that it was immoral even to consider effects on the economy of COVID interventions.  I always thought this was ironic, because the worst economic effects were sure to hit lower income folks first -- they had jobs you had to, you know, show up for and they had less savings to weather the storm.   Paraphrasing one of my commenters, "Stay at home, work remotely by computer, and keep up with your family on Zoom" has to be one of the most white privilege government orders ever.  But nevertheless there was the Left self-righteously advising exactly this, with pundit after pundit who had portable jobs writing on a computer criticizing any hair dresser who wanted to actually be able to ply their trade as well.

So I was floored when I saw these charts on Kevin Drum's site as part of a criticism of the Republican reluctance to extend rich unemployment benefits:

You know what my reaction to these charts is?  No sh*t, Sherlock.  Many of us warned of EXACTLY this when the lockdowns began.  And folks on the Left treated our warning as not just irrelevant but evil. They would say, "How can you be so callous as to suggest jobs are more important that lives?"

But wait, now the economic impact of the lockdowns IS a problem?  I refuse to defend the Republican morons in Congress or the White House, but I can say that many of them warned of exactly this problem with the lockdowns while the Democrats were full steam ahead on economic shutdown.  I could accept Drum's post as self-criticism of the sort like "Wow, I really underestimated this when I was advocating for lockdowns" but now, he uses this as a platform to blame other people for the problem.

Libertarians have often highlighted how the government tends to create problems by their actions and then gains more power by saying that it needs to fix the problem its own actions created.   I can't imagine we will ever have a better example of this effect -- here is Drum advocating that the government simply must send more money to help people who were willing, even eager, to work but were not allowed to do so by the government.  COVID has been a socialist dream, converting payment for productive work to payment for breathing.

And let's discuss the exact program he is advocating.  He wants an extension of the Federal unemployment supplement of $600 a week which takes most state benefits to $1000 to $1200 a week.    Realize that is $50,000 to $60,000 a year we are paying people to not work (one only qualifies for these benefits if one does not work -- take a job and they are gone).  Look at the former income levels in his chart -- who is going back to work with this kind of government payment?  We are training people that they should be paid this much for not working and encouraging them not to seek actual employment -- this is a terrible message (and one reason a UBI makes far more sense if we are going to transfer this much money).   I think this is contributing somewhat to the position of the teachers' unions.  The public game now is to get paid and not work.

We have 13+% unemployment and our company has to struggle to hire anyone in these conditions.   I posted this on twitter as a comment on a Paul Krugman post, and his followers dutifully lined up to tell me that it was because I did not pay a fair wage.  People are making $25-$30 an hour on unemployment.  I thought $15 was our idea of "fair" -- are we really going to set $30 as our minimum wage?  Will anyone be employed?

Postscript:  I have one other rant related to employment and COVID.   Every blue check mark and Hollywood star bends over backwards on every occasion to thank health care workers during the pandemic.  Good, I agree, health care work is particularly fraught right now.  But you know who else worked through the pandemic?  I will give you a hint:  I bet you never had problems filling your car with gas, that you always had gas and electricity at home, and that (with a few brief exceptions) you always had plenty of food choices.  There are a lot of folks out there who showed a lot of commitment during COVID on whom we rely, and a lot of them are in industries (oil, manufacturing, farming) the elite of the Left tends to look down its nose at as backwards and inferior.

Postscript #2:  I am well aware that Drum has had significant medical issues that make him likely particularly vulnerable to this virus.  I am thrilled that he has a career he can pursue without endangering himself via public contact.  Our family made certain choices we might not have to protect my 85 year old mother in law.  But I am exhausted with people applying their own personal preferences and risk trade-offs to others who may be in very different situations.

George Floyd, A Memo to Conservatives

A good many of my conservative friends are in shock at the reaction to the killing of George Floyd.   "We saw the video.  We agree its awful.  No one we know is defending this."

Yes, that is likely true.  The video was pretty damning.  But you see, these things seldom happen on video.  And when they don't, Conservatives are generally in a "believe all cops" mode that is just as ignorant of due process and nuance as the me-too brigades were with Julie Swetnick's crazy accusations about Judge Kavanaugh.

I understand that a great many police officers are good, even laudable people.  But not all are.  And because there are bad apples, we need careful accountability systems for police particularly because we give them powers and responsibilities that go beyond those of ordinary citizens.

The problem with this accountability is that Conservatives tend to go past respecting and supporting police, to fetishizing them.  I get it -- police are really at the core of beliefs for many Conservatives, whose views turn around the fight between civilization and barbarism.  It's hard not to think of this with barbarism in the streets over the last 24 hours.   No matter how much we respect them and need them to be there, we still also have to impose accountability on them.  You Conservatives frequently stand athwart of this accountability (you Progressives too, but I will get to that in the next post).

George Floyd, A Memo to Progressives

I am not going to lecture serious Progressives on the arson and looting in the streets today -- if you don't understand that stealing iPhones is not an appropriate reaction to police brutality, then the rest of this is going to be lost on you.  But you guys basically represent my side in this thing and frankly you are doing a terrible job.  I will focus on BLM and it could apply equally well to the entire Progressive response.

  1. There is a real problem with police accountability and police violence in this country, one I have been writing about since long before the BLM movement was even created.
  2. The harm of these police accountability issues falls disproportionately, but not solely, on blacks and other minority ethnic groups
  3. For any number of reasons, fixing racism is not the immediate answer.  Most obviously, because racism is super-hard to eradicate and has persisted (though improved, IMO) despite a lot of attention over many decades.   It is hard to point to any time and place in human history when some folks have not been seduced by in-group-out-group thinking.  The other reason is that the primary issue is accountability, not racism.  We give police special powers to use force that the rest of us do not have, but impose less accountability on them for the use of force than the rest of us face.  No matter how good most police officers are, this accountability problem is going to allow bad eggs to repeatedly abuse their power.
  4. There are real, identifiable steps that can actually increase police accountability and transparency and reduce the types of police violence incidents BLM was formed to oppose.  Early on, BLM actually identified a pretty good list.
  5. BLM did a fabulous job of raising awareness and putting these issues near the center of political discussion.
  6. Having done so, BLM now has gone completely off the rails.  It appears to be entirely focused on virtue-signalling and disruption and support of progressive issues completely tangential to its initial focus.  It has no coherent action plan.  Colin Kapernick torpedoed his own football career to bring attention to BLM, but once he did so and had microphones thrust in his face from every direction, neither he nor any of his supporters had anything specific to advocate for, other than outrage and telegraphing their victim status.
  7. Things are even worse today.  A middle and upper class white populace who was sympathetic two days ago may be turning against you.  If you display barbarism in the streets, barbarism that only the police can head off, then you increase sympathy for the police rather than support your narrative of accountability
  8. Progress can be made on these issues, but what it will take is a hard city by city slog to change the rules that govern police discipline and transparency.   As I wrote before, BLM "could learn a lot from Conservative and libertarian groups like ALEC, that focus on creating model legislation and local success stories that can be copied in other places."
  9. Republicans often oppose police accountability steps -- they don't just support the police, they fetishize them.  But the cities that most cry out for new accountability rules -- New York, Chicago, Detroit, Baltimore, St. Louis, Los Angeles -- are have Democratic super-majorities and governments whose officials almost to a one have come out publicly in support of BLM.  So why no progress?  One big barrier is the Democratic Party's unwavering support for public employee unions, and it is police unions that are the biggest barrier to implementing the steps BLM should be demanding.   If you are not diving in and challenging police union contracts on their next renewal, then you aren't doing anything useful on this issue.

Another Climate-COVID Computer Modelling Similarity

In this post, I wrote about parallels between climate and COVID alarm and related issues of computer modelling.  I realized I left out at least one parallel.

In the world of climate, computer model results are often used as the counterfactual case.  Let me give you an example.  The world has warmed over the last 100 years at the same time atmospheric CO2 concentration has increased.  Obviously, to truly judge the effect of CO2 on temperatures, we would like to know what the temperatures would have been over the last 100 years without rising CO2 concentrations.  But we don't have thermometers that read "with" and "without" CO2.

I remember I got caught up in this years ago when I published an analysis that showed that estimates of temperature sensitivity to CO2 concentrations used in projections going forward greatly over-predicted the amount of warming we have seen already.  In other words, there had not been enough warming historically to justify such high sensitivity numbers.  In response, I was told that alarmists considered the base case without CO2 increases to be a cooling world, because that is what some models showed.  Compared to this cooling counterfactual, they argued that the warming from CO2 historically had been much higher.

By the way, this argument always gets to be very circular.  When you really dig into the assumptions of the counter-factual models, they are based on assumptions that temperature sensitivity to CO2 is high.  Thus models predicated on high sensitivity are used to justify the assumption of high sensitivity.

I thought of all this today when I saw this post on COVID models and interventions from Kevin Drum.  I read Drum because, though I don't love his politics, he is more likely than most team-politics writers from either the Coke or Pepsi party to do a reasonable job of data analysis and interpretation.  But I have to fault him for this post, which I think is just terrible.  You can click through to see the chart but here is the text:

At the end of March, the highest estimate for [NY State] hospitalizations was 136,000+. Today the peak is estimated at about 30,000. That’s a difference of 5x. Did the modelers screw up?

Not really. Remember the Imperial College projections for the United States? They estimated about 2 million deaths if nothing was done; 1 million deaths if some countermeasures were taken; and 200,000 deaths if stringent countermeasures were taken. That’s a range of 10x. If you figure that we’ve taken fairly stringent countermeasures but not the maximum possible, then a reduction of 5x is about what you’d expect. Alternatively, if you ignore the Columbia University projection as an outlier, the IHME estimate has only gone down by about 2x. That’s what you’d expect if we took countermeasures that were just a little more stringent than their model assumed.

At the end of March it was still not clear how stringent and how effective the coronavirus countermeasures would be. In the event, it looks like they worked pretty well, cutting cases by at least 2x and possibly more. This is why the model estimates have gone down: because we followed expert advice and locked ourselves down. Just as we hoped.

Treating the early model estimates as if they are accurate representations of the "no intervention" counter-factual is just absurd.   It is particularly absurd in this case as he actually quotes a model -- the early Imperial College model -- that is demonstrably grossly flawed.  He is positing that we are in the Imperial College  middle intervention case, which estimated a million deaths in the US and is likely to be off by more than an order of magnitude.  Given this clear model/estimate miss, why in the world does he treat early Columbia and McKinsey models as accurate representations of the counter-factual?  Isn't it at least as likely that these models were just as flawed as the Imperial College models (and for many of the same reasons)?

The way he uses the IHME model results is also  flawed.  He acts like the reductions in the IHME estimates are due to countermeasures, but IHME has always assumed full counter-measures so it is impossible to use the numbers the way he wants to use them.

Parallels Between COVID-19 Alarm and Global Warming Alarm

So I finally had a day or two of downtime from trying to keep my business afloat (it's weird reading all the internet memes of people at home bored when I have never been busier).  I wondered why I was initially, and remain, skeptical of apocalyptic COVID-19 projections.

I have been skeptical about extreme global warming and climate change forecasts, but those were informed by my knowledge of physics and dynamic systems (e.g. feedback mechanics).  I have been immensely skeptical of Elon Musk, but again that skepticism has been informed by domain knowledge (e.g. engineering in the case of the hyperloop and business strategy in the case of SolarCity and Tesla).  But I have no domain knowledge that is at all relevant to disease transfer and pathology.  So why was I immediately skeptical when, for example, the governor of Texas was told by "experts" that a million persons would die in Texas if a lock-down order was not issued?

I think the reason for my skepticism was pattern recognition -- I saw a lot of elements in COVID-19 modelling and responses that appeared really similar to what I thought were the most questionable aspects of climate science.  For example:

  • We seem to have a sorting process of "experts" that selects for only the most extreme.  We start any such question, such as forecasting disease death rates or global temperature increases, with a wide range of opinion among people with domain knowledge.  When presented with a range of possible outcomes, the media's incentives generally push it to present the most extreme.  So if five folks say 100,000 might die and one person says a million, the media will feature the latter person as their "expert" and tell the public "up to a million expected to die."  After this new "expert" is repetitively featured in the media, that person becomes the go-to expert for politicians, as politicians want to be seen by the public to be using "experts" the public recognizes as "experts."
  • Computer models are converted from tools to project out the implications of a certain set of starting hypotheses and assumptions into "facts" in and of themselves.   They are treated as having a reality, and a certainty, that actually exceeds that of their inputs (a scientific absurdity but a media reality I have observed so many times I gave it the name "data-washing").  Never are the key assumptions that drive the model's behavior ever disclosed along with the model results.  Rather than go on forever on this topic, I will refer you to my earlier article.
  • Defenders of alarmist projections cloak themselves in a mantle of being pro-science.  Their discussions of the topic tend to by science-y without being scientific.  They tend to understand one aspect of the science -- exponential growth in viruses or tipping points in systems dominated by positive feedback.  But they don't really understand it -- for example, what is interesting about exponential growth is not the math of its growth, but what stops the growth from being infinite.  Why doesn't a bacteria culture grow to the mass of the Earth, or nuclear fission continue until all the fuel is used up?  We are going to have a lot of problem with this after COVID-19.  People will want to attribute the end of the exponential growth to lock-downs and distancing, but it's hard to really make this analysis without understanding at what point -- and there is a point -- the virus's growth would have turned down anyway.
  • Alarmists who claim to be anti-science have a tendency to insist on "solutions" that have absolutely no basis in science, or even ones that science has proven to be utterly bankrupt.  Ethanol and wind power likely do little to reduce CO2 emissions and may make them worse, yet we spend billions on them as taxpayers.  And don't get me started on plastic bag and straw bans.   I am willing to cut COVID-19 responses a little more slack because we don't have the time to do elaborate studies.  But just don't tell me lockdown orders are science -- they are guesses as to the correct response.  I live in Phoenix where it was sunny and 80F this weekend.  We are on lockdown in our houses.  I could argue that ordering everyone out into the natural disinfectant of heat and sunlight for 2 hours a day is as effective a response as forcing families into their houses (initial data, though it is sketchy, of limited transfer of the virus in summertime Australia is interesting -- only a small portion of cases are from community transferBy comparison less than a half percent of US cases from travel).
  • In both cases, advocates of the precautionary principle seem to rule the day.  I would argue that in practice, the precautionary principle means that any steps that might conceivably limit something bad should be pursued irregardless of cost.  You see a form of this all over social media, which folks arguing that it is wrong to balance deaths against money, and any life spared is worth the cost.  But this is absurd two at least two reasons
    • First, unemployment and economic recession have real, proven effects on mortality.  Shut down the economy to reduce CO2 or virus spread, and people will die
    • Second, if we really followed this principle for everything we would be back in the stone age.  Take the flu.  15,000-20,000 people will die of the flu every year in the US -- my healthy 25-year-old nephew died of the flu.  Are we going to shut down the economy next year in flu season?  It would reduce flu deaths.  Or take the 37,000 people killed each year in the US in motor vehicle accidents.  With the lockdowns, that figure is certainly reduced right now.  Should we just shut down the economy forever, it sure would reduce car fatalities?
  • And of course there is the political polarization of what should be scientific opinion.  The Nevada and Michigan governors initially banned chloroquine treatment strategies for no good reason other than the fact that Trump publicly highlighted them as promising.

Update:  Prediction from climate applied to COVID-19:  No one will go back and call out widely-used models for failing to accurately model the disease or attempt to learn from their mistakes.  If it is ever mentioned that these models grossly over-estimated deaths, it will be forgiven as being exaggeration in a good cause.  (Somewhat related, Bryan Caplan on Social Desirability Bias)

For the Left, Excess Hospital Beds Were "Too Many Deoderants" ... Until This Month

For years, a significant critique (mostly from the Left) of health care costs has been that over-investment by private hospitals in premium facilities (e.g. ICU beds, MRI scanners, etc) is part of the reason health care costs have been rising so rapidly.  This is why the response to a study like this from several years ago was not "wow, how fortunate the US has so many ICU beds" but instead "wow, this is what is wrong with US healthcare."  This is why per capital healthcare cost is in the next column, implying a link between more beds and higher costs.  And, this is why the "life expectancy at birth" is included in the chart.  The conclusion was supposed to be "see, the US spends all this money on ICU beds and gets nothing for it."  (Obviously this conclusion would be absurdly narrow-minded even before COVID-19, as US life expectancy is lower than that of many other countries due to lifestyle choices and other factors -- a better comparison would be US life expectancy at 65, where US looks much better).

As a result, many states and municipal authorities have Certificate of Need (CON) processes that require hospitals and other health care providers to get government permission before adding certain types of capacity/infrastructure.  Many of these government agencies actually delegate these decisions to a board populated with representatives of the current local incumbent hospitals, meaning one must get permission from one's competitors before adding capacity (permission unlikely to be given).

This sort of regulation has had acute consequences in the age of COVID-19.  John Phelan has an example from Minnesota.

With the extra time, Minnesota will work desperately to expand its ICU capacity. Local stadiums and hotels will be converted to temporary hospitals. “The attempt here is to strike a proper balance of making sure our economy can function; we protect the most vulnerable; [and] we slow the [infection] rate to buy us time and build out our capacity to deal with this,” Gov. Walz said....

Until 1984, Minnesota operated what were called Certificate of Need (CON) laws. These require government permission before a facility can expand, offer a new service, or purchase certain pieces of equipment. While Minnesota has not operated CON laws since 1984, along with two other states—Arizona and Wisconsin—it maintains several approval processes that function like CON laws.

In 1984, Minnesota enacted a hospital construction moratorium. This prohibits the building of new hospitals as well as “any erection, building, alteration, reconstruction, modernization, improvement, extension, lease or other acquisition by or on behalf of a hospital that increases bed capacity of a hospital.” Whenever hospitals or provider groups propose an exception to the moratorium, the Minnesota Legislature requires the Department of Health to conduct a “public interest review.”

Researcher Patrick Moran explains:

In its review, the Department must consider whether the proposed facility would improve timely access to care or provide new specialized services, the financial impact of the proposed exception on existing hospitals, the impact on the ability of existing hospitals to maintain current staffing levels, the degree to which the facility would provide services to low-income patients, as well as the expressed views of all affected parties. [Emphasis added]

Moran continues:

These reviews must be completed within 90 days of the proposed project. However, the public interest review is not binding. The Minnesota Legislature ultimately decides which exceptions are allowed to go forward. Except for the fact that the Legislature makes the final determination about each project, the public interest review process for new hospitals and hospital beds closely resembles CON statutes in other states. [Emphasis added]

Indeed, it is incredible to note that, as with CON laws, the purpose of this system is to make it harder to provide hospital beds in Minnesota. Moran says: “Policymakers hoped that the moratorium would be more effective than CON in reducing the growth of hospital beds.”

They appear to have been successful. In the twenty years from 1984 through 2004, 16 exceptions were granted permitting just 94 additional licensed beds. As the chart below shows, between 1996 and 2016, the number of licensed beds in Minnesota actually fell by 921 while the population increased by 810,000. Exactly how “the Minnesota Department of Health has concluded that the moratorium is largely ineffective in restraining bed capacity”, as Moran says, is something of mystery.

The reason for this sort of thinking has in part been based on misunderstandings on the Left about markets (similar to Bernie Sanders and his too many deoderants statement).  But it is part based on the reality that the US healthcare system is stuck between two different regulatory models.

  • In model 1, which we will call free market, investment by private actors increases supply.  In such a market with a lot of fixed investment, prices are driven down as competitors vie to fill excess capacity.  This is close to the model the US has in veterinary medicine and some non-insurable surgeries like eye correction and plastic surgery, but is far from the model we have in most patient care
  • In model 2, which I will call the public utility model, a small number of private companies operate with heavy regulations of services and prices in exchange for a guaranteed return on assets.  Since the size of the asset base drives profits, private players have the incentive to add lots of assets while regulators look on asset additions skeptically

The US patient healthcare system is stuck between these models, which may be a worse spot than either alone.  Dominance of third party payers or even a single government payer tends to drive the system towards model 2.  But model 2 is notoriously bad at producing innovation, often results in poor capital allocation decisions, and sub-optimizes costs compared to model 1.