Coyote Blog

Back in November of 2015 I wrote:

I would be stunned if the Volkswagen emissions cheating is limited to Volkswagen.  Volkswagen is not unique -- Cat and I think Cummins were busted a while back for the same thing.  US automakers don't have a lot of exposure to diesels (except for pickup trucks) but my guess is that something similar was ubiquitous.

My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance.

Since then Fiat-Chrysler has been accused of the same behavior, and now GM is accused as well, though only in  a civil suit.

A class-action lawsuit accuses General Motors of rigging emission-control systems on 2011–2016 Chevrolet Silverado HD and GMC Sierra HD pickups with GM’s Duramax turbo-diesel 6.6-liter V-8 engine. If the allegations are proved true, the environmental damage from these 705,000 trucks, which the lawsuit said emit two to five times the legal limit of nitrogen oxides (NOx) in typical driving conditions, could easily exceed that of Volkswagen’s emission-test-cheating TDI engines.

Of course, people can say any thing they want in a civil suit, so this needs to be proved, but I think it probably is true.

A while back a reader with some inside knowledge explained what was going on.

Buzzfeed obtained some internal admissions documents from Princeton, and I find them eye-opening, but perhaps not for the reasons others have.   The documents were part of an investigation triggered by several Asian-American students who accused the University of discriminating against them -- a claim I find credible from my own experience interviewing candidates.

There is nothing in the released material than convinces me I was wrong about Asian-American recruiting, but I want to leave that question aside for today and highlight something I have not heard anyone mention about the documents.  I am not sure if they are evidence of discrimination or not, or even if that discrimination really is or should be legal if it existed in a private institution.  But what is very clear is that the admissions department has very particular attitudes about race and ethnicity: it appears that race does not "count" if the student involved hasn't done something to highlight their race.  Or put another way, the admissions folks seem to be penalizing minority candidates for not obsessing about their race.  Here are a few examples:

Of a Hispanic applicant, an admissions officer wrote, “Tough to see putting her ahead of others. No cultural flavor in app.”

“Were there a touch more cultural flavor I'd be more enthusiastic,” one officer wrote of a native Hawaiian/Pacific Islander.

officers candidly discussed the race of black, Latino, and Native American applicants, often seemingly searching for those who highlighted their racial backgrounds rather than checking off boxes on their Common Applications.

"Nice essays, sweet personality," one admissions officer said of a multiracial applicant. "Bi-racial but not [National Hispanic Recognition Program] and no recognition of her [background] in app by anyone."

When one reader called an applicant's Native American heritage "appealing," the other noted that the only place the boy had mentioned the heritage was in a checkbox on his Common Application. He called himself "a white boy," the admissions officer noted.

I am guessing these are all code words for, "we don't see any race-based activism in this person's past."  So we only want kids who obsess about their race and ethnicity, and perhaps act really angry about it.  We don't want African-Americans or Hispanics or Native Americans who just seem like normal, reasonably happy, well-adjusted smart kids.

I have always been conceptually OK with ethnicity and some element of affirmative action being part of Princeton admissions, but this looks ugly to me.  I also wonder about how this will filter back to high schools.  Already, behaviors in private schools that send a lot of kids to top colleges has been changed over the years by perceptions of college admissions expectations.  There was a wave of thinking years ago that admissions departments liked kids who played musical instruments, so freaking every kid that graduates from elite private schools can play an instrument, though today it probably has no differentiating power (you will still see a few clever kids who find relatively unique instruments like the xylophone or the harpsichord).  Then there was a belief that you needed some sort of unique activity to stand out, and there was a wave of kids who clogged or practiced falconry.  Then the word got out that it was de rigueur to do community service, so everyone checks that box.  I wonder if we are not going to see a wave of private high schools riven with racial strife and activism because kids will feel like the only way their ethnicity will "count" at an Ivy League school is if they take over the headmasters office.  Well, it worked at Princeton, I guess.

Hat tip to Maggie's Farm, who from their link I think noticed the same thing.

This is pretty much a re-enactment of every discussion I ever have with my wife about our social calendar, with me as the dude on the right.

Third time in a row I have had an Uber drive stuck at 5 minutes away from me for 20 minutes, with their car sitting right on top of the nearest gas station.

It is hard for me to parse the news on Trump.  I made it clear I thought he was an egregious and unsuitable candidate in advance of the election, but I would like to evaluate what is going on in the Administration based on actual facts rather than my preconceived notions.

What makes this hard is that the whole Russia thing the media is obsessed over is almost certainly total BS.  It is, to my eyes, the Obama birth certificate of this election (sort of Karmic given Trump was about the last man standing after Joe Arpaio in publicly supporting the whole birth certificate thing).  It is not just me who thinks the Russia thing is absurd, Glenn Greenwald, certainly no friend of Republicans, agrees.

So given that the #1 story about Trump is probably completely bogus, is all the rest?  Is Russia representative of a general trend in poorly sourced attack stories on the Administration, or is it a distraction from substantial and real problems that are getting less play.  I have been suspicious that the answer is the latter and Megan McArdle has reinforced this opinion with this devastating wake-up call to Conservatives:

But for connected conservatives in DC, the media isn’t the only source of information about this administration. I’d venture to say that most of them have by now heard at least one or two amazing stories attesting to the emerging conventional wisdom: that the president either can’t, or refuses to, follow any kind of policy discussion for more than a few minutes; that the president will not be told no, or corrected about anything, forcing his staff to take their concerns to the media if they want to get his attention; that the infighting within the West Wing is unprecedentedly vicious, and that those sort of failures always stem from the top; and that his own hand-picked staffers “have no respect for him, indeed they seem to palpitate with contempt for him.” They hear these things from conservatives, including people who were Trump supporters or at least, Trump-neutral. They know these folks. They know, to their sorrow, that these people are telling the truth.

They can also compare what they’re hearing to what they heard, both on and off the record, during the last Republican administration. Even in Bush’s final days, when the financial crisis was in full swing and his approval ratings hovered around 25 percent, there was nothing like this level of dysfunction inside the White House, this frenzy of backbiting leakage.

So even though they agree with conservative outsiders that the media skews very liberal, and take all its pronouncements about Republicans with a heavy sprinkling of salt, they know that the reports of this administration’s dysfunction aren’t all media hype. They have seen the media report on their own work, and that of their friends; they know what sort of things that bias distorts, and what it doesn’t. Washington conservatives know that reporters are not making up these incredible quotes, or relying only on Democratic holdovers, or getting bits of gossip from the janitor. They know that the Trump administration is in fact leaking like a rusty sieve -- from the top on down -- and that this is a sign of a president who has, in just four short months, completely lost control over his own hand-picked staff. Which is why the entire city, left to right, is watching the unfolding drama with mouth agape and heads shaking....

So what conservatives here know is that the freakout in Washington, which looks from afar like a battle between Trump and “the establishment,” is actually one side screaming in amazement as the other side turn their weapons on each other.

Read the whole thing, as they say.  During the campaign, I took an analogy from WWI in which the Germans were being dragged down by an Austro-Hungarian Empire that could never seem to win a battle even against small or dysfunctional armies like Serbia, Russia, and Italy.  The Germans joked in black humor that they were shackled to a dead man.  Similarly, I wrote last year that in nominating Trump, the Republicans had shackled themselves to a suicide bomber.  I actually underestimated the problem -- I thought he would just lose the election big, but now he is blowing up the Republican agenda in a much more thorough way.

I have made this same point before -- immigration restrictions on who can and can't work in the US is effectively a Federal work permit requirement, one that could easily be expanded over time:

E-Verify, if implemented nationwide, would be a system of work permits. If you started a new job, you would need the federal government to verify that you are legally allowed to have that job. How long would it be before the government started making judgements about who should be allowed to work? Convicted sexual predators, even those who were, say 19, and sleeping with a consensual 16-year-old, have to register for life and are told that they can't live in certain parts of a city. Is it entirely inconceivable that some would ultimately be told that they can't work?

I can imagine far worse than that in today's society.   One must complete a certain number of hours of training and pass a series of tests to get a driver's licence.  How long before someone suggestions mandatory diversity testing and a woke-ness test before being allowed to work?

I hate to quibble about a paper that supports my preconceived notions, but I am bothered by this as linked by Tyler Cowen

We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.

Isn’t it possible that cause and effect are being reversed here? I accept that zoning in places like SF make it more expensive. I would have concluded that this higher cost of living allows only the most productive to live there — less productive folks can’t afford it. So the high average productivity of these cities might partially be a result of their higher costs, not because the zoning somehow increases productivity, but because the zoning creates a sorting process where only the most productive may enter, which brings up the averages.  So a reduction in zoning and living costs would cause the productivity numbers for the city to average down as lower-productivity earners can move in.

I loved Kling's book on the three languages of politics.  While I find this a bit depressing, I mostly agree

I think that I would have preferred that the elite stay “on top” as long as they acquired a higher regard for markets and lower regard for technocratic policies. What has been transpired is closer to the opposite. There was a seemingly successful revolt against the elite (although the elite is fighting back pretty hard), and meanwhile the elite has doubled down on its contempt for markets and its faith in technocracy.

I am disturbed about the news from college campuses. A view that capitalism is better than socialism, which I think belongs in the mainstream, seems to be on the fringe. Meanwhile, the intense, deranged focus on race and gender, which I think belongs on the fringe, seems to be mainstream.

The media environment is awful. Outrage is what sells. Moderation has fallen by the wayside.

 

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

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

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

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

The minimum wage of a laborer who places and picks up orange cones around a Federal highway project in California is set at $43.97 an hour (and yes, the wage rules are that detailed).  This is set by the Davis-Bacon Act and the wage determination is here (wage determination CA29, LABORER TRAFFIC CONTROL/LANE CLOSURE, Traffic Control Person II, wage plus fringe).

Here is your essay question:  Given that this equates to nearly $88,000 a year, how many truly unskilled workers would you expect to be hired by Federal stimulus projects, vs. other workers with more skills who are taking jobs below their skills and experience)?

Restrict supply, subsidize demand, and then declare a market failure.  That is how the government has jacked prices through the ceiling in higher education, health care, and housing:

Oregon is responding to its housing affordability crisis by doing all the wrong things. The crisis is due to a shortage in supply which in turn is due to urban-growth boundaries.

So the legislature legalized inclusionary zoning ordinances and Portland passed one. Such ordinances require developers to provide a certain percent of the homes they build to low-income people at below-market rates. In response, developers are building fewer homes, exacerbating the supply problem. City officials “hope the slowdown is temporary,” but that hasn’t proven to be the case in other cities that passed inclusionary zoning ordinances.

Now the state legislature is considering a bill to provide $5 million to help first-time home buyers make down payments on homes. This will have the effect of increasing demand, which will only drive up prices even more.

Some Conservatives are miffed that Trump is apparently not going to move the US Embassy in Israel to Tel Aviv

In March 2016, addressing the American Israel Public Affairs Committee conference, Donald Trump said that, as president, he would move the U.S. embassy in Israel to Jerusalem. Trump called that city “the eternal capital of the Jewish people.”

Now, however, President Trump has decided to keep our embassy in Tel Aviv. A senior White House official explained: “We don’t think it would be wise to [move] it at this time” because “we’re not looking to provoke anyone when everyone’s playing really nice.”

This promise to move the US Embassy in Israel is evergreen, and is always broken.  A similar promise by candidates such as Barack Obama to declare the Ottoman treatment of the Armenians to be genocide is another promise of symbolic action that is never actually implemented in office.  These mostly symbolic gestures are really powerful in campaigns, because they will tend to energize certain groups and make them more likely to vote for you.  But it turns out that each of these actions would tend to tick off unpredictable, scary, violent parties, the negative consequences of which might well outweigh the benefits of the gesture.  Even ignoring violence and irrationality, these actions impose an opportunity cost, likely limiting progress on other diplomatic fronts with these same parties.

This is why the vast majority of actual government actions reside in the lower left square in the framework below -- don't believe me?  Look at the legislative output from any particular session of Congress.  The vast majority of the actions taken are to declare some special day, a low-cost symbolic action meant to make some group feel warm towards some politician.

I often have to explain to folks that email addresses are not case sensitive.  But I confess I never knew this (applicable only to Gmail I think, other systems are different)

I recently discovered some little-known ways to use your Gmail address that can give you greater control over your inbox and save you some time and headache. When you choose a Gmail address, you actually get more than just "yourusername@gmail.com." Here are two different ways you can modify your Gmail address and still get your mail:

• Append a plus ("+") sign and any combination of words or numbers after your email address. For example, if your name was hikingfan@gmail.com, you could send mail to hikingfan+friends@gmail.com or hikingfan+mailinglists@gmail.com.
• Insert one or several dots (".") anywhere in your email address. Gmail doesn't recognize periods as characters in addresses -- we just ignore them. For example, you could tell people your address was hikingfan@gmail.com, hiking.fan@gmail.com or hi.kin.g.fan@gmail.com. (We understand that there has been some confusion about this in the past, but to settle it once and for all, you can indeed receive mail at all the variations with dots.)

For me, the real value in being able to manipulate your email address is that it makes it really easy to filter on those variants. For example you could use hikingfan+bank@gmail.com when you sign up for online banking and then set up a filter to automatically star, archive or label emails addressed to hikingfan+bank. You can also use this when you register for a service and think they might share your information. For example, I added "+donation" when I gave money to a political organization once, and now when I see emails from other groups to that address, I know how they got it. Solution: filtered to auto-delete.

The gender #paygap myth has certainly been tenacious.  Years ago someone threw out the figure that women earn 77% as much as men, and have since successfully been able to portray this as women not getting equal pay for equal work, despite the fact that the 77% is not at all corrected for equal work (when so corrected, for things like actual hours worked and differences between industries, the gap typically narrows to 5% or less).

The other day, however, the New York Post let a fact slip by that demolishes this whole gender pay gap meme.  The only explanation I can come up with is that it was in an article headlined "Childish men are to blame for women having kids late in life" so I suppose the powers-that-be assumed that the article must be OK if it was bashing men.  But in it we get this:

Women want an equal partner, but there are increasingly fewer candidates to choose from. The census reports that “the average adult woman in the US is more likely to be a college graduate than the average adult man.” Moreover, today’s young, childless female city-dwellers with college degrees are out-earning their male counterparts by 8 cents on the dollar. Their higher incomes may be why they are less likely (29 percent) to be living with their parents than single men (35 percent).

OOPS!  In the eagerness to beat men up for being under-performing, lazy, uneducated slobs still living with mommy, a meme was destroyed.  In fact, serious scholars (ie those who are not activists) have pointed out for years that unmarried childless women have no pay gap with men of similar ages, it is only after marriage and babies and other such events that some women make life and career choices that reduce their pay.

I think the table I built for our new hobby room came out pretty well.  Having only really done woodwork on speakers, I am most comfortable working with mdf so this is mdf with an alder veneer to match the cabinets in the room.  Because I knew the slab of marble (a scrap we found at the stone store on discount) was going to be super heavy (something like 400 pounds) the table is built super solid.  I will say that modern design is much easier to build than something antique-looking - really this is only rectangular boxes and frames so it was pretty easy.

Taking in account the over-designed pedestals that are 3/4 inch mdf with interior baffles, this whole things weighs almost 500 pounds.  I observed to my wife, who wants to use it as a cutting table, that it would make an awesome beer pong table.  Perhaps when she is out of town we will have a coyoteblog get-together to try it out in that mode.

Next up, I finally have  small room to do my model railroading in so I will be boring you with updates on that particularly geeky hobby.

Postscript:  Yes, I run parks and I like model trains, like Ben in Parks and Rec:

• Ben is a fan of model trains, Game of Thrones (his eBay username is "Tall Tyrion Lannister",a reference to a character from the franchise), Batman (he purchased a Batman suit when he joined Donna and Tom for Treat Yo Self), Star Trek (he writes Star Trek fanfiction, and had expressed a preference for Captain Picard over Captain Kirk), Fringe, Harrison Ford, Twin Peaks, Homeland, and Star Wars (among other things).
• Ben is a "nationally ranked" player of Settlers of Catan

I am comfortable with all of this except perhaps for the preference for Picard over Kirk.

I liked this term from Bleeding Heart Libertarians.  Perhaps it is common but I have not heard it before.  It seems apt:

Moral Princesses. In “The Princess and the Pea,” the prince believes that real princesses are so sensitive that a single pea place under 25 feet of bedding will disrupt their sleep. The general idea is that real princesses are sensitive to irritations that wouldn’t bother crude commoners.

Expanding on this idea, some people wish to signal that they are, for lack of a better phrase, moral princesses. They are so sensitive to moral concerns that they are enraged by things the rest of us crude commoners do not even notice. By frequently expressing their sensitivity, they thereby prove they are better than everyone else. (See this paper on moral grandstanding for more.)

Regular person: “Mmm, chicken tikka masala is delicious.”
Activist: “I can’t eat that, as doing so makes me complicit in the British colonialist legacy.”

From the terrorists-have-won department:  Apparently, the current in-cabin ban on laptops and tablets the applies to flights originating in certain Middle Eastern countries will soon be extended to flights from Europe.  I am pretty sure that if the US bans laptops on flights from Europe, the EU will ban them in the opposite direction, if nothing else as tit for tat retaliation.  This will make long distance flight a LOT worse, at least for me.  Unlike most folks, apparently, I have no interest in onboard entertainment systems and spend most of my time on these long flights getting work done on my PC or reading books on my iPad.  This will make me a lot less likely to schedule a vacation in Europe, and frankly I am relieved we decided at the last minute not to go there this summer.

I have written before about the absurdity of folks who demand cultural apartheid by hoping to ban what they call "Cultural Appropriation."  Of all the stupid sh*t the is circulated around a deeply broken academia nowadays, this is probably the stupidest.

Take note of this entirely reasonable editorial from an author in Canada.  I think he actually has a great idea:

Hal Niedzviecki, editor of Write — a publication for the union’s members — published an opinion piece in the spring 2017 issue titled “Writer’s Prompt.” In the article, in an issue dedicated to indigenous writing, Niedzviecki wrote: “In my opinion, anyone, anywhere, should be encouraged to imagine other peoples, other cultures, other identities.

“I’d go so far as to say there should even be an award for doing so — the Appropriation Prize for best book by an author who writes about people who aren’t even remotely like her or him.”

He went on to argue that Canadian literature remains “exhaustingly white and middle class” because writers are discouraged from writing about people and places they don’t know.

A sociological term, cultural appropriation is used to describe the adoption of elements or practices of one cultural group by members of another.

This is really a good idea.  I find it amazing that ethnic minorities simultaneously want sympathy for their various victimizations while at the same time don't want anyone imagining what it is like to be them.  So of course the response was to run him out of town on a rail

On Wednesday, the Writer’s Union of Canada issued an apology for the piece, announcing Niedzviecki’s resignation and pledging to review the magazine’s policies.

“The Writer’s Prompt piece offended and hurt readers, contributors to the magazine and members of the editorial board,” said the statement. “We apologize unequivocally. We are in the process of contacting all contributors individually.

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

Supporters of the minimum wage, however, argue that employers have monopsony power when hiring low-skill workers. What they mean by this is that due to a bargaining power imbalance, employers can hire workers for less than they would be willing to pay in a truly competitive market.  As the theory goes, this in turn creates an additional consumer surplus for employers, which manifests itself as higher profits.  A minimum wage increase would thus reduce this surplus but not effect employment because companies before the new minimum wage were paying less than they were willing to pay.  Thus minimum wage supporters argue that higher wages mandated by minimum wage laws will be paid out of these excess profits, and not result in higher prices or less employment.

My understanding (and I am not an economist) is that the evidence for monopsony power in hiring low-skill workers is weak or at best limited to niche circumstances.  However, I am going to argue that it does not matter. Even if companies are able to pay workers less than they might via such monopsony power, whatever gains they reap from workers ends up in consumer hands.  As a result, minimum wage increases still must result either in employment reductions or consumer price increases or more likely both.

Why Monopsony Power May Not Matter

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

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

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

1. Raising prices to cover the increased costs. This approach may be viable competitively, as most competitors will be facing the same legislated cost pressures, but may not be acceptable to consumers
2. Reducing employment. This may take the form of stealth price increases (e.g. reduction in service levels for the same price) or be due to a reduction in volumes caused by price increases. It may also be due to targeted technology investments, as increases in labor costs also increase the returns to capital equipment that substitutes for labor
3. Exiting one or more businesses and laying everyone off. This may take the form of targeted exits from low-margin lines of business, or liquidation of the entire company if the business Is no longer viable with the higher labor costs.

An Example

When I discuss this with folks, they will say that the increase could still come out of profitability -- a 5% margin could be reduced to 3% say.  When I get comments like this, it makes me realize that people don't understand the basic economics of a service firm, so a concrete example should help. Imagine a service business that relies mainly on minimum wage employees in which wages and other labor related costs (payroll taxes, workers compensation, etc) constitute about 50% of the company’s revenues. Imagine another 45% of company revenues going towards covering fixed costs, leaving 5% of revenues as profit.  This is a very typical cost breakdown, and in fact is close to that of my own business.  The 5% profit margin is likely the minimum required to support capital spending and to keep the owners of the company interested in retaining their investment in this business.

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

The absolute best case scenario for the business is that it can raise its prices 25% without any loss in volume. With this price increase, it will return to the same, minimum acceptable profit it was making before the regulation changed (profit in this case in absolute dollars -- the actual profit margin will be lowered to 4%). But note that this is a huge price increase. It is likely that some customers will stop buying, or buy less, at the new higher prices. If we assume the company loses 1% of unit volume for every 2% price increase, we find that the company now will have to raise prices 36% to stay even both of the minimum wage increase and lost volume. Under this scenario, the company would lose 18% of its unit sales and is assumed to reduce employee hours by the same amount.  In the short term, just for the company to survive, this minimum wage increase leads to a substantial price increase and a layoff of nearly 20% of the workers.   Of course, in real life there are other choices.  For example, rather than raise prices this much, companies may execute stealth price increases by laying off workers and reducing service levels for the same price (e.g. cleaning the bathroom less frequently in a restaurant).  In the long-term, a 50% increase in wage rates will suddenly make a lot of labor-saving capital investments more viable, and companies will likely substitute capital for labor, reducing employment even further but keeping prices more stable for consumers.

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

How My Company Has Responded

Just to put a bit more flesh on this, I will give a real example from my own company.  My company operates public recreation facilities, mainly campgrounds, under bid contracts.  To understand our response to rising minimum wage, you need to understand some background:

• In bidding these, we bid both the camping fee we will charge to customers as well as the rent we will pay to the government for the concession.  Given the weights the government uses in the bid process, keeping customer price low is more important than the rent we pay, so in most cases the prices we charge customers are well below the private market rate for similar campgrounds.
• We have limited ability to further increase productivity, in part because our ability to invest in these campgrounds in limited.
• Because we have many contracts across the country, our reputation is important and so we seldom will entertain reductions in service, such as cleaning frequency
• Labor and labor-related costs are about 50% of revenues, and most employees are paid minimum wage.  Profit margins hover around 5% of revenues

One of the states we operate in is California.  We are in the midst of a minimum wage increase there from $8 an hour several years ago to $15 several years hence, or an increase of 87.5%.  Basically we have had two responses:

• In places where we are under the market price, we have been able to raise prices without a lot of drop in volume.  But this means that our camping rates in some locations have risen from $18 to a future $26 a night, an enormous increase in just a few years.
• In places where we did not think the market would bear such a rate increase, or where our contract did not allow such a rate increase, we closed our operation.  In fact, we have exited about half our business in California (while simultaneously growing it aggressively in states like Tennessee).  In all cases this has resulted in a loss of employment -- either the location was never reopened by anyone else, or else it was reopened by a competitor with different reputational concerns who staffed the location with far fewer employees.

I use the term "publication bias" to describe how easy it is to confuse the frequency with which the media reports on a phenomena with the underlying frequency of the phenomena itself.  A great example is Summer of the Shark:

...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.

A lot of folks are now commenting on the apparent "spate" of airline incidents.  This "spate" began with United dragging Dr. David Dao, a man who would not give up his seat for a United employee, off an aircraft.  Seemingly every day sees a new story.  This headline about "yet another airline incident" is typical.

I have no data on the underlying phenomenon here, but I would be willing to bet there is no upward trend in airline incidents of this sort.  My guess is that the combination of increasingly ubiquitous cell phone cameras, publication platforms like Instagram and Facebook, and most importantly a focus by the media on looking for this sort of story after the United incident are causing an uptick in coverage rather than an uptick in actual incidents.

The other day I was explaining to a young person what the word "epistemology" means.  To keep things simple, I said it is how you know what you know, or in terms of political discussion, how you know you are right.  They asked for an example.  I said that the use of logic and reason beginning from a set of givens or first principles is one approach to epsitemology.  They said they assumed everyone used that approach.  I told them that I thought not -- that, by my observation, the most common epistemology through history has been: "I was told it by a high status person in my family or tribe."  Based on sampling of social media, I still think this is still the case today.

George Will has a good article making the point that you are almost certainly richer today, in terms of the products and services you have access to, than a billionaire was in 1916.  Loyal Coyote Blog readers will have read roughly this same article over a decade ago.  In that nearly ancient post, I compared a middle class home-owner in my neighborhood to the owner of one of the largest mansions in America in the late 19th century:

One house has hot and cold running water, central air conditioning, electricity and flush toilets.  The other does not.  One owner has a a computer, a high speed connection to the Internet, a DVD player with a movie collection, and several television sets.  The other has none of these things.  One owner has a refrigerator, a vacuum cleaner, a toaster oven, an iPod, an alarm clock that plays music in the morning, a coffee maker, and a decent car.  The other has none of these.  One owner has ice cubes for his lemonade, while the other has to drink his warm in the summer time.  One owner can pick up the telephone and do business with anyone in the world, while the other had to travel by train and ship for days (or weeks) to conduct business in real time.

I think most of you have guessed by now that the homeowner with all the wonderful products of wealth, from cars to stereo systems, lives on the right (the former home of a friend of mine in the Seattle area).  The home on the left was owned by Mark Hopkins, railroad millionaire and one of the most powerful men of his age in California.  Hopkins had a mansion with zillions of rooms and servants to cook and clean for him, but he never saw a movie, never listened to music except when it was live, never crossed the country in less than a week.  And while he could afford numerous servants around the house, Hopkins (like his business associates) tended to work 6 and 7 day weeks of 70 hours or more, in part due to the total lack of business productivity tools (telephone, computer, air travel, etc.) we take for granted.  Hopkins likely never read after dark by any light other than a flame.

If Mark Hopkins or any of his family contracted cancer, TB, polio, heart disease, or even appendicitis, they would probably die.  All the rage today is to moan about people's access to health care, but Hopkins had less access to health care than the poorest resident of East St. Louis.  Hopkins died at 64, an old man in an era where the average life span was in the early forties.  He saw at least one of his children die young, as most others of his age did.  In fact, Stanford University owes its founding to the early death (at 15) of the son of Leland Stanford, Hopkin's business partner and neighbor.  The richest men of his age had more than a ten times greater chance of seeing at least one of their kids die young than the poorest person in the US does today.

Hopkin's mansion pictured above was eventually consumed in the fires of 1906, in large part because San Francisco's infrastructure and emergency services were more backwards than those of many third world nations today.

Here is a man, Mark Hopkins, who was one of the richest and most envied men of his day.  He owned a mansion that would dwarf many hotels I have stayed in.  He had servants at his beck and call.  And I would not even consider trading lives or houses with him.  What we sometimes forget is that we are all infinitely more wealthy than even the richest of the "robber barons" of the 19th century.  We have longer lives, more leisure time, and more stuff to do in that time.   Not only is the sum of wealth not static, but it is expanding so fast that we can't even measure it.  Charts like those here measure the explosion of income, but still fall short in measuring things like leisure, life expectancy, and the explosion of possibilities we are all able to comprehend and grasp.

I have a similar reaction every time I tour the mansions in Newport, RI.  They are magnificent in their way, but they are also cold, and to my modern eye, unlivable.  Think of it this way -- You are trapped alone on a desert island.  A plane airdrops you a crate of diamonds.  You are rich, right?

I have sent the following question to a number of Progressives. I have yet to hear anything back.

I have been following the story about UC possibly hiding funds as a sort of rainy day fund in accounts because several years ago I worked with a lot of folks (e.g. Ruth Coleman) at California State Parks who lost their jobs when accused of the same thing.  But looking at the story, the part that really appalled me was this from the auditor's report:

​The last few years UC has been begging and pleading for $50 or $100 million extra so they could enroll more in-state students, when the office of the president, if this is presented correctly, seems to be bloated by perhaps $400 million.  God knows what the administrative staffs of the individual universities look like.It appears what we have here is a conflict between more output of government services to the public, which I might call an ideological imperative of the Progressive left, with protection of government workers and their pay and benefits, which I might call a political imperative.

I am wondering if the Left's near absolute political support for government workers is undermining what I might call the good government impulses on the Left.  My involvement with CA politics is mostly in parks, but I know that there are a number of fundamental reforms that could allow the parks agency to do a lot more with their current budget, in fact perhaps even start getting at working down deferred maintenance logs, but these were torpedoed as non-starters because they would involve job losses and changes in work rules.  I am not saying they were discussed and defeated, I am saying they were stopped immediately as pointless to even discuss.

I don't agree with Progressives on the size and scope of government, but leave that aside.  Taking the government's current size and tax base as a given, is there a segment of the progressive community that gets uncomfortable with the proportion of these resources that are channeled into government employee hands rather than into actual services for the public?  Or is there a progressive argument for larger-than-needed government staff and higher-than-necessary pay and benefits (e.g. a city on the hill argument where the government is setting a higher standard that perhaps the benighted private employers will someday more closely emulate)?

"Paul has a compulsive need to feed his enemies all the ammunition they could want.  The software of “don’t take the bait” was never installed in his system.  No celebrity has ever been easier to goad into gaffes."  source

The world's most amazing achievement ever? How about the 78% percent reduction in extreme world poverty from 1981 to 2015. pic.twitter.com/N66RbXqAAC

— Mark J. Perry (@Mark_J_Perry) April 30, 2017