Dispatches from District 48
Author Archive
She highlighted a new Amazon book called Live Camp Work: How to make money while living in an RV & travel full-time, plus 1000+ employers who hire RVers.
Our company hires about 350 RVers every year.
California Gov. Gavin Newsom has announced that he’s abandoning a plan to build a high-speed rail line between Los Angeles and San Francisco.
The project's cost has ballooned to $77 billion.
“Let’s be real,” Newsom said in his first State of the State address on Tuesday. “The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency.”
Hurray! This is long overdue. I was writing about how dumb an idea this was back in 2008. I remember it because I was on Fox and Friends in the worst time slot ever to talk about it. Not only was the interview at like 4AM Arizona time, but the segment immediately before I discussed economics and public policy *yawn* they had 8 cute maltese puppies frolicking on stage.
Everyone, including I would bet California officials but probably excepting elements of the fawning media, knew the cost estimates were a joke. In 2010 when CA said $30-$40 billion I said it would take at least $75 billion and when CA belatedly adopted that number I doubled it to $150 billion and I think that is still low for what it would have cost. This was all at a time when you could fly Burbank to Oakland on Southwest for $90.
But because it seems to be a rule that no CA politician can remain sane for more than 5 minutes straight, here are the next lines of the story:
Newsom, though, said he wants to finish construction already underway on a segment of the high-speed train through the Central Valley. The project would connect a 119-mile stretch from Merced to Bakersfield.
“I know that some critics are going to say, ‘Well, that’s a train to nowhere.’ But I think that’s wrong and I think that’s offensive,” Newsom said. “It’s about economic transformation. It’s about unlocking the enormous potential of the Valley.”
This is absolutely absurd. If you started with a clean sheet and studied what the Central Valley really needed for "economic transformation," I am willing to bet a high-speed rail line from Merced to Bakersfield would not be in the top 100 items, maybe not the top 1000. Probably first on the list for the Central Valley economy would be to stop applying minimum wage rates based on San Francisco to poorer rural areas of California. If you wanted to limit yourself to infrastructure projects, the Central Valley would probably beg for water infrastructure projects, not a silly overpriced train.
I missed the beginning because this is where voice mail picked up and started transcribing but it's definitely a classic:
...found some issue with your current Social Security number, so we have the started to suspend it and issue a new one to you now in order to get more details on it. I want you to give me a call back on 509-287-7296. I repeat. It's 509-287-7296 now if I do not get any call back from you then unfortunately, we need to proceed further. Thank you and have a blessed day.
I saw that the FCC is finallying rousing itself to maybe do something to fix the outright fraud in the caller ID system. I hope so, this is long overdue and is exactly the sort of rule-setting to protect basica infrastructure that a limited government should be doing.
PS- I use Hiya on my android phone but I am open to other solutions. My main problem is my work phone which rings all day with spam calls, not sure if there is a solution for that.
Readers have wondered why I have not really jumped on Alexandria Ocasio-Cortez's Green New Deal plan (which has since been endorsed by most major Democratic presidential candidates). Well, one-reason is that we had no details, at least until a formal resolution was introduced in Congress and an FAQ went up and then back down on AOC's website. The Ocasio-Cortez camp claims the FAQ went up by mistake (after previously claiming it was a Republican false flag operation), though I consider it more of a Kinsley Gaffe if it was a mistake at all.
The other reason I have ignored it to this point is the same reason I never enjoyed those American Idol episodes where they show all the people who can't sing but really think they are awesome embarrassing themselves. It's weird enough seeing people who are incompetent think that they are capable. It is even weirder seeing that person cheered on by a million other incompetent people on twitter.
But it appears that the entire Democratic Party has rapidly endorsed the plan, and every one of their Presidential candidates have said they are all for it, though site-unseen. So I guess I have to wallow in a bit. This may be the first of many posts, or maybe not. It depends on how much I want to shoot at fish in a barrel.
It's hard to know where to start. My first overall reaction is that there is no science and no economics in the plan at all. I find this ironic (though not surprising) given that it comes from the environmental community that has called me "anti-science" for years for doubting global warming forecast rates based on exceptionally high degrees of positive feedback built into computer models. AOC's entire plan feels like the results of a late-night policy brainstorming by a group of vegan poetry majors who chip in every idea they have seen someone post on Facebook.
Readers know that despite my skepticism that manmade CO2 will cause a climate catastrophe, I have presented a CO2-reduction plan on these pages. You can read it here, but the three most relevant planks were:
I did not think it was possible -- I presented the plan above as a transpartisan plan intended to bridge the gaps between Left and Right -- but the Green New Deal is EXACTLY opposite this plan
First, as with many on the Left, AOC does not understand much about economics, so she does not understand the carbon tax. For the Left, the point of a carbon tax is not to send pricing signals in the marketplace but to raise money for politicians to spend on pet projects. We saw this back in the Washington State carbon tax proposal, where environmentalists rejected a carbon tax because it was revenue neutral. In her FAQ, AOC does exactly the opposite of my point 1 and 2. She wants people just as smart and economically-savvy and scientific and stuff like herself at the top to redesign the US economy and to do this she needs a LOT more money than just a carbon tax:
The Green New Deal is a massive investment in the production of renewable energy industries and infrastructure. We cannot simply tax gas and expect workers to figure out another way to get to work unless we’ve first created a better, more affordable option. So we’re not ruling a carbon tax out, but a carbon tax would be a tiny part of a Green New Deal in the face of the gigantic expansion of our productive economy and would have to be preceded by first creating the solutions necessary so that workers and working class communities are not affected. While a carbon tax may be a part of the Green New Deal, it misses the point and would be off the table unless we create the clean, affordable options first.
Do you start to see the Great Leap Forward analogy? Just to finish off the thought, AOC also goes the opposite direction of my nuclear point, proposing to ban nuclear power and dismantle all that carbon-free electricity production. Ask Germany how well that has worked out for them, as they have been forced into a rush of new coal-fired plants, or New York that is building three new large natural gas plants to replace the nuclear plants it is closing. I will bet a thousand dollars that AOC has no real knowledge of nuclear safety nor has she spent probably 5 minutes studying the new generation of nuclear technologies. Frankly, I bet as far as she has thought about it is that it is expected to be anti-nuclear on the Left so she is anti-nuclear like the other cool kids.
Every dumb, unscientific nostrum for energy-use reduction has at one time or another over the last several months been attached to the plan. One example is the call for dismantling industrial agriculture and promoting local food production. This is easily one of the silliest ideas (for fuel reduction) I can imagine and have written about it before. I have no problem if you want to buy locally and don't want to buy from Kraft or Cargill. Power to you. But the conclusion that local food production will save energy is exactly the sort of conclusion that people with no experience rigorously analyzing scientific problems come up with. They jump from the fact that Agriculture uses a lot of energy to "it must all be in transportation" and thus conclude "local agriculture will save lots of fuel." But this is absurd. First, fuel use in agriculture is not mostly transport to the end consumer. The actual growing process consumes most of the fuel, and this fuel use is much more related to land productivity and economies of scale that would be destroyed by a local agriculture mandate. And even if it did actually improve fuel use, think of the other environmental effects of growing food locally on land less-suited to its production -- you would greatly increase land and water use, just to start, both likely creating more environmental problems.
I am reminded of Mao's idea during the Great Leap Forward that China needed to produce all its steel locally in home-based backyard furnaces (I kid you not). I think most of us can predict the obvious result - steel production crashed because you can't produce steel in any kind of amount or quality in the backyard. But there were two less obvious results as well. One, this contributed to the crash in agricultural output as skilled agricultural labor and resources was diverted to this silly steel-making scheme. And two, whole forests were denuded as people sought out fuel for these furnaces. China is still recovering from environmental messes this caused. India barely avoided the same disaster as Ghandi wanted to eschew industrial production in favor of home spinning and weaving. THIS is what you get when you let ignorant people command and control the economy. Heck, this is what you get even when you let really, really smart people command and control the economy.
Update: Since I have eschewed Twitter, mostly, of late, I missed the fact that #greenleapforward is the term folks are converging on. Happy to go with that.
In the spirit of something John Scalzi has done in the past -- he posts some of his 1-star Amazon book reviews online as a sort of therapy -- I like to share some of my favorites. This one is not quite a one-star review but it made me laugh this morning:
Lol, we are closed for the winter (the TVA, who owns this campground, requires that the campgrounds near its dams be closed in winter).
By the way, this is from my daily report at Reputology.com. They work well for me managing reviews over multiple locations.
Today after the market closed was Tesla's analyst conference call to review fourth quarter earnings. TL:DR It was as weird as ever, maybe weirder. Even before the call, Elon Musk said that the numbers released today would be un-audited, and the call ended by saying -- in a sort of "oh by the way" over the shoulder parting shot -- that their CFO was leaving and being replaced by a 36-year-old with only Tesla experience and no prior CFO role (not unlike the random young dude that the Arizona Cardinals just hired as their coach, but that is another story). Neither Musk statement was a big confidence boost given the myriad questions swirling around the legitimacy of Tesla's reported financials. But the REALLY weird stuff was in between.
The LA Times, which really has had some of the best Tesla coverage, has the best summary I have found so far of the call. Before I get into some things we learned that helped support my article I wrote the other day, I want to share some of the priceless other highlights of the call. All from the LAT article:
Tesla faces questions about whether enough new Model 3 sedans can be sold to generate substantial profits.
“The demand for the Model 3 is insanely high. The inhibitor is that people don’t have the money to buy one,” Tesla Chief Executive Elon Musk told analysts on the call.
This is really hilarious. The same could be said of Ferrari's, Manhattan Penthouses, and bone-in rib-eyes at most top steakhouses. Once you get past the absurdity of the statement, you realize that Musk essentially admitted the demand cliff many have suspected for the Model 3, as Tesla has burned through its entire multi-year order book for the Model 3 in just 6 months.
Yet, Musk said, the new [China] factory [which is currently a bare patch of dirt] will be building cars at an annual rate of 300,000 vehicles by the end of the year, at an expenditure of $500 million — much less than a typical auto plant normally costs.
And much faster, by the way, than any automotive company in history has ever started up a new production plant.
It turns out, by the way, the Tesla still seems to be running itself like a free-wheeling largely-unplanned software startup rather than like a capital-intensive automobile manufacturer. Imagine this from Daimler or Volkswagen or GM:
Musk said Tesla might build the Model Y at its Nevada battery factory but indicated no one should count on it. ”It’s not a for-sure thing, but it’s quite likely, and it’s our default plan,” he said.
But let's get to my thesis I have been arguing for a while. Tesla has a lot of problems, but the one I have been most focused on is that Tesla is a growth company that has stopped managing itself for growth. Both R&D and capital spending have dried up, especially in relation to revenues -- a particularly vexing problem because Tesla has chosen a strategy of owning the sales, service, and fueling networks (not just manufacturing) so growth is even more capital intensive for Tesla than it is for other automobile manufacturers (see the earlier article for details). Tesla's stock price is close to $300, but its current auto business is likely not worth more than $50 share -- the other $250 is hopes and dreams of growth, valuation that goes away if Tesla is no longer perceived as a growth story.
Beyond the fact listed above that Musk essentially admitted the demand problem in the US for Model 3, here is what else we heard:
Tesla owed much of its cash-flow improvement to a drastic reduction in capital expenses — which can signal either a reduced need to buy, say, factory robots or a slowdown of investment in future growth. In the last three quarters, capital spending has shrunk from $786 million to $510 million to $324 million.
This number is insanely low. As @teslacharts showed today, this is equal to 4.5% capex as a percent of revenues!
The mature non-growing auto companies typically spend 5-5.5% or revenues on capex just to maintain their position. 4.5% is NOT a growth number.
In a conference call with analysts, Musk said he still plans to build a factory in China this year and begin building a Model Y subcompact next year. Asked where the money would come from, CFO Ahuja said cutting costs and careful spending would do the trick.
Musk was unusually subdued but his usual speculative self. The China factory site remains a bare patch of ground, and no news was offered on loans from Chinese banks that Tesla is hunting for.
Beyond the fact that Musk is almost criminally full of sh*t on his projections for his China factory production, why the hell is Tesla digging around in the couch cushions to fund their Asian expansion? Their valuation is at freaking 60-80x earnings. Why aren't they raising capital for this and a thousand other things they need to be doing?
But in fact, Tesla is actually planning to contract its capital base, announcing in the call they will likely pay the upcoming ~$1 billion bond redemption in cash.
At the same time, past announced growth projects are falling by the wayside. The semi truck, which was announced to great fanfare and helped pump up the stock price at a critical time, has essentially been dropped from the product plan (Musk did something very similar with the solar shingle at SolarCity, touting the technology and leveraging it to sell the company to Tesla, and then essentially dropping the product).
In the Model S & X, Tesla has already acknowledged that no effort has been started to update these aging products, and in fact production is being cut and much of the manufacturing workforce for these products has been laid off. These two products have always been the main source of Tesla's gross margins and its unclear how they will make up the lost margin and sales from these core products that Tesla seems to be essentially abandoning rather than investing in and refreshing. We also learned that prices are being cut on these vehicles:
On Tuesday, Tesla offered an $8,000 discount on S and X cars for customers who let Tesla limit the range of the car’s battery pack using custom software. The range for the software-limited Model S, for example, would be cut by 20 miles, to 310. That car cost $96,000 at the end of 2018. Tesla cut that price by $2,000 this month. Tuesday’s deal puts the price down to $85,000 — a reduction of $11,000 for 20 miles less range.
Note the software limitation does ZERO to cut Tesla's costs, so these are 100% hits to Tesla's margins.
Because the batteries themselves wouldn’t differ, production costs would stay the same as in the higher-range car. The gross profit margin falls by $11,000 per car. (A Tesla spokesman told The Times that improved efficiencies on the assembly line would help address that problem.)
The next milestone for Tesla will be release of fully audited 2018 numbers. I have no idea when these will appear and would not be surprised if they are delayed. There are still some real financial question marks in the numbers we have seen to date, and only the 10-K will begin to answer some of them.
In the past I have been careful to say that Tesla is a dangerous short and that you should not take my non-expert advice investing, and I repeat all that now. I understand business strategy and I am more sure than ever that Tesla's strategy is falling apart and the wheels are very likely to come completely off in the first quarter. However, I do not understand the stock market's ins and outs and whether Tesla's failings get translated now or later to the stock price is not something I can predict well. Trump could bail them out, some sucker could buy them, they could fudge their numbers for years, etc. So be careful.
One More: I forgot to mention that Tesla has reduced its SG&A expenses over the previous two quarters in absolute terms, and thus substantially on a percent of revenue basis. For a mature company this is good news. For a growth company, this is a sign that growth may not be the goal any longer. SG&A staffing represents a company's capacity to do new things and take on new projects and enter new markets and add new services. No way companies like Google or Facebook would have been trimming SG&A in the height of their growth years. Cutting SG&A is what you do when growth is over or when there is a cash crunch or both.
Postscript: Not to be too much of a pedant on myself, but I said "parting shot" which I think is OK but I believe the original term was actually "Parthian Shot" named for that army's technique of riding full on towards the enemy, then turning tail and riding away but firing backwards with a bow and arrow off their horse as they rode away. Really used to piss off the Romans.
Who says that professional sports have nothing to teach businesses? Pro sports team owners have perfected the art of promising the world to local citizens to get taxpayers to pay for their billion dollar stadiums (which in the case of NFL teams are used approximately 30 hours a year). The Miami Marlins in particular have perfected the art of building a good team, leveraging its success to get a new stadium deal, and then immediately dismantling the team and buying cheap replacement players.
In the business world many corporations have taken the Miami Marlins strategy. Tesla took $3/4 of a billion dollars form NY taxpayers to build a factory in Western New York, only to employ a tiny fraction of the promised employees. In fact, one academic studied all the relocation subsidies NY has made in the recent past and found none of the gifted companies fulfilled their employment promises. In Mesa, AZ there is a factory that I call the graveyard of cronyism where not one but two sexy high-profile companies have gotten subsidies to move in (FirstSolar and Apple) only to both bail on their promises after banking the money.
So it should come as zero surprise that the Trump-facilitated crony Foxconn deal in Wisconsin is following the same path.
Foxconn Technology Group, a major supplier to Apple Inc., is backing down on plans to build a liquid-crystal display factory in Wisconsin, a major change to a deal that the state promised billions to secure.
Louis Woo, special assistant to Foxconn Chairman Terry Gou, said high costs in the U.S. would make it difficult for Foxconn to compete with rivals if it manufactured LCD displays in Wisconsin. In the future, around three-quarters of Foxconn’s Wisconsin jobs would be in research, development and design, he said.
They added this:
The company remains committed to its plan to create 13,000 jobs in Wisconsin, the company said in a statement.
Yeah, sure. Anyone want to establish a prop bet on this one? I will take the under.
A perfectly reasonable way to read this chart is to note the high correlation between state taxation and regulatory intensity and states that are gaining or losing population
Unfortunately, my experience in Arizona (one of the "inbound" states above) has been that people have zero ability to correlate specific elements of public policy with particular outcomes. In particular, people who flee California because it is too expensive and dysfunctional come to Arizona and immediately begin voting for exactly the same policies that made California expensive and dysfunctional. Therefore, I tend to read being in an "inbound" state with dread, knowing that folks are moving in right now to make us the next Illinois or California.
Quiz: Since 1066, name an English queen consort who was not the monarch (e.g. not Mary I, Mary II, Liz 1, Liz II, Anne, Victoria) who was the biological daughter of another English Queen consort, also not the monarch.
Obviously this takes an unusual situation as in a normal succession this would require her to be married to her brother, uncle, or nephew.
Several years ago my knees started hurting a lot and eventually I was diagnosed with somewhat early but not bad osteoarthritis in both knees. After years of running, I decided that my career was almost over, so I geared up with some cortisone injections and ran my first and last marathon. The doctor may have said it was not severe yet but my knees hurt like hell for the months afterwards.
But I missed running. Yes, many of you think running is stupid and boring. Which is fine. I think weight-lifting is a boring chore, but others love it. Anyway, I love running not just for activity but to enjoy a nice day or explore new places. I tried biking and an elliptical scooter and neither scratched the same itch.
But for almost a full year I never ran once. I did a lot of hiking, and when that seemed to not be active enough I started adding my old textbooks to a day pack until I was walking and hiking with a 40+ pound pack and felt great. So I was tempted to run again but knew I had to change something up to make it work.
At first I tried that old man marathon runners gate, which looks like a fast walk. It worked OK but it was not that fun. Then I read something about barefoot running, which I still think is dumb. But the article talked about different sorts of strides and how they land differently -- some heel first, some toe first. Apparently a benefit of barefoot running is it supports toe first landing, which some think is more beneficial. Mostly I wrote all this off, as runners forums are jammed with people who have these pet theories that don't really stand up to study.
Anyway, the learning for me was that toe first landing even existed. I started thinking about it and experimenting, and found that I had a strong heel first landing that was so forceful it was pile-driving my knees and spine. What if I got off my heels? I had already noticed that my knees seldom hurt running up a steep slope, and I realized I was on my toes doing so. Couldn't hurt to try.
Well, changing your running gate after decades of running the same way is just as hard as you might expect. The first few outings must have looked stupid. Basically I was trying to run on my tip toes, as if I was doing the high-stepping tire exercise you see football players doing.
The breakthrough came with some practice and when I read somewhere that 1) toe first landing is about toe first, not toe only and 2) you have to sort of lean out a bit over your skis to run toe first.
Over time, it has gotten more natural and my knees feel great. My progress was delayed a bit as I really was exhausting something in the back of my calves, but more practice and a more natural gate and some strengthening and I am back where I can run 3-4 miles at my old pace. Actually a bit faster, as I think I was never leaning forward enough and wasting a lot of energy.
So we shall see. This may all be temporary. Heck, it may all be a placebo (readers who spend too much time in the comments trying to undo the placebo effect by convincing me it's a placebo will be blocked -- just kidding, in 15 years I have never blocked anyone).
By the way, I am not a doctor and PLEASE do not take any medical advice from me.
Yes, I am like an addict on Tesla but I find the company absolutely fascinating. Books and HBS case studies will be written on this saga some day (a couple are being written right now but seem to be headed for Musk hagiography rather than a real accounting ala business classics like Barbarians at the Gate or Bad Blood).
I still stand by my past thoughts here, where I predicted in advance of results that 3Q2018 was probably going to be Tesla's high water mark, and explained the reasons why. I won't go into them all. There are more than one. But I do want to give an update on one of them, which is the growth and investment story.
First, I want to explain that I have nothing against electric vehicles. I actually have solar panels on my roof and a deposit down on an EV, though it is months away from being available. What Tesla bulls don't really understand about the short position on Tesla is that most of us don't hate on the concept -- I respect them for really bootstrapping the mass EV market into existence. If they were valued in the market at five or even ten billion dollars, you would not hear a peep out of me. But they are valued (depending on the day, it is a volatile stock) between $55 to $65 billion.
The difference in valuation is entirely due to the charisma and relentless promotion by the 21st century's PT Barnum -- Elon Musk. I used to get super excited by Musk as well, until two things happened. One, he committed what I consider outright fraud in bailing out friends and family by getting Tesla to buy out SolarCity when SolarCity was days or weeks from falling apart. And two, he started talking about things I know about and I realized he was totally full of sh*t. That is a common reaction from people I read about Musk -- "I found him totally spellbinding until he was discussing something I am an expert in, and I then realized he was a fraud."
Elon Musk spins great technology visions. Like Popular Mechanics magazine covers from the sixties and seventies (e.g. a flying RV! a mile long blimp will change logging!) he spins exciting visions that geeky males in particular resonate with. Long time readers will know I identify as one of this tribe -- my most lamented two lost products in the marketplace are Omni Magazine and the Firefly TV series. So I see his appeal, but I have also seen his BS -- something I think a lot more people have caught on to after his embarrassing Boring Company tunnel reveal.
Anyway, after a couple thousand words of introduction, here is the update: In my last post linked above, I argued that Tesla is a growth company that is not investing in growth. Sure, it is seeing growth in current quarters due to investments made over the last decade, but there is little evidence it is actually spending money to do anything new. It stopped managing itself like a growth company trying to maintain its first-mover advantage.
Tesla has explicitly chosen to pursue a strategy that needs a TON of capital. Everyone understands, I think, that building a new major automobile franchise takes a ton of investment -- that's why they are not popping up all the time. But Tesla actually has made choices that increase the capital needed even beyond these huge numbers. Specifically, they chose not just to manufacture cars, but to also own the sales and service network and to own the fueling network. Kia was the last major new brand in the US that I can remember, but when it started it relied on 3rd parties to build and operate the dealer/service network and relied on Exxon and Shell to build out and operate the fueling network. So Tesla has pursued a strategy that they need all the capital of Kia and of the Penske auto group and of Exxon. Eek.
And for years, they were valiantly trying to pull it off. They created showrooms in malls and created a new online selling process. They built some service locations but as has been proven of late, not enough. They built a supercharger network. It was a gutsy call that seemed to be paying off.
And then something weird happened. Somewhere in late 2017 or early 2018 they stopped raising capital and greatly slowed down both R&D and capital investment.
Since my initial post, we have seen a few new pieces of news
Tesla has always had an execution problem, or more rightly an over-promising problem. But it was still actually investing and doing stuff, even if it was disorganized and behind in doing so. Now, however, it is a company valued as an exponential growth company that is no longer managing itself like a growth company. It has billions of investments that are overdue -- in new products, in product refreshes, in the service network, in a second generation supercharger -- that should have been started 2-3 years ago and for which there isn't any major activity even today.
As a disclosure, Tesla stock is one of the most dangerous in the world to trade, either way. You really need to understand it before you trade it and no one really understands it. I have a couple of long-dated put options on Tesla that I consider more of a bar bet than anything else. I also have a couple of cheap short-dated calls as I usually do in the runup to the quarterly Tesla earnings call. Musk is great at the last minute stock pump during earnings call week, and the stock often pops only to fall soon afterwards as people dig into the numbers. But again, these are "investments" that are less than 0.1% of my portfolio.
Postrcript: When I wrote "Tesla is a growth company that is not investing in growth" I was picturing the Jim Cramer cameo in Ironman -- "That's a weapons company that doesn't make any weapons!" Of course it took a work of fiction to see Jim Cramer advocate for the short side. Doubly ironic given Musk sometimes styles himself as the real life Tony Stark.
I know I have not been blogging serious topics much of late. In part this is due to just being busy -- holidays, end of year accounting closeouts for the business, and some geeky projects (a few raspberry pi things I will share soon). In part this is due to the fact that whenever I engage with social media too long I become a worse person and back away again. In part this is because my daughter said I needed to lighten up on my blog for a while. And in part this is to my not wanting my obsessive fascination with the trainwreck that is Tesla to dominate my blogging (though there are a couple of updates coming).
As I close in on my 15th(!) year on this blog, this sort of ebb and flow happens from time to time. I will be back in force soon.
Yes, I know that blogging women's hair care products is not really in my wheelhouse but my wife reports that the Dyson Airwrap she gave herself for Christmas is the greatest hair dryer-like product ever. Expensive though.
I can't get enough of pre-CGI special effects back stories, particularly those involving models and matte paintings. I have yet to find a really good book on building models for movies (the best documentaries I have seen have been extras on original trilogy Star Wars movie disks). But there are several good collections of great matte painting work, including at this blog called the Matte Shot. He writes few but very long posts usually dedicated to a particular artist. This one is part two of a series on Albert Whitlock. This guy was simply amazingly prolific and a great artist whose work you have seen but did not know it (e.g. Earthquake). One example below:
I thought this study was very interesting, as highlighted by Alex Tabarrok. I usually try not to publish highlights from research papers without actually reading them (the divergence between press releases on papers and the papers themselves is shocking and constitutes what may be one of the worst current academic practices). But in this case I have learned to trust Mr. Tabarrok's judgement:
The best paper I have read in a long time is Hopenhayn, Neira and Singhania’s From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share. HNS do a great job at combining empirics and theory to explain an important fact about the world in an innovative and surprising way. The question the paper addresses is, Why is dynamism declining? As you may recall, my paper with Nathan Goldschlag, Is regulation to blame for the decline in American entrepreneurship?, somewhat surprisingly answered that the decline in dynamism was too widespread across too many industries to be explained by regulation. HNS point to a factor which is widespread across the entire economy, declining labor force growth.
Figure Two of the paper (at right) looks complicated but it tells a consistent and significant story. The top row of the figure shows three measures of declining dynamism: the rise in concentration which is measured as the share of employment accounted for by large (250+) firms, the increase in average firm size, and the declining exit rate. The bottom row of the figure shows the same measures but this time conditional on firm age. What we see in the bottom figure is two things. First, most of the lines jump around a bit but are generally flat or not increasing. In other words, once we control for firm age we do not see, for example, increasing concentration. Peering closer at the bottom row the second thing it shows is that older firms account for a larger share of employment, are bigger and have lower exit rates. Putting these two facts together suggests that we might be able to explain all the trends in the top row by one fact, aging firms.
So what explains aging firms? Changes in labor force growth have a big influence on the age distribution of firms. Assume, for example, that labor force growth increases. An increase in labor force growth means we need more firms. Current firms cannot absorb all new workers because of diminishing returns to scale. Thus, new workers lead to new firms. New firms are small and young. In contrast, declining labor force growth means fewer new firms. Thus, the average firm is bigger and older.
Another of the issues I have moved a lot on in life has been trade sanctions. Back in the day, I was all for sanctioning the cr*p out of any country run by bad people, which is a pretty long list. Now, I am convinced this approach is totally counter-productive. First, the story via WSJ:
The U.S. is evaluating whether to impose tougher sanctions against Venezuela’s military and vital oil industry, a senior Trump administration official said Monday, as it seeks to ratchet up pressure on authoritarian leader Nicolás Maduro to hold free and fair elections.
The Trump administration is considering a range of measures including curtailing the flow of Venezuelan oil to the U.S., the official said, in what could be the harshest blow to the country's money supply. No final decision has been made.
The U.S. has already penalized a host of Venezuelan government heads, its gold sector and has blocked investors from renegotiating Caracas’s defaulted debt. The U.S. administration has held off on more draconian efforts like an oil embargo, weighing the humanitarian cost for economically devastated Venezuela, which depends almost entirely on crude exports. The U.S. also has been analyzing any potential harm to American businesses that buy Venezuelan crude.
Now, however, the Trump administration aims to up the ante after Mr. Maduro last week defied international calls to resign and was sworn in for a new six-year term following a May re-election that some 60 countries deemed fraudulent.
“Until now, we have been going around the edges,“ the official told The Wall Street Journal. “Now it’s a new dynamic. We are no longer going to be tinkering along the edges. Nowadays, everything will be put on the table.”
This is pretty much the same approach we took for years in Cuba to "punish" Castro and get him removed. For over 50 years these sanctions have made zero progress on their intended effect of regime change, and have instead:
Kevin Drum has a good roundup of immigration statistics that really help to demonstrate that there is no new crisis at the border, and in fact with the exception in a rise of asylum requests, the border has been getting quieter for 10 years.
I think there are clearly elements of immigration that are broken. I will highlight three that will likely alienate both sides of the political aisle. By the way, none of the three has to do with a wall.
As with many of my posts, I am still thinking through this. I grew up an immigration restrictionist but today simply cannot think of a reason why (welfare state and public services aside) we have a right to restrict people's movement across borders. I don't have a problem limiting public services for some time period and voting rights, but if someone from Mexico and I contract to rent a room in my house or work for my company, I don't think the government can restrict that. I understand that there are perhaps limits to how many immigrants can be accomodated in a year for a variety of practical reasons, but we are way below those limits (as proven by our experience in the 19th century).
Disclosure: Like pretty much 100% of the Americans reading this, I am from a family of immigrants. And like pretty much every other immigrant group, at one time or another my group has had the exact same language used against it that Conservatives use against Hispanic immigrants today. My family happens to be German, and escaped the Kaiser in the late 19th century. We have had it pretty good as far as immigrant groups go, but we had our time in the barrell in WWI. I was at a party a while back and a woman who was a 2nd generation immigrant was railing at Mexicans for not being like other hard working immigrants who integrated into America. I asked her where her family was from, and she said Hungaria. I told her that early in the 20th Century Eastern Europeans like her family were treated to EXACTLY the same critiques and the strong immigration restrictions early in the century were mainly to stop eastern and southern (read: Italian) Europeans who were considered "bad" immigrants. Replacing the Chinese who were the previous "bad" immigrants. Replacing the Irish who were the "bad" immigrants before them.
Postscript: I did not mention it above because I was talking more about the Mexican border and I don't think there are a lot of PHD's swimming the Rio Grande, but we for sure should be raising or perhaps waiving entirely any restrictions on talented, highly educated people from coming to this country.
Postscript #2: I know folks have criticized me for my calling it a Berlin Wall on our border. Sorry, but I have seen the Berlin wall from both sides and the wall prototypes look like the Berlin Wall to me. I honestly am not sure why a border wall is immoral when set up by one side but moral when set up by the other. Its the same wall restricting the same movement. People respond that "its OK to wall people out of your house but not to be walled in." But the house analogy for immigration is totally flawed and drives me crazy. The country is not one property unless you have a Marxist definition of property. If you want a better analogy, the county is not a house but is an apartment building with 100 million apartments. I want to welcome people from outside up to my apartment to visit me or maybe live with me or work with me. You want to change the door code and keep my visitors out.
I discussed the shutdown and its effects on the parks my company operates here (spoiler: all are still open). Shawn Regan of PERC has a good article in the National Review on the same subject:
....under new shutdown guidelines established by the Trump administration, our parks have been rightfully spared from serving as pawns in Washington’s partisan budget battles as they did in the past.
Under a contingency plan created by the administration, park officials are allowed to keep sites accessible to visitors during the shutdown with skeletal staffs, rather than being forced to close them as was the case during the 2013 government shutdown presided over by President Obama. That means many important visitor activities and park operations — from snow-coach rides in Yellowstone run by private concessionaires to guided battlefield tours of Gettysburg — can continue yielding economic benefits for the surrounding communities. This week, the National Park Service also announced it will begin tapping unspent visitor-fee revenues to bolster operations at some parks.
These new plans are attracting criticism in the familiar anything-Trump-does-must-be-bad vein. Theresa Pierno of the National Parks Conservation Association slammed the administration’s decision to keep parks open, calling it “unrealistic and dangerous,” even though the NPCA repeatedly called for parks to be reopened during the 2013 shutdown. Representative Raúl Grijalva, the new Democratic chairman of the House Natural Resources Committee, pledged to hold hearingson the administration’s decision to support park operations with fee revenues....
The Trump administration’s approach is sensible. Why unnecessarily ruin visitors’ plans or jeopardize the millions of dollars in revenue that local communities receive from park visitation? If visitation begins to pose significant health or safety concerns, the contingency plan gives park superintendents the option to close areas or shut down parks entirely, as some parks have already done.
He goes on to make the very logical point that the vast majority of BLM lands and US Forest Service lands -- whose acreage dwarfs that under management by the National Park Service -- mostly all remain open in every shutdown. The large amounts of government staffing on NPS lands are needed to handle large visitor concentrations in small areas, something that really is not an issue in most parks in January.
Folks who have been hunting for pictures of overflowing trash cans to paint the current opening of parks as a bad idea could find just as many in the summertime on government lands when the government is not shut down. Remember, for all the love folks want to throw at the National Park Service at these times, it is an agency that has allowed many of its parks to fall apart, with perhaps $20 billion in deferred maintenance and very little new investment in the modern infrastructure visitors are demanding. And it has a labor model that is well suited to counting wolves but poorly suited to efficiently cleaning bathrooms and emptying trash cans even when the government is open. This shutdown is the least of the problems faced by public recreation lands.
I think people get confused about the purpose of the government shutdown. It is not a punishment, or a timeout, meted out by the law when Congress can't agree on a budget. It is a mechanical (and logical) requirement that spending on certain activities stop when that spending is no longer legally authorized. The media acts like it is supposed to be painful, and that Trump is somehow breaking the rules by making it less so. I often criticize this President, but this is one area Trump should be applauded. I think the wall funding issue is a dumb reason to go into budget gridlock, particularly when he had 2 years of Republican Congresses to get this done, but given the fact of the shutdown he should be applauded for attempting to reduce its impact on ordinary Americans. President Obama, for all his reputation of caring and hope, was to my mind overly callous in explicitly trying to make the shutdown more painful for average people.
Dear Republicans:
The last thing we need now is even more expansion of executive power. I remember when, gosh it was like only two or three years ago, you Republicans were (rightly) bemoaning Obama's executive actions as unconstitutional expansions of Presidential power. You argued, again rightly, that just because Congress did not pass the President's cherished agenda items, that did not give the President some sort of right to do an end-around Congress.
But now, I hear many Republicans making exactly the same arguments on the wall that Obama made during his Presidency, with the added distasteful element of a proposed declaration of emergency to allow the army to go build the wall.
I personally think the wall is stupid, will solve nothing, and will be a moral blight on this country -- its ugly to think of use having our very own Berlin Wall. But forget all that, for now I am not arguing against the wall, but against the proposed process.
I can pretty much guarantee you that if Trump uses this emergency declaration dodge (and maybe even if he doesn't now that Republicans have helped to normalize the idea), the next Democratic President is going to use the same dodge. I can just see President Warren declaring a state of emergency to have the army build windmills or worse. In fact, if Trump declares a state of emergency on a hot-button Republican issue, Democratics partisans are going to DEMAND that their President do the same, if for no reason other than tribal tit for tat.
Postscript: Now that I am handing out political advice to Republicans, what is the deal with your Ocasio-Cortez fixation? I hear many folks on both sides of the aisle who attribute some of Trump's electoral success to the media fixation on him that kept him in the news constantly. I am reminded of the old Pepsi challenge, where Pepsi showed people choosing their product over Coke. But the thing was, while Pepsi's sales increased, so did Coke's because the commercials kept Coke's name prominent in people's minds and established it as the product to which everyone else compares themselves. Do you really want to do the same thing with Ocasio-Cortez?
There are a lot of reasons a tax can be dumb. It can be too damn high. It can create incentives for counter-productive behavior. But I want to propose another category of stupid taxes -- taxes that cost WAY more to do the paperwork than the tax actually collects. For this category I propose the dumbest tax award to the property tax many counties charge on business small equipment and moveable property. Here is one page from a sample county return we have to fill out.
This is just one page of many -- assets have to be reported in multiple classes -- but you get the idea. Every single business asset down to trivial things like office and cleaning supplies, screwdrivers, etc all have to be individually listed with year acquired and purchase price. We have nearly 150 locations across the county and waste a staggering amount of time staying on top of this.
AND, the real punch line is it raises about zero dollars in tax. Take something we have a lot of, a hand push mower. Let's say we bought a good one at $500 about 3 years ago. The property tax process generally discounts this -- the taxable value might be $200 or less today. Then they might charge a half percent annual tax, which would bring in a whopping $1. So tracking this mower and entering it on this form every year probably costs me more in labor and software we have to license than the tax itself. I would be willing to pay a higher amount of tax if when they sent the forms they said, "Fill out these forms by March 1 or you can alternatively pay $500 and be done with it."
I understand they want to be able to tax the crap out of the Exxon refinery, but there really needs to be some minimum cutoff. Florida did this years ago and it is great -- there is a card that you sign to certify your total personal property is under some number and you avoid the process altogether.
PS, we are tired of the old asset management software we have -- if someone out there knows a package that works well for this kind of thing, email me at the link above.
I have written in the context of both the new marijuana stocks (e.g. Tilray or Canopy) and Tesla in EV's that the market is putting a whole lot of value -- in some cases 90+% of their current market value -- on these companies being first movers in potentially large and lucrative new industries.
It is hard to predict early on where in an industry's value chain the profits will be, or if the industry will be profitable at all. Who will make money in marijuana -- the growers? the retailers? the folks that package the raw material into consumer products? The early marijuana entrants are focusing on cultivation, but in tobacco do the cultivators or the cigarette makers who buy from them make the most money? And as anyone at Myspace could tell you, being first is not always a guarantee of success, and in some ways can be a disadvantage. Second movers can avoid all the first-movers costly mistakes.
I though of all this seeing the infographic below on changing leaders in the Internet world. Almost all the top 20 companies in the first year are largely irrelevant today -- AOL and Yahoo are technically still in business but only because they have been bought up by Verizon in a group of other dogs they seem intent on collecting.
Readers of this blog know that I have always been skeptical of the value of net neutrality rules. I see the Internet just like any other vertical value chain with multiple players, which we might oversimplify as content providers who hand off to bandwidth providers to get in front of the customer. Nearly every industry has these vertical value chains with multiple players -- think Coke and Pepsi fighting for floor space and margins through Wal-Mart. What is amazing to me is how the large content streamers, particularly Google, Netflix and Facebook, have somehow convinced the public that the whole future of the Internet depends on the government hamstringing the bandwidth providers in their relationship with the content producers.
When Youtube wants to stream at 4K rather than 1080p, the majority of the instractructure hit is on the bandwidth provides, and Google/Youtube wants that bandwidth to be there but does not want to have to pay for any of it. That is why these companies are the main supporters of net neutrality, but they are smart enough not to say this, but to instead flog some mythology that bandwidth providers might block or discriminate against certain providers. Even supporters of this meme are forced to agree that it is wholly hypothetical, that no one can really point to any good examples of it happening (I have always suspected that general public hatred for Comcast in particular has created more support for net neutrality than anything else).
This argument for net neutrality is even odder as clear discrimination and deplatforming is happening on the Internet apparently everywhere BUT with the bandwidth providers. Or as I wrote on Twitter:
I might be unable to get a domain registered. I might not get hosted. I might not get anyone to handle my payments. I might not be able to syndicate on any social media. Google might not show me in searches. But by God Comcast is going to give equal treatment to my traffic!
— Coyoteblog (@Coyoteblog) November 29, 2018
This is my usual long-winded lead in for a very good article I read a while back and forgot to link. It's from Drew Clark at Cato and is titled "Seeking Intervention Backfired on Silicon Valley". I recommend the whole thing but here is a small piece:
The companies that drove the engine of America’s information technology machine essentially argued as follows: We provide the good stuff that you — the American consumer — want. You go to Google to get your searches answered. You want Facebook to keep up on posts from friends, families, and trusted content providers. Access to the content in the Apple iTunes store or to Amazon Prime streaming video subscriptions doesn’t need to be regulated because we tech giants compete vigorously among ourselves. But Washington does need to step in and regulate the telecom market because of a lack of competition among ISPs. And the FCC agreed in 2015 with what was officially dubbed the Open Internet Order. ...
Major content companies like Google, Facebook, and Netflix feared that ISPs would seek to throttle their services as a way of extracting payment for prioritization. Particularly for data-intensive video- streaming services like Netflix and Google’s YouTube, this concern had a certain economic logic, even as it remained hypothetical. Having long courted Silicon Valley as a key constituency and facing a highly visible public demand with enthusiastic grassroots support on the left, Obama complied....
Silicon Valley’s regulations-for-thee-but-not-for-me attitude has come back to bite them. They want the strictest form of regulation for telecommunications providers but no scrutiny of themselves, and now the tables have been turned.
Pai has not hesitated to point out the hypocrisy as he has moved to undo the net neutrality rules. In a November 29 speech in the lead-up to his net neutrality rollback, he said that the tech giants are “part of the problem” of viewpoint discrimination. “Indeed, despite all the talk about the fear that broadband providers could decide what internet content consumers can see, recent experience shows that so-called edge providers are in fact deciding what content they see. These providers routinely block or discriminate against content they don’t like.”
Several readers have been nice enough to write me and ask how my business is doing during the government shutdown. As background, my company privately operates public recreation areas, mostly campgrounds, under concession contract. We manage public lands for many different government agencies, but many of the campgrounds we run are in the Forest Service. Typically the Forest Service (and National Park Service) must close in this and most other shutdowns. In fact, public parks are often a significant pawn in budget battles, so much so the term "closing the Washington Monument" has become shorthand for using popular public facilities as a leverage point in spending fights (the fact that politicians always threaten to close the MOST popular public services when money is tight rather than the most useless is exhibit A in why we shouldn't trust our money to Congress).
But all the Federal facilities we operate are still open right now through the government shutdown. The reason for this is that our company does not receive a dime from the government -- all the money goes the other way. We operate the facilities essentially under a (very restrictive) lease. We collect visitor use fees and then pay a bid percentage of those fees back to the Feds as our rent -- this is a huge advantage to the government as before our management they typically lost money even after collected visitor fees and now they are gaining money**. Since the government does not have to fund these locations, and since their daily operation requires no federal employees, the parks we operate are typically not closed during government shutdowns.
Long-time readers will be familiar with one exception -- in 2013 during the Obama Administration we were forced to close during a Federal shutdown. Originally, the agencies we work with (particularly the US Forest Service which is part of the Department of Agriculture) gave us the usual guidance, that we were to remain open. Then, suddenly, our company and those like it were told to shut down. When I and my trade group attempted to protest the decision with whatever official in the agency made the decision, we were told it came from "above the Department of Agriculture," which narrows the field of possible decision-makers pretty substantially. My hypothesis, though I can never prove it, was that the Obama Administration wanted to put as much pressure on Congress as possible, and closing the Washington Monument doesn't work as leverage if some damn private company is keeping it open. My competitors and I banded together and took the US Forest Service to court (past articles here) and were in the process of winning our case when the shutdown ended, but ever since then the US Forest Service has allowed us to stay open in shutdowns. If you have WSJ access, they actually covered our effort here; I made an early morning appearance on Fox & Friends; Reason TV did a nice piece; and Hans Bader of the CEI was all over the story and a big help in getting the issue some visibility.
Christmas and New Years are popular times for folks to visit in places like Sedona and Florida where we run Forest Service recreation areas, and we are happy we have been able to stay open and serve them this time around.
**Postscript: This private concession management model also has a benefit in state and local budget battles, though it is slightly different. I can tell you from loooooong personal experience that the public really does not like recreation use fees on public lands. My taxes should pay for that! But now, and certainly in the future, our taxes go mostly to fund programmed expenses like healthcare and welfare plus our bloated military. Anything else is going to be starved -- which leads to the estimated $114 billion in deferred maintenance in federal / state / local public recreation areas and parks ($20+ billion in the National Park Service alone). Seeing this happening, most of the public has become reconciled to user fees for recreation as long as the recreation fee is used to support the local park they are visiting.
To this end, one reason folks are sometimes leery about private management of these lands is they wonder if their fees are being sucked away to some corporate equivalent of Scrooge McDuck's gold vault rather than supporting operations at the park. It's the reason I keep this chart up on our web site:
In fact, it is the government agencies themselves that often sweep user fees out of the parks and into general revenue funds. The Arizona legislature did this for years to the state parks agency. The result in this situation is that the infrastructure crumbles while the user fees that should be fixing these issues actually has just become another general revenue tax. I think of deferred maintenance in government facilities -- parks, subways, roads, etc -- as a kind of shadow borrowing where government officials borrow against the infrastructure. This borrowing is almost invisible, at least on an incremental basis, and often the debt is eventually defaulted on as the infrastructure is never repaired and has to be closed or torn down. By putting parks under concession management, user fees can no longer be swept away from the management and maintenance of the park, and private companies can often be held accountable for poor maintenance more readily than agencies are able to hold themselves accountable.
Readers will know that I have somehow been sucked into the Tesla vortex and spend too much time watching Tesla and Elon Musk's antics. I tried to explain some of the reasons for this fascination here. Every time I swear off following Musk, he does some new nutty thing, like his joke of a demonstration the other night of his Boring Company tunnel in LA (as usual, Musk has come up with another idea that would look cool on the cover of a 1970's Popular Mechanics or Boys Life magazine but fails almost every engineering, physics, and business logic test).
Anyway, I am going to mostly resist writing about Tesla and discuss the strange bias many Americans (really, many Westerners) have against short-selling. Here is a tweet from a random Tesla supporter that demonstrates what I see every day from Tesla fans:
In TSLA's case, SEC's purpose was the protect shortsellers - which aren't investors.
Bashing the SEC isn't illegal, they have no criminal authority.
— ThemeTeam (@ThemeTeamWP) December 21, 2018
lol no, shorts are not investors. They spread false information for profit and when proven wrong, they move to something else to stay relevant.
— ThemeTeam (@ThemeTeamWP) December 21, 2018
This notion that short sellers are not doing anything legitimate, that they do not deserve legal protections (or else should be banned entirely), and that they prosper only by spreading false information are not just a staple of hard core Musk fanbois, but are actually quite common attitudes. I saw it just the other night watching the movie The Accountant again (a family favorite in part because a streak of OCD and Asperger's runs through my family). In this scene, the guy talking is called Brax and he is a gangster and a mercenary, but for a variety of reasons the film-makers need to make him more sympathetic than the average thug. Watch the justification he gives:
The movie-makers are expecting that the average viewer will discount his thuggery here because he is beating up a short-seller, and we all know those guys are unethical and destructive (by the way, I too would be tempted to short a company that has stuffed its workers' pension fund with its own stock, that is a big red flag to me).
Short selling, in which one is betting the value of an asset will go down in the future, is a perfectly legitimate and valuable way to participate in markets. For those who are unsure what short selling is, here is how it works. People who own large blocks of a stock, let's say Exxon-Mobil or XOM, can lend their stock, for a fee, to other people. They do this as a way to generate extra income for their portfolio, particularly if they intend to hold the stock for the long term. The people who borrow the stock then immediately sell it. I know, this seems weird -- your neighbor who lent you his mower might be ticked off if you immediately sold it. But folks who lend their shares know you are going to sell it.
So I borrow and sell 100 XOM shares for, say, $90. If the price drops to $70, I can buy the stock back at that price and I make a $2,000 profit. The risk, though, is that if the price keeps going up, I am going to have to buy back at a higher price and lose money. If the price goes up too much, the broker is going to issue a margin call and likely force me to pony up more cash or buy back at the unfavorable price to cover my position. If I had to sell at $110, I would lose $2000.
Note that short selling has a more dangerous risk profile than going long, or buying the stock. If you buy 100 shares of XOM at $90, the most you can lose is $9,000 -- your losses are capped. On the other hand your upside is unlimited -- if XOM goes up to $500, you make a fortune. For short-selling, this is reversed. The short-seller's gain is limited -- the most they can ever gain is $9,000 if the stock goes to zero. But their losses are uncapped -- if XOM goes up to $500, they will have lost over $40,000. And even if the stock shoots up to $500 and eventually falls to zero (as do many bubble companies that get shorted), it may be hard to ride the short position to the end, either due to margin calls or failure of intestinal fortitude.
Short selling makes a ton of economic sense in part because it HAS to improve markets. First, it increases the liquidity of the market and the number and diversity of participants. The more subtle reason is because markets and pricing are information discovery tools. Short selling allows more people with information about a security to participate in this information exchange, which almost by definition improves the market. As Don Boudreaux wrote years ago:
To ban short-selling of stocks is to short-circuit an important mechanism through which people share their knowledge and expectations with others. Banning a mechanism that better allows share prices to reflect the expectation that the underlying assets are not worth as much as current market prices suggest does nothing to change the underlying reality. Such a ban merely distorts knowledge of this reality
I like to think about economics and business issues but I am not an economist. My layman's way of thinking about short selling was outlined in a post 10 years ago, written in reaction to a temporary ban in short selling during the market turmoil of 2008.
Someone noticed that just before certain stocks crash in value, there is a lot of short-selling. So the US government has banned short-selling, at least temporarily. Classic cargo-cult logic.
Boy this sure makes perfect sense in a time when we are concerned about speculative bubbles -- let's ban one of the most important tools that exist for bubbles to be shortened and made less, uh, bubbly. Here is why (very briefly and non-technically) short-selling takes the edge off speculative excesses.
At the start of the bubble, a particular asset (be it an equity or a commodity like oil) is owned by a mix of people who have different expectations about future price movements. For whatever reasons, in a bubble, a subset of the market develops rapidly rising expectations about the value of the asset. They start buying the asset, and the price starts rising. As the price rises, and these bulls buy in, folks who owned the asset previously and are less bullish about the future will sell to the new buyers. The very fact of the rising price of the asset from this buying reinforces the bulls' feeling that the sky is the limit for prices, and bulls buy in even more.
Let's fast forward to a point where the price has risen to some stratospheric levels vs. the previous pricing as well as historical norms or ratios. The ownership base for the asset is now disproportionately made up of those sky-is-the-limit bulls, while everyone who thought these guys were overly optimistic and a bit wonky have sold out. 99.9% of the world now thinks the asset is grossly overvalued. But how does it come to earth? After all, the only way the price can drop is if some owners sell, and all the owners are super-bulls who are unlikely to do so. As a result, the bubble might continue and grow long after most of the world has seen the insanity of it.
Thus, we have short-selling. Short-selling allows the other 99.9% who are not owners to sell part of the asset anyway, casting their financial vote for the value of the company. Short-selling shortens bubbles, hastens the reckoning, and in the process generally reduces the wreckage on the back end.
If you want to understand the volatility of a stock like Tesla ($tsla), the issue often is not short-selling but the extremely tiny float -- only a very small percentage of the equity in the company actively trades, while the rest sit in hands of folks who are not going to trade or even lend the stock (e.g. Elon Musk). With such a tiny float, small changes in sentiment lead to huge price swings, making it a hair-raising investment for both longs and shorts. This situation would likely be worse without the shorts.
As for the supposed false information spread by shorts, I am sure that happens. But information gathering by shorts is one of the reasons we should treasure short-selling. Here is my analogy -- one of the few good things about having Donald Trump as President is that the media actually is doing its job and is skeptical of everything he says and does. It digs into the truth of his every single statement. And sometimes what the media comes up with is fake or wrong. But I would still argue we are better off with this sort of accountability than we were with the media as lapdogs to Obama. Just look at the problems and potential rights violations at the border. The media ignored most all of this same activity when it was happening under Obama, but is rightly (finally) highlighting it under Trump.
Trump supporters hate the media, and argue that it was "long" Obama and "short" Trump, but whatever the reason, we are learning things we did not know before and knowledge has value. Shorts play this same role in the market. For years everyone fawned over Elon Musk and Tesla. The dedicated EV magazines were basically house organs of Tesla, a sort of Tesla Pravda. The longs did not want to see or hear any criticism. Essentially, no one wanted to be skeptical of the Tesla story except the shorts. The shorts may turn out to be wrong, but they are finding holes in the Tesla love story and that is valuable.
Postscript: If you do not invest and want a tiny taste of the hate short-sellers engender, go find the hottest, rowdiest craps table in a Vegas casino and start betting the Don't Come line.