Coyote Blog

John Hinderaker at Powerline writes about the House committee hearing on reparations the other day.  Just as a review, there is a proposal on the table by many Democrats that a large group of Americans who have never owned slaves or even condoned slavery pay reparations for slavery to a large group of Americans who have never been slaves (nor likely have their parents or their grand parents).

Forgetting the moral bankruptcy of the underlying arguments for reparations, I would have thought that if modern American blacks were somehow owed reparations for past damages, the very fact of being held in bondage was damage enough.  That crime is so bad it's hard to imagine anything else really adding more than incrementally to the damage calculation.  But apparently Ta-Nehisi Coates tetified, using a recent academic paper, that cotton grown and harvested by black labor amounted to nearly half the US economic activity at the time, and thus was somehow worse.  I am not really sure I understand this argument, but if we focus narrowly on the statement at hand it is obviously absurd, if for no other reason than the fact that the South was economically overwhelmed in the war by the North.

Apparently the "trick" in the study was to essentially double count economic activity and claim any activity that only marginally touched on cotton to be part of the tally for the size of the cotton economy.

Coates’s numbers come from Cornell University historian Ed Baptist’s 2014 book The Half Has Never Been Told. In a key passage in the book, Baptist purports to add up the total value of economic activity that derived from cotton production, which at $77 million made up about 5 percent of the estimated gross domestic product (GDP) of the United States in 1836. Baptist then committed a fundamental accounting error. He proceeded to double and even triple count intermediate transactions involved in cotton production — things like land purchases for plantations, tools used for cotton production, transportation, insurance, and credit instruments used in each. Eventually that $77 million became $600 million in Baptist’s accounting, or almost half of the entire antebellum economy of the United States.

My point is not to quibble with Coates's numbers per se -- as I said up top, a) I don't think reparations are owed for our great great grandparents actions b) I think the economic contribution of cotton is a rounding error on any damages that would be owed and c) I feel like the United States government and its people already paid this bill in blood and treasure during the Civil War.

The point I want to make is that this same error is made ALL THE TIME.  Every study you see quoted about economic impacts of .. whatever ... likely makes this same mistake, either accidentally or on purpose.  When sports teams try to get tax subsidies so their billionaire owners can build new stadiums, the economic impact "studies" they produce do this same triple counting.  When the sugar industry tries to justify the absurd tariffs that protect it, their studies use this same trick.  When climate alarmists cite economic impacts of a degree of warming, they use this technique.

By the way, I have made my own proposal on slavery reparations that targets the cost of reparations at the wealthy institution in the antebellum south, an institution that still exists today, which did the most to extend and preserve and defend slavery.

@Elonmusk is facing real blowback for his management buyout by tweet the other day, in particular for two words:  "funding secured."  Many, including myself, doubt he really had tens of billions of dollars of funding secured at the time, particularly since all bankers and likely sources of funding as well as most large Tesla shareholders had never heard of any such transaction when contacted by the media.  The SEC is now looking into this and other Musk corporate communication practices.  If he lied in the tweet, perhaps to get revenge on the short-sellers he hates with an irrational passion, he could be in deep, deep legal poop, up to and including jail.

Let's play a game.  Let's assume he did NOT have funding secured at the time he tweeted this, and now is running scared.  What can he do?  One ace he has is that the board is in his pocket and (I hate to be so cynical about this) will likely lie their asses off to cover Musk.  We already saw the dubious letter the other day, from "members of the board" rather than officially from the board, attempting to provide cover for Musk's tweets.  This is not just a crony thing -- it is entirely rational for the company to defend Musk.  He is, in my opinion, a terrible executive but he is the avatar that drives the fan boys and the stock price.  The day that Musk leaves is the day that the company can really get its operational house in order but it is also the day the stock trades under $75.

So what can Musk do?  Well, the first defense might be to release a statement like "when I said funding secured, I was referring to recent conversations with ______ [fill in blank, maybe with Saudis or the Chinese, call them X] and they told me that if we ever were looking for funds they would have my back."  This is probably the best he could do, and Tesla would try to chalk it up to naivete of Mr. Musk to accept barroom conversation as a firm commitment.  Naivite, but not fraud.   I don't have any experience with the Feds on this kind of thing but my guess is that the SEC would expect that the CEO of a $50 billion public company should know the rules and legally wasn't allowed to be naive, but who knows, the defense worked for Hillary Clinton with her email servers.

But this defense is MUCH MUCH better if, in the next day or so, Tesla can announce a deal with X on paper with signatures.  Then Musk can use the same defense as above but it has much more weight because he can say, see, they promised funding and I believed them when they said they had my back and here they have delivered.

The problem with this is it would be really a deal being crafted for tens of billions of dollars on a very short timeframe and with limited negotiating leverage (X will know that Musk NEEDS this deal).  As a result, the deal is not likely to be a very good one.  X will demand all sorts of extraordinary provisions, perhaps, for example, a first lien on all Tesla IP and a high breakup fee.  I picture this more like the negotiation for bankruptcy financing, and in fact the IP lien was part of the financing deal Theranos made when it was going down the drain.  But put yourself in Musk's shoes -- jail or bad deal?

And likely his conscience would be clear because this deal would be killed quickly by shareholders.  That would be fine, because the purpose of the exercise would be to keep Musk out of jail, not to actually buy the company.  Tesla shareholders will still get hosed, probably having to pay some kind of break-up fee which any sane investor X would insert as the price for participating in this farce.  And we will go back to the starting point of all this, which is Tesla being public and focusing on operational improvement in what may be the most important operational quarter in its history.

Disclosure:  I have in the past been short Tesla but have no position in it now (I did short when trading reopened the other day after Musk's announcement but covered this afternoon).  I am not in any way, shape, or form giving any financial advice you should spend actual money backing.

This is from the questions and comments I am getting on my Summer 2018 Regulation cover story, "How Labor Regulation Harms Unskilled Workers."   Here is my typical answer:

I don't and I am not.  But this sort of reaction, which you can find in the comments of this and other similar articles, is typical of how public policy discussion is broken nowadays.  When I grew up, public policy discussion meant projecting the benefits of a policy and balancing them against the costs and unintended consequences.  In this context, I am merely attempting to air some of the costs of these regulations for unskilled workers that are not often discussed.  Nowadays, however, public policy is judged solely on its intentions.  If a law is intended to help workers, then it is good (whether or not it will every reasonably achieve its objectives), and anyone who opposed this law has bad intentions.  This is what you see in public policy debates all the time -- not arguments about the logic of a law itself but arguments that the opposition are bad people with bad intentions.  For example, just look in the comments of this and other posts I have linked -- because Coyote points out underappreciated costs to laws that are intended to help workers, his intentions must be to harm workers.  It is grossly illogical but characteristic of our post-modernistic age.

I will retell a story about Obamacare or the PPACA.  Most of my employees are over 60 and qualify for Medicare.  As such, no private insurer will write a policy for them -- why should they?  Well, along comes Obamacare, and it says that my business has to pay a $2000-$3000 penalty for every employee who is not offered health insurance, and Medicare does not count!  I was in a position of paying nearly a million dollars in fines (many times my annual profits) for not providing insurance coverage to my over-60 employees that was impossible to obtain -- we were facing bankruptcy and the loss of everything I own.  The only way out we had was that this penalty only applied to full-time workers, so we were forced to reduce everyone's hours to make them all part-time.  It is a real flaw in the PPACA that caused real harm to our workers.  Do I hate workers and hope they all get sick and die just because I point out this flaw with the PPACA and its unintended consequence?

The government does it in health care, education, and housing.  Usually in the name of increasing access to or usage of something, they will subsidize demand.  But then at the same time they will restrict supply, giving lie to this stated justification of increasing access, making the whole exercise a crony enrichment of a small number of incumbent producers or asset owners.  The government creates low income housing programs and subsidized mortgages but limits the ability to construct new homes, thus having the primary effect not of increasing housing access but of driving up home prices for current incumbent home owners.  In health care the government subsidizes access to care in any number of ways but then restricts supply through certificates of need, onerous licencing programs, and drug manufacturing restrictions.

Now, consider solar panels.  The government has many programs to subsidize the purchase of solar panels.  Often, one can get local, state, and federal rebates and tax breaks for buying solar panels.  But at the same time:

President Donald Trump’s pledge to offer American companies more aggressive protection from foreign competition got fresh ammunition Friday, when a government board cleared the way for him to deploy a long-dormant legal weapon to restrict solar panel imports....

In the solar panel case, filed by Georgia-based Suniva Inc. and joined by Oregon-based SolarWorld Americas Inc., the ITC commissioners will now consider specific policy recommendations and submit those to the White House by Nov. 13. Mr. Trump then has two months to decide whether to impose solar trade barriers....

“We brought this action because the U.S. solar manufacturing industry finds itself at the precipice of extinction at the hands of foreign market overcapacity,” Suniva said. The firm filed for bankruptcy protection earlier this year.

This really is utter madness, even from a domestic employment standpoint.  I would be willing to be that the solar panel installation industry, which will be hurt by rising costs of solar panels, employs way more people than the US panel manufacturing industry.  The solar industry's trade association seems to agree:

“Analysts say Suniva’s remedy proposal will double the price of solar, destroy two-thirds of demand, erode billions of dollars in investment and unnecessarily force 88,000 Americans to lose their jobs in 2018,” said the Solar Energy Industries Association, which promotes solar use.

For Progressives who are suspicious of public choice theory, this is they sort of prediction public choice theory makes and should be an area where Progressives and libertarians could make common cause.  But traditionally Progressives have always been trade restrictionists, which seems crazy to me.

Whether it be via bankruptcy, a merger, or just an internal rebranding, I am pretty sure the Equifax name will not exist in 18 months**. I had a class in business school that studied cases from a number of corporate PR emergencies -- J & J's aggressive handling of the Tylenol poisoning cases is frequently studied as the gold standard for how to handle such a crisis.  However, most of the cases involved companies repeatedly firing additional rounds into their foot.  Equifax seems to be working from this latter script: (via Zero Hedge)

“Today, Equifax ended up creating that exact situation on Twitter. In a tweet to a potential victim, the credit bureau linked to securityequifax2017.com, instead of equifaxsecurity2017.com. It was an easy mistake to make, but the result sent the user to a site with no connection to Equifax itself. Equifax deleted the tweet shortly after this article was published, but it remained live for nearly 24 hours.”

Further research revealed three more tweets that had sent potential victims to the same false address, dating back as far as September 9th. These tweets have also since been deleted.

“Luckily, the alternate URL Equifax sent the victim to isn’t malicious. Full-stack developer Nick Sweeting set up the misspelled phishing site in order to expose vulnerabilities that existed in Equifax's response page. “I made the site because Equifax made a huge mistake by using a domain that doesn't have any trust attached to it [as opposed to hosting it on equifax.com],” Sweeting tells The Verge. “It makes it ridiculously easy for scammers to come in and build clones — they can buy up dozens of domains, and typo-squat to get people to type in their info.”

I recently froze my credit history at the four major credit monitoring companies.  I was super paranoid about making sure the domain I was entering my personal data into was a subdomain of company's domain.  Freeze.equifax.com would probably be safe.  But equifax.freeze.com would very likely be a phishing site.  As would be www.equifaxfreeze.com or www.freeze.com/equifax.  I know from training our employees on subdomains we use in our own company's web site that 99% of my employees do not understand the differences between these addresses.

** Because I can be a jerk but in generally harmless ways, for several years after the Valujet crashes in the Florida swamps I told my friends -- who were flying AirTran to save money -- that they should consider flying Valujet, which I claimed was even cheaper on those routes.  They said no way they would fly Valujet after Valujet had two crashes in a row that were ascribed to lax safety standards.  AirTran at the time was Valujet with the name changed.

My company operates campgrounds on public lands under contract with various public agencies.  Over the past several years, there has been a lot of discussion about public accommodation (e.g. can a private photographer choose not to serve a gay wedding).  This has never really been a big issue for me in my business, both due to my personal tolerance of just about anyone and the fact that we operate on public lands, which gives us an extra responsibility for broad accommodation.

Yesterday a sheriff's deputy in Arizona comes by one of the campgrounds we operate and gave a flyer to our manager.  It says that so-and-so, we will call him Mr. Smith, is in the area and is registered as a level 3 high-risk sex offender ("level 3 is the highest level and considered the highest risk to reoffense").  The deputy lets my folks know that it would be better not to do business with this guy.

Now personally, I have a lot of skepticism for the sex offender registry.  These lists sweep up a lot of people whose crimes are trivial (e.g. teenagers who had sex together or texted pictures with their girlfriends).  They assume high risk of recidivism without evidence.  Their existence dates back to a variety of molestation panics that were grossly exaggerated, and play on what I think are irrational public fears.  They can act as a substantial extra punishment beyond what they might have been charged with in court.  And they can be harsh, making it nearly impossible for someone to try to live a normal life in any community.

So the dilemma arises because this gentleman was staying in our campground at the time we received the notice.  My female manager wanted him out, as did most of my employees.  My guess is that if I polled the guests, most of them would want this guy out.  Because many people in a campground are in tents without any door or lock, they can feel particularly vulnerable.  I had never really thought about this much until we added cabins with locking doors to a campground and the early customers were disproportionately single women and women on their own with their kids.  They liked the lock.

My most telling problem is one of liability.  The state of Arizona has officially notified me that in the state's opinion this person is high-risk (whatever I might suspect his true risk may be).  If some incident were to happen, this notification would be exhibit one in the trial suing me into bankruptcy, arguing that I callously and knowingly allowed this risk to remain when I had it in my power to remove it.  I suppose one could argue that I probably always have people on the sex offender list in one of our campgrounds almost every day since there is no reasonable way to check on such things.  But in this case I have been notified in writing by an agent of the state that this person is considered high risk -- this knowledge gives me added responsibility.

I made my decision already, because part of the joy of running a 24/7/365 service business with 2.5 million customers a year is that I have many decisions like this and I have to make a choice and move on.  But I am curious what your decision would be.  Discuss.

Update:  wow, the discussion here is just tremendously useful.   The commenter who observed that I could probably be sued either way successfully captured the flavor of my frustrations trying to run a business in the modern legal environment.

It struck me later that I might not even have a decision to make.   The Forest Service which owns the land may not even allow such folks to be excluded from public lands.  If this is the case, I can get that in writing and do what I prefer (ie not participate in the further punishment of this gentleman) but have some coverage against legal liability in the future.

At least one investor (and likely soon many more) in Theranos is suing the company:

When Theranos founder Elizabeth Holmes announced that the company was shifting its focus, she said her team is lucky to have investors who believe in its mission. But there's at least one major investor who doesn't, and it has already sued the controversial blood-testing provider. According to The Wall Street Journal, Partner Fund Management (PFM) LP is accusing the startup of convincing it to pour $100 million into the startup by feeding it a "series of lies." The San Francisco-based hedge fund firm filed the lawsuit in Delaware today and sent out a letter to its own investors.

In the letter, the firm said:

"Through a series of lies, material misstatements, and omissions, the defendants (Theranos), engaged in securities fraud and other violations by fraudulently inducing PFM to invest and maintain its investment in the company."

I really was not going to blog this week but this article exceeded by fury threshold, which is pretty hard to do nowadays.

The report, shared with MarketWatch, states that some of Puerto Rico’s debt may have been issued illegally, allowing the government to potentially declare the bonds invalid and courts to then decide that creditors’ claims are unenforceable. The scope of the audit report, issued by the island’s Public Credit Comprehensive Audit Commission, covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5 billion general-obligation bond offering and a $900 million issuance in 2015 of Tax Refund Anticipation Notes to a syndicate of banks led by J.P Morgan

So government officials break the law by taking out a loan they shouldn't have taken out, and the punishment is that they get to keep the money and not pay it back?  This is absolutely absurd.  That means that completely innocent third parties are essentially being fined $4.4 billion for the malfeasance of Puerto Rico's government officials.  Were the creditors truly innocent?  Well, the same report goes on to further criticize the government officials for not telling their creditors that what the government was asking for was illegal

Puerto Rico did not inform bondholders that its constitution forbids it from using debt to finance deficits. That, the commission’s report says suggests “substantive” noncompliance with the letter of the constitution

So in fact, incredibly, the creditors' very innocence is used as part of the proof that the debt was illegal, and thus that creditors should be expropriated.

I thought that this couldn't possibly be the law, except that the Supreme Court has already upheld the same outcome in other cases:

The U.S. Supreme Court has said in the Litchfield v. Ballou case and, more recently, in litigation related to Detroit’s bankruptcy that borrowing above a debt ceiling may allow the issuer to declare debt invalid and, therefore, unpayable. Detroit went to court to invalidate $1.45 billion in certificates of participation, debt issued by two shell companies called “service corporations.” The parties settled before the case went to trial, but, while refusing two initial proposed settlements, the judge stated that Detroit’s argument had “substantial merit” and that the suit would have had a “reasonable likelihood of success.”

This is they type of thing that occurs in banana republics.  No honest nation with a strong rule of law operates this way.  And what is to prevent other distressed government bodies with limited ethics (e.g. the State of Illinois) from carefully borrowing money in a way that is subtly illegal and then repudiate it a few years later?

I told my wife a number of times that my guess is that Trump won't release his taxes because they don't show nearly enough income to justify his ego.  Time and again I see he and his cohorts and even the media throwing around eye-popping revenue numbers for him.  Well, I can tell you from long, sad experience that merely having large revenue numbers won't get you anywhere - they have to actually be higher than expenses to be meaningful.  I was a part of several early Internet startups that rode tens of millions of revenue right into liquidation.

Here is my hypothesis of what makes Trump rich:

1. He started with family money.  No shame in that, lot's of people have done productive things with the capital accumulated by prior generations of their family.  But in Texas we used to have  a saying -- the best way to make a million dollars is to start with $10 million.  Is Trump's fortune larger today than it would have been if, say, he had just shoved all of dad's money into stocks?
2. He has the political clout to swing real estate deals average people cannot.  Real estate in New York and Atlantic City is entirely driven by crony capitalism, and Trump is a master.  Let's say I have a piece of land that is worth X.  It would be worth X+Y if I could build the building I want on it, but I can't get the permissions I need.  Trump can, buys it for X, and then makes Y profit from his political pull.  The example of his getting his cronies in the Atlantic City government to condemn a woman's home so he could pave it over for limo parking is just the ugliest of many, many such examples.
3. He extracts rents from investors, even when investors lose money.  I don't know if there is an economic name for this, but there should be.  Trump's investors, particularly his bondholders, have frequently lost millions on his real estate and casino investments -- both in his many bankruptcies and his frequent debt restructurings, which he brags about on the campaign trail.  These investments are losing money and going bankrupt, so they can't be generating free cash flow.  Somehow Trump is saddling investors with the losses AND extracting income for himself personally.  Steven Job's lifestyle was paid for by people who voluntarily bought iphones and valued them enough to pay more for them than it cost to make them.  I hypothesize that Trump's lifestyle is paid for out of invested capital, and not out of profits.  Which of course leaves open the question of why investors continue to sign up for this treatment.  I understand why donors give to the Clinton Foundation despite the fact that the Foundation does relatively little actual charity work -- donors are looking for influence with the Clintons.   But why do Trump investors keep dumping in more money?  Could it be charisma?  Certainly Trump has an excess.
4. Trump's best investments seem to be ones where his charisma comes into play -- his TV shows come to mind.  Beyond the TV shows, there is a long string of business failures, from steaks and schools to casinos.

Postscript:  To be fair, I will add that I have in the past been a fan of his hotel on the strip in Las Vegas.  The hotel provides a screaming good value (you can almost always get a huge discount off rack rate) for an exceptionally nice room in a good location -- and in a non-casino hotel to boot.  I used it for years as a low-cost location for manager meetings.  The staff there is great -- the only problem is one has to look past the tacky gold gilding on everything and the goofy Trump-branded swag in the gift shop.  I will add, though, apropos to this post, there is no way on God's green Earth that this hotel makes money, at least if it is paying all of its capital costs (it is possible there was a bankruptcy at one point where Trump said "you're fired" to the bondholders).  If you ever stay there, by the way, it has the best view of the strip in Vegas because it is right at a bend and can look straight down the street.  Ask for a high room on the south side.

Update:  LOL, looking at #3, I think we do already have a name for this phenomenon of extracting rents from investors even when the investments are losing money -- it is called a hedge fund.  Given that hedge funds generally do not consistently outperform the market and result in outsize compensation for their managers even when the fund loses money (pretty sure Chelsea Clinton's and her husband did not give back any of the management fees they pulled down despite their hedge fund tanking most of their investor's money).

Update #2:  Being a billionaire is no guarantee that one knows anything about even basic economics:  Nick Hanauer argues the way to prosperity is to impose a $28 minimum wage.

No one loves local sports teams more than the local media.  I think they know, but probably won't admit, that they would lose a huge chunk of their remaining readership / viewership for their news products if they did not have local sports to report on.  So you will almost never, ever, ever see local media reporting reporting on the true cost (in terms of handouts of taxpayer money) to retaining pro teams.

My coverage of the Phoenix/Arizona Coyotes hockey team goes way back, including even to a mention in a George Will column.  I won't repeat all of that.  I just want to point to this article entitled "Glendale selects AEG to manage Gila River Arena; Arizona Coyotes' future unclear."

Glendale selected facilities-management company AEG Facilities to operate Gila River Arena, likely hastening the city's split with the Arizona Coyotes hockey team.

The telling thing about the article is that it never once explains to readers why this bid award might hasten the split with the Coyotes.  They mention that the Coyotes chose not to bid on the contract.   So why is this award a problem for them?  Do they hate AEG for some reason?  If you really were new to the issues here, you would have to scratch your head and wonder why the two issues were connected.

Oddly enough, everyone knows the reason, but the local media really wants to avoid mentioning this reason.  Here is the elephant in the room no one will recognize:  The Coyotes struggle to make money in this market, a fact made worse by the terrible location of the stadium at the far end of town from most of the potential corporate ticket buyers and wealthy people.   As a result, the team languished in bankruptcy for years, in part because the NHL (who took over the team) refused to sell it at a reasonable market price.

They finally found a buyer who agreed to buy it for an above-market price, but did so only because there was an implicit promise by the town of Glendale to subsidize them the $100 million difference between the actual and market price of the team..  The Goldwater Institute called foul on this subsidy and got it stopped.  So the town found a way around it, promising to award the team the stadium management contract for a price  $8-$10 million a year above market rates for the service.   The present value of this above-market pricing over the life of the proposed contract nearly exactly matched the earlier subsidy proposal Goldwater killed.  Various folks cried foul again, seeing through this sham, and got that stopped.

So the reason this award of the stadium management contract to AEG is so devastating to the Coyotes is that this contract represented the last hope of exacting a hidden subsidy from the city.  With this contract awarded to an arms-length third party at market rates, the last chance of making the Coyote's business viable on the taxpayer's backs seems to have escaped.

Update:  I am hearing now that another reason the Coyotes are done in Glendale is that they think the city of Phoenix or Scottsdale will build them a new stadium.  ugh.  Will it never end.

What does government energy policy have in common with government food advice?  Every 30-40 years the Federal government reverses itself 180 degrees and declares all the stuff that they said was bad before is now good today.

Case in point:  Coal-fired electrical generation.  Coal is pretty much the bette noir of environmentalists today, so much so that Obama actually pledged to kill the coal industry when he was running for office.   The combination of new regulation combined with the rapid expansion of cheap natural gas supplies has done much to kill coal use (as illustrated by this bankruptcy today).

But many people may not realize that the rise of coal burning in power plants in the US was not just driven by economics -- it was mandated by government policy

Federal policies moved in coal's favor in the 1970s. With the Middle East oil crisis, policymakers began to adopt policies to try and shift the nation toward greater coal consumption, which was a domestic energy resource. The Energy Supply and Environmental Coordination Act of 1974 directed the Federal Energy Administration to prohibit the use of oil or natural gas by electric utilities that could use coal, and it authorized the FEA to require that new electric power plants be able to use coal. The Energy Policy and Conservation Act of 1975 extended those powers for two years and authorized $750 million in loan guarantees for new underground low-sulfur mines. Further pro-coal mandates were passed in the late-1970s.

I was aware of the regulations at the time as I was working in an oil refinery in the early 80's and it affected us a couple of ways.  First, it killed demand for low-sulphur heavy fuel oil.  And second, it sidelined several co-generation projects that made a ton of sense (generating electricity and steam from wasted or low-value portions of the oil barrel) but ran afoul of these coal mandates.

Kevin Drum featured this chart on "reproductive rights" by state.

Since I am pretty sure most states have an unfettered right to actually reproduce, I presume the issue at hand here is the right not to reproduce using certain tools such as abortion (and certainly this is confirmed when one digs into the criteria behind these rankings).

I would like to congratulate the Left on acknowledging that any right to reproduce must include the right not to reproduce.   In fact, since the scores here are driven entirely by the right not to reproduce, I would infer that Drum and the Left sees the right not to reproduce as absolutely critical to reproductive rights.

Which leads me to the following question:  Would the same folks agree that a right of association implies a right not to associate?  Because recent experience (e.g. with gay rights groups hounding bakers into bankruptcy because they would not make a wedding cake for a gay wedding) sure seems to imply the Left has a different attitude towards association rights.

Frequently people will use the existence of threats, including death threats, over the Internet as proof that their cause is more just because their opponents are violent and _________ (fill in the blank with racist, misogynist, etc.).  Most folks firmly believe that only their side is getting these death threats, since they only really talk to and read people on their side.  But as a libertarian that makes common cause with all kinds of groups, what I see is that EVERYONE that says something even mildly controversial gets Internet threats.  The gamergaters get threats and the anti-gamergaters get threats.  BLM gets threats and police defenders get threats.  Heck, I get threats, mostly on climate and immigration issues, and I am a nobody.  And here is the latest source of death threats:  Katherine Timpf dissing Star Wars

More than a month ago, I made some jokes about Star Wars on Red Eye, a satirical political comedy show that airs at 3 a.m., and it has resulted in me being verbally abused and told to die by a mob of enraged fans for the past four days now. ...Then, this week, one Star Wars super-super-super fan who calls himself “AlphaOmegaSin” made a ten-minute (!) video brutally ripping me apart.  The YouTube comments on his manifesto were even better. You know, stuff like:

justin 12 hours ago Maybe a SW nerd needs to sneak into her dark room, dressed like her bf, rape her, but she doesn’t know it’s rape because she thinks it’s her BF.

needmypunk 16 hours ago I hope she gets acid thrown in her pretty little face.

sdgaara2 1 day ago Wouldn’t it be great if she was beaten to death with “space nerd sticks”

etc. etc.   Now, I understand there are a few folks out there who have had to deal with scary and legitimate stalking episodes online.  But in the vast majority of cases, does anyone really treat these as serious threats?  Like actually get scared?  I know I don't.  I would suggest that most folks respond just like Ms. Timpf did -- they treat them as a badge of honor and of proof of the rightness of their cause and the bankruptcy of their intellectual opposition.  I have done the exact same thing.   We have a term called humble brag, e.g. "I was so stupid last night -- Johnny Depp came by my table to say hi and I didn't recognize him."  We need a term for this -- "victim brag", maybe?

I have come to the conclusion that there are a core of people on the Internet that are simply morons, and will react stupidly to about anything.  We should stop ascribing any significance to their showing up in an online discussion.  The fact they show up making their stupid threats has no more meaning than the fact that ants inevitably show up when you drop food on the ground.  You wouldn't write an article that "ants hate me because they swarmed all over the potato chip I dropped."  Let's treat Internet trolls just like we do these insects.

I operate recreation areas in the US Forest Service and from time to time get criticized that my profit adds cost to the management of the facilities, and that the government would clearly be better off with a non-profit running the parks since they don't take a profit.  What they miss is that non-profits historically do a terrible job at what I do.  They begin in a burst of enthusiasm but then taper off into disorder.    Think about any non-profit you have ever been a part of.  Could they consistently run a 24/7/365 service operation to high standards?

Don Boudreaux has a great quote today that touches on this very issue

from page 114 of the 5th edition (2015) of Thomas Sowell’s Basic Economics:

While capitalism has a visible cost – profit – that does not exist under socialism, socialism has an invisible cost – inefficiency – that gets weeded out by losses and bankruptcy under capitalism.  The fact that most goods are more widely affordable in a capitalist economy implies that profit is less costly than inefficiency.  Put differently, profit is a price paid for efficiency.

It is also the "price" paid for innovation.

From the WSJ, an article on how politicians who tried to point out the unsustainability of Greek finances years ago where not only ignored, but villified and marginalized.  Sort of like in places like California and Illinois.

In the past quarter century, Greece has had a handful of reformist politicians who foresaw the problems that are now threatening the nation with bankruptcy.

Their reform proposals were fought by their colleagues in parliament and savaged by the media and labor unions. They invariably found themselves sidelined....

Tassos Giannitsis is no stranger to this kind of war: His tenure as labor minister was more short lived, and the battles against him even more visceral. Mr. Giannitsis in 2001, again in the Pasok government led by Mr. Simitis, put forward a comprehensive proposal to reform the pension system.

Trade unions, opposition parties and Pasok itself unleashed menace on Mr. Giannitsis.

“Giannitsis was annihilated after his pension-reform proposals. There are few precedents for this kind of universal attack on a politician,” said Loukas Tsoukalis, a prominent economics professor here.

Mr. Giannitsis’s proposals, which would have reduced the pension levels Greeks receive and made the system overall more sustainable given the country’s demographic and labor-force trends, were never taken to parliament.

“From the fridge to the bin!” said the front page of newspaper To Vima on April 28, 2001, as the frozen pension-reform plan was scrapped for good.

“When I told my colleagues in the cabinet about the reforms I was proposing—which mind you were not the toughest available—the attitude I got was that I was spoiling the party,” Mr. Giannitsis said in an interview.

“They were, like, ‘everything is going great right now, why are you bothering us with a problem that may implode in a decade?’”

There are many other examples.

The tech site Engadget directed me to this article on Visual FX and CGI as a "must-read".  What I found was one of the odder economics and business hypotheses I have encountered lately.

The article begins by relating that VFX and digital effects specialty houses all lose money, even when they are providing effects for wildly profitable movies (e.g. Avengers) and purports to explain why this should be.  The author believes that this is a result of Hollywood purposely criticizing the artistry of VFX movies as a way to keep returns in the VFX companies down (and thus increase the returns of film producers).

As the debate surrounding what visual effects are worth rages on, it is clear that the studios themselves have an interest in perpetuating the myth that VFX are the product of clinical assembly lines and the results are equally lifeless and mechanical. Blaming computers for the dumbing down of movies has become a journalistic trope that is bandied about to squeeze the one part of the Hollywood machine that has no union or organizational skill to push back. The right hand asserts they are something not worth paying top dollar for, while the left lines up an interminable roster of VFX-based box office juggernauts for the foreseeable future.

The author goes so far as to say that Avatar was denied the best picture Oscar specifically to support the anti-VFX sentiment and keep returns of VFX companies down (emphasis added).

In 2010, James Cameron’s Avatar became the highest grossing film of all time just 41 days after its release, raking in an incredible $2.7 billion by the end of its run. Weta Digital, the VFX studio that created the majority of the visual effects, along with Lightstorm Entertainment, invested years in developing the tools and talent necessary to create Cameron’s almost entirely computer generated vision, with the cost of making the film rumored to be upwards of $500 million. Cameron had promised to show the world what visual effects could do and he succeeded. The results were universally lauded as visually stunning and unparalleled.

Yet, rather famously, the film and Cameron were snubbed that year at the Academy Awards, both for Best Picture and Best Director. The blame was laid at the feet of the critical success of The Hurt Locker. However, awarding Avatar the Academy’s highest honor would have been acknowledging visual effects as not only lucrative, but high art as well, worthy of its astronomical price tag. And that was a bargaining chip Hollywood was unwilling to concede to an industry it continues to hold hostage with threats of outsourcing to unskilled laborers around the globe.

This hypothesis seems outlandish, and in fact the author never really provides any evidence whatsoever for her hypothesis.   At least equally likely is that Hollywood insiders are snobbish and conservative and reject new approaches to film-making in a way that the public does not.  Or it could be that Avatar wasn't a very good movie (go try to watch it again today, you will be surprised what a yawner it is).  So why are VFX companies really losing money on profitable films?   Let's take a step back, because there is a useful business lesson buried in here somewhere.  I think.

This discussion is a sub-set of an age-old business problem -- how do rents in a supply chain get divided up?   Think of the billion plus dollars the new Avengers movie will make.  Everyone in the supply chain for making that movie, from the actors to the caterers to the VFX houses to the distribution companies believe their contribution has immense value, and that they should be getting a solid cut of the profits.  But profits in a supply chain are not divided up based on some third party assessing value, they are divided up by negotiation.  And the results of that negotiation depend on a lot of factors -- the number of competitors, the uniqueness of the service, regulatory rules, etc.  The most visible example of this sort of negotiation we see frequently in the news is in sports, where players and team owners are explicitly negotiating the division of the end revenue pie between themselves.

If we return to the article, the author actually gives us a hint of the true dynamic that is likely bringing down VFX profits.

The international subsidies-driven business model under which VFX companies operate has been well documented. In pursuit of tax rebates offered by various governments to produce films in their jurisdiction, studios insist that VFX companies open branches in these locations or reduce their bids by the amount of the subsidy in question. Even as studios, directors, and audiences demand the latest in cutting edge technology, VFX houses must underbid one another to get the work and many have been shuttered due to operational losses in the wake of explosive blockbuster budgets. The cost of research and development, shrinking schedules, and the unlimited changes that are the building blocks of every tentpole film, are shouldered entirely by VFX houses.

This is the best clue we get to the real problem.  Here is what I infer from this paragraph:

1. This is a high fixed cost industry.  There are enormous up-front investments in research into new techniques and large investments in the latest technology, which presumably must be constantly refreshed because it has a short half-life before it is out of date.  The situation is worsened by government policy, which provides incentives for VFX companies to build extra capacity in multiple countries, losing economy of scale benefits from large concentrated production facilities.    One would presume from this that these companies' marginal cost of output, say 15 seconds of finished effects, is way way below their total costs.
2. There is rivalry among VFX companies that seem to have excess capacity, such that bidding for work is very aggressive.  In such situations (think American railroads in the late 19th century) competitors lower prices down to marginal cost to keep their capacity and their trained people working.  Over time, of course, this leads to numerous bankruptices

I will add a third point which the author fails to cover.  To do so I will return to one of my favorite things I learned at Harvard Business School (HBS).  At HBS, in the first two days of strategy class, we studied two very different business cases.  The first was of a water meter manufacturer, a dead boring predictable unsexy business.  The second was a semiconductor company, which was hip and cool and really sexy.  It turned out that the water meter company coined money.  The semiconductor business was in and out of bankruptcy.

Why?  Well the water meter company had limited investment (made the same meters the same way for decades) and made most of its money off the replacement market, where it had no competitors since users pretty much had to replace with the same meter.  The semiconductor business had numerous shifting competitors and was constantly trying to scrape up enough investment money to keep up with shifting technology.  But there was one more difference.  By being sexy, tons of people wanted to be in the semiconductor business. They got non-monetary benefits from being in it (ie it was cool and interesting).  When there is an industry where lots of people are getting into the business for reasons other than making money, look out!  The profits are probably going to be terrible.   This is why most restaurants fail.  The business-for-sale listings are awash in brew pubs.   The aviation industry was like this for years, and I would argue this also suppresses rents in farming.

I don't know this for a fact, but I would bet that the VFX industry attracts a lot of people because it is sexy.  Yes, like a lot of programming, the actual work is detailed and dull.  But if the coding is detailed and dull, would you rather be doing it for Exxon's new back-office system or to put Ironman on the big screen (and have your name deep into the film credits, seen by the dozen or so people who hang around waiting for the Marvel Easter egg at the end)?

This is why I think a conspiracy theory to believe Hollywood is dissing the artistry of VFX movies as a way to keep VFX company rents down is silly.  It is totally unnecessary to explain the bad rents.  Had you told me it was a high investment business with huge fixed costs and much lower marginal costs and alot of rivalry driven by participants who piled into the business because it was sexy, I would have told you to stop right there and I could have immediately predicted poor returns and bankruptcies.

So what can VFX companies do?  I have no idea.  The first idea I would offer them is branding.  If you are buried deep in the supply chain and want to increase your bargaining power, one way to do it is to develop a brand with the end consumer.   If consumers suddenly latch on to, say, the CoyoteFX brand as being innovative or better in some way, such that they might be more likely to go to a movie with CoyoteFX sequences, then CoyoteFX now has a LOT more power in negotiations with producers.  Dolby Sound is a great example -- you probably don't even know what it is but movies used to advertise they had it.  Certain camera technologies like Panavision are another, where movies actually sold themselves in part on the features of one member of their supply chain.  As a digital house, Pixar effectively did this -- so well in fact its brand actually was bigger than Disney's (its distributor) for a while, and Disney was forced to buy them.  This does not happen just in movies.  I just bought a car that advertised it had a premium Bose sound system.  The car maker doesn't advertise who made, say, the fuel tanks, so my guess is that Bose, via branding, gets a better cut of the supply chain than does the fuel tank maker.

From ReWire via Anthony Watts

A test of a solar power tower project in Nevada resulted in injuries to over one hundred birds, the federal government is reporting, though the project's owners say they've fixed the problem.

On January 14, during tests of the 110-megawatt Crescent Dunes Solar Energy Project near Tonopah, Nevada, biologists observed 130 birds entering an area of concentrated solar energy and catching fire. That's according to Rudy Evenson, Deputy Chief of Communications for Nevada Bureau of Land Management in Reno.

Evenson suggested that the birds may have been attracted by a glow the concentrated solar energy created above the project's sole tower.

...

According to Evenson, workers testing the plant moved approximately a third of the project's ten thousand mirrors to focus sunlight on a point 1,200 feet above the ground, approximately twice the height of the power tower at Crescent Dunes.

The test started at 9:00 a.m. on January 14, Evenson told Rewire. By 10:30, biologists working on the site began noticing what have become known as "streamers," trails of smoke and water vapor caused by birds entering the field of concentrated solar energy (a.k.a. "solar flux") and igniting.

By the time the test ended for the day at 3:00 p.m., biologists had counted 130 such "streamers." A subsequent test on January 15 reduced the number of mirrors aimed at the focal point above the tower, said Evenson, and that apparently ended the injuries to birds.

I followed a link the other day to this academic paper purporting to show that the bailout of GM and Chrysler was a success.  I was flabbergasted to see that the authors are Austan D. Goolsbee and Alan B. Krueger.  WTF?  These folks were part of the Obama Administration.  This is their own policy they are passing historical judgement on.  This is roughly equivalent to a economics journal seeking a paper on the success or failure of Obamacare and having Valerie Jarrett write it.  How does this kind of conflict of interest pass any kind of muster?

I only skimmed the paper.  I know these are two smart guys but it seems to include exactly the sort of facile analysis you would expect from a political hack, not two smart economists.  I can't believe these guys would have accepted many of the assumptions they make here had they not been directly involved.  Just to pick two things at random:

• They seem to stick with the assumption that millions of jobs would have simply gone *poof* had the government not intervened.  Yes, this happened at Solyndra, but in most cases industries operate almost seamlessly in bankruptcy.  The odds are, for example, that you have flown on an airline in Chapter 11 and didn't even know it.  They make a specific argument that somehow it would be bad to have both in bankruptcy at the same time, but I can remember several times when there were multiple major airlines in bankruptcy.  In fact, if both went bankrupt at the same time, one could argue it would lessen their market share loss since a major competitor was in the same boat.  To the extent that the companies would have continued to operate under Chapter 11, which is 99.9% likely, then all the government did was insert itself into the bankruptcy process to overrule laws about who gets what in a bankruptcy to redirect spoils to their favored constituencies
• Yes, GM and Chrysler are doing OK now, but they usually do OK at the top of a business cycle.  To my eye though, nothing fundamentally changed about how they are managed and operate.  The same structural and cultural problems that existed before exist today.  The same under-utilization of talented workers and valuable assets that existed before exists today.  No real reckoning occurred -- in fact the bailout looked to me at the time as an exercise to use taxpayer money to avoid a true housecleaning.  These companies have done OK, but what would they have done with a more thorough housecleaning?

Nicole Kaeding of Cato has an article on the SSD system heading for bankruptcy.  I can tell you from my experience that a week does not go by when someone doesn't come to me looking for work and saying something like, "I am on full disability but I am fully able to work.  However, I can't take any pay because that would screw up my disability payments.  Can I work for you and have you write my payroll checks to my wife?"

The easy answer to that is "no".  With a backlog of 25000+ people who want a job, why am I going to help them cheat, particularly when it would be me taking the legal risk?

I once had an ex-employee who was applying for a SS disability.  You may not understand that for many folks, getting a Social Security lifetime disability is like hitting the lottery.  This employee knew that if asked, we would have to tell the SS investigator that she seemed fully able to do her job and never demonstrated any reduced functionality.  So to pre-empt that, she and her attorney sent me a letter saying that if we in any way testified to her being able to work and prevented her from getting her disability payment, she would tie me up in court for years, suing me for sexual harassment, discrimination, and everything else she could think of.

Remember the whole VA thing?  It has mostly been forgotten, though we will all remember it again, or more accurately get to experience it ourselves, once the Democrats manage to get single payer passed.

People talk about government employees being motivated by "public service" but in fact very few government agencies have any tangible performance metrics linked to public service, and when they do (as in the case of the VA wait times) they just game them.   At the end of the day, nothing enforces fidelity to the public good like competition and consumer choice, two things no government agency allows.

I will admit that government employees in agencies may have some interest in public welfare, but in the hierarchy of needs, the following three things dominate above any concerns for the public:

• Keeping the agency in existence
• Maintaining employment levels, and if that is achieved, increasing employment levels
• Getting more budget

But look at the VA response in this context:

• The agency remains in existence and most proposals to privatize certain parts were beaten back
• No one was fired and employment levels remain the same
• The agency was rewarded with a big bump in its budget

The VA won!  Whereas a private company with that kind of negative publicity about how customers were treated would have as a minimum seen a huge revenue and market share loss, and might have faced bankruptcy, the VA was given more money.

Murry Rothbard via Bryan Caplan:

On the free market, in short, the consumer is king, and any business firm that wants to make profits and avoid losses tries its best to serve the consumer as efficiently and at as low a cost as possible. In a government operation, in contrast, everything changes. Inherent in all government operation is a grave and fatal split between service and payment, between the providing of a service and the payment for receiving it. The government bureau does not get its income as does the private firm, from serving the consumer well or from consumer purchases of its products exceeding its costs of operation. No, the government bureau acquires its income from mulcting the long-suffering taxpayer. Its operations therefore become inefficient, and costs zoom, since government bureaus need not worry about losses or bankruptcy; they can make up their losses by additional extractions from the public till. Furthermore, the consumer, instead of being courted and wooed for his favor, becomes a mere annoyance to the government someone who is "wasting" the government's scarce resources. In government operations, the consumer is treated like an unwelcome intruder, an interference in the quiet enjoyment by the bureaucrat of his steady income.

Just to prove that there is no end to the arrogance and moral bankruptcy of politicians:

Federal lawmakers and state officials are stepping up pressure on insurers to allow consumers whose coverage has been canceled in response to the health overhaul to keep their policies beyond the end of the year.

On Tuesday, one of the largest regional health plans in the nation, Blue Shield of California, said it would relax its stance on terminated policies for about 115,000 people after state regulators demanded it do so. Customers now will have until March to decide which plan to choose for 2014, a three-month extension. Because the newer plans generally cost more, the extension could save residents as much as $28.6 million on premiums, said Dave Jones, California's insurance commissioner....

The move by Mr. Jones, an elected Democrat, comes as some other Democrats are seeking ways to allow individual policyholders to keep their current health plans and to defuse the issue of canceled plans, which has become a headache for supporters of the law.

Cancellation letters are expected to be sent to as many as 10 million Americans who buy coverage directly from insurers, rather than through an employer or government program. While these individuals would have to buy new policies, regulators and lawmakers say the extensions would give them more time to shop for an affordable new plan—particularly because continuing problems with insurance exchange websites are preventing many of these consumers from finding new coverage.

This is incredible.  Senator Mary Landrieu, for example, has now introduced a bill that would reverse some of the rules that are forcing insurers to cancel policies, essentially the same bill she voted against 3-1/2 years ago.

Here is his new excuse for his "you can keep your health insurance" promise being broken.  It is -- wait for it, you will never guess -- insurance companies' fault.

"One of the things health reform was designed to do was to help not only the uninsured but also the under-insured," Obama said. "And there are a number of Americans, fewer than 5 percent of Americans, who've got cut-rate plans that don't offer real financial protection in the event of a serious illness or an accident.

"Remember, before the Affordable Care Act, these bad apple insurers had free rein every single year to limit the care that you received or used minor pre-existing conditions to jack up your premiums or bill you into bankruptcy."

This is absurd.   Kaiser Permanente cut zillions of policies.  Are they a bad apple?  My policy was cut by Blue Cross / Blue Shield of Arizona.  Are they some fly-by-night cut-rate insurer?

A huge portion of Detroit's operating costs go to police and fire.  If you include retiree health care and pensions, way over half of Detroit's budget goes to police and fire**.  That is an enormous increase since 1960.

So one might expect the schools to suck and the streetlights to be broken (which they do and are), but you would expect great freaking fire and police coverage.  But you would be wrong.  Detroit has one of the highest crime rates in the country.  This is what you get for your money there:

If you're a Detroiter who needs a police officer, it will take 58 minutes to get help -- more than five times what it takes elsewhere in the United States...

Here are some of the other problems outlined in the bankruptcy filing:

-- Response times for Emergency Medical Services and the Detroit Fire Department average 15 minutes, which is more than double the 7-minute averages seen in other cities.

-- The police department closes only 8.7% of its criminal cases, which the filing blames on the department's "lack of a case management system, lack of accountability for detectives, unfavorable work rules imposed by collective bargaining agreements and a high attrition rate in the investigative operations unit."

-- The city's violent crime rate is five times the national average, and the highest of any city with a population exceeding 200,000.

** This is in large part due to the power of their unions, and their ability in elections to translate hero worship for police and fire fighters into political power that will allow them to get anything they want.  As a politician, try to stand up for sanity and you will be deluged by union ads arguing that you don't respect our men who are risking their lives for you, etc. etc.

I am still reading through the Detroit Free Press report on Detroit's financial history and it is really amazing.  All the stuff you expect to see is there -- over taxation, over regulation, crony gifts, huge government pay and pensions, etc.  But this was new to me, and even worse than I expected:

Gifting a billion in bonuses: Pension officials handed out about $1 billion in bonuses from the city’s two pension funds to retirees and active city workers from 1985 to 2008. That money — mostly in the form of so-called 13th checks — could have shored up the funds and possibly prevented the city from filing for bankruptcy. If that money had been saved, it would have been worth more than $1.9 billion today to the city and pension funds, by one expert’s estimate.

Outright gifts of taxpayer money to government workers, even beyond their already rich salary and pensions!  Folks on the Left from Paul Krugman to Obama are trying to portray Detroit as the innocent victim of economic and demographic exogenous forces beyond their control.  Don't let them.  The exodus from Detroit and the destruction of its economy were not random events the city had to endure, but self-inflicted wounds.

The theory behind the idea that government should nudge (or coerce, as the case may be) us into "better" behavior is based on the idea that many people are bad at delay discounting.  In other words, we tend to apply huge discount rates to pain in the future, such that we will sometimes make decisions to avoid small costs today even if that causes us to incur huge costs in the future (e.g. we refuse to walk away from the McDonalds french fries today which may cause us to die of obesity later).

There are many problems with this theory, not the least of which is that many decisions that may appear to be based on bad delay discounting are actually based on logical and rational premises that outsiders are unaware of.

But the most obvious problem is that people in government, who will supposedly save us from this poor decision-making, are human beings as well and should therefore have the exact same cognitive weaknesses.  No one has ever managed to suggest a plausible theory as to how our methods of choosing politicians or staffing government jobs somehow selects for people who have better decision-making abilities.

Here is a great example.  These are the people who think YOU have a problem with delay discounting:

When all the numbers are crunched, one fact is crystal clear: Yes, a disaster was looming for Detroit. But there were ample opportunities when decisive action by city leaders might have fended off bankruptcy.

If Mayors Jerome Cavanagh and Roman Gribbs had cut the workforce in the 1960s and early 1970s as the population and property values dropped. If Mayor Dennis Archer hadn’t added more than 1,100 employees in the 1990s when the city was flush but still losing population. If Kilpatrick had shown more fiscal discipline and not launched a borrowing spree to cover operating expenses that continued into Mayor Dave Bing’s tenure. Over five decades, there were many ‘if only’ moments.

“Detroit got into a trap of doing a lot of borrowing for cash flow purposes and then trying to figure out how to push costs (out) as much as possible,” said Bettie Buss, a former city budget staffer who spent years analyzing city finances for the nonpartisan Citizens Research Council of Michigan. “That was the whole culture — how do we get what we want and not pay for it until tomorrow and tomorrow and tomorrow?”

Ultimately, Detroit ended up with $18 billion to $20 billion in debt and unfunded pension and health care liabilities. Gov. Rick Snyder appointed bankruptcy attorney Kevyn Orr as the city’s emergency manager, and Orr filed for Chapter 9 on July 18.