Coyote Blog

Sometimes entrepreneurs are successful enough to buy themselves sexy toys:  It may just be a nice pool table for the office, or it might be that new Gulfstream jet bought with the IPO proceeds.  But little did I know that entrepreneurial success would allow me to buy this beauty (click to enlarge):

This septic tank truck can really haul a load, carrying over 3800 gallons of, uh, poop.

We have a new facility at Pyramid Lake  we run in LA County, where, due to its location, all the bathrooms run into series of underground holding tanks.  At some point in the past, someone converted all the bathrooms into flush toilets, which in this area makes for a real waste of water and creates a lot of liquid waste we have to pump out and dispose of, at the cost of over $80,000 a year.  This truck is the intermediate solution, letting us cut our pumpong costs in half.  The long-term solution we are working with the US Forest Service on is to replace the bathrooms with a great composting technology from Bio-Sun, which will cut the waste and water use both to near zero.

While I sometimes get grouped into economics blogs, I actually don't have a degree in the subject.  I have an MBA, some practical experience, some hobbyist reading, a few undergraduate courses, and, as my wife can attest, a willingness to pretend I know what I am talking about.  Unfortunately, that is not enough in this case.

Over the last 6 months, I have observed an interesting phenomena in the Phoenix area, one which I am sure I am not the first to discover, but I don't have enough background to put a name on it.  Here is what is going on:

Over the last year or two, the Phoenix real estate market has been red hot.  This has caused a lot of individual investors to make local real estate investments (I discussed more about this here).  The preferred type of investment seems to be to buy an old house on valuable land, tear it down, and sell the new house for a profit.

All fine and normal so far.  The interesting part comes when the investor chooses the style and appearance of the new home.  Remember that these are typically highly leveraged investments.  Investors take out a large mortgage, and that mortgage has to be paid every month that the investor cannot sell the home.  It is critical, then, that the investor build a home that is designed in a way to be most likely to sell.

Let's imagine that the pool of possible house buyers have the following preferences (I am making these numbers up):

1. Tuscan / Mediterranean style, 40%
2. Santa Fe style, 25%
3. Santa Barbara style, 20%
4. New England style, 10%
5. Ultra modern style, 5%

With only limited information on what is going on in the market around them (ie what others are planning to build) all of these investor-builders pick the most popular style on the list, thereby apparently maximizing their ability to sell the home.  As a result, every tear down / rebuild / remodel I see in our area is a new Tuscan home.  So, while 40% of buyers (or whatever the number is) want Tuscan, 100% of the supply is Tuscan.  By the way, the same thing apparently happened in the last big Phoenix real estate boom back in the 1980's, since nearly every house in our neighborhood that was built in the early eighties was built in what we call the "santa barbara" style.

This is obviously some type of market failure, but I don't know what it is called.  I might call it the "variety failure".  To a large extent, this dynamic is made possible by the fact that many of the investors in the real estate market are only entering the housing market for a single transaction, and are not well informed of the actions of other sellers in the market.  In most other industries, investors need to make money over multiple transactions over many years, which mutes this effect.  For example, there are always farmers who try to plant this year what was earning good money last year, but these players in the market are usually weeded out over time as last year's shortage leads to this year's glut and financial losses.  Also muting this failure nowadays are changes in manufacturing techniques, which allows low cost production of greater variety, as well as expansion of specialty retail space (e.g. category killers like Petsmart or Borders), which allows display of more product variations.

Michelle Malkin pointed out this AP story:

Census Bureau findings show black and Asian women with bachelor's
degrees earn slightly more than similarly educated white women, and
white men with four-year degrees make more than anyone else.

According to the data, a white woman with a bachelor's degree typically
earned nearly $38,000 in 2003, compared with nearly $44,000 for a
college-educated Asian woman and $41,000 for a college-educated black
woman.

If true, this is really good news.  Unfortunately, as I have said in the past, if journalists had been any good at math and science in school, they probably wouldn't have been journalism majors.  Never, ever trust stats at first blush in the newspaper.  My guess is that the pool of people in these stats is "all women" as opposed to "women currently in the workforce".  This would mean that stay-at-home moms would average in as "0", distorting any conclusions one might draw about actual salaries since the prevalence of stay at home moms may vary from race to race.   However, this is still good news, especially given the increase in black women going to college.

I don't know whether it warrants the "crisis" moniker (to me, government is always in a disastrous state), but Social Security is indeed facing an enormous cash flow shortfall in just a few years.  Those who use bogus government accounting to say that there is no problem until 2042 are either disingenuous or delusional.  People making this argument are saying that yes, cash flow will be negative, but those negative cash flows will come out of the huge Social Security trust fund, which won't be depleted until 2042.

Um, the only problem with this is that... there is no Social Security trust fund.  I mean yes, there is such a thing on paper with a large number next to it, but there is no actual pool of cash or investments to draw on.  The "trust fund" is full of government IOU's to itself - the actual cash was spent for general budget needs over the years.  As a result, in just a few years, Social Security will require:

• Massive new taxes
• Large benefits cuts
• A complete restructuring of all parts of the program
• More government borrowing

Good post at Assymetrical Information goes into it in more depth.

For several years, I worked for a major supplier to the commercial airline industry.  Eventually, I had to leave, because the entire industry just drove me nuts - some of the worst structural problems in any industry I have seen combined with an incredible unwillingness to do anything about them.  Marginal Revolution reminds me about the airline industry with this post.

Through the 1990s, the average weight of Americans increased by 10 pounds, according to the Centers for Disease Control and Prevention. The extra weight caused airlines to spend $275 million to burn 350 million more gallons of fuel in 2000 just to carry the additional weight of Americans, the federal agency estimated in a recent issue of the American Journal of Preventive Medicine (fee req'd).

As entertaining as this is, the industry is still totally unwilling to address the real problems in the industry.

Continue reading ‘Airline Industry and Inventory Pooling’ »

A regular feature, it is explained here. Many of our ACME products come courtesy of this site.

This is an awesome product. The ACME dehydrating technology was always tops. These are perfect for pitching into an unloved neighbor's swimming pool. Not sure I would add water while holding it in my hand, though...