Coyote Blog

Almost a year ago, I wrote that I had had to give up running due to my osteoarthritis but that I was looking for ways to at least still run a bit.  I really enjoy running, especially when I travel as a way to explore new places.  I am not a fan of bike riding, which is always the first suggestion people make as an alternative, but I do like my elliptical scooter and ride it from time to time.  But I can't take it on trips with me and I still like running.

It was at that time a year ago that I read an article about running gait and the potential for different gaits to have less impact on the knees (sorry I can't find the article now).  I realized I was a heavy heel-first landing runner, landing so hard each time it felt like I pile-driving my knees and spine.  So I started experimenting with different styles of running, including the classic old-guy waddle.  But what seemed to have the most benefit was running on my toes.  Whenever I ran uphill, my knees never hurt.  What if landing toe-first allowed the foot to be a sort of shock absorber?

Well, changing one's entire running gait at 56 was pretty much as hard as you might imagine.  The first few times I tried it I pulled something in both calves.  While that healed, I decided to strengthen my calves by walking on my toes.  I got to doing 5 miles with a pack totally on my toes which I am sure made me an oddball around the neighborhood (though to some extent this ship has already sailed as I do Pimsleur language courses as I walk so I am also the weird dude mumbling in Mandarin around the neighborhood).  I tried using Newton Gravity running shoes that have a design that almost ensures a toe first landing, but they just made the calf problems worse.

Today, I am finally turning a corner.  I ran five miles last weekend in my best time since I was last marathon training -- even a bit better in fact.  My endurance is still not great because I took so much time off and because I am sure this gait, being less natural for me, is not as efficient.  But being able to run 3-5 miles a couple of times a week, and maybe the odd 10K, really is all I was looking for and so (knock on wood) I will declare victory.  As an aside, and perhaps entirely unrelated to any of this, I have had zero problems in the last year with my heretofore recurring plantar fasciitis issues.

I am not a doctor, so ymmv.  My theory here may be complete BS, or counter-productive, or just a placebo.  Actual people who know things about this are encouraged to comment and dissuade folks if this is all terrible advice.

In an authoritarian regime, those in power demand obedience but not necessarily agreement from their subjects.  Even if many of their subjects might oppose the regime, the rulers are largely content as long as everyone obeys, no matter how grudgingly.

Totalitarians are different.  They demand not only obedience but lockstep belief.  In some sense they combine authoritarian government with a sort of secular church where attendance every Sunday is required and no heresy of any sort is permitted.  Everything is political and there is no space where the regime does not watch and listen.   Even the smallest private dissent from the ruling orthodoxy is not permitted.  Terror from the state keeps everyone in line.

I have tried out a lot of words in my head that are less inflammatory than "totalitarian" to describe the more radical social justice elements on modern college campuses, but I can't find a word that is a better fit.  The attempts to drive out dissenting voices through modern forms of social-media-fueled mob terror are both scary and extremely disheartening.

I was thinking about all this in reading an article about Camille Paglia and the students and faculty of her own university who are trying to get her thrown out.  I find Paglia to be consistently fascinating, for the very reason that the way her mind works, the topics she chooses to focus on, and sometimes the conclusions she draws are very different from my own experience.  The best way to describe her, I think, is that we have traditional axes of thought and she is somewhere off-axis.

Anyway, after horrifying Conservatives for many decades, Paglia has over the last few years run afoul of the totalitarian Left.  One example: (emphasis added)

Camille Paglia, the controversial literary and social critic who identifies both as queer and trans, is drawing fire yet again. Students at her own institution, the University of the Arts (UArts) in Philadelphia, are calling for her to be fired. An online petition, currently with over 1,300 signatures, reads in part:

Camille Paglia should be removed from UArts faculty and replaced by a queer person of color. If, due to tenure, it is absolutely illegal to remove her, then the University must at least offer alternate sections of the classes she teaches, instead taught by professors who respect transgender students and survivors of sexual assault.

Another demand in the petition is that, if she can't be canned, the university will stop selling Paglia's books on campus and permanently disallow her from speaking on campus outside of her own classes. Although it's mostly non-faculty speakers who get deplatformed, Paglia is merely the latest target being attacked by students from her own institution. Students at Sarah Lawrence, for instance, are calling for political scientist Samuel Abrams to be fired for writing an op-ed in The New York Times calling for ideological diversity among administrators.

Paglia's critics claim that, despite her own alternative sexual identity, she is so hostile and bigoted towards trans people that her mere presence on campus constitutes an insult or threat. There's no question that she has been dismissive of some claims made by trans people and, even more so, dismissive of students who claim that being subjected to speech with which they disagree is a form of trauma.

What I got to thinking about is this:  How far away are we from "her mere presence on campus" constituting a threat to being threatened by "her mere presence in the same country?"  I fear it may not be very long.

Postscripts:  I wanted to add a couple of postscripts to this story

1. I find that the "mere presence is a threat" argument being deployed by LGBT activists is extremely ironic.  In the camping business I run we have always had a disproportionate number of gay couples managing individual campgrounds.   Fifteen years ago I remember twice getting push back from people in the surrounding community (both times in southern, more traditionally religious areas) that the very presence of gay men around young children constituted a threat.  I thought this argument was complete nonsense and basically told the protesters to pound sand.  But it is ironic for me to now hear LGBT activists deploying the "mere presences is a threat" argument that has been used against them so often in history
2. We have clearly dumbed down what constitutes a threat when speech is equated with violence.  But have we also dumbed down the concept of terror?  People -- particularly university administrators but you see it all over -- constantly fold under the pressure of negative comments on twitter.  This sure seems a long way from the SS showing up at your door at 4AM, but amazingly social media terror seems to be nearly as effective an instrument of control.  Years ago my dad ran a major oil company and he did it with a real sense of mission, that they were doing great things to keep the world running.  But he endured endless bombing threats, kidnapping threats, existential threats from Congress, screaming protests at his doorstep, etc.  After being personally listed on the Unibomber's target list, I wonder what he would think about the "threat" of social media mobbing.

I was listening this evening to the excellent Hidden Forces podcast on Tesla and they said something that really resonated with me -- its hard to discuss Tesla because there is so much crazy stuff going on:  A CEO who in many ways channels Donald Trump's worst characteristics; multiple SEC investigations, an ongoing contempt hearing; a story yesterday about thuggish behavior towards a whistle blower; strategic moves that are made, unmade, and then changed again in just a few weeks; astoundingly high turnover in management ranks, including an esteemed general counsel who couldn't hung around for even 60 days and then purged all reference to Tesla from his CV; fantastically passionate bull and bear communities; expansive promises that are seldom kept; outright fraud -- all in a company valued at $60 billion dollars and whose stock price rose 2% today under a barrage of negative news that would melt companies that have 100-year track records.  I have been meaning to do an update on Tesla but where to start?  How can I even bring readers unfamiliar with the story up to date?  I have started and stopped this article about three times, but now I am going to plow through and get something out.  If it is not entirely coherent and far from complete, my apologies.  If you want more, go to @teslacharts on Twitter as a starting point and you will discover a lot of really smart people who are, believe it or not, even more obsessed by the Tesla train wreck than I.

In the past I have limited myself to two issues.  The first is the outright fraud of the Tesla acquisition of SolarCity, another Musk company that was going down the drain until Tesla bailed it out.  The transaction appeared (even at the time) so transparently self-serving to Musk and his family that it just screamed fraud, and time has only made this clearer.  Musk sold the synergy-less acquisition to Tesla shareholders based on a solar shingle technology he portrayed as ready to go, but that still has not seen the light of day 2 years later.  In retrospect, it is crystal clear the solar shingle was a sham that was fraudulently hyped to make the deal go through.  This fire and forget approach to new product announcements has become very familiar at Tesla -- Musk scored extra subsidies from California with a battery swap technology he demonstrated one time and then has never been seen again, and Musk announced a new Semi truck and harvested a number of deposits for the vehicle and then has not even mentioned the product for months.  Since the acquisition, SolarCity new installations have fallen precipitously every quarter, demonstrating that Tesla had no real commitment to the enterprise, and this is only going to get worse as Musk announced that its last remaining sales channel is going to be closed.

The second Tesla issue I have tangled with is the strategic dead end that Tesla has reached, and the bizarre fact that a company in a capital intensive industry that is valued as a growth company has, over the last 12 months, virtually shut down R&D spending and now does less capital spending for its size than does even staid companies like Ford.  I won't cover all this ground again, I refer you to posts here and here-- If you are new to the Tesla story, start with these.   But in short, Musk made the fateful choice to take what was already destined to be an uphill climb for a new company to penetrate an extraordinarily capital intensive industry and made it an order of magnitude more capital intensive by his strategic decisions.  Specifically, Musk chose not only to start up car manufacturing from scratch, but to also build out his own sales and service network AND build out his own fueling network.  Kia was the last brand I can remember that penetrated the US market, and it only had to worry about investing in building cars -- it relied on third parties like Roger Penske and Exxon to build the sales, service, and fueling networks.  But Tesla is committed to building out all three.

This strategic decision really began to drag on the company in 2018.  Tesla's decision to do its own manufacturing -- in freaking California no less -- held back its growth as it spent years relearning auto manufacturing lessons already well-known to other players.  It has fallen behind in Model 3 production vs. its own stated goals and there is no apparent progress adding manufacturing capacity for a raft of announced but still theoretical products (semi, coupe, Model  crossover, pickup truck, revamped S&X).   A better approach might have been to contract for manufacturing like Apple does with the iPhone, especially since there seems to be a lot of excess capacity right now in Chinese auto production.  Even worse, as their fleet grew with the Model 3 ramp, Tesla was not able to invest fast enough to grow its sales, distribution, and service networks in proportion, leading to a lot of disgruntled customers that had bad delivery and servicing experiences.  The same is true for their charger network, where they have again not been able to keep up with investment and are now falling behind technologically as new entrants have faster charging times, times Tesla can't match without a major investment in upgrade of its network.  More manufacturing capacity, a better distribution network, more sales locations, more servicing capacity, more body shop capacity, more parts production capacity, more chargers and massive charger upgrades -- Tesla fell behind on ALL of these in 2018.

And then the really weird thing happened.  Sometimes growth companies fall behind when they grow to fast, but Tesla seemed to have stopped even trying to keep up with capital needs in the second half of 2018.  Their R&D fell, despite many promised new products that were a long way from delivery.  Their Capex levels fell to barely maintenance levels (what might be expected to just keep current plant running) and were reduced to levels as a percentage of sales that were lower than staid, traditional, non-growth auto makers.  Right when they really needed to make a capex push to make their strategy a reality, they stopped spending.

Tesla claimed, and claims to this day, that any slowdown is just the result of efficiency and responsible management.  But this is crazy.  Growth companies slow down and focus on profitability when the market is saturated and the growth phase is over.  Uber has not slowed down.  Even Amazon 20+ years in has not slowed down.  Slowing down is death for the stock price of a growth company, and Musk is -- if anything -- obsessively focused on the stock price.  Tesla is currently valued north of $60 billion. Without enormous growth expectations, a $20 billion valuation might be too high.  Added to this is the fact that after having the luxury EV market to itself for years, competition is finally coming from nearly every luxury care maker.  Tesla's 10-year moat is down to maybe 6 months.  It needs to be updating the S & X and rushing new products out ahead of competitors.  But they have almost given up on the S & X and Audi has beaten them to the market by at least a year and maybe two with a crossover model (the e-tron), a very popular format in the US right now.

And at first there does not appear to be any reason for this slowdown in spending.  Tesla has a stock that a dedicated group of fans gorge themselves on.  With a $60 billion valuation and a passionate fan base that thinks the company is still undervalued by at least a third, this company should be able to raise billions of capital easily.  They could theoretically raise $5 billion with less than 10% dilution -- Tesla almost dilutes itself that much every few years just from employee stock-based compensation.  Add its lofty valuation to what was reportedly $3.5 billion or so of cash on their balance sheet at the end of last year and consumer demand that the CEO describes as near-infinite, and this does not look like a company that should be slowing down.

How do we reconcile these facts  -- a near halt in growth investments despite lots of cash and a sky-high stock valuation?  Here are a few things going on under the surface:

• While Tesla had over $3 billion in cash, they also had over $2 billion in payables.  The company has a reputation of stretching payables to the absolute limit.  It may well be that the end of year cash number was the result of a lot of window dressing.  In fact, Tesla skeptics have looked at the interest they earned on their free cash in the fourth quarter and have argued that for this number to be as low as it was, Tesla's average cash balance must have been much lower than their end of year reported number.
• Savvy observers (of which I am not one) who know Wall Street argue that Tesla may well have either regulatory (e.g. SEC investigations) or practical (e.g. information they do not want to disclose in a prospectus) barriers to raising capital, and that the lack of a capital raise for many months can only mean that for some reason Tesla can't raise.
• Tesla just had to pay off nearly a billion dollars in convertible bonds when the stock price was not high enough to trigger the conversion
• Demand for Tesla cars in the US has fallen substantially in the first 2 months of this quarter.  Musk liked to portray the huge Model 3 sales ramp in 3Q18 and 4Q18 as the start of an S-curve, but now those quarters look more like a one-time bulge as Tesla blew through over 2 years in orders in just a few months.  Aggressive pull-forwards of demand by Tesla in the fourth quarter as well as the reduction in US and Dutch EV subsidies have also hurt.  [I have to add one note here just for color.  The Tesla fan boys have argued to me on Twitter that Musk has already explained this to their satisfaction -- that Tesla is diverting cars away from the US for their European Model 3 introduction.  This makes ZERO strategic sense.  What company ever enters a new market by giving up hard-won market share in their core market?  There is plenty of evidence that everyone who wants to buy a Tesla in the US is getting one with a very short lead time, implying this is a real demand drop and not Musk's typical supply-constraint story.]

A month or so ago I thought it very possible given these headwinds that Tesla may soon be facing a cash crunch if it cannot do an equity raise.  However, new events that have occurred over the last week convince me that this cash crush is almost a certainty.  There is no way I can explain Tesla's most recent actions as anything but a company desperately trying to stave off a near-term bankruptcy.  These actions include:

• In early March, Tesla's February sales numbers in the US were announced, and they were a disaster.  Within mere hours of this reveal, Musk teased an announcement (on Twitter, where else).  This event turned out to be a quasi-secret invite-only conference call involving what appeared to be hand-selected media members who had historically been generous to Tesla (only a later uproar by bulls and bears alike forced Musk to release a transcript. On the call Musk announced two things --
  1. Tesla would begin taking deposits for the long-awaited $35,000 Model 3 (though delivery dates were hard to pin down).  Musk had said not too long ago that Tesla was not able to make this car yet profitably, and he refused to discuss margins on the vehicle.  Skeptics like myself suspected that the car can't be made right now for a positive gross margin, and instead this was a back-door attempt to gain new financing via customer deposits.  A couple hundred thousand (theoretically) deposits of $2000 each could yield some real money for a cash-strapped company.  The only thing Musk would say about controlling costs on this product was #2:
  2. In a totally unexpected (even to most of Tesla employees and management) announcement, Musk said Tesla was closing its stores and going to an online-only sales model.  This would supposedly save 6% of the cost of the new cheaper Model 3's, ignoring of course that SG&A reductions do nothing to fix a zero or negative gross margin.  Everyone, including most especially Tesla store employees and maybe even the Tesla BOD, was stunned.  Here is a company whose US sales are going over a demand cliff and they respond by ... eliminating their stores and sales force?
• Simultaneously, Tesla has been announcing a series of price cuts on, worryingly, many of their highest margin products including the S and X and high-margin upgrades like paint and autopilot on the Model 3.  Almost no one can see how the company makes any sort of viable gross margin at these prices, and they have the look of desperation.  All these cuts did was aggravate buyers who had just paid the higher prices and who faced a suddenly lowered resale value for their car.
• Within days of the store closing announcement, the WSJ and others published stories about how Tesla was unlikely to see much savings from these closures as their leases all had expensive cancellation clauses that Tesla could still be on the hook for as much as $1.5+ billion.  Incredibly, this seemed to come as a surprise to Musk and helped reveal just how slapdash these announcements were.  Since then Tesla has announced that maybe some stores would stay open and maybe some sales people would not be fired but just have their bonus eliminated.  As I write this, no one really knows what Tesla is going to do, but to many observers this move looks more like what one does in a bankruptcy than in the normal course of growing a business (in fact, bankruptcy is the one time lease cancellation costs can sometimes be evaded).
• Tesla, furthering their management Abbot and Costello act, partially reversed their price cuts saying that prices would now rise a few percent, barely days after they were cut.  The net of the two announcements still result in vehicle prices substantially lower than in 4Q2018.
• In an incredibly bizarre move (and there is a pretty high, or low, bar with Tesla for saying something is truly bizarre), it was recently revealed that Tesla last November bought a trucking company, or really they bought a bunch of trucks, with stock.  Essentially, this is a $60 billion company with supposedly $3+ billion in cash and they are paying their suppliers in stock.  Oh, and by the way, remember when I said above that Tesla had already vertically integrated too much and could not afford their capital needs already?  Well, this is yet another silly vertical integration.  Tesla has no business being in the trucking business, a highly competitive business with a lot of incentives to offer good deals and great service for an incremental bit of demand from a growing company like Tesla.  My sense was always that there is plenty of 3rd party trucking capacity out there, but that truckers just did not like serving Tesla because Tesla pays its bills so slowly and acts so unpredictably and imperiously.
• Tesla continues to produce Model 3's near full volume (around 5500 a week, despite what the nutty Bloomberg model says) even given a fall in demand.  Tesla seems to be building inventory, and certainly the recent price cuts are not a sign they are supply constrained (as Musk continues to insist).  Tesla skeptics believe that Musk has signed a number of supplier deals where Tesla got rebates and price cuts in exchange for volume guarantees, and that Tesla is stuck over-producing cars or it will have to return a lot of money.  [update: @Paul91701736 who goes by Machine Planet on Twitter spends a lot of time observing and researching Model 3 production and says "there's one thing in this piece I can't agree with, a 5500/wk Model 3 production rate. I think ~4700 is the absolute max sustainable rate and it's been well below that most of the quarter"]
• Tesla is asking customers in Europe, as they did late in 4Q18 in the US, to pay Tesla the full price of the car even before they see it or schedule a delivery.  Frankly, I am staggered anyone would buy a car this way, especially with the fit and finish problems Tesla model 3 customers have found on delivery.
• Tesla added about $500 millon to its asset-back bank line of credit and continues to roll over some SolarCity debt.
• When it was obvious that the Model 3 announcement had not created enough deposit activity, Musk then announced they would introduce the long-awaited Model Y crossover, in a reveal set for Thursday afternoon March 14.

Tesla has admitted that it still has not even decided where to build the Model Y, much less started building the plant and tooling up for it.  Given that, the car HAS to be 18-24 months away.  So why reveal now?  Remember that Musk and Tesla have a history of using new product reveals as fund raising tools.  The fake solar shingle product got Tesla to buy SolarCity.  The fake battery change demonstration got Tesla millions in added subsidies from California.  The complete vaporware Tesla semi reveal gained Tesla millions in deposits from corporations that probably didn't expect to ever get the truck but wanted to virtue signal their green credentials (Tesla seldom mentions this product and has announced no plans for actually building it).  The announcement in April, 2016 of early reservations for a $35,000 Model 3 which turned out to be over 2 years ahead of it ever being available in volume occurred just ahead of a funding round.  I am sure experienced Tesla observers could list many more examples, but the point is that there is very good reason to believe that the Model Y reveal (and maybe a pickup reveal in the same way the coupe was thrown in on the semi reveal) is a cynical, desperate attempt by Tesla to raise some cash from consumer deposits.  My guess is that it will not work so well -- the recent $35,000 Model 3 announcement garnered few deposits and Tesla had disappointing deposit activity when they opened up Europe.  Surely folks have observed that putting down a deposit does not get one a car any faster, and just makes one an unsecured creditor of the company (and may even, as was the case recently, sign one up to pay a higher price than folks who come in only a few weeks later).

As an aside, you folks know that as a libertarian I do not advocate for a lot of extra regulation so take the following as a prediction rather than necessarily a recommendation.  Tesla has pioneered the deposit-taking, go-fund-me model for new car introductions, and I think that when this all blows up and the dust clears, one of the results will be tighter regulation of how companies handle deposits on their books.  I would expect the SEC to require better transparency on deposit numbers and that customer deposits be escrowed in some way and not co-mingled with general operating funds.  And while we are at it, I will recommend one regulatory / accounting change -- the ability of car companies to leave ZEV credits off their balance sheet entirely and use them like magic pixie dust out of the blue to spice up random quarters needs to end.  These are real assets and need to be disclosed on the books like real assets.

Disclosure:  I am short Tesla via long-dated puts.  Shorting Tesla seems to make a lot of sense but it can be dangerous and harrowing.  Yesterday we were looking at news of Elon Musk acting like a Mafia thug with whistleblowers and still dealing with the fallout of Tesla's rapidly changing and contradictory strategic announcements, and the stock was up 2%.  Be careful.

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.

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.

I want to thank everyone for all the comments on my thread asking for someone to give me the current, most damning case for Russia collusion.  I am going to try to pull together a best-of version to post here.

However, I wanted to post a few excerpts from TA Frank at Vanity Fair, in an article titled "IS THIS IT?: A TRUMP-HATER’S GUIDE TO MUELLER SKEPTICISM" that seems to almost perfectly capture my current take on the whole affair:

Certainly, Trump’s ethical standards are low, but if sleaziness were a crime then many more people from our ruling class would be in jail. It is sleazy, but not criminal, to try to find out in advance what WikiLeaks has on Hillary Clinton. It is sleazy, but not criminal, to take a meeting in Trump Tower with a Russian lawyer promising a dossier of dirt on Clinton. (Just as, it should be mentioned, it is sleazy, but not criminal, to pay a guy to go to Russia to put together a dossier of dirt on Trump. This is one reason why the Clinton campaign lied about its connection to the Steele dossier, albeit without the disadvantage of being under oath.) It is sleazy, but not criminal, to pursue a business deal while you’re running for president. Mueller has nailed people for trying to prevaricate about their sleaze, so we already have a couple of guilty pleas over perjury, with more believed to be on the way. But the purpose of the investigation was to address suspicions of underlying conspiracy—that is, a plan by Trump staffers to get Russian help on a criminal effort. Despite countless man-hours of digging, this conspiracy theory, the one that’s been paying the bills at Maddow for a couple of years now, has come no closer to being borne out. (Or, as the true believers would say, at least not yet.)...

Let’s take a moment to consider Mueller himself. The cut of his jib is likable, and the trad Brooks Brothers vibe of his wardrobe is a perfect complement to his job title. But it’s hard to avoid the suspicion that he’s playing a political game at this point. To be fair, I’m vulnerable to confirmation bias of my own in this assessment, since about a year ago I suggested that Mueller was going to drag out his investigation until 2019, when Democrats were likely to be back in charge of the House, and seeing a prediction play out can lead to unwarranted certitude. But the reports we’re starting to see suggest a man who’s fallen prey to the same state of mind that warped Ken Starr—namely disgust over the people you’re investigating and a desire to justify the sunk capital.

He includes this warning, which oddly enough is nearly identical to what I used to tell my Republican friends as they were giddy about a Ken Starr investigation into investment wrongdoing resulting in ... charges of perjury about lying about an extra-marital affair

Partisanship is hostile to introspection, but at some point maybe we’ll look back and think again about what was unleashed in the panic over Russian influence. Trump’s White House has pursued what is arguably the harshest set of policies toward Russia since the fall of Communism—hardly something to celebrate—yet nearly all the pressure, from the center-left as much as the right, is toward making it even tougher. As for those tapping along to S.N.L. songs in praise of Mueller and his indictments, they might want to remember that Trump won’t always be in office. The weapons you create for your side today will be used by the other side against you tomorrow. Do we really want the special-counsel investigation to become a staple of presidential life? It’s a creation with few boundaries on scope and a setup that encourages the selection of a suspect followed by a search for the crime, rather than the other way around. This caused calamities in the era of Bill Clinton, and it doesn’t get any better just because the partisan dynamics are reversed.

For a while now, I have  had a theory that the zero-sum nature of academic success (competition for a fixed and perhaps shrinking number of tenured positions) affects the larger world-view of academia. (This article that compares academia to a harmful cult demonstrates this zero-sum thinking pretty well.)

It is pretty well-established that the American academic community is disproportionately of the Left, and in fact tilts pretty strongly in many cases to the far Left / progressive side.  People debate a lot about why this should be, but I think one contributing factor (but certainly not the only one) that I have never heard anyone discuss is the zer0-sum game these academics must play in their own careers.  I think that many of them incorrectly assume that all professions, and all of the economy and capitalism, is dominated by this same dog-eat-dog zero sum game -- remember, for most, academia is the only industry they have ever experienced from the inside.  And once you assume that the whole economy is zero-sum, it is small step from there to overly-narrow focus on distribution of wealth and income.

One of the mistakes folks on the Left make about capitalism is to describe capitalism as mostly about competition.  In fact, capitalism is mostly about cooperation, its a self-organizing process where people who don't even know each other cooperate to deliver products and services, facilitated by markets and the magic of prices.  Sure, competition exists but it is not the fundamental feature, but an enabler that makes sure the cooperation occurs as efficiently as possible.  Capitalism in fact is about zillions of voluntary trades and transactions every day that each make both parties better off -- or else both sides would not have agreed to it.  Capitalism in fact is a giant positive sum game, a fact that many on the Left simply do not grasp.

Never in my business life have I thought any company I worked for was playing in a zero-sum game.  Sure, individual sales to an individual customer might be zero sum -- UPS is going to order its bearings from Rockwell or Emerson and winning and losing that one order is zero sum.  But as a whole no business I have been in has ever felt zero sum.  In my business running campgrounds, I want our campgrounds to be the best but our growth is generally not at the expense of some other campground -- it is about attracting more people for more days to camping and offering those who do camp more value-added services.

Postscript on Metrics:  As an aside, it struck me that one improvement to the dysfunctional academic experience described in the Washington Post article linked above might be to an a measurement of the professoriate that went beyond just counting published articles and their citations.  Start counting the number of advisees each professor has that lands teaching and tenured positions and you could change some behavior.

I try to read an equal number of blogs from the Left and Right.  Now, I am not a masochist so I try to choose the more intelligent folks on both sides (if true dedication to avoiding an echo chamber were to rely on reading both Sheriff Joe Arpaio and Maxine Waters each day, then I just can't do it).

So let me tell all you partisans out there from both the Coke and the Pepsi team something I see every day:  Both your sides believe and say the exact same things about the other side.  Seriously, almost word for word, I could write a book where we just show side by side quotes.   In particular, every partisan fervently believes that their party is too nice and milquetoast and well-behaved to win all the battles it should against the other party, which is devious and bare-knuckles and unconstrained by any ethics.

In the past, the majority of each party seemed willing to accept this lamentable state of affairs and claim the high ground, even when that might amount to a Pyrrhic victory (e.g. Michelle Obama:  "The go low, we go high" or many of the Republican never-Trumpers).

The problem is that when this desire for the high ground breaks down, then all that is left is an ugly realpolitik arms race to the bottom.  It has taken me a long time to really digest the surprising (at least for me) Trump victory.  I have friends that are hard-core partisans for both parties (yes, I know this dates me as failing to pre-screen my friends for political orthodoxy seems a sin nowadays).  I see the same attitude in my Republican friends -- yes we find Trump distasteful in a number of ways, but he is the first national Republican we have seen who will fight down and dirty with Democrats and win political victories.  You see this same attitude on Twitter with Republicans metaphorically carrying Lindsey Graham (!!) around on their shoulders in celebration this week.

Politics are like the NFL -- people emulate what seems to be winning.  Bill Walsh won with the West Coast Offense, and soon there were 30 teams running the West Coast Offense.  The Democrats are going to be looking for the Trumps as well.  I don't know how it doesn't get ugly.

Just to save everyone from sending this to me, Elon Musk has been sued by the SEC.  The details are here, I will not go over all this old ground.  Of course this is just an accusation, and has no immediate effect (except to trash the stock price) until it is settled or proven in court.

I have such mixed feelings for Musk. On one level, it is awesome to see an entrepreneur trying to do build real stuff like rockets and cars. He has all the geeky charm of a 1970's edition of Popular Mechanics, breathlessly hyping captivating but sometimes impractical ideas.  I rode with an acquaintance in his $100,000 Tesla the other day and he loved it. Totally drank the Kool Aid.  Despite my extreme skepticism, he was sure that Elon was going to have same-day body shop repairs for Teslas and could make it work because they only had 3 models of cars with lots of shared parts.  It's the same sort of enthusiasm you see from people who still stand in line first day for the new iPhones. I envy being able to create that as a company.

On the other hand, Musk is just so unsuited to running a public company, is awful at operations, and will end up having cheated a lot of people.  He fails to meet commitments and makes public statements that are transparently absurd.  Just as one example, the other day in response to many delivery problems Tesla has (delivery problems that may actually be due more to efforts to shift 4Q sales into 3Q), Musk said there was a shortage of car delivery trucks and Tesla was starting to build them.  Seriously??? There is zero evidence of a delivery truck shortage and it is absurd to think Tesla had the time or the resources or the skills or knowledge to bang out large truck trailers (that require a variety of DOT inspections and approvals).  Honestly, I can't tell if Musk is the pointy-haired boss from Dilbert who promises absurd things because he is utterly clueless, or if Musk is totally corrupt -- it could be both.  I think his body shop insourcing idea was likely clueless but his SolarCity acquisition was corrupt.

New entries from Jaguar, Audi, and others demonstrate both that Tesla faces a lot of new competition but also that Tesla's original Model S and X still have a lead over competitors.  When the book on the electric car industry is written, I think it will be said that Tesla greatly accelerated the transition to electric cars.  But it is a fact of business history that the pioneer and innovator seldom is the ultimate victor (Lycos, Netscape, Altair, Yahoo, etc).  Tesla has not lost yet, but it still has a huge hill to climb.  Unfortunately, Musk's decisions to do so many things in-house -- own the dealer network, own the fueling network, own the manufacturing, own the body shops, etc. -- is going to require too much capital.

It is pretty clear that Musk is often using Apple as one of his models for what he wants to do with Tesla, and he has successfully created the same kind of almost cultish loyalty as has Apple.  But he ignored a lot of what Apple did.  Apple is a research, software, and design house.  It farms out manufacturing to a partner and sold most of its ipods and iphones initially through third party retailers.  If Tesla had done the same: taking advantage of rich third parties who already know how to sell cars as dealers; working with a consortium to create the fueling network; and going to someone like Kia to do private label manufacturing of the cars -- they might have lost something of the customer magic in the process but they also might be in a much better position to survive.

Update:  Apparently Musk was offered a very, very attractive settlement by the SEC which involved Musk stepping down as Chairman but NOT as CEO, adding a couple new directors, and paying a fine.  It is hard to read this as much more than a slap on the wrist, especially in the context of the SEC now seeking a full bar of Musk from any position at any publicly traded company (hell hath no fury like a government agency scorned).  Frankly, I find this nearly as impossible to understand as the fact that Tesla never raised any equity funding this year when its stock and story were so strong.  Tesla skeptics are arguing that both of these hard-to-explain events stem from the same cause -- that Tesla has some deep dark secret that Musk can't afford for either a new executive or a public offering document to disclose, the same secret (the story goes) that has driven away a number of senior accounting and finance officers in the last several months.  I agree that the existence of such a secret would explain the facts, but I can't imagine what could be much worse than the bad balance sheet and operational data that already is publicly known.

Via attorney Michael Avenatti, Julie Swetnick has accused Brent Kavanaugh of running a suburban high school rape ring -- over the course of at least 10 parties the punch was doctored and boys lined up outside of bedrooms to gang rape drunk and drugged girls.  According to the accuser, Kavanaugh and his friends raped their way through the Washington suburbs like the Russian Army did throughout the suburbs of Berlin.  All without one single person raising the hue and cry for over 35 years.

It is not even necessary to opine on the veracity of this accusation, because it almost does not matter.  Because the fact of its being made has, no matter what the outcome, proved America to be a far worse place than we woke up believing this morning.  If the accuser is being truthful, then gang rape is a fact of life in our high schools, and everyone is powerless or no one cares to lift a hand to prevent it or stop it -- made all the worse by the leadership of boys who would become future leaders of this country.  And if she is lying, then we see someone shamelessly lying to destroy a man in the name of politics, aided and abetted and enabled by many of the top politicians in this country and perhaps a third of its citizenry.  We are either living in a brutal post-apocalyptic misogynist free-for-all or in a political system corrupted to its very foundation.

Actually, from what I read on Twitter, we are actually living in a superposition of these two, a Schrodinger's nightmare where both are considered true simultaneously by half the population.

I post things like this NOT because I have any fashion or shopping sense but because I happen once in a while to stumble on something I really like.  I personally hate shopping and just want someone to tell me "buy this one, it is the best", sort of like going to Toms Hardware and finding which graphics card is currently the best value. 

When I am working out, I wear Drifit type wicking fabrics, but for other casual times around the house I want a soft t-shirt for lounging around.  Until recently my choice was a Kit and Ace T-shirt that I think had some cashmere in it (maybe this one?).   I can't be sure because there is absolutely no size or sku information in the shirt.  By the way, a note to clothing companies:  I buy clothing in physical stores, but I often want to re-buy the same sku onlie either as replacements or for additional colors and that is impossible if you don' somehow print size and sku information in the item.  Also, and I am told by the women in my family that this is a typically male rant, I am constantly exhausted to find that the item I loved and want to buy again over and over does not exist and has morphed into some other style or sku.  I am happy to keep re-buying the same shorts and shirts and running shoes forever if someone will sell them to me.

Anyway, my new favorite T-shirt and the current leader in my closet for softness is the Cloudknit tee from Outdoor Voices.  Outdoor Voices is a small company in startup mode and can be a little spotty on its inventory availability.  I found it on a vacation weekend in Aspen where they had a pop-up store we happened to walk into.  I love this shirt and bought a pile of them to sleep in (I don't really prefer to sleep in a lot of clothing but my wife is at that special age when she needs to keep the bedroom somewhere around freezing).  The Cloudknit hoodie is also amazing for lounging about the house.  Their "Doing Things" fabric is more for workouts and it is fine but not as spectacularly soft as their cloudknit fabric.

As a reminder, my one other shirt recommendation was for Hawaiian shirts from Tori Richard.  Great concept -- Hawaiian shirt patterns printed on fabrics that actually feel like quality fabrics.  I also like the orange label products because it is a more attractive fit -- most Hawaiian shirts are not very tailored.   If you want to try something different, try their crinkle fabric which I really like but is not loved by everyone.  I just throw them in the washing machine and hang them slightly damp until they dry and they are great.  I used to do the same thing for my Tommy Bahama shirts but if you hang them to dry they become really stiff for some reason.  Tommy Bahama shirts can be quite nice, especially as they age, but you have to tumble them dry to keep them soft, not sure why.  Fortunately neither shirt needs to be ironed (any shirt that requires ironing in my closet -- except for a few dress shirts and my beloved Robert Graham shirts -- immediately goes to Goodwill).

I sometimes wonder if the media and the punditocracy have any ability any more to reality-check statistics.  Two examples:

One

Trump supporters were running around in circles patting themselves on the back with this story:

African American business owners are on the rise. According to the Minority 2018 Small Business Trends survey, the number of black-owned small businesses in the U.S. increased by a staggering 400% in a year-over-year time period from 2017 to 2018.

I call bullsh*t on this.  There is no WAY that the number of black-owned businesses increase by a factor of 5** in just one year.  There are millions of black-owned small businesses in this country and there is no way this quintupled** in a year.   It does not pass any kind of smell test.   It is clearly some sort of measurement error, either a small sample size for a survey or a change in data source and definitions from one year to another.  I could go investigate the study and try to figure out the cause but I do not even need to bother because economic and demographic data simply do not change at this pace in one year.

Two

The other example I have is this absurd figure:

A recent survey conducted by OVW and the Bureau of Justice Statistics found that an average of one in four undergraduate females experience sexual assault by the time they finish college.

Here is the deal with this stat:  no one actually really believes it.  Why do I say this with confidence?  Because parents still send their daughters to college -- in fact they fight and scrap and invest huge amounts of time and money to send their daughter to college.  If they really believed their little darling had a 1 in 4 chance of being sexually assaulted, they would never do so.

Here is a point of comparison:  The Japanese brutal occupation of Nanjing, China is commonly known as the "Rape of Nanjing."  It is called this in part because so many local women were raped.  The numbers are fought over by historians, but the best estimate is that 20,000 of the approximately 100,000 women who were in Nanjing at the time were raped by Japanese soldiers, or about one in five.  This means that if the one in four number is correct, then colleges are more dangerous for women than being in Nanjing during the Japanese occupation.  Now, I would venture to guess that if I tried to stuff you daughter into a time machine and send her back to Nanjing on December 13, 1937 you would probably fight me to the death to prevent it.  But parents don't act anything like this vis a vis going to college, ergo no one believes this figure.  So why does everyone keep using it like it is accurate?

** I had put quadrupled but my son just called and reminded me that a 400% increase means quintupled.  Thanks, Nic.  Though I will say there is a good chance the source incorrectly used 400% to mean quadrupled, so I can't rule that out either.

As a train enthusiast, I have to admit this sings to me.  I give them double points for being honest that their technology is not yet economic

The wind doesn't always blow, the sun doesn't always shine. So utilities are in search of ways to store surplus energy when they've got it, so they can distribute it later, when it's needed.

The most "duh" approach to energy storage is very big batteries like the ones Elon Musk peddles, which are poised to become a lot cheaper in the next five years. Pumped hydroelectric facilities are another option. Or you can move compressed air around underground caves. But none of these options has emerged as the best way to fix the grid.

Then there's rail energy storage, which is about to get its grand debut. In April, the Bureau of Land Management approved an ARES—that's Advanced Rail Energy Storage—project, conceived by a Santa Barbara-based energy startup called, well, ARES. By 2019, ARES operations head Francesca Cava says, the facility will occupy 106 acres in the excellently-named town of Pahrump, Nevada. By running a train up and down a hill, ARES can help utilities add to and subtract from the grid as needed.

It's a wonderfully simple idea, a 19th century solution for a 21st century problem, with some help from the abundant natural resource that is gravity. When the local utility's got surplus electricity, it powers up the electric motors that drag 9,600 tons of rock- and concrete-filled railcars up a 2,000-foot hill. When it's got a deficit, 9,600 tons of railcar rumble down, and those motors generate electricity via regenerative braking—the same way your Prius does. Effectively, all the energy used to move the train up the hill is stored, and recouped when it comes back down.

 

You may not see much Tesla coverage here for a while, despite a lot of breaking news.  Here is why:

The dominoes are all lined up, and that was an interesting story (the dominoes include:  Tesla's poor management of a good product, its lack of adult supervision, its repeated failure to meet targets, its utter contempt for being held accountable to targets, its paranoid worldview, its past near-corrupt actions like the insider SolarCity purchase, Musk's irrational hatred of shorts, its running out of cash without any plan for a capital raise, the fanboys who would eat any dog food Musk served up, etc.)

The first domino has been tipped over (Musk's outright lie that he had funding secured for a $420 buyout when he had not even talked to bankers or his board yet, just to tweak the shorts for a few hours in one day).

Now, I am not sure that I find further falling dominoes that interesting -- after all, it is just inevitable physics at this point.

Note:  The crash is likely to be much slower than at Enron.  Once confidence failed in Enron, the crash came almost at once because Enron was like a large bank that was investing long and borrowing short.  Once the short-term borrowing window was closed for them, it was over.   Tesla can likely make it 6 months before they start scraping bottom and/or their debt covenants.

Update:  For the Tesla fanboys who seem super-excited about the loss of liquidity moving to a private company, here is what being a minor shareholder in a private company is like:

Three of Tinder's co-founders and several other current and former senior executives are suing the dating company's parent organizations, Match Group and IAC. According to a complaint published online, the lawsuit seeks billions of dollars in damages for allegedly manipulating financial information in order to reduce Tinder's valuation and illegally take away employees' stock options.

The complaint explains that Tinder was supposed to be valued in 2017, 2018, 2020 and 2021; On those days, employees should have been able to exercise their stock options. Instead, the lawsuit alleges that parent company IAC/Match Group inaccurately lowballed Tinder's valuation in July 2017 at $3 billion, the same as it did two years ago despite the dating app's substantial growth. Then, the parent company secretly merged Tinder into Match Group, which meant employees earned far less in stock options. Then, IAC threatened to terminate anyone who revealed how much the company was actually worth, the lawsuit claims.

@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.

I have been working on cord-cutting around the house and have been experimenting with different devices (e.g. Roku, Google, Amazon) and different streaming services (Youtube TV, DirecTV Now, and I may test Slingbox soon since it is the only one that seems to have the Redzone channel).

The boxes vary mostly in interface.  We have been a Roku family for a long time so we are comfortable with it, and it is pretty straight forward.  The one flaw is that there is no sharing across devices of passwords and such and so you tediously have to enter all your streaming service passwords in every device.  What is worse, the Roku tends to have these fits of forgetfulness making you re-enter many or all your passwords a second or third time.  I may have not understood the Google device but it seemed to require me to do everything with my cell phone nearby and actually streamed stuff from my phone.  This may be fine for millenials but was stupid for my home theater where I already have a Logitech remote that is programmed to handle everything.  I have not played much with the Amazon device -- if you are an Amazon family and like Alexa it may be the best solution.  I did not even consider the Apple device -- I am sure it is great if you all you use is Apple walled garden service and devices but I use many other services and in general find its interface a kluge.  Roku is really the one device with neutrality going for it.

I have tried several of the streaming services.  I like Youtube TV and its interface a lot.  DirecTV has a few more channels that I like but I like the interface less (by the way, there are several good channel coverage comparisons of the various streaming services you can google).  Both services have cloud recording functions, ability to watch content both live and in replay mode, and have good coverage of all the local networks.  I was hoping that Red Zone channel would come to DirecTV live as they have the satellite rights to it but apparently slingbox is the only service that is currently offering Red Zone, so I may have to try that.  I need to hurry as all my free trials are running out.

The one interesting exception to all this is that there is no way to get PBS live streamed on any device from any service right now.  Some local stations livestream to your browser and I think there is now a browser-based livestream of the News hour.  But you can't currently watch your local PBS station live -- you can only watch selected shows in replay mode after they have aired via a separate PBS app for devices like the Roku.  It is amazing to me that the progressive socialist haters of capitalism at PBS are the only network still committed to supporting the cable monopolies.  The PBS website helpfully tells you that you can buy an over-the-air antenna if you want to cut the cord and watch PBS.

I write on this blog a lot on those days in my job that get me down.  That only makes sense because I write about government regulatory policy vis a vis business and it is government interventions that often cause me the most heartache.

But there are good days too.  I have been putting together a new division and really need someone with b2b sales and marketing experience to run it and get it going.  I was just trying to figure out how I wanted to do a search when a resume came to me unsolicited from a current employee who has done a great job for us.  Basically they were applying for our manager training program (all our campground managers start in front-line service jobs).   Well, it turns out this guy who is currently cleaning bathrooms and doing landscaping for us in a campground is recently retired from over 10 years running a sales force for a $80 million industrial company and more recently running the whole division for that company for 2 years.  Talk about just finding a $100 bill lying on the sidewalk!

For 15 years I have been a customer of El Dorado bank in a small town in California, just depositing our weekly revenues in the account and sweeping it out from time to time.  When Bank of America closed a few locations we use in other California small towns, it seemed easier to just add additional El Dorado accounts.  WRONG.  I was told today that because we might possibly maybe make three simultaneous deposits at the three banks that total to more than $10,000 in cash in one day, we suddenly are subject to all sorts of disclosure requirements.  I am used to having my privacy raped as a business owner to set up even a simple banking relationship, but now apparently any employee of mine who might make the weekly deposit is going to have to submit all sorts of personal information, including social security number, to the bank just for the ability to deposit money.  We have been doing the same business with El Dorado for nearly 20 years, and suddenly in the little town of Lone Pine, CA, population 2035, we are now treated as presumptive drug dealers and tax evaders.  It aggravates me that I have to put my employees in this position.

It used to be that it was easier to have fewer banking relationships to manage, but now I am thinking the costs may be running the other way, encouraging more smaller banking relationships that don't trigger whatever limits are set for treating customers as presumptive criminals.

I often read articles that clarify my thinking on certain issues but this one helped clarify my thinking on why I come in conflict with people over a broad range of issues.  In-Groups, Out-Groups, and the IDW by Jacob Falkovich.  I will add that my one turn-off in this article is the focus on the so-called intellectual dark web or IDW.   I am suspicious of faddish-sounding things, particularly in the intellectual world.  At this point I am not even sure the IDW is even a real thing (many on whom this title has been slapped reject it).  What does seem to be real is that there is a budding resistance to post-modernism and intersectionality coming from folks it would be hard to label as traditional Conservatives (though Progressives and SJWs still try to label every one of their opponents as alt-right white nationalists).  I will accept IDW as a temporary and imperfect shorthand for this resistance.

Anyway, here is a sample from the article but I found the whole thing illuminating

In a thorough analysis of the Harris-Klein controversy, John Nerst suggests that what is actually at issue is whether the discussion of the racial IQ gap is a matter of science or of politics. Harris sees Murray as a scientist whose arguments and conclusions fall well within the academic consensus of genetic and cognitive science. Klein sees Murray as a ‘policy entrepreneur’ who advocates for reprehensible conservative policies. The notion that racial differences are genetic (and, in Klein’s understanding, therefore immutable), Klein argues, has historically been used to support destructive policies of bigotry and discrimination.

This isn’t merely a difference in emphasis. Underlying this debate is a divergence in modes of thought so wide that the two men were left practically at cross-purposes.

Harris is a scientist by training, and scientists depend on what rationality researcher Keith Stanovich¹ calls “cognitive decoupling.” Decoupling separates an idea from context and personal experience and considers it in the abstract. It is the approach used in the scientific method, when performing thought experiments, and when generalizing principles from individual examples. In decoupling thought, arguments follow one another according to the formal rules of deductive logic.

The contrary mode of thinking sees every argument embedded in a particular context. The context of an idea includes its associations, implications, and the motivations and identities of those who advance it.

Note that this is NOT an article about IQ differences, it is merely used as a convenient example to illustrate differences in two different ways of approaching the problem.  But I did think the author did something fun towards the end of the piece -- the author seems to argue that the tribal positions on this genetics issue(and I presume on other things) is almost arbitrary by running a thought experiment of reversing the tribal positions:

...one might re-imagine liberals embracing genetic differences and supporting their position in the following way:

IQ differences are purely genetic, a matter of luck for which neither the individual nor his community bears any responsibility. We should be generous with welfare and assistance towards those who lost out in the genetic lottery, just as we are towards the sick and disabled. Conservatives who argue that the IQ differences are ‘man-made’ are looking to shift the blame to the victims and excuse their own bigotry towards the least privileged.

And the conservative response:

IQ differences are purely environmental. According to evidence, the main environmental difference among blacks and whites is culture. We therefore need to replace the multicultural free-for-all that is hurting American children with traditional American family values, and limit immigration from countries with low-IQ cultures. We need to promote monogamy by cutting support for single mothers. We should probably outlaw hip-hop music too, just in case rap is what lowers black IQ.

This may look outlandish to you but it does not to me.  When I grew up in the 1970's, Republicans considered themselves a pro-business party (not to be confused with free market) and Democrats were much more dominated with labor and union concerns.  In those days, Republicans were much more pro-immigration, because it brought in cheap labor for its business supporters, and Democrats were much more anti-immigration, because it created low-wage competition for its union supporters.  I have seen the tribes reverse positions on a number of issues in my lifetime.

It has been a while since I blogged on my model railroad but unfortunately real life intervened and cruelly prevented me from working on my hobby for a while.  I have been making progress recently and thought I would post what I have been working on.  Believe it or not, there are one or two readers who actually write me for updates.

One thing I can do even when I am busy is make progress hand building turnouts.  These are some small #5 turnouts built with code 40 rail (perfect for eyesight destruction).  No way I could to this without the fabulous Fast Tracks construction jigs.

I built the main line out of code 55 flex track and am hand-building all the sidings and branch lines with code 40.  This lets me get the main line up and running fast while still being able to hand build some track, often the track closest to the front of the layout.  Below is the code 55 flex track main line after some test painting.  The one thing I do not like about flex track is that it always looks so uniform.  Even on good mainline track the rail and ties vary a lot in color, so I spray paint a base coat and use brushes to hand paint individual tiles and rail sections different colors to get some variation.

The switch in the foreground below is the first code 40 hand built track I have put on the layout.  It is a bit of a pain to join code 55 to code 40, so I wanted to experiment some.  Eventually I inserted a code 55 rail joiner in the mainline track, and the crushed the other end flat and soldered the code 40 rail to the top.  With some trial and error, this got both the rail tops at the same height.  I really love the look of real wood ties and the color variation you get naturally, which I accentuate some.

The biggest recent progress was I painted the back drop.  Since this is Phoenix I wanted some low haze but no clouds, so I used the tried and true method of blue at the top of the background and white and the bottom and blending them in between.  Came out pretty well, though this picture does not really do it justice because the lighting is not quite right yet.  I need to try it with a better camera.   The biggest problem I had was a classic Phoenix problem where the paint was drying too fast.  One of the hardest problems is that the Phoenix sky on certain days is so deep, deep blue that it looks unrealistic, even in real life, so I did not use the actual color for the top of sky that I see from my front yard, I backed it down a bit.

Oh, you can also see that I have put in the lighting.  As an experiment I used led light strings.  This avoids the directional shadow problem but I am not totally convinced I am happy with it yet.  I also have fluorescent lights installed for night effects, though I still struggle with the OBA / fluorescent paper problem here.  Anyone who has a source for matte (not gloss) OBA-free photo paper that is not too think (I often have to bend and shape the paper for projects) can certainly email me.   Paper models like these are more popular in the UK than in the US, but I have come to really like them in certain applications.  They just don't look good in night scenes when brick walls glow under black light.

In the plan I have locations vaguely blocked out for industries but I had not yet tested the sites against actual buildings I have in inventory or would like to put in.  Below I have a half-built grain elevator I was testing locations for.

That's it for now.  I am starting my big building project which is a scale refinery.  We actually don't have a refinery in Phoenix (closest is Yuma I think) but I worked in one years ago and love the look of them, especially lighted at night, so dammit I am going to have one.

The Union Pacific Railroad is attempting to restore and run a 4-8-8-4 Big Boy locomotive next year.  Seeing live steam locomotives run is a rare but fabulous spectacle, but most of what is still running is WAY smaller than this locomotive they are restoring.  I am not sure most people have a sense of scale for these beasts.  I chose the picture below because it has people in them for scale.

I just finished watching the PBS series on the Vietnam War and found the experience powerful and educational.  My only disappointment was that every soldier they interviewed and followed through the war ended up in the anti-war movement (or in the case of one POW, his wife did).  I agree with their perspective, and see the whole war as a giant waste, but unlike most people on campus nowadays, I like hearing from people with points of view that are different than mine.  I get nervous just having my expectations reinforced.  Surely there are veterans who thought the war was winnable and the US largely honorable -- I know some of these folks -- but we really do not get to hear their voices very often.   But with this proviso, the series was terrific.

One of the most important -- and hardest -- lessons of business is to think at the margin.  Perhaps the toughest corollary to this is: Sunk costs are sunk.  I don't care how much we have already spent on that factory -- that money is gone -- if it is going to take another $100 million to finish, are the benefits of the factory worth that $100 million? If not let's stop work on it no matter how much has already been spent.   I have worked to teach this to my wife.  I don't care how much the tickets for the show on Sunday night cost -- that money is gone -- isthe enjoyment we expect to get from the show worth the remaining costs we face (getting in the car, fighting for parking, etc)?

Transit projects thrive on the sunk cost fallacy.  Agencies explicitly try to get some money, spend it, and then claim the rest of the money has to be spent because we have already "invested so much".  Here is an example:

But what is really amazing is that Chicago embarked on building a $320 million downtown station for the project without even a plan for the rest of the line -- no design, no route, no land acquisition, no appropriation, no cost estimate, nothing.  There are currently tracks running near the station to the airport, but there are no passing sidings on these tracks, making it impossible for express and local trains to share the same track.  The express service idea would either require an extensive rebuilding of the entire current line using signaling and switching technologies that may not (according to Daley himself) even exist, or it requires an entirely new line cut through some of the densest urban environments in the country.  Even this critical decision on basic approach was not made before they started construction on the station, and in fact still has not been made.

Though the article does not mention it, this strikes me as a typical commuter rail strategy -- make some kind of toe-in-the-water investment on a less-than-critical-mass part of the system, and then use that as leverage with voters to approve funding so that the original investment will not be orphaned.

It amazes me that no politician in California has shut down the insane California high speed rail project, but I will bet you any amount of money that when they do the rail agency will be screaming that it can't be shut down because they have already spent billions of dollars and shutting them down would waste all that money.  Sorry, but that money has already been wasted, the point is to avoid all the additional money that will be wasted going forward.

The government decision-making around the Vietnam War seemed like nothing so much as a series of sunk cost fallacies.  We can't give up now, not after so many brave men have already died!  That last sentence could be the title of about half the episodes.   But sunk costs shouldn't matter in a go-forward decision -- but they do matter to ego and prestige.  Politicians talk about things like "the nation's honor" but what really matters at its heart is their own ego and perception.  Abandoning sunk costs, for the real humans making decisions (whether Presidents or CEOs) is about confessing past errors of judgment.  Its a hard thing to do, so hard a lot of extra people had to die in Vietnam before it could happen.  I can't find a transcript but Kissinger had some amazing quotes in Episode 9 that pretty baldly outline this problem.

For years I have been critical of US Forest Service (USFS) fire suppression operations.  For those who are not familiar, because they own so much land in the very dry west, the US Forest Service is -- by far -- the largest firefighting agency in the country.  It spends billions of dollars a year on firefighting and employs tens of thousands for workers in doing so -- some specifically hired for fire, many others detailed from regular jobs to specific fires.  Basically, in the late summer, Forest Service offices are practically cleared out as everyone is off on fire detail, and those who are still around have no money to spend because it all has been swept into fire.

It is hard to publicly criticize firefighting operations for many of the same reasons that it is hard to criticize the police -- people will say that they are so brave and perform an indispensible service.   Granted.  But the USFS process for managing and funding firefighting is totally broken.  This is not solely the agency's fault -- Congress shares a lot of the blame.  But whatever the cause, firefighting has become (in my observation of the agency) a financial accountability-free zone.  There are no budgets for fire.  No competitive bidding for services and products.   All the rules are lifted, and the agency simply spends like crazy.  People have made small fortunes inventing things fire crews might need (e.g. portable shower buildings) and selling or renting them to the USFS for huge sums of money.  And USFS employees don't care because they understand it to be an environment where the normal rules do not apply.

And the USFS employees love it.  The structure and schedules and requirements of their day jobs are lifted, with little danger except for a very few in the front line crews.  I have always described what I have seen as a cross between a summer camp and a fraternity outing.

And perhaps I was more correct than I knew.  Apparently, once the tone is set for a low-accountability environment -- even if the relaxed rules were really only supposed to apply narrowly to financial issues -- it can spread to other behaviors.

Michaela Myers said she was first groped by her supervisor after a crew pizza party last summer, shortly after starting a new job as a firefighter with the U.S. Forest Service. She was 22 and excited about the job. She had worked out diligently to prepare for the season, running and hiking with a heavy pack. She is from the Pacific Northwest, and had always loved the outdoors and a challenge.

She remembers her supervisor, a Forest Service veteran, offering her beers at a crew member’s house after dinner. He told her he was glad she was on the crew because she was “sexy” and had “a nice ass,” she said. According to her account, he led her to a couch, rubbed her butt as she sat down, and slid his hand between her legs. Myers was shocked and upset, but didn’t stop him. She had heard from other crew members that this manager could fly off the handle, and didn’t want to make a scene.

“You don’t feel like you can say ‘no’ loudly to your supervisor,” she said. “I keep looking back on it and wishing I could have just punched him or something.”

According to Myers, the harassment and groping continued for the rest of the summer. When she confided in a fellow crew member, he told her this was an unfortunate reality for a female firefighter. She had a choice, she recalls him saying: report it and face retaliation, or do nothing and stay in fire.

Updated:  The PBS report was changed after I first posted it, and I have edited the quote to match the current text.  PBS wrote below their article this update: "This story has been updated. The name of the Forest Service supervisor in Oregon has been removed. We stand by our reporting and thank the multiple women who went public for this story."

I got some attention with a post the other day about an example of something I see constantly -- government employees unwilling to admit even the smallest error.

One reason is that even as someone who runs a company that partners with government agencies frequently, I am still an outsider and a member of the general public.  And government agencies train everyone in their organizations never to give any information to the public that is not fully vetted and controlled.  Government agencies have had their training budgets slashed, but the one training everyone still gets (along with diversity training) is training on how to reveal (or really, not reveal) information to the public.

But I think there is a more important reason for this behavior, and it is one I want to spend a bit of time on in part because it is one of my favorite business topics: incentives.   There is nothing in an organization that is harder to get right than incentives.  And this is doubly true of government agencies because most government agencies don't have, or don't choose to measure, any output variables.

What do I mean by output variables?  Organizations tend to measure both what I call input and output variables.   Let's consider a sales person.  An output variable is a business result, e.g. number of units sold, number of new customers added, revenue of products or services sold, gross margin of products sold, satisfaction rating from customers.  An input variable is a measure of how well process steps leading to that sale were completed, e.g. percent conformance to pricing guidelines, number of sales calls made, number of quotes produced.  If well selected, input variables tend to lead to the output variables but they don't in themselves pay the rent.

Because I am most familiar with them, I am going to use government recreation agencies like a state parks organization as an example.  I have yet to find a government recreation agency that measures its employees primarily on output variables, e.g. customer satisfaction of park visitors, fee revenue collected at park, net income of the park, change in deferred maintenance accounts, etc.  Instead their metrics are -- at best -- based on conformance to process, e.g. was the budget completed on time, was the planning process done right, was all necessary reporting done on time, etc.  I say "at best" because most government agencies have no formal performance metrics at all.  And this is where I get to my favorite incentives / metrics topic of all -- informal performance metrics.

An organization never has no performance metrics at all. They may have no formal, written standards, but every organization has to evaluate and promote talent.  If there are no formal standards, there have to be some informal or unwritten standards that are applied.  And I would argue from my experience that even when formal standards do exist, there may still be informal standards that are more important.

One informal incentive that exists naturally in almost every organization is "don't get caught in a mistake."  On its face this is one of those incentives that seem good -- sure, I would love to have an organization where no one makes mistakes.   But many companies have found that in competitive markets, allowing this informal incentive to become powerful can spell a company's doom.  It has at least two negative effects:  it limits honest communications, because people start hiding their mistakes which in turn keeps information from the rest of the organization that may need it; and it limits risk-taking, which is necessary for most companies to survive in competitive markets, because almost everything a company does to improve contains risks.  Powerful formal performance systems are one way to limit counterproductive informal incentives like this.  But many companies also put a lot of work into their communications and culture to help employees be more open to taking risks and making mistakes.   A vast portion of my communication with my own managers and employees are on this topic.  We try to make very clear the subset of mistakes that are career fatal and where we DO want risk aversion (e.g. racism, harassment, abuse, etc) and treat everything else as a learning exercise.  My response to one of my manager's mistakes is very likely to be, "sorry, that was my fault, I did a bad job of training you (or preparing you, or whatever) for that issue."

Recognize though that all of these corporate steps to head off problems with the informal incentive "don't get caught making a mistake" have largely been lessons of the marketplace.  Time warp back to the 1950's when American companies were fat and happy and not yet really faced with scrappy global competition, and you might well have found highly risk-adverse cultures where people were afraid of being caught in a mistake.  I do not have experience at companies like GM, but I would not be surprised at all to learn that risk aversion dominated the culture and that faced with market extinction, it has spent much of the time since the 1970's trying to purge this risk aversion from its culture.

But in large part, a government organization doesn't face these market corrective forces.  If an agency becomes weak and senescent, it does not get competed into oblivion, it simply goes on and on.  Maybe it gets more tax money to make up for its inefficiency, or maybe it cuts somewhere (such as deferred maintenance in public parks) to make ends meet.   Which means that in most government agencies I have worked with, informal incentives -- particularly "don't get caught in a mistake" -- are extremely powerful.

Most people are familiar with the fact that the default government answer to anything new is "No".  But did you ever wonder why?  I have heard a lot of folks say that it is because government employees are jerks or lazy under-performers or have evil intentions.  But that is really not the case.  With just a couple of small exceptions**, people who enter government are no different than people who enter private organizations.  If they do things that seem bad, it is not because they are bad people but because their information and incentives cause them to do things we perceive as bad.  Take the case of saying "No".  Without any output metrics, most government employees have no incentive to say "yes".  There is no incentive to, say, generate 20% more visitor revenue in parks so there is no incentive to approve new visitor facilities or services that might generate that revenue.  And there is every reason so say "no".  "No" is almost always safe, particularly if one does not actually say "No" but instead say something like, "well, that is an interesting idea but we need to do X, Y, and Z intensive 20-year studies first."  There is virtually no way for any government employee to get caught in a mistake saying that.  So that is the answer most of us get from the government.

Coming back to the original question, I hope this helps explain why agency employees who don't admit error act the way they do -- they are not bad people, they are normal people reacting to a bad incentive.   Imagine in my business if I, say, reversed two numbers on one of the 25 state and local sales tax returns we file each month.  When pointed out to me, I have no problem admitting the mistake because I know it is easily correctable and that it has little to do with my true performance.  But in the government world, things are completely different.  They don't have output variables.  Executives can have full successful careers running parks where the infrastructure is allowed to fall apart, the headquarters become bloated, and visitation stagnates.  But they can be fired for getting something wrong in the process.  Not very often, but just enough pour encourager les autres, particularly in an environment where there are really no other formal metrics to override this fear.

**postscript:  I have found two ways that people who enter government are different from people who enter private business  (people are more different at the end of their careers after they have been shaped by the incentives and culture for a long period of time, but I am talking about upon entry into work).  First, people who enter government tend to prioritize security (e.g. good benefits, difficult to fire) over other aspects of employment.  Note that this just tends to reinforce the risk aversion to making or admitting a mistake even more.  Second, people who enter government tend to be more confident of government solutions to problems and more skeptical of private solutions than people who enter private business.  This latter is another reason why my company, that offers private solutions for traditional government functions, hears "no" a lot.

The Republicans are running around counting coup, crowing that the Democrats totally caved on the continuing resolution and talking about how much bigger their political cojones are than the Democrats', or something.

My question is -- given that this entire negotiation has to happen again in 3 weeks -- how does this make even a small bit of sense?  All they are doing is firing up the Democrats to fight harder the next time this happens which is ... in 3 freaking weeks.  This is like the Cleveland Browns publicly calling out Tom Brady for being overrated just before their next game.  Are politicians so desperate to win one 12-hour news cycle that they are willing to bollix up the playing field for the next battle?