Coyote Blog

I am not breaking any ground here but I just finished the fifth and final episode of Chernobyl last night and the entire series was excellent.  From the confusion of the first hours to the anonymous and sometimes futile heroism in the aftermath to the backroom and courtroom scenes at the end -- everything was tense and engaging and felt pitch-perfect.  If nothing else, it's a must see just for its portrayal of architecture and interiors of the Soviet Union.   I will warn you that some parts are hard to watch, particularly the dying men in episode 3 and the animal control operations in episode 4.  The whole thing has, appropriately, a real darkness to it.  Even the great acts of heroism can't offset the ugliness because the heroes tends to be anonymous and largely unrewarded and unheralded.  Spoiler alert:  there are no winners here [not so much of a spoiler as you see one of the protagonists hang himself 2 minutes into episode 1].

I know there are folks who criticize the science in the show.  Basically they can bite me.  This is a drama, and a really good one, and generally sticks pretty close to the historical material.

In addition to being about the accident itself, the show is also about life in the Soviet Union as well.  Which raises the question -- clearly the Soviet Union's political culture was at fault here, but is ours any better?  The answer is yes and no.  No, because I don't trust our government officials any more than the Soviets to not prioritize their own power over the well-being of their citizens.  But the US would likely do better because 1) our government is not nearly as monolithic, so that bad authoritarian impulses in one section can be checked by others; and 2) our government has much less scope.  What I mean by the latter is that Chernobyl was part of the Soviet government, so admitting mistakes there required criticism of the government.  In the US, with private operators of power plans, the government would have no problem calling out, say, Duke Power for its shortcomings.  Imagine for example how the response to the 737Max issues might have been different if it were built by a state corporation.

Postscript:  OK, what are those areas the science may be off?  Well, my sense is that the risk to people exposed to the victims of heavy radiation exposure (people visiting the victims in the hospital) is exaggerated in the program.  And I think most observers since the accident have been pleasantly surprised that, with the exception of an increase of thyroid cancers in young children, the long term health problems associated with lower level radiation exposures in the Chernobyl area have been far less than feared.  A UN panel wrote in 2008:

Apart from the dramatic increase in thyroid cancer incidence among those exposed at a young age, and some indication of an increased leukaemia and cataract incidence among the workers, there is no clearly demonstrated increase in the incidence of solid cancers or leukaemia due to radiation in the exposed populations. Neither is there any proof of other non-malignant disorders that are related to ionizing radiation. However, there were widespread psychological reactions to the accident, which were due to fear of the radiation, not to the actual radiation doses.

That latter part refers to a finding that the one measurable long-term effect in the population has been an increase in alcoholism that is usually attributed to people's elevated fears of cancer.

Conservatives rightly criticised the Obama Administration for rewriting rules so frequently and seemingly arbitrarily that businesses were reluctant to make long term investments.  As the WSJ editorialized in 2016:

Pfizer CEO Ian Read defends the company’s planned merger in an op-ed nearby, and his larger point about capricious political power helps explain the economic malaise of the last seven years. “If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete,” Mr. Read writes. “The new ‘rules’ show that there are no set rules. Political dogma is the only rule.”

He’s right, as every CEO we know will admit privately. This politicization has spread across most of the economy during the Obama years, as regulators rewrite longstanding interpretations of longstanding laws in order to achieve the policy goals they can’t or won’t negotiate with Congress. Telecoms, consumer finance, for-profit education, carbon energy, auto lending, auto-fuel economy, truck emissions, home mortgages, health care and so much more.

Capital investment in this recovery has been disappointingly low, and one major reason is political intrusion into every corner of business decision-making. To adapt Mr. Read, the only rule is that the rules are whatever the Obama Administration wants them to be. The results have been slow growth, small wage gains, and a growing sense that there is no legal restraint on the political class.

I am willing to believe this is true. On my own smaller scale, our company has disinvested in California because we simply cannot keep up with the changing rules there.

But all this forces me to ask, why doesn't this same Conservative criticism apply to Trump's trade policy?  The rules are changing literally by the day -- Consumers of goods from Mexico are going to be hit by new tariffs, Mexican goods are not going to be hit by new tariffs, China is hit by new tariffs, a China deal is near, a China deal is not near, Company A got a special tariff exemption, Company B did not get a special exemption, etc. How can any company with a global supply chain, which is most any US manufacturer nowadays, plan for new products or investments in this environment when they have no ability to make long-term plans for their supply chain?

Sigh -- here is your update:  Human beings are still being detained by the US government in Guantanamo without any due process.  I was writing about this 15 years ago, but with the loss of some of my early content the earliest I can find is this from 2006.  The problem always was our using US POW rules from past wars in this very different war.  In the past, wars actually ran for what now seems like a limited time (though folks living through WWII would be surprised at that perspective).  POW's for most part were captured in uniform and on a battlefield (or floating in the water after their ship sank).  Nobody really had due process concerns as a) being in a German uniform in a Normandy pillbox on June 7 was pretty persuasive evidence one was an enemy combatant; b) the detained combatant was likely headed to Arkansas to harvest crops for a year or two, which was a FAR better place to be than where they were captured; c) when the war unambiguously ended, they went home.

But in our current AUMF and the "war on terror," where does it end?   There are no uniforms.  The battlefield as defined is the entire world.  The power to detain human beings for the duration of the war allows the Administration to detain roughly anyone they way, without having to defend that decision, and keep them however long they want because only the Administration (or perhaps Congress if it had a spine) decides when the "war" is over.

I had hoped that the Supreme Court would take the opportunity to review this practice after so many years had passed.  I think there were real reasons to ban this practice in 2004 when the Court reviewed this the first time, but at that time the war was relatively fresh and the detentions still shorter than other wartime POW internments.  But what about now?  Unfortunately, the Court declined to rethink their earlier position, despite hints in the original decision that matters might change if the "war" dragged on.

Today the Supreme Court declined an opportunity to examine whether it's still acceptable to hold enemy combatants in Guantanamo Bay at a time when Washington's interventions in Afghanistan and Iraq no longer resemble anything the U.S. was doing in the direct wake of 9/11.

Moath Hamza Ahmed al-Alwi, a Yemeni citizen, has been imprisoned in Guantanamo Bay since January 2002, when he was captured in Pakistan fleeing Afghanistan. He was initially accused of being a veteran terrorist combatant and a former Osama bin Laden bodyguard. Much later, in 2015, officials concluded he was most likely not a former bodyguard; while he was affiliated with Al Qaeda and the Taliban, it's unclear whether he was engaged in any sort of combat against the United States. He's one of 40 prisoners still detained there.

He's been sitting in Guantanamo Bay for 17 years, but the U.S. government has not charged him with any crimes. It doesn't appear to intend to charge him with anything, but it also refuses to release him, because the Authorization for Use of Military Force (AUMF) to wage war in Afghanistan and against the Taliban and al Qaeda remains in force.

In 2004's Hamdi v. Rumsfeld decision, the Supreme Court ruled that the AUMF authorized such detentions with an understanding that this authorization ended at the conclusion of the war. But even in 2004, the majority was cognizant of the possibility that this amorphous "war on terror" was likely to change over time. In the ruling, written by then-Justice Sandra Day O'Connor, it notes: "If the practical circumstances of a given conflict are entirely unlike those of the conflicts that informed the development of the law of war, that understanding may unravel. But that is not the situation we face as of this date."

I find Conservative support for these detentions frustrating in light of recent events.  People across the political spectrum, but particularly Conservatives, were outraged that Harvard would terminate a dean merely because as a lawyer he chose to represent an unpopular client (Harvey Weinstein).  They rightly argued that due process demands representation of every client, and that to make that work an attorney's moral standing can't be conflated with that of his clients.  Or put another way, what a defendant allegedly did or did not do is irrelevant to  what we owe them for due process.  I think the same can be said of the folks left to die in Guantanamo.

But Coyote, they aren't American citizens!  We don't owe them due process.  Wrong.  We do.  Read the first words of the Declaration of Independence.  Rights belong to all human beings -- they are not grudgingly granted by the Constitution to US Citizens only.  There is nothing in what I call the extended Bill of Rights (including 13-15) that does not apply to everyone who walks the Earth and interacts with the US Government.  Otherwise, as an extreme example, grabbing Africans and enslaving them would still be Constitutional.

But Coyote, no one wants these guys.  Well, that is a different point and is NOT the current legal underpinning of their detention.  I do understand it is politically impossible, and perhaps even unethical, to drop these folks in the US.  If we free them all and no one will take them, then they may stay as our guests to try to live some kind of life at Guantanamo.  But that is not the status they have today.

But Coyote, one of these guys may kill again.  In general, the argument in favor of confining or keeping at a distance any group that probably contains future criminals is bankrupt.  The argument exploded in popularity on the Right a while back with the Skittles immigration meme.  The meme said something like if you had a thousand Skittles and knew one was poisoned, would you eat from the bag?  And if not, why would you let in immigrant populations that likely include some future criminals.  The problem with this is that if this argument really had moral weight, we would be equally required to ban sex or at least all births since some percentage of babies born will be criminals.  At a higher level, our whole legal system is based on the presumption that it is better to err on the side of not punishing an actual criminal than on the side of punishing the innocent (which we still do a lot of nevertheless).  This presumption of innocence is one of the key markers that separate us from totalitarian governments.

This is one of those issues that really should surprise no one, but encroaching urbanization on surface temperature measurement stations can impose an upward bias to recorded temperatures, creating a false trend.  The increase in measured temperatures due to urbanization is easy to demonstrate -- my son and I did it as a junior high science project.

The NOAA has a paper out that confirms the effect on surface temperature measurement. By the way the UofA temperature station photo illustrating the photo was actually taken by yours truly, becoming the most circulated photo I have ever taken.  Here is the story.

In short, what happens is this.  Urban environments are hotter than the surrounding countryside, so temperatures in the city will be biased upwards from those in the country around it (you will often see this on the local weather when they contrast the city vs outlying areas).  This in and of itself does not necessarily corrupt the temperature trend.  However, if the city is growing -- say in the case of the UofA photo in the article which 100 years ago was in an huge open field -- then encroaching urbanization can bias the trend.

Even with these biases removed, it is important to note that there is still an upward trend in the surface temperature record, at least over the last 30 years (as there is in satellite temperature measurement which is not subject to this bias).  However, the total US surface trend may be overstated by a third to a half.  Climate scientists of the alarmist sort have one of two reactions to this:  1) There are urban heat island deniers, who deny it is an issue or has any effect on the temperature record; and 2) There are those who accept that it exists but claim it is accounted for by various statistical methods that look at multiple sites in one area.  The problem with this latter is that rather than actually remove the bias, it tends to smooth the bias like peanut butter across multiple stations.

Most folks assume that global warming results in record high daily temperatures, but this is not necessarily the case.  When your local news station blames a high temperature record on global warming, they may be wrong for two reasons.

1.  Most of the temperature stations used by your local news channels for weather are full of urban heat island biases.  This is particularly true of the airport temperature that many local news stations use as their official reading (though to be fair UHI has much more effect on evening temperatures than temperatures at the daily high).
2.  Most global warming, at least in the US where we have some of the best records, does not occur during the day -- it occurs at night

The latter point is surprising to most folks, but as a result we are not seeing an unusual number of daily high temperature records set (many were set in the 1930s and still stand).  What we are seeing instead is a large number of record high low temperature readings.  This is confusing, but basically it means that the lowest temperature that is reached at nighttime is higher than it has been in the past.  The chart below is a bit dated but still holds:

When I give presentations I try to use examples from local data.  Here is the comparison of night time warming vs. day time warming in Amherst, MA.

I bring this all up again because Dr. Roy Spencer has done a similar analysis for the US from the relatively new AIRS database (a satellite-based data set that avoids some of the problems of land thermometer data sets like urban heat island biases and geographic coverage gaps).  He shows this same finding, that over 80% of the warming we have seen recently in the US is at night.

This is a bit over-complicated because it is looking at temperatures through different heights of the atmosphere when most of you only care about the surface.  But you can just look at the 0 height line to see the surface warming trend.  Note that in general the data is pretty consistent with the UAH lower-troposphere temperature (satellite) and the NOAA metric (ground thermometers).

No particular point except to highlight something that is poorly understood by most folks because the media never talks about it.

In the aftermath of the two Boeing 737MAX crashes:

For years, the FAA has allowed plane manufacturers to self-certify parts of the oversight process for new planes, called Organization Designation Authorization. This process, in which the aircraft manufacturer’s employees perform some of the safety tests and inspections with FAA oversight, reportedly saved the government body time and money.

That practice was examined at Wednesday’s Senate hearing.

Department of Transportation Inspector General Calvin Scovel III, who testified at the hearing, said the FAA will significantly change the oversight process for new aircraft by July. Speaking in vague terms, Scovel said that the changes would include new ways for the FAA to evaluate the self-certifying process.

Sen. Richard Blumenthal said that putting manufacturers in charge of their own safety audits was like putting “the fox in charge of the henhouse.” Saying he would introduce regulations to ban the practice of companies self-certifying, Blumenthal stated that “the fact is that the FAA decided to do safety on the cheap, which is neither safe nor cheap.”

A few reactions:

1. The fox in the henhouse analogy is not apt.  The fox wants to eat the chickens, whereas Boeing does not want to have airplane failures.  In fact Boeing is going to be paying out on a bunch of really big lawsuits, not only to families of the folks that died and the airlines that lost their planes but also to airlines that have had to change their flight schedules due to these issues.  Airbus sales people will use this story in their pitches until the end of time.  Regulation is not the only, or the most important, check on Boeing's behaviors.
2. That being said, aircraft regulation is a dumb hill for libertarians to die on.  This is just not that big of a deal.  Regulation and capital intensity has pretty much reduced choice in large aircraft to two companies and that will not likely change no matter what extra regulatory hoops are added.  Aircraft are a bit more expensive and spare parts are way more expensive due to our regulatory regime, but I don't think there is a public constituency for making a different trade-off.
3. Whatever the regulatory environment, it is unlikely to actually catch more failures of this sort in the future.  Regulators are notoriously bad at this sort of thing (see: US financial system).
4. I did engineering failure analysis early in my working career and my experience is that this sort of multiple stacked failure -- lack of pilot training for a bad software response based on a failed piece of instrumentation that was not reported as needing maintenance -- is hard to predict.  What will happen now in addition to some software fixes will be more mandatory training on this particular subsystem and likely a requirement that the specific piece of instrumentation involved needs to have redundancy.  At best we should hope they will also do a review of other instrumentation failures that might lead to a flight control issue and consider redundancy or software changes.  But there's always the problem of failure of imagination, the best dramatization of which is in the fabulous From the Earth to the Moon episode on Apollo 1.

I have not really written on Brexit here, for a couple of reasons.  First, I am not at all informed about the issues, so it is hard to pontificate intelligently.  Second, I am torn because, were I British, I likely would have supported Brexit but for completely different reasons than many others.

My understanding is that many folks (in a parallel with Trump voters in the US) voted for Brexit out of fear of global free trade and immigration, both of which I support.  I, on the other hand, would have voted for Brexit to shed the absurd, overreaching EU regulatory state.  So I likely would have supported it, but don't want to be counted among modern anti-global nationalists.

But if you want to see the type of BS that would have driven me into the arms of the Brexit camp, this is it.

he European Parliament’s approval of the Copyright Directive today is the end of the internet as we know it. This new regulation creates substantial new controls on what we can share online which threaten freedom of expression, undermine creativity, and cement the dominance of technology giants.

The Copyright Directive will create two internets. The first, a heavily censored version for European users, including filters to prevent you from uploading content. The second, a free internet where creativity is encouraged, for everyone else.

The directive represents everything that’s wrong with the EU’s policymaking process. It was written at a substantial distance from Europeans, heavily influenced by lobbyists and national compromises. There is a serious lack of accountability.

By the way, I would have had completely the opposite instincts than President Obama during Brexit.  The day Brexit passed, as President I would have immediately announced to Britain that if they were leaving the EU's common market, they were welcome to join one with the US and would have sent a trade envoy over that day.  Instead, President Obama did nothing but threaten and scold Britain for trying to get out from under the EU's regulatory umbrella.

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.

I have written before that the caller ID system in the US is totally broken.  It is bad enough at home, but there are legal protections against spamming home numbers that mitigate some of the issues.  I will tell those of you who complain about spam on your cell phone or home phone that you have not seen anything until you have a business line.  The calls are endless, and caller ID is totally useless because every telemarketer seems to spoof the caller ID.  I have almost stopped answering by business number (more on that in a minute).

I did answer one call the other day that said it was from something like Loretta Smith.  I picked up and answered (thinking it might be a customer) and the person, obviously a male, said "I am calling from Such and Such capital company".  I get these all the time - banks won't make cash flow loans to any small business, even one with over $10 million in sales, but everybody and his dog wants to do equipment leasing.  So I began calling the person Loretta.  After a few times of this he got mad and asked why I kept calling him Loretta.  I said the caller ID system said he was Loretta, and that if that is incorrect it likely means his company is spoofing the system and that I was super unlikely to make a major financial transaction with a company whose very first contact with me was based on fraud.

As I said, I have mostly stopped taking calls.  I have a voice mail message that tells folks my email and that they are welcome to email me and I will get back to them promptly, which I do.  I still encourage front line employees and customers to contact me personally if they are having an issue my local managers can't fix.  I used to get these calls by telephone but I just can't answer my phone any more, it wastes too much time dealing with spam.

I have written about my personal frustrations before but what really got me to write this post was a contact with a sales rep for a product I was buying.  This person's entire income comes from phone calls from customers wanting to buy this company's product (for which they are the exclusive local distributor).  This is a one-time product sale and so typically she does not know her customers, they are all new.  When I first called, I got her voice mail.  In the middle of leaving a message, the person picked up and said she was sorry but she hesitated to answer her phone due to all the spam.  Can you imagine?  A salesperson who depends on people calling to buy product that doesn't want to pick up the phone.  That is a broken system.

Megan McArdle has a great WaPo article and tweet storm on high-speed rail in the US.  In it she focuses on issues of distance and infrastructure barriers we have.

One thing she left out is that the US rail system is optimized for freight, vs. European and Japanese systems that are optimized for passengers (it is hard to do both well with the same network).  The US situation is actually better, much better, for energy conservation.  I wrote in detail about this before:

First, consider the last time you were on a passenger train.  Add up the weight of all the folks in your car.  Do you think they weighed more or less than the car itself?  Unless you were packed into a subway train with Japanese sumo wrestlers, the answer is that the weight of the car dwarfs that of the passengers it is carrying.    The average Amtrak passenger car apparently weighs about 65 tons (my guess is a high speed rail car weighs more).  The capacity of a coach is 70-80 passengers, which at an average adult weight of 140 pounds yields a maximum passenger weight per car of 5.6 tons.  This means that just 8% of the fuel in a passenger train is being used to move people -- the rest goes into moving the train itself.

Now consider a freight train.  The typical car weight 25-30 tons empty and can carry between 70 and 120 tons of cargo.  This means that 70-80% of the fuel in a freight train is being used to move the cargo.

This is another case of short-sighted analysis that looks only at the seen rather than the unseen.  Coastal elites take trips to Europe and see the beautiful high-speed trains and in turn never spend a moment thinking about freight trains.  So they fixate on beautiful sexy passenger trains rather than thinking about the system holistically.  I titled a Forbes article I wrote on the effect as "Shifting Capital from the Productive to the Sexy."

PS-  I am a train buff and have a whole room of my house filled with a model railroad, so I don't knee-jerk hate on rail.  I have ridden European high-speed rail many times so I am familiar with the product.  The London-Paris segment is great, and I have ridden the French TGV from Paris to Marseilles and the Italian line from Milan to Florence.  What's not to love as a tourist -- we don't pay for them and they provide good service between the city centers of tourist destinations.   But if you look at those trains they really have a ton of expensive infrastructure carrying not very many people over relatively (for the US) short distances.

I write this because after I criticized infrastructure triumphalism in Joel Epstein's article at Huffpo, he wrote me a one line retort: "You should get out of the country more often."  LOL, if you had to enshrine a hall of fame of sneering coastal elite dismissive comments of critics, this would have to be on the list.  I tried to follow up with him and ask him if he would have the US adopt China's infrastructure construction practices if the cost was adopting China's environmental and accountability standards, but I did not get a response.

This is a new one on me, but very similar to the IRS call scams of the last year or two (right down to the odd colloquial language which is entirely inconsistent with how the government speaks in official pronouncements).  Apparently there is suspicious activity on my social security number and it has been suspended and may soon be cancelled along with all my assets unless I call them right away and give them all sorts of private information (starting with my social security number, of course).  Consistent with past observations here that the entire US caller ID system is totally f*cked, the caller ID said it was from a US Government Office in my local area code but the number I was supposed to call was somewhere else entirely.  I forgot to take it down and check it out.

As always, beware.

Today I want to come back to a topic I have not covered for a while, which is what I call knowledge or certainty "laundering" via computer models.  I will explain this term more in a moment, but I use it to describe the use of computer models (by scientists and economists but with strong media/government/activist collusion) to magically convert an imperfect understanding of a complex process into apparently certain results and predictions to two-decimal place precision.

The initial impetus to revisit this topic was reading "Chameleons: The Misuse of Theoretical Models in Finance and Economics" by Paul Pfleiderer of Stanford University (which I found referenced in a paper by Anat R. Admati on dangers in the banking system).  I will except this paper in a moment, and though he is talking more generically about theoretical models (whether embodied in code or not), I think a lot of his paper is relevant to this topic.

Before we dig into it, let's look at the other impetus for this post, which was my seeing this chart in the "Southwest" section of the recent Fourth National Climate Assessment.

The labelling of the chart actually understates the heroic feat the authors achieved as their conclusion actually models wildfire with and without anthropogenic climate change.  This means that first they had to model the counterfactual of what the climate could have been like without the 30ppm (0.003% of the atmosphere) CO2 added in the period.  Then, they had to model the counterfactual of what the wildfire burn acreage would have been under the counter-factual climate vs. what actually occurred.   All while teasing out the effects of climate change from other variables like forest management and fuel reduction policy (which --oddly enough -- despite substantial changes in this period apparently goes entirely unmentioned in the underlying study and does not seem to be a variable in their model).  And they do all this for every year back to the mid-1980's.

Don't get me wrong -- this is a perfectly reasonable analysis to attempt, even if I believe they did it poorly and am skeptical you can get good results in any case (and even given the obvious fact that the conclusions are absolutely not testable in any way).  But any critique I might have is a normal part of the scientific process.  I critique, then if folks think it is valid they redo the analysis fixing the critique, and the findings might hold or be changed.  The problem comes further down the food chain:

1. When the media, and in this case the US government, uses this analysis completely uncritically and without any error bars to pretend at certainty -- in this case that half of the recent wildfire damage is due to climate change -- that simply does not exist
2. And when anything that supports the general theory that man-made climate change is catastrophic immediately becomes -- without challenge or further analysis -- part of the "consensus" and therefore immune from criticism.

I like to compare climate models to economic models, because economics is the one other major field of study where I think the underlying system is as nearly complex as the climate.  Readers know I accept that man is causing some warming via CO2 -- I am a lukewarmer who has proposed a carbon tax.  However, as an engineer whose undergraduate work focused on the dynamics of complex systems, I go nuts with anti-scientific statements like "Co2 is the control knob for the Earth's climate."  It is simply absurd to say that an entire complex system like climate is controlled by a single variable, particularly one that is 0.04% of the atmosphere.  If a sugar farmer looking for a higher tariff told you that sugar production was the single control knob for the US climate, you would call BS on them in a second (sugar being just 0.015% by dollars of a tremendously complex economy).

But in fact, economists play at these same sorts of counterfactuals.  I wrote about economic analysis of the effects of the stimulus way back in 2010.  It is very similar to the wildfire analysis above in that it posits a counter-factual and then asserts the difference between the modeled counterfactual and reality is due to one variable.

Last week the Council of Economic Advisors (CEA) released its congressionally commissioned study on the effects of the 2009 stimulus. The panel concluded that the stimulus had created as many as 3.6 million jobs, an odd result given the economy as a whole actually lost something like 1.5 million jobs in the same period. To reach its conclusions, the panel ran a series of complex macroeconomic models to estimate economic growth assuming the stimulus had not been passed. Their results showed employment falling by over 5 million jobs in this hypothetical scenario, an eyebrow-raising result that is impossible to verify with actual observations.

Most of us are familiar with using computer models to predict the future, but this use of complex models to write history is relatively new. Researchers have begun to use computer models for this sort of retrospective analysis because they struggle to isolate the effect of a single variable (like stimulus spending) in their observational data. Unless we are willing to, say, give stimulus to South Dakota but not North Dakota, controlled experiments are difficult in the macro-economic realm.

But the efficacy of conducting experiments within computer models, rather than with real-world observation, is open to debate. After all, anyone can mine data and tweak coefficients to create a model that accurately depicts history. One is reminded of algorithms based on skirt lengths that correlated with stock market performance, or on Washington Redskins victories that predicted past presidential election results.

But the real test of such models is to accurately predict future events, and the same complex economic models that are being used to demonstrate the supposed potency of the stimulus program perform miserably on this critical test. We only have to remember that the Obama administration originally used these same models barely a year ago to predict that unemployment would remain under 8% with the stimulus, when in reality it peaked over 10%. As it turns out, the experts' hugely imperfect understanding of our complex economy is not improved merely by coding it into a computer model. Garbage in, garbage out.

Thus we get to my concept I call knowledge laundering or certainty laundering.  I described what I mean by this back in the blogging dinosaur days (note this is from 2007 so my thoughts on climate have likely evolved since then).

Remember what I said earlier: The models produce the result that there will be a lot of anthropogenic global warming in the future because they are programmed to reach this result. In the media, the models are used as a sort of scientific money laundering scheme. In money laundering, cash from illegal origins (such as smuggling narcotics) is fed into a business that then repays the money back to the criminal as a salary or consulting fee or some other type of seemingly legitimate transaction. The money he gets
back is exactly the same money, but instead of just appearing out of nowhere, it now has a paper-trail and appears more legitimate. The money has been laundered.

In the same way, assumptions of dubious quality or certainty that presuppose AGW beyond the bounds of anything we have see historically are plugged into the models, and, shazam, the models say that there will be a lot of anthropogenic global warming. These dubious assumptions, which are pulled out of thin air, are laundered by being passed through these complex black boxes we call climate models and suddenly the results are somehow scientific proof of AGW. The quality hasn't changed, but the paper trail looks better, at least in the press. The assumptions begin as guesses of dubious quality and come out laundered at "settled science."

Back in 2011, I highlighted a climate study that virtually admitted to this laundering via model by saying:

These question cannot be answered using observations alone, as the available time series are too short and the data not accurate enough. We therefore used climate model output generated in the ESSENCE project, a collaboration of KNMI and Utrecht University that generated 17 simulations of the climate with the ECHAM5/MPI-OM model to sample the natural variability of the climate system. When compared to the available observations, the model describes the ocean temperature rise and variability well.”

I wrote in response:

[Note the first and last sentences of this paragraph]  First, that there is not sufficiently extensive and accurate observational data to test a hypothesis. BUT, then we will create a model, and this model is validated against this same observational data. Then the model is used to draw all kinds of conclusions about the problem being studied.

This is the clearest, simplest example of certainty laundering I have ever seen. If there is not sufficient data to draw conclusions about how a system operates, then how can there be enough data to validate a computer model which, in code, just embodies a series of hypotheses about how a system operates?

A model is no different than a hypothesis embodied in code. If I have a hypothesis that the average width of neckties in this year’s Armani collection drives stock market prices, creating a computer program that predicts stock market prices falling as ties get thinner does nothing to increase my certainty of this hypothesis (though it may be enough to get me media attention). The model is merely a software implementation of my original hypothesis. In fact, the model likely has to embody even more unproven assumptions than my hypothesis, because in addition to assuming a causal relationship, it also has to be programmed with specific values for this correlation.

This brings me to the paper by Paul Pfleiderer of Stanford University.  I don't want to overstate the congruence between his paper and my thoughts on this, but it is the first work I have seen to discuss this kind of certainty laundering (there may be a ton of literature on this but if so I am not familiar with it).  His abstract begins:

In this essay I discuss how theoretical models in finance and economics are used in ways that make them “chameleons” and how chameleons devalue the intellectual currency and muddy policy debates. A model becomes a chameleon when it is built on assumptions with dubious connections to the real world but nevertheless has conclusions that are uncritically (or not critically enough) applied to understanding our economy.

The paper is long and nuanced but let me try to summarize his thinking:

In this essay I discuss how theoretical models in finance and economics are used in ways that make them “chameleons” and how chameleons devalue the intellectual currency and muddy policy debates. A model becomes a chameleon when it is built on assumptions with dubious connections to the real world but nevertheless has conclusions that are uncritically (or not critically enough) applied to understanding our economy....

My reason for introducing the notion of theoretical cherry picking is to emphasize that since a given result can almost always be supported by a theoretical model, the existence of a theoretical model that leads to a given result in and of itself tells us nothing definitive about the real world. Though this is obvious when stated baldly like this, in practice various claims are often given credence — certainly more than they deserve — simply because there are theoretical models in the literature that “back up” these claims. In other words, the results of theoretical models are given an ontological status they do not deserve. In my view this occurs because models and specifically their assumptions are not always subjected to the critical evaluation necessary to see whether and how they apply to the real world...

As discussed above one can develop theoretical models supporting all kinds of results, but many of these models will be based on dubious assumptions. This means that when we take a bookshelf model off of the bookshelf and consider applying it to the real world, we need to pass it through a filter, asking straightforward questions about the reasonableness of the assumptions and whether the model ignores or fails to capture forces that we know or have good reason to believe are important.

I know we see a lot of this in climate:

A chameleon model asserts that it has implications for policy, but when challenged about the reasonableness of its assumptions and its connection with the real world, it changes its color and retreats to being a simply a theoretical (bookshelf) model that has diplomatic immunity when it comes to questioning its assumptions....

Chameleons arise and are often nurtured by the following dynamic. First a bookshelf model is constructed that involves terms and elements that seem to have some relation to the real world and assumptions that are not so unrealistic that they would be dismissed out of hand. The intention of the author, let’s call him or her “Q,” in developing the model may be to say something about the real world or the goal may simply be to explore the implications of making a certain set of assumptions. Once Q’s model and results become known, references are made to it, with statements such as “Q shows that X.” This should be taken as short-hand way of saying “Q shows that under a certain set of assumptions it follows (deductively) that X,” but some people start taking X as a plausible statement about the real world. If someone skeptical about X challenges the assumptions made by Q, some will say that a model shouldn’t be judged by the realism of its assumptions, since all models have assumptions that are unrealistic. Another rejoinder made by those supporting X as something plausibly applying to the real world might be that the truth or falsity of X is an empirical matter and until the appropriate empirical tests or analyses have been conducted and have rejected X, X must be taken seriously. In other words, X is innocent until proven guilty. Now these statements may not be made in quite the stark manner that I have made them here, but the underlying notion still prevails that because there is a model for X, because questioning the assumptions behind X is not appropriate, and because the testable implications of the model supporting X have not been empirically rejected, we must take X seriously. Q’s model (with X as a result) becomes a chameleon that avoids the real world filters.

Check it out if you are interested.  I seldom trust a computer model I did not build and I NEVER trust a model I did build (because I know the flaws and assumptions and plug variables all too well).

By the way, the mention of plug variables reminds me of one of the most interesting studies I have seen on climate modeling, by Kiel in 2007.  It was so damning that I haven't seen anyone do it since (at least get published doing it).  I wrote about it in 2011 at Forbes:

My skepticism was increased when several skeptics pointed out a problem that should have been obvious. The ten or twelve IPCC climate models all had very different climate sensitivities -- how, if they have different climate sensitivities, do they all nearly exactly model past temperatures? If each embodies a correct model of the climate, and each has a different climate sensitivity, only one (at most) should replicate observed data. But they all do. It is like someone saying she has ten clocks all showing a different time but asserting that all are correct (or worse, as the IPCC does, claiming that the average must be the right time).

The answer to this paradox came in a 2007 study by climate modeler Jeffrey Kiehl. To understand his findings, we need to understand a bit of background on aerosols. Aerosols are man-made pollutants, mainly combustion products, that are thought to have the effect of cooling the Earth's climate.

What Kiehl demonstrated was that these aerosols are likely the answer to my old question about how models with high sensitivities are able to accurately model historic temperatures. When simulating history, scientists add aerosols to their high-sensitivity models in sufficient quantities to cool them to match historic temperatures. Then, since such aerosols are much easier to eliminate as combustion products than is CO2, they assume these aerosols go away in the future, allowing their models to produce enormous amounts of future warming.

Specifically, when he looked at the climate models used by the IPCC, Kiehl found they all used very different assumptions for aerosol cooling and, most significantly, he found that each of these varying assumptions were exactly what was required to combine with that model's unique sensitivity assumptions to reproduce historical temperatures. In my terminology, aerosol cooling was the plug variable.

When I was active doing computer models for markets and economics, we used the term "plug variable."  Now, I think "goal-seeking" is the hip word, but it is all the same phenomenon.

Postscript, An example with the partisans reversed:  It strikes me that in our tribalized political culture my having criticised models by a) climate alarmists and b) the Obama Administration might cause the point to be lost on the more defensive members of the Left side of the political spectrum.  So let's discuss a hypothetical with the parties reversed.  Let's say that a group of economists working for the Trump Administration came out and said that half of the 4% economic growth we were experiencing (or whatever the exact number was) was due to actions taken by the Trump Administration and the Republican Congress.  I can assure you they would have a sophisticated computer model that would spit out this result -- there would be a counterfactual model of "with Hillary" that had 2% growth compared to the actual 4% actual under Trump.

Would you believe this?  After all, its science.  There is a model.  Made by experts ("top men" as they say in Raiders of the Lost Ark).  Do would you buy it?  NO!  I sure would not.  No way.  For the same reasons that we shouldn't uncritically buy into any of the other model results discussed -- they are building counterfactuals of a complex process we do not fully understand and which cannot be tested or verified in any way.  Just because someone has embodied their imperfect understanding, or worse their pre-existing pet answer, into code does not make it science.  But I guarantee you have nodded your head or even quoted the results from models that likely were not a bit better than the imaginary Trump model above.

I will begin by saying that few things in government aggravate me more than corporate relocation subsidies.  They are an entirely negative sum game.  I believe that subsidies are misguided and lead to a misallocation of capital, but at least things like EV subsidies create an EV industry, even if it is uneconomic.  But relocation subsidies are payments to create nothing -- their entire purpose is to move economic activity that would happen anyway across some imaginary line on a map.  Locally, we had a $100 million subsidy to a developer to move a mall approximately 1 mile.  Pure insanity.

However, it is hard for me to blame the managers of public companies who seek these subsidies.  I own my own company and can easily eschew such pork (if it were ever offered to me) but the CEO of a public company would be failing in their fiduciary duty to their shareholders to not accept government money that the drunken sailors in government are so gleefully trying to stuff in corporate g-strings.

With this money so available, it is important that corporate management make location decisions considering these subsidies but not solely focused on them.  The contrast between Amazon and Tesla (including the former SolarCity) helps explain my point.

In finding new headquarters locations, Amazon's most important considerations were likely

• Ability to attract great management and developer talent who seem to be more attracted to hipster areas with lots of Starbucks and sushi more than to areas with low cost housing.
• As they incur regulatory scrutiny, closeness to national government
• Access to domestic and international partners
• Access to capital

Note these criteria do not include access to low cost labor and real estate.  These do not really matter much for its headquarters offices.  These DO matter for distribution centers and warehouses, which is why these are located not in the center of high cost cities but in low cost suburban or rural areas.  In this context, then, splitting its headquarters between New York and Washington DC make a ton of sense.

Now let's think about Tesla.  Tesla was looking for manufacturing locations for solar panels and cars.  This is in an era when few even consider anywhere in the US a viable long-term option, but Tesla selected New York state and southern California.  I can tell you from sad personal experience that both these places are among the most expensive and hardest places to do business in the country.  Seriously, in SoCal Tesla took over a facility that Toyota couldn't make work.  These make absolutely no sense as long-term locations for manufacturing, but Tesla came here none-the-less in part for big fat subsidies and in part to ingratiate two powerful sets of state governments (in addition to subsidies, California reciprocated by giving Tesla a special sweetheart deal upping its zero emission vehicle credits).

I am reminded of this because Bloomberg has the whole, sad tale of Tesla in New York here.

I am not much on memes but I thought I would try my hand just this once...

Today I want to talk a bit about trends in wildfires in the US.  And as regular readers know, I have a real pet peeve about declaring a trend without actual, you know, trend data.  The media may be willing to jump from "most devastating fire in California history" to a trend just based on this one data point, but I am not going to play.

It turns out, though, that we don't have to play the one data point extrapolation game because there actually does seem to be a trend in wildfire.  Here is the national chart:

You might be saying:  Hey Coyote, you are cherry picking -- I have seen this same data but with a huge hump in the early part of the century.  Here is the chart you saw:

(source for both)  The problem with this chart is a huge definitional change in the data between the first and second half of the century.  In short, the early half of the century included controlled burns and other purposeful manmade actions (mostly in the southeast) and the latter half does not.  I described this here -- skeptics who use this chart are in serious danger of committing the same sloppy data errors we accuse warmists of (confession:  I made this mistake for a number of years).

To complete our proof there is indeed a trend in wildfire and not just in wildfire news stories, here is the chart for California, though I cannot vet the source.  I will say its not a slam dunk trend but I will take it on faith, at least for now, that the recent years would be high and make the trend more obvious

OK, so there seems to be a wildfire trend in the West.  I will focus on California because that has been the area in the news.  Let's consider 4 possible causes:

1. Temperature.  The state of California has seen a 0.02C per decade, or 0.2C per century increase in temperatures.  This is a very tiny increase and well below the increase thought to have occurred in other parts of the world.  The rise has been faster over the last 10 years or so but it is unclear if this is a long-term trend or a near-term weather effect (e.g. tied to the PDO)
   
2. Precipitation.   Total precipitation has decreased by ever so slightly over the last 100 years.  A half inch per century is about a 2% reduction
   
3. Forest management.  The amount of wood harvested, and thus fuel removed, from forests has dropped by 80% since the 1950s
   
4. Urbanization.  This does not necessarily increase fire acreage but it does substantially increase the probability a given fire will impinge on man-made structures.  Also, given the enormous almost exponential increase in total CA real estate value, the likely cost of fires of the same size and intensity has risen dramatically.  Much of the developed area affected by fires the last several years have been in the red and purple parts of the map that were developed most recently.  Fifty years ago they would have just burned trees (source).  More CA urbanization trends here.
   

So, what is causing the large fires?  Well, probably a lot of things.  I am a big believer that changes in outputs from complex systems can have complex causes (which is why I think the whole meme that "CO2 is the Earth's thermostat" is an embarrassing joke).  But given that over the last 50 years temperatures have risen by a fraction of a degree, precipitation has dropped by a fraction of an inch, but fuel removal has dropped by 80% and urbanization has skyrocketed, it is really hard for me to pin all or even most of the blame on manmade CO2.

Postscript:  One other point -- California is less than 0.1% of the total land area of the Earth.  I have a hard time extrapolating global climate trends from a few big events in 1/1000th of the world.

Postscript #2:  I missed this, that hotbed of climate denial called Mother Jones had an article a year ago blaming California fires on forest management policy, specifically preventing lots of little fires leading to one big fire.

I confess that historically, I have always had a bit of disdain for folks who say they are single issue voters.  "Really?" I would ask, "You are going to ignore everything else going on and only vote based on X?"  I thought it was a narrow-minded and shallow way to vote.

My apologies.  I may have become a single issue voter myself.  Here is why:

Two years ago, when the Republicans manage to elect Trump, I was sure I was going to vote straight-ticket Democrat in reaction.  I find Trump's entire style distasteful in the extreme.  And while I think there has been some good news on the regulatory front in various Departments under him, on his signature issues of immigration and trade I am 100% opposed to his goals and his approach.  And while I have always believed Trump is probably a social liberal himself, he has a lot of advisors and cabinet members who are pretty hard-core opposed to a variety of freedoms, from gay marriage to marijuana use.

But that was two years ago, before the Democrats decided that their future was in a hard left turn into Marxism.   I am not sure how a serious person can really entertain socialism  given its pathetic history, but it seems to be a product of several cardinal sins of the modern generation (e.g. ignorance of history, evaluating policy based on its intentions rather than its logical consequences, and categorizing all perceived problems as resulting from white male European hetereosexual priviledge).  At first I thought perhaps people were just using "democratic socialism" as a synonym for more redistributive taxes and greater welfare spending within an otherwise capitalist society.  But over time I see proposals like one in Congress with fully 100+ Democratic sponsors calling for banning health care companies of all sorts from making a profit.  This is straight-on socialism and ignorant in the extreme of any consequences beyond good intentions.  By the way, I actually don't think we will end up with socialism under the Democrats but a form of European-style corporatism.  This will mean that large companies like Google and Amazon with political influence will be ok, maybe even better.  But small companies like mine with no hope of political access will get hammered.

So here is my voting problem.  Republicans suck on many issues -- gay rights, drug law liberalization, immigration, trade -- that I am extremely passionate about (I briefly ran an Arizona initiative to legalize gay marriage) but that don't directly affect me.  Yes, they affect many of my friends -- I have friends with potential immigration issues, I have friends with businesses getting hammered by tariffs, I have friends who are gay and married, I have friends that smoke rope and would rather not go to jail for it -- but not me directly.  On the other hand, Democrats suck on most business regulatory issues, trying in the near term to turn the US into California and in the long-term into Venezuela.  These are issues that DO affect me directly and greatly as a business owner.   Already I have had to red line states such as California, Oregon, Illinois, New York, and Rhode Island where I formerly did business but backed out because the business climate was impossible.  If this spreads to more states, I will be wiped out.

All of this is being made worse as both parties have started to get worse in the areas where they were traditionally more sensible.  Republicans have abandoned whatever free market credentials they had by pursuing trade protectionism and increased restrictions on companies trying to hire foreign workers.  Democrats are in the process of turning against free speech and have started sticking their nose in the bedroom (for example, by shifting the discussion of sex work to "trafficking," Republicans have successfully gotten Democrats to turn against a number of sorts of sexual freedom).

For years I have voted against my personal interests in elections, because my interests did not seem as weighty as other issues in play.  Folks are being denied basic civil rights, so am I really going to vote for the folks enabling that just to avoid (admittedly costly and loony) California meal break laws to be applied in Arizona? Now, though, I am starting to rethink this position.  In part because threats to businesses like me are more existential, and part because I am exhausted spending time defending other people's rights who in turn actively work to take away mine.  For certain offices like sheriff, that don't affect my business, I will still be voting as I always have -- which person is least likely to harass the sh*t out of certain marginalized groups.  But for others, and particularly the national offices, I am thinking about voting a straight "it's all about me" ticket (I am reminded, ironically, of the old "Me, Al Franken" SNL news bit he used to do.)

By the way, you might ask, "Coyote, you are a libertarian, why not just vote for the Libertarian candidate."  Good question.  Well, it turns out that the Arizona state legislature changed the rules for third parties explicitly to get the libertarian party off the ballot and prevent libertarians from "taking" votes from Republicans.  Seriously, they were not even subtle about it.  Instead of having to get a certain percentage of libertarians to sign a petition to get on the ballot, libertarian candidates now have to get a certain percentage of all independents to sign a petitions to get on the ballot.  This is an very high bar and one that most libertarians could not clear this year (cynically, somehow the rules allowed green candidates to get on easier as Republicans want them on the ballot to "steal" votes from Democrats.)  This is the #1 reason I may not vote tomorrow at all -- I cannot vote for our Marxist Democratic candidate for Senator, but I refuse to be forced to vote for the Republican.  Ugh.

For years I have been mocking attempts to "prove" negative climate trends from a single data point. Too often a single event (e.g. strong hurricane landfall) is treated as "proof" of a trend, though how anyone who styles themself as "scientific" can claim a trend from a single data point is beyond me.  Every time someone claims a trend in, say, hurricane strength or drought or crop yields, I never can see any trend in the actual archived data for those phenomena.

So I am soliciting real medium and long-term trend data that points to some sort of negative climate trend.  To save folks time, I know of and have the data for several already:

• Increasing worldwide average temperatures, as measured both on the ground and in the lower troposphere by satellites
• Increasing number of record high nighttime low temperatures (yes, I know, this is always confusing)
• Arctic (but not Antarctic) sea ice extent, at least over the last 50 years
• US heavy rainfall events
• Sea level rise

Note that at this point I do not care if the trend is natural or manmade or if you can really specify a difference (which I would argue you likely cannot).  For example the sea level rise trend of 2-3mm a year goes all the way back to before 1850, and thus is hard to ascribe totally to man-made CO2 which has mostly been produced in the latter half of the 20th century.

Here are some rules:

• Must have a link to original data source or at least the original chart source (some groups are terrible about archiving the actual data), which can be a study or a group that actively measures the phenomenon.
• It can't just be for a limited geography.  North Carolina is too small.  The Antarctic Peninsula is too small.  The US is really too small but I will accept it because the US temperature data is some of the most complete in the world.  But don't send me a limited geography when the same data is available for a larger geography (ie only hurricanes in the Indian Ocean when we have hurricane data for the whole globe).
• It needs to be for as long of a time period as possible, and if you cut off early or late data there has to be a reason.  large changes in measurement approach can be a valid reason for leaving out data -- for example, small tornadoes before the advent of doppler radar and moder tornado tracking are likely undercounted.  Ditto hurricanes.
• It can't be based on a model.  It has to be actual readings, not model estimates.  Have a care on this -- many pieces of historical data that are presented as actual measurements are actually model results.
• It needs to be a weather or climate metric.  If you want, you can send me potentially derivative variables and I might present these in another section, but they tend to be suspect because the causality extends beyond climate.  An example of this is forest fire acreage burned, which can relate to climate but also can relate to forest management, forest health and insect threats, and firefighting philosophy as well.  Other similar metrics include crop yields, disease rates, refugees, wars, and a zillion other things that get attributed in some study to climate change.

Anything that passes these rules will get posted, though I reserve the right to comment.

Update:  Comments section is OK, but email is better.  Click the contact link up at the top.

The media will breathlessly promote stories about any weather event in tail of the distribution curve.  I have written many times that this creates a false impression that these events are becoming more common.  Another element of this selection bias is what gets left out.  Does anyone doubt that if we were having a record-heavy tornado season, this would be leading every newscast?  If but if a record-heavy year is newsworthy, shouldn't a record-light year be newsworthy as well?  Apparently not:

source

Which reminds me of this chart Kevin Drum had the other day as "proof" of man-made climate change

I am not going to bother to go to their data source and pick it apart, though my guess is that I could.  But without even looking at the data sources I know this is garbage.  Think about places where there are large natural disasters in the US -- two places that come to mind are California fires and coastal hurricanes.  Do you really think that the total property value in California or on the US coastline has grown only at inflation?  You not only have real estate price increases, but you have the value of new construction.  The combination of these two is WAY over the 2-3% inflation rate.  This effect is magnified by the nature of the metric, which is not total losses but losses over some threshold.  This sort of threshold metric is easy to game, and says nothing for the total losses which would be a better measurement.

By the way, I am wondering how he automatically blames all of these natural disasters on manmade climate change.  Take the most recent, disastrous fires that hit the Redding, California area this year.  That fire started on BLM (federal) land.  When it was small, California State Fire (CalFire) personnel showed up to put it out.  The BLM told them to go away.  The chance to put the fire out when it was small was lost.  How do you blame a fire that was really due to moronic intergovernmental rivalry and bad forest management policy on climate change?

I won't repeat the charts but this post has charts on many extreme weather events and shows that, with the exception of large rainfall events, there is no trend in any of them.

This is the, uh, whateverth installment in a series on using your common sense to fact check data, even when the data is tantalizingly useful for the point one is trying to make.

For the last decade or so, global warming activists have used major fires as further "proof" that there is a global warming trend.  Often these analyses are flawed, for a variety of reasons that will be familiar to readers, e.g.

• A single bad fire is just one data point and does not prove a trend, you need a series of data to prove a trend
• There is no upward trend in US acreage in fires over the last 10 years, but there is in the last 20 years, which gives lots of nice opportunities for cherry-picking on both sides
• Acres burned is a TERRIBLE measure of global warming, because it is trying to draw global trends from a tiny fraction of the world land mass (western US); and because it is dependent on many non-climate variables such as forest management policies and firefighting policy.
• The better more direct metric of possible warming harm is drought, such as the Palmer drought severity index, which shows no trend (click to enlarge below)

• An even better metric, of course, is that there IS an actual upward trend in temperatures.  There is not, however, much of an upward trend in bad weather like drought, hurricanes, or tornadoes.  In this context fire is a third order variable (temp--->drought---> fire) which makes it a bad proxy, particularly when the first order variable is telling the tale.

AAAAaaaand then, there is this chart, much loved by skeptics, for long-term US fire history:

I am pretty sure that I have avoided ever using this piece of skeptic catnip (though I could be wrong, I can have moments of weakness).  The reason is that nothing about this chart passes the smell test.  While it is true that the 1930's were super hot and dry, likely hotter in the US than it has been this decade, there is absolutely no reason to believe the entire period of 1926-1952 were so much higher than today.  Was there a different fire management policy (e.g. did they just let all fires burn themselves out)?  Was there a change in how the data was recorded?

Here is my rule of thumb -- when you see a discontinuity like this (e.g. before and after 1955) you better have a good explanation and understanding of the discontinuity.  This is not just to be a good person and be true to good scientific process (though we all should) but also from the practical and selfish desire to avoid having someone come along who DOES know why the discontinuity exists and embarrass you for your naivete.

I have never trusted this chart, because I have not really understood it.  This week, the Antiplanner (who before he focused on transit focused most of his writing on the Forest Service and forest policy) has an explanation.

The story begins in 1908, when Congress passed the Forest Fires Emergency Funds Act, authorizing the Forest Service to use whatever funds were available from any part of its budget to put out wildfires, with the promise that Congress would reimburse those funds. As far as I know, this is the only time any democratically elected government has given a blank check to any government agency; even in wartime, the Defense Department has to live within a budget set by Congress.

This law was tested just two years later with the Big Burn of 1910, which killed 87 people as it burned 3 million acres in the northern Rocky Mountains. Congress reimbursed the funds the Forest Service spent trying (with little success) to put out the fires, but — more important — a whole generation of Forest Service leaders learned from this fire that all forest fires were bad....

This led to a conflict over the science of fire that is well documented in a 1962 book titled Fire and Water: Scientific Heresy in the Forest Service. Owners of southern pine forests believed that they needed to burn the underbrush in their forests every few years or the brush would build up, creating the fuels for uncontrollable wildfires. But the mulish Forest Service insisted that all fires were bad, so it refused to fund fire protection districts in any state that allowed prescribed burning.

The Forest Service’s stubborn attitude may have come about because most national forests were in the West, where fuel build-up was slower and in many forests didn’t lead to serious wildfire problems. But it was also a public relations problem: after convincing Congress that fire was so threatening that it deserved a blank check, the Forest Service didn’t want to dilute the message by setting fires itself.

When a state refused to ban prescribed fire, the Forest Service responded by counting all fires in that state, prescribed or wild, as wildfires. Many southern landowners believed they needed to burn their forests every four or five years, so perhaps 20 percent of forests would be burned each year, compared with less than 1 percent of forests burned through actual wildfires. Thus, counting the prescribed fires greatly inflated the total number of acres burned.

The Forest Service reluctantly and with little publicity began to reverse its anti-prescribed-fire policy in the late 1930s. After the war, the agency publicly agreed to provide fire funding to states that allowed prescribed burning. As southern states joined the cooperative program one by one, the Forest Service stopped counting prescribed burns in those states as wildfires. This explains the steady decline in acres burned from about 1946 to 1956.

There were some big fires in the West in the 1930s that were not prescribed fires. I’m pretty sure that if someone made a chart like the one shown above for just the eleven contiguous western states, it would still show a lot more acres burned in real wildfires in the 1930s than any decade since — though not by as big a margin as when southern prescribed fires are counted. The above chart should not be used to show that fires were worse in the 1930s than today, however, because it is based on a lie derived from the Forest Service’s long refusal to accept the science behind prescribed burning.

There you go, the discontinuity seems to be from a change in the way the measurement is calculated.

By the way, I work closely with the Forest Service every day and mostly this partnership is rewarding.  But I can tell you that the blank check still exists for fire suppression costs and results in exactly the sort of inefficient spending that you would imagine.   Every summer, much Forest Service work comes to a halt as nearly every manager and professional gets temporarily assigned to fire -- something FS employees love because they get out of the grind of their day job and essentially get to go camping.

The news came out the other day that Porsche will stop making diesel-engine cars.  This is the beginning of the end of significant diesel car production in Europe, and is the ultimate proof that the diesel engine is a dead-end technology choice for Europeans concerned with the environment.

The story is a long one and I will leave you with some links in a moment, but the basic story flow is:

• European governments are concerned about CO2 production, want to "do something"
• European car-makers have a lead over the rest of the world in diesel technology, urge governments to choose diesel as the technology of the future, since at the time it was more efficient than gasoline engines.
• European governments, hot to "do something" and also keen to do it in a way that seems to advantage domestic producers in the high profile automobile trade, promote diesel in a number of ways (including lowering taxes on diesel fuel and diesel car purchases).
• As Europeans adopt diesel, problems emerge as air quality degrades -- diesels may be more efficient, but have a number of harmful emissions that are far worse than with gasoline engines.  There are tests and standards for these emissions but it is discovered that most manufacturers are cheating on emissions tests.
• Too late, it is realized that other technologies (electric hybrids, all electric) are pushing well past diesel in terms of efficiency.  Diesel is a dead-end in terms of CO2 reduction, and increases harmful emissions.
• Emissions tests are tightened, but it is clear manufacturers cheated because they do not have the technology to produce cars people will buy that meet the standards.  Companies like Porsche start to exit the business.

One of the best articles I have found about this history is actually at Vox, that bastion of free market economics and government non-interventionism.

The failure here is entirely predictable and is subsumed in the general criticism of "government picking winners."  As with many such failures, they boil down to information and incentives.  In terms of information, folks in government have no idea of the range of technology choices now and in the future, and how these technology choices might or might not make sense in a broad range of applications.  In terms of incentives, government officials usually have very different true incentives from their publicly stated ones (in this case CO2 reduction).  In the US, the Feds continue to support insanely stupid ethanol subsidies and mandates in part because the first Presidential primary is in corn state Iowa.  In Europe, it may well have been that officials were more ready to support diesel, which Europeans were good at, over hybrids, which Asian companies were good at, no matter what the relative merits were.

If you think that is cynical, even the folks at Vox noticed:

At the time, there were lots of different paths Europe's automakers could have taken to green itself. They could've pursued direct injection technology for gasoline vehicles, making those engines more fuel-efficient. They could've ramped up development of hybrid-electric cars, as Toyota was doing in Japan. But European companies like Peugeot and Volkswagen and BMW had already been making big investments in diesel, and they wanted a climate policy that would help those bets to pay off.

Europe's policymakers obliged. The EU agreed to a voluntary CO2 target for vehicles that was largely in line with what diesel technology could meet. As researcher Sarah Keay-Bright later noted, these standards were crafted so as not to force Europe's automakers to develop hybrids, electric vehicles, or other advanced powertrains.

The result?

Although overall pollution in Europe has gone down over time, diesel vehicle emissions remain stubbornly high. Today, Paris sometimes has smoggy days comparable to those in Beijing. London is struggling with unhealthy levels of nitrogen dioxide. Germany, Austria, and Ireland have NOx pollution well above the legal limits, with vehicles accounting for roughly 40 percent of that output.

The health toll is likely considerable. One recent study estimated that diesel pollution from cars, buses, and trucks in Britain caused 9,400 premature deaths in 2010 alone. It's difficult to pinpoint what fraction of those deaths might have been avoided if emission rules on cars had been strictly enforced all along, but that gives a sense of the stakes.

Even Vox is willing to call for some technocratic humility:

Which brings us to the third takeaway. The future is hard to predict. Diesel cars seemed like a reasonable idea in the 1990s and a disaster today. That suggests that policymakers should have a lot more humility when crafting energy policy. Maybe battery-electric cars will win out, or maybe it'll be hydrogen, or maybe it'll be something else entirely. (Heck, perhaps diesel cars that are genuinely clean could play a role in reducing CO2 emissions.) No one knows for sure.

So one approach here might be to pursue technology-neutral policies focused on preferred outcomes — say, tightly enforced standards that require lower emissions — rather than favoring specific industries and technologies just because they happen to seem promising at that moment in time.

This conundrum is likely to come up again and again. For years, governments have been laying down big bets on emerging clean energy technologies. France did it with nuclear power in the 1970s and '80s. Germany did it with wind and solar power in the 2000s, through feed-in tariffs. The United States has done it with corn ethanol in the past decade.

Done right, this sort of government support can be valuable, helping useful new energy options break into the mainstream against entrenched competition. But there's also a huge risk that governments will end up gambling on badly flawed technologies that then becomethe entrenched competition — and prove impossible to get rid of. The US arguably made that mistake with ethanol, which has had unintended ripple effects on the food supply and deforestation that are proving politically difficult to untangle. The drive for diesel looks like it belongs in that category, too. It's not a story we'd like to keep repeating.

Thus we get to my plan, which eliminates all these political interventions in favor of a revenue-neutral carbon tax.

Most of you know I agree there is man-made global warming but am skeptical the extent will be anywhere near most forecasts you see in the media.  For some reason, this earns me the title of "denier."  However, I find that the climate discussion has become boring in the extreme, and I have mostly moved on from it.  But I am still interested in analytical abuses in the media, and long-time readers will know that my favorite is the positing of a trend using but a single data point.  My example today happens to be from climate.

It starts with this tweet:

As extreme weather events become more common, we're living through "once in lifetime storms" every year. Our most immediate understanding of their severity is loss of life and damages.

— March for Science (@ScienceMarchDC) September 18, 2018

Obviously he is reacting to the recent hurricane in North Carolina, which turns out to be pretty run of the mill but the media has portrayed as some sort of armageddon.  I could have pulled roughly similar quotes from all kinds of sources.  Several networks did long pieces over the weekend claiming an upward trend in hurricanes without any trend data, but merely from the fact that one made landfall recently.  But anyone who claims be defending science should be held, I think, to a higher standard in making scientific claims.

As I asked the March for Science tweeter:  If, say, there is a trend towards more or stronger hurricanes, why does no one ever show a trend chart? They just declare the trend from one data point, like a single hurricane landfall. Every long-term hurricane & cyclonic energy trend chart I have seen is flat to down.  (This is not primarily a climate post but I will post some hurricane trend charts at the end).

There is certainly an upwards trend in the media labelling storms as "once in a lifetime" but it is doubtful that there is actually an underlying trend in storm severity. Even the slightly more meaningful term "100-year _____" is abused.

Consider a 100-year flood in North Carolina, almost certainly a once in a lifetime event for someone in that state unless they live really long.  Since North Carolina is .027% of the world's landmass, there will be, on average, 37 hundred-year floods over land areas the size of North Carolina every single year.   That's 37 once-in-a-lifetime North-Carolina-sized floods somewhere in the world every single year.  Heck, there should be 3-4 thousand-year floods of North Carolina size somewhere in the world every year -- that's three or four once in a millenium floods!  And this same math applies to 100-year heat waves, droughts, snow storms -- you name it.

We can learn a couple of things from this.  First, living through "once in a lifetime" storms every year, somewhere in the world, is not abnormal -- it is expected.  Second, one can see how choices in media coverage could drive an apparent trend.  If the media covered maybe 3 or 4 of these 37 floods when I was young, but covers every one today, it will appear that there is a trend since I hear so much more about them.  But in fact, nothing will have changed except the media.  I will remind you what I wrote on this topic waaaay back in 2012.

Let's take a step back to 2001 and the "Summer of the Shark." The media hysteria began in early July, when a young boy was bitten by a shark on a beach in Florida. Subsequent attacks received breathless media coverage, up to and including near-nightly footage from TV helicopters of swimming sharks. Until the 9/11 attacks, sharks were the third biggest story of the year as measured by the time dedicated to it on the three major broadcast networks' news shows.

Through this coverage, Americans were left with a strong impression that something unusual was happening -- that an unprecedented number of shark attacks were occurring in that year, and the media dedicated endless coverage to speculation by various "experts" as to the cause of this sharp increase in attacks.

Except there was one problem -- there was no sharp increase in attacks.  In the year 2001, five people died in 76 shark attacks.  However, just a year earlier, 12 people had died in 85 attacks.  The data showed that 2001 actually was  a down year for shark attacks.

Once you start looking for this type of thing, the extrapolation of a trend from at most one data point, you will see it everywhere.

For those still hanging around to the end, here are a couple of actual trend charts on hurricanes (the adjusted line attempts to correct for the fact that earlier eras with no satellites or radar tended to miss some hurricanes) (source at NOAA):

Below are two charts that look beyond just the Atlantic at global cyclones, both from this source.  The first is frequency:

The second looks at accumulated cyclonic energy, which is a sort of time integral of the energy in all active cyclonic storms around the world

Later in the tweetstorm, the same tweeter mentioned as a fact, again without data, "Climate change is increasing drought frequency, impacting everything from agriculture to health. Some studies suggest the consequences of droughts include increased violence and war."  There has been no upward trend in US droughts (negative is more drought-y.

Finally, in the spirit of full disclosure, of all the zillions of things (not directly related to temperature) in weather effects that are blamed on global warming, this is the only one I have found that shows an upward trend recently and could logically be attributed to warming.  Whether this is related to warming or independent or a data measurement issue is (if folks were honest) not well understood

While I am not deeply worried about man-made climate change, I am appalled at all the absolutely stupid, counter-productive things the government has implemented in the name of climate change, all of which have costly distorting effects on the economy while doing extremely little to affect man-made greenhouse gas production.  For example:

• Corn ethanol mandates and subsidies, which study after study have shown to have zero net effect on CO2 emissions, and which likely still exist only because the first Presidential primary is in Iowa.  Even Koch Industries, who is one of the largest beneficiaries of this corporate welfare, has called for their abolition
• Electric car subsidies, 90% of which go to the wealthy to help subsidize their virtue signalling, and which require more fossil fuels to power than an unsubsidized Prius or even than a SUV.
• Wind subsidies, which are promoting the stupidist form for power ever, whose unpredictabilty means fossil fuel plants still have to be kept running on hot backup and whose blades are the single largest threat to endangered bird species.
• Bad government technology bets like the massive public subsidies of failed Solyndra

Even when government programs do likely have an impact of CO2, they are seldom managed intelligently.  For example, the government subsidizes solar panel installations, presumably to reduce their cost to consumers, but then imposes duties on imported panels to raise their price (indicating that the program has become more of a crony subsidy for US solar panel makers, which is typical of these types of government interventions).  Obama's coal power plan, also known as his war on coal, will certainly reduce some CO2 from electricity generation but at a very high cost to consumers and industries.  Steps like this are taken without any idea of whether this is the lowest cost approach to reducing CO2 production -- likely it is not given the arbitrary aspects of the program.

These policy mess is also an opportunity -- it affords us the ability to substantially reduce CO2 production at almost no cost.

The Plan

Point 1: Impose a Federal carbon tax on fuel.

I am open to a range of actual tax amounts, as long as point #2 below is also part of the plan.  Something that prices CO2 between $25 and $45 a ton seems to match the mainstream estimates of the social costs of CO2.  I think methane's greenhouse effects are exaggerated, but one could make an adjustment to the natural gas tax numbers to take into account methane leakage in the production chain.   I am even open to making the tax=0 on biofuels given these fuels are recycling carbon from the atmosphere.

So what is the best way to reduce CO2 -- by substituting gas for coal?   By more conservation?  By solar, or wind?  With biofuels?  With a carbon tax, we don't have to figure it out or have politicians picking winners.  This is why a Pigovian tax on carbon in fuels is going to be the most efficient possible way to reduce CO2 production.   Different approaches will be tested in the marketplace.  Cap and trade could theoretically do the same thing, but while this worked well in some niche markets (like SO2 emissions), it has not worked at all in European markets for CO2.   There has just been too many opportunities for cronyism, too much weird accounting for things like offsets that is hard to do well, and too much temptation to pick winners and losers.

When I first crafted early drafts of this plan several years ago, I had assumed that Progressives championed a carbon tax for the reasons I listed above, ie that it is the most efficient means to allow markets to reduce emissions.  However, the referendum a couple of years ago in Washington State demonstrated that many Progressives may not understand this at all.  You can read a lot more about this debate here.  I fail the ideological Turing test on this one, because I don't know if the Progressives who were strongly for CO2 reduction but opposed the Washington State carbon tax did so because they did not understand economics or because they cared less about global warming than funding other Progressive causes.

Point 2:  Offset 100% of carbon tax proceeds against the payroll tax

Yes, there are likely many politicians, given their incentives, that would love a big new pool of money they could use to send largess, from more health care spending to more aircraft carriers, to their favored constituent groups.  But we simply are not going to get Conservatives (and libertarians) on board for a net tax increase, particularly one to address an issue folks on the Right may not agree is an issue at all.  So our plan will use carbon tax revenues to reduce other Federal taxes.

I think the best choice would be to reduce the payroll tax.  Why?  Because, the carbon tax will necessarily be regressive (as are most consumption taxes) and the most regressive other major Federal tax we have are payroll taxes.  Offsetting income taxes would likely be a non-starter on the Left, as no matter how one structures the tax reduction the rich would get most of it since they pay most of the income taxes.

There is another benefit of reducing the payroll tax -- it would mean that we are replacing a consumption tax on labor with a consumption tax on fuel. It is always dangerous to make gut-feel assessments of complex systems like the economy, but my sense is that this swap might even have net benefits for the economy -- so much so that we might want to do it even if there was no such thing as greenhouse gas warming.  In theory, labor and fuel are economically equivalent in that they are both production raw materials. But in practice, they are treated entirely differently by the public.   Few people care about the full productive employment of our underground fuel reserves, but nearly everybody cares about the full productive employment of our labor force.   After all, for most people, the primary single metric of economic health is the unemployment rate.  So replacing a disincentive to hire with a disincentive to use fuel could well be popular.

Point 3:  Eliminate all the stupid stuff

Oddly enough, this might be the hardest part politically because every subsidy, no matter how idiotic, has a hard core of beneficiaries who will defend it to the death -- this the the concentrated benefits, dispersed cost phenomena that makes it hard to change many government programs.  But never-the-less I propose that we eliminate all the current Federal subsidies, mandates, and prohibitions that have been justified by climate change. Ethanol rules and mandates, solar subsidies, wind subsidies, EV subsidies, targeted technology investments, coal plant bans, pipeline bans, drilling bans -- it all should go.  The carbon tax does the work.

States can continue to do whatever they want -- we don't need the Feds to step on states any more than they do already, and I continue to like the 50 state laboratory concept.  If California wants to continue to subsidize wind generators, let them do it.  That is between the state and its taxpayers (and for those who think the California legislature is crazy or that the Texas legislature is in thrall to oil companies, that is what U-Haul is for).

Point 4:  Revamp our nuclear regulatory regime

As much as alternative energy enthusiasts would like to deny it, the world needs reliable, 24-hour baseload power -- and wind and solar are not going to do it (without a change in storage technology of at least 2 orders of magnitude in cost).  The only carbon-free baseload power technology that is currently viable is nuclear.

I will observe that nuclear power suffers under some of the same problems as commercial space flight -- the government helped force the technology faster than it might have grown organically on its own, which paradoxically has slowed its long-term development.  Early nuclear power probably was not ready for prime time, and the hangover from problems and perceptions of this era have made it hard to proceed even when better technologies now exist.   We are at least 2 generations of technology past what is in most US nuclear plants.  Small air-cooled thorium reactors and other technologies exist that could provide reliable safe power for over 100 years.  I am not an expert on nuclear regulation, but it strikes me that a regime similar to aircraft safety, where a few designs are approved and used over and over makes sense.  France, which has the strongest nuclear base in the world, followed this strategy.  Using thorium could also have the advantage of making the technology more exportable, since its utility in weapons production would be limited.

Point 5: Help clean up Chinese, and Asian, coal production

One of the hard parts about fighting CO2 emissions, vs. all the other emissions we have tackled in the past (NOx, SOx, soot/particulates, unburned hydrocarbons, etc), is that we simply don't know how to combust fossil fuels without creating CO2 -- CO2 is inherent to the base chemical reaction of the combustion.  But we do know how to burn coal without tons of particulates and smog and acid rain -- and we know how to do it economically enough to support a growing, prosperous modern economy.

In my mind it is utterly pointless to ask China to limit their CO2 growth.  China has seen the miracle over the last 30 years of having almost a billion people exit poverty.  This is an event unprecedented in human history, and they have achieved it in part by burning every molecule of fossil fuels they can get their hands on, and they are unlikely to accept limitations on fossil fuel consumption that will derail this economic progress.  But I think it is reasonable to help China stop making their air unbreathable, a goal that is entirely compatible with continued economic growth.  In 20 years, when we have figured out and started to build some modern nuclear designs, I am sure the Chinese will be happy to copy these and start working on their CO2 output, but for now their Maslov hierarchy of needs should point more towards breathable air.

As a bonus, this would pay one immediate climate change benefit that likely would dwarf the near-term effect of CO2 reduction.  Right now, much of this soot from Asian coal plants lands on the ice in the Arctic and Greenland.  This black carbon changes the albedo of the ice, causing it to reflect less sunlight and absorb more heat.  The net effect is more melting ice and higher Arctic temperatures.  A lot of folks, including myself, think that the recent melting of Arctic sea ice and rising Arctic temperatures is more attributable to Asian black carbon pollution than to CO2 and greenhouse gas warming (particularly since similar warming and sea ice melting is not seen in the Antarctic, where there is not a problem with soot pollution).

Final Thoughts

At its core, this is a very low cost, even negative cost, climate insurance policy.  I am convinced this policy, taken as a whole, would still make sense even if CO2 turns out to be as harmless as nitrogen.  The carbon tax combined with a market economy does the work of identifying the most efficient ways to reduce CO2 production.   The economy benefits from the removal of a myriad of distortions and crony give-aways, while also potentially benefiting from the replacement of a consumption tax on labor with a consumption tax on fuel.  The near-term effect on CO2 is small (since the US is only a small part of the global emissions picture), but actually larger than the near-term effect of all the haphazard current programs, and almost certainly cheaper to obtain.  As an added benefit, if you can help China with its soot problem, we could see immediate improvements in probably the most visible front of man-made climate change:  in the Arctic.

Postscript

Perhaps the hardest thing to overcome in reaching a compromise here is the tribalism of modern politics.  I believe this is  a perfectly sensible plan that even those folks who believe man-made global warming is  a total myth ( a group to which I do not belong) could sign up for.  The barrier, though, is tribal.  I consider myself to be pretty free of team politics but my first reaction when thinking about this kind of plan was, "What? We can't let those guys win.  They are totally full of sh*t.  In the past they have even threatened to throw me in jail for my opinions."  Since I first published this plan I have had very prominent skeptics contact me to criticize me for "giving in to the warmists."

This article in something called Inside Climate News seems to be typical of many I have seen this year:  Because we have had much attention in the media on heat waves this year, there must be an upward trend in heat waves and that is a warning signal that man-made global warming is destroying the planet.  Typical of these articles are a couple of features

1. Declaration of a trend without any actual trend data, but just a single data point of events this year
2. Unstated implication that there must be a trend because the author can't remember another year when heat wave stories were so prevalent in the media
3. Unproven link to man-made global warming, because I guess both involve warmth.

I have no idea if well-publicized heat waves this year are a harbinger of an accelerating global warming trend.  But since we are discussing "trends" it struck me as useful to actually liven up the discussion with some actual trend data, ie data for more than one summer.  There is a real danger to extrapolating trends from volume of media coverage, as I discussed here.  If you don't want to click through, I have a funny story in the postscript.

First, our most reliable temperature trend data does not really show a spike in temperatures this summer.  Remember, a heat wave that covered the entire US would only affect 6% of the world's landmass and <2% of the world's total area (source).  You can easily see the trend upwards several tenths of a degree over the last 40 years, but it is impossible to see much unique about the last 3 months of summer.

Second, there really is no substantial upward trend in US heat wave index (from right off the EPA's web site, as are all of the following charts.  Look at the source for yourself to make sure I am not playing games).  Note that all of the following charts are through 2016 and do NOT include the recent summer but are pretty meaningful none-the-less.

Third, in most of the country, there is actually a downward trend rather than upward trend in extreme heat days.

Pretty much everyone agrees, skeptics included, that the world and the US has warmed.  So why are extreme heat days down in many locations, and certain down from the 1930's?  This defies our intuition.  The explanation is in part due to a feature of global warming that is seldom explained well by the media, that much of the warming we see and as predicted in climate models is in the night.  We are seeing some increase in hot daytime highs, but really not at an unprecedented level over the last century.  BUT, we see MUCH more of a trend in hot daily lows, which basically means warming evenings.

I spoke at Amherst College a while back and here was their temperature trends, broken up between daily highs and nighttime lows.  All of Amherst's temperature trend since 1950 has not been in increased daytime highs but higher nighttime lows.  This is a pattern you see repeated over and over at nearly every temperature station.

This is why I consider media reports of heat waves, at least of the scope we have seen to date, absolutely irrelevant to "proving" the world is warming.

Postscript:  Here is the story everyone should keep in mind when extrapolating from media coverage volume to underlying trends:

let's take a step back to 2001 and the "Summer of the Shark." The media hysteria began in early July, when a young boy was bitten by a shark on a beach in Florida. Subsequent attacks received breathless media coverage, up to and including near-nightly footage from TV helicopters of swimming sharks. Until the 9/11 attacks, sharks were the third biggest story of the year as measured by the time dedicated to it on the three major broadcast networks' news shows.

Through this coverage, Americans were left with a strong impression that something unusual was happening -- that an unprecedented number of shark attacks were occurring in that year, and the media dedicated endless coverage to speculation by various "experts" as to the cause of this sharp increase in attacks.

Except there was one problem -- there was no sharp increase in attacks. In the year 2001, five people died in 76 shark attacks. However, just a year earlier, 12 people had died in 85 attacks. The data showed that 2001 actually was a down year for shark attacks.

Update:  I am not really an active participant in the climate scene any more, particularly when positions hardened and it was impossible to really have an interesting discussion any more.  The implicit plea in this post goes beyond climate -- if you are claiming a trend, show me the trend data.  I can be convinced.  There is clear trend data that temperatures are increasing so I believe there is an upward trend in temperatures.  Show me the same for droughts or heat waves or hurricanes and I will believe the trend about those as well, but so often the actual data never matches the arm-waving in these media sources.

John Hinderaker of Powerline writes approvingly of Trump's apparent trade deal with Mexico.  First, he quotes the New York Times celebrating the higher taxes:

Under the changes agreed to by Mexico and the United States, car companies would be required to manufacture at least 75 percent of an automobile’s value in North America under the new rules, up from 62.5 percent, to qualify for Nafta’s zero tariffs. They will also be required to use more local steel, aluminum and auto parts, and have 40 to 45 percent of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada and a win for labor unions, which have been among Nafta’s biggest critics.

I am not sure how narrowing the scope of products subject to lower taxes is a "boon" to this country, though I suppose labor unions might be happy and one is suspicious that this is sufficient reason for the NYT to support it.  My suspicion is that these numbers are incredibly carefully tailored by Ford and GM lobbyists to hit a couple of their competitors while missing themselves -- this has all the fingerprints of a classic crony deal that benefits very few powerful groups to the detriment of most consumers.

So the NYT can be expected to cheer for bad crony economics that helps a few unions, but what about Conservatives, who are supposed to understand markets and trade.  Hinderaker writes:

So, from 62.5% to 75% to qualify for zero tariffs. Not exactly radical, but positive.

So broadening a US government tax on US consumers is "positive."  Powerline in the past has rightfully chided Paul Krugman for abandoning his understanding of economics in favor of cheerleading the Democratic team.  Now Powerline is doing the same for Trump.

Tyler Cowen asks, "Why isn’t inflation higher?"  I have wondered that for a while, but monetary policy and related topics in macro are one of the areas I admit that I simply do not understand so I don't write about it.  So rather than offering any hypotheses to Cowen's question, I will ask my own:

1. Is it possible that inflation exists but it shows up mainly in financial assets (stocks, bonds, perhaps real estate) that don't really factor into standard inflation metrics?  Every step the Fed has taken, as well as other western central banks, appears to me to be crafted to pump money into securities markets rather than into main street.  Certainly we have seen a huge inflation in the value of financial assets and real estate over the past several years.
2. Expansion of the economy above the rate of productivity improvement should drive inflation, unless there was a lot of excess capacity to soak up.   That may have been partly the case in the US since 2008, but surely that is gone.  Does the still greatly underutilized Chinese and Indian labor force act as excess capacity that prevents inflation from heating up here?  If so, might Trump's trade restrictions interfere with this going forward?

UPDATE:  I had the wrong link.  The call is Wednesday but at 2:30 Pacific after the market closes, which makes more sense.  Like many companies, Tesla likes to dump the quarterly financials, dozens of pages in 8 point font, just seconds before the conference call.

If you are sitting in your office this week and need to be entertained in a way that looks like you are working, consider the Tesla investor conference call Wednesday at 2:30 PDT.  I can't guarantee anything but past conference calls have been a circus.  Normally I would expect the Tesla Board or the corporate counsel (who is Musk's divorce lawyer, lol) to bring adult supervision to the party, but so far that has not happened in any Tesla communications to date.  Expect potential discussion around:

• Tesla's immediate external capital needs, given that they are burning cash faster than you could actually physically burn it (Musk claims zero is needed but everyone else in the free world thinks its >$2 billion, with a huge part of Tesla's existing debt also expiring and needing to be rolled over soon)
• Model 3 order blacklog (this was the question in the last call that caused Musk to tell the experienced Wall Street analyst to shut up and then he switched to taking questions from a Youtube fanboy
• Model 3 production rates and quality issues
• Gross margins.  They HAVE to get higher for survival.  Particularly since Telsa has chosen to eschew traditional dealer networks so corporate bears all the cost of service and support.  This demands Tesla not only get its gross margins as high as other auto makers, they need to be higher.
• Expiration of tax subsidies -- the $6500 government tax credit for Tesla customers slowly disappears once their 200,000th EV has been sold in the US, which has happened.
• The disappearance of the $35,000 Model 3 from the web site (this is the promised car that generated a lot of the Telsa hype in the first place)
• Disappearance of all those other teased products (coupe, semi) that were released to great fanfare and have not ever been mentioned again
• ZEV credits (these are credits it gets from states like CA that other car makers have to buy to do business in those states with gasoline vehicles).  These are odd ducks as they have a lot of value but for some reasons do not show up anywhere on the balance sheet, so one doesn't know they even exist until Tesla chooses to sell them for a LOT of money.   They can flip a single quarter positive by saving these and exercising them at the same time.  Most folks see this happening in a bid to make Q3 profitable.  (By the way, anyone out there that understands by what accounting rules these valuable assets don't get put on the balance sheet are encouraged to email me the answer).
• Introduction of competitive products (Jaguar, Volvo, and pretty much everyone else soon)
• Pending lawsuits from both shareholders and whistle-blowing employees
• Implosion of SolarCity (now part of Telsa) such that new installations are on a trend line towards zero
• (unlikely but someone should really ask) Musk's silencing of critics
• (unlikely but someone should really ask) Musk's social media demeanor, including calling the Thai rescue hero a pedophile because he did not use Musk's goofy submarine

Tesla is a train wreck I cannot take my eyes off.  Unlike Theranos, which combined a product that didn't work with a screwed up management, and which operated in the dark, Tesla combines what has been a really good product with a screwed-up management, and operates in an absolute blaze of publicity.  I have never seen any stock where sentiment was so polarized between bears and fan-boy bulls (Herbalife, maybe?)

I have a personal metric of sentiment and volatility I invented but I am pretty sure has been used since before I was born.  Anyway, I look at the sum of the price of an at-the-market put and at-the-market call for the stock about 6 months out.  I then divide this combined price by the share price.  For Tesla January options, this comes to 31%.    This is really a huge number.  Take ExxonMobil, which has a lot of split sentiment right now (a historically fabulous company that keeps screwing up its quarters recently) this metric sits at 9%.

Disclosure:  I am in and out of short positions on TSLA, typically selling around 350+ (usually after Musk has honeytrapped the fan boys) and covering in the 290-300 range (usually after real news or a Musk meltdown).  This strategy has been profitable for 2 years but I think that is coming to an end.  TSLA is either going to fall more or stay high based on what it does in the 3rd quarter.