Coyote Blog

Statists believe in a kind of alchemy.  They will say that individual citizens cannot be trusted with, say, selecting their own health plan.  This must be entrusted to a government official who gained such lofty powers by ... being selected by the self-same citizens that couldn't be trusted to choose a health plan.  How is it that schlubs who cannot be trusted can be elected by the mass of schlubs who cannot be trusted, placed into a monopoly with guns and no competition, and miraculously suddenly be trusted?

As you probably know, the institution that demands ever more power because of external threats to our security and constantly bashes private companies for not being careful enough with privacy had most of its employee data  stolen by a group of Chinese hackers. After the hack was made public, the government claimed the hack was discovered due to their diligent internal security efforts.  This turns out not to be the case, and the reality is pretty damn funny:

At the time, OPM said the breach was discovered as the agency “has undertaken an aggressive effort to update its cybersecurity posture, adding numerous tools and capabilities to its networks.”

But four people familiar with the investigation said the breach was actually discovered during a mid-April sales demonstration at OPM by a Virginia company called CyTech Services, which has a networks forensics platform called CyFIR. CyTech, trying to show OPM how its cybersecurity product worked, ran a diagnostics study on OPM’s network and discovered malware was embedded on the network. Investigators believe the hackers had been in the network for a year or more.

Update:  Extra points for this one:

The breach has expedited plans by the Senate to vote on cybersecurity legislation, with Majority Leader Mitch McConnell (R., Ky.) saying Tuesday a vote now could be held in the coming days.

Mr. McConnell said he planned to use an annual defense policy bill currently on the Senate floor to advance the cybersecurity measure, which is aimed at responding to a growing prevalence of data breaches at large U.S. companies.

So the government gets breached because it is using outdated software major private companies have long-ago replaced or patched, and the reaction is to...place new demands on private companies?

We've been pretty happy with the education and experience at Amherst College but it is scary as hell to think anyone at school can ruin your kid's life by basically just pointing a finger at them.  Amherst's version of Kafka's 'The Trial".

Because we say y'all, not you guys.

Thank the stars that we don't have gendered nouns (and thus adjectives and articles) as do Spanish, Italian, and German, among others.  Beyond the extra memorization hassles (the frickin' Germans have 3 genders to remember), what would the modern American Left do with that mess?

Roger Goodell is the President of the NFL, and despite huge love for the NFL itself, Goodell is hated by many, even most, fans.  At the NFL draft, which attacts arguably the biggest fans of the NFL, Goodell gets booed every time he walks on stage.  One reason for this is the decision Goodell made a number of years ago to "police" player behavior.  Tired of bad headlines about this or that player being involved in some sort of (alleged) criminal activity, Goodell decided to crack down.  No longer was it enough that the criminal justice system had a process for punishing people who break the law, Goodell wanted the NFL to be seen to be layering on extra punishment.

I said from the very beginning that this policy was fraught with problems.  If the NFL wanted a conduct policy, it should establish simple mechanical rules tied to outcomes in the justice system.  For example, a rule that says that if convicted of a misdemeanor a player would get a standard X game suspension.   Goodell's role should be limited to correcting the inevitable unfair situation where mechanical rules lead to poor outcomes.

But no, Goodell, like many smart people, fell into the trap of thinking he was smart enough to mete out punishments himself.  This has led to a real mess.  The public compares each punishment (and non-punishment) to all other such decisions and immediately get upset about perceived inconsistencies.  Worse, having established the precedent of policing conduct, he is being pushed by various vocal constituencies to police even non-crimes, like  unwelcome speech.  On average day in sports talk radio, you are as likely to hear a discussion of Goodell's conduct rulings as you are about anything on the field.

In taking over Reddit, Ellen Pao is heading into the same technocratic trap.  She has begun to ban certain forums and types of speech on the platform, but she has not established any consistent public rules for doing so other than her own judgement.  She appears to be deleting things that offend her personally (and early mass deletions of content critical of herself personally seems a really bad way to start).  And as with Goodell, two bad things are already happening (even beyond the more fundamental Reddit user issue that she is violating a core ethic of Reddit by censoring).  First, she is being called out for lack of consistency with folks saying "how can you ban X and not Y."  And second, she is apparently already getting pushed by various constituencies to be more and more aggressive at censoring certain classes of speech.   Once she established herself as censor in chief, she became an immediate lobbying target for many, many groups, and that is going to just get worse.  Just look at how much of Goodell's time is now sucked up into personal conduct issues.

Deborah Vollmer appears to be a nightmare neighbor in this story from the Washington Post (via Maggie's Farm).  She is absolutely hell-bent on preventing her neighbor from doing anything to their house that she would not do to it.  If her neighbor's aesthetics don't match hers, she takes them to court.

“Some people may question my motives,” Vollmer said. “But what’s happening in this town, these developers, tearing down old homes. I’m standing up for my rights. . . . And then this whole thing just kind of evolved” from that...

What could possibly be driving this woman? Friend and Chevy Chase resident John Fitzgerald said that her stubborn streak has roots deep in her past. Vollmer forged her career defending the rights of those without means. And that, he said, inculcated in her a desire to protect principles until the bitter end.

What right or principle is she fighting for?  The right to micro-manage her neighbor's property.  Read the article, this woman seems to be a total nightmare, all because she wants everyone else's house to look exactly like hers.

She should move to California.  She would fit right in.  She would be a perfect candidate to sit on the California Coastal Commission, for example.

We have a sort-of similar fight brewing here in Phoenix where a few local residents were trying to prevent another resident from tearing down and rebuilding his tired old house, which happened to have been designed by Frank Lloyd Wright's studios.  I appreciate Mr. Wright's work, but also know he designed some unlivable crap.  He was an artist, experimenting, and sometimes the experiments were not great.  He was also a businessman, always short of money, and sometimes his projects did not get his full artistic attention.  In my view, this was such a house.

I have the same answer for Ms. Vollmer that I do for those Wright house enthusiasts -- if you want to control a piece of property, buy it.  If you don't have the money, encourage other people to chip in.  But if you can't get enough people who similarly value your vision for the property to fund its acquisition, don't take the shortcut of using your influence with the government to impose the cost on taxpayers, or worse, on the individual property holder.

Via Zero Hedge:

Just when we thought the absurdity that marks every single day of Obama's reign could not possibly be surpassed, we learned that 4 hours (3 hours and 47 minutes to be precise) after the US president vowed to sign a new law banning bulk data collection by the NSA (named, for purely grotesque reasons, the "USA Freedom Act"), the Obama administration asked the secret Fisa surveillance court to ignore a federal court that found bulk surveillance illegal and to once again grant the National Security Agency the power to collect the phone records of millions of Americans for six months.

Or, as the Guardian's Spencer Ackerman, who spotted this glaring page out of Josef Stalin's playbook, summarized it:

June 2, 6:03pm: Obama says he'll sign law banning bulk collection. June 2 9:50pm: DOJ asks secret court for 180 more days of bulk collection

— Spencer Ackerman (@attackerman) June 8, 2015

According to Ackerman, this latest travesty by the administration "suggests that the administration may not necessarily comply with any potential court order demanding that the collection stop."

Kevin Drum featured this really interesting Pew poll.

This is pretty amazing.  Few European citizens support their country fulfilling its NATO treaty obligations to their neighbors, perhaps because most expect the US to do it for them.

The title of this post is my alternative to Politico's headline which reads, "Barack Obama poised to hike wages for millions." What is actually happening is that Obama is proposing to raise the threshold for how much money an employee can make before he or she can be considered exempt from overtime rules (and thus exempt from filling in a time sheet).

As early as this week, the Labor Department could propose a rule that would raise the current overtime threshold — $23,660 – to as much as $52,000, extending time and a half overtime pay to millions of American workers.

The Obama Administration and its supporters (and apparently Politico, by how they wrote the headline) are smoking something if they think employers are going to react by raising salaries of current exempt employees being paid 23,660 or 30,000 or 40,000 to $52,000.  Absolutely no way.  There may be a few just under the $52,000 threshold that get a bump, but that will be a minor effect.

Everyone else is going to suddenly find themselves converted from a junior manager back to a wage earner.   Companies are not going to allow these newly minted wage earners to earn overtime, and so I suppose one good outcome is that we may see a new boost in productivity as companies find ways to automate or eliminate junior management tasks to get all these folks down to 40 hours a week.

Five years ago, I might have really been in a panic over this in my company, but fortunately our experience with Obamacare has given me confidence we'll figure it out.  With Obamacare we were facing enormous costs which we (like many service and retail companies) managed to eliminate by converting almost all of our full-time employees to part-time.   Compared to that effort, figuring out how to get all of our managers down to 40 hours seems like child's play.

As usual, most of the costs of this regulation will be born by workers.  As with other minimum wage-type laws, some will be better off, actually getting the "raise" promised by Politico, while some will be worse off, dropped to straight 40-hour work which does not pay as well, or out of work entirely.

However, this law has an even bigger impact-- it changes the relationship between the worker and their employer.  There are important differences between hourly and salaried work in the relationship with employers.  Some are psychological -- for better or worse, management things of salaried workers differently than hourly workers.  And some are real -- salaried workers can try to demonstrate that they are worthy of promotion by working extra hours and taking on extra tasks, things that hourly workers really can't do.

As a final note, I have to give the Coyote Academic Arrogance Award to Daniel Hamermesh of UT Austin who is quoted as follows:

“It’s hard to believe that somebody making $30,000 is a supervisor,”

He knows this, how?  We have supervisors who do a fabulous job for $2500 a month and are happy to be making that.

But that is actually not the Hamermesh statement that I would rank most ignorant of reality.  This is:

But Hamermesh said that to whatever extent employers reduced hours to avoid overtime the result would be more job creation, not less, since someone else must [be] hired to perform that work. Jared Bernstein, an economic adviser to Vice President Joe Biden during President Barack Obama’s first term, added that for many workers reduced hours would be a plus: “Their salary is the same but they have more time with their families.”

Are these guys for real?  Employers are not going to give employees the same salary for fewer hours.  They are going to try pay them less if they are getting fewer hours of work (of course their ability to do so depends on the labor supply).  But the change is worse than this.  They are not only getting fewer hours, but they are getting a different person and a different relationship.  Before, say for a junior manager job, employers could get go-getters who worked 60 hours a week to impress management with their diligence and dedication, signaling they were ready for promotion.  Now, employers will get time-clock punchers.

This is absolute madness.  

The last time we visited the formerly great state of Connecticut, Democrats were preparing to raise taxes again after promising not to when they ran for re-election in 2014. This week they did the deed, and the politicians seem shocked that the business community is in revolt.

The blue-state paragon’s two-year budget of $40.3 billion includes a $1.5 billion net increase in taxes and fees. The top marginal individual tax rate rises to 6.99% from 6.7%. But the biggest blow is making permanent a 20% surtax on a company’s annual tax liability—a tax on a tax—and for the first time taxing Connecticut companies on their world-wide income, rather than what they earn in the state.

The high marginal rates are bad enough, but it is an astonishing overreach to tax corporations headquartered in your state based on their worldwide income.  This leads to a huge double taxation problem for any company dumb enough to stay.   Paraphrasing Keith Richards, that is the equivalent of being told to leave the state.

I just encountered my second major piece of software used by Bank of America for my business accounts that will only work with Internet Explorer and most definitely will not work with Chrome.  Their ACH/Treasury/Direct Payments system has to run on Internet Explorer (only) and now I find their secure email system that sends me all my merchant account notices does not work on Chrome and only works on IE.

I am just waiting for the moment that a Bank of America tech support person tells me I have to use Netscape.

The WSJ, like many other media sites, has a headline today that says "U.S. Suspects China in Huge Data Breach of Government Computers."  Then, when you read the article, it says "Chinese hackers" or "hackers in China".

There is an enormous difference between saying China is responsible and saying hackers in China are responsible.  The first would be a very serious affair, implying the Chinese government was engaged in hacking of US Government records.  The latter is virtually meaningless.   It simply means that the hackers happened to be Chinese.  They could have easily been Russian or American.

The media claims to be largely pacifist, but has anyone else noticed that they sure seem to be trying to stir up Americans in some sort of anti-China fever of late?

Repeat after me:  Y=C+I+G+X-M is an accounting rule.  It does not explain anything about the economy.  It is as useful to telling us anything interesting about the economy as the equation biomass=plants+animals+bacteria tells us anything about the ecosystem.

Which is why this kind of article in the press makes me crazy (emphasis added)

The U.S. trade gap narrowed in April as the effects of a West Coast port slowdown faded, easing one of the biggest drags on economic growth during the opening months of the year....

This year’s volatile import and export figures worked out to an overall drag on the economy in the opening months of 2015....

A surge in imports and falling exports subtracted 1.9 percentage points from the headline figure. As measured by GDP, exports are a positive for economic growth, while imports are a negative...

“The huge drag on GDP from trade in Q1 will almost certainly not be repeated in Q2,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics.

Here is the logic.  The GDP is calculated by adding Consumer spending + Industrial spending + Government spending + eXports and then subtracting iMports.  Because imports are subtracted in the GDP equation, they look to the layman like they shrink the economy.  How do we grow the economy?  Why, let's reduce that number that is subtracted!  But this is wrong.  Totally wrong.   I have tried many times to explain this, but let me see if I can work by analogy.

Let's say we wanted an equation to count the amount of clothing we owned.  To make things simple, let's say we are only concerned with the total of Shirts, Pants, and Underwear.   Most of our clothes are in the closet, so we say our clothes are equal to the S+P+U we count in our closet.  But wait, we may have Loaned clothes to other people.  Those are not in our closet but should count.  So now clothes = S+P+U+L.  But we may also have borrowed clothes.  Some of those clothes we counted in the closet may be Borrowed and thus not actually ours, so we need to back these out.  Our final equation is clothes = S+P+U+L-B.  Look familiar?

Let's go further.  Let's say that we want to increase our number of clothes.  We want wardrobe growth!  Well, it looks like those borrowed clothes are a "drag" on our wardrobe size.  If we get rid of the borrowed clothes, that negative B term will get smaller and our wardrobe has to get larger, right?

Wrong.  Remember, like the GDP equation, our wardrobe size equation is just an accounting identity.  The negative B term was put in to account for the fact that some of the clothes we counted in S+P+U in the closet were not actually ours.  But if we decrease B, say by returning our friend's shirt, the S term will go down by the exact same amount.  Sure, B goes down, but so do the number of shirts we count in the closet.  So focusing on the B term gets us nowhere.

But it is actually worse than that, because focusing on reducing B makes us worse off.  If B rises, our wardrobe is no larger, but we get the use of all of those other pieces of clothing.  Our owned wardrobe may not be any larger but we get access to more choices and clothing possibilities.  When we drive B down to zero, our wardrobe is no larger and we are worse off with fewer choices.

Returning to the economy, I don't want to say that it's impossible for increases in imports to drag the economy.  For example, if oil prices rise, the imports number measured in dollars will likely rise, and the economy will likely be worse off as we have to give up buying other things to continue to buy the oil we need.  But, absent major price changes, drops in exports more likely just mirror drops in C+I+G.  If consumers are hurting, they spend less on everything, including imported goods.   At the end of the day, none of these numbers (Mr. Keynes, are you listening?) are independent variables.

Postscript:  By the way, the trade deficit is a mirage in another way - it looks at only a subset of trans-national financial transactions.   The flow of dollars is (mostly) always in balance.  So if we are net sending dollars overseas when trading hard goods, the dollars come back in foreign purchases of investments and financial goods (which aren't included in the trade numbers).  Saying we have a trade deficit is the same as saying we have a net investment surplus.  For you physical scientists out there, measuring the trade deficit is like drawing your box around the process wrong such that you miss some of the forces.

If you really want to know our trade problem, it's not the trade deficit per se, but the fact that the funds coming back via investments are largely invested in value-destroying government debt rather than productive investments.

The brief time I led the Equal Marriage Arizona efforts to amend the Constitution to allow gay marriage was a real eye-opener for me.  I expected that since I was not a member of the largest gay activist groups, I might have to work to build up trust.  But it turned out, trust was not an issue.  I seldom had anyone question my sincerity.  However, I quickly found all the major gay rights groups (excepting the ACLU, bless their hearts) not just neutral or skeptical but actively opposing our effort.  Several people in these organizations dragged me in the figurative back room and explained that the leadership of their group would never accept a non-Democrat getting credit for such a success.  And one member of prominent organization (hint:  has same initials as Hillary Rodham Clinton) told me that their internal position was that they did not want gay marriage to come to Arizona until after 2016 because they wanted Hillary to be able to run on the issue and hoped to flip AZ blue in 2016.

So, a couple of years ago I would never have believed this story, but now it seems all too familiar

Just this week, legislators introduced a bill that would encourage drug companies to apply to sell contraceptives without a prescription.

But if Republican Sens. Cory Gardner of Colorado and Kelly Ayotte of New Hampshire, along with four other GOP senators, were expecting flowers from Planned Parenthood and others for their bill, the Allowing Greater Access to Safe and Effective Contraception Act, they should brace for disappointment. Suddenly, the idea doesn’t sound so great, and the former supporters aren’t mincing words.

Planned Parenthood president Cecile Richards said the bill is a “sham and an insult to women.”

Karen Middleton of NARAL Pro-Choice Colorado even got personal, saying, “Cory Gardner can’t be trusted when it comes to Colorado women and their health care.”...

Beneath the fear-mongering lies the more likely reason for the change of heart on the left. The bill was simply introduced by the wrong party.

Like Harry Reid, Denny Hastert entered Congress as barely middle class and left it a multi-millionaire (Senators make $174,000 a year -- good money but not enough, I would think, to have $3.5 million tucked away to hand out as cash).

Here is an example:

It wasn’t long after that the Sunlight Foundation reported on just how much Hastert thought himself qualified to steer earmarks back home. The foundation found that Hastert had used a secret trust to join with others and invest in farm land near the proposed route of a new road called the Prairie Parkway. He then helped secure a $207 million earmark for the road. The land, approximately 138 acres, was bought for about $2.1 million in 2004 and later sold for almost $5 million, or a profit of 140 percent. Local land records and congressional disclosure forms never identified Hastert as the co-owner of any of the land in the trust. Hastert turned a $1.3 million investment (his portion of the land holdings) into a $1.8 million profit in less than two years.

I had not seen this feature before, but I wanted to give the New York Times some kudos for its "retro report" which apparently looks at past news articles and predictions and wonders what happened to those issues since.  This report is on the failure of Paul Ehrlich's Population Bomb predictions.  It is the kind of feature I have wanted to see in the press for a long time.  Good for them.

Sort of.  They fairly ably demonstrate that this 1970's-era doomster prediction was overblown, but then simply substitute a new one: over-consumption.  Ironically, the "over-consumption" doom predictions are based on the exact same false assumptions that led to the population bomb fiasco, namely an overly static view of the world that gives little or no credit to market mechanisms and innovation combined with an ideological bias that opposes things like technological progress, increased wealth, and free exchange.  The modern "over-consumption" meme shares with the Population Bomb the assumption that the world has a fixed carrying capacity, that we have or will soon exceed this capacity, and that actions of man can do nothing to change this capacity.

In essence, the over-consumption doom scenario is essentially identical to the Population Bomb.  In essence, then, the New York Times ably debunks a failed prediction and then renews that prediction under a new name.

Man has almost certainly warmed the world by some tenths of a degree C with his CO2, though much of this warming has hit night-time lows rather than daily highs.  Anyway, while future temperature rise forecasts are often grossly exaggerated by absurdly high assumptions of positive feedback, there is at least a kernel of fact in there that CO2 is likely warming the world somewhat.

However, the popular "science" on climate change is often awful, positing, for example, that hurricanes are being increased by man right in the midst of the longest hurricane drought we have seen in the US for a hundred years.

Inevitably, the recent severe California droughts have been blamed on manmade CO2.  As a hopefully useful adjunct to this debate, I have annotated a recent chart from the San Jose Mercury News on the history of California droughts to reflect the popular global warming / climate change narrative.  You be the judge of the reasonableness:

Being told that there is corruption and bribery in FIFA is a bit like being told there is organized crime involved in New Jersey garbage hauling.  But it is nice to see some progress being made in rooting it out.

As readers will know, I am frustrated that the Feds continue to fuel a huge financial asset bubble.  While I was wrong, so far, that the Feds would create consumer and industrial price inflation from their massive money printing operation, they have created an enormous price inflation in financial assets.   Every week they pour more newly printed dollars into the hands of financial asset holders, and corporations have joined in the fun by taking advantage of low borrowing rates to buy back record amounts of their own shares.   With both the Fed and publicly-traded corporations taking so many financial assets off the market at the same time investors have new cash to invest, someone has to create some new assets to buy.

Enter:  The $500 million spec home.  I kid you not.

LOL, I am betting the neighbors are not happy

As an upside, I suppose they are creating a future tourist attraction.  Many of the great Gold Coast and Newport mansions of the late 19th century were too expensive for later generations to operate and ended up in the hands of non-profits and governments.

Robert Robb has an interesting piece in our paper today about the challenges in defeating even a deeply flawed Joe Arpaio in the Republican primary.  In doing so, he reminds us of some (but by no means all) of Arpaio's worst characteristics, and makes a good case for why dark money in elections makes sense:

The missing element in the anti-Arpaio coalition is actually the business community.

Arpaio's war chest doesn't have to be matched. But making the case against him would require a campaign in the $2-$3 million range, beyond the reach of what an opponent is going to be able to raise.

If Arpaio is to be defeated, the business community probably has to conclude that he's enough of a damaging menace to warrant funding an independent campaign in that range. But the money isn't the only hurdle.

With Arpaio, there's a risk of criminal investigations and bogus criminal charges if you oppose him. That's part of what makes him a damaging menace. So, any such independent campaign would likely have to be by a dark-money group that didn't disclose its contributors.

It would be fascinating to watch the dark-money scolds react to a dark-money campaign to defeat Arpaio while protecting donors against his documented retaliatory proclivities.

 

Six of the ten highest paid CEO's run media companies.

Six of the 10 highest-paid CEOs last year worked in the media industry, according to a study carried out by executive compensation data firm Equilar and The Associated Press.

The best-paid chief executive of a large American company was David Zaslav, head of Discovery Communications, the pay-TV channel operator that is home to "Shark Week." His total compensation more than quadrupled to $156.1 million in 2014 after he extended his contract.

Les Moonves, of CBS, held on to second place in the rankings, despite a drop in pay from a year earlier. His pay package totaled $54.4 million.

The remaining four CEOs, from entertainment giants Viacom, Walt Disney, Comcast and Time Warner, have ranked among the nation's highest-paid executives for at least four years, according to the Equilar/AP pay study.

More power to 'em, as long as their shareholders are happy.  But I am tired of these self-same individuals attempting to bring regulatory pressure on the rest of us in the name of high CEO pay.

Bloomberg (via Zero Hedge) had this chart on Disney theme park entrance prices:

A few random thoughts:

• This highlights how hard it is to do inflation statistics correctly.  For example, the ticket being sold in 1971 is completely different from the one being sold in 2015.  The 2015 ticket gets one access without additional charge to all the attractions.  The 1971 ticket required purchase of additional ride tickets (the famous, among Disney fans, A-E tickets).  So this is not an apples to apples comparison.  Further, Disney has huge discounts for multi-day tickets.  The first day may cost $105, but adding a fourth day to a three day ticket costs just a trivial few bucks.  Local residents who come often for a single day get special rates as well.  So the inflation rate here grossly overestimates that actual increase in per person, per trip total spending for access to park attractions
• This is a great case in pricing strategy.  Around 1980, the Bass family bought into a large ownership percentage of Disney.  The story I am about to tell is often credited to their influence, but I am not positive.  Never-the-less, someone had a big "aha!" moment at Disney.  They realized that families were taking trips just to visit DisneyWorld.  These trips cost hundreds, even thousands of dollars.  The families were thus paying hundreds of dollars per person to enjoy Disney, of which Disney was reaping... $9.50 a day.  They had a stupendously valuable product (as far as consumers were concerned) but everyone else in the supply chain was grabbing most of the value they created.  So Disney raised prices, on the theory that if a family were paying over a thousand dollars to get and stay there, they would not object to paying an extra $50 at the gate.  And they were right.

One of the critiques of any trade deal of late is that there should be penalties for countries guilty of "currency manipulation."  The concern is that countries will devalue their currency in an effort to make their own exports cheaper to other nations while making it harder for other countries to export back to them.  As an example, if the Chinese were to do something that cuts the value of the Yuan in half vs. the dollar, their products look very cheap to American consumers while American-produced goods suddenly look a lot more expensive to Chinese consumers.

I have two brief responses to this:

1. I find it hilarious that anyone in the United States government, which has a Federal Reserve that has added nearly $2 trillion to its balance sheet in the service of cramming down the value of the dollar, can with a straight face accuse other nations of currency manipulation.  In practice in today's QEconomy, currency manipulation means another country is doing exactly what we are doing, but just doing it faster.
2. As an American consumer, to such currency manipulation by other countries I say, Bring it On!  If China wants to hammer its own citizens with higher prices and lower purchasing power just to subsidize lower prices for me, I am happy to let them do it.  Yes, a few specific politically-connected export businesses lose revenues, but trying to prop them up is pure cronyism.  Which is one reason I think Elizabeth Warren is a total hypocrite.  The constituency of the poor and lower middle class she presumes to speak for are the exact folks who shop at Walmart and need very price break on everyday goods they can get.  Senator Warren's preferences for protectionist trade policies and a weak dollar will hurt these folks the most.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Apparently the London taxi war continues to heat up, with London's mayor apparently siding with the traditional black cabs against Uber and minicabs.  I hope Uber can stay legal long enough for me to visit later this year.  I have really come to appreciate Uber's service when I travel.

The taxi war in London hit me in an odd way the other day.   I was trying to pick out a hotel in London that would not require me to mortgage the house to afford, and was reading reviews on TripAdvisor.   Sprinkled in 4 and 5 star (circle?) reviews on Tripadvisor for hotels that have very good reputations were a bunch of one star reviews.  Many of these said roughly the same thing -- that this was a terrible hotel because a minicab picked them up, or they saw minicabs there, or the hotel called a minicab for someone (minicab meaning "uber" apparently).

Given the passion in the traveling public for Uber, and the fact that it is hard to accidentally get an Uber to pick you up, my hypothesis is that traditional black cab drivers are going into the hotel review sites and giving one star ratings to ones that use (or who have customers who use) Uber.  This seems like a pretty typical labor-dispute-style tactic, but maybe I am missing something?

So you think that "hate speech" or speech that makes someone uncomfortable or mocks someone or criticizes some particular group should not be protected under the First Amendment.  For those on the Left (who seem to disproportionately hold this opinion), I ask you to define anti-hate-speech laws in a way that you will be entirely comfortable if, say, President Lindsey Graham (God forbid) were to inherit the power to enforce them.

A President Graham might consider speech mocking Christianity or Jesus to be hate speech.  And if mocking Christianity is hate speech, wouldn't support for gay marriage or abortion be as well?  What about mocking the military, or police -- isn't that hate speech?

If you ban some speech but not other speech, someone has to be in charge of what is in the "ban" category.  When most people advocate for such a ban, they presume that "their guys" are going to be in charge of enforcing it, but outside of places like Detroit and Baltimore, sustained one-party rule in this country just does not happen.  That is why most calls for speech restriction are so short-sited -- they assume that people of a like mind will always be in charge of wielding these restrictions, and that is a terribly historical assumption.