Wednesday, July 15, 2020

There is no argument so dumb it cannot be recycled

This is Joseph

Really?
“There has never been a more critical time for Americans of all ages and backgrounds to be aware of the multiple pathways to career success and gain the vocational training and skills they need to fill jobs in a changing economy,” said Ivanka Trump, who graduated from the University of Pennsylvania’s Wharton School.
This led Daniel Drezner to opine "I think we need to consider the possibility that the Trump White House is populated by morons."

And it is not just the white house -- see the NYT! Adam Ozimek has the best take:
Look I am a fan of education and training, but the unemployment rate was 3.5% with the skills workers had five months ago
And this is not a misrepresentation of the campaign. See Ivanka Trump:


I mean this just beggars belief. First of all, we had a very low unemployment rate a few months ago and then a pandemic hit. That is a classic external shock, like the China shock was for trade. You know who isn't to blame for shocks -- the individual workers. Six months ago there were some happy entrepreneurs building restaurant businesses. There were cooks and steak house managers, who had a happy career doing something useful. The issue was not that they lacked skills, it was that their skills were about to rendered obsolete.

This is a very big deal to get wrong. Here is Megan McArdle talking about the China shock:


The reason that this matters is that it shifts blame to the workers (why don't you have skills?) instead of accepting that there is a shock going on and asking if some of the gains from that shock should be redistributed. Remember, a large external shock is not a source of moral hazard if it was reasonably unforeseeable and insuring against these shocks is a natural function of government. Now, it does mean that resources might go into workers instead of into Elon Musk's government subsidy plan. But that is a good outcome.

I think we need to start making fun of this whenever we see it. Yes, everyone could have more skills. But, as an aggregate, if people are unable to obtain the skills they need that is a structural problem and not a personal one. It is never more clear when the skills argument is being rolled out now!

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Tuesday, July 14, 2020

We have a major stock bubble driven by hype, fraud, daytrading, and denial in the middle of an economic collapse in the middle of a pandemic. This would seem to be a bad thing.

Probably a good time to revisit this thread.

"A company for carrying on an undertaking of great advantage, but nobody to know what it is."

Another except from Charles Mackay's  Extraordinary Popular Delusions and the Madness of Crowds. I believe "a company for carrying on an undertaking of great advantage, but nobody to know what it is" was an initial business plan for Groupon.


Some of these schemes were plausible enough, and, had they been undertaken at a time when the public mind was unexcited, might have been pursued with advantage to all concerned. But they were established merely with the view of raising the shares in the market. The projectors took the first opportunity of a rise to sell out, and next morning the scheme was at an end. Maitland, in his History of London, gravely informs us, that one of the projects which received great encouragement, was for the establishment of a company "to make deal-boards out of saw-dust." This is, no doubt, intended as a joke; but there is abundance of evidence to show that dozens of schemes hardly a whir more reasonable, lived their little day, ruining hundreds ere they fell. One of them was for a wheel for perpetual motion—capital, one million; another was "for encouraging the breed of horses in England, and improving of glebe and church lands, and repairing and rebuilding parsonage and vicarage houses." Why the clergy, who were so mainly interested in the latter clause, should have taken so much interest in the first, is only to be explained on the supposition that the scheme was projected by a knot of the foxhunting parsons, once so common in England. The shares of this company were rapidly subscribed for. But the most absurd and preposterous of all, and which showed, more completely than any other, the utter madness of the people, was one, started by an unknown adventurer, entitled "company for carrying on an undertaking of great advantage, but nobody to know what it is." Were not the fact stated by scores of credible witnesses, it would be impossible to believe that any person could have been duped by such a project. The man of genius who essayed this bold and successful inroad upon public credulity, merely stated in his prospectus that the required capital was half a million, in five thousand shares of 100 pounds each, deposit 2 pounds per share. Each subscriber, paying his deposit, would be entitled to 100 pounds per annum per share. How this immense profit was to be obtained, he did not condescend to inform them at that time, but promised, that in a month full particulars should be duly announced, and a call made for the remaining 98 pounds of the subscription. Next morning, at nine o'clock, this great man opened an office in Cornhill. Crowds of people beset his door, and when he shut up at three o'clock, he found that no less than one thousand shares had been subscribed for, and the deposits paid. He was thus, in five hours, the winner of 2,000 pounds. He was philosopher enough to be contented with his venture, and set off the same evening for the Continent. He was never heard of again
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Monday, July 13, 2020

And given that the world's most valuable car company currently sells less than one percent of the world's cars, competition might be something investors should be thinking about.

The arguments justifying impossibly overvalued stocks usually come down to the same basic narrative.

At some point in the near future, the company will achieve an effective monopoly despite currently having a relatively small and in some cases nonexistent share of the market. This will be followed by massive increases in profit margin‘s which will for some reason not attract competitors or bring in the unwanted attention of regulators.

With Tesla, the specific claim was that battery powered EVs are the future and that Musk's company had such a large technological lead and first mover advantage that no one would have any chance of catching up. The first part is probably true (though hydrogen fuel cell are looking like an increasingly viable alternative). The second almost certainly isn't.

Jeremy White writing for Wired.

The Polestar 2's mission is two-fold: to establish the brand as a major figure in the EV scene, and also to take on none other than Tesla and best its Model 3.

Well, considering the impact of the Polestar 1, the announcement of the coming Polestar 3 SUV and Precept as well as the fact that the company (along with Volvo) is owned by the Chinese Geely Auto Group, which also has Lotus and Lynk & Co in its roster of brands, you can cross "establish as a major player" off the list. As for beating the Tesla Model 3? Yes it does. Just.

With prices starting at £49,900, the Polestar 2 costs £7,400 more than the Model 3 at base level. But, as you know, how you choose to configure and spec these cars can quickly raise those figures. A 78kWh battery pack and electric motors on the front and rear axle give the car more than 400bhp split equally between front and rear. This means 0-62mph in 4.7 seconds and a top speed of 127mph (shunning Volvo’s 112mph limit).

So, yes it is fast, and we already expect formidable acceleration from EVs, but what sets the Polestar 2 apart is its sophistication. It is more pleasant to drive than the Model 3, less savage and simpler (in a good way), and so better for urban driving despite having the speed for motorway missions. The driving configuration options are thankfully limited, so no faffing there. And there’s no key or start button either. All you need is the digital key somewhere in the car and you can pull away. Those nagging doubts if you have set the car up right or are getting the most from it are absent. In Apple parlance, it just works.

...

Much like the fine Mini Electric, the best compliment that can be said of this car is that, if you ignore the regen braking, very quickly you forget you are driving an EV. This is an extremely well developed car that has the kind of quality of finish that Tesla has been aiming for but missing, and from the exterior design to the driving experience to the interior there is very little to disappoint.

...

This is what happens when those with expertise and a long history of car manufacture catch up with Elon. Tesla had better take note. It has been overtaken. And all the people who have been brave enough to buy the Polestar 2 without even having a test drive – and when I say "all" I mean it as there have been no public drives for customers who have parted with money – they will not be disappointed. This is what EVs should be like. Now we just need to fix the charging system.

And we haven't even gotten to Volkwagen.

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Friday, July 10, 2020

IMDB -- Composer (519 credits)

































And one tribute.





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Thursday, July 9, 2020

The superpower of 2020 is making parody normal

This is Joseph

You know that I have had strong opinions about childcare. But the current silly situation just keeps getting more and more absurd. Dean Dad is on the case with Florida State University's new policy (comments got disabled just before he started on controversial topics).

From Matt Reed:
One way to handle that dilemma, of course, is just to outlaw it. That was Florida State’s approach. It mandated that parents who are working from home, and whose children are young, provide proof of a nanny or other caregiver, or be fired. It’s a solution that makes sense if you assume that everybody (including the nanny) is independently wealthy and working just to have something to do. If you assume, though, that people need their salaries, then it’s sexist and barbaric. When I read it, I initially thought I had missed the attribution to The Onion. If we had an actual, functioning judicial branch, I’d expect that to get tossed on “differential impact” in a millisecond. Alas, no.
This is the logical endpoint of not wanting to grapple with the joint problems of liability (in a classroom, somebody will get infected with covid-19 -- the US is a large country) and social design. At the same time that people are becoming richer off of the pandemic.

I think I am not unique in noting that removing childcare services shifts the economics of working in ways that really undermine the whole way we organize the economy. It also has the potential to induce large losses in student outcomes; vulnerable groups show disparate losses over the SUMMER. What are 2 years going to do?

But the other is the question of distribution. This has come up with trade. It is axiomatic that trade between the US and China makes both groups better off in aggregate. But it doesn't mean that there will not be losers in this game. There is an allergy to removing some of the wealth from the "winners" to compensate the "losers" as if market outcomes were some sort of ethical or moral process.

In the case of war we totally have concerns about "war profiteers" -- people who get rich in a time of great suffering instead of investing the money back into the common good. How is the pandemic different? A disease is not a moral process and so perhaps we should be thinking about how to distribute wealth and how to cope the shock. Short term cash transfers help (and are a good) but if the job distribution is very different afterwards then that will be bad. How do you square "stay home with your kids for the common good" with "Julie was there during the pandemic and was thus the best person to get the new promotion because of the skills she developed".

Finally, in the United States we link health care to employment. Let that sink in as you think about the FSU policy. If you have kids and are not wealthy then we'll take away your ability to be insured in the midst of a dangerous pandemic that often requires hospital care, even among the young/healthy.

It is a hard problem and it needs an even more serious grappling.
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Wednesday, July 8, 2020

Maybe I should just start calling them Wednesday tweets


Start with this exhaustive thread.




























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Tuesday, July 7, 2020

Another newly relevant old post





Wednesday, September 29, 2010

The heroin's still doing the heavy lifting -- why Ivy League legacies work

From Christopher Shea's Boston Globe column:
Richard D. Kahlenberg, editor of the forthcoming book "Affirmative Action for the Rich: Legacy Preferences in College Admissions," points out that universities in other countries don't give so-called legacy preferences to sons and daughters of their alumni. (Even Oxbridge colleges don't, despite the class-bound history of British education.) So, he asks, why on earth do we do it in America?
Broadly speaking, students go to college in search of four things: certification; instruction; reputation; and connections.

In terms of certification, any well-accredited school would do. In terms of undergraduate instruction, the best deal for the money (and perhaps the best deal period) is the small four-year school. (I'm leaving this as an assertion but I'm fairly confident I can argue the point if anyone wants to debate.)

In the next two categories, however, the Ivy League cannot be surpassed, in part because of the legacy system.

Without loss of generality, look at Harvard. The student population of the school consists entirely of two overlapping groups: people who can get into Harvard; people whose parents can get them into Harvard.

The first group is hard-working, ambitious and academically gifted. Assuming the number of need-based legacies is trivial, the second group comes from families that are wealthy (they're paying for a Harvard education) and well-connected (at least one parent went to Harvard).

Putting aside luck, you can put the drivers of success into three general categories: attitude, drive and work habits; talent, intelligence and creativity; reputation and connections. It is possible to succeed with just one of these (hell, I can think of people who made it with none), but there is a strong synergistic effect. A moderate talent who works hard and has connections will generally go farther than a spectacular talent who's lazy and isolated.

Connections are governed by the laws of graph theory. I'm not going to delve too deeply into the subject (since that would require research and possibly actual work on my part), but as anyone who has read even the cover blurbs on Linked or Small Worlds can tell you, adding a few highly connected nodes (let's call them senator's sons) can greatly increase the connectivity of a system.

It would be interesting to model the trade off between picking a well connected legacy over a smarter, harder-working applicant given the objective of producing the greatest aggregate success. Because of the network properties mentioned above, it wouldn't be surprising if the optimal number of legacies turned out to be the 10% to 15% we generally see.

Optimized or not, this mixture is almost guaranteed to churn out fantastically successful graduates regardless of what the schools do after the students are admitted. I'm certain the quality of instruction on the Ivy League schools is very good, but, like most education success stories, the secret here is mostly selection and peer effects.

Update: For a different interpretation (this time with actual data), check out this post at Gene Expression.








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Monday, July 6, 2020

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

I have a feeling that I'm late to this party (around 21 years late), but I really like this essay by Warren Buffett, particularly his dismantling of one of the most overused and misleading cliches of investing, the buggy whip example.

 Well, I thought it would be instructive to go back and look at a couple of industries that transformed this country much earlier in this century: automobiles and aviation. Take automobiles first: I have here one page, out of 70 in total, of car and truck manufacturers that have operated in this country. At one time, there was a Berkshire car and an Omaha car. Naturally I noticed those. But there was also a telephone book of others.

All told, there appear to have been at least 2,000 car makes, in an industry that had an incredible impact on people's lives. If you had foreseen in the early days of cars how this industry would develop, you would have said, "Here is the road to riches." So what did we progress to by the 1990s? After corporate carnage that never let up, we came down to three U.S. car companies--themselves no lollapaloozas for investors. So here is an industry that had an enormous impact on America--and also an enormous impact, though not the anticipated one, on investors.

Sometimes, incidentally, it's much easier in these transforming events to figure out the losers. You could have grasped the importance of the auto when it came along but still found it hard to pick companies that would make you money. But there was one obvious decision you could have made back then--it's better sometimes to turn these things upside down--and that was to short horses. Frankly, I'm disappointed that the Buffett family was not short horses through this entire period. And we really had no excuse: Living in Nebraska, we would have found it super-easy to borrow horses and avoid a "short squeeze."

U.S. Horse Population 1900: 21 million 1998: 5 million

The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane--another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out aircraft manufacturers and found that in the 1919-39 period, there were about 300 companies, only a handful still breathing today. Among the planes made then--we must have been the Silicon Valley of that age--were both the Nebraska and the Omaha, two aircraft that even the most loyal Nebraskan no longer relies upon.

Move on to failures of airlines. Here's a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country's airline companies was zero. Absolutely zero.

Sizing all this up, I like to think that if I'd been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean, Karl Marx couldn't have done as much damage to capitalists as Orville did.

I won't dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from these businesses: The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.
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Disinformation and dysfunction


Another strand in an old thread.

At this point, I suspect that most people in Trump's circle and possibly Trump himself realize that it is in his best interest and in that of the party to get everyone wearing masks and avoiding super spreader events .


 

With a few reasonable and inexpensive steps we could see the infection and hospitalization rates drop steadily between now and November with minimal impact on the economy outside of a couple of industries such as travel and dining.

Even with a country facing serious challenges, that’s not a bad place for an incumbent to be. So, if they realize this is overwhelmingly in their best interest, why aren’t they doing it? The answer is that they can’t. Once you’ve gotten your base invested in the belief that the pandemic is not a big deal, possibly even a hoax, and that the attempts of people like Bill Gates to contain it are part of a nefarious plot, it is all but impossible to pivot back to the direction you need to go.


  




 

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Friday, July 3, 2020

What we were making fun of ten years ago






Saturday, July 3, 2010

Role models

While browsing the business section yesterday, the title and author of one of the books caught my eye so I picked it up and scanned the back cover:

Inspiration. Success. Confidence. Passion.

No one is born with these qualities, but they are the key ingredients for reaching goals, building careers or turning a blueprint into a breathtaking skyscraper.
I learned that the author would share "the life lessons and hard-won insights that made her a rising star in the business world" and that whether the reader was "landing that first job, navigating the workplace,or making a lasting impact," the author would show how to "Step up and get noticed at work -- focus and efficiency will open doors."

The author's name was Ivanka Trump.

The book is the Trump Card.

It's available in paperback.
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Thursday, July 2, 2020

When a disinformation bubble designed to constantly ratcheting up fear and rage runs into the genuinely catastrophic...

In chaotic times, you are constantly running across data points that you know are important but because they come at you so fast it's difficult to keep track of them. I find blogs remarkably useful for taking these kinds of notes, particularly if you've been at it for a while and have old posts you can mine for relevant paragraphs.

For example, we've been talking about conservative movement disinformation for years.

The initial purpose of this "noble lie" approach was to use the propaganda to keep the base sending money and showing up for the polls through of a combination of rage and fear. As with all Straussian systems, it was assumed that those in power would be in on the joke while the people who believed the lies would simply serve as electoral cannon fodder.

At some point though (I suspect inevitably), a couple of things happen. First, the believers become leaders. This is become blindingly obvious with Trump, but the children of Fox News have been in control of the party since at least 2010 and the roots go back further. Remember how Dick Cheney insisted while traveling that all hotel televisions be tuned to Fox News?

The second, and possibly more dangerous problem is that a propaganda-fed base has no capacity to self correct, rather it continues follow unsustainable paths that only gain momentum, often exacerbated by ratcheting mechanisms. Soon you reach a point where, even if the leaders accurately perceive the situation and realized the best solution, they can no longer reconcile that reasonable course of action with what the vast majority of their supporters have been told to believe for decades.

In order to maintain these levels of anxiety and anger, the narratives employed increasingly apocalyptic language and imagery, a development we commented on four years ago.

Even in the small chunks of the Republican national convention that I listen to, there were numerous doomsday images and references to the "dark times" the country was facing. The people in the stadium found these statements credible because that's what they had been told on Fox and on the other right wing media sources they got their news from. Once you factor in the state of conservative media, the rise of Trump is neither that surprising nor that interesting.

Things have not gotten better


These are direct quotes from Adams







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Wednesday, July 1, 2020

One of these days I'm going to have to write something about the consequences of years of playing along with myths of tech messiahs, unmooring "success" from viability, and generally letting rich people get away with anything-- but for now some totally unrelated deferred Tuesday tweets



Tesla is a company priced one, maybe two orders of magnitude above the fundamentals in the middle of a bubble in the middle of an economic collapse. Other high fliers are starting to implode, revealing fraud and massive regulatory failure.

But there's nothing to see here.




Musk, with the help of a... friendly board, has lined up an unprecedented compensation plan.

But there's nothing to see here.



Accompanied by lots of questionable accounting.

But there's nothing to see here.
 


The valuation assumes Tesla can achieve and maintain a near monopoly on EVs.

But there's nothing to see here.



Quality control seems to be having some issues. (Remember that question about goodwill?)

But there's nothing to see here.



    Model 3 totaled and the airbags didn't go off. Because the car was built in a tent. $TSLAQ https://t.co/hP6Lk9vO7V

    — TC (@TESLAcharts) June 30, 2020




And the stock keeps going up.



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Tuesday, June 30, 2020

Our take from three years ago: "a propaganda-fed base has no capacity to self correct, rather it continues follow unsustainable paths that only gain momentum"

The next time someone asks why the GOP doesn't veer away from stands that look increasingly likely to end in electoral disaster, we have a post for that.

Thursday, November 2, 2017

Russians, Straussians, soft landings, and hamburger emojis

Since February, we've been discussing the curiously stable dynamic that keeps the GOP aligned with Trump even as his poll numbers slip. We've also argued that, at this point in time, this alliance holds the danger of an extraordinarily hard landing for the party. At the risk of overextending the metaphor, the Republicans are desperately hoping for a soft landing but are, at the same time, doing everything they can to maintain altitude.
As many have observed, the GOP of the 70s was able to minimize the long-term damage of Watergate by distancing themselves from Nixon and very publicly refusing to impede the investigation. The response of the party now has been just the opposite. It is as if the Republicans had responded to Watergate by doubling down their defense of Nixon, insisting there was nothing to the accusations, and calling for hearings into the crimes of McGovern, Humphrey, and LBJ.

Obviously, the decision to go all in on Trump is partially motivated by a desire to achieve as many policy goals as possible while still firmly in control of all three branches of government, but there's another factor which might be as large and which is possibly doing even more to eliminate the possibility of a soft landing.




.

If some poli-sci PhD candidate out there is looking for a thesis topic, you could do worse than the breakdown of Straussian communication matrices, or as I've put it, "drinking from the wrong pipe." The conservative movement was essentially a three-legged stool built on money, prioritizing strategic offices and elections, and misinformation. This last one was arguably the most important; it is also the one that has proven the least stable.

The initial purpose of this "noble lie" approach was to use the propaganda to keep the base sending money and showing up for the polls through of a combination of rage and fear. As with all Straussian systems, it was assumed that those in power would be in on the joke while the people who believed the lies would simply serve as electoral cannon fodder.

At some point though (I suspect inevitably), a couple of things happen. First, the believers become leaders. This is become blindingly obvious with Trump, but the children of Fox News have been in control of the party since at least 2010 and the roots go back further. Remember how Dick Cheney insisted while traveling that all hotel televisions be tuned to Fox News?

The second, and possibly more dangerous problem is that a propaganda-fed base has no capacity to self correct, rather it continues follow unsustainable paths that only gain momentum, often exacerbated by ratcheting mechanisms. Soon you reach a point where, even if the leaders accurately perceive the situation and realized the best solution, they can no longer reconcile that reasonable course of action with what the vast majority of their supporters have been told to believe for decades.

One of the essential steps for achieving a soft landing is getting your core supporters to face just how dire the situation is. Fox News et al., however, has simply lost the capacity to do this.
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Monday, June 29, 2020

I hate to spoil another blogger's joke...



So just click over to the Financial Times and read this cautionary list of red flags to watch out for when trying to avoid companies likely to leave a multi-billion dollar hole in the market. Make sure to read the last paragraph.

We’ll wait.

Who’s going to be the next Wirecard?


Read more »
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Friday, June 26, 2020

Tesla context -- Why the red flags matter


It may seem like we've been picking on Tesla quite a bit lately. Sure, Musk is annoying, but the SpaceX stuff is cool, and we can all get behind electric cars and solar cells. Aren't there things  more worth complaining about in 2020?

The trouble with that framing is that the things you hear about -- the often cool, sometimes just goofy technology, the outrageous claims, the nerd as rock star lifestyle --  are a small part of the story, while the big parts of the story are more than big enough to worry about. This is especially true when you're living in Jengaville where one of the biggest, most precarious towers is a stock market bubble in the middle of an economic collapse.

Both columns in the table below show reasons for concern (discussed further here). Tesla has grown since 2017, but its revenue is still a fraction of the others below. This is a seventeen year old company that has turned a profit only intermittently.

Think about that for a moment and remember...

... Tesla's market cap is around three times that of GM and Ford, combined.

The other column is a stark reminder of the issues with corporate governance. The board, of course, provides no oversight. Musk has flagrantly attempted to manipulate the stock price. Many of the accounting practices appear fishy. All of this may or may not be connected to a mysterious and conveniently timed spike in the stock price that earned Musk a bonus worth three quarters of a billion dollars.

In more normal times, I'd add something here about Tesla being a bad employer and bad corporate citizen, but at the moment, I'm mainly thinking about what a stock market collapse would do to a fragile economy, the pocketbooks of retail investors and the emotional well being of a country that's already under just a bit of stress.
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