Tuesday, July 5, 2022

Tuesday Tweets



As previously mentioned, Ohio is a pro-choice state/





I've felt for a long time that commenters and possibly political scientists have underestimated the role that resentment and the need for attention ("I owned the libs") plays in the 21st Century right.


 







Looks like someone may have picked the wrong time to try to buy the LA mayor's office.




I can think of at least three Republicans running for congress who have made pro-Nazi comments.






Voices carry...








Follow the links on this one.



The laugh barrier.




In a functional democracy, the Texas GOP would pay a much greater cost for the power grid than the Democrats would for inflation.





Greene, Gaetz, and Putin







You should follow Taber.


Damn.


I hate to bring everyone down by talking about actual, substantial solutions.


Radio Shack? Is this part of some Stranger Things 80s PR campaign?








If I were running the DNC, I'd be flogging the hell out of this.



I have nothing to add.



Amazing.




Does explain a lot.


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Monday, July 4, 2022

Ten years ago at the blog...

 

Happy 4th from 1909


"America's wealth gap -- in 1776"

The good people at Marketplace have a sharp Independence Day spin on a big ongoing story.
Jeffrey Williamson: In 1774, the top 1 percent of households got 9.3 percent of income. 
Compare that to America today, when the top 1 percent is bringing in about 20 percent of income. Nine percent, versus 20 percent. Wow. 
Williamson: Wow. 
Even when you include slaves, Williamson says America was actually the most egalitarian country in the world when it came to the difference between rich and poor. 
So what did the founding fathers have to say about that? I called up a guy who should know. 
Clay Jenkinson: Hello my dear citizens, this is Thomas Jefferson. 
Actually it's Clay Jenkinson, a historian and Jefferson impersonator. And he says the writer of the famous phrase -- "All men are created equal" -- thought a lot about income inequality. In a letter to a friend describng the 13 colonies, he wrote "The great mass of our population consists of laborers. The rich, being few and of moderate wealth..." 
Jenkinson (Quoting Jefferson): Can any condition of society be more desireable?
I realize that we shouldn't treat the writings of the Founding Fathers as sacred text but you know, they had their moments...
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Friday, July 1, 2022

Things could always be worse...


No connection to any to any of our ongoing threads, but if you're interested in sketch comedy, you really need to see this series from That Mitchell and Webb Look. I'm at a loss for something else like it.

You can find find darker sketches (though "mummy won't wake up" does set the bar rather high), but few where the characters in the increasingly horrifying situations are so sympathetic. In that way, they remind me a bit of the Carol Burnett Show's Eunice sketches, which grew remarkably cruel toward the end, but those were long form pieces that could alternate between comedy and drama (and eventually go purely with the latter). The Quiz Broadcast is an exercise in world-building in 3-minute bites, and one that's become a bit more relevant recently.







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Thursday, June 30, 2022

The fact that people think a commute might justify building high-speed rail suggests you're probably talking about an exurb

 

At the risk of self-promotion, if you're not a Californian and you're trying to follow the housing crisis, I'd highly recommend you take a couple of minutes to read A primer for New Yorkers who want to explain California housing to Californians. Particularly...

 

3. San Francisco is not adjacent to or even particularly near Silicon Valley. Instead it's around fifty miles away. There are people who live in SF and commute to SV but it's a wasteful and completely unnecessary practice. San Jose is nearer and cheaper.

 

Which came to mind when I saw this story:

$5.3 billion: San Jose to San Francisco high-speed rail costs balloon by over 200%

Eliyahu Kamisher

Plagued by years of funding shortages and spiraling costs, California’s beleaguered high-speed rail project suffered another unexpected blow this month in a new report that more than tripled the cost estimate for the San Francisco-to-San Jose segment to a staggering $5.3 billion.

The new price tag is part of a report that completes a years-long environmental clearance process for the 48-mile corridor that would carry bullet trains down the Peninsula on electrified Caltrain tracks at 110 miles per hour and eventually on to Southern California. It outlines three stops, a controversial rail yard in Brisbane and money allocated to everything from protecting Monarch butterflies to restoring Bent-flowered fiddleneck habitat.

But the environmental document released last week also includes the new price tag for the recommended route through the Peninsula, which is more than three times the figure penciled into the High-Speed Rail Authority’s 2022 business plan.

As for the project itself, I have mixed feelings. California could certainly use more passenger rail, but there are places that need it more and are not as well served by public transit, some of which would probably be cheaper.
 
But whatever the merits of this line may be as infrastructure, it is an absolutely first rate reminder that most of the California housing debate consists of people (mainly from New York) demanding that we build housing 50 miles from where the Bay Area housing crisis is most severe.
 
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Wednesday, June 29, 2022

$835 million may not sound like a lot of money, but look at it in context

This remarkably nonchalant New York Times piece on executive compensation deserves a deep dive (and not in a good way), but for now, I want to zoom in on one number in particular.

Jeff Green, chief executive of The Trade Desk, a digital advertising company, reported compensation of $835 million last year, making him the top-paid executive in the Equilar survey, which encompasses 200 companies, all of which have revenue over $1 billion. Mr. Green’s pay in 2021 was the third-highest amount that Equilar found in its past five annual surveys, which are based on companies’ pay disclosures; Mr. Musk’s deal in 2018, which Tesla valued at $2.3 billion, is still the biggest in those years.

...

 For Mr. Green of The Trade Desk to qualify for the options in his package, valued in the proxy statement at $828 million, the company’s stock price must climb well above current levels, but there are no business goals for The Trade Desk to achieve.

Melinda Zurich, a spokeswoman for The Trade Desk, said the stock price targets in the company’s award were ambitious and noted that its stock was up several thousand percent since its initial public offering in 2016.

“Jeff has played an integral role in driving that growth, and is key to the company’s future growth agenda,” she added.

These deals are complicated and it's possible that Mr. Green will walk away with less than $835 million, but given the numbers, it's almost impossible to come up with a scenario where the man won't wildly overcompensated if the stock lucks (or is manipulated) into a good run. If so, all of the profits for the next six plus years will go to installment payments for the CEO's 2021 compensation package.

From Wikipedia:


It is true that TTD had revenue greater than $1 billion which big money, but $835 million takes up an obscenely large chunk of that $1.2 billion. The number is even more striking when you look at income. Whether you use operating or net, Green's compensation package for 2021 is, at least in theory, more than six times the company's income for that year.

TTD appears to be a healthy company with a history of solid growth (though its 2021 income was sharply off from the previous year), but there is no reason to expect this thirteen year old operation will suddenly experience explosive growth in the near future, and if it doesn't, (assuming the stock still has a good run) this pay package would fall under the category of, for lack of a better word, looting.  

Green came into this a billionaire going into this. He can afford to take an all or nothing bet, particularly when the expected value is this high.

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Tuesday, June 28, 2022

Twelve years ago at the blog: In retropect, I should have mentioned "Head"

 

Wednesday, June 30, 2010

Bob Dylan, the Monkees and the flooded landscape analogy

Seth Godin's comments on Bob Dylan and the Monkees (which comes to us via Gelman via DeWitt via Tinkers via Evers via Chance) got me thinking about fitness landscapes. Here's the quote:
Let me first describe a distinction between the Monkees and Bob Dylan. Bob Dylan gets laughed or booed off the stage every ten years, whether he wants to or not. He got booed off the stage when he went electric and again when he went gospel, and most recently with his horrendous Christmas album. The Monkees never get booed off stage, because the Monkees play "Last Train to Clarksville" exactly the same way they did it 30 or 40 years ago. Here's the thing: Bob Dylan keeps selling out stadiums and no one goes to see the Monkees, because the Monkees aren't doing anything worth noticing. There are people who have succeeded who just keep playing the same song over and over again, whatever that is that they do.
Think of a musician's career as a landscape where creative decisions like repertory, genre, style, arrangements give the location and concert sales are the fitness function. (see here and here for previous posts on landscapes)

In Godin's example, the Monkees have stuck very close to a local maxima that has sank over the years (the sticking close part doesn't actually match reality all that well -- Mike Nesmith had a run of innovative and interesting projects in the early days of music video -- but for the sake of the post let's overlook that part). Any small to moderate change in repertory or arrangement or style would move them to a lower point on the landscape.

I think I may be stealing this from Stuart Kuafmann, but let's flesh out the metaphor a bit and add water. Our landscape dwellers can travel freely on dry land but they can only swim very short distances. Exactly how does this relate to our real life example? Remember that altitude in our landscape corresponds to ticket sales. In order to stay viable, ticket sales for a touring act have to stay above a certain level. If the sales fall below that level, the act loses bookings and can no longer cover its expenses. Of course, like any other business, the act can run at a loss for a while (swim) but that's obviously not a long term solution.

Godin suggest that a willingness to, in our analogy, move to another optima is the key to success. Dylan made the move and thrived. The Monkees stayed put and whithered. But how comparable were the two situations?

Dylan had a steady source of income from other artists covering his songs. In landscape terms, he was a good swimmer (of course, so was Nesmith who got a tiny check every time you used that little Liquid Paper brush). More importantly, Dylan didn't have that far to swim. He might not even have needed to get wet. At least a portion of Dylan's fan base were going to stay with him no matter where he went on the musical landscape and given his reputation (and phenomenal talent, though I'm trying to leave that out of the discussion), there was a maxima waiting for him at pretty much every genre and subgenre of popular music. Those moves might not have been as artistically or commercially successful as the ones he made but Dylan was going to remain viable no matter where he went.

What about about the Monkees? Musically they weren't a bad line-up. Dolenz was a veteran child actor, Jones was a Tony nominee for Oliver! and Tork and Nesmith were both accomplished musicians. Highly successful careers have certainly been built on less, but what did their career landscape look like? Compared to Dylan's collection of tightly-packed peaks, the Monkees had a lonely island surrounded by what looked like a large and empty ocean. The vast majority of their fan base was location specific. When they moved away from that location they hit deep water very quickly.

It is, of course, possible that the group could have focused on coming up with new songs and a new sound with the hope of finding a new audience. This is a dynamic landscape, and where the artist chooses to go is one of the factors that affects it. There might not be a concert market for the Monkees playing new grass or thrash metal now but that doesn't mean there won't be one in the future. Sometimes, by playing music no one wants to hear, you can create a demand for that music. To return to the landscape analogy, treading water in one spot can cause an island to rise up beneath you. It has been known to happen but it's probably not something you want to count on.

In the case of the Monkees, the water-treading strategy would be particularly risky since their reputation is likely to work against them if they try something radically new. This is probably why Nesmith chose to use his own much less well known name for the Grammy-winning Elephant Parts rather than trying to sell it as a Monkees project.

Which brings us back to Mr. Godin and the advice books he and other business gurus dump on the market every year. These books gush out at such a rate that there are actually companies that put out fifteen page versions so that executives can at least give the impression that they have read the latest releases. The Dylan/Monkees example is sadly representative. It takes one of business gurus' favorite truisms (take risks, i.e. move out of your comfort zone, i.e. they laughed at Henry Ford), bills it as a fundamental key to fabulous success (fabulous as in fabled as in obviously untrue) then backs it up with an irrelevant but impressive sounding example.

Godin is telling businesses to be like Bob Dylan and to make radical moves that may piss off your customers and invite scorn and mockery. The trouble is very few businesses are Dylan-at-Newport. The majority are the Monkees-at-the-state-fair. They have something they do reasonably well. If they stick close to their local maxima they can turn a decent profit and have a pretty good run. If they follow Mr. Godin's advice they will sink like a cinder block and never be heard from again.
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Monday, June 27, 2022

You now can choose from two companies taking deposits for imaginary campers for a truck that doesn't exist yet

Along with the asset bubble, I blame CGI. Back in the day, it took time, money and talent to come up with a good, let alone photo-realistic artist's rendering. Now you can find a high school student who can whip up everything up need (stills and video) in a weekend.


 

From Dec 08, 2021:

Stream It, Inc., maker of the CyberLandr – a pop-up camper accessory for the upcoming Tesla Cybertruck – made several interesting announcements today via its Facebook page, as well as an official press release. The company has reportedly racked up $100 million worth of pre-orders for the CyberLandr, it's now making some shares available for purchase, and it has a new and improved website.

 

This is the only physical object the company has created. Everything else is CGI.

 

 The company didn't promise a telescoping box (lots of campers can do that); they promised a camper that could expand in two dimensions producing an almost TARDIS level of roominess. 


 

 

 

Complete with queen sized bed.



 

The company doesn't even know what the specs of the production model of the Cybertruck are going to be. Tesla now says they'll start making making them in 2023, but that was before the company announced mass layoffs and keep in mind, they originally promised  to start selling them in 2021. The deposits are a fraction of the pre-orders, but a pretty substantial fraction.

Of course, that's not where the real money is. Also from December, 2021:

CyberLandr, a very ambitious high-tech camper designed for the Tesla Cybertruck, is raising money at an astronomical $400 million valuation.
And nothing attracts imitators like real money.


"$24,000 Space Camper For Tesla Cybertruck Is Clever And Stylish"

Space Campers is already accepting reservations for its camper, which may start at $24,000, but you can, of course, add options. There’s an available fully-equipped kitchen, a combined shower and toilet, solar panels on the roof that can be integrated into a custom roof rack and an additional tent thermal insulation kit, custom sheets, electric blanket, thermal padded flooring and even a built-in movie projector.





 




 




I suppose we should be glad they don't come with NFTs.
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Friday, June 24, 2022

"Do you know the way to San Jose?" and how long the trip will take?

With one notable exception, storytellers and songwriters have pretty much ignored San Jose. Even in “Do you know the way,” the point of the song is that there’s not much to the town, small, friendly and unglamorous, presented as the opposite of LA. 

 

LA is a great big freeway
Put a hundred down and buy a car
In a week, maybe two, they'll make you a star
Weeks turn into years, how quick they pass
And all the stars that never were
Are parking cars and pumping gas


You can really breathe in San Jose
They've got a lot of space
There'll be a place where I can stay
I was born and raised in San Jose
I'm going back to find some peace of mind in San Jose


San Francisco, one the other hand, has never suffered from lack of attention, It was getting more than its fair share of PR as far back as the turn of the century.

Fancy a novel about Chicago or Buffalo, let us say, or Nashville, Tennessee! There are just three big cities in the United States that are “story cities”—New York, of course, New Orleans, and, best of the lot, San Francisco. —Frank Norris.


East is East, and West is San Francisco, according to Californians. Californians are a race of people; they are not merely inhabitants of a State. They are the Southerners of the West. Now, Chicagoans are no less loyal to their city; but when you ask them why, they stammer and speak of lake fish and the new Odd Fellows Building. But Californians go into detail.

Of course they have, in the climate, an argument that is good for half an hour while you are thinking of your coal bills and heavy underwear. But as soon as they come to mistake your silence for conviction, madness comes upon them, and they picture the city of the Golden Gate as the Bagdad of the New World. So far, as a matter of opinion, no refutation is necessary. But, dear cousins all (from Adam and Eve descended), it is a rash one who will lay his finger on the map and say: “In this town there can be no romance—what could happen here?” Yes, it is a bold and a rash deed to challenge in one sentence history, romance, and Rand and McNally. -- "A Municipal Report" by O. Henry (William Sydney Porter)


If you get your news about the West Coast from New York journalists, you might get the impression that nothing much has changed, but the days when SF could claim to dominate even the Bay Area for anything but restaurants and clubs has long passed. The area’s biggest population and employment center is lowly San Jose, and it has been for decades.


But reputations don't die that easily, particularly ones this entrenched. Despite the worship piled on the tech messiahs of the region, cool people still don't want to live in Silicon Valley. They want to live someplace they can brag about, someplace with iconic street scenes or spectacular mountain views, which usually means someplace that requires more than an hour's drive to get to work.

In other words, a functional exurb and when we discuss housing in the Bay Area, we always need to ask how long does it take to get to San Jose without a car.

One thing to be said for SF is that, for the West, it is fairly well served by public transportation. Some other favorites of YIMBY advocates... not so much.


 Even making the 15 mile trip from Mill Valley to SF takes well over an hour if you don't have the option of driving.

Fortunately, there is a lot of construction in San Jose where it is desperately needed. Now if we could just get all these New York Times experts to ask that musical question.


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Thursday, June 23, 2022

Thursday Tweets -- And the "I tried to overthrow democracy and all I got was this lousy MAGA hat" T-shirt






Rich people and Trump supporters can't shop.




Fortunately Trump is mature enough not to take this personally and start lashing out.


Trump supporters aren't very good at cover-ups.











How Musk gets away with it, part 437:

 

Recent history has taught us that if someone's followers refer to someone in messianic language, pay attention.


This CleanTechnica op-ed was not something I saw coming.



Is it just me or does this suggest a certain sense of urgency.



MAGA meets crypto.













 

Of course, a lot of VCs are assholes.



Putting aside all the people we now know told him it was illegal. 

I want to come back to this one.

This should get more coverage.

And this should be even bigger.

This surprised me.

Evangelicals scriptural knowledge isn't what it used to be.


And on a lighter note.




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Wednesday, June 22, 2022

If we need to burn off an area the size of Maine, the Mill Valleys are expendable

 


A bit more background on one of reasons the New York Times housing article we've been discussing made me so angry (though in fairness, it is actually a significant improvement over what we've been seeing from the NYT on the subject).

Western mega-fires fall into that distressingly familiar category of dire crises with obvious solutions that people have alarmingly little interest in fixing. There is no real disagreement over what needs to be done (there hasn't been for decades), but the magnitude is stunning. [emphasis added]


Yes, there’s been talk across the U.S. Forest Service and California state agencies about doing more prescribed burns [a.k.a. controlled burns -- MP] and managed burns. The point of that “good fire” would be to create a black-and-green checkerboard across the state. The black burned parcels would then provide a series of dampers and dead ends to keep the fire intensity lower when flames spark in hot, dry conditions, as they did this past week. But we’ve had far too little “good fire,” as the Cassandras call it. Too little purposeful, healthy fire. Too few acres intentionally burned or corralled by certified “burn bosses” (yes, that’s the official term in the California Resources Code) to keep communities safe in weeks like this.

Academics believe that between 4.4 million and 11.8 million acres burned each year in prehistoric California. Between 1982 and 1998, California’s agency land managers burned, on average, about 30,000 acres a year. Between 1999 and 2017, that number dropped to an annual 13,000 acres. The state passed a few new laws in 2018 designed to facilitate more intentional burning. But few are optimistic this, alone, will lead to significant change. We live with a deathly backlog. In February 2020, Nature Sustainability published this terrifying conclusion: California would need to burn 20 million acres — an area about the size of Maine — to restabilize in terms of fire.

...

[Deputy fire chief of Yosemite National Park Mike] Beasley earned what he called his “red card,” or wildland firefighter qualification, in 1984. To him, California, today, resembles a rookie pyro Armageddon, its scorched battlefields studded with soldiers wielding fancy tools, executing foolhardy strategy. “Put the wet stuff on the red stuff,” Beasley summed up his assessment of the plan of attack by Cal Fire, the state’s behemoth “emergency response and resource protection” agency. Instead, Beasley believes, fire professionals should be considering ecology and picking their fights: letting fires that pose little risk burn through the stockpiles of fuels. Yet that’s not the mission. “They put fires out, full stop, end of story,” Beasley said of Cal Fire. “They like to keep it clean that way.”


Why is it so difficult to do the smart thing? People get in the way. From Marketplace.

Molly Wood: You spoke with all these experts who have been advocating for good fire for prescribed burns for decades. And nobody disagrees, right? You found that there is no scientific disagreement that this is the way to prevent megafires. So how come it never happens?

Elizabeth Weil: You know, that’s a really good question. I talked to a lot of scientists who have been talking about this, as you said, literally, for decades, and it’s been really painful to watch the West burn. It hasn’t been happening because people don’t like smoke. It hasn’t been happening, because of very well-intended environmental regulations like the Clean Air Act that make it harder to put particulate matter in the air from man-made causes. It hasn’t happened because of where we live. You don’t want to burn down people’s houses, obviously.

 

For better than a hundred years, we’ve been setting too few fires and putting out too many. It wasn’t always like this. The indigenous tribes mastered fire as a forest management tool and used it extensively until the European settlers criminalized the practice, thus setting us up for the disaster facing us today.

The result has been a tinder bundle the size of Maine. Clearing it out is California’s second most serious environmental challenge (after global warming) and is the most urgent problem we face, period. Solving it requires a level of focus and political will that our current governor simply does not have (particularly compared to his predecessor). It’s up to the rest of us to keep this top of mind.

There are huge externalities to these projects, almost none of which can be easily addressed though a conventional regulatory framework. I would need to reach out to experts to be sure, but I doubt environmental impact laws even apply here since we aren’t worried about the direct damage the developments cause to the forests; we’re worried about the damage we’ll cause to the forests trying to protect those developments.

Every dwelling an a forest-adjacent wildland urban interface has got to be treated as, to some degree, expendable, or at the very least, the people who live there need to accept that they are on their own. When frequent controlled burns fill their neighborhoods with smoke, they shouldn't be able to file complaints. When those fires become uncontrolled (as they sometimes inevitably do), they should not have the option of suing.


 

 It would be different if these upscale forested developments had any real possibility of having a substantial impact on the housing crisis, but we're talking about badly situated and trivially small pieces of land in the third largest state in the country. They arguably cause more problems than they solve and the disproportionate focus on them distracts us from a situation where we cannot afford distraction.

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Tuesday, June 21, 2022

Twelve years ago at the blog: multiply all dollar amounts by 1.5

Wednesday, June 16, 2010

When is a dollar not worth a dollar?

Joseph and I have been putting up a number of post on compensation recently (many inspired directly or indirectly by Felix Salmon), but there is something important that's been left out of the discussion both here and on the other blogs I've been reading on the subject:

Some dollars are worth more than others.

Having bounced back and forth from statistician to teacher to entrepreneur over the years, I've seen plenty of large fluctuations in income and I've developed a pretty good idea of what it costs to live comfortably as a single person in various cities.

In LA the cutoff is somewhere around thirty thousand. For that money you can get a decent apartment in pleasant neighborhood and still have enough income left over both to meet your basic needs and to get out and have some fun. (LA is one of the world's great cheap-eats towns)

If you go from mid-thirties to mid-nineties (which I did at one point), you will see a significant change in your lifestyle but it is nothing compared to the change you'll feel if you go from the mid thirties to the low twenties. Below thirty you start facing some ugly compromises. You may have to move to a rough part of town, Food becomes a larger part of your budget. Costs associated with work (wardrobe, transportation) remain annoyingly constant. Going out with friends becomes a great luxury (it's hard to convince the bartender to sell you two-thirds of a beer)

This discrepancy in lifestyle suggests the need for a different metric. Here's an example. To make the numbers come out even, let's talk about three incomes: 21K, 30K, 90K with our hypothetical Angeleno starting in the middle. In both absolute (60K) and relative terms (200%) the jump to the top tier dwarfs the jump to the bottom (9K/30%) but in impact on quality of life, the exact opposite holds.

What does all this mean? For one thing, it means that expected value and marginal changes are not the right tools to look at compensation, at least not in the way we normally use them. It means that the problem requires more of a piecewise approach.

 

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Monday, June 20, 2022

Money rules for the rich

This is Joseph

One of the things that often makes me crazy is personal finance advice. Don't get me wrong, there is good personal finance advice out there. But it can often fall into one of several genres that end up not really being helpful to the median reader. One example is the "buy fewer lattes", which does get at a good point (small expenses can add up) but doesn't move the needle much for large financial challenges. 

The other is the advice that is very useful if and only if you already have a lot of money. This article was a good example of this genre. Was the advice good? You bet. Was any of it usable at my income level and life stage. No, not really. 

For example, consider these items of advice:
3. Strive to own your home, not rent — and try to buy in cash. This is particularly the case if you’re a moderate to high earner. Having more of your money packed in your home is a way to shelter it from federal and state asset-income taxation.

4. Mortgages are tax and financial losers. Pay them off ASAP. Think about it: If you have $100,000 that you can invest right now in a bond earning 1.5%, you’d have $1,500 in interest income over the course of a year. But if you had a $100,000 debt at a 3.2% interest that you could pay off right now, you’d save $3,200 over the course of the year in interest payments.

On balance, you’d make $1,700 with no risk by investing in debt repayment rather than investing in the bond.

Buying a home in cash is a formidable problem with income. The median house price in Chicago is $329,000.  Boston is more like $740,000. Cheaper prices might exist elsewhere but nowhere is this an inexpensive prospect. Median household income in Chicago is $62K. Saving 10% of pre-tax income would require about 50 years to save this much or about 40 years with a 1% post-tax and inflation-adjusted return. That's not bad for a stable investment (10 year TIPS bonds are under 0.3% at the moment and that is pre-tax). A long run stock market average is about 7% (so maybe 5% post-tax) and that'd work out after about 25 years. 

But the real assumption is that you have $300,000 or so in assets that you can chose how to allocate, in a way that does not cause liquidity problems. 

6. Your perfect home may be far cheaper several time zones away. Or it may be someplace with no state income tax, no state estate tax, and no state inheritance tax.

Moving is expensive. Not having a support network is expensive. International moves, in particular, can be quite challenging. 

16. Wait until age 70 to take Social Security retirement benefits. Retirees who wait to claim can get hundreds of dollars more each month than those who take benefits early.

Of course, this isn’t feasible for everyone. But here’s my plea: Before making any moves, figure out the strategy that maximizes your household’s total lifetime benefits.

This is good advice but it presumes that people are able to work until 70 or bridge the gap with savings. Maybe a good goal, but much more feasible for an economist than a roofer. 

But the one that I found the most worrying:

1. Don’t borrow for college. It’s far too risky and expensive. I don’t say this lightly. I’m a college professor. But you can get a fine education without mortgaging your future and potentially dashing your career plans.

It simply involves pursuing scholarships and applying to less expensive, if generally less prestigious, institutions. 

Even in Canada, which has cheaper education, one in two students graduates with debt. This is not simply a case of look for a cheaper school (in Canada there are not the large prices or price variations of the US) and it is unclear that there are that many scholarships lying around. Education is an earnings multiplier and a professional degree (e.g., Nursing) could open the doors to much better employment opportunities. The wage premium for a University degree in Canada is 53% or $13/hour. The median debt is about $20,000. Even post-tax that is 2-3 years of income to compensate.

Now don't go into huge amounts of debt -- yes, that is a good idea. The author is at Boston University and went to Harvard -- there are students in those schools who could well follow the advice to minimize student debt. But it is also the case that debt can be a form of investment in human capital and, done wisely, may well pay off.

Anyway, the big take-away is that financial advice is very context dependent. A lot of this advice is very good for upper-middle class to wealthy Americans who have assets and can afford to think about wealth management. But it really doesn't seem to be the points that the median family is going to be able to easily apply.  

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Saturday, June 18, 2022

"Celsius is Collapsing... Here's Why"

More good reporting from the reliable Coffeezilla







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Friday, June 17, 2022

"The joy of the bezzle" -- Crypto, meme stocks, housing bubbles and inflation

People spend money based, not on how much money they have, but on how much money they think they have. Often that's a distinction without a difference, but in a time of scams and bubbles, the gap can be big enough that we need to start figuring it into the way we think about the economy.

Which brings us to John Kenneth Galbraith's bezzle.

From the Great Crash 1929:

Alone among the various forms of larceny [embezzlement] has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in—or more precisely not in—the country’s business and banks.

...

This inventory—it should perhaps be called the bezzle—amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times, people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances, the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression, all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.


From the Bezzle Years by John Kay

In a delightful essay, Warren Buffett’s business partner, Charlie Munger, pointed out that the concept can be extended much more widely. This psychic wealth can be created without illegality: mistake or self-delusion is enough. Munger coined the term “febezzle,” or “functionally equivalent bezzle,” to describe the wealth that exists in the interval between the creation and the destruction of the illusion.

From this perspective, the critic who exposes a fake Rembrandt does the world no favor: The owner of the picture suffers a loss, as perhaps do potential viewers, and the owners of genuine Rembrandts gain little. The finance sector did not look kindly on those who pointed out that the New Economy bubble of the late 1990s, or the credit expansion that preceded the 2008 global financial crisis, had created a large febezzle.

...


The joy of the bezzle is that two people – each ignorant of the other’s existence and role – can enjoy the same wealth. The champagne that Enron’s Jeff Skilling drank when the US Securities and Exchange Commission allowed him to mark long-term energy contracts to market was paid for by the company’s shareholders and creditors, but they would not know that until ten years later. Households in US cities received mortgages in 2006 that they could never hope to repay, while taxpayers never dreamed that they would be called on to bail out the lenders. Shareholders in banks could not have understood that the dividends they received before 2007 were actually money that they had borrowed from themselves.


Kay wrote that essay in 2015, a period which seem insane at the time (where could you go after MoviePass?) If only we had known that the "lose money on every transaction then make it up in volume" model would be pushed aside by something crazier and of far greater magnitude.

In 2021, the bezzle grew to unimaginable proportions. Imagine a well-to-do family sitting down to calculate their net worth last December. Their house is worth three times what they paid for it. The portfolio's doing great, particularly those innovation and disruption stocks they heard about on CNBC. And that investment they made in crypto just for fun has turned into some real money.

Now think about this in terms of stimulus. Crypto alone has pumped trillions of dollars of imaginary money into the economy. Analogously, ending the bezzle functions like a massive contractionary tax. Markets returning to rationality is seen as taking away money from investors. [Emphasis added.]

New CEO Barry McCarthy took the helm in February and has vowed to turn around the company, which had been thriving during pandemic lockdowns but is now struggling with slowing demand. But he has dismissed the idea of selling the business—irking investors like Blackwells, which says that Amazon.com Inc. and others could be bidders.

Peloton co-founder John Foley was removed from the CEO job in February’s shake-up, but remains executive chairman and is part of a group that controls the company with super-voting stock. That limits the power of an investor like Blackwells to force Peloton’s hand.

...

“No shareholder should want Mr. Foley to still sit atop the management pyramid or control the board through his super voting-stock. He lost his entitlement to both positions when he destroyed $40 billion of shareholder wealth in less than a year.”

In response, Peloton said it “appreciates the views of our shareholders and have acted, and will continue to act, in the best interests of all Peloton shareholders.”

McCarthy, a former finance executive at Netflix Inc. and Spotify Technology SA, has been working to boost Peloton’s revenue from services -- as opposed to hardware.


Of course, that $40 billion of shareholder was no more destroyed than the value of a diamond is destroyed when the appraiser reveals that it's paste. The difference between Peloton trading at 160 and at 10 was pure febezzle.



Of course, economic contraction is always painful, but at the moment it's not the worst imaginable outcome.

I suspect Marshall was joking but he might not have been entirely wrong.

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Thursday, June 16, 2022

Just over five years ago at the blog: “I’m almost afraid not to take the chance,” – This is when it becomes a bubble.

I went through all of our crypto posts and this quote (along with the story around it) jumped out at me. It captures that key shift when the madness really kicks in. 

Just to be clear, there was already a bubble before we ran this, but 2017/2018 was around the time the state of things became obvious. ("When the bubble became obvious" would be a more accurate but clumsier title.) Anyone who was still talking about the promise of cryptocurrencies in 2019 is someone whose financial advice should be avoided in the future.

The article also does  good job of reminding us of the human cost. Recently, much of the public face of web3 has been dominated by truly noxious (and often misogynistic) flakes and assholes waving away inconvenient facts with hfsp ("Have fun staying poor"). Most people getting hurt committed no crime other than to believe the hype which, up until a few months ago, most of the press was also buying into.

 

 

Tuesday, February 13, 2018

“I’m almost afraid not to take the chance,” – This is when it becomes a bubble.


It's that moment when risk aversion flips and the thought of not making money starts to feel like losing it. I'm not talking about opportunity costs in any kind of rational sense. Instead, I'm referring to having the visceral emotional reaction associated with a deep, costly loss because you didn't buy into the skyrocketing market the day before. People become afraid not to invest in what should obviously be highly risky ventures.

Truly crazy bubbles are driven by this paradoxical combination of greed and fear. They both desire instant wealth and dread the sense of regret that would go with missing it. Individually, either of these emotions can drive otherwise sensible people into irrational behavior. Together, they can spur investment in some laughably bad ideas.

This Washington Post piece by Chico Harlan on a group of Bitcoin investors perfectly illustrates the point.

“Us little guys working our butts off, we can’t get ahead,” Cedric Knight, 35, told Melin. “This is a once-in-a-lifetime opportunity to change my life.”

Knight and others visiting Melin were pinning their hopes on a new form of currency whose potential value the world was only beginning to recognize. Millions of people around the world are chasing after fortune by investing in bitcoin — which has soared by more than 2,500 percent in value in the past two years — and other digital instruments known as cryptocurrencies.

...

“What crypto allows is for the masses to be venture capitalists,” Melin said.

“And guys like me, I’m not in the loop,” Knight said. “This is my chance.”

…

Knight, meantime, went home, cooked dinner and then decided to reopen one of the eight cryptocurrency apps he had downloaded. His account had fallen nearly $500 on the day — his initial $1,500 was below $900 — and he said he was “freaking out.” But then, he thought about what it meant to be a cryptocurrency investor. There would be days such as this. But there might be better days, too — much better days. If there were, he did not want to miss out.

“I’m almost afraid not to take the chance,” he said, and soon, he added $260 to his cryptocurrency account.



Some historical perspective from the archives.

"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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