Friday, October 4, 2019

I do, however, believe Elon Musk can deform flatware with the force of his mind

More from Bethany McLean's exceptional report on Solar City.

The controversy over SolarCity, which has dovetailed with questions about Musk’s mountain of debt and profit shortfalls, offers a window into the mind-set of America’s most outlandish and unpredictable CEO. Musk’s believers argue that the details of his ventures don’t matter: It’s the grand vision that counts. “The guy has a will to make stuff happen that is extraordinary,” says someone who worked closely with Musk. “He willed Tesla to happen. And in willing a reality into existence, he might not stick to the facts.” But in the case of SolarCity, Musk’s penchant for making promises he can’t deliver on turned out to matter a great deal—and could even pose a threat to his entire empire.

I remember someone (I believe it was James Randi) observing that when you presented a true believer with incontrovertible proof that Uri Geller they would often explain away the fraud, arguing that you had to make accommodations for someone who could do the impossible.

Elon Musk didn't will Tesla into existence; he didn't even found it. That doesn't take away from Musk's accomplishments building and promoting the company, but it wasn't magic. When people start describing impressive but ordinary accomplishments in miraculous terms, they start thinking in those terms as well.







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Thursday, October 3, 2019

We expect to have the 3-kilometer test track completed by 2021 or 2119, whichever comes first

Not sure how I missed this piece in the National Interest on potential security issues with the hyperloop. The reporting is a bit thin in spots, but it generally does a good job and it's almost the only coverage one of the most important aspects of the story has received.

This part, however... not so much, though my problem is more with the genre than with this article.

“We’re aiming for a city to city Hyperloop system, not within twenty years, not within ten years, but just within four years,” said Tim Houter, CEO of Hardt Global Mobility, at a TNW conference in Amsterdam.

Houter’s startup is developing a Hyperloop system with support from the Technical University of Delft, Dutch railway company Nederlandse Spoorwegen, and multinational construction company BAM. It is one of many Hyperloop projects presently underway.

This was always a bad joke, another example of treating the most absurd of claims as if they were serious proposals from credible people. Elsewhere Houter talked about connecting Paris and Amsterdam, 500 km apart requiring a thousand miles of tube. As far as I can tell, two of the four years in, here's what they've got.



‘Fully operational’ in this case means that the system – vacuum steel tube and guiding tracks, passenger pod, magnetic levitation and propulsion system and switching between tracks – can work in a real size environment. The next step will be a 3-kilometer long near-vacuum test tunnel, in which the actual high speeds can be obtained.
There are not "many hyperloop projects underway." There are two or three that might reach some functional or abortive stage or at best achieve tourist attraction status in places like Dubai. All the rest of the plans you hear about are either the pitches of con men or the ravings of cranks or some mix thereof.

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Wednesday, October 2, 2019

Tuesday(ish) Tweets




















We'll be coming back to this one.



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Tuesday, October 1, 2019

Four years ago (more or less) -- taking all the fun out of lying





One of the changes we noted in 2016 was the breakdown, or at least the beginning of a breakdown, of polite journalistic conventions that had played an essential role in enabling the mainstream side of the conservative movement's media strategy. As long as you played nice and didn't blatantly insult the interviewer's intelligence, you could lie freely and expect at worst a mild show of resistance (not even that for a Paul Ryan).

There was, however a limit and Trump's advocates started passing it almost immediately, and the relationship between conservatives and the mainstream media (including the news side of Fox) immediately started to decline.

Of course, Wallace always had a spine, but now we've got Chuck Todd standing up on his hind legs.






Tuesday, August 9, 2016


The loss of plausible deniability

One important point to keep in mind while following this years election is that, of the truly objectionable things about the Trump campaign, very few are actually new. Instead, we have all sorts of practices that have always been unacceptable, but which are now being presented in a way that makes them undeniable.

If you remember the elections of 2000 and 2004, you will probably recall talk of Karl Rove and his mastery of "political jujitsu." It was generally discussed as if it were some sort of mystical Jedi mind trick that allowed Rove to make strings into weaknesses and weaknesses into strengths. Mainly, it came down to the realization that most reporters would respond to obvious lies with straight faces and no follow-up questions.

In 2004, I remember Republican operatives making the argument that George W. Bush's military record compared favorably with that of John Kerry. Just to review, Kerry was a legitimate war hero in terms of courage, sacrifice, and effectiveness. On the other side of the ledger, even if we push aside all of the accusations and contested points about favoritism and completion of requirements, there is a relatively cushy stint in the National Guard.

These and other clearly untrue statements were usually allowed to stand largely because this was a symbiotic relationship. It was in both the source's and the journalist's interests to keep this relationship going and not to push the boundaries in either direction.

The lies we've been hearing recently are not necessarily that much more blatant, but Trump and associates are no longer observing the social conventions that traditionally went with them. If a reporter asks about your candidate's military service and you reply by saying all sorts of nice things about the National Guard, that reporter can move onto the next question without looking like a complete moron. If you look reporters in the face and tell them that twice cheating on then dumping your wife for a younger, more glamorous woman qualifies as a sacrifice, you leave the reporters looking like asses just for letting you get the words out of your mouth.

Which brings us to (from TPM):
Khizr Khan, the father of the Muslim soldier, said in his speech at the Democratic convention last week that Trump had "sacrificed nothing." And Trump hit back over the weekend, saying that he's "made a lot of sacrifices," like creating jobs.

During a CNN panel discussion Sunday, Trump surrogate Scottie Nell Hughes defended Trump's comments.

"Mr. Trump was responding to the fact of sacrificing. Nowhere ever did he ever say that his sacrifice was equivalent or more or even close to what the Kahn’s had given up," she said.

CNN host Fredricka Whitfield then asked, "Is creating a job considered a sacrifice?"

"You know what, creating jobs caused him to be at work, which cost him two marriages,” Hughes said in response. “Time away from his family to sit there and invest.

Clinton surrogate Bernard Whitman jumped in to say, "infidelity cost him."

"No, actually being away from his family, he’s admitted it,” Hughes insisted. "That is the spin of the media and ongoing bias."
 "Creating jobs" normally implies actually paying the people who do work for you, but we can save that for another day.
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Monday, September 30, 2019

Overproduction of elites

This is Joseph

I was talking to Mark, and he noted that the elites in a lot of areas come from a surprisingly narrow background.  They all went to top schools and/or lived in key places. We were discussing what this meant, and to me it is a symptom of something we mostly get wrong as a society.

There is a tendency to talk of there being a shortage of people, for example as a way to justify high CEO pay. And maybe there is some shortage of good people with the "right background" but this sort of background homogeneity is much more aligned with elite overproduction.

Let me give what I think is a good example of elite underproduction:Union officers in the Civil War. It is pretty clear that West Point was dominated by the Southern elite at the time of the Civil War, leaving the Union with a serious deficit of competent officers. So look at some of the people who become important officers: a college professor and a person struggling with alcoholism. It is a good marker of a shortage of people with the key skills when you see people from a wide variety of backgrounds being given a chance. Mark talked about the US job market in 1997, when people from a wide range of backgrounds could get jobs just by showing interest and competence -- so you would see people in jobs quite unrelated to what they were trained in or from very diverse backgrounds.

If there really was a critical shortage of CEOs, you'd see high school teachers taking on business careers and nobody would care what school your MBA came from.

Instead, what you have are 10 trained people for every job.  This has long been true for much of the academic world. Being from a top school, for example, becomes a lot more important as a way of winnowing the field once it is flooded with competent people. Look at how unusual it was for Elizabeth Warren to be at Harvard:
Former Harvard colleagues say Warren’s background stood out at the institution, where graduates routinely clerk for Supreme Court justices. For years, she was the only tenured professor on the law faculty who had attended a public law school in the U.S.
That is a sign of there being too many competent people, so that schools can afford narrow recruitment criterion and still get top people.

Now, where this matter is public policy. We should be asking about how to respond to elite overproduction (often something that causes much social tension) and about how to equalize opportunity.  But I think the idea that we are short of good people for top employment opportunities (in general, small exceptions may exist) is daft.
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Friday, September 27, 2019

Imagining the future of 1960

Always interesting to see how the various decades of the 20th Century viewed progress. We tend to focus on the turn of the century and the post-war era. This film from GM promoting their 1940 World's Fair pavilion is a good reminder that the Depression hadn't managed to dampen the faith in a technology-driven future.

Note also the connection drawn between the closing of the American frontier and the opening of the technological one.

If you're impatient, the cool model work starts around 9:00.





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Thursday, September 26, 2019

Trump and the GOP -- Jenga time


 
Talking with a friend earlier about the day's events. He felt that we had reached the point where it was clearly in the Republicans' interest to start to turn on Trump. I disagreed. My take was that it would be in the GOP's interest to have some distance from the man, but probably not enough so to justify the cost of getting away.

With Watergate, the process was relatively painless, but things are different. Trump has the ability and the temperament to inflict tremendous damage on the party. The Republicans have got to unwind a cult of personality without triggering an intra-party civil war.

I'm  honestly at a loss for how to approach this enormous game of political Jenga. An anonymous senate vote might actually help, working along the same principal as giving one soldier in a firing squad a blank cartridge, but I don't think we can take it seriously (though Campos maybe does just a little).

Here's what we had to say a couple of years ago about the danger Trump presented to the GOP. If anything, I think it's gotten worse.

Tuesday, February 28, 2017


GOP Game Theory -- things are still different

"It's probably better to have him inside the tent pissing out, than outside the tent pissing in."

    LBJ on FBI Director J. Edgar Hoover,

[UPDATE: The conversation continues with The nuclear moose option and The Republicans' 3 x 3 existential threat.]


Let's start with a prediction:
Senate Minority Leader Charles Schumer (D-N.Y.) predicted on Tuesday that Republicans will split with President Trump within months unless the administration changes course.0
"My prediction is he keeps up on this path...within three, four months you're going to see a whole lot of Republicans breaking with him," Schumer said during an interview with ABC's "The View."
Schumer argued while most GOP lawmakers aren't yet willing to break publicly from the White House, they are privately having "real problems" with Trump's policies in his first month.

"A lot of the Republicans, they're mainstream people. ... They will feel they have no choice but to break with him," he said.
GOP leadership are largely dismissing any early signs of discord between Congress and the White House as they slowly try to make progress on an ambitious agenda.


Ed Kilgore, however, points out that Trump may not be as toxic as many people think:

So while it is hard to deny that Trump is amazingly unpopular for a new president, unless his approval ratings trend farther down the way even those of popular presidents typically do, his party may not suffer the kind of humiliation Democrats experienced in 2010. For all the shock Trump has consistently inspired with his behavior as president, there’s not much objective reason for Republican politicians to panic and begin abandoning him based on his current public standing. But in this as in so many other respects, we are talking about an unprecedented chief executive, so the collapse some in the media and the Democratic Party perceive as already underway could yet arrive.




The relationship between the Trump/Bannon White House and the GOP legislature is perhaps uniquely suited for a textbook game theory analysis. In pretty much all previous cases,  relationships between presidents and Congress have been complicated by numerous factors other than naked self-interest--ideological, partisan, personal, cultural--but this time it's different. With a few isolated exceptions, there is no deeply held common ground between the White House and Capitol Hill. The current arrangement is strictly based on people getting things they care about in exchange for things they don't.

However, while the relationship is simple in those terms, it is dauntingly complex in terms of the pros and cons of staying versus going. If the Republicans stand with Trump, he will probably sign any piece of legislation that comes across his desk (with this White House, "probably" is always a necessary qualifier). This comes at the cost of losing their ability to distance themselves from and increasingly unpopular and scandal-ridden administration.

Some of that distance might be clawed back by public criticism of the president and by high-profile hearings, but those steps bring even greater risks. Trump has no interest in the GOP's legislative agenda, no loyalty to the party, and no particular affection for its leaders. Worse still, as Josh Marshall has frequently noted, Trump has the bully's instinctive tendency to go after the vulnerable. There is a limit to the damage he can inflict on the Democrats, but he is in a position to literally destroy the Republican Party.

We often hear this framed in terms of Trump supporters making trouble in the primaries, but that's pre-2016 thinking. This goes far deeper. In addition to a seemingly total lack of interpersonal, temperamental, and rhetorical constraints, Trump is highly popular with a large segment of the base. In the event of an intra-party war, some of this support would undoubtedly peel away, but a substantial portion would stay.

Keep in mind, all of this takes place in the context of a troubling demographic tide for the Republicans. Their strategic response to this has been to maximize turnout within the party while suppressing the vote on the other side. It has been a shrewd strategy but it leaves little margin for error.  Trump has the ability to drive a wedge between a significant chunk of the base and the GOP for at least the next few cycles, possibly enough to threaten the viability of the party.

The closest analogy that comes to mind is the Democrats and Vietnam, but that was a rift in a big-tent loosely organized party. The 21st Century GOP is a small tent party that depends on discipline and entrenchment strategies. It's not clear that it would survive a civil war.

Given that, I suspect the next year or two will prove Schumer wrong. There is some evidence that the president's polling has stabilized, perhaps even rebounded a bit, but even if the numbers go back into free fall, Republicans in the House and the Senate will be extremely reluctant to break from Trump with anything more than isolated or cosmetic challenges.

This isn't just a question of not wanting Trump outside the tent pissing in; this is a question of not wanting Trump outside the tent tossing grenades. 
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The Stag Hunt Framework

I have a feeling this conversation is about to become relevant again, so this might be a good time to reintroduce some concepts.

Tuesday, August 6, 2013

Metablogging -- stag hunts, misalignment, principal agents and all that jazz

Shortly after Josh Marshall posted this analysis of recent events in the GOP, Joseph called me up to compare reactions. We've been having this conversation for so many years that much of it has devolved into a self-referential shorthand. As an illustration, at one point, after a fairly long-winded comment by me, Joseph simply said "Stag hunt." and tossed the ball back to me and we moved on to the next topic.

We agreed (with, I assume, fingers crossed on both ends of the line) that we'd write some posts on the subject, but I'm starting to think that it might be more useful to step back for a minute and talk about how we've been framing the question of what's going on in the Republican Party (politically, not socially or in terms of policy. Those are entirely different metaposts).

For years now, the two of us have been talking about the post-Tea Party GOP in terms of a multi-player stag hunt. Over the past few years the stakes (particularly the costs of failure) have increased. At the same time, participation rates required to take down the stag have also increased. As a result, progressively smaller groups have gained the power to kill the enterprise. (In a different conversation Joseph pointed out that, in a military context, shooting deserters is also a predictable result of this situation.) We could dig deeper into examples and implications (particularly with respect to the trade off between the power of an alliance vs. its stability) but for now I want to limit the discussion to framing.

(there might also be a place here to talk about symmetry breaking, but I'd need to give that some thought first.)

Another way of looking at the story we've found useful is to look at misalignment of interests, especially what looks to us two non-economists as a particularly nasty two-level principal agent problem where a small group of big donors determine the pool of viable candidates and a relatively small but coherent subgroup of the primary voters make the purchasing decisions for the entire party. You'll notice that, like the stag hunt frame, under this scenario small groups can acquire disproportionate power.

And of course there's the mandatory Influence reference, framing the story in terms of social psychology. If you check out the chapters on commitment and consistency, social proof, and scarcity you'll find all sorts of applicable discussions of the ways groups united by a common belief system deal with ideological challenges and the loss of dominance.

Nothing particularly fresh or profound here, but these idea have proven a pretty good framework recently. I'm not saying they should be the basis of the standard narrative -- I'm not sure there should be a standard narrative -- but they do come in handy. More importantly, I think you can make the case that too little of the public discourse is spent examining underlying assumptions and asking about the different ways to frame our questions.
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Wednesday, September 25, 2019

Twilight of the Unicorns -- WeWork ReCap

I don't think I'll have enough time for this one. I've had years to point out the dubious claims and questionable business logic of companies like Uber, Netflix,Tesla/Solar City and whoever's promising a hyperloop this week, but when I find perhaps the purest example of a 21st bullshit and hype company, the damned thing starts to collapse the moment it gets on my radar.


 
  Couldn't happen to a nicer guy.






Tom Braithwaite points out there's plenty of blame to go around.
 Even as he elevates sanctimoniousness to an art form, Mr Neumann has withdrawn massive amounts of cash from his pre-IPO, pre-profit company and embraced huge conflicts of interest.

He has taken out $700m in share sales and loans. He charged the company $5.9m for the trademark “We”. He part-owned four properties that were leased to the company for $8m last year.

It is easy to mock Mr Neumann. But others share responsibility. To lay all the blame at his door is to fall into the old trap of seeing all unicorns through the prism of their founder-gods.

There is a board, which is supposed to provide checks and balances. In descending order of tenure: Bruce Dunlevie, a founding partner at venture capital firm Benchmark, who has been there since July 2012; Steven Langman, co-founder of private equity firm Rhône; Lew Frankfort, former chief executive of luxury goods brand Coach; John Zhao, chief executive of Chinese investment firm Hony Capital; Mark Schwartz, former Goldman Sachs Asia head; and Ron Fisher, a SoftBank director, who joined in November 2017.

The all-male composition of the board is just the most glaring example of its tone deafness. The directors signed off on all of Mr Neumann’s efforts to extract money from the company. Belatedly, the group is reversing some of the cavalier decisions and improving corporate governance as it tries to win over public investors. Mr Neumann is returning some of the payments.

Of course, the suffering won't quite be distributed equally.
The fine print is known as a ratchet, and speaks to the opaque nature of private markets and sky-high valuations. The real estate start-up’s parent company was valued at $47 billion after its last funding round from SoftBank.

In the case of the WeWork’s parent company, it was a “partial ratchet” disclosed on page 115 of its S-1 filing. If the stock price comes in below a certain price in the IPO, investors like SoftBank will receive additional shares as compensation.

If triggered, these protections usually result in only a few million dollars worth of extra shares, according to Matthew Kennedy, senior IPO market strategist at Renaissance Capital. But because SoftBank’s latest round was so large and the possible down-round was looking to be less than half of that, the provision was expected to result in the world’s largest IPO ratchet.

“As a result, the founder and employees would see their own shares diluted,” Kennedy said. “It doesn’t look good for common shareholders to see that extra dilution on top of a down around.”



We'll give Stoller the last word.


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Tuesday, September 24, 2019

Bright 2's future not 2 Bright

One of my little blogger's quirks is to make make mental notes of promised developments in stories I'm following, and to Google them from time to time to see if anything has come of them. One of these stories that caught my eye was the too-good-to-be-true roof tiles from Elon Musk. It took a while but that one finally took an interesting turn.

Another big story that suddenly got very quiet was the sequel to the Netflix film Bright. The company announced that it had been a tremendous success, bringing in unprecedented numbers. Bright 2 was announced almost immediately.

Say what you will about Netflix, it's a company that can move quickly when it wants to, and it really wanted a blockbuster franchise, so you would expect an aggressive production schedule. Instead, there were various delays and rescheduling, all handled with an uncharacteristic lack of fanfare from a company that spends billions on marketing and publicity.

And then this.
As it turns out, production was actually slated to take place earlier this year, it just had to get to delayed due to Smith's perennially packed schedule. Lucy Fry, who starred in the first Bright as the magical Tikka, spoke to ComicBook.com this week ahead of her new TV series, Godfather of Harlem, and explained why Bright 2 has been on the back burner.

"We were going to do it this year, and then it didn't happen because of Will's schedule," Fry told us. "And I really hope they do another one because I had so much fun making that movie. So, I just hope we get to do it again."

So does that mean it will be rescheduled soon, or is Bright 2 going to be sent to production hell for the foreseeable future? We asked Fry what was in store for Bright 2 going forward and, for now, she's just as in the dark as the rest of us.

"No, I don't know," she said. "I'm sorry! I wish I did know."

When they stop even pretending to want to reschedule, that's a bad sign.

When you look at Netflix's content catalog, things they own rather than merely license for the next 2 to 7 years, you see that it is awfully thin, particularly in the absolutely essential areas of children's programming where their slate of Originals consist almost entirely other people's properties, shows with legs and lots of episodes like friends, and big blockbuster franchises. Of these three, the franchises are probably the least important in terms of bottom line but  arguably the most important in terms of perceived success.

Given this, if Netflix actually believed that the Bright franchise was their chance to fill in that hole in their catalog and to reassure investors that the loss of Star Wars and the Marvel Cinematic Universe wasn't going to be a problem, the company would be doing everything in its power to get this next film out as soon as possible, and when a company is spending 10 to 15 billion dollars annually on content and another billion plus on marketing, they can do a hell of a lot.

It's true that Will Smith is a big and busy star, but he is no more big or busy than he was a few years ago, particularly after dropping out of Suicide Squad. If he and Netflix believed this franchise was really going to be that big, they probably would have gotten it done by now, it certainly wouldn't be hanging in the I-don't-know-we'll-see limbo where it currently resides.

Does that mean that Netflix lied about the viewership numbers for the first installment? Probably not though it's a possibility we should always consider. Far more likely that they were selective in the numbers they presented. Hit is not a concept that can be measured with a scalar, especially not in this context. Did people seek out the show or simply go along with the autoplay? What was the impact on churn? What about repeat viewings?  Did people show a preference for this show over other similar programs on the service?

With a major star, a massive marketing budget, and a pricing system where existing members pay no additional charge to see the movie while new members get the first month free, it is not difficult to rack up huge initial viewership numbers. Other numbers matter much more, and the people who have seen those don't seem all that eager to push ahead with this project.

Why should you care? In terms of the film itself, you probably shouldn't. But when dealing with unicorn companies, it's always good to question the official narratives.

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Monday, September 23, 2019

Democracy

This is Joseph

There are two types of democracy that have been tried: direct democracy and representative democracy.  Direct democracy is most famous from Athens, a city state small enough that it was possible for everyone to gather in one place to make decisions. The more advanced representative democracy evolved to allow for geographical distance and to make discussions tractable. The downside is that it insulates specific decisions from direct participation, which creates an opportunity for corruption.  Direct democracy has the disadvantages of "mob rule" where the heat of passion can cause a large group to make poor decisions that are difficult to reverse.

So far, so good.

However, there is a new fad of mixing these two types of government, and it seems to bring the downsides of both. For example, the US has several states (Washington, California) that allow ballot initiatives to bar tax increases. This tends to have distorting economic effects and starves the state of revenue.  The UK had a referendum on leaving the UK, that created an ongoing crisis because it didn't specify how it was going to leave.  In the absence of a specific plan, all sorts of positive assumptions are plausible since you don't have to look at the fine details.

Worst of all, the representatives have to sort this out, creating situations that nobody likes and often causing no end of political headaches. And, unlike a body of representatives, which refreshes every few years, these decisions are often permanent until repealed. Like a lot of "simple" solutions, referendums create a lot of problems, unless the goal is for government to work poorly.

Just a thought for the day.
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Friday, September 20, 2019

Though I have to admit it will be cool seeing Hanks driving the crawler

We've previously made the point that many, perhaps most, of the technological breakthroughs that are presented as being just around the corner as we round out the first quarter century of the new millennium are taken often unaltered from the sci-fi tropes, images, and perhaps most notably toys of the post-war era. Willy Ley models, GI Joe Spacemen and the elaborate vehicles of Major Matt Mason.























So perhaps inevitably...
Tom Hanks is headed back to outer space.

The Oscar winner is set to star in a feature film based on a Mattel action figure from the 1960s called Major Matt Mason, numerous insiders familiar with the project tell Variety. The film is set up at Paramount Pictures.

Screenwriter Akiva Goldsman, who previously worked with Hanks on “The Da Vinci Code” and “Angels & Demons,” will adapt the script from a short story about the character from Pulitzer Prize winner Michael Chabon. Mattel Films is co-producing with the studio.


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Thursday, September 19, 2019

Health Insurance Addiction

This is Joseph

This exchange on twitter was surreal:


So, first of all, let me say for the record that there are a lot of drugs that cost more than $4 out of pocket. This is in a market with very little price transparency. There are going to be a few cases you encounter where an insurance plan charges for a medication than self-pay. But the effort to identify them is likely to be extremely hard.

The other issue is costs in the US are very high, in general. I had to self-pay for a medical appointment in Canada recently and it was $50 CAD. Fifteen years ago when I did this in Seattle it was $275 USD. For precisely the same reason: getting an antibiotic for an infection with about 10 minutes of medical contact. There is a reason people are terrified of having a major exposure to health care costs.

It is also the case that I don't think an open market in health care has ever been tried in the United States in the modern era. Licensing and immigration rules mean that foreign and self trained medical doctors cannot rush into this lucrative market. Prescriptions are held by gate-keepers. Nobody can self-treat an infection, even if they manage to guess correctly what is required. Hospital emergency rooms are closing and there is not an emerging low cost substitute (a sign of a market that is not open). Those that remain are now handing out "surprise bills", even to those with insurance.

This is not to say that single payer is a miracle solution. In a system like this it insures big losers all over the place and I don't think that can be overlooked.  But the idea that the problem with the current system is "insurance" seems like a bad one unless there is a very radical libertarian reform. I would be interested in seeing such an approach, but I suspect that market forces would be crueler to the health care industry profits than any government regulated approach.

Anyway, a tweet strength that brought me back from retirement.

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Wednesday, September 18, 2019

Michael Hiltzik eviscerates WeWork's business model.


Hiltzik has always had a gift for seeing through bullshit narratives of transformation and disruption. Here he takes a hard look at WeWork and finds that it's even worse than we thought. 
The key point to keep in mind about WeWork, when the baroque deal-making and new age blather is backed out, is that its business model seems almost to be begging to blow itself into smithereens. Boiled down, it amounts to WeWork acquiring office space in bulk via leases with an average term of 15 years, and subleasing it out via tenant contracts (excuse me, “memberships”) with average terms of 15 months. WeWork acknowledges that “in many cases, our members may terminate their membership agreements ... upon as little notice as one calendar month.”

Aficionados of economic history will recognize that the mismatch of long-term liabilities and short-term assets underlies pretty much every financial crash ever, including the crash of 2008. In this case, a downturn could result in WeWork’s tenant base evaporating, leaving it on the hook for lease obligations it estimates at $47.2 billion. WeWork tries to put rouge on this ogre by stating that in a downturn, after all, the cost of leases and construction will be lower.

Real estate experts unsnowed by WeWork’s touchy-feelism don’t buy this. One is the Chicago-based entrepreneur Sam Zell, who told CNBC this month that he had invested in a similar subleasing company once and has the scars to prove it. “Every single company in this space has gone broke,” he said. “Why is this any different?” During the period he owned Tribune Co., then the parent of The Times, Zell may have shown himself to be singularly maladroit as a newspaper proprietor, but there’s no point pretending that he doesn’t know real estate.

Nor is WeWork’s model anything new. Back in the 1970s, for example, there was Los Angeles-based Attorneys Office Management, which provided small-time lawyers with offices equipped with receptionists, clerical staff and law libraries they couldn’t afford on their own. The spaces were known as “Fegen Suites” after the firm’s chairman, Paul Fegen (pronounced “fee-jun”), an attorney. But the company went bankrupt in 1983 during a real estate crash. Fegen was later disbarred for mishandling several client accounts and has since resurfaced as a professional magician.

It’s not entirely inconceivable that WeWork has broken a code that remained opaque to Fegen and the real estate types familiar to Zell. Neumann certainly wins plaudits as a salesman. As my colleague Roger Vincent reported in May, some big office space developers have taken a look at WeWork’s business model and done it the ultimate compliment of copying it — offering tenants more flexible leases and occupancy amenities.

That’s not great news for WeWork, because it underscores that in real estate, there’s nothing new under the sun, or at least nothing that can’t be replicated. Indeed, even without competition from old line real estate firms, WeWork faced competition from other venture-funded office rental firms.
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Tuesday, September 17, 2019

Tuesday Tweets













 




 





And finally, there's a metaphor here somewhere.



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