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

More good reporting from the reliable Coffeezilla

"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.

possible that the Fed won't have to do any more tightening because the collapse of crypto will remove enough wealth and demand from the economy on its own.

— Josh Marshall (@joshtpm) June 15, 2022

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

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

 

Bitcoin and transaction costs

This is Joseph.

Mark has noted that he called the cryptocurrency bubble in advance [which makes me sound a bit dickish when you just come out and say it -- MP]. We are all aware that Bitcoin is volatile, which is a bad property as a store of value. But other stores of value are also volatile (like gold). But one feature of bitcoin seems under-reported. We know that miner rewards drop with time and that about 20% of bitcoin is "lost". The lost feature is terrible because it means the supply shrinks with time to become less and less -- in other words the currency is naturally deflationary. Deflationary is bad because it encourages holding on to money instead of spending money, which is not a good economic feature. Again, all well know issues. 

We also know about the slow transaction speed (visa does 1,700 transactions per second, Bitcoin does 4.6) which creates concern about scalability and ability to settle small transactions quickly. 

But what about transaction fees. Here is Square's transaction fees in Canada:

Square has competitive, transparent pricing so you know exactly how much you’re paying to process credit and debit cards. It’s just 2.65% per tap, dip or swipe for Visa, Mastercard, American Express and international credit cards, 3.4% + 15 cents for each card not present transaction (like Virtual Terminal), and 2.9% + 30 cents for other transactions (like invoices paid online). For debit transaction, it’s just a 10 cent flat fee for every Interac insert and tap.

Now a currency, like Bitcoin, is probably closest to Interac.  So that is about 7.9 cents in USD. What are the transaction fees like with Bitcoin? Well, they are not fixed but it is a bidding process. Looking at the past year or so we have fees like: 

• June 13th USD$2.492 
• June 12th USD$1.258
• March 2nd USD$4.471

The lowest of these would be 16 times the Interac rate and would pull level with VISA at nearly the USD$100 mark. Keep in mind this is while rewards for miners are still happening so prices could still go up. 

On April 19, 2021, it reached a peak of USD58.858. 

Now consider an Interac transaction for a cup of coffee. The best coffee is starbucks [That's the only factual error in this post -- MP] and it costs $2.10 plus 13% HST tax for a cup in Ontario (specific locations may vary). An Interac card leaves the store with $2.00 revenue for the cup. Visa leaves the store with $2.04. So a profitable transaction. Now interac is currently running 7 transaction per second but it is in only one small country (Canada) with 40 million inhabitants. Bitcoin is traded worldwide. 

With a bitcoin the cost on June 13th would be about CAD$3.19 for a net loss. If the customer pays the fee then the cost of a cup of coffee, after tax, goes from $2.37 to $5.56 if you pay the average transaction fee. Paying low transaction fees may make the processing unattractive. 

How long does this take on average at the storefront with all going well? Estimates of about 10 minutes are not reassuring for a coffee shop. Small interac transfers are very fast compared to that (I find the actual interface takes 10-15 seconds to confirm). 

Other currencies don't seem to be a solution. Ethereum was USD$2.182 on June 13th, 2022 which isn't a huge advantage over bitcoin. Nor does the 30 transaction per second compare favorably to VISA. Proof of stake is interesting but one might want to wait a bit and make sure it was not vulnerable to clever coders or investors, as coding errors have caused a hard fork before. 

Now, keep in mind the use case of Bitcoin is as a currency and not an investment. The idea is to get in early before everyone uses it, which essentially requires it to be deflationary to make a buy and hold strategy rational. So you have a slow, expensive technology that can't solve the basic problems that paper currency can? But it is both deflationary, volatile, and hard to estimate transaction costs on. 

Are these good properties? 

Journal Club: when the headline and findings diverge

This is Joseph.

This study has been making the rounds:

Now I want to be very careful here. What was the actual category (listed as #2 in the article:

The datasets are available from the corresponding author on reasonable request.

Now look at what happens:

In summary, of 1792 e-mails sent, we did not receive any response for 1538 articles because messages were not delivered (N=77; 4.3%) or the author did not reply (N=1461; 81%). Responses were received from 254 (14%) contacted authors 

So, first of all, I am not sure that we should consider the 4% who did not have a message delivered considered to be "non-compliant". That is important as the headline number of  93% did not respond includes those who were not actually successfully contacted. Of those responding, about 1/2 (122 vs 132) shared their data. 

Then we have the most common reasons:

1. The authors asked for more information about our study, but after our detailed response and clarification, we did not receive further response from them 
2. Their informed patient consent did not include sharing data with other researchers, or the ethical committee prohibited external data sharing and use 
3. They cannot access the data, either because they are no longer in the institution that conducted the research, or they are no longer active on the project 
4. They do not want to share the data or in any way participate in our study without a specific explanation

Some of these are declining to be in the study and some seem like reasonable excuses. Data often belongs to the institution and a closed down lab might have no way to get data. Still, of the responders the success rate was 48%, which seems like a reasonable level of outcome given that you are openly declaring that this is for a study and not for the research project itself.

That reminds me, what about the non-responders:

The Ethics Committee of the University of Split School of Medicine approved the study protocol. Scanned approval of the Ethics Committee was available to the study participants on request. Study participants were informed in the invitation that their response to the emailed questions is considered as their written informed consent.

So, responding to the email is considered to be consenting to the study. Which means that people who decided not to participate are being told that sending a response is considered written and informed consent. Now the sample letter they used is not yet available online, but is participating in a study mandatory? 

So what does Canada think about this? 

. . . the core ethics principle of respect for persons implies that individuals who participate in research should do so voluntarily, understanding the purpose of the research, and its risks and potential benefits, as fully as reasonably possible

What about the US NIH:

Informed Consent

The Belmont principle of respect for persons is primarily applied by requiring that all human

subjects research participants provide voluntary informed consent to participate in research.

The three fundamental aspects of informed consent are:

1. Voluntariness

2. Comprehension

3. Disclosure

And:

Potential participants must understand that enrolling in the research is voluntary and that they may withdraw from the study at any time without penalty or loss of benefits

So there are two reasons that a person could chose not to have provided data:

1. They were not being especially honest in providing data
2. They chose not to consent to a research study

What do the authors conclude:

In conclusion, authors of research articles are frequently not willing to share their data, even if they wrote in their manuscript DAS that they would do so. Our findings can enable the creation of new guidelines and practices in the research community to foster the availability of raw research data

It is worth also noting that they are not making the raw data available for this study, which doesn't seem to foster the availability of raw data.

We did not publish our raw data along with the manuscript because it could be understood that we are publicly shaming authors who did not want to share their data. As for the raw data that were received during this study, we informed our study participants that those raw data will be deleted after being examined and that all data and communication will be treated with strict confidence

 But putting that aside, they really can't tell the difference between choosing not to participate and declining to share data.  But they had a 48% success rate among the responders and even that denominator is shaky.

Consider items 1 and 4 of the most common reasons. How different is that from withdrawing consent from the study based on being informed? Reason #3 (lost access) seems like a pretty odd thing to frame as "not compliant" (the author's title). Reason #2 is odd but could be an issue for sharing data outside of the context of replication or exploration (what is reasonable is a very important nuance).

So all we could be discovering is that busy researchers often decline to participate in mass email research studies that involve a fair amount of labor (in this case uncompensated). Among those who had the ability to respond, I think they got better than half as reasons like the ones below may not really make sense to include in the denominator:

• A conceptual article, no data to share
• The author wanted ethics approval translated into English
• They cannot access the data, either because they are no longer in the institution that conducted the research, or they are no longer active on the project
• The corresponding author instructed us to use a web service to request the data

Is it "not compliant" if the author lost access to the data (institution being especially clear) or they wanted a web service to be used? What is really missing here is a clear statement of the estimand, which is the propensity to participate in an email study and not the propensity to share data with peers. 

In any case, this is a long discussion of an article. But the headline is getting a lot of engagement and I am not sure it can be clearly interpreted that way. A data request, as a part of research, becomes voluntary based on clear ethical principles and it seems very odd to characterize a decision not to engage as "not compliant" when you state even replying to the email is taken as informed consent. Nobody is entitled to informed consent (it's consent not obligation) and so it is utterly unclear what the rate would be in the 85% who either never got the email or chose not to consent to a voluntary research study. 

Simple political analysis

This is Joseph.

As a fun palate cleanser after Mark's extremely important post, I thought that discussing this tweet would be fun. But seriously, watch the video first. 

Changing a sitting president is challenging, even if the incumbent is willing to step aside. Just for the record, there is no hint that Joe Biden is interested in stepping aside. That said, if he did, these seem to be his political weak points:

1. Age (he will be 83 when he starts a second term). I actually think this might be his biggest vulnerability if the Republicans run somebody younger (e.g., not Trump)
2. Inflation is always politically painful
3. Other branches of government (primarily the judiciary but also things like the filibuster threshold in the senate).

Bernie helps with none of these. He is a year older then Biden and Biden would be starting a second term and not a first. At the end of two terms, Bernie would be over 90. Biden is well aware inflation is bad and that constrains populist plans (with inflation and interest rates rising, you need to make more serious tradeoffs which makes it hard to get a major spending program going). 

What about the courts? The Trump speed run on the judiciary is real but it isn't like Biden isn't addressing it. Despite a very narrow senate majority, he even confirmed a very competent supreme court justice with a history as a public defender. The senate is a concern as it has a skew that makes it favorable for Republicans. But I am unaware of any case where Bernie running would assist greatly with the senate races. But really that'd be the only scenario that would be at all intriguing.

Speaking of the senate, Bernie is 80 years old and will be 83 at the start of a 4th senate term in a state with a Republican governor. If we are worried about the senate then getting a strong replacement in the next two years seems far more productive.

Now, I am on record as saying it would not surprise me if Joe Biden was a single term president. He returned to political life at a time that really required somebody of his talents and background, but he is also nearly 80. Nor is this without precedent:  Lyndon B. Johnson, James K. Polk, James Buchanan and Rutherford B. Hayes were all voluntarily one term presidents (and Hayes was succeeded by another Republican so party switching is hardly a certain outcome in this small sample). 

But a replacement needs to a tell a compelling story about how they would improve the fortunes of the Democratic party. Bernie has been extremely important in setting policy priorities and will end as an extremely important senator. But he addresses none of the three main vulnerabilities and I think it is hard to see who could impact #2 and #3. So you need somebody with Joe Biden's strengths but who is less susceptible to the "sleepy Joe Biden" line of attack. But keep in mind this was not a highly successful line of attack. So options are quite limited. 

But that depends on a great many tough political decisions and a lot of things that are unknowable (e.g., what Joe Biden wants). But I see no good argument. Even Trump running again doesn't move the needle -- Biden already beat Trump and that'd be compelling psychology in a rematch. 

"Legitimate Political Discourse"

The January 6th committee debuted shocking new footage of the Capitol insurrection.

Take 10 minutes and watch. pic.twitter.com/P3Zl9XPxLM

— The Recount (@therecount) June 10, 2022

Arguments not in evidence

This is Joseph.

Mark had a pretty strong reaction to my last piece. It has been a while since we had a debate and I think this is a good place for one. Let me state, before anything else, that Mark made good points. 

But here is the thing, even though the reasons that he brings up are absolutely correct, they are not actually part of the core arguments being made by either side. I see the issue is administrative processes dragging on for very long periods of time, I think that whole new reasons becoming clear, as the megafire issue because more obvious, is actually a good example of this phenomenon. 

The environmental impact report does mention the wildland fire risk as follows:

Wildland Fires

The Project site is located in a mostly urbanized area, and is surrounded by a variety of residential and commercial/office land uses. While the majority of the surrounding area is currently developed with residential and commercial uses, uphill to the north of the Project site is an additional a roughly 4.6 acres of undeveloped privately-owned parcel land, itself surrounded by development. This relatively small and isolated wild area would not be considered a high risk for wildfires and is not in an identified high fire hazard zone, as listed in Section 5.3.1 of the General Plan. In addition, it the Project is subject to approval of the Fire Marshal as it relates to brush and vegetation removal to the north. As such, the Project would have a less than significant impact.

Now this report is from 2012; conditions may well have changed. But this is a decade ago. The real concern here is not that the development is or is not approved. It's that starting a process to determine whether it can be approved or not is still going nearly 18 years after the initial process began.  

Perhaps my first piece could have been clearer: it would be a far better world where the project was just dead after 5 years than one in which the costs can be driven up so much by legalistic delay. If the project is a bad idea then it should be canned. But it has been a decade since the final environmental report. Maybe it was botched. Maybe we know more a decade later. 

It's also worth noting the original zoning that is being challenged (i.e., what could be built without the zoning change): Professional Administrative Office. So this debate is not about protected wildland but a debate about whether this parcel of land should be a series of townhomes or an office building. Now maybe it should be protected wildland, but the process should be a lot faster, one would think, about making this determination. 

But the petition itself makes none of the excellent arguments that Mark is making (go read them first, they are smart and well taken, unlike what you are about to read):

The project as proposed would result in unacceptable adverse impacts on public safety and traffic congestion due to the increased number of vehicles attempting ingress and egress onto East Blithedale, at what is already the City’s most congested intersection.

The project proposes height, unit density, and building massing that is grossly inappropriate and out of character with the surrounding neighborhoods and structures, which would result in significant adverse visual and aesthetic impacts to those neighborhoods, and be in direct violation of the City's Design Guidelines and General Plan policies for the area.

The conclusions of the EIR that the project will have no significant impacts which cannot be mitigated, particularly with regard to traffic and visual criteria, are unrealistic and without basis in fact.

The project’s density would result in the complete loss of valuable open space, the obliteration of vegetation on the final foothill of Mt. Tam, and a loss of the aesthetic quality of the natural entry to Mill Valley.

The actual arguments are 1) traffic, 2) doesn't look nice, 3) we don't agree with the EIR's disagreement with #1 and #2, and 4) "valuable open space would be lost", which is a value to current homeowners more than anyone else. 

I would have far, far more sympathy with the arguments if they had something like "California megafires are already making this area too dense and it would be unsafe to increase density; we need to build elsewhere". But the arguments being made are what they are and the smart arguments seem to be absent. 

Perhaps this example is unrepresentative of the broader housing conversation in California. First, it is amazing how atypical San Francisco issues often are of broader CA issues. How many people would guess that the LA metro area much, much larger than SF metro area in population? Second, it would hardly be surprising for the NYT to pick the least relevant part of a problem in California. Some would say that it might actually be typical. 

But I don't see how this type of slow process is helpful to quality and thoughtful development, given the arguments being advanced. I am really unclear why the office building would improve neighborhood character as opposed to the townhouses. Or how it makes sense to block any development of somebody else's land when it was clearly zoned for development  when purchased. Maybe this is a rare and exceptional SF area problem that doesn't leak into other areas of California. 

But it is clear that housing costs are growing. Fresno has nearly doubled in cost in the past 5 years (from a bit over $200K to a bit under $400K). I think it makes sense to consider the reasons. That said, I must admit that low interest rates are absolutely for sure a bigger driver than zoning disputes. 

 

California has a serious shortage of housing but apparently it's nothing like the New York Times shortage of straw men

 Joseph may just be trolling me here:

The recent New York Times article on the twilight of the NIMBY was interesting just for the low level of actual good ideas for why new housing is bad. The idea was to build 20 condos on a hill in a neighborhood of detached houses. 

 

While arguments given here certainly do qualify as "low-level", it's just possible that this has less to do with the quality of the potential reasons not to build this particular structure and more to do with the fact that the New York Times has gone all-in for the narrative that blames the housing crisis on hypocritical liberals in expensive neighborhoods, and we know from experience that when this paper invests in a narrative, the staff will do anything to protect that narrative up to and including sacrificing their first born.


In this case, Kirsch may be illogical, hypocritical, and selfish, but she is not wrong. It actually is a horrible idea to put more development in Mill Valley.

To understand why we don't want more people here and why Conor Dougherty's article can't be taken seriously, we need to start with wildland–urban interfaces (WUIs) "a zone of transition between wilderness (unoccupied land) and land developed by human activity – an area where a built environment meets or intermingles with a natural environment. Human settlements in the WUI are at a greater risk of catastrophic wildfire."

 As you can see, Mill Valley construction is problematic from a WUI standpoint.

Nor is history reassuring:
 

On July 2, 1929, a fire lookout on Mount Tamalpais spotted smoke rising from the railroad grade on the eastern slope. A wildfire, cause unknown to this day, had sparked on the mountain, flames blowing downhill toward Mill Valley below. Though the Great Mill Valley Fire covered a relatively small footprint, it was disproportionately destructive, burning for three days and incinerating more than 100 homes.

Sixteen years later, in September 1945, another major fire stormed through the Mount Tamalpais watershed. Dry weather and strong winds converted a pair of small brush fires into an inferno that burned more than 20,000 acres, from Lagunitas to the Bolinas Lagoon. While there hasn’t been a major fire on Mount Tam in the 74 years since, between 1881 and 1945 the area burned five times.

“Everyone thinks about that,” says Shaun Horne, Natural Resources Program Manager for the Marin Municipal Water District. Without a significant fire in decades, he says, and with the encroachment of invasive plant species, “There’s more potential fuel. It’s a high-hazard environment for wildfire.”

 

Encouraging development in WUIs is generally a bad idea for a number of reasons. It puts people in harm's way. The smoke from burning buildings is much nastier than the smoke regular forest fires (especially concerning given Mill Valley's location). Most important though is the way that moving ever more people into these areas makes the necessary political calculus all but impossible.

Arguably the biggest crisis facing California at the moment is megafires. The only way to address this crisis is by aggressively promoting the good fires which we have been suppressing for over a century (unlike the native Americans who were here first). Good fires bring with them risks and those risks are primarily focused on places like Mill Valley.

Loads of other issues with this article, too many for a post. Maybe I'll come back to it, or maybe I'll point you to some of the posts I've done on the subject in the past, all of which point to the conclusion that you should never listen to the New York Times' analysis of the California housing crisis (or any other California story).

 Remember, LAT > NYT.

MONDAY, SEPTEMBER 13, 2021

Yes, YIMBYs can be worse than NIMBYs -- the opening round of the West Coast Stat Views cage match

THURSDAY, SEPTEMBER 16, 2021

Yes, YIMBYs can be worse than NIMBYs Part II -- Peeing in the River

MONDAY, SEPTEMBER 20, 2021

Krugman then told how the ring of mountains almost kept the Challenger Expedition from finding the lost city of Los Angeles

THURSDAY, SEPTEMBER 23, 2021

Yes, YIMBYs can be worse than NIMBYs Part III -- When an overly appealing narrative hooks up with fatally misaligned market forces, the results are always ugly.

MONDAY, SEPTEMBER 27, 2021

Did the NIMBYs of San Francisco and Santa Monica improve the California housing crisis?

TUESDAY, SEPTEMBER 28, 2021

A primer for New Yorkers who want to explain California housing to Californians

FRIDAY, OCTOBER 1, 2021

A couple of curious things about Fresno

THURSDAY, OCTOBER 7, 2021

Does building where the prices are highest always reduce average commute times?

MONDAY, OCTOBER 18, 2021

Either this is interesting or I'm doing something wrong

 

Tuesday, December 21, 2021
The NYT weighs in again on California housing and it goes even worse than expected 

NIMBY and California

This is Joseph.

The recent New York Times article on the twilight of the NIMBY was interesting just for the low level of actual good ideas for why new housing is bad. The idea was to build 20 condos on a hill in a neighborhood of detached houses. 

There ensued a decade of meetings, lots of legal back and forth, and a sign that said “Save Kite Hill.” The city also got a lot of letters. They said the project was an “insane” idea that would create “unimaginable density” and lead Mill Valley toward an “LA like destruction.”

Most of the letters raised questions about parking and traffic. Others voiced a more esoteric set of concerns, like “confusion for the post office.” One writer averred that anyone who lived in the new condos would be accepting a higher cancer risk, since their homes would be downwind from the wood-fired oven at a nearby restaurant.

Obviously, the people who currently live near the restaurant are innately immune to cancer? The post office is that understaffed that they can't add addresses? I think the real reason remains this:

“From my backyard I see the hillside,” Ms. Kirsch wrote from her Hotmail account. “Explain how my property value is not deflated if open space is replace(d) with view-blocking, dense, unsightly buildings.” 

Letting house get so expensive has been a terrible idea. It creates inequality (people who own homes gain massive profit from appreciation) and drives up housing costs in general considerably. The other reasons given for why there is a housing shortage are not compelling:

Ms. Kirsch does not deny that California has a housing problem but has a different narrative about why. In her telling the state’s problems have little to do with the lack of housing — a diagnosis that unites basically every liberal and conservative economist along with the Obama, Trump and Biden administrations — but instead blames investors who buy single-family houses, big technology companies, and inequality generally. 

Well, inequality is a factor, in that home owners become wealthier if they resist growth. Not sure how technology companies can be influencing the whole of California prices. As for investors, well an artificial housing shortage is a great way to make investment profitable.  

Now I don't live in California but the general issues here have been getting obvious. Expensive housing has numerous negative externalities and the leakage to transportation issues has not been great, either. One of the hard things with writing a piece like this is that you can really only call out the extreme cases; every housing and transit issue has local considerations and a quick overview makes no sense. It takes something like this, a small development that is unlikely to cripple a neighborhood to illustrate the problem. But that does not mean that development doesn't have costs, just that it looks like they have not been balanced.

Also, worth noting that this is a well reported California example but California is simply not the worst offender and the current list is a bit counter-intuitive. The worst ranked cities in California (Los Angeles and San Jose) are still more affordable than Hamilton, Ontario. Vancouver is far worse than Seattle, and New York City is more affordable than Seattle. More importantly, California is already moving to address housing affordability, maybe not in a perfect way, whereas I do not see this at all in the Canadian context (just look at difference in scale in this Canadian plan). 

 I worry that we'll never break this curse until real estate stop looking like a "can't lose" investment. 

Despite what Delaney says, age is not a significant factor in predicting cardiovascular disease and cancer.* [Blogger took this down for some reason, so we're putting it back up]

*Among undergrad college students

[Following up on Joseph's post]

I'm know this sounds like a joke but it's really not. It's one of those ideas you learn as a sophomore then probably forget even though it's a potentially major issue that crops up frequently.

Whenever you see a claim that age or exercise or diet or whatever isn't a substantial/significant driver of something, there are all sorts of distributional assumptions lurking under the surface. The more homogenous the data set of a study is with respect to a certain variable, the less likely you are to find evidence of that variable causing anything. This is a big concern because an alarming amount of research is based on groups far less diverse than the general population. Remember the old joke about experimental psychology being a discipline built on the study of lab rats and college freshmen. 

On top of that, even if a causal relationship has a trivial impact on the general population today, that impact can grow in the future if the population shifts and distributions change. The reverse can happen as well, though that's usually easier to see coming since you start out with a known relationship. 

Like I said, this is all stat 101 stuff, long internalized by most of you reading this, but it's also one of those obvious/not obvious points that is almost never spelled out explicitly, and that's a mistake on our part.

Why do people make such a big deal over fake engineers when the real thing is so cool?

Bob Sorokanich of Jalopnik introduces is to the very cool body of work of Jam Handy

How does a car’s differential work? You probably have a vague understanding. Some stuff spins, some stuff doesn’t, and somehow, the result allows your car to drive around a curve without shredding its tires or chewing up its own guts. There are gears and other gears, and it’s basically magic. That was the extent of my own understanding, until I found this vintage educational film from 1937. It’s still the best, simplest, most immediately understandable explanation of how a differential works I’ve ever found.

...

Our instructor in this lesson is Henry Jamison “Jam” Handy, a fascinating character [You should check him out -- MP] who spent much of his career making educational films like this. Most of the time, they were cleverly-disguised advertisements — most of Handy’s automotive films were done at the behest of General Motors, while others were sponsored by Standard Oil. Regardless of the topic, a Jam Handy film starts with a simple question of “how does X work,” and answers it with clear, clever, immediately understandable visual aids. Typically, the last minute of the film is where it becomes an advertisement — for example, hyping the latest technological advancement you’ll find at your friendly neighborhood Chevrolet dealer. But everything leading up to that brief sales pitch is general-interest, brand-agnostic knowledge that’s absolutely fascinating for car enthusiasts or anyone with a curious mind.

One cool piece of trivia, before the development of the differential, early cars got around the problem of the wheels spinning at different speed by using a one-wheel drive. 

Around The Corner - How Differential Steering Works 







Spinning Levers





As the Wheels Turn




Living Stereo





Another bit of historical trivia related to this next film, Edison actually made a serious attempt to make a helicopter powered by guncotton. 

Something for Nothing


Since we have Mr. Goldberg here...




And circling back around to cars.

The Realization

Great @TheAutonocast episode.@TaylorOgan on Elon Musk: "Everything that he tries to dive into, if you know anything about that subject, you realize that he's talking out of his ass."

Made me think about Musk explaining why induced demand is "idiotic."https://t.co/IAweP4XWHw pic.twitter.com/4C5qV7kt5X

— David Zipper (@DavidZipper) May 31, 2022

When Elon Musk first became a household name, the reaction, at least among people who were concerned about climate change and in favor of scientific research, broke down into two camps. All agreed he was a nice guy doing worthwhile work. Electric cars, solar power, rockets, what's not to like? 

There was, however, always a sharp divided over the question of Elon musk's technical expertise. The general public and far too many journalists were willing to take him at his word that he was the primary engineer and inventor behind companies like Tesla and SpaceX (not to mention PayPal).

Most engineers and researchers in relevant areas were dismissive of Elon Musk's real-life Tony Stark shtick from the beginning. One Rand researcher I spoke with at the time characterized Musk as a flake while a number of engineers pointed out that the technology SpaceX was using to land its rockets was the direct descendant of what we had used to land on the Moon fifty years ago.

Still, it was all in the service of a good cause.

Pretty much everyone started out somewhere between one of these two views and those who did not follow the story very closely tended to stay roughly where they started. But for responsible journalists working on the front lines, almost without exception, the consensus has moved steadily to a more negative opinion.

Recently, given Musk's meltdowns, various journalists and researchers have started coming forward and talking about their journey from cautiously optimistic to openly critical.

Ed Niedermeyer, who wrote the best book on Musk and Tesla, Ludicrous, started the ball rolling with a Twitter thread and an article in Slate. Both are excellent and, though there is some overlap, both are worth reading in their entirety.

Up to that point I had been skeptical that any startup automaker could succeed. That view wasn't about Tesla, it was about the car biz. But what I found at Harris Ranch was shocking, a cockroach, and I decided to follow a life-changing instinct: THERE IS NEVER JUST ONE COCKROACH.

— E.W. Niedermeyer (@Tweetermeyer) May 20, 2022

...

Like all human behavior, journalism has crowd dynamics. Every cockroach killed motivates other cockroach hunters to mount up, but celebrity journalism takes this to a new level. EVERY CELEBRITY STORY IS THE SAME: FIRST THEY ARE BUILT UP, AND THEN THEY ARE TORN DOWN

— E.W. Niedermeyer (@Tweetermeyer) May 20, 2022

...

That is ultimately why my view has evolved from mere skepticism about Tesla as a business to a belief that Elon Musk demands firm justice: his impunity and ability to meme reality to his will is making his behavior worse all the time. HIS TRAJECTORY IS UNSUSTAINABLE.

— E.W. Niedermeyer (@Tweetermeyer) May 20, 2022

To wrap up: HAPPY HUNTING CELEBRITY JOURNALISTS! This is the moment for you to prove that what you do is as important to society as any business or political journalism. Musk's personal life is a cockroach-rich environment, and your stories will have impact that mine never did.

— E.W. Niedermeyer (@Tweetermeyer) May 20, 2022

On a beautiful day in May 2015, I drove the 13 hours from my home in Portland, Oregon, to Harris Ranch, California, halfway between San Francisco and Los Angeles. At the time, Tesla was touting a battery swap station that could send Tesla drivers on their way in a fully powered vehicle in less than the time it takes to fill up a car with gas. Overtaken by curiosity, I had decided to spend a long Memorial Day weekend in California’s Central Valley to see if Elon Musk’s latest bit of dream weaving could stand up to reality.

There, amid the pervasive stench of cow droppings from a nearby feedlot, I discovered that Tesla’s battery swap station was not in fact being made available to owners who regularly drove between California’s two largest cities. Instead, the company was running diesel generators to power additional Superchargers (the kind that take 30 to 60 minutes to recharge a battery) to handle the holiday rush, their exhaust mingling with the unmistakable smell of bullshit.

That one decision to go and find the truth underlying Elon Musk’s promises, rather than just take his word for it, changed my life in ways I never could have anticipated. Now, seven long and often lonely years later, the world seems to be understanding what I learned from the experience: Once you stop taking Musk at his word, his heroic popular image evaporates and a far darker reality begins to reveal itself.

 

Russ Mitchell is the head Automotive writer for the Los Angeles Times and he is one of the most respected journalist in his field.

I’ve known @russ1mitchell for more than 25 years and trusted his reporting and judgment through that time.

I take what he says seriously. https://t.co/gIv1fLOmms

— James Fallows (@JamesFallows) May 28, 2022

His thread is less sweeping than Niedermeyer's but it fills in an interesting part of the story, and it raises troubling questions about how many other companies are using similar methods.

It took several months to realize it, but Tesla’s media approach was to find reporters who would in effect serve as a public relations contractor, and then suck up to them with access to Musk and other access. 2/23

— Russ Mitchell (@russ1mitchell) May 27, 2022

... 

Over the years, Musk has been spreading BS about so many things it’s literally impossible to keep full count. Just one example is true “Full Self-Driving” technology, which he’s been saying is right around the corner, year after year. It’s not. 18/23

— Russ Mitchell (@russ1mitchell) May 27, 2022

...

But it’s a business reporter's job to call out corporate BS, especially on life and death matters of public safety. Musk has become a non-stop source of such material. 22/23

— Russ Mitchell (@russ1mitchell) May 27, 2022

 

You buy ‘journalists’ https://t.co/zTV3K56IGl

— Russ Mitchell (@russ1mitchell) May 28, 2022

The Transportation editor of TechCrunch also talks about the company punishing reporters by withholding access. 

I had an on-again/off-again relationship w/ Tesla. Sometimes, I was in the "penalty box" (PR wouldn't answer questions etc). There were other times when I did get access like in Dec 2015, when I interviewed Elon & he said self-driving cars were 2 yrs away. https://t.co/RIh9uridXL

— Kirsten Korosec (@kirstenkorosec) May 27, 2022

Fred Lambert was one of Tesla's most loyal and vocal supporters.

Same vibes.

Musk has a pattern of only fielding things from reporters who are favorable to him and his companies.

The slightest hint of criticism and you get excommunicated and get called a short seller or someone hellbent to cause damage. What a manchild Musk is. pic.twitter.com/TfkLmY8J9R

— Krombopulos Michael (@kr0mb0pul0smike) May 27, 2022

Another common refrain is the Elon Realization, where Musk goes off script on a topic you know something about.

The Realization. IT Edition. Aka @elonmusk can’t stop, won’t stop.

When one programmer (the co-creator of #doge, no less) can expose Elon’s lies with one simple link to Github. $TSLA $TSLAQ pic.twitter.com/0vB1SB67MA

— TalesFromTheFuture (@talesftf) May 31, 2022

 

There's often a "learned phonetically" quality when Musk talks about technical concepts.

When you start to dig, you start to realize Musk explains things the way they were explained to him; he doesn't actually know the ins and outs of many of his ventures. Everyone I know who has worked closely with Musk says this. https://t.co/CXLfAD1uBG

— Taylor Ogan (@TaylorOgan) May 31, 2022

I wrote my Elon enlightenment story back in 2008 when I realized he lied about being Tesla founder https://t.co/Y0T4cQpeAp

— Sam Abuelsamid (@samabuelsamid) May 28, 2022

David Zipper Visiting Fellow at Harvard Kennedy School

In fall 2020 I decided I wanted to write about how a Biden administration might change course with federal AV regulations.

At the time I had a generally positive impression of Tesla (EVs are good!).

Then I started delving into how car companies approached AV tech development.

— David Zipper (@DavidZipper) May 28, 2022

I started writing this @Slate story assuming I'd explore AVs and the car industry writ large.

I learned that only one carmaker habitually cut corners, confused consumers, and put road users' lives at risk. I've never looked at Tesla the same way since. https://t.co/84rdHw7PGI

— David Zipper (@DavidZipper) May 28, 2022

Repost: This five-year old sketch holds up really well

 Better, sadly, than the company that made it.

R.I.P CollegeHumor

Friday, April 7, 2017

We haven't talked about the content bubble for a while...

Don't get me wrong, as a viewer, I'm pleased with all the choices, but from a business standpoint, this got silly quite a while back..




Like so much of our economy, the content bubble is largely driven by hype and CEO dick-measuring. At least in the US, the market is beyond saturated and  the present levels, let alone growth curve are unsustainable.

In other words, enjoy it while it lasts.

P.S. After scheduling this, I heard a public radio segment about Emmy season. It turns out that the people who have to watch all of these shows can't find the time to watch all of these shows.

Repost: Netflix Revisionism Warning

 And it is already getting ugly out there. The very same journalists and industry observers who missed every major development in the streaming story (content saturation, the impact of competition, the return of ad-based models, the continued popularity of older programming, the weakness of Netflix's IP library, the potential instability of hype economy business models) are starting to weigh in on the rough times at the still dominant streaming service. The good news is that the people who got it wrong are standing up and taking their lumps...

I kid, of course. I haven't seen anyone even briefly acknowledge how badly they fucked up. Fortunately, I've been taking notes for the past few years, and I'll be unrevising some of these revisionist takes. In the meantime, here are a few blasts from the past. 

Monday, August 31, 2015

Arguments for a content bubble

First off a quick lesson in the importance of good blogger housekeeping. It is important to keep track of what you have and have not posted . A number of times, I've caught myself starting to write something virtually identical to one of my previous posts, often with almost the same title. At the other into the spectrum, there are posts that I could've sworn I had written but of which there seems to be no trace.

For example, living in LA, I frequently run into people in the entertainment industry. One of the topics that has come up a lot over the past few years is the possibility of a bubble in scripted television. Given all that we've written on related topics here at the blog, I was sure I had addressed the content bubble at some point, but I can't find any mention of the term in the archives.

One of the great pleasures of having a long running blog is the ability, from time to time, to point at a news story and say "you heard it here first." Unfortunately, in order to do that, you actually have to post the stuff you meant to. John Landgraf, the head of FX network and one of the sharpest executives in television has a very good interview on the subject of content bubbles and rather than "I told you so," all I get to say is "I wish I'd written that."

But, better late than never, here are the reasons I suspect we have a content bubble:


1. The audience for scripted entertainment is, at best, stable. It grows with the population and with overseas viewers but it shrinks as other forms of entertainment grab market share. Add to this fierce competition for ad revenue and inescapable constraints on time, and you have an extremely hard bound on potential growth.

2. Content accumulates. While movies and series tend to lose value over time, they never entirely go away. Some shows sustain considerable repeat viewers. Some manage to attract new audiences. This is true across platforms. Netflix built an entire ad campaign around the fact that they have acquired rights to stream Friends. Given this constant accumulation, at some point, old content has got to start at least marginally cannibalizing the market for new content.

3. Everybody's got to have a show of their very own. (And I do mean everybody.) I suspect that this has more to do executive dick-measuring than with cost/benefit analysis but the official rationale is that viewers who want to see your show will have to watch your channel, subscribe to your service or buy your gaming system. While than can work under certain conditions, proponents usually fail to consider the lottery-ticket like odds of having a show popular enough to make it work. And yet...

4.  Everybody's buying more lottery tickets. The sheer volume of scripted television being pumped out across every platform is stunning.

5. Money is no object. We are seeing unprecedented amounts of money paid for original and even second run content.

For me, spending unprecedented amounts of money to make unprecedented volume of product for a market that is largely flat is almost by definition unsustainable. Ken Levine takes a different view and I tend to give a great deal of weight to his opinions, but, as I said before, Langraf is one of the best executives out there and I think he's on to something.