28 February 2015

Award Season

The Grammies and Oscars are now behind us.

It is curious to me, at least, that critical recognition at the Grammy Awards and commercial success in music sales are so much less divorced than critical recognition at the Academy Awards and box office success for movies.

Is it simply the case that elite and common tastes in music are more similar than elite and common tastes in movies?

25 February 2015

Student Loan Default Rates Are Counterintuitive

Intuition would suggest that the more you borrow, the harder it is to pay the loans, and the more likely you are to default.  But, it turns out that in the case of student loans, that this intuition is wrong.  The more you owe on your student loans when you graduate, the less likely you are to default on those loans.

An explanation is considered in the linked post at Marginal Revolution.  The gist is that lower student loan amounts are incurred by students who are academically less able and who tend to drop out before receiving the credentials that they spent money trying to earn.  But, other specific situations that contribute to the situation, like unemployable recently released felons who enroll in community college to comply with parole requirements because they kind find jobs are also interesting.

In previous posts, I've also noted the dismal situation of students running up non-dischargeable student loan debts at for profit colleges.  For example:
While for-profits educate less than 10 percent of students, those colleges' students received close to a quarter of Pell Grant and federal-student-loan dollars in 2008, according to the College Board. And they accounted for 44 percent of defaults among borrowers who entered repayment in 2007.
The for profit Western International University is typical of this problem.

The bottom line policy conclusion that this and other data leads me to is that indiscriminate higher education subsidies coupled with open or not very selective admissions policies waste a great deal of scarce higher education resources.

Sending people who aren't academically ready to do college level work only to have them drop out, often in relatively short order, may create jobs for underpaid adjunct professors teaching introductory and remedial classes, but does little to built human capital in these students.  Not only do they overwhelmingly drop out early and end up paying for efforts to obtain degrees that they don't attain; they also receive less value added from the time they spend in college, whether or not they graduate.

There are distributive justice issues with a purely merit basis for funding higher education as well, however.  It turns out that highly academically able students, particularly those at selective institutions of higher education (public and private alike) tend to be very affluent, often coming from families in the top 5-10% of household income.  Taxing less affluent people in order to send the subsidize the college educations of children of affluent people who can afford to forego state higher education subsidies, may have "trickle down" benefits to society, but isn't obviously good policy either.  The fact that many resident graduates of state subsidized public colleges leave their home states when they graduate dilutes these benefits further.

Now, this isn't to say that I am against public funding for higher education.  Indeed, few opportunities for dramatic economic benefits from public spending are more clear.  Opening access to higher education for previously excluded people with academic ability in the civil rights era contributed substantially to U.S. economic growth.  Low income students with strong academic ability are less likely to attend and to finish college than high income students with weak academic ability, and this is almost entirely due to insufficient grant based financial aid for these students.

Therefore, rather than subsidizing the higher education expenses of all state residents indiscriminately, we should instead subsidize higher education (as opposed to university based research not intended to have direct educational benefit to college students), almost entirely with scholarships that require both merit and financial need.  Ideally, every student with academic merit should receive a scholarship equal to their full financial need determined in an accurate way.

In practice, there is uncertainty and inaccuracy in both academic merit determinations, and in financial need determinations.

On the academic need side, the answer is probably to provide full scholarships to those with clear academic merit, partial scholarships to those whose academic ability is probably sufficient to benefit but marginal, and to deny scholarships to those who lack academic merit.  Perhaps students with at least a two-thirds probability of graduating given their grades and test scores, who have no remedial course requirements would get full scholarships, students with a 50% to two-thirds chance of graduating and no more than one remedial course to take would get a two-third grant, one-third loan package, students with a one-third to 50% change of graduating or more than one remedial course to take would get a one-third grant, two-thirds loan package, and everyone else would qualify for aid only for sub-collegiate level continuing education rather than college degree programs.

On the financial need side, the answer is probably to err on the side of being generous, recognizing that the harm of underfunding a student who is therefore forced to drop out or not attend college in the first place is greater than the harm associated with rewarding academically able low to moderate income kids by providing them scholarships that are a bit more generous than they strictly need to get by.  Creating incentives can be just as worthwhile as meeting true economic needs.

18 February 2015

Trends in Names and Metaphors

* When I was growing up, flipping burgers was the metaphorical shit job.  But, in several recent books I've read, all involving events playing out in California, working in a "taco shack" has displaced burger flipping as the cultural reference conveying the same idea.

* It appears to be "a thing" in Denver to christen your automobile with a proper name, e.g. "Fred", at least among teenagers getting their first vehicles.  Gender varies based upon the young owner's preferences and the feel of the vehicle.  Ships and boats, of course, are almost always named and generally female.  Nantucket residents overwhelmingly like to name their houses, perhaps a spillover of their boat naming tendencies; in Colorado, however, this practice seems to be largely restricted to ranches and larger homes owned by Hispanic families.

* There is a great deal of temporal and regional variation in nicknaming.  In Denver, while shortened names, e.g. "Fred" rather than "Fredrick" are common, descriptive nicknames, e.g. "Boots" for someone who wears trademark boots, or "Technical" for a nerd, seem rather less common in subcultures that I am in contact with than at many other times and places.  Descriptive nicknames seem to be common, for example, in the military and in boarding schools.

17 February 2015

Low Fat Diet Guidelines Had No Empirical Basis

The low fat diet recommendations in place since the 1970s were not supported by the clinical work used as a basis for them and have probably been instrumental in leading to the modern obesity trend by pushing people towards higher carbohydrate diets.  Concerns about sodium as a major heart risk factor similarly appear to be ill founded.

79% of Major Brand Herbal Supplements Don't Contain The Herbs They're Selling

Forbes recaps the story.

While few of the supplements are effective in clinical studies, part of the problem may be that the supplements that are sold don't actually contain any of the primary ingredients.  The entire industry is absolutely rotten with pure fraud and the CEOs of the respective companies, as well as everyone else involved, belongs in prison for fraud for long terms.

Republican Senator Orrin Hatch, who has been the guardian angel of these companies in Congress, also deserved some of the blame.

A summary of the findings by the New York attorney general's office's testing:
  • GNC’s “Herbal Plus” supplements: ginkgo biloba, St. John’s wort, ginseng, garlic, echinacea, and saw palmetto were tested. Garlic was the only one that consistently contained what the label indicated. One out of four bottles of saw palmetto tested positive, and none of the other four supplements contained the labeled herb. . . .
  • Target's “Up & Up” supplements: gingko biloba, St. John’s wort, Valerian root, garlic, echinacea, and saw palmetto were tested. Three supplements–garlic, saw palmetto, and echinacea–contained what they were supposed to. The other three had no DNA at all from the labeled ingredient. . . .
  • Walgreens “Finest Nutrition” supplements: ginkgo biloba, St. John’s wort, ginseng, garlic, echinacea, and saw palmetto were tested. Only one of these, saw palmetto, consistently contained its labeled ingredient. One sample of garlic actually contained garlic, and none of the other samples contained any DNA from the labeled ingredient. . . . 
  • Walmart’s “Spring Valley” supplements: ginkgo biloba, St. John’s wort, ginseng, garlic, echinacea, saw palmetto were tested. Walmart had the worst results: of 90 DNA tests on 18 bottles, only 4% found any DNA from the labeled ingredient. Only one bottle of garlic and one bottle of saw palmetto contained what they were supposed to.
None of the gingko biloba, Valerian root, St. John's wort, or ginseng in any of the brands at major national retailers contained the ingredients claimed.

16 February 2015

Sudanese Soldiers Still Rape, Pillage and Kill

Sudanese soldiers raped over two hundred girls and women (some under 11 years old), looted property and killed some people in a village in Darfur in October.  Sudan has previously engaged in a concerted campaign of genocide in Darfur.

13 February 2015

Denver Real Estate Markets Hot

Hotels Full

The occupancy rate in the Denver hotel market is 76% (according to a Denver Post graphic that I saw in the print addition earlier this year and can't find a link for now).  While that may seem modest, it is actually the highest it has been for decades at least, and possibly much longer.  Typically, occupancy rates in Denver hotels have been between the high 40s and mid-60s, with even 70% being a strong market.  Room rates, meanwhile, are rising.

Housing Inventory Scarce

The inventory of houses for sale in Denver is about an 8th of what it was at its peak about eight and a half years ago.  In January 2015, there were 4,171 houses for sale in the Denver metro area and the average house was on the market for 43 days (in December of 2014 there were 4,355 houses on the market and the average house was on the market for just 38 days).  Usually, inventory builds up in the winter, but not this year.

In contrast, in 2007, there were 24,603 houses on the market and the average house was on the market for 105 days.  In the summer of 2006, there were almost 32,000 homes on the market.  The last time the inventory was so low was well before 2003, and the last time that the inventory was so low relative to the metropolitan area's population was even earlier.

Apartments Full

Apartment vacancy rates are also very low.  They had fallen to 3.9% last October, while rents have risen.  This was the lowest since the third-quarter of the year 2000 when it was 3.7% and is near a historic low.
Rents averaged $762 in the third quarter of 2000, compared with $1,145 during the third quarter of 2014, and up from $1,117 in the second quarter and $1,073 in the first, according to figures released Friday in the Denver Metro Area Apartment Vacancy and Rent Survey. The statistics were compiled by the University of Denver's Daniels College of Business and Colorado Economic and Management Associates.
Denver rents are still only about half of the rent for comparable places in San Francisco and New York City, however.

Market Responding

The market has been responding to the situation, at least partially.

New apartment buildings are popping up everywhere.  Northwest Denver is awash with them, especially along 38th Avenue, in the Highlands neighborhood, near light rail stations (e.g. the Gates Rubber Plant vicinity), and along major arterial streets like Broadway, Colfax and Speer, and near colleges.  One major apartment building has been completed near Speer and Washington, another is being built at 6th Avenue and Speer, and two thirty-two story high rises are in the work across from the Denver Country Club.  New housing and commercial buildings are flooding the Cherry Creek Mall and Cherry Creek North area.  A redevelopment plan is in the works with a contractor finally put in place for the former University Hospital site at 9th Avenue and Colorado Boulevard, an area that will take another hit when the massively overbudget VA Hospital is completed and that facility moves to Aurora's Fitzsimmons campus.

According to the Denver Post, "9,145 new apartments were built in 2013, 8,700 new apartments are expected to come online in 2014 and another 8,700 in 2015."

The cylindrical hotel never Sports Authority Field at Mile High is being converted to studio apartments, another hotel about a mile to the North has been converted to Auraria Campus student housing (as has a hotel near the Denver Performing Arts Center downtown), and a number of 1950s motels on state highways (like Colfax Avenue) have been converted to transitional housing for families who were homeless and into permanent apartments.

Many existing apartment buildings are being refurbished and updated to compete.

Many new hotels are being opened.  Inventory will expand by 1,700 rooms (3.8%) in 2015.

The past decade or so has seen the intense gentrifcation of Northwest Denver which has finally crossed a critical mass threshold, and North Denver is gentrifying in a swath that runs from I-25 all of the way to Quebec Avenue (where the Stapleton neighborhood begins).  The Northfield neighborhood of Stapleton is starting to fill out, as is the gentrifying Ballpark neighborhood near Coors Field, the River North neighborhood between downtown and I-25, and an "airport city" in and around Denver International Airport (DIA).

Denver proper makes up only about a quarter of the total population of the metropolitan area and is almost entirely landlocked.  Yet, it has consistently issued more than half of the metropolitan area's building permits over most of the last decade or two.

Single family home construction and condominium construction have been slower to come back.

Is Construction Defect Liability Discouraging Condominium Construction?

Condominium projects have been particularly scarce.  The Colorado General Assembly is debating a bill to make it harder for HOAs to sue builder of the projects.  The bill addresses allegations that condominium projects are scarce (which they are), not due to market forces and the availability of financing, but instead because HOAs of newly built condominium projects are too prone to bring construction defect litigation against builders.  They argue that this has driven up insurance costs, making apartment projects more attractive.

But, few, if any, examples of suits that were not meritorious have been offered to proponents of the law. Colorado already strictly limits construction defect lawsuits in general.  And, this theory fails to explain why a demand for condominiums isn't satisfied by converting apartment buildings into condominiums which is a fairly easy process that involves almost no exposure to that kind of liability.

Alternative Office Space Growth

There is office building growth as well. Open plan multi-tenant home office away from home situations, in the tradition of the campuses of the big players in the tech industry and business incubators, are also filling up as fast as they can be opened, although they still make up only a tiny share of the overall office market.

Why Is This Happening?

A number of reasons have been advanced for the boom.

Migrants are moving to Colorado at above average rates.  Our economy is healthier than many other places and the new marijuana industry has tightened up the real estate market while it was floundering elsewhere.  Colorado also took an earlier and lighter real estate bust than many places during the financial crisis and Great Recession.

Great Recession booms in foreclosures took people out of home and condominiums and put them into apartments, tightening up that market.

A financial crisis driven slowdown in construction to a near standstill allowed existing supply and inventory to be used up.

The recovery has allowed suppressed demand to form new households and put them in new homes to be realized.

Conventional mortgage interest rates below 4% for buyers with good credit has encouraged buyers to snap up inventory.  More generally, nationally driven shortages of financing during the financial crisis that shut down projects in Colorado even though local fundamentals didn't justify the tighter lending environment here, has ended.

Finally, there is a long term secular trend towards an inversion of the socio-economic geography of housing.  Affluent people are moving back to cities for a variety of reasons, while the poor are leaving central cities to get more housing for less money further out.  Drive until you can afford it has become the new mantra for working class and middle class families.

Also, Denver, in particular, has embraced development, rather than working hard to suppress it.

Gas Stations To Avoid In Denver

Gasoline is pretty much a fungible commodity.  Almost all gas stations sell two or three of the standard grades of gasoline, and almost nobody believes advertisements that claim that one gas station's brand of gasoline is better than another's.

In part as a result of that, gas stations operate in something very closely approximating perfect competition, in which market forces drive competitors to all sell the product as a market price that has a quite thin margin.  There are differences based mostly upon locality, but almost all competitors follow the strategy of maximizing sales by selling at the prevailing market price.

But, the law does not fix gasoline prices and there are a few gas stations that zag when everyone else zigs and charge far more than the going market rate for gasoline.

I am aware of at least two such stations in Denver.

The worst offender by far is the Shop Fast at 6504 E. Alameda Avenue at the intersection of Alameda and Monaco.  This gas station generally charges thirty to forty cents per gallon more for gasoline than the 7-11 gas station three blocks away at Leetsdale and Monaco selling precisely the same product.

Moreover, it isn't as it the Shop Fast is offering a superior customer experience.  Its pumps are primitive early 1980s versions that can't take your payments at the pump and haven't been upgraded for decades.  When you go in to pay, the convenience store is dilapidated, dirty, disheveled, understocked with lots of empty shelf space, and has a poor selection of products to buy.  The attendant on the couple of times that I have been there, has always been surly and rude.

The Conoco at Speer and Pennsylvania Avenue has a tidy and ordinary convenience store and modern gas pumps, but does engage in price gouging, typically charging twenty to thirty cents per gallon more than nearby stations such as the two gas stations at the intersection of Alameda Boulevard and Downing Street.

While government price fixing can create all sorts of problems, it is hard to think that the price gouging practices of these gas stations, which prey on people who are inattentive (a strategy that usually works when buying gas since so few gas stations charge and above market price and it is hard to keep track of weekly variations in gasoline prices that fluctuate rapidly), or aren't away of nearby, much less costly alternatives because they are in an unfamiliar neighborhood, promote any legitimate virtues.

09 February 2015

Life Is Tough In The Long Tail

Between 2008 and September 2012, there were 66 No. 1 songs, almost half of which were performed by only six artists (Katy Perry, Rihanna, Flo Rida, The Black Eyed Peas, Adele, and Lady Gaga); in 2011, Adele’s debut album sold more than 70 percent of all classical albums combined, and more than 60 percent of all jazz albums. 
Between 1982 and 2002, the number of Americans reading fiction withered by nearly 30 percent. 
In a 1966 UCLA study, 86 percent of students across the country declared that they intended to have a “meaningful philosophy of life”; by 2013, that percentage was amputated by half, “meaningful” no doubt replaced by “moneyful.” Over the past two decades, the number of English majors graduating from Yale University has plummeted by 60 percent; at Stanford University in 2013, only 15 percent of students majored in the humanities. In American universities, more than 50 percent of faculty is adjuncts, pittance-paid laborers with no medical insurance and barely a prayer to bolster them. 
In the publishing and journalism trades, 260,000 jobs were nixed between 2007 and 2009. Since the turn of the century, around 80 percent of cultural critics writing for newspapers have lost their jobs. There are only two remaining full-time dance critics in the entire United States of America. A not untypical yearly salary in 2008 for a professional dancer was $15,000.
From The New Republic via Marginal Revolution.

Just to provide some perspective on entertainment economics, a major Pixar movie costs about $2,000,000 a minute.  The originally webcast show RWBY cost about $4,500 to $9,000 per episode for 28 episodes which combined ran for about 280 minutes.  Add some shared overhead for the Rooster Teeth studio (which generates about $7,000 of revenue per episode from webcasting leaving it losing money on some episodes and making a bit of money on others, while keeping a couple dozen creative professionals in Austin employed (the company as a whole employs about 300 people, but in perhaps a dozen projects at a time of which RWBY was a flagship venture) even if it merely breaks even as a company) and you're talking about $1,000 per minute, using $500 software.  Rooster Teeth's products may not be as polished as the current Hollywood standard (which even Japanese anime studies and Indian Bollywood productions don't match), but at 0.05% of the budget, they are getting 85% of the product quality, perhaps, as a major motion picture, which isn't shabby at all.  Of course, for every RWBY, there are lots of efforts that go nowhere and produce crap or are abandoned midway through when money or interest die out.

Let me put this another way.  Four and a half hours of RWBY, more or less, cost about the same amount as 14 seconds of a leading PIXAR movie.  But, the value they create per dollar is far greater.

08 February 2015

Sometimes Life Sucks

Monty Oum, who was just hitting the big time in his career with his originally web based anime series RWBY (which was recently released on Netflix and had DVD distributions), died on February 1, 2015 (a week ago today), due to a severe allergic reaction during a routine medical procedure at the age of 33.  His funeral was yesterday.  He is survived by Sheena Duquette, his newlywed wife of eight and a half months.

RIP Monty.

06 February 2015

Atlas Shrugged Revisited

The textbook apology for the great inequality of wealth in the American economy is right out of Ayn Rand's Atlas Shrugged: A system where the most productive people in society receive compensation proportional to their productivity is necessary to cause those people to be productive; if we failed to provide these incentives, they would refuse to produce as much and our standard of living would crater.

The idea is powerful because has a kernel of truth in it. Incentives do matter. Given choices, people have a powerful tendency to do what makes them better off. Farmers who receive the fruits of their own labor are profoundly more productive than farmers in a collective farm whose fruits are shared according to need without regard to their efforts in producing its bounty. Undue reliance upon altruism and centralized planning by salaried bureaucrats were key factors caused the Soviet system to crumble.

But, this concept is also incorrect. What is wrong with it?  Here are five reasons why this is the case.

1. Wealth has diminishing marginal returns.

The vast majority of Americans have quite a strong unmet demand for personal consumption. They would like a nicer house (or more houses) but refrain from buying one because they can't afford it. They would like a nicer car, but can't afford it. They would like to own a boat, but can't afford it. They would like to eat out more often at nicer restaurants, but can't afford it. They would like to wear finer clothes, but can't afford it. They would like to have a doctor who made house calls, but can't afford it. They would like to send their kids to a private college but can only afford a public one.

The desire for more is pretty much insatiable. But, it does get weaker. The desire to buy another house becomes less intense when you are John McCain and can't remember how many houses you already own. There are basically no million dollar cars available to buy new, and if you don't have an insatiable desire for speed and no children, it is hard to spend more than a hundred thousand dollars on car. There is no college education in the world that costs more than $500,000 for four years in tuition, room, board, tutoring and even other quite luxurious living expenses, and most children want no more than one college education. Add all the graduate school a child could want, and it is still hard to spend more than $1,000,000 per child on higher education. The most expensive available private schools from pre-school through high school cost perhaps $750,000.

Also, the wealthier you get, the less disposable your consumption becomes. Mansions, collector's items, fine works of art, jewels, and rarely used boats, don't lose value when you own them. People who acquire prize horses and dogs learn that the pedigreed children are themselves profitable. Their purchases increasingly aren't consumed in the way that food, or a cruise, or car that you use every day.

Also, don't forget that the people who make their own wealth typically do so, at the lower end, because they are prone to consume less than is typical for someone of their income, and because they are workaholics who are so absorbed in their work that they devote less time than the average person to leisure time which most forms of disposable consumption requires.

In my experience as an estate planning attorney for the wealthy, the break point, where people tend to find it difficult to engage in wealth reducing disposable consumption at a rate greater than their investment income without making uncomfortable changes to the lifestyle that made them wealthy is typically somewhere around $10,000,000 to $20,000,000 of net worth.

Around that point, in order to spend their investment income disposably, wealthy people have to do things like travel and ski more than they have enjoyed doing so thus far in their lives, acquire a taste for exceedingly fine foods and wines that haven't been important to them so far in life, develop a fashion sense that departs from the one that they imprinted on as their personal style in their twenties, and so on. Instead, the wealthy who step up their consumption as their investment income increases tend to favor purchases like art, fine jewels, collectibles and real estate that retain their value over time.

Soon enough, charitable gifts are the only significant form of disposable consumption that is available to someone who is still working with tastes and temperaments that caused them to be wealthy in the first place.

2. Dynastic instincts are not unlimited.

Of course, wealth is not acquired solely because the person who earns it wants to personally consume it.

Heirs to great wealth tend to have a much easier time figuring out ways to blow vast sums of money than the highly productive people who imparted wealth to them. When they are still developing their tastes for consumption they develop interests in pass times that require large amounts of leisure time and involve massive amounts of disposable consumption. The learn to value expensive sports cars, extravagant trips, high fashion, gourmet food, servants, recreational drugs, helicopter skiing, sky diving, live chamber music in their homes, and massive parties.

Paris Hilton is not an exception. She is someone who has responded naturally to having vast amounts of wealth without working to earn it whose primary purpose in life is to figure out how to most beneficially spend as much of it as possible. She looked at the limited amount of benefit that her parents had received from their vast incomes and decided that their philosophy of personal consumption and of work-life balance was insufficiently hedonist and decided not to repeat their mistake.

The people who earn great wealth are, for the most party, acutely aware of the potential of their wealth to spoil their descendants. They want their descendants to have healthy lives, get good educations, and to live comfortable lives, but they also want their descendants to replicate their own massive capacity to earn wealth, to work hard, to excel at what they do, and to develop an instinct for charity. I say this not as a matter of supposition, but from perosnal experience. They are happy to spend money on rehab, but are appalled that their children spend money on recreational drugs. They do not necessarily, like the stereotypical Japanese patriarchs, expect their children to all play active leadership roles in the business ventures that they created - they recognize that childrens talents are not necessarily the same as their own. But, they do want their children toil intensely at something in which they can excel and be as distinguished as they were in their calling.

The wealthy very much want to leave some inheritance for their children and later descendants, but it is rather unusual for someone wealthy to want their descendants to inherit so much that they have no economic need to work if they want to have more than a very modest life, if they are capable of working. In practical terms, what this boils down to is that the intensity of the desire to leave a large bequest to descendants starts to diminish greatly as that bequest starts to approach something like $10,000,000 per child. A significant minority of wealthy individuals who have children who have either already succeeded on their own financially, or clearly have the capacity to do so if they apply themselves, wish to leave their descendants nothing more than token bequests that have sentimental value (perhaps a family vacation home and personal effect).

In very large estates, there is a strong shift towards leaving a legacy, first to descendants beyond one's children, and then to society as a whole in the tradition of the great philanthropists. Not everyone actually does this, but there is a palpable shift in the direction as one moves up the scale of the very wealthy.

3. Wealth makes leisure more tempting.

There is a Laffer Curve for income. The vast majority of people receive the vast majority of the funds that they use for consumption from their earned income, i.e. by working. This is true of the working class, the middle class and the upper middle class all the way up to the lion's share of specialist doctors, partners in large law firms, successful writers, professional actors and athletes, and hard working business executives.

But, as wealth accumulates investment income starts to provide a larger share of one's income than working. It happens most quickly for the managerial and professional workers who have the highest incomes and for managerial and professioal workers who inherit substantial wealth as well. As one reaches the point that working isn't necessary to maintain a comfortable level of disposable consumption, the economic incentive to produce more in order to maintain disposable consumption and provides a suitable dynastic bequest diminishes.

Many of these highly productive managerial and professional workers continue to work even though none of their earnings are necessary to maintain their disposable consumption during their lives, or to make a sufficient dynastic bequest. Highly productive workers typically really enjoy their work, which they are good at, and like the power it affords them in the business world. Also, old habits die hard. If you've spent the last twenty years of your life spending seventy hours a week at the office, you simply get used to it.

Also, some very wealthy people are philanthropists who work to support their charitable goals rather than their personal and dynastic consumption.

But, the key point to understand is that once someone is wealthy enough, having acquired many tens of millions of dollars somehow or another, working ceases to be an activity engaged in for the personal economic benefit of the person working or that person's family. At that point, working becomes something that one is doing out of habit, as a form of leisure, for love of power, or out of some form or another altruism. People who were in it for the money retire early at that point, at least, cut down they amount by which the produce significantly.

Beyond a certain point, wealth causes the most productive members of society to withdraw their productive efforts, not to continue them. In real life, it is far more common for the elite to retire early to pursue their hobbies than to refrain from working because they don't think that the personal economic rewards that they receive from their productive labors are adequate. Atlas Shrugged has it backwards. There are mountain towns full of titans of industry lazing around, Beaver Creek, Palm Springs, and Martha's Vineyard, for example, as they do in a town modeled on Ouray, Colorado in Ayn Rand's book. But, they have withdrawn from the world not because our political economy failed to reward them enough to spur them to work, but because we gave them so much that they no longer need to work.

4. Incentives need not be either proportional or monetary to be effective.

The vast majority of people are wage and salary workers whose incomes are only dimly tied to their performance monetarily - they must merely work well enough to avoid being fired. And, even where there are incentives that tie productivity to work, these incentives can be quite effective without being proportional economically to the productivity involved. The direction of the incentive, and relative strength of the incentive relative to other incentives, matters more than the actual amount of the incentive, and money is not the only currency in which incentives are denominated. For example, some of the most powerful incentives are reputational, rather than monetary.

5. The very rich are not very rich because they are the very most productive people.

For a salaried or hourly employee whose income puts them anywhere from the working class to the upper middle class, their income is largely a function of their personal ability to be productive. The labor market is largely driven by the supply of workers able to do the work, rather than the desirability of the work to workers, which is a decidely secondary factor in setting wages. The pay premium for doing a really unpleasant or dangerous job that requires a certain skill set over a much more pleasant job that requires the same skill set, is surprisingly modest. But, the pay premium for doing something that requires an extremly rare skill set, like neurosurgey, over even doing something else that requires a rare but not extremely rare skill set, like internal medicine, is extreme. Education and job skills make one capable of doing work that fewer people can do and increase one's income significantly.

But, the wage scales of entire industries are set by factors only dimly related to individual ability, and the incomes of the self-employed and of a subset of commission and bonus compensated workers, depend significantly on factors completely unrelated to personal ability or productivity. And, marginal economic productivity, which is supposed to drive compensation in simpler version of economic theory, is far less obvious in practice than theory would suggest.

What Might Comprehensive Immigration Reform Look Like?

What would a comprehensive immigration reform that made more sense look like?

1. Immediate family: No U.S. citizen or lawful permanent resident or worked related temporary visa holder should have to wait in line for any length of time to have an application to have a spouse, an unmarried child under the age of twenty-one, a disabled and unmarried child, or a disabled or elderly parent immigrate with them.

2. U.S. educated people or U.S. soldiers. People who have obtained four year college degrees, or graduate degrees or two year college degrees in critical specialties like nursing, from accredited U.S. institutions of higher education should be entitled to green cards with their degrees, as should anyone who serves a tour of duty in the U.S. military and is honorably discharged.

3. Simplify employment rules. The employment rules for non-citizen spouses and children of temporary visa holders who are allowed to work should be uniform.

4. High school graduates with weak ties to a home country. Non-citizen kids who have lived for many years in the United States, did not immigrate to the United States as adults, and graduate from a U.S. high school should be entitled to green cards and a short path to U.S. citizenship without regard to any immigration violations while they were minors, and without even the strings that the DREAM Act attaches. A kid who comes to the U.S. at age five or seven is functionally almost indistinguishable fromm a kid who is born in the the U.S. and is likely to have very weak ties to his or her country of birth. We shouldn't impose extra burdens on kids who are functionally integrated into our society because of the alleged sins of their parents. And, high school graduates who are integrated into our society are capable of supporting themselves in the United States, even if their parents or older siblings who immigrated to the U.S. as adults are removed from the U.S.

5. Establish bona fide marriage safe harbors. While there is inevitably some gray area in determining if marriages are bona fide for immigration purposes and fraudulent marriages for immigration purposes are a reality that must be considered, there should be safe harbors, like having had children, or having lived together while legally married for a certain number of years, that make the validity of a marriage for immigration purposes incontestable.

6. Establish a statute of limitations on deportation following illegal entry to the United States. At some point, perhaps eighteen years, someone who has illegally entered the United States should no longer be deportable merely as a consequence of the illegal entry.

7. Don't make illegal entry or unlawful presence, per se, a crime, just make it a ground for deportation.

The Questionable Triumph Of Positive Law

From 1842, when the U.S. Supreme Court decided Swift v. Tyson, until 1938, when the U.S. Supreme Court decided Erie Railroad v. Tompkins, almost a century, the doctrinally correct assumption that there existed general principles of law that could be discovered and constituted the "common law" which applied in the absence of state or federal statutes to the contrary. This "common law" did not know geographical bounds; it was as relevant in California as it was in Maine. Judges were bound by precedent, but applied with a free hand, guided by a common sense moral intuition that was external to, and perceived to guide common law jurisprudence.

After Erie, the doctrinally correct assumption was that the "common law" was actually made, rather than merely discovered by courts, as a body with the power to make law much like a regulatory agency does. The supposed freedom that an post-Erie conception of law gives to judges, however, also limits them. They no longer have an external body of moral common sense to which they are permitted to appeal when precedents fail them, although policy discussions of the law and economics type have sometimes rushed in to fill the vacuum. Even marginally relevant precedents assume greater weight in the absence of competing principles to guide them.

The pre-Erie conception of the "common law" wasn't exclusive to the federal courts either. In the era when Swift was applicable to differ over the substance of the common law with a sister state was more comparable to ruling that a prior precedent in one's own state was incorrect or misunderstood, than it was to determination that a court with the appropriate authority simply preferred another rule of law as a matter of policy in a case of first impression.

Even today, state courts accept common law decisions from sister states as persuasive. While there are cases when common law rules frankly differ between states, the common law remains harmonious enough between states, as a consequence of its common origins, that courts routinely cite a series of treatises called the Restatements of Law, which purport to set in codified form majority rule doctrine in a variety of common law subject areas. Neither sister state rulings nor Restatements officially have the force of binding law, but courts in practice still give these determinations more weight than the mere force of the ideas behind them.

In summary, Erie represented the triumph of a "positive law" conception of law, which argues that all laws exist because someone with authority created them, from a "natural law" conception of law, which holds that some rights really are self-evident.

Some parts of federal law, like admiralty and constitutional law, have only a thin scaffold of express constitutional language or statutory text to support the elaborate common law-like doctrine that courts apply in those fields (French and German civil codes develop the law of torts similarly), but in the post-Erie era it is seen as necessary to have some sort of legislative or constitutional touchstone for any legal ruling.

A positive law philosophy, in theory, encourages honesty. But, in practice, almost every judge facing a confirmation vote asserts that judges are mere umpires bound to uphold the law who have very little discretion, despite abundant evidence to the contrary. Judges are routinely appointed because their expected positions on the discretionary issues of the day believed to be important are right, and then promptly claim to be appolitical.

Historically, Western philosophy has felt that the ideal of "rule of law" is attainable, while Eastern philosophy has taken a more Faustian view of law as something that can be twisted to confound what is right. Instead, Eastern political philosophy has argued that the problems with "rule of man" are not inherent, but are instead of product of bad men. Westerners have doubted that they were capable of installing Platonic philosopher kings to guide them, enshrining the aphorism, "Power Corrupts and Absolute Power Corrupts Absolutely" into their canon of wisdom. The classic Confucian system took the stance that it was easier to select good men than it was to utilize lawyers to compel bad men to rule justly.

American politics has also places great weight on constitutions, and relegated those who apply the constitution and the laws adopted under it, to a secondary role.

05 February 2015

The $1.5 Billion Clerical Error

Lawyers for JP Chase Morgan in a deal that loaned $1.5 billion to General Motors, which later went bankrupt, made a huge clerical error, failing to properly document that it had collateral for its loan.  Contrary to their lawyer's assertions on appeal of the ruling in which this mistake came home to roost, this is the normal result under the law and not a seismic shift.

This goof could become one of the biggest attorney malpractice cases in history and could easily wipe out the entire law firm and greatly exceed its malpractice policy limits.  One of my colleagues in my office litigated and won a similar malpractice case, where the right documentation was drafted but never filed, for stakes about 1/1000th as great, which were still hardly chump change.

In these stratospheric deals, where some very simple steps can make an immense difference, failing to be anally attentive to details can be catastrophic for creditors, as it was for JP Chase Morgan.

Schizophrenia, OCD and Autism May Have Related Neurological Causes

A new open access preprint at bioRxiv suggests that schizophrenia, OCD and autism "have the same neurobiological origin, stemming from a common root of a unique neurodevelopmental tree."  This common structure can be described in terms of a "damage network" (i.e. "a connecting link between the damaged areas that relates areas constantly involved in the disorder").
Three main findings emerged from our meta-analysis: 1) The three psychiatric spectra do not appear to have their own specific damage. 2) It is possible to define two new damage clusters. The first includes substantial parts of the salience network, and the second is more closely linked to the auditory-visual, auditory and visual somatic areas. 3) It is possible to define a "Damage Network" and to infer a hierarchy of brain substrates in the pattern of propagation of the damage. These results suggest the presence of a common pattern of damage in the three pathologies plus a series of variable alterations that, rather than support the sub-division into three spectra, highlight a two-cluster parcellation with an input-output and more cognitive clusters.

04 February 2015

Russian Navy May Be A Paper Tiger

On paper, the two most powerful naval forces in the world, by a long shot, are the United States and Russia (North Korea, China, and Iran are some of the most notable potential naval threats).

But, an analysis of the Russian navy suggests that a large share of its ships are broken or seriously outdated, and that the pace of operations for the ships that they have is very light.  For example, the analysis claims that less than half of Russian Navy ships are operational, compared to 85% of U.S. Navy ships.  North Korea's navy suffers similar issues.

In other naval news, the United States Navy has decided to rename the Littoral Combat Ship as a "Frigate", now the last of the Oliver Hazard class of frigates has ended its active duty service in the Navy, in an effort to honor "naval traditions."

The Grown Ups Are No Longer In Charge

Colorado has the lowest measles vaccination rate in the country.

It doesn't help that New Jersey Gov. Chris Christie and Kentucky Senator Rand Paul, both Republican Presidential candidates, are encouraging parents to not vaccinate their kids with scare tactics (also here).

Not to be outdone, newly elected Republican Senator Thom Tillis of North Carolina, thinks that it ought to be optional for restaurant workers to wash their hands after going to the bathroom and returning to work.  One word:  Gross!

Have viruses and bacteria banded together to form a PAC or something?  Have parasites infected Republican brains?

02 February 2015

Egypt Issues Mass Death Sentences

An Egyptian court triggered an international uproar Monday, confirming a death sentence for 183 defendants. The defendants were convicted of murdering 11 police and two civilians in August 2013, Egypt's state-run MENA news agency reported. 
Those deaths came in an attack on a police station. It followed a massive, deadly crackdown by Egyptian forces on supporters of ousted President Mohamed Morsy. 
"Issuing mass death sentences whenever the case involves the killing of police officers now appears to be near-routine policy, regardless of facts and with no attempt to establish individual responsibility," [Hassiba Hadj] Sahraoui [of Amnesty International said]. . . . 
"So far, 415 people have been sentenced to death in four trials for the killing of police officers, while the case against former President Hosni Mubarak, involving the killing of hundreds of protesters during the uprising, has been dropped. To date no security officers have been held to account for the killing of 1,000 protesters in August 2013," the organization said on its website. . . . 
Thirty-four of the 183 defendants were tried in absentia. All are permitted to appeal.
From CNN.

No country other than China (even runner up, Iran) has executed that 400 more people in a single year in recent times.  No country in the world, even countries like China and Iran which use the death penalty frequently, has imposed the death penalty en masse with some defendants even convicted in absentia in recent times.

The Arab Spring has been, in hindsight, pretty much a total disaster, even though it may presage democratic change in the long run.  It is the 1848 of the Arab World.

System For Disciplining Bad Prosecutors In California Still Broken

A 2010 report by the Northern California Innocence Project cited 707 cases in which state courts found prosecutorial misconduct over 11 years. Only six of the prosecutors were disciplined, and the courts upheld 80% of the convictions in spite of the improprieties, the study found.
From here.

A recent case in the 9th Circuit discussed in the linked article involves prosecutors who tried to defend a conviction in which an informant and the prosecuting attorney both lied in open court, but neither suffered any consequences for it, state judges upheld the conviction, and the 9th Circuit Court of Appeals reversed the decision in a federal collateral attack on the judgment after a scathing oral argument.