Real Estate Bubble in Cambridge

A friend decided that he did not need his three-bedroom condominium in Cambridge anymore. Here’s an email from him:

Went on MLS this week. Today was the first public open house. Got two written offers. Accepted one for 1.325MM with no mortgage contingency.

The government assures us that inflation is non-existent, but if you would like to live in the Boston area without being stuck in traffic for an hour every morning, it will cost you about 20 percent more this year compared to last year. Brookline, as the only town that is both close to the center and has a school system with reasonable results, is getting particularly packed with newcomers.

What if you are willing to rely on the highways? The same friend just bought an 11,000 (!) square foot place in a suburb that has one of the Boston area’s top 10 school systems. He will be luxuriating on 10 acres of land and swimming in the pool. The “guest house” is nearly 4000 square feet. Cost of this Neverland-style ranch? $1.7 million. (Plus the Al Gore-sized electricity bills!)

[Separately, this does lead to the question of why realtors are making 5 percent on nearly every transaction in Cambridge. Unless grossly overpriced, places are sold within a few days. If buyers and sellers could determine a fair price from an appraiser at a cost of $500 or so, why are they paying $60,000+ to realtors to assist them? (The actual legal conveyance from seller to buyer will be done at an additional cost by lawyers, of course.)]

 

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Brave New Virtual World

A friend has a lightly used Magento-based ecommerce site that delivers pages more slowly than he would like. He reported that there were only about 100,000 page views per day, i.e., an average of about one per second. I said “Are you sure that you have enough RAM to keep the database in memory?” This was not an issue that his team of developers had considered. After some digging I found out that he was paying for two servers, each with 32 GB of RAM. On these two physical machines he was running three virtual machines, one for the MySQL database management system, one for the Web server, and one for a staging server. These VMs were allocated 16 GB of RAM for each production VM and 4 GB for the staging server. In other words, he was paying for 64 GB of physical RAM but the Gods of virtualization had set things up so that his production site could not possibly use more than 32 GB of RAM. The database VM ran on a physical machine by itself, leaving 16 GB of RAM entirely idle except for whatever the hypervisor was using.

Requests for the site and server documentation were answered with “What’s documentation?” (I pointed to “Software Design Review” for examples, but still not a single document was found for a site in which at least several developer-years have been invested.)

Does virtualization really make sense for people who aren’t going to do basic design work or write down simple documents that say (1) how much data there is, (2) where the data will be stored, (3) how much memory will be required at each point where data are stored? This particular site would almost surely have run better if the people who set up MySQL had never heard of VMware.

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How many times do we have to pay for the same Internet service? (net neutrality)

It seems that the Federales have decided not to regulate Internet service providers with regard to “net neutrality” and carrying, e.g., Netflix streams to your house (nytimes). So now these unregulated monopolies will be able to charge us $50-100 per month for service and then charge us again for the same Internet service (by charging Netflix, et al., who will then turn back around and raise our subscription rates). Maybe they should save everyone a lot of trouble and just allow Comcast, Time-Warner, and Verizon to collect a 5% payroll tax on wages in exchange for … giving us whatever Internet speeds and cable channels they think would be appropriate.

Carlos Slim is presumably laughing at us right now…

Related: Thoughts on the Comcast/Time-Warner merger

 

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City of Cambridge charges citizens 754 percent interest…

… and citizens apparently don’t object.

The City of Cambridge received my $111 car excise tax payment, due March 18, about 12 days late, either because I mailed the check late or it was delayed in processing (I’m not quite sure).

Today in the mail I get a “warrant” where a private collection agency hired by the city wants $27.52 as compensation for this late payment. That’s a 754-percent interest rate. I spoke to an official in the tax department at city hall and she said “we’re required by state law to charge that.”

Credit card issuers tried stuff like this and they ended up getting tangled up in regulations that restricted their abilities. Why aren’t their similar efforts to limit how much local governments can charge when they don’t get their $100 on the date expected?

[Separately, clearing up a situation like this is a lot harder with the government than with banks. Bank employees are typically at work mid-day/mid-week. Whereas I only had about a 25 percent success rate in reaching the government employees that I attempted to contact to find out where and how to pay this.]

And you might ask how badly does the city need the $5.44 that they might net after paying the collection agency (assuming that they do in fact get 100% of the debt)? Cambridge gave its outgoing city manager a $5 million retirement package (story). The current manager, Richard Rossi, was earning $330,000 per year back in 2013 (Boston Globe), plus pension commitments whose ultimate cost cannot be established. So the answer is… pretty badly!

[Update, May 5, 2014: I did a little more research by talking to city officials, including Susan Marcone in the Tax Collector’s office. It turns out that what the city really wanted to collect was 44 cents in interest. But by state law they can’t simply add this 44 cents to the next property tax bill for my apartment or car. They have to charge some sort of penalty, with a minimum of $5, and they have to use a state-approved collection agency (“Deputy Collector”) to assist them. The deputy collector sends out a few letters via an automated system and can collect up to about $100 in fees, but when taxpayers actually pay or have questions they have to deal directly with city employees. Marcone explained that the deputy collectors are people who had a family or personal connection to the Democratic Party here in Massachusetts at least at one time and that nobody new can get into this business, which she characterized as basically 100% profit.]

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College administrators: Why are there so many rich white and Asian people buying our $300,000 product?

One of the perks of being an expert witness in software patent lawsuits is that I get to eat where law firm partners eat. At O Ya, for example, I enjoyed the $285/person “grand omakase” menu (would have been another $100+ for the wine pairing, I think). At L’Espalier it was only about $200 per person, including wine. At no time did the restaurateurs come out, scan the dining room, and say “I can’t understand why it is mostly rich white and Asian people who eat here.”

Yet give a person a PhD in Higher Education Administration and he or she can be reliably counted on to wonder “Why don’t we have more racial diversity here on our gold-plated campus?” Following the Supreme Court’s decision in Schuette v. BAMN, upholding Michigan’s ban on sorting applicants to public colleges by race, university administrators are scratching their heads once again, unable to figure out why a $300,000 undergraduate degree is appealing primarily to white and Asian Americans.

I’m wondering if it would make sense for a college that was interested in having a more diverse student population simply to cut prices so that a degree cost less than, say, a lightly used Rolls-Royce. There is a lot more racial diversity in a restaurant that charges $20 for a meal than in a restaurant that charges $200. Why wouldn’t we expect to find the same in higher education?

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Hugo Chavez: Great politician; poor administrator

I have finished Rory Carroll’s Comandante: Hugo Chávez’s Venezuela. The book has a flawed structure, jumping back and forth across the 14-year period during which Chavez served as Venezuela’s elected president. There is also some redundancy that a good editor could have eliminated. However, the details, gathered by an Irish journalist who was the Guardian’s correspondent in Venezuela for about six years, make it a worthwhile effort.

Chavez seems to have been perhaps the most able politician of our times. According to Carroll, he managed to (1) rewrite history so that previous leaders seemed terrible by comparison, (2) take credit for anything that was going well, (3) duck responsibility for anything that was going badly, (4) continue to get elected in reasonably fair elections. Here are some samples relating to Chavez’s political skill:

Every government leader uses the media to justify and persuade, project and burnish, but none like Chávez. He was on television almost every day for hours at a time, invariably live, with no script or teleprompter, mulling, musing, deciding, ordering. … On days off you could leave your apartment, take the metro across town, pay utility bills, meet a friend for coffee, buy groceries, pick up laundry, come home, and find him still talking.

Chávez and his scholars were even bolder in rearranging the twentieth century. Traditionally, Venezuelans were taught that the uprising against Marcos Pérez Jiménez in 1958 ended the reign of dictators (so rushed was his flight to exile he left $2 million in a suitcase on the runway) and ushered in multiparty democracy. Chávez needed to reverse this sequence of virtue; otherwise how could he be the nation’s savior? Thus he half rehabilitated a U.S.-backed brute who murdered and jailed thousands, repeatedly praising his public works, his discipline, his patriotism. “I think General Pérez Jiménez was the best president Venezuela had in a long time,” he declared. “He was much better than Rómulo Betancourt [an elected president], much better than all of those others. They hated him because he was a soldier.” The democracy that followed the dictator was cast as the true villain: an electoral charade to dupe the people while oligarchs looted the country. Chávez’s family history was reordered to fit the new official truth. His father had been a proud member of COPEI, one of the “putrid” ruling parties, and despite his modest teacher’s salary all six of his children went on to college education and decent careers. The state provided subsidized housing (Chávez lived in one with his grandmother) and free, rickety education and health care, making Venezuela South America’s richest country until populism and corruption rotted the system in the 1980s. All this became heresy. The comandante, the nation was told a thousand times, was born in extreme poverty, a mud hut, and grew up in a venal, vicious system. “It punished the poor. Spat on the poor.” Thus his 1992 coup against Carlos Andrés Pérez was not a military conspiracy but the cry of an oppressed people. School textbooks were amended so the coup became “a rebellion that changed the destiny of the republic.”

The Liberator’s sacred work would be completed with socialist and communal values replacing capitalist individualism. The comandante called it the Great National Moral and Illuminating Journey. “Education, morals, and enlightenment in all spheres, everywhere, at all times.” He had spoken of this upon taking power, and by 2007 he had formalized it into an official campaign, inaugurating moral and enlightenment training brigades and creating a presidential council to guide schools and universities toward the new consciousness. The campaign did improve lives and elevate learning through literacy programs, which reached rheumy-eyed grandmothers in the slums, and expanded education, which let poor students stay in school and move on to free tuition at Bolivarian universities. The comandante, a talented didact, urged followers to read history, philosophy, and poetry, brandishing his latest favorite tome as an example. … Housewives and taxi drivers found themselves debating colonial history, social consciousness, and the global economy in communal councils and evening classes. Teenagers who normally would have dropped out enrolled in colleges to study architecture, engineering, and literature. A new state-run film studio, Villa del Cine, contributed by producing social documentaries and costume dramas about Venezuelan history. State television talk shows discussed gender equality, the rights of indigenous people, and the role of trade unions. All this unfolded, noted the comandante’s supporters, while the West hiked education fees and wallowed in shallow materialism.

What mattered, as the [2012] election neared, was having the means to confect a boom. Chávez ordered big pay raises for state workers—he was most generous with the army—and a blitz of new payments to pensioners, mothers, children, and students. For the first time the money supply exceeded $100 billion. To tamp down inflation, which was the hemisphere’s highest, the government fixed the prices of fifteen thousand goods, everything from coffee to toothpaste, based upon “scientific analysis” of what constituted fair prices. Soldiers and civilians in red T-shirts patrolled warehouses and stores to ensure that businesses complied, even if it drove them into bankruptcy. At the same time, ports worked overtime offloading containers from around the world to keep shelves stocked. It was like shaking a bottle of champagne and holding down the cork. Inflation and devaluation waited down the line, but in the short term the strategy worked. People had money in their pockets. And many, for the first time in their lives, had hopes of a decent roof over their heads. Venezuelans expected their government to supply cheap housing, but the comandante had built less than his predecessors. Three million people—almost a tenth of the population—lacked adequate accommodation. Thus was hatched the Great Housing Mission, a scheme to build two million houses within five years. “I will not rest in the quest to solve this drama inherited from the curse of capitalism,” said the comandante. It was impossible to build so many houses so fast, not least because nationalized cement and steel factories were sputtering and private contractors feared building anything that could be expropriated. So the government paid firms from Belarus, Russia, China, and Iran inflated prices to throw up apartment blocks all over the country. They also painted slums—those visible from the motorways—bright red, yellow, and blue, Venezuela’s national colors. By mid-2012, the comandante claimed to have reached 96 percent of the housing target for that period. Every few days he or a minister appeared on television to hand keys to a jubilant citizen. The 96 percent number was fanciful, but many homes had indeed been built, or at least redecorated, and it was enough to give hope to those on the waiting list. The list was the key. The government bombarded the population with text messages urging it to register for a home. Millions flocked to mobile registration centers where they received receipts with a name, the date, a registration number, and a stamp. A well-off person cannot understand what it means to possess such a slip of paper, cannot appreciate the solemnity with which a poor person memorizes it, makes copies, and guards it as something precious, a potential passport to comfort and dignity. A vote for Chávez would keep it valid. The list did not just give hope—it gave the government a formidable database come election day.

The rate of muggings, kidnappings, and murders exploded, spreading fear like shrapnel. The state lost the ability to keep citizens safe, to protect them from each other. It was baffling. The maximum leader who liked to micromanage everything lost control of society’s most fundamental requirement, security, wringing his hands while criminals shot, stabbed, and strangled with impunity. It was not supposed to be like this. Poverty was falling and new social missions were bringing services to neglected barrios to ameliorate, as the government put it, decades of “savage capitalism.” Chávez’s opponents were also stumped. They called him a dictator, but real dictators—Trujillo, Pérez Jiménez, Fidel, Kim Jong Il—kept streets safe for ordinary people. The great journey shuddered to a halt because towns and cities were quarantined by fear. … The mayhem undermined official rhetoric about moral renewal and the poor being repositories of virtue and authentic national spirit. The government tried blaming the violence on U.S.-backed Colombian mercenaries out to destabilize the revolution, then on capitalism’s legacy of individualism. It deployed the national guard to bolster police, but the violence swirled around the bewildered soldiers, just as it did the police, and they returned to barracks. … Normally, all this would devastate a president’s support, especially if he was left-wing and could be painted as “soft on crime.” Chávez, to his credit, did not lunge for the death penalty and violent crackdowns, perennially popular but ineffective remedies in Latin America and the Caribbean. And still he managed to escape political damage. It was astonishing. His ratings held up while voters were held up, tied up, cut up, broken into, held down, gunned down, and buried. Chávez achieved this feat by doing something against his nature: he shut up. On crime, which polls said concerned voters more than any other issue, his lips were sealed. Caracas could endure a particularly grisly weekend, more than sixty dead, convoys of funeral corteges, and he had nothing to say. Thugs could abduct ranchers in Táchira, shoot police in Zulia, and rape in Amazonas without presidential comment. Grieving mothers with banners and whistles could block motorways in Valencia demanding justice for slain children, and from Miraflores silence. The comandante simply refused to own the problem. In muteness he sought and found refuge.

If Chávez had been a true dictator, the final act would have been predictable: a slide further into denial until the fantasy realm unraveled and enraged subjects booted the bewildered, pathetic figure into oblivion. His enemies scripted the imagined epilogue with various endings—Chávez boarding a plane to exile in Cuba, Chávez in handcuffs, Chávez forlorn and forgotten at the family ranch in Barinas. Each version involved disgrace and comeuppance. But here his enemies themselves succumbed to fantasy. However much they shouted “Tyrant!” and willed Chávez to act accordingly, he remained a stubborn, indefatigable hybrid: an elected autocrat. His rule stopped well short of dictatorship. Repression was mostly light and selective, involving threats, fines, and jail terms. Opponents organized freely and, with the help of a shrill (albeit shrinking) private media, fought elections. That Chávez hijacked state institutions and resources did not change the fact that people could vote against him.

According to Carroll, Chavez promised the same things as leaders in other countries:

  • To a country that already had a free public health care system for the poor he promised additional health care services/schemes
  • To government workers and people whose skills were not in demand he promised that they would be enriched through taxes on the most successful private sector workers (and that the new higher taxes would not discourage those private sector workers from continuing to work as hard as they formerly had)
  • To most voters he promised that they could enjoy a better standard of living without either working more diligently or learning new skills (i.e., the government would either raise wages or reduce prices).
  • That he would protect citizens from foreign invasion/influence via an expensive military.
  • That he would reduce income inequality.

Assisted by a big rise in oil prices, Chavez delivered on some of these promises. For example, he brought in 20,000+ doctors from Cuba and expanded health care delivery. But his efforts were stymied due primarily to two factors: (1) demographics, (2) incompetent administration.

Venezuela’s wealth is derived primarily from natural resources, such as oil and farmland. Carroll points out “When Hugo Chávez was born in 1954, Venezuela’s population was five million. By 1999 it was an estimated twenty-one million, with 80 percent crammed into crowded towns and hillside slums.” (And by 2012 it had risen to 30 million.) In other words, a fixed amount of natural wealth divided by 30 million did not go as far as when divided

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Boston Marathon 2014

I took a special (to me) four-year-old to see her first Boston Marathon in Coolidge Corner, Brookline today. The security around the race was very impressive. An EPA ASPECT Cessna Caravan with a tricked-out exhaust system was operated all week from Hanscom Field to look for chemical and radioactive contamination. Coast Guard and U.S. Army Blackhawks flew back and forth overhead in formations of up to five helicopters (at about $25,000 per flight hour per helicopter, according to TIME Magazine). A friend asked “Did you feel safer?” My response: “Given that the Tsarnaev brothers were armed with two pressure cookers and one pistol, the security for this marathon has the same rational basis as a person who is attacked with a kitchen knife and expects the next attack to come from a nuclear-powered submarine.”

What if the Tsarnaevs had some cousins who had wanted to attack this marathon in the same way that the 2013 event was spoiled? The authorities absolutely forbade backpacks, potentially filled with explosives, from being carried near the finish line. But there was no such prohibition on bags and backpacks elsewhere on the route. Greta and I watched from Coolidge Corner, amidst hundreds of other spectators and passed by clumps of as many as 50 runners. At our feet? A large backpack.

[Note: I believe that the backpack belonged to a young woman who was hoping to cross the route to get to her job at Trader Joe’s. But she had been waiting there for 30 minutes and there was nobody to stop her from walking away and leaving the backpack.]

Favorite T-shirt: “Keep Calm and Marath On” (each word on its own line)

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Interior noise measurements from a 2000 Pilatus PC-12

These measurements were made in Pilatus PC-12 s/n 353, a Series 9 airplane with 10,700 hours. Note that these show that the plane is at least 2 dB quieter than an almost-new PC-12 NG (previous posting).

Measurements were made with a 10-year-old Radio Shack digital sound level meter, model 33-2055, set to “slow” and “A-weighting”. Measurements were made with the meter’s microphone near the ear level of a person seated in the PC-12. All speeds are indicated airspeed (i.e., true airspeed and ground speed would be higher).

 

Phase Pilot Row 1 Row 2 Row 3
idle 79 75 73 70
taxi 74 72 70
takeoff 82 82
climb 84 82
6500′; 180 knots 88 82 80 79
7000′; 215 knots 88 87-88 85 84
10,000′; 208 knots 88 87 85 84
13,000′; 203 knots 87 86 85 83-84
15,000′; 204 knots 88 87 85 83
FL280; 170 knots 86 83 82 81
FL280; 128 knots 85 78 77 75-78
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Alternative Minimum Tax, deducting state/local taxes, exemptions for children

As in previous years I was unable to understand my accountant’s explanation of why I was paying Alternative Minimum Tax (AMT). If other people are as confused as I am that means that Americans generally have no idea what their income tax bracket might be, i.e., they won’t know until the end of the year how much of a pay raise they would be able to spend.

With a little digging, e.g., this CNBC article, it seems that “The taxpayers now most likely to be liable for AMT payment are people with big families who live in high-tax states.” It seems that with regular taxes the government provides tax benefits for having children and tax deductions of amounts paid in state and local taxes. Then with AMT those benefits are taken away.

I’m wondering why any of this makes sense. Can it truly be efficient to have a country where most of the people who pay significant amounts of tax don’t have any idea what their tax rate is? And if the government needs more money, why are children and state/local taxes deductible?

Let’s consider local taxes. Suppose that you live in a low-tax/low-service town. The town won’t take ownership of streets within developments. You and your neighbors will have to get together to pay for snow plowing of the common street. That won’t be deductible. If the town taxes you, however, and pays the same snow plowing contractor the same amount of money, now the expense is deductible. People who pay more in state/local taxes get more government services, presumably, than people who live in low-tax areas. If people are getting services for their money from their state and local government why do they also need to get money back from the federal government (i.e., from the rest of us)?

How about children? In the old days the federal government didn’t do much for kids so maybe it made sense to provide extra money through the tax system. But now the federal government is involved in funding local schools, in subsidizing student loans, and in providing free or subsidized health insurance for children (the Department of Education was created only in 1979 and now has a budget of more than $70 billion per year; the CHIP program was created in 1997). Is the additional tax subsidy justified? Also, there are people who are earning substantial profits from children who nonetheless may claim these kids as “dependents”. For example, see this posting that refers to Cameron Kennedy’s lawsuit against Peter Orszag where she is trying to get $300,000 per year in tax-free child support to supplement her $350,000 per year salary. If Kennedy can keep the kids with her for 51 percent of the nights of the year, the IRS will give her a reduced tax rate on her $350,000 per year McKinsey consultant income. If we assume that she spends $100,000 per year on the two kids in private school tuition, gold-plated iPhone cases, etc., that means the average American taxpayer will subsidize Kennedy for having a $200,000 per year tax-free revenue source in her house. That’s roughly equivalent to the after-tax yield on $15 million of IBM stock. So we’ve set up a system where, for the sake of fairness, we would have to allow childless Americans to claim a $10-15 million stock portfolio as a “dependent”.

Consider a person who has had the misfortune to be born with an unlovable personality and physical appearance. This person is single, childless, and lonely. In addition, this person will be living in a lonely West Texas town or an isolated hamlet in New Hampshire (i.e., low tax jurisdictions) with very spartan public services. This unfortunate soul will pay federal taxes to support the Department of Education, the Department of HHS, and other agencies that provide free services to more fortunate Americans who enjoy the company of their children on a daily basis. Mr. Lonely Heart will also have to pay additional federal taxes to make up for the money that families with children did not pay because they were deducting state and local taxes in high-tax, high-service locations.

As a parent in a high-tax state I personally am one of the beneficiaries of these subsidies, but I can’t understand why a single childless person in a small West Texas town is paying for our family’s use of the new nearly $100 million Cambridge Public Library. If we ran out of money for whatever reason, the government would step in and give us free housing, free health care, food stamps, and, always, a free education for our kids plus subsidized student loans for college and/or subsidized tuition at state-run colleges. If we haven’t run out of money then why do the existing government subsidies to our kids need to be supplemented with tax subsidies? (In Cambridge, regardless of family income, a child will be able to enjoy the library system, the $27,000 per pupil school system (does not include capital costs so probably $35,000 to $40,000 per year in actual spending), and a 50 percent subsidy of the costs of attending the University of Massachusetts.)

What would it look like if we eliminated the AMT, deductions for state/local taxes, and exemptions for children?

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Employment Litigation in Maryland

After-dinner conversation this evening with some friends from graduate school …

A friend’s wife was owed about $40,000 by her former employer. She and her husband approached a litigator who estimated that the matter could be handled for $2,500 in fees. On that basis, they agreed to sign up for litigation. The case ended 15 months later with a four-day jury trial in which she was awarded $40,000 in damages. Her legal fees to that point? About $200,000 (i.e., 80X the estimate). Fortunately, the contract under which she was suing required a person found in breach to pay the other side’s fees. The jury agreed with this interpretation and awarded her the legal fees in addition to the actual damages. All’s well that end’s well? “The judge set aside the jury’s fee award, so all I got was the $40,000. I could have appealed but I was exhausted by the process so we gave up.”

How did she feel about the experience? “I learned that the system only works for the lawyers.”

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