Quality of Life in Denver

JetBlue was honoring Justin Trudeau on the way out (September) …

Nobody who arrives at the Denver Airport in the late evening is going to get claustrophobia:

My experience at the Maven at Dairy Block Hotel proves that nobody older than 40 should attempt to stay at a hip hotel. Although it was Sunday and Monday night when I stayed, there was already a lot of noise from the outdoor dining tables in the alley underneath the room. Airstream and pinball in the lobby:

I did appreciate the room numbers done in nails. Instead of a vat of coffee in the lobby from which you pour yourself as many cups as you want (Hampton Inn-style), you take a coupon for a precious single cup of single vintage drip coffee served by a tattooed and pierced cashier at the artisanal coffee shop within the building:

There is an upscale food court attached to the hotel. If nothing else, it proves an example of the critical difference between possessive and contraction.

We were working near Union Station:

This area certainly won’t win prizes for affordability. We didn’t see a sandwich for less than $13. A haircut from a barber shop, with tip, was $40. The first native-born Uber driver that I met was during the departure ride to the airport (20-minute traffic jam delay at 8 pm). He said “I’ve lived here my whole life, but I can’t afford it anymore. It is like San Francisco. I think I’ll have to move.” Certainly he can be replaced. The sandwich shops were staffed mostly by non-English-speaking immigrants who were receiving instruction in such basic tasks as ladling soup into disposable bowls.

Dinner was a $70 plate of tacos at Tamayo:

After we managed to eat most of these, our local friend gave us a tour of the 16th Street Mall. She knew many of the homeless people we encountered, whose environment was punctuated by video signboards advertising Patagonia, purveyor of $200 down vests. Instead of the garments, however, Patagonia was advertising its brand with a message about climate change:

The good news is that nobody over age 30 is “facing extinction,” according to Patagonia.

(Wouldn’t the actual “climate deniers” be Patagonia customers themselves? Suppose that someone bought a vest for 30 at Costco or $40 at Uniqlo instead of paying $200 for a Patagonia vest. He/she/ze would then have $160-170 left over with which to plant trees ($1/tree in bulk?) to reduce global warming. What is better evidence of climate denial than conspicuous consumption of luxury goods such as Patagonia clothing?)

The Denver Art Museum is mostly closed for a massive renovation. But there is still some great stuff on display. Kids were better dressed in the old days:

I love Nam June Paik’s work, but how can it be maintained? Who has a stock of late 20th century Trinitron tubes?

I thought it would kill on Facebook to write “A big space needs a lot of rooftop A/C.” over a picture of these Donald Judd sculptures.

How wrong I was!

A professional fundraiser was outside seeking donations for bringing more migrants to the U.S. I gave him my standard offer of paying for transportation and food if he wanted to house a migrant in his own apartment. This was refused: “That’s not how we work.”

Inside the museum, an Erika Harrsch installation/video promoting migration:

Watch this video for the words/lyrics (“alien” features prominently).

More exciting for the kids: a 1970 hall of mirrors by Lucas Samaras. The renovated museum will be open in 2022, just in time for Shanghai to have built another Manhattan full of office space.

What do people read in Denver? I visited the Tattered Cover, an old-school downtown bookstore, to find out. “For the sisters, misters, and binary resisters”:

(Will the Mueller Report have to be shredded now that Trump is being impeached from his position as Fuhrer due to Ukraine, not Russia? Or will people still pay to read this in hardcopy? And I would hope that the one thing anyone can learn during National Hispanic Heritage Month is that nobody could ever have too many tamales!)

Denver got quite a bit younger and hipper as I made my way back to the airport. The airport is ready for the Elizabeth Warren presidency. JetBlue, regrettable, is showing movies by a convicted (in New Yorker magazine and on Facebook) rapist. To deceive the woke/outraged into watching Annie Hall, the airline tags it as dating to 2007 (Wikipedia says 1977).

Due to the easy flight connections to Asia and the appeal to the young workers that employers seek, I cling to my belief that Denver was the best choice for Amazon HQ2. At the same time, it seems that any more business growth will be very tough indeed on the lower skill members of the community.

My favorite pictures from the trip are of an app-linked electric scooter tossed into the garbage in front of a micro-brewery. I posted this to Facebook with “Public service announcement: eating avocado toast and steering don’t mix.”

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Fast-food economics in Massachusetts: Higher minimum wage leads to a shorter work week, not fewer people on welfare

One reason for a $15/hour minimum wage cited by advocates is that current minimum wage workers are generally on welfare (public housing and Medicaid if not also food stamps, etc.) and therefore, the theory goes, the employer is being subsidized by taxpayers.

(How a $15/hour job would lift a household above the welfare thresholds is unclear; in our corner of Massachusetts, a family of four is entitled to housing and/or health insurance subsidies up to $130,000/year. At $15/hour, that’s 167 hours/week, 52 weeks/year.)

I recently talked to the owner of 12 fast-food outlets here in Massachusetts. He is a Democrat and enthusiastically supports the party’s proposals for increasing the number of migrants to the U.S. “Immigrants work harder than Americans,” he said, “who have been on welfare for multiple generations and don’t have a culture of work.” He also appreciates immigrants as customers.

There is one part of the Democrat platform that he does not agree with: the $15/hour minimum wage. “Every time wages go up,” he said, “my employees ask to work fewer hours so that they don’t lose MassHealth [Medicaid].” On his side, he does not want anyone working more than 30 hours per week, the threshold that would trigger a requirement for him to provide health insurance under Obamacare. Out of 160 workers total, he provides health insurance to only 10. “My premiums are sky-high,” he noted, “because we have so few people on the policy.”

(This may show the irrelevance of Econ 101 principles in a half-planned economy like the U.S. Econ 101 says that the higher wage would induce workers to supply more labor hours, not fewer. But Econ 101 never met MassHealth and other means-tested programs!)

Related:

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Immigrant who drove up prices for housing now runs for office on a rent control platform

Kshama Sawant is running for re-election to the Seattle City Council. One of her campaign posters from August:

From her site:

Seattle needs rent control, citywide and without corporate loopholes, to stop skyrocketing rents. We need to build tens of thousands of units of social housing, paid for by taxing Amazon and big business, to provide a public alternative to the broken private development system. … Meanwhile, skyrocketing housing costs and weak tenant rights laws have combined to lead to an epidemic of evictions. … As a member of Socialist Alternative, I wear the badge of socialist with honor, and I’m excited to see candidates identifying as socialists like Alexandria Ocasio-Cortez winning elections across the country.

What has driven up the cost of housing in Seattle? Maybe it was Sawant herself! Wikipedia says that she migrated to Seattle from India via a marriage to a programmer at Microsoft. “New milestone in King County: Immigrant population tops 500,000” (Seattle Times): “Since the start of the decade [2010], King County has had the third biggest increase in foreign-born residents among all U.S. counties. … That means that nearly one in four inhabitants of the county (24 percent) were born outside the United States, significantly higher than the national average of 14 percent.”

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Why aren’t last minute airline tickets inexpensive?

At 7:15 pm on Sunday, October 20 I checked the JetBlue web site for fares to Las Vegas. They were showing a flight leaving in approximately two hours at a fairly high price (roughly double what Spirit charges):

The Mint ticket is especially costly, $1,104, given that there are two seats left and only two hours to go.

Maybe the “Even More Space” seats are not truly empty because JetBlue has sold a bunch of regular price tickets and will have to allocate these at the gate to people who did not pay extra.

But that leaves the mystery of why not sell the Mint seats for closer to the next night’s price of $604. Are two people likely to buy those last two seats at $1,104?

Is this evidence of lack of competition in the airline market? In an Econ 101 competitive marketplace, JetBlue should be happy to sell these last seats at any price above marginal cost (essentially $0 on top of the taxes, TSA, and airport fees).

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Academics and NYT stirring up envy

“How to Tax Our Way Back to Justice: It is absurd that the working class is now paying higher tax rates than the richest people in America.” (NYT) is kind of fascinating for what it says about our media and taxpayer-funded universities.

Emmanuel Saez and Gabriel Zucman, economists at UC Berkeley, figured out that the “bottom 50%” of Americans earn $18,500/year on average and pay a tax rate of 25 percent.

Here’s my comment on the piece:

I wonder if these guys ever leave their offices on campus.

If they were to walk down to one of the less genteel neighborhoods in their fair city of Berkeley they would discover folks who are living in taxpayer-funded housing, signed up for taxpayer-funded health insurance (Medicaid), receiving taxpayer-funded food stamps, and using a taxpayer-funded smartphone.

Unless you’re going to turn all of these noncash welfare programs into some kind of cash income equivalent, there is no meaningful way to calculate the tax rate paid for an American on welfare. Given that 71 million of us are on Medicaid, for example, the numbers presented in this article cannot possibly be correct. The economists have the “bottom 50%” with an average annual income of $18,500. The income limit for welfare in the writers’ native Bay Area is at least $117,400/year (see https://www.mercurynews.com/2018/06/25/the-eye-popping-definition-of-what-is-low-income-in-the-bay-area-increases-again/ ).

Maybe they found some people with a cash income of $18,500, but that isn’t their spending power. If it were, these folks could not afford to live in the U.S. at all (since, if they have a kid or two, health insurance would consume 100% of their income, leaving nothing for food or shelter).

The truly amazing thing here is that middle class Californians are being taxed to fund these two professors!

The article has a lot of information about how the rich are getting richer.

Since it is obviously absurd to talk about the tax rate paid by people who are mostly living on welfare, what could the purpose of the article be other than to sow discord and rage? (the authors hint that they have been advising Elizabeth Warren and presumably would be on track for central planning jobs if she were to be elected)

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Taxi driver’s perspective on Uber coming to Vancouver

Uber had been, until recently, effectively outlawed in Vancouver (history). I took a taxi(!) to the airport there on September 12 and asked the driver how he felt about the impending Uberstorm.

He was an unskilled, though English-speaking, immigrant who rented the taxi from the medallion owner at a fixed price and then his earnings were dependent on the vicissitudes of the market. How much was a medallion worth? “It used to be $500,000,” he replied, “but now they’re down to $50,000.” (Vancouver Sun says that the peak was C$1 million).

Due to the fact that prices for taxi rides were high enough to pay the rent on a C$1 million asset (the medallion), consumers used taxis only as a last resort and drivers ended up netting more or less the market-clearing wage for unskilled immigrant labor. With lower prices, the driver expected to be working more and keeping everything but the car costs.

Related:

  • California AB 5, a new law that is intended to force Uber to treat drivers as W-2 workers (ironically leaving drivers of traditional taxis, who have to rent from medallion owners, as supposedly modern “gig” workers)
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Improving our dismal public schools with the dismal science

Misbehaving: The Making of Behavioral Economics, by Richard Thaler, has some potentially practical advice for improving our schools:

A good example of a domain where field experiments run by economists are having an impact is education. Economists do not have a theory for how to maximize what children learn in school (aside from the obviously false one that all for-profit schools are already using the best methods). One overly simplistic idea is that we can improve student performance just by giving financial incentives to parents, teachers, or kids. Unfortunately, there is little evidence that such incentives are effective, but nuances matter. For example, one intriguing finding by Roland Fryer suggests that rewarding students for inputs (such as doing their homework) rather than outputs (such as their grades) is effective. I find this result intuitively appealing because the students most in need do not know how to become better students. It makes sense to reward them for doing things that educators believe are effective. Another interesting result comes directly from the behavioral economics playbook. The team of Fryer, John List, Steven Levitt, and Sally Sadoff has found that the framing of a bonus to teachers makes a big difference. Teachers who are given a bonus at the beginning of the school year that must be returned if they fail to meet some target improve the performance of their students significantly more than teachers who are offered an end-of-year bonus contingent on meeting the same goals. A third positive result even further from the traditional tool kit of financial incentives comes from a recent randomized control trial conducted in the U.K., using the increasingly popular and low-cost method of text reminders. This intervention involved sending texts to half the parents in some school in advance of a major math test to let them know that their child had a test coming up in five days, then in three days, then in one day. The researchers call this approach “pre-informing.” The other half of parents did not receive the texts. The pre-informing texts increased student performance on the math test by the equivalent of one additional month of schooling, and students in the bottom quartile benefited most. These children gained the equivalent of two additional months of schooling, relative to the control group. Afterward, both parents and students said they wanted to stick with the program, showing that they appreciated being nudged. This program also belies the frequent claim, unsupported by any evidence, that nudges must be secret to be effective.

Imagine the outcry if teachers got money at the beginning of the school year, spent it on vacations, recreational marijuana, etc., and then some of them had to give the money back at the end of the year due to evidence that their students hadn’t learned much!

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Behavioral economics says we can beat the market

Misbehaving: The Making of Behavioral Economics, by Richard Thaler, is an interesting history of this new-ish subfield from the inside. It also contains some potentially useful guidance for investors!

Thaler points out that the rational beings on which the theories of Econ 101 rest do not exist in the real world. None of us make rational purchase decisions, for example. Aggregating a huge group of irrational people does not make our decisions somehow more rational:

the premises on which economic theory rests are flawed. First, the optimization problems that ordinary people confront are often too hard for them to solve, or even come close to solving. Even a trip to a decent-sized grocery store offers a shopper millions of combinations of items that are within the family’s budget. Does the family really choose the best one? And, of course, we face many much harder problems than a trip to the store, such as choosing a career, mortgage, or spouse. Given the failure rates we observe in all of these domains, it would be hard to defend the view that all such choices are optimal.

The book contains a good introduction to all of the big issues in behavioral economics, e.g., that people are loss-averse and also that they demand fairness (which is why we must all vote a Warren-Sanders ticket for president!).

Perceptions of fairness also help explain a long-standing puzzle in economics: in recessions, why don’t wages fall enough to keep everyone employed? In a land of Econs, when the economy goes into a recession and firms face a drop in the demand for their goods and services, their first reaction would not be to simply lay off employees. The theory of equilibrium says that when the demand for something falls, in this case labor, prices should also fall enough for supply to equal demand. So we would expect to see that firms would reduce wages when the economy tanks, allowing them to also cut the price of their products and still make a profit. But this is not what we see: wages and salaries appear to be sticky. When a recession hits, either wages do not fall at all or they fall too little to keep everyone employed. Why? One partial explanation for this fact is that cutting wages makes workers so angry that firms find it better to keep pay levels fixed and just lay off surplus employees (who are then not around to complain). It turns out, however, that with the help of some inflation, it is possible to reduce “real” wages (that is, adjusted for inflation) with much less pushback from workers.

Speaking of fairness, note that Uber has eliminated its “surge pricing” annotation. When the price is higher than usual, customers see a higher quoted price, not a screaming “surge pricing” banner. Restaurants and theaters would rather have a long waiting list than charge a market-clearing price. A chef is quoted as saying that he didn’t want to charge so much that customers would leave feeling that they’d been overcharged.

Stock markets are irrational and predictably irrational as far as Thaler and colleagues are concerned. Companies shouldn’t pay taxable dividends, for example, when they can buy back shares and compensate investors with a higher stock price:

Shefrin and Statman’s answer relied on a combination of self-control and mental accounting. The notion was that some shareholders—retirees, for instance—like the idea of getting inflows that are mentally categorized as “income” so that they don’t feel bad spending that money to live on. In a rational world, this makes no sense. A retired Econ could buy shares in companies that do not pay dividends, sell off a portion of his stock holdings periodically, and live off of those proceeds while paying less in taxes. But there is a long-standing notion that it is prudent to spend the income and leave the principal alone, and this idea was particularly prevalent in the generation of retirees around in 1985, all of whom had lived through the Great Depression.*

Gambling on the ponies is irrational. Betting on the even-money favorite will return 90 cents on the dollar. Betting on the longshot will return 14 cents and the returns get worse at the end of the day. Surely professionals investors are not as dumb as folks who gamble at the track? Thaler summarizes research suggesting that investors are actually just as dumb!

Thaler says that the equity premium (excess returns of stocks compared to bonds) is higher than it should be, even after economists pointed out that the equity premium is too high. The idea that professional investors are irrational is an old one, going back at least to Keynes:

Keynes thought markets were more “efficient,” to use the modern word, in an earlier period at the beginning of the twentieth century when managers owned most of the shares in a company and knew what the company was worth. He believed that as shares became more widely dispersed, “the element of real knowledge in the valuation of investments by those who own them or contemplate purchasing them . . . seriously declined.” … Keynes was also skeptical that professional money managers would serve the role of the “smart money” that EMH defenders rely upon to keep markets efficient. Rather, he thought that the pros were more likely to ride a wave of irrational exuberance than to fight it. One reason is that it is risky to be a contrarian. “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

The simple “value investing” idea put forward by Benjamin Graham, i.e., buy stocks with a low P/E ratio, continued to work 50 years after its conception:

It was not so much that anyone had refuted Graham’s claim that value investing worked; it was more that the efficient market theory of the 1970s said that value investing couldn’t work. But it did. Late that decade, accounting professor Sanjoy Basu published a thoroughly competent study of value investing that fully supported Graham’s strategy. However, in order to get such papers published at the time, one had to offer abject apologies for the results. Here is how Basu ended his paper: “In conclusion, the behavior of security prices over the fourteen-year period studied is, perhaps, not completely described by the efficient market hypothesis.”

Both the best companies and the worst tend to revert to the mean:

Finding evidence of mean reversion would constitute a clear violation of the EMH. So we decided to see if we could find that evidence. Our study was simple. We would take all the stocks listed on the New York Stock Exchange (which, at that time, had nearly all of the largest companies) and rank their performance over some time period long enough to allow investors to get overly optimistic or pessimistic about some company, say three to five years. We would call the best performing stocks “Winners” and the worst performers “Losers.” Then we would take a group of the biggest Winners and Losers (say the most extreme thirty-five stocks) and compare their performance going forward. If markets were efficient, we should expect the two portfolios to do equally well. After all, according to the EMH, the past cannot predict the future. But if our overreaction hypothesis were correct, Losers would outperform Winners. Such a finding would accomplish two things. First, we would have used psychology to predict a new anomaly. Second, we would be offering support for what we called “generalized overreaction.” Unlike the Kahneman and Tversky experiment in which subjects were overreacting to measures of sense of humor when predicting GPA, we were not specifying what investors were overreacting to. We were just assuming that by driving the price of some stock up or down enough to make it one of the biggest winners or losers over a period of several years, investors were likely to be overreacting to something. The results strongly supported our hypothesis. We tested for overreaction in various ways, but as long as the period we looked back at to create the portfolios was long enough, say three years, then the Loser portfolio did better than the Winner portfolio. Much better. For example, in one test we used five years of performance to form the Winner and Loser portfolios and then calculated the returns of each portfolio over the following five years, compared to the overall market. Over the five-year period after we formed our portfolios, the Losers outperformed the market by about 30% while the Winners did worse than the market by about 10%.

Can the non-behavioral economists fix this? No! says Thaler.

The efficient market hypothesis could be reconciled with our results if the Loser stocks had high betas and thus were risky according to the CAPM, and the Winner stocks had low betas, meaning they were less risky. … By whatever measure one used, “value stocks” outperformed “growth stocks,” and to the consternation of EMH advocates, the value stocks were also less risky, as measured by beta.

The practical advice from the book is to buy value stocks and small cap stocks. A portfolio of “blue chip” large cap stocks would be almost certain to underperform in the long run (see GE!).

Can we get good advice for day-to-day trades from economists? Nobel laureate Paul Krugman predicted a dramatic and persistent stock market depression after the Trumpenfuhrer was sent to the Reichstag in November 2016. Nobel laureate Bob Shiller predicted a stock market crash in 1996, according to Thaler. The S&P 500 was 1,050 when they sounded the doom horn. The stock market did crash starting in 2000. It fell from 2,100… to about 1,150. In other words, if you’d gone short in 1996 and then perfectly timed the bottom of the stock market in 2002 you still would have lost money (plus another 3 percent per year in dividends that you’d have had to pay out). Thaler credits Shiller with prescience and says he was too early, but does not point out that Shiller was actually wrong based on the numbers.

Real estate seems to be one of the most irrational of all markets.

My conclusion: the price is often wrong, and sometimes very wrong. Furthermore, when prices diverge from fundamental value by such wide margins, the misallocation of resources can be quite big. For example, in the United States, where home prices were rising at a national level, some regions experienced especially rapid price increases and historically high price-to-rental ratios. Had both homeowners and lenders been Econs, they would have noticed these warning signals and realized that a fall in home prices was becoming increasingly likely. Instead, surveys by Shiller showed that these were the regions in which expectations about the future appreciation of home prices were the most optimistic. Instead of expecting mean reversion, people were acting as if what goes up must go up even more. Moreover, rational lenders would have made the requirements for getting a mortgage stricter under such circumstances, but just the opposite happened. Mortgages were offered with little or no down payment required, and scant attention was paid to the creditworthiness of the borrowers. These “liar loans” fueled the booms, and policy-makers took no action to intervene.

In other words, it seems likely that the short trade that made John Paulson a multi-billionaire will work during the next bubble.

A fun corner of the book is a discussion of office allocation in a new building for the economists at University of Chicago:

Two other rules of interest: offices could not be traded and, after one senior faculty member inquired, the deans emphatically ruled out the possibility of buying an earlier draft pick from a colleague. This ruling, and the fact that the school decided not to simply auction off the draft picks, reveals that even at the University of Chicago Booth School of Business—where many favor an open market in babies and organs—some objects are simply too sacred to sell in the marketplace: faculty

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Knee replacement in Mexico

It has long amazed me that the typical non-emergency medical intervention for an American does not start with a plane flight to a country in which medicine can be done efficiently.

“A Mexican Hospital, an American Surgeon, and a $5,000 Check (Yes, a Check)” (nytimes) is a story about a knee replacement that happens in the way that Econ 101 would suggest:

The hospital costs of the American medical system are so high that it made financial sense for both a highly trained orthopedist from Milwaukee and a patient from Mississippi to leave the country and meet at an upscale private Mexican hospital for the surgery.

Ms. Ferguson gets her health coverage through her husband’s employer, Ashley Furniture Industries. The cost to Ashley was less than half of what a knee replacement in the United States would have been. That’s why its employees and dependents who use this option have no out-of-pocket co-pays or deductibles for the procedure; in fact, they receive a $5,000 payment from the company, and all their travel costs are covered.

Dr. Parisi, who spent less than 24 hours in Cancún, was paid $2,700, or three times what he would have received from Medicare, the largest single payer of hospital costs in the United States. Private insurers often base their reimbursement rates on what Medicare pays.

Interesting, but it raises more questions than it answers, e.g., why aren’t all knee replacements done in a country where knee replacements can be done efficiently?

[Separately, note that the NYT informs us that Mexico is too dangerous for a caravan of Hondurans to dwell, which is why they need to continue across the southern border of the U.S. and claim asylum. But, on the other hand, the same newspaper tells us that Mexico is sufficiently safe and organized to serve as a meeting place for American surgeons and privately insured patients.]

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Hotel life in Seattle, minimum wage $16/hour

From seattle.gov:

The Seattle Office of Labor Standards (OLS) announces that the 2019 minimum wage for all large employers (employing more than 500 workers worldwide) will be $16.00 per hour. In past years, there was a two-tier system under which large employers that contributed toward individual medical benefits paid a lower minimum wage than those that did not. This two-tier system ends in 2019. Also, beginning on January 1, 2019, small employers (with 500 or fewer employees) must pay at least $15.00 per hour.

From the Hyatt Regency, in a confirmation email:

HOUSEKEEPING SERVICE IS PROVIDED EVERY OTHER DAY BEGINNING AFTER THE 2ND NIGHT OF YOUR STAY UNLESS OTHERWISE REQUESTED. PLEASE INDICATE YOUR PREFERENCE FOR HOUSEKEEPING SERVICE AT CHECK IN. THANK YOU FOR CHOOSING HYATT REGENCY SEATTLE.

The “housekeeping every other day” message was regarding a $300+/night stay.

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