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Could it be that the $15 per hour minimum wage adopted by Los Angeles results in some serious cash being earned… by lawyers?

Within a few years it will be illegal for anyone whose skills are worth less than $15 per hour to have a job in Los Angeles. On the other hand, not everyone is eligible for welfare. Especially for adults who cannot obtain possession of a minor child it can take a long time to get on SSDI, work their way through the public housing bureaucracy, etc. Humans don’t want to starve and markets tend to clear despite government prohibitions against people entering into agreements. (Recent example that I learned about talking to a Swede: “There are a lot of apartments in central Stockholm that are owned by the government,” he noted, “and the rents are set very low. But none are ever available unless you pay a large amount of cash to the current occupant. If you stay 5 or 10 years it works out to be roughly the same as the monthly cost of a private apartment.”)

How could the labor market clear for people that employers don’t want to hire at $15 per hour? Contracting! There is no minimum wage for an Uber driver. If it turns out that he or she earns less than the minimum wage the government will still permit him or her to continue to operate the 1099 business.

What would it look like in a restaurant? Instead of hiring people to clear tables and clean at an hourly wage the restaurant could hire a person to be responsible for one bathroom, a portion of the kitchen, and five tables at a fixed monthly rate. The person would bring his or her own cleaning supplies and work the hours of his or her choice, as long as the cleaning got done. The restaurant could spin off the waitstaff as well. Perhaps a waiter rents ten tables from the restaurant much as a cab driver will rent a taxi from a medallion (value up to $1 million in the pre-Uber era thanks to government regulation!) owner. Customers pay the restaurant for the food and the waiter for providing the service.

Note that some employers that don’t want to have low-wage employees are already doing this, albeit typically through a contractor that does hire W2s. See “Costco’s Second-Class Citizens” (Bloomberg 2013) for example or any big company that hires a cleaning service rather than employing janitors.

Here’s where the lawyers come in. If lawyers can persuade a judge that Joe Contractor should have been a W2 employee and that Joe Contractor earned less than $15 per hour then the judge can order a company to pay years of back pay, a potentially good deal for Joe Contractor and a great deal for his attorney. As the factors that separate a 1099 from a W2 employee are subjective this could be a very fertile area for lawyers.

What do readers think? Is this the frontier that finally enables all of those extra law school graduates to get jobs?

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Having loved The Queen we went with enthusiasm to The Audience (Broadway). Same writer (Peter Morgan). Same actress (Helen Mirren). The results, however, were disappointing.

The movie presents the Queen with a challenge: what to do about Diana’s death. The Queen’s dignified and protocol-bound demeanor makes a strong contrast with the maudlin public.

The play concerns a series of meetings, more or less weekly, between the Queen and various prime ministers. The Queen is required to back up whatever the prime minister has decided to do so there isn’t truly a problem to solve. Wikipedia says “Since Elizabeth rarely gives interviews, little is known of her personal feelings. As a constitutional monarch, she has not expressed her own political opinions in a public forum.” Thus everything in the play is made up and the dialog doesn’t seem very plausible, e.g., when the prime ministers reveal their weaknesses and fears.

The prime ministers are portrayed sympathetically, with the exception of Margaret Thatcher, played by Judith Ivey with a strong Southern accent(!). Thatcher’s Reagan-like transformation of British society is ignored; Thatcher’s support of the white South African government (the U.S. also supported them!) and her son‘s sketchy dealings are the only topics that come up between Thatcher and the Queen.

We learn from the script that the Queen, despite her outward appearance as a rich German-English noblewoman, is actually a socialist who supports labor unions, expanded welfare state benefits, higher taxes, etc. She is also a pacifist who opposes any kind of military action. Peter Morgan doesn’t supply any motivation for how she got to be this way, though. A rich American might come to this place after attending a university where it was socially unacceptable to support a smaller role in society for government (see The Crimson for how 96 percent of Harvard College faculty supported Democrats). But we learn from watching the play that the Queen was educated at home. Would the Queen adopt liberal attitudes in order to fit in? If so, to fit in with whom and why would she care? Would the Queen support a more generous welfare state because she felt badly for Britons who did not work? If so, we do not hear of the Queen ever meeting any working-age adult without a job.

One of the interesting things about The Queen movie is that it shows that someone who has lived nearly her whole life as a royal sovereign doesn’t think like the rest of us. In The Audience, on the other hand, the royal sovereign turns out to be Jane Average who happens to have access to some fancy houses and a yacht. At a minimum it would be nice to know how she got to be average!

Related:

• “How rich countries die” (Mansur Olson’s study of how political stability in Great Britain led to its decline relative to, e.g., Germany)
• “Margaret Thatcher: the economic achievements and legacy of Thatcherism” (Telegraph 2013)
• “Margaret Thatcher: why is she still so demonised?” (Telegraph 2013)

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“Quality, Not Just Quantity, of Infrastructure Needs Attention” (Wall Street Journal, May 20, 2015) has some interesting data. The U.S. has spent, adjusted for deprecation, 52 percent of GDP on “public capital stock” (infrastructure such as roads, bridges, train tracks, etc.) while the Germans have spent just 35 percent of GDP. What results have been achieved? “global executives” rated the German infrastructure superior to that of the U.S.

In other words the Germans are getting substantially better value for each public dollar invested.

Why the constant calls by Americans to put more money into public infrastructure if it turns out this is not one of the things that we can do competitively?

Related:

• article comparing the inefficiency of New York’s Tappan Zee construction to a much more complex and longer bridge/tunnel between Denmark and Sweden (the original Tappan Zee bridge cost about $500 million in today’s dollars (source) while the new one will cost roughly 10 times that amount)
• previous posting on 4X cost increase between building the Longfellow Bridge in Boston and renovating it
• high-speed rail costs in China versus U.S.

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I was chatting with a litigator about Real World Divorce and politics. The subject of the Clintons’ roughly $22 million/year in earnings came up and the litigator noted “Monica Lewinsky could have done pretty well for herself if she hadn’t left the white gold on her blue dress.” What did she mean? It turns out that if Monica had stayed in the District of Columbia with Bill Clinton’s child she would have been entitled to roughly $2 million per year for 21 years, i.e., about $42 million total in tax-free profit.

What about the fact that some of the money was earned by Hillary? “A judge could use discretion to award child support based on the combined income in a variety of ways,” she explained. “One is by awarding a higher percentage of Bill’s income with the explanation that Hillary’s earnings can replace those lost to a child support plaintiff. Another is by accepting the argument that Hillary wouldn’t be earning any of her speaking fees but for her relationship with Bill and being part of the couple. A third way of getting a child support award based on the full $22 million would be to argue that much of the Clinton Foundation spending, e.g., on travel or parties, should be considered income to Bill and Hillary. Adding in a judge-determined amount from the Foundation to Bill’s income would bring his income for child support calculation up to $22 million per year.”

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Employees at five banks colluded to earn supranormal profits in rigged markets (nytimes). Presumably they were rewarded by their employers with correspondingly huge bonuses. Those bonuses by now have been turned into beach houses, Gulfstreams, etc. The government comes along more recently and fines “the banks” $5.6 billion. But it seems to me that this fine has to be paid by the shareholders of the banks, not past, present, or future employees. If we assume a labor market the employees of banks are paid a competitive wage. So the banks that have been fined can’t reduce salaries or their better people will jump ship. Thus it will be shareholders who pay. But public company shareholders, due to SEC regulations that prevent them from directly nominating board members, exercise virtually no control over what actions bank employees might take. How then can this fine reduce the likelihood of similar behavior in the future? Wouldn’t a rational current bank employee still seek to collude with counterparts at other banks, rig a market, make huge profits for a while, take home and keep huge bonuses, etc. Why does the employee care if at some future date a shareholder will have to pay a fine because of his or her behavior?

 

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If you want to stop feeling sorry for yourself and/or can’t find a gift for that co-worker who constantly complains about the job, Last Man Off: A True Story of Disaster and Survival on the Antarctic Seas is an awesome book. Certainly you won’t be surprised to find that fishing is the most dangerous occupation in the U.S. (BLS paper), though of course our workers face nothing like the risks presented by those going after Patagonian Toothfish (“Chilean seabass”) in seas where the standard characterization is “Below the 40th latitude there is no law; below the 50th no god.”

The book is written by an English marine biologist who signs on as a “scientific observer” that fishing boats are required to carry as a condition for hunting this semi-endangered species with 15,000-hook longlines. His particular boat is operated out of South Africa with a multinational crew that does not include any Americans:

After picking up our licence from King Edward Point [South Georgia Island], we sailed sixty miles north to the edge of the continental shelf. We would be fishing in water 800 metres deep, but just a few miles further north the seabed dropped off into the abyss. When darkness fell it was time to put our first fishing line in the water. Boats hunting for tuna, marlin or swordfish will set their long-lines to float near the surface, but we were interested in Dissostichus eleginoides, also known as Patagonian toothfish, which feed near the bottom.

Toothfish do not have the gas-filled swim bladder that allows other fish to adjust their buoyancy to cope with changes in depth. Many deep-water species lack these and are forced either to sink to the bottom or waste energy by perpetually swimming to stay up in the water column. Instead, toothfish have changed the very composition of their bodies to become neutrally buoyant. Their skeletons and even the fringes of their scales contain more cartilage and less calcium than do shallow-water species, making them lighter. Their big, dense muscles contain large deposits of lipids, and these buoyant fats are carefully distributed through the fish’s body to be most abundant near the centres of gravity and buoyancy. At their largest, the streamlined and powerfully finned toothfish can reach well over a hundred kilos in weight and two metres in length. They are an abyssal cruise missile with a toothy grin.

It takes a toothfish nine or ten years to reach maturity, when it can reproduce, at which point it is about three feet long and its only predators are elephant seals and sperm whales. The seventy-kilo fish we were hoping to catch may well have been alive for thirty, forty or even fifty years.

Death is always just a few seconds away:

Hannes leant over the rusty guardrail to hand the end of a rope to the deck below when a hook snagged his jacket arm. Within seconds, the fishing line began to tighten. He wouldn’t stand a chance if he was pulled overboard, whether he could swim or not. The water was just above zero, and the shock of the cold water would probably kill him before he could be freed. Within ten metres of the boat he would disappear into the ink of the night, no floodlights to illuminate his flailing arms as the anchor and weights towed him under, like a sardine bait in cheap oilskins. Even the weakest component, the nylon monofilament snood holding the hook, was strong enough to hold a struggling hundred-kilo toothfish underwater, which was plenty strong enough to pull a man overboard and down. Near my feet, a knife stood with its tip embedded in the wood of the bench. I had guessed that it was there for emergencies. It would take minutes to alert the bridge and to stop and turn the boat around as it steamed at six knots. Even if Hannes managed to free himself of the line in the water, I reasoned that he would flounder and drown before he could be found in the darkness. ‘Wo! Wo! Wo!’ Hannes cried out. His voice rang out over the thrum of the engine and the wind. The line went tight. Joaquim grabbed the knife and leant over the guardrail. Moments before Hannes was dragged overboard, the thin nylon sprang apart under the blade.

Whales can be formidable competitors:

The orca were not popular with the crew and were known to steal fish from the line, but I had been waiting to see them all trip; I tried to restrain my excitement. The fishing line twanged and Hannes swore as the whale plucked a toothfish from the hook just before it broke the surface. A dangling pair of fishy lips was all that remained on the hook, taunting the fishermen. The whale was not black and white, but brown and cream, like a sixties retro version. The tint is due to a film of diatoms (planktonic algae) that builds up on the whales’ skin in the Antarctic waters. No less intimidating than their northern cousins, they usually arrive in pods of seven to ten animals. There are several types of killer whales recognized in the Southern Ocean. Some are bigger, and are thought to specialize in attacking minke whales. Others patrol the edge of the ice pack hunting seals. The killer whale now lurking around our boat was of the type thought to eat mostly fish – two thirds of its diet – with seals making up most of the remainder. Toothfish would normally be out of their reach in the depths, but now they were like sushi on a fourteen-kilometre conveyor belt. More orca appeared, as the rest of the pod joined in. We were losing more to the whales than we were hauling aboard. I looked up to see a whale, fifty metres off to starboard, throwing a large fish into the air.

The boat gains a lot of weight mid-voyage:

The boat we were to meet, the Hai Gong You #302, was a ‘reefer’, one of the nomadic tankers that act as fuel stations for the world’s mariners. A bitter-sweet triumph of modern cost-cutting and efficiency is that a boat no longer needs to return to port to refuel or even to offload her cargo. Our reefer was waiting just outside the twelve-mile limit of the Falkland Islands’ territorial waters.

We had taken on ninety-two tonnes of diesel – much more than the small top-up we had required – and had offloaded only one sack of toothfish. This meant that we were now carrying over one hundred tonnes of fuel, sixty tonnes of fish and a few tonnes of bait, food, water and kit. The Sudur Havid was low in the water.

With our decks now closer to the sea’s surface, we would be more prone to taking on water from incoming waves. A heavy load could also affect our ability to return upright after being rolled to one side. Instead of bobbing like a duck, in the way Bubbles had described, the boat could struggle to rebalance after each swell. Almost forty years old, altered again and again from her original design, the Sudur Havid was being made to carry a dangerously heavy load.

The sea turns rough from Force 7 winds (Beaufort scale) and the senior officers decide to keep pulling in fish despite the fact that this requires some doors to be open that also admit water. The pumps clog from fish guts. The backup pump can’t be started.

At this precise moment, as I was on my knees, a tipping point was reached and passed. Unannounced, unacknowledged, but apparent to all of us just minutes later. The boat had been taking on more water than she could drain for some time but now the process had accelerated. Click. A light suddenly went on in my mind. I was no longer getting wet, the well was not being refilled. For once, the water hadn’t come back over to port. I looked over with dread at the starboard side of the factory, which was now six feet deep in grey murk. The water almost reached the ceiling, and the weight pinned the Sudur Havid down. A bird’s eye would see through the spray that she now lay with her heavy bow low in the water, and her stern slightly raised. She leant heavily, with her port side twelve feet up in the air and her starboard rail down in the sea. Waves broke over her and ran down her decks. The boat was no longer rolling, she was listing.

There had been no evacuation drill and the officers don’t have any plan to take EPIRBs or other essential gear into the life rafts. It turns out that an inflatable life raft is a wonderful device for abandoning ship in flat sunny conditions. With high winds and waves, though, getting into the raft and away from the boat is a challenge:

Relenting momentarily, we rolled away just enough to pop out from underneath her. The swells took us in the right direction away from the hull – five metres of freedom – only for the wind and the painter to reel us back. … It felt as if the boat were out to kill us. The underside of the stern tried to crush us, and the once-protective railings were now sharp edges to catch and tear the rubber tubes. … Morné had found a safety cutter, a small plastic item the size of a credit card, attached to the inside of the raft. He passed the serrated blade to Big Danie, who cut the painter. … Just when we thought we were clear, the boat shifted and the stern gantry came slamming down. This arch of heavy steel had once supported the trawl cables, but now the girders were slicing down on to the raft’s roof, folding the raft in two and forcing us underwater. The gantry caught my head: an irresistible force bearing down on me through the canvas canopy. The flat steel pressed against my skull so hard I wanted to cry out, but I was being smothered. Cold water rushed past my cheek. The raft flooded instantly as its rim was submerged. Frigid grey seawater plunged in, swirling around us. To my right, Morné felt someone push his head underwater at the last second, narrowly avoiding the full brunt of the crushing gantry. Fighting for breath, it felt as though he was metres below the surface. And then we were free. The boat shifted in the water and the gantry relinquished its hold. We were less buoyant now but still afloat and the wind and waves carried us slowly away. Our collision with the gantry had flooded the raft with thousands of litres of freezing seawater. Only the top tube of the raft now sat clear of the ocean’s surface; the other two that formed the walls were submerged. The floor bowed down away from us, sagging under the weight of the flooding. This made standing difficult and we were up to our waists and chests in –1°C seawater. But, thank God, we were leaving the boat behind.

The author sits in about three feet of freezing seawater:

At first we bailed through both hatches on the raft, but the waves breaking over us and bursting through the windward side were undoing all of our hard work. Hannes and Big Danie held the windward hatch closed, and Morné and I bailed through the leeward opening instead. But when the raft rotated this soon suffered the same problem and the water poured back in. With the doors held closed, I tried bailing through a gap between the tubes and the canopy, but the amount I could discharge was piteous. … We busied ourselves checking the raft for more supplies. Morné opened the bag that Bubbles [the South African captain] had been packing on the bridge and looked inside. It contained our passports, Joaquim’s video

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“The Hole in the Rooftop Solar-Panel Craze” is a Wall Street Journal editorial (May 17, 2015) that heaps scorn on the way that America’s crony capitalist system encourages domestic rooftop solar power. Here’s a sample:

Recent studies by Lazard and others, however, have found that large, utility-scale solar power plants can cost as little as five cents (or six cents without a subsidy) per kilowatt-hour to build and operate in the sunny Southwest.

Large-scale solar-power prices are falling because the cost to manufacture solar panels has been decreasing and because large solar installations permit economies of scale. Rooftop solar, on the other hand, often involves microinstallations in inefficient places, which makes the overall cost as much as 3½ times higher.

Yet the federal subsidies for solar amount to about $5 billion a year, with more than half of that amount going to rooftop and other, more expensive, non-utility solar plants. If the federal government spent the $5 billion instead subsidizing only utility-scale solar plants, I estimate that it could increase the amount of solar power installed in this country every year by about 65%. And without net metering and all of the other nonsensical state and local subsidies for rooftop solar, we could save this country billions of dollars every year.

The author doesn’t calculate the full amount of the wasted dollars because, presumably, it is too hard to find out what each of the 50 states is doing.

First, do we believe this guy? Brian H. Potts is the author and (1) he is a lawyer who works mostly for utilities, (2) he doesn’t look old enough to shave.

If Potts is right, is it reasonable for him to expect a program run by the U.S. government to be efficient? Car emissions reductions, for example, have been handled in what economists would call the dumbest and most expensive possible way. Instead of measuring emissions every year when cars are inspected and taxing each car owner according to miles driven and pollution emitted per mile, standards are promulgated for new cars and society has to wait 10-20 years to see an effect. The result is that a small percentage of older/mistuned cars generate most of the pollution (example study). Why wouldn’t we expect solar energy production to be handled in a similarly inefficient manner?

Related:

• my own 2008 pipe dream of converting the U.S. to electric cars instead of invading oil-producing nations

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Somebody forgot to tell Bombardier how much richer the global rich are getting. “Bombardier to Cut Production of Most Lucrative Jets” is a May 14, 2015 Wall Street Journal article about how “tough economic conditions world-wide and geopolitical issues have reduced demand for its Global 5000 and 6000 jets, its most expensive long-range business jets currently in serial production. The production cuts will result in the loss of about 1,750 jobs and weigh most heavily on its Montreal-area operations, where about 1,000 workers will be laid off.”

[The Global Express is a Gulfstream competitor and costs about $50 million if moderately pimped out. It is a cousin to the Canadair Regional Jet that I used to fly (previous post about landing at LGA; another visual approach posting).]

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“Tomorrow’s Advance Man” is a New Yorker story (May 18, 2015 issue) about the world of Marc Andreessen, NCSA Mosaic browser programmer turned venture capitalist.

The story explains how the top firms get consistently better returns than the less-known ones: “The imprimatur of a top firm’s investment is so powerful that entrepreneurs routinely accept a twenty-five per cent lower valuation to get it.” (i.e., they are buying at a lower price than competitors)

The market-clearing price for a competent venture capital partner is not very high: “[A16z] general partners make about three hundred thousand dollars a year, far less than the industry standard of at least a million dollars, and the savings pays for sixty-five specialists in executive talent, tech talent, market development, corporate development, and marketing.” Presumably the partners get some kind of boost when a portfolio company is sold, but $300,000 per year is what a senior programmer at Apple or Google could expect to earn (and more evidence that Ellen Pao would have made more money by getting pregnant than by working as a VC).

What would be a fair price for the job? Maybe $0:

The dirty secret of the trade is that the bottom three-quarters of venture firms didn’t beat the Nasdaq for the past five years. In a stinging 2012 report, the L.P. Diane Mulcahy calculated, “Since 1997, less cash has been returned to V.C. investors than they have invested.” The truth is that most V.C.s subsist entirely on fees, which they compound by raising a new fund every three years. Returns are kept hidden by nondisclosure agreements, and so V.C.s routinely overstate them, both to encourage investment and to attract entrepreneurs. “You can’t find a venture fund anywhere that’s not in the top quartile,” one L.P. said sardonically. V.C.s also logo shop, buying into late rounds of hot companies at high prices so they can list them on their portfolio page.

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This interview with Andrew Ng, founder of Coursera and now head of a Silicon Valley lab for Baidu, is kind of interesting for revealing the divide between the Hong Kong/Singapore culture in which Ng grew up and standard American culture. Some choice lines:

I think that “follow your passion” is not good career advice. It’s actually one of the most terrible pieces of career advice we give people. If you are passionate about driving your car, it doesn’t necessarily mean you should aspire to be a race car driver.

When I talk to researchers, when I talk to people wanting to engage in entrepreneurship, I tell them that if you read research papers consistently, if you seriously study half a dozen papers a week and you do that for two years, after those two years you will have learned a lot. This is a fantastic investment in your own long term development. [Fortunately in engineering we are not necessary plagued by “Why Most Published Research Findings are False”]

… if you spend a whole Saturday studying rather than watching TV, there’s no one there to pat you on the back or tell you you did a good job. Chances are what you learned studying all Saturday won’t make you that much better at your job the following Monday. There are very few, almost no short-term rewards for these things. But it’s a fantastic long-term investment. This is really how you become a great researcher, you have to read a lot.

There is much less appreciation for the status quo in the Chinese internet economy and I think there’s a much bigger sense that all assumptions can be challenged and everything is up for grabs. The Chinese internet ecosystem is very dynamic. Everyone sees huge opportunity, everyone sees massive competition. Stuff changes all the time. New inventions arise, and large companies will one day suddenly jump into a totally new business sector.

To give you an idea, here in the United States, if Facebook were to start a brand new web search engine, that might feel like a slightly strange thing to do. Why would Facebook build a search engine? It’s really difficult. But that sort of thing is much more thinkable in China, where there is more of an assumption that there will be new creative business models.

I didn’t finish the article because there was an important NBA playoff game that I needed to watch…

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