Philip Greenspun’s Weblog

If you’re an expert Web developer with Python experience and want to move to the Imperial City, this database-backed Web developer opening in Washington, D.C. should be appealing. You’ll get paid reasonably good money and have a chance to work with Nathan Cobb, the physician who founded QuitNet, which has helped literally hundreds of thousands of people quit smoking. QuitNet is a good reference for when folks ask “Has anyone ever done anything useful with social media?”

Cobb is notable for learning about Facebook and Web 2.0 in 2004 then developing a time machine in which to travel back to 1995 and start his online community with many Facebook-like features.

The job should be secure since the money is ultimately coming from the $206 billion Tobacco Master Settlement Agreement between the cigarette companies and the states. [Most of those states will probably soon need to start sending every retired public employee a free carton of cigarettes every week in hopes of reducing their pension liabilities.] Not that you’ll really need the cash since all of your entertainment will be free (museums, lectures, concerts, recreation, etc., all paid for by collecting taxes from people in Ohio, Michigan, and other struggling states). You’ll be getting good experience building applications that plug into all of the popular social networking sites. You’ll be living in a city where there are literally 10 jobs for everyone with a modicum of skill, so if you don’t like it you will have your choice of places to work next.

[In case you’re a single male Python nerd tempted to move to Silicon Valley, keep in mind that there is a huge surplus of single men in the San Francisco Bay area whereas the opposite situation applies in Washington, D.C. (see Boston Globe (written by a journalist and therefore not adjusted for overall population size). Would you rather be by yourself fighting California traffic or with a lovely young female government employee riding the Metro? Remember that your government worker companion will be well-paid and she won’t have to work long hours so she’ll have plenty of time for recreation.]

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I’m halfway through The Rational Optimist: How Prosperity Evolves by Matt Ridley, an English science journalist. The book covers 200,000 years of human history, but this blog posting concerns just one chapter “The feeding of the nine billion”.

Have you chuckled at the apparent inconsistency of a neighbor who drives a 7,000 lb. pavement-melting SUV to Whole Foods and then buys organic produce? It turns out that there is no inconsistency. She is destroying the planet with her SUV and with her purchases of hard-to-grow organic food.

Ridley notes that with genetically engineered crops, synthetic fertilizers, and Roundup to control weeds, the trend of feeding ever more people with less land could be continued. The biggest obstacle to returning land to its wild state is organic farming. Currently we are using 38 percent of the Earth’s land for growing food or grazing animals; at 1961 levels of productivity we would need to be using 82 percent of the land.

Organic farmers won’t use genetically engineered crops, so they spend a lot more time and energy fighting pests. Organic farmers won’t use Roundup and other herbicides, so they plow the weeds under, which kills a lot of small animals and loosens the soil enough that it erodes (or sometimes they resort to flame-throwers). Organic farmers won’t use standard fertilizer, but only manure from cows, which means we’ll need a lot more cows running around.

Organic cotton is an especially hard-on-the-Earth product, according to Ridley. Standard industrial cotton has Bacillus thuringiensis (“bt”) genes mixed in and these kill pests, cutting the need for sprayed pesticides in half.

Who knew that “sustainable” would mean a polyester shirt and a bag of Fritos?

[Update: Just a few days after this posting, a German E. coli outbreak that killed 22 people has been blamed on organic bean sprouts (story).]

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The continuing decline of U.S. house prices has been in the news lately, along with articles about how people love to rent. In some parts of the country, buying is definitely cheaper than renting, especially when you consider the 4-5 percent interest rates being offered. Can it be rational under those circumstances to rent?

One factor that has been covered is the high transaction cost of selling a house, perhaps 10 percent of the house price (5-6 percent real estate commission plus the cost of leaving the place vacant for 3-12 months). That’s equivalent to 1-3 years of rent. What if the person knows for sure that he or she will stay at least ten years and therefore it genuinely might be cheaper to buy. Why doesn’t he or she get out a checkbook?

Let’s consider an adjustment for the risk that, when it comes time to sell the house, there won’t be any jobs in the city or state and therefore the value of the house will be zero. If you’re a working-age renter, by definition your apartment is near a job and within a reasonably functional economy. Otherwise you wouldn’t be there paying rent! Between 1970 and 2008, a home buyer probably would not think to discount a house for the possibility that an entire city or state economy would essentially fall apart. Such things had not happened in recent memory (though they had happened, e.g., in Lowell and Lawrence, Massachusetts when the textile mills shut down and moved south; population fell and houses became surplus).

The potential home buyer today has seen pictures of Detroit, with former neighborhoods being gradually reclaimed by Nature or plowed under into farmland. Recognizing that his or her own city could become like that in 20 years time, the buyer will factor that into the price he or she is willing to pay. In the event of a Detroit-style decline, the house becomes worthless and the cost of ownership for 10 years or so effectively tripled (10 years x 5 percent is approximately equal to 50 percent of the home’s value, then add another 100 percent for the cost of throwing the house away). Suppose the buyer thinks that this has a 20 percent probability of happening. Given a typical person’s risk aversion, that might reduce the market-clearing price for a house by 25 percent.

I’m not quite sure how to test this theory. There are some parts of the U.S. where the risk of economic decline is much lower than others. For example, it is hard to imagine how Washington, D.C. could fail to prosper, even if much of the rest of the nation is impoverished. So the “discount for risk of write-off” should be near zero in Northwest DC and Bethesda, Maryland (though some neighborhoods of D.C. did decline to near worthlessness within recent memory). Manhattan seems also like a place where it is very likely there will be jobs. Perhaps Santa Monica and the nicer parts of San Francisco/Silicon Valley too (the data are pretty coarse, though, and the house market for Los Angeles overall may not correlate that well with Santa Monica when times are tough). Looking at the buy/rent ratio we would expect it to be higher in places with less of economic collapse.

http://economix.blogs.nytimes.com/2011/05/10/rent-vs-buy-a-longer-list/

has some suggestive data. Cities that seem at risk of being abandoned altogether, such as Detroit and Cleveland, are indeed theoretically very cheap places to buy. Washington, D.C. is expensive as well as some geographically blessed places such as San Francisco, Seattle, Orange County, and Honolulu. New York City, however, is only at an average ratio (maybe because Manhattan is not broken out separately?).

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Friends have been asking me to comment on the latest news regarding the June 1, 2009 crash of Air France 447, e.g., this CNN article. I dug up my June 9, 2009 posting on the subject (pure speculation at the time) and, as the black box story unfolds, would appreciate readers grading my success.

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I spent part of the week in my old home town of Bethesda, Maryland, transformed beyond recognition by the boom in all things government (the 1500 square-foot-houses in my parents’ neighborhood have been torn down and replaced by 5000-square-foot $1.5M homes for lobbyists, lawyers, etc.; the Chevy wagons in the driveways have been replaced by Porsche Panameras and big Mercedes sedans and SUVs). I had dinner with a woman who joined the FDIC a year ago to work as a commercial litigator. What kind of work was she doing?

“After a bank fails and we take them over, we step into their shoes,” she explained. “So if they were involved in a legal action of some kind before we have to finish it. But mostly I handle new lawsuits being brought by former executives. Each was entitled to millions of dollars in retention bonuses and other extra pay had their bank stayed in business. Now that the bank has failed they are arguing that they, who ran the bank into insolvency, are entitled to higher priority than general creditors.”

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http://www.reuters.com/article/2011/05/19/us-usa-debt-size-idUSTRE74I5TL20110519 is an article on ways to visualize the U.S. national debt as well as current borrowing.

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In reviewing http://en.wikipedia.org/wiki/List_of_California_ballot_propositions it seems that the ballot propositions that have gotten Californians excited recently involve same-sex marriage and marijuana. In looking through the past 20 years of propositions, I couldn’t find any that relate to the biggest costs to Californians, i.e., public employee salaries and pensions.

Naively I would think that middle class voters who learned about police and fire department workers earning $300,000 per year and receiving an inflation-adjusted pension of $200,000+ per year would be interested in propositions such as the following:

• public employee pensions must be based only on an average of five years of base pay and cannot be spiked up by overtime, vacation, or other additional payments
• public employees within California cannot receive more in compensation than the President of the United States (ABC says that the city manager of a 90-person town was earning $1.6 million per year or 4X the salary of Barack Obama; Bell, CA’s manager earned $800,000 per year and $600,000 per year as a pension)
• California governments cannot offer defined benefit pensions to any new public employees
• no police or fire department employee can receive more than 10,000 times the median hourly wage within the state (would translate to $181,210 per year currently)
• no police officer or firefighter can receive more than double the pay of a U.S. Army soldier of analogous rank serving in a combat zone (chart)

Perhaps California readers can explain why nothing like these seem to have been proposed. There have been some tax- and spending-related ballot propositions, but none that seem to directly address the biggest expenditures of the state (Vallejo was spending 74 percent of its budget on police and fire salaries (source)). I wouldn’t necessarily expect such propositions to pass, but I would at least expect them to be offered to voters.

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A report from a visit to Davis, California…

The university seems to be in good shape despite all of the talk of dire budget problems. The lawns are trimmed and the students seem happy and purposeful. Due to the tuition of $13,000 per year (source; compare to $35,000 at Harvard), the school is a place where a lot of kids from poorer families are able to start working their way up the economic ladder (California has a falling white population, so necessarily the UC system will be serving a lot of immigrants and children of recent immigrants). Professors seemed to take undergraduate education seriously.

The town has done a lot of sensible things with local tax dollars, e.g., run a decent school system and maintain a lot of pleasant “greenways”. Unfortunately, however fiscally responsible the town might be, the residents will end up paying the pension costs of fiscally irresponsible cities such as Vallejo, California. Vallejo may be bankrupt and reneging on its promises to bondholders, but the pension promises that their politicians handed out are now obligations of the state, as far as I know (see this article, which contains some numbers on average compensation, this more detailed study from Cato Institute, this detailed table of Vallejo firefighter compensation, this list of some particular individuals earning up to $300,000 per year in simple wages). In theory, I think the California towns and cities that handed out all of the $200,000-500,000/year pensions will have to pay the costs. In practice, if they can’t pay, I would think that the burden will fall on Californians in other parts of the state (though I guess you could argue that the federal government will step in and bail out California with tax dollars raised from citizens of other states).

People who live in the town seem to love it. All of their friends are easily accessible by bicycle and a lot of recreational activities are available within a 1- to 2.5-hour drive (there will soon be fewer opportunities for recreation, since California is closing roughly one quarter of its state parks (story)). Unlike a New England or Old England town, the immediate surroundings of Davis are not attractive. One goes straight from subdivision to agribusiness. So the opportunities for a pleasant walk are better if one is willing to drive two hours round-trip to the trailhead. They aren’t as good as in a lot of smaller New England towns if one wants to walk out one’s backyard.

Houses close to the town center and university tend to be from the 1960s and on small lots. Despite the high costs of these houses, ranging from $400,000 to $800,000, they are poorly maintained and hardly anyone has invested in new construction or extensive renovations. People who want to live in newer nicer houses drive or bike an extra couple of miles into subdivisions that are on the outskirts of town. Curiously these are on lots ranging in size from 0.15-0.2 acres. Given the footprints of the houses, which tend to sprawl a bit, the result is a house that might cost as much as $2 million and that has essentially no yard. The space between houses is best described as an “air shaft” rather than a side yard. Hardly anyone has enough of a backyard that a couple of 8-year-olds could throw a ball around. Consequently, kids are dumped into the street and public areas, which isn’t so bad since most of the streets are cul-de-sacs and playgrounds dot the landscape every few hundred feet.

It seems odd that the newer bigger houses would be built on such small lots. There does not seem to be any shortage of land near Davis. realtor.com shows that nearby farmland sells for between $6,000 and $25,000 per acre.

California has a lot of great natural resources, e.g., the perfect climate of La Jolla or the scenic beauty of San Francisco Bay. California has a lot of concentrations of interesting industries, e.g., entertainment in Los Angeles or technology in Silicon Valley. If you live in a place with natural beauty or fantastic job opportunities, it might not be too painful to pay the nation’s third highest income tax rate, the nation’s highest sales tax rate, or endure the 2nd worst business tax climate in the U.S. (source for all three). But a person in a town such as Davis does not benefit, on a daily basis, from any of the things that draw people to San Diego, Los Angeles, or the Bay Area. So how is it fair for the Davis resident to pay the same 9% sales tax and 10% income tax as the Google or Disney employee?

[Why are the pensions so expensive? In California they are based on the total cash received from the state in the last year of work. If the employee has saved up months of vacation days from previous years and gets paid for them on the day of retirement, e.g., on his 50th birthday, up to 90 percent of that one-time payment, plus an inflation adjustment, will be added every year to his or her pension. I.e., if the employee lives to be 100 and we assume a discount rate after inflation of 1 percent, the employee will be paid, in net present value terms, 35.4X whatever his or her ordinary salary was for those vacation days (45X without discounting). An employee whose base salary was $200,000 per year, for example, and who’d saved three months of vacation would get paid approximately $2.255 million for those vacation days, in today’s dollars. Discounting at a 1 percent rate (similar to the yield on TIPS bonds), the value of those vacation payments would be $1.769 million. Any payments for overtime worked would be similarly multiplied.]

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Yesterday evening I called Hertz:

• “I’m calling to find out if I can return my rental car at Oakland instead of SFO.”
• “What’s the RR number at the top right of the contract?”
• “67383893”
• “What’s the name on the contract?”
• “Greenspun”
• “First name?”
• “Philip”
• “Are you ‘Philip Greenspun’?”

I never established who Hertz suspected might be calling about a rented-out car other than the person who rented it.

Having learned that it would cost $500 extra to return the car at Oakland, I drove the few extra miles to SFO and returned the car there. At the beginning of the security checkpoint, a uniformed TSA agent looked at my driver’s license and boarding pass and then, as he had been doing with every other passenger, asked “Please verify your last name.”

 

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In this Boston Globe article, Robert L. Reynolds, the CEO of Putnam Investments, says

I think if you go back over the last 10 years, Massachusetts has lost more jobs than any other state except one. The bad part is we have lost more population between the ages of 18 and 25. It’s all about jobs. Massachusetts needs to be as business friendly as possible. There are more corporate headquarters in Cincinnati than in Boston.

I’m wondering what his source could be for this. A Google search found http://www.ritholtz.com/blog/2010/07/the-u-s-economys-lost-decade/ but that’s a nationwide number. The Bureau of Labor Statistics publishes total jobs by state, but they don’t seem to have a convenient report for the period discussed. I used the BLS database feature to pull Massachusetts data. We went from 3,324,800 jobs in June 2000 to 3,185,000 in June 2010. So we lost 4 percent of our jobs. It is hard to find a convenient way to compare that to other U.S. states.

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