New York Auto Dealers' Lobby Prepping New Anti-Tesla Legislation
Tesla is currently unable to sell cars in Texas, due to many American states' fascination with protectionist legislation for car dealers. Now some legislators in New York, apparently joined by the state's governor, want to adopt similar legislation in the Empire State. Precise practices vary from place to place, but the general spirit of the regulations is that instead of a manufacturer selling cars to consumers, they should sell cars to dealers who mark them up and then divide the profits with state legislators.
Oh, sorry, it's about protecting consumers.
[Deborah Dorman] said the bill was designed to protect consumers because it required companies to create a storefront in the state and was not directed at Tesla because it sold electric vehicles. Some environmentalists have claimed the bill unfairly targets electric car manufacturers.
But protecting them from what? OK, actually it's about protecting car dealers:
“Everyone is selling electric cars, it has nothing to do with that,” she said. “If you allow someone to come into the market with no overhead, that's an unfair advantage,” she said.
It's definitely an advantage but is it unfair?
One of the great things about the journalism industry is that thanks to the First Amendment, it's very challenging for incumbents to try to use this kind of business strategy. Owners of print magazines can't complain that it's "unfair" for Slate to enter the marketplace with its low-overhead Web-first strategy.
Scotland Mostly Sells Scotch Whisky
Scotland is best known for its Scotch whisky, but the economic aspects of the Scottish independence debate have mostly centered on North Sea oil. And yet it turns out that at the end of the day the Scottish people really are mostly selling booze not oil:
Malt state: over half of Scotland's exports fall into 6 categories, the largest of which is whisky pic.twitter.com/pe9NxHybkN-- Eric Rauchway (@rauchway) February 26, 2014
About half the world's whiskey is produced and consumed in India where UB Whiskey churns out beverages that have little appeal to people outside the subcontinent. But economic growth in China and environs has produced a booming demand for higher-end booze, greatly benefiting producers in Scotland and the United States alike. Because Scotland is really small, that adds up to a much bigger difference in their national aggregates.
The Entitlements Debate, in Two Tweets
Here's Sen. Orrin Hatch (R-Utah) arguing that it's bad for the government to try to reduce the amount of money it spends bolstering the living standards of senior citizens:
"These Medicare Advantage cuts are misguided, threaten a successful program for seniors, and must be overturned” http://t.co/tEh3zu8fLd-- Senator Hatch Office (@SenOrrinHatch) February 24, 2014
And here's Sen. Orrin Hatch (R-Utah) arguing that it's bad for the Obama administration to refuse to reduce the amount of money it spends bolstering the living standards of senior citizens:
It’s sad to know that Pres Obama has taken chained CPI off the table. We need to get serious about entitlement reform http://t.co/Gbcvl4JRDq-- Senator Hatch Office (@SenOrrinHatch) February 25, 2014
Do note here, however, that while there is hypocrisy about entitlements in the air, it's not a question of pure hypocrisy. The CPI issue and the Medicare Advantage issue differ from each other in that while some of the benefits of excessively generous Medicare Advantage payments make their way to senior citizens, a fair amount of the value is captured by insurance companies and doctors and hospital executives. Hatch's proposal on chained CPI is to simply reduce cash Social Security payments, directly taking money out of the pockets of the elderly.
Apple Doesn't Need a Mega-Acquisition to Think Bold
Recent large-dollar acquisitions by Google and Facebook have created a new surge of chatter about the idea that Apple is being excessively cautious with its cash and ought to be out there spending on some exciting high-profile acquisitions.
John Gruber is right to be skeptical of this idea. Firms tend to make mistakes when they betray their own cultures, and it's simply not in Apple's nature to make that kind of move. Apple does acquisitions, but they tend to be relatively modest in scale and aimed at incorporating specific technologies into Apple's products. The kind of thing Facebook is doing with Instagram and WhatsApp where it buys a big well-known company and then basically just socks it away for future consideration isn't the Apple Way, and there's no sense in trying to change that.
That said, I don't really think it can be denied that Apple's gargantuan stockpile of cash has become more of a distraction for management than a useful tool for flexibility. Adding more cash to the pile is hardly the best way to help the company over the long term at this point.
So why not cut prices?
The high prices and high margins for the flagship iPhone model—the iPhone 5S, currently—make a ton of sense to me. This is the most popular phone in the world at its current price, and during peak demand times Apple always struggles to produce as many phones as people want to buy. So thumbs up for high prices and high margins. But what about Macs? The PC industry is now shrinking, but it's shrinking slowly and Apple has such a small share of the overall PC market that it would be easy for Apple to increase sales and strengthen its overall platform by making some of this stuff cheaper. By the same token, the Thunderbolt Display is just a fantastic piece of equipment but almost nobody is going to buy it at its price.
But more importantly, it seems to me that there's a strong case for aggressively priced downmarket iOS devices. The iPhone 5C isn't on the cutting edge of technology, but it's hardly a piece of junk. If priced as a low-margin device, it would be a huge hit. Same with the non-retina iPad Mini. Apple makes so much money from its core sales of state-of-the-art iPhones and iPads that making the lower-end iOS devices genuinely cheap would still leave them with a growing cash stockpile. But it would also make these devices exactly the kind of devices Apple likes to make—great devices. The 5S would be the best phone, and the 5C would be the best value phone.
More NYC—a Progressive Campaign for Upzoning New York
It doesn't exactly have cutting-edge Web design, but yesterday Nathan Newman unveiled a new organizing campaign he's calling More NYC—essentially an effort to build a progressive pro-development coalition for New York City.
The core of the idea is to zone for more residential density in key high-demand areas of Manhattan (that's the pro-development part) and then do a left-wing value recapture scheme. Essentially instead of the backdoor tax of an inclusionary zoning mandate where for every seven units of market rate (i.e., very expensive) housing you need to include two or three subsidized units, he wants to make developers simply pay a straightforward tax. Then that tax revenue will be used to directly finance the construction of affordable housing units in other lower-cost areas of the city and to finance public services. This is very much the economically sound take on things like IZ—better to do it directly as a fee and then use the money efficiently than to create a tangle of mandates.
At any rate, it's a very interesting idea. Michael Bloomberg had a pro-development and pro-developer public image due to a handful of high-profile upzonings and his general rich guy-ness, but, as Sarah Laskow has recently written, the actual zoning record is much more complicated and vast swathes of the outer boroughs were actually downzoned during the Bloomberg administration.
Somewhat shockingly, she writes, "the city planning department doesn’t track, for instance, how much potential space was gained or lost" during rezonings so it's not actually possible to do a straightforward calculation of what the net impact of Bloomberg-era zoning was. The one thing we really can know for sure is that there are potentially huge amounts of economic surplus to be created through broad upzoning. The question is who can create the political coalition that would unlock that surplus, and what would its objectives be. One possibility would be a broadly libertarian or "pro-business" coalition, but another would be the coalition that Newman is proposing—one that would unite the interests of private-sector labor unions in the building trades with public-sector unions that need more tax revenue.
Morgan Stanley Predicts Utopian Society by 2026
A new Morgan Stanley report making an extremely bullish case on Tesla views them getting into the autonomous car industry and eventually helping to build a utopian society. As a firm believer in the utopian potential of autonomous cars, I was glad to see that they are even able to boil this down to a chart. Utopia is going to arrive very rapidly in the 2023–2026 period.
So look forward to it.
Watch This Creepy B-Roll of Taco Bell Breakfast
Breakfast is coming to Taco Bell! That's exciting on its own terms, but even more exciting is that the company's PR people emailed me some b-roll about it. I think the idea is that I'm supposed to take a small clip of this and integrate it into my local newscast with voice-over. Or something. But it's quite short, and rather entrancing in its current b-roll state:
Delicious? I am skeptical of the waffle thing. But more competition in the breakfast taco sector is always welcome.
The Ukraine Really Is Weak
Until breaking into the news recently, the country of Ukraine was probably best known to most Americans from its role as a territory on the Risk board. In particular, Ukraine-From-Risk is central to a very memorable Seinfeld scene:
This naturally raises the question—is the Ukraine weak? The answer, I believe, is yes.
Key to analyzing this question is Garrett Robinson's paper performing mathematical analysis of Risk (h/t to Walt Hickey whose summer 2013 writeup of the paper I recalled when looking into the issue). To understand the weakness of Ukraine, we need to start with the map. Here's Robinson's version, slightly annotated by me to make an important point:
One issue that arises here is that many Risk boards out there don't have a Ukraine territory. That's because the territory traditionally labeled "Ukraine" on Ukraine-having Risk boards is not even close to replicating Ukraine's location in the geography of the planet Earth. The same territory is sometimes called "Russia" (and it does, roughly, correspond to European Russia's location) or "Eastern Europe." You can consider this ambiguity over Ukraine vs. Russia to be somewhat emblematic of the current political crisis over there. But for our purposes, that's Ukraine all the way up to the Arctic Sea.
To analyze the situation correctly you want a schematic. Here's Robinson's:
Now what you see here is that the different territories have various different numbers of neighbors but this maxes out at six. Ukraine is one of a handful of territories that can be attacked from six different places, an extreme vulnerability in a game where the odds are generally on the side of the attacker.
Which is to say that Kramer was right: The Ukraine is weak (in Risk, at least).
*Correction Feb. 24, 2014: This post originally misstated that Ukraine was uniquely vulnerable to attack due to the number of territories that could attack it and that (unlike Ontario and China) it's not on the interior of the continent. West Africa, Southern Europe, the Middle East, and East Africa are equally vulnerable by this measure.
Oklahoma Schools Are Requiring Tough Financial Literacy Courses
Starting this May, Oklahoma is going to be experimenting with the toughest financial literacy requirements for high-school students that have ever been attempted in the United States:
Mustang High School teacher Carrie Hixon recently asked her students “What if you used your bank debit card to buy lunch at Taco Bell and you didn't have enough money in your checking account. What do you think Taco Bell will do?”
“Make you wash dishes,” the class clown popped off.
A serious Hixon countered, “Until recently, Taco Bell and your bank each could charge you a fee of $25 to $35. Thankfully, a recent law requires establishments to deny the purchase and hand your card back to you, if you have insufficient funds.”
I think there are three big takeaways here. One is that this is a good idea and financial literacy is very important. Another is that this underscores how mistaken I think it is for some self-styled progressives to underplay the importance of improving K-12 education in the United States—the foundation of financial literacy is basic math and literacy and people who don't master those skills are always going to be prey for scamsters. But the third is that regulation is really important and valuable. It's silly to create something like the 401(k) system, which is challenging for normal people to navigate in a sensible way, and then spend a lot of time in high-school preaching the virtues of low-fee passively managed index funds. The policy should be designed to push people into smart options and make it really hard for parasitical fee-collectors to get their hands on people's money.
How to Fix the Housing Component of CPI
For many purposes, including monetary policy, the federal government needs a statistical series to calculate the level of inflation in the economy. Because food and energy prices, though important to consumers, are highly unstable and deeply driven by nonmonetary factors (weather, political upheaval), it's conventional to strip those out when assessing short-term monetary policy. But when you strip out food and energy prices, then a very large share of the remaining "core" CPI is the price index for housing. And calculating the price index for housing is conceptually complicated because only a nonrandom minority of people rent, so you can't really just go around and tally up rents.
Adam Ozimek has a paper pointing to what he and I agree is a major practical failing in the way the Bureau of Labor Statistics currently handles this problem, and while I doubt a blog post about his paper is going to go viral on Facebook, it could help prevent future spells of mass unemployment if people read it.
My effort to make this issue a bit more digestable:
How Does the BLS Calculate Inflation for Owner-Occupied Housing Now? It completely ignores issues about the sale price of houses and prevailing mortgage rates and instead "imputes" rental value. Which is to say the question the BLS seeks to answer about your condo is not "how much would it cost someone else to buy your condo" but "how much money are you saving by living in your condo rather than renting an identical one." Equivalently, it's asking how much you could earn as a landlord if you started sleeping in your car and renting the house out. So what the BLS does is it surveys the prices that renters are paying for housing, tries to do quality adjustments as it does for all other kinds of goods, and then imputes an equivalent rental value to all the owner-occupied housing.
Doesn't That Sound Weird? Who Cares About Hypothetical Rents? It does seem weird. It's worth noting, however, that efforts to create a more "intuitive" price index by looking at what people actually pay have their own problems. In Sweden, for example, they look at actual mortgage payments which are tied to interest rates. That means that raising interest rates to curb inflation is seen as directly causing inflation in the market for owner-occupied houses. At any rate, Ozimek's point is to raise an issue with the way the rental imputation works not to argue about the merits of rental imputation as an underlying philosophy.
What's Wrong With the Current Approach to Imputing Rents? The issue is that rents for continuously occupied structures are generally quite sticky. One can debate exactly why this is, but it's clearly true and you see this very much in gentrifying urban neighborhoods these days. Look at someone in D.C. who's been renting a house in Shaw in D.C. since 2006, and she is almost certainly getting an outrageously good deal from her landlord compared with what someone trying to move into the neighborhood in 2014 would pay. The landlord fears that if he tried to raise the rent all the way up to the current market price that he would (a) wind up with several months' worth of vacancy and (b) run the risk of acquiring a problem tenant. Consequently, in an area where rents for new tenants are rising quickly the average rent paid will rise more slowly (and vice versa in a downturn).
What Are You Saying We Should Do About This? The proposal is to ignore average rents for the purposes of imputing rent to owner-occupied housing, and just focus on new rents. In other words, impute rental value to D.C. homeowners on the basis of what someone who just moved to D.C. would have to pay to rent a dwelling rather than on the basis of what existing residents are actually paying. That would create a housing CPI that fluctuates up and down more rapidly in response to changing conditions.
Is There a Thematically Appropriate Song We Could Use To Take a Break? Yep, enjoy:
Obviously in Rent you're supposed to sympathize with the tenants, but part of the issue here is that when a landlord finds a tenant who does regularly pay the rent on time that's a valuable relationship and the tenant enjoys a discount relative to what an unknown hypothetical new tenant would pay.
How Does This Relate to Housing Bubbles? Very closely. One of the problems with the existing method is that the housing CPI as currently constructed moves in ways that are unrelated to the ups and downs of housing sale prices. So for example in 2007 and 2008 when house prices were tumbling nationwide, housing CPI rose strongly. That's because "house prices" are current sales, while average rents embed lots of information about old agreements reached years ago. Focusing on new rents would let the inflation index see the price movements in real time.
Isn't It Crazy to Totally Ignore What People Are Actually Paying? Not really. Remember that the whole premise here is that we're imputing rents to homeowners. So however we choose to do the imputation, it's by definition not based on any rent the homeowner is actually paying. Conceptually we are trying to measure how much money you could earn if you moved out of your house, started sleeping in your car, and became a landlord. Which is to say that we are trying to measure exactly what Ozimek says we should measure—the current going rate for a brand new landlord-tenant match, not a broad average reflecting old agreements.
Does This Make Any Difference in Practice? A huge difference. Throughout the summer of 2008 the Fed was torn between evidence of a weakening economy and evidence of rising inflation. The key driver of inflation was higher food and energy prices, which policymakers knew not to make too big a deal out of. But "core" CPI was above target as well, which policymakers saw as evidence of a general inflationary trend. And, indeed, as measured by CPI the housing component of inflation (the biggest component of core CPI) was more than 2 percent throughout this period. Measured this other way, the housing component of CPI was consistently lower than 2 percent clarifying that the "inflationary" dynamic really was limited to commodities.
So if We Make This Adjustment All Will Be Well With the Housing Element of CPI? Absolutely not. There is a whole very difficult issue around how to account for neighborhood-level quality improvements. If nominal rents are rising and also vacant storefronts are turning into yoga studios and hip coffee shops, does that show that rich new arrivals are driving up prices and also like yoga and fancy coffee, or does it show that rent increases reflect noninflationary improvements in neighborhood quality because yoga and coffee are great? But fixing that would be really hard. Switching from average rents to spot rents is feasible, and we should do it.