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Annals of gourmet cooking: the Shake Shack IPO

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I don’t trade individual stocks but if I did I would be buying shares of Shack Shack (New Yorker has the history) in its upcoming IPO. A visit to Harvard Square is sufficient to show how well-managed Shack Shack is compared to the competition. Tasty Burger and Shack Shack opened up at roughly the same time. A visit to Tasty Burger involves multiple return trips to the counter so that the order can be corrected. The staff have trouble taking orders and making change. Although they are hiring from the same labor pool, Shake Shack is full of energetic workers who seem competent and, indeed, have never messed up one of my orders.

Because IPOs are nearly always overvalued due to hype I am going to predict that Shake Shack does well but not spectacularly. My guess is that an investment in Shake Shack will outperform the S&P 500, between now and January 2020, by 20 percent.

Robinson Helicopter News

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I finally sorted through a stack of mail and came across the latest Robinson Helicopter newsletter. There is a good story about two Robinson owners who found and rescued a missing hunter and his dog Maggie, who kept him warm and chased away a bear (newspaper story; TV story) I found a YouTube video corresponding to the story about Paul Bissonnette having an ice bucket dumped on his head from an R44 (legality under Part 91 seems questionable since it would have been tough to avoid hitting Mr. Bissonnette with the helicopter, rather than just the ice-water, in the event of an engine failure). Taxpayers in Jordan can rest easy now that their military turbine trainers have been replaced by R44s that cost about $325/hour to run (the turbine trainers cost about $1000 per hour to run or $4000 per hour if it is U.S. tax dollars being spent (see second to last paragraph of my first Heli-Expo 2014 posting)).

Of course the coolest stuff is happening in Africa. Coena Smith and his R44 were called out to help 11 people stranded when their “safari vehicle” was swept away by a river current. Smith picked up all 11 with a tow cable (photos). (Search for “helicopter Christmas tree harvest” on YouTube if you want to see some skilled long-line work.)

Do-gooders talking to babies

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“The Talking Cure” is kind of a TED talk in the form of a New Yorker article. Some folks noticed a correlation between unsuccessful children and the fact that their parents hadn’t talked to them as much as the parents of successful children. Now an army of do-gooders are fanning out into the homes of the unsuccessful trying to encourage parents to talk more to their young children.

One thing that was interesting was the ratio of praise to correction:

Among the more affluent families studied by Hart and Risley, a higher proportion of the talk directed at children was affirming, which was defined to include not just compliments like “Good job!” but also responses in which parents repeat and build on a child’s comments: “Yes, it is a bunny! It’s a bunny eating a carrot!” In those families, the average child heard thirty-two affirmations and five prohibitions (“Stop that”; “That’s the wrong way!”) per hour—a ratio of six to one. For the kids in the working-class families, the ratio was twelve affirmatives to seven prohibitions, and in the welfare families it was five affirmatives to eleven prohibitions.

There does not seem to be any attempt to figure out to what extent these differences are a consequence of the children’s natural behavior. I spend a lot of time with young children of “the more affluent.” One thing that is a constant source of wonder to me is how little correction these children need. They generally aren’t breaking things in the house, writing on the walls, hitting each other, shouting or screaming, etc. The classic summary of all of the relevant literature, The Nurture Assumption by Judith Harris, concludes that their good behavior is unlikely to be a result of something special their parents are doing in the home. The children get credit for having a good personality. I don’t get credit for not yelling at them to shut up (a classic parenting strategy from the 1970s).

What does “left-wing” and “anti-austerity” mean in Greece if they can’t print or borrow money?

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The New York Times has a story about how a party they characterize as “left-wing” and “anti-austerity” has won an election in Greece. Given that the country does not have its own currency, what can such a party do as a practical matter? If they can’t print money because other nations control the Euro and they can’t borrow because investors won’t lend more, what can these new leaders do?

Quick guide to understanding modern sociology

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This New Yorker story about sociologist Howard Becker is an efficient way to learn about the field. I wonder if it also shows why American politics is more fragmented today than 50 years ago when everyone watched the same TV shows at night (since there were only three channels). It seems that each group has its own rules and considers other groups to be “deviant.” If there is no popular culture that is truly universally popular then a society can support more groups.

Supreme Court hears the gay marriage question

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Friends have been asking me what our forthcoming book has to say about gay marriage, now that the U.S. Supreme Court may force all states to provide and recognize same-sex marriage. (Forbes article by Ilya Shapiro, who says “marriage is yet another area of policy government should exit”) One thing that we’re quoting came from this weblog, in a comment on Maryland’s new custody dispute resolution laws: “How about let’s focus on ending marriage in this country. It’s well past the point of saving. The ticks weigh more than the dog.”

Here’s an excerpt on the mess caused by the current situation, from our Kentucky chapter:

“One tsunami moving across the country is the gay marriage situation,” said Haynes [our litigator-interviewee]. “We have a statute from 1998 that defines marriage as being between one man and one woman, but a federal court judge has ruled that it is unconstitutional.” Where do Kentuckians stand on the issue? “There has been a shift in public approval and it is now about 50/50,” said Haynes, “while lawyers ask ‘What’s so special about gay people that they get to avoid the horror of divorce?’” How does it work to be a state where gay marriage is illegal in a country where at least some states allow same-sex marriage? “I’ve got a case right now [August 2014] that a local judge is hanging onto. It is a lesbian couple with no children. They were legally married in Massachusetts. One spouse is a disabled Iraqi war veteran. The court system refuses to divorce them, which means they would have to go back to Massachusetts and live there for a year to get Massachusetts jurisdiction for the divorce.” What does Haynes think of the conundrum? “If you’re against gay marriage, why aren’t you in favor of gay divorce?”

The rest is in a chapter on the History of Divorce in America:

None of the attorneys interviewed expressed opposition to gay marriage. “That’s inventory,” a divorce lawyer was reported to have said (in the Divorce Corp. movie) every time he drove by a wedding. Attorneys generally looked forwarded to having a larger base of clients and some expressed the opinion that judges hearing gay divorces might ultimately revisit their gender biases when handling divorces between men and women. “If they get used to the idea of awarding shared custody to two moms,” one lawyer said, “then they might start thinking that it was okay for a mom and a dad to do 50/50 shared parenting.”

What do they make of the public fight over gay marriage? “What would surprise people from 100 years ago the most is not that two people of the same sex wanted to live within a framework of laws that were designed for two people of the opposite sex,” said one attorney. “What I think would surprise them is how the benefits of civil marriage cited by gay marriage advocates have nothing to do with marriage per se. The public discussion is about potential tax or Social Security benefits from being married or that it isn’t necessary to execute a health care proxy to get control over an unconscious person’s health care. But nobody talks about what used to be considered the main benefit of a civil marriage, i.e., that you had a life partner on whom you could rely.”

An attorney who’d been practicing for nearly 40 years said “Today’s civil marriage is a shadow of its former self. In the old days, if your partner was having an affair you could have him or her arrested on charges of adultery. If your partner decided to repudiate his or her marriage vows, the state would assist you in trying to enforce those vows. He or she could negotiate with you to end the marriage but there was no equivalent to no-fault divorce in which your partner could sue you and be guaranteed of winning the lawsuit. Gays and straights today are fighting over the scraps of marriage.”

What about the moral and philosophical dispute regarding gay marriage? “When I read arguments by opponents of gay marriage,” said one attorney, “I don’t recognize their description of straight marriage as some sort of sanctified institution. With no-fault statutes that kept the old alimony, property division, and child support rules, straight people made a mockery of civil marriage a long time ago. Marriage today is a way for a smart person with a low income to make money from a stupid person with a high income. What difference does it make whether the gold digger and mark are of the same sex?”

Why is political corruption illegal if it is what New York voters want?

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This New York Times story says that Sheldon Silver, recently arrested for violating corruption laws, was repeatedly reelected by voters “despite years of investigations, suspicions and rumors of impropriety.” In other words, most voters knew that he was corrupt but still wanted him as their representative in the state legislature. Does it make sense for the Feds to say “You voters cannot have the politician that you want”? Should a state be able to opt out of Federal anti-corruption rules? The stuff that Silver was doing doesn’t affect interstate commerce. Why wasn’t this a matter for New York prosecutors and courts to handle as they saw fit?

Separately, I don’t see why it is a news story that political corruption is common in New York. The state and local government is a larger fraction of the economy in New York than anywhere else in the U.S. (Tax Foundation), which means that there is more at stake and therefore more potentially for sale. The New York Post says “Virtually nothing happens [in Albany] that isn’t driven by self-dealing” and suggests that it isn’t too different at the federal level (story).

Coincidentally we’ve been trying to interview some New York legislators this week, trying to add some color to our book. We start by sending them email background such as the following:

We’re interested in the thought process that goes into making family law and are wondering if you can answer some questions for us about New York. Compared to most other states, New York is an outlier in at least the following areas: (1) children who would have a 50/50 shared parenting arrangement in other states would be in the sole custody of one parent in New York (seeing the other parent as an every-other-weekend “visitor”), (2) a custody lawsuit victor earning $10 million per year can collect 50 percent of the defeated parent’s after-tax middle class income (because New York does not use an “income shares” model of child support, unlike most states).

What is the public policy rationale for New York being the land of the winner-take-all custody and child support lawsuit? If this makes sense for children why did neighboring Pennsylvania become more or less a 50/50 shared parenting state?

What is the public policy rationale for taking half of the spending power from a middle class parent who lost a custody lawsuit and giving that money to a rich investment banker or physician? How are children served if one biological parent is more or less impoverished while the other one is made a few percent richer?

What is the rationale for different children having different cash values depending on the judge assigned to the case? Attorneys told us that judges all use the same percentage-of-income formula for calculating child support but they cap the quantity of income used at different levels. So a child support plaintiff in front of one judge could end up with 17 percent of $400,000 every year and a plaintiff in front of a different judge could end up with 17 percent of $200,000 every year. How can it be “justice” when children who live next door to each other yield different amounts of cash given equivalent incomes for the defendant parents? Why doesn’t New York have a state-wide statutory cap on child support like Minnesota, Nevada, North Dakota, Alaska, or Texas?

What is the public policy rationale for different children having different cash values depending on when the defendant parent was sued? As noted in our book, “The co-parent of the first child is entitled to 17 percent of the defendant’s income. The co-parent of the second child is entitled to only 17 percent of the remaining 83 percent. The co-parent of the third child is entitled to only 17 percent of the remaining 69 percent. At this point the defendant has been reduced to poverty by a combination of child support orders and taxes. A fourth plaintiff would be unable to collect anything for a fourth child, even if the previous three plaintiffs had all married into households with high incomes.” If the system is supposed to be for the benefit of children why does one child have superior rights to another depending on when a parent chose to file a lawsuit?

So far most of them are ducking us with creative excuses!

[Mayor de Blasio also likes Silver, according to the New York Post: "Although the charges announced today certainly are very serious, I want to note that I’ve always known Shelly Silver to be a man of integrity, and he certainly has due-process rights, and I think it’s important that we let the judicial process play out,” the mayor said at City Hall.]

Unbundling education through online course material

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Anant Agarwal, an MIT EECS professor who is now running edX, gave an interesting interview on the subject of unbundling the functions of the university (see also this article he wrote). The core explanation of unbundling in the interview starts at 10:30. Well worth a listen!

The Lost Tribe of Coney Island

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I just finished The Lost Tribe of Coney Island by Claire Prentice. It seems that there have been a few changes over the past 100 years in the U.S. We still like invading countries because we don’t think that the natives can run things for themselves, but we don’t bring back those natives and exhibit them alongside other “freaks” in amusement parks. This may be because we now have television and YouTube rather than because we have evolved in the moral department…

The specific natives in Prentice’s book are a group of Igorrotes, headhunting, dog-eating, g-string-wearing people from the Philippines, an American territory at the time. They are brought to Coney Island by a medical doctor, Truman Hunt, who cheats the Igorrotes out of their pay and spends all of the cash on fine living and booze. He would fit right into any subprime mortgage story!

Who started this deplorable practice of exhibiting exotic foreigners? Our federal government:

In 1904, the American government spent $1.5 million taking thirteen hundred Filipinos from a dozen different tribes to the St. Louis Exposition. The Philippine Reservation became one of the most popular features of the fair, and the Igorrotes drew the largest crowds of all. By displaying the tribespeople in this manner, the US government hoped to gain popular support for its occupation of the Philippines by showing the American public that the Filipinos were innocents, a people far from ready for self-government, and in need of paternalistic American protection.

Hunt brought his tribe first to Coney Island, which in those pre-TV days was a more important source of entertainment for New Yorkers than today:

Luna Park occupied thirty-eight acres and operated like a self-contained town, employing more than a thousand people and housing its own telegraph office and long-distance telephone service. Dubbed an “electric Eden,” it was a dream world lit by one million tiny electric lightbulbs (the electric bill was four thousand dollars a week1) and filled with domes, spires, minarets, lagoons, colonnades, and castles. In the park grounds, Thompson and Dundy staged dramatic dioramas of real and imagined events like The War of the Worlds, The Kansas Cyclone, and The Fall of Port Arthur. They were designed to take advantage of the public’s fascination with wars, disasters, and distant lands and people at a time when newspapers carried few photographs.

Luna Park occupied thirty-eight acres and operated like a self-contained town, employing more than a thousand people and housing its own telegraph office and long-distance telephone service. Dubbed an “electric Eden,” it was a dream world lit by one million tiny electric lightbulbs (the electric bill was four thousand dollars a week1) and filled with domes, spires, minarets, lagoons, colonnades, and castles. In the park grounds, Thompson and Dundy staged dramatic dioramas of real and imagined events like The War of the Worlds, The Kansas Cyclone, and The Fall of Port Arthur. They were designed to take advantage of the public’s fascination with wars, disasters, and distant lands and people at a time when newspapers carried few photographs.

Dr. Hunt was married three times. The first wife died, leaving him with a daughter whom he entrusted to relatives and almost never saw. He married a second wife, a trained nurse from Germany, in the Philippines, but they quarreled and he abandoned her with an infant son. Without going to the trouble of divorcing the second wife he married a girl he met at the St. Louis fair:

She had been just seventeen, less than half his age, when they met in St. Louis the previous year. She was a girl just out of school, and she was named Sara. Like thousands of young women and men, Sara had traveled to St. Louis to find work and excitement at the fair. She had left her widowed father, her brother, and her five sisters behind in her childhood home in Louisville, Kentucky, in the hope of making a new life for herself. She would get her dream, though she could hardly have imagined how her life would turn out. Truman had given her a job as his stenographer in the Igorrote Village. They married a few short months later, just days before Truman left America for the Philippines. On her wedding day she took new Christian and middle names to go with her new surname. From now on Sara A. Gallagher was Sallie G. Hunt.

Although he was pursued and prosecuted for some of his crimes against the Filipinos, Dr. Hunt was not charged with bigamy. The second wife was eventually able to obtain an uncontested divorce from Hunt on the grounds on adultery (i.e., marrying and living with another woman!).

How was marriage different back then? With both communication and travel being expensive and slow, Prentice describes couples being apart for many months or even years with just a few letters exchanged.

Why did the good doctor go bad?

McIntyre [a federal official] had come across men like Truman Hunt before. He had been stationed in the Philippines long enough to see that in the climate of upheaval and lawlessness that prevailed in the new colony at the turn of the century, even honest men had been known to commit dishonest acts. Embezzlement, theft, drunkenness, gambling, exploitation of the tribespeople, and licentious association with native women were among the vices that thrived among the islands’ new American populace. An early Report of the Philippine Commission noted, “Many [men] leave the United States honest, but with the weakening of the restraints of home associations and with the anxious desire to make so long a trip result successfully in a pecuniary advantage, demoralization and dishonesty are much more likely to follow than at home.

Dr. Hunt was eventually pursued by the federal government for cheating the Bontoc Igorrotes but they didn’t have full-time U.S. Attorneys in every state and a convenient menu of federal crimes for which he could be charged in a federal court. The Feds had to hire a private lawyer to prosecute Hunt and it had to be done under state law and in state court, where the judges were just as likely to defer to local Elks Lodge members as to the awesome majesty of the federal government:

[Federal agent] Barker had brought with him Schneidewind and an attorney named Louis J. Blum, whom he had hired on behalf of the government to prosecute Truman. Blum ran the respected Chicago law firm Blum and Blum with his brother; the Blums were both bachelors who still lived at home with their Jewish German mother. Louis Blum was fifty pounds overweight, something he put down to his mother’s delicious home cooking.

Julio, Maria, Feloa, Dengay, and Tainan were staying on to act as witnesses in Truman’s prosecution. The others would take the train from Chicago to San Francisco, where they would board a ship to Manila. Judge Bethea had ruled that any of them who wished to stay could, but the tribespeople had had enough of their American adventure.

FOR SEVEN WEEKS, Blum and Barker worked tirelessly to build a case against Truman while the showman raged, drank, and grumbled his way around Chicago, telling anyone who would listen that he was the victim of a conspiracy that went all the way to the top of the US government. Finally, on September 4, 1906, Truman was arrested for embezzlement and taken before Justice Wolff. Wolff found in favor of the Filipinos and Truman was taken to the county jail.

Blum, who had agreed with the government to prosecute all the cases against Truman for a flat fee of five hundred dollars,8 had learned that Truman had already paid Funk more than seven hundred dollars.9 For that money she was presumably prepared to do whatever it took to keep him at liberty.

The cost of securing an indictment in Memphis was around $120.19 On top of that, there would be the expense involved in taking Truman, under guard, to Memphis. The government had already spent $4,193 on deporting the Igorrotes who had sailed for the Philippines in July. Added to that would be the legal and detectives’ fees, Barker’s time, and the cost of travel, food, and accommodations for the Igorrotes and all other witnesses. Barker knew the bureau chief was eager to keep further costs to a minimum, and had been relieved when McIntyre had agreed to pursue a prosecution in Memphis. Had Pinkerton only done what he was assigned to do and kept Truman in his sights, the showman would be in Memphis by now awaiting trial.

Barker felt sorry for the savage. The Igorrotes were good, honest people whose straightforward worldview and complete lack of cunning made them pathetically vulnerable to attack in the rough and tumble of the courtroom.

Barker and Blum turned to each other, speechless. This was an astounding verdict in favor of the pagan Filipino tribespeople from the southern, all-white, Christian jury [in Memphis]. … Truman’s sentence was set at eleven months and twenty-nine days to be served in the Shelby County workhouse.

Truman did serve a few months in jail but his connections with some local good ol’ boys enabled him to get a new trial from the judge and immunity from being extradited to Louisiana where the feds could have prosecuted him for some of his thefts from the Filipinos that had occurred in New Orleans. The Feds eventually got tired of the expense of chasing after Truman.

What about the Igorrotes?

Two and a half months had passed since the other members of Truman’s original group had set sail for Manila. After four hundred and sixty days in the United States, twelve thousand miles by train and sea on the outward journey alone, and thousands of tribal performances before millions of Americans in fifty towns and cities, their financial rewards came to just thirty dollars and eighty-five cents each.

Before he left Coney Island, Chief Fomoaley shared his impressions with a journalist. “I have seen many wonders [in America], but we will not bring any of them home to Bontoc. We do not want them there. We have the great sun and moon to light us; what do we want of your little suns [electric lighting]? The houses that fly like birds [trains and cars] would be no good to us, because we do not want to leave Bontoc. When we go home there, we will stay, for it is the best place in all the world

And when did we finally loosen our grasp on the Philippines?

The debate over America’s involvement in the Philippines and the rights of Filipinos to rule their own country reached a milestone with the passing of the Jones Act of 1916, which formally declared the US government’s commitment to Philippine independence. But another three decades passed before the issue was finally resolved: on July 4, 1946, America handed sovereignty of the islands back to the Philippine people with the signing of the Treaty of Manila. In the eyes of many Filipinos, the Americans had done nothing but harm; others celebrated the introduction of public education and widespread political elections.

More: Read the book, for which Prentice deserves tremendous credit due to her comprehensive research and evocative writing.

What advice do economists with PhDs give to young/poor people? Become customers of colleges where PhD economists teach…

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“Helping the Poor in Education: The Power of a Simple Nudge” (New York Times, January 17, 2015) is a representative of a genre of literature that was common at the American Economic Association conference that I attended. Economists, who get paid to teach at colleges, experiment with ways to get more young people from poorer-than-average families to become customers of colleges. Nobody seems to question whether this might be biased and/or misleading advice.

As noted in a previous posting, the return on investment (of time and money) in many degree programs is zero or negative. That’s in a best-case scenario where the students actually graduate, which is not a typical outcome for a person who has been dragged into college.

When experimenters provide students with advice regarding college they don’t share comparisons regarding other careers. They don’t tell people who indicate an interest in majoring in art history, for example, that the Bureau of Labor Statistics found that museum curators have a lower median pay that plumbers or electricians. Nor do they disclose that a California state prison guard earns more than a typical Harvard graduate (WSJ). Nor do they explain that a firefighter can work two 24-hour shifts per week and earn more, especially considering the value of a defined benefit pension, than a typical college graduate imprisoned in a cubicle farm every weekday (see LA Weekly for how $200,000 per year is the average total comp for a Los Angeles Fire Department worker). Certainly they don’t explain that meeting a physician in a bar and having a one-night sexual encounter will pay better than college followed by work (state-dependent, but New York (see Liza Ghorbani), California, Wisconsin, Massachusetts, New Hampshire, Maryland, Montana, and Wyoming are good starting points) and that earning a college degree may reduce the profitability of children in states that use an “income shares” model for calculating child support (since a judge can impute income to a non-working college graduate at a higher level than would be imputed to a non-working high school graduate). Nor do they provide any encouragement to young people to attend colleges that employ fewer professors per student. For example, you could argue that for a lot of young Americans, assuming that they had moral objections to earning 100 percent of household revenue from children produced out of wedlock, the economically optimum strategy would be to work weekdays 9-5 from age 18-22 while spending evenings earning a Bachelor’s degree at the online Western Governor’s University. WGU employs 2,000 faculty members to serve about 54,000 students, a 1:27 ratio.  This compares to an average liberal arts college ratio of 1:11.6 (US News), Harvard’s 1:7 ratio, and a national average for all schools of about 1:15 (collegefactual.com). None of the studies that I have seen from academic economists have them experimenting with telling young people about a way to earn a college degree, without losing four years of income and four years of work experience, that would result in fewer jobs for academic economists.

The three areas that I know best are aviation, photography, and IT/software engineering. Absent getting an Ivy League degree it is hard for me to imagine how a young person wouldn’t be better off working in the field for four years while earning an online degree at night. A Harvard graduate with 40 hours and a Private certificate is not going to get hired by an airline and, due to Harvard often requiring students to take a gap year, this person is 23 years old. The 18-year-old who starts flight training will be an instructor by 19 and a regional airline pilot by age 22, right around the time the WGU degree is being mailed (e-mailed?) out. A WGU graduate who has been an apprentice for four years in a commercial photo studio is in a much better position to get work as a photographer than someone fresh out of a traditional offline university, both in terms of skills and connections. A WGU graduate, age 22, who has four years of work experience, with references from employers who say “this person showed up on time every day and kept the systems running” is a much lower risk hire than a fresh CS grad from a 2nd- or 3rd-tier college.

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