Tuesday, June 18, 2019

May 2019 CPI Inflation

Sorry I'm a few days late on this.

Core CPI continues to ride along the 2% target range, bifurcated between shelter and non-shelter prices.  CPI shelter inflation is at about 3.3% over the past 12 months.  The non-shelter core components are now down to 1.0% over the past 12 months.

Inflation isn't that great of a short-term signal.  After all, non-shelter inflation was at or above 2% in 2008 and 2009 while nominal GDP growth was collapsing.  But, the period leading up to that, in 2006 and 2007, had a similar character - high shelter inflation and low non-shelter core inflation.  Yet, when that signal appeared in 2017, it reversed in spite of Fed postures that continued to signal tightening.

All that being said, it certainly seems as though maintaining an inverted yield curve with non-shelter inflation at 1% is clearly too hawkish.  It appears as though the Fed is looking to reverse course, which is very good news.  A couple rate reductions is prudent at this point.  Unfortunately, that is likely to meet the howls of those who claim a low target interest rate inflates prices in capital markets.  But, it seems the FOMC has become more immune to that, which is great.

I have been suggesting that long bond positions would be profitable, and expecting that an inertial Fed would create marginal buying opportunities in other assets as that opportunity played out.  The long bond position is mostly finished because of the zero bound. Mid-to-long term rates aren't able to go much lower.  If the Fed gets ahead of things here, maybe they will curb any pullbacks in equity markets or housing markets.  I'm happy to see that tactical opportunity disappear if it means the Fed doesn't encourage unnecessary contractions.  In fact, maybe that would make those opportunities even more fruitful, without waiting on a pullback, if the economic expansion is allowed to continue, chipping away at risk aversion.

But, the story remains.  Inflation is very low.  To the extent that real wage growth continues to disappoint, this is largely a structural supply issue that creates a transfer from tenants to real estate owners, which is measured as inflation.

Monday, June 17, 2019

Mercatus Series on Housing Affordability

I have a blog series on housing affordability that is slowly rolling out (1 per week) at The Bridge.

I find discussions about housing affordability to be frequently frustrating.  One reason is that homeownership is generally treated as if it is a wholly different type of consumption than tenancy is.  This is odd, because in national accounts, the BEA treats tenancy the same for both owners and renters.  I find it useful to disaggregate our economic activities regarding shelter so that every home has an owner, a financier, and a tenant, regardless of whether those agents are all different or are all the same individual.

There is certainly a risk that comes from becoming an owner-occupier and taking ownership of a single large asset that can frequently be much larger in size than your total net worth.  On the other hand, there is also value that comes from getting rid of the principal-agent problems that come from having various stakeholders who all have competing interests on a single asset.  For owner-occupiers, those conflicts are erased, which seems to lead analysts to act as if these three different relationships to a property disappear when those agency conflicts disappear.

In this series I maintain these three roles as factors for all homes - financier, owner, and tenant - and consider various aspects of housing markets and housing policy.  This process has led me to new points of view regarding these issues, and I hope you find something to think about in each post, also.  In hindsight, I find that the posts have a veneer of dryness, but they are short, and I am hopeful that each one has at least one new idea that will shift you in your seat a bit and help you to take a few moments to deepen your own sense of how these factors play out in the marketplace and in the various public policies that affect that marketplace.

The tl:dr on the first four parts:

  1. Thinking Clearly About Housing Affordability:  "Here is the core analytical error: housing affordability should be measured in terms of rent, but our understanding and policies have erroneously focused on price—to disastrous ends.  From monetary policy to credit policy to regulations on local development, responses to the housing bubble have consistently and explicitly aimed for less residential investment, fewer buyers, and fewer homes.  Limiting the supply of homes has had a predictable effect of increasing rents.  In other words, the problem of affordability, in terms of price, was “solved” after 2007.  Affordability in terms of rent was not.  Understanding the difference between these two measures will be an important factor in correcting the policy errors that led to the crisis and creating better, more equitable, more stable economic outcomes in the future.
    I argue in my book, Shut Out, that the housing collapse and the financial crisis were not inevitable.  They weren’t even useful.  In fact, their very purpose was mistaken.  The fundamental measure for housing affordability is rent, not price.  And, trying to bring down prices instead of bringing down rents inevitably will fail on its own terms.  In the long run, prices will be determined by rents anyway."

  2. What Are Landlords Good For?:  "More efficient markets lead to higher real estate transaction productivity. The resulting higher prices convey that information: owning a home is more valuable now, because it can be done with less hassle. Landlords would be less necessary because transaction costs would be a smaller problem, making homeownership more valuable.  Only focusing on price might tempt one to suggest that transaction cost-reducing innovation should be avoided because it would only increase prices."

  3. Homeowners Make the Best Landlords:  "When considering the benefits of home ownership on the margin, the focus should be on capturing the excess yield that seems to be widely available to owners.  It is this yield that is most important to marginal potential owners, not capital gains... It may be more accurate to think of that excess yield as a form of patronage.  A lucrative wage available to those with access to ownership.  The wage is earned by performing the duties and taking the risks of a landlord. Upon becoming the owner, the wage remains, but the duties of the job can be shirked.  There is no problem tenant to evict.  No vacancies to fill.  No complaints to manage.  It’s a cushy job you can get because your Uncle Sam pulled some strings down at the bank."

  4. Real Estate Investment Doesn’t Increase Spending:  "The housing bust is creating more excess capital income than a housing bubble ever could have."

Sunday, June 9, 2019

May 2019 Yield Curve Update

Good news on the monetary policy front.  The Fed has been signaling a willingness to ease, and currently, futures markets are predicting a 25 basis point rate deduction in July (with some probability even of a 50 bp deduction!).  Initially, this brought the yield curve down out to several years, but in the days since then, the short end of the curve has remained lower while the curve from 2020 onward has recovered back to late May levels.  That's a great sign.  Maybe the Fed will ease enough to avoid a contraction.

The primary thing to look for in the yield curve, I think, is reaction of the long end.  I think we are clearly in inversion territory now, which means that there has been some distortion in long term yields.  As short term yields decline, that distortion will be eased, and long term yields will initially decline along with short term yields.  Eventually, the positive signal will be a divergence between short and long term rates, with a flattening of the short to mid term curve and a slight upward slope.  It seems as though the Fed is willing to be aggressive enough to make that happen.  This is a positive surprise to me.

Expectations have changed so sharply that already, if you look at the December 2020 contract on the Eurodollar curve, half of the gap between the November peak rate of about 3.2% and 0% has already been filled.  In terms of taking a long position on forward rates, the horse is already mostly out of the barn.  If the Fed is aggressive, forward rates may not have that much farther to fall.

In the second chart here, I would expect the typical pattern to happen, where, as the Fed Funds Rate declines, the 10 year rate will decline along with it along the inversion trend line.  At some point, the 10 year will stabilize.  A rule of thumb I would expect to look for is if the Fed has gotten too far behind the 8-ball, then the economy will deteriorate and the Fed Funds rate will continue to decline.  Or, if they get ahead of the ball, then the 10 year will recover.  So, I suppose I would expect the inversion to eventually reverse.  The scatterplot will cross back over the trendline.  It would be a bad sign if the scatterplot crosses the trendline horizontally and it would be a good sign if it crosses it vertically.

It moved vertically in 1996 and 1999.  But, in those cases, the curve wasn't inverted, or the inversion hadn't been in place quite as long.  In cases where it has been inverted for at least this long, recession followed.  In 2001, the inversion was reversed by lowering the Fed Funds rate, so it crossed horizontally.  It seems as though we could go either way.  I have been prepared for the mania about asset prices to drive the Fed to a too hawkish position, but the fact that the market thinks there is a chance for a 50 basis point move in July suggests that the Fed is no longer as hawkish as I thought.

Friday, June 7, 2019

Housing: Part 352 - Building market rate homes helps make housing more affordable

Nolan Gray has a great write-up at CityLab about a new working paper that attempts to empirically measure the process by which substitutions across housing markets work.  This is one process by which new high-end units can help create broad affordability.

Gray's piece is about a new working paper by Evan Mast.

The take-away:
Building 100 new luxury units leads 65 and 34 people to move out of below-median and bottom-quintile income neighborhoods, respectively, reducing demand and loosening the housing market in such areas. These results suggest that increasing housing supply improves housing affordability in the short run.
Keep in mind that the status quo in the Closed Access cities is that tens of thousands of households of lesser means move away each year because of affordability issues.  This work only measures moves up-market, not the cessation of outmigration.

In the extreme, where high-end housing demand is inelastic and low-end housing demand is very elastic, one might expect new supply to lead mostly to an expansion of high-end quantity demanded with little or no expansion of low-end quantity.  That is effectively what is happening on the margin today.  As high-end demand continues to grow, demand at the low end is reduced by substituting out of the metro area.  The migration data tells us this is the state of demand.

So, functional substitution between housing sub-markets could still lead to better affordability even if there was not an expansion of quantity demanded among low-tier tenants.  It would still be an improvement if lower rents simply allowed them to remain in the units they have.  It would be an improvement simply to stop that distressed outflow.

Mast's findings are a bonus.  Not only can the new supply stop the outflow.  It can even lead to low-tier increases in quantity demanded.

Wednesday, June 5, 2019

The popularity of the nationalistic rhetoric of Trump, Warren, and Sanders is a failure of economics

Elizabeth Warren posted "A Plan for Economic Patriotism" this week.  It begins like this:
I come from a patriotic family. All three of my brothers joined the military. And I’m deeply grateful for the opportunities America has given me. But the giant “American” corporations who control our economy don’t seem to feel the same way. They certainly don’t act like it.
Sure, these companies wave the flag — but they have no loyalty or allegiance to America. Levi’s is an iconic American brand, but the company operates only 2% of its factories here. Dixon Ticonderoga — maker of the famous №2 pencil — has “moved almost all of its pencil production to Mexico and China.” And General Electric recently shut down an industrial engine factory in Wisconsin and shipped the jobs to Canada. The list goes on and on.
These “American” companies show only one real loyalty: to the short-term interests of their shareholders, a third of whom are foreign investors.
As with her other proposals, there is a mixture of good and bad, and a lot of details.  Maybe the rhetoric isn't that important, in the end, to the actual policies.  But, the rhetoric here is chilling.  The history of public movements calling out groups for their supposed divided loyalties is a long and disgraceful one.  Considering the starkness of the rhetoric, and the parallels between Trump, Warren, and Sanders regarding their use of the form, it is interesting to consider how, for all of us, our reactions to each of them differ so much.  The bridge between Warren and Trump voters seems to be increasingly noted.  It seems plausible that this new press release is part of a plan by Warren to build on that.

But, I want to step back from that for now, and just consider the practical issues raised in Warren's statement.  Economics, at the least, should serve as an inoculation against this sort of rhetoric, and in this, it seems it has failed.

Consider the global economy as it might be, full of functional, productive societies with wealthy residents.  In that world, the places we currently consider developed might produce 20% of global goods and services.  Instead, today we produce something more like 70%.  At some previous point, it was more like 80%, and developing economies have been catching up.

That process of catching up is fabulous.  It is all to the good.  The only sustainable way of becoming a developed prosperous place that we know if is to move toward a system of a universally applied rule of law, human rights protections, personal freedom, and self-determination.  With that foundation, people engage in the process of specialization and trade that is the source of economic abundance.

This is the key - specialization and trade.  So, imagining this fabulous development - the whole world becoming civilized, humane, and wealthy until our part of it only produces 20% of that abundance - exactly how does one expect that shift to happen?  As the developing world moves from 20% to 30% of global production, they will necessarily specialize in some additional portion of world production.  It might be apparel or pencils.  It might be something else.  But it will be something. And much of it will be items that used to be produced in the developed economies.

The idea that the Dixon Ticonderoga company has much of a say in this is obtuse.  And, furthermore, the idea that their acquiescence to this global transformation is the result of "the short-term interests of their shareholders" is ludicrous.  There is nothing short term about this.

The reason that this rhetoric doesn't destroy Warren's public credibility is because of the failure of economics education.  The reason this can be construed as a short-sighted decision is that it is almost universally seen as a way to take advantage of the low wages of developing economy workers.  As if this is just a heartless example of exploitation rather than a reaction to epochal shifts in global productivity.

I propose a simple statement as a starting point for remedying this problem: "Production doesn't move to where wages are low.  It moves to where wages are rising."

That is the story of economic development.  This doesn't mean there aren't growing pains that sometimes hit some workers the hardest.  But, it does mean that in the end, all of those gains, on net, go to workers.  Returns to global at-risk capital are about 8% plus inflation.  They were 8% a century ago, they average about 8% today, and they will likely be 8% or less a century from now, if the world continues to grow with a capitalist framework.  But, workers today earn ten times or more what they did a century ago, and in another century - especially in places that are catching up - they will earn at least ten times what they earn today.

It really is ironic that Warren uses the Dixon Ticonderoga company as an example here.  Leonard Read, the founder of the Foundation for Economic Education was perhaps most famous for writing the essay, "I, pencil".  An excerpt:
I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human masterminding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.
An interesting aspect of that essay is that it contains several practical references to geographical locations of production, many of which I am sure have become dated as global production and specialization have evolved.  The essay is at once a timeless conceptual reminder of the profoundness of the invisible hand and a record of the fleeting nature of its operation.

I found this with a quick google search, which is a nice educational aid used in some New York state elementary school classrooms.  The education is being done.  But, the continued popularity of its absence is a call for ever more.  Godspeed, New York elementary teachers.

(PS; Karl Smith weighs in here with some interesting supporting details about the history of Dixon Ticonderoga.  He also discusses currency manipulation, but I think that is an overstated factor in the American trade deficit.)

Housing: Part 351 - The downfall of "Pick-A-Pay" loans

Here is a great article on the history of Golden West Financial Corporation and the development and downfall of option ARMs. (Pick-A-Pay or option ARM refers to mortgages where the borrower can choose their monthly payment for some period of time - sometimes at a rate that doesn't even cover the interest, so that the principal amount grows rather than declines.) An excerpt:

Five months after the Times’s “pariah” story ran, the paper’s Floyd Norris wrote a column about Golden West’s loans. The business columnist had entirely missed the original piece on the Sandlers, he says, and knew little about their bank’s history. Like other option ARMs, Norris wrote, Pick-a-Pay loans were racking up big losses. But when reading Wells Fargo’s first-quarter earnings report, he noticed that less than one-third of 1 percent of Golden West’s loans were expected to recast before the end of 2012, meaning that borrowers wouldn’t see large payment increases for many years. “That struck me as an amazing number,” he says. “How the hell could that be?”

It was the ten-year option at work. Over the next few days, Norris researched the terms of Pick-a-Pay loans, and concluded that the loans’ ten-year option and high loan-to-value cap were remarkably generous, and an attempt to do right by borrowers. Yet in a catastrophic market decline, those terms stripped the bank of leverage. Homeowners could pay less than interest-only in the hope that the market would recover, restoring their equity. If prices stayed depressed, however, they didn’t have much to lose, as their payments “could well be less than the cost of a comparable rental,” Norris wrote.

“I understand it makes some people feel better to know that they have identified someone who acted outrageously,” Norris says. “But sometimes it’s more interesting when nobody acted particularly outrageously and things blew up anyway.”

Thursday, May 30, 2019

Housing: Part 350 - Perceptions of reckless lending

I like to get feedback on my work from real estate investors, developers, etc.  Most of the time, they simply see me as na├»ve or silly.  Some doofus with a theory sitting next to you on an airplane isn't going to cause you to stop believing your own eyes.  And, real estate is still mostly local.  Knowing the up and coming parts of town, the best corner for a new building, etc. are still more important than having a fine-tuned perspective on macro trends.  Whatever is driving the macro-level, there will still be apartment buildings sitting half empty in one part of town while they can't get built quickly enough in another.

It is a difficult conundrum, because macro-level work needs to be able to withstand a critique from on-the-ground market experience.  Yet, success on the ground doesn't necessarily require having a coherent interpretation of the market.  The guy with the bustling bagel shop on the corner might be able to do just fine even if he sees the world through a collection of layman's fallacies.  If he makes a decent bagel and manages his staff well, it probably won't affect his livelihood if he thinks the Federal Reserve is controlled by the Rothschilds and that the economy is just being pumped up in a series of fake inflationary bubbles.

So, I try to hear what strangers have to say, even though I realize it is a bit dangerous that I am capable of being stubbornly immune to their criticisms.

Recently, I had a conversation with a woman who is a small-scale landlord.  The kind of street-wise investor that you typically see in that market, who knows how to put their money to work.  It is interesting to talk to people like this because they operate from a different framework than I do.  I have shown how there is a systematic relationship between price and rent within each metro area, and I have hypotheses about why that is - costs of management, access to capital, income tax benefits, etc.

It is rare for people who actually invest in local real estate to have thought about these things, even though you would think it would be important.  Usually they just have some personal rules of thumb: only buy properties with a gross return above x%, don't rent to x, y, and z types of people, don't buy properties in x, y, and z parts of town, etc.  These rules of thumb effectively come to the same result as a quantitative analysis of returns would do.

Typically, these investors simply dismiss out of hand the possibility of investing in high tier single family homes, because they are too expensive.  That will happen in either case, whether looking at the market systematically and quantitatively from a macro level, or using their rules of thumb.  If you recognize that something is too expensive to pay off as an investment property, you don't necessarily need to spend a lot of effort to explain why it is.  But, since they use their rules of thumb, they never confront the oddity that their single largest investment is exactly the investment they dismiss out of hand - the very home they sleep in every night.  To them, that is simply a different category of activity.  That is consumption, not investment.

It is perfectly reasonable that they own their home.  Part of what they are consuming is the act of ownership - control.  But, not fully confronting these conceptual issues leaves many functionally successful investors in a position of misunderstanding macro-level issues and policy issues.  For a start, I think it is common to underestimate how pro-ownership public policy goals unlock value for other households that current homeowners frequently take for granted without having really thought about it.  In other words, it is perfectly rational that they paid more for their house than they would ever have dreamed of paying for an investment property, yet creating markets or public programs that would allow other households to do exactly the same thing seems reckless and dangerous - using public subsidies to feed speculation and over-consumption.

Aaaaanyway, I digress.  The woman I struck up a conversation with had some pointed reasons for dismissing my broad theory of the housing bubble.  One reason, which she explained to me, was that her son bought a house in Wyoming during the bubble while he was finishing college.  As she explained it, she and his father had agreed to co-sign on the mortgage so he could qualify.  But, when it came time to close on the sale, they were out of the country on a trip.  They were preparing to come up with a way to sign the proper documents when her son informed her that the banker said it was unnecessary.  They would approve the loan without requiring a cosigner.  She was aghast.  Her son had very little income at the time.  It was outrageous that the bank would approve the mortgage.  Furthermore, this was during the bubble.  Home prices were elevated, precisely because this sort of recklessness was moving the market.

This is the sort of feedback that I consider interesting.  I have to acknowledge these sorts of excesses properly in order to arrive at a truthful explanation of what happened.  At first blush, this seemed like feedback that I should chew on as a source of caveats.  But, the more I chew on it, the more peculiar it seems.

First, here is a chart of median real home prices in Wyoming, with real home prices in California included for a reference point.  Also, I have included an estimate of conventional mortgage payments on the median Wyoming home.  (Data from Zillow and Fred)

There are some interesting things going on here.  First, I think this is a good example of how the bubble idea has infected our perceptions of the time.  I am sure that her memory of prices in Wyoming isn't technically wrong.  The unit her son was buying was probably 10% or 20% higher than it would have been a few years earlier.  A frugal investor would notice such a thing, and would think twice about buying in such a market.

Yet, prices in Wyoming just wouldn't have led to any sort of notions about a special market that was bloated by recklessness.  Those notions have been planted in our perceptions because of places like California.  As the chart shows, the scale of the market just isn't in the same ballpark.

And, here is a chart of foreclosure sales in California and Wyoming. (Data from Zillow)  This perfectly reasonable woman has a picture in her head of something that happened that just didn't happen.  It was even convincing to me until I sat on it for a while.  If, indeed, there was a rash of reckless lending in Wyoming before 2007, then we should conclude that reckless lending had nothing to do with either a housing bubble or a foreclosure crisis, or at least was far from sufficient as an explanation.

She was explaining to me why lending was responsible for a boom and bust by using a market that didn't have a boom and bust.

Yet, this isn't even the half of it.

What she is perturbed about is the fact that the bank was engaging in such reckless underwriting.  Yet, her son didn't have trouble making the payments.  He ended up doing fine.  I mentioned to her that this was interesting, because even though there was an expansion of lending, in hindsight, it was focused on more qualified borrowers - those with college educations, professional career tracks, higher incomes, etc.  And, Stefania Albanesi, Giacomo De Giorgi, and Jaromir Nosal found that, even where loans went to borrowers that appeared to be less qualified, they were borrowers who had bright prospects.  Their incomes, FICO scores, etc, improved after getting their loans.  And, her son seemed to fit that profile.

No, she replied.  Underwriting isn't based on wishful thinking.  It's based on whether the borrower can make the payment today.  It was reckless.  Not only is this good advice, but she has built a sizable and durable nest egg by being careful about the prices she pays for investment properties and the tenants she fills them with.  To suggest otherwise would be foolish and, really, offensive to everything she identifies with.

But, notice, she isn't upset that he got the mortgage.  She expected him to get the mortgage.  She was willing to vouch for him in order that he could get the mortgage.  She was in the best position to decide if he was worthy of the loan, and she was willing to take financial responsibility for the loan in order to help make it happen.  She is just upset that the bank's underwriting came to the same conclusion she did using methods that were not conventional.  And, after all, the bank was right to make that decision.

Yet, understandably, considering the way that perceptions have developed concerning the bubble, there is no way I could ever convince her that conventional wisdom about the bubble is wrong.  She has personal experience that clearly seems to confirm the conventional wisdom.  Reckless lending led to bubble prices that were bound to collapse.  And the evidence for this is that a bank agreed to make a loan that she, herself, having more information than the bank had, would have made.

I wish I could have been a fly on the wall when she described the ravings of this fool to her husband that night.

Wednesday, May 29, 2019

Uber and wages in a free economy.

Here was a recent article about Uber and Lyft drivers in Washington, DC, colluding to game surge pricing at the airport.
Every night, several times a night, Uber and Lyft drivers at Reagan National Airport simultaneously turn off their ride share apps for a minute or two to trick the app into thinking there are no drivers available---creating a price surge. When the fare goes high enough, the drivers turn their apps back on and lock into the higher fare.
It's happening in the Uber and Lyft parking lot outside Reagan National airport. The lot fills with 120 to 150 drivers sometimes for hours, waiting for the busy evening rush. And nearly all the drivers have one complaint:
“Uber doesn’t pay us enough, what the company is doing is defrauding all these people by taking 35-40 percent,” one driver told ABC 7.
There is a lot going on here.  Really, these drivers aren't colluding against Uber and Lyft.  They are colluding against the customers, who must pay surge pricing.  Uber and Lyft must compete against each other for riders, which drives their fares down to the competitive level.  The drivers are actually colluding so that they and the firms can claim monopoly profits from airport customers.

Their complaints are against the firms, but really, the culprit is competition, which prevents both them and the firms from boosting their incomes at the expense of riders.

In fact, their complaint against the firms is even more misguided than that.  The firms are charging riders a competitive rate and they are overpaying the drivers.  This is a classic economic problem.  There is a queue at the airport.  Those drivers are choosing to go sit in line at the airport instead of driving around the rest of the city picking up riders on the go.  And the reason is that, at standard rates, airport rides are more lucrative for them.  The reason for a queue, conceptually and in this particular case, is that the price is too high.

If the price was too low, you would have a queue of customers, like during the oil shocks of the 1970s when price controls were put in place.  Here, the price Lyft and Uber pay to the drivers at the airport is too high, so the producers (the drivers) are queuing.

Paying drivers more would only make this problem worse.  If they are waiting for an hour to get a fare now, then if the typical fare doubled, drivers would wait for two hours.  Uber and Lyft aren't determining the hourly wage for these drivers.  They are determining it by deciding to wait in line.

The only other way for Uber and Lyft to solve this problem would be to ration the supply of drivers in some other way.  In a way, this is one reason drivers might want to be classified as employees instead of contractors.  If Uber and Lyft treated drivers like employees, they would manage how many drivers there were and where they drove.  They could eliminate the queuing, which would raise wages and reduce the waste of queuing, but it could only happen by being a gatekeeper.  The only way to get rid of the queue would be to tell some of the potential, qualified drivers that they aren't invited any more.  They aren't "hired".

This is similar to the issue of minimum wages.  The way this raises the wages of some is by eliminating the wages of others.

That isn't all bad.  Here, it would lead to less waste by eliminating over-long queues.  But, small scale gains due to monopoly power or economic rents don't add up to social gains.  Everyone can't earn more than the competitive income by using market power to impose exclusion.

The queue is wasteful, but I'm not sure there is a solution.  The economics of driving basically will always come down to queuing.  Whatever rate Lyft and Uber pay, whether drivers are sitting at the airport, or driving around town, the economic breakeven for the drivers will be a function of queuing in some way.  It will determine when and where they drive.  In any given part of town, how long do they need to wait to get a rider, how long do they need to drive to pick up the rider, and how long will the average ride be?  That equation comes down to how much time is a rider in the car versus how much time is the car empty.  There are several supply and demand variables that lead to an equilibrium level for any particular location, but in the end, that equilibrium will be driven by the willingness of drivers to queue in order to get a fare and it seems that some queue, such that it is, will remain wherever Uber and Lyft set their fares and their driver reimbursement levels.  Limiting the number of drivers at the airport queue, where the extra 50 or 100 cars in line has little effect on the quality of service, may seem like a no-brainer.  But, trying to reduce queuing out in the marginal markets around a city will change the supply and demand dynamic in a way that will lead to deadweight loss on the margin.  Reducing the number of drivers will necessarily increase wait times for riders, changing demand for drivers.

I am sure there are teams of economists working on this problem at Uber and Lyft.  I suspect they don't so much mind being tricked into surge pricing at the airport.  They certainly aren't going to raise driver payments in an attempt to address the issue.

Tuesday, May 28, 2019

Brigham Burton and Carly Burton have been arrested.

I used to have a little signage subcontracting business which I sold in 2010.  I sold it to a fellow named Brigham Burton (formerly Kent Burton.  He also has used many LLCs, such as Burton Partners, Rockline Equity, Greenwood Equity, Funding Now, Drive Executives, Eleava Services, and others).

I had to sue him in civil court in order to get fully paid for the business.  The judgments I was granted against him included fraud and conversion.  He appealed the rulings, and the appeals court upheld them, including the punitive damages that were assessed.  The appeals court confirmed that "based on the record in this case, the jury could have found by clear and convincing evidence that Burton’s conduct was aggravated and outrageous, evincing an evil mind. Therefore, we decline to set aside the punitive damages awards."

The criminal justice system has taken notice of the Burtons now.  They were just arrested.  I'm not entirely sure of the details, but I think some of these charges relate to what they did to me.  Really, all I know is that the state has me registered as a victim who is notified when something happens in the case, like the Burtons being arrested.

Here are their mugshots.

Wednesday, May 22, 2019

FEECon 2019

I will be at FEEcon 2019 in Atlanta on June 14 for a panel on housing markets.

Looks like lots of fun and interesting things are happening there.

Here's a link:

And here is more about FEE:

If you will be there, be sure and say hello.  And, if you will be in the Atlanta area, check it out.