Quote Of The Day

If you are unable to slam your hand in a car door to cause great pain, may I suggest you call Verizon Tech Support?

- Dan Danbom, Facebook, October 26, 2023.

Random Thoughts

* The notion that there are many languages that basically have completely parallel languages called registers like Javanese, Aboriginal Australian languages with mother-in-law languages, and historical Korean (which has now devolved into elaborate levels of politeness) is fascinating. I've read a lot about how dialects develop, but not how registers evolve.

* The notion of an Operation Track and Release in anti-submarine warfare, where spies, special forces, and drones would attach a small camouflaged tracker to submarines while not doing anything else is intriguing. If you know where a submarine is, it isn't very hard to disable it with a torpedo or an anti-submarine missile, but finding them is hard. If one knew where a large share of an opposition's submarines were from trackers, one could strike them all in the space of an afternoon without warning with a very modest number of aircraft.

* The AGM-179 Joint Air-to-Ground Missile, or JAGM, which is the successor to the Hellfire missile and intended to be useable in existing Hellfire missile launchers and has a JAGM-MR version which will extend the range of this missile from 5 miles to 10 miles. It can be launched from small ground force patrol vehicles, small or medium sized boats and ships, or helicopters.

* "Camero-Tech, a firm based in Israel, has created a next-generation portable, high-performance imaging device that can actually "see" through walls. Called the Xaver 1000"

* Yesterday, there was a Chinese New Year's celebration massacre near Los Angeles at which ten people were killed and ten more people were injured. The middle aged Asian American perpetrator apparently killed himself as he was being apprehended the next day - when will we wake up and decide that the Second Amendment is an outdated suicide pact?

* I'm looking forward to the return of supersonic commercial flights in the near future.

* The absurd massive construction projects in the oil rich countries of the Persian Gulf that are suddenly everywhere while dazzling are also disgusting. See, e.g., the $500 billion megacity planned in Saudi Arabia that wants to host winter games entirely with artificial snow, and a moon shaped building in Dubai.

* The number of tech workers who have been laid off in the last few months is greater than the number of active duty military personnel in the entire U.S. Marine Corps. "Nearly 200,000 tech employees have been laid off since the start of 2022, according to Layoffs.fyi, a site that tracks job cuts in the sector. Four of the largest tech companies — Alphabet, Amazon, Meta and Microsoft — have announced a total of more than 50,000 job cuts in recent months." A long boom preceded this mass layoff: "In 2011, the tech sector began a hiring boom that would last a decade. It added an average of more than 100,000 jobs annually, and by 2021, it had recouped all the jobs it lost when the dot-com bubble burst."

* If you want an example of how to be a horrible parent of a teenager, the facts of this recent Colorado Court of Appeals decision affirming a trial court decision to that effect can guide you. Any parent who thinks parenting is about parental rights instead of the best interests of your child is not a good parent.

¶ 2 L.D. is the sole living parent of A.D., one of her three children. A.D. was sixteen at the time of the guardianship proceeding. Although L.D. and A.D. once shared a healthy relationship, it deteriorated dramatically during the summer and fall of 2021. This deterioration gave rise to Petitioners’ request for — and the district court’s grant of — an unlimited guardianship over A.D. We turn to that history now.

¶ 3 In June 2021, A.D.’s car was vandalized while parked in front of the family home. A.D. and his mother had a heated argument about why it happened and who was responsible for cleaning it. Upset by this conversation, A.D. went to stay at his girlfriend’s house. Although he soon returned home, A.D. ran away from home five more times following disagreements with L.D.

¶ 4 In early July 2021, L.D. gave A.D. an ultimatum: he could (1) go to military school, (2) attend therapeutic boarding school, or (3) abide by her house rules. A.D. ran away again that night, but this 2 time he spent over a month away from home, staying with his girlfriend, couch surfing at friends’ homes, or sleeping in public parks.

¶ 5 On August 7, 2021, A.D. was taken to the emergency room after appearing to overdose while partying with friends at a park. The hospital made a mandatory report to the Department of Human Services (DHS). Once A.D. was stable, L.D. and V.T. (L.D.’s longtime colleague and family friend) met with a DHS representative to discuss next steps. L.D. agreed that, given the hostility between A.D. and herself, and between A.D. and his two siblings (who both lived with L.D.), it was in his best interest to stay with Petitioners.

¶ 6 On September 8, 2021, A.D. drove Petitioners’ car to L.D.’s house for his first night back since early July. When he arrived, L.D. became extremely upset that he had driven there. In her mind, A.D.’s operation of a car — and Petitioners’ facilitation of it — violated their agreement that he not drive until certain conditions were met. The next morning, without notice to Petitioners or her son, L.D. called the Division of Motor Vehicles (DMV) and withdrew her permission for A.D.’s driver’s license. The DMV revoked his license the next day.

¶ 7 A.D. became enraged when he learned that his mother had revoked her consent and subsequently sent a series of angry texts to her. L.D. then blocked A.D.’s number, thus preventing A.D.’s calls or texts from coming through to L.D.’s phone (though texts came through on her computer).

¶ 8 On September 24, 2021, DHS facilitated an “adults only” meeting with L.D., Petitioners, and DHS representatives. That meeting resulted in three shared priorities: (1) Petitioners were to provide regular updates about A.D. to L.D., who would, in turn, communicate with Petitioners before making decisions affecting A.D.; (2) A.D.’s license would be reauthorized within thirty days once to-be-defined conditions were met; and (3) A.D. would be allowed to be on the high school wrestling team, which all parties agreed was good for him.

¶ 9 Over the next month, Petitioners regularly emailed L.D. updates on A.D. L.D. provided few, if any, responses to these updates. Petitioners also sent L.D. a proposed plan for A.D. to get his license back, but L.D. did not respond.

¶ 10 On October 20, 2021, Petitioners filed their petition for appointment as A.D.’s guardians. L.D. objected to the petition, sought dismissal of the action, and requested attorney fees.

¶ 11 On November 8, 2021, Petitioners requested that the court appoint a guardian ad litem (GAL) to represent A.D.’s interests. Over L.D.’s objection, the court appointed a GAL pursuant to section 15-14-115, C.R.S. 2022, after concluding that, owing to their disagreement over the guardianship, the parties could not represent A.D.’s best interest in the guardianship proceedings. The GAL represented A.D.’s best interest throughout the litigation, and the court also instructed the GAL to provide a report about whether L.D. was “unable to exercise her parental rights.”

¶ 12 On November 14, 2021, before Petitioners filed their reply, L.D. — without consulting Petitioners or A.D. — revoked her permission for A.D. to wrestle the day before the first day of practice. Why she took this sudden action is unclear: L.D. testified it was because A.D. was not maintaining passing grades, while another witness testified that she wanted “leverage” over him to participate in family therapy. Regardless, A.D. was devastated by the timing and nature of this action.

¶ 13 While these motions were pending, Petitioners continued to care for A.D. Petitioners asked L.D. for permission to talk to A.D.’s teachers, coaches, and doctors about how to better care for him. Yet from August to early December 2021, L.D. refused to grant Petitioners permission to engage with these individuals. She ignored or outright refused to allow such communications until December 8, 2021, when, after repeated requests from a DHS representative, she allowed Petitioners to attend — but not participate in — a meeting with A.D.’s teachers.

¶ 14 L.D. also resisted Petitioners’ requests for financial support for A.D.’s care. To her credit, L.D. provided A.D. with $25 per week for groceries. These funds came from A.D.’s $1,800 monthly survivorship benefit, which was established following the death of A.D.’s father when A.D. was three. Petitioners knew the benefit existed and requested more financial support. L.D. did not respond to these requests.

¶ 15 Except for the text exchange between L.D. and A.D. following the revocation of L.D.’s consent for A.D.’s license, L.D. and A.D. never communicated directly. Instead, all such communications went through Petitioners or DHS.

¶ 16 Consistent with section 15-14-205(1), C.R.S. 2022, the district court conducted a hearing on Petitioners’ guardianship motion. The hearing spanned two days, with both sides calling numerous witnesses.

¶ 17 In a written order, the court granted Petitioners an unlimited guardianship over A.D. In so doing, the court concluded that Petitioners had proved by clear and convincing evidence that L.D. was, consistent with section 15-14-204(2)(c), “unwilling or unable” to care for A.D. and that the guardianship was in A.D.’s best interest notwithstanding his mother’s opposition to it.

* The Great Salt Lake will dry up in five years: "The Great Salt Lake, plagued by excessive water use and a worsening climate crisis, has dropped to record-low levels two years in a row. The lake is now 19 feet below its natural average level and has entered “uncharted territory” after losing 73% of its water and exposing 60% of its lakebed[.]"

* This amphibious bus would make sense for national guard units in places where flooding is a likely risk:

* The reel I'm linking to illustrates visually the absurdity of the concept of going to battle in an RV which is basically what the blue sea navy of the United States does.

* Fake storage devices at absurdly low prices are a problem at Amazon.com.

* I wonder what human engineered variants of wild mustard (which is the source of many common vegetables) were attempted but rejected.

* The best head of government in the world, New Zealand’s leader Jacinda Ardern, isn't running for re-election.

* Wise words:

* Vanilla is apparently a New World crop:

* The Convair F2Y Sea Dart was a supersonic jet fighter than could land and take off from the sea.

Blockchain

Blockchain is wildly overhyped, and is almost never a good idea for business applications.

From here.

The Limits of Diversification

Diversification only reduces risk if the risks are accurately quantified and not correlated with each other.

Management Matters

A large share of the difference in productivity between firms in different countries and between firms within a country are attributable to the adoption by the more productive firms of management practices that are absent in the less productive firms according to a recent, gold standard study of the topic. This strongly echos insights I've drawn from the involvement of some of my extended family members in the establishment of a private college in Tanzania.

Some implications of this fact:

1. Management practices are something that can be intentionally changed. The present is not destiny. In contrast, efforts to identity average national IQ as a source of the difference in the wealth of nations only recommends complacency and provides no action items for economic development.

2. Most countries have at least some examples of firms using significantly better than the norm management practices that can serve as models for other firms. I suspect that the distribution of management practices within countries shows regional differences that help explain why big businesses can regularly sweep large regions in the face of local competition.

3. The people who have the power to change management practices in firms have a strong economic incentive to do so. Policy change is a matter of both power and choice. Here, informing choices is more important the power, because the people in power of immense incentives to listen to this advice.

4. Human capital is at least as important as financial capital, if not much more so. Breaking pervasive government policy decisions that assume the opposite is critical for economic development.

5. Management practices are more selective and empirically proven ways to tweak corporate culture than all or nothing aping of a culture with higher productivity a la early 20th century Turkey, which had businessmen dressing in a climate-inappropriate British fashion. This allows for reforms that are less culturally disruptive and may face less resistance.

Some details from the link (emphasis added):

Many estimates (e.g. Jones 2015) calculate that US productivity is more than 30 times larger than some sub-Saharan African countries. In practical terms, this means it would take a Liberian worker a month to produce what an American worker makes in a day, even if they had access to the same capital equipment and materials. . . .

This huge productivity spread between countries is mirrored by large productivity differences within countries. Output per worker is four times as great . . . for the top 10% of US establishments compared to the bottom 10%, even within a narrowly defined industry like cement or cardboard box production (Syverson 2011). And such cross-firm differences appear even greater for developing countries (Hsieh and Klenow 2009). . . .

The large, persistent gaps in basic managerial practices that we document are associated with large, persistent differences in firm performance. Better-managed firms are more productive, grow at a faster pace, and are less likely to die. Figure 3 shows [thatthere is] a close correlation between better-managed firms and higher productivity. This may not be causal of course, but we also observe these performance improvements after experimental interventions ‘injecting’ these type of management practices into Indian textile firms (Bloom et al. 2013). 

We performed a simple accounting exercise to evaluate the importance of management for the cross-country differences in productivity. We found that management accounted for about 30% of the unexplained TFP differentials driving the large differences in the wealth of nations.

TFR (total factor return) is a concept in the economic development and productivity literature that basically refers to productivity differences not explainable by other factors like capital investment spending. 

Opal Out Of Business

After a long run, the restaurant "Opal" on 9th and Lincoln Street in Denver, Colorado, which was arguably the worst Sushi restaurant in the world, has finally gone out of business.

Uber-Awful

The financial state of Uber, the tech oriented car sharing taxi substitute business, is pretty dismal:

Uber's gross bookings for 2016 hit $20 billion, more than doubling from the year prior, according to financial figures the company provided to Bloomberg. Its net revenue, after drivers took their cut, totaled $6.5 billion for the year.

But that rapid growth came at a cost. Uber says it lost $2.8 billion in 2016, excluding the China business it sold midway through the year. Uber's CEO had previously said it was losing $1 billion a year in China, prior to selling its China business to rival Didi Chuxing in August.

A loss of 43% relative to your gross after costs of services sold, is just horrendous. Uber is losing 14 cents for every $1 paid by Uber customers. High gross sales are great, but somebody in the Uber business seems to have forgotten that the basic idea is to make a profit, or at least, to break even. If you can't do that, and you can't even get close to doing that, then your business model is not sustainable. You need more sales to increase your profits, not increase your losses.

Wells Fargo Bank Still Violently Anti-Consumer And Crooked

Consumer arbitration is always a scam, but this one is particularly noteworthy, because the company claims the consumers are bound by agreements signed with signatures forged by the company. 

If there is any way that you can avoid doing business with this dishonest bank, you should take advantage of it and move your accounts immediately.

Even though disgraced Wells Fargo CEO John Stumpf has left the building, his most outrageous legal theories live on: on Wednesday, the company filed a motion in a federal court in Utah seeking dismissal of a class action suit by the customers it defrauded -- the bank argues that since customers sign a binding arbitration "agreement" when they open new accounts, that the customers whose signatures were forged on fraudulent new accounts should be subject to this agreement and denied a day in court.

This is the same argument that Stumpf made during his disastrous performance in front of a blazing Elizabeth Warren -- that Wells's poor customers should be subjected to agreements they never made, because Wells stole their identities and "agreed" on their behalf.

From here.

For Profit Vocational Education Has Negative Value

The notion that the for profit sector is always better in quality and value than the governmental sector is patently false when it comes to higher education.

Public community college vocational programs materially improve their students' economic well being, but comparable for profit vocational programs, with narrow exceptions, actually leave students less economically well off than they were before starting the programs.

Students who earned vocational certificates from for-profit colleges made an average of $900 less annually after attending the schools than they did before, according to a new study, leaving those who took out loans hard-pressed to pay them back. By contrast, students who received similar certifications from public community colleges earned $1,500 more than they did before attending school. . . .

The discrepancies are even more striking because students at for-profit colleges are more likely to complete their programs. For those who finish, the advantages of having attended a community college are even greater. 

A major exception was cosmetology, in which for-profit schools seemed to do modestly better for their students. Cosmetology is very popular at for-profit schools – about 19 percent of students seeking certificates at a for-profit school were in a cosmetology program in the federal data. (Various medical programs accounted for much of the rest.) . . . .

The disparities in earnings between for-profit college students and community and community college students were especially pronounced for men, who made nearly $2,200 more on average each year after attending a public community college than they had before.

It isn't clear how much of the gains in earnings from for profit cosmetology programs are consumed with excessive for profit college tuition bills, particularly relative to the gains received from such programs at public community college programs.  Non-medical vocational programs produce lower economic returns than medical ones to start with, and since both public and private cosmetology programs produce gains and the differences in the gains are modest, it may take many years for the additional for profit sector tuition cost to pay off.

Public community college vocational programs, in addition to conferring more value on students, are very inexpensive and pay for themselves with higher future earnings within the first year out of college. In contrast, for profit vocational programs which are more than 1100% higher, impose a crushing debt loan on students who have no economic gains.

The NBER paper analyzed data for 567,000 students who pursued vocational certificates at for-profit schools between 2006 and 2008. More than 4 in 5 of them carried student loan debt. Of the 278,000 who earned similar certificates from public community colleges, just 25 percent were indebted, adjusting for demographic differences between the groups. 

In 2014, the average tuition for certificate students at for-profit colleges was $8,118, compared with $712 for demographically similar students at community colleges. In 2014, average annual tuition at two-year, for-profit colleges was about $14,200, quadruple what students at community colleges paid.

It also bears noting that community college programs generally have the lowest per student government funding of any part of the public sector higher education system, which lavishes resources on flagship research universities, but gets stingier as one moves down the academic prestige scale.

The abstract of the study cited above states:

We draw on population-level administrative data from the U.S. Department of Education and the Internal Revenue Service to quantify the impact of for-profit college attendance on the employment and earnings of over 1.4 million students. We characterize both the within-student earnings effects and joint distributions of earnings effects and increases in student debt. Our descriptive analysis of degree-seeking students suggests that on average associate’s and bachelor’s degree students experience a decline in earnings after attendance, relative to their own earnings in years prior to attendance. Master’s degree students and students who complete their degrees appear to experience better outcomes, with positive earnings effects. Our difference-in-difference analysis of certificate students suggests that despite the much higher costs of attendance, earnings effects are smaller in the for-profit sector relative to the effects for comparable students in public community colleges—a result that holds for all but one of the top ten fields of study. In absolute terms, we find no evidence of improved earnings post-enrollment for students in any of the top ten for-profit fields and we can rule out that average effects are driven by a few low-performing institutions.

Another NBER paper from 2015 on returns to community college vocational education explained (emphasis added):

This paper estimates the earnings returns to vocational, or career technical, education programs in the nation’s largest community college system. While career technical education (CTE) programs have often been mentioned as an attractive alternative to four-year colleges for some students, very little systematic evidence exists on the returns to specific vocational certificates and degrees. Using administrative data covering the entire California Community College system and linked administrative earnings records, this study estimates returns to CTE education. We use rich pre-enrollment earnings data and estimation approaches including individual fixed effects and individual trends, and find average returns to CTE certificate and degrees that range from 12 to 23 percent. The largest returns are for programs in the healthcare sector; among non-health related CTE programs estimated returns range from five to ten percent.

The Obama Administration has taken meaningful steps to end wasteful government support for these for profit vocational programs, although perhaps not yet strong enough ones:

In 2014, Barack Obama’s administration instituted new rules limiting the amount of debt students can take on in career-training programs. Although no schools were named in the study, some of the biggest for-profit colleges – including DeVry University and the University of Phoenix – have faced federal lawsuits or investigations that suggested they deceived students about the likelihood of finding jobs in their fields of study and how much they would earn.

Basically, federal funds used for grants and loans to attend for profit post-secondary institutions are a waste of money that make both the students and the public less well off.

There are a handful of circumstances where for profit institutions do add value, and it turns out that Master's Degree programs at for profit institutions, like the for profit Master's Degree program in financial planning where I was once an associate professor, do add value.

The study also doesn't rule out the possibility that there may be a handful of for profit post-secondary institutions that do add value, but it is pretty clear that most, and in particular, most of the larger chains, do not.

OFF TOPIC BUT RELATED: A significant share of the benefits of higher education are due to sorting effects and attending and attempting to graduate from college is not a wise choice for everyone.  Also, a significant share of the benefits of higher education are in the form of better health outcomes rather than higher earnings.

Tall people make more money than short people, especially at low end jobs.

Against Blockchains

Blockchains, which are the technological underpinning of cypto-currencies like Bitcoin, have been hailed as the next big thing in business innovation.

But, a read of Paolo Bacigalupi's newish near future novel set in the American Southwest, "The Water Knife", illustrates dramatically who catastrophically a blockchain based systems can collapse with only a slight amount of data degradation in just the right place (I can't explain more without spoiling a critical plot point of the novel).

A Modest Proposal For Health Care Economics

A committee in the Colorado House of Representatives has passed a bill, on a narrow party line vote, that would require stand alone ERs to disclose their charges so that people utilizing a stand alone ER as opposed to an urgent care facility where charges are much lower for the same treatment, make an informed choice.

I would like to see a law that would make disclosure of all health care provider charges with and without insurance, before providing treatment, and condition precedent to collection of such charges. 

There could be an exception if the patient was incapable due to a health condition of comprehending the charges and there was no other responsible person to whom disclosure could be made who could be located before treatment was necessary, in which case only the average amount paid for insured patients could be charged.

One of the biggest problems with health care economics is that there is rarely meaningful disclosure of prices in the industry, which renders impotent the market forces that usually control prices through competition.  There is really no other industry in the U.S. economy that I can think of which operates in this way (e.g. while lawyers aren't required to provide firm estimates of the total charges in advance, they are at least required to disclose their hourly rates and any standard additional charges to clients in advance as a matter of professional ethics and are also subject to reasonableness requirements that are not infrequently enforce by the courts).

This consumer protection reform would be a good first step towards putting the health care industry on an economic footing that even remotely resembles a rational one.  As it is, there is no real rhyme or reason for the charges for particular health care services in the absence of binding health insurance contracts between insurance companies and their provider networks.

Attempted Murder By Spreadsheet In Michigan

On February 11, [firefighter Ryna] McCuen walked into this: a mother at wit's end, a bedridden 18-year-old on a ventilator, his emergency battery power soon running out, and electricity to the home cut off by the local power company. . . . 

It started as a routine call in Michigan for Clinton Township's Engine 5, a "nonemergency medical" as firefighters call it. 

What they found in the living room of this suburban Detroit double-wide mobile home was Troy Stone, who suffers Duchenne muscular dystrophy, a particularly debilitating variation of the muscle-wasting disease. Stone, who has limited movement of his limbs and is no longer able to breathe on his own, had a tracheotomy last December. His family has struggled financially, and they had fallen behind on payments to the local utility.

Christy Stone, Troy's mother, said their electric bill has gone up threefold since Troy had the breathing tube inserted. It now takes seven machines, all running on electricity, to keep him alive.

Despite having a letter from their doctor's office informing DTE Energy that "there must be electrical power in the home to maintain ... life support equipment," the power was still cut off.

"They said it wasn't the doctor's signature on it, it was the nurse's signature on it. So they said it was denied," an exasperated Christy Stone said. Nearly in tears, Stone described how she pleaded with the DTE representative to keep the power on: "How can you deny somebody that's on life support? So I did everything that I could and they just ... it's just messed up."

At first, a spokesperson for DTE Energy called the situation "unfortunate" and commended the "firefighter for his actions." However, citing privacy concerns, the spokesperson declined to discuss specifics of the Stones' case except to say "we are continuing to work with the family to ensure this situation doesn't reoccur and have referred their case ... to partnering agencies for assistance."

On Friday the utility issued an updated statement.

"This is a very unfortunate situation that we are working to rectify immediately," DTE said. "We will be working with this customer to get her the assistance she needs, which is the normal process we follow when our customers are faced with challenges in paying their bills. And we will be donating to the preferred charity of the generous and selfless firefighter who stepped up."

McCuen, a 7½ year veteran of the fire department, heard Stone on the phone with DTE and said his choice became clear. "He had about three hours of battery life," McCuen said. "He needed to be plugged back in. So it seemed obvious what the solution was, that they needed their bill paid."

Christy Stone was astonished at the matter-of-factness of this firefighter she didn't even know.

"Ryan was standing there and he looks at me and goes, 'I'm going to pay your electric bill,' and I was just like -- are you serious!?"

He was, and he did.

Snapping a picture of her bill, McCuen paid it, all $1,023.76 of it.

From CNN.

Fortunately, the firefighter had his priorities straight. And, honestly, the guy who actually shut off the power probably had no clue what was at stake when he did so, following orders from headquarters.

The really culpable parties are the bureaucrats at the electric company who rejected the request, that person's managers, and the executives and directors who put the policy in place that the bureaucrat was implementing.  They, collectively, are guilty of attempted murder over a $1,023.76 debt.

The law doesn't authorize the use of deadly force to prevent or punish a non-violent theft of that amount, and certainly doesn't authorize putting someone's life in peril over an unpaid debt when that is the natural and foreseeable result of its actions that the Stone family had clearly given the electric company knowledge of in a credible way.

Of course, at a deeper level, there is also something profoundly wrong with the fact that our society allows a child's ill health to push a family into poverty as our society did in the case of the Stones.

CEO Pay Still Rotten

The pay of the CEO of the publicly held oil company, Schlumberger, illustrates how in the world of executive compensation, pay for performance is a heads I win, tails I lose, proposition.  Notably, the stock markets were not impressed with the company's lack of accountability.

CEO Paal Kibsgaard received total compensation worth $18.3 million in 2015, the company reported, down only slightly from $18.5 million the year before. . . . The company cut 25,000 jobs during the year, or 20% of its workforce. Revenue was down 27%, and profit plunged 41%. Schlumberger (SLB) shares tumbled 18%.

The weak results and layoffs are the result of the plunge in the price of oil.

The modest drop in Kibsgaard's compensation was the result of the performance of his pension plan. His base salary and stock were up from 2014 levels. The cash he took home jumped 12% to $5.2 million.

From CNN.

OSHA Still Irrelevant

When a Greeley man working for an oil and gas company died, the Occupational Health and Safety Administration investigated, found that the death was caused by violations of federal safety rules by two companies working at the site, and . . . . fined one company $5,000 and the other company $9,800.  The original fines of $8,400 and $14,700 were reduced without explanation.

The death was part of a series of nine deaths under similar circumstances in Colorado recent years caused by safety violations by oil and gas companies.

But, they don't really care, and why should they, if they are being economically rational and loyal to their shareholders?

Economics works and firms respond to incentives or the lack thereof.  In the case of oil and gas worker safety, there are no economic incentives for companies to protect their workers.

The OSHA fines are pitifully small relative to the seriousness of the offense and the profits generated by the enterprise, and relative to the administrative and legal costs of investigating and pursuing the case.

The OSHA fines probably aren't even large enough to make it cheaper for the companies to comply with the safety regulations than to incur the fines.  It also is not uncommon for OSHA fines to go unpaid for years.

And, since the oil and gas industry is governed by OSHA, which has a tiny budget to cover almost every workplace in the United States, rather than by the Mine Safety and Health Administration, MSHA, which has a similar sized budget to cover the tiny number of high risk mine workplaces in the United States, OSHA lacks the resources to imposed more rigorous regulations or to enforce them with a frequency that amounts to anything more than random chance in the absence of a workplace death. Yet, oil and gas operations are every bit as dangerous or more so than other kinds of natural resource exploitation jobs governed by MSHA.

The family of the man who died can't sue his employer, even though OSHA has established that it violated safety laws, because worker's compensation pre-empts the right to sue in exchange for paying for the minimal medical expenses present in the case of a death, a four or five figure death settlement, and a very modest pension to his surviving wife and minor children if he has any (if this 57 year old man is single, and has no children or has adult children, worker's compensation doesn't have to pay any death benefits other than a meager sum that will barely pay for a funeral).

The company doesn't even pay a deductible when a worker's compensation claim is made by the man's family, and while its rates could go up based upon the employer's claims history, the reality is that most of the risk of regular deaths is already figured into the worker's compensation premium which sets races based upon occupation and industry, which are high for high risks like coverage for oil and gas workers.

Like most private sector workers in Colorado, he was not part of a union, so there was no one, from his union or OSHA, to effectively advocate to provide him with a safe workplace.

So long as the worker's compensation system is in place, the solution to making oil and gas companies respect worker safety is simple:

1. Increase the amount of fines imposed by MSHA and OSHA when a death or serious injury occurs, or there is a near miss that could have caused death or serious injury by roughly a factor of 100.  The fines in a case like this one should have been on the order of $500,000 and $980,000, not $5,000 and $9,800.

2. Transfer jurisdiction over oil and gas workers from OSHA to MSHA, and increase funding for MSHA by a factor of two or three so that it has the resources to investigate the oil and gas industry in addition to its existing responsibilities.

3. Vigorously insist upon collecting the fines that are imposed even if it shuts down non-compliant businesses.

4. Put someone who is willing to aggressively enforce the laws in charge of the agency which shows signs of industry capture.

5. Acknowledge that the model of having OSHA cover every workplace with the power to impose only minimal fines, when it lacks the resources to do so, has failed.  Instead, limit OSHA enforcement powers to high risk industries and cases of actual deaths or injuries, and create a private cause of action to enforce its regulations (even in the case of violations that don't lead to injuries), which it would continue to promulgate for all industries, in all other cases, on a model similar to the EEOC, the Colorado Consumer Protection Act, or the federal and state securities laws.  Arbitration of these claims should be prohibited and class action lawsuits to enforce these regulations should be permitted.

With reforms like that, worker injuries and deaths would plummet, and yet, it is very likely that the industry would remain profitable.

How To Thrive With Bad Management

Oxford University in England offers a one week summer class called "Mutiny and Punishment" (not cheap) which basically asks, in the context of British history, how the British managed to have the dominant navy in the world while treating its sailors like shit.

Obviously, the details of how this "miracle" was achieved is a question of great ongoing relevance to people interested in becoming managers in modern multi-national businesses (a large share of the Oxford University student body), despite the fact that modern businesses are forbidden by law from engaging in a wide variety of historical naval punishments.

Opal Restaurant In Denver

Have you ever wanted to go to a sports bar with almost no drink selections and shabby furnishings, where foul mouthed customers talking about whether the latest domestic violence incident they witnessed was justified, with a menu consisting almost entirely of sushi?

Me neither.  I completely misjudged the place based upon its location and the sign on its awning which promised "nouveau American cuisine." But, if you are so inclined, Denver has just the place to meet your needs.

It is called "Opal" and it is a the intersection of 9th and Broadway in Capital Hill.

The prices are tolerable during Happy Hour, for sushi, but the ambiance is quite possibly the worst of any sushi establishment in the entire Rocky Mountain West.

Needless to say, my wife and I will not be repeat customers.

Corporate And Municipal Bond Ratings By The Numbers

American Corporate and Municipal Bond Ratings

What Do Bond Ratings Mean In Practice?

On April 11, 2014, there were only three companies with AAA credit ratings in the U.S. according to S&P. Those companies were Johnson & Johnson, Exxon-Mobil, and Microsoft.

The number of companies with the top-credit rating has been dwindling for years. Back in 1980, there were more than 60 U.S. companies rated AAA by S&P. That fell to six in 2008. Since then,” General Electric, Pfizer and ADP were downgraded.

The fall in the number of AAA rated companies, however, is largely a function of the rise in the number of publicly held companies that have no long term debt at all, and hence, no bond rating, despite their exceptionally secure financial positions. As of March 31, 2014, there were 26 companies in the S&P 500 which had no long term debt at all, for a total of at least 29 publicly held companies that were ultra-secure financially at that time.

But, a company that is ultra-secure financially isn't necessary a good investment, because a company that can't find investment opportunities that produce safe returns better than the returns it is earning on its stockpiled cash and the low interest rates at which it could borrow money for long term loans, may not be trying hard enough to maximize shareholder return.  If companies like Facebook and Visa can't find investments that return the 2.5% per annum on investment over a three year time horizon that they would need to break even on new debt, or the 1.5% per annum on investment that they would need to break even on an investment of their crash reserves (at current interest rates), then we are either really and truly deep in "the Great Stagnation", or the management of those companies isn't trying very hard.

Also, an absence of long term debt like bonds, and even short term debt like commercial paper, doesn't necessarily mean that a company has no long term obligations. As noted in the link above:

Some of these companies might have other financial obligations, such as long-term leases for retail space or other equipment or short-term loans to be paid off within a year. But this analysis measures what accountants call long-term debt, or financial obligations due in more than a year, which leaves out short-term bridge loans that's not debt the company is planning to lean on for long. Most of the companies don't have short-term debt, either.

Just 800 companies (less than 5%) have investment grade bonds out of 23,000 U.S. companies with revenues over $35 million whose credit was reviewed by bond rating agencies. But, only about 1,800 companies with non-investment grade credit ratings, however, have actually issued publicly traded bonds (aka "junk bonds" aka "high yield bonds"). So, about 30% of publicly traded bonds are investment grade, less than 1% of investment grade bonds are AAA, and only about 0.2% of publicly traded bonds are AAA rated. Companies with sales of less than $35 million per year are not eligible for an investment grade bond rating.

An investment grade bond rating, in practice, roughly corresponds to a "large capitalization" stock, although in principle, bond ratings are not directly dependent upon market capitalization.

The rating system at Standard and Poors and at Fitch ranks investment grade bonds as follows (Moody's equivalent rating):

AAA (Aaa)
AA+ (Aa1)
AA (Aa2)
AA- (Aa3)
A+ (A1)
A (A2)
A- (A3)
BBB+ (Baa1)
BBB (Baa2)
BBB- (Baa3)

Moody's rating are somewhat more strict than comparable ratings by Standard and Poors (S&P) as illustrated by historic default rates for bonds of a given rating.

Historical default rates vary greatly, but in the S&P system through 2007, averaged about 0.6% for AAA, 1.5% for AA, 2.9% for A, 10.3% for BBB, 29.9% for BB, 53.7% for B, and 69.2% for any kind of C rating.  This is measured over the life of the long term bond and is not an annual default rate.

Losses When Bonds Do Default

Also, few bond defaults in senior corporate bond are a total loss.

Corporate bonds are customarily issued for a fixed term of years with each periodic payment owed by the corporation to the bond holders consisting in part of principal and in part of interest.  The more distant a default is in time from the time when the bond was sold to an investor evaluating the credit worthiness of the corporation at the time, the more principal the corporation will have paid down. Often, a third or more of the principal on a bond will have been paid before default, even in cases where there is a default.  Even when there is a default, the debt may be paid in full or in part, behind schedule, frequently in connection with a bankruptcy filing.

Holders of defaulting corporate bonds in large publicly held companies (whose rights are enforced  by a bond trustee who acts on behalf of all bond holders in a particular bond issuance to distribute timely payments and enforce their collective rights when there is a default) are not infrequently eventually paid 50% or more of their principal investment (and very nearly 100% in about one in five cases), even in a bankrupt company whose stockholders and subordinated debt holders are entirely wiped out under the bankruptcy code.

Typically (although there are, of course, exceptions to the general rule), the bankruptcy of a publicly held company results (1) in payment in full of secured creditors (i.e. creditors with collateral), of priority creditors (under the bankruptcy code), and of trade creditors, (2) in partial payment of senior bond holders and other general creditors at some percentage rate, and (3) in no payment to junior or subordinated bond holders and stockholders.  Payout percentages for senior bond holders in bankruptcy vary considerably. Generally speaking, the percentage payout from a bankrupt company is larger in a bigger company with a higher bond rating, than in a smaller company with a lower bond rating.

Bankruptcy payouts to senior bond holders in the range of 10% to 60% are not particularly unusual in bankruptcies of publicly held companies.

In companies with assets of $100 million or more, the mean payout to general unsecured creditors like senior bondholders is 41% and the median is 22% according to a 2011 study.  In contrast, the mean payout to subordinated debt, when it is present, is 15% and the median is 1%, while the mean payment to secured debt is 78% and the median is 100%.  Stockholders get nothing 80% of the time a large company files for a Chapter 11 bankruptcy (implying a median of 0% and a mean that is quite low but not quite zero).  Stock holders only get paid when the company has more assets than liabilities but an unavoidable cash flow problem that bankruptcy resolves.  Retailers are particularly unlikely to survive a bankruptcy.

In many privately held company bankruptcies, in contrast, it is rare for general creditors to receive any payout in a bankruptcy - the modal outcome is that the IRS gets everything remaining after secured creditors and other higher priority creditors are paid according to a 2007 study, which also noted that: "When a company has assets worth more than $5 million, secured creditors, those whose claims are backed by collateral, receive 94 percent of what they are owed, and unsecured creditors typically recover half.", a somewhat more optimistic data set than the 2011 study done following the financial crisis.

Municipal Bonds

Historical default rates on municipal bonds are much lower than default rates on corporate bonds with the same rating until 2010 when Moody's and Fitch abolished the separate system (S&P abolished the separate system in 2001).  More recent municipal bond issues are rated on the same scale as corporate bonds.  For example, in the old system, S&P BB rated municipal bonds have about the same default rate on average as S&P AA rated corporate bonds.  Investment grade municipal bonds as rated by any major bond rating agencies under the old system have default rates lower than AAA rated corporate bonds.

Within municipal bonds, there are two main categories, general obligation bonds, supported by the taxing power of the government, and private activity bonds, supported only by a government owned enterprise like an airport or government owned utility.  The former almost never default.  The latter default at rates comparable to investment grade publicly held companies.   Municipal bankruptcies are rare.  For example. there were just twelve Chapter 9 bankruptcies filed in the calendar year 2014, out of roughly 90,000 local government entities that could issue bonds and declare bankruptcy under Chapter 9 (many of which issue multiple classes of bonds outstanding but default because they become unable to pay only certain private activity bonds for a single activity).

State governments and territories like Puerto Rico, are not allowed to file for bankruptcy and on rare occasions due default on their debts (nine states defaulted on their debts in the 1840s, for example).

Bond Ratings and Interest Rates

Bond ratings are inversely related to interest rates.  Risker bonds bear a higher interest rate, determined in practice almost entirely by its official bond rating, which is a risk premium on top of the risk free rate of return approximated operationally by the interest rates paid on Treasury bonds issued by the United States government, top rated municipal bonds, and AAA corporate bonds.

Bond investors frequently manage the risk of a default on a bond by diversifying their bond holdings. For example, a bond fund that primarily invests in investment grade corporate bonds might very well hold a portion of every single investment grade corporate bond issuance outstanding.  Such a fund would participate in every single default of any investment grade bond, but would dilute the losses from those defaults with the gains on all of the other investment grade bonds that did not default.  A fund manager in such a fund might have purchases of new issues and upgraded bonds, and sales of downgraded bonds handled by a subordinate as a matter of routine, while devoting most of his or her attention to managing the defaulting problem children, just a few at any one time in normal times, and dozens at a time in a serious bear market.

When a bond rating falls, it typically trades at a discount necessary to give it an implicitly higher interest rate appropriate to the new rating, resulting in a partial loss to existing bond holders, while if a bond rating rises, it typically trades at an above par price that reflects the reduced risk premium.

The market capitalization of a firm, relatively to its outstanding debt, which can be monitored on a day to day basis for all outstanding bonds of companies with publicly held stock, as well as other forms of business news and analysis, provides bond rating agencies the ability to update their ratings over time for the benefit of bond traders in the secondary market.  Of course, if a bond rating falls, by that point, the initial investors in the publicly offered bonds have purchased them and can only realize and cut their losses by selling their bonds, or wait and see if the risk portended by a falling bond rating actually materializes with a default that will cause the investor an even greater financial injury.

Most of the interest rate payable on "risk free" investments is attributable to the inflation that bond traders expect over the course of the life of the bond, which is approximated operationally by the difference between the rates payable on treasury inflation protected securities (TIPS) (which have payouts tied to the consumer price index measure of inflation) and ordinary fixed rate treasury bonds issued by the United States government.  The pre-inflation adjustment rate of return on TIPS is the operational definition of a "default risk free" and "inflation risk free" investment.

The actual pre-inflation adjustment rate of return on TIPS varies with their maturity.  For example, today, 5 year TIPS had a 0.23% annualized real rate of return, while 30 years tips had a 1.05% annualized real rate of return.  In other words, interpreting the data pessimistically, the market's evaluation of the risk that the U.S. government will default on its bonds sometime between July 27, 2020 and July 27, 2045 is about 0.82% per year (or more if defaults don't produce 100% losses).  More optimistically, some of this difference is due to the minor liquidity penalty between owning long term TIPS and owning cash.

The Systemic Risk Associated With The Bond Rating System

The systemic risk concern, which came up during the financial crisis, is that three bond rating agencies which don't have money in the game and have little non-reputational stake in making bad bond rating decisions, drive the lion's share of the interest rate determination in the bond markets by all but the "smartest" money.

This systemic risk manifested in the Financial Crisis when mortgage backed securities were systemically given overrated bond ratings by the small departments of each of the three main bond rating agencies charged with rating them, who faced dubious incentives to be accurate.  This arguably corrupt situation played a critical role in the nation's largest economic downturn since the Great Depression.  Ultimately, some settlements to lawsuits brought against these agencies were paid, but the treatment of bond ratings as statements of opinion that cannot form a basis for civil liability, and the small pockets of bond rating firms relative to the harm caused by their systemic overrating of mortgage backed securities, made lawsuits largely ineffectual at resolving this problem.

The benefit of the system, however, is that more or less neutral third parties with a reputational stake in being accurate from which their influence is derived may make more informed and more accurate decisions on credit risk than any one bond investor could using only the resources available for due diligence from his stand alone bond investment in the bond issues available for him to invest in at any given time.  Bond rating is much more efficient and utilizes some of the best available methods, at the cost of group think that can create systemic risk.

Of course, bond traders are free to ignore bond rating decisions, and if they consistently are more accurate than bond rating companies when they do so, they can profit from their superior predictions.

Chinese Corporate Bond Ratings

In contrast, in China:

Around 97% of existing yuan-denominated bonds hold ratings of double-A to triple-A—the best a company can get.

That is from Fiona Law at the Wall Street Journal, cited by Christopher Balding, and ultimately Alex Frangos via Marginal Revolution.

Basically, the bond ratings of all publicly listed Chinese companies were wildly overrated.

Meanwhile, a Chinese government agency, the China Securities Finance Corp (CSF), central bank-backed refinancing institution, is now "among top 10 shareholders of many listed-firms" as Chinese regulators have stepped in to prop up a collapsing stock market. Effectively, this is turning what had until recently been a mostly theoretical communist basis of the Chinese economy into one in which state ownership of enterprise is again rapidly becoming the norm.

A Little Justice At Microsoft

I've repeatedly expressed my intense distaste for Windows 8. So, it comes as a small comfort to know that there were consequences at Microsoft for the people who foisted this abomination on the world:

Most of the Windows 8 team's leadership resigned or were fired.

In an ideal world, the consequences would have been even more dire, but it is nice to know that, at least internally, Microsoft acknowledged that this piece of software was a debacle.

79% of Major Brand Herbal Supplements Don't Contain The Herbs They're Selling

Forbes recaps the story.

While few of the supplements are effective in clinical studies, part of the problem may be that the supplements that are sold don't actually contain any of the primary ingredients.  The entire industry is absolutely rotten with pure fraud and the CEOs of the respective companies, as well as everyone else involved, belongs in prison for fraud for long terms.

Republican Senator Orrin Hatch, who has been the guardian angel of these companies in Congress, also deserved some of the blame.

A summary of the findings by the New York attorney general's office's testing:

• GNC’s “Herbal Plus” supplements: ginkgo biloba, St. John’s wort, ginseng, garlic, echinacea, and saw palmetto were tested. Garlic was the only one that consistently contained what the label indicated. One out of four bottles of saw palmetto tested positive, and none of the other four supplements contained the labeled herb. . . .
• Target's “Up & Up” supplements: gingko biloba, St. John’s wort, Valerian root, garlic, echinacea, and saw palmetto were tested. Three supplements–garlic, saw palmetto, and echinacea–contained what they were supposed to. The other three had no DNA at all from the labeled ingredient. . . .
• Walgreens “Finest Nutrition” supplements: ginkgo biloba, St. John’s wort, ginseng, garlic, echinacea, and saw palmetto were tested. Only one of these, saw palmetto, consistently contained its labeled ingredient. One sample of garlic actually contained garlic, and none of the other samples contained any DNA from the labeled ingredient. . . . 
• Walmart’s “Spring Valley” supplements: ginkgo biloba, St. John’s wort, ginseng, garlic, echinacea, saw palmetto were tested. Walmart had the worst results: of 90 DNA tests on 18 bottles, only 4% found any DNA from the labeled ingredient. Only one bottle of garlic and one bottle of saw palmetto contained what they were supposed to.

None of the gingko biloba, Valerian root, St. John's wort, or ginseng in any of the brands at major national retailers contained the ingredients claimed.

Gas Stations To Avoid In Denver

Gasoline is pretty much a fungible commodity.  Almost all gas stations sell two or three of the standard grades of gasoline, and almost nobody believes advertisements that claim that one gas station's brand of gasoline is better than another's.

In part as a result of that, gas stations operate in something very closely approximating perfect competition, in which market forces drive competitors to all sell the product as a market price that has a quite thin margin.  There are differences based mostly upon locality, but almost all competitors follow the strategy of maximizing sales by selling at the prevailing market price.

But, the law does not fix gasoline prices and there are a few gas stations that zag when everyone else zigs and charge far more than the going market rate for gasoline.

I am aware of at least two such stations in Denver.

The worst offender by far is the Shop Fast at 6504 E. Alameda Avenue at the intersection of Alameda and Monaco.  This gas station generally charges thirty to forty cents per gallon more for gasoline than the 7-11 gas station three blocks away at Leetsdale and Monaco selling precisely the same product.

Moreover, it isn't as it the Shop Fast is offering a superior customer experience.  Its pumps are primitive early 1980s versions that can't take your payments at the pump and haven't been upgraded for decades.  When you go in to pay, the convenience store is dilapidated, dirty, disheveled, understocked with lots of empty shelf space, and has a poor selection of products to buy.  The attendant on the couple of times that I have been there, has always been surly and rude.

The Conoco at Speer and Pennsylvania Avenue has a tidy and ordinary convenience store and modern gas pumps, but does engage in price gouging, typically charging twenty to thirty cents per gallon more than nearby stations such as the two gas stations at the intersection of Alameda Boulevard and Downing Street.

While government price fixing can create all sorts of problems, it is hard to think that the price gouging practices of these gas stations, which prey on people who are inattentive (a strategy that usually works when buying gas since so few gas stations charge and above market price and it is hard to keep track of weekly variations in gasoline prices that fluctuate rapidly), or aren't away of nearby, much less costly alternatives because they are in an unfamiliar neighborhood, promote any legitimate virtues.