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Uber Challenges the Regulatory State

Uber A

Uber reduces DUIs, traffic fatalities, and accidents. The drivers are safer because it is cashless and the entire trip is tracked online. And they carry more insurance than the cabs. They are more available and better serve their customers. By all means lets harass and regulate them in the name of public safety.

Such new business models are a challenge to the regulatory state, and expose them as more interested in their power and their special interests than the public’s safety and welfare.

From Jared Meyer at National Review, Why Americans Love the Sharing Economy

 The paper looked at 150 cities and countries from 2010 through 2013 and found that “for each additional year of operation, Uber’s continued presence is associated with a 16.6 percent decline in vehicular fatalities.” This is in addition to the 18 percent decline in fatal nighttime crashes after Uber entered a new market. For DUIs, Uber’s introduction led to a one-time 33 percent decline that was followed by an annual average decline of 51 percent in the following years.

The survey results are also supported by other data. Uber’s entry into Seattle was associated with a 10 percent decrease in drunk-driving arrests. Controlling for outside factors, after UberX launched in cities across California, monthly alcohol-related crashes decreased by 6.5 percent among drivers under 30 (amounting to 59 fewer crashes per month). This decline was not observed in California markets without UberX. When drunk driving decreases, it benefits all motorists, not just ride-sharing passengers.

People often forget that driving a taxi is dangerous because its business model is conducive to crime and violence. For one thing, taxi trips are anonymous. Drivers also carry cash. The average cash fare for New York City taxi trips in 2014 was around $12. With a typical driver shift of 9.5 hours and around 45 percent of trips paid for in cash, it is safe to assume that, on average, taxi drivers are carrying at least $100 in cash, which makes them attractive targets for robberies. This is one reason why the homicide rate for taxi drivers is 20 times higher than the U.S. civilian average and more than double the rate for police officers.

These dangers are corrected with ride-sharing. The identities of passengers and drivers are both verified, and safety is reinforced through the feedback system. Ride-sharing companies also track both parties’ locations throughout the trip. Additionally, no cash ever changes hands, since all payments are taken care of electronically.

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Work and Poverty

The left is unable or unwilling to articulate any limitation of the welfare state and unable or unwilling to acknowledge the social costs of long term dependency.

Moves to push the recipients to work must recognize and correct the policy hurdles placed on the providers of jobs, and the tax disincentives on those on on the bottom rungs.  When your net after tax income equals the costs of the benefits you lose you face an effective tax rate of 100%.  A strong pro-growth economic policy would make great progress on many economic and social problems.

from the editors of National Review, A Better Way:

Some of what’s in Ryan’s proposal will be familiar from earlier efforts, including time limits on the receipt of food stamps and housing subsidies for adults who are able to work. The vast majority (about three-fourths) of able-bodied adults without dependents who are receiving welfare benefits do not work; the larger body of welfare recipients, those with dependents (who are exempted from TANF work requirements), work at low rates, too. The great necessity is moving these dependents toward work, and the reasoning here is straightforward: The poverty rate for people with full-time jobs is 2.7 percent; for those with part-time jobs, it is 17.5 percent; for those with no jobs, it is 32.3 percent. Two-thirds of the Americans in poverty do not work at all, and a quarter of them work only part-time.

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Beware of Pragmatism

hko in Israel

An astute value investor maintains a disciplined approach to his craft.  He knows to value the company based on careful analysis and avoids the seduction of rationalizing the acquisition of attractive companies that fail to fit the criteria.

There will be periods of time when this investment discipline underperforms, sometime for such long periods that the discipline is subject to question. Experienced investors know that in the short term the market is a voting machine, but in the long term it is a weighing machine. Values are eventually recognized, but it takes patience and discipline and faith in your investment premise and criteria.

During the hot market of the 1990’s value investing underperformed a market high on exciting new technology. There was talk of new paradigms; that old investment criteria no longer applied.  Some funds saw money exit for the better performers, chasing higher returns. Some of these funds changed their investment strategies and principles, many of them right before the market collapsed.

One could suggest that such a change was a “pragmatic” response to a changing market, and I use this analogy to lay bare the fallacy of political pragmatism.

Theories of economics and politics are imperfect and must be applied in an imperfect world. Voters criticize those committed to these principles as ideologues when  they seem tone deaf to the problems of real people.  It may be necessary to vary from a principle or sound theory in unstable times, but it is quite another thing to abandon sound principles to solve short term problems and never return to the principles.

When we lose sight of our sound principles, pragmatism  becomes a dangerous state of mind.  The last century of Progressivism is wrapped around a principle of pragmatism, considered the opposite of ideology and principles. Detached from principles, pragmatism becomes another form of power, and assumes (wrongly)  that that there is a consensus of what needs to be done.  Pragmatism does not dispense with the conflict of political factions. In a democracy with a large number of political clients it only aggravates conflict.

The problem on the seeming simple idea of pursuing what works, is that what work for some may not work for others; what works in one time period may not work in another with a completely different set of environmental factors.  Pragmatic policies may sow the seeds of their own destruction.  What is often claimed to work often doesn’t.

When Pragmatism (with a capital ‘P’) becomes an ideology itself, it has no bearings to guide it.  The word had a positive connotation in most personal and business settings, but it takes on a sinister character in the political realm: it becomes a rejection of sound principles and a justification of the ends justifying the means. It becomes a source of tyranny in government.

Those who demean ideologues have distaste for the other guy’s ideology and contend they are not so influenced. But John Maynard Keynes noted:

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

Be cautious of the call for Pragmatism ( capital ‘P’) on the campaign trail.


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The Stain on the GOP

Bret Stephen tries to interject some reason and facts into the campaign but this seems about as welcome as wisdom and experience.

Those of us who thought that such ignorance and prejudice were minor if loud elements of the Republicans have been corrected by Trump and his supporters.  Is it too late for the party to correct this tragedy?   Will a third party relegate the GOP to the dustbin with the Whigs?


from Bret Stephens at the WSJ,  The GOP’s Mexico Derangement (excerpt)

The most serious terrorist attempt to enter the U.S. across a land border occurred in December 1999, when Ahmed Ressam tried to smuggle a bomb into the U.S. from. . . Canada. All 19 of the 9/11 hijackers entered the U.S. with legal visas on scheduled flights. The bride of the San Bernardino attacker came here the same way. No significant act of political violence against the U.S. has been staged from Mexico since Pancho Villa’s raid on Columbus, N.M., in March 1916.

As for ordinary criminals, my colleague Jason Riley has noted that the rate of incarceration in California for foreign-born residents is less than half of the U.S.-born rate. Violent crime in the U.S. fell dramatically during the same two decades, 1990-2010, of an “invasion” of illegal immigrants.

This is a foul electoral season, one conservative voters (or their children) will look back on with political regret and personal remorse. Mr. Trump’s “Mexican” slur about federal judge Gonzalo Curiel is the most shameful word uttered by a major presidential candidate since Dixiecrat Strom Thurmond thundered in 1948 against the “Nigra race.” As in 1948, Mr. Trump is appealing to constituents who have stuffed themselves on a diet of bad statistics and misleading anecdotes—people who fancy themselves victims but behave like bigots. Republican leaders who think they can co-opt or tame Mr. Trump will instead find themselves stained by him.

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The Secret to Berkshire’s Success


By Henry Oliner

For the third consecutive year I attended the Berkshire Hathaway annual meeting in Omaha.  It has become a tradition for a group of us attending to meet the first night at Drovers Steakhouse where they marinate the ‘whiskey’ filet in bourbon and soy sauce.  I can’t wait to try it at home.

It was a cool and rainy sixty degrees. One of our group got in line outside the large meeting arena at 2:15 AM.  He texted me not to join him like I did last year; the rain created too big a crowd trying to get under the limited roof space. I went anyway at 5:00 AM, just to help him hold the seats for the five others, and the crowd had already built substantially.  I waited in line with a young man from Germany who did not care for Donald Trump, but sat next to a young investor from Norway who did.  We got great seats just 40 rows from the stage and the board seats.  Board member Bill Gates was there.

Forty thousand shareholders attended, looking more like a cross section you would find at a local civic club than the Wall Street suits you would find at a shareholders’ meeting.  It is rare for a shareholders meeting for public companies to exceed a few hundred.  Long time attendees have noticed a noticeable increase in internationals attending, especially from China. The meeting has the air of a social or political movement more than a shareholder’s meeting.  It appears to be an international movement.

This is a huge event; hotel rooms are booked several months in advance.  The Holiday Inn Express a few blocks away charged $625 a night with a two night minimum.

This event is driven by a thirst for the wisdom of company Chairman and CEO Warren Buffett and the Vice Chairman and his lifelong closest friend, Charlie Munger.  I remain impressed that 86 year old Buffett and 92 year old Munger can take questions for 5 hours providing clear and precise answers, and recalling information about 80+ companies without a laptop, iPad, or notes, or staff whispering in their ears. Their only crutches are cans of Coke and boxes of peanut brittle from See’s Candies, one of their oldest acquisitions.

To Warren’s right were three established financial reporters: Andrew Ross Sorkin, Becky Quick, and Carol Loomis.  To his left were three respected financial analysts: Jonathan Brandt, Cliff Galant, and Greg Warner. Questions alternated among the two panels and the floor, ranging from the general to the specific. Answers involved philosophy as much as finance.

As illuminating and brilliant as these two icons are, it is not the kind of superior intellect that comes from better and faster firing neurons won in a genetic lottery.  It is the kind of wisdom that comes from focusing and continuous reflection for over 50 years and learning from each and every mistake and success.  There is a big difference between 50 years of experience and one year of experience repeated 50 times. This kind of wisdom requires considerable humility.  Warren is worth upwards of 65 billion dollars. He is paid $150,000 a year, lives in the same house since 1967, drives his own car, and he laughs a lot.

Berkshire has a total of 367,000 employees. 26,313 are in Georgia ranking only behind Texas with 34,649. They own Geico and Shaw Industries and over 9% of Coca Cola. Berkshire owns ten companies that would make the Fortune 500 if they were free standing.

Precision Castparts, Berkshire’s newest acquisition has 136 plants and manufactures critical parts for airplanes.  A single Boeing 787 contains over 10 million dollars’ worth of their parts. Why would Precision Castparts want to sell to Warren?  One reason is that they no longer have to spend the considerable time required for shareholder relations and the regulations that go with it. Capital needs can now be discussed with someone with a wise and long term perspective.

Berkshire paid 32 billion in cash for Precision. Warren is noted for his ability to decide on an acquisition quickly. Once a prospect passes the essential criteria he can reach a decision in under an hour. While they execute due diligence, he does not get bogged down with endless analysis.  Munger noted that rarely is a serious problem or unexpected opportunity disclosed in the numbers or Power Point presentation.  These issues are more often entailed in the fundamentals of the market they operate in.  Ideas and perspectives matter more than numbers.

I came to recognize how important a good owner is to the success of a company.  Warren’s greatest asset besides patience and humility (and a lot of cash) is optimism.  The investment world sells fear and you pay dearly for it.

One can be blind to risk and make reckless or poorly timed investments. But one can also be blind to opportunities if they are overly pessimistic.  The latter has probably hurt more investors since the 2008 crash than the former. For Warren predicting Federal Reserve interest rate policy and Congressional tax policy is a fool’s game; he manages his portfolio of great companies largely as if the news and political games are irrelevant, even if one of his energy companies does depend on Federal subsidies for using wind power.

The Berkshire companies have created an enormous amount of wealth for a lot of people.  Warren’s work of recognizing values and allocating capital and talent is a contribution taken all too lightly by the Social Justice Warriors who claim “you didn’t build that”.  While Warren Buffet and Charlie Munger humbly credit their managers and their employees, the thousands of very happy shareholders who attended the meeting and all of the Berkshire family know precisely who built it.