Monday, March 23, 2015

Turnout, Serrano, and the Outlier.

Percentage Voter Turnout Above (Below) Expected
Versus Number of Registered Voters
California Primary Election, June 4, 2014
Results available at http://tinyurl.com/l3xbpqw  
Back in June of 2014, I took a look at the provisional results of the California Primary. It was partly due to a comment in a newspaper article arguing the Bay Area leads the State in voter turnout.  Based on the data, I concluded
that the northern counties, and those of the Sierra foothills should really hold the title.

I've wanted to revisit the final results for a while. I did so today. The coefficient of determination was essentially unchanged (R²=.757 versus R²=.758). In doing so, though, I realized there was a way to get at the point Paul Mitchell, the vice-president of Political Data Inc., had made to the newspaper reporter that led to my post in the first place.

Paul had contended that "[p]oor people from Sonoma are far more likely to cast a ballot than someone living in poverty in Echo Park [Los Angeles]." This time, after plotting the results, I then set the y-axis to 100% of turnout as predicted by the trend line, leaving the x-axis at the number of registered voters per county.  Graphing the data this way actually supports Paul's argument – that Sonoma County is the outlier from the trend.  Sonoma County comes in at 137% of expected turnout, the highest in the table.

Voter turnout has been on my mind because of a line from Serrano v. Priest that's come up here before.  In contemporary discussions of education, the "twin themes" of the Serrano I decision tend to be collapsed into one – "[t]he pivotal position of education to success in American society."  But it is the second of the twin themes, where Serrano I finds its support in Brown v. Board of Education, that causes me to return to this data.

I hand the microphone to California's former governor, circa 1954:
"[E]ducation is perhaps the most important function of state and local governments. Compulsory school attendance laws and the great expenditures for education both demonstrate our recognition of the importance of education to our democratic society. It is required in the performance of our most basic public responsibilities, even service in the armed forces. It is the very foundation of good citizenship." [Emphasis added.]
The language is lofty, but not complicated. Democratic society is (of course) based on voting. In performing that public responsibility, education is a lens allowing us to distinguish the differences between competing choices. But Earl Warren (and a unanimous Supreme Court behind him) say it's more – that education is the foundation of good citizenship. Education doesn't just help us when we step into the voting booth, it shows when we choose to go to the polls in the first place.  Education is the self-evident spark, pump primer, and boot loader of democracy.

And so I take that proposition, and come back to the graph once more.  And I ask myself – is it education in Sonoma County that has led to this result?

And if I accept for a moment that the statement is true, I then must turn to the far more difficult question.  For what, then, would I point to about Sonoma County that has made this difference?

And what can the rest of California learn from Sonoma's experience?

Sunday, March 8, 2015

@RobertJShiller and the #EMRATIO.

There's been a tendency, every spring since the start of the Lesser Depression, for the business community to express, hopefully, that "this will be the year things turn." The first post I wrote noting this theme was on March 8, 2013. I thought this morning that, two years later to the day, I'd revisit the question.

Civilian Employment-Population Ratio
Federal Reserve Bank of St. Louis
I've been keeping an eye (thanks to Brad DeLong) on the Civilian Employment-Population Ratio from the St. Louis Fed for some time. It is generally the best measure of labor market conditions. If the economy rallies strongly, this is the ratio that should change substantially.

In March of 2013, the ratio was at 58.5. As of February 2015, it's at 59.3; the graph is on the right. There's essentially been no movement.

At the same time, though, the Shiller P/E Ratio, as of February 13, 2015, passed its pre-financial crisis high. This past week, the NASDAQ closed above 5,000 for the first time since the dot-com bubble. There is some local evidence of a speculative real estate bubble. Shiller himself recently released a new edition of his "Irrational Exuberance," where in the preface he expresses surprise at the events that have followed “the bursting of the speculative bubbles that led to the 2007-9 world financial crisis”:
"[E]vidence of bubbles has accelerated since the crisis. Valuations in the stock and bond markets have reached high levels in the United States and some other countries, and valuations in the housing market have been increasing rapidly in many countries."
So the data is there to support a narrative of asset price inflation unsupported by fundamentals, rather than the hopeful mantra of Main Street.

It is, of course, the why of this situation that is so puzzling to so many. If the economy presents meager prospects, shouldn't prices adjust to reflect? It is always tempting to fall back on Thomas Sargent and simply say that in an economic equilibrium, people are satisfied with their choices, and to add Herbert Stein's observation that "[i]f something cannot go on forever, it will stop."  But Shiller himself offered a potential explanation on why this phenomenon recurs, and I found that his point resonated, and so I link to his piece in the New York Times from last month:
"When there is unusual uncertainty about the future, and if not enough new business initiatives can be found to increase the supply of good investments, people will compete to bid up existing investable assets. They may go so far in bidding up prices that even though the assets may have horrible prospects, people will still want to hold them because they feel they have to save somewhere."

Saturday, January 31, 2015

Nothing So Dear as #cheapmoney

Over the past few years, I've heard from time to time in conversation the desire to take advantage of "cheap" fixed-rate money, before inflation sets in. 

Board of Governors of the Federal Reserve System (US)
10-Year Treasury Constant Maturity Rate [DGS10]
retrieved from Federal Reserve Bank of St. Louis [FRED]
January 30, 2015, available at http://tinyurl.com/kmtq4sl
On the right is a graph (it's actually a composite of some screenshots) from the Federal Reserve Bank of St. Louis.  I've marked when I was born, and when I graduated from high school. At my birth and graduation, the yield on the 10-Year Treasury was nearly identical (~7.5%, ~33 basis points apart). Between those dates, the yield was almost always higher, often much higher; since then, it's almost always been lower, mostly much lower. As of 30 January 2015, the yield is 1.64%.

Everyone carries a memory of economic history in their head. As Owen Zidar points out here, it changes more slowly than the speed of circumstances. Brad Delong has consistently argued for the necessity of all of us to "mark our beliefs to market." He maintains a list of prominent economists and institutions who've argued inflation was the foremost concern facing the U.S. economy since 2007 -- and not for the purpose of congratulating them.

Like the economists Brad lists, our formative memories were constructed during a different time. Inflation expectations became anchored. But there are few atheists in foxholes during combat, and for similar reasons, I suspect that inflationistas in debt are rare during deflation -- for falling prices routinely bankrupt entrepreneurs. There is oftentimes nothing so dear as "cheap" money.

Sunday, November 30, 2014

Why Travel Matters.

Back in November of 2012, I ran across this article in the Economist, arguing that the United States was on pace to become the world's largest producer of oil by 2020, and would be able to produce enough energy to be self sufficient by 2035. I recall thinking how dramatic a change that would be -- and I saved the PDF, meaning to blog about it.

"Alberta Energy Firms Face Harsh New Reality"
Jeffrey Jones, Jeff Lewis, Carrie Tait
The Globe and Mail, November 28, 2014.
I wasn't quite sure what to say, though. But spending a little bit of time in Calgary really focused the issue for me. The Alberta business section of the Globe and Mail is on the right (the oil price was also front page news).  I've linked to the main article here.

The recent oil price slide will probably completely eliminate the Canadian federal budget surplus. That creates serious problems for a government that has fixed expenses (salaries, pensions, debt service) but falling revenues. Most of the world at this point has, or soon looks to have, the same problem as Canada.

A nice way to understand this situation is to read a brief blog post of Paul Krugman's from October 15, entitled "1937." He noted that markets are signaling that "once again the big risk is deflation or at least very sub-par inflation."  He measured deflation in that post by looking at the market for Treasurys, specifically the 10-year, showing the yield had fallen below 2%, potentially a sign of recession, deflation, or both.

When I tucked the Economist article away for future reference in 2012, I never would have thought that a falling nominal oil price could be a bad thing.  Today, though, I'm not so sure.

And I'm not the only one.

Wednesday, November 19, 2014

What Do Bubbles Look Like?

Sentinel Media Services
"Midcentury Modern in Sonoma"
 The San Francisco Chronicle, Nov 19, 2014
screenshot taken Nov. 19, 2014
The San Francisco Chronicle gets my attention today.  On a fairly regular basis, the paper features a particular piece of real estate for sale somewhere around the San Francisco Bay Area.

Today, they're publishing about a property on Austin Avenue, in the Prestwood neighborhood of Sonoma.  The asking price is $2,295,000. The house is a little under 1,900 square feet.

You can see the location here. One nice thing about Zillow is that it will show you the recent sale history of the property.  I took a screenshot of that, and that's on the right, too.  

The Zillow history shows that William Grecian tried to sell this property back in November of 2010 for $445,000; he couldn't find any takers.  He dropped the price to $420,000 in April of 2011, but still didn't find a buyer.  He dropped the price another $12,500 -- and that's when Laura and Richard Tackett made their offer, for $407,500 on July 15, 2011.  

Zillow.com
"826 Austin Ave, Sonoma"
 screenshot taken Nov. 19, 2014
available at http://tinyurl.com/krxbtzh
Laura and Richard held the property for 872 days.  On December 3, 2013, they listed it for sale at $648,000, a 59% price increase.  Laura and Richard figured the change in the real estate market meant that they'd just made an investment with approximately a 20% annual rate of return.  Of course, Richard and Laura were wrong; the property didn't sell for $648,000. 

Instead, it sold 17 days after listing for $730,000. 

More like a 26% annual return.  

The property was purchased by an LLC, which is more or less the general practice in California with real estate projects that are expected to appreciate significantly.  The registered agent for the LLC is Patrick Doyle of Petaluma, who's a general contractor and is the manager of the LLC. The Deed of Trust on the property (which I checked) reveals the equitable owners. The Deed of Trust is a public record and if anyone's particularly excited to find out who put up the money for this deal, feel free to head to the County of Sonoma's Recorder's office -- they're open 8-5 Monday through Friday.  

The LLC listed the property for sale on November 5, 2014.  The LLC held the property for 320 days.  I can't calculate the annual rate of return, because the calculator I use presumes that the values change monthly; here, the ∆ in the price is so substantial that the number of days included can change the implied rate of return.  But it looks like about a 215% presumed annual rate of return.

Comments, "Midcentury Modern in Sonoma"
Sentinel Media Services
The San Francisco Chronicle
screenshot taken Nov. 19, 2014
There are a great many things I could say about this situation. I'm going to hold those observations, and I think I'll revisit this blog post in a couple of years (months?), perhaps updating it with the transaction history of the address.  

At this point, though, I do want to draw attention to the comments about the house on the Chronicle's web site.  

One poster thought the property looked like a good "flip."  

Another wrote that "I can't believe anyone would pay over 2 million for this toy house."

Interesting.

Tuesday, November 11, 2014

Kintsugi and Courts.

"Kintsugi," Wikipedia. 
“The world breaks everyone and afterward many are strong at the broken places." Ernest HemingwayA Farewell to Arms

A "thank-you" to Pat Brown first, for linking to an image of a piece of Japanese ceramic ware. The picture illustrates Kintsugi, the Japanese technique for repairing broken pottery, using a lacquer or resin sprinkled with powdered gold.

The ├Žsthetic value of Kintsugi comes from the marks of wear, an inevitability for the handiwork of humans in a land of earthquakes (like Japan or California). Kintsugi highlights the cracks and repairs as simply an event in life, rather than allowing service to end at the time of the damage. Kintsugi does not attempt to hide the injury, but instead "the repair is illuminated," illustrating the vicissitudes of existence.

"Napa County Courthouse Plaza," Wikipedia.
image available at http://tinyurl.com/lg26yxc
Given the beauty of the bowl pictured, it made me think of the recent damage to the Napa County courthouse in the 2014 South Napa Earthquake.  I have an emotional attachment to the structure, having been sworn in as an attorney there before my first trial. How fitting would it be, I thought, to embrace Kintsugi in the context of the High Victorian Italianate architecture of the historic 1878 structure?

Such a reminder seems somehow particularly appropriate for a building dedicated to law. To quote Holmes, law is a series of painful steps and world-shaking contests "by which mankind has worked and fought from savage isolation to organic social life." Law does not flow from some mysterious omnipresence in the sky, but is instead the consequence of the work of minds and hands. It is subject to crisis, disillusionment, and despair, much like pottery inevitably suffers breaks, knocks, and shattering in daily life.  Yet the ├Žsthetic value shared by precious pottery, and even-more-precious justice, when joined by illumination, can make each more beautiful, and perhaps both even stronger for the history -- not less.

Wednesday, October 22, 2014

Trust Levels of News Sources.

I caught this on Twitter yesterday, and found it revealing. The Pew Research Center (previously came up here and here) conducted a survey across the United States to determine which media sources are the most trusted.  However, the researchers introduced nuance into their model, by investigating the ideological identification of the respondents.

One irony of the survey is that the sources that Americans trust the most are the Economist (a British newspaper masquerading as a magazine) and the BBC (the British Broadcasting Corporation).   The most trusted American sources are NPR and PBS, followed by the Wall Street Journal (which happens to be the only publication more trusted than not across the spectrum).

One interesting feature is the "hard shift" in this table, where the spectrum doesn't gradually adjust from one side to the other through the "equally trusted and distrusted" data point, and instead goes right to "distrusted" -- and where the "mixed" group also distrusts the source.  There are only three -- The Daily Show, Sean Hannity, and Glenn Beck.

I also note (without comment) that even those who identify as "mostly conservative" express skepticism towards Rush Limbaugh, who is the least trusted generally known figure in the table ...