Artificial Impossibilities

Choices never come in vacuums
They cluster against history
Burdened by lint
Some baggage earned
Else borrowed

Others impose or we suppose
They will penalize our choosing
Nothing just free
All seconded guessed
With regret

To decide is to err, force harm
Status quo an easier cruise
Bold the chooser
Blame invited
To just be

Still it lingers demanding you
Screaming constant for an answer
Give as you would
Daring rebuke
Courageous

My target audience starts with those managing the University of Oklahoma’s athletic department and football team facilities.1 It then includes the OU donor and fan base as well as Oklahoma taxpayers. Yet this is likely applicable to the larger college-football world especially for major programs.

The purpose of this post is to discuss and push back on many of the recent developments concerning the OU football stadium. This includes those planned as well as those already begun or completed. I think the direction of these changes are, though well intended, misguided and shortsighted.

As I wrote recently:

To use a personal example, I have indoctrinated my children in the cult of OU football not by corralling them in front of the TV making them sit and watch a four-hour game but rather by bringing them with me to the actual game. The difference in the connection is stark.

Add to this that a big part of the case for a college football team is that it is marketing to future students (the customers/output of universities). For public institutions like OU it is also desirable to be in good stead with the voters, who ultimately hold sway with how much support the university gets from the state’s resources, and locals in the city it resides. Not all of my neighbors here in Norman love the university they live right by. Don’t give them another reason to push back against it—that reason being the accusation that it is only for the rich and elite.

Before you think I’m just an anxious (or obnoxious) fan who is scared of change for the entertainment product I love more than any other, realize I come at this with a deeper perspective than that. Sure, this is my baby. But in this post I will be addressing it in a professional capacity. I am a financial analyst holding the CFA Charterholder designation and work professionally as a manager of a multibillion dollar portfolio. I am trained and seasoned in analyzing businesses, investments, and economic decisions. I am a published sports economist. This is literally the type of stuff that I do. [full disclaimer: I mean that from the standpoint of my qualifications. This is a personal project completely unaffiliated with my employment (day job) and my employer.]

I certainly recognize that I am an outsider. While I bring humility to the situation knowing that I don’t have all the information, probably have a biased perspective, and likely have a different value objective than the administration I am about to critique, I have a very strong foundation upon which to make my case. Dismissing my analysis out of hand or failing to critically address it would represent a large failing on the part of the opposition.

Where we are

It is obvious to all college-football fans that the sport is undergoing radical change. The long-overdue changes to the relationship teams have with their players is bringing new challenges (both financial and operational) as well as new opportunities. Fielding a competitive football team and building a program that can compete long term now comes at a much higher expense. Player pay whether it be from NIL or simply direct compensation has become a new, significant line item on budgets.

Yet, any business (and college football is a business) facing higher costs cannot simply pass these along to the customer. Some businesses face customers very insensitive to price (inelastic demand in economics parlance). Yet even these businesses can exploit this position only in the short run. As time goes on, consumers become more price responsive (demand curves flatten) because alternatives (substitutes) emerge.

The other constraint limiting how successfully firms can pass along cost increases to customers is customer ability to pay. Budget constraints bind in the real-world forcing consumers to alter their buying decision, and with big enough price increases consumers find themselves completely exiting the market.2 This version of what economists call corner solutions comes about when a person cannot buy any of the product being offered. The analogy here might be that I can afford to rent a Ferrari to drive to an Airbnb mansion in Los Angeles I have rented for the week, but I cannot afford to buy these two things outright. The purchases are fully outside of my budget constraint.

Therefore, the new economic reality requires a reevaluation of athletic department finances on the expense side as well as the revenue side. Yes, they need more revenues. But that won’t be enough. In the simplest of terms: Just because your costs went up, doesn’t mean your price can as well—at least not enough to fully pay the new expenses. Expenses must also come down. Keeping in mind that football coaching pay is disproportionately large as a share of revenues when compared to the NFL, reducing coaching salaries is an obvious first candidate to find savings. Other administrative expenses likely follow.

Still, the OU athletic department, et al. seems insistent that other expenses will continue and that new, additional revenue must/can be found.

What is the plan?

The university announced the plans for stadium renovations in November 2025 in what can only be described as a tone-deaf marketing plan. The immediate reaction on X.com was one-sided, brutal opposition. The biggest complaint among several was having this abrupt, incomplete message being the first fans had learned of massive seat dislocations and overall seat reductions. It was a masterclass in not getting ahead of the message.

The only details offered were sparse. They indicated there would be “47 suites, 64 loge boxes, about 4,000 new club seats and six club/lounge spaces commences” and a reduction of capacity losing approximately 7,000 seats on net. The only overall objectives revealed were (reading between the lines) raising revenue.

Besides these sketchy announcements, some architectural renderings were offered along with the original website for information on the stadium plans, www.gfoms.com. That site now redirects to this site on SoonerSports, which still gives little details other than renderings where fans can easily see where their seats are substantially different. For loyal fans it stoked fear and anxiety about potentially getting displaced by new luxury seating or at least facing substantial increases in the price of attendance.

I was not alone in finding the communication wrought with arrogance and conceit. They gave no indication they understood how badly this would be received much less that the existing fanbase including existing season ticket holders (many of whom are very long term) would have any voice in the matter. They didn’t even pay lip service before or after the announcement to the very obvious, foreseeable backlash. It would have been quite easy to stipulate how it is all a work in progress where the administration would be very responsive to all the needs and desires of all fans with clear understanding of how sensitive the many constituencies are to possible changes. People (customers) understand the new realities of college football, but they also understand their own personal budget realities.

It is not like this hasn’t just recently been a lesson learned. When OU moved to the SEC, they were forced by agreements with the conference to change configurations within the stadium. These required changes forced many fans to move from the seats they had held for years—some for decades. This too was addressed poorly in communication showing little sympathy and poorly in execution resulting in a bad process. It was unclear what people’s options would be and what would determine these options. Anxiety was maximized as people were left in the dark as to why, when, and how their seats would be relocated.

For what it’s worth I know hundreds of fans from a wide variety of backgrounds. I don’t know any who are wholeheartedly enthusiastic about the changes or highly confident in the university’s ability to improve their situation. They all are approaching this with some combination of trepidation and frustration. It would be accurate to describe the perspective of many as disgust.

Communication errors are not my central focus. They just reinforce my doubts that the leadership has a good grasp on how to satisfy their customers.

Understandably, but never communicated, this is a work in progress. In July of this year the new athletic director, Roger Denny, acknowledged the backlash as well as the initial poor communication saying in part, “. . . particularly when it comes to some who potentially will be forced to move seats or pay significantly more to remain in premium locations. . . . We’re certainly reevaluating some things.”

Consider these key points from The Oklahoman on Denny’s plans.

• Oklahoma’s athletic director confirmed the $450 million stadium renovation project is still on track to begin after the 2027 season.

• A stadium-wide reseating process will still occur, and the athletic department plans to speak with every season ticket holder.

• Declining ticket revenue relative to football expenses necessitates the project to keep the program economically viable.

So, perhaps the communication gap is getting filled and fences mended. But like I said, that is not the heart of what I think is broken.

How it is broken

OU is not at all alone in this endeavor. Here is a list from ChatGPT summarizing stadium renovation projects recently announced or completed. I include the announcement summary table pictured below.

The central theme, as Pollstar News says, is a shift from capacity to revenue. As those who read my original piece know, I don’t accept that as a tradeoff. Rather I think it is more a matter of “Why not both?”.

As a long-suffering member of the neglected upper west stands at Gaylord Family Memorial Stadium, I very much agree renovations are in dire need. I also very much support efforts to improve quality including making accommodations to welcome those who have a willingness to pay for luxury. And I am very willing to accept that my seat might be more or much more highly valued by others than myself. And I am willing to pay (somewhat) more to receive a better product (experience when attending).

Displacement per se is not my complaint. In fact I am not complaining. I am pleading they do not fall for the fallacy that the price can/must/should just go up because expenses went up. I am also contending that reduced capacity sacrificed for the highest of high payers (who may be mythical—see below) is a bad bargain.

Killing the golden goose by chasing golden geese

For the state and its population, Oklahoma’s income and wealth has seen substantial increases in the past couple of decades. As I’ll discuss in the next section, we are much wealthier than we were the last two times we won national titles in football (2000 and 1985).

However, the correct analysis has to put the current state of income/wealth into perspective to see how much one can expect to further grow OU athletic revenues. While I wouldn’t describe the situation as “tapped out”, I would also not depict it as having “plentiful low-hanging fruit”.

Relevant comparisons can be made between Oklahoma and Texas as states and the Oklahoma City MSA and the Austin MSA as both programs look to each other as benchmarks. Doing so might give some indication as to what opportunities are available for growing athletic revenues at Oklahoma.

Let’s start by looking at where Oklahoma and Texas athletic department revenues currently stand using the very helpful work of Greg Chick at NILnomics.com specifically his analytical dashboard.

Texas is obviously bigger than Oklahoma (state-wise and university-wise). How much bigger is a key part of this, but how much relatively bigger (wealthier) is also important.

In FY25, Oklahoma had $205.7 million in revenue while Texas had $352.5 million. Notice something right of the bat in the revenue breakdown above. Both OU and Texas derive about the same amount of their revenues from donor contributions—about 45 and 48% each, respectively. For the raw figures, OU at $92.9 million versus Texas at $167.8 million shows a 1.8x ratio TX:OK. Keep that in mind for an analysis of wealth and income shortly.

Ticket sales represent about 27% of Oklahoma’s revenue while only comprising about 20% for Texas. It would seem either Texas is relatively underpricing its tickets or Oklahoma is already outperforming in this area. Certainly there is more to it as the revenue-maximizing strategy at each organization is likely at least somewhat different, but this is suggestive that increased ticket sales are not a huge opportunity for OU.

In fact both on contributions and ticket sales OU is already an outperformer compared to the larger SEC universe (I compared all sports first and then football specifically below).

Oklahoma is a significant outperformer in comparison to the expected revenues the model would predict. Obviously, this is sensitive to just how good that model is. Regardless, again we find results that are at the very least highly suggestive that OU is already tapping into its resource base well. How much more can reasonably be expected?

Now let’s look at wealth differences. The size difference between Texas and Oklahoma hides an underlying wealth difference. There are two ways to tease out the wealth gap. One is to see how many households Texas versus Oklahoma has in the upper wealth categories as a percentage of the total. Another is to look at the ratios between the two at various levels. However, the overall size difference still matters as this shows some indication of the base itself, which is highly meaningful. As an analogy, Denmark is about 85% as wealthy as the United States (GDP per capita) but is substantially smaller. Switzerland is about 129% as wealthy as the U.S and also substantially smaller. Because both economies are vastly smaller than the U.S., neither one can accomplish what the U.S. economy can provide. Wealth alone is not enough. Size matters.

Here is a table from the U.S. Census Bureau on wealth data by state:

To tease out the wealth differences, I want to look at the number of households in the various wealth categories and the ratio of Texas to Oklahoma.

Texas is more than just the University of Texas’ base in the Austin area. Houston and Dallas-Fort Worth are major contributors here, and Oklahoma has many alumni in DFW. Therefore, some of the wealth located in Texas is a reasonable target market for OU. With that caveat in mind, notice both the percentage of household differences in the upper categories and the ratio differences. OU needs capture a lot of the Texas-based wealth in order to close these gaps.

Now let’s looks at income differences. For this we can drill down to the metropolitan statistical areas (MSA) comparing Oklahoma City and Austin using the Census Bureau’s American Community Survey (ACS) for 2024. Notice here as well both the total figure differences especially at the higher end as well as the percentage differences. The story for the OKC MSA as compared to Austin is fewer (raw number) and less (percentage of the total).

Austin has about 165,000 more households in the top category of $200,000 or more—about a 4:1 advantage—and the percentage in this category is more than twice as large—20.6% versus 9.1%. The Oklahoma and OKC market bases are smaller and less affluent than the Texas and Austin bases.

Remembering the raw figures and the 1.8x ratio of donor contributions to total revenue for Texas versus Oklahoma, these wealth and income gaps for Oklahoma/OKC versus Texas/Austin indicate OU athletic department revenue is already very efficient getting more out of less. Perhaps there isn’t a lot of room for growth.

I fully admit that all of this is more suggestive than conclusive. My strongest point is that the idea there is a meaningful capacity to grow revenue by increasing price (ticket and donor contribution) is very limited. Speaking of capacity . . .

Must we shrink to grow?

Referencing again to my prior post,

Since 1985 OU’s stadium has increased and then slightly decreased in size going from 75,004 to 80,126 today—a 6.8% overall increase. Over that same span the population of the OKC MSA has increased from about 900,000 to about 1,500,000—about a 67% increase. For the state the increase is about 34%.

Over that same span real (inflation-adjusted) median household income in Oklahoma has increased over 18% [revised to 33% from the source]. . . .

With OU as the example as I continue to focus on blue bloods, an expansion to 100,000 seats would be quite possible from a realistic cost and engineering standpoint—just fill in the north end zone with an upper deck and perhaps expand the soon-to-be-renovated west upper deck. That would be approximately a 25% increase in the stadium’s capacity. Given the parameters of the 67% increase in the population in the OKC MSA along with the 18% increase in real income, this seems realistic as well from a demand standpoint.

An increase in capacity to 100,000 would represent just a 24% increase in current capacity. I say “just” in part because the OKC metro population has increased about 35% since the stadium reached >80,000 capacity in 2003. I say it also in part because real median income for the state of Oklahoma has risen about 33% over this time span. Note that the percentage increases being rumored for the price of attendance at OU is an order of magnitude higher than 33%. And this increase has been at the median level, which requires us to go back to what that median is (the income analysis above) as well as the entire distribution of income—still a small base.

Yet this still doesn’t capture the entire context. With that substantial rise in income there has been a reciprocal increase in alternatives including one’s own living room as a great venue to watch a game. Obtaining audience in the form of attending fans certainly requires matching up well against substitutes. That is a call for a quality increase. But it does not mean ticket prices can necessarily increase commensurately, and it very much does not mean every fan is suddenly a premium seat demander (be it club, loge box, or luxury suite).

This renovation is putting all the chips in on high quality/high price. That might not be a winning formula.

Consider as well in the realm of alternatives that fans can still attend games without being season ticket holders or even buying single-game tickets from the university. Aside from a fledgling eBay, at the start of this millennium (the time of OU’s last national championship in football) the secondary market was a collection of fans and sketchy market makers outside the stadium on gameday. Today we have a thriving online marketplace where fans can make and change plans weeks before a game kicks off.

While OU leadership might say this solves the problem since they would presumably sell the tickets at premium prices and then those tickets would often go to fans with lower willingness to pay (lesser means) through secondary markets, I would counter this assumes too much. I think they will struggle to sell them in the first place. For those they do, there will be limited transfers in secondary markets. People do not always find it worth their time to try to sell tickets they hold—especially true of people with the means to buy premium tickets in the first place. The more you are depending on this redistribution, the more you are encouraging the initial buyers to reconsider their generosity of being the high payer, and the more you are dependent upon a secondary market to actually fill your stadium. Which leads to my next concern.

But those aren’t the only reasons to worry about this renovation

Suppose it works. Suppose the university is able to command large price increases from fans without much loss of customer base especially among season ticket holders. Suppose also that luxury and loge box sales are completely full. There are still pitfalls to consider.

The composition of fans changes even with these assumptions of success. Notably loyal fans will be pushed toward the endzone to make way for higher payers. This displacement is not just where suites and loge boxes will now sit. The higher quality at a higher price would bring new, different fans into the fold. This displacement means a fans currently in the endzone will be pushed out of the stadium entirely. Again, for this to work it has to be the case that prices go up everywhere. That has to leave some meaningful group out. Since the stadium is getting smaller, this is exacerbated.

Okay, maybe that is a trade the university is willing to accept—more money and (some) different fans. Who are these fans?

I think the description label I would give them is some combination of occasionals and corporates. This is a group that likes OU football but doesn’t love it—at least not enough to have already been a season ticket holder and definitely not enough to endure bad seasons or bad weather. I haven’t missed a home game in the last 247 and counting. In contrast this is a group that would struggle to put 3 together consecutively.

Again, this might be fine from the university’s perspective. I think that would be a mistake. I think there are three major downsides to a corporate-dominant atmosphere:

• Lukewarm fans - people more likely to be indoor and quiet

• Empty seats - lack of secondary-market offerings

• Missing demos - lack of fans of a certain age

There are noticeable absences when sitting in the stands at OU during even a big game on big plays when the weather isn’t perfect including just if the sun is hot and in one’s eyes. That is the club seats. The club is full, mind you. It is just that—full inside. The team needs a home-field advantage and that comes from cheering fans (not a crazy loud music/PA systems . . . a rant for another post but in concert with this section since this type of NBA-corporate environment problem seems to be what the current in-game experience is becoming otherwise).

Another source of absences are game long when you have people who don’t bother coming. That’s okay in my book. It’s their prerogative, but I don’t think that is what the university has in mind, and it is not my idea of a great home crowd. The reason this one is separate from the first item is it is a different, upshot problem. These fans not only don’t come. They don’t bother putting their seats on secondary markets. Remember, we deliberately decided to sell tickets to wealthier people. Well, wealthier people’s time isn’t worth keeping up with an online sale and transfer. So this is a continuation of my point in the previous section as well.

Lastly, I think there is a big risk of stifling fan development as it prices out families with young children—the key demo for future fans and students aged 7-16. Up at the top of this long post I mentioned how the football team is a great marketing tool to future students as well as other constituencies. This concern is perhaps the most far out threat making it hard to see. But if this were a formal SWOT analysis, it might be the most substantial.

Shrinking rather than growing the stadium means the high-price strategy has to make up for a lot of crowding out.

Conclusion

Oklahoma is wealthier today than it was in 1985 or 2000, but it is still Oklahoma. By that I mean our corporate base is small. Our upper income base is also relatively small. Austin, home of the rival Texas Longhorns, is much wealthier with a much larger corporate base and much larger upper-income population. While I would imagine my same analysis and conclusion reached above would apply to Darrell K Royal stadium just on a different scale, the maximize-revenue-by-maximizing-quality strategy would have a much better chance of success on paper in that economy. I think we simply do not have the economic base to support this model even if my other concerns are ignored.

The stadium should be substantially improved. The price likely should go up in many respects. High income and wealth customers absolutely need to be targeted for maximum profit. But maximizing revenue and profit (defined as what is best for the university overall) is more nuanced than simply designing the most luxurious accommodations imaginable and assuming they will be filled. As I’ve shown, even filling them could be a long-term losing strategy.

For the median Oklahoman, they have enjoyed real income growth. At the same time entertainment options for those in the lower part of the upper income down through the median income are substantially better than in 1985 for sure and somewhat since 2000. To be economically technical about it, I just cannot assume this part of the demand base is not sensitive to price—inelastic demanders. Therefore, this large cohort will not bear substantial price increases.

I hear broadly, though still anecdotally, that the push back against the increase in prices has been substantial. That is likely why Denny alludes to on-going revisions to the plan. My bet would be they scale it down from a luxury standpoint but fail to fully appreciate how restrained they are in pricing power. And my hopes for a larger stadium are less than faint in even my own dreams.

You don’t have a right to your house’s price.

You cannot limit the freedom and property rights of others just because their actions might negatively impact your property’s market value. This is using the state to prevent competition—something we normally see for the wrong it is. The objections to this flow out like from an angry, uncontrolled firehose:

• What if someone opens a pig farm next door to my neighborhood house?

• What if someone builds a giant skyscraper in a U shape blocking all my sunlight?

• What if someone builds a three-story house blocking my view of the ocean that I’ve had for twenty years?

• What if someone builds a house next to mine that is extremely “objectively” ugly?

• What if someone puts a loud biker bar next to my family home that attracts seedy characters and vice?

None of those are what I am talking about. Those are either genuine rights disputes or are areas of ambiguity because of poorly or not-yet-defined property rights along with nuisance and other tort claims. And some are of a hyperbolic nature that defies logic.

What I am concerned with are support for limitations on housing supply from the standpoint of what that supply effect would have on existing property owners. This is a more general objection that supports all the tiny battles against deregulation.

To be fair, it is less a “there goes the neighborhood” as it is a ham-handed attempt to employ economics by NIMBYs as they try to hold the line. But it is instead an invention of a property right disguised as economic reasoning.

It is the housing reform opponent’s version of big hospital’s CON laws where existing hospitals get to decide if competing hospitals get to come into the market. While attempts at competition limitations almost always come from small (in number not power) vested interests (concentrated beneficiaries), this is a case of numerous vested interests using the same approach to hold back competition. They are grasping for the thin reed of harm avoidance as a property right to protect them from a sincere though probably false fear of wealth decline.

Fortunately there is good news. Your house’s price (and you generally) will likely benefit from what you seek to restrain—growth.

Don’t worry, though, because you don’t want that right.

On one level attacking the impulse to limit other’s true property rights is straightforward because of what such an invented right would imply. It would mean central planning by those most powerful and engaged and only among those currently in the market. It would lead to approval boards that cannot agree on the brand of coffee to have at the evening meetings much less what the aesthetic value priorities should actually be. It would grant veto rights to those with the strongest and likely most restrictive opinions. Most importantly, it would allow those with no skin in the game to dictate to those willing to put capital at risk. The end result is stagnation come depreciation.

In other words, there is no good way to enforce it with very bad knock-on effects.

Communities that don’t grow wither. Standing still while the world advances is obviously relative decline, but it is also absolute decline since depreciation compounds in such a world. In the simplest of examples, imagine the cost of maintenance just to keep your home the same as it is today well into the future. If your home is in a location of relative decline, the cost of doing this basic water-treading will be ever rising.

Yet this discussion is misguided still and gives away the game. How? By not realizing that absolute value decline—the price of your home falling—is simply not a problem if that decline is because of supply increase in the broader market.

Rising supply is the hallmark of social wealth advancement. Bryan Caplan offers a great illustrative example:

I have a massive collection of music CDs, about 4,000 in total. Over the years, I probably spent about $40,000 acquiring them. Now, thanks to streaming, they’re virtually worthless. While perusing the used CD section at Amoeba Music (both the LA and Berkeley locations), I discovered that most of my discs now retail for about $3. I doubt Amoeba would pay me $1 a disc, assuming they’d take them at all.

Applying familiar NIMBY logic, you might insist that streaming “hollowed me out.” Sure, kids can now enjoy unlimited music free of charge. But I’m $40,000 poorer. A victim of cruel progress. A clear-cut “loser.”

. . .

Thanks to streaming, I can now consume infinite new-to-me music gratis. Given my tastes, that means massive consumer surplus for multiple decades. In present value, that’s vastly more than $40,000. YouTube access to the complete Lebendige Vergangenheit catalog of vintage opera recordings alone is plausibly worth $5,000. Back in the day, I paid $13.99 for each of these premium imports. Now they’re all $0.

To repeat, the lesson is not that everyone in my position gains from streaming. If I were totally set in my ways, I really would be $40,000 poorer with no offsetting gain. The lesson, rather, is that NIMBY negativity is not the automatic response for everyone who experiences a capital loss. Most enjoy some upside with their downside. Some, like me, enjoy a net gain despite a large gross loss.

But the more general lesson is that this is not just a curiosity for music lovers. It fully applies to the archetypal NIMBY who opposes housing deregulation because he already has a valuable home!

Suppose you own a $1M home, then deregulation halves its value. Yes, someone who has zero desire to live in any other home suffers a $500k loss. But suppose they want to upgrade to a better home. Then they have an offsetting gain: The dream home that previously cost $2M now only costs $1M, so their consumer surplus potentially rises by a full $1M. And the same goes to a lesser extent if they were planning on downgrading: The home that cost $500k is now just $250k.

The offset is even larger if the homeowner was thinking of buying a second home. Indeed, since rental and sale markets are closely connected, the owner gets an offset every time he checks into a hotel or rents a vacation property.

For alleged “losers” who love their children, the potential upside is greater still. Let’s go back to my CD collection. Even if streaming didn’t benefit me personally, I have four children. I love them, so their surplus is also my surplus. The $40,000 capital value I lost was going to them anyway. So while each will now inherit $10k less, in exchange they get infinite free music for a lifetime. And so will their kids. The blessings of streaming shall be their patrimony.

The same holds for any homeowner who loves his children. Even if you’re in your “forever home,” even if you have no desire to travel, crashing housing prices have a massive upside: cheaper housing for your kids. Maybe even cheap enough to buy the house down the street. Yes, their inheritance will be less, but they’ll get to enjoy cheaper housing for a lifetime.

Let me address the apparent small chink in his argument’s armor. For those with no intention of selling their now depreciated home (the $1 million becomes $500k example), they suffer no real loss. They still have the same home. And now they can repair and maintain it more cheaply. The only “loss” they suffer is hedonic—relative decline on their personal balance sheet.

I’m sorry, but that is not a loss we can or should care about. We don’t unduly fret that holders of stock in disrupted companies like Eastman Kodak, General Motors (before the bankruptcy), Sears Roebuck, Blockbuster Video, Pan Am, etc. suffered complete or near complete loss when economic advancement and technological innovation disrupted them into oblivion. We shrug and move on knowing this is a cost of doing business where the business is social economic advancement.

The same is the case when economic advancement means a job category is changed resulting in the elimination of those jobs or substantial changes in those jobs. You do not have a right to your job nor your work vocation. At the very most we might compensate those affected, which we do with unemployment and other welfare benefits. But keep in mind two things: One, these types of changes are never as catastrophic and sudden as feared (current AI job doom included), and two, the cost of recompense is not just the check written. There is also a damaging incentive effect.

You know you don’t actually have the right to tell others what they can peacefully do with their own property. If for no other reason, you see it when the shoe is on the other foot—when they are telling you what you can and cannot do. Likewise, you should see that this distortion of property rights leads to madness. Most comforting, though, is the realization that the thing you fear, growth through development, is the thing you actually wanted all along, sustained and improved wealth.

Substack mentioned:

There is a well-known phenomenon in private equity investment called the “J-Curve”. In short this is the behavior of the net cash flows or returns over the life of a fund (typically 10-12 years) whereby the initial years have more outflows than inflows due to capital drawdowns, operating costs, and management fees. After this period, it is hoped that the operational improvements and valuation appreciation start contributing more and more to overcome this initial decline. When the investments are successful ultimately with profitable exits, this gives rise to the upward slope to complete the J-curve.

Here is a stylized charting from Wikipedia:

I would like to use this concept to introduce an analogous J-curve, local-maximum problem for housing prices elaborating on how problematic this could be for the cause. Nat Eliason has a succinct explanation of the local-maximum problem for those who need a refresher.

Who is the oppositional audience?

NIMBYs come in many flavors. Some simply think they have an ephemeral property right in other’s actual property. Before we can confront this mistaken understanding of how property rights logically work in principle, we face the obstacle that they probably don’t care because the supposed negative outcome for them helps blind them to having such a conversation. And to be frank, if I can just get them over their fears, the battle is probably won. Which is good because they probably aren’t capable of having the more nuanced, ethics conversation about rights anyway.

This is similar to my battling against drug warriors in the drug war where fears of bad outcomes trump any concerns or appreciation for a rights debate. I firmly believe that principle comes before pragmatism, but most people effectively see it the other way. So I think I’m stuck arguing the practical side in most of these type of debates.

That is not to say the task is any easier. My J-curve approach is the best I can offer those who fear reform means they lose. It takes some vision by the opponent, and perhaps the J-curve concept is concrete enough they can believe in it. So I am assuming some degree of good faith and numeracy on the part of those I seek to convince.

To be sure, I am conceding ground by starting with this approach. I don’t actually think most reform has tangible, negative outcomes in reality. Many reforms just make things better from the start (where better means both for the existing homeowner as well as the market overall), and often the feared impact is illusion—your home’s value can only be impacted by negative externalities within small limits. Are you sure the current world is optimal such that anything that might change in the surrounding area is significantly negative for you? Do you not believe positive externalities exist including many not yet brought to fruition? Again, some people are just too innumerate or illogical to have a reasoned debate with. This is for the others.

Beyond the truly superficial like “it will be loud when they build a house next door”, people opposed to reforms like dezoning and greatly reduced regulatory obstacles genuinely fear these will harm them economically including in aesthetic value. This is an effort to meet people where they are—a starting point with the (perhaps bad) assumption that reform (change) means hardship.

The housing version of the J-curve

The message of the housing J-curve is simple: In most cases it has to get worse before it can get better, but it will get better. The research literature actually points in the opposite direction tending to say that prices increase from deregulation and then come back down over time (a reverse J-curve from the point of view of current homeowners who want to maintain their properties’ values). For example, consider the cost from permit regulation where it has been shown land preapproved for development commands a strong premium over land not yet permitted for development. Reduced regulatory burden should and does increase the value of the regulated asset. This is the demand effect coming before the supply relief—see below for more on this.1 But there are two important caveats to keep in mind.

First and apropos to this post, the opposition I am targeting don’t see it that way. Second, we haven’t really had an experiment like we’ve been running for the past three decades where we progressively made additional housing illegal plus made wide swathes of mortgage access illegal. To wit: recent experiences in Austin, where housing has been greatly expanded, et al. look more like the J-curve I am proposing. I think where we are today creates a new situation where this J-curve effect will potentially come into play.

The hypothesis is that prices for existing housing initially fall with the disruptions that come from new developments and their immediate increase to supply. The argument concedes that many of the limits on development do work to keep property values up artificially when viewed in isolation from the growth effect. Simply by limiting supply competition, the price is higher than it would otherwise be, ceteris paribus. But all else is never held constant in the real world. In the not-so-long-run the growth effect comes to completely dominate the disruption effect.

We cannot and should not ignore the growth effect. Doing so is falling for the local-maximum trap. Only considering that the first step is a degression is being shortsighted. It prevents the change that unlocks even higher, better outcomes.

That better, now-possible world is the correct aspiration. Stagnation is not. Part two will have a lot more on this, but it can be fairly easily seen if you try. We don’t have to imagine it, evidence is all around us. The highest property values are attached to the most desirable places both within cities (best neighborhoods) and among cities generally. And this point of view has plenty of room for preference variation. The key isn’t density or agglomeration or all the little things zoning presumably attempts to keep sacred and safe including anti-density. It is simply allowing supply to meet demand with an appreciation for Say’s Law2 (supply creates its own demand).

Before NIMBYs object “don’t [thing they don’t want] my neighborhood”, they should understand that this isn’t arguing a 20-story condo is going up in suburban Oklahoma City. Nor is the idea that your house on the edge of town with five acre lots as far as the eye can see suddenly is going to get fifty starter homes popping up. Nor is it assuming a Section 8 apartment complex is going to be built in the middle of [insert wealthiest local neighborhood]. More of the same but better is almost always what actually gets developed. The zoning rules and other constraints aren’t the only thing holding back local upheaval.

It is actually really hard (and not just for the raw profit-loss reasons) to drastically change the composition of a given place. Culture is sticky. Things like this might happen. And certainly small, creeping changes will occur. But no one promised you nothing will ever change. Just because you moved to the country doesn’t mean you own the entire country—true for “country” in a nation sense as well as a colloquial term for rural living. The city came to you is a tale as old as time. The cost is either dealing with the new surroundings or selling to move farther out. The good news is the compensation you’ll get for the transition is now likely much higher than before. See the next post where I touch upon this more principled point of view with a practical spin. It should help alleviate the dread you have about what change might look like.

The J-curve might be an extreme case

Kevin Erdmann often writes about the complexities in housing economics such as how the demand response to deregulation can have an initial impact that raises values. Likewise, M. Nolan Gray offers some alleviation for my J-curve concerns. He offers a rich, nuanced perspective leaning on the actual experience and the research. The addition of housing stock might simply sustain valuations while helping in aggregate. This is certainly in keeping with the research.

Some of this is the compositional effect, a form of Simpson’s paradox [footnotes excluded from the excerpts below]:

From a composition effect perspective, the home-value NIMBY shouldn’t care either way, except to the extent that the new housing creates a disamenity that makes their home less desirable. Yet this disamenity would need to be high enough to offset the increase in land value associated with the market discovering that higher-density housing is legal and feasible on the homeowner’s lot.

This probably explains why the empirical literature finds that building market-rate apartments near existing detached single-family homes variously has either no effect on the latter’s price, or even a small positive effect. It is thus entirely possible that building new housing can lower overall housing prices without necessarily lowering the value of any given existing housing unit.

And some is the interaction of two other effects especially in a gentrification situation:

When new housing is built, it has two effects: On the one hand, it has a demand effect. That is to say, it drives up demand to live in a neighborhood. New units draw in new households at higher incomes, who in turn make the neighborhood nicer by patronizing good restaurants, calling 311 about disorder, and demanding better public services. This in turn attracts more demand, which could raise prices in the area.

. . .

The good news is that development also has a supply effect that mitigates the unwelcome aspects of gentrification. By absorbing the demand that was heading to the gentrifying neighborhood either way, new development provides new arrivals with a place to land, thereby reducing price pressure on the existing housing stock. Hence Noah Smith’s classic characterization of new market-rate development in gentrifying neighborhoods as “yuppie fishtanks.”

Which effect wins out? The weight of the evidence suggests that while the demand effect is real and shouldn’t be casually dismissed, the supply effect ultimately wins out. ¹¹Yes, new development changes neighborhoods and increases demand; but by bringing new units online, it concurrently absorbs enough of that demand to keep prices under control and ultimately reduce displacement.

In the short-run the demand effect might very well dominate until the supply effect could be fully realized, which would militate my J-curve model.

Maxwell Tabarrok makes an adjacent point in this post discussing the different effects from adding housing and adding roadway.

First of all, it might not be true that demand for housing is inelastic, especially in particularly desirable cities. Indeed many models predict that housing prices rise as housing supply expands. This is because, through some combination of higher labor productivity, easier access to goods, knowledge spillovers, high fixed-cost amenities, and larger social networks, which economists summarize as agglomeration benefits, each person’s own willingness to pay to live in a city rises with aggregate demand. Being the marginal entrant to 200,000 population Sioux Falls is worth much less than being the marginal entrant to a 10,000,000 population NYC. Duranton and Puga predict that expanding housing supply to add 8 million residents to New York City would increase housing prices because of how much higher incomes would be (with a large net increase in welfare).

Consider what I am constructing here to be a theoretical bad-case model to show that even with this assumed to be true (that there is a J-curve effect), the end result really isn’t that worrisome. At an extreme level of development, I believe my model would in fact come into play. At the more modest and sadly small levels we actually get to hope for, Gray’s version likely dominates.

Substacks mentioned:

Hidden Being

In yesteryear's radio The Shadow knew.
For us the shadows are where we hide,
But also where we can roam.
The shadows contain multitudes.
Some creep, others lurk in the shadows.
Yet the shadows allow freedom.
Beyond the harsh judging light of day,
In the shadows we find refuge.
We conduct experimentation.
We indulge fresh exploration.
Our better selves are tested in the shadows.
Too easy to be good and proper 
When all and every can see.
Much harder the straight and narrow in darkness.
For invisible goodness 
The most difficult form,
And thus most virtuous.

This is not strictly a prediction. It is a plausible story of a predictive nature assuming some conditionals. Obviously, all of that wouldn’t fit neatly in the subject line.

What I am going to lay out is a potential path to a much higher degree of socialism (state ownership of private capital) from a financial downfall within AI firms.

When people have negative takes on the economy or market, Tyler Cowen likes to ask in a provoking kind of way, which I fully endorse, “are you short the market?” In this case I am, directly to a small degree and indirectly to a large degree.

Read more

First from Alex Chalmers and Rob Wiblin at The Works in Progress Newsletter where they write “Just bury your trash”:

Every child is taught that landfill is the worst place our trash can end up. It is the sad consequence of a failure to recycle: a mountain of waste leaking chemicals and smells, blighting the land forever.

What if that picture is wrong? What if landfill, properly done, is actually one of the cleanest, cheapest, and most environmentally sensible things we can do with our waste? It turns out that for much of what we throw away, the humble landfill beats the recycling bin.

Single-use is often better

The case against landfill has two parts. The first part is that there are efficient, cheap, or environmentally friendly ways to practically reuse or recycle materials, rather than landfilling, meaning that there is a reasonable alternative. The second is that landfill itself is unsustainable, or environmentally unfriendly, meaning that we need an alternative. Both are false.

It’s natural to assume that reusable always means better. But this intuition treats different materials as interchangeable and ignores the cost of making them in the first place. Once we account for energy, labor, and other inputs, reuse pays off only in selective cases.

As Michael Munger likes to say (paraphrasing), "Stop washing your trash."

Next is from the paper, “Compulsory Schooling as a Form of Captivity: A Polemic,” by Cevin Soling and Kathryn Burrows in the journal Educational Studies as referenced by here Peter Gray.

Every weekday morning across America, millions of children are required by law to report to designated institutional facilities where they will spend much of their waking hours under systematic surveillance, movement restriction, and behavioral control. This phenomenon—compulsory schooling—has become so normalized that questioning its fundamental structure appears radical, even though the conditions it creates would be considered unacceptable in any other context involving free citizens.

Surprised, challenged, or perhaps flummoxed by either of these? Maybe your time in the institution of compulsory school included a steady stream of conditioning leading you to believe without question in both. I invite you to click through the links to learn more.

Substacks mentioned:

I. Oil

The current bump notwithstanding, Gale Pooley reminds us that the real price (cost) of oil continues on a long-run decline.

The true price of oil is measured in time, not dollars. In 1900 oil was only $1.19 a barrel, but blue-collar workers were only earning 14 cents an hour, putting the time price at 8.5 hours. In 1900 oil cost less in dollars, but much more in hours. The time price eventually fell to just 0.46 hours in 1970. Then OPEC showed up and pushed the price to over four hours by 1980. The price fell back to 0.7 hours in 1998 and then back up to 4.14 hours in 2011. Today the time price is barely over two hours, nearly half the 2011 peak.

Almost no one falls for the mistake of thinking something like oil was actually cheap in one’s grandfather’s day. “In my day a gallon of gas was a quarter . . .” is almost always followed by, “Yeah, but what is that adjusted for inflation?” As Pooley’s post and larger body of work shows, that is just half the battle. The better way to look at it is adjusted for wages.

While grandpa’s complaint is rightfully brought into perspective, how many would realize gasoline today is still about half as expensive as it was 15 years ago?

II. Housing

America’s housing market does not have good news to share. Not too surprisingly but still a surprising statistic, is shared by Joey Politano:

In 2025, Americans spent more money on home improvements and renovations than on building new single-family homes — a historical first, excepting a brief period during the Great Recession. Total renovation spending now exceeds $430 billion per year, an increase of 36% in inflation-adjusted dollars over just the past decade.

The entire piece contains many shocking stats.

III. The DSA’s Proposal for Government

Adam Michel offers a stat two-for-one:

In the US, federal, state, and local governments spent almost 40 percent of GDP in 2024. The average across the European Union is 49 percent, ranging from 58 percent in Finland to 22 percent in Ireland.

Using the lower-bound estimates, the DSA agenda would raise US spending to more than 57 percent of GDP. Among large, industrialized countries, only Finland would have a larger government. France comes in a third of a percentage point under the US’s low estimate. Add the high-end estimates, and US government spending would reach 92 percent of GDP.

No comparable country on Earth spends anywhere close to that amount. The DSA agenda’s spending could give the government a claim on national output much closer to estimates of state control under Soviet-style communism than to today’s European welfare states.

And:

The DSA suggests that the richest Americans and corporations will pay for all these new outlays. The problem is, there simply aren’t enough resources at the top to make this plan work.

The 400 wealthiest Americans were worth a record $6.6 trillion in 2025. Confiscating all of their wealth would cover only about 9 percent of the low-end revenue requirement and 3 percent of the high-end estimate. Their wealth could be seized only once, and attempting to liquidate trillions of dollars in assets would, in turn, drive their value down.

Domestic corporate profits after federal taxes are projected to be about $35 trillion over the next decade. Seizing every additional dollar of corporate profits would fund half of the low-end estimate and 17 percent of the high end. This also assumes that firms continue operating normally while the government takes every cent of profit. Without a profit motive, businesses would cease to exist.

The tie-in for these is that oil is more expensive than it has to be as a result of the war in Iran, but fortunately free-market capitalism has provided cushion from this blow.1 Housing markets have not been allowed to function freely. As a result we have perverse outcomes like those Politano illustrates. And if you like what government intervention into oil and housing markets has created, you’re gonna love what the DSA has in store for us.

Substacks mentioned:

Proper Appreciation

The noise of our impulses
The pull of influences
The draw of indulgences
They cloud, limit, and confuse.

Immediate desires,
Improper worship,
Inadequate ends,
These are false gods.

Neither the game watched 
Nor its outcome
Were the ends.
These were the means,
The reason for occasion.

Staring blankly
Expectantly
Hopefully
To the screen, to the field, to the abyss;
We risked missing the beauty
Of what the moment really held.

In this case I am revising my position on Automated License Plate Readers (ALPRs) such as the popular Flock cameras. Where before I was highly critical coming down more on the anti side, I am now positioned more in support with caveats.

The reason for a mid-year update is two-fold: One, this is a fairly timely topic, which will likely change more in the coming months. I would like to be out ahead of this giving me room to evolve my thinking as developments emerge, which leads into the second reason. Two, this is not so much a changing of my mind but rather a Bayesian updating changing the balance of my sentiment. I remain very cautious on the threat to liberty. However, the practical benefits along with an appropriate expectation (and protection) of privacy lead me to make room for ALPR-type surveillance. So I need to somewhat come of a firmer mindset enabling me to have a position firm enough to be changed in the future.

This Richard Hanania post frames the issue well. It also was part of my motivation for formally recognizing this change of mind.

Regarding the very important liberty concerns, misconduct by rogue police officers is not the primary concern. It is an important one, but one that we can relatively easily accommodate including, unfortunately, expecting some of this as a cost of a greater good. The primary concern is a surveillance state itself. This Cato piece by Mike Fox lays out the case well. Strong limitations on the use of camera data including public disclosure, outside auditing, and limited retention and sharing privileges are essential. Writing at Reason, Jacob Sullum illustrates further how easily this new source of information can be abused by the state and other actors. He also gives reasons to push back against the biggest hopes for how beneficial the technology can be. The Fourth Amendment cannot be ignored just because the benefit, even if real, is substantial, and the history of Fourth Amendment abuse should give us pause here.

So, I come to this point of view with reluctance and a high degree of caution. Subject to further revision, my cautious support for ALPR camera technology by the state rests on the necessity that we enter into it with eyes (and limiting laws) wide open.

“Get a warrant!” is still in effect here. Likewise, the state should not build, maintain, or share profiles of people or property that can be tied to people without probable cause, appropriate limits on use/sharing, and in most cases specific, explicit judicial approval—with all the typical limits including prohibition of general warrants.

Flock and the like are not equivalent to a police officer on every corner and block. It is equivalent to one everywhere in near perfect communication with all the others and a complete memory of history if not forced to forget. That has obvious, clear dangers. Limiting it is worth the cost of some crime. At the same time, with good limits it will have lost privacy costs as well as false positives that are a cost worth a great reduction in crime. The balancing act to me, currently, comes down slightly in favor of ALPRs . . . for now.

PS: This does not count as my official new year’s resolution fulfillment. I have other changes of mind that will be in that future post.

Representative democracy has a natural tension with populism and an obvious reinforcing stimulus. The common man fails to see the distinction between being popular and being populist—confusing support from (all or most of) the people with following the will of (all or most of) the people.1 And distrust of elites is a good American impulse. Hence, most all presidents have courted if not fully embraced populism.

Trump isn’t unique in this regard. He is just more populist than those before him. In some cases much more. So examining Trump, which I do a lot of around here, can expose the best examples of the problems with populism especially in contrast to other central planning.

Biden’s industrial policy was mostly driven by the traditional central-planning conceit. His Inflation Recovery Act (IRA) was a top-down plan (and a misnomer). It was government spending picking winners and losers—in both senses as it gave money to particular projects and firms as well as favored certain policy solutions (“good” clean energy like solar) over others (“bad” clean energy like nuclear).

Trump added blatant and magnified corruption to the mix while running with whatever was in the political winds. This included reversing positions (his own as well as his party’s) when needed to maintain populists’ support.

None of this ends well. Just ask Richard Hanania who wrote the book on it.

The National Version

Central planning is adopting the views of certain experts and elites and throwing the power and purse of the federal government behind them. Importantly this favoritism in the form of subsidies and friendly regulation lacks the discipline of the market—failure is rewarded until it can no longer be. Examples like Solyndra come readily to mind.

The problem isn’t that experts and elites are always wrong. It is just that they are fallible—capable of being wrong—and, thus, in need of the corrective discipline the market provides. The core of this failure is misalignment of incentives and the impossibility of the knowledge problem.

Populist planning is this same problem compounded by a bad first step. The difference is rather than relying on actual experts and elites, it leans on false experts who lack meaningful credentials—actual expertise—and elite selection as determined by popular opinion rather than successful achievement.

And proven bad central planning can later be further poisoned by populist influence aiming for a solution. Consider one example from history. The food pyramid was a central-planning failure due to regulatory capture only to be replaced by a populist-planning failure due to regulator dogma. Dr. Jeffrey Singer captures this history and its implications well in this post.

Populism is motivated greatly by emotional sentiment. Afterall, when you don’t have expertise, all you have is emotional instinct. Populists key off of this listening to the unqualified masses and reinforced by their own bad instincts. When it comes to Trump, this process is directly cronyistic—no regulatory capture required. He himself becomes the beneficiary.

There is a great irony building in all of this as Trump is setting the stage for “real” socialism by himself being some version of a socialist or fascist. In a political landscape that embraced good elites this would be quickly checked. That is not our current world. Rather than rally an admirable opposition, he is making the world safe for central planning by people whose history books begin around 2008 and economics books are written in crayon.

The Local Version

The political world of Tip O’Neill has been turned on its head as now all politics are national. One knock-on effect is that today more so than before federal policies reach down to what were previously local issues. Again, this is a hallmark of socialism as the planners in the USSR, et al. had to get down to the local farm and factory.

To wit: The populists are seeking national solutions to perceived local election problems as well as affordability issues from housing to food. Setting the national approaches aside, the locals are doing plenty on the populist planning front.

Urban planning and development in America today is basically rule by mob. From housing policy to zoning to HOAs to development of all kinds with data centers being the item du jour, the inmates are running the asylum.

While the U.S. isn’t alone in this madness, we have one of the most regimented and locally controlled real estate development markets. It would seem that every American believes they both have the right and the expertise to dictate how everyone else’s property should be used.

While federalism and subsidiarity is generally a positive force, it is only as good as it accommodates exit and voice—people need to be able to easily leave a bad situation, which is very much not the case in the housing market we have today, and people need to be able to effectively communicate back to rule makers and enforcers about what isn't working. This last point is always hard when dealing with a government, and it is especially hard in this case as the cognitive dissonance is extremely high. The very people who need to be asking, “Is this working?” are greatly convinced, “This is working!” without actually putting any critical thought to it.

When one assumes without doubt that the solution put forth will be successful, its implementation alone is a sign of success—no need to verify actual results. What’s more, often the initial, measurable results do indicate improvement with central planning. Partly this is due to adjustments before and immediately after made by those who stand to be impacted by the new policy—I am not saying they make the changes desired for policy success; I’m saying they take actions that falsely propagate as policy success while the underlying (often now worsened) problem remains. Beyond these head fakes is the bigger issue of the seen versus the unseen where the more difficult consequences reside.

Central planning reliably fails. Populist planning does too for the same reasons plus the overhang of bad influences and bad reasoning. It doesn’t get better when “the people” are in control of it. The Soviet Union didn’t fail and fall because it lost connection with the proletariat. It was doomed to failure from the start for listening to them.

Substacks mentioned:

Do Without Apology

First instincts - 
yield to emotional impulse
          Second thoughts - 
          avoid feared regret
               Third explorations - 
               steel for supposed response
                    Fourth deliberations - 
                    bear invented guilt
Fifth confessions - 
     admit desire
          Sixth decisions - 
          prepare for the defiance
               Seventh actions - 
               restore instinct
                    Eighth reflections - 
                    reinvent the narrative
                         Ninth closures - 
                         move on to the next

Jeremy Horpedahl shows how high is median family income for married couples with children.

In 2024, median income for married couples with children at home was $143,400 in the US. That’s an almost 80 percent real (inflation-adjusted) increase since 1974, the first year Census reports comparable data. Is there some selection bias in who chooses to get married and have kids? Yes. Has there been an increase in dual-income families? Yes, but probably much less than you think (the median family of this type already had two earners by the late 1970s).

With those caveats, this is still pretty impressive:

Again, this is his entire, short post. I encourage you to follow his work at EWED and on X. He doesn’t disappoint.

Another great X follow is Jesús Fernández-Villaverde. He recently posted there on the growth in median human consumption:

In 2028, the median person on Earth will live on more than $10 a day for the first time in history (figures adjusted for inflation and for differences in purchasing power across countries). In the last decade alone, the share of people above this threshold has risen from 41.3% in 2016 (3.11 billion) to 48.7% in 2026 (4.03 billion). Think about that for a second: we have pushed nearly 900 million people over this threshold in ten years, around 90 million people a year (slightly above the population of Turkey).

Make no mistake about it (all too important in light of today’s infatuation with socialism), this is completely attributable to free market capitalism. When allowed and to the limited extent it has been allowed, the much maligned and misunderstood big C is the benefactor here.

Suppose that apples sell for more than oranges and Parliament in it’s wisdom decides that, at last, apples and oranges must be compared. Not by shoppers — shoppers are biased, they merely reveal what they are willing to pay — but by a tribunal, which will determine whether apples and oranges are of truly equal value and thus must sell at the same price.

What would the tribunal need to know?

. . .

An employer who defrauds his workers, an employee who steals from the till, a product sold under false pretenses — condemn them, take them to court. But the pattern of prices that emerges from millions of voluntary trades is nobody’s conduct. No one chose it, no one designed it, no one can be guilty of it. The constellation of prices is, in Ferguson’s phrase, the result of human action but not of human design. Demanding that prices be just is a category error, like suing the weather. Prices don’t grade our merit; they guide our actions. Ask them to do the first and they can no longer do the second.

And of course there are unintended (but not unforeseen) consequences:

Here’s the problem, which contributed to Birmingham going bankrupt in 2023. The council employs roughly 400 binmen and something like 6,000 women in comparable graded roles. Every extra pound paid to a binman therefore implied about fifteen pounds owed to the cooks and cleaners. The council simply didn’t have the money to pay everyone binman wages so they cut the binmen’s wages. But the market wage for collecting rubbish is what it is, so when Birmingham finally deleted the premium in January 2025, the binmen went on strike — and they are still on strike, nearly eighteen months later. The rubbish piled up, 17,000 tonnes of it, and the city declared a major incident.

Here’s the most amazing part. The council hired an outside contractor to take over its rubbish collection and it now pays roughly triple its pre-strike outsourcing bill–more than it was paying its own employees. So much for sexism. Apparently the premium wasn’t a favor to men; it was the price of the job. If you want your rubbish picked up and your graves dug, you must pay the market wage. This was pure regulatory arbitrage, of course. Because the new binmen were contractors they legally had a different employer than the Council’s female caregivers and the Act’s comparator rules stop at the employer’s nexus.

I suffer no fools when it comes to people who want to second guess market prices in this manner and to these ends. I’m sorry, but it is so stupid that I cannot be charitable here. Reasonable minds cannot disagree. To say this is child-like is an insult to children who themselves wouldn’t often make such mistakes.

More forgivable yet still a somewhat elementary mistake is what David Friedman points out in criticizing CNBC’s quality of life rankings for states and the actual behavior of people moving to the low-rated states. He writes,

The CNBC authors were confusing characteristics of a state with characteristics of its population, implicitly assuming that the reason A’s residents were rich was that they lived in A instead of that the reason they lived in A was that they were rich, and similarly for the residents of B. Of the ten states that CNBC rated with the lowest quality of life, five were, measured by average income, among the ten poorest states.

There is actually a lot going in in CNBC’s confusion. Part of it is overlaying particular biases (CNBC’s preference bundle) with that of others. In economics this is a confusion of normative versus positive analysis. In layman’s terms the evaluation of “what should be” (normative) versus “what is” positive.

Additionally, there is a confusion of income effects and substitution effects. It is not or should not be a mystery as to why the entire U.S. steakhouse segment has total revenues less than half of what McDonald’s (a single fast food firm) generates in the U.S.—about $20B versus about $55B. Don’t people know those steakhouses are higher quality than MickeyD’s?1

A more subtle, nuanced confusion is discussed by Arnold Kling in his post comparing the Web of the 1990s and AI today. The implicit bad comparison is how people make one a strong analog for the other. He writes,

Until now, human progress has come from our collective brain. Individually, nobody knows how to make a pencil. But when we can cooperate, whether in small groups, large organizations, markets, or computer networks, we can expand knowledge in all sorts of directions.

AI as it operates today truncates this learning process. Claude and I can have a chat in which I propose a theory of the Great Depression that is outside of the consensus that Claude usually works with. And during the conversation Claude may concede the merits of my approach. But when it leaves the conversation, Claude will have learned nothing from me. When the next person asks it about the Great Depression, it will revert to its previous stance.

So the AI labs are trying to do away with the what Joseph Henrich called The Secret of our Success. Implicitly, they are assuming that we no longer need to share ideas with one another and to contest ideas with one another. They just have to throw more data and computer resources at problems.

I find this distinction insightful. AI has a lot of promise and makes greater promises still. Those hopes are largely around improvements to personal (individual or firm) efficiencies. There is a natural siloing at play here. Part of it is a disconnection from social exchange (will we someday long for the “toxicity” of today’s social media?), and part of it is a disconnection in additions to social knowledge (the AIs may learn an accumulation, but one would have to know what to ask them to extract what was added by another user).

Substacks mentioned:

@

David Friedman’s Substack

Texas vs CNBC

People keep moving to Texas. CNBC says they should think twice…

Read more

2 months ago · 34 likes · 11 comments · David Friedman

@

In My Tribe

The 1990s Web vs. today's AI

I am old. I was in my forties when the Web led the Internet breakthrough of the 1990s. Because I got very excited and involved with the Web, my model for thinking about AI comes from that era…

Read more

2 months ago · 43 likes · 47 comments · Arnold Kling

• How the pursuit of maximized safety with the backdrop of disaster hyperbole strangled the development of nuclear energy and the risk the same will happen with AI developments. Those who forget carbon copy the past . . .

• Support for price controls (especially on the right as a new development) and the growing anti-vax movement. The parallel is how both are in opposition to expert consensus. One is anathema to economists as the other is to doctors. (Credit for this one goes to Allison Schrager.) The idea that prices that are “too high” and prices that are “too low” can be costlessly corrected by laws in defiance of economic reality is absurd. For example, rent control and anti-price gouging in the case of “too high” and minimum wages in the case of “too low”. The idea that vaccines either don’t work or cause more harm than good full stop is equally absurd.

• O.J. Simpson’s murdering & subsequent “search for the real killers” and the Jeffrey Epstein saga & the decades-long, pedo-mania moral panic stretching back to the fictional satanic cabals in Seattle and including Pizzagate.

• Confusion between nominal versus real variables and confusion between stocks versus flows. Failure to adjust for inflation or other scaling leads people to draw very dumb comparisons especially but not only over time. Similarly not understanding the difference between a stock and a flow leads to dumb comparisons like the market capitalization of Apple or NVIDIA versus the GDP of Texas or Canada.

• Effective defensive use of drone warfare against foreign aggressors in both the cases of Ukraine and Iran. I am not paralleling the aggressors in these cases. One way it is interesting is how in one case it is lauded while in the other it is downplayed depending on one’s position in each war. Another way is how it is seen as heroic or underhanded depending again on one’s position. One should not put a variable normative judgment on the matter.

• Support for foreign aid and other endeavors within struggling emergent economies rather than outright immigration as a means to help the global poor and support for donor kidney exchange mechanisms rather than free markets in organ sales as a means of helping people who need organ transplants. In both cases the superior solution is passed over for the inferior substitute.

• The Puritanical prudish Zeitgeist of American culture and the intolerance for Islamic traditions that are otherwise in congruence with the former. It seems that purity is perfidy when it doesn’t match one’s culture.

• Independently (and usually mutually exclusively for one or the other position) holding certain belief that banning guns or holding certain belief that banning drugs will lead to a significantly safer and better world. The truth is the world is much more complicated and nuanced than that.

Substack referenced:

I have noticed an interesting parallel between those who simply “know” that aliens are real and those who simply “know” that elections are being stolen. Both are clinging to faith as a substitute for evidence.

Whenever people draw conclusions in any area, there is a chain of reasoning involved. Not all reasoning is good, of course. Beyond bad premises and fallacious reasoning in the structure of an argument, many arguers go too far with how strongly confident they hold their conclusions. Some people conclude “maybe” where others say “it must be”. The latter group see what they want to see and cannot grasp that they are self deceiving.

To be sure there are thoughtful people in both domains—those who are concerned about election fraud as well as those who believe the evidence points to (somewhat) probable alien involvement. Robin Hanson and Tyler Cowen are two such cases regarding extraterrestrials. Both are assigning higher probability to aliens than I do. But both are careful in their reasoning distinguishing themselves from those who see a video and scream, “See, aliens!”

Regarding election fraud, I don’t know of a case where a careful thinker is concluding election fraud has occurred to the point that a prominent election was stolen. I do know thoughtful people like Walter Olson who are very aware that there certainly are cases of fraudulent voting—it would take complete Pollyanna to not realize there are both fraud and mistakes in virtually every large election in the U.S.

When it comes to the truthers and the denialists, all reasonable bets are off.

Ironically, “aliens” are invoked in both cases. For those who think elections are being stolen, it is very likely they think there is illegal alien (non-citizen) voting as a key component. This hints at some motivated reasoning behind the election fraud believers. Their dislike for illegal (if not legal) immigrants leads them to see fraud in every election outcome that doesn’t match their preferences.

Similarly, nonhuman-alien enthusiasts are motivated to confirm their priors whenever they see or hear about something strange. They so much like the idea of aliens that they fall for everything that might suggest aliens.

I bet the Venn Diagram of alien truthers overlaps strongly with non-religious people who believe ghosts are real. Which suggests and interesting digression: Can you be an atheist and believe in ghosts?

Most religious people, especially Christians, on some level believe in ghosts. And this isn’t a game of semantics where the Holy Ghost is very different than the Blair Witch or Casper. Divine intervention, life after death, and guardian angels are all a form of ghostly belief. Read the Catholic prayer to St. Michael the Archangel. The Catholic Church literally believes in fallen angels and demons who attempt to turn humans away from God.1

If you believe in ghosts in the haunted-house version can you maintain atheism? Maybe you can in denying a belief in a living God, but you’re getting most of the way there otherwise. This hints at the struggle adamant atheists fall into when their scientific/reason-based atheism eventually comes up empty with what we don’t (yet?) know like in the case of the Big Bang.2 God of the Gaps is at least as much a problem for atheists as it is for believers.

Pulling back from that digression, thoughtful people of faith know where their faith is doing the work where reason alone cannot bridge the gap. That is literally what faith means. So we’ve stumbled upon another interesting parallel—that between those who “know” in a reason sense that God and/or ghosts exist and alien truthers/election denialists. You cannot reason your way to these absolutist conclusions. To be without waiver or caveat requires faith.

Substacks referenced:

A Day in Grade School

I could get lost in my daydreams.
Gazing deep out the window, looking 
past the playground. Not noticing 
the surrounding houses stoically 
keeping watch on the soccer field.
A backdrop for my wondering thoughts.
My mind was blissfully elsewhere 
longing for my own home and own time.
On the verge to solve vast riddles 
or planning my late evening bike ride 
always craving for my weekend.
A stern rising voice would snap me back.
Hushed giggles at my caught absence.
My attention briefly stolen, I
always regained it soon enough.
Calming aspirations for summer,
I remember the pure escape.
As I do the fall I returned, 
finding they'd blacked out my windows.

Lean on the wisdom found in The Elephant in the Brain. Look beyond the superficial. Realize that many people have a desire to maintain illusions, including yourself. Don’t fall for false premises. Be willing to keep up appearances, but not at the sacrifice of ethics.

At the risk of becoming cynical, one must question what is actually going on here at all times.

“I don’t have to outrun the bear; I just have to outrun you.” — the street smart hiker

One definition of street smarts is knowing the game actually being played. Three-Card Monte isn’t a find-the-obscured-object skill game. It is a scam. It doesn’t matter how good you are a following the shuffle. Pursuing that is a fruitless effort.

This isn’t confined to the realm of fraud. Often there is just a game within a game.

Here is an analogy. Like many people, I compete in annual March Madness bracket games. The contest seems straightforward and generally is: Pick the winners of all the games (usually limited to the traditional 64 games) in the college basketball NCAA post-season tournament. Whoever gets the most correct wins the pot.

It turns out there is more to it than that. The game isn’t just how many can I get correct. It is really how many can I get correct in comparison to other entrants in my pool. I am not playing against the uncertainty of 63 potential winning basketball teams. While I am trying to pick the best bracket, I’m not playing against those basketball teams or even necessarily the probability involved in those independent events. I’m playing against the other people who are all picking brackets—the field of my pool. That is a deep and critical nuance.

Almost always the scoring is a progressive scale by round where one scores more points for correct picks in subsequent rounds since that winner is predicated on a team having advanced (won game(s) previously). What I need to do is figure out who they are likely to pick as much as who I think will win. And the former is often easier than the latter at least down the stretch of the tournament—I know more about what team(s) you (the field) will pick to win than I know which team will actually win. So my objective function has two components:

1. Concentrate risk along as few dimensions as possible. A gambler is bound to lose to the casino in, say, roulette by continually playing the game. While the expected return from a single-number bet on American roulette is about 95%, the expected return from 20 consecutive single-number bets is only about 34%. The longer you stay, the more you pay. Similarly, I am trying to limit the number of things that must go right for me to win.

2. Find the path that is least likely to have competition. It is easier to win a race against fewer runners. Even if the basketball-winner pickers in my selected group (subgroup of the entire field that is clustered around my same bracket) are probabilistically better than me on average, I likely have a better chance against them than the larger field. I am narrowing it down to this subgroup by making choices I think are different enough from the general field congruent with point 1 above by, say, picking that the overall favorite will not make the Final Four. That leaves me a smaller group to have to outsmart/out predict.

This strategy works okay for a single entry, but it works marvelously when multiple entries are allowed. In those cases I can box out most competition isolating a few scenarios where if they play out in my favor, I am certain to finish in the money.

The simple pickers of games even with some diversification among several entries are typically no match for my coordinated attack. They have to be very accurate where I only have to be mostly accurate.

“Shut up and take my money!” — a FOMO investor

Consider investing. Are you trying to beat the market when you really should be trying to reach an objective financial goal unique to you? Having your financial goal be “making lots of money” is as meaningless as a company’s mission statement being “make a profit”. You’ve done something worse than burying the lead. You’ve assumed the result without defining how to reach success or what success actually is.

No one’s personal financial goal is or should be to “beat the benchmark” when the benchmark is something so simplistic as the relevant market alternative (e.g., the S&P 500 Index for comparison to your equity portfolio). Sure, we should strive to achieve comparable returns for comparable risk with the broad market being our bogey. But that is measuring if one is getting an appropriate return as compensation for the investment risk being taken. It is just a measure of efficiency and adequateness in one’s investment choice. It says nothing about the larger risk picture or what people actually want to achieve.

You can’t eat a Sharpe Ratio. The game for a portfolio manager or financial planner is to beat the competition and the relevant market index(s) where the competition is other firms in the business trying to do the same. The game for 99.9...% of the rest of us (clients) is to reach a financial outcome that balances current desires and future desires, to smooth consumption over time, to maintain purchasing power, and to provide for oneself and one’s beneficiaries as best and realistically possible incorporating emotions along with practical constraints. “Financial freedom” is still too vague, but it is a lot closer to the true game than is beating the S&P 500.

“I’ll tell you something. This country is going to the dogs. You know, it used to be when you bought a politician, that son of a bitch stayed bought.” — Roy L. Fuchs

This can be applied very meaningfully to politics, or politics can be used as a great analogy to help understand this concept. If you’re not evaluating, say, presidential decisions, under the framework of power and corruption, then you are completely misunderstanding the game that’s actually being played. This is particularly true under Trump, but it is not unique to him.

In truth I have to admit I’m all too often awful at this. Perhaps I’m too idealistic (perhaps a very charitable assumption) or too naive (obviously an uncharitable one). Or perhaps I’m too stubborn or lazy to do the work of discovering what’s really going on in order to play the real game. In all cases it seems the choice is to either rise above the petty subterfuge (vote for character rather than promises) or fall for a sophisticated trap.

“On our phones our friends try to act like celebrities and celebrities try to act like our friends.” — Arnold Kling

Consider social media. Is it a product that you are using or are you the product being used? Legitimately there could be a mixture of both. It’s okay to be a passive consumer, but you risk allowing it to take you on a journey that you otherwise would choose against.

It is important to keep in mind that all of us are ALWAYS in a status game—even the Buddhists.

“Anymore, simply acknowledging the issue is a moral victory.” — Calvin’s tiger friend, Hobbes

The original Hobbes was right about the state of nature when human ingenuity and culture are missing. It is nasty, brutish, and short. So often you are playing a game of scarcity. And even when there is abundance, it’s just a relative measure as resources are always scarce, and there are always opportunity costs.

When one of the things that is scarce is your awareness of the actual situation at hand, you’ll find yourself continually lost.

PS: “Is 90% of what you see on the internet fake…” Zvi’s entire post is related to this one.

Substacks mentioned and referenced:

The common retort I’m alluding to is used as a cudgel as it is too often and too easily invoked. Rather than engage with the presented “fact” found on the Internet, someone simply dismisses the assertion with just the declarative statement alone.

It is usually good advice; so, fair enough. But it shouldn’t substitute for actual argument and truth investigation.

In the age of AI including its tendencies (ever decreasing) to hallucinate, this takes on greater importance. Again, fair enough.

But it doesn’t end with hallucinations. A lot of what is interesting in the world is far beyond simple fact. We want to know reasons as well as context. Simple thinkers hate this. They want “The” answer(s).

“It depends” is a swear phrase to many. And diving into nuances only enrages the person asking what they think is a simple question.

They ask, “What is the tallest building in the world?” Oh, if it were only so simple.

It is nice to see that AI tends to want to provide context to even simple questions. And it is always looking to dive deeper—of course, this is also part of those companies’ business model.

AI might hallucinate some, but even those hallucinations have value. Consider this in two facets:

1. The threat of hallucination (should) keep us from blindly following it.

2. The awareness of hallucination as well as the general questioning/thinking required by us could be a way to both stay human as well as grow as a human thinker.

In the first case we are encouraged to always think about rather than just accept the output. This benefit is in part fairly straightforward. There is a deeper level, though. The act of thinking about it forces us to question not only the output but the premises—from the prompt we entered to the meaning we attach to the output.

For the second case I have in mind a partial solution to what one might term “virtual bowling alone”. As an example, perhaps AI offers a solution to the skills and culture gap for young workers or workers who otherwise need training but who want to work from home.

In addition to a lack of quantity of interaction with coworkers and mentors, young workers who work from home don’t get the spontaneous and informal training that comes from being in the workplace with others. Now with AI, they can have those conversations if they will at least take some initiative to engage with it.

Again, hallucinations in this facet are actually a feature not a bug. A big part of developing wisdom is honing judgment through trial and error learning who to believe and how strongly to believe them.

AIs often come across as authoritative, but how much more confident do they actually seem than the most confident humans? Yet we learn in engaging with confident humans that we can and should still question them and the answers they give—even if we don’t do so explicitly in response.

If I am correct that there is value like this in interactions with AI including casual interactions, then a push rather than just pull model of AI might also be valuable. So rather than just passively waiting for a human to initiate an interaction, an AI might be enabled to interrupt like a coworker would proverbially showing up in the doorway. This could as it does in real life range from watercooler talk to wanting to get one’s thoughts on something work related.

We want AI to continue to get better (smarter and more accurate). But we don’t want perfection, and this is good because perfection is an impossible quest. It will never obtain omniscience (what we want to know will always exceed what we can know), and omniscience conceptually is often a category error (there often is no single answer).