Links to Consider, 8/9
Hanania gets hosed; Chris Dixon on the economics of bundling; Jackson Mejia on manufactured housing; Aswath Damodaran on the equity risk premium
Christopher Mathias (Huffpost) writes,
And in May, Hanania tweeted a link to a Substack article he’d written about one of his favorite subjects: “the reality of Black crime,” or as Hanania alternately put it, “the pathologies of the inner city.”
“I don’t have much hope that we’ll solve crime in any meaningful way,” Hanania tweeted while promoting the article. “It would require a revolution in our culture or form of government. We need more policing, incarceration, and surveillance of black people. Blacks won’t appreciate it, whites don’t have the stomach for it.”
Mathias combed the Internet for items posted by “Richard Hoste,” which Mathias reveals was a pseudonym used by Richard Hanania a dozen years ago. As far as I can tell, the most damning quote that Mathias finds is Hoste writing in 2010 that “the ultimate goal should be to get all the post-1965 non-White migrants from Latin America to leave.” But beyond the dirt that he digs up, Mathias seems to think that one should be shocked that anyone believes that there are average IQ differences between races.
The person who comes out looking the worst in the article is Mathias. I was put off by the ferocity of his rhetoric and his reckless accusations against others. Perhaps if I were to meet Mathias in person he would turn out to be perfectly charming and a decent human being, but that would come as a surprise.
Hanania wants to distance himself from his earlier incarnation. He writes,
My posts and blog comments in my early twenties encouraged racism, misogyny, misanthropy, trolling, and overall bad faith. Phrases like “racism” and “misogyny” get thrown around too easily, but I don’t believe there’s any doubt many of my previous comments crossed the line, regardless of where one thinks that line should be. Below, I’ll offer an explanation for why I wrote such things, and why I no longer hold such views.
I did not find his self-analysis convincing. While Hanania may have shed his racist pose, in another way I am afraid that he is the same person.
That person craves an audience. Evidently, Mathias shares that craving.
When you crave an audience too much, you become a performative pundit. What you write is not exactly who you are. Maybe you don’t even know who you are.
It’s a tough thing to resist in the Internet world. I have to keep reminding myself that I want readers to take away something of long-term value from what I write. When I get a lot of positive reinforcement for a post that I think is probably giving people more of a dopamine hit than insight, I experience regret. I keep saying that my macro memoir is the best thing that I ever wrote, as opposed to some of the posts that have gotten the most shares.
Consider the following simple model for the willingness-to-pay of two cable buyers, the “sports lover” and the “history lover”:
…If ESPN and the History Channel were sold individually, the revenue maximizing price would be $9 ($10 with a 10% discount). Sports lovers would buy ESPN and history lovers would buy the History Channel. The cable company would get $18 in revenue.
By bundling channels, the cable company can charge each customer $11.70 ($13 discounted 10%) for the bundle, yielding combined revenue of $23.40. The consumer surplus would be $2 in the non-bundle and $2.60 in the bundle. Thus both buyers and sellers benefit from bundling.
I consider bundling an example of The Overhead Revolution. It’s like there are four consumers. The Sports Lover is an inelastic sports consumer and an elastic history consumer. The History Lover is the converse. You want to use price discrimination to get a little bit of revenue from the elastic consumers and a lot of revenue from the inelastic consumers. Bundling does the trick. And, as is often the case with the overhead revolution, price discrimination benefits consumers.
Pointer from Moses Sternstein.
From Freopp:
Jackson Mejia notes that restrictions on the methods of housing production also affect the supply of affordable housing. Prefabricated factory-built housing costs about one-third as much as traditional “stick-built housing,” but it constitutes just 10% of new single-family home construction today. In the 1970s, it was 60%.
Did you know that about the 1970s? I didn’t.
It is undeniable that companies around the world, but especially in the US, have shifted from returning cash in the form of dividends to stock buybacks. Since two-thirds of the cash returned in 2022 was in the form of buybacks, ignoring them will lead to understating expected returns and equity risk premiums. Consequently, I add buybacks to dividends to arrive at an augmented measure of cash returned and use that as the base for my forecasts.
…To reconcile my estimate of the equity risk premium with the earnings yield approach, you can set the earnings growth rate to zero and the cash payout to 100%, in this model, and you will find that the equity risk premium you get converges on the 0.41% that you get with the earnings yield approach. Adding growth and excess returns to the equation is what brings it up to 4.44%, and I believe that the data is on my side, in this debate. To the critique that my approach requires estimates of earnings growth and excess returns that may be wrong, I agree, but I am willing to wager that whatever mistakes I make on either input will be smaller than the input mistakes made by assuming no growth and no excess returns, as is the case with the earnings yield approach.
The post is a useful primer. You come away with the realization that for all the economic and statistical analysis that people try to use to value stocks “rationally,” the market could wind up anywhere.
Substacks referenced above:
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On the question of manufactured homes, Construction Physics did a good two part series on their rise and fall a year or so back. Quite interesting. He spends a lot of time going into the theories of decline.
Part 1 is here https://www.construction-physics.com/p/the-rise-and-fall-of-the-mobile-home .
I think that the key reason manufactured homes became less popular is that they were considered super low status. Although some more modern manufactured homes are essentially parts of a house pre built, especially in the first 3/4 of the 20th century manufactured home meant "mobile home", which meant "trailer park." Even growing up in a relatively poor region, trailer parks were considered highly undesirable by everyone, and extremely low status.
"While [X] may have shed his [Y] pose, in another way I am afraid that he is the same person. That person craves an audience......When you crave an audience too much, you become a performative pundit. What you write is not exactly who you are. Maybe you don’t even know who you are."
Never mind about the particular case in point here (Hanania), I thought this was very well observed - as a psychological insight. Took the words out of my own mouth.