Readings: Cheating CEOs, Inflammation, Seedy hedge funds, etc.

PREAMBLE

Here are a few graphs that caught my eye this week.

HEALTHCARE & SPORTS

SCIENCE & TECHNOLOGY

FINANCE & ECONOMICS

BOOKS

The Best Books on Modern German History

MOVING PICTURES

The Bob Emergency: a study of athletes named Bob

THINGS I LIKED

Readings: Bullshitters, Foreign-body ingestion, & Market manipulation

Catching up after some time away. A few things worth reading, some graphs, some moving pictures, and crampons.

HEALTHCARE & SPORT

SCIENCE & TECHNOLOGY

FINANCE & ECONOMICS

NON-MOVING PICTURES

Graph: H&R Block lobbying spending
Graph: Worker-to-consumer ratio peaking

MOVING PICTURES

Deadwood: The Movie (2019). Official Trailer.

Peter Thiel: Technology should treat death as the enemy

THREE THINGS I BOUGHT RECENTLY

Gear: Black Diamond Neve Pro crampons
Book: Routes of Power
Shoes: Nike Terra Kiger 5

Readings: Sabotage, Crap econ model, PRP, and Mass fetishization

PREAMBLE

While it might seem a good idea to relocate to a small town with lovely views, cheap real estate, air service, a decent hospital, and Amazon Prime delivery, you’re missing at least one thing. Towns without said thing are a risky destination for you, even if you are crazy enough to build a spreadsheet and spend fifteen years looking.

That thing? A high likelihood of people  — especially young people — getting hurt in disproportionate numbers. The presence of that cohort — in a time of aging populations — brings in expensive doctors, which helps make hospitals viable, which helps make towns viable, which helps make relocatees … viable.

Viable hospitals matter for health, but they also matter for a local economy. After all, small-town hospitals are often the largest employers in their region, and their disappearance cuts into the economy, as well as scaring off would-be relocators. A double whammy.

This is why small places like Mammoth and Jackson are, perhaps surprisingly, good relocation bets, while, say, Celina, Tennessee, which recently lost its hospital, is much less so. What Celina needs, to my way of thinking, is a few bike parks, a wingsuit club, possibly a thriving surf scene, and maybe an indoor ski hill or a top skate park.

While I’m mostly kidding, I have a genuine point. Towns that want to remain vital and viable in the upcoming Dual Age of Senescence and Remote Work are going to have to move closer to a societal risk frontier, one that they may not like.

HEALTHCARE

SCIENCE & TECHNOLOGY

FINANCE & ECONOMICS

STILL PICTURE OF THE WEEK

MOVING PICTURE OF THE WEEK

Hedge fund investor, scientist, and philanthropist Dr. Jim Simons on the life and career of Dr. Jim Simons.


Readings: Hospital distress, Rogue finance academics, and the Cult of Peloton

PREAMBLE

Fixed cost businesses often do surprising things, like go bankrupt just when you least expect it. We have seen that recently in the profusion of European discount airlines that, despite being crowded with passengers, have recently gone under, in a few cases they went under so speedily that people were left on the wrong end of a trip with no way to come back again. This might seem obvious, but people too often miss that point when noticing how busy said businesses are. We constantly conflate the busyness of a business with its profitability. They’re not the same. At all.

Putting this in accounting terms, a big problem with a fixed cost business is, of course, that their costs are, to a large degree, fixed. This is also a huge advantage. You can’t put too fine a point on this, the idea that some businesses have costs that mostly change with the number of customer san orders, and some businesses’ costs don’t do that. For example, a family-owned furniture maker might be an example of the former, where its costs more or less run coincident with the number of pieces of furniture they make. Granted, as long as they keep their costs less than revenues, things work out, but there is no sudden inflection in their business when BUCKETS OF MONEY POUR DOWN FROM THE SKY.

Buckets of money can sometimes pour down from the sky in fixed cost businesses, however. Like software, or airlines, or, today’s example, hospitals. If, say, you run a 500-bed hospital, and your fixed costs are about 80% of revenues, then once you have those fixed costs covered, and you continue filling beds with paying patients, you, to a first approximation, get BUCKETS OF MONEY POURING DOWN THE SKY. Sure, there are some per-patient costs, like laundry and bed-pan-emptying, but those pale against the fixed costs, things like HVAC, doctor and nurse salaries, 24-hour staffed emergency roos, gigantic machines that go PING, new construction wings with huge letters on them, insurance, and so on.

So, this raises an interesting question: If hospitals are, like most fixed cost businesses, and, unlike most fixed costs business, hospitals seemingly have a limitless supply of people who want their services, why do hospitals go bankrupt? And, more specifically, why are so many hospitals currently in financial distress? That is the question I asked me recently when I saw yet another headline about a bankrupt hospital, and saw that distressed filings for hospitals were up to almost 13% of total filings, from 1% a decade ago, as you can see in the graphic below. Healthcare service distress is soaring.

What is going on here? In short, this is what happens when fixed cost businesses’ costs go up and their customers go down. Hospitals are consolidating across the country, and no-one wants to own hospitals in rural areas where populations are emptying out, as you might expect given the high fixed costs of operating a hospital. Even the self-styled entrepreneurs buying up distressed hospitals in rural areas are mostly themselves becoming distressed. At the same time, small hospitals have no pricing power, and are forced to rely almost entire on Medicare/Medicaid payments, which makes them even more reliant on aging locals whose numbers are declining. It’s a vicious circle in a precarious fixed-cost business.

You can see some of the consequences in this simple two-way sensitivity analysis I did of a 500-bed hospital. Given some fairly standard assumptions about revenue per patent, patients per year, and the distribution of fixed versus variable costs, the profits and losses produced can be prodigious.

You can expect more of this sort of thing. Rural areas aren’t going to stop emptying out, and hospital costs aren’t getting any less fixed. The US is, as a result, wildly over-hospitaled, in much the same way that Europe has been wildly over-airlined. The result is financial distress, and a lot of it.

HEALTHCARE

FINANCE & ECONOMICS

SCIENCE & TECHNOLOGY

BOOKS

The Accidental Homo Sapiens: Genetics, Behavior, and Free Will. What we inherit, and what it has meant for us.

Readings: Enron, the Fermi Paradox, Discount airlines, & Parasites

PREAMBLE

Major stadiums have names that get said a lot, and so over the last few decades most of those names have been purchased, usually by large companies who think it would be good to have people say their names a lot. This sometimes creates issues, given what might euphemistically be called temporal and objectives mismatches between companies and stadiums.

First, companies tend not to last as long as stadiums. This might seem obvious, but the difference can be starker than you might think. For example, the Houston Astros got a sweet, 30-year naming deal in 1999 for its stadium. Sadly, however, the sponsor was a company called Enron, and only a couple of years later said company no longer existed, for practical purposes. This sort of thing happens fairly regularly, with once-highflying companies no longer in a position to exist, so their naming rights revert or lapse.

Second, fans and even teams are sometimes not such big fans of the companies that bought their stadium’s name. A good example is that of the Philadelphia 76ers, whose owners have long refused to call the place where they play the Wells Fargo Arena, and instead use euphemisms like “the arena where we play”. While impressively passive-aggressive, this does get in the way of Wells Fargo extracting maximum value for its stadium sponsorship. Some companies try to get around local truculence by purchasing naming rights to multiple stadiums, even in the same league, like the way American Airlines has done with rights to both Miami and Dallas.

The most recent example of name game fun is that of United Airlines and its $69-million deal for naming rights to the Los Angeles Memorial Colosseum. Under the deal with USC — part of a $270-million renovation — the stadium was to be renamed the United Airlines Memorial Colosseum. This is a strange name, to be fair, sounding more than slightly like it’s a memorial to United Airlines, like United has gone away, which it hasn’t, at least not yet.

Local politicians and veterans aren’t happy, however, arguing that the new name gives short shrift to the key “Memorial” part of the name. The enterprising development people at USC have proposed changing the name, to something more like the United Airlines Field at Memorial Colosseum, which is a) a handful, and b) likely to, in practice, make the United Airlines Field part ignored, which already has United wondering why it should pay $69-million anyway. Perhaps unsurprisingly, United has offered to back out of the whole deal, which is causing more scrambling.

Given all of this, why do companies persist in purchasing naming rights for stadiums? The direct economic rationale is dodgy, given that it’s not because having naming rights adds persistently to company profitability. Instead, it seems to be a combination of corporate ego, stadium owner greed, and small numbers of exclusive goods for sale.  All of this suggests that nothing is going to change, and companies will keep purchasing naming rights, which will continue annoying fans, team, and politicians, but producing entertaining Wikipedia articles.

SCIENCE & TECHNOLOGY

HEALTHCARE

FINANCE & ECONOMICS

Readings: MBAs, Sewage, Cheating, and Fear Factor

PREAMBLE

How much finance is too much finance in an economy? Trick question: It’s enough finance when you get a finance job that pays you lots of money to do very little (or when your do-nothing company goes public ). But it’s too much finance, of course, when that idiot you once knew in college turns out to be working at Goldman and making bank.

Finance employment remains a main target for young people, especially recent MBA graduates, especially recent Harvard MBA graduates. If you combine Financial Services and Consulting, which, c’mon, are both just finance, in real people terms, then more than half of the Harvard graduating class has been going into finance for decades. And for good reason, of course, given that Harvard is expensive and finance pays a lot, with new hires often able to earn twice as much as there as in other fields. This is, of course, ridiculous, but it’s also kinda hard to ignore. See also: Student debt.

Many people (including me in this paper) have argued that the increasing financialization of the economy isn’t such a great thing. It diverts people from more productive things, like building products and services people need; it reduces the number of entrepreneurs; it leads to asset inflation; and so on. To be fair, it also means that most truly annoying finance people end up living in Manhattan and away from the rest of us, so it’s got that going for it, but that may not be enough.

So, how much finance is too much? I tried to answer that at the outset, but that my-college-idiot-friend-at-Goldman answer is … not entirely satisfactory. A recent paper takes another tack, arguing that increased financialization leads to more liquidity — more trading activity — and that is where you can draw a kind of bright-ish line. The authors show that, across 136 countries studied over the period 1961-2015, when liquidity surpassed a little more than 100% of GDP it started having a negative effect on GDP growth. And given that more financialization breeds more financialization, which brings more liquidity, countries, all else equal, are pulled inexorably toward that cliff of Too Much Trading Of Everything.

This suggests that there is a role for Tobin taxes and that sort of thing, but I won’t jump off that particular policy cliff today. Instead, let’s bring it back to that idiot college friend of yours. If he goes to Goldman, worry; but if he starts a new trading firm, panic. QED.

HEALTHCARE

FINANCE & ECONOMICS

MOVING OBJECTS

This is an instant classic, with medical historian LIndsey Fitzharris talking to Joe Rogan about the history of surgery. It’s like Fear Factor, but way, way too real.

Readings: Avalanches, Pay TV, Exercise, Robots, & Greeting Cards

PREAMBLE

Being caught in a small slab avalanche while skiing is like sliding across a steep room as someone pulls the carpet out, and then said carpet fractures and accelerates with you on bits of it, all going very fast in a direction you weren’t planning on going. (Being caught in a large slab avalanche is like having the surface of the earth pulled out from under you, then fracture into blocks, then accelerate to 60 mi/h with many trees and rocks over cliffs & through more trees and rocks, before burying you and then freezing solid.)

Neither is recommended. My perspective, which is that of sociologist Diane Vaughan, is to be aware of base rates (how statistically likely bad outcomes are), and never expand the risk envelope, no matter how many times you get good outcomes. Vaughan called the tendency to do the opposite — to respond to lucky non-failures by expanding the launch conditions — as “normalization of deviance”. She used an ethnographic study of the launch of the space shuttle Challenger to show how it happens, with “successes” causing steady and inexorable expansions of launch conditions, until there was a catastrophica failure.

Until your own risk-taking catches up with you, it is easy to convince yourself of two things: one, that you’re smart enough to operate near the risk frontier while knowing you’re there; and two, that you could remedy things if the worst happens.

Both of these are bad ideas. First, the only way to control backcountry risk is to know, as best you can, what they are, and then back way, way off. This is one of the reasons why small groups are safer than large ones: there is less risk-taking pressure. Second, having even a small slab fracture under you is instant mayhem, like being a small dish when a drunk, after-dinner magician pull out the tablecloth. People who think they can predictably ski off a small slab fracture watch too many YouTube avalanche videos.

Happily, however, you don’t need many experiences — ideally: none — with slab avalanches before you decide to never put yourself in that position again. Both of my small avalanche experiences were years ago, which, in terms of risk, is a very good thing. In any case where outcomes tend to be binary and too often terminal, taking a Kelly criterion approach to risk — let alone expanding the risk window — can be a very bad idea indeed.

HEALTHCARE

  • Eccentric exercise has long been the gold standard when treating Achilles tendinopathy, so it’s surprising to see that pressure massage delivered similar results in a recent study. Granted, a small study size, but it does speak, at the very least, to our continuing profound ignorance about tendon disorders.
  • Surgeon promotes fraudulent research that kills people; his employer, a leading hospital, defends him and attacks whistleblowers. Business as usual.

SCIENCE & TECHNOLOGY

FINANCE & ECONOMICS

Readings: Persistence, Puzzles, Conscription, and Commutes

HEALTHCARE

FINANCE & ECONOMICS

  • The “forward guidance” puzzle in monetary policy — markets don’t react the way they should if markets believed the Fed could do what it says what it will do — disappears once you realize the Fed can’t do what it says it will do 
  • The retail apocalypse — the rising number of store closures — isn’t as bad as you think, largely because stores are quickly getting converted to non-store things, like laser tag centers and office blocks

SCIENCE & TECHNOLOGY

  • Skewed hiring from top schools causes research from top institutions to spread faster than work of similar quality from less prestigious institutions
  • The case for selection by persistence — stuff that lasts, lasts — in evolution is getting a closer hearing
  • Global energy consumption in 2018 increased at nearly twice the average rate of growth since 2010. The causes? Higher economic growth, and sharply increased heating and cooling costs in some parts of the world.

Readings: Millennial drivers, Racehorses, Crypto closures, & credit default swaps

PREAMBLE

I generally find it more satisfying to find out that I’m wrong about something material than finding out that I’m right. After all, I usually expect that I’m right, so finding out that I’m still right about something isn’t very exciting. Finding out I’m wrong, however, is gratifying, a sort of reassuring signal of both brain plasticity and exposure to people and data defensibly different from my biases. 

I got to thinking about that recently when I asked myself why I was so convinced that millennials were different from the rest of us with respect to driving. I cited data to me showing that millennials drive less, and are less likely to have cars. And I murmured LyftUberCarSharing to myself over and over. These all seem like good reasons, but I was still worried, given that Millennials Don’t Want To Drive (MDWTD) is a pat story, almost too good to check. After all, I want millennials to want to drive less, even if it always seemed wildly unlikely we could have such a rapid shift in a single quasi-generation. But hey, It is a good story! It is good for us!

But it seems increasingly likely that MDWTD is wrong, or at least highly, highly incomplete. A new NBER paper argues fairly convincingly that, adjusted for demographic and macroeconomic variables, not only do millennials not want to drive less, it seems like they drive more, at least as measured by vehicle-miles traveled (VMTs).  The real story may be that MDWTD was because of various choices — locations, jobs, etc. — that manifested themselves in somewhat less driving, but adjusted for those choices millennials are just as car-happy as the rest of us cheery planet-wreckers.

Whew. Apocalypse, on. More seriously, this is a nice example — like another one was needed — why the early presentation of an unlikely solution to a problem so easily blocks out more plausible ones, whether we are talking card tricks or young humans not wanting to get out there and race around.

HEALTHCARE

FINANCE & ECONOMICS

SCIENCE & TECHNOLOGY

CRYPTO THINGS

MOVING OBJECTS

Energy researcher Carey King gives a fascinating talk on how economic models need biophysical principles. Long, but rich and full of data. 

Readings: Alzheimer’s, Real estate, Tall people, Gods, and Complex societies

PREAMBLE

Alzheimer’s drug research is, charitably, even more of a mess than it was earlier this week. And, given the mess it was already in, that’s not easy. Nevertheless, that was the main takeaway from yesterday’s news that Biogen and its partner Eisai were halting two clinical trials of their anti-amyloid therapy — aducanumab — because, in short, neither worked.

In case you are keeping score at home, there are now more than 300 failed Alzheimer’s drugs, which is remarkable in itself, and doubly so when you consider that most of these drugs are based on a single theory, the so-called “amyloid hypothesis”.

And what is the amyloid hypothesis? Here is a summary from Science on this now decades-old theory that isn’t working very well:

[Alzheimer’s] is caused by deposition of amyloid β-peptide (Aβ) in plaques in brain tissue. According to the amyloid hypothesis, accumulation of Aβ in the brain is the primary influence driving AD pathogenesis. The rest of the disease process, including formation of neurofibrillary tangles containing tau protein, is proposed to result from an imbalance between Aβ production and Aβ clearance.

In short, to this way of thinking, AD is a sort of dental plaque on brain tissue. If enough forms, and you don’t scrape it off and prevent more from forming, bad things happen to brain function. And there is plenty of evidence of amyloid proliferation in the brains of AD patients, so the theory has that going for it. Further, there is an obvious mechanical connection that can be made between brain function and the presence of amyloid plaques. So, you can see the appeal of amyloid theory.

The trouble is, as is the case so often in medicine, a bioplausible mechanistic cause, when treated,  doesn’t change the outcome. Knees with meniscus tears can be painful, but the tear is often not the cause, etc. Experimental drugs have, to varying degrees, inhibited the formation of amyloid plaques to no avail, with patient outcomes largely indistinguishable from those of untreated patients. 

Rather than diving deeper into the science, however, I’m more intrigued, at least philosophically, by why the amyloid hypothesis hasn’t been abandoned. Are 301 trials required? 302? What constitutes plausible negative evidence that would cause researchers at pharma companies to abandon this bioplausible theory of AD causation and progression? 

In broad terms, this is a deep question, one that has puzzled scientists and philosophers for as long as both have existed. Perhaps the best-known example of an attempt to answer the question is that of Karl Popper, who, to vastly simplify his model, proposed that science proceeds through definite tests and falsification. All positive results are provisional, capable of being demolished if the right test comes along that falsifies a key element of the research.

The trouble is, of course, that isn’t really the way science works, as aducanumab and its predecessors’ failures show. If the amyloid hypothesis could be overturned by a well-crafted negative experiment (or 300), one would think that would have happened by now, which it demonstrably hasn’t. And it isn’t for want of bioplausible alternative approaches to Alzheimer’s therapy, of which there are now many. 

Thomas Kuhn would argue that this is exactly what we should expect in a field as inherently pack-oriented and emotional as science. He believed that science is a social endeavor and that one of the primary reasons why hypotheses aren’t abandoned, despite overwhelming evidence of their wrongness, is that scientists hold tightly to cherished beliefs, despite them having been falsified over and over again. 

His is not the only non-Popperian view, of course. Imre Lakatos vomited, a little, at Kuhn’s idea that the best way to understand science was as a kind of trend-driven teen fashion. Lakatos argued, instead, that research programmes should be thought of as “progressive” or “degenerating”, and no single experiment (or even collection of experiments) could turn a progressive programme into a degenerating. Instead what happened, to his way of thinking, was the scientists former “protective belts” around the “hard core” of the theory, leaving its main predictions intact in a way that allowed continued research to be conducted. 

This is where we are at, I think, with the amyloid hypothesis. There is still a hard core to the programme, with no-one denying the connection between plaques and AD, but there is increasing uncertainty about what to do with that information. As one researcher said this week, it is like “…blowing out a match (amyloid plaques) after the forest (the brain) is already burning (suffering the death of neurons and destruction of synapses)”.

To this way of thinking, amyloid-targeting therapies would work, if only they were delivered sooner. Fair enough, but short of having asymptomatic patients at high risk on such therapies from age 50 onward, it is hard to imagine where one goes from here. 

FINANCE

 

HEALTHCARE

TECHNOLOGY