Messing with Time- Disney

Disney has added a warning at the beginning of its classic films (Lady and the Tramp, The Aristocats, Dumbo to mention a few) to pre-empt them from being torn down, ripped up or cancelled in some fashion. The disclosure is basically a reminder that society changes over time.

While these cartoons do not represent today’s society, they are being presented as they were originally created, because to do otherwise would be the same as claiming these prejudices never existed.

Does Disney have the cultural capital to quell the mob? To take away the quills from the Robespierres before they write another dozen orders of destruction?

As groups decide how to proceed with the statues that were gingerly removed after 90 odd years of barely any note, I hope they look to Disney for more than just entertainment. Because remembering the past is vital to understanding the work that needs to be done to step up the stakes for tomorrow.

I’m not sure if Disney’s common sense approach will work. To point out that one might not agree with the actions of decades gone by seems too simple. To remind people that, should they feel embarrassed, disappointed, or enraged with the habits of their forefathers, they can use those sentiments to forge a better future; that the future is in their hands, not the dead guy on the pedestal.

Time will tell.

The Nobel Prize

Today the Nobel Prize in economics was presented to Paul Milgrom and Robert Wilson who developed auction theory and auction design. The Nobel Prize site provides an excellent background for understanding their work. Interestingly, this includes a differentiation between the common value of a good and the private value as a key feature. Where the definition of a private value is defined as one achieved when the bid decision is made independently of any other bidder in the auction.

The 1996 Laureate in Economic Sciences, William Vickrey, established auction theory in the early 1960s. He analysed a special case, in which the bidders only have private values for the good or service being auctioned off. This means that the bidders’ values are entirely independent of each other. For instance, this could be a charity auction for dinner with a celebrity (say a Nobel Laureate). How much you are willing to pay for such a dinner is subjective – your own valuation is not affected by how other bidders value the dinner. So how should you bid in this type of auction? You should not bid more than the dinner is worth to you. But should you bid lower, perhaps getting the dinner at a lower price?

The explanation goes on to describe the theory of common value.

Entirely private values are an extreme case. Most auction objects – such as securities, property and extraction rights – have a considerable common value, meaning that part of the value is equal to all potential bidders. In practice, bidders also have different amounts of private information about the object’s properties.

The portion of the bid that is devoted to the common value is based on a projection of what the bidder feels others will pay. Thus to have better knowledge is advantageous. Here the familiar diamond trader example if used.

Let’s take a concrete example. Imagine that you are a diamond dealer and that you – as well as some other dealers – are contemplating a bid on a raw diamond, so you can produce cut diamonds and sell them on. Your willingness to pay only depends on the resale value of the cut diamonds which, in turn, depends on their number and quality. Different dealers have different opinions about this common value, depending on their expertise, experience and the time they have had to examine the diamond. You could assess the value better if you had access to the estimates of all the other bidders, but each bidder prefers to keep their information secret.

Now if the diamond traders are from a tight knit community, say of the Jewish faith, than all those in the faith are included in the advantageous bidding environment. The information is public information within the group, private to those at the exterior. This type of diamond trader group is used by sociologist James S. Coleman in his famous treatise from 1988, Social Capital in the Creation of Human Capital.

Wholesale diamond markets exhibit a property that to an outsider is
remarkable. In the process of negotiating a sale, a merchant will hand
over to another merchant a bag of stones for the latter to examine in
private at his leisure, with no formal insurance that the latter will not
substitute one or more inferior stones or a paste replica. The merchandise
may be worth thousands, or hundreds of thousands, of dollars. Such free
exchange of stones for inspection is important to the functioning of this
market. In its absence, the market would operate in a much more cumbersome, much less efficient fashion.

Coleman stresses the benefits of assurances. Assurance which can be given due to the greater knowledge of the stones, their quality and source of origin. Coleman says:

Observation of the wholesale diamond market indicates that these close
ties, through family, community, and religious affiliation, provide the
insurance that is necessary to facilitate the transactions in the market. If
any member of this community defected through substituting other stones
or through stealing stones in his temporary possession, he would lose
family, religious, and community ties

Coleman concludes that there is value in this. He’s view is that the value lies in the social ties, or the social network, which parties to the transaction are able to access.

Another more recent use of the Jewish diamond traders appears in a paper by Barack D. Richmond, How Community Institutions Create Economic Advantage: Jewish Diamond Merchants in New York. In this case the value retained by the group are derived from an ability to enforce contracts. Here’s an excerpt from the paper, bolding is mine:

The particularly interesting feature of this system is the economic role
of ultra-Orthodox Jews. The ultra-Orthodox provide critical value-added
How Community Institutions Create Economic Advantage 415
services that add significant efficiency to the system of exchange. They work
as skilled diamond cutters whose polishing increases the sale prices of stones,
and they play the essential role of middlemen brokers who match certain
stones with the buyers who most value them. Their unique credibility provides
the Jewish merchants with a comparative advantage over rival merchant groups
that lack such community foundations, and their role identifies limitations
to public contract enforcement that persist even in developed economies.

When courts fail, community institutions can arise to fill their place.

Here’s what we know from these three uses of the Jewish diamond traders example. All three feel the group has created some type of value—not to anyone individual but a blanket of value across the group. This value has something to do with how the group is connected, how the information flows through its membership. And that there is a commitment to maintain a standard of enforcement.

What is exciting about Milgrom and Wilson’s differentiation of private and common value is that there is a tie-in to price. An auction bring buyers and sellers into a marketplace. And the values that these two new Nobel Laureates observed reflect activity of a private nature and that of a common nature.

As pointed out in previous posts the categorizing of goods as either private or public (or club and common) is inadequate. My first post here introduces the idea that a haircut can have a public (common) component. And I also wrote a post about national defense as there are many examples of how this public good was used to the benefit (privately) of a sub-group. The long and the short of it is that goods are goods. It is how they are employed, by what types of groups, which determines the portion of their price derived from a private sphere and that derived from a public sphere.

Changing Priorities in the Neighborhood

Crime has been on the rise since May of 2020. In Minneapolis more than 400 people have been shot and 64 killed so far this year. It’s common to hear residents say they know more people that have been carjacked in broad daylight than have contracted Covid-19.

One neighborhood is organizing to do something about it. When a building in their neighborhood was slated to become a Salvation Army run women’s shelter, the moms went into high gear. Their priorities had changed and the folks in Near North weren’t going to have bureaucrats telling them what they needed.

Residents were vigorously opposed. A Mother’s Love went door-knocking in a multi-block radius of the Gordon Center and found no one knew about the proposal. The Northside Residents Redevelopment Council—the official neighborhood association—filed an injunction to halt the process.

Council member Ellison showed up. Elected in 2017 on the promise “to imagine a future for the North Side authored by North Siders,” he apologized for poor public engagement and encouraged constituents to lay out their concerns. “I don’t at all take skepticism of this project as, like, an attack on homeless women,” he assured them.

Frustrated residents pulled no punches. There were already three homeless shelters within a mile of the Gordon Center, yet the North Side had been without a sanctuary for at-risk youth since the 1980s, they said. Many community-led proposals for the Gordon Center had been rejected over the years.

The residents, who were organizing on their own time, objected to the shelter not because they weren’t sympathetic to the cause. It’s just that in the ever changing landscape of neighborhood needs, the effect of increased crime was more damaging to the youth than the needs of the women.

“I’ve lived here for 43 years,” said Willard Hay resident Esther Adams. “I’ve seen kids shot on this corner, I’ve seen kids killed on this corner. We’re just trying to help the kids here.”

In addition to the granular differentiation of need, the resources necessary for a youth center is thought to be considerably less than the homeless shelter.

The Gordon Center (homeless shelter) will cost more than $4 million to convert into a shelter, but peace activists like Clemons’ group, A Mother’s Love, believe it would cost considerably less for a youth center because of the way the building is designed. For one, it already has a playground.

In this case the system worked. The neighborhood did the work to voice a preference between services for their group. It was close though. The building permit had already been approved for the homeless shelter. If the moms had been too busy to put in the time, or their council member too distance from his constituents or the county’s ambition too strong, there could have been four shelters and no youth center.

It just seems like there should be some general tracking of these things by neighborhood. A hospital wouldn’t go into an area with three other hospitals. Even a McDonald’s wouldn’t have four franchisees within a mile of each other. Some sort of indexing of the mix of services provided to not only serve residents, but also to be sure that various age groups and household formations are being supported.

Who is NOAH anyway?

It was three to four years ago when the acronym NOAH (naturally occurring affordable housing) started appearing in presentations and in print. The sale of a 698-unit apartment complex in Richfield, a modest first tier suburb adjacent to South Minneapolis, and the subsequent fallout from tenants having to relocate in light of the new owners’ ambitions to rehab the ailing structure, brought this situation into focus. The term emerged from the realization that there can be a time when both landlords and tenants benefit by rents low.

Analysts talk about housing like it is a static product. How many units are for rent, with how many bedrooms, and how many square feet. People talk about housing as if the most interesting thing about it is its physical parameters. But properties change over time. What is brand-new, mechanically up-to-date today, becomes tired and dated in the course of a dozen years. People change over time too. A single adult transitions into married life and a family changing their housing needs.

Housing structures have a cycle. New means no repairs but new also means (relative to comparable used properties) the most expensive. As properties age they can become dated and repairs can start to be overlooked. Usually used properties are supporting some mix of these two: the roof is new but the furnace midcycle; the counters are granite but the appliances from a decade gone-by.

Wear and tear and maintenance can also vary depending on the tenants. A drive around any large University campus will show off some student housing that is a little worse for wear. And some landlords are better than others at keeping up on property demands. It can be that the owners are at a later stage of their investment and are happy enough to keep doing repairs instead of replacements, and ignoring the dated carpet runners in the hallways. As long as their renters are happy with stable rent, all parties allow the property to age.

Keep in mind the economics of the lower rent. The owner, by letting improvements slide and just getting by on minimal repairs, has in effect allowed the building to decrease in value. The lower rent is a transfer of building value to the renters. The decreased building value in the open market attracts an investor who is then motivated to do the renovations. And with this the new investor attracts renters who can pay for them.

This most probably describes the evolution of the large apartment complex in Richfield. Other expenses can also impact an owner’s decision to sell.

Dickens sees NOAH threatened across the region, and said landlords get no choice when property values — and thus taxes — rise. Maintenance costs and upkeep also climb, with costs typically passed to tenants.

Is it not beneficial to the community or the renters for a building to deteriorate to the point of condemnation. So the process of an investor rehabbing an aging building in and of itself is a good thing. The reality is that structures depreciate over time, and repairs can only be ignored for so long. NOAH wasn’t a discovery of something new, it just revealed a situation in the open market where both the provider of the housing and the residents found an agreeable equilibrium. For a time.

The biggest takeaway from the acronym is that there is no secret money tree that will appear and save the most vulnerable from their housing burden. NOAH occurs as a situation where an investor tolerates some devaluing of property which is then reflected in lower rent to tenants. But it cannot be sustained without the building becoming a teardown. In the end, when people can’t afford their housing expense, some other group will have to cover the difference.

Notorious RBG

Like everyone else, I’ve been consuming the articles about the life and work of Ruth Bader Ginsberg who recently passed away after 27 year on the US Supreme court. I’ll admit that I didn’t know much about her until recently. But there are three things I will take away from how she lived her life.

After graduating from Cornell in 1954 she married her husband of 56 years. A few years later she followed him to Harvard Law School.

The law dean reportedly invited the nine female students in the class to dinner and asked, “How do you justify taking a spot from a qualified man?” Ginsburg said she gave “the answer he expected”: “My husband is a second-year law student, and it’s important for a woman to understand her husband’s work.”

She was willing to make the sacrifice of sucking up a personal assault if it’s that what it took to get where she wanted to go. What if she had stormed out and held a protest and rallied a march? Would women be better off today? Instead she bowed to the expectations of her time, in order to forge ahead. She was strategizing a war plan where emotion pull many people into a street fight.

After she graduated with a law degree from Columbia, she had a difficult time landing a job with a law office. It is apparent that claims of a meritocratic system was (and still is) constrained by social norms. But Ruth Bader Ginsberg must have looked at the employer pool as a group where not each and everyone had to want to employ her. She just needed one job, one employer. And that was a courtship with the U.S. District Court.

Once again, instead of being distracted by an individual or a small set of individuals that blocked her path, she had faith in the larger community. She kept looking for where she could trade her skills instead of trying to convert each objector. She was an optimist.

When it came time to converting opinions in the court room, where she had earned stature and prominence, she used perspective. She brought the claims before the male judges in the form of claims made by men, that way they would not be biased by gender. She wrote the story in a way that they could see the work for what it was.

There’s been some really interesting work done by the scholar Cary Franklin about the men Justice Ginsburg represented when she was at the ACLU, and how when she was bringing them before male justices, the male justices had trouble believing that these guys actually wanted to take care of their elderly mothers or their children, because it was so foreign to them. So in some ways what she was doing was quite challenging to them. But at the same time, being a canny strategist – showing that men had skin in the game, and that they too were harmed by gender inequality – enlisted a broader range of allies for her.

Ruth Bader Ginsberg was a women who played the long game. And it has paid off in spades for all women to benefit. She is a true feminist.

Here is a nice photo essay of her life.

Fungible is more Fun

What does it mean for a transaction to be fungible, or non-fungible? Here’s the dictionary’s definition for the word when googled;

fun·gi·ble/ˈfənjəbəl/Learn to pronounce adjective LAW adjective: fungible

(of goods contracted for without an individual specimen being specified) able to replace or be replaced by another identical item; mutually interchangeable.”it is by no means the worlds only fungible commodity”

Wikipedia talks about fungibilty in this way:

In economicsfungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part.[1][2]

For example, gold is fungible since one kilogram of pure gold is equivalent to any other kilogram of pure gold, whether in the form of coins, ingots, or in other states. Other fungible commodities include sweet crude oil, company shares, bonds, other precious metals, and currencies. Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity with other units of the same commodity, and not to the exchange of one commodity for another.

In the sense of a transaction being fungible or non-fungible I offer the following understanding. If you buy your gas at a Holiday station, whether it is on the corner leaving your neighborhood, or the one near your place of work or the one half way to your vacation destination, the transaction is the same. One purchases a indistinguishable commodity which is paid for with some form of currency of consistent value. The transaction starts and ends in the matter of minutes. It is fungible.

Now consider a different type of transaction, one that happens in a neighborhood. Every morning nine to ten kids gather at a bus stop to catch a yellow bus to the local elementary school. School starts at 9am and ends at 3pm. Most kids stay for after school programming so their parents have a chance to get home and pick them up before heading home to pull something together for dinner.

Now say it is mid January in a northern climate, and a mega storm develops predicting twelve inches of snowfall. The schools close at noon before buses full of children slide into the ditch and the roads are gridlocked as the snowplows can’t keep up with the descending flakes. Afterschool programming is cancelled leaving working parents in a bind.

One of the parents, call her Amanda R, works third shift at the hospital, and has the means to contact everyone as the families went through Baby-and-Me classes together at the community center. She lets them know she’ll be at the bus stop to collect the first-through-six-graders and let them hang out at her house. “Drive safe!” emphasises the text.

If the families would have taken personal time from work to the tune of four hours each, that would have amounted to thirty-two work hours. (With an average wage in Minnesota at $58K/yr, that comes to $892). Amanda R doesn’t expect payment for her offer. She knows that over the course of their elementary school experience there will be a track and field day, and the third grade band concert (that only a parent can love) and the fifth grade science fair and the list goes on. There will be plenty of opportunities for parents to stand in for each other.

The work Amanda R did to allow parents to stay at their jobs while keeping their kids safe from harm was a non-fungible transaction. She won’t receive any immediate payment or exchange for her time. She can’t trade those hours within another neighbor down the block. What she’s betting is that she will receive assistance many times throughout her kids’ school experience.

Certainly it might be more fun to work for cash and spend it on concert tickets or new clothes or a trip. But the beauty of non-fungible transactions is that they are held within the group and often engaged when the stakes are high.

The Trick with Triplexes

A little over a year ago Minneapolis was getting a lot of attention for ending single family zoning which secured one family home for one lot in 70 percent of the city. Politco ran a headline with dramatic vivid language of strangleholds, and further reported on how activists were taking victory laps following the City Council’s 12-1 vote to reverse single family zoning across the city. The Atlantic ran an article. And the New York Times gave Minneapolis‘s story first consideration in their article.

Yet in this first part of 2020 their have only been, drum roll please, 3 permit requests to take advantage of this up-zoning. The reason being, according to the Government Affairs Director with the Minneapolis Realtor Association, Eric Meyers, “even though new zoning laws permit triplexes, the underlying code was still written with single-family homes in mind. Height restrictions are the same, as are setback requirements.” A seemingly simple request to increase the height of a garage peak by one foot drew an extensive and heated debate. 

Since demand for housing continues to be strong in Minneapolis –the median sale price has risen 5.5% over the last twelve months– and hence the need for more housing units is unwavering, one would think that the spirit of releasing the stranglehold of the single family home would make the process more forgiving.

Emily Hamilton at Bloomberg explains it best: Want More Housing? Ending Single-Family Zoning Won’t Do It. Regulations that have been built over years won’t be undone with that quickly. Think of this at step one. Now investors are reconvening to put together documentation on the obstacles that stand in the way of the envisioned housing option. They will spend time and resources to go back through the city process and seek approval for building conversions and new builds.

Some investors will call it quits and sit out this process as they fear it is too expensive. But it is in this back and forth between the private and the public that incremental changes are made in order to achieve the goal of more housing units. And in doing so lower the cost of homes.

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