Economist points finger at Environmentalists and NIMBYs in aftermath of LA fires

The Economist does:

Strict regulations in LA require new homes to be fire-resistant, but most homes are not new. NIMBYism and convoluted environmental rules make it extraordinarily difficult to build, so much of the housing stock pre-dates the modern building code and is packed with flammable wood.

CA gov prevents voluntary wealth-creating transactions

From REASON:

On January 7, Newsom issued a state of emergency as fires spread in Los Angeles County. On Tuesday, Newsom signed Executive Order N-7-25, prohibiting buyers for three months from "making any unsolicited offer to an owner of real property" in fire-affected areas "for an amount less than the fair market value of the property or interest in the property on January 6, 2025."

I sent Newsom a copy of Chapter Two.

High US interest rates strengthen dollar, weaken Asian equities

Economist: Jan 13, 2025

The dollar reached a two-year high against a basket of major currencies, bolstered by a strong jobs report, released on Friday. The data dampened expectations that the Federal Reserve will cut interest rates aggressively in 2025. Share prices in Asia fell, as investors fear that prolonged high interest rates in America will draw capital to the dollar, draining funds from weaker currencies and emerging markets.

Is ESG investing illegal? In TX it is.

Breaking:

...US District Judge Reed O’Connor found that the airline breached its fiduciary duty ... by prioritizing ESG considerations over the financial interests of participants.  ... The court criticized American Airlines for allowing its asset manager, BlackRock, to advance goals unrelated to maximizing returns for plan participants.

“ERISA does not permit a fiduciary to pursue a non-pecuniary interest no matter how noble it might view the aim,” O’Connor said, according to separate reporting by Bloomberg Law. He went on to maintain that ESG investments “often underperform traditional investments by approximately 10%

See related posts:

• The paradox of ESG investing.
• Can ESG investing stop climate change without sacrificing returns?
• Is ESG investing illegal?

Price controls destroy wealth: California Fire Insurance

Noah Smith via Marginal Revolution, and Kim Mai Cutler.

•  The CA insurance regulator is elected, and is reluctant to allow higher rates for fire insurance, despite the big risks, lest she be voted out of office. 
• As a consequence, expected profits are low, so a majority of top insurers have stopped issuing fire insurance in CA. In 2024, State Farm decided not to renew tens of thousands of policies in the state, including about 1,600 in Pacific Palisades.
•  Instead, CA becomes the insurer of last resort through it FAIR program.
• FAIR insures risks of about $458B but has less than $700M in cash. The Jan 9, 2025 fires may cost FAIR about $24B. As a result, CA residents may face big surcharges to shore up FAIR's finances.
• Expect more insurance companies to exit the state because insurers in the state are on the hook to pay into the plan when FAIR can’t cover its claims.

BOTTOM LINE: insurance rates are too low and dont cover expected losses. Furthermore, they are not risk adjusted, so low risk homeowners subsidize higher risk ones. And the risks are getting worse, due to regulation that delays and deters fire prevention efforts, like controlled burns.

UPDATED WSJ:  

FAIR now covers about half a million homeowners who can’t obtain private coverage. Its exposure has ballooned to $458 billion as of last September from $153 billion four years earlier, with $5.9 billion in exposure in the Palisades. Yet it has only about $700 million cash on hand to pay claims.

The capitalist revolution Africa needs

Economist:

In the coming years Africa will become more important than at any time in the modern era. Over the next decade its share of the world’s population is expected to reach 21%, up from 13% in 2000, 9% in 1950 and 11% in 1800. As the rest of the world ages, Africa will become a crucial source of labour: more than half the young people entering the global workforce in 2030 will be African.

This is a great opportunity for the poorest continent. But if its 54 countries are to seize it, they will have to do something exceptional: break with their own past and with the dismal statist orthodoxy that now grips much of the world. Africa’s leaders will have to embrace business, growth and free markets. They will need to unleash a capitalist revolution. ...

In the past decade, as America, Europe and Asia have been transformed by technology and politics, Africa has, largely unnoticed, slipped further behind. Income per person has fallen from a third of that in the rest of the world in 2000 to a quarter.

Mortgage debt is rising, but lending standards are strong

From CalculatedRisk:

The bottom line is there will not be a huge wave of distressed sales as happened following the housing bubble. Most homeowners have significant equity, were well qualified, and have a mortgage with low rates that they can afford.

Leftys get screwed again

Coordinating on Spring Break

This year, the local school district (AISD) and community college (TCC) have shifted their Spring breaks from my university’s (UTA) second week of March to the third week of March. This has many at my university a bit upset. Childcare coverage will be problematic for my university colleagues who have small children and many planned family trips over the break will be canceled. AISD prefers to coordinate with TCC because many of the brighter high school students take dual credit courses at the community college. The childcare issue is not as important for children attending UTA or TCC because these children are a bit more independent than school-aged children. The change was instigated by TCC who prefers the 3rd week while UTA prefers the 2nd week. Should UTA follow along and change Spring break to the 3rd week?

This can be modeled as a coordination game, but it gets tricky with three players. AISD, TCC, and UTA all have two strategies, 2^nd week or 3^rd week. This makes the simultaneous game a 2x2x2 matrix. Think of this as a cube instead of a square. The payoffs below are ordered AISD, TCC, and UTA.

TCC 2^nd week

		UTA
		2nd week	3rd week
AISD	2nd week	4, 4, 2	3, 3, 1
	3rd week	3, 2, 2	3, 1, 3

 TCC 3^rd week

		UTA
		2nd week	3rd week
AISD	2nd week	2,3,2	3, 2, 3
	3rd week	3,3,2	4, 2, 4

The Nash Equilibria are all choosing the second week or all choosing the third week. For all parties, deviating would reduce their payoffs. They all prefer to coordinate but UTA and TCC prefer different coordination equilibria. For decades, they had all coordinated on the third week.

How about if TCC turned this into a sequential game? Could it force their preferred Nash Equilibrium? Below is the game in which TCC goes first, AISD follows second, and then UTA follows last. The assumed payoffs matter and I assumed that AISD benefits more from coordinating with TCC than with UTA. The red arrows represent the choices made when "looking ahead and reasoning back." With these payoffs, TCC can induce AISD to coordinate on the 3rd week. With both TCC and AISD choosing the 3rd week, it makes sense for UTA to switch to the 3rd week too.

This roughly aligns with how this all is playing out.

But for dumb regulation, we would have cheap Nuclear Power and Supersonic planes

From the Grumpy Economist:

In the 1960s, nuclear was supposed to bring the amazing post-scarcity Jetsons future. It could have brought the amazing post-scarcity Jetsons future. But then regulators/environmentalists/the mob destroyed its potential and condemned us to fifty more years of fossil fuels. If society hadn’t kneecapped nuclear, we could have stopped millions of unnecessary coal-pollution-related deaths, avoided the whole global warming crisis, maybe even stayed on the high-progress track that would have made everyone twice as rich today. … ...

For example, consider supersonic flight. Supersonic aircraft create “sonic booms”, minor explosions that rattle windows and disturb people underneath their path. Annoyed with these booms, Congress banned supersonic flight over land in 1973. Now we’ve invented better aircraft whose booms are barely noticeable, or not noticeable at all. But because Congress banned supersonic flight - rather than sonic booms themselves - we’re stuck with normal boring 6-hour coast-to-coast flights. If aircraft progress had continued at the same rate it was going before the supersonic ban, we’d be up to 2,500 mph now (coast-to-coast in ~2 hours). Can Congress change the regulation so it bans booms and not speed? Yes, but Congress is busy, and doing it through the FAA and other agencies would take 10-15 years of environmental impact reports. ...

Supersonic flight and nuclear power are two great economic counterfactuals. Like the Chinese emperors of the 1400s who abandoned ocean sailing, our society abandoned two great technologies. Who knows what the world would look like today with abundant power and widely developed supersonic airplanes — and all the technology that would have followed from those two?