Felix Salmon

Art as a game

Felix Salmon
Apr 27, 2011 16:43 UTC

Adam Lindemann and Amalia Dayan make a great couple: they’re both immersed in the upper reaches of the art market, with Adam mostly buying and Amalia mostly selling. I spoke to them at the Artelligence conference — an entire event devoted to the dubious concept of “art as an asset class” — after they presented a slideshow of works which were sold at auction in 1973 and which are worth lots of money today.

Lindemann is a fascinating character: he treats the art world as a game, with the score kept in dollars. And Dayan, of course, is a great enabler — the lesson of looking at the current value of those works sold in 1973, she said, is that “if you buy great, great art, and the right work by the right artist at the right time, you win huge time.”

But of course that argument is fundamentally tautological, since Dayan’s definition of “great, great art” is precisely whatever art is most expensive right now. Similarly, when Dayan says that Picasso and Warhol are “quite consistently good, always,” that statement only really makes sense once you realize that in her mind, “good” is a synonym for “expensive.”

I asked Lindemann for the maximum amount of money he would ever spend on a work of art if he knew its value was going to zero, since I thought that might be a good proxy for the aesthetic value of great art, as opposed to its speculative value. But he was honest enough to tell me that he’d never buy such a work, no matter how cheap it was. When Lindemann collects art, he wants his work to be valuable and important to others — his own aesthetic enjoyment in the work isn’t enough.

There’s a telling back-and-forth at one point in the interview, when I ask Lindemann about late Jasper Johns, and Lindemann starts sneering about the polite, established artist living in Caribbean luxury and selling new paintings for $3.5 million apiece at Matthew Marks. Lindemann’s a provocateur, but when Dayan says, laughing, that now he’s said that “we can not buy anything at Matthew Marks any more,” she’s not entirely joking. The art world is all about building and establishing relationships, and being rude about a major gallerist’s biggest-name artist is never particularly endearing.

And Lindemann’s view of Robert Scull, the collector who sold his collection at that 1973 auction and was pilloried for it, has to be put in the context of Lindemann’s own brush with infamy when he allegedly flipped Jeff Koons’s Hanging Heart back to the gallerist he bought it from for a profit of almost $20 million. (“Our role is against the dealers,” says Lindemann at one point. “We try to get one over on the dealers.”)

Lindemann refuses to comment on the Koons deal specifically, saying only that “I never bought anything I intended to resell” while his wife looks on with a priceless look of skepticism. And he does then admit that he has flipped art in the past. But the bigger message of this interview, I think, is that what we’re seeing here is a plutocrat at play. Lindemann loves buying and selling art — probably more than he loves the art itself. And he can easily afford to lose millions of dollars if a deal goes wrong. It’s a fun game for him. But it does ultimately put the lie to the idea that art is some kind of long-term store of value, rather than a plaything for plutocrats.


What do you think are the biggest mistakes an amateur artist can make to blow there chances with a dealer, or is just how impossible is it for a new artist to break into the market and get recognized. I have noticed that there are quite a few artist, and artworks traded on the high end. How do you as dealers keep from being bored to death seeing the same pieces at auctions all the time. Is their room for some fresh blood.

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Where does value lie in a restaurant meal?

Felix Salmon
Apr 26, 2011 22:58 UTC

Joshua David Stein, reviewing Chef’s Table in October on the strength of one visit where he spent his own money, was very unhappy about the restaurant’s rules and how they’re enforced. And now NYT restaurant critic Sam Sifton has delivered his magisterial verdict — not only on the restaurant, but also on Stein:

Multiple meals at the restaurant, as well as interviews with regular customers I was able to track down in my digital Ferragamos, suggest that this criticism may be unwarranted.

In case you need a translation, what Sifton means here is “I ate at Chef’s Table four different times, and I spoke to a bunch of other people who have eaten there, and none of us left with the same bad taste in their mouth that Stein had.” Why does he have to torture his way to a ridiculous “multiple meals suggest” formulation instead?

This isn’t an attempt to avoid the first person, which appears twice in this sentence alone. It’s just bad writing: the “digital Ferragamos” are particularly egregious, but the pompousness of “may be unwarranted” is pretty stunning in its own right.

Not least because, if you read Stein’s piece, his beef with chef Cesar Ramirez clearly was warranted:

I was taking notes in a small black Moleskine notebook under the counter. It wasn’t because I was reviewing your restaurant. (I, like most reviewers, refrain from taking notes during such meals). It was precisely because I had looked forward so ardently to this meal and felt myself so lucky to be there, I didn’t want to forget what I ate. None of the amuses were on the menu and, as noted, what was on the menu was only nominally described…

As I finished the tofu, you approached me. I turned around in my stool, happy to chat, to congratulate you on the triumphs of what we had eaten, happy for a whole range of chef-to-patron interactions. But it wasn’t to be. You leaned in close so I could see every sweaty pore on your shaved head and said, loudly and furiously, “I don’t know where you fucking cook, but you’ll never replicate this. I’ve been watching you disrespect my kitchen all night. You’ll never be able to do what I do.”

It took me a moment to realize you were talking about my note taking. It didn’t register initially because you hadn’t seemed to object when the first two of your three rules were disregarded. Plus, what the fuck?

In that brief interval, my wife interjected, “He doesn’t cook.” It’s true. I’m no good at it.

“I’m sorry, Chef,” I said, shaken. “I didn’t mean to disrespect your kitchen.”

“Why are you taking notes?” you demanded. “That’s some sneaky shit.”

“Well, I’m loving this food and I don’t want to forget it and Ana and I won’t be able to come back and…” “Why not?” “Um,” said Ana, “because we can’t afford it.”

I apologized a couple of times more. You said don’t worry about it and at some point later in the night, as you were walking behind me, you gave me a double squeeze on the shoulder that non-verbally said, “It’s cool.”

I read it that way but Ana—not used to being yelled at in front of an entire restaurant—couldn’t shake the feeling and spent the rest of the meal cresting into tears. We couldn’t make eye contact with that waitress who narc’d us out, we couldn’t make eye contact with you, we couldn’t make eye contact with the Australians who at this point wouldn’t make eye contact with us. And though all we did was stare at the small plates as they continued their sadistically endless procession, all I remember beside “Wagyu Steak, Cheese, Dessert” is desperately wanting to leave.

Now, I’m quite sure that this particular experience didn’t happen to Sifton. (For one thing, he was almost certainly recognized.) But Ramirez ruined Stein’s meal. You don’t do that, if you’re a chef. Especially not when the sin is as minor as wanting to write down some notes about a special meal which you want to remember for a long time. And when the punishment is applied so capriciously: Stein says that no one objected “to one solo diner spending the entirety of her night texting”.

Sifton doesn’t address Stein’s meal directly; instead he just says that the arbitrary rule against taking notes is “perfectly reasonable”, without explaining why.

Sifton’s commenters, none of whom seem to have clicked through to Stein’s piece, are in two minds about this. Some say that a don’t-take-notes rule is profoundly silly, especially when the menu is so truncated and monosyllabic as to be useless as an aide-memoire. Others defend the rule, on the grounds that taking notes alters the sense of theater and the delicate relationship between chef and diner.

Neither Sifton nor his commenters address the real reason why Ramirez’s menu is so short and why he bans photography and note-taking: he’s paranoid about his ideas and recipes being stolen.

Which is insane.

Sifton read Stein’s piece, so he knows why Ramirez is doing what he’s doing. As a result, when he says that Ramirez is being “perfectly reasonable”, one can only conclude that Sifton thinks the chef’s bizarre paranoia makes perfect sense.

Sifton works very closely with his colleague Pete Wells, who pretty much owns the beat of recipes as intellectual property — see this piece from Food & Wine, or this one in the NYT. Some people take the issue of stealing recipes much more seriously than others — and people in the taking-it-seriously camp, says Wells, are exploring two ways to protect their intellectual property: patents and copyright. Nowhere has he so much as hinted that a no-note-taking rule, or shouting at diners who are writing in notebooks, is a remotely sensible approach to the problem, if indeed it’s a problem in the first place.

From an economic perspective, it’s pretty clear that people copying recipes is not a problem. Ramirez’s restaurant is all but impossible to get into; he can and does charge pretty much whatever he likes for a meal. The prix fixe is now up to $165 per person, not including tip and not including wine, either; Ramirez doesn’t have a license yet. Even if a dish or two turned up on a menu elsewhere, there would be no effect on Ramirez’s revenues: he will always seat the same number of diners every night.

And it’s worth dwelling on that $165 price tag for a minute, too. Sifton, who expensed his meals, is unfazed, saying blithely that the price “is either expensive or not, depending on your bank balance, but it is worth the money whatever your answer”. I think he’s wrong about this: if you’re spending north of $200 per person on dinner before having a drop to drink, that’s objectively expensive. If you have a lot of money, you will surely be able to afford it more easily than if you’re in Stein’s situation. But Chef’s Table is undeniably an expensive restaurant.

So what makes Sifton so sure that Chef’s Table is worth the money? The quality of the food is surely part of the answer, but I’m quite sure that the quantity of the food — the fact that you’re eating a 20-course meal — came into Sifton’s consideration as well. Why, divide $200 by 20 courses, and it’s only $10 per course!

The problem with this line of thinking is that for many people, when it comes to restaurant courses, more is less. I’ve had my fair share of multi-course menus; they tend to be found at highly-celebrated restaurants like Alinea, and diners generally have no choice in the matter — it’s all those courses or nothing. Looking back on all those meals, I can remember one or two disasters, as well as some meals where I came away with inchoate memories of lots of delicious and surprising flavors, combinations, and presentations. But the number of actual dishes I can remember is tiny — and pretty much confined to the dishes I wrote something about, or photographed. These long meals tend to be accompanied by a fair amount of wine, and all that alcohol consumption certainly makes remembering individual dishes harder.

The best and most memorable meals I’ve ever had were not gilded multi-course exercises in ego-polishing, but were much simpler fare, cooked to perfection at Gandarias, a pintxo bar in San Sebastian, and at Hook, Line and Sinker, a small fish shack in Pringle Bay, outside Cape Town. Closer to home, I can remember in detail dozens of wonderful meals at Oyster Bar, mostly variations on the general theme of chowder and oysters; while much more elaborate fare at places like Corton, for all that it tastes great at the time, I find myself unable to recall at all.

For me, the determination as to whether a meal is worth the money has to be made on the level of the meal itself, rather than on a sum-of-the-parts basis. I had pretty much a perfect meal at Hook, Line and Sinker, picking grilled fish off a huge platter and pouring myself great local (red!) wine from a bottle in the middle of the rough-hewn table. If there had been more courses and more effort and more beautiful plating, I would not have enjoyed the meal any more, it wouldn’t have been a better meal — and therefore I fail to see how it could possibly have been “worth” more money.

I do appreciate, of course, that producing 20 courses in a row is a difficult and expensive proposition. If you’re going to do that, you have to charge a lot of money — especially when you can’t cross-subsidize yourself with profits on your wine list. I’m all in favor of talented chefs making decent money. And it would be silly for Ramirez to charge less than he does, given what the market will clearly bear. But none of that means that from the diner’s point of view, Ramirez’s meal is worth well over $400 per couple. (Which, if you’re interested, works out at roughly 15% of Brooklyn’s monthly median household income.)

In any case, worth it or not, Ramirez literally can’t lose in the event that someone steals one of his dishes. When an Australian chef named Robin Wickens stole a bunch of recipes from Alinea and started serving them at his restaurant in Melbourne, there were all manner of ethical violations going on — but there was no way in which Alinea’s Grant Achatz was economically harmed. In fact, when the culinary plagiarism was uncovered, he looked like even more of an original genius. Even if a cloned Ramirez dish were to show up in New York, reconstructed, miraculously, from a few scribbled notes, rather than through Wickens’s technique of working for a week in the kitchen and taking detailed photographs, it’s hard to see how that would damage him at all.

In the world of cocktails, things are very different, and copying can cost the inventor real money.

A big part of the problem, according to Freeman and other senior bartenders and mixologists, is the “brand ambassador” model. For those unfamiliar with it, it involves big liquor companies hiring bartenders to act as spokespeople for their brands. The bartender not only acts as an advocate but is also expected to create signature cocktail recipes using the product he or she is pushing. Only, these days, the model is so prevalent that liquor brands will tap just about anybody to be a brand ambassador. Oftentimes, these young bartenders (cheap labor compared to members of the old guard) don’t have the experience required to create their own cocktail recipes. And so they Google a recipe and tweak it, or simply use something they learned from a mentor —a mentor, mind you, who might be too expensive for a liquor company to hire directly.

But unless and until this kind of thing starts happening in the food world, let’s stop worrying about copycats — and, in doing so, let’s loosen up on silly rules designed to make their hypothetical lives that much harder. I can see why you might want to have a quiet word with people going overboard with flash photography or talking on cellphones, if such activity is annoying other diners. But it’s very hard for me to see how Sifton has arrived at the conclusion that Ramirez’s bans — expressions of pure ego on the part of the chef — are “perfectly reasonable” at all, given how silly the motivation behind them is.


@dsquared: Chefs are expendable. Over the past two decades I’ve worked for Ritz Carlton, Westin, Four Seasons & Saint Regis. (I still work for one of those but will refrain from stating which.) One thing I’ve learned: Chefs are expendable. They all know that. They may not like to admit it, but they are. The 19 y/o line cook at my hotel could do what Ramirez is doing. Any of the banquet cooks at my hotel could do what Ramirez is doing. I could do what Ramirez is doing, and I’m not a “chef” per se (although I know how to cook).

I would fire Ramirez, and his replacement would render him forgotten within a month.

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Felix Salmon
Apr 26, 2011 08:28 UTC

The economics of modeling for Elite Models in Paris — Dis

National Geographic buys Scienceblogs — Retraction Watch (see also Pharyngula)

How can BankAtlantic Bancorp have negative shareholder equity and still be in business? — Crain’s

Wired’s gorgeous-looking web feature on bike messengers — Wired

The Beastie Boys’ new album, streaming online — Beastie Boys

“Before I started working on this article, I thought about trying to set up the interviews by post. I didn’t think about it very long” — LRB

“I did it for fifteen years. Magazine people would say to me, ‘How do you keep up the pace?’ and newspaper people would say, ‘What else do you do?’” — Trillin

I’m a huge fan of Miller-McCune. Long may it surprise and delight! — Romenesko

1,2,3 — YouTube, Ariely, Rhian Salmon

A sucker is born every minute. And many of those suckers are also known as “qualified investors” — Reporter News


The layout and photos of the bike messenger article are fantastic. Really taking advantage of the medium to trumpet the message.

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Why analysts hate putting out sell ratings

Felix Salmon
Apr 25, 2011 23:32 UTC

Herb Greenberg kicked off an interesting discussion today when he said that it took “a lot of guts” for Wedbush Morgan analyst Michael Pachter to go on CNBC today with his bearish view on Netflix, ahead of its earnings announcement this afternoon. David Wilkerson has the details of Pachter’s analysis, complete with the context:

With the stock hovering in the $80 range in April 2010, Pachter downgraded the shares to underperform from perform, with a target price of $73. Even after seeing the stock zoom into the $240s, Pachter is sticking to his rating, and a target price of $80.

That’s a very aggressive price target: Pachter’s saying that Netflix is set to lose more than two-thirds of its value, despite having a subscriber base of some 23 million Americans. But is it really a bold move for Pachter? Does it take a lot of guts for him to say this, and if so, why?

Part of the answer to that question is buried in a market symmetry: the long bias of investors is matched by a bullish bias on the analyst side. Most investors are long-only, and even the ones who go short tend to follow a 120/20 or 130/30 strategy: they nearly always have many more long positions than they have short positions. As a result, the market as a whole is already biased against anybody with a “sell” recommendation.

And when it comes to screamingly-hot stocks like Netflix, that’s even more true. Such stocks tend not to be held as part of a long-term portfolio of diversified names; they’re held by momentum traders who want to buy high and sell higher. These people tend to be pretty emotionally invested in their trade and in the sentiment which is driving it, and they can be quite aggressive towards anybody who might damage that sentiment.

On top of that, Wall Street does have a habit of boiling everything down to a right/wrong duality: if you say that a stock will go down, you’re right if it does, and wrong if it doesn’t. The intelligence of your analysis, or the idea that all these things are probabilistic rather than certain, rarely even gets lip service. This is why you see so much technical analysis on Wall Street: it makes no intellectual sense at all, but it works just as well as — or even better than — fundamentals-based analysis. (Which, admittedly, isn’t saying very much.) And that’s all that matters.

There’s also an inability for anybody to appreciate the difference between “buy/sell” on the one hand, and “long/short” on the other. A “sell” rating is not the same as a recommendation to go short. Selling your NFLX at $250 is a risk-averse move: you’re taking a volatile and overvalued stock, taking what are probably enormous profits, and saying that you’d rather sell too early than too late. Shorting NFLX at $250, by contrast, is a highly risky move which can hurt you very badly indeed. Yet when an analyst says “sell”, everybody starts talking about his “short position”, and saying things like “how’s your Netflix short coming along, Mikey?”.

One thing that’s certain about a “sell” rating, of course, is that it’s going to annoy the management of the company in question. And this is where the distinction comes in between issuing a “sell” rating on a privately-circulated report, on the one hand, and loudly proclaiming your analysis on CNBC, on the other. The television audience isn’t just sophisticated investors: it’s a much broader public than that, and corporate management hates even thinking about the idea that their company is being trashed in front of a huge audience. So if you’re going to present a bearish case on TV, be prepared to lose much if not all of your access to management.

If you make a very public bearish case, on TV, for a very visible consumer stock with lots of name recognition, that’s about as far as you can stick your neck out if you’re an analyst. That’s what Greenberg was referring to: yes, on one level it’s Pachter’s job to have an opinion on Netflix and be willing to be called on it if CNBC calls him up. But it’s easy to see why most analysts try hard never to put themselves in that kind of situation. “Clients will always be pissed if you’re wrong,” Greenberg told me in a short conversation this afternoon. “A long guy against the crowd is a value investor. A short is taking his life in his hands.”

Finally, if Netflix does fall dramatically from here — if Pachter’s call turns out to have marked the very top of the Netflix market — he’s still not going to be a hero. He’s been wrong for long enough, now, that people can just say that he was sure to be right eventually. And they’ll probably credit their own perspicaciousness if they followed Pachter’s advice, rather than giving him the credit he deserves.

So well done to Pachter for sticking to his convictions. I hope he doesn’t expect to gain much from them.

Update: I just got a great email from someone who wishes to remain anonymous:

a. In Pachter’s specific case, he’s been down on Netflix for quite a while, so it’s not exactly a significant amount of courage to go out and keep reiterating it. Whatever bridges there are to burn with a company are already burned by now, and, he’s just at the point of re-re-re-reiterating or capitulating.
b. The incentives for a guy at a (relatively) smaller shop can be a bit different – you make a name for yourself by standing out more. Whereas the bigger-shop guys have more of an incentive to limit how crazy their calls get.
c. From my perspective, there is minimal need for a research analyst to actually get his calls right. The majority of his compensation is driven by how useful he is to institutional clients. Fidelity is not going to outsource their investment decisions to a bank (for the most part), so they don’t really care what your rating or target is. They just want you to know everything there is to know about a company when they call. Some analysts are good stock pickers and they end up at hedge funds eventually. Many successful analysts are not.
d. As an outgrowth of c, I think it can be a disservice to retail investors to put some analysts on tv. They’re better at setting the scene than telling someone who owns a couple hundred shares of a stock what to do with it (setting aside whether that person should be holding/trading individual stocks to begin with).
e. Also, an analyst has to have a rating on every stock he covers. But he might only have a strong opinion on one, or a small handful. Good luck getting that context if you aren’t a paying client.


At the end of the day, the world is 100% net long with itself. Only the exchange rate versus cash changes at the margin.

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The tiny cat-bond market

Felix Salmon
Apr 25, 2011 14:23 UTC

BusinessWeek‘s article on catastrophe bonds’ performance in the wake of the Japanese earthquake reveals, I think, a lot of the miscomprehensions about this market.

The article starts off by bemoaning the fact that “the cat bond market won’t be of much help in covering Japan-related insurance losses,” partly because most of the Japan-related cat bonds were written to cover a catastrophe in Tokyo rather than anywhere in Honshu. It continues:

Insurance companies show no signs of abandoning the cat bonds, even though the market failed to deliver a big payout for the Japan disaster. Reinsurers may need to issue new securities to cover future losses in Japan. Insurers, sure to face higher premiums from their reinsurers, may do the same. Swiss Re, the world’s second-biggest reinsurer, sold $95 million of zero-coupon catastrophe bonds on Mar. 30 through its Sector Re V unit containing loss triggers that include another earthquake in Japan. There is also strong demand from pension funds, which may push up issuance of cat bonds to $6 billion or $7 billion this year, vs. $5 billion in 2010, according to Axa Investment Managers.

I’m going to pass over the repeated incantation of the word “losses” here for another day — suffice, for the time being, to say that payouts aren’t losses. Instead, it’s worth looking at the numbers scattered around the article, which reveals that cat bonds will pay out $300 million as a result of the Japanese earthquake. That’s 18% of the $1.7 billion in Japan-focused cat bond market, and 2.4% of the $12.5 billion in global cat bonds outstanding.

Neither of those numbers seems small to me. Yes, the total insurance payout in the wake of the earthquake and tsuanmi is going to be very large — somewhere in the $20 billion to $30 billion range. But it’s worth putting those numbers in perspective. The catastrophe-insurance business paid out some $43 billion in total in 2010, and about $27 billion in 2009. And net written premiums are running at a rate of about $425 billion a year. Those premiums have to cover property damage even when it isn’t caused by a natural catastrophe, of course. But at the end of last year, cat broker Napco described conditions in the insurance market as “soft,”,\ and said that “the market is now so well capitalized that catastrophe losses would have to total more than $50 billion” before anything much changed in that regard.

The purpose of cat bonds, of course, is to help reinsurers absorb the costs of truly massive insured catastrophes — ones they can’t easily afford to pay out on their own. And while the Japanese earthquake and tsunami caused a lot of economic damage, it was still within the bounds of what insurers reasonably expect to see in any given year on a global basis. So if 2.4% of cat bonds are paying out as a result of the catastrophe, that seems about right to me — insured losses are, after all, a fraction of what they would be if the earthquake had hit Tokyo, or if a hurricane hit Miami.

And in the context of those $425 billion a year in insurance premiums, cat-bond issuance of $6 billion or $7 billion this year is a drop in the bucket. I’m reminded of the optimism I saw three years ago at the Milken Global Conference, after a record $7 billion of cat bonds were issued: everybody agreed that the number was still tiny, but there was a lot of hope that it would rise fast. Instead, it fell dramatically in 2008 and then again in 2009; after a modest recovery in 2010, the best hope for 2011 was that more bonds would be issued than were actually maturing.

The fact is that catastrophe bonds are the capital-markets security of the future, and they always will be: insurers will always accept lower returns on their capital than the kind of ROI that hedge-fund cat-bond buyers are looking for. And as I mentioned back in 2008, beyond that there’s a fundamental, endemic reason why cat bonds won’t take off: the difference between parametric risk and indemnity risk.

Bond investors want to pay out based on science: magnitude of earthquakes as measured by the modified Mercalli scale; hurricanes as measured by wind speed and the like. Insurers and insured, by contrast, want their payouts based on losses. The basis risk between the two is large: Everybody can think of large losses from relatively small events, or small losses from relatively large events. And it’s not easy how that basis risk can be reduced. Unless and until that gap can be bridged, catastrophe insurance will remain the domain of the insurance industry. And the bond markets will only be involved at the very margin.


Good Post!
This is a good video on Cat Bonds

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Felix Salmon
Apr 25, 2011 07:28 UTC

An aerial-photography history of Chicago, 1985 to 2010 — Chicago Tribune

Burkhard Bilger’s profile of David Eagleman is one of the great magazine articles of all time — TNY

“The weak form of Arrow’s Theorem is that any result can be published no more than five times. The strong form is that every result will be published five times.” — Gelman

The hateful Jonathan Franzen — FS

“Things White People Like” should really be renamed “Things Mac People Like” — Hunchblog

Is the NYT paywall a strategic move in peacetime or a tactical move in wartime? — Ben’s blog

“The proper effect of philosophy is to make people exquisitely alert to their assumptions, sensitive to the rigor of their analyses, and—truth be told—permanently uncomfortable about the validity of their conclusions.” — TED

Scrabble, explained — Dinosaur Comics

Agency theory of nonprofits — Guan

Getting Shot by an RPG: My first reflection on conflict photography — Sebastian Meyer

Sebastian Junger Remembers Tim Hetherington — VF

Vancouver Bubble Watch: 25-Person Bidding War — Kedrosky

Wherein the World Economic Forum goes beyond parody — Tumblr

Banking Groups Stir Consumer Fears on Debit Card Regulations via Twitter — ProPublica


David, I am unabashedly Catholic (by choice, as an adult, not by upbringing).

One of the pieces that set me along this path was “The Great Divorce” by CS Lewis. Even to an agnostic (at least to one of Christian background), there was visible truth in the attitudes and principles expressed in this book.

Naturally much of the rest depends on faith and faith alone.

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Felix Salmon
Apr 22, 2011 05:28 UTC

Texas Governor Declares Weekend of Prayer for Rain. For real — Texas Tribune

My bet with John Gapper on the NYT paywall — Tumblr

Peter Hessler has the definitive take on Mortenson. Kristof, by contrast, looks silly — TNY, NYT

The Crash and Burn of an Autism Guru. NYT Mag profile of vaccine scare-doc Andrew Wakefied — NYT

Chris Hondros, at Work in Libya — NYT

Tim Hetherington’s amazing photo-essay/slideshow on Liberia — NYT

“Any vehicle that purports to be for the family needs to have, at a minimum, four cupholders per person” — BNet

Airlines Now Required to Refund Baggage Fee If They Lose the Baggage — Atlantic Wire

“Calling the Office of the Comptroller of the Currency a “regulator” is almost laughable. The Environmental Protection Agency is a regulator. The O.C.C. is a coddler, a protector, an outright enabler of the institutions it oversees” — NYT


Please note that they don’t need to refund your money if the bag arrives late.

I am waiting for the announcement that they will have an increased fee for late luggage to cover the the extra fuel needed to fly it around and the extra storage and handling costs.

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The Awl vs HuffPo

Felix Salmon
Apr 21, 2011 21:44 UTC

The Awl’s David Cho has an interesting post on web publishing today:

There’s a trend on the internet now to talk about how great you are…

The current rules in place to win at having a New York internet publishing entity are stupid and wrong, both in terms of perceived and actual success…

As far as actual success and how we are sort of too stubborn for our own good, it essentially comes down to the now standardized model that exists for how to build a large, behemoth, words-based content website. It’s sort of easy? Create a huge mountain of garbage statistics of audience and inventory, and then place a tablecloth of seemingly intelligent content to cover it like a veil. There are obviously exceptions to this model, the most exceptional, non-old publication to do this being Gawker, but when it comes to your HuffPo’s or whatever, that’s essentially the shady ass blueprint, and you know what, it works incredibly well.

If I were inclined to give Bill Keller the benefit of the doubt here — which I’m not — this is what I’d think that he was driving at with his talk of “adorable kitten videos”. Yes, there’s extremely high-quality original content on HuffPo. But there are lots of sites with high-quality original content. What differentiates HuffPo from those other sites is its sheer size: the astonishing number of pageviews it generates. And while some of those pageviews come from its page architecture, a lot of them come from pretty lowbrow content.

lowbrow.tiffIf you look at the most popular stories on HuffPo right now, it’s possible to find something like the screenshot at left. White stuff on a starlet’s finger, mobile homes changing hands for millions of dollars, Chain Restaurants Worth Visiting — this is all pretty much garbage content, which is very cheap to produce and which can generate enormous amounts of traffic and ad impressions.

highbrow.tiffOn the other hand, if you look at the actual most popular stories on HuffPo right now — the first “most popular” page, rather than the second — it seems significantly meatier. All of them have more than ten times as many Facebook shares as those chain restaurants do, and they’re all real stories.

That said, none of these stories is HuffPo-exlusive reporting. And that’s probably what Cho is driving at — the really great content which HuffPo produces on its own is very worthy, but it’s really only a thin tablecloth compared to the mountain of cheap aggregated inventory which it produces and sells so effectively.

Now I happen to like cheap aggregated inventory. I think it serves an important and useful function — and millions of HuffPo’s readers agree with me. Still, when the thing you’re most proud of is relatively peripheral to your business but core to your self-image, there’s a disconnect which can look to outsiders somewhat hypocritical.

Truth be told, however, the NYT is not as far away from that model as Keller might like to believe. The expensive international reporting Keller’s rightly so proud of never pays for itself: it’s essentially cross-subsidized by glossy ads in T Magazine, and the neverending procession of lifestyle sections and supplements which accompany the main news section.

Here, for example, is the latest piece of journalism for the NYT by its former media reporter, Alex Kuczynski. The first thing you see when you visit that page is the photo, with a caption worth quoting in full:

INVESTMENT PORTFOLIO — With one outfit like this, you’ve got a wardrobe. Brunello Cucinelli jacket, $2,090. Call (212) 813-0900. Theory dress (worn as top), $295. Go to theory.com. The Row pants, $1,950. At Barneys New York. Call (212) 826-8900. Phineas Cole pocket square, $70. At Paul Stuart. Call (212) 682-0320. Hervé Van Der Straeten cuffs, $750 each. At Neiman Marcus. Call (888) 888-4757. Photograph by Sebastian Kim. Fashion Editor: Ethel Park. Fashion Assistant: Adam Ballheim. Hair by Syd Hayes at Premier Hair and Makeup using Bumble and Bumble. Makeup by Yadim using M.A.C. Manicure by Maki Sakamoto for Valley NYC. Model: Missy Rayer.

You see that $2,000 Bruno Cucinelli jacket? It’s an investment! And you too can buy it! Call (212) 813-0900! Now! (And, NYT, it’s Rayder, not Rayer.)

I’m a big fan of the Awl, and to its credit it doesn’t play the cross-subsidy game. It’s not relentlessly highbrow, by any means, but it does what it wants to do and is proud of doing, and that’s it. I wish David Cho the best of fortune in trying to turn this property into a real and profitable business — it certainly deserves to be one. But I’m also a fan of HuffPo, and the NYT, and ProPublica, and Reuters, and all the other business models that people use to put important and interesting content online. And frankly it doesn’t redound to anybody’s credit when an important employee at one of them starts calling a rival’s business model “shady”.


The “huffpo” has always sucked, and always will. Anything to do with Arianna, necessarily has to. What an idiot! Makes all her money off a dead husband, then calls him a @#$%^&*#. Made her money the old fashioned way—–inherited it.

Posted by othimus | Report as abusive

The option value of not drilling for oil

Felix Salmon
Apr 20, 2011 20:33 UTC

NYU Law School’s Institute for Policy Integrity has an important paper out today, explaining that the US is using a crazy system to determine whether to allow offshore oil drilling.

Under something known as the Revised Program Outer Continental Shelf Oil and Gas Leasing Program 2007-2012, the Bureau of Ocean Energy Management, Regulation and Enforcement does a very basic cost-benefit calculation when deciding whether or not to allow drilling in a certain spot: it looks at the costs, and then at the benefits, and then if the benefits outweigh the costs, it gives the go-ahead.

What this calculation misses is the significant option value of doing nothing. The oil is, after all, not going anywhere — and if you don’t drill for oil right now, there’s a good chance that the costs of drilling for oil in the future, both economic and environmental, will be lower than the costs of drilling for oil in the present:

Once the decision to drill has been made, it cannot easily be unmade. But that does not mean the only choices are either to drill now or never: waiting to decide is also an option. Because safer drilling techniques and more effective cleanup technologies continue to be developed, the costs associated with drilling should decline over time—perhaps in fits and starts, but following a generally downward trend. Meanwhile, future market prices for the extracted oil are uncertain, jumping one day and falling the next. Given this uncertainly, it only makes sense for the American public to wait to cash in the value of their finite oil reserves until the price is right: when the oil can be sold high, but environmental costs are low.

Unfortunately, the government’s analysis has consistently failed to take into account the option value associated with waiting to drill, even though the methodology to do so has existed for decades. Because of this analytical failure, the government risks the possibility of selling the American public short to the tune of hundreds of billions of dollars.

It’s entirely possible to run a cost-benefit analysis on the value of not drilling for oil — or, more precisely, of waiting until the value of drilling is higher than it is now. If you don’t calculate the benefit of not doing something, then you’re much more likely to do it. And as a result, there’s probably a lot more offshore drilling going on right now than makes rational economic sense:

Calculations that fail to take into account option value are overly simplistic to the point of being misleading. As Dixit and Pindyck stated in their early textbook on the subject, failing to account for option value “is not just wrong; it is often very wrong.” An economic analysis that ignores the option value of waiting overvalues the net benefits of immediate exploitation and will systematically lead to inefficient overexploitation.

The paper makes the case that the current state of affairs is not only economically irrational, but is also both illegal and dangerous:

More complete economic models may have helped prevent the BP Gulf Coast Oil Spill. The value of waiting is greater for relatively more risky drilling activities, like the deep sea operations at the center of the BP spill. Such techniques are relatively newer, and inexperience increases the uncertainty about the extent of risks, the robustness of safety technologies, and the ability of cleanup and containment efforts to reduce harm. If the agency had used an adequate model of costs and benefits when evaluating this kind of deep sea operation, the benefits of waiting for better technologies might have exceeded the short-term costs of delay, leading to smarter use of our offshore resources and fewer risks imposed on the public.

The science of drilling for oil is improving very rapidly — and as a result, a moratorium on offshore drilling might actually cost nothing, once the benefits of improved future drilling techniques are taken into account. Wonks like energy secretary Steven Chu can understand this easily enough. But will they do anything about it?


I see your point about looking at future value versus present value. I also understand that most of these models don’t work.

For instance, what is the value to our nation if we reduce our dependence on foreign oil by “x” percent? What is the cost to our country of allowing our costs for energy to be higher than they otherwise might be during a time in which China, India, Brazil and others are rising superpowers?

Does it not appear that this future value tool is simply a way to justify doing nothing at all for ulterior motives?

Posted by charliethompto | Report as abusive