Work From Home and commercial real estate values

We study the impact of remote work on the commercial office sector. We document large shifts in lease revenues, office occupancy, lease renewal rates, lease durations, and market rents as firms shifted to remote work in the wake of the Covid-19 pandemic. We show that the pandemic has had large effects on both current and expected future cash flows for office buildings. Remote work also changes the risk premium on office real estate. We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction. Higher quality office buildings were somewhat buffered against these trends due to a flight to quality, while lower quality office buildings see much more dramatic swings. These valuation changes have repercussions for local public finances and financial sector stability.

That is from a new paper by Arpit Gupta, Vrinda Mittal, and Stijn Van Nieuwerburgh, via the excellent Samir Varma.

Claims about artillery

In short, US annual artillery production would at best only last for 10 days to two weeks of combat in Ukraine. If the initial estimate of Russian shells fired is over by 50%, it would only extend the artillery supplied for three weeks.

The US is not the only country facing this challenge. In a recent war game involving US, UK and French forces, UK forces exhausted national stockpiles of critical ammunition after eight days.

Such projections are not always accurate, but the broader discussion is interesting throughout.

Saturday assorted links

1. An obvious but still underrated point: “we find parenting attitudes strongly predict paternalistic policy attitudes—more than ideology, party identity, or any other measured demographic variables…”

2. DSM-V now makes the bestseller list (London Times).  “Ralph Lewis, a psychiatrist, wrote recently in Psychology Today of a “trend toward increased self-diagnoses” that was “particularly pronounced among young people” and predated the pandemic.

3. Roubini in the FT: “Before this week’s ECB meeting, executive board member Isabel Schnabel stated that the bank’s willingness to deal with fragmentation risk had “no limits”. This echoed former ECB president Mario Draghi’s game-changing “whatever it takes” statement of 2012. But Schnabel also hinted at the need for policy conditionality when it comes to offering support. Given the current volatility of financial markets, one can expect they will further test the ECB’s ability to protect the currency union by backstopping fragile eurozone states.”

4. ESPN: “The Warriors are 5-1 to win the 2023 NBA title at Caesars Sportsbook, followed closely by the Brooklyn Nets and Boston Celtics, who are each listed at 6-1. The Milwaukee Bucks (15-2), Phoenix Suns (8-1) and LA Clippers (8-1) round out the teams with single-digit odds entering the offseason.”  Nets #2???

5. “So intense was the EU’s involvement in Northern Ireland – a part of a non-member state, remember – that it has imposed 4,000 new laws there over the past 18 months.”  Link here, where are the fans of democracy on this issue?  (NB: I don’t agree with everything in this piece, should go without saying but periodic reminders can be useful.)

6. Further evidence (from sex lives) on the current human capital deficit (FT).

Germany will finally have to pay for Italy’s debts

Bond yields of countries such as Italy and Spain shot up to their highest level for eight years after ECB rate-setters last Thursday announced plans to stop buying more bonds and start raising interest rates. The surge in borrowing costs has revived fears about a potential repeat of the damaging debt crises in 2012 and 2014 that nearly tore the eurozone apart.

The yield on the Italian 10-year bond was at 3.78 per cent on Wednesday afternoon, well below Tuesday’s closing level of 4.18 per cent.

Here is more from the FT.  You could say that markets are concerned, but not panicking.  I look at it this way.  When the ECB instituted “OMT” and other unusual moves in the 2011-2012 crisis, European monetary policy was too tight.  They could do this central bank-engineered rescue to the general benefit of the entire eurozone.  Today, the eurozone is much more supply constrained.  So monetizing Italian debt, whether done directly or indirectly, will involve real resource costs for the other parties in the eurozone.  Unlike the first time around.

My excellent Conversation with Marc Andreessen

I’ve been wanting to do this one for some while, and Marc did not disappoint.  Here is the audio, transcript, and video.  Here is the summary:

Marc joined Tyler to discuss his ever-growing appreciation for the humanities and more, including why he didn’t go to a better school, his contrarian take on Robert Heinlein, how Tom Wolfe helped Marc understand his own archetype, who he’d choose to be in Renaissance Florence, which books he’s reread the most, Twitter as an X-ray machine on public figures, where in the past he’d most like to time-travel, his favorite tech product that no longer exists, whether Web will improve podcasting, the civilization-level changes made possible by remote work, Peter Thiel’s secret to attracting talent, which data he thinks would be most helpful for finding good founders, how he’d organize his own bookstore, the kinds of people he admires most, and why Deadwood is equal to Shakespeare.

And the opening:

COWEN: Simple question: Have you always been like this?

ANDREESSEN: [laughs] Yes. I believe that my friends would say that I have.

COWEN: Let’s go back to the junior high school Marc Andreessen. At that time, what was your favorite book and why?

ANDREESSEN: That’s a really good question. I read a lot. Probably, like a lot of people like me, it was a lot of science fiction. I’m one of the few people I know who thinks that late Robert Heinlein was better than early Robert Heinlein. That had a really big effect on me. What else? I was omnivorous at an early age.

COWEN: Why is late Robert Heinlein better?

ANDREESSEN: To me, at least to young me — see if older me would agree with this — a sense of exploration and discovery and wonder and open-endedness. For me, it was as if he got more open-minded as he got older. I remember those books, in particular, being very inspiring — the universe is a place of possibilities.

COWEN: What’s the seminal television show for your intellectual development in, say, junior high school?

ANDREESSEN: Oh, junior high school — it’s hard to beat Knight Rider.

COWEN: Why Knight Rider?

ANDREESSEN: There was a wave of these near science fiction shows in the late ’70s, early ’80s that coincided with . . . Some of it was the aftermath of Star Wars, but it was the arrival of the personal computer and the arrival of computer technology in the lives of ordinary people for the first time. There was a massive wave of anxiety, but there was also a tremendous sense of possibility.

Recommended, excellent throughout.

Against Historic Preservation II

 In Manhattan, once famed for its ever-evolving skyline, an astonishing 27 percent of the borough’s lots now fall under the purview of the landmarks commission.

That’s from Jacob Andinder’s What Historic Preservation Is Doing to American Cities in the Atlantic. It’s a pretty good history of the movement for historic preservation focusing (of course) on some of the racist motivations and effects. But it has little to say about what to do about the consequent difficulties of building anything new. Similarly, here’s Binyamin Applebaum in the NYTimes correctly decrying the fact that historic preservation laws mean you can’t put solar panels on the rooftops of many homes in Washington, DC. Applebaum suggests a tiered approach.

I am more radical. All historical preservation laws should be repealed.

It’s one thing to require safety permits but no construction project should require a historic preservation permit. Here are three reasons:

First, it’s often the case that buildings of little historical worth are preserved by rules and regulations that are used as a pretext to slow competitors, maintain monopoly rents, and keep neighborhoods in a kind of aesthetic stasis that benefits a small number of people at the expense of many others.

Second, a confident nation builds so that future people may look back and marvel at their ancestor’s ingenuity and aesthetic vision. A nation in decline looks to the past in a vain attempt to “preserve” what was once great. Preservation is what you do to dead butterflies.

Ironically, if today’s rules for historical preservation had been in place in the past the buildings that some now want to preserve would never have been built at all. The opportunity cost of preservation is future greatness.

Third, repealing historic preservation laws does not mean ending historic preservation. There is a very simple way that truly great buildings can be preserved–they can be bought or their preservation rights paid for. The problem with historic preservation laws is not the goal but the methods. Historic preservation laws attempt to foist the cost of preservation on those who want to build (very much including builders of infrastructure such as the government). Attempting to foist costs on others, however, almost inevitably leads to a system full of lawyers, lobbying and rent seeking–and that leads to high transaction costs and delay. Richard Epstein advocated a compensation system for takings because takings violate ethics and constitutional law. But perhaps an even bigger virtue of a compensation system is that it’s quick. A building worth preserving is worth paying to preserve. A compensation system unites builders and those who want to preserve and thus allows for quick decisions about what will be preserved and what will not.

Like father (and mother), like son

You may have seen the Golden State Warriorrs just won another NBA title.  The backgrounds of so many of their top players are striking:

Stephen Curry: Commonly considered the greatest basketball shooter of all time, his father was All-Star Dell Curry, shooting guard and one of the best shooters of his era.

Klay Thompson: Father Mychal Thompson, an NBA All-Star level player.

Gary Payton II: Father Gary Payton, Hall of Famer point guard and defensive stopper, known as “The Glove.”  The son is not an All-Star caliber player but he is a top contributor on defense.

Andrew Wiggins: Son of Mitchell Wiggins, well-known NBA player in the 1980s.  Mitchell Wiggins led the Houston Rockets to a key game five victory over the Boston Celtics in 1986, Andrew Wiggins did the same in 2022.  And Andrew’s mother won two silver medals for track and field in the 1984 Olympics.

Otto Porter, Jr.:”His father, Otto Porter Sr., was part of Scott County Central High School’s first title in 1976 and holds the high school record with 1,733 rebounds. His mother, Elnora Porter (née Timmons), helped the same school win the 1984 state championship.

Jordan Poole: Father Anthony Poole advertises himself as “Wisconsin playground elite coach” on Twitter.

Kevon Looney: His cousin Nick Young played in the NBA.

We do not know much about the biological father of Draymond Green.

And those are the top players on the Golden State Warriors.

Addendum: I hadn’t known that Steve Kerr, the coach, was son of Malcolm Kerr, a well-known university professor and then university president (American University in Beirut) who was killed by terrorists in Lebanon in 1984.

Cognitive Endurance as Human Capital

A favorite topic of mine:

Schooling may build human capital not only by teaching academic skills, but by expanding the capacity for cognition itself. We focus specifically on cognitive endurance: the ability to sustain effortful mental activity over a continuous stretch of time. As motivation, we document that globally and in the US, the poor exhibit cognitive fatigue more quickly than the rich across field settings; they also attend schools that offer fewer opportunities to practice thinking for continuous stretches. Using a field experiment with 1,600 Indian primary school students, we randomly increase the amount of time students spend in sustained cognitive activity during the school day—using either math problems (mimicking good schooling) or non-academic games (providing a pure test of our mechanism). Each approach markedly improves cognitive endurance: students show 22% less decline in performance over time when engaged in intellectual activities—listening comprehension, academic problems, or IQ tests. They also exhibit increased attentiveness in the classroom and score higher on psychological measures of sustained attention. Moreover, each treatment improves students’ school performance by 0.09 standard deviations. This indicates that the experience of effortful thinking itself—even when devoid of any subject content—increases the ability to accumulate traditional human capital. Finally, we complement these results with quasi-experimental variation indicating that an additional year of schooling improves cognitive endurance, but only in higher-quality schools. Our findings suggest that schooling disparities may further disadvantage poor children by hampering the development of a core mental capacity.

Here is the full paper by Christina L. Brown, Supreet Kaur, Geeta Kingdon & Heather Schofield. What are you doing to improve your cognitive durability?

And don’t forget that the Candidates’ Match starts today!

Germany is not really with the Western alliance

Germany has proposed basing most of the 3,500 extra troops it plans to contribute to Nato forces on its own soil rather than in Lithuania, significantly softening its initial backing for more foreign forces to be stationed in the Baltics to deter any potential Russian aggression. Vilnius and other capitals on Nato’s eastern flank have in recent weeks called for an increased military presence on their territory. German chancellor Olaf Scholz expressed support earlier this month for boosting the multinational troop presence that rotates every six months in the region. According to western officials, Berlin’s latest proposal is for a brigade to be stationed in Germany and deployed to Lithuania — where it has led the existing 1,000-strong multinational battle group since 2017 — only if needed.

Here is the full FT piece.  And how many heavy weapons has Germany sent to Ukraine by now?  Any?  People, as I have noted repeatedly it is time to wake up on this one — there is something rotten at the heart of the Western alliance, and it has been obvious for many years.

Cork notes

It is a lovely town to walk in, seems to have better weather than Dublin, and Honan Chapel is to my mind Ireland’s single greatest sight.  Most of the time, you can look around in any direction — not just the best direction — and see pleasing sights.  So I can heartily recommend a visit.

But I am puzzled by the near-complete absence of restaurant food, at least in the city centre.  You can walk for half an hour and maybe see only one or two places you would even consider eating in.  Especially at lunch time.  So many places open at five.  Other places close at three.  I’ve not been looking for “a standard mid-level pizzeria,” but at times I would have settled for one but I never saw one.  Not once.  There are a reasonable number of coffee places that serve some sandwiches.  Only a small number of pubs serve much food.  I saw two Chinese restaurants, neither of which seemed appealing.  I walked for at least ten minutes from the main cinema down a main street — nothing, not one place to eat.  Many neighborhoods, whether residential or commercial, seem to have zero restaurants whatsoever.  No fish and chips takeaways either.

I looked for Indian food, and was pleased to walk by Eastern Tandoori across from the opera house.  The wooden sign out on the street says they open at 5 p.m.  But they don’t, and if you dig deep enough on the web you will find they are closed until July 1.  I didn’t find any other (actually open) Indian restaurant to eat at.  I ate at Ignite (Pakistani, and quite excellent).  Their Facebook page says they open at noon, but alas no they open at 5 p.m.  Many other restaurants exist on paper but seem to never open, and this is in a prosperous and bustling town.  It is easier to find a barbershop here, or a book store.

The English Market, the main place to buy raw ingredients in town, is excellent.  It has one OK cafe upstairs, and that closes well before dinner time.  It is fine for a chowder and some smoked trout spread, but not too much more.

Nor is the city inundated with American fast food.  Nor does Dublin have this problem.

Within an hour of Cork city centre, there are numerous excellent restaurants, including with Michelin stars.  Cork is set in the heart of Irish food country, believe it or not.  Breads and cheeses are excellent.

So what gives?  Why are the corporate entities here so reluctant to sell me cooked food?

You should be rooting for Boris Johnson

On Northern Ireland, at least.  To be clear, a) I know he is proposing to break the agreement with the EU and thus break the law, and b) I know this may be unwise for matters of prudence because the EU is likely to retaliate.

Still, just about every “establishment writer” I am reading can only tsk-tsk to Boris Johnson.  He may not succeed, but you should be rooting for him to succeed and we should all be willing to say this.

If Johnson succeeds, the previous “Protocol” will go away and free trade between Northern Ireland and the rest of the UK will be restored.  That would be a good thing.  There would be more free trade in the short run, and furthermore a backdoor to free trade between the EU and the UK, the magnitude of that change in the longer run being unclear.

The EU doesn’t have to retaliate.  They shouldn’t retaliate.  At current margins of support, they don’t need further punishment of those seeking to leave the EU.  Furthermore such punishment would in this case be unjust, even though it is in accord with agreed-upon international law.

So go on, do all the “tsk tsk” you want, but also put the mood affiliation aside.  At the end of your column add the simple sentence “But of course I am rooting for Boris to succeed!”

For those who need it, here is some background information.

What should I ask Byron Auguste?

I will be doing a Conversation with him.  Here is one take:

Byron Auguste is…the CEO and co-founder of [email protected], a nonprofit organization that seeks to expand access to career opportunities so that all Americans can work, learn, and earn to their full potential in a dynamic economy.

Prior to co-founding [email protected], Auguste served for 2 years in the White House as deputy assistant to President Barack Obama for economic policy and deputy director of the National Economic Council, where his policy portfolio included job creation and labor markets, skills and workforce policies, innovation, investment, infrastructure, transportation, and goods movement.

Until 2013, Auguste was a senior partner at McKinsey & Company in Washington, DC, and in Los Angeles, where he was elected principal in 1999 and director in 2005. He also served as a member of the boards of trustees of The William and Flora Hewlett Foundation and Yale University.

…Auguste earned a B.A. summa cum laude in economics and political science from Yale University, where he was awarded a Truman Scholarship and the James Gordon Bennet Prize, and he holds an M.Phil. and D.Phil. in economics from Oxford University as a Marshall Scholar.

So what should I ask him?

Wednesday assorted links

1. “Since 2013, Stanford’s administration has executed a top-to-bottom destruction of student social life.

2. Interview with Amia Srinivasan.

3. Did China detect signals from alien civilizations? (Bloomberg)

4. Why don’t economists write more fiction?

5. Bryan Caplan is seeking an in-person Japanese tutor for his 12-year-old son, Fairfax area.

6. Sharon Oster obituary, RIP (NYT).