Short Facebook and Don’t Buy California’s High Speed Rail Bonds

For those who look to economists for investment advice,  in two blog entries posted here , I suggest that you short Facebook stock and avoid investing in California’s high speed rail.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

11 thoughts on “Short Facebook and Don’t Buy California’s High Speed Rail Bonds”

  1. “…avoid investing in California’s high speed rail.”

    If only California and the Feds would do the same.

  2. One should separate discussion of the actual merits from discussion of the advisability of investments.

    There are, I’m afraid, no actual California HSR bonds to avoid investing in. The State will issue General Obligation bonds to raise any sums appropriated. One assumes the Treasurer will issue bonds for all the budgeted bond appropriations simultaneously, so it won’t even be possible to distinguish which are for HSR.

    Shorting Facebook is a question of timing. As Keynes probably didn’t say, “the market can remain irrational longer than you can remain solvent.” There’s no guarantee that the Facebook bubble will have popped by June 2013.

    But, of course, you’re right on the merits. California shouldn’t continue on its increasingly dubious HSR path. And Facebook is a passing trend (though it’s always dangerous to extrapolate from a sample of one).

  3. If there ever are California HSR bonds, I imagine they will be lousy investments. That doesn’t really go to the merits of the project, the benefits of which will tend to flow into land rents and labor income for people in the vicinity of the line, and will not be available for capture by the operators of the HSR line, itself. That’s a general feature of high-sunk-cost transportation infrastructure investment, which is why it is often financed by governments levying property and income taxes.

    The constraint on advertising would seem to me, to be people’s time and attention, not screen size. The benefits of the advertising to society, at the margin at least, would seem even more dubious than the putative benefits of HSR. At least HSR is likely to deliver some people to places they want to go; advertising seems mostly to annoy and interrupt our attempts to get on with life.

    Perhaps, we might consider taxing advertising to finance UCLA, Wikipedia, public broadcasting and other sources of at least potentially genuine information, driving out the “bad” currency of advertising, while increasing the available supply of the good.

    1. Wikipedia needs to clean up its model before it can be a reliable source of good information. As best I can tell, Wikipedia is useful in three modes.

      If you are already an expert in a field, Wikipedia is useful as a memory jogger. An expert already has the knowledge to recognize BS when it appears on Wikipedia.

      If you are interested in some popular phenomenon and you aren’t making any crucial decisions on the basis of the information, Wikipedia gets updating almost immediately. For example, I fully expect that Stephen Hawking’s death will appear on Wikipedia within minutes (less than hour, certainly) of its happening. That’s just the nature of the beast.

      If you have some knowledge but are not an expert in a field, Wikipedia can (but will not necessarily) provide pointers into the literature.

      What the current generation of college students seem to be unable to grasp is that Wikipedia is much closer to Borgia’s universal Library than it is to an authoritative source.

      As long as any knucklehead can edit Wikipedia, as long as Wikipedia entries are not peer-reviewed for correctness, Wikipedia has to be used with great care.

      1. Borgia’s universal Library

        Is this the one composed entirely of tomes about various poisons?

        1. Indeed. With detailed descriptions about your and my lingering deaths from each of them, only a very few of which will turn out to be true. The Borgia Library (access only by permission, rarely granted) is a wing of the Borges Library, but it’s it’s still infinite. Only cardianals may know its cardinality.

  4. While it’s always hard to predict, I think you’re mistaken about Facebook. Online social networking isn’t going to go away. And for a bunch of reasons — timing, really smart marketing (particularly getting to the youth market by tying the network initially to school populations), better interaction and functionality — Facebook managed to be the beneficiary as this trend took off, displacing Myspace and for that matter the even earlier Friendster, as well as a number of other networks. Eventually the question of who owns your information may start to press on people in a bunch of ways, but until it does, there’s already a huge barrier to moving away from them for an enormous percentage of the population, and by the same token a huge attraction towards them by people who haven’t yet started using these kinds of services.

    It’s a tremendously interesting idea and the level of technology involved isn’t particularly high (scalability aside, although this isn’t a challenge unique to them). Their cost structure is low; each new customer is an annuity. Things will change radically in 20 or 50 years; but I wouldn’t bet against them over the next 5-10.

    1. Yes, but none of that means that the stock isn’t seriously overpriced. I’m pretty dubious that Facebook will be able to generate enough revenue to justify what people are paying for it right now. That says more about how much people are paying for it than the basic viability of the business model.

  5. “California’s High Speed Rail will likely cost $100 billion dollars to build and operate. Who should pay for this? Given that the bulk of the benefits of this project will accrue to the people of California, it’s not crazy to ask the people of California to pay for it.”
    This is why I oppose any of my state tax dollars paying for things for people in other cities, and why I oppose my local tax dollars going to pay for things for people in other neighborhoods. This is also why I live in a bunker filled with cans of Spam.

    1. “Given that the bulk of the benefits of this project will accrue to the people of California,”

      Ah, if only the benefits would accrue to “the people of” California, rather than “a relatively few people in” California, it might have been a more reasonable investment. That it will be the latter rather than the former is one of the things wrong with the projects.

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