The Latest Video Game Controversy

Battlefront II promotions at a gaming convention

Video games have evolved greatly since I was a kid back in the 1980s. But even more noteworthy is the evolution of the business model around video games, and that is what’s recently led to one of the biggest video game controversies of all time.

The original model

The obvious way to make money from a video game is to sell it, and that’s how it worked for decades. The company would create a video game, put it in a box, and ship it to electronics stores. The consumer would come in, buy the video game for, say $50, install it on their computer, and play the game as much as they wanted.

This is the typical software model, and compared to other businesses, this is a fantastic way to make money because the marginal cost of an additional sale is negligible. You’ve put a bunch of effort into creating the game, but once you’ve created software, the cost of manufacturing the box and the CD for delivering the game is almost zero. So, if you have a big hit, your video game company ends up with super-high margins.

The problem with this model—if you’re a video game manufacturer—is that you aren’t making enough money and you have no recurring income. If you want to make more money, you have to create a new game, and attempt to sell it to consumers all over again. You have to find new customers for every sale.

Strategies to avoid this problem

There are a several of ways to avoid this problem. One is to sell the same game with slight differences year after year. Electronic Arts (Nasdaq: EA) is the master of this strategy with its sports franchise, creating a new version of its game every year. What’s more, since many of these games are multiplayer, old versions of the game are rendered obsolete as the player base migrates to the latest version. Thus, though the game play evolves slowly, customers still have significant incentive to upgrade every year.

The second way to avoid this problem is to not sell the game, but rather sell monthly subscriptions to the game. This method is popular with massively multiplayer online (MMO) games like World of Warcraft. In such games, a massive world fantasy world is created, and, for a monthly subscription fee, players can adventure in that world with their online friends for as long as they want. Thus, the software provider gets an ongoing revenue stream from the monthly subscriptions.

The third strategy to avoid this problem is to not sell games or subscriptions, but rather sell virtual goods within the game. The software provider gives their software away for free, but charges for skins (different character appearances), weapons, abilities, or characters in the game. Essentially, the software developer is selling nothing physical, but deliberately engineering a “rarity” into the game, and then charging its users if they want access to that “rare” item.

And I use rare in quotations, because it’s not really rare. These are all virtual goods. The software company can create as many items as they want out of thin air. It’s only rare because the software company chooses to only give those items to people who pay.

If the items that can be purchased are extremely good relative to other items in the game, then the game becomes know as “pay to win”. Essentially, you can’t become a top player without spending large amounts of money. For instance, in a first-person shooter game game, maybe the company sells an automatic machine gun for $100 when everyone else only has revolvers, and the machine gun does fifteen times the damage of any other weapon. Realistically, you can’t be competitive in the game without owning a machine gun.

The seeds of a customer revolt

The interesting thing about these “virtual goods” games is that they often make huge amounts of money, particularly in the mobile universe. If you look at the top ten games that earn the most on both Android and iOS, most use this “virtual goods” model.

One of the most popular games right now, another Electronics Arts game, is called Star Wars Galaxy of Heroes (SWGOH). In SWGOH, you do battles with a team of Star Wars characters, and as a reward, receive “shards” of other Star Wars characters. When you have enough shards, you can unlock a character and use him or her in your future battles. Of course, if you’re an impatient type, you can also spend money to buy shards, essentially buying characters.

To further improve the economics of the business model, SWGOH has special events that unlock super-powerful characters. These events only come along a few times a year, and require certain prerequisite characters to participate. So, while it might take months to unlock a character, Electronic Arts will give perhaps a week’s notice of a special event that requires certain prerequisites. So, people who want the super-powerful character will have no option except to spend large amounts of money to obtain the prerequisite characters before the event vanishes for months.

This model has proven very lucrative for SWGOH to the extent that Electronic Arts isn’t really even trying to sell to the people who are willing to spend less than $100 on virtual goods in the game. Instead, they’re targeting people who will spend thousands. Based on the math of how much characters cost and how quickly they appear in the game, it’s very clear that some people are spending over ten thousand dollars to get virtual characters in the game. I suspect there may be people who have dropped over a hundred thousand dollars on the game.

Electronic Arts’ mistake

Electronic Arts has another Star Wars game that mostly uses the old “sell the software and play as much as you want” sales model, a first-person shooter called Star Wars Battlefront. I imagine Electronic Arts looked at the in-game purchases an SWGOH, and decided that they wanted some of those sweet in-game purchases in Battlefront II.

So, while charging $80 upfront for the game, they decided to lock the iconic characters such as Darth Vader and Luke Skywalker. To unlock anything other than the most generic of characters, you needed to either play the game for a long time—I’ve seen estimates of 4,500 hours to unlock all the characters—or pay about $2,100 to EA.

Thus, EA wants their customers to pay $80 for a game, but then not actually deliver the game they promised with all the cool Star Wars characters. Instead, they want to force their customers to pay large sums to actually unlock the key content.

This decision led to an uprising among gamers. When EA attempted to defend its decision, it claimed that it wanted players to have a sense of pride and accomplishment when they unlocked the top characters. That comment has received the most downvotes of any comment on Reddit.

Players know why EA crippled their own game, and it wasn’t to create a sense of pride and accomplishment. If EA truly thought the sense of pride and accomplishment coming from unlocking characters was important, they certainly wouldn’t allow people to unlock character simply by spending money. Where’s the pride and accomplishment in that?

The comment was so widely derided that now the phrase “feel as sense of pride and accomplishment” has become a euphemism for gaming companies deciding to screw over their customers to get money. “Pride and accomplishment” now means “pull out your wallet”.

The short term consequences

Amid the uproar and pre-order cancellations, Electronic Arts finally took a small step backward, deciding to eliminate in-game purchases temporarily. But, it’s pretty clear in their blog entry about the change that while they are desperately looking for a way to appease their customers in the short term (because if people don’t pony up the $80 for the game, EA won’t make anything from it), they have every intention of bringing back in-game purchases when things have calmed down.

After all, to Electronic Arts, it’s not about ethics or honesty. It’s about money.

My bottom line

To me, this evolution is good and bad. I like games that are free-to-play because I’m cheap. I won’t spend money on a game if I don’t need to, and, if the game can’t be enjoyable without spending money, I just won’t play it.

On the other hand, I’m not a fan of the idea of charging people for a game, giving them broken content, and then forcing them to pay even more to get the game they were promised in the first place. To me, that is fraud.

Though I suspect that Electronic Arts will never see a problem with the business model, I still find the occasional reason for optimism. One gaming company has recently abandoned the free to play model because they have ethical concerns about it. I find their rational behind that decision fascinating.


My Evolution as an Investor

Ape to businessman. Are they really that different?

I’ve been investing in the stock market for a while, and I was just thinking the other day about how my strategy has changed over the years.

The early years

I first started investing in when I was still in high school, probably around 15 years old. I paper traded for a while using quotations in the daily newspaper, and then opened a brokerage account. My strategy at that time was based on technical analysis (TA)—essentially betting that I could predict future movements in the price of shares based on past movements.

The theory of TA is that markets move based on emotional buying and selling by traders. Thus, if a configuration appearing on a stock chart preceded an increasing stock price, that configuration likely to lead to similar gains the next time it appeared since traders will have similar emotional mindsets.

Though I made money, I gave up on that strategy quickly because the commissions were too high relative to my account size to do trading and TA didn’t have a rational enough basis to be intellectually satisfying. Stocks represent ownership of a business, so it seemed odd to me that I was trading on the basis of squiggles on a chart rather than, say, anything to do with the actual business.

University days

In my second year of university, I made my next foray into stocks. This time, I had a discount broker, so commissions were much more reasonable. What’s more, instead of squinting at pictures, I cared much more about the actual companies I was buying. I primarily focused on mining stocks, reading The Northern Miner weekly.

At around that time, diamonds were discovered in Canada’s Northwest Territory. Probably 20 companies started drilling in the region, and that formed the basis of my new strategy.

There were few roads in the Northwest Territory, and none to the location of the diamond discovery. Instead, the companies would wait for winter, then build temporary roads over the frozen lakes and tundra to get their drilling equipment in. This restriction led to an interesting cycle in these diamond mining stocks.

In early winter, the roads would be built and the drills hauled in. In late winter and spring, the most enticing targets would be drilled. In summer and fall, the results of the drilling would be be released.

The thing is, speculative mining stocks are largely driven on the basis of drilling results. When results are about to be released, the stocks often go up in anticipation. Conversely, when no results are due for a while, the stocks tend to stagnate.

So, my strategy was to buy in the early winter, months before people even started thinking about drilling results. Then, I’d sell just before the results were released. It didn’t matter to me whether the results were good or bad. I just wanted to sell my shares at a high price the shares to anyone who wanted to make a last minute bet on the results. Doing this, I’d typical make two or three times my initial investment.

Not cheap. Caring about value

This strategy worked well for several years until the speculative fervour for diamonds died down. But by then, I was ready to move on anyway—I became less interesting in gaming stock prices, and more interested in investing.

My value phase lasted for probably fifteen years. The strategy with value investing is simple. Stocks represent ownership in companies. So, figure out what that ownership is worth, and pay less than what the stock is worth.

For instance, suppose that a debt-free company owns a building worth $40 million and has a million shares outstanding. Then each share must be worth at least $40. So, if you can pick up shares for $20, you’re probably going to do well over time.

Of course, it is a bit more complicated than that. The value of a company isn’t usually that tied to its underlying assets. In fact, in real life, asset values pretty well only come into consideration when you’re looking at a liquidation. Instead, the value of a company is mostly based on how much cash it throws off as an operating business.

Thus, as a value investor, I migrated from focusing a bit on earnings and a lot on assets to not much on assets, and a lot on cash generation.

Recent Times

But if you care a lot about cash generation, the thing that really matters is how sustainable that cash generation is. Your business might make $100 million in earnings one year, but it won’t be worth much if the next year its earnings plummet due to competition. Though that might seem unlikely, there are entire industries that historically have this dynamic (resources, airlines, semiconductors etc.)

So, recently, I been focused on earnings growth and competitive advantage. The key questions to this investing approach are, 1) how fast is the company growing its income stream and 2) is it extremely likely to continue to grow that income stream for the indefinite future?

Because of compounding, if you can identify a company that can sustainable grow its earnings for two decades, that company has a huge amount of value and often that value isn’t fully reflected in stock prices. Such companies require only one decision—to buy—and can slowly make you rich.

The Bottom Line

So, that is my strategy now. Interestingly, sustainability is the probably the key attribute that Warren Buffett has gravitated towards as well. I think he’s gone that way because such stocks are often undervalued and he can buy in quantities that are significantfor Berkshire Hathaway. If it works for him, perhaps it will work for me, too.

And if not, I’m sure my investing strategy will continue to evolve.

Why I Didn’t Get the Graphics Card I Wanted

Several graphics cards connected to a motherboard

A few weeks ago, I bought a new PC with a pretty decent graphics card, the EVGA GTX 1070. I bought that card because I recently tried virtual reality, and I wanted to have a card that could handle VR. I have no immediate plans to buy a VR system, but I like the having the option to moving in that direction if I want.

It was actually quite a struggle to get a good graphics card—the one I really wanted was on back order for over a month before I gave in and went with the EVGA card. That sort of problem is rare in Canada, being unable to get a mass-produced piece of electronics that was released well over a year ago. But I think one of the main causes for the delay was the rise of cryptocurrency mining.

Huh? What’s that?

Bitcoin and Ethereum are the two most widely-known cryptocurrencies. Bitcoin started the cryptocurrency craze in 2009 by becoming the first decentralized digital currency built on top of Satoshi Nakamoto’s innovation of distributed ledgers.

In most financial computer networks—like Visa payments, Interact Payments, or even cheque clearing—transactions are reconciled through a central repository. When a purchase is made through Visa, the merchant scans the card, the transaction is sent through Visa’s network to the issuer to see if the transaction should be approved, and the issuer sends a response back to the merchant.

In such a scenario, the issuer’s database is the central repository. Every transaction goes through that repository. It ensures the buyer has sufficient funds to make the purchase, and hasn’t already spent all their cash on a transaction that happened five minutes ago.

In a distributed ledger, in contrast, there is no central repository. Instead, the data is shared across hundreds of computers that all need to agree about the state of the transactions in the system. What’s more, you need to be able to get the machines to agree on the state of the system even if a minority of the machines are actively trying to cheat the system.

How would one cheat?

Take a simple case where I’m buying a car using a (poorly implemented) distributed ledger. I pay my $40K using a transaction that gets posted to the distributed ledger, and I drive away in my car. But there’s a problem.

The ledger is distributed, so any computer can update the ledger. So, suppose behind the scenes, I have my own computer update the distributed ledger telling the other computers keeping track of the ledger that the $40K transaction never happened.

Essentially, I’m having my malicious computer lie in order remove the record of my the payment. Then I get to keep my money, and get a free car. Woo hoo!

Satoshi’s innovation eliminates this problem by introducing the idea that whatever the majority of the computers on the system thinks is the real state of the system is the real state of the system. When I buy my car, the transaction shouldn’t be considered “finalized”, until a significant number of computers (hundreds) all agree that the transaction has happened. Then, if I try to use some malevolent computers to say my $40K purchase transaction didn’t happen, the network will say, “Um, no. The transaction did happen—the majority of the network saw it, so stop screwing around.”

Thus, the whole distributed ledger network is constantly sharing what they see as the real state of the system with the majority of machines deciding which transactions are real, and which ones aren’t. The network ensures that the agreed upon ledger is consistent, so nobody can spend the same bitcoin twice.

Making the idea actually work

This is a nice idea, but it only actually works if you have a bunch of machines around the world that are constantly trying to synchronize the state of the network. It would be very easy to corrupt the network if there were only 10 machines keeping everything in synch. So, cryptocurrencies often have the concept of miners.

Miners keep the ledger synchronized, but also generate new coins by doing what’s know as a proof-of-work. For cryptocurrencies, the proof-of-work is typically a mathematical problem for which it is very difficult to find an answer, but very easy to verify whether a given answer is correct. Miners look for the solution to the math problem. When they find a solution, they broadcast the answer to the network—keeping the distributed ledger updated at the same time—and in return are rewarded with some newly-created cryptocurrency.

Thus, the miners are the glue that holds the distributed ledger system together, synchronizing the ledger and ensuring a malevolent entity can’t corrupt the system unless they control thousands of computers.

Back to my own woes

I was blaming my inability to get a particular graphics card on cryptocurrency mining, and that’s because the mathematical problem that miners must solve can be run much more efficiently on graphics cards than CPUs—easily ten times faster or more. So, cryptocurrency miners are buying up graphics cards so they can mine cryptocurrencies efficiently.

I think the card that I wanted is in particularly high demand because it’s reputed to use relatively low amounts of electricity and remain relatively cool. In mining, electricity costs money, and heat is bad for computers, causing errors and even melting chips.

Getting something back

Though it has cost me my card, I’m not bitter about the cryptocurrency boom, because the card I have is quite decent still. It has great performance, is quiet, and still remains cool.

And, it can be used to mine cryptocurrencies.

So I’ve been doing that, mining Zcash which I’ve been converting into Ethereum. Counting the cost of electricity, I’ve been making about $1.35 per day… enough to pay for my graphics card in about a year.

The Latest Greatest Show

An encapsulation of This Is Us

In North America, the new television season is about to start, and there’s one show that I’m really looking forward to—This Is Us. At the recent Emmys, not only was This Is Us nominated for best drama, but no fewer than seven actors received Emmy nominations for their work on the show. Sterling K. Brown won Outstanding Lead Actor in a Drama Series for his role as Randall Pearson.

The premise is simple: vividly illustrate the life and experiences of an extended family across multiple generations. Show the big decisions as they are made and the small rituals that make a family a family. Show love and loss, fear and pride, and how people influence each other over the years.

The same description could be applied to many other shows. But here, it really works.

A small detour

One of the big differences between American TV and British TV is that America TV usually has more episodes. It’s totally acceptable and common for a British show to have a nine episode season. Sherlock, in fact, has three episode seasons. In the USA, however, most shows have 22 episodes a season, if not more.

While more content is great, it leads to the problem that it’s actually difficult to produce 22 episodes in a year. Or at least, it’s hard to do in a high-quality way. I think that’s one reason why police procedurals dominate the airwaves—such shows are formulaic, delivering an almost identical product every week without much thought required. What’s more, this strategy means the show can be rebroadcast and syndicated in pretty well any order.

For TV shows that aren’t just paint-by-numbers police procedurals, writers take a different approach. They create filler episodes—one-off episodes that don’t advance the show’s plot or characters, but rather just take up space. While this approach does deliver programming, it tends to dilute the impact of the series.

Probably the most egregious implementation of this strategy that I’ve seen is Lucifer. Lucifer has a great premise taken from Neil Gaiman’s iconic Sandman comics—Lucifer retires from running Hell to open up a nightclub in L.A. It’s a bizarre idea, but dripping with potential. The TV show was also able to cast the brilliantly charismatic Tom Ellis as Lucifer Morningstar. With that combination, the show seemed like it would be compelling and innovative, a sure hit.

And it was compelling, until the writers realized that they needed to fill episodes. So, they took that great premise and decided to turn the series into a “buddy cop” TV show. They made Lucifer team up with a female detective, and the two of them go around solving crimes. It’s almost laughable if it weren’t so tragic—I never would have guessed that the series would go in that direction.

My only explanation for such a horrible decision was that the writers knew how to write cop shows for filler, but no idea how to write a supernatural drama. So, they decided to stick with what they knew. (And I’m really curious what Neil Gaiman thinks of that decision).

So how is This Is Us different?

In contrast, This Is Us doesn’t seem to have fallen into this filler trap. If there is filler among its 18 episodes, I certainly didn’t identify those episodes on first viewing. Every episode has meaningful developments and is cohesively tied to the episodes before and after it.

And that leads to brilliance. The show is compelling, with every episode touching your emotions. It isn’t my favorite show, but it’s the most emotionally engaging show I’ve ever watched. And by emotionally engaging, I mean, weepy. I feels impossible to watch any of the episodes and not feel pain ranging from pinpricks in the heart to a dagger twisting in the gut.

Now, I wouldn’t have thought this was possible. I always thought that in TV, you needed a long buildup, a slow ratcheting up of character and plot development over the course of a season in order to deliver the emotional impact later in the season. That’s why TV is better than movies, because you have the time to develop the story so the emotional impact can be powerful.

But This is Us blows that idea away.

Every episode advances the characters and the plot. Every episode is laden with subtext. And every episode is emotional. There is a slow build, but the writers don’t allow that slow build to stop them from creating jumbled piles of beautiful and sad moments along the path. They show each character evolve and grow, ripping our hearts out along the way.

The writers never get lazy. They deliver in every single episode. There’s just no filler in there.

The bottom line

So, I’d recommend This Is Us to anyone who likes weepy drama.  The closest TV show I can compare it to is Friday Night Lights, but This is Us takes the emotion to the next level. It never lets the audience have a break, not even for a single episode.

Seven best actor nominations for one show is kind of nuts. But I think those nominations are actually deserved.

The Most Entitled Generation

A lot of people looking at devices.

The most common word I hear being used to describe the Millennials is “entitled”. This view, almost always put forward by Baby Boomers, has become so mainstream that Millennials’ narcissism even became a cover story in Time.  The narrative seems to revolve around the ideas that a) Millennials use technology—and particularly social media—a lot (and that’s allegedly a narcissistic activity) b) Millennials are ambitious—they want to do interesting jobs and get promoted, and c) Millennials aren’t working hard (like we used to).

To me, these criticisms don’t actually seem much like criticisms. Rather, to me, it feels like the Baby Boomers are trying to make themselves feel better about their own weaknesses. Boomers as a whole don’t understand or enjoy technology and social media, so, to feel good about themselves, they have to criticize those that do. Boomers made the decision to work their lives away in boring jobs, so, to validate that decision, they need to criticize those who desire a different path.

I (a Gen Xer) think the Millennials aren’t particularly entitled, and actually deserve far more credit than the older generations have given them.

Who’s really entitled?

The Baby Boomers who are accusing the Millennials of being entitled grew up during what’s called the “long boom”, the post-World War II economic expansion. When Trump says, “Make America Great Again”, he actually means “make America grow the way it did in the 1960s”.

Why? Because the economy was exploding. Because growing up then was so easy.

The GDP was rising 4-5% during the long boom. Jobs were plentiful—the unemployment rate actually hit a ridiculously low 3.4% rate in 1968. To go to college at UPenn in 1965, the estimated cost including room and board was $3,170. At the time, the median family income was $6,900.  Today, the estimated cost to go to college at UPenn is $65,470, while the median US family income is $55,775.

UPenn is just one school, but in general, education costs have increased at a far greater rate than both inflation and incomes. What’s more, while the average American student today graduates with debt over $30,000, federally-administered student loans were only legislated into existence in 1965.

Adjust your contrast

So the baby boomers grew up in a time where education was cheap and student debt rare. When they graduated, they had few problems finding a job in the booming economy.

In contrast, Millennials are going deeply into debt to fund their education with no guarantee of a job when they graduate. The job market has been terrible for much of their adult life. In 2013, when the Time article was written, the average unemployment rate was 7.4%, while the youth unemployment rate was closer to 15%. Plenty of Millennials are taking on huge amounts of debt going to college, but often discover when they graduate that the only job they can find involves pouring coffee.

Now, someone does need to pour coffee. But pouring coffee isn’t a great way to pay off tens of thousands of dollars of student loans.

How about housing?

A similar thing has happened with housing. I don’t have housing data for 1960s, but it’s certainly true that the American dream was to own a detached house. And, in large, that dream seems to have been realized.

The Millennials, on the other hand, don’t get the house. In 1984, houses in Toronto cost about 1.6 times the annual income. In 2012, the multiple was up to six, and today in Vancouver, the multiple is above ten.

In fact, in Vancouver, a Millennial is hard-pressed even to rent. The median income is around $80K or about $61K after tax, while the median annual rent on a 2-bedroom apartment is about $38,400, or about 63% of after-tax income. Of course, Millennials, just starting their career, will typically be nowhere near the median income.

So, the Baby Boomer got their cheap education, their good job out of school, and a nice detached house at a cheap price. The Millennial, on the other hand, ends up with tens of thousands of dollars of student loans and has to struggle to rent a terrible apartment while working as a barista.

And the Boomers call the Millennials entitled because they want more than that.

My big question

Thus, the question I have isn’t why the Millennials are entitled, but rather why they’re not more bitter. They’ve really been screwed by the Boomers.

The Boomers felt entitled to tax cuts. To get those tax cuts, they drastically cut and privatized funding for education, leading to Millennials’ huge student debts.

The Boomers took on piles of debt to speculate on housing. Then, when those speculations caused a housing crash, it trashed the economy, making it far more difficult for Millennials to get jobs.

To ensure that Boomers kept their jobs despite destroying the economy, they kept interest rates super-low for a decade, causing a housing bubble that’s made it impossible for Millennials to afford a place to live.

Now, education funding, employment rates, and housing prices are complex issues. But, to my way of seeing things, the Boomers are more responsible than anyone for the horrible situation that the Millennials have inherited. I’m ashamed of them when they turn around and call the Millennials entitled.

To me, the Boomers act far more entitled than the Millennials, and it shocks me that the Millennials aren’t furious about this state of affairs.

But then again, maybe they are, but you just don’t hear about it. Because most of the media is owned by Baby Boomers.

How the Government Contributes to Racism in Vancouver

An example of real-estate racism in Vancouver

My ethnic group is in the majority in Vancouver so I might not be the best at judging things, but from reading online message boards and overhearing people in the city, I think racism in Vancouver is on the rise. In particular, the target seems to be the Chinese. It’s an awkward topic to talk about—almost certainly someone will view something in this post as racist, discriminatory, or politically incorrect, but I believe ignoring these problems because they’re uncomfortable to talk about is a really bad idea, simply exacerbating the problem.

My (completely unproven) hypothesis is that a major cause of this increased racism is increasing inequality and a shift away from whites being the dominant ethnic group. However, I think the government is playing a major role in contributing to the growth of this racism.

 My core hypothesis

Probably the biggest thing that has lead to the growth in racism is Vancouver’s housing bubble, both because it grossly increases inequality and because of the narrative explaining the bubble.

The inequality coming out of the bubble is easy to understand. Essentially, the people who bought houses fifteen years ago are now multimillionaires, not out of hard work, but because they won the housing lottery. Meanwhile, anyone who didn’t—such as those who were only ten years old at the time— is having a hard time even finding an affordable place to rent.

While the housing-lottery multimillionaires can temporarily gain a certain satisfaction from calling the millennials “entitled” for having the gall to complain that they want a place to live, even the appeal of self-righteous fades over time. Thus, as the inequality grows, people look for an outsider to blame.

As a result, a narrative is created to explain the housing bubble, and in Vancouver, that narrative is that the rich Chinese are taking over, laundering illegally-obtained money in Vancouver real estate. The real estate industry loves this story and has promoted it for years. Though most stats only show 5-10% of sales are to foreigners, realtors want their customers to believe that they need to buy now, or be forever priced out. Saying millionaires from other countries are coming to buy Vancouver houses helps with that message. Thus, people blame foreigners for the inequality, and racism starts to rise.

The foreign influence

Like most of these narratives, I believe there is some truth to the “foreign money” explanation. One real estate company claimed over a third of the single family homes it sold in a year were bought by people affiliated mainland China. Another study showed that 88% of the most expensive homes in the most expensive neighborhoods were purchased by people with Chinese names.

What’s more, recently a study came out that showed an inverse correlation between housing prices and taxable income. In other words, the most expensive real estate is owned by the people claiming the lowest incomes, while the less expensive real estate is owned by the people with the highest income.

One explanation for this discrepancy might be that the elderly live in the most expensive areas of the city because they were able to buy before prices exploded. But, the explanation that most people seem to believe is that foreigners are buying up all the houses in expensive areas with illegally-obtained money, money they don’t declare on their income taxes.

The implication is that, when it comes to paying for government infrastructure, wealthy foreigners who cheat on their taxes are being subsidized by poorer Canadians. And that narrative becomes stronger with every anecdote of foreign students and housewives buying multimillion dollar homes.

The government’s role

So, I think there is some truth to the foreign influence in the real estate market, but I think the government has had a role to play too. What’s more, government actions are exacerbating the rise in racism.

The most noteworthy action is the government keeping interest rates at emergency low levels for a decade—an action that I believe has had as big an impact on the housing market as foreigners. I’ve written about that before, so I won’t repeat myself, except to say that this is a government action that greatly increases inequalities, and therefore, in my opinion, increases resentment and racism. If the housing market weren’t bubbly, there would be no strength behind the narrative that the Chinese are taking over.

But the bigger issue is the discrepancy between the government’s policies about immigration and housing. Christy Clark and the provincial liberal government in general—who take large political donations from real estate developers—have said that that high prices are caused by limited housing supply. Essentially, they want people to believe that if we just build more condos (as their donors want), the problem will go away.

There might be some truth to this argument, but if the government truly believed this, they’d actually try to do something to curtail foreign demand as well, when in fact, they are doing nothing, or are actively encouraging foreign demand.

For instance, several stories have arisen recently about Vancouver presale condos being marketed to foreigners before locals. Clark could have addressed this issue in the foreign buyers tax she introduced—a tax that essentially blames the real estate bubble on foreigners. But instead, she made new condo sales exempt from the tax.

One great way to breed resentment about foreigners is to sell a limited amount of a highly-valued commodity, but to give foreigners first dibs, and the government to respond to this by saying, “yeah, we don’t think that’s a problem at all.”

Other immigration programs

Other immigration programs are equally to blame. If the government truly thinks supply is an issue, why is the government increasing immigration, driving even more demand? Investor immigration programs seem to come and go every few years. With those, “investors” typically either give money to the government for a few years, or agree to spend a certain amount of money in Canada (e.g. buy a house) and then they can live here. Yet the stats show that people who enter the country as refugees end up paying more Canadian income tax than these millionaire “investors”. So, the government is encouraging foreign demand for housing in Canada without actually recruiting people who want to contribute to Canada.

The Temporary Foreign Worker program is particularly egregious. Workers are imported from countries to do jobs that “Canadian’s don’t want to do”. Anyone with a basic understanding of economics knows that there are almost no jobs that people won’t do as long as you offer them a worthwhile salary. If you increase salaries, eventually you’ll find someone who will do the job. So the Temporary Foreign Worker program is actually in existence so that businesses don’t have to pay market-rates for their labor. Thus, this program both imports bodies—further increasing the demand for housing—and decreases wages. It’s yet another good way to make locals angry at foreigners.

Foreign Money

What’s more, the government seems reluctant to discourage foreign speculation in Vancouver real estate. In fact, if you’re a foreigner, getting a mortgage can actually be easier than if you are a Canadian. If a foreigner has a 35% down, that’s all they need to qualify for a mortgage in Canada.  They don’t need a credit history, or even a source of income. That’s insufficient for a Canadian, but, if you’re new in town, you’re good to go. In a way, it looks like the system is actually designed to make it as easy as possible to launder foreign money in real estate.

Of course, government agencies such as that Canada Revenue Agency are supposed to guard against money laundering and fraud. But, when it comes to real estate, they’re afraid of examining the affairs of Chinese immigrants too closely because they don’t want to appear racist.

The bottom line

Thus, Vancouver has a real estate market that’s been pushed out of the reach of locals, in no small part because of the actions of government, while the narrative—including the narrative from the provincial government—is that foreigners are responsible. The government claims supply is the problem, but takes actions to increase the real estate demand by foreigners, to the extent of giving them preferential treatment for mortgages and ignoring money laundering laws. Confronted with this powerful narrative, if you’re a local, it’s difficult not to hold foreigners responsible for your inability to afford a house.

(My personal view is that foreigners have played a role in the housing bubble, but not as big a role as the government. What’s more, I believe, the government has the means to curtail the impact of foreigners on the housing market if it chooses to do so, so I mostly hold the government responsible.)

Regardless of the truth, in light of this narrative, it’s not surprising to me that racism seems to be on the rise in Vancouver. In no small part, Trump’s ascendency was a consequence of the traditionally dominant whites in the USA struggling as globalization drove down wages and eliminated middle-class American jobs. “Make America Great Again” is a slogan designed to speak to exactly these people. Thus, it wouldn’t surprise me if traditionally multi-cultural, left-wing British Columbia sees the rise of a similar racist right-wing politician in the next few years.

Godwin’s Law in 2017

Hitler probably did compare people to Nazis....

Godwin’s law is an adage that, as a discussion on the Internet grows longer, the probability of a comparison involving Hitler approaches 100%. A corollary is that the first person in the discussion to mention Hitler loses.

I’ve been thinking about Godwin’s law, and, while there is value in not minimizing the atrocities of the Holocaust through comparisons to trivial wrongs, Godwin’s law is problematic in that it doesn’t provide any recognition of how fascism actually develops. Thus, Godwin’s law may be use to imply an argument is fallacious when the comparison is actually fair.

The rise of fascism

The issue is that fascism doesn’t appear as an overwhelming tsunami, but rather a slowly rising tide. There’s a well-known saying about the rise of Nazism that I always thought was apocryphal that is actually from a lecture by Martin Niemöller, a pastor imprisoned in Nazi concentration camps for seven years:

            First they came for the Socialists, and I did not speak out—
                        Because I was not a Socialist.

            Then they came for the Trade Unionists, and I did not speak out—
                        Because I was not a Trade Unionist.

            Then they came for the Jews, and I did not speak out—
                        Because I was not a Jew.

            Then they came for me—and there was no one left to speak for me.

Now, this is a beautiful rallying cry about the dangers of complacency during the rise of totalitarianism, but—as long as you think it’s apocryphal—it can easily be dismissed as an elegant but cynical attempt to inspire resistance. But knowing that it isn’t just a saying makes it hold much more weight.

It’s not someone’s attempt to convince me to fight. It’s a man expressing his experience. It’s not communist propaganda encouraging me to sacrifice my own interests for others, but rather Pastor Niemöller condemning himself for choosing not to act when he could have.

To me, that’s powerful. It makes me wonder how Niemöller said those words, about the expression on his face.

Tiny changes

And that brings me back to Godwin’s law. That law is designed so that trivial things aren’t compared the immense monstrosity of the Holocaust. But the thing is, fascism doesn’t start with the Holocaust. Rather, it is a parade of tiny incremental changes that only after long years add up to the deepest horror.

Milton Mayer discusses this idea in detail in an excerpt from his book They Thought They Were Free. It’s excellent writing, allowing the reader to truly understand how the good citizens of Germany could allow this atrocity to happen.

“You see,” my colleague went on, “one doesn’t see exactly where or how to move. Believe me, this is true. Each act, each occasion, is worse than the last, but only a little worse. You wait for the next and the next. You wait for one great shocking occasion, thinking that others, when such a shock comes, will join with you in resisting somehow. You don’t want to act, or even talk, alone; you don’t want to ‘go out of your way to make trouble.’ Why not?—Well, you are not in the habit of doing it. And it is not just fear, fear of standing alone, that restrains you; it is also genuine uncertainty.

“But the one great shocking occasion, when tens or hundreds or thousands will join with you, never comes. That’s the difficulty. If the last and worst act of the whole regime had come immediately after the first and smallest, thousands, yes, millions would have been sufficiently shocked—if, let us say, the gassing of the Jews in ’43 had come immediately after the ‘German Firm’ stickers on the windows of non-Jewish shops in ’33. But of course this isn’t the way it happens. In between come all the hundreds of little steps, some of them imperceptible, each of them preparing you not to be shocked by the next. Step C is not so much worse than Step B, and, if you did not make a stand at Step B, why should you at Step C? And so on to Step D.”

And this is the problem with Godwin’s law. Each step toward fascism is so small that it is trivial by itself and therefore Godwin’s law would apply. But these trivial steps are what create a fascist regime, so Godwin’s law serves us poorly.

The bottom line

This incremental change is why people should be concerned about leaders who introduce the idea of “false news” to attempt to silence and discredit their critics, who make edicts targeting particular religions, or who praise people for extrajudicial killings of suspected criminals. Fascism is about building a wall, not in a day, but brick by brick over the course of years.