01 May 2016

Land of the Cake Eaters, Home of the Wretched

Overture:
"Let them eat cake."
-- Marie-Antoinette

As presaged in these essays over the last few years, we live at the beginning of the Revenge of the 1%'s War On The Others. Economic and political democracy is just social tribalism codified. It worked because most of a society bought the notion "We're all in this together", notably in the USofA post World War II. The political and economic leaders still remembered the shared burden of world war, and carried the spirit of the whole tribe in their actions. Over the intervening decades, these leaders faded from the stage, replaced by Roark wannabes. We get The Great Recession as our reward.

These musings have, on occasion, asserted that the lurking problem with rising income concentration is that this alone will spell the end of the 47%, and in due time, the 99%. Now, we have concrete reporting that the lurking is over, and the Huns have declared the war. What is now happening is the 1% are actively refusing to pay taxes, since, of course, they don't need public services. Only the lazy and shiftless do.

Along with Citizens United and voter suppression, the Rabid Right has left stealth mode. You can't have an economic and political democracy if only the 1% get to participate in both venues. You get autocracy. Trump likes Putin. Now you know why.

Robert Frank, of "What's the Matter With Kansas" (and last Friday's Maher show):
Our top-heavy economy has come to this: One man can move out of New Jersey and put the entire state budget at risk. Other states are facing similar situations as a greater share of income -- and tax revenue -- becomes concentrated in the hands of a few.

In the thrilling days of yesteryear, when the middle classes really, really had most of the GDP, progressive tax rates produced relatively level tax revenues; a nickel from everybody added up and everybody had the nickel to give. Now
With the top tenth of 1 percent of the population reaping the largest income gains, states with the highest tax rates on the rich are growing increasingly dependent on a smaller group of superearners for tax revenue.
not so much.

Not surprisingly, the coasts are the places where this has happened. Finance in the east, web/tech in the west.

The 1% have started the snowball rolling down the hill to The Final Depression, wherein they reap the "reward" of deflation on their accumulated moolah. Since they, as a class, can't figure out how to make real investment, they hoard cash and blame The Fed, ECB, and BoJ for keeping low interest rates. Bullshit. The likes of Tepper have been stampeding into Treasuries, demanding high returns on the public's money that they can't get in commerce. All that tsunami of moolah does is bid up bond prices and the interest rate down. Some folks are just plain stupid; well and demanding money for nothing. Their revenge is to implement a global crash, thus raising the "value" of their cash hoard. You watch.

29 April 2016

I Was Having Prostrate Difficulties

Overture:
But [productivity] is also really hard to measure, particularly for service firms. (How productive were employees at Facebook, or your local bank, last quarter? Have fun trying to figure it out.)
-- Neil Irwin/2016

More times than I can count, these essays have mentioned that productivity software (word processing, spreadsheets, and word processing) has never been shown to actually improve productivity. Particularly the GUI-fied types: it's just more fun to play with the sizzle than to worry about making a really good steak.

Alas, both Dr. Gordon and the article linked to in the Irwin quote fail to pursue the nature of economic growth in the world today. For too long economic growth was deemed a result of population growth; in order to have economic growth we must have a growing population. While that was, sorta kinda, true in pre-industrial economies, it ain't so no mo.

We now live in a world constrained by diminishing natural resources and diminishing vectors of discovery in the macro-world. Cosmology continues to discover new artifacts "out there", but here on the Blue Marble we know all there is to know about how nature works. Even in my remaining lifetime (if the wife doesn't do me in prematurely) the limits of science and engineering of semi-conductors will be reached. The crash of Apple shareprice can be traced back, without too much gymnastic difficulty, to the diminishing returns of electronic tech. Reporting, for which I didn't save any links (but you can find such, I expect), from China is that the latest iPhone isn't much coveted there. That the 6S models aren't meaningfully different/better than earlier ones no longer excites even the most ardent fanbois to raise a defense.

So: the questions boil down to how to generate economic growth and how to measure it. A suggestion follows.

It's the distribution. Income distribution, that is. Economic growth in a [post-]industrial economy isn't driven by population growth. Back in the 19th (and, perhaps, early 20th) century, when production was skewed to survival necessities, then such an argument held some water. If you're a farmer growing wheat or a factory making shirts, you understand, implicitly, that one individual can consume only so much bread and have need for only so many shirts. In order to sell more wheat or shirts, you look to vigorous breeding. Failing such breeding occurring, how about importing hungry migrants? Well, the USofA did just that.

With a service skewed post-industrial economy, having yet more poor mud people doesn't help the situation. The stuff they need is mostly made in China and other Far East countries. American ownership of such production facilities improves profits, but does nothing for domestic growth.
The government has now made a significant change in the gross investment number (I), which now includes research and development (R&D) spending, art, music, film royalties, books and theatre. This change in GDP statistics has not been implemented elsewhere in the world. So the United States is the first to accomplish this rewriting of the GDP number.

Adding such fantasy sectors to GDP only serves to encourage more sizzle making rather than steak making. GDP really, really should only include the stuff that most folks consume.

More than ever before, distribution matters to support aggregate demand, since much of what is produced inside our borders is service to the moneyed class. We need to grow the moneyed, and near moneyed, class. Perpetual concentration of income and wealth does just the opposite, and constrains growth.

Growth, even following Gordon's limited view, is driven by expansion of knowledge of the physical world we live in. Art and film are nice, but don't mean much in the scheme of things. More sizzle, less steak. A Mr. Fusion would go a long way to supporting growth with a static population. One can only hope.

Cue the Flomax commercial. And a tip of the hat to Andy Sipowicz.

27 April 2016

Dr. Gordon Was Right

Overture:
As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles
This quote is part of the permanent preamble to one version of these endeavors. Today's essay was going to deal with the Death of Apple, but, of course, Apple isn't dead and a more interesting bit of reporting passed by my eyeballs.

To wit, this piece by Randall Stross on who's to blame for the Theranos fiasco. In a nutshell, the real quants figure out the snake oil, while the fools did not.
Part of the company's appeal was the familiar origin myth of Theranos's founder, Elizabeth Holmes, who, like Bill Gates and Mark Zuckerberg before her, dropped out of college in order to found her company.

That might impress some social media investors, but in life sciences, everyone puts in years of formal study just to earn a seat at the table. For example, at MPM Capital, a venture firm that invests in life sciences, almost every one of its 20 investing directors and partners has either a Ph.D. or M.D., and one has both. Even the general counsel has a Ph.D. in cell, molecular and developmental biology.

Real quants are difficult to flummox: the scientific method matters in science, but not so much in web driven social networking apps. There's a reason dropouts can get rich doing the obvious: their limited vision makes the obvious appear unique. Real science doesn't give a rat's ass about such playthings.

So, back to Apple. I, proudly, was/am in the orbit of Dr. Gordon's book, and have mused about the relevance of his conclusions (mine, too, and long before I read the book). One phrase that he repeats, in various forms, throughout the book is, "it could only happen once". My standard example is the periodic table; in three ways. First, humans don't invent elements (molecules, yes), we merely find them. Second, once we have found all of them, we have hit a wall of infinite depth and infinite density. They ain't no mo, Billy Bob. And, third, as we found new elements, we devised new devices. The transistor wouldn't be possible before the discovery of germanium: "Historically the first decade of semiconductor electronics was based entirely on germanium." Without new elements to find, the momentum to make new devices ebbs. We are in that perpetual future.

The same is true of iPhone. Not the first smartphone, but Apple had cornered the supply market of cap touch screens, so they had that sort of smartphone to themselves for a couple of years. A natural monopoly, commercially created. Also note that iPhone was the first, and only, product that moved Apple's revenue/profit needle. Ever. It can only happen once. The TAM is satisfied. Eccles must be grinning from ear to ear.

Some, perhaps most, of Apple zealots keep bleating about how Watch will be the next iPhone, what with all of these (not yet specified, of course) whiz-bang new sensors. Most of them health related. Tim and Elizabeth are getting married. There is no way FDA gives Tim a blank check to sell health devices. Not going to happen, not least because the top of the wrist is just about the worst place on the body to read internal data. QED.

22 April 2016

The Good. The Super. The Supreme. part the sixth.

It's good to be alive.
It's Super Tuesday.
It's impossible for the Rabid Right to get it's way with the Supreme court.

Regular reader may recall the proposition that motive and incentive always trump (hehe) data when they are in conflict. With the passing of Scalia, the RR immediately looked at the data, their control of the House and Senate, and pronounced that there would be no Obama replacement. They intended to get a Super Scalia, i.e. more rabidly right, next year.

My, how bad was that assessment? Earlier today I saw a headline that Obama is to meet today with Republicans to discuss appointment. At the time of the passing, I allowed (although not until now in print) McConnell was out of his mind.

Here's the situation. If the RR double down on the election, what's the likely outcome? We won't know until tomorrow morning, but the candidate will be either Trump, Rubio, or Cruz. None can win the election, whether against Sanders or Clinton. A bold statement, but Trump is a wacko billionaire, and the other two are paid for by wacko billionaires. Not only is the RR certain to not win the White House, if it pushes its KKK agenda, it will lose both House and Senate; the latter with greater certainty.

So, McConnell et al face a simple wager: get a "moderate", less than Super Scalia, now or risk another Ginsberg in a year. Such a deal?

[part 2, 3 March]
As any Ph.D. quant or desperate stockmarket plunger knows, odds on an outcome change as the event's time approaches. In the case of sports events, the bookies adjust odds to keep the amount of moolah going to each outcome about equal. The same might be said of political events. If events proceed as at present, Trump becomes more unstoppable toward the nomination. As that happens, the RR has to gauge whether they can get a Trump White House, and if so whether he'd nominate a Super Scalia. Both are highly unlikely.

Here's a bit of Kristof
Me: He has a reputation as a straight shooter, but he lies. When PolitiFact was choosing its "lie of the year," it found that all its real contenders were Trump statements -- so it collectively awarded his many campaign misstatements the "lie of the year" award. And in backing him, you're pretty much guaranteeing a Hillary Clinton presidency. Indeed, because of Trump, the betting markets are now predicting a Democratic Senate as well.

Voter: Come on! Trump proved all of you pundits wrong again and again, and he'll do so again. And even those betting markets you like to cite -- they show Trump with at least a one-in-four chance of being our next president, and that's while other Republicans are trying to rip him apart. Just wait until the party rallies around Trump.
[my emphasis]

And, as expected, Obama is floating a "moderate". Take a small chance now, or a bigger one later. Brinksmanship in action.
Naming her would escalate political pressure on Republican Chuck Grassley of Iowa, the chairman of the Senate Judiciary Committee, who spoke fondly of Kelly in 2013 before the Senate voted 96-0 to confirm her for the Court of Appeals.

Not game, set, match. Too soon, but it's political waterboarding at its best.

[part 3, 17 March]
Thanks to a raging flu, I've been bedridden, so this is a couple of days late in typing.

So, in sum, Obama has taken the predicted tack: here's an old guy, with a mixed/neutral record. If you don't take it, here's your options.
1) Trump wins, and may be you a Super Scalia. But you're just as likely to get a Sherman or Taft, if Trump is pushed to make good on his anti-hedgies rhetoric.
2) Trump gets trounced by Hillary. The most likely outcome. She'll nominate a 40-something anti-Scalia, and won't back down. Constitutional crisis, or as the Rabid Right likes to say, "elections have consequences". Moreover, Trump could (still too dim) take down the Senate. Which is the main reason the RR is so intent on getting rid of him. Cruz is no better, just sneakier.

[part 4, 22 March]
Thanks to some reporting from the NYT, we now know that Roberts, not the most truthful of appointees during confirmation called for a dialing down of partisanship.
Last month, Chief Justice John G. Roberts Jr. delivered some blunt remarks about the Supreme Court confirmation process. The Senate should ensure that nominees are qualified, he said, and leave politics out of it.

Still, only the fourth inning.

[part 5, 25 March]
Well, more pressure. Chinese water torture, sort of. Or, waterboarding, if you're of The Donald tribe.
the polls building pressure.
Senate Republican leaders have said they will not hold hearings on any Supreme Court justice nominated by President Obama because they want to wait until the next president is in office. Seventy-three percent of Americans think this is being done for political reasons, while just a quarter say it is because that's what Republican Senate leaders think is best for the country.

And the Blue State Republicans are getting squeezed.
A week ago, [Sen. Mark Kirk of Illinois], who faces a tough reelection fight, became the first Republican senator to break with the rest of his conference to call for an up-or-down vote on Garland, according to reports. Kirk told a Chicago radio station that his colleagues should "just man up and cast a vote."

One out, bottom of the fourth.

[part 6, 22 April]
In the news, GOP pulling the plug on state elections. Kind of a surprise, at least to me. The Rabid Right has taken over much of governance by the simple expedient of taking over state government. Why stop now?

The lede:
The Republican National Committee is scaling back its financial commitments to some of the most hotly contested states because of flagging fund-raising, the most concrete evidence yet of how the party's divisive and protracted presidential race is threatening the party's entire ticket in November.

Here's the pressure point: they're getting ever more worried that Trump will not only lose, but take the Senate, and worse the House, with him.
This sort of unease about Mr. Trump, along with the dislike many of the party's business-oriented donors have for the hard-line Mr. Cruz, has prompted the R.N.C. to begin privately assuring donors that it will create a so-called Senate Trust fund. Money earmarked for that fund will go entirely to initiatives aimed at retaining the Senate -- including hiring field operatives and opposition researchers and bolstering digital efforts.

If events keep following this story, Republicans will have to admit that Garland is the best they're going to get.

Drip, drip, drip.

17 April 2016

The Lease You Could Do For Me

It's been mentioned in these endeavors before, so it oughtn't be a big surprise to find another bit of reporting on the successor to sub-prime house mortgage: auto sales and leasing. Once again, capitalists seek to find a way to soak up all that automated output by a dwindling middle class with little money.

Earlier essays pointed out that auto loans, once merely 36 months, now can stretch to 84:
Car companies are also offering auto loans over longer periods of time. Edmunds.com found that more than 27 percent of all new cars sold in the first quarter went to customers who took out loans lasting 73 to 84 months, up from 23.4 percent in the same period a year ago.

Long distance auto loans will have some side effects:
- total cost goes up
- more profit to the lender (often an arm of the car company)
- and the subtle one; as buyers of stuff do so on long length terms, they become less eager to be economically mobile

That last needs some explanation. If your monthly "nut" grows as a percentage of your monthly income, you become more cautious. Becoming more cautious means you're less likely walk from a job that's any of illegal, unethical, uncomfortable, and the like. The big corporations win. They get more cash flow from autos. They get to sell higher priced autos. They increase the fealty of workers. What more could you ask?
Luxury makers tend to lean on leasing more heavily than more middle-of-the-market brands. For example, more than half of all Lexus, BMW, Mercedes-Benz, Audi and Acura cars are leased. Still, all automakers use leasing to some extent, and all shapes and sizes can be leased.

If you read the fine print in the TeeVee ads (be quick about it, the fine print just flashes up), the per mile fee past the "low mileage" lease terms is eye watering. More money in the car company wallet.

One of the benchmarks of the status of the middle class is per capita new car sales. Not that you'd be surprised, but that number has plunged since 1970. Here's a picture:
[give it a click if truncated]

Is it any wonder that auto companies are trying the same trick used by CountryWide (and auto companies in the past)? Don't sell on the price, but on the monthly.

09 April 2016

Gordonian Not

Well, at long last I've finished my slog through Gordon's book. On the whole, recommended. With reservations.

First, if you're among those who still believe not only in American Exceptionalism, but in its perpetual exponential expansion, you should read every page. Slowly. On the other hand, if you're among those who understand the limits of the physical world, then a more cursory approach, at least on first reading, will do. Read the "Conclusion" section of the Part I and Part II chapters. Then finish the rest verbatim. Go back and sample the full I/II chapters at your leisure or interest.

The book is an odd duck, in economic treatise terms: while there is a tsunami of data, it's only graphed or tabled. Not a regression or other inferential derivation to be found. Some graphs have an undefined "trend" line, presumably regressed but not shown. Nearly all of the data is macro, and thus suspect. We've been over that before. Just read through the full BLS (or BEA, or ...) report for either weekly or monthly unemployment to see how wonky that data is; variance large enough to make your eyes water. I'm no fan of Big Data, but stratified random sampling is really rock science and data collection from entities that have no interest in being honest, well... And this is 2016.

So, what's wrong with Gordon? Let me count the ways.

1) He spends most of the book describing how the consumer experience has changed over the period of interest, 1870 to 1970. Whether that's progress is a real question. Some parts of his description qualify: the notion of "networked" housing; having gas, electricity, piped water, piped sewer, and telephone is significant observation. On the other hand for instance, he attributes "progress" to changes in the nature of TeeVee, from tiny, round CRT circa 1950 to today's 40" LCD Leviathan. This isn't progress, since it's still just TeeVee. The main effect of this change is to shift entertainment dollars from cinemas and such to TeeVee. Much of what he talks about comes under the rubric of "psychic income"; the new version of a widget is smaller, more expensive, uses more power, is more automatic, etc. so it must be "better". Tell that to the vinyl junkies who wouldn't touch a CD, even to use it as a Frisbee. The notion that the PC has more "power" than mainframes of 1970 is also apples and oranges: what makes a mainframe useful isn't its cpu, but the whole infrastructure. Today's IBM mainframe cpu is built, mostly, using IBM's microprocessor tech.

2) He buys into the Moore's Law meme. Here, too, is mostly psychic income. While the PC did change work life, it didn't really change it as much as most civilians believe. Yes, the Big Three white-collar office applications (word processing, spreadsheets, and word processing) were conducted differently. Again, not as much as one might think. In a footnote, he remarks that his mother had written an entire book with MultiMate from 1975 to 1977. That's physically impossible, directly. MultiMate (an application I taught in one of those vampire squid for-profit computer schools in the late 80s) was an unauthorized clone of the Wang (mini-computer/ChUI-terminal based) Word Processing System; it didn't exist before the IBM/PC. More to the point: PC based word processing didn't really become important until PC supporting networking was created, with NetWare. To make matters worse for Gordon's thesis, studies which demonstrate that GUI-fied office software make offices more productive are few and far between. None that I can recall. More than a few reflect my experience: WYSIWYG office automation applications lead to folks worrying about the sizzle and ignoring the steak. The London Whale did his damage running an Excel spreadsheet he didn't create nor understand. "I have no idea what this memo means, but I do like the font I chose."

(aside: also in the footnotes is one where he attributes the repeal of Glass-Steagall provisions to Clinton. Wrong. The legislation was the Gramm-Leach-Bliley Act (rabid rightwingers, all) which was not from the administration, but those three. Clinton signed it, only.)

3) He pays insufficient attention to physics. The underlying tech which has driven American Exceptionalism is filling out the periodic table, the understanding of the Bohr atom (which supports how molecules are constructed from each new atom), and an unmatched level of natural resources, chief among them fossil fuels. But iron ore and the soil of the Great Plains matter just as much. As the periodic table was filled in, new elements became available. Everything from light bulbs to microprocessors could only happen with a complete periodic table. And only with fossil fuels could aluminum, for example, even exist.

4) He ignores, for the most part, that growth comes from physical capital, but all of the data he cites is fiduciary capital. Most economists make the same mistake. They're just accountants with phat heads.

5) He ignores the forced cost increase for some of these "innovations". While cable/sat TeeVee offers up more variety, if "Swamp People" et al qualifies, the cost of access is not trivial. Same for cellphones.

6) He pays too little attention to the effect of distributional decline; not that he ignores it, but he doesn't make the connection between growth and distribution. An "Economist" article:
They reckon that when growth falters, inequality is often a culprit.

Growth, by definition, has to be demand driven. Say was an ass. Trump, trickle-downer in chief, keeps harping on 20% unemployment, but his agenda is to increase income and work inequality. That would help, yeah. Even some of the so-called Progressives insist that USofA should be more vigorous breeders. WTF??? How does having ever more, ever more poor, mouths to feed help in paying for keeping old foggies alive a few months longer? It won't, of course. Growth is driven by demand, and viewed in a long historical lens, growth appears to be driven by population. When most goods were consumed broadly, and made similarly, more bodies meant more demand. But with increasingly inequality, more bodies has much less effect. And the 19th and early 20th centuries were times when much of the world's resources were not even yet known. Now, said resources are under stress, not least water; although overloaded California reservoirs is mostly about skewed distribution of the El Nino effect. For most of that time, production of stuff necessitated more humans to do the work. Not so much now and in the future. Growth can only come from a vast Middle Class, spending money on stuff. Or a proliferation of goods and services only for the 1%. Which is to say: the end of mass consumption. Which is to say, further, the end of mass production. That would not be good for capitalists who've automated most labor out of production, no matter what they may think today.

7) He pays too little attention to why real interest rates remain so low. Only physical investment creates new value; fiduciary investment (and that includes real estate) is just stealing from Peter (someone's current consumption) to pay Paul (someone else today or tomorrow). The answer, of course, is that the CxO class can't find useful ways to turn moolah into machines. The knock-on effects of that are far more significant than all the historical data and inequality arguments combined. It means that individual savings can't earn anything resembling what the insurance and banking TeeVee commercials imply. Giving moolah to corporations that already have more moolah than they know what to do with is stupid. It's just hoarding money and reducing demand by reducing consumption. That will end badly for all except the .1%. Dee Feat is in Dee Flation.

So, on the whole, worthwhile. But, on the whole, doesn't get to the nub of why progress is slowing down. And those reasons are:
1) humans know about all there is to know of the macro world; there's no more elements to discover
We wanted flying cars, instead we got 140 characters.
-- Peter Thiel
[epigram to chapter 17]
2) the failure of progress too closely tracks the destruction of the middle class to be coincidental
As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles

Liar, Liar

The rabid right wingnut Republicans keep saying that the Damn Gummint caused the Great Recession. It was, in fact, caused by banksters just as the Great Depression was. Now, we get a bankster admitting it fudged the numbers. As usual, motive and incentive™ trumped the data.
According to the settlement, Wells Fargo "admits, acknowledges, and accepts responsibility" for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance.

The bill?
Wells Fargo & Co admitted to deceiving the U.S. government into insuring thousands of risky mortgages, as it formally reached a record $1.2 billion settlement of a U.S. Department of Justice lawsuit.