22 February 2018

I Still Hate Neil Irwin - part the tenth

It's the nature of quants to be lazy, despite all the brow sweat they brag about. This laziness leads them to seek out easy data. Which, in turn, leads them corporations, i.e. the micro sector, who collect as much data as they want. And, since corporations are mostly rolling in dough, fat salaries to be had. So long as the quant doesn't find the requirement to pander undesirable. Hog heaven for the quant. The problem is that, as any macro quant will tell you: 99.44% of micro performance is the result of the macro environment. Do the CxO class, and their quant servants, really think Mr. Market's spectacular rise over the last years is due to their brilliance? The CxO class has had, at most, an itsy bitsy teeny weeny yellow polka-dot effect; almost entirely M&A to destroy competition.

So, today is another reason to hate Neil Irwin!! As stated here more than once, Say is crap. If it were true, there'd never be recessions or depressions because business would ramp production (and employment and wage incomes) in the face of falling demand. I dare anyone to cite any company that did so. You won't find one. They follow the Lemming Law: each attempts to conserve cash and profits by cutting production and employment. Thus constructing a downward spiral of global contraction. What the individual sees as rational through his own eyes, leads to a mess when everyone does it.
The latest wrinkle is that the researchers now believe that productivity growth depends not just on the supply side of the economy — what companies produce and what technologies they use to do it — but also significantly on the demand side.
...
[C]ompanies need to increase production to match demand for their goods, and a shortage, either of workers or of materials, forces them to think creatively about how to do so.

As Homer says, "D'oh!!". And, it's worth noting, McKinsey has an extreme rightwing reputation in the consulting world.
McDonald comments that apart from slashing cost by slashing headcount (increasing employee churn in order to keep costs low), there have been many instances where the recommendations that have come from McKinsey seem to focus on cold blooded cost cutting at the expense of long term staff loyalty, creating a culture of fear and short-termism in the organisational culture.

It is kind of amazing that McKinsey and Irwin seem to ask, "What would Jesus do?". Again, the repeat: go read Baumol, as well. FIRE has eaten GDP, and measuring productivity using tools created for a manufacturing economy will, by definition, show lousy productivity as GDP skews more toward services. Which is not to assert that some other measure of productivity would both be honest and at much higher levels than we've actually seen. After all, productivity is supposed to be a measure of labor output. A few years back, GDP's definition was fiddled to add IP related activity. No one seems to ask the fundamental question: is there any productivity benefit to a mobile phone that runs "Candy Crush" 10% faster???

Here's a long-ish article making these points.
A problem with GDP even when it is being asked to do nothing more than measure production is that it is a relic of a period dominated by manufacturing.

Just like I said. Of course.

21 February 2018

A Brother From Another Mother

We all now know, beyond doubt that Dear Leader is an illiterate moron. With the brain of chicken, as Connie used to say when she did something silly. Orange Julius Caesar does nothing else. So, today brings us some stark contrast.
"How did you end up here, Marilynne? What happened? Was it libraries?"

In 2015, President Obama sought out the novelist Marilynne Robinson, the author of the acclaimed Gilead trilogy, for a wide-ranging conversation. They spoke with the ease and deft mutual flattery of friends, touching on democracy and education, their Midwestern roots and love of literature. Obama's question lay at the crux of their discussion.

Is there any way to imagine Carrot Top even considering books???

Here's the quote that made me stop.
As a child, her teachers told her, "You have to live with your mind your whole life"; they taught her the value of building it, making it worthy. It was, she has said, the most important lesson she ever received.

Since at least high school, I've always answered various existential questions with, "you live between your ears". A point of view that doesn't drive one to keep up with the Joneses, naturally. All these years later, it's more than a tad comforting to find it in print.

An ironic way to close the piece
"Slander" is the story of Robinson's strained relationship with her mother. "With a little difficulty we finally reached an accommodation, an adult friendship," she writes. "Then she started watching Fox News." Her mother and her fellow retirees began to share "salacious dread over coffee cake," fretting over the rumored "war against Christmas." "My mother lived out the end of her fortunate life in a state of bitterness and panic, never having had the slightest brush with any experience that would confirm her in these emotions, except, of course, Fox News," Robinson writes. The essay brings all the abstractions home, makes real and painful the cost of ceding an independence of mind.

19 February 2018

Thought For the Day - 19 February 2018

17 of my classmates are gone. That's 17 futures, 17 children, and 17 friends stolen. But you're right, it always has to be about you. How silly of me to forget. #neveragain
@Aly_Sheehy
Very sad that the FBI missed all of the many signals sent out by the Florida school shooter. This is not acceptable. They are spending too much time trying to prove Russian collusion with the Trump campaign - there is no collusion. Get back to the basics and make us all proud!
-- Trump/2018

18 February 2018

Shooting Fish in a Barrel

N. Gregory Mankiw is a Marie Antoinette Class quant type, with a very public platform. Recently he expounded on free trade. Much of it is baloney, but this bit
To be sure, expanding trade hurts some people in the short run, especially those in import-competing sectors who have to find new jobs. That fact may call for a robust safety net and effective retraining. But it does not undermine the conclusion that free trade raises average living standards.
[my bold]
deserves shooting. Like a fish in a barrel.

I wonder how he feels about all those coal miners? Not to mention that, being a card carrying economist he knows better, citing "average living standards". Given the continuing income skew towards the 1%, and documented destruction of the remaining 99%, that cite rather then median income (or, as even some Trumpians cite, vis-a-vis 1970s income) which has barely budged since the OPEC oil embargo sent the economy into the ditch. IOW, any data analysis of known skewed distribution, income or wealth or widget weight using mean rather than median (or some other skew reducing/removing measure) is politics, not analysis.

14 February 2018

Two For the Seesaw

Regular reader likely realizes that I don't often just say, "go read this". Mostly because the mainstream pundocracy hasn't caught up yet. Eduardo Porter, on the other hand, does so more than the others. Well, not counting Krugman, naturally.

Today Porter takes on Mr. Market. As has been the case with the rest of the pundit class, he avoids asking the basic question, "where have all the dollars gone?" But he does deal with the obvious question of overall stock prices.
What I contend is that if the American economy behaved in the way that most economists say market economies should, stocks would in all likelihood be cheaper.

Why?
The Standard & Poor's 500-stock index increased 8 percent per year from 1970 to 2015, on average.
...
What makes this particularly puzzling for scholars reared on the classical models of competitive economies is that all this happened despite a persistent decline in real interest rates.

The money quote, buried in the middle
The ratio of the capital stock — the value of factories, machines and such — to the nation's economic output has actually declined a little since the 1970s.

So where have all those dollars gone? Well, to Treasuries and other fiduciaries. Capitalists were, are, and always will be risk averse. Little to no rise in physical investment in a decade of low rates, yet all that idle moolah keeps buying Treasuries, and knocking down the opportunity cost of real investment. And they still won't bite. The obvious reason is that, intuitively, they understand that only massive capital (e.g. Fab 8) can eke out a teeny increment in progress. So they toss in the towel and buy Treasuries. In due time Orange Julius Caesar will demand that Treasury cease the auction and sell at named interest rate. Chaos follows.

09 February 2018

Where Have All The Dollars Gone?

The recent fibrillations in the market, at least on a post hoc analysis basis, have been driven by a smidgen of increase in wages for the 99%. In retaliation, the Marie Antoinette Class has burned down the asset markets. Spite. The thing is: where have all the dollars gone? The inflation in the asset markets could/can only happen if there's excess moolah chasing the instruments. Right? Treasuries represent the lowest risk opportunity cost to the MAC, and the MAC has shown over the last decade or so that they'd rather hold Treasuries than expand the real economy. Spite. One might even harbor the notion that the MAC would prefer the "return" from catastrophic deflation (held moolah buying a bit more each day as prices plunge) over building out new physical capital.

But, you say, what if there's a sharply diminishing venue for new physical capital? Fab 8 is instructive (see recent missives). What if the notion that new knowledge of the scientific/engineering kind is slowing? What if Treasuries aren't the opportunity cost, but it's really the other way round? What if the MAC look at their world from the other direction? What if they say, "I'm not going to dump Treasuries and make real investment until the real return difference is way higher than it is today"?

If so, then the turbulence of recent days is just pique at the fact of a bit more in the pockets of the 99%. It won't last just because the Era of Low Returns is here to stay. All that idle moolah will, soon enough, go back to chasing Treasuries. As the punch line of the adage of the frog and scorpion says, "It's just my nature".

08 February 2018

Brave New World - part the second

Despite the Pollyanna spewing from some folks, here's the future:
The operations engineer would tell us that this was the most automated fab in the world, where no one moves or touches the wafers at all. GlobalFoundries had built Fab 8 from the ground-up to be highly automated, and the 'vehicles' were the key part.

As one version of these escapades puts it, "It's the distribution, stupid". If capital continues to displace labor, who's going to have any moolah to buy the neato products???? Riddle me that, Batman.