Goodbye Mr. Roboto

So, this whole robots thingee has led me to scavenge for data. Still haven't found hard numbers with regard to labour hours per unit (automobile or other wise), although the Times article referred to in an earlier post has some speculative numbers for Philips.

I found this posting in my travels.

And the result of that will be a massive drop in consumer spending and consumer confidence. The point is that robots take jobs and incomes but do not act as "end consumers" in the economy. Robots do consume energy and resources but these are inputs to production. Without end consumers to drive the economy, the result will be a deflationary spiral. Many of the robots would be shut down. Imagine production robots used by General Motors. If there are no humans with income and confidence to buy cars, the robots will be shut down.

The quote isn't in the post, but a comment from one Steve T; scroll down to the second comment. I must say, I couldn't have said it better myself. Read through the entire comment. No, I'm not Steve T, but he has to be my lost twin.

What isn't discussed or understood sufficiently is that the "knowledge jobs" that some, including Left Wingnuts, are so enamoured of are disproportionately overhead or purely parasitic, in more pointed words: welfare queen jobs. In the former case, positions labeled management or analyst or administration and the like are explicitly categorized as non-production by economists, because they don't participate in production of output. They're overhead. In the latter case, such as that vampire squid financial services, such positions just syphon real productivity (in the form of moolah) from the economy.

Where we end up: It's the Distribution, Stupid. Without a distribution mechanism capitalism collapses, and sooner than without the robots, since the robotic movement accelerates the income and wealth transfer from the many to the few. Have a nice day. And I'll stop the repetitive robotic typing.

Body Snatchers

You have to watch this. So creepy it's cool.

You Want Fries With That?

"You want fries with that?" We all have heard that as a putdown of someone who just screwed up. Tom Friedman adopts the persona of the Right Wingnut, without the Nut. I never bought his act, and today he steps in it, again. Such utter nonsense.

Let's start with the basic premise: today's upheaval in the middle class is just like the eviction of farmers to factories in the 19th and 20th centuries, and that this is a Good Thing. What's going on today in the BRICs, China particularly, is much the same as back then; with the same result. Rural poverty is exchanged for urban poverty. As one Indian of my acquaintance put it, "you can earn a dollar a day in the fields in cow dung, or a dollar a day in an air conditioned office. Same wage, different demands; you need to learn office skills, but same wage. Take your pick." The BRICs have been "economic miracles" through indentured servitude, with a few billionaires and billions of hands holding up capitalists.

Friedman's notion only works if the demand for labour in the target sector matches the evicted labour in the source sector(s). In 19th and early 20th century USofA, with modest capital/labour ratios, that mostly worked out. Recall Henry Ford, who raised wages in part so that his workers could afford his cars. Smart man that. He also had this to say: "A business that makes nothing but money is a poor business."

Friedman tells a tale of a Boston area robot outfit, Rethink Robotics, and waxes rhapsodic on robots empowering people to do more. And create jobs.

...its cheap, easy-to-use, safe robot will be to industrial robots what the personal computer was to the mainframe computer, or the iPhone was to the traditional phone. That is, it will bring robots to the small business and even home and enable people to write apps for them the way they do with PCs and iPhones...

Of course, folks don't go buy a PC or iPhone and *PROGRAM* the damn things!!! Well, a few anti-social nerds who then create a Facebook or something. But not more than a handful. Moreover, studies were done (and continue) on the effect of PCs in the office, and concluded that by and large PCs added to overhead, since they tended to engage the users in form and less on content. Graphical machines, starting with the Mac and thence to the Windows PC, were the worst offenders. Some companies are finally getting wise, and banning the Power Point Presentation. And not a minute too soon.

"Just as the PC did not replace workers but empowered them to do many new things," argues Brooks, the same will happen with the Rethink robot. "Companies will become even more competitive, and we will be able to keep more jobs here. ... The minute you say 'robots' people say: 'It's going to take away jobs. But that is not true. It doesn't take away jobs. It will change how you do them," the way the PC did not get rid of secretaries but changed what they did.

Neither of these guys lives in the real world. What's been the net job effect of industrial robots? Net? Less than zero. Fact is, as the PC took over in the office, secretaries were shown the door. Workers were told to "get keyboard skills, or else", and did their own documents. Who amongst you, regular readers, has a secretary or even knows one? Damn few, I'll wager.

So, what is the labour distribution in the USofA these days? In other words, is there unmet demand for robot makers and programmers sufficient to soak up all those displaced factory and office workers? Not so you'd notice. Here's a table of data from the BLS:

2010 National Employment Matrix title and code Employment Change, 2010-20 Median annual
2010 2020 Number Percent wage, May 2010
00-0000 Total, All Occupations 143,068.2 163,537.1 20,468.9 14.3 $33,840
31-0000 Healthcare Support Occupations 4,190.0 5,633.7 1,443.7 34.5 24,760
39-0000 Personal Care and Service Occupations 4,994.7 6,331.4 1,336.6 26.8 20,640
29-0000 Healthcare Practitioners and Technical Occupations 7,799.3 9,819.0 2,019.7 25.9 58,490
21-0000 Community and Social Service Occupations 2,402.7 2,985.0 582.3 24.2 39,280
47-0000 Construction and Extraction Occupations 6,328.0 7,735.2 1,407.2 22.2 39,080
15-0000 Computer and Mathematical Occupations 3,542.8 4,321.1 778.3 22.0 73,720
13-0000 Business and Financial Operations Occupations 6,789.2 7,961.7 1,172.5 17.3 60,670
19-0000 Life, Physical, and Social Science Occupations 1,228.8 1,419.6 190.8 15.5 58,530
25-0000 Education, Training, and Library Occupations 9,193.6 10,597.3 1,403.7 15.3 45,690
53-0000 Transportation and Material Moving Occupations 9,004.8 10,333.4 1,328.7 14.8 28,400
49-0000 Installation, Maintenance, and Repair Occupations 5,428.6 6,228.7 800.2 14.7 40,120
27-0000 Arts, Design, Entertainment, Sports, and Media Occupations 2,708.5 3,051.0 342.5 12.6 42,870
41-0000 Sales and Related Occupations 14,915.6 16,784.7 1,869.1 12.5 24,370
37-0000 Building and Grounds Cleaning and Maintenance Occupations 5,498.5 6,162.5 664.0 12.1 22,490
33-0000 Protective Service Occupations 3,302.5 3,667.0 364.5 11.0 36,660
23-0000 Legal Occupations 1,211.9 1,342.9 131.0 10.8 74,580
17-0000 Architecture and Engineering Occupations 2,433.4 2,686.2 252.8 10.4 70,610
43-0000 Office and Administrative Support Occupations 22,602.5 24,938.2 2,335.7 10.3 30,710
35-0000 Food Preparation and Serving Related Occupations 11,150.3 12,242.8 1,092.5 9.8 18,770
11-0000 Management Occupations 8,776.1 9,391.9 615.8 7.0 91,440
51-0000 Production Occupations 8,594.4 8,951.2 356.8 4.2 30,330
45-0000 Farming, Fishing, and Forestry Occupations 972.1 952.6 -19.4 -2.0 19,630

BLS expects the 43- series to burgeon. But with these robots taking over, of course it won't. The 51- series is manufacturing, and shows little growth, and will have even less with robots. The labour hours per automobile, thanks to robotics, is a fraction of what it was in 1960. With robotics displacing labour across all industries, asking about your fries desire too, the issue is distribution of productivity gains. As it is, capitalists get nearly all of it. Historically, they share it with labour only where unions pressure them to do so. Otherwise, take a hike.

The telling datum, not yet found, is the exact replacement ratio of robotics for humans in even one manufacturing instance. Automobiles would be the prime instance, since the auto assembly line was among (if not the first) the early adopters. Clearly, capitalists wouldn't adopt robotics if it ended up raising the unit cost of their product. Capitalists can be stupid, but not over the last 50 years. If robotics were a cost sink, they'd have drop them like a hot coal. They haven't. Where they are stupid is in ignoring Ford's understanding that you can't grow your business organically (i.e., not just buying up your competition) if there isn't money in the hands of folks demanding your product. What goes around comes around. Turn off the merry-go-round...

Oh, and by the bye. It takes substantially more brains to run a farm than to move parts on an assembly line. The shibboleth that moving farmers to factories raised skill levels really should have been staked long ago.

Money Makes the World Go Round

It's been a while since I've vented about the silliness of the DNC in turning down the Triage application; in particular the mapping part. What to my wondering eyes did appear, but a US map half done in today's Times. It's half done, since it displays the input, $$$, but doesn't show the output, it seems. Again, in Triage terms, output would be some measure of effectiveness. Can be done, as Triage demonstrated.

To be fair, it may not even be the Times who did the work. The source cite is "Campaign Media Analysis Group at Kantar Media", but doesn't say whether Kantar provided only the raw numbers, or both the numbers and the map. Since the Times is well known to use R for its data graphics, my guess is the former. The states are graphed with their blue/red leaning (without indicating whether the lean was measured correlatively with the spends), so a time series of the map would be closer to the real time thrust of Triage (googleVis supports such graph animation, sort of; R-bloggers has a number of posts on point). Even so, bravo.

Blitzkrieg

Regular reader should recall musings in the recent past that Germany, and to a lesser extent France, are intent on punishing their victims in the Euro Crisis. To wit, that these exporting dependent economies, the aforementioned Germans and French, dumped output onto their lesser compatriots in the Eurozone. They were able to pull this off, for some period of time, so long as the Euro itself remained stable; a Greek Euro was as good as a German Euro. And that equality could last only so long as the Germans and French propped up the PIIGS, but indirectly. Overt support, now necessary, irritates the Man on the Street Citizen in Germany and France, either because they're just too stupid to figure out the scam, or were in on it.

Now that they're no longer able to buy up the surplus output, the Germans and French want to maintain their economies by extorting funds (money being fungible) from the lesser countries by other means. Our downtrodden Banksters have been busy inventing ever more overt ways to extract funds (almost entirely profit, of course) from the saver to borrower money stream now that the "crisis" has been averted and stricter (although not by much, thanks to Bankster lobbyists) regulation, but most knucklehead consumers (and regulators) refuse to accept that Banksters need to be brought to heel. The past week has also included reporting that China, as predicted here, has an excess output problem too. "It's the distribution, stupid."

Not too surprisingly, today brings confirmation of German and French perfidy.

They include the German and French banks that lent Greece money and fueled the Spanish housing bubble...

Again, the Germans and French sought higher than domestic (in their perspective) returns, since their own economies couldn't pay extortionate returns. The Spanish housing bubble, not motivated by government, was the result of the exporting countries, Germany particularly, seeking unrealistic returns on profits gained by dumping output into those self same countries. Heads I win, tails you lose economics. Even if Germans and French (and American Banksters) manage to convince citizens and regulators that all this is sustainable, collapse happens in due time. Without a foundation of income distribution, capitalism collapse of its own extortion.

The circle of perpetrators could also include the fickle bond investors who underpriced the risk of Greek debt before 2010 and whose volatile reaction to even minor events has lately been wreaking havoc with Spanish and Italian borrowing costs and, by extension, those countries' economies.

There's a reason some, including humble self, have screamed bloody murder that bondholders got off scottfree during The Great Recession. It was their greed for unsustainable returns on idle money that caused the crisis. Yes, idle money. When I was kid, the term "idle rich" was in common English, and was synonymous with "coupon clipper", also common English. The latter doesn't refer to folks who take out Pampers discount coupons from their daily newspaper, but to the fact that bonds pay a "coupon value", and in the olden days one literally removed a perforated tab from the margin of the bond (the coupon) for redemption for moolah.

In fact, Gerhard Schröder, the German chancellor until 2005, was one of those calling loudest for the rules to be watered down so he would not have to cut government spending.

The quote refers to the fact that Germany didn't want new restrictions back in 2005 that they're now demanding against the PIIGS. I wonder how to spell hypocrisy in German?

"It was German government decisions and German banks -- and Austrian banks and Dutch banks and Finnish banks -- who lent the money to all these countries," Adam S. Posen, a United States economist who is an external member of the Monetary Policy Committee of the Bank of England, said on BBC television this week.

Finally, he drops the Truth Bomb, asserted here for some time.

Germany lent the money so it could be used to buy German exports, Mr. Posen said. "Germany has been running a scheme in their own interests," he said.

I think he's pointing out that the Emperor is quite naked. Cool.

Rocky 99

It sure seems like there've been 98 of the darn things. So, on to 99. With ggmap. "What's that?" I hear from the cheap seats. Welllll.

Last month, ggmap was released. The author's web site is here and his presentation is here. Since I'm still on the fence about Triage/mapping for the Philly Folks, ggmap would surely be the vehicle. By all accounts it makes map generation with ggplot2 easier than previously.

The presentation is quite neat. Not only that, but he does compare logic the way I've always preferred:
-95.39681 <= lon & lon <= -95.34188 & 29.73631 <= lat & lat <= 29.78400 That is, left to right (in)equality as the number line. I always get irritated when folks do: x > 5 and the like. No, it ain't.

Marginalized in Gaza

Just came across this piece, and someone in the interTubes who gets marginal cost based pricing: "'Freemium is really a construct of the digital age because there's almost no marginal cost to digital goods,' said Chris Anderson, author of "Free: The Future of a Radical Price," and editor in chief of Wired magazine.'"

No shit, Sherlock.

I'll Have a Cheese Steak

Somewhere along the line, I applied to the Obama folks to "volunteer", being as how I have the time and no immediate need for moolah. Philadelphia called, offering me the possibility of doing data entry for one of the low level worker/manager bees. Even though I pointed them to the Triage piece, as example of the sort of support I'm willing to do. For FREE. Doesn't seem promising. Doesn't seem promising for Obama, either, since the organization has clearly gone bureaucratic.

Which got me to thinking: can triage by implemented at such a granular level? Turns out, shapefiles exist below city level (political wards) for Philadelphia. For example! Boy howdy. I may do a second triage just to irritate them.

Carrtharsis

Everyone with an active skull should keep track of Nick Carr. I don't stop by frequently enough, it turns out. A bit more than a month ago he delved into my brain, for those that recall earlier musings on why we are the way we are. Go read it. I missed it because it's sitting as a marginal link on his page. Note to self: follow Carr links.

The Canary Comes Home to Roost

Since all but a minuscule fraction of the shares traded on the exchanges every day (0 on most days) are not sold by the companies whose names are on the certificate (which means none of the money goes to the companies), traders aren't any different from plungers betting 14 Red at a roulette wheel. The buyers think the sellers are idiots for selling so cheap; likewise in opposition, the sellers.

The au courant cause celebre' is Facebook, and its connected companies. Today's NY Times carries a long story starting at the front (above the fold) of the dead trees Business Day. The article is of interest, but what's of interest to this endeavor is the caption to the picture inside (it is reproduced in a margin in the on-line version, so I don't have to type it out, yeah!): "Facebook has asked for patience as it invests the capital raised in its initial public offering and seeks to increase its revenue." This is interesting for its sheer chutzpah (as in "cheese").

Here's the two numbers that don't add up:

From the last 10-Q: physical assets are $2,105,000
From Yahoo!, market cap: $42,000,000

What are they going to "invest" in?? What's not commonly understood is that software companies generally, and internet based ones specifically, are capital light. Facebook is unusual in that it does own data centers; it need not, and many internet software companies do not. Their asset/cap ratios are even more outlandish.

So, what does it mean to invest in any kind of software company? You hire coders to type on PCs. A PC of sufficient horsepower to do this work can be had for south of $3,000; much less if you build them in-house from parts which is what Google does. It will be more if the company buys giant monitors, which might cost more than the PC unit itself, but still absurdly cheap. In other words, this ain't Ford. Here's their current numbers:

From the last 10-Q: physical assets are $22,105,000
From Yahoo!, market cap: $37,000,000

There's a reason the "capitalists" of the USofA have abandoned capitalism: it's cheaper to get rich if you don't actually turn fiduciary capital into physical assets. You're pulling "value" out of thin air. Alchemists of old tried to turn lead into gold; today they try to turn code into gold. If you can pull it off beyond fad duration, the gross margin in software can't be beat; Cost of Goods Sold is asymptotically 0. Whether that can continue is contingent on the US dollar remaining New Gold (discussed in previous entries). So long as the Right Wingnuts can control the game (with the help of the Banksters; and there's a fair amount of overlap between the two camps), then money is the commodity. What the Facebooks of the world "produce" is ephemeral, unlike Ford, which makes autos you can drive (if you like what Ford builds). Since this New Economy is largely unbarterable, a stable (if not falling) dollar is essential to the game. The game also depends on folks equating the "psychic utility" one gets from one's Facebook page as from the physical utility of a Mustang. Good luck with that. To steal from "The Graduate", one word -- MySpace.

To deal with the question raised by the photo caption: there's not much that they can do which supports organic growth of Facebook. As is well known by now, most of the developed world has gone to Facebook about as much as it can or will. There are those, humble self included, who've figured out that wasting time and relinquishing privacy to a rapacious kid isn't such a great idea. Facebook is just another in a long line of advert pushers, none of whom, apparently, ever considered that a more fashionable form of advert pushing might ever come along. It does, and will. Will dollar a day indentured workers in the rest of the world (assuming they have access to a PC, internet, and/or smartphone) have sufficient money to spend on Facebook's adverts' wares? I'll bet: nope.

Facebook could hire more coders, but the "investment" consumed by such is about $5,000 per coder. According to the 10-Q, they've got about $10 billion to spend. They could hire every Indian coder alive, and have money left over. And, what would they produce? MicroSoft, very good at the software game, has had only one money spinner, Office (which it first built on contract to Apple, by the way). Facebook had one neat idea. Odds, historically, that such blinkered thinkers could have another neat idea are teeny.

Adding data center support per user comes out of that pile, too. But user growth is slowing, perhaps with ABS engaged. I suspect they'll "grow" by buying up other companies, such as Instagram. Such growth can be attached to the buying company, but yields no growth from a macro-economic point of view. Most often, jobs are lost when companies consume each other. You scarf up a competitor, and either shut it down, or consolidate with your folks taking over for the non-worker bees. In all, for the economy as a whole, a net bad. And, as MicroSoft just demonstrated, buying up a competitor (or synergistic function) isn't going to work, just because it was supposed to.

Damn, Not Again

Regular Reader understands the motivating principle of this endeavor: lacking a theory of distribution, which clears output at its maximum, capitalism will soon implode. Marx, and others before him, made the selfsame observation. What is different since "Das Capital" is a burgeoning global population, industrialized authoritarian regimes, and disappearing resources.

The theme today is that of the vise (with a "s" not a "c"; we'll save the latter for later): our future, given our present approach, is inevitably dystopian. The closing jaws of the vise: to left, population growth out of control; to the right, diminution of necessary resources. Turning the screw arm of the vise: capitalists deploying automation robots. One might add, in the context of "post industrial" West, the disappearance of production of necessities. How much food is a CDO worth? Likely, 0. Have a pleasant starvation.

As mentioned in previous essays, there are days when I think that the NYT folks read here, then go and do some confirmatory reporting, and end up with an anecdote laden article. Sometimes depressing. It only gets worse when it seems they're reading my thoughts.

For the last few weeks, I've been looking around for some data, not yet found. This data is the number of labour hours per widget (auto, washing machine, etc.) over the last 50 or 60 years. The Right Wingnuts *still* blame our Great Recession on the evil (unionized) workers of America. Not that even much of American industry is unionized. No matter. The problem has to be the victims. The point behind this search is to confirm (more likely than deny) that ever more capital is replacing labour, and that the resultant reduction in income (median income is well documented to be at best stagnant over the last 30 years) of the masses causes failing demand for output. Capitalists respond by replacing labour with yet more machines, further reducing income of the masses. Rinse, repeat.

As any Good Mother has said to a bratty child: "what would the world be like if everyone behaved like you?". The conflict between micro- and macro-economists has been going on since the beginning of the profession. With the introduction of ever more abstruse algebra and computerized statistical methods, the micro-economists have succeeded in re-defining macro- to be just the sum of the micro-. If all producers impoverish their workers (generally through disemployment, but also direct income reduction), the early adopters gain a temporary advantage, but soon aggregate demand disappears. Productivity is kind of like the Ogallala Aquifer: if all those who tap it treat it as their exclusive well, the water runs dry sooner than if all users treat the resource as shared. Bad behaviour triumphs, and all fail. Avoiding failure requires community action. Or, how about community organization?

So, today the NYT prints a story on robots. They don't have the data I was looking for, but does have anecdotes which make the case: labour hours per output units (autos, washing machines, etc.) declines catastrophically once capitalists discover robots. The tenet of (neo-)classical economics is that labour earns at the level of its marginal product. This is supposed to mean the more productive skills earn more. This is also supposed to mean that capital improvement productivity is *shared* with labour; not exclusively by the capitalist. "Free enterprise", in Adam Smith's construction, meant that no capitalist could unilaterally affect wages. We've seen that this is a crock in the real world.

Where affairs get even more tenuous is that the Chinese capital model would look identical to that of a 19th century New England mill owner: lots of hands from the shuttered farms keeping up with minimalist mechanization. This is the ideal for the Right Winger: the many supporting the few, the workers seldom earned enough to actually to buy their own production. It worked in the 19th century just because there was an entire continent to fill up with humans who bred like rabbits. We aren't in that sort of Kansas anymore. Not to mention having markets in Europe to sop up surplus production.

The story begins with two factories owned by a Dutch company. One in The Netherlands, the other in China. The domestic one is virtually without workers and almost entirely robots. The Chinese is the 19th century ex-farmer model of modest machinery and lots of hands.

Factories like the one here in the Netherlands are a striking counterpoint to those used by Apple and other consumer electronics giants, which employ hundreds of thousands of low-skilled workers.

Since the company operates on the micro-principle that any way to reduce cost (its own, and hopefully no others follow suit) is a Good Thing, the goal is to make more money shipping product. This only works if no other companies do the same. Yeah, right.

Even as Foxconn, Apple's iPhone manufacturer, continues to build new plants and hire thousands of additional workers to make smartphones, it plans to install more than a million robots within a few years to supplement its work force in China.

This may work for Apple, in the near term, but makes China's problem worse. Many/most of the Foxconn (and others) workers were brought in from the farms, lured by promises of a "better life". Urban poverty is arguably worse than rural. Neither is anything to envy.

But its chairman, Terry Gou, has publicly endorsed a growing use of robots. Speaking of his more than one million employees worldwide, he said in January, according to the official Xinhua news agency: "As human beings are also animals, to manage one million animals gives me a headache."

Nice to know that Chinese capitalists are up on their animal husbandry. American capitalists are no less hypocrites.

Take the cavernous solar-panel factory run by Flextronics in Milpitas, south of San Francisco. A large banner proudly proclaims "Bringing Jobs & Manufacturing Back to California!" (Right now China makes a large share of the solar panels used in this country and is automating its own industry.)

Yet in the state-of-the-art plant, where the assembly line runs 24 hours a day, seven days a week, there are robots everywhere and few human workers.

The argument that robot manufacturing makes the transition a net Good Thing is specious. Clearly, no capitalist will buy robots whose cost approaches that of the replaced workers. At the same time, the earnings of robot making workers aren't going to approach that of the workers replaced by the robots, for the same reason. While it is remotely possible that aggregate income of the robot making workers can approach that of the (by count, far more) replaced workers, the median simply can't. There'll be income/wealth concentration, and falling aggregate demand.

Which belies the Left Wing meme: we need better education to compete and keep American workers' incomes high. The nonsense of that should now be obvious. Where, in the post WWII two decades, we had rapidly rising blue-collar families reaching previously unknown middle-class status, this was largely due to a temporary diminishing of capitalists' aggression, which in turn was the result of a true "we're all in this together" ethos persisting from the war. As time moved on, attachment to the ethos faded, and by Reagan had disappeared. Capitalists were in it for themselves. And any blue-collar folks dumb enough to believe their lies. Better education for the millions, while the new robot meme creates jobs in the thousands (if that many), can't add up. The value of education diminishes as the demand for higher skills fades, or never exists. The Indian usurption of IT is fueled by very low cost education in IT in India, and more than a little bit of foreign exchange chicanery.

From here:

I estimate that my entire education in India, including a master's in computer science, cost me less than US$ 100 in today's terms.

While a single anecdote, it exemplifies how it is that Indians can work for peanuts: they spent so little on their education that work decisions become simplified, earn a pittance in the fields with cow dung or earn a pittance in an air conditioned office. Not such a difficult decision. (The Times also has a piece on the true impact of air conditioning. One never really knows where Mother Nature will spring a bear trap.)

As capitalists remove labour from the equation, they remove demand for their output from the equation. It all becomes a race to poverty. This is where the micro-economists fail: macro-economics isn't just aggregated micro-. When all capitalists behave like brats, soon they and the rest of us suffer. Distribution of output is of more importance in a capitalist/industrialized world. The Right Wingnuts are just too stupid. Then again, unlike Rand, they believe in God, Senator Dodd (the first one), and keeping old Castro (the first one) down.

Head First in the Shallow End

(A post found through R-bloggers raised the question of why it seems that academic research is "shallow" these days. Boy howdy, that was enough to light a fire under my tusch! Herewith offered is the comment which resulted.)


It's not that thinking is too shallow (well, if you're not a Red Stater by location or inclination), it's that the unknowns of the natural (real) world are fewer and further between. Ph.D. candidates have to find ever smaller pin heads to study. And that was already true back in the 70's when I was in grad school. What "science" should be addressing is the population tsunami and the attendant impact on all of our lives. Most folks don't realize, in an immediate effects sort of way, that the USofA has twice as many bipeds as it did in 1950.

The Red State, back to the 19th century crowd, actively attempt to persuade the rest of us that all was better then, *and we should conduct the country's business* as if 2010 ecology (broadly defined) is the same as 1850. Go to Kentucky to see ancestors coexisting with dinosaurs.

An economist, Robert J. Gordon, has studied economic growth, and reached the obvious conclusion: the 19th century found out much of what there is to find. This quote is from his wiki entry:

In addition, Gordon has written for economic journals, outlining the relation of the productivity growth of modern day inventions to the great inventions of the late 19th century. He focuses on the impact of computers in the post-1995 economy on the durable manufacturing sector. Furthermore, he emphasises the marginal productivity of computing technology affects standard of living in a much more contained fashion than the earlier great American inventions.[1][2] He downplays the role of computer technology in the economic growth of the latter 20th century in accounting for business cycle and trends. In addition, he also questions the actual productivity of such technological developments.

So, the problems that need solving are demographic and political. Finding Higgs won't matter a damn if we intercourse our way through our food supply. Malthus was wrong only because 1) he didn't know enough about the New World to know about our great plains soils, 2) petroleum, and 3) their attendant chemical fertilizers. Now, we ain't got a New World to provide basic raw resources, we ain't got a new petroleum, and we ain't got abundant synthetic fertilizers.

Die Capitalist Dog!!

There are days when I think that somebody at the New York Times is my regular reader, since a few days later there is either an article or ed piece repeating (with quotes from folks I don't have access to) the thesis of one of these posts.

A few days ago, came this story on the declining value of investing in investing software. There was going to be a post here, crowing, but I never got around to it.

So, what happens? Today comes yet another story about returns. All those Koch Brothers are being compelled to actually invest in the USofA. Unlike stocks, bond proceeds go *to* the corporation whose name is on the paper. This is a good thing. When Greenspan cratered the Fed rates, I wonder whether he followed the intellectual breadcrumbs? By removing "risk free" Treasuries from consideration, in that the Kochs want lots more moola for the grace to lend money they can't otherwise spend, the Kochs of this world turned to "risk free" housing. That didn't work out so well, so now they're buying corporate bonds.

If one believes the Right Wingnut propaganda (that is, the Right Wingnuts believe their own story), this shift from fiduciary instruments to real investment is a Good Thing. Sort of.

Here's a few snips from the latter piece:

"It's amazing: You're now seeing 4 to 5 percent yields for weaker companies," said Adam B. Cohen, founder of Covenant Review, a credit research firm. "These are the type of yields that you used to see for blue chips like Exxon and Pepsi."

Surprise? No flation and low interest rates, no surprise. One might even argue that the nominal interest rate isn't artificially low, given the absence of flation. 5% is a good return for doing nuthin.

The percentage of high-yield issuers that have defaulted on their debt in the last year stands at about 2.8 percent, according to Standard & Poor's, well below the historical norm of 4.5 percent.

Yet, these bonds are going out as "junk"?? Sounds like the ratings' agencies are gaming the game, yet again. Who'd a thunk it?

Still, a growing chorus of market players is starting to sound alarm bells. A recent report by Bank of America warned investors against diving headlong into junk bonds at these record-low yields. Not only is there little hope for additional price appreciation, but the companies issuing this debt are vulnerable to a cyclical swing in the economy and slowing business conditions.

The fly in the ointment? Lousy time to buy bonds for capital gains purposes. Back in the mid-1970s, house mortgages were well into double digit rates. House prices, in concert, were lower. Those that bought then reaped the Big Kill later when the price of housing went up and rates came back down. Double whammy. Bond traders beware.

Hull Breach!!

As has been stated more than a few times here, the 1% (and, for sure, the .1%) intended (and still intend) to crash the global economy even further than they have so far. What's a more risk free return on capital (cash) than deflation? And what was reported yesterday? You guessed it, the Eurozone contracted. Significantly. This is The Guardian's take on the situation.

So, Mr. Red Neck-Voter out in God's Country, you can continue to vote to feather the ever expanding nests of those who have declared war on you and yours, or you can wake up and smell the napalm. Buffett told what is going on. He's smart. Listen to him.

Keep Your Friends Close, Your Frenemies Cloture

The Ryan annointing (I suppose I'll have to pen something sometime, but I'm either too stunned at Mitt's stupidity or his stark evil) and the charge that Obambi hasn't done enough to fix the economy, led me to look for numbers. The numbers looked for are filibusters. Not so easy to come by, but cloture (the vote to end or preempt filibuster) numbers are. They're recorded.

What was found were existing articles, so I'll defer to them. No need to rewrite history.

This first has the graph I set out to make: the number of cloture votes by congress. It only goes to 2010, so misses the current action.

This second is just a couple of months ago, and does include current numbers, but no graph.

The only remaining item is voter suppression activities. Harder to quantify, of course, but reporting tells the tale. Obambi and his flock let 2010 happen. I still can't forgive them. Never will.

Left vs. Right: All You Need To Know

Listening to "Wait, Wait, Don't Tell Me", and their guests on "Not My Job" were missions engineers Bobak Ferdowsi and Adam Steltzner for the Curiosity Mars mission.

Here's some of the shows on The Learning Channel and History Channel:

Hatfields and McCoys
Ax Men
Swamp People
Hairy Bikers
Mountain Men

Here Comes Honey Boo Boo
Sister Wives
Toddlers and Tiaras

Return to Sender

For some time now, it's been clear that the old rules of investment are, well, old. Part of the shift was made by moneyed interests who seek only to make money, rather than output of goods to sell. These folks "invest" in fiduciary instruments (bonds, and to a lesser extent, stocks) rather than in plant and equipment. The siren song of the post-industrial, service economy. Other than hair cuts, folks directly buy few services, and virtually none of those which exemplify the new economy of financial manipulation.

The second factor is Moore's Law. Long asserted to be a good thing, variously voiced but most commonly that computing power of the integrated circuit doubles every 18 (or 24) months. Not exactly what Moore said, but close enough for government work. What's been going on for the last decade or so reveals that Moore might not be such a great thing, after all.

If we return to 2002, we find the aftermath of 9/11, and Alan Greenspan's attempt to avert a depression on Dubya's watch by continually lowering Fed rates. It worked, sort of. Much evidence exists that this effort was the Patient 0 of The Great Recession. The wealthy class didn't like earning 2 or 3 percent, risk free of course. They demanded more return for the pleasure of not using money they couldn't use anyway. Corporate bonds actually involved risk, although at much higher rates. The wealthy class always has the option of holding corporate bonds, but wasn't much interested. So now, with Treasuries paying so little, the wealthy class demanded a new source of high paying, risk free, assets.

The mortgage industry was happy to oblige. Traditionally, for most of the post World War II time, home mortgage banking was boring and simple. Your income, minus short term debt (credit cards, generally) defined the size of your mortgage. Simple. You qualified for $100,000 30 year fixed rate (whatever it was that week). Builders built houses which could be priced to the mass of incomes in the area. Such data has been collected for SMSAs (Standard Metropolitan Statistical Area, now nym-ed as MSA) for since the 1950 census. The result is, builders, knowing the median income for the SMSA and the prevailing rules and regs for mortgages, knows the exact price point it must build toward.

Now, with Fed rates plummeting, builders saw an opportunity. The carrying cost of a house is principal and interest. Thus, price and interest rate tend to track inversely when builders have sufficient time to adjust. Why leave all that money on the table? They didn't. At first, there were sufficient mortgages to satisfy the wealthy class's demand for high return, risk free assets. As time went on, mortgage companies (not banks; they came to the game later) saw an opportunity to draw in those who hadn't been qualified. The mortgage companies invented the ever more exotic mortgages. The purpose of these mortgages was to allow ever lower income households to buy the ever increasingly priced houses. Builders got the money for the McMansions they produced. Everybody else ended up holding the bag.

The result of this part of the tale: the wealthy class's demand for high return, risk free assets led to the creation of sufficient output to meet the demand. Well, superficially.

The second half of the tale derives from Moore. On the first hand, we have the wealthy class seeking high guaranteed returns. On the other hand, we find Moore kicking the crap out of returns on physical investment. This fact was brought to hand with a couple of news stories over the last few days.

Here's one about the Samsung Galaxy 3. Apple has had the current iPhone on the market for less than 1 year (4 October 2011). There are countless more data points. Consider my pet area, SSD. OCZ keeps churning out ever newer models, all the while fire sale-ing existing models, within a period of a few months. What's the wealthy class to do? Corporate assets no longer enjoy the longevity of steel mills or factories (American capitalists decided that fiduciary assets were more fun).

The second harbinger is the Knight Capital self-immolation. Here we see the same compressed amortization timeline at work. Knight had built some new algorithmic software to take advantage of rule changes. In order to lengthen its return period, by only a few days it seems, they rushed the code into production. With predictable results.

Trading firms, market makers, brokers, investment banks, and exchanges and other trading venues are linked in a network of complex computer systems that compete to execute trades as fast as possible. That competition, combined with the never-ending array of new rules, forces market participants to constantly improve their systems.

(my emphasis)

As more of American capital is devoted to computer based efforts, whether goods or services, amortization periods have plummeted. There really isn't a long term, any longer. Investment has become a quick buck endeavor, not a long term growth prospect. This will not have a pleasant ending.

May You Live in Interesting Times

Yesterday went according to plan, sort of. Pick up a dead trees NY Times, and head for a pre-prandial pastry at Panera. This time, and not for the first, the mind wander off to ponder long term interest rates. As a professor of mine said, "whether you get paid or not, you'll always do economics." Turns out he was right.

The Right Wingnuts in the choir have been singing the Fed is Evil and Ben is Bad songs for some time, arguing that "historically low" interest rates are just bad, bad, bad. They deny the truth, which is that this interest rate level was started by Greenspan, in the hopes of averting a Depression until Dubya was out of office. Almost got there, but not quite.

Among the problems with the Wingnut accusation is that Fed interest rates very short term; the principle one being the overnight Fed Funds rate. Long term rates for Treasuries are set by auction; they have been tracking with Fed rates, but don't have to. This site has some very interesting material. I haven't gone through all of it, and what I've seen only goes back to 1900, not the Golden Age of American Exceptionalism of Right Wingnuts. The reality is that long term interest isn't just a matter of saver/lender time preference, but mostly about real return on physical investment. Fiduciary gambles ultimately depend on physical production growth to make the money to pay the vig.

So, the first question is whether or not low Fed rates have a bad effect on an economy? In general, no. The losers, if that be possible, is the Coupon Clipper Class, who seek to live off income from fiduciary instruments. When interest rates are low, then the income they receive is lower. On the other hand, these fat cats also have the opportunity to sell off sufficient numbers of bond units at the "inflated" prices brought on by declining interest. In other words, they can't lose. Further, TARP and the like were driven to protect bondholders, for some reason. As stated here numerous times: interest is just a monetization of increased productivity. This is why there must always be some real physical investment at the foundation of any fiduciary instrument.

The basic reason for The Great Recession was that there was no such foundation. Much as I find .com investing pointless, the first time through and now, there is really no such thing as residential (there may be for commercial, it depends) housing investment. Housing creates no physical product, only what some economists call "psychic returns" (if images of Patrick Jane dance in your head, you're watching too much of the TeeVee). They provide no additional money stream to pay the vig. Plant and equipment do. Some argue that intellectual property does, but on the whole I disagree with that notion. But that's another episode.

So, then, what should the long term interest rate be? Who wins, and who loses, when it rises or falls? What causes it to move? Inflation, or deflation, are believed to be the most significant determiner (but follow the above link, to be disabused). But I disagree there, too. In a post from some time ago (I've lost the link), there was a quote from a business person to the effect that no productive use could be found for a pile of money, so the company decided to buy back its shares. Economists, more so than MBAs, have long criticized this. The demand for investment, ultimately, is determined by the quality of physical investment. Lose vision for how to allocate capital, and the economy falls back on fiduciary fiddling.

Not to put too fine a point on the issue, these are *risk free* interest rates. Corporate bonds, where capital has a least a chance of being used to improve output, pay more.

Which brings us to some pieces from yesterday. Let's start with this front pager. The saltwater faction of economists spend a good deal of typing pointing to object lessons in real life for guidance on what decisions should be made here in the USofA. Japan has been such a lesson for some decades, the country has been in the shitter for that long. This piece lays out the history, and implications, of Japan's dance with Dee Flation. The story casts itself as an inter-generational conflict; old folks living on pensions and bonds versus everybody else.

By speeding the flood of cheaper imported products into Japan, the strong yen is contributing to deflation, a broader drop in the prices of goods and services that has helped retirees stretch their pensions and savings. The resulting inaction on the yen, according to a growing number of economists and politicians, reflects a new political reality, with already indecisive leaders loath to upset retirees from the baby boom who make up more than a quarter of the population and tend to vote in high numbers.

Now, whether most of the money being made off of bond yields and deflation is pensioners is an assertion I certainly question. But it is part of the issue.

Back to Japan. It seems to have its share of narrow minded wingnuts, too.

Shigeru Ono, a retired oil company manager who won a small following blogging on deflation's virtues ...

The piece goes on the chronical the de-industrialization of Japan, not a feel good story. It ends with this:

One way to spur such awareness, critics say, would be to allow national pension payments to drop with falling consumer prices, as the law demands. But the government ignored the law for years rather than upset elderly voters.

Last year, it finally took a baby step, slightly trimming pension payments. The loss of just a couple of dollars a month, though, was enough to start Mr. Ono, the blogger, rethinking. "Now I am starting to realize that deflation can be bad, too," he said.

Which was just the front page. Get to the Business Section, and a piece from a Pro Publica on the virtues of being an unpunished bankster. Sandy Weill gapes out at you; at least in the dead trees version, it's a dull B&W photo, on-line is far more disgusting. Ooh. Regular reader will know that when Weill floated the break them up balloon a few days ago, I asserted that he's got a bunch of stock that's worth more in pieces than the companies whole. IOW, he's advocating to make himself yet richer. Such a public servant.

His institution had also served as a (unheeded) harbinger of the banking rot to come. Throughout the 2000s, Citigroup was riddled with scandal. It settled with the Federal Trade Commission over deceptive practices. Its CitiFinancial unit was embroiled in predatory lending controversies before it was fashionable. The bank was an entwined backer of both Enron and WorldCom. Citigroup employed Jack Grubman, who was at the heart of the research conflict-of-interest scandals of the early 2000s. Even back in his less reflective days, Mr. Weill had to apologize for that.

I'll close with a snip from the piece, which echoes writing here, over the years:

In 1936, Roosevelt gave his famous speech listing reckless banking and speculation among the "enemies of peace." These enemies hated him and he asserted, "I welcome their hatred."

Obambi would do well to sail with that wind.