A Blit's Tale

Whilst working for Dr. McElhone, he of the sugar cone quote, I learned yet another, somewhat scatological, observation. Do you know what a blit is? Five pounds of shit in a four pound sack. I was reminded of this observation whilst reading two, again threaded, pieces today.

First, we have the India mess. And, of course, a quote (which has been added to the quote pile):

"There is a fear, and the fear is the labor laws," said Mr. Bandukwala, who is also a regional leader in the Confederation of Indian Industry.

If you read the piece, Mr. Bandukwala is a minor league capitalist, and Darwinist.

Thus, second, food stamps, aka SNAP, and, of course, yet another quote:

"The role of citizens, of Christianity, of humanity, is to take care of each other, not for Washington to steal from those in the country and give to others in the country," Mr. Fincher, whose office did not respond to interview requests, said after his vote in May.

Fincher is a farmer, of unknown acreage, but nice subsidies, which he also voted to increase.

What both men, and the articles, have in common: Darwin must be served.

The India issue is more interesting, if only because it is more recent. Food is an issue in India, of course,

Arun Prajapati, 21, a migrant worker at a fabric fusing machine at Challenge, said that he earned about $100 a month, just a fifth of what Chinese workers earn these days.

He pays $9 a month for rent and electricity for his sleeping space on the floor of a 10-foot-by-10-foot room that he shares with five other migrant workers in a nearby shanty. He spends $38 a month for a subsistence diet of roti bread, lentils and, once a week, some chicken or eggs. He sends his meager savings to his widowed mother in their home village in central India.

[my emphasis]

What's a blit got to do with these two articles? India and China, though the former less than the latter by most accounts, are both trying to harness huge populations to 19th century western capitalist practices in order to steal markets in the USofA. Cheap, perhaps slave and certainly indentured, labor tied to minimalist machinery. Not much different from the New England mill towns of the 19th century. Products sent elsewhere. It's a blit; there's five pounds of IC population fighting over four pounds of US real demand. Again, historically it's the smaller countries with excess production, above and beyond what can be consumed domestically, that export to large countries. The Brits up to the end of the 19th century, were the archetype. They also went the extra mile, so to speak, to invade many of the countries to which they sold. Now, in the days of specie currencies, mercantilism (the economist's term for capitalists economies taking advantage of lesser economies) would sort of work because the exploited countries had no real control over their currencies. An ounce of gold was worth the same the world around. The Brits ran the global monetary system much as the USofA did in the heyday of Bretton-Woods.

Today, the rupee is crashing. For Greece, it's essentially in the position of 19th century India, tied to the currency of a far more powerful adversary. Wars have been fought over this sort of behavior.

So, the BRICs keep trying to fill the four pound sack with more shit (exports to the West). It's not working anymore. Apple is said (as I type, the story isn't told yet) to be going down-market with cheaper iStuff, what with having saturated the market of the 1%. Henry Ford figured out the answer to the problem more than 100 years ago. But, there weren't 7 billion humans on the globe, and there was still lots of iron ore, coal, and little environmental pollution.

On the last point: the BRICs complain that they're being held hostage to environmentalism, but the West wasn't. And that's, on the whole, true. But it's not the West's fault (well, may be a tad) that we got to fill the shitter first. And we've got the A-bombs and drones and New Gold to enforce cleaner behavior the world over. Well, may be the rest of the world. Not 90210, of course.

It's not possible for all countries to export xStuff to the USofA (and the EU) in hopes of snagging valuable New Gold ($$$). In due time, and since the world is not linear (according to Dr. McElhone), sooner than one may think, only the .1% will be able to afford the fruits of cheap labor. As the US/EU middle classes fade into the lime pit, and the .1% cohort gets ever more exclusive, real demand vanishes. Labor become subsistence, and capital earns virtually nothing. Have a happy day.

Let Them Eat Bullets

Let's start with the clarification. Mixing metaphors isn't as guaranteed to work as mixing a martini, shaken or stirred. The previous installment found me looking at a meaningful thread through some of the day's reporting. Alas, I wrote

That's the potatoes and onions. Here's the meat for the stew.

When I should have: That's the warp and the weft, now here's the pattern. A small detail, but since title selection gets nearly as much of my attention as content, an egregious confusion.

Another day, another thread weaves its way through the news.

The literary world is prototypically Darwinian, only the good survive. Or, at least, that's how it's supposed to happen. Lennon and McCartney sung of the paperback writer, but serious authors are, well, serious. J.K. Rowling, by my lights anyway, is just a paperback writer who lucked out. While I've never had the stomach to actually read any of the Potter saga, she has attempted serious writing post-Potter. The first attempt, an "adult comedy of manners", was a flop with the critic class. And so was the second, a mystery, "The Cuckoo's Calling", and didn't sell but a middling number either, until it was revealed that Robert Galbraith was J.K. Rowling. Here's the humour: John Kenneth Galbraith, generally referred to by J.K., was a very left-wingy economist. No, he didn't have a son named Robert; but his kids are generally famous if you run in their circles. Somehow I don't think this was coincidence. What, exactly, Rowling was trying to say? No idea.

Nor did "The Cuckoo's Calling" get much critical attention. I asked Little, Brown for reviews that appeared before the identity of the author was known, and the only examples it provided were from Publishers Weekly, Library Journal and Booklist, all trade publications. Several newspapers reviewed it in London, but no mainstream American book critic did. The early reviews were positive -- far more so than those for "Casual Vacancy" -- which must have been heartening to Ms. Rowling. But those in Publishers Weekly and Booklist were a single paragraph, and they failed to generate much buzz or help it stand out from the masses of genre fiction published each year.

Was the leak staged? No one has admitted so, claiming that it was an accident. But the birdy who steals other birds' nests was saved from oblivion. Not so much for other "first time" mystery writers.

"I invested tens of thousands of dollars and a lot of publishing capital over nine months because I believed in that book," Mr. Entrekin said. "This is what publishers can do to add value. It's not slapping on a name like J. K. Rowling."

Entrekin runs Grove Atlantic, and is describing what he did to promote a new writer. The exception proving the rule.

Staying in the arty world, the Minnesota Orchestra continues to be locked out. Once again, management blames the peons for the problem; the orchestra's endowment just can't stand to pay the players.

The standoff began last year, when the orchestra, whose endowment suffered in the recession and which has been running deficits, proposed a contract cutting the base pay of the musicians by nearly a third, to $78,000 a year from $113,000.

Anyone who's kept track of Mr. Market since March, 2009 knows that, to quote J.K. Galbraith, "financial genius is a rising market". In other more pointed words, management of the orchestra were incompetent if they indulged in CDOs and such in the runup (or, rundown) to the Crash, and far more incompetent if they've not ridden the rise, no matter their decisions into the Crash. The endowment should be, at least, as fulsome now as before the Crash. Some background, not from management. Yet another case of Darwin visiting the hovels, and not the McMansions.

Now, on to that exotic marigold hotel. The rise of the BRIC, particularly the IC axis, has always irritated me. Not that I deplore industry and hard work, and all that. Rather that I deplore fascist style capitalist exploitation. Ask oneself this simple question: with more than a Billion People each, why do India and China not develop an indigenous, domestic, demand? There's a huge market in each country. Why ignore it? It was Nixon's avowed reason for going to China; opening such a massive market to American goods (didn't turn out that way, and was never about securing markets for capital). And simple answer is that neither country has a history or predilection for equity in wealth. It was simply easier to exploit 'free trade' with Western countries, and get dollars, than it was to develop organically. Eventually, the golden goose, the Western middle class consumer, dies a lingering death. And, so too, the BRIC. Being export dependent is kind of like being a dependent welfare queen, or Blanche DuBois depending on the kindness of strangers.

Structural problems were inherent in India's unusual model of economic development, which relied on a limited pool of skilled labor rather than an abundant supply of cheap, unskilled, semiliterate labor. This meant that India specialized in call centers, writing software for European companies and providing back-office services for American health insurers and law firms and the like, rather than in a manufacturing model. Other economies that have developed successfully -- Taiwan, Singapore, South Korea and China -- relied in their early years on manufacturing, which provided more jobs for the poor.

More to the point: by relying on cheap, by US/EU standards, labor which is "exported" to those places, much less (perhaps, little) is done to develop the domestic economy. While the author, an Indian by the way, does compare with other poor countries which turned to manufacturing, those other countries are closer to the ideal exporter: small in relation to the target economies. With capital productivity, output couldn't be expected to be consumed domestically. India and China, on the other hand, have ample consumers, if only said consumers had income to provide 'real demand'. Yet China exports a stunning percentage of its manufacturing (read the paper, it's a gas), as high as 35% before the Great Recession.
( from that paper:

Domestic demand could not absorb this massive production growth and China went from being a net importer of steel, as late as 2004, to the largest net exporter in the world.

)

India can still become a manufacturing powerhouse, if it makes major upgrades to its roads, ports and power systems and reforms its labor laws and business regulations. But the country is in pre-election mode until early next year. Elections increase pressures to spend and delay reform. So India's weakness and turbulence may persist for some time yet.

So, in the end, the author, covertly, asserts that India's best solution is to diminish distributional effects from its growth. One can't have it both ways. Either an economy is structured to provide the greatest benefit to the greatest number, or provide additional comfort to those already comfortable. The former is essentially socialist, the latter fascist. Who's to say that a fat and happy guy who sits at a desk all day mindlessly typing numbers into an Excel spreadsheet, which he didn't "program" or understand, is any more worthy of moolah than a farmer who tends a field? Which provides a greater contribution to the economy? It's a policy question, not a quant question.

Now, for the bullet. More reporting on the suicide of the Zurich Insurance CFO.

Mr. Ackermann's abrupt resignation a few days after Mr. Wauthier's death interrupted a career spent fearlessly shaking up the European business world and advocating American-style standards of corporate performance. For many Europeans, the suicide raised questions about how far hard-charging captains of industry should go in their quest for profits.

Darwin uber alles. While we don't yet have reporting of how Wauthier died, the classic .45 in the hard palate fits the theme.

Nice Threads

Back in 1955, one Sloan Wilson wrote a book "The Man in the Gray Flannel Suit". I don't know whether I've read it; in 1955 I wasn't reading at adult level. By the 1960's, when I was, it was certainly well known; likely as a prescient omen. The counter-culture and all that. Other books from the 50's: "The Hidden Persuaders" (1957), "The Power Elite" (1956). Here's a factoid: in surfing the Wiki for other forgotten books, I tried 'keeping up with the joneses', expecting to find something from about the same period; post WWII, in particular. But Nooooooo. Turns out that's the title of a comic strip from 1913!! I'll bet you thought McMansions and two car garages were a recent phenomenon. Apparently the rot has been simmering for a century.

Anyway, IBM's been running a series of ads on the TV about 'social biz'. You can YouTube for some of them, but I didn't find a link for the one that set me off, in which we see a series of interviewees and a narrator bemoaning the fact that too many hires just don't work out. Use social/psych methods to weed out the undesirables. This from what is, superficially, a high tech outfit (it isn't, and never was, but that's a much longer Other Story).

That's the potatoes and onions. Here's the meat for the stew.

Yesterday it was reported:

"Every day, they are learning how brilliant [Snowden] was," said a former U.S. official with knowledge of the case. "This is why you don't hire brilliant people for jobs like this. You hire smart people. Brilliant people get you in trouble."

I suppose that means brilliance comes with a conscience. Einstein was a pacifist.

Leavin' On a Jet Plane

Has anyone noticed that Boeing continues to make a considerable amount of money shifting the 737? Today's announcement:

7:46AM Boeing statement on WestJet's intent to purchase 65 737 MAX airplanes (BA) 103.27 : Co is "delighted" that WestJet has entered into a letter of intent to purchase 65 737 MAX airplanes, consisting of 40 737 MAX 8s and 25 737 MAX 7s. The pending order is valued at $6.3 bln at current list prices.

Could it be that the laws of physics are so well known, not about to change any time soon, and determine that a nearly 50 year old airframe is the best Newton has to offer? Is it any wonder that The Best and The Brightest go on to use their quant skills to play dice with the economy? Could it be that there are limits to what we can know? We can't know that which Mother Nature has not done. We really can't create our own reality. We still require air, water, and carbon. Gravity will always be with us. Sub-atomic physics will always be probabilistic. The (natural) periodic table is complete. And so on. Unlike the 19th century, so beloved by wingnuts, there was a lot (perhaps most, in total) about Mother Nature we were still learning. And turning that learning into economic activity. As we approach (if we haven't arrived) the limits of ferreting out Mother Nature's scheme of things, how do we drive economic activity? Finding petroleum or uranium won't happen again. And, they ain't more like them. Mother Nature has showed us so.

Are we doomed to a spiral of The Great Recession? Are we doomed to a world of economic activity connived from morphing human rules of behaviour? Rather than building a wholly new widget from newly discovered Unobtainium, we play out our lives building, or gaming, ever more elaborate accounting schemes? Instead of Einstein being the hero, it's Ponzi?

Have a happy morning.

This Ain't Lake Woebegon

Yet another post (and a Blogger blogger, to boot) extolling the virtues of better, cheaper education. And yet again, missing the point.

Which point is: the Eden of the post-WWII USofA, up to 1973 (OPEC embargo, and all that), wasn't driven by better, cheaper education. Yes, the GI bill did allow servicemen/women to get a college degree. But, no, that isn't what created the broad, demand supplying, middle class. That middle class was created by the egalitarian ethos which was the result of the socialist afterglow of shared sacrifice in war. It's that simple.

Unions were widely legal, and widely joined. Blue collar wages were middle class, so people bought cars and houses and sent their kids to State College. Corporate titans took out substantially less of the corporate revenue. The GDP was skewed toward actual production, rather than financial gyrations. The USofA controlled the international exchange system, both implicitly and explicitly, to a far greater extent than any time (save possibly, today) until the oil embargo.

So, as an R exercise, it's an interesting post. As prescriptive for "what's wrong with the US education process", not so much. If all kids get CS (or name your favourite) degrees, they'll turn themselves into dollar-a-day off-shore coders. Car mechanics and plumbers will make more (likely, many do now). Too many folks who know Process Q, may, in the short term, increase the demand for Process Q folks. The Flavour of The Month syndrome. But, capitalists being wily beasts (wilier than that coyote character), will read the data and find that there're scads of them available, and if the work products are dumbed down enough, they can be treated like cogs-in-the-machine (remind you of that Charlie Chaplin flick?).

Much of the direct cause of The Great Recession is little discussed, but is kind of frightening: a great many of the quants who were part and parcel of the process were refugees from math and science disciplines. Some because they couldn't get work in their area of training, and some because they chose to follow Mammon rather than God. The Great Recession demonstrated, in the background, alas, that we do produce lots of STEM folks. We just don't employee them in STEM (I, personally, don't count Bankstering as a STEM occupation). Do we really need to produce yet more Banksters To Be, just because we don't do much STEM in the capitalist nirvana?

Unlike Lake Woebegon, it doesn't do the majority any good if all children are above average; that just makes them all ... average. And infinitely interchangeable in a laissez faire world. Who knows, may be little Billy will get his BS in EE, and create the next Depression inducing derivative market. Makes a parent proud, don't you know?

The Luddites Were Right (or Left?)

Eventually, the mainstream pundits figure it out, and write up a nicely remunerated piece for a nicely priced organ. Imagine my delight, tinged with massive envy, at the sight of the headline "How Technology Wrecks the Middle Class". The piece is written by a pair of saltwater (well, at least half) economists.

Are we in danger of losing the "race against the machine," as the M.I.T. scholars Erik Brynjolfsson and Andrew McAfee argue in a recent book? Are we becoming enslaved to our "robot overlords," as the journalist Kevin Drum warned in Mother Jones? Do "smart machines" threaten us with "long-term misery," as the economists Jeffrey D. Sachs and Laurence J. Kotlikoff prophesied earlier this year? Have we reached "the end of labor," as Noah Smith laments in The Atlantic?

(There are links in the on-line version.)

It's an interesting history, but misses out the key point: one might argue that the value judgment can be ignored if the newly invented job types outnumber the destroyed jobs. They simply don't get to the point, which is that replacing 10,000 manual-ish jobs with 1,000 high-level jobs isn't a net positive. Instead, they finesse with this,

In 1900, for example, 41 percent of the United States work force was in agriculture. By 2000, that share had fallen to 2 percent
...
In 1900, no one could foresee that a century later, health care, finance, information technology, consumer electronics, hospitality, leisure and entertainment would employ far more workers than agriculture.

In contrast, this paper says (page 19)

The relative importance of on-farm technology, pushing labor off the farm, versus off-farm technology, pulling it, remains a matter for conjecture, but clearly both forces were at work along with other economy-wide changes.

But, of course, the real question is whether those job types employ as much of the working population now, on a relative measure, as agriculture did in 1900. I don't find a cite on point, but I doubt it. Moreover, there's that sticky question of whether an economy skewed toward non-productive activities (as much of that list is) is sustainable. So long as the USofA can control exchange rates (i.e., the US dollar is "new gold"), likely so. In 1973, when the Arabs/OPEC flexed their muscle and asserted the existence of petro-dollars, not so much.

Logically, computerization has reduced the demand for these jobs, but it has boosted demand for workers who perform "nonroutine" tasks that complement the automated activities. Those tasks happen to lie on opposite ends of the occupational skill distribution.

As with this assertion for all time, it's a reassuring platitude, but is meaningless without the numbers. Unless the "nonroutine" jobs add up to at least as many as those made redundant, the downward spiral continues. It is often said that, in the USofA, the mechanization of agriculture "freed up" labor to feed the demand for the likes of Henry Ford's assembly lines, well that was a case where one sector's labor could move without much more than the cost of physically moving to another sector's employment. Not even these economists has the temerity to suggest such is going on today.

The problem remains diminished demand, which is driven by diminishing moolah in the hands of those (who were) in the middle. These authors offer neither historical evidence that the demand problem will work itself out organically and happily, or a prescription for changing the rules in order to reach a happy ending.

The good news, however, is that middle-education, middle-wage jobs are not slated to disappear completely. While many middle-skill jobs are susceptible to automation, others demand a mixture of tasks that take advantage of human flexibility. To take one prominent example, medical paraprofessional jobs -- radiology technician, phlebotomist, nurse technician -- are a rapidly growing category of relatively well-paid, middle-skill occupations.

[my emphasis]

These are by no means, alas, alone among the mainstream who assume that today looks pretty much like yesterday, and tomorrow will look pretty much like today. Of course, the Right Wingnuts importantly are attempting to put an end to anything health related. And they don't cite any data that these middle jobs are, in fact, (and will continue to be) firmly in the disappearing middle class. So, the growth sectors for employment are exactly those professions in the sniper sights. What's the matter with this picture?

Following this logic, we predict that the middle-skill jobs that survive will combine routine technical tasks with abstract and manual tasks in which workers have a comparative advantage -- interpersonal interaction, adaptability and problem-solving.

Note, the authors don't say "middle class income".

Which brings us to the crux of the problem, "What Is Economics Good For?". So, I'll start with the punchline (and tie-in to the previous piece):

What made Ben S. Bernanke, the current chairman, successful was his willingness to use methods -- like "quantitative easing," buying bonds to lower long-term interest rates -- that demanded a feeling for the economy, one that mere rational-expectations macroeconomics would have denied him.

Doesn't that sound like the middle-level decision making that is the future? He does make a wage which would skew the distribution, though.

Ben notwithstanding, the piece takes on the notion, rampant since the late 1960's, that economics is somehow scientific. I can't point to a specific date or publication when it happened, but political economics dropped its adjective. Samuelson is as much responsible for that as anyone. Solow, too. The triumph of macro as just aggregate micro, which led to the collapse of the study. But no longer using the adjective doesn't mean that said adjective no longer applies. Far from it.

The trouble with economics is that it lacks the most important of science's characteristics -- a record of improvement in predictive range and accuracy.

Not really; economics is more interested in moving future history in some direction, rather than arriving at some objective prediction. The physicist, generally, doesn't care who wins; that's the essence of science. The economist *only* cares who wins, his side.

In a somewhat limp defense: macro-economics (which is the version on examination here) is dependent on others for its data, and most of that is sampling data, and provided by not-so-permanently-funded programs of central governments. Captains of industry aren't so interested in good data, since such data will expose the nasty skewing in income/wealth over the last few decades. It's not in the self-interest of the winning few for the losing many to know how, and how badly, they've lost.

But economics has never been able to show the record of improvement in predictive successes that physical science has shown through its use of harmless idealizations. In fact, when it comes to economic theory's track record, there isn't much predictive success to speak of at all.

[emphasis mine]

Again, of course not. There is no accepted 'economic theory' in the sense of Newton's Laws universally accepted (modulo relativity and quantum mechanics), just warring factions with agendas. On the one hand, we have economic mouthpieces for the corporations, particularly banks and the rest of financial services. On the other, we have the divisive rancor in the academic setting betwixt the Freshwater economists (running dogs for the corporations who fund them) and the Saltwater economists. At one time there was a thriving sub-genre known as Labour Economics, but not so much today.

Both sides just make up press releases to advance the liege's agenda. Predicting how the 'machine' will turn over the next period isn't the point; shifting the dials on the machine to get it to turn to the advantage of those paying the piper's tune is. The rest is just hand waving.

The authors do throw a sop,

Readers of Paul Krugman and other like-minded commentators are familiar with their repeated complaints about the refusal of economists to revise their theories in the face of recalcitrant facts. Philosophers of science are puzzled by the same question. What is economics up to if it isn't interested enough in predictive success to adjust its theories the way a science does when its predictions go wrong?

The answer, of course, is that economics, in spite of adopting a cloak of science, remains political economics. And political is vastly more about concentrating wealth these days then at any time since the end of WWII. You can take that to the bank.

You Can Quote Me

Today brings a couple of juicy observations, which have been added to the Sigs/Quotes larder.

From his column today (I continue to fault him for not discussing why people continue to plunge):

In short, the main lesson of this age of bubbles -- a lesson that India, Brazil, and others are learning once again -- is that when the financial industry is set loose to do its thing, it lurches from crisis to crisis.
-- Paul Krugman/2013


And this on the NASDAQ fart:

You have a very Rube Goldberg [computer trading] system. We've just put patches on it without attacking the basic problems.
-- Gene Noser, co-founder of the brokerage firm Abel/Noser/2013