Nice Threads, Part The Second

Another installment of the continuing saga of Nice Threads. One of the main themes of these endeavors is that Policy trumps Data whenever the two disagree. I'm not happy about, but what are you going to do? Although this happens more on the Right than on the Left, since the Left doesn't abide by such as "We're an empire now, and when we act, we create our own reality", widely understood to be Rove, although I've never found a cite where he admits to it. As to empire, it's the 30th anniversary of Reagan's penis growing exercise in Grenada next month. Talk about reality stretching. The Grenada politician who "asked" for US intervention is reported to have died. Karma, or what?

So, first we have Krugman on wonks,

How many Republicans know, for example, that government employment has declined, not risen, under President Obama? Certainly Senator Rand Paul was incredulous when I pointed this out to him on TV last fall. On the contrary, he insisted, "the size of growth of government is enormous under President Obama" -- which was completely untrue but was presumably what his sources had told him, knowing that it was what he wanted to hear.

For that, surely, is what the wonk gap is all about. Political conservatism and serious policy analysis can coexist, and there was a time when they did. Back in the 1980s, after all, health experts at Heritage made a good-faith effort to devise a plan for universal health coverage -- and what they came up with was the system now known as Obamacare.

Krugman gives the Right Wingnuts more credit than they deserve. It's not that their wonks aren't any good, but that the Wingnuts don't care what the data say, and will assert their policy position without regard to data, in the first (and second and last) place. They simply don't care. Anything that the 1% says endangers them (even if the 1% too stupid to figure out otherwise), is therefore and everafter, evil to be destroyed. Fact is, even the 1% will need Obamacare. The arithmetic of healthcare will only work for the .1% without it (or something so much like it the distinction has no difference).

Next, Apple, which is widely held to be announcing both another high-end iPhone, and a middling one on the morrow. As both of these endeavors have asserted for some time: a corporation can't grow its market if it targets the 1%. While it can suck up coin in the beginning, it soon runs out of customers. The iStuff saga is actually not all that old, and Apple has been in Red Queen status since it stopped being a computer company and being a toy company: running ever faster in order to remain in place. There are other parts to the problem. One is that, having added functions to phones (thus making them smarter) that have nothing to do with making phone calls, what more can be done to continue with planned obsolescence? Just as PC owners (outside of some Fortune X00 corporations) have discovered that XP and Office 2000 fully meet their needs, so too are phone users.

The company's profit growth has slowed in response to a saturated handset market in America and parts of Europe. Many people already own a smartphone and are not upgrading to new devices as often as before.

Sound familiar? You read it here a while back. If you read here, of course. Will Apple heed the data? Time will tell, but so far they haven't.

China, with its huge population, is an attractive target for Apple. But Timothy D. Cook, Apple's chief executive, said recently in a call with investors that the company was puzzled about why sales of its products were struggling in China. Sales there fell 4 percent in the second quarter compared with the same quarter last year. And Apple's sales in Hong Kong were down about 20 percent.

Well, do'h!!! China's 1% just isn't as large or as rich as the USofA's. Further, it's clear now (at least to Your Humble Servant) that Chinese government is beginning to understand that it really does have a huge domestic economy, and being beholden to round-eyes is not such a great idea. Nixon went to China to get cheap labor, not markets, for American corporations. The Chinese aren't stupid, and are turning the game around. Their biggest problem is to channel all that savings into more productive uses than building apartment blocks.

Finally, some data from Anthony Damico, who has been discussing various government data dumps. This installment is one of the business surveys (actually two of them). And he makes the following observation in his post:

the [public use microdata sample (pums)] contains records representing 97% of all firms, but since larger businesses have been disproportionately tossed, firms included in the pums employ only 48% of all americans in the labor force and represent only 40% of all payroll and 36% of all commerical revenue nationwide.

Census anonymizes the data, but Big Corps can be gleaned, as he explains, so they're not part of the public data. Of interest: there are those who continue to assert that the USofA is (or, at least, should be) viewed as the Jeffersonian eden of 1800 (lots of small farms with no need of government) or the Randian meritopia of 1950 (or thereabouts, with the best and brightest running things). If you do the arithmetic, even if there's some loss of precision, a reasonable inference is that 3% of corporations control more than half of the USofA economy.

There's a good bit of divide and conquer in the Right's messaging. The notion that 401(k) retirement, and individually funded healthcare, are but two of the memes they pump. Get the Little People to fight over crumbs, and pay taxes, while we build yet more and bigger estates in the Hamptons. That link is to an acerbic take on the NY Times article. I thought that might be more fun. He's got the link to the Times piece, if you want the simple tale.

They Be Preverts

Them preverts are taking over the economy. In today's headlines:

09:01 am : [BRIEFING.COM] S&P futures vs fair value: +8.50. Nasdaq futures vs fair value: +13.70. The S&P 500 futures hover near their highs with a gain of 0.6%. Futures jumped to their best levels of pre-market action after participants viewed the disappointing August nonfarm payrolls report as not strong enough to support lowering the pace of asset purchases in the immediate-term.

I wonder how the quants and policy wonks will model such perversion! Welfare queens of Wall Street just can't get by on one house in the Hamptons (yes, the real estate market out on The Island is booming), so they'll pout if Uncle Sugar doesn't keep sending them monthly assistance checks. Today isn't the first time such a headline has appeared, either. Been happening for months. The problem with giving money to those who just turn it over to cheapen their current indebtedness (you can check recent missives) is that the macro effects are de minimis. That was fine with Dubya, since that serves his overt constituency. Not so much for Obambi, since he's been trying desperately to finesse the situation. It will all end badly.

I wonder what Simon Johnson has to say?

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?