Confirmation and Contradictions for 2014-02-16

So, yesterday Nocera talked up some recent books, such as "The Second Machine Age" and "Who Owns the Future?". His column, both a confirmation and contradiction rolled in one.

Confirmation, to the extent that the effect of technology is largely as talked about in this endeavor. Contradiction, to the extent that these authors ignore the truth of this endeavor's subtitle. Nocera dances around it with remarks from Robert Gordon and Tyler Cowen.

At its peak, Kodak employed 140,000 people; Instagram had only 13 employees when it was bought by Facebook (for $1 billion!) in 2012.

And, one might add, Kodak made money for most of its existence. Instagram, not so much.

Then [Cowen] chuckled. He had recently been in a meeting with someone, explaining his views. "So what you're saying," the man concluded, "is that the pessimists are right. But it's going to be much better than they think."

The .1% are just itching for The Last Depression. Stasis is good for the moolah hoarders. A piece in progress for this endeavor's companion discusses the notion that we're near, or in, a period of technological stasis. If so, a digital takeover may be overblown:

"Rapid and accelerating digitization is likely to bring economic rather than environmental disruption, stemming from the fact that as computers get more powerful, companies have less need for some kinds of workers."

With the likelihood that Moore's Law has been repealed, further encroachment is also less likely. Further miniaturization is problematic. A 5S on your wrist isn't in the future. Without a growing middle class, Apple's not going to shift ever more 5S each quarter.

Now, for some contradiction.

Start with the notion that the US should become more like China, and vice-versa. This is an age old, mostly right wing, tune. It gleefully ignores the twin problems of diminishing returns to capital and the giant pool of money that already exists. US corporations are non-investing like there's no tomorrow (well, may be there isn't).

The root problem, Mr. Roach says repeatedly, is America's inability to save enough at home to finance its growth -- a situation that is hardly China's fault. And a day of reckoning is coming. If China devotes more of its surplus savings to funding a decent pension plan or health care for its citizens, it will spend that much less at Treasury auctions.

Two contrafactuals here: US capitalists can't even invest, in physical plant and equipment, what they've already accumulated; and Chinese government has clearly demonstrated that neither pensions nor health care is part of the plan. The Great Recession came about, if one ruminates for a nonce, just because US corporate interests preferred fiduciary "investment" over physical investment; the creation of all those high yield mortgages came into existence because of the demand for them. If US capitalists were interested in macroeconomic growth (they aren't and never have been, but we'll skip that indiscretion), they would be building it out. The "service" economy, of course, has little need for much else besides cube farms.

Finally, the self-financed investment myth gets another go round. More pundits, including your humble servant, have been making noise about the bait and switch of 401(K). It ain't, and wasn't designed to be, a replacement for pooled pensions. Yet the notion continues to be pushed by those who've got a dog in the fight: our downtrodden financial services sector.

So, we're told that if one measures a 5 year return to 2012, one is hosed, but if measured to 2013, one is rich. D'oh!!! Big fucking deal.

Why did the five-year return change so much in just one year? First and foremost, on Dec. 31, 2013, the entire ghastly year of 2008 was effectively wiped off the books, from the standpoint of the five-year return. That tally started near a market low in 2009, and the results of 2013 became part of the record, too. And 2013 was spectacular, with a gain of 29.6 percent for the S. & P. 500 without dividends, and 32.4 percent when you include them.

Sure, if you dumped a pile of money into ETFs in March, 2009; believed the stimulus would work; believed that a successor would be done; and believed the QEs would work. If you did that, which is to say, buy and hold for that *specific* period of time, you're now sitting pretty. But that's an event specific result, as they say: "past performance is no guarantee of future results". The Right Wingnuts live in this fantasy world, where the US economy of the 19th century was perfection. Long term results back then: small booms and large busts, about every decade. The only reason we made it to the 20th century: pillaging of a huge natural resource endowment unknown in 1800, and a scientific explosion of discovery. Neither such will occur in your lifetime.

In order to count on a long-term trend like this, you may need to stay in the markets for 20 years or more -- maybe for a lifetime, or even several lifetimes. That may not be easy to accept.

Well, more time meaning significantly more return depends on technological advance and resource abundance. And you still have to be lucky enough to have been born such that your retirement years coincide with one of those booms. It also helps if you don't outlive the boom.

Love Actuarily

The AOL brouhaha has finally been outed. We think. The company, at least its CEO, hasn't the foggiest idea what insurance means. Hire an actuary or two. I might even volunteer; kind of like a HuffPo contributor. No, while I'm a nice guy (mostly), I'm not a Fellow.

Most large employers are self-insured for their workers' health coverage, given the savings such plans can yield over traditional group insurance. Self-funding means that an employer pays for health care rather than buying an insurance policy for their workers. Such plans now cover 60 percent of private-sector workers with health insurance--an estimated 100 million Americans.

That story doesn't cite an explicit source for the 60% number. But it does make some sense. When I was with Jack Anderson, back in the 1980s, he did just that for the staff; not that the staff numbered more than a dozen. I was only there for a short time, and not a regular staff member, but during staff meetings, Spear would tell folks that they just had to keep pestering Jack to get the money back. Apparently, staff had to pay first and get reimbursed. In the case of AOL, or any such large employer (and AOL ain't all that large, in the wider scheme of things), it appears they didn't get either any, or any accurate, advice from a health actuary.

AOL, the parent of the Huffington Post news site, is a media and Internet company with a workforce that may be younger--and healthier--than most employers'. If so, its annual claims could be even more predictable than a more age-diverse employee pool.

Ignoring the fact that mostly young folks have mostly babies. Babies are expensive, even when not at $1 million a drop. Kids, once down the chute, are too.

Per capita spending on children's health care rose to $2,123 in 2010, an 18.6 percent increase from 2007. Spending on health care for infants and toddlers was disproportionately high. Although children under 3 years comprised 17 percent of the covered child population, 31.4 percent of the total children's health care dollars was spent on them in 2010.

Having the rug rat alone costs a bunch. And, if you're a Right Wingnut of course, then there should be a birth penalty. This from the Family Values & We Don't Want No Birth Control cabal. Irony is lost on such folks.

It's a funny gripe for a number of reasons. First, as The Washington Post's Ezra Klein pointed out, high-deductible health care plans, or "health savings accounts," were a central tenet of Republican health care thinking in the days before Obamacare. The high-deductible complaint is even more hypocritical with regard to pregnant women, given that prenatal care is one of the key issues at hand in the whole Obamacare debate--and one some Republicans have consistently knocked as a stupid benefit.

Keeping 80 year olds alive sedated to Oz for another month is a valid discussion. But the younger set chews up a considerable amount of money. For the AOLs of the world, restricting employment to a class not mentioned in a long time, DINKs (Double Income, No Kids), who don't smoke or drink or do drugs (you know, Mormons that don't breed), is a way to fatten up the bottom line. Folks like me, fur instance.

Confirmations and Contradiction for 2014/02/09

The first in a, likely weekly, series of recaps of silliness and succor during the previous week. Now that there's no foobawl on Sunday to distract...

Let's start with Maher, from Friday. I didn't note down the numbers, being snuggled up in bed whilst I watched, and transcripts don't appear to exist, so these are ballpark. He went off on the Generational Divide, with $3,000 going to "kids" and $25,000 going to "grandfolks", and of the latter much in the last year of life, and of that most in the last month. In other words, we're squandering lots o moolah to keep Grandma alive an extra month. And that's pretty much true. How did this come to be?

The main driver is that Medicare is bound to approve drugs that gain FDA approval. Here's a (a bit dated) review of what's been going on. On the other hand, we find a Times column which asserts that cutting back on health care spending is actually impeding the economic recovery. Appelbaum, or his editor, certainly has a sense of humor.

He ledes thus:

LOST in all the debate last week about whether or not the Affordable Care Act will hurt the economy is the fact that health care is already imposing a drag on growth.

Oh shit!!! That liberal bastion is mouthing the Right Wingnuts' chorus!!! Not so much.

The health care sector has repeatedly helped to pull the economy from recession in recent decades, but this time around it is lagging behind the recovery.
...
Health care spending grew more slowly than the economy in 2011 and 2012 and will probably be found to have done so again in 2013. Meanwhile, health care employment also expanded more slowly than overall employment last year -- and the government estimates that in January employment actually shrank for only the second time since 1990.

The issue, mentioned in these endeavors on occasion, is that the overall economy has shifted from manufacturing to services over that last 50 years. Now, if you're a Wall Street vampire squid, then your kind of service is vital and even underpaid. But nurses and orderlies are clearly worthless and paying them even minimum wage is squandering the nation's future. But, again, as these endeavors have pointed out from the beginning, capitalists are simply hoarding moolah, and not investing.

But in the nation's current economic malaise, idled resources are not being put to better use. Workers, companies and the federal government are all paying down debt rather than spending and investing. Fewer homes are being bought; companies are building few factories. The government has been cutting back at a pace exceeded in modern times only during the military demobilizations after the Vietnam War and the Cold War.

All the rhetoric, originally and still mostly from the Right is that ACA and healthcare for all will "bankrupt" the country. What's amusing is that the Wall Street quant types always take the view that (micro)economics is value judgment free, yet they explicitly are sanguine with condemning the only aspect of modernity that actually makes us modern!

Huh?

Consider this: being able to wake up tomorrow morning to see how the story is going is the most important fact of life. More important than whether that cellphone is a smartphone, or iPhone, or even that you have a cellphone. Another amusing aspect of the manufactured controversy over universal healthcare is the question of how to deal with geriatric psycho stuff. Old people do get depressed and they do, eventually, tune out and don't care how the story goes tomorrow. That's what they're supposed to do!!! That's how you know that it's time to go. Spending moolah to stop enveloping depression in 80-somethings is downright foolish. On the other hand, whether we, as a community (not just the 1%), want to spend 1% or 50% of our wealth and income on healthcare is for us to decide. Spend it wisely, yes.

Modernity's sole difference maker to all of us is medicine. The other stuff is just toys. Yes, the medical oligarches are nearly as squid-like as the Wall Street species, but at least they provide a visible service. Wall Street squids merely suck moolah out of the stream twixt savers and borrowers.

Next up, New Gold. Remember that piece? Probably not. In any case, it tells the tale of how the Almighty Dollar came to be the currency that matters. Yet another piece from the fount of News, which discusses the Almighty Dollar.

Interest rates in the United States have been driven extraordinarily low. Ten-year Treasury yields, which move in the opposite direction as prices, have declined to 2.68 percent, from 3.03 percent on Dec. 31. Rates had been expected to rise because of the Fed's tighter monetary policies. Flight to safety investing explains at least some of this, and it has helped keep rates relatively low for several years.

The dollar remains New Gold. Unlike the Euro, which Germans refuse to allow into the fiscal policy realm, the dollar is, and in ways the Right Wingnuts choose to ignore, used to move wealth around from wealthy states to poor ones. The ACA is just the latest example of the North subsidizing the South. And they'll bitch about it all day long.

Those are some confirmations. Now for a contradiction. Two pieces in the Times, one in the paper and the other in the magazine, discuss the problem of single parent (mostly, mother) households.

One views poverty as the egg, while the other as the chicken.

Egg:

Some researchers think that marriage -- or a lack thereof -- is not the real problem facing poor parents; being poor is. "It isn't that having a lasting and successful marriage is a cure for living in poverty," says Kristi Williams of Ohio State University. "Living in poverty is a barrier to having a lasting and successful marriage."

Chicken:

The sociologist Kathryn Edin has shown that unlike their more educated peers, these younger, low-income women tend to stop using contraception several weeks or months after starting a sexual relationship. The pregnancy -- not lasting affection and mutual decision-making -- that often follows is the impetus for announcing that they are a couple. Unsurprisingly, by the time the thrill of sleepless nights and colicky days has worn off, two relative strangers who have drifted into becoming parents together notice they're just not that into each other. Hence, the high breakup rates among low-income couples: Only a third of unmarried parents are still together by the time their children reach age 5.

For myself, having grown up (mostly) in a welfare project (in New England, so perhaps less nasty than the South), poor folks act that way because they're poor. Over the last few decades, cities have been imploding "vertical ghettos" with abandon. But they never seem to want to do that to the luxury high rises on the other side of town, which manage to house at least as many humans per building as the ones that get razed. Could it be that living in such a building can be fun and enjoyable? It ain't the building, it's the moolah.

Tilt the economic playing field enough, and anyone would conclude that fucking and fighting are all that matter. Just as it was in the First Dark Ages.

Icarus Goes Upscale

There once was a movie (1965), "Boeing, Boeing", a farce (it had to be, of course) starring Tony Curtis and Jerry Lewis.

Bernard's life is turned upside down when his girlfriends' airlines begin putting new, state-of-the-art aircraft into service. These faster airplanes change all of the existing route schedules and allow the stewardesses to spend more time in Paris. Most alarming for Bernard, his three girlfriends will now all be in Paris at the same time.

Bernard is the protagonist (Curtis) and the "state-of-the-art" aircraft is the 707, which, by the way, started life as an Air Force kerosene tanker. Gummint paid all the development costs, and Boeing cashed in with a civilian plane for, basically, nada.

Fast forward to today's news. Boeing has been developing its plastic airplane, the 787 for about a decade with notable "Oopsies" along the way. What I never knew, until the news today, was that a plane built to haul 296 human/cattle could be had as a "Business Jet". Yessiree, pardner. This has a list price in the vicinity of $200 million. That's the price of the conventional plane. The "Business Jet" is delivered sans interior:

Boeing Business Jets delivers the airplanes to customers unpainted and without an interior. A completion center of the customer's choosing installs the jet's VIP interior.

I suspect the VIP interior will end up costing more than a bunch of minuscule seats.

If ever there were a "let them eat cake" gauntlet toss down by the 1% at the rest of us, that would be it.

"It's terrific to see two BBJ 787s deliver within a week," said Capt. Steve Taylor, president, Boeing Business Jets. "The BBJ 787 joins the BBJ family, a full line of the most capable airplanes in the VIP market. The 787's combination of phenomenal range, high cruise speed, low cabin altitude, big windows and ultra-quiet cabin make the 787 ideal for BBJ customers."

You Get a RetroGrade of F

Today's NYT brings yet another context-free Brooks column, wherein he makes yet more claims of a rosy future. Sort of.

He starts by trashing previously gold standard smarts, then poses the rhetorical query:

But what human skills will be more valuable?

So, what are his candidates?

... people who can recognize and alertly post a message on Twitter about some interesting immediate event

Say what? This rises above understanding thermodynamics, or partial differential equations? I guess so.

Technology has rewarded graphic artists who can visualize data, but it has punished those who can't turn written reporting into video presentations.

I suppose he loves pie charts. It appears he hasn't gotten the memo, both from smart management and smart worker bees: no more PowerPoint decks. Being a total reactionary, Brooks is out of the loop.

Anyway, here's his ordered list. I won't duplicate the paragraphs devoted to each. If you've the stomach, go for it.

First, it rewards enthusiasm.
Second, the era seems to reward people with extended time horizons and strategic discipline.
Third, the age seems to reward procedural architects.
(Seems to be, fourth) So a manager who can organize a decentralized network around a clear question, without letting it dissipate or clump, will have enormous value.
Fifth, essentialists will probably be rewarded.

Mostly, you can't really be a Twitterite (under First) and have any of the other qualities. Immersed in social media is now defined as "work"? Perpetually distracted, but long term focused? The second most complete oxymoron, after happily married (OK, I know...).

If that sounds like a thumbnail sketch of Dubya; Yes, yes it does. The future belongs, and the mightiest rewards go, to content free cheerleaders? That's the future? Oh my.

For those of a certain age, or know someone of a certain age, particularly those that saved old "Popular Science" and "Popular Mechanics" issues, may remember that both magazines were known for predicting how life would be so much better in 50 years, the millennium. Automation generally, and computers specifically, would relieve *all of us* of the drudge work, leaving us to be creative and leisurely for yet longer lives. I don't have such a stash, only memories of the issues. But, here's one site with some examples.

This site is more completist.

What none of these deal with, I suppose by Utopian assumption, is that animate processes lead to concentration, not dispersion. Name any significant human problem of the day, and you're inevitably led back to the divergence of the enfranchised and the disenfranchised. Inequality is the prime result of animate progress. The problem is that, unlike lower forms of life which obey external rules of survival, some of us get to make the rules which the rest of us must endure. The dystopian wins over the utopian; the future is always darker than you can imagine.

Malcolm's Fallen From the Middle

This endeavor started with a missive which asserted that the Bernanke/Obama recovery plan couldn't work

In 2009, who are the unemployed? Not, by and large, workers in factories that will make goods for American consumers. The deindustrialization of the economy, in progress since the 1970's, makes any stimulus program a low probability gamble. Will the stimulus program re-employ the leeches in the financial services industry that sent us over the edge in the first place?

It turns out, that's exactly what happened. Obambi is setting the Republican party up for permanent control. It won't be called a dictatorship of the proletariat, but will be, in fact.

Now we get reporting on a study from some Freshwater economists. (No Times showed up yesterday, but, as luck would have it, the piece went a bit viral.)

Within top consulting firms and among Wall Street analysts, the shift is being described with a frankness more often associated with left-wing academics than business experts.

Rather than frankness, I'd call it gloating: "go eat some cake, motherfuckers!!". Not that this endeavor is the least bit surprised. This piper has been calling that tune from the beginning; just read the subtitle.

Some data, quoted from the study:

In 2012, the top 5 percent of earners were responsible for 38 percent of domestic consumption, up from 28 percent in 1995, the researchers found.

Since 2009, the year the recession ended, inflation-adjusted spending by this top echelon has risen 17 percent, compared with just 1 percent among the bottom 95 percent.

More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income...

At G.E. Appliances, for example, the fastest-growing brand is the Café line, which is aimed at the top quarter of the market, with refrigerators typically retailing for $1,700 to $3,000.

There is a downside to the euphoria, not mentioned by the reporter or by the researchers (as reported, of course): as the .1%/1%/10% suck ever more of the nation's wealth, the smaller is the cohort "aspiring" to climb the totem pole. Apple is the archetype for ignoring all but the 20% (or thereabouts). The problem has always been that the group doesn't grow in numbers as it grows in wealth/income. Quite the opposite, and a little arithmetic (left as exercise for the reader) shows why. Fancy restaurants can see a growth path; the 10% will eat there four times a week rather than one. The likes of Apple can't reasonably expect to sell more than one smartphone/human, thus it must keep devising yet new devices to part the rich from their moolah. It hasn't been very good at that since the iPhone.

Frozen Orange Juice

Do you prefer your orange juice from the orange, or from the frozen can? Can is cheaper, and, if your water is decent, will taste just as good as the kind in a gallon jug. Which brings us to Humira. I'm watching a golf tournament, and there was just a commercial for Humira, an arthritis drug. The advert shows us a "day in the life" of a white, 40-ish, upper middle class Mom. I'm listening to Marty Ehrlich on the AKG's, so I didn't hear the voice over this time. No matter.

The closing text graphic is "taken by injection".

From the Wiki:

Humira costs approximately $1,662 per month, like the TNF-alpha inhibitor etanercept (Enbrel). Methotrexate costs approximately $13 to $85 per month.

In 2012 Humira drug had $4.3 billion of sales in the US, and $9.3 billion worldwide.

It's sold by AbbVie (stupid name, yes?), a spin-off from Abbott Labs. One has to wonder how long such compounds can remain in existence as the middle class, especially the upper version, disappears. Concentration makes for cheaper orange juice. Not so much for health care.


For the record, methotrexate is an ancient generic, which is why it's so cheap.

Though not everybody is responsive to treatment with methotrexate, multiple studies and reviews showed that the majority of patients receiving methotrexate for up to one year had less pain, functioned better, had fewer swollen and tender joints, and had less disease activity overall as reported by themselves and their doctors. X-rays also showed that the progress of the disease slowed or stopped in many patients receiving methotrexate.

I suspect AbbVie will line up behind Wal-Mart. First SNAP, then crackle, pop arthritis drugs.