By Simon Grey, on June 19th, 2012
1. How is the present automation and productivity conundrum qualitatively different than ones from the past (for example, the classic case of the auto replacing the horse and carriage)? If you do not believe it is qualitatively different, explain how we escape the “zero marginal productivity” worker trap, especially in an era when human capital is shrinking due to a combination of dysgenic birth rate differentials and mass migration of unskilled poor? Note: “Humans are fungible” is not an acceptable cop-out.
The present automation and productivity conundrum is not qualitatively different from the past. The zero marginal productivity trap is escaped by the fact the fact that human demand always exceeds supply, broadly speaking. As such, there will always be demand for more…something, anything, and everything.
Of course, the broader assumption—that automation and productivity will continue apace without interruption—is wrong. In Neurodiversity, the author noted that dysgenics and/or small populations lead to technological stagnation and regression. Furthermore, the history of progress is not exactly linear. Thus, we may be in for a stretch of devolution for a while, as “society” becomes too stupid to maintain its current level of wealth. It’s happened before (that’s why it was called “The Dark Ages”). Let’s not be so arrogant to suppose it won’t happen again.
On a more optimistic note, it may be the case that technology becomes more idiot friendly, which enables the less intelligent to capitalize on intelligence without actually possessing any. Simplified UIs should do the trick, they it will be a while before they are common. I’ve written on this before.
2. If, say, most of the profits go to the top 10% in society, while the bottom 90% are unemployed or marginally employed, how is it exactly that those top 10% will be able to extract profits from a customer base that doesn’t have the income stream to afford more than the basic necessities?
It helps to keep in mind that money is dynamic. It is a medium of exchange, after all. Income is usually spent, which is how the wealthy extract profits from it. The poor earn money then turn around and spend it. Rinse and repeat. The key is to differentiate between wealth and income. Income is what you earn; wealth is what you keep. The wealthy will keep, in a sense, the labor of the poor (beyond that which is necessary for survival, of course). Since poor people don’t want to starve to death, they will continue to work as long as they can provide for their needs. And the rich will exploit them in the meantime. Assuming, of course, that the poor don’t get pissed off and kill the wealthy and the elite, as has been done in the past.
By Thomas Knapp, on April 4th, 2012
Is being poor self-reinforcing because it forces one to spend more on stuff a little bit at a time over time, as opposed to saving up and/or forking over a large sum at once, and eventually spending less?
I don’t consider myself “poor,” but I do have a personal situation that illustrates the question:
I have dental problems. That’s no secret — I’ve talked about it, and other people have talked about it, both to my face and behind my back (no, Sully, it’s not “meth mouth” — I’m not a druggie).
I’ve had these problems for years, and have taken steps toward getting them corrected. A couple of years ago, for example, I had all of my top teeth pulled and got a denture. That ended up costing around a thousand bucks.
The denture only got used for awhile. My remaining bottom teeth are so fragile that if I wear the denture, it breaks them … and I haven’t been able to afford to address the bottom teeth yet.
Essentially, I need another thousand bucks worth of dental work (at a minimum — if I go to one of the $299 denture places, they’ll extract my remaining teeth for $30 a pop, so $600 for two dentures since the old one has long since ceased to fit due to gum shrinkage, and $340 for the extractions).
Since I don’t have a thousand spare bucks to get all that done, I spend money on benzocaine gel, over-the-counter pain relievers and decongestants (I’ve noticed that usually the most painful times are when I’m congested — I guess the sinuses press on the tooth nerves), occasionally on antibiotics, etc.
I can attest with certainty that I’ve also missed out on opportunities to make more money due to this problem. Not only am I embarrassed to be seen this way (which means that I no longer do public speaking engagements, which have been an occasional income source in the past), but I spend probably a week out of each month in severe, sometimes literally blinding, pain that reduces my personal productivity.
And, like I said, I don’t consider myself “poor.” Granted, I personally make little enough that even if I consented to fill out tax returns I’d have little or no liability; and granted, until very recently about half (sometimes more!) of what I made went to a child support obligation; but my significant other makes fairly good money, nobody’s starving at my house, and we do live beyond the bare necessities.
I suspect that laying out a thousand bucks at a whack is a pretty big deal for most people, and out of the question for the truly “poor.”
I also suspect that this is self-reinforcing because various things nickel-and-dime the truly poor to death and stop them from getting out of the hole.
A newer car would set them back three grand, but they can’t manage that … so they trickle out $50 or $100 a month repairing the old clunker because they absolutely have to have it to get to work.
Or they mow two or three yards a week and know they could make good money running a full-time lawn service, but they can’t fork over for the additional equipment and other startup costs, so they just keep on working at Taco Bell.
Or any health problem — mine above is just an example — costs them X days in lost income from being off work each year, but they can’t get the cash together to get it correctly addressed, so they spend a little bit at a time on pain reduction and such and just try to muddle through.
I assume that this is a well-described economic phenomenon, but I thought I’d bring it up for comment. It’s pretty much a matter of needing to post something to the blog, and the only thing on my mind being this damn toothache. So anyway, discuss.
By Simon Grey, on March 28th, 2012
More grim ruminations on our economic prospects: What if recessions do permanent damage, diminishing a nation’s productive capacity?
As I wrote on Thursday, recessions are commonly understood as disruptive rather than destructive to the economy as a whole. But a paper presented Friday at the Brookings Institution warns that recessions may do lasting harm, like an untended house that not only needs a good dusting, but has also started to rot.
The term for this possibility sounds perfectly harsh: hysteresis. (The definition is more benign; it simply means that the past affects the present.)
…
The proper antidote to hysteresis, the authors write, is an increase in government spending. They write that under current conditions there is a good chance such spending would be self-financing, as tax revenues from resulting economic activity would outweigh the cost. But there is little prospect that Congressional Republicans will revisit their opposition to stimulus this year. Which means that our current experiment will run to completion: If hysteresis is real, we will know it by its consequences.
Of course past actions and behaviors affect the present, often negatively. But there are, just as often, positive consequences, as well as neutral consequences. This is how economic tradeoffs work, in the long run, at a macro level. The call for government intervention, though, does not follow from the premise.
In the first place, harm cannot be determined until after the fact, and harm is a subjective value (though it should be noted that it can be an objective term). Production capacity is not, in and of itself, a worthy end goal, particularly if higher production is inefficient relative to its alternatives. Furthermore, no economic occurrence is inherently harmful; it is only ever harmful to some party. What one party finds harmful another may find beneficial, and so Bastiat’s lesson of the broken window ignored once again.
In the second place, government intervention is not guaranteed to solve the problem. It would seem that the history of government intervention would show, on the whole, that most forms of intervention are net-negative, often benefiting a politically-connected, generally at the expense of the masses. While the technocratic solution to various economic problems can hypothetically be both correct and possible, in practice government intervention is generally more skewed to incentive distortion and political corruption, to use a phrase, the theory doesn’t jive with the real world.
By Simon Grey, on February 21st, 2012
From the CBO Director’s blog:
Many factors are responsible for the rise in unemployment in general and in long-term unemployment:
-Weak demand for goods and services, as a result of the recession and its aftermath, which results in weak demand for workers;
The better question is: what is causing weak demand? Could it be that people are realizing that it’s fiscally unhealthy to spend lots of many that they don’t technically have? Could it be that the extend-and-pretend games of the last thirty years are starting to catch up to us? Could it be that, having pulled demand forward for so long, the future is now finally catching up to us?
-Mismatches between would-be employers’ needs and the skills or location of the unemployed;
This is actually a valid point, although it’s probably helpful to look at a couple of points that contribute to this situation. The declining value of an American education certainly contributes to mismatched needs and abilities. Interestingly, the sheer vapidity of modern American education is mostly due to Boomer tinkering. Also interesting is that Boomers are now in charge of major businesses, just in time to find out how terribly awry their experiments in education have gone. Furthermore, their arrogance and blind trust in their educational model prevented them from doing the one thing that would currently save their companies: hiring bright kids out of high school and training them on the job instead of waiting for them to get a college diploma. (Of course, it probably didn’t help that Boomers made employment testing illegal.)
Regarding location, I think there are three reasons people refuse to move for work. First, government benefits currently make staying in the same place to wait for a new job feasible. Second, I would theorize that most of the once-employed are intelligent to suspect that government benefits may not be around forever, and therefore it is best to stay where one is, since one will have more social capital at one’s current location than at a new location. Finally, the increasingly transient nature of jobs discourages employees from traveling, particularly in light of government benefits. Why endure moving a thousand miles away only to lose your job after a year? Especially when, after moving costs and loss of social capital are accounted for, you’re fiscally worse off than if you’d been on government benefits?
-Incentives for people to stay in the labor force and continue searching for work that result from extensions of unemployment insurance benefits; and
This is more of a technical point, as unemployment statistics are calculated by dividing the number of unemployed workers by the total labor force. The issue is defining the labor force (if memory serves me correctly, the government has six or seven definitions). Some metrics only consider adults that are currently looking for work as part of the labor force, and so the claim being made by the CBO is that rates are artificially (or, more accurately, tautologically) high because there are some who are looking for work instead of just giving up.
-The erosion of unemployed workers’ skills and the belief of some employers that people who have been unemployed for a long time would be low-quality workers (a phenomenon sometimes called stigma).
This is pretty much the same as above. As the social stigma that comes with long-term unemployment wears off, more of those workers who were at one time out of the labor force will come back into the labor force (by seeking jobs) and tautologically drive up the unemployment rate.
In all, the CBO is blaming increased unemployment rates on the fact that Americans are finally realizing that man cannot live by debt alone and on an increasing number of people who have the gall to seek employment again. In essence, the CBO would prefer that people continue to spend money they do not have and just go back to being lazy and unproductive. And that’s how the government plans on reducing unemployment.
By Simon Grey, on December 8th, 2011
It’s the reason this happened: Authorities say a teenage girl was trampled at a western Michigan Walmart store and suffered minor injuries after getting caught in a rush to a sale in the electronics department.
The Muskegon Chronicle reports the girl was taken to a local hospital Friday morning. Fruitport Township Supervisor Brian Werschem says the girl was knocked down and stepped on several times in the store near Muskegon.
The difference between prole shoppers on black Friday and the banksters is that one group is significantly better than the other at being greedy.
Simply put, most, if not all humans are motivated by greed. Some may be motivated by the self-indulgent pursuit of vice, others may be motivated by enlightened self-interest, and some may be straightforwardly interested in certain things. Whatever the case may be, all humans are greedy. All humans want things for themselves. There are, of course, varying levels of self-restraint attached to the pursuit of those things one desires, but fundamentally all people act in pursuit of those things they desire.
As such, it is ludicrous to simply blame greed as the root of all of society’s ills. Humans have always been greedy, but not all societies have been unceasingly dysfunctional. Why? Because there have been occasions when social rulers have found a way to mitigate the negative effects of greed. This usually comes by fostering a system of voluntary cooperation, generally exemplified in the free market.
Therefore, social ills—such as people being trampled at a shopping center, or market collapses—should not be blamed on simple greed. Greed can be, and has been effectively channeled into productivity. If, therefore, that productivity lapses into destruction, the blame should be placed not on those who are greedy, but on those who make the incentives.
By Simon Grey, on December 2nd, 2011
Let’s assume a 2% productivity increase per year over 30 years. Let’s also assume a 2% inflation rate over 30 years. This is what it looks like, starting with a baseline of “10,000.”
Your cost of living has gone up by 78% in notional dollar terms but it should have gone down by 44%!
The spread between those two lines was literally stolen by the banks and government acting intentionally as a group. They defrauded you, stealing your economic output and improvement in productivity, using it to hide the impossibility of continual deficit spending. Summed, the line is flat—but it should not be; that improvement in standard of living belongs to you, not them.
Basically, as production becomes more efficient the cost of products should decline. For example, computers that once cost millions of dollars in 1970 should cost roughly $50 today.* Instead, it costs six times that. What’s amazing is that efficiency of production has increased so dramatically for computers that the nominal price has decreased in spite of the dollar’s purchase power declining by roughly 83%.
At any rate, inflation works as a form of theft because it robs people of the benefits of their increased productivity in the form of higher prices. This happens because of the very simple rules of supply and demand.
Nominal price is determined by demand of a product relative to supply of a product relative to the money supply. Products with high demand low supply will generally have high prices; those with low demand and high supply will have high prices. As long as the money supply remains stable, nominal prices will be mostly contingent on the supply and demand of the product in question.
If, however, the supply of money fluctuates, nominal prices will fluctuate accordingly. Decreases in the money supply will lead to decreases in the nominal price, assuming that supply and demand remain unchanged. Conversely, increases in the monetary supply will lead to nominal price increases, again assuming that supply and demand remain unchanged. The reason for this is simple: the monetary base does not, in and of itself, make more things available for purchase. If you have ten cars, it does not matter if the monetary base is ten units or ten thousand units; fluctuations in the monetary base don’t change the underlying reality that there are a finite number of goods available for purchase.
Now, what makes inflation so pernicious as a form of theft is that it requires that the increased money supply make its way into the economy. This is not accomplished smoothly or evenly (i.e. the government doesn’t dump in all the money at once, and doesn’t distribute the extra money to everyone in the economy). As such, the government must give the money to someone.
In recent cases, the recipients of inflation have been major banks. Because they get the extra money first, they benefit from the effects of the increased money. While markets are efficient, they do not act instantaneously to new information, which is a fancy way of saying that it takes some time for the new money to make its way into the economy. The early recipients take advantage of the lower prices by buying more, which drives up the price of goods. The later recipients of the money see the prices rise before they get the extra money. Basically, then, inflation works as a tax on the politically disconnected (usually the poor and middle class) since the rich tend to get the money first and buy at low prices which drives up the prices for everyone else. Thus, inflation is basically a form of income redistribution.
Since the government has control of the money supply and gets to pick the initial recipients of inflation, it is therefore fair to say that the government is stealing from the poor and middle class and giving to the rich because it is basically robbing the poor and middle class of their increased productivity (which should be seen in the form of lower prices) and giving to the rich (who get to purchase at lower prices before driving them up). Thus, it should be clear that inflation is nothing more than outright theft, and should be viewed as such. The government, then, deserves the outrage of all of its productive citizens.
*It’s impossible to match machine specs across eras, so I simply took the cheapest computer available today, which is this HP desktop and adjusted the price for inflation using Tom’s inflation calculator. The dollar amount was 300, the starting year was 2010, and target year was 1970. Data for the cost of the best computer of 1970 was found here. Note that that Wal-Mart’s crap computer is still superior to the best the 1970 had to offer.
By Christopher Briem, on November 25th, 2011
National Journal online has a focus on the failure that is Braddock. See: The Left-Behinds, subtitled: How three decades of flawed economic thinking have helped to create record numbers of long-term unemployed and undermine America’s middle class.
The whole meme of the piece comes down to this quote:
Braddock’s plight came from the structural decline of a major manufacturing industry
.
So again, this rosy vision that all was working in Braddock before steel decided to pick up and move away or shut down.
NOOOOOOOOOOOOOOOO. It just isn’t true. We’ve been through this before. The demographic and economic declines in Braddock, as with those in neighboring Duquesne, or Rankin, or Homestead all started long before the decline in local manufacturing employment or wages, nor did that decline accelerate in the last 3 decades that the National Journal article focuses on. Can’t even say it is a confusion of causation vs. causality; look at most any time series on economic conditions in Braddock and there isn’t even any spurious decline that started in the early 1980’s. It’s all weird revisionism. Paleo beer goggles of a happier past that really existed long long before anyone really remembers.
I wonder how many current residents of Braddock today are the “long term unemployed” that are vestiges of an industrial past? Those workers left Braddock long ago, and took with them their families most all before the bulk of the jobs went away. The article says Braddock is filled with “their children and grandchildren. These are the second and third generations of a lost tribe.”. Really? Even the mayor is not the 2nd or 3rd generation of a local steelworker; few of the very few remaining working age residents are either.
Then there is this quote:
U.S. Steel’s Edgar Thomson Steel Works chugs on, as it has since 1875, but it’s a sprawling corrugated-metal relic of its former self. Its parking lot is almost empty at midday, and it employs several hundred workers rather than the more than 10,000 who labored here at its peak.
You know.. Edgar Thompson has been pretty busy even during the depth of the recession. In fact US Steel brought work to Edgar Thompson from other plants because I have to believe it was the best business choice for them to do that. They even got in trouble with the Canadian government for first choosing to shut down it’s Hamilton, Ontario plant and not take work away from E.T.. Here is the big point though.. those several hundred workers at Edgar Thompson probably make as much steel as did thousands of their predecessors. That is called the increasing productivity which is pretty much a necessary condition for manufacturing competitiveness in the world. Yet, somehow that is bad? It has nothing to do with the current conditions of the residents of Braddock mind you, but still.
Now of course maybe I am being harsh and the story isn’t really about Braddock more than the metaphor it shows for the apocryphal Rust Belt or maybe the Pittsburgh region collectively. Of course there is the post earlier today where I pointed out that employment in the Pittsburgh region is pretty much at an all time high as of last month. All time. Not mentioned anywhere.
All that being said. Make no mistake we have failed Braddock. We failed it decades ago. Continue to fail it, and there really seems to be no reason to think we will not continue to fail it for a long time to come. But as long as we believe the mythos of what went wrong, it is pretty much impossible to ever hope anything will ever get any better.
By Simon Grey, on November 25th, 2011
General Electric, one of the largest corporations in America, filed a whopping 57,000-page federal tax return earlier this year but didn’t pay taxes on $14 billion in profits. The return, which was filed electronically, would have been 19 feet high if printed out and stacked. [Recall that GE claimed a tax benefit of $3.2 billion for this effort. -Ed.]
57,000 pages is a lot of ink and effort to turn taxes from a cost to a benefit. But it should now be easy to see who could profit from a complex tax code.
Large corporations should generally support a complex tax code because their taxes are prepared on a large enough scale to make it profitable to filling out complex returns. The same is not generally true of smaller businesses, so tax code complexity actually serves as a competitive advantage for larger firms because they will generally find it cost-effective to shell out millions of dollars to have their tax returns prepared.
Tax lawyers should also support tax code complexity because it means job security. Forcing businesses to wade through page after page of highly complex and remarkably boring legalese should convince them they want to hire a lawyer to handle this for them. Also, factor in the additional time compliance costs, and the case for hiring tax lawyers makes sense.
The most impressive part of this story is how much GE paid to avoid paying taxes. Hiring tax firms is never free, so GE shelled out a pretty penny to change their status from paying a check to receiving it. It was undoubtedly worth it to do so, but this imposes significant costs on society and the economy.
In the first place, society suffers because it ends up paying GE. Instead of GE paying for its government benefits, it simply robs taxpayers and keeps their money for itself.In the second place, GE’s compliance with tax law imposes economic costs, primarily in the form of opportunity costs. Instead of hiring people to actually produce something, GE has instead employed tax lawyers whose only job is to avoid paying taxes. The tax compliance costs have made the economy poorer because there are now fewer people being productive since it is now more profitable to outwit government statutes instead of making things people find useful.
In fact, tax compliance is a major drain on the economy, and is one of the oft-overlooked costs of taxes. People often get caught up on tax rates, but tax complexity imposes its own costs as well, and should be part of the tax debate. Thus, the fact that GE not only had a corporate tax benefit of over $3 billion but did so with a 57,000 page return should suggest that something is terribly wrong with the current tax system.
By Simon Grey, on August 31st, 2011
Britain’s international aid budget costs the equivalent of 22 days of national borrowing from international markets. By 2015, British Aid will have increased by 34.2% to £11.5 billion per annum. Including personal donations and state spending, Britain gives 0.8% of GDP in international aid. With state aid increasing, more people should ask: Why are average per capita incomes in Africa lower than 40 years ago after $1 trillion of aid being given over that period?
If there is one thing I simply do not understand in this scenario, it would have to be why Britain feels compelled to help Africa at all. The British government’s only concern should be with taking care of its citizens and acting directly in their best interest. (Of course, as a libertarian, I’m inclined to argue that this can be accomplished simply by ensuring that property rights are observed, and that the taxation necessary to ensure this result is as small and painless as possible.)
I simply do not see how giving aid to Africa is in the best interest of British citizens. Need cheap labor? Asia is a good place for that, and doesn’t generally require near the amount of aid that Africa does. Besides which, Asian labor is more reliable in terms of quality, and many Asian governments have made a point of developing their infrastructure. So why care about Africa?
This question becomes extremely poignant once on also considers that African countries have not simply stagnated in spite of aid, but have actually regressed. This being the case, it seems obvious that aid, if not hurtful, is at least irrelevant to African countries. And if they can’t manage the money transferred to them from the pockets of productive first-world citizens, then how and why would anyone think that they are worth investing in?
Quite simply, it is time to cut the purse-strings to Africa. They squander the generous gifts given to them time and again, and it appears that this trend isn’t going to change anytime soon. If insanity is doing the same thing over and over again while expecting different results, then the sane thing to do at this point might be to cut the aid and force Africa to stand on its own feet. And who knows? It just might be crazy enough to work.
By Simon Grey, on August 25th, 2011
Q: Who said this:
Second, the idea that U.S. economic difficulties hinge crucially on our failures in international economic competition somewhat paradoxically makes those difficulties seem easier to solve. The productivity of the average American worker is determined by a complex array of factors, most of them unreachable by any likely government policy. So if you accept the reality that our “competitive” problem is really a domestic productivity problem pure and simple, you are unlikely to be optimistic about any dramatic turnaround. But if you can convince yourself that the problem is really one of failures in international competition—that imports are pushing workers out of high-wage jobs, or subsidized foreign competition is driving the United States out of the high value-added sectors—then the answers to economic malaise may seem to you to involve simple things like subsidizing high technology and being tough on Japan. [Emphasis added.]
A: Paul Krugman (Pop Internationalism p. 16 [1996], The MIT Press, Cambridge).
In spite of his remarkable daily stupidity, Krugman actually correctly recognizes the problem of American competitiveness in international trade. What hampers America is not foreign trade, but domestic productivity. And one of the biggest hindrances to domestic productivity is government, both at the state and municipal level, and particularly at the federal level. Thus, if one wants to know why Americans are losing manufacturing jobs, one need only look at domestic policy. The federal government has increasingly hamstrung manufacturing jobs over the past several decades.
Furthermore, instead of allowing consumers to feel the pain that domestic production policy would naturally incur, the federal government instead decided to promote increased foreign trade (under, it should be noted, the auspices of so-called “free” trade). This policy has then had the effect of subsidizing foreign production at the expense of domestic production because foreign manufacturers do not have to face the massive regulatory costs that domestic manufacturers face, giving foreign manufacturers a leg up on their competition.
As I have undoubtedly noted before, there are only two correct positions for a domestic government that presumably claims to represent the people over which it governs. Either the government can highly regulate domestic business and place tariffs on imports that approximate the costs faced by domestic producers or the government can reduce the burden of regulation on domestic business in conjunction with the decreased cost of importing. It is, however, quite foolish to do what the U.S. government is doing now: highly regulate domestic business while decreasing the cost of importing. Either a high degree of regulation is desirable or it is not. If it is, whatever regulations that exist should be applied to every person and corporation that wishes to do business in America. If it is not, the domestic market should be deregulated posthaste. There is no excuse for the current state of affairs.
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