04 November 2016

Nor Any Job But Think

These endeavors exist in a number of versions on multiple platforms.

One version has the following sub-title:
It's the Distribution, Stupid

That version also has some relevant quotes, among which is this:
As mass production has to be accompanied by mass consumption; mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.
-- Marriner Eccles

Eccles has a bio on the Wiki. The point is that he was an FDR advisor during the Great Depression. This is the most elegant description of the capitalists' dilemma: physical capital earns its keep through productivity, but more importantly, sales of that output. No demand, no return. This is the simple explanation for why corporations and the 1% are sitting on trillions of idle $$$. They have lost the ability to turn fiduciary capital into productive physical capital. Thus we had the DotBomb (idle cash chasing The Next Big Thing), the Great Recession (idle cash chasing home mortgages) and today's 1.5% Treasuries (idle cash chasing "zero risk" return). In all three cases, there was little to no positive macro effect.

As Election Day approaches, we hear The Donald claiming to have the cure to the downwardly mobile middle class. Never mind that it's been confirmed that most of his wealth is from financial and tax engineering. He continues to blame capitalists for using immigrant labor and cheap imported materials. Just as he did with his Washington hotel.

"Di bot boss, di bot."

It's been obvious for some decades that the Luddites were right, just a century or two early. The current crisis, the non-recovery of jobs from The Great Recession, is merely the most recent manifestation. The bots have been on the rise for some time.
America has lost more than seven million factory jobs since manufacturing employment peaked in 1979. Yet American factory production, minus raw materials and some other costs, more than doubled over the same span to $1.91 trillion last year, according to the Commerce Department, which uses 2009 dollars to adjust for inflation. That's a notch below the record set on the eve of the Great Recession in 2007. And it makes U.S. manufacturers No. 2 in the world behind China.

But there are two sides to the middle class problem. The bots mostly explain the loss of the blue collar middle class. The rise of FIRE is the other side of the coin.

Back to 1800. The Luddites have forever been opposed by the Techs. Through the middle of the 20th century, the Techs held the policy upper hand. The argument, generally offered as some version of Pareto optimality. The crux of Pareto is that the "winners" *could* compensate the "losers" and still gain. But Pareto justifications never seem to require the compensation.
Thus, in practice, to ensure that nobody is disadvantaged by a change aimed at achieving Pareto efficiency, compensation of one or more parties may be required.

Where the Techs' analysis fails is to assume that the farm-to-factory migration of the late 19th through mid-20th century is still the exemplar to be followed today. That earlier labor migration worked because farmers could do factory work, since it required less skill, brain power, than what they had been doing. The dollar wage may have been a tad better, due to value of goods made.

But with the rise of FIRE as the sink for "skilled", brain work, labor has made a migration from lost manufacturing quite impossible. Worse, FIRE is a net overhead at the macro level. MBAs make money by moving Uncle Sam's moolah from the left pocket to the right pocket, and deducting a fine fee for the effort.
The Department of Education numbers support his point. In 1980-1981, some 19.1% of all the master's granted were in business. In 1990-1991, advanced degrees in business grew to 22.8% of the total market, and in 2000-2001, it was 24.4%.

Just what the world needs, more Liar Loans, LIBOR fiddling, and London Whales.

So, as the meta-quote from Bill Clinton says, capitalism (whether laissez faire or socialist) can only survive when aggregate demand tracks output. We know from the data that, on the whole, wealth and income concentration have put a spike in that. The situation will only get worse if King Donald of Orange takes the opportunity to worsen the concentration with his avowed tax plan.
[T]axpayers in the top 1 percent would see the largest increase in after-tax income on a static basis, driven by both the lower top marginal tax rate and the lower corporate income tax. Under the higher-rate assumption this increase would be 10.2 percent, and under the lower-rate assumption this increase would be 16.0 percent.

Further, the notion that giving more moolah to profit-rich corporations and 1%-ers will lead to investment-driven Nirvana has been proven a lie at least since the Laffer Supply Side nonsense. One can't push a string; monetary policy can contract an economy by killing the money supply. As the QE extension of TARP has shown, those with idle moolah don't make more physical investment if you give them yet more moolah. They just run, lemming like, toward Treasuries. There's a reason they bring about 1.5%: the CxO class is impotent.

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