17 March 2017

Nashville Skyline

Regular reader will recall that, in the post-mortem of the election, I asserted that even Red states really aren't. They're all dotted with Blue cities; some, of course, large enough to stave off the cretins. Some, not.

Today's Times brings us a first person tale of one such situation, as you might expect from the missive's title, Nashville.
I believe my people elected the greatest threat to American democracy since the Third Reich, but I haven't been able to work up a real us-versus-them way of thinking about my own friends and family.

Wow!!! On both counts.
Tennessee is a blood-red state, but Nashville is a blue city, an arrangement that works roughly the way living with an ex in the same house might work. Every time Nashville passes a law to increase inclusion, or decrease idiocy, the State Legislature passes a law that overrides it. Last month, when Nashville residents took to the streets to protest the president's executive order on immigration, a state representative named Matthew Hill proposed a bill protecting drivers from civil prosecution if they happen to run down a protester.

Yep. They are deplorables.
Meanwhile on the other side of the road, the Ecumenical Franciscan was holding his ground right in the middle of the Trump supporters waiting for the line to move. "Beat swords into plowshares -- where does it say that in the Bible?" one guy called out, passing by. "Two different sources," Father Boylan said, turning to speak to him. But his heckler was already gone.

Not too surprising that the Bible thumpers don't even know the basics of the religion. The phrase comes from Isaiah. Yes, while I knew the term from childhood, I had to look it up to find the original source.

12 March 2017

The Asymptote of Progress - part the third

We're getting closer. Even a (nearly) lunatic Right Wingnut, N. Gregory Mankiw the NYT token Rightist, takes up a number of themes of these endeavors likely opaquely to himself, in today's edition. He suggests that Kim Jong-Don talk to an actual economist (not mentioned is that it should be Stiglitz, but that's a bridge too far) to get answers to economic questions. Not that any Freshwater economist would have anything new on offer to Kim Jong-Don. Mankiw does offer up some real facts, which is a miracle on its own.

So, here are some bits from Mankiw.

But a large expansion in the aggregate demand for goods and services is not what the economy needs right now.

Of course, since Kim Jong-Don claims that the "real" unemployment rate is in the neighborhood of 40%, the only possible way to get those millions of unemployed into jobs is to push up aggregate demand. Unless, of course, you just want to leave those out of the labor force hanging out on meth and heroin. Mankiw is taking the 5% reported as globally true. Kim Jong-Don is right that U3 is too narrow a measure for the current circumstances; of course, he's nuts to say it's 42%, which number is generated from total employed divided by total population. Only a lunatic would offer such a number.

According to a recent paper by Mr. Jones and three co-authors, the number of Americans engaged in research has increased more than twentyfold since the 1930s, yet there has been no similar explosion in productivity growth. Their interpretation is that big ideas are just getting harder to find. Unfortunately, there is no sign that this is about to change.

That is, directly, the asymptote of progress. I claim previous invention.

Mr. Trump's victory can be attributed largely to the support of white working-class Americans.
The question is whether Mr. Trump can alter these disturbing trends. Few economists point to flawed trade agreements as the main source of the problem, as the president often does. More important is what economists call skill-biased technological change.
The solution is to increase the skills of the labor force through better education and training. Yet this is easier said than done.

Well, we're back to the solutions presented in previous missives in this series:
1 - you're just stupid and should never have earned such high wages, aided and abetted by evil unions; suck it up and make do with nothing (which is basically what the Right said to unemployed Northern union workers as jobs went South over the last decades)
2 - you're just stupid, but you're Real Americans and thus deserve sinecure for the rest of your life and those of your spawn (who will grow up just as stupid with Red State reactionary education, and then their spawn; repeat)

Mankiw isn't the bloody mouthed Bannon, but even a bit of sanity seeping into the Right is welcome. Whether there'll ever be enough is the critical question. The last billionaire to actually care about the underclass was called FDR. Kim Jong-Don ain't no FDR.

11 March 2017

Risky Behavior

Yes, one should not speak ill of the dead. Today, the NYT has the obit of an award winning economist, Stephen Ross. This is notable not just because he was an economist, taught at MIT, and earned his doctorate at Harvard. A saltwater economist. No, what is notable is that the obit lauds him for his bad news quant theory. Not that most in the profession consider what he did a bad thing. Econ has been on a quant jag for decades.
Professor Ross relished marshaling complex theories honed in the academic world and applying them to Wall Street, where they could be used to address practical problems. His contributions to the finance industry earned him the Deutsche Bank Prize in Financial Economics in 2015.

Jürgen Fitschen, a co-chief executive of Deutsche Bank at the time, said in a statement that Professor Ross's work was the "foundation for all the risk-factor models we use today."

Of course, the use of exotic derivatives were what brought down the world in 2008. And, we now know, that Deutsche Bank got caught washing Russian rubles, provided Kim Jong-Don lots of moolah, and fueled the Great Recession.

I wonder if one can posthumously return an award?

Risky Business?? Where's Scientology when you really need it?

10 March 2017

Clippy Versus Terminator

That didn't take long. Bill Gates said the unsayable. (Here's the original).
Bill Gates, who has done more to propel the world into the high-tech age than almost anyone, recently called for taxing robots. That has provoked enough negative feedback to fry a motherboard, with critics decrying him for wishing to hold back progress.

And here's the FRED graph of labor's share of GDP from last week:

Gates himself said robot job killers risked provoking a Luddite backlash among their victims. But as the humans in the "Terminator" movies found out, stopping the rise of the machines is very difficult. As Lind noted, increased automation is a very strong trend that Gates has done much to feed.

What can we speculate, or infer, from these two "data points"?

Recall the 1%'s standard refuge, Pareto Optimality, which amounts to an "intellectual" defense of the status quo: you can only make A better by making B worse. Even, it can be argued, that making A better out of growth harms B if the re-distribution impacts B's previous slice of the growth pie. That's some catch, that catch 22.

As Obama/Bernanke/Yellen's trickle down monetarist approach to recovery demonstrated, a rising tide doesn't raise all boats. And, thus, income concentration continues to increase, growth stagnates, and inflation never seems to appear. Again, recall that there's three sources of inflation: wage push, cost push, and demand pull. The QE exercises never fueled inflation, outside the asset markets, because all that QE money never made it to either wages or general incomes of the middle and lower classes; it ended up on the balance sheets of corporations and the 1% who then plunged it into fiduciaries, having no cause to buy goods and services. It is curious that the beholden econ and business pundit class never seem to call out cost push when raw materiel, like oil, go shortage (real or imposed), and end user prices rise. They always call for Volker Vengeance on those evil wage slaves.

Of course, taxing robots doesn't hold back progress. As discussed in other recent missives, Kim Jong-Don fed the uneducated, unskilled, unemployed from the Empty States a line of bullshit. Which they ate up by the wheelbarrow full. I pointed out that turning an unemployed 50 year old assemblyline drone into a London Whale isn't such a good idea, even if it could be done. Turns out
Advocates for automation contend that, while some jobs are destroyed, others that pay better are created. The question is whether the number of new jobs will be sufficient to offset the ones rendered obsolete. Another concern: Can low-skilled, poorly educated employees be retrained for the new, more data-driven work arena?

As to the first and second sentences, we already know that automation, unlike the farm to factory migration of the late 19th and early 20th centuries, isn't a one-for-one (or better) bargain. As to the rest, if all one needed to be a London Whale was a GED and a bit of re-training, the tsunami of applicants for such positions would unleash a catastrophic race to the bottom for wages of such work. That ultimate catch 22: supply exceeds demand. Not to mention the psychic scars inflicted on all those Harvard MBAs who find out that all their study and bureaucratic ladder climbing was pointless. They only needed to take a three month remedial quant course at the local community college after high school graduation to earn 90210 wages.

Of more interest, of course, is the question of macro-economic effects of falling labor share and automation. It's not too far a stretch to infer that the falling share is, at least partially, the result of automation to date. We do know that income has been concentrating at an accelerating rate over the last few decades. It's also clear that income concentration yields lower to negative growth, just because at some point there's really nothing more that you want. And, more to the point, income concentration means fewer buyers for whatever the 1% wants to buy. Ferrari doesn't sell as many units as Ford.

The problem with ever more automated production, whether goods or services, is that machines can't be laid off or fired. You bought it, you'll pay for it no matter the level of demand for your widgets. And that's a significant problem for capital. Have you ever wondered why oil output never seems to drop very much? Yes, at times new sources are scarce, but producers always seem to run their equipment at 110%. Why? Because they have to pay for it no matter what. While the MBA types focus on average cost, as production becomes ever more capitalized, producers increasingly submit to marginal cost because they have to: sunk costs are irrelevant to decision making, as the econ types say. In practice that means you are forced to accept any cash flow that helps pay off your machines. You can't fire them.

In time, and it may be less than the current generation, demand collapses without a new and revolutionary method of income distribution. Whether the 1% will realize this before the implosion? Given human's penchant for time horizons that stretch to the end of his nose and no farther, more likely not. A permanent Greatest Depression, imposed by a global police state, is the most likely. Production will be geared to the wants of the global 1%, which will require what the Right has always opposed (as demonstrated by Brexit and "Make America Great Again"): a universal global currency. Such is necessary to ensure that the 1% of, say India, have equivalent buying power to, say that of the USofA. Currency manipulation by governments will be anathema to capitalists (they want those rupees to be worth as much as bucks), so they will see to it that it can't happen. Bitcoin style currency could be the vehicle; too early to be definitive.

Thought For The Day - 10 March 2017

The venerable James B. Stewart tells us about the proto-Trumps today.

What Mr. Stewart and his interviewees ignore: running a democratic government has a diametrically opposite purpose from running a corporation. For the corporate CEO, the goal is to transfer wealth from the many (customers, workers, suppliers) to the few (management, shareholders). Democratic governance, on the other hand, is about equitably governing the whole populace. For some definition of equity, of course.
"I feel many of these chief executives are responding to a public longing for a strongman, or woman, a strong leader," Mr. Gergen said. "There's a sense that's why Trump got elected. You're seeing the same thing in Europe, in Asia, in a long list of countries. People are dissatisfied with standard politicians. Military types and business people with a strong track record offer an attractive alternative."

This is a rather precise example of cognitive dissonance. The "standard politicians" have been in the pockets of the 1% and serving their interests. In other words, behaving like CEOs. Putting a "real CEO" in charge will lead to a better life for the average Joe Sixpack? Defend your answer. Show your work.

09 March 2017

Thought For The Day - 9 March 2017 [update]

It's Thursday, so BLS releases the weekly unemployment number. It's increased 20,000 poor souls. The Kim Jong-Don effect has set in. Sugar high, depression crash. Which got me to thinking about some other dots that appear to be connected.

The first dot. Bannon is an avowed Leninist, not to be confused with Marxist. You can visit the Wiki for all the details you might want. The motivating thrust of Bannon, though, is quite specific. He intends, and has already put into motion, the destruction of the professional Federal civil service. He and his acolytes have called this body of workers "the dark state". His point was described to me by Dr. McElhone way back in the mid-70s this way: the only thing that kept the government running during the Nixon fiasco were the civil servants. They didn't depend on who owns the White House or Congress. Now, the Federal civil service resulted from the assassination of Garfield. Up to that time jobs were parceled out to campaign supporters. We had to kill a president to figure that might not be such a good idea.

The second dot. At least the State department is purging experienced professional staff. The nature of Kim Jong-Don, and his zealots, is to reject anyone or any idea that doesn't comport with established bias. They're getting rid of the "dark state" that knows more than they do. Wouldn't want any voices saying it might not be such a good idea to enable Putin's oil grabs, land grabs, or killings.
Elliot Abrams, Tillerson's top choice to be his deputy, was rejected by Trump after the President learned that the former deputy national security adviser had criticized him during the campaign. No replacement has yet been named.

The third dot. It's widely assumed that the DC metro is the locus of Federal employment. Turns out, not so much. Certainly there a lot of Federal civil servants, but they're not the largest percent of the metro area of all such areas. More to the point, they aren't the ones with the grand mansions in McLean and Bethesda. Those are owned by the lawyers and lobbyists. I know. I lived in DC on a civil servant's pay. Civil servants live in Levittowns or one room apartments in town. Leaving Boston was a bad economic decision.
[update hot off the press]
President Donald Trump's daughter and son-in-law are renting a house from a foreign billionaire who is fighting the U.S. government over a proposed mine in Minnesota.

The Wall Street Journal reports that Ivanka Trump and Jared Kushner are renting a $5.5 million house in Washington's Kalorama neighborhood from Andrónico Luksic. One of the Chilean billionaire's companies is suing the federal government over lost mineral right leases for a proposed copper-nickel mine in northeastern Minnesota.

The fourth dot. I can't speak for all folks who have, or do, work in government, but in most cases it is for public service reasons. Getting a Federal job isn't easy (or, at least, it wasn't). You have to show you know what you're doing. That you have appropriate education and skills. By those criteria, Kim Jong-Don and Bannon and the rest wouldn't be allowed in. That's their point, of course: they are the outsiders who know how "the real America" works. Right. Billionaires who live off the sweat of others. But Bannon is right, although I doubt he understands the reason. Folks who choose to do public service are, by nature, more interested in supporting those who need support than those who don't. Coddling the rich isn't the natural instinct of public service. Which makes them deep enemies of Bannon and the billionaire buddies. Off with their heads.

So, this is a quiet, not quite silent, coup. Remember, Kim Jong-Don's "mandate" came from 77,000 shit kickers in Empty Counties. With Sessions getting to his main duty, voter suppression, Kim Jong-Don may well get the ability to pass on the levers of power to his son. Just like the North Korea version.

08 March 2017

Ingrates United

Eduardo Porter, econ/quant/analysis guru at the NYT has generally been reliable, from my point of view. Not so much today. His article is an attempt to blame the Trump win on clueless coastal Liberals.
So while most beneficiaries of welfare programs are white, many working-class whites perceive them as schemes to hand their tax dollars to minorities.
[my emphasis]

He spends his time blaming Liberals for not getting it with regard to lower class and lower-middle class whites. What's to get is simple racial hatred. It's no longer, post 1965, a Democratic strategy to race bait. Before the Civil Rights and Voting Rights bills, yes, the Dixiecrats mined white hatred of minorities below the Mason-Dixon, but Reagan took that meme without much contention from the rest of the Democrats.

There's really only two responses to the dirt kicking uneducated, unskilled, unemployed angry white folks plaint:
1 - the standard Right wing one of, "it's your own damn fault you're stupid; and why do you continue to vote for union busting Republicans"
2 - an income redistribution scheme to keep them in middle class wages forever

As to 1, well that was the response when the poor were mostly urban and mostly dark, although were mostly silent on the second part (they giggled about it amongst themselves). Now that the poor are increasingly white, suburban, and rural "we must do something about this carnage!!!" One of the nasty secrets of the Empty States is that, since before Scopes and still today, the quality of education in those places has been hidebound to a hideous degree. "It's your own damn fault you're stupid." One can't really expect people taught that the earth is 6,000 years old, people frolicked with dinosaurs, and the Bible is true history to be capable of doing 21st century work. Now, can one?

As to 2, well that's what the likes of Kim Jong-Don and Manchin and such are demanding. But no one in the Republican Congress supports any such thing. Neither does Kim Jong-Don, really. He imports foreigners at slave wages. And, of course, he imports foreign steel and other materiel. They didn't feel that way when the job losses were in unionized manufacturing in Blue states, of course.
... given the only beneficiaries of his decisions to go with cheaper Chinese metals for his construction project are Trump and his family, he is not someone who ever attempted to lead by example by only buying products made in America. He filled his bank accounts with millions of dollars that could have gone to blue-collar workers, many of whom now believe he is the man who will bring back the jobs that he secretly helped to destroy,

An MIT report from just after the election makes the case for redistribution:
The Rust Belt epicenter of the Trump electoral map says a lot about the emotional origins of his appeal, but so do the facts of employment and productivity in U.S. manufacturing industries. The collapse of labor-intensive commodity manufacturing in recent decades and the expansion in this decade of super-productive advanced manufacturing have left millions of working-class white people feeling abandoned, irrelevant, and angry.

Just suck it up and admit that you're lack of education and skill only got you good wages because Rust Belt unions did the heavy lifting. You elected Reagan, and he saw to it that such support would end. Vote against your self interest. Don't bitch about the result.
In fact, the total inflation-adjusted output of the U.S. manufacturing sector is now higher than it has ever been. That's true even as the sector's employment is growing only slowly, and remains near the lowest it's been. These diverging lines--which reflect improved productivity--highlight a huge problem with Trump's promises to help workers by reshoring millions of manufacturing jobs. America is already producing a lot. And in any event, the return of more manufacturing won't bring back many jobs, because the labor is increasingly being done by robots.

Remember: the CEO of UTC, which is the real Carrier company, said (after Pence and Kim Jong-Don and the cameras left) that the $16 million would be invested in more, not less, automation at the facility, and
"We're going to ... automate to drive the cost down so that we can continue to be competitive," Hayes said. "Is it as cheap as moving to Mexico with lower cost labor? No. But we will make that plant competitive just because we'll make the capital investments there. But what that ultimately means is there will be fewer jobs."

What does the Bible say about worshipping false idols?

06 March 2017

Thought For The Day - 6 March 2017

The mainstream pundit class seems non-plussed by Kim Jong-Don's tweet storm about his being wiretapped during the "sacred" election. By the way, if it were so "sacred" he shouldn't have colluded with Putin to bend the result. But I digress.

Mentioned, or alluded to, here in the past is the fundamental difference between Kim Jong-Don and any other pol in memory: he's spent his adulthood living the life of mini-dictator. His "business" is, structurally, exactly like the candy store that was on the street I walked twice a day (back then, grade schoolers were sent home for lunch; really) as a child. He has no shareholders. He has no BoD. He's The Decider. So, in that upbringing, if *he* wanted to wiretapp an enemy, he'd just snap his little fingers and it would be done. Now that he's the Dictator of the USoA, he just assumes that such is the way things are done. If Congress, right wing as its ever been, rolls over for him, he will be Dictator. Roberts sure isn't going to spike is tires.

05 March 2017

The Truth, The Whole Truth...

Mostly likely because I did my grad work in Econ rather than MBA (we mostly viewed them as incompetent empty suits; subsequent recessions caused by this cabal makes the case), I've viewed financial quant with a very jaundiced eye and said so a few times in the course of these endeavors. On the one hand, financial quants spend a good deal of time looking for loopholes in laws and regulations to exploit (CDS), and when loopholes are in short supply, bending such laws and regulations into pretzels (subprime and Alt-A loans). For their sole benefit, of course.

High on my list of foolishness is the notion that quant can actually predict stock prices. Now, that is distinct from having access to money flows data, which allows the holder to front run the lemmings into or out of particular companies or sectors. If you're a large enough holder, you can *be* the leader of the lemmings. Just note the Hunt brothers. They nearly got away with it. My guess is that a similar attempt under the Kim Jong-Don administration will succeed.

Well, in any case, comes a post by another skeptic.
There is a significant body of literature trying to forecast prices and to prove (or not) that financial markets are efficient in pricing publicly available information, including historical prices. This is the so called efficient market hypothesis. I have studied it, tried to trade for myself for a while when I was a Msc student, advised several graduate students on it, and the results are mostly the same: it is very difficult to find a trade signal that works well and is sustainable in real life.

In other words, events move prices, and not the other way around. And, of course, there's that fine print in finance/broker adverts, which goes something like, "pass results are no guarantee of future performance". If data drove prices, they wouldn't have to scuttle behind that mulberry bush. Events aren't predicted by data. Mostly. And, even more mostly, never soon enough for the retail plunger to see them.

Now, testing share predictors on indexes or subsets of same is nearly cheating: over time, large bundles of stocks (or bonds, for that matter) reflect the market rate of interest. Which fact is bedevilling the hedge funds these days.
Since January [2016], investors pulled some $7 billion in assets from so-called multi-manager funds, data from research firm eVestment show. This marks a sharp reversal for a strategy whose promises of diversified strategies and strong returns drew in $56 billion in new cash in 2015.

And, of course, Buffett has something to say
Buffett told investors last Saturday that low-cost index funds are a better option for most than paying higher fees to managers who often underperform, specifically hedge funds.

Now, marry "you're not going to beat the market rate of return" with "you're at the flat part of the asymptote of knowledge", and what you end up with is a zero-sum game twixt consumption and saving (without tech progress, there's no surplus generated by investment over redirected consumption, so that return comes out as diminished consumption). Couple that to an historic low proportion of GDP going to earned income and you see a dark future. The recent rebound? Not going to be sustained.

So, the post's conclusion?
The main results of this simple study are clear: prophet is bad at point forecasts for returns but does quite better in directional predictions.

Which, one might argue, amounts to front running, a bit, money flows. See? I told you so.

01 March 2017

The Asymptote of Progress - part the second

Another in the desultory series on the flattening of the knowledge and progress curves that determine our lives. Battery tech has been mentioned a few times, and it's come up again. This time reporting from the Mobile World Congress. Some of it is just funny:
For sure, there are fancy new phones, internet-connected gadgets (including, for some unknown reason, a toothbrush with artificial intelligence) and enough driverless car demos to sink a battleship ...

A toothbrush? Perhaps it will be used to inject signals into the brain?

Anyway, the bit that caught my eye as it relates to the progress thing:
There's a new bunch of smartwatches on show at the Mobile World Congress, but the biggest selling point is that the batteries of these new devices will last up to a month. That longevity, however, requires turning off almost all of the "connected" services: So companies have basically created, well, a normal watch, but one with a $400 price tag.

Bitten in the asymptote, yet again.
Q: When will longer testing batteries be available? Ones that don't catch fire!
You've hit on the holy grail of mobile technology, and it has come up a lot at the Mobile World Congress. Samsung's recent problems with Galaxy Note 7s that kept catching fire are only one example of how batteries have become a major obstacle to advancement in smartphones.

How long will it take to get longer-lasting batteries? It's hard to say, though my colleague John Markoff wrote recently about "solid state" lithium batteries that could be safer and give engineers greater flexibility. People here in Barcelona say that's years away.

It's worth remembering that this problem isn't new. Here's what Thomas Edison had to say in 1883: "The storage battery is one of those peculiar things which appeal to the imagination, and no more perfect thing could be desired by stock swindlers than that very selfsame thing."

Here's the link to the Markoff piece. These are safer lithium batteries, but no mention that they're higher energy density. Oh well.