The 300

The asymptotic nature of tech progress (the world, and universe, are bounded so there's only so much to be discovered about the physical world) has been a driving meme here for some time. This affects both product development and investment prospects. While corporations sit on trillions of dollars chasing Treasuries, they aren't investing in new productive capital (it's a long, academic study but worth the effort). Without new tech embodied in new machinery, return on investment is just fiduciary juggling: the current generation foregoes consumption to provided income to future generations. No real growth necessarily means that interest is paid directly from consumption; a transfer of wealth from the many to the few. The Donald's class keeps demanding that the Fed increase interest rates, all while they chase, en masse, Treasuries thus driving down the interest rate. Talk about cognitive dissonance.

[It] reveals that the long-term increase in capital's net share of income in large developed countries has consisted entirely of housing.

My, my. Sound familiar? Since housing is non-producing, it operates on the same mechanism of Treasuries, which is to re-distribute funds from those who work to those who don't. Nothing, it appears, was learned from the Great Recession. In order to pay increased housing price, there is a short list of opportunities. (The bounding factor is total mortgage monthly payment as a fraction of monthly income.) Mortgage holders' incomes are rising, so this increased level of earnings pays for higher mortgage payment (not happening). Housing operates as a Ponzi, where early buyers flip to later buyers at materially higher price, pocketing the capital gain or foolishly be the next victim in the scheme through buying a yet more expensive house (thus, the Great Recession, so yes). Reduce interest rate, thus trading interest for house price at a, more or less, static monthly payment (not happening). Lastly, stretch mortgage length; another method to hold monthly payment at bay (not so much). This last has been more active in auto loans, particularly since the Great Recession blew up the mortgage securitization process; now cars loans are packaged. Cool.

Without new, in the sense of not being just incremental change to the existing status, tech there can be no truly innovative products. And the nature of what is produced matters. New products which improve macro-productivity will trace back to new income creation. New products which are pure consumption (Angry Birds, for instance) don't create anything at the macro level. Apple got fat and lazy off the iPhone because it had a stranglehold on cap touch screen production for a couple of years at the outset. But one of the long delayed predictions of semiconductor tech remains in the future: wafer size of 450mm.

Since lithography is one of the biggest challenges in the 450mm wafer transition, ASM Lithography's announcement in March 2014 that it would temporarily hold off on the development of equipment for 450mm wafers made some in the industry believe it was a signal that the transition would never happen.

SK Hynix is building yet another fab, and it's 300mm. Won't be up and running until 2020, or thereabouts.

Kiss my asymptote.

A Christmas Homily

For some time, I've struggled to conjure a single sentence to explain the urban/rural or Red/Blue or sentient/moron divide that bedevils this Western World, not just the USofA. Quite out of my norm, I scanned the letters to the editor of a recent NYT; generally I ignore such sections of publications.

But here it is:

Academics are trained to distinguish reality from lies or fantasy, and to respect facts and sound arguments. If that biases academics toward liberalism, then there is a problem with conservatism, not with academia.
-- Andrea Liu/2016

The Donald is of the faith, if you're rich you must be smart. Well, no. You're just greedy.

Distribution Free Statistics

It's been an occasional theme of these endeavors, even part and parcel of the sub-title of one version, that the US (and, by extension, the global) economy has entered a less-than-zero sum game. In the past (see Gordon's book), the standard response to job destruction by tech change was that more new jobs were created than were busted by the machines. That sequence of events was possible only because the new jobs were no more challenging than the old ones. Displaced farmers were quite savvy enough to stick tires on chassis coming along Mr. Ford's assembly line.

So, today we get some more quotes with data, once again, demonstrating that, this time, it really is different. If the US, and by extension the global, economy is to avoid permanent collapse income has to be disconnected from production. Or, as one of these subtitles says

It's the Distribution, Stupid

Yes, we make more stuff with fewer hands. This is called increasing productivity, and all the data over the last few decades has shown this to be true. Also true: almost none of that increase (i.e., growth) has ended up in the hands of hands. Capital gets almost all of it.

Donald J. Trump told workers like Ms. Johnson that he would bring back their jobs by clamping down on trade, offshoring and immigration. But economists say the bigger threat to their jobs has been something else: automation.

"Over the long haul, clearly automation's been much more important -- it's not even close," said Lawrence Katz, an economics professor at Harvard who studies labor and technological change.

Now you know why corporations and their 1% owners continue to sit on $$$ trillions and chasing Treasuries. Even as tech eliminates more jobs, corporations are running out of ways to eliminate those that remain. So they goad the Fed into raising the interest rate in the hopes that doing so will cause Treasuries' rates, and their incomes. Yet more transfer of wealth from the many to the few.

Happy Christmas.

The Ivory Watch Tower

The second version of Apple Watch is out and about, and the much ballyhooed blood pressure measure still hasn't appeared. And there's a reason, which I've experienced for some years. First, the sensors in the Watch are on top of the wrist, while the best access to the body's plumbing is on the inside. Second, I've been to the dentist, optometrist, and real doctor over the last month. The dentist and eye guy both take a perfunctory blood pressure reading; meaning both strap on a bracelet device, which inflates and eventually displays a reading. Two different, but operating the same way, devices. And both said my BP was 150-ish over 90-ish. Baloney.

So, I was at the real doctor this week, and the nurse pulled down the sphig and her stethoscope and took my BP. 121 over 83. Same as always, +- a couple of points. Top of wrist sensors aren't worth a plugged nickel. Only Apple fanbois have been deluded into thinking otherwise. And, I suppose, they voted for The Donald. Same naive` behaviour and, eventually, same naive` regret.

A Man of Subsistence, part the second

We return with Eccles, again:

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 (mid 1930s FDR advisor)

And we ask whether it's possible for the 1800-ish view of the USofA (a nation of yeoman farmers largely unconnected to government, to paraphrase Jefferson) so beloved by the alt-right remains a viable foundation in 2016. Or, to be blunt: can capitalists impose subsistence on the 99% and still have capitalists flourish? Well, in order to do that, the 99% have to be supplied with the three foundations of survival; food, clothing, and shelter. And the capitalists need to be in the business of selling such, not just conducting a continuing FIRE sale. In the mid-1930s, the USofA economy was largely self-sufficient; the Great Depression shuttered much productive capital, but didn't destroy it. Plants which had stopped making automobiles were quickly repurposed to build tanks and jeeps. Thus the WWII re-industrialization was only a matter of will to employ it. In today's economy, local food production is largely for the 1%, but staples are mostly domestic and shipped country wide. Clothing is almost wholly imported. Housing is moving from nail pounders making stick built houses, to site assembly of factory produced modules. In a nutshell, American capital doesn't come near enough to supplying the rudiments of 21st century subsistence; one might reasonably include personal transport as a necessity, for instance, since nearly no American tends his own few acres of bottom land with a mule.

If The Donald does get his way with 35% tariffs (he doesn't have the authority to do so by fiat; so far, anyway), the ones most hurt by that will be the poorly educated white folks in Pennsyltucky who voted for him, since they get most of their stuff from China and the like and not so much from Goldman Sachs. There's a certain irony in that, of course, but lots of others (3 million more or thereabouts who didn't, so far) get hurt too.

The point, of course, is that Eccles' observation, while the alt-right would likely see Marx in it, is merely a re-imagination of global equilibrium. Whatever goes out must be consumed. In an agrarian economy, with a smattering of simple manufacturing, such an economy can be self-sustaining of a 99% subsistence labor force, societies were such for thousands of years; Jefferson's vision put starkly. By 2016, USofA output is increasingly in FIRE and other intangibles. One can't make subsistence with tweets; they aren't very nutritious (particularly The Donald brand). In the early 1900s, Henry Ford rocked the world by raising the wages of his assembly line drones. He did so for the avowed reason that they'd be better able to buy his Model T. Do you imagine Blankfein at Goldman Sachs (once The Donald's pinata, now bromancer) having such an epiphany? Or that the poorly educated white folks could, miracle of miracles, afford his product? I doubt it. But either today's raptor capitalist must, or our economy collapses. Recent reporting of research that today's young-uns are less likely to earn more than their parents then any previous generation should come as no surprise. After all, we live in the culmination of the 1%'s Pac Man-ing of the GDP.

How to (re-)distribute is far less important (except to ideologues, of course) than it get done. While likely not the first to express it, Krugman put it well:

My spending is your income, and your spending is my income, so if both of us try to spend less at the same time, what we end up achieving is mutual impoverishment.

If, after all, Americans can't be supported by what their economy makes (financial services, mostly), and they can't develop the skills needed to make what the economy makes (ditto), then what's the result?

A question of balance. Switzerland and the island countries can make economies largely on shifting moolah twixt Peter and Paul, who of course live elsewhere, since they're teeny little societies. The USofA, not so much.

And we close, again, with Twain:

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
-- Mark Twain

Book Larnin

Well, the shit has hit the fan. One of the emerging themes of these endeavors is that those blinded by data, they ignore history and events, get it very, very wrong. I've spent more than a few keystrokes in these musings berating the deficit hawks. The least intelligent are the trade deficit hawks. The Almighty Buck really is New Gold, and in order for the global economy to prosper and expand, there has to be a steady flow of bucks into all those other countries. That flow only happens if we run a current account trade deficit. Surprise, surprise.

[Hyun Song Shin, the head of research at the Bank of International Settlements] concerns also center on the global banking system and the possibility that the dollar's rise will accentuate what he refers to as an emerging dearth of dollars, which could bring back memories of the financial crisis in 2008 and 2009, when a global rush into dollars created a liquidity panic.

"What's good for General Motors is good for the United States." May be not so much for the rest of the world.

Here's the best part:

During such eras of dollar strength, global central banks were forced to dip into their reserves to defend their weakening currencies, leading to what some economists are now calling quantitative tightening.

That would be the flip side of quantitative easing, the policy of the past decade where central banks have flooded the world with cash in a bid to spur growth and combat deflation.

Why the best? I read a dead trees NYT while sipping my one cup of coffee at Panera. I got to that part of the story, and circled "inflation" and noted "deflation". By the time I got around to typing this missive, the innterTubes version was corrected, with a note saying so. Gotcha.

It's a Brave New World. Really. I Mean It.

Two bits of news today, courtesy AnandTech, one and two. One has to wonder how much longer the reactionary cabal will continue to ignore the benefits of the RM? Of course, here on the West side of The Pond, reactionary has become normal.

A Man of Subsistence

Since the beginning of time, well Adam Smith (the real one) at least, economics has been characterized as studying the interplay among three high level inputs to production: land, labour, and capital. Until the industrial revolution, landowners held sway. Subsequently, both capitalists and their puppet economists agreed that they were the chosen people.

So, let me start with an anecdote. Here on the hill is a sorta, kinda commune. The houses came down through the wife's family, which now consists of two sisters and a brother (who lives elsewhere), two cats, two dogs (Lhasa and Jack Russell-ish), and humble self. Recently, since both dogs are getting up there in dog years, I suggested we get a third, so that when the first of the pair succumbs to whatever ails it, the survivor will still have a companion. Made sense, to me anyway. The wife demurred, saying that two would gang up on the third; not necessarily the newcomer.

I found that amusing, since she and her sister have done that to moi. She didn't notice the irony, of course. They're BAPs, so they deserve a servant.

Which brings us to The Donald and Carrier (Pence's Indiana is actually paying for it!) and Boeing and such. It has been an article of faith, codified by that Pareto guy, that labour will always, under any economic regime, be reduced to subsistence wages in deference to the needs of landowners and capitalists. Pareto, in particular, used data going back centuries to make his point. Marx, not Groucho, demurred.

On the other hand, we have this observation, of more recent vintage (yes, it's part of the preamble to one version of these endeavors):

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 (mid 1930s FDR advisor)

Take Smith and Eccles, toss in a blender, and what sort of smoothie do you get? What we get is the distribution problem writ bold: as automation decreases the number of labour hours in the production of widgets, we have a demand problem. The lunatic right wing continues to demand yet more supply side support for capital, but the fact remains true; corporations and the 1% sit on trillions of $$$ of idle cash. That cash, to the extent it is used at all, is spent chasing Treasuries down to 1.5% return and M&A and share buybacks. None of those uses has any growth, at the macro level, component. It's all just moving money from the many to the few, who just sit on it as they do today. And, if the spend it all, they still chase Treasuries being the scaredy cats they truly are.

What you get, if an improving macro-economy is the goal, is a revised definition of "subsistence". In the middle ages through the end of the 19th century, subsistence meant just the other triad of economics: food, clothing, and shelter. Labour's only purpose was to reproduce in sufficient numbers to supply effort making the stuff for the elite, whether regal or commercial. Today's lunatic right still thinks in those terms, despite the obvious fact that production today is utterly different from as late as 1900. Eccles understood that. The Donald and his entourage don't. In particular, they are wilfully ignorant of the fact that the 1% have really good healthcare because the employer paid health benefits originating during WWII (and damn gummint support for R&D) are what paid for it all. If only the 1% can pay for healthcare as just another consumer discretionary spend, in a short time even they'll have 1920s variety healthcare.

It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.
-- Mark Twain

Pareto Failure, part the second

Well, well. Some, but not the true believers I'd expect, Trumpistas have discovered the issue with Pareto Optimal. Or, as I prefer, Pareto Fail. We have this article today, with some really scrumptious quotes.

Just to recap. Pareto was, sorta kinda, an economist of the Italian variety. Just as Mussolini began to drag the country into the mire. The signal example of his Optimal: given a pie and three people, where the status quo is that two divide the pie half-and-half, any attempt to re-distribute any part of the pie to the third people results in lowered utility. This assumes, of course, that the loss of utility by the pair exceeds the gain in utility by the singlet. And that assumption is based on further assumptions about utility curves and the like. Read up George Stiglitz (here's a start) for details.

So, what's the signal quote?

"Cutting taxes for shareholders will destroy more factories than whatever he saves by jawboning companies from the bully pulpit," Mr. Konczal said. And incentives like the ones Carrier received only forestall the inevitable shift by multinational giants to low-cost locales like Mexico and Asia. "They will just go later after pocketing some money," Mr. Konczal said.

As they always do. Just look at professional sports teams and their publicly paid for arenas. Welfare for billionaires.

Or this:

"The dry statistics on trade aren't working to counter Trump," Timothy A. Duy, an economics professor at the University of Oregon, said in a blog post on Sunday. "The aggregate gains are irrelevant to someone suffering a personal loss. Critics need to find an effective response to Trump. I don't think we have it yet."

That's just saying "Pareto fails". It also obliquely raises the key point to all this: if moving 1,000 jobs to Mexico, or wherever, at a loss of, say, $30,000/job/annum leads to a $10/unit decline in the price of 1,000,000 unit/annum widget, what's best? With a long enough time horizon, the winners (all those buying the widget) could, through force of law, compensate the losers. The fact that the Carrier jobs weren't in support of consumer goods, but rather commercial ones, makes the compensation process either easier or harder, depending on the mechanism.

Pareto fails just because it is amoral. And it is commonly used to justify supply side voodoo economic tactics. Clowns are con men, and I hate clowns.

The Scariest Sentence You'll Ever Read

Today, states containing just 17 percent of the American population, a historic low, can theoretically elect a Senate majority
-- Emily Badger/2016

Thought For The Day - 2 December 2016

Unemployment rate: 4.6% vs. 4.9% consensus, 4.9% previous.
178,000 additional jobs.

IOW:

"Yo, Donald!! You'd best not fuck up an economy that's working just fine in order to make rich folks richer and poor folks sicker and poorer. You do dat, and I'll whoop your fat ass to Selma and back."

love,
Barack