Advanced Economies Must Still Make Things
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For example, look at this video of a MillTurn M60: https://www.youtube.com/watch?v=81UjjSH2iFw. This one machine replaces an entire shop floor of lathes and mills... and all their operators, too.
Automation is installed for two primary reasons: [labor] cost or repeatability. I agree that it's not just outsourcing as a cause, but rather a natural response to ongoing cost reduction in manufacturing.
The great thing about globalisation is that it does seem to be a standard of living equaliser.
The bad part is that it's a long way to the bottom if you live in the west.
Banking? Investment advice? Construction? Software development?
Whom exactly decides whos work is marginal? Do "marginal" employees somehow deserve to be displaced by greedy upper management whom already make historically larger salaries as compared to them?
I guess I simply do not like that term and the negative profile and connotations it implies.
The marginal unit of production is the last one you can produced, or the theoretical one that you could produce next.
It is like the least significant bit of a large number. Flipping it doesn't have a very large impact.
I presume ancestor post meant "the minimally skilled laborer", which is an unskilled laborer plus the minimal amount of training. Since companies rarely train on their own dime anymore, I presume those businesses are hiring folks with a CNC machine maintenance and repair certificate from ITT Tech. That person is easily replaced.
The point is that "skilled machinist" or "machine operator" used to be a job that would give a room filled with people a middle class lifestyle. A machine shop channeled disposable income to 50 median guys, plus the owner, whereas the CNC shop now supports 9 cheap schmucks, one median dude, and 0.1 of an expensive nerd, plus the owner. The character of the business has changed to reduce labor costs, and has increased barrier to entry (CNC costs more than manual lathe, for instance) to reduce competition.
The Ford maxim still applies. You have to pay your workforce enough to buy the products that they make for you. Trade always balances. If you spend less money, there is less out there in the world for you to earn back.
Which is why it's very hard to get access to high-quality manufactured goods at any price point. By directly screwing the bottom third of the workforce, the economy crappyfied itself and screwed all but the very, very top of their members.
Now wonder the retro fashion is all over the place now.
A 2016 Toyota Camry is higher quality than a 1986 Mercedes was in 1986. A 2016 Macbook is higher quality than any 2006 laptop was in 2006. I can buy a high-quality dishwasher from Bosch, a high-quality washing machine from LG, a high-quality mini-split from any number of suppliers. And all of those things are more affordable than they've ever been.
I agree that fewer things are lifetime user-serviceable (for most users), but that's a different thing than inherent quality (which is roughly proxied by: how long do I expect it to reliably work without repair?). If my TV is beyond economic repair the first time it breaks, but it doesn't break for 10 years, I'm way ahead of the game as compared to the old days when I took vacuum tubes to the town radio repair shop for testing to determine which one I should replace.
Agree. We can get quality things that are pretty inexpensive. But housing became very unaffordable. A big part of our income goes to housing. That means, we spend less money buying things. Furthermore, we don't have enough money to go out. (bars, restaurants, generally services)
In the sense that labor doesn't meet its margins, there's a ... conflict.
When you say "greedy upper management", please understand that 1) absentee management ( they're caretakers and not owners ) and 2) attempts to "improve" compensation in the past are what led us here in the first place.
One comes from mutual-fund style finance and the other from "CEOs make too much money" in the 1970s/1980s leading to performance-based compensation. Since the people who measure performance work for upper management, what could possibly go wrong?
And that's the real message here - the big difference is not between one type of labor vs. the other. The big difference is labor vs. capital - do you have to work to make your money, or have you "graduated" out of labor to making money with your assets.
Depending on your personal makeup, this can be either a curse or a roadmap.
The drastic increase in land prices has been driven by untaxing land (e.g. prop 13), allowing the stream of rents derived from land monopolization to be privatized.
That, combined with rock bottom interest rates (driving down mortgage requirements) and opening property markets to wealthy foreigners has driven up the cost of property in coastal cities precipitously.
If interest rates and property taxes were jacked up, property prices would fall once again just as precipitously as they rose.
>That, combined with rock bottom interest rates (driving down mortgage requirements)
Do changes in interest rates affect underwriting requirements? I have to admit that I don't know anything about mortgages, but they always looked like volatility products to me.
I do agree that the fall in interest rates has caused property prices to increase. This seems to be related to the fall in return on capital so it's unclear to me how rates might be "jacked up" and why that might be desirable.
The deadweight loss of a land tax is zero until it's raised above the unimproved rental yield of the land.
Lowering it is purely a mechanism for moving money into the pockets of land owners.
A land tax is more efficient than a property tax, but a higher property tax approximates a land tax sufficiently that the deadweight loss is minimal.
>Do changes in interest rates affect underwriting requirements?
Yes, since with lower interest rates you can afford a more expensive property since your monthly repayments will be lower.
That in turn pushes up the value of housing as people take out bigger and bigger mortgages to try and keep up with rising prices.
The idea that somehow a higher property tax will keep prices under control is not borne out by experience.
Just because there's a property value boom doesn't mean that the regional budgets should expand by 20% year over year...
I don't know if it was a state-level thing or if tax districts all did their own calculations back then.
Is that very different from the present day, in which there is very little property tax?
I didn't know that prop 13 applied in Beijing - I thought that was a CA law. I also didn't know that India and China changed their laws and allowed foreigners to buy land.
Blame the foreigners! Trump 2016! Or if you happen to live in Maharashtra, yay MNS! Mumbai for Marathis!
(For those unfamiliar, Trump is an American politician who believes Americans are lazy, greedy and stupid, and can't compete economically without violent thugs hindering the competition. MNS is a party that holds these same beliefs about Marathis.)
Low interest rates has yield chasers looking for investments all over the globe. Additionally, most countries lowered their interest rates in response to the US doing so in order to prevent a sudden and sharp increase in their currencies via the carry trade.
https://wallethub.com/edu/states-with-the-highest-and-lowest...
What evidence do you have that some change in property taxes (e.g. Prop 13) has occurred simultaneously and globally and is somehow related to skyrocketing land prices?
I presume you realize that New Jersey has the same interest rates as everywhere else in the US?
I can't imagine how the idea that higher property taxes = lower property prices & vice versa should be controversial.
It's ridiculous to blame foreigners for the NIMBY policies that prevent building enough housing in NYC, SF, Mumbai, etc. If foreigners want to buy lots of housing we should just build more of it and sell to them. Trumpkins should at least aim for consistency, rather than simultaneously complaining when Mexicans sell us things and also complaining when Chinese buy things from us.
Is there anything that those foreigners can do to avoid being blamed for our problems? Let me guess, just pay for the wall?
From your article: “The money coming from China is really helping some projects get literally off the ground, and it’s increasing our housing stock
I can name at least one Hamlet in NYS, and possibly one in NJ that had housing prices rise as taxes rose to among the highest in the state, if not the country. Conversely, I know of at least one town in NYS, and possibly Jersey, that effectively saw the reverse (lowered effective taxes, property values dropped)
The state of California versus San Fransisco has just as many issues. The pricing difference between SF versus Sacramento is huge.
People buy real estate, which is not the same as land, mind you, for all sorts of reasons The View, Neighborhood Amenities, Investments, transportation, it has sidewalks, the house has wood and not steel beams, what have you
Houses have been relatively unchanged compared to other things like cars and computers. In fact, most people want little more than just a roof.
Face it, house construction really hasn't changed much in a century, and definitely not since the 1950s. We're (in the US) still using 2x4 lumber assembled on-site, making walls with gypsum board, etc. Even "manufactured houses" use most of the same techniques and materials.
Thanks to mandatory building codes, innovation in building technique is basically outlawed. For instance, a 4"-thick monolithic concrete dome with basalt fiber reinforcement would likely survive a direct meteorite strike, but would not be code-compliant. The minimum thickness of a concrete wall assumes both a flat wall and steel rebar that may corrode, swell, and cause spalling in a wall less than 8" thick. Basalt fiber composite rebar does not count as reinforcement in some places.
Never mind about inflatable forms, building-sized 3-d printers, self-consolidating concrete, self-repairing concrete, translucent concrete, cast fused stone, centralized fiber-optic building lighting, 48V DC power outlets, advanced composite plumbing, composting toilets, or any other idea you might have that would be 1000x better than the bog-standard stick-built box, on a concrete slab, full of gypsum wallboard, copper wires, and PVC pipes that represents 99.99% of new site-built homes.
Sure, the codes stop you from buying a house that might kill you if the wind changes direction, but they specify only proven construction tech, without providing any economically viable way for new tech to become proven.
- We do have more advanced plumbing now. A lot of new houses are being built with PEX tubing, where the tubing is flexible and snaps together, instead of needing to be soldered or glued.
- What would be better than gypsum wallboard? It's dirt-cheap, not that expensive for labor, and people like the way it looks when painted. It also has reasonable insulation value. You could have concrete walls I guess, but I think that would be a lot more expensive, plus it's pretty hard to modify wiring if it's cast in concrete. Personally I think it'd be cool to have walls that are easy to take apart so you can modify the wiring behind them without having to do drywall work and painting, but there's no easy way to do that while having the smooth, painted wall look we enjoy now. The wooden paneling thing would work here, but went out of style decades ago along with shag carpets.
48VDC power outlets? What is the value here? Higher voltage is better for lower losses; it'd be better if we moved to 220VAC like the Europeans have, simply because of lower losses. And adapting appliances would be easy. 48VDC would require completely changing everything, for no real benefit except maybe lower shock hazard. GFCI outlets have mostly solved that problem.
I'm pretty sure a lot of people actually do have composting toilets these days; I don't think they're prevented by code. I've heard of people having them in basement bathrooms, so they don't need to add in expensive pump systems (as they would need to pump the toilet drain pipe's output up to the sewer level). The reason they're not more popular is because they smell (even if just a little) and require maintenance. Not many people really want to deal with that, they just want to flush their toilet and never see their poop again.
What would the benefit of centralized fiber-optic building lighting be? It sounds like a lot of labor cost, to deal with the fiber (which can't be bent in tight corners). Modern LED lighting has rendered this idea completely obsolete IMO. It's simple and cheap and completely compatible with existing Edison sockets. Heck, they're even making fluorescent replacement fixtures now (LED tubes which replace fluorescent tubes), so you're not limited to Edison socket stuff either. LEDs have completely revolutionized lighting; just look at cars now. You don't need to generate light centrally when you can cheaply generate it anywhere you want with LEDs. This sounds like a pie-in-the-sky idea from the 80s.
The main problem I see with building codes is the structure: wood isn't the greatest structural material for many reasons. However, there is more and more steel-frame housing being built, thanks to the lessons learned from commercial building where steel is king. Steel has huge advantages over wood: you can have much longer unsupported spans, and assembly time is shorter because the steel girders just bolt together on-site. As lumber has gotten more expensive, steel has become cost-competitive. Also, steel frames generally make for significantly thicker walls, which gives you better insulation.
PEX has been around long enough to be allowed by code. Something I will now make up on the spot, which may or may not be better or worse than any existing plumbing technology, is not: BAM ceramic, wrapped in nylon fiber and epoxy. I don't know anything about how this material would perform as plumbing, and neither does anyone else. I only suspect that it would be practically immune to clogs. How would I know how it might actually perform in real-world conditions? No one would be allowed to live in the house I plumbed it with.
Gypsum wallboard might be topped by plastic or paper panels filled with phase-change materials, to help regulate the temperature of interior rooms. Some phase change materials are only about 4-7 times as expensive as crude gypsum. Sodium chloride sodium sulfate decahydrate sandwiched between HDPE sheets seems likely.
You can now buy 120V AC 60Hz outlets that have built in USB-A 5V DC charging ports. Some off-grid solar-powered homes have refrigerators that use 48V DC. I know my own home is filled with AC-DC or AC-AC transformers, most of them are not very efficient, and few follow any kind of standard for their connectors. 48V is the typical voltage used for Power-over-Ethernet. The advantage is that you can use one expensive and efficient power supply to power all the electronics devices in your house instead of 50 cheap and wasteful wall warts.
We couldn't upgrade US domestic voltage because we'd have to replace practically every 120V circuit breaker out there that is only rated for 120V on any given path to ground.
Some municipalities require a sewer connection for any building to be fit for occupancy. Some specifically regulate the disposal of human waste. Those regulations usually predate modern composting toilets. I have read news articles where eco-hippies are threatened with eviction from their own home when they ask to have their muni water and sewer shut off because they're going off grid for the benefit of mother Earth, or something. Not my thing, but some people are into it.
Fiber optic lighting can use high efficiency sulfur plasma lamps or direct solar to light interior space. The Smithsonian Museum uses it in some buildings, for a variety of reasons that don't include low cost. Direct solar fiber lighting avoids solar power conversion efficiency and heat or color rendering issues at the endpoint. Embedding optical fibers in concrete can produce translucent concrete, which has potential lighting applications, such as light-emitting countertops. The idea might actually be from the 80s; I'm not aware why it never really caught on except as a footnote on "whatever happened to the technology of the future?" type of shows that sometimes appear on the lesser-viewed niche television channels.
Steel also has a notable advantage over the wood studs available in 2016. You can get steel studs of consistent quality, and all of them are rolled straight and cut square. But it took an overly long time for them to make it into the building codes, and the codes for steel-stud construction are an order of magnitude more complex than for wood 2x4s, simple due to the greater number of options available to the builder. Steel studs have gauge thicknesses, shape, nominal dimensions, alloy compositions, anti-corrosion coatings, etc., whereas wooden 2x4s or 2x6s basically have a (mostly) integer lumber grade and decades of institutional builder knowledge behind them.
Can you imagine what the building industry would look like if builders adopted new structural members as readily as software pros switched languages and frameworks? Every house would be dirt cheap and look unimaginably awesome... and would unexpectedly kill 0.05% of occupants for no readily discernible reason. Builders don't need to go that far. They could adopt new tech more readily without worrying about killing anyone.
Do you have any links about your phase-change panels? How would that help? And why wouldn't you just use a whole-house HVAC system?
The thing about wall warts really isn't true any more, and switching to 48VDC wouldn't help anyway. Most everyone's finally gotten away from the old iron-core wall-warts, and moved to extremely efficient SMPS-based ones. But even if they hadn't, switching to 48VDC wouldn't help because you still have to convert that down to a voltage that electronics can use (usually 5V or less). You can't transmit 5V over household wiring; the losses would be enormous, so you'd have to have huge copper bus-bars. And converting 48VDC to 5VDC isn't any easier than converting 120VAC to 5VDC, using modern SMPSes. (If this were the 80s, it'd be even worse because they didn't have inexpensive DC-to-DC converters back then.) I'm sorry, there just isn't any way to efficiently supply all your electronics from a single power supply. Modern electronics don't even use single voltages, much of the time: a typical computer uses 3.3V, 5V and 12V at a minimum (they used to also use -5V) from the main power supply, and then they regulate that down to 1.8V or less for the CPU with a power supply right on the motherboard.
Upgrading domestic US voltage would require big changes at wiring panels, because houses are set up with 240VAC split systems, where the house is fed with two 240V (line-to-line) hot lines from a 3-phase system, and then split with a grounded neutral line so that each side is 120V line-to-neutral. You could conceivably upgrade a US house to 240V Euro-spec, assuming the wiring's insulation is capable of 240V, but you'd have to change all the outlets and you'd have to completely replace the main panel. Replacing the breakers wouldn't work because the panel itself enforces this split system. Modifying the panel (changing the neutrals to hot) would probably be dangerous as the panel wasn't designed for that.
The sewer connection requirement is indeed crap. (pun intended) If someone doesn't want municipal water or sewer, they shouldn't have to pay for it. But on the other hand, is it even possible? A typical sink or shower still uses a lot of water; where are you going to drain that in a city? The city wants your waste water back so they can process it and reuse it. And dumping it outside could create a lot of problems, depending on the environment there.
I doubt that sulfur plasma is more efficient than LED. Cities are now replacing monochrome high-pressure sodium street lamps (used because of their efficiency) with LEDs. For direct solar lighting, that is indeed intriguing. However, you can go to Home Depot now and buy a lighting tube for around $150 that does the same thing for any upper-floor rooms: it has a collector on the roof, a reflective tube going through the attic, and then a lens on the ceiling of the room below to "funnel" light into the room. I have a relative with one in their house in the bathroom and it works quite well when it's light outside. There's no problem with code compliance. You do still need an electric light though, since the sun isn't always shining.
As for steel complexity, that shouldn't be a problem. There are builders who specialize in steel-frame houses, so presumably they have all this worked out and have picked their preferred options. "Andar Steel" is one I saw a while ago. According to them, assembly is much faster because the beams are all pre-cut and drilled at the factory, and then the "kit" is assembled on-site according to the plans, sorta like an IKEA kit. It's not like you have some yahoo "builder" who grabs some generic steel beams and tries to build a house out of them.
Steel needs to be heavily regulated, mainly because there can be a zyllion things wrong with it. Wrong shapes/gauges/dimensions can cause stress concentrations, fractures, increased wear,tendency to warp, etc. Improper compositions can mean brittleness, bad welds, corrosion (galvanic one too! - same thing for coatings), expansion problems, on and on Wood is age old tech, you either get good quality lumber or you don't. You put oak and spruce next to each other and it looks cool. Try putting bronze and steel together and see how that works.
It is a good thing to require sewer connections, there are people who will happily dump, well, shit, right under your fence if it means paying few dollars less each month
And yes, I can image the last part. It would be a nice premise for a horror movie...
Usually the tech just kind of comes along and happens, when it's time comes, throwing random stuff at a wall worked out so great before (cough asbestos cough)
And as you say, asbestos was a disaster. But building codes did not prevent diseases from an unforeseen inhalation hazard.
Basalt fiber was also classified as a Soviet military secret for a while, so I'm thinking that applications useful for civilians, like concrete rebar, have probably been around since the 1990s.
Prefabricated buildings are nowadays pretty popular in europe and can be built in a very short time.
Our 140m² house in a suburb of a German 300k city was only 180k€ right after the start of the financial crisis.
The profit reaped by the house buyer is in the significantly higher quality and comfort (and safety and energy efficiency) of an average home built today vs. an average home built 40 years ago, if not in the price actually paid. However, I would venture a guess that if you contracted to build a house to 1970s standards (leaving aside the legalities of doing that), you'd come in significantly below the average cost of new builds.
https://www.aei.org/publication/todays-new-homes-are-1000-sq...
Edit: I've tried to short ( by buying cheap ) this process multiple times and failed. You must be able to control timing of sale of the property or it won't work. And people who have credit now want more expensive property for inscrutable reasons ( like not understanding investment v. expenses ).
Houses are more expensive because they're built mostly for the people who can afford more house.
You often see the same disconnect between efficency's and 1BR apartments.
PS: Even really cheap things are missing. Such as a drain in a kitchen / bathroom incase of a leak or overflow. Ductwork in the walls for cables. Insulation tends to be half assed unless required for code, because it's not visible and builders are not suck with energy bills. Let alone something like solar hot water heaters.
We've already seen the "everybody sells each other insurance" thing happen. That was the dystopian prediction back in the 1970s.
Since other factors ( other than land ) have declined in price, risk dominates the remaining cost. If all you look at is the winners in a risk-intensive market, it looks biased. And actual physical capital - machines that used to take up space - is no longer a guarantee of an income. Indeed, physical capital has its own risks.
The real problem is that people who have a lot of equity must do certain things to liquidate it. Those things will invariably add debt to the thing they sold. This debt accumulates until it strangles the firm.
They don't care because now they've left town with a suitcase full of money. And they nearly have to do that because risk.
Innovation slowly destroys constraints. Those constraints may or may not be lynchpins to what sustained you before.
Source?
The reason why this lie is so commonly repeated is that technology makes a better scapegoat than the American elites for declining standards of living.
You can't jab a pitchfork into technology.
You can jab a pitchfork into the American elites who formulate trade policy that ships jobs overseas.
This misdirection and the anger it fomented is largely responsible for the sudden rise of Donald Trump.
I'd guess that only around 10% of the US population - 20% at best - has any practical understanding of how the US economy and political system actually works.
It's the easiest thing in the world to move blame towards immigrants, high rents, automation, Google, and just about any other target far removed from the actual architects of declining general living standards.
I certainly don't think that he'd be at all bothered by the economic fallout of those things.
When the acquisition-merger frenzy dies down, the last corporations standing would not be ones that you would want to encounter in a dark alley. And, apparently, they would all be software development houses, agribusinesses, LEO launches, and pizza delivery chains. Americans would no longer do anything that they are not objectively best at doing in the global marketplace. They could not afford to even try anything else.
But whatever. Let's just try the Hawley-Smoot tactic all over again, and see if it turns out differently this time.
It's way better to base taxation choices on the need to collect money, plus a rare, exceptional sin tax. Taxation choices based on commercial strategies are almost universally poor.
The best trade policy for everyone is to have no artificial barriers to trade at all. But such a policy cannot be as easily exploited for votes.
This export tax, for example, it was not only proposed but even implemented several times around the world - Russia has once gone to the extent of forbidding agricultural exports.
[0] https://core.ac.uk/download/files/153/6793105.pdf [1] Circa 1999, though.
They'll have to if they want the demand side of the market economy to continue to exist.
There is indeed such a rule, although perhaps it is currently unnamed or not elucidated clearly/consistently.
The economy is made up of people and those people come from families and those people and their families are at different levels of maturity and capability.
You don't take a 5yo child to an R-rated movie.
You don't take a 10yo out drinking.
Similarly:
You do not take an unskilled J6P from a broken, or barely functional family background and just slot them into a STEM fast track and expect a robotics programmer to pop out the other side - even if it's all subsidized and paid for.
You do not take a family/clan/social group right out of (relative) poverty and unsophistication and plop them right into sunnyvale and instruct them all to go get technical jobs and start living like good upper middle class folks.
Running an economy that has people in it (the only kind I know of) without ladder rungs on the bottom is as silly as running a grade school with only 5th and 6th grade. No amount of subsidies or social welfare or coaching or lunch programs are going to let you slot a 6yo into 5th grade.
In the same way, we have people and families and groups in any society that just aren't ready to walk into the googleplex and start coding. They aren't ready socially, they aren't ready economically and they aren't ready intellectually - and I mean this on a multi-generational scale.
They need more than one lifetime to make this leap and the way they do that is within an economy that has decent, meaningful work for everyone.
If you take those bottom rungs away you should absolutely expect the same kind of chaos and dysfunction as you would find in an elementary school with only the 5th and 6th grade.
The public policy prescription often made in order to achieve this goal is to bring manufacturing back. Unfortunately (?) in advanced economies manufacturing is no longer a steady source of plentiful blue-collar jobs.
I think that's what the parent comment was getting at with "there's no rule" - if you encourage the manufacturing sector, there's no rule that makes it create jobs when economic imperatives drive it to greater automation.
Jobs that are available to people without much education, savings, or assorted social capital are absolutely necessary to the stability of our society. I just don't think manufacturing can get us those in a country with developed-country living standards.
EDIT: Fixed lots of phone-keyboard typos.
Granted, that would significantly increase costs and fewer people would have perfect landscaping. But, IMO we as a society would probably be better off.
PS: I know someone with a job that is basically this stuff, he makes ~40k with benefits in a cheap area of North Carolina. Meanwhile people in DC are getting 1/2 that and no benefits.
Surely it cuts down on the number of operators required compared to mid-20th century production methods, but these machines still require dedicated people to set the up and supervise.
One positive difference is that an experience machine operator may now have a career path open didn't exist in years past: he could move up to the role of a CNC machining programmer.
1. Like with outsourcing, if you have enough people to be experts in a given thing, it will probably cost you more to outsource than to keep local expertise, due to additional transaction cost (transport, culture barrier, outsourcer profits, corruption..). And nations typically have more than enough people to be experts in some basic economic production infrastructure.
IMHO, it only pays off to outsource high-end stuff, like microprocessors, to other nations. It is also good for a nation to be expert/leader in some area like that. Switzerland is a good example of this.
2. There are network effects when you have mixed economy. How can you produce any good, say, agricultural machinery without agriculture? You may be the best machinist in the world, but without trying it out you don't know what problems you're solving. IMHO, this adds up very quickly. Similar with computing - you cannot solve manufacturing problems without having manufacturing industry in the same place you have the people who know computers.
It may seem that in today's connected world it wouldn't matter, but I doubt it. You need to get people from different fields to know each other, to talk over lunch or beer about problems they have. I think (in the U.S. at least) there is also social stratification issue, which is partly resulting at people poking at startups (sometimes rightfully so) for stupidly catering to middle classes instead of solving real problems.
The economy is not a thing that can "strive" for anything. Rather, the economy is simply the collection of actions taken by people in the market.
Let's ask, why are those economies successful in the first place?
> stupidly catering to middle classes instead of solving real problems
That's a bit condescending, don't you think?
Of course it can, it's a component of human society, and societies can "strive".
> Rather, the economy is simply the collection of actions taken by people in the market.
Just like actions of individual humans is "simply" result of actions taken by individual neurons.
> Let's ask, why are those economies successful in the first place?
Sure - Ha-Joon Chang was already mentioned, and I wholeheartedly recommend his books. From his perspective, "free trade" is just one possible economic strategy, that is useful on a certain level of economic development.
> That's a bit condescending, don't you think?
Sometimes deservedly so. If I believed in the rationality of the free market, I would be confused by huge valuations of advertising IT companies.
Anyway, I am not really judging those people, I was just making remark that they are criticized. In fact, I am (almost) one of them, I work for large SW company that does IT support software for big corporations like banks. I would probably prefer to improve software for manufacturing, but the truth is, it just doesn't pay that well as this.
Take for instance the financial sector. They make allocation decisions in essence and sell service around management, consulting, and financial engineering. A large chunk of our economy is based around resource allocation, not actually turning resources into products more efficiently than the last guy.
As an economy progresses, it moves further and further away from things and towards ideas. We went from hunters and gatherers of food and clothing, to agriculture, to machining things, to primitive banking, all the way up to modern financing.
At each step we became further and further removed from actually putting iron-to-iron and producing this. We become more involved in how to efficiently allocate resources for those that did produce.
And that population of those that do produce continues to fall as automation comes along and we become better at making more with less. Finance has really put productive resources to amazing efficient use though capitalism.
We will get to a point where almost nobody does machines or sits on an assembly line anymore, and their jobs will give way to a larger and larger pool of people who work in the meta-market, the mental-based market that really drive the physical-based market.
Writing this should have made you pause. Really. May I ask where are you so proficiently allocating resources into?
You are correct in that information products and services are wealth too, but that applies only for stuff people want. Real people. Everything else is not wealth by itself, including almost the entire banking system.
With good financial system the resource allocation is same as capital allocation. Good capital allocation is not possible without transparent and liquid markets. Transparent and liquid market depends on its biggest players - institutional investors, banks and their regulators. Hence the banking system is huge wealth provider. Otherwise we would be living under communism now.
So is big any bank investment portfolio...
Anyway, the point is that if the bank does not invest the capital into something that ultimately produces wealth, you have just a big dysfunctional chairs game, where a few people get out with a lot of money, taken from the others that get out poorer, while the entire economy goes into the drain.
But yeah, the above can not last unless there is some central planning committee overruling the market allocations. What I don't get is why you think that is an exclusivity of the old Soviet Union.
And the crux of it is that unless you add value to the system - there is no reason the economy should support you.
From the PoV of the system, I and many others are dead weight, and people who bring the economy efficiency gains , develop new growth paths, remove old pain paths - those people add value.
In short- there's no way such an economy will ever exist. Because such an economy will serve itself and its needs first. It will build reserves for lean times, to preserve itself.
If you don't contribute, why should/would it help you?
Jack Bogle, founder of Vanguard Group:
"The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources."
http://time.com/money/3956351/jack-bogle-index-fund/
Paul Volcker, former chairman of the Federal Reserve:
"Echoing FSA chairman Lord Turner's comments that banks are 'socially useless', Mr Volcker told delegates who had been discussing how to rebuild the financial system to 'wake up'. He said credit default swaps and collateralised debt obligations had taken the economy 'right to the brink of disaster' and added that the economy had grown at 'greater rates of speed' during the 1960s without such products."
http://www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-...
IMF:
"...the effect of financial development on economic growth is bell-shaped: it weakens at higher levels of financial development."
http://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf
OECD:
“...above a certain point, further financial expansion is associated with slower growth.”
http://www.oecd.org/eco/How-to-restore-a-healthy-financial-s...
Very few people would invest in IPOs or secondary offerings without a secondary market for the shares.
What you are saying is that we should build an economy of ticket clippers on top of very few who actually generate physical wealth. How is that efficient? Some other economy will come along without all the ''efficiency'' overhead and eat your lunch.
But in any case, it's not necessarily a prescription, it can be simply an observation, as in, "advances economies must make things [if they are to remain advanced]", no different than a biologist might say "species A must increase their reproduction rate [or go extinct]".
Similarly a species doesn't increase its reproduction rate: it grows in numbers or it shrinks (to the point of extinction) based on individual specimens' reproductive behavior. The equivalent in economics here, I think, would be net exports. Though there is correlative power between the firm and the economy, the specimen and the species, the incentives and long-term/short-term outcomes might not be aligned, which has implications for policy.
If you don't, somebody else will, and if you don't have political representation in that policymaking you're not going to end up a winner.
I totally agree with this. Economies (or markets) are tools.
When someone propose "Laissez-faire" and that the government is just interfering, he is just saying that economies have wills of their own.
At least in my family, we follow the following pattern to arrive to a decision:
We choose what we want for the family, we discuss the possible paths, and we decide where we invest the resources of the family. In others words, we have a form of government.
What we don't do is this:
We discuss and decide about nothing, because we trust that the result of the forces of our internal interactions it's the only true path to 'optimal' outcomes.
This is a tricky starting point. Economies have all sorts of side effects that are important. But ultimately, economies are supposed to produce stuff that people consume. We have plenty of pots and pans, furniture, cars, etc. The price of manufactured goods has been dropping for centuries and the quantity has been rising. As the article states, manufacturing is still growing. Wanting manufacturing to keep pace and maintain a proportion of the economy well... We don't need that much manufactured goods.
And I think we're needing less of them too. Everyone who opts to rent vs own is one less mower to sold, one less shed to be built, one less piece of "infrastructure" to maintain. We're all begging for shared public transport which will result in less vehicle production. The way we live fundamentally shapes our economy; I feel like we forget this sometimes.
I recommend this book from Ha-Joon Chang that has a nice chapter on that (a very pleasant read with references): http://www.amazon.com/Things-They-Dont-About-Capitalism/dp/1...
You should tell the UK's political class. Moving away from manufacturing to services has been been official dogma here since the very late 1970s.
As a result we have an economy founded almost entirely on tax havens, speculation, sporadic renovation projects for rich people, and asset price bubbles, with a bit of marketing and corporate communications around the edges.
A lot of unicorn fillies seriously try to base their model around doing as little as possible, as flashy as possible, with as little expense as possible.
On paper, that is a great idea, everyone should do it, viva la venture capital, etc. In reality, it isn't shareholder value you need to provide: it is customer value. If you are not a valuable product or service to your customers, you have no shareholder value.
A lot of silicon valley venture capitalists forget that very important distinction, and we are well on our way to Dot Bomb 2.0, repeating the late 90s clusterfuck that made a few billion dollars vanish overnight.
To tie this into the "advanced economy" theme, an advanced economy doesn't inflate bubbles. America still inflates bubbles: we aren't as advanced as we think we are, but we are improving.
I see a big crash. So big, rents will drop in the Bay Area--big time!
I guess homeless shelters/programs won't be controversial? I really cringe when I think about the future.
(I'm kinda just kidding, but some of these companies just look like they are trying to spend what's left of the funding on advertising? Don't get me wrong EBay needs competition, and dating services need competition, but don't do it in a cute way? Just offer a good product. Low fees, and honesty. Get rid of the MBA's. Get rid of the Designers, at least the one's who are just copying a TED presentation?)
Yes Toyota employs more people than Facebook. What does that tell us exactly? The film industry employs more people in the U.S than the auto industry.
If the numbers in this article show anything, it is that the most advanced economies vary hugely when it comes to the size of the manufacturing sector.
I think the case for a manufacturing sector that isn't 0% of the economy can absolutely be made, but this article doesn't even start making it.
Eventually we'll have to move away from the notion that everybody needs a job that contributes to GDP.
The goal is not maximum employment, The goal is maximum production. Whether that involves more employees is a totally different topic.
So we track the kinds of things that we can measure and that we hope correlate with happiness, but we carefully check that they keep doing so. We shouldn't let one of them (like "maximize production") become the end goal itself!
Having a goal of 'maximising production' is the status quo - I am not proposing any changes.
I agree with you that the world would be a better place if our economy was focussed on achieving maximum global happiness, I just wanted to point out why it is easier to focus on an objective, numeric value like production than a subjective feeling like happiness (Gross National Happiness notwithstanding).
Easiest way to do both automaticaly is to let people declare which country their immediate neighborhood belongs to.
Paperclips?
If you do this at scale, you're going to see a rise in medical (mental and physical health) needs. You'll see crime go up (bored people with nothing to do will fill it with something). You'll see suicides increase (again, purpose).
Man needs a purpose for being, plain and simple. So, when we do away with all the jobs through automation and shipping them elsewhere, we'll have to set up community programs where people can find things to do.
This is a religious belief. Also, you're equivocating between purpose and job.
edit: my job facilitates any purpose I may have through providing me with money. In every other aspect it hinders me. That's why they pay me and I don't pay them.
Is it?
>Also, you're equivocating between purpose and job.
I'm saying once people have no work, they'll have to have something to do. They can't just stand around all day; it isn't healthy.
I just can't believe that. I just don't think we'd be where we are today, if that was it.
I'd like to pipe in though and say that some form of work, of purpose, is important for happiness - be it a job, hobbies, volunteer work, raising a family, etc.
Furthermore there's enough psych studies which show that human beings crave and feel rewarded when they focus on a task and achieve mastery.
Working towards a common goal is one of the known methods of reducing intergroup and inter tribe friction.
Work also is often rewarding - people do tasks they enjoy being excellent at, and people reward them for that excellence. Your experience is the other end of that spectrum - being rewarded to do something you otherwise wouldn't.
The classic explorer was a "seventh son" in the age of primogenture. Or they were just plain crazy.
The generation that got us to the moon wasn't that young even at the time. Gene Krantz would have been 30 in 1963. Since life expectancy was lower then and people didn't stay in school until they were 30, 30 was the start of middle age.
Krantz, like my parents, was Silent Generation, and they had a different idea about technology in general.
Please understand that "youth culture" was originally designed by Big Tobacco to sell cigarettes - spend more on ads for youth because they'll smoke your brand for 40 years. Then it was music/movies, then soda and shoes. Now it's phones.
In these things, you are at a poker game. If you don't know who the sucker is at a poker game, you're it.
P.S. to all downvoters: I'm not suggesting or advocating that, just stating the sad truth.
Mars and the Moon are not suitable for long-term colonization. Maybe research bases, like Antarctica. But it's hard to see why anyone would want to live in a near vaccuum (average pressure on Mars is 0.6% of Earth's average) in a low-gravity environment (38% of Earth and 16% of Earth, respectively) for their whole life.
We may be able to engineer successful Moon and Martian bases in the near future. But live there? You'd always either be underground or in a heavily shielded dome, never able to go outside, and the compromise of which would mean almost certain death. Further, low gravities have negative long-term health effects, and even if we ignore those, if you spend your whole life on Mars, going to Earth is going to be hellish torture.
I'm all for space colonization, but I think if we're going to look at colonizing an extraterrestial body, which should at least be looking for something that has approximately Earth gravity and a real atmosphere. In our solar system, that just leaves Venus, which obviously comes with huge problems of its own, but perhaps they can be resolved with some kind of terraforming technology and a lot of time. (Bacteria to convert CO2 to oxygen to cool the atmosphere and make it breathable?) Probably we'd be better off looking for extrasolar planets that fit our criteria and developing the necessary engine technology and maybe cryogenics - keep relativistic effects in mind.
Or we could just invent artificial gravity. That solves a lot of problems. :)
I think we're best off looking after the Earth, for which we are tailor made.
They'll be used to it, but they'll still be seeing photos and videos from Earth, and probably resent their parents for denying them that life.
They might have some rock there which would make for some really unique countertops or jewelry. Considering how much money people spend on diamonds, which are really quite worthless because they're so commonplace, I could see people spending tons of money on jewelry made with Martian rocks.
The only thing Mars can export will be Martian rocks and information.
The market for extremely expensive Martian basalt counter tops is going to be limited. The only really valuable thing they would have to export is partial g sports.
If you rotate an asteroid very quickly, you will just fly off the surface.
Rotation may be practical for spaceships but it would be enormously energy-expensive for any asteroid large enough for it to be worth it - can't make it too small or the difference in g-forces would be extremely uncomfortable or impractical for whatever industrial work you plan on doing - I assume mining the asteroids.
It would certainly be convenient for us if Earth remained nicely habitable. We still need to establish a long-term, individually viable presence somewhere outside of Earth's biosphere if we want to ensure our species' survival, though. In the long run, something nasty is statistically certain to happen to our little blue marble.
Because maybe the argument is Advanced Economies must still make things for the next 15 years after which it's not really worthwhile.
The demand for human labor is going down on average, so wages are going down - and have been on a decline since the 70s. Capitalism relies on employers to value their employees for the money to trickle down and the system to work. Our grandfathers used to work for the same employer for decades and got a pension. Today, that loyalty is unheard of from either side. We have the rise of temps and the contractor economy and unemployed living with parents.
Yes, the cost of mass produced consumer goods is going down. So the wage repression is mitigated. With the explosion of consumer credit in the 80s and 90s, the unsustainability of consumer spending was also masked. Now it has come to the fore, in exactly the areas where costs are not going down: rent and real estate. In every major city including NYC and SF, the costs of rent are sky high relative to wages. Wonder why? Look at the rest of the country and it's true too -- the rents are slightly lower but the wages are lower too.
So the predictions are borne out... automation has reduced demand for human labor, reduced wages for the average worker (or they got laid off / became temps), reduced the prices of mass produced goods, but the cost of real estate keeps rising.
It is not capitalism but rather neoliberalism/monetarism that propels the trickle-down theory. The time period where grandfathers worked for the same employer and then got a pension coincided with the post-depression/WW2 period of Keyensianism when many western governments pursed full employment economies via fiscal policy.
In the period from the early 1970s onwards when neoliberalism/monetarism has been dominant, we have seen falling real wages, the financialisation of the economy (including the consumer credit explosion you describe), governments restricting themselves to managing the economy only through the very blunt tool of monetary policy (i.e. interest rates via a central bank).
I would argue that the symptoms we both identify are the result of neoliberal/monetarist policy rather than decreased demand for human labour. If governments still pursued full employment via fiscal policy things would be very different.
Does the concept of full employment imply large corporations hire most of the people or do the fiscal policies also encourage small business and self employment?
An example would be government funding of large infrastructure projects that employ lots of people during construction.
You have a source for that? If you had said wages were stagnant, I would have believed you, but gone down since the 1970's. That's the opposite of the data I've seen.
Show me the data you've seen. The 1970s were the height of wages and unionization, and then globalization (thanks to technology) led to outsourcing. Early physical automation was ok because people all started to sit in front of computers. But now, the mental tasks are being automated away, and that leads to jobs coming back... to robots.
Also read this: http://www.vanityfair.com/news/2012/01/stiglitz-depression-2...
Automation is also what led to the Great Depression as we lost primary sector jobs and it took a decade to migrate to the cities and build up the secondary sector, factories, workforce.
- Services take a larger share of GDP by staying flat while prices of goods fall. You pay less for most manufactured goods than you did 20 years ago, while your haircut cost about the same.
- Services are generally harder to export. You can ship a physical product, it's hard to export a haircut.
- Goods can be stockpiled/scaled if needed, services cannot.
Someone must produce something (and preferably something with a high price / cost ratio), this applies to manufacturing as well as agriculture.
The biggest news (and very sad at that) is that "making things" is so far away from the mainstream economic models that formerly common sense rules are worth a headline.
There are so many assumptions in this article but especially here. Author assumes people are required to make things, they are not. Author assumes factory jobs will pay well, they often don't, and there's no reason they will. And the employment disparity between IT companies and Manufacturing is showing that you can create a ton more wealth with a small number of IT people than a huge number of manufacturing people, which is why Wall Street values those companies higher these days.
It's not true. Take for example Jersey, Luxembourg and the like. In those places there is insignificant manufacturing and the main business is banking. That's the whole thing about trade - one place can do one thing and one can do another.
Those economies are parasitic on larger economies that do make things.
What happens when there's a "credit crunch"[1]? Quantitative Easing! [2]
The 50-60% of the economy not in banking, and not needing a loan at the moment, is talked into a recession by the twits in the media.
The SaaS business in Manchester, Leeds or Newcastle didn't change, lose customers, or become more risky, but the banks won't lend because the whole banking sector became suspect, so they just lost their cashflow.
Perhaps the problem is that the entire country wasn't working for the dishonest banks[3]? Presumably watching Wall Street and Liar's Poker every morning with the cornflakes?
Yet the first thing retrenched in a recession is optional services - like loans, insurance. It's no longer possible to trade our way out of recessions like the UK, and much of the world, did postwar ("export or die"). We solved a postwar recession of far higher percentage of GDP via creation and trade.
George Osborne has reduced the rate of increase of the debt a bit.
We're left with the ineffectiveness, and downright fraudulence, of quantitative easing and austerity.
If you're old enough to remember the 80s, you'll remember that was no better. With the added fun of 15% mortgage rates.
No thanks. More metal bashing please. More encouragement of every sector that isn't in the square mile. A diverse, resilient, economy.
[1] I love this euphemism (/s). The biggest fraud in human history and the media calls it the credit crunch.
[2] Print money to give to the banks, to encourage them to lend, that they use to pad their bottom line. Repeat numerous times, as though it is effective. Toughen up capital requirements to further encourage use on the bank rather than advertised purpose. Sending cheques to each voter GW Bush style would be more effective getting money into the business economy.
[3] Unlike retail, pharmaceutical, industrial and a dozen other sectors banking regulation was abolished wholesale.
When there's a major economic event, all of the other competing philosophies zoom out of the desert seeking followers like Small Gods. The risk is that if you get driven by your anger rather than your mind, you'll find yourself in the arms of a new bizareness, rather than something better.
Even for ROI you'd have to go back a very long way to do worse than RBS, and will probably be sitting on that loss for another decade or more.
Banking does have several advantages - get big enough and the taxpayer will bail you out. So the downside becomes an externality. That is not good for encouraging ethics. Also through the miracle of fiat money and fractional reserve banking you get to print your own!
You have to wonder therefore how they manage to make such a bloody mess of it so often. Oh of course - greed and total lack of adequate regulation.
This applies to a lesser extent to the UK (finserve) and Ireland (low corporate tax rate).