Monday, February 4, 2013

Human Labor - What is it good for?

The mantra is that automation really creates more jobs than it destroys, even if the opposite appears to be true.

Tell that to the 3d man in the cab of the diesel locomotive. Tell it to the army of office workers spread across acres of floor space in  office buildings, as seen in '40's movies. Tell it to the engineers sitting at drafting tables, each with T-squares and plastic triangles, as far as the eye can see. And of course the ubiquitous buggy whip. We need the buggy whip to explain the truth. All these armies of human beings, busy 9 to 5, beavering away, have disappeared. Along with bank tellers and seltzer delivery truck men, and ice delivery men, gone to technology job graveyards every one. Never to return.

The above figure shows that this is far from anecdotal nostalgia: from the peak, the percentage of all income that is labor income has fallen steadily by almost 10%, irretrievably, and not to be recovered, over the last 50 years.

Can we really have large numbers of people permanently not engaged in human labor? Don't we need labor to give us self worth and dignity? Don't we need it for material sustenance? Don't we need it for the economy to grow?

When machines produce more than enough agriculture and goods to meet the need, so that a great deal of human labor is just no longer necessary, then how does that work economically? Well, the government re-distributes from the laborers to the non-laborers, and the government goes into debt and prints money. No one objects if that is done under what is seen as emergency conditions. A permanent emergency. Farmers are paid not to farm. People are paid not to work. Machines, more rather than less, end up replacing human labor. Utopia?

Thursday, December 20, 2012

Comparing Dow Bubbles Past and Present: 1933, 2009, and Today

Comparing Dow Bubbles Past and Present: 1933, 2009, and Today

The Dow index for the period January 1933 to May of 1938 is plotted in green in the nearby figure. From the low of March of 1933 the Dow rose by 500% to a high in March 1937.  About a year later the bubble burst and the Dow plunged to 50% of its peak value. 

During the period March 2003 to March 2009 the Dow index followed a path quite similar to the 1933-1938 pattern, and is shown in green in the figure. The Dow rose by over 200% to a peak in October 2007, and then plunged by more than 50% in March of 2009, executing the trip in a period of 6 years, just like in the 1930’s.

Since the low of March 2000 the Dow has again risen 200%, and this history is shown on the figure in red. Will the Dow history of plunging repeat for a third time? If so, then look for the next plunge in late fall of 2013.

Tuesday, December 11, 2012

Velocity of Money: Why $3 Trillion Fed Dollars Are Not Moving the Economy

Velocity of Money: Why $3 Trillion Fed Dollars Are Not Moving the Economy

Velocity of money: If a single $100 bill that comes into town circulates from hand to hand and ends up paying off everyone's debts in the entire town, then the velocity of that $100 was very high. If the same $100 was stuffed under a mattress, its velocity would be zero. If money has no velocity, it is dead money.

There is plenty of money sloshing around in the coffers of financial institutions the world over, but either A) those who want to borrow it are not qualified to borrow it or 2) those who are qualified to borrow it have zero interest in borrowing it; they are desperately trying to pay down their existing debts, not acquire more debt.

Who has access to this liquidity? Not entrepreneurs, not small business, nor anybody who is in the business of growing the economy.

The Fed has created $3 Trillion of dollars via computer key-stroke (i. e., "printing" money), which has increased the money supply yet NOT caused inflation. Why? Because of the low velocity of money.

This will all change in about 10 years, when velocity of money, the economoy, and inflation, will all come roaring back. Then it will be tiger riding time for the Fed.

Friday, December 7, 2012

Friday, November 30, 2012

The Amity Shlaes Identity: 1937 Déjà vu All Over Again?

The Amity Shlaes Identity: 1937 Déjà vu All Over Again?


FDR and Obama share the unique distinction in American history of being re-elected in the midst of a disastrous US economy. Is this a spurious historical anomaly? Or should we look for other similarities between 1937 and 2013? 

In 1937, a year after Election Day, industrial production plummeted by 34.5 percent, unemployment rose to 15%, and the Dow dropped by half – it was the “depression within the Depression.” Is this what we are looking at for 2013? A “recession within the Great Recession”? 

Amity Shlaes, in her Bloomberg column, provides some pithy comparisons between then and now:
Roosevelt said: “I should like to have it said of my first administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second administration that in it these forces met their master.” Can you say “Class warfare”? Does this sound at all like Obama 2012?

FDR then raised taxes in 1937, at the same time that individuals began contributing into Social Security, when labor (via the Wagner Act) was able to push for higher wages from a struggling economy, and the banks’ ability to lend was hobbled by the Banking Act of 1935, which allowed the Fed to boost reserve requirements for banks. Sound at all like Fiscal Cliff 2013? Onset of Obamacare in 2013?

Figure 1 plots the Dow index (as a percentage of the peak) for January 1937 - 1938, and for the period January 2008 – 2014, where the start time of two periods have been aligned. Uncannily similar?

-> There is the Dow crash in 1932-33, corresponding to the Dow crash of 2008-9.

-> There is the near doubling of the Dow from 1933 to 1937, corresponding to the near doubling in the Dow from 2009 to 2012.

-> There is the post-election droop and rebound, occurring both in November 1936 and November 2012.

->  Finally there is the capitulation in the fall of 1937, with the Dow dropping by 50%. Will we see this in fall of 2013?

All present indications are that history is about to repeat itself. Why should it not? Taxes are going up. Lending is going down. Unemployment is going up. Spending is going up.

Just like 1937.