Status report on the US economy: darkening sky, rough waves ahead.

Summary: Time for a status report on the US economy, reviewing the economic data. Since the crash we’ve been playing out The Perils of Pauline, with repeated rescues from a recession that we’re in poor shape to experience. As usual, the picture is cloudy — despite the steady drone from the stuck clocks of the doomsters and perma-bulls. We don’t provide spuriously confident forecasts. I expect another year of slow growth, but recommend preparing for a recession while hoping for a boom.  {2nd of 2 posts today.}

GDPnow forecast for Q1

Manufacturers’ New Orders: ugly, and falling

Many key economic indicators use components of this. New orders for core capital goods goes into GDP. New orders for consumer goods is a leading indicator, and leading down quite rapidly (the weakness is in nondurable goods). The report gives no details on the nondurable goods number. It includes fuel, but the decline seems too large for that alone to explain it.

New Orders for Consumer Good

Total New Orders are also quite ugly, down during each of the past six months.

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Steps to make the tech revolution boost America, not just the 1%.

Summary: We’re repeating the mistakes of the first 2 industrial revolutions as the wonders of increased productivity go to the 1%, while families in the middle class race like rats to preserve their way of life. Solutions require the same kind of collective political action we’ve successful accomplished before. We’ll get there. We choose how much unnecessary suffering (& perhaps violence) America experiences before then. Our grandchildren will wonder why we found the obvious so difficult to do.  This is the last in this series about the 3rd industrial revolution.  {!st of 2 posts today.}

Well, in OUR country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else — if you ran very fast for a long time, as we’ve been doing.’

‘A slow sort of country!’ said the Queen. ‘Now, HERE, you see, it takes all the running YOU can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’

Red Queen Running with Alice.

Colorized image from John Tenniel’s illustration from “Through the Looking Glass (1871).

We all see the new industrial revolution.

Although controversial a few years ago, now almost everybody sees that another industrial revolution has begun. Economists debate its effects to date (some say almost nil; others see larger impacts), but all agree big changes lie ahead. The debate has shifted to the appropriate public policy approach.

Techno-optimists like Marc Andreessen advocate a faith-based approach, which they call libertarianism. It requires amnesia about the first 2 industrial revolutions, a total FAILure to learn. That suits members of the 1% like Andreessen, who benefit from growing inequality — and who would have to pay for any new public programs or income redistribution. They’re foghorns, endlessly repeating that all is for the best in this, the best of all possible worlds (until it’s ruined by “socialism”).

So far we have taken that advice. What is the result?

We race for prosperity, like Alice with the Red Queen.

Reacting to a social force like automation as individuals means playing a game we cannot win. It casts American society as a race like that of the Red Queen, where families must run as fast as we can to stay in place. Many fall out exhausted, losers in our New America.

The remaining jobs that employ large numbers of people at high salaries offer larger returns for tools that increase their productivity. While that does not necessarily reduce the demand for these services (e.g., there’s an almost unlimited demand for health care services or butlers), the first round effect is fewer workers as corporations seek higher profits by fulfilling the existing demand more cheaply.

As a second order effect, wages of those using the new tech tend to fall, as the new tools often require less skill. Part 3 showed these effects have already hit attorneys, optometrists, and pilots. They’re just the first affected from the coming wave.

The net effect is probably a lower national income, so we have less leisure time, more stress, and an inability to buy the goods and services our new machines can produce. As described in part 4, more education does not help — any more than frogs can crawl over each other to get out of a pot.

From the film "Wargames"

From the film WarGames (1983).

Let’s play a different game — and win.

We need not participate in this mad race with the Red Queen, as the increased productivity of new tech can easily benefit all of us. Channeling the benefits of technology is a political problem of distribution. We can start with the most successful tools that worked before, and use our experience (and that of other nations) to improve them.

Unions worked for America by partially equalizing the negotiating strength of workers and corporations, and they still do in Germany and other successful nations. Their implementation in America was flawed; they developed near-terminal weaknesses under pressure from corporations and criminal cartels (requiring government protection, which Hoover refused to provide). We can do better today.

Higher minimum wages have proven effective in America and in other developed nations (their ill effects when used sensibly are largely conservatives’ fantasies). Another way to encourage entrepreneurship and provide an easy form of redistribution is free or low-cost health care — like that provided by almost all other developed nations.

We abandoned the powerful tool of steep marginal taxes, like those the US had during its high-growth decades after WWII — before we listened to supply-side fantasies and moved to the present flat tax system (on total taxes), which also gave us massive fiscal deficits. These tax cuts produced little for Reagan, nothing for Bush Jr, and nothing today for the people of Arizona and Wisconsin (but has forced a debt restructuring).

These and other measures can mitigate the ill effects of the new industrial revolution, spreading its benefits to all Americans. As we learned from the first two, the result would be less social conflict and a stronger nation. Let’s not repeat history.

Technophobia

Presentation by Damian Gordon, Lecturer at Dublin Institute of Technology (2010).

Other posts in this series

  1. A graph showing the end of America as we know it. – The gap between growth in wages & GDP.
  2. At last economists see the robot revolution. Here’s why they worry.
  3. Automation hits the professions. Most remain delusionally confident, so far.
  4. Education, the glittering but fake solution.
  5. How we can learn from previous industrial revolutions and so enjoy the 3rd.

For More Information

I recommend these books about the new industrial revolution: Martin Ford’s Rise of the Robots: Technology and the Threat of a Jobless Future (2015) and The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (2014) by Eric and Andrew McAfee.
Our world in their hands.
See all posts about these topics: The 3rd Industrial Revolution has begun. and About inequality & social mobility.  Posts of special interest:

  1. Krugman discovers the Robot Revolution!.
  2. How do we respond to the Robot Revolution?
  3. 2012: the year people realized the robots are coming.
  4. Journalists warn us about the coming revolution, but we don’t listen.
  5. The next industrial revolution starts. Beware the Pied Pipers who lull us into passivity.
  6. A graph showing the end of America as we know it. – The gap between growth in wages & GDP.
  7. At last economists see the robot revolution. Here’s why they worry.

A key to understanding the news: the unexpected rules in our age of wonders.

Summary: We’re in an age of wonders where the news overflows with unexpected events, things not predicted by even our greatest experts. Today we discuss two common responses to this, both ineffective: blindly accepting experts’ explanations that it’s all understood, and throwing away their advice as imperfect. There is a third and better way.  {2nd of 2 posts today.}

“History doesn’t always repeat itself. Sometimes it just screams, ‘Why don’t you listen to me?’ and lets fly with a big stick.”
— John W. Campbell Jr., Analog Science Fiction/Fact Magazine (1965).

"Machinery of the Stars" by alexiuss

“Machinery of the Stars” by alexiuss seen at DeviantArt. Posted with the artist’s generous permission.

Learning from the past — the lessons of history — boosts our odds of success in the present. But it’s equally important to see breaks with the past. Instead of flagging these, experts tend to bury them in explanations that conceal their role as valuable markers on the road to a different future. It’s the equivalent of asking about that Detour sign on the road and getting a lecture about the Vienna Convention about Road Signs.

Instead here we attempt to isolate such anomalies, examining them as clues to possible discontinuities in the normal trends of society. It’s an unpopular message. People want explanations, however bogus, to banish fears of uncertainty. It’s one of the primary services experts sell. Unfortunately, our world cannot be understood without understanding its strangeness, especially now — since we have so much of it.

Perhaps the most obvious oddity of our time is in economics. The developed nations appear locked into a slow-growth mode since the 2008 crash (US real GDP growth of ~2.4%), despite massive monetary stimulus on a scale never before seen. Central bank assets in the EU and USA have growth to ~25% of GDP — 64% of GDP in Japan — while interest rates have fallen to zero (below zero in Europe, something considered an absurdity until it happened) and inflation rates declined below central banks’ “floor” targets (despite widespread confident predictions that they would rise).

For a rare admission of uncertainty see “It seems nobody knows what’s going on with the economy,” Andrew McAfee (PhD business, Prof at MIT School of Management), The Financial Times, 26 February 2015. This would be extraordinary if by an economist.

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Education is not a solution to automation.

Summary: We’re on course to repeat the mistakes of the first 2 industrial revolutions in the 3rd. The wonders of increased productivity benefit the 1%, while the middle class seeks easy but chimerical ways to preserve their way of life. Anything but the work and risk of collective political action. Today we examine the favorite recommended cure to automation: more education. It works as well as frogs climbing over each other to escape a pot.  {1st of 2 posts today.}

Frog Pile

Without growth, education doesn’t help the group. Just a lucky few.

More education is the most common response to the job losses and wage stagnation caused by automation. People, young and old, frantically train and retrain themselves for jobs in the ever-shrinking pool of jobs supporting a middle class lifestyle. Only lately has the futility of this become obvious, as experience shows its flaws.

Nick Bunker (Washington Center for Equitable Growth) gives a summary of the fallacies: “Is higher education the answer to reducing income inequality?” — The money paragraph, undercutting the key assumption of more education as a solution:

Intuitively, then, increasing the supply of educated workers should reduce inequality as it would increase wages among a broader supply of more educated workers. But that assumes the demand for educated workers will continue to rise. Problem is, recent research finds that the demand for skilled labor appears to be on the decline.

See this article for more about this, and links to research. It’s true even for advanced STEM degrees. That’s the bad news. Now for the worse news.

Education puts workers on a new kind of boom-bust cycle.

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Reviewing Netanyahu’s performance before Congress: 1st class fear-mongering!

Summary: The Prime Minister of Israel spoke to Congress today. Most of his speech defies analysis for logic or fact; it was first class propaganda. As such it is perfectly suited for review by Twitter; some gems appear here. For those of you who prefer facts, see the posts at the end. As usual these days in US public policy, so much of what we’re told is false.  {2nd of 2 posts today.}

Say "no" to fearmongering

Reviewing today’s fear-mongering by the Prime Minister of Israel

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Automation hits the professions. Most remain delusionally confident, so far.

Summary: This chapter about the new wave of automation examines its effects on professionals. They’ve complacently smiled as previous waves trashed the lives of blue collar workers, seeing that as a just and proper fate for proles. Now it’s their turn. But it need not work out so painfully. There is a better path. But it’s difficult for us to see.  {1st of 2 posts today.}

A Better World

Pilots show what lies ahead for many of us.

Carr argues that as professional jobs grow increasingly automated, “more and more, we’re all kind of turning into variations on computer operators.” He uses pilots as a prime example of what can happen when a professional role is transformed into that of a button pusher.  Autopilot has increased aviation safety, but pilots typically spend under five minutes manually controlling the plane during a flight.
Interview with Nicholas Carr, author of The Glass Cage: Automation and Us.

Commercial pilots were an enviable lot in the post-WWII era, with travel, status, security, and high pay. Now they’ve been crushed by mergers of their employers (less bargaining power) and increased tech (fewer jobs per plane with less value-added). Ahead lies still more automation and a massive rise in foreign competition — doing to them what it did to American merchantmen (now existing only in small numbers as a government-protected species.

See The Truth About the Profession, What Can New Pilots Make? Near Minimum Wage. There’s a Pilot Shortage: Salaries Start at $21,000. Note the economics, something still not understood by most economists. Corporations run wages down to the point where there is a shortage of workers willing to train themselves for those jobs. Profits are maximized at this magic point of a slight shortage, where increasing wages would supply but reduce profits.

The Third Industrial Revolution begins, but remains mysterious.

The articles that describe the emerging industrial revolution mix fact and fancy, as does this in the NYT.

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A frontier of climate science: the model-temperature divergence

Summary: Today Rud Istvan gives us a brief tour of a climate science frontier, as seen in a hot new paper. It’s a bit technical, an unavoidable aspect of real science. It’s controversial, an ingredient that helps science grow.  Don’t let activists on either side cloud your understanding of the science. There is a strong but narrow consensus among climate scientists; move beyond that and the questions multiply.  {2nd of 2 posts today.}

A challenge for climate science: model-temperature divergence:

Figure 2 from  “Why models run hot, results from an irreducibly simple climate model”.Figure 1 from MSLB. Medium-term global temperature trend projections from FAR {IPCC’s 1st report}, extrapolated from Jan 1990 to Oct 2014 (shaded region), vs. observed anomalies (dark blue) & trend (bright blue), as the mean of the RSS, UAH, NCDC, HadCRUT4 and GISS monthly global anomalies. Click to enlarge.

Lessons from the ‘Irreducibly Simple’ kerfuffle.

by Rud Istvan, posted at Climate Etc., 1 March 2015.
Reposted under their Creative Commons License.
Headings & some graphics added.

A controversial study

The Monckton, Soon, Legates, and Briggs paper “Why models run hot, results from an irreducibly simple climate model” appeared in the January 2015 Science Bulletin of the Chinese Academy of Sciences (CAS). Hereinafter MSLB.The paper discusses the divergence between climate models and observed temperatures, and develops the implications for climate sensitivity.

MSLB has created quite a kerfuffle. There was initial dismissal: it was claimed that Science Bulletin is an obscure journal with lax review standards, so the paper is no good. Bulletin turned out to be the Chinese equivalent of Science or Nature. Then came MSM efforts (NYT, Boston Globe, WaPo, even BarackObama.com) to discredit the authors. This has escalated into a more general attack on prominent skeptics like Christy, Pielke, and our gracious hostess. These attacks are growing ugly, for example from BarackObama.com on Feb 23: “Bad things are coming for these boys and girls. (Name list) Keep your eye on the media. Several stories.”  {Ed note: I don’t see any mention of this on at BarackObama.com or using Google.}

Dr. Trenberth of NCAR provided NYTimes reporter Gillis a MSLB rebuttal, posted at Matt Brigg’s blog.  Gillis did not report Brigg’s reply. Trenberth dismissed the simple model simply because it is simple — and said the ‘pause’ is insignificant natural variation. Yes, but the now 18+ year pause/hiatus is in very serious disagreement with CMIP5 climate model simulations using criteria set out by climate modelers themselves in 2011 [see Climate Etc]. Trenberth’s comments to the NYTimes are indefensibly misleading in my opinion, and provide a vivid object lesson about consensus climate ‘science’ and its reporting.

There was a saying among WWII Army Air Force bomber pilots: “If you are taking heavy flak, you are over the target”. What is it about this target?

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