Sunday, March 11, 2012

Manufacturing Illusions

Inventor James Dyson has come up with some neat stuff, and one of his core ideas – getting stuff that already exists to work properly – definitely deserves a lot more attention. His latest brainstorm, however, in industrial policy, does not look so promising. Dyson advocates reindustrialization – bringing manufacturing back to the formerly developed economies of the West.

There are a few well-known problems with this. The East, the rising manufacturing centre, is now rising on the updraft of the virtuous circle of clustering: widget makers like to locate around other widget makers, where they can share suppliers and other services; and once all the parts makers are all in one spot you might as well put the assembly plants out there too.

The West, meanwhile, is being sucked down by the opposite vortex: as manufacturing evaporates it gets harder to re-establish, demand for scientific or technical skills drops and those areas lose their attractiveness to students; the scientific, engineering and entrepreneurial cultures which underpin manufacturing wither as does its political constituency.

While Dyson and other fans of making stuff acknowledge these problems they miss an even bigger one: there just aren’t enough jobs. On the one hand productivity improvements continue to shrink the workforce, as they have done in the past. In the 1940s, for instance, AT&T employed 350,000 switchboard operators. The massed ranks of clerical employees at banks and insurance companies have been likewise downsized by technology, along with farmers and of course assembly line workers.

This process continues: US GDP is now back to the level of 2007 – but with 7 million fewer workers.

On the supply side there are still huge reservoirs of underemployed labour – not just in the hinterlands of China, but in India, Africa, the Arab world, Latin America – and now even in the postmodern economies, especially among the under-25s. Individual nations may more or less successfully scramble for these jobs, with tax incentives and other tools of industrial policy but they will really just be fighting each other for scraps. Bringing jobs back to Britain - or the US or Canada - is really just exporting unemployment to China or Vietnam.

Regarding growth - creating jobs, not shifting them around - it is hard to even imagine a new category of employment that would require the battalions of workers that industry deployed in the glory days of 1900 to 1960. Worldwide, in terms of $25-an-hour jobs with benefits, there are more volunteers than positions. Billions more. That’s a rock even a genius like Dyson will find hard to budge.

The pension bomb

US municipalities are hitting the wall, according to the NY Times. It is not unusual for local governments to feel the effects of a recession last as belt-tightening at higher levels trickles down, but this time there is the added weight of years of dubious fiscal commitments made long ago finally coming due. Specifically, pensions:
Pension costs are a particular problem. The stock market collapse of 2008 decimated public pension fund investments, and municipalities are now being asked for greater contributions to make up for the losses. The impact has been drastic: Three percent of New York property tax collections were used to pay pension costs in 2001; by 2015, pension costs are expected to eat up 35 percent of property tax collections.
It’s not just New York; the rest of the country is facing the same problem; for that matter so is the entire developed world.

Warren Buffet’s famous line about derivatives being weapons of financial mass destruction had the germ of an idea – just applied to the wrong object. What is really going to hammer the economies of the developed – or post-developed – world is going to be pension and health care commitments.

Pensions have two major problems, both rooted in the time lag from establishment to payout. First, financial uncertainty. A municipal employee aged 30 enters the pension plan; he will retire at 60 and live to 90. So at inception his employer has promised to guarantee payments for up to 60 years in the future. But how can anyone say what city finances will look like in 60 years? Will these promises turn out to be easily affordable, barely affordable or entirely unaffordable?

The other problem is accountability. Politicians can promise public sector workers virtually anything in pension payouts, secure in the knowledge that they won’t be around to confront the irate electorate of decades in the future. In the meantime everyone gets a payout: employees don’t have to sock away as much into retirement savings, which is the same as cash right now; voters don’t have to cope with public sector strikes and politicians get peace and quiet. The only victims of this almost-victimless crime are future taxpayers, those aged under 15 or not yet born.

In the long run of course this doesn’t work any better than a subprime mortgage with a negative teaser rate. The pensions commitments made by the feckless management of the Big Three auto makers in the 60s and 70s ended up driving those companies to bankruptcy 40 years later. For governments, public sector unions and taxpayers, however, this end-game is just beginning. Decades of pain await.

Saturday, February 25, 2012

They're richer than you think

A couple articles about pension funds in the Globe. This discusses how the Canada Pension Plan manages its massive hoard of $153 billion. Imagine that: $153,000,000,000. What a pile of money. Now the CPP is for everybody, so dividing by 34.7 million Canadians, that's a stake of $4,409 each. Well, ok, not so much if you look at it that way.

Then there's the Ontario Municipal Employees Plan at $55.1 billion. Divvied up by around 420,000, that is about $131,190 for each of our esteemed public servants (who are also entitled to CPP anyway). Wow. If OMERS were a country wouldn't you want to move there?

Saturday, November 12, 2011

Sex, parking, football.

A great line from Margaret Wente's column on college football as the true religion of the US, quoting former University of California president Clark Kerr: the formula for a successful university is sex for the students, parking for the faculty and football for the alumni.

That (and the sex abuse) aside, leaves the sheer oddness of grafting a huge semi-pro sports league onto the system of higher education. Only in America.

Friday, November 11, 2011


Entertaining notes on inequality by David Brooks.

Especially this one:
Status inequality is acceptable for college teachers. Universities exist within a finely gradated status structure, with certain schools like Brown clearly more elite than other schools. University departments are carefully ranked and compete for superiority.

Status inequality is unacceptable for high school teachers. Teachers at this level strongly resist being ranked. It would be loathsome to have one’s department competing with other departments in nearby schools.

Not mentioned is pension inequality, but there was a good column by Jonathan Chevreau on this a few weeks ago in the National Post. Apparently the average hard-working Canadian would need about $2 million in their RRSP to be on a par with public sector union workers and their DB pension plans. Presumably the gap is the same in the US and the rest of the world's advanced welfare economies.

Also not mentioned is inequality in productivity, like 20% of the work force producing 80% of the value added. But that's something only fiscally conservative oddballs would even notice . . .

Sunday, June 19, 2011

Monday, May 30, 2011

Can Conrad Black ever not write.

Regarding his Lordship’s latest fulminations in the National Post on Saturday (A world of financial ruin), has nobody noticed just how bad this dude is at writing? While Black’s prose is known for its overuse of Latinate words and generally bombastic tone, its outstanding feature is really just how plain bad it is.

So, starting at the top:
The present U.S. administration, building, certainly on unpromising leavings from its predecessor, has shuffled from one delayed reaction placebo to another to anesthetize financial markets with a sequence of consciousness-lowering deferrals. First we were waiting for the Simpson-Bowles debt commission, which held any actual attention to the problem at bay for nearly two years. It reported quite sensibly and sank like lead weight, but without a ripple. The administration’s budget proposed a dynamic eventual freeze on 15% of federal government expenses, a solution that underwhelmed almost everyone.
Apart from this being the usual vortex of orotundity: there is a missing comma after “certainly,” which probably ought to be “admittedly;” “unpromising leavings from its predecessor” is clumsy; “building” on “leavings” is a bad mixed metaphor; “delayed reaction” is missing a hyphen (although maybe that can be excused as the hyphen sadly does seem to be on the way out); “held attention to the problem at bay” is clunky; “reported quite sensibly” is an error – the matter of interest is the content of the report and whether or not it was sensible, not the manner of reporting; and “a dynamic eventual freeze” is both awkward and contradictory – what is a dynamic freeze supposed to be?

The world’s reserve currency, the fabled vehicle of the “faith and credit of the United States,” is now virtual money — a symbol for all the other massive problems afflicting the U.S. economy. The imported share of America’s oil consumption, for instance, has gone from 20% to 60%. Large suppliers like Iran and Venezuela have become hostile countries. Yet Americans remain neurotic about paying half the gas price of other oil-importing countries.
The expression is “the full faith and credit of the U.S. government.” “[S]ymbol for” should be “symbol of.” When quoting changes the time scale is usually included unless it is obvious: when did imported oil make up 20% of America’s consumption – 1960, 1970, 1980? “[H]ostile countries” should just read “hostile;” otherwise the sentence implies that Iran and Venezuela changed from suppliers into countries; but they were always countries.

Unless the United States has the most spectacular cognitive awakening since Brunhilda, if not Lazarus, the laws of arithmetic are going to assert themselves in Zeus-like terms.

Meanwhile, the European Union is a water-logged vessel in a tempest, frantically bailing. In the six weeks since French finance minister Christine Lagarde last bravely proclaimed her personal fantasy that Greece would not default, the interest on Greek government notes has risen from 20% to 26%. Germany will not indefinitely remain so encumbered with guilt for the Third Reich that it will go on eating the costs of the false prospectus Goldman Sachs assisted Greece and others to file when they joined the Euro.

Brunhilda didn't have a “cognitive awakening;” she just woke up. Vessels don’t bail, frantically or otherwise; the crew does that. The laws of arithmetic asserting themselves in Zeus-like terms is another addled mixed metaphor; laws are not animate and so don’t assert themselves; Greece didn’t make a joint application apply with “others” to join the Eurozone – so it should either be “prospectuses” or just Greece. Sloppy writing, sloppy thinking.

Next is:
The EU is in hot contention with the United States as the Sick Man of the Great World Economic Powers, because less than 40% of Eurozone citizens work and over 60% are on benefits of some sort. But not to be discounted in this gripping Olympic contest for total fiscal immolation is geriatric, debt-ridden, stagnating Japan, a great but terribly beleaguered and demoralized country.
Sick men in hot contention; that’s a good one. “[T]he Great World Economic Powers” should use either “Great” or “World” but not both. The second sentence lays on the superlatives with the proverbial trowel, the bad writer’s favourite implement.

It is on a slow and perhaps shallow rebound from New Labour, whose only novelty was that it took them three terms rather than only the one required by Attlee and Wilson to bring the country to the brink of ruin, speaks English, has a good legal system and has been one of the most respected nationalities in the world without interruption since the rise of the nation state approximately 700 years ago.
The “It” here is the U.K. Skipping the first clause this reduces to “It . . . speaks English . . .” which is wrong, as countries don’t speak, people do; and while the point is sometimes made in discussions of globalization comparing India and China that the former has a large population of English speakers, we don’t really need to be told that this is also true of England.

Absent the first clause the preceding reads: “It . . . speaks English, has a good legal system and has been one of the most respected nationalities in the world without interruption since the rise of the nation state approximately 700 years ago.” A pretty good imitation of Grade 9 essay style.

When Britain can’t lead as it often has, as recently as with Thatcher in the ’80s, it still muddles through.
This means to say that Thatcher was an example of old-time leadership, not of muddling through; but a reader who didn’t know Conrad’s political biases would have a hard time figuring this out as it isn’t clear from the sentence itself.

And there is much more of the same. Anybody who wants to can download the column and redpen it up themselves, for an hour of harmless fun.

Of course, it could be objected that this is all nit-picking, but when you’re at the point where you can’t even see the body for all the lice it’s an issue. Writing a newspaper op-ed isn’t just about making your point; it’s also about presentation, in the same way that you don’t go to a job interview in your underwear, even if you do have solid skills and a good resume.

Amazingly, Conrad Black has managed to maintain a reputation as some kind of prose stylist (even after the duncical titling of his biography of Nixon as “The Invincible Quest”) when, stylistically, he is really the naked Emperor of Canadian journalism.

Wednesday, May 11, 2011

Tech II

The wreck in tech stocks back in 2000 was the market’s way of telling investors that their expectations were running away from them. But change doesn’t stop and while the market megawobbled real progress trundled on. A couple recent items showing how the grind continues: Microsoft is planning to buy Skype, and Google wants to develop a driverless car.

Both of these technologies seem to be gaining traction. Video telephony has been around as a concept seemingly forever, but is now turning into reality. The driverless car is a more audacious concept, but the Goog seems to believe it is actually doable.

Both of these developments would have major implications, but especially the latter. Google’s chief of driverlessness asserts that switching to a system of robo-cabs could cut the US car fleet in half (just think of how many driver-owned cars are sitting idle for most of the day). That would be an astonishing kick in the ****s for an auto industry already staggering under the weight of global overcapacity. And it would hammer employment in the driving industry (trucks and taxis), one of the biggest employment categories in the economy, and an even bigger part of the non-specialist economy.

The effect on the corporations would also be huge: Microsoft would become a major telco, Google a transportation giant. Both have outsized corporate-imperial ambitions; Google’s seem to be verging on the insane – but maybe what is really crazy is the technology.

More generally this suggests a bizarre future landscape of uncertain but potentially enormous opportunities, with Transformer-like corporations reconstituting themselves on short notice to acquire massive new capabilities. Interesting times.