Tag Archives: labor

Wealth Inequality Not a Big Concern

‘Capitalism, Tradition and Traditionalism’ – An Overview

. The Reactionary sees no problem with wealth inequality, which reflects differences of aptitude, however the people at large will be prone to complaints of wealth inequality if their entire world is centered around capital, that which they may be unsuccessful at accumulating. Marx himself said that communism could never have gotten its start had capitalism not done away with the older system, which was able to effectively distract from common economic hardship.

Wealth inequity between the top .1% and everyone else keeps widening, especially in the past three decades, yet public opinion of wealth inequality is unchanged since 1985:

Predictably, democrats are more concerned about wealth inequity than republicans:

The fact fact that public opinion hasn’t changed in over three decades is more of a reflection of America’s persistent left/right divide, which has remained proportionally unchanged for decades, with approximately half the country holding conservative economic views and the other half more liberal.

Many people understand that wealth inequality is an inevitable byproduct of economic progress. People who produce more economic value are rewarded in the marketplace with more wealth than those who produce less. Those who create a lot of indirect economic value are rewarded the most, examples being entrepreneurs like Steve Jobs and Bill gates, whose inventions have created millions of jobs and hundreds of billions of dollars in economic activity, both directly and indirectly. Donald Trump, for example, is the highest polling candidate in the GOP primaries despite being much wealthier than his opponents. Revolution occurs when fundamental needs are unmet, typically due to economic collapse, not because of class envy. In addition to other factors, the October Revolution (food shortages due WW1) and French Revolution (flour war) were engendered by economic collapse resulting in shortages of food and hyperinflation. Although wealth inequality is high, it’s not like people are starving; in fact, there is so much abundance there is an obesity crisis and many people are choosing not work.

Some on the right want to see a more ‘holistic’ or ‘nicer’ version of capitalism, but what does that mean? It’s like saying you want to see a ‘nicer’ version of evolution. It doesn’t really work that way. Capitalism, like evolution, is autonomous, as a way of converting inputs (money, labor, etc) to achieve an outcome or state that is more efficient than what proceeded it.

Post-2008 Capitalism: A Guide

From n+1 magazine, After Capitalism:

HOW WILL IT END? For centuries even the most sanguine of capitalism’s theorists have thought it not long for this world. Smith, Ricardo, and Mill pointed to a “falling rate of profit” linked to inevitable declines in agricultural productivity. Marx applied the same concept to industrial production, suggesting that the tendency to replace workers with machines would lead to a chronic and insurmountable lack of demand.

The only thing that has as good of track record as capitalism are predictions of capitalism’s demise.

Fiscal austerity is general, taxes remain low, and debt levels continue to rise—which means that Western countries, by selling treasury bonds to the rich through capital markets, are actually paying their elites in bond yields to avoid having to go through the politically impossible process of taxing them. Absent any political recourse to countercyclical fiscal policy, central banks in the US, the Eurozone, and Japan have kept interest rates low and pumped trillions of dollars of fiat money into the financial system, keeping banks and dot-com companies liquid and driving the rich to put their money into the condos now flooding Manhattan, all while leaving median wages pleasantly low.

That is similar to the process I describe in an earlier article, Post-Labor Capitalism. But instead of post-capitalism, it’s more like post-labor capitalism; capitalism remains intact. As well as other factors like the petrodollar, the ‘flight to safety‘ is keeping yields low and the dollar high. The author seems cynical about how money is flowing into tech companies, but tech companies offer among the best growth prospects of all sectors. * Amazon stock, up 200% in the past few years, has been a great place to put your money; Diamond Offshore, a drilling company whose stock is down 50% this year, has not, because of weakness in emerging markets, depressing commodity prices. In a post-2008 era of slow growth, Web 2.0 is where the growth is.

Getting less work seems unlikely to come about without the fight for solidarity, the chief intellectual achievement of the workers’ movement, and one that none of the accelerationists see fit to mention as an ideal worth preserving or even renovating. This is despite the fact that automation—or, more broadly, the increasing precariousness of labor through technologically assisted means—has always been dialectically connected with it.

The Luddite Fallacy will likely remain a fallacy, but the composition of the labor force is changing to one of more lower-paying service sector jobs, as well as the rise of gig, freelancer, and temp jobs. The result is a bifurcated workforce: lots of low-paying jobs and a handful of good-paying jobs occupied by the cognitive elite and creative class. This is an example of how technology and automation provides a deflationary force through lower wages.

But overall, when pundits proclaim ‘capitalism is dead/dying’, they may be referring to an antiquated meaning or idealization of capitalism that does not take into account how capitalism is changing, but this does not mean capitalism is dead -hardly by any stretch of the imagination – instead, it’s evolving to a more efficient, technological, network-driven, ad-based, winner-take-all version of capitalism that we have now. Capitalism, like much of the post-2008 economy, has become bifurcated, with winners being high-IQ capitalists and ‘high-IQ’ capitalist endeavors, and less intelligent people and ‘low-IQ’ businesses are struggling.

Perhaps post-2008 capitalism is characterized by the following ‘themes’:

1. high-IQ favoritism – both in the business/investing world and individually, with smarter people and smarter businesses succeeding over their less intelligent peers

2. winner-take-all/bigger-is-better (small business failure at record highs, expensive real estate regions keep getting more expensive, web 2.0 valuations at record highs for a handful of companies, etc)

3. flight to quality (similar to #2) – observed in the investing world, venture capitalism, Bay Area real estate, and strength of the treasury bond market & US dollar vs. weakness of foreign peers

4. capitalism is getting smarter, choosier and pickier (** *) Lending standards are more stringent than ever, despite profits & earnings for multinationals at record highs, whereas in the pre-2008 era it was much easier to obtain financing for home or business. This is good because it reduces the likelihood of a crisis like in 2008, but perhaps frustrating for many who are unable to get financing at competitive rates. But this should not be confused for total risk aversion. Valuations for Silicon Valley tech firms keep going up, so money is flowing into the sectors and regions where the quality is perceived to be the highest, resulting in a bifurcation of very high valuations for quality and very low valuations for everything else.

5. capitalism is confusing, partly due to the new rules and trends that many don’t understand. That’s why I wrote this guide to help readers better understand how the landscape of capitalism has changed.

This high-IQ favoritism is also evident in the stock market since 2008, with the best performing sectors being information technolgy, pharma/bio/healthcare, payment processing, investment banking, and consumer discretionary. The biggest losers, have been ‘blue collar’ sectors like mining, shipping, commodities, energy, etc. The only ‘blue collar’ sector that has thrived since 2008 is …auto parts, because consumers, squeezed by a weak labor market and other lingering effects of the recession, are not replacing their cars as often. Maybe also housing, catering, daycare, and landscaping in the Bay Area to cater to the new tech rich.

Besides IQ, the ‘bigger is better‘ theme also dominates in our post-2008 world. The failure rate for small business is higher than ever, party due to low interest rates and plunging treasury yields, making it easier for large companies with access to cheap capital to expand, thus crowding out small businesses. The most valuable web 2.0 companies keep going up in value. In late 2013 Uber and Snapchat were worth $30 billion combined. Now it’s over $100 billion or so, depending on the source.

This bigger is better/IQ favoritism trend is also observed in Bay Area real estate, which keeps going up long after other regions have stagnated. Bay Area home prices are well-above the 2006-2007 highs, yet the national average still well-below the old highs. Expensive homes in high-IQ regions keep getting more expensive, year after year, with calamitous events such as the 2006 housing bubble resembling merely speedbumps in an otherwise uninterrupted trajectory of higher prices.

San Jose home prices, which were already expensive, are higher than their 2006 highs, while the less-expensive national average is still 10% below the old highs.

This is all part of America’s meritocracy, which while intact, is harder to understand. A lot of people are finding themselves left behind, either because they are not smart enough or because they don’t understand how the post-2008 economy works, they don’t understand how to get rich in our new era:

That’s the way you get rich in the smartist era – with stocks, Bay Area real estate, web 2.0…stuff like that. Overpaid, low-IQ, redundant salaried jobs are becoming obsolete, replaced by automation, temp-workers, outsourcing, or eliminated altogether. Due to the supply of labor vastly exceeding demand, employers not only have the luxury of choosing the cream of the crop out of a huge pool of applicants, but to save money and avoid bad PR, employers are becoming increasingly trigger-happy, thus no one’s job is safe.

The rug has been pulled…but all too many people are stuck in a pre-2008 mindset, thinking that the old rules of business and life still apply. They don’t.

The fact 20 and 30-somethings are becoming millionaires or even billionaires in Silicon Valley, with apps and other technologies, while coders strait out of college are making six-figure salaries – is evidence capitalism is thriving, or at least thriving in high-IQ sectors and regions. Anyone with some coding and a good idea can become rich, almost overnight, and if that is not the epitome of capitalism, what is? Some call it a bubble, but assuming it is one (I don’t think it is), technologies are borne out of boom bust cycles, examples being the 90′s dotcom boom and the 80′s personal computer & video game console boom. After the dust settles, what was considered speculative becomes commonplace.

Since 2008, trillions of dollars of wealth has been created in stocks, real estate, and tech. The mobile and video advertising market, linking advertisers with social media platforms, is projected to be worth $100 billion by 2016. The new Star Wars movie is projected to earn over $2 billion, setting a box office record. That is capitalism. You can’t tell me capitalism is dead when you have all this activity going on – but – Capitalism may seem dead if you’re doing it wrong ** or if you’re looking at it through an old lens.

* Capitalism is getting smarter, as part of the post-2008 ‘flight to quality’ trend. In the pre-2008 world, money flow was careless (such as to subprime borrowers, energy companies with poor prospects, emerging markets, etc), but now it’s much more focused, and that’s why the most successful and valuable web 2.0 companies like Snapchat, Air BNB, Uber, and Dropbox keep getting more valuable with every passing year. The same ‘flight to quality’ trend observed in the stock market, which is why only a handful of companies (Microsoft, Google, Facebook, Amazon) accounted for all of the gains of the S&P 500 in 2015. As explained earlier in the article, a similar flight to quality/’winner take all’ pattern is observed in the real estate market. After many decades of trial and error, boom and busts, capitalism may have reached the pinnacle of refinement.

** The types of business endeavors that seem to be succeeding in the post-2008 era harness network effects or act as a middlemen, are scalable, have market dominance, and have low operating costs. Some examples include Uber and AirBNB, neither of which cost much to operate, are readily scalable, and act as middlemen by linking people with rooms or people with cars. There are millions of rooms and millions of routes for Air BNB and Uber, respectively. Facebook and Snapchat are scalable and harness network effects to generate billions of impressions for advertisers, making these companies very valuable even if they don’t produce any content. Facebook, LinkedIn, and Google’s profit margins are among the highest on Wall St. All these companies do is host a social media platform and an ad platform, and just sit back and watch the money flow in. None of these companies have viable competitors; over a decade later, despite many efforts, no one has been unable to unseat the dominance of Facebook and Google, and I predict nothing will.

Economic Myths, Part 4: Job Creation is Good

Dyseconomics, developed in 2011, describes how an economic system that is optimal for growth and technological expansion is one where, counterintuitively, the economic contributions of the majority of individuals goes to zero relative to the size of the overall economy, a version of the Pareto Principle as applied to macroeconomics. It also describes the counterintuitive nature of economics, in that what is ‘bad’ for the economy is sometimes ‘good’ for the individual, for example: the paradox of thrift. Some of the rules of modern macroeconomics almost seem conceived from a dystopian sci fi book.

For example, wealthiest 20% contributes 80% to consumer spending, while the poorest 20% contributes just 1.5%:

Of course, America’s poorest are, relatively speaking, much richer than the world’s poorest, but the Pareto Principle holds.

The future is an economy where economic contributions are increasingly concentrated among a shrinking minority – the cognitive and financial elite.

This is related to the labor market in that strong job creation may actually be a negative for the economy by creating inflation and spurring the fed to tighten monetary policy too soon. This implies that there are millions of people (predominantly of low or average IQs) who, economically speaking, create more value being unemployed, which keeps rates low, than working – a kinda cynical, dystopian economic reality. This is evidenced by how stocks surged 2% on Friday despite the weak payroll number in which only 142,000 non-farm jobs were created for September, far below the estimates of over 200,000. Bad news becomes good news because weak job creation means rate hikes will be delayed.

This is corroborated by research that shows that rising unemployment is bullish for bonds and stocks.

We find that on average an announcement of rising unemployment is “good
news” for stocks during economic expansions and “bad news” during economic
contractions. Unemployment news bundles three types of primitive information
relevant for valuing stocks: information about future interest rates, equity risk
premium, and corporate earnings and dividends. The nature of the information
bundle — and hence the relative importance of the three effects — changes over
time depending on the state of the economy. For stocks as a group, information
about interest rates dominates during expansions and information about future
corporate dividends and/or the equity risk premium dominates during
contractions.

But, obviously, if the labor market worsens too much, the economy will go into recession, so there is a ‘sweet spot’ of not too much growth and no deflation. But, on the other hand, the labor force participation has been falling for decades, yet due to the Pareto Principle and globalization, consumer spending remains robust – another counterintuitive empirical observation in macroeconomics.

Men are leaving the workforce, yet consumer spending and exports keep going up:

This is probably why Wall St. is not losing too much sleep over job creation weakness, provided that the weakness does not become a full-blown recession. Even with a shrinking middle class, the economy as measured by data like profits & earnings keeps humming along. This is why liberals, who insist that without a middle class the economy is doomed, are wrong; instead, the composition of the labor market will change to one of fewer salaried jobs and more gig and temp jobs.

Economics Myths, Part 3: Full Employment is Good

Some may be surprised to learn that ‘full employment’, as defined by a 0% or near 0% unemployment rate, is neither feasible nor economically desirable. The definition of ‘full employment’ can have many meanings, the definition accepted by economists generally allows for some unemployment, but for ‘full employment’ to occur anyone who wants to work can find a job, although some unemployed people may voluntarily choose not to seek work and may be counted as unemployed until they ‘fall off’ the statistic and are no longer counted (usually after 100 weeks when unemployment benefits run out). That’s how it’s possible to have very low unemployment yet a low labor force participation rate.

There are three types of unemployment: Cyclical, Structural, and Frictional

Cyclical, deficient-demand, or Keynesian unemployment, occurs when there is not enough aggregate demand in the economy to provide jobs for everyone who wants to work. Demand for most goods and services falls, less production is needed and consequently fewer workers are needed, wages are sticky and do not fall to meet the equilibrium level, and mass unemployment results.

What this means is the the economy, for various macro factors, is unable to provide enough jobs for everyone who wants a job. If the Luddite Fallacy stops being a fallacy, there may be situation where there won’t be enough jobs despite the economy otherwise being strong. This is related to Okun’s Law, an empirically observed relationship between unemployment and losses in a country’s production, that states that for every 1% increase in the unemployment rate, a country’s GDP will be roughly an additional 2% lower than its potential GDP. There is evidence that Okun’s Law may be failing in the United States economy, the result being a so-called ‘jobless recovery’ that has been especially obvious since 2008:

In past economic expansions, job growth tended to correlate better with economic growth.

These unemployed people ‘drop off’ the count and the total size of the labor force will shrink, creating a new, lower level of ‘full employment’ even though there are a lot of people not working.

The second type of unemployment is structural:

Structural unemployment occurs when a labour market is unable to provide jobs for everyone who wants one because there is a mismatch between the skills of the unemployed workers and the skills needed for the available jobs. Structural unemployment is hard to separate empirically from frictional unemployment, except to say that it lasts longer. As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

This is the main reason why ‘full employment’ is neither attainable nor a good idea. As the economy and society evolves, jobs will be created and destroyed, but the result is the frontier of technology is advanced, resulting in new technologies and a higher standard of living. To turn off this job creation and destruction mechanism would result in ‘full employment’ due to no one having to learn new skills, but in the long-run it would cause stagnation. It’s analogous to a hunter-gatherer society that never advances to agriculture.

As with frictional unemployment, simple demand-side stimulus will not work to easily abolish this type of unemployment.

This is why the Obama stimulus failed. ‘Make work’ projects are a waste of money, since they are artificial (not market-driven) and don’t create enough long-term economic value to be profitable and self-sustaining. As soon as the stimulus ends, so to do the jobs. For an economic incentive to work, it must not be perceived as temporary; otherwise, companies will behave like it doesn’t exist. If the US corporate tax rate were dramatically lowered, companies would need to be confident that they would remain low for a sufficiently long time, before making the monetary commitment of hiring, expanding, and reorganizing under the new tax regime.

Not to make this too political, welfare liberals want to live in the past, protecting overpaid, obsolete factory and union jobs and attacking innovative companies like Uber, for example, instead of accepting that job loss is a necessary and unavoidable side effect of an evolving economy. Bernie Sanders ranting and raving about ‘greedy capitalists’ and exhorting the rich to ‘pay their fair share’ is not going to help create jobs, either, sorry. That makes perfect sense: attack the capitalists who create jobs, yet complain about the labor market being weak.

And finally, frictional unemployment, the third type of unemployment, describes unemployment that is voluntary, such as people quitting a job to look for another. Frictional Unemployment is another reason why ‘full employment’ will never be possible; there will always be people looking for a better job, and the ability and freedom to look for new, better opportunities is one of the advantages of having a flexible, dynamic economy. As an extreme example, under totalitarian regimes, it was not uncommon for saves to have a single type of job for their entire lives, until they either died of exhaustion or were killed.

Will Technology Make All Jobs Obsolete?

From Jim Goad of Taki Magazine: Workers of the World, Goodbye

The Luddite fallacy has a good track record of being a fallacy. You get rid of one type of job and another pops up. As the labor market becomes more polarized, there will probably be strong growth of jobs in the low-paying service sector such as healthcare and retail because these jobs require anticipating human behavior, the subtleties of which may be hard to fully automate. For example, the self-checkout machines simply coexist with regular cashiers instead of replacing them. And then you need additional employees to monitor the machines, as some customers will inevitably be confused and other customers may try to cheat the machines.

The hollowing out of the middle is evident. Many people of ‘average’ IQ and credentials that just a couple decades ago had good-paying middle class jobs are now only able to find low-paying service sector work.

Another example is major brands like Walmart and Target, when combined, hire thousands of workers to monitor their Facebook pages for spam and to answer customer questions. This is a low-skill job that just five years ago didn’t exist. Facebook hires thousands of people to screen content for terms of service violations such as porn and spam. Again, another new job. Apple’s ‘Genius Bars’ employ of thousands of people. Ten years ago Apple was just another tech company and now indirectly employs probably a million people though its ecosystem. There are even people making a living standing in line on behalf of customers who don’t wish to wait for the latest i-gizmo.

They, the welfare left, would rather have the economy regress than risk creative destruction and the loss of useless/overpaid jobs.The good news is they are losing their war on success and the meritocracy. The S&P 500 is up 65% since OWS.

Biological determinism means that not everyone can participate in the post-2008 wealth creation boom. Millions will be left out, living on the margins of society. The question is, ‘What should policy makers do?’ Since LBJ’s failed war on poverty, inflation adjusted entitlement spending has surged:

Eugenics is inevitable as the only viable long-term solution to the growing entitlement spending problem. Environmental/nurture based solutions have fallen short. As we said earlier, there are new jobs being created, but the labor force participation rate is at multi-decade lows, which means a lot of people are living off taxpayers instead of contributing. Mitt Romney was right. The number of people on foodstamps – already at 40 million – keeps growing.

A second passage that stood out:

You know the type—they reflexively use “capitalism” and “corporations” as pejoratives. They seem to have been energized and ennobled by the economic crash of 2007, blaming it on a “crisis of capitalism” rather than more likely suspects such as fiat currency, global finance, unsustainable government debt, off-shoring, and unchecked immigration.

He’s right about the first part. The liberals did take advantage of the brief, over-blown financial problem to embolden their ingrained, preexisting loathing of free markets and were aggrieved when, just five months after the super-effective bank bailouts, stocks began surging and haven’t looked back – the left’s hopes and dreams for the global economy to be reset to a more egalitarian state and the demise of the American economic and geopolitical hegemony stymied yet again.

But he’s wrong about the cause. Fiat currency, debt, off-shoring, and immigration didn’t cause the financial problem. The culprit according to most experts was risky mortgages given to unqualified borrowers. Another explanation is that the market was simply undergoing a correction and the financial problem was a trigger.