Euros, Deflation, and Greece

This article from The Economist has a great “dead parrot” picture in it… so hit the link.

http://www.economist.com/news/leaders/21627620-deflation-euro-zone-all-too-close-and-extremely-dangerous-worlds-biggest-economic

The euro zone
The world’s biggest economic problem

Deflation in the euro zone is all too close and extremely dangerous
Oct 25th 2014 | From the print edition

THE world economy is not in good shape. The news from America and Britain has been reasonably positive, but Japan’s economy is struggling and China’s growth is now slower than at any time since 2009.
[…]
Now that German growth has stumbled, the euro area is on the verge of tipping into its third recession in six years. Its leaders have squandered two years of respite, granted by the pledge of Mario Draghi, the European Central Bank’s president, to do “whatever it takes” to save the single currency. The French and the Italians have dodged structural reforms, while the Germans have insisted on too much austerity. Prices are falling in eight European countries. The zone’s overall inflation rate has slipped to 0.3% and may well go into outright decline next year. A region that makes up almost a fifth of world output is marching towards stagnation and deflation.
[…]
And, unlike Japan, which has a homogenous, stoic society, the euro area cannot hang together through years of economic sclerosis and falling prices. As debt burdens soar from Italy to Greece, investors will take fright, populist politicians will gain ground, and—sooner rather than later—the euro will collapse.

This parrot has ceased to be

Although many Europeans, especially the Germans, have been brought up to fear inflation, deflation can be still more savage (see article). If people and firms expect prices to fall, they stop spending, and as demand sinks, loan defaults rise. That was what happened in the Great Depression, with especially dire consequences in Germany in the early 1930s.

OK, they hype deflation quite a bit. Don’t get me wrong, deflation has its problems; but frankly I don’t see it as quite the ogre they see. OTOH, I’m glad my house is now “worth” about 9 times what I paid for it and the remaining mortgage is about 1/2 years pay instead of decades… but really, if gasoline costs 5% less and I can buy a hamburger for a dime less and maybe even can get a dishwasher for $20 less, am I really going to be sitting on my spending money?

IMHO, there’s a basic misunderstanding of how real people in the real world do their decision making that permeates Economics and especially Political Economics and decision making. In real deflation, the real injured parties tend to be folks with heavy debt loads; and the folks making big ‘delay the purchase’ decisions are those with a pile of money. In our modern society, not many people have a lot of money and most of the population pretty much spends what it has. A few companies and a few insanely rich people have excess cash, but even there much of it is not in cash, but is in investment vehicles. Yes, deflation is bad. But mostly to bankers and lenders who get more loan defaults and to people in heavy debt situations (the king of which is our own government… not me). But, leaving that aside for another day, we’ll “go with it” that deflation might be a horrible thing and admire Europe a bit more in that context.

But slowing prices and stagnant wages owe more to weak demand in the economy and roughly 45m workers are jobless in the rich OECD countries. Investors are starting to expect lower inflation even in economies, such as America’s, that are growing at reasonable rates. Worse, short-term interest rates are close to zero in many economies, so central banks cannot cut them to boost spending. The only ammunition comes from quantitative easing and other forms of printing money.

Aye, now there’s the rub… It’s the “stagnant wages” and weak demand. Now just how do “they” expect the average Joe and Jane to go out and buy more stuff, making more jobs and profits, if they don’t spend their cash? Can’t have them sitting on their piles of cash, now can we? Better “stimulate” them to go spend it!! /sarc;>

In reality, the average Joe and Jane are NOT sitting on their cash due to anticipation of deflation, or any other reason. They simply do not have it. Why? Because while overall price levels are not inflating, it is bifurcated. WAGES are more stagnant, while what we buy has been going up. We ARE spending our cash, just getting less for it (so less “demand” seen).

This, IMHO, is another example of what I call the failure of “over averaging”. Average together too many things and you hide the answers. Averages are used to hide the noise so you can see the signal, but too much averaging hides both. Averaging wage prices in with consumer prices hides the disparity of growth rates between them into one “deflation” that is really an ‘unemployment due to excess taxation and regulation crisis’.

So take a look at somewhere like Spain. With 40%+ youth unemployment, just how do you expect them to raise demand? And WHY are they unemployed? Think businesses just sit around thinking “maybe we can not hire folks in droves”? No. They look at cost to hire, regulatory environment, costs to fire if things change. Risk / reward. Over regulation, too many laws making hire / fire decisions painful. Too much social tax burden making other places look better. Those things are what kills job demand. Now average that in with rising costs for food, housing, clothes, cars, etc. (often from that same social tax burden) and net you get “deflation with weak demand”. An error of over averaging.

I would propose making two numbers. Income Inflation and Expenditure Inflation (and one could argue for a Manufacturing Inflation) and compare them. The delta between them would tell much much more about what is really happening in the economy than one bland over averaged “inflation / deflation” number that hides all the juicy bits.

The Economist proposes as the only “solution” more of the same medicine that has not worked and will not work as long as the root cause of too much taxation and too little freedom for companies and people remains. Bank Monetary Policy and free run Government Money Fiscal Policy.

If Europe is to stop its economy getting worse, it will have to stop its self-destructive behaviour. The ECB needs to start buying sovereign bonds. Germany’s chancellor, Angela Merkel, should allow France and Italy to slow the pace of their fiscal cuts; in return, those countries should accelerate structural reforms. Germany, which can borrow money at negative real interest rates, could spend more building infrastructure at home.

That would help, but not be enough. It is a bit like the early years of the euro debacle, before Mr Draghi’s whatever-it-takes pledge, when half-solutions only fed the crisis. Something radical is needed. The hitch is that European law bans many textbook solutions, such as ECB purchases of newly issued government bonds. The best legal option is to couple a dramatic increase in infrastructure spending with bond-buying by the ECB. Thus the European Investment Bank could launch a big (say €300 billion, or $383 billion) expansion in investments such as faster cross-border rail links or more integrated electricity grids—and raise the money by issuing bonds, which the ECB could buy in the secondary market. Another possibility would be to redefine the EU’s deficit rules to exclude investment spending, which would allow governments to run bigger deficits, again with the ECB providing a backstop.

Sigh. Yeah, that’s the ticket. /sarc;>

MORE government spending on “infrastructure” will just cause MORE taxes to be taken from the real economy. MORE difficulty hiring new employees to do anything other than that infrastructure project as there’s less left for them. MORE government issued funny money (via printing of whatever indirect kind) just cheapens the money left in the hands of regular folks all that much more. Sure, it will succeed in driving up the prices of what people buy. Sure, it will make the over averaged “deflation” look better as low inflation. NO, it will not get that 20 something in Spain a job and a home and the need to stock it with furniture and domestic goods. He’s still going to be in Mom’s basement with his Nintendo and hanging out with friends at the corner.

Not until all the regular ordinary day to day businesses, NOT just those with special contacts in government for ‘infrastructure’, get the freedom and ability to hire that kid will a job for him or her be forthcoming. It does nothing to make me willing to hire a new waitress if their mandated wage plus tax burden still exceeds their income generation. Repaving the street somewhere doesn’t change that.

That, IMHO, is the reason we have these persistent “stagflation” and now maybe “stagdeflation” episodes. Our rulers think that flushing more printed money out to their friends and cronies will make things better, and they know it will make their friends and donors happy, so that’s what they do. That money is taken from the rest of us, so makes for less ‘buying more’; and a slower economy, not faster. Or the money is just printed and effectively taken from anyone holding cash via dilution of buying power (which, thankfully, is rarely the average person). In the end, the cronies are richer, the politicians are rewarded with “contributions”, and the rest of us just grit our teeth and wait. Repeat until a generation just can’t stand it anymore and something really bad happens…

So what’s the real problem? Well, that would take a book or two to describe.

The short from is that in a truly free economy there is always an equilibrium wage rate for folks to be employed and there is always an adjustment to either inflation or deflation of the currency. It is only when the tax take is too large for businesses to be viable (or for employment of a person to be viable) or when various laws and regulations make it too expensive to have a business or hire more people; that is the time when an economy has structural unemployment and failure of economic growth.

Now we may not LIKE the equilibrium wage rate. When things slow down, it can drop greatly. Sure, you can have everyone employed at $1 / hour, but what good is it? But between the absurd end of that argument curve, and the reality of our USA and European wage and employment taxation process, lies a great gulf. We are presently in the realm where more “benefits” and more “minimum wage hikes” just mean more folks unemployed and fewer with jobs paying any taxes.

There is a real and objective value to the labor they offer, and when the costs to use that labor exceed that value, the job ends. It doesn’t matter if you have that “end” come from being fired, from having the company close down, from replacing the grape pickers with grape harvesting machines, or from having the factories pack up and move to China. The particular way the job is lost is just a linear programming problem for the operations analyst at the company to solve.

Right now we have ever increasing automation of farm work. In the USA there is a holiday dedicated to Caesar Chavez as the founder of the United Farm Workers union as a P.C. Holiday for Hispanics. Never mentioned is the millions he had put out of work via demanding wages in excess of the value provided by that labor. Where there used to be millions of farm workers, there are now machines, or crops that do not need those workers. (Much of it just moved to Mexico where the former migrant farm workers now get about $9 / day instead of the US $9 / hour… but at least they don’t have to drive up to California. Grapes moved to mechanical harvesters. Some orchards changed to mechanical harvesting, while others became pastures. Tomatoes got a very effective mechanical harvester. You can argue that those are better ways anyway, and I’m all for eliminating that ‘stoop labor’, but then again, it was not MY job that ‘went away’…)

It is that kind of thing that causes large, persistent, structural unemployment. Not how much paper the government prints or how much of it they give to Friends Of Government to tear down and build new bridges to nowhere…

In Conclusion

So my take on all this is that the EU, much like Japan, is headed into the same kind of StagFlation, but with higher structural unemployment and much greater political strife. Between the stresses between the countries and the more volatile cultures anyway, it will not be as ‘quiet’ as Japan has been. The banks will keep printing money (once Germany gets backed so far into a corner that they can’t avoid printing more money to loan to Greece) and the regulators will keep on heaping on ever more mandates until the ossification is so bad that the system fails. They are too wedded to their dogmas to do otherwise.

Greece is on the edge of default (again…)
http://money.cnn.com/2015/04/17/investing/greece-default-risk-rising/index.html

so the “more goodies to be handed out” v.s. “not enough jobs paying taxes” vs “not enough German money to suck in” is headed for a wall. Again.

Eventually that bullet can not be dodged and then things start to blow up, and then heal and recover. Until then, as long as the ‘same old same old’ non-working ‘cures’ are applied, the process will just slowly grind into dust.

Here in The USA we are having the same process under the Democrats. With luck we can swap them out for Republicans (or better yet Libertarians) in the next year or so; and hopefully those Republicans can be weaned off their own version of “spend and print”… as opposed to the Democrats “tax and spend and tax and print”… So with gridlock in congress via the last election, we’re doing a little better than the EU on recovery. Now if folks can just learn and generalize from that…

What we really need is a good pruning of regulatory burden and size of government along with taxation level. Toss out about 1/2 of the departments wholesale and all the dead weight burden on the economy that they represent with them. I know that will never happen. Only revolutions do that kind of thing (which is likely why they happen with such regularity…) and they often do not end well, so are generally to be avoided. While I might hope for a “good pruning”, I suspect that ‘stagflation’ is on the cards for us, perhaps even ‘hyperstagflation’ given the rate at which worthless paper is being used to fund a huge Central Authority Bloat Machine.

Oh Well.

Maybe, if we’re really lucky, the EU can collapse first and the USA can learn from it and avoid that fate… Or maybe I’m just getting a bit of ‘contact’ from the neighbors smoke… ;sarc/>

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Political Current Events and tagged , , , , . Bookmark the permalink.

11 Responses to Euros, Deflation, and Greece

  1. BobN says:

    In my way of thinking this blog points to the real problem and crisis in the world, Jobs. Inflation or deflation are the historical answers, but if you look underneath these issues the real problem is the lack of jobs. Jobs is a world crisis getting worse. Automation, robotics and AI are carving out more and more areas for job replacement. The PC has automated many things eliminating many jobs that will never be replaced. We are in a second stage of automation with robotics virtually attacking every area of jobs and with the coming breakthroughs in AI a huge leap in job loss will result.

    The government has estimated that 40% of jobs now in existence in the US will be gone in 10 to 15 years. Farm labor is disappearing very quickly with dedicated machines replacing labor, such as the lettuce pickers where one machine replaces 8 workers and it can run 24/7. Even the odd jobs are being replaced with actual human like robots in testing. Tractors now plow and harvest fields by GPS. Car driving is in test and will soon release people from the burden of driving, but think of the cabbies, delivery truck drivers and long haul truck driving soon falling to automation, that is a massive loss of jobs. A company in Georgia has come up with a way of cutting and sewing clothing, so the millions of jobs spent on this mostly in China will be coming home to the US again, but not to supply people jobs, but to automated factories. AI now working is the equivalent of a high school grad, so many low level jobs will soon be replaced. This trend will accelerate as machines are now learning from watching YouTube and has been found to learn 100 times faster than people. This replaces the need for programmers to work out the programs. Everywhere jobs are disappearing with nothing to replace them.

    Service jobs like McDonald’s are pricing themselves out of the market and soon machines will have replaced these jobs. Mall jobs are being replaced by on-line ordering the list goes on and on.

    Soon the world will face a situation where the majority of people don’t work and will be relying on government to allow them to live. People that do work will be over taxed to sustain this burden and may very well quit working and join the leisure class. The critical question is what does government do with all the non workers. Presently us policy is pretty much open borders to allow the flow of cheap labor into the US. this is the same cheap labor that is having its jobs replaced the fastest. we are setting our selves up to crash the system faster than normally would happen.

    Loss of jobs will create a burden on government that can not be sustained and governments will crash through out the world, but how does a government rebound from this. If its a currency issue a crash is self rectifying by the process, but no jobs still leaves people needing assistance to live. I believe this is the biggest crisis of the 21 century and its affects are starting to change the world. I don’t see the end game and that is scary.

  2. punmaster52 says:

    Check kitchen. Let’s see: Pioneer baking mix, milk, sugar, butter, cinnamon, confectioner’s sugar for glaze, coffee.

    There will be cinnamon rolls and coffee a few more mornings. Not worried yet.

  3. I see this in France. Here the “Code du Travail” (the regulations on employment) have IIRC reached 1368 pages and still growing at around a page every 3 days as people decide something else needs a regulation to control it. Employing people in France is a risky business, especially for a small company which is where the majority are in fact employed.

    Bob has also hit the nail on the head. Companies will automate since you don’t have the expense, the sick pay, the maternity/paternity pay, the strikes…. My last job was reducing the costs of the electronic boards we made. Replacing the hand-inserted components with SMD was a no-brainer, and of course we needed fewer people on the hand-assembly line as a result. For further cost-reductions, the factory was exported to Hungary (wages quite a bit less though the quality was almost certainly lower to start with) and I took early retirement rather than take a job stacking shelves. The factory in Hungary was probably very welcome, but again it will employ fewer and fewer people as the automation gets better.

    I’ve just seen a program about robots replicating the hand-movements of chefs and thus squeezing that job, and the implication is that the waiters would be out of a job too. In fact any job that needs human hands to do it would be replaced by a robot, and the only human-suitable jobs left would be creative (designers, artists etc.) and caring/nursing. For the most part, though, I suspect the current experiments with nurse-robots will be successful and that even that bastion of “jobs that only people can do” will fall.

    Given that most humans will therefore become simply consumers rather than producers in the somewhat-too-near future, I don’t see the current money system really continuing. The producing robots will be taxed and the money given to the consumers to buy what the robots produce. Maybe money will disappear and the necessities of life will instead be free. I’m not certain how you encourage people to do the few real jobs that will be left.

    Still, each country will hit this wall at a different time. The developing nations will still be using people rather than machines since for them people are cheaper. Expect a confused future where things will suddenly change.

  4. Graeme No.3 says:

    When Margaret Thatcher got into power in the UK she demanded that the public service be cut in half. They’ve never forgiven her, but the economic recovery in the UK over the next few years shows you are quite right about the dead hand of over-regulation.

  5. Larry Ledwick says:

    Your link is dead now just like the parrot. If you click on it but if you cut and paste the link it works.
    http://www.economist.com/news/leaders/21627620-deflation-euro-zone-all-too-close-and-extremely-dangerous-worlds-biggest-economic

  6. Larry Ledwick says:

    Thanks in most probability to the drops in prices of commodities like oil and iron etc. We have been in slightly negative inflation numbers (deflation) for about 3 months.

    http://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx
    Historical Annual U.S. Inflation Rate from 1913 to the present 
    Year .....Jan ....Feb ....Mar ....Apr ....May ....Jun ....Jul ....Aug ....Sep ....Oct ....Nov ....Dec ....Ave.
    
    2015	-0.09 %	-0.03 %	-0.07 %	 	 	 	 	 	 	 	 	 	 
    2014	1.58 %	1.13 %	1.51 %	1.95 %	2.13 %	2.07 %	1.99 %	1.70 %	1.66 %	1.66 %	1.32 %	0.76 %	1.62 %
    2013	1.59 %	1.98 %	1.47 %	1.06 %	1.36 %	1.75 %	1.96 %	1.52 %	1.18 %	0.96 %	1.24 %	1.50 %	1.47 %
    

    I have also noticed certain items starting to drop in price like a gallon of milk has started to get cheaper lately at the store I shop at.

    Although Christmas 2014 sales were up just a tad, the mix of which commodities were selling indicated folks were not going for the big ticket items but buying practical low end items to make the numbers.
    That indicates folks trying to get necessary basic purchase like shoes and such rather than high end electronics. Cutting back to practical items is the first sign of contraction as folks who see the train coming start to get setup to tough out a rough period.
    http://money.cnn.com/2014/01/14/news/economy/retail-sales/

    Exchange rate changes are making some imports cheaper so folks are buying stuff that they put off where that works if they consider the purchase inevitable, better to do it now while the dollar is relatively strong against other currencies like Japan.

  7. DonM says:

    I don’t know much about the methodology associated with measuring inflation/deflation, but I do know I have been paying significantly more for stuff that most people need (food, socks, utilities, housing, transportation, medical, education, etc.).

    Things that I don’t need so much (chain saw, garbage disposal, wood chipper, dishwasher, new windows, coat, tennis shoes, insulation, computer) seem to be fairly stable or even less cost than 20 years ago.

    Things that I don’t need so much come from areas outside of the U.S., or are made from materials that come from outside of the U.S..

    When the stuff that I need uses up most of my resources, I will not be acquiring stuff that I don’t need so much. When I, and others that use their resources solely for stuff they need, reach a tipping point majority, then a large part of the world may quickly devolve into a nightmare economy. I hope the U.S. condenses into a bad dream economy that we can eventually wake up from.

  8. E.M.Smith says:

    @Larry Ledwick:

    Interesting… I just clicked the link and it worked. The Economist has at time done “interesting things” to try and herd folks into paid or subscribed acess (though lately they have seemed more open). IIRC, for a while it was “one article only” per day? or some such. Sadly, such attempts to restrict access tend to just cause folks who want to point traffic at them to, instead, quote much larger blocks (so that their readers can see the referred text). I go out of my way to quote enough to be interesting but leave enough unquoted to encourage folks to “hit the link”, just so that fairness in intellectual property is maintained (and they get the ad revenue from the “hit the link” for their work product). Perhaps it was just an internet ‘glitch’, or perhaps some kind of other odd DRM behaviour.

    (DRM Digital Rights Management)

    One of the fallacies of modern Economics is the idea of “economic stimulus”. It is built on a model of a self contained economy. So we flush cash to folks so that they go buy things, to stimulate OUR manufacturing to hire people… but what happens when most of the manufactures come from China? Oh dear… China gets excess demand and inflation pressures while we continue in stagnation… Similarly, in downturns, China takes the hit as we cut back purchases of “stuff” but keep buying American food and gasoline… That international disconnect is supposed to be taken care of by exchange rates, but China has a “peg” of their currency to the US$, so that is a bit broken. Yet our politicians keep applying Keynesian type “fixes” as though our purchases were of US manufactures. Sigh.

    @DonM:

    You know more than you think… Just not the jargon to wrap around those understandings. You have accurately described “inferior goods” along with “price elasticity of demand”. An “inferior good” is not one that is of lesser quality, it is one where folks buy more of it when times are tough.

    Take potatoes and beef roast. When folks are flush with money the roast gets bigger and fewer potatoes go into the pot. When money is dear, it becomes a small roast with many potatoes around it. So sales of potatoes (and, presumably their price, a little bit) go UP during bad times.

    Now “price elasticity of demand” just means how much you buy, or don’t, as the price changes. There are all kinds of “substitution” effects where one good can be swapped for another. Potatoes get too expensive, more carrots go into the roast. Beef gets too out of line, it becomes a chicken roast. You described that well.

    Gasoline has a very inelastic demand curve. You must drive to work, and most of us can’t buy a different car every time the price of gas changes, so you pay up for the gas. But when gas rises in price, you don’t buy something else (as that money is gone). That chicken goes into the pot instead of the beef roast… Now price pressure is on chicken, and it moves from, oh, $1 / lb to $1.20 / lb. Still way under the beef price at $8 / lb. so the substitution still happens.

    BTW, that was one of the more complex bits of the introductory Econ series and toward the end of it IIRC; so don’t run down your understanding of things…

    OK, measuring inflation is a complicated and poorly done thing. Especially since the Govt has decided to bugger the numbers to make it look smaller (under Reagan during high inflation). The basic idea is that you pick a representative “basket” of goods and services, then get the cost of that basket. Each year you price them all and add it up again. So if gas is constant and chicken goes up while beef goes down the same amount, no inflation. But if gas and chicken are both going up, and beef only goes down a tiny bit, the total goes up and that’s inflation.

    I have my own “basket” that I memorized when I was about 8 years old. (Why? Well, because I’ve always been this way ;-) Bread was a dime a loaf for the cheap white foam, 15 ¢ for the better loaves. Gasoline was 25 ¢ per gallon. A US Postage stamp was 3 ¢ and there was a big fuss as it jumped to a nickle. Our house was bought (Dad paid cash!) for $7,500 and a car ran out at about $1500 to $2500 depending on which one. There’s more in the basket, but those are the big lumps. Now prices today on all those things are just about 10 x then. (The house sold for $80,000 a few years ago – it’s in the cheap rural farm area…)

    But you can see the opportunities for fudge and error. Is a 1960 car “the same” as a 2015? We have stereos and GPS now along with sat nav and more… (The most striking example of this is computers where, then, they cost millions and now I get more compute power for $25 in my Raspberry Pi – so finding “equivalent goods” is tricky). Then there was the removal of “volatile food and energy” from the official statistics. So just those things I most need and most prone to price rise in inflation / stagflation are out of the formula? That’s called lying. Similarly, what do you do when “price of photo film and developing” goes away as everyone has gone digital? So there is a bit of “art” to it. My method is to choose things that are highly likely to be persistent, have a mix of inputs (i.e. not just “steel”, but steel with labor and paint and machining and… i.e. a car), and are very common. (The price of a Rib Steak Dinner on the family restaurant menu was $2.85 and was thought “fair but expensive”. Now it’s about $28 on mid-scale menus… as an example, that dinner includes beef, labor of cook and waitress, building rent, side dishes, water and washing, advertising, etc.)

    So that’s how you do it. Not really all that hard, and everyone has a flawed computation so doing a “roll your own” is no big risk, if you are at all careful.

    @Graeme No3:

    From the “no good deed goes unpunished” department… Sometimes to get better you need painful surgery or horrible tasting medicine. That’s what Maggie and Ronald gave us; and we both did much better for it. So they are both roundly denigrated by the Progressives as it wasn’t all happy talk and just spend more… People can’t see past discomfort to better outcomes. (Look at our collective waistlines vs muscle tone for a clear example…).

    @Punmaster52:

    Golly! My check is Coffee (usually a large tin, but right now 2 x 1 lb bags of special grind), bread and / or bread fixings (plenty), butter (2 lbs in freezer +1 in fridge) and sugar / cinnamon mix to make cinnamon toast! Maybe I need to try making cinnamon rolls and go upscale a step ;-)
    Oh, and tea. Must have a jar of tea on hand…

    @Simon:

    Yup. But do remember that automation has been with us for a very long time with the very same worries. Great Grandad made horseshoes by hand at the forge. There was a great concern over nails. A Smith makes a lot of nails and such during times between big jobs. Someone wants a pound of nails, you have them to hand, and they always sell eventually. Then along came automated factory made nails. Oh the worry… (My first job helping Dad in our $7500 house was to straighten the square nails we took out of the barn / shed being rebuilt, so we could reuse them. He was teaching me about how to make a nail and that started with shaping and straightening…)

    Yes, it disrupted. Granddad moved to a farm with a smaller Smithy, just doing small jobs and things like shoeing for the Amish (where he met his wife, my Grandma) so became a mixed farming / Smithing operation.

    Dad had no hope of running a Smithy, though learned the trade. Instead he went into the Army (Combat Engineer) and dealt with different “hot metal”. Later, he taught me about shaping, quenching, and more; but we used a propane torch instead of a coal fire…. Later he ran a restaurant then moved into Real Estate sales.

    Me? I’m carrying on the tradition via a fascination with fire ;-) Seriously, though, I moved into computers. Someone needs to tend the machines. In many ways those same Engineering skills and awareness of the materials and processes carried forward.

    So what’s my kids fate? Well, my Son has gone into marketing and music.

    A similar story can be told for ag workers. Where once it was about 80%+ of the nation, it’s now down in the single digits and falling. Was it a catastrophe? No, not really. Disruptive as they all moved to cities? Certainly. But now they run restaurants, wash cars, pave streets, repair street lighting, paint houses, mow lawns, plan parks, build skyscrapers, etc. etc.

    The point?

    Economic change is always present, it always looks catastrophic, and it always isn’t. We can, and do, find ways to keep ourselves busy making new things and providing new services. Provided the government and regulations stay out of our way.

    An example:

    Some years back a guy knocked on my door. Asked if I wanted my windows washed. I quickly figured out this “teen something” was a “special Ed kid”. From the “not too bright” department and “with issues”. Yet here he was trying to be an entrepreneur. I remembered this behaviour from my early life when such things were common and “door to door” was frequent. I said yes, and got a decent window cleaning job for $10. Never saw him again.

    Now I speculate that the reason I didn’t see him again had nothing to do with my windows or his washing ability. I strongly suspect it was due to someone “calling the cops” on him (i.e. The Authorities) who would shut him down for now business licence or now ‘door to door’ permit or any of the dozen other required things beyond his ken. He likely ended up on welfare the rest of his life on in an institution. How is that better than me having clean windows and him having $10 to spend? In a free economy he would be self employed. In a Regulation Nation he is a welfare case. ( I’ve seen a few other cases of ‘innocent entrepreneurs being similarly shut down, so this speculation has some legs. One was a kids lemonade stand – no food police inspection, biz license, etc. etc… )

    That same effect works on a macro level. Whole industries can fold up shop when things get too troublesome to deal with. Heck, I folded my computer contracting company largely for the same reason. I was making money, but the pain of dealing with all the “requirements” was just too much trouble. Between QUARTERLY tax returns and various labor related requirements, it was just no fun and I’d make as much on my own. Staff of 12 reduced to zero, and I was happier at the end. Instead of spending 1/4 of my time dealing with various kinds of mandated “paperwork” I was spending it at the BBQ instead… But were it a free economy, I’d likely have grown that to 100 people plus by now. (There is now a fairly tight lid at 50 people as a whole raft of regulations, tax requirements, et. al. kick in at that level. Even the Feds have figured out they were killing off growth so have made a [slightly lame] attempt to reduce their stifling hand…)

    And, a bit of icing on that particular cake:

    Thanks to IRS requirements for “contractors”, I’m now unemployed. I reached the length of time where the Client said “out the door so the IRS does not think you might be an implied employee” of 18 months on contract. ( I can go back in a year… if they need me). Never mind that I was happy on contract without benefits. Never mind that the Client was happy with a very much “at will” disposable body. Never mind that both of us were happy with the rate (higher than an employee). No, The Rules said I must be unemployed and they must take a search cost…

    The stupid, it burns….

    Oh, IRS rules do not specifically state 18 months. It’s all a bit vague. Out of the Microsoft suit came a set of something like 26 ‘tests’ and if you have ‘too many’ of them, you are an implied employee; so various companies take different measures to assure that doesn’t happen. One is too long at the job, so this client chose 18 months. Some choose 2 years. As long as there is a rule, it’s not “indefinite”. Others are “no business cards” and “no phone listing”. You can have a phone, just not be in the company phone book…. Sheesh. Now just add 23 more such things to spend time and money managing…

    @BobN:

    Well…. “yes and no”…

    As I noted above, such change is perpetual in economies. When the first flint nappers were put out of business by the metal Smiths, I’m sure they felt that cast blades taking so much less time to make were putting folks out of jobs. Similarly cattle herding vs hunters and farming vs gatherers. That process has continued to today and is the shape of progress. The flood of people off of farms and into cities in the rise of mechanized farming was traumatic, but I’d rather be driving a tractor than picking tomatoes by hand.

    Robotics is just another step along that path. Someone will need to sell and service the robots. Fix them when broken, or set them up for new products. Someone will need to write stories for the robot owner to read, or teach their kids. Life will go on.

    Yet there will be huge trauma in the transition. What do you do with a person who has only ever turned the left front axle nuts on a car assembly line when the robot takes over? They can’t learn robotics over night. It is when the transitions happen faster than “generational” that things get sticky. Yet I do computers while Granddad shod horses…

    The other problem is one I hesitate to bring up, as it strays into contention… but “income inequality” is part of this problem. When anyone can “own his own labor” and generate income from it, income flows to even the folks with low mental ability but “a strong back and good hands”. Those folks will be the displaced ones. The value formerly provided by their labor will flow to the owners of capital. Robots are owned, largely, by very wealthy companies owned by very wealthy people. The “lesser competent” (and in may cases simply “less well positioned or less well connected”) will lose that value of their abilities. The few well connected and with inherited position will accrue the value of the robots. This is, er, “not good” for the economy as a whole.

    What isn’t clear to me, and is going to be the root of much discontent in our civilization, is just how the strain between the owners of robotic capital and the dispossessed of labor will be solved. Welfare is not a good solution. Revolution is worse. The incredibly rich can only use so many house servants and watch so many plays. I’m just not sure where we go from here. Yet I think no generation has known where they were headed… so I’m hopeful that “roll the dice” will work again.

    One thing that is clear, though, is that to the extent there are piles of regulations standing in the way of change and free choice, of invention and personal entrepreneurship, the problem will be made much worse, not better. It prevents the transition to the new and locks in the failing past.

  9. EM – thanks for the detailed explanation, but I note that you say “Yet I think no generation has known where they were headed… so I’m hopeful that “roll the dice” will work again.”
    Hope is not a strategy. E.M.Smith….

    Whereas before people could go and do something and, if they were good at it, they could earn a living at it, it seems that these days you need a bit of paper that says you’re qualified to do the job. If you’re not working for a company you won’t have the other bits of paper that say you are allowed to do something and the cost and effort of starting a business to do whatever it is will likely put off quite a few people. You’ll need legal advice and an accountant at the minimum.

    I’ve been making guitars since I was 16, and thought about doing it here in retirement. I don’t know whether it would make any money, but it’s nice to make something pretty and useful. The accountant told me that in order to sell them as a business I’d first have to tell the tax people I was going to do it as the definition of me as “viticulteur” wouldn’t allow it. I can of course give them away (and have done), but there’s a fair investment of time and money if I want to sell them, and that’s before I can even pick up a chisel. It seems like the system will force people to be unemployed or join the black economy and take the risks. A bit like your window cleaner.

    There is currently a way in to writing apps for mobile phones without having official certifications, but that can’t be a long-term job. There’s a limit as to how many of such apps people will buy, and I’ve seen that AI is being developed to write programs too.

    I see jobs in medicine and the caring professions (but again there are robots being developed for this and AI for diagnosis that will likely be better than a standard GP or later even a specialist, and the Star Trek Tricorder is being made real too). I see good artists (music, sculpture, glasswork etc.) still making a living but if a person can hand-make something then it can be replicated. (Maybe not the best guitars since each bit of wood is different, but even there they can get pretty close.)

    What’s left really is inventing new things and research that computers don’t yet have the creativity to do. If the method of spreading around the wealth created by the computers and robots is sorted out then this will be a new Renaissance period with a lot of creative people doing what they do best. Like you I hope this will happen and that our kids won’t spend their lives on Welfare and feeling upset about the lack of jobs.

    Although I can see that a good end-point is possible, I don’t know what we’ll have to pass through to get there. Whereas before there were hard times while society adjusted, the rate of change looks to become faster than society will easily adjust to. Those hard times were fairly localised (one county, a dozen, maybe a country at times) but it looks to be continent-sized coming up. Having seeds and a patch of dirt (and of course some water) might be useful insurance.

    Although I’m not normally a doom-monger, this could do with more discussion to try and find a good strategy before the large pile of dung hits the wind-turbine.

  10. punmaster52 says:

    @ E.M. Smith and Simon Derricutt:

    Where do artists fit into this? I would have retired from the trucking industry in a few years if some medical problems hadn’t hurried that day. I do some singing/song writing/video shooting/comedy
    ( the punmaster may have suggested that :-) ), and I keep thinking somebody who can produce something that isn’t filled with crude jokes and profanity ought to be able to find an audience. Or is that wishful thinking these days? Find my spot now before the medium of exchange becomes toilet paper and bullets?

    Simon, I know which end of a guitar to hold. Would like to see a sample of your work.

  11. E.M.Smith says:

    @Simon Derricutt:

    Ouch! Hoist, meet own petard… ;-)

    Yes, some dirt and seeds are a good idea. But not everyone can do that (not even a significant percentage).

    Punmaster52: Per music and arts: I note in passing that MP3 and recordings have pretty much narrowed the real employment to a few thousand big names; though YouTube and sharing have started to broaden diversity again. Perhaps there is ho…, er, um, “potential” ;-)

    “Making stuff” in a mass way is now global and the current hot spot is China. As their economy comes to dominance, cheaper goods will move to the next lowest mark. They will go through a painful “peg” breakage along the way.

    I suspect that there will be a growing market for unique and customized items. While 3-D printers can do a lot of that, many folks will not want to deal with buying nor operating one; and many materials / constructs are not suited to the printer, so there ought to continue to be local customizing operations. (Custom guitars to custom cars to custom dinners to…)

    But don’t expect to make bulk shoes or shirts anywhere but the lowest tier economy, and don’t expect to see a lot of need for Ag workers or low skill service in high wage countries.

    Personally, I’m planning on getting my Robotics Teaching Buddy to give me a crash course in robot repair. He’s always talking about it and would be happy to have an ‘assistant’ for a while, I think. Either that, or making custom Raspberry Pi installs and even VMs to go might work…

    The major problem, IMHO, still remains. That is the pressure by mega-corps to push governments into ever more complicated rules and regulations to keep the ‘riff raff’ of small operators out of “their” markets. Think GE pushed to get the generic lightbulb banned from some green agenda? Nope. They got the rules written to allow their “colored” Reveal light bulbs to be sold even though less efficient, while banning the main product from folks with low cost operations overseas.

    Until “we the people” have more respect from “our” government than the megabucks of lobbyist money, we’re toast. As the politicians getting that money make the rules, don’t expect it to change soon. You are to be wage slave to giant organizations and corporations, not independent. The desire is to eliminate the middle class and petty business operator. That money is supposed to be theirs (by their POV)…

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