I, Not Robot: Why The Rise Of SkyNet Leads To Automatic Unemployment For The People

On June 29, 2012, Tyler Durden posted on ZeroHedge.com that we should focus on something few have discussed, yet all have a morbid fascination with: Robots… And China. And why the combination of the two just may be the most dangerous thing for China’s several hundred million strong migrant labor force, which, on the margin may just be the deciding factor defining the engine of global growth for the next decade. Oh, and did we mention global structural unemployment which will only get worse as increasing automation leaves more and more millions collecting their 99 weeks of extended unemployment benefits.

Machinations and autobots, and unmet Chinese markets:

Robots and unemployment: correlation or causation?

Finally, here is why China better have learned all the tricks of the labor market manipulation trade from the U.S. Department of Labor, Bureau of Labor Statistics (BLS). It will need it.

Those who are lazy and/or have been replaced by a robot lately, can stop reading here.

For everyone else, here are some parting thoughts from Goldman’s Hugo Scott-Gall:

 Who does automation benefit more? Low-cost producers in Asia or high-value manufacturers in the developed world? In the near term, it’s likely that we’ll see an accelerated adoption of automation in Asia, and in China in particular, as companies there face rising wages, increasing competition and slowing global demand and pricing pressure that necessitates higher efficiency. And to add to it, financing such capital investment is perhaps most convenient (and quickest) in a place like China in the current environment. Wrapping up that argument is the economy’s conscious effort to industrialize and move up the manufacturing value chain. When higher levels of automation materialize, it should lead to a pick up in productivity (off a low base – China has c.90 robots per 10,000 workers compared to more than 300 in Japan). But will it provide a sustainable advantage?

Transforming a factory teeming with people to an automated assembly line of complex machinery is easier said than done. It not only requires highly skilled talent and experience to manage the process (tough to acquire even through global recruitment), but also a much deeper shift in the way the manufacturing process is planned and executed. We think the advantage here lies with the West, together with Japan and South Korea, which is why they should be able to maintain their lead on higher-value exports (which includes robotics), for most of the coming decade. Does this mean manufacturing facilities will move back to the West? Taking cheap labour out of the equation, manufacturing facilities must stay close to end consumers (which is Asia for some sectors like autos, smartphones etc.), having balanced out the transportation costs and IP risks with associated infrastructure costs.

Companies that incorporate automation in their manufacturing process should see the labour intensity of their operations fall at the expense of capital intensity, though this may not be a 1:1 match and the payback could take time – lower asset turn versus higher EBITDA margin. Also, setting up industrial robots (with average life-spans of 12-15 years, but no pension costs!) requires management to have longer-term visibility and sound forecasting skills. Automation should also reduce working capital as production lead times fall, thanks to scheduling flexibility (i.e., if inventories have been built, or demand is weakening, it’s easier to run the machines for fewer hours or even shut them temporarily, at the expense of lower capacity utilization, than to reduce the number of employees – the cash cost of production falls and this advantage should be weighed against debt servicing if any). In essence, automation most likely works for a company with a healthy balance sheet, good demand visibility and superior industry positioning.

Automate and eliminate

Finally, we address the potential impact of automation on human capital. It’s easy to be wholly negative in the current environment and conclude automation would drive structural unemployment, leading to lower disposable incomes and weaker consumption. And this would not be completely wrong – we think the sticky unemployment we are seeing in the US and in Europe has a lot to with jobs permanently eliminated by technology. The average duration of unemployment in the US has never been as high as in this downturn, and this follows the relentless export of jobs to lower-cost countries over the past decade or so, making it particularly painful (and for a period slowing down the penetration of automation). And, ceteris paribus, you could envision a world dominated by a machine-to-machine economy, where most things are done by intelligent technology, leaving only highly skilled people with the lion’s share of the limited jobs. This would lead to further income inequality. Would estimates of global population growth remain the same if we did not need 10 bn people, and if we didn’t have the means to feed them? And could automation then be seen as a driver of globalisation that through its success provokes de-globalisation?

In mankind, we trust

But we take a more positive view than the bleak dystopian one outlined above. The global workforce has been able to adapt to the advent of machines since the industrial revolution, and the subsequent evolution in the types of jobs that a typical economy has to offer. When more and more women entered the workforce in the 1960s and 1970s, particularly after automation in the home, the developed countries could handle the boost that gave to their workforce, since they were transitioning from a physical, manufacturing-based economy to a services-based one. We could see something similar happen with automation too. Twenty years from now, it’s more likely that there will be different sorts of jobs to fill in the gap that technology is creating now. But this will not happen without short-term dislocations, as the current workforce needs to be better trained, not for a particular type of job, but to be nimble enough to evolve along with the changing needs of the world. This will take time, perhaps even a generation, and until then automation could continue to hurt the labour market.

To conclude we think automation is spawned from innovation and technological advancement. Things that the West and the developed world have been very good at. Automation can bring with it a productivity surge for industries that employ it, and those that could potentially employ it. Initially automation is an attractive way of reducing labour costs and the risks associated with labour. However, increasingly it is a more meaningful driver of product quality and process, and therefore an important part of competitive advantage. We expect automation penetration to increase and can see winners in both providers (Andritz, Spectris, ABB, Dassault) and users like (Sirona, Sonova, Nissan, Rio Tinto and Apple).

The question that requires an answer is now timely before us. It was first posed by binary economist Louis Kelso in the 1950s but has never been thoroughly discussed on the national stage. Nor has there been the proper education of our citizenry that addresses what economic justice is and what ownership is. Therefore, by ignoring such issues of economic justice and ownership, our leaders are ignoring the concentration of power through ownership of productive capital, with the result of denying the 99 percenters equal opportunity to become capital owners. The question, as posed by Kelso is: “how are all individuals to be adequately productive when a tiny minority (capital workers) produce a major share and the vast majority (labor workers), a minor share of total goods and service,” and thus, “how do we get from a world in which the most productive factor—physical capital—is owned by a handful of people, to a world where the same factor is owned by a majority—and ultimately 100 percent—of the consumers, while respecting all the constitutional rights of present capital owners?”


Mitt Romney And The New Gilded Age

University of California at Berkeley Professor Robert. B. Reich writes an article in the July 16-23, 2012 edition of  The Nation.

 The election of 2012 raises two perplexing questions. The first is how the GOP could put up someone for president who so brazenly epitomizes the excesses of casino capitalism that have nearly destroyed the economy and overwhelmed our democracy. The second is why the Democrats have failed to point this out.

The White House has criticized Mitt Romney for his years at the helm of Bain Capital, pointing to a deal that led to the bankruptcy of GS Technologies, a Bain investment in Kansas City that went belly up in 2001 at the cost of 750 jobs. But the White House hasn’t connected Romney’s Bain to the larger scourge of casino capitalism. Not surprisingly, its criticism has quickly degenerated into a “he said, she said” feud over what proportion of the companies that Bain bought and loaded up with debt subsequently went broke (it’s about 20 percent), and how many people lost their jobs relative to how many jobs were added because of Bain’s financial maneuvers (that depends on when you start and stop the clock). And it has invited a Republican countercharge that the administration gambled away taxpayer money on its own bad bet, the Solyndra solar panel company.

But the real issue here isn’t Bain’s betting record. It’s that Romney’s Bain is part of the same system as Jamie Dimon’s JPMorgan Chase, Jon Corzine’s MF Global and Lloyd Blankfein’s Goldman Sachs—a system that has turned much of the economy into a betting parlor that nearly imploded in 2008, destroying millions of jobs and devastating household incomes. The winners in this system are top Wall Street executives and traders, private-equity managers and hedge-fund moguls, 
and the losers are most of the rest of us. The system is largely responsible for the greatest concentration of the nation’s income and wealth at the very top since the Gilded Age of the nineteenth century, with the richest 400 Americans owning as much as the bottom 150 million put together. And these multimillionaires and billionaires are now actively buying the 2012 election—and with it, American democracy.

e’ve entered a new Gilded Age, of which Mitt Romney is the perfect reflection. The original Gilded Age was a time of buoyant rich men with flashy white teeth, raging wealth and a measured disdain for anyone lacking those attributes, which was just about everyone else. Romney looks and acts the part perfectly, offhandedly challenging a GOP primary opponent to a $10,000 bet and referring to his wife’s several Cadillacs. Four years ago he paid $12 million for his fourth home, a 3,000-square-foot villa in La Jolla, California, with vaulted ceilings, five bathrooms, a pool, a Jacuzzi and unobstructed views of the Pacific. Romney has filed plans to tear it down and replace it with a home four times bigger.

We’ve had wealthy presidents before, but they have been traitors to their class—Teddy Roosevelt storming against the “malefactors of great wealth” and busting up the trusts, Franklin Roosevelt railing against the “economic royalists” and raising their taxes, John F. Kennedy appealing to the conscience of the nation to conquer poverty. Romney is the opposite: he wants to do everything he can to make the superwealthy even wealthier and the poor even poorer, and he justifies it all with a thinly veiled social Darwinism.

Not incidentally, social Darwinism was also the reigning philosophy of the original Gilded Age, propounded in America more than a century ago by William Graham Sumner, a professor of political and social science at Yale, who twisted Charles Darwin’s insights into a theory to justify the brazen inequality of that era: survival of the fittest. Romney uses the same logic when he accuses President Obama of creating an “entitlement society” simply because millions of desperate Americans have been forced to accept food stamps and unemployment insurance, or when he opines that government should not help distressed homeowners but instead let the market “hit the bottom,” or enthuses over a House Republican budget that would cut $3.3 trillion from low-income programs over the next decade. It’s survival of the fittest all over again. Sumner, too, warned against handouts to people he termed “negligent, shiftless, inefficient, silly, and imprudent.”

The Gilded Age was also the last time America came close to becoming a plutocracy—a system of government of, by and for the wealthy. It was an era when the lackeys of the very rich literally put sacks of money on the desks of pliant legislators, senators bore the nicknames of the giant companies whose interests they served (“the senator from Standard Oil”), and the kings of finance decided how the American economy would function.

The potential of great wealth in the hands of a relative few to undermine democratic institutions was a continuing concern in the nineteenth century as railroad, oil and financial magnates accumulated power. “Wealth, like suffrage, must be considerably distributed, to support a democratick republic,” wrote Virginia Congressman John Taylor as early as 1814, “and hence, whatever draws a considerable proportion of either into a few hands, will destroy it. As power follows wealth, the majority must have wealth or lose power.” Decades later, progressives like Louis Brandeis saw the choice starkly: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

As Robert Reich says:

Mitt Romney epitomizes everything that’s wrong with the American economy — the dominance of the financial sector (Bain Capital), the concentration of income and wealth at the top (Romney’s fortune), the power of the top 1 percent to lower their taxes (Romney’s special tax breaks), the power of the financial sector to avoid regulation (Romney’s vow to repeal Dodd-Frank), the flow of money from billionaires and Wall Street into politics (Romney’s super-PAC), and the re-emergence of social Darwinism (Romney’s vow to reduce tax rates at the top even further while cutting Medicaid, Pell grants, food stamps, education, and most of the rest of what lower-income Americans depend on.

Because there is exponentially mounting concentrated ownership of FUTURE productive capital wealth––the non-human factor used to produce products and services––political power has concentrated. Romney is the powerful’s poster boy.

In the 2012 election, Romney wants everything Wall Street has to offer, and Wall Street seems quite happy to give it to him. Not only is he promising lower taxes in return for its money; he also vows that, if elected, he’ll repeal what’s left of the Dodd-Frank financial reform bill, Washington’s frail attempt to prevent the Street from repeating its 2008 pump-
and-dump. Unlike previous elections, in which the Street hedged its bets by donating to both parties, it’s now putting most of its money behind Romney. And courtesy of a Supreme Court majority that seems intent on magnifying the political power of today’s robber barons, that’s a lot of dough.

Wall Street has already all but eviscerated the Dodd-Frank Act, and it has even turned the so-called Volcker Rule—a watered-down version of the old Glass-Steagall Act, which established a firewall between commercial and investment banking—into a Swiss cheese of 
loopholes and exemptions.

Romney’s DNA compared to Obama’s is that he is in essence a “Hoggist” casino capitalist running for President of the United States.

Romney says he’s a job-creating businessman, but in truth he’s just another financial dealmaker in the age of the financial deal, a fat cat in an era of excessively corpulent felines, a plutocrat in this new epoch of plutocrats. That the GOP has made him its standard-bearer at this point in American history is astonishing.

So why don’t Democrats or another party put this altogether? Part of the reason that Obama is not stepping up to the plate to deliver the message that I and others are waiting to hear is that elected Democrats and for that matter all the rest are still almost as beholden to the wealthy for campaign funds as the Republicans, and are afraid to share the real, fundamental truths of why we are in such a serious economic mess. Yet while Obama does at times acknowledge that the economic catastrophe that continues to cause us so much suffering is, at its root, a product of the gross inequality of income, wealth and political power, he never really talks about concentrated ownership of productive capital wealth and how that denies prosperity, opportunity, and economic justice to the vast majority of ordinary Americans. Once acknowledge, then it will be relatively simple to see what policies and programs are necessary to reverse our course and broaden private, individual ownership of FUTURE productive capital wealth.

This will require BOLD leadership. Will someone with influence step forward? If we continue to be blinded by the focus on one-factor  job creation as a solution to our nation’s economic woes, we are doomed to deepening upheaval, no matter a Democrat or Republican in the Presidency. Own Or Be Owned should be the rally slogan.


Congress Passes Transportation Bill, Halts Student Loan Rate Hike

On June 29, 2012, Richard Simon writes in the Los Angeles Times:

Congress, in a rare display of bipartisanship, on Friday sent to President Obama a roughly $105-billion transportation bill that lawmakers from both parties touted as perhaps the largest jobs measure of the year.

The measure also would avert a doubling of interest rates for millions of college student loans that was due to take effect Sunday.



GOP Has History Of "Crying Wolf" Over Social Programs

According to the MSNBC broadcast segment:

The right-wing has a history of attacking social programs, beginning in 1935 when FDR signed the Social Security Act. In the 1960’s, Ronald Reagan called the Medicare program socialism. Nancy Altman, Co-director of Social Security Works, joins Rev. Al Sharpton to discuss the Republican history of claiming social programs will lead to ruin.

There is a Just Third Way that will strengthen individuals and empower them to be affluent and self-sufficient––through leadership that will implement policies and programs to ensure that as the American economy grows that the future income-producing productive capital means of producing our products and services are broadly owned privately and by individuals. The result would be far less dependence on social programs as individuals and families would be far more affluence and supportive of a sustainable economy.

Please see my article “Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation and Economy” at http://foreconomicjustice.com/11/economic-justice/ or follow me on Facebook at http://www.facebook.com/pages/For-Economic-Justice/347893098576250 and http://www.facebook.com/editorgary

Corporate Power Increases As Workers Battle One Another

Are anti-labor election results indicative of a trend that destroys social cohesion and makes it harder for businesses––small and large––to prosper?

On June 13, 2012, Columnist Michael Hiltzik writes in the Los Angeles Times:

Of the social developments of recent decades, certainly one of the most perplexing is the revolt of the working class against workers.

Last week’s election results only scratch the surface of a trend that destroys social cohesion and makes it harder for businesses — small and large — to prosper. Voters in San Jose and San Diego opted to cut public employee pension programs; on the national stage, Wisconsin’s openly anti-labor governor, Scott Walker, handily turned away a recall campaign inspired by his effort to kill collective bargaining rights for public workers.

None of the votes appears to be purely anti-labor. The California polls were expressions of municipal fiscal anxiety, aimed at one of the few lines of a local budget (payroll) that may yet be under voters’ control. Walker apparently prevailed in part because Wisconsinites (unlike Californians) don’t cotton to recalling governors just like that, and also because wealthy industrialists backing Walker outspent unions and Democratic contributors backing his opponent by about 7 to 1.

But the results are a good starting point for a survey of the working- and middle-class landscape in America. It’s important to examine the balance of power between corporations and workers now, and not merely because big money from either side is going to be oozing from candidates’ pores in this electoral season. But labor’s diminishing power has much to do with the weakness of the economic recovery and the bloodlessness of consumer demand. Put simply, when more and more of the bounty of economic growth flows to those who don’t need to spend it, and so little to those who immediately would crank it into the retail economy, demand will continue to stagnate. That means meager job growth.

Worse, as workers battle one another for smaller slices of the same shrinking pie, they see others in the same fix not as neighbors but rivals. Today’s vision of the working-class economy as a zero-sum game underlies public opposition to all sorts of stimulative programs — assistance for strapped homeowners, to cite one example.



The Wealth Gap––For The Very Rich, Income Is Only A Small Piece Of The Equation.

On June 14, 2012, Michael Kinseley writes in the Los Angeles Times:

The current debate about rich and poor — the 1% vs. the 99% — is a bit misleading, because the evidence usually is data about income, not wealth. Looking at wealth would make the comparison even starker.

There are some nice deals to be had in the income tax code these days, but most wealth accumulates and passes from generation to generation with no tax at all. Warren Buffett (who has selflessly taken on the role of all-purpose tape measure in these matters) is worth $45 billion or so. Do you think that all of that $45 billion, or even most of it, has appeared on any Form 1040 on its way to the cookie jar? Even at the special, low 15% rate the U.S. insanely confers on capital gains?

Unlikely. Much of that $45 billion is unrealized capital gains — increases in the value of Buffett’s stocks that have never been cashed in, and therefore never taxed.

I’m not saying that unrealized capital gains should be taxed (although it’s a thought). I’m just noting that you only pay income tax when an investment is liquidated, and very wealthy people don’t have to liquidate until they actually need to spend the money.

For most of the very rich, this time is never. When you die, any unrealized capital gains disappear for income tax purposes. Your heirs, if and when they sell, pay capital gains taxes only on any increase in value since they got the money. There might be estate taxes, but only if the estate is worth $5.12 million or more.

The Federal Reserve released new numbers Monday. Unsurprisingly, wealth distribution is even more skewed than income distribution. In 2010, the median family had assets (including their house but subtracting their mortgage) of $77,300. The top 10% had almost $1.2 million, or more than 15 times as much.

But the headlines — and rightly so — went to the dismal fact that household wealth has been shrinking for all categories of Americans. In 2007, the net worth of the median family was $126,400. That’s a drop of almost 40% in just three years. (All these numbers have been adjusted for inflation.)

Characteristically taking the longer view, the New York Times led with the fact that household savings were back to where they had been in the early 1990s, “erasing almost two decades of accumulated prosperity.”



Asian Electric-Car Consortium Buys Sweden's Saab

On June 13, 2012 the Associated Press reports:

Swedish automaker Saab Automobile was rescued from insolvency when an Asian consortium sealed a deal to buy the brand’s main assets with the aim of making electric cars.

The price tag for Saab’s assets, which includes the main parts of the automobile manufacturing division, was not made public.

The buyer, National Electric Vehicle Sweden, is owned by Hong Kong-based National Modern Energy Holdings and Japanese investment group Sun Investment. It was recently formed with the purpose of bidding for Saab.

At a news conference Wednesday at Saab’s manufacturing plant in Trollhattan, in western Sweden, National Electric Vehicle Sweden said that it would initially focus on the sale of electric cars in the Chinese market, but that it also has wider plans to expand globally.

“China is investing heavily in developing the electric-vehicle market, which is a key driver for the ongoing technology shift to reduce dependence on fossil fuels,” said Kai Johan Jiang, founder and main owner of National Modern Energy Holdings.

The carmaker’s Saab Parts unit was not included in the agreement and the intellectual property rights for the Saab 9-5 car model, owned by the brand’s former owner General Motors Corp., also were excluded.

Saab, which has more than 3,000 workers, filed for bankruptcy in December last year after its previous owner, the Dutch luxury car group Spyker — later named Swedish Automobile — failed to get sufficient backing for the brand.

Saab Automobile’s sales peaked at 133,000 cars in 2006 but dwindled to just 27,000 in 2009 as GM — itself in bankruptcy protection after the financial crisis — prepared to wind down the Swedish brand.


Romney's Arithmetic––How Much Should We Spend On Defense

On June 24, 2012, Doyle McManus writes in the Los Angeles Times:

Here’s an issue that hasn’t been debated much in the presidential campaign but ought to be: How much should we spend on defense?


President Obama has proposed keeping the Pentagon budget essentially flat for the next 10 years. Mitt Romney, by contrast, wants to increase defense spending massively — by more than 50% over current levels, according to one estimate. That could mean almost $2 trillion in additional military spending over 10 years.

Romney hasn’t actually proposed a defense budget or offered any specific numbers for his military strategy. But he says he wants core defense spending to reach at least 4% of the nation’s gross domestic product — a big increase over the current level of about 3.2%. And he says the country needs about 100,000 more active-duty military personnel than the current 1.4 million, even though U.S. forces have left Iraq and have begun to withdraw from Afghanistan.



Fed Chairman Ben Bernanke Warns Of "Fiscal Cliff" Risks

On June 8, 2012 Don Lee writes in the Los Angeles Times that fears of a new recession grow as Bush-ear tax cuts are set to expire December 31 and automatic spending cuts are set to follow. Businesses are putting expansion on hold.

Fears about a looming fiscal crisis at the end of the year are starting to pinch job growth and threatening to undercut the nation’s fragile recovery, a growing number of economists and employers say.

Federal Reserve Chairman Ben S. Bernanke, in testimony Thursday before Congress, repeatedly warned about the so-called fiscal cliff — a reference to the expiration of tax cuts Dec. 31 and the imposition of automatic spending reductions Jan. 1.

By some accounts, the U.S. economy could see an unprecedented fiscal hit of as much as $720 billion if the slated changes take effect.

They would include an end to the temporary tax cuts enacted during the George W. Bush administration and to temporary Obama administration payroll tax reductions. Spending cuts in defense and on federal programs were negotiated as part of last summer’s pact to raise the debt ceiling.

If all the changes take place, the shock will probably cause the economy to contract and possibly lead to a recession, Bernanke said.



When Scientists Predict Calamity, Politicians Plug Their Ears

On June 14, 2012, David Horsey writes in the Los Angeles Times:

If life were a movie, the president of the United States (probably played by Will Smith) would be leaping into action to save humankind from the calamity that a new scientific report says is about to befall the Earth.

A paper prepared by 22 international scientists and just published in the journal Nature warns that overpopulation, environmental destruction and climate change have pushed the world toward a tipping point beyond which lie irreversible, frightening alterations in the biosphere that supports life on this lonely planet.

Of course, since this is not a movie and is, instead, just another surreal election year, the scientists’ alarming analysis will go unheeded. If the report is addressed at all by Republicans, it will be dismissed as another attempt by fiendish environmentalists to destroy the American economy by reining in polluting industries. If Democrats take note, they will tout their green jobs program as a panacea and quickly move on to a different, less disturbing, subject.

The fact is the scope of the problem as described by the scientists is so immense and so intractable that denial is a natural response. Here is what is happening as we cling to our ignorant bliss and bicker about the president’s birth certificate:

• The world population has passed 7 billion and will hit 9 billion before the middle of the century. To make room for all these people, 40% of the Earth’s surface will be cleared for farms and cities.

• Continued burning of fossil fuels will spew more carbon dioxide into the atmosphere, and that will make the oceans more and more acidic and literally lethal for sea life.

• All that CO2 will continue to push up global temperatures at a rate too quick for species to adapt. That, combined with the loss of habitat, will result in a massive extermination of bugs and birds and plants and fish and other links in the chain of life that humans depend on.