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    Free Trade with a Hostile Mercantilist Empire?

    Posted by Kevin Villani on 14th March 2017 (All posts by )

    2017 marks the 200 year anniversary of David Ricardo’s publication on the theory of comparative advantage that underlies the economic case for free trade. Several years later Frederic Bastiat wrote the satirical Candle Maker’s Petition debunking the arguments in favor of protectionism. This was an ironic choice, as candle makers were politically protected by the Founding Fathers as necessary for the Revolutionary War. These protections lasted several centuries, and in 2016 Senator Chuck Schumer sought it re-instated on grounds of unfair competition from China.

    President Trump’s trade representative economist Peter Navarro is making both the political and economic case against free trade with China, which he considers a mercantilist trader with military ambitions hostile to the U.S.

    Navarro’s political case is an update of that faced by the Founders regarding candle making. China is viewed as pursuing a trading strategy to accumulate wealth and technical know-how to challenge the U.S. militarily in the South China Sea and globally. China’s mercantilist trade practices result in huge export surpluses with the U.S. He argues that China uses this advantage to weaken America’s industrial base and future defensive capability.

    While economists can’t reject this political concern out of hand, it does seem several decades premature given the relative size of the two countries’ navies. At present the US could quickly secure sources of supply for military purposes, and protectionism tends to linger for decades or even centuries.

    The second case against free trade with a mercantilist trader relates mostly to the loss of jobs due to “unfair” competition, i.e., not due to inherent comparative economic advantages as much as political subsidies, in China’s case a purportedly cheapened currency and weak labor and environmental protections. The standard argument is that such trade generally benefits consumers at the expense of high cost producers, resulting in a less political more fair distribution of consumption as well as a higher overall level. Read the rest of this entry »

    Posted in Big Government, Business, China, Economics & Finance, International Affairs, Japan, Markets and Trading, Politics, Public Finance, Trump | 11 Comments »

    Dodd-Frank, Obamacare grew out of same faulty reasoning

    Posted by Kevin Villani on 6th March 2017 (All posts by )

    The current partisan war over the Dodd-Frank Act is just one dispute in a broader ideological divide about the government’s role in industry. This dispute, which has deep historical roots, includes a similar battle over Obamacare. The common disagreement at issue with both laws — now in the cross hairs of a GOP-controlled Washington — is the extent to which politicians should subsidize their constituents indirectly through regulation of private companies.

    The Affordable Care Act governing health insurers was about 1,000 pages, and Dodd-Frank governing most other financial institutions was more than twice that. Both stopped short of nationalizing their respective industry, instead generating more than 10 pages of regulation for every one page of legislation, although many view nationalization as an eventual but inevitable consequence, particularly for health care.

    The distinction between public control and public ownership is the primary distinction between the competing mid-20th-century ideologies of fascism and communism. In contemporary terminology, this distinction is between crony capitalism and nationalization, neither of which can be reconciled with competition and freedom of choice.
    Read the rest of this entry »

    Posted in Big Government, Business, Capitalism, Crony Capitalism, Economics & Finance, Health Care, Obama, Political Philosophy, Public Finance, Systems Analysis | 10 Comments »

    The Boom/Bust Cycle Isn’t about Emotion

    Posted by Kevin Villani on 27th February 2017 (All posts by )

    My first experience with manias was in the 1950’s. As a pre-schooler, I was dragged along to the Filene’s Basement annual designer dress sale. Thousands of women of all types and sizes pressed against the glass doors opening into the subway station. Within minutes of the doors opening, these “maniacs” cleared all the racks and, holding armfuls of dresses, began stripping to their slips. That’s when I panicked.

    Looking back, those women acted rationally. There was a limited supply of deeply discounted dresses available on a first come basis. They traded among themselves to get the right size and their most desired dress. Buyer’s remorse was cushioned by Filene’s liberal return policy.

    The premise of U.S. financial regulation is that actors within private markets are irrational, but the evidence shows that it’s not maniacal, illogical behavior that sends markets into freefall.

    Great Depression and Recession

    Now in its seventh edition, Manias, Panics and Crashes: A History of Financial Crises, Charles Kindleberger’s seminal work provides the narrative that underlies virtually all public financial protection and regulation: First, the irrational exuberance of individuals transforms into “mob psychology” and fuels an asset bubble. Then, when the exuberance of a few turns to fear, the mob panics and overreacts, causing a crash that brings down both solvent and insolvent financial institutions.

    In his memoir, the former Federal Reserve Bank President and Treasury Secretary Timothy Geithner, who was at the epicenter of the last crisis, concluded, “It began with a mania — the widespread belief that devastating financial crises were a thing of the past, that future recessions would be mild, that gravity-defying home prices would never crash to earth.”  

    Most U.S. federal financial regulation originates from the Great Depression and the subsequent introduction of federal deposit insurance provided by the Federal Deposit Insurance Corporation (FDIC), which was established in 1933 to protect “small” savers. All prior state attempts to provide insurance failed. Because there were no effective, non-politicized regulations that could prevent the moral hazard of insured banks and savings institutions taking on excessive risks, an extensive regulatory infrastructure was put in place.

    Rational Actors

    Now, the U.S. has about 100 financial regulators, including those in the U.S. Treasury and the Securities and Exchange Commission (SEC), the FDIC, and the Fed. With near-universal deposit insurance, bank runs have become a rarity, but systemic crises have occurred more frequently. It is incontestable that big bubbles eventually burst, asset prices crash, and financial crises ensue. What causes the bubbles to inflate to systemic proportions, and to ultimately burst, is more contentious.

    At the time of Kindleberger’s analysis, individuals were assumed to be rational. The latest edition of his book, written after the 2008 financial crisis, postulates numerous theories about mob psychology (mania) that could lead rational individuals to produce irrational markets, but these ideas are all rather lame.

    Read the rest of this entry »

    Posted in Big Government, Business, Capitalism, Economics & Finance, Human Behavior, Markets and Trading, Public Finance, Real Estate, Systems Analysis, Tradeoffs | 9 Comments »

    Worthwhile Reading

    Posted by David Foster on 10th February 2017 (All posts by )

    How the 16th century invented social media

    Virginia Postrel thinks that now is the time for big-box stores to embrace the 19th century

    Is it possible to make American mate again?

    Related to the above:  mapping the geographical patterns of romantic anxiety and avoidance

    Maybe also related:  sex doesn’t sell anymore, activism does

    PC oppression and why Trump won

    Theory and practice: an interesting Assistant Village Idiot post from 2010

    Learning about effective selling from a surfer dude

    Here’s a guy who says: I help create the automated technologies that are taking jobs…and I feel guilty about it

    After discussing his concerns about automation-driven job losses, he goes on to say “I feel even worse when I hear misleading statements about the source of the problem. Blaming China and NAFTA is a convenient deflection, but denial will only make the wrenching employment dislocation for millions all the more painful.”

    I’ve seen this assertion–“offshoring doesn’t matter because Robots”–and it doesn’t make a whole lot of sense to me.  It should be obvious that both factors play a role; there’s no need for a single-variable explanation.  (Actually, offshoring-driven job losses and automation-driven job losses are somewhat less than additive in their effect, since automation generally makes US-based production more relatively attractive.)

    Here’s an argument that the next big blue-collar job is coding.

    What if we regarded code not as a high-stakes, sexy affair, but the equivalent of skilled work at a Chrysler plant? Among other things, it would change training for programming jobs—and who gets encouraged to pursue them. As my friend Anil Dash, a technology thinker and entrepreneur, notes, teachers and businesses would spend less time urging kids to do expensive four-year computer-­science degrees and instead introduce more code at the vocational level in high school….Across the country, people are seizing this opportunity, particularly in states hit hardest by deindustrialization. In Kentucky, mining veteran Rusty Justice decided that code could replace coal. He cofounded Bit Source, a code shop that builds its workforce by retraining coal miners as programmers. Enthusiasm is sky high: Justice got 950 applications for his first 11 positions. Miners, it turns out, are accustomed to deep focus, team play, and working with complex engineering tech. “Coal miners are really technology workers who get dirty,” Justice says.

    I’m reminded of two things that Peter Drucker said in his 1969 book The Age of Discontinuity.  In attacking what he called ‘the diploma curtain’, he wrote “By denying opportunity to those without higher education, we are denying access to contribution and performance to a large number of people of superior ability, intelligence, and capacity to achieve.”

    But also, Drucker wrote, in his discussion of the Knowledge Economy:

    The knowledge worker of today…is not the successor to the ‘free professional’ of 1750 or 1900.  He is the successor to the employee of yesterday, the manual worker, skilled or unskilled…This hidden conflict between the knowledge workers view of himself as a ‘professional’ and the social reality in which he is the upgraded and well-paid successor to the skilled worker of yesterday, underlies the disenchantment of so many highly educated young people with the jobs available to them…They expect to be ‘intellectuals.’  And the find that they are just ‘staff.’

    Indeed, many jobs that have been thought of as ‘professional’ and ‘white collar’…programming, financial analysis, even engineering…are increasingly subject to many of the stresses traditionally associated with ‘blue collar’ jobs, such as layoffs and cyclical unemployment.  As a higher % of the corporate cost structure becomes concentrated in jobs which are not direct labor, it is almost inevitable that these jobs will be hit increasingly when financial problems make themselves felt.

    Drucker’s second point, which I think is very astute, is somewhat orthogonal to the coal-miners-becoming-coders piece, and probably deserves it own post for discussion.  Regarding the question of non-college-educated people becoming programmers (of which there has long already been a fair amount), the degree to which succeeds is to some degree coupled with the whole question of h-1b visa policy, and trade policy in general as it relates to offshoring of services.

    Posted in Business, Civil Liberties, Deep Thoughts, Education, Leftism, Marketing, Media, Tech | 11 Comments »

    Uncle Henry, Charlie Kellstadt, and Donald Trump

    Posted by David Foster on 24th January 2017 (All posts by )

    As President Trump has focused on persuading certain specific companies to increase their US employment (or at least to refrain from decreasing it as much as originally planned), concerns have been raised about his ability to operate above the level of the single case and to think in terms of framing general policies.  I do share this concern to a certain extent.

    But I’m also reminded of Peter Drucker’s story about two old-line merchants.

    The first of these, called “Uncle Henry” by those who knew him, was the founder and owner of a large and succesful department store. When Drucker met him, he was already in his eighties. Uncle Henry was a businessman who did things by intuition more than by formal analysis, and his own son Irving, a Harvard B-School graduate, was appalled at “the unsystematic and unscientific way the store was being run.”

    Drucker remembers his conversations with Uncle Henry. “He would tell stories constantly, always to do with a late consignment of ladies’ hats, or a shipment of mismatched umbrellas, or the notions counter. His stories would drive me up the wall. But gradually I learned to listen, at least with one ear. For surprisingly enough he always leaped to a generalization from the farrago of anecdotes and stocking sizes and color promotions in lieu of markdowns for mismatched umbrellas.”

    Drucker also knew another leading merchant, Charles Kellstadt (who had once run Sears.) Kellstadt and Drucker served together on a Department of Defense advisory board (on procurement policy), and Kellstadt told “the same kind of stories Uncle Henry had told.” Drucker says that his fellow board members “suffered greatly from his interminable and apparently pointless anecdotes.”

    On one occasion, a “whiz kid” (this was during the McNamara era) was presenting a proposal for a radically new approach to defense pricing policy. Kellstadt “began to tell a story of the bargain basement in the store in Chillicothe, Ohio, where he had held his first managerial job, and of some problem there with the cup sizes of women’s bras. he would stop every few sentences and ask the bewildered Assistant Secretary a quesion about bras, then go on. Finally, the Assistant Secretary said, “You don’t understand Mr. Kellstadt; I’m talking about concepts.” “So am I,” said Charlie, quite indignant, and went on. Ten minutes later all of us on the board realized that he had demolished the entire proposal by showing us that it was far too complex, made far too many assumptions, and contains far too many ifs, buts, and whens.” After the meeting, another board member (dean of a major engineering school) said admiringly, “Charlie, that was a virtuoso performance. but why did you have to drag in the cup sizes of the bras in your bargain basement forty years ago?” Drucker reports that Charlie was surprised by the question: “How else can I see a problem in my mind’s eye?”

    Read the rest of this entry »

    Posted in Business, Deep Thoughts, Management, Trump | 6 Comments »

    The Ballpoint Pen as an Economic Case Study

    Posted by David Foster on 20th January 2017 (All posts by )

    Chinese Premier Li Keqiang has lamented China’s inability to “make ballpoint pens with a smooth writing function.” After five years of research, a state-owned steel company now says it can.

    WSJ notes that 80% of the world’s ballpoint pens are made in China…but that thus far, China has not been making all of the pen’s components.  Specifically:

    The tip of a high-quality ballpoint demands metal work involving high-precision machinery and very hard, ultrathin steel plates. So 90% of pens made in China have imported tips. China’s leaders want “self-sufficiency,” in pens as in semiconductors. Now they claim they’ll have it.

    This little story is interesting from at least three angles.

    First–as the WSJ story points out, China’s desire to control the entire ballpoint pen supply chain indicates that their leaders still value economic autarky, and that Chinese leadership denunciation of President Trump on grounds of his insufficient respect for free trade carry more than a whiff of hypocrisy.

    Second–the ballpoint pen example makes the point that the apparent simplicity of a product does not necessarily reflect the complexity or lack thereof involved in manufacturing it.  American economic commentators often fail to grasp this point when they assert that America’s future must lie in producing “advanced high-technology products.”

    Third–the example should also clarify the point that the highest value in a product supply chain does not necessarily lie in the assembly of the final product.  The final product assembly is usually the most visible part of the supply chain, but very often the creation of components that go into that chain involves more complexity and requires more skill than the final assembly process itself.  It’s considerably more difficult to make integrated circuits, for example, than to assemble those chips onto circuit boards and to assemble the boards into a plastic or metal case.

    Posted in Business, China, Economics & Finance, Tech, USA | 44 Comments »

    The End of Accounting Book Review – Part One

    Posted by Carl from Chicago on 8th January 2017 (All posts by )

    Recently I read an excellent book called “The End of Accounting and the Path Forward for Investors and Managers” by Baruch Lev and Feng Gu. I highly recommend this book for investors, analysts, accountants, and those with a general interest in business. The book is very well written and researched in that it:

    1. Describes the current situation in depth
    2. Aligns the situation across an historical context and with relevant research
    3. Makes specific recommendations about how to improve the situation

    If you’d like to read more about this topic on your own (will help to frame out these posts), here is an excellent Wall Street Journal article titled “The End of Accounting” (if the link doesn’t work because you don’t have a subscription you can probably find it elsewhere on the internet). Here is a link from Accounting Today and an interview with the author from CFO magazine.

    The first post in this series is going to be my personal insights and journey in the area of accounting information, financial and investor relations analysts. This context is relevant because I, too, have seen the problems that the authors outline in the series and come up with my own “hacks” to attempt to gain better information and insights.

    I started out my career as an accountant, and I used to help create the footnotes that you see at the end of the financial reports. This wasn’t creative work per se – you would start with last year’s footnote as a template and insert new numbers, unless it was a new requirement, in which case it was a lot of work and we would turn to specialists. At that time (20+ years ago) there were only a few footnotes and the financial statements themselves weren’t that long; you would be able to read from the Chairman and CEO’s letter all the way through to the last footnote in a couple of hours.

    This was also before the internet; we would go into the company library and look at microfiche sometimes to do research or you’d pull up the hard (printed) copy from the files. At that point an annual report was also somewhat of a marketing document; companies put a lot of thought into the cover, for instance.

    At various points in the history of accounting there has been a focus on the balance sheet (assets and liabilities), the income statement (earnings per share and price / earnings ratio) and on cash flows (cash generated from the business). Each of these views are important and have their merits and their drawbacks. The statements were generally the “GAAP” view which focused on financial statement presentation and used taxes at official rates (many companies pay almost nothing in taxes in actuality by deferring them indefinitely) and held assets at historical costs. Both of these assumptions made the financial statements less useful for certain types of companies and industries.

    Read the rest of this entry »

    Posted in Book Notes, Business, Capitalism, Economics & Finance | 3 Comments »

    Jargon, Proverbs, and Memes

    Posted by David Foster on 7th January 2017 (All posts by )

    Texan99, writing at Grim’s Hall, discusses the ‘thick fog of buzzwords’ that pervades the educational arena in this country. My comment is that buzzwords and jargon are worst in education, government, and the ‘nonprofit’ world, but increasingly are also pervading the world of business and having a malign effect therein. Many of the posts I see on LinkedIn, for example, represent attempts by people who have never had a creative idea or insight in their lives to posture a deep thinkers and business intellectuals by maximizing their use of the buzzwords du jour.

    Sarah Hoyt draws a distinction between memes and proverbs:

    Of all the ways people have come up with to avoid thinking, I like memes the most.  They are so ridiculously easy to fall into.  You see the words, you see the picture and you go “ah ah, that’s so true.” Even when on a minute’s reflection it makes no sense whatsoever…I think in a way it follows the same pattern that proverbs followed in more ancient cultures…While proverbs were ways not to have to think or short cuts around thinking, they weren’t, by themselves, pernicious…Proverbs are in a way, the encoding of societal wisdom into short cuts to lead people into ways that have worked before…Memes are similar, but you have to remove societal wisdom and put in “the commanding forces of culture and mass media”.  RTWT

    Andre Beaufre, who in 1940 was a young captain on the French General Staff (later a general, he commanded the French contingent in the Suez attack) commented on his impressions when he first breathed the refined air at the General Staff level:

    I saw very quickly that our seniors were primarily concerned with forms of drafting. Every memorandum had to be perfect, written in a concise, impersonal style, and conforming to a logical and faultless plan–but so abstract that it had to be read several times before one could find out what it was about…”I have the honour to inform you that I have decided…I envisage…I attach some importance to the fact that…” Actually no one decided more than the barest minimum, and what indeed was decided was pretty trivial.

    Entirely consistent with Beaufre’s observation was a interchange between the artists Picasso and Matisse which took place in the midst of the collapse of 1940:

    Matisse: But what about our generals, what are they doing?

    Picasso:  Our generals? They’re the masters at the Ecole des Beaux Arts!

    …ie, men possessed by the same rote formulae and absence of observation and obsessive traditionalism as the academic artists.

    The decline in clarity of writing and speaking presages nothing good.  Confucius pointed out that “If language be not in accordance with the truth of things, affairs cannot be carried on to success.”

    See my earlier post When Formalism Kills and the ensuing discussion thread.

    Posted in Academia, Business, Deep Thoughts | 5 Comments »

    This is Why We Can’t Make Nice Things

    Posted by David Foster on 30th December 2016 (All posts by )

    A positive review of General Electric stock points out that the company is less exposed to the oil market than it was prior to the Baker Hughes spinoff…and then goes on to say:

    Gone too is the iconic firm’s appliances business, which was sold to Chinese firm Haier. This is really a progression of the economic cycle. While folks like President-elect Donald Trump and financial provocateur Peter Schiff lament that Americans just don’t make stuff anymore, at a certain point, advanced economies should outsource physical work to less-advanced countries. It’s not so much a matter of ability as it is financial efficiency.

    Does this writer believe that GE should also divest the jet engine business, the power generation business, and the transportation (locomotive) business?  All of these businesses make physical things, and make substantial amounts of those physical things in the US.

    The idea that manufacturing is devoid of intellectual content and hence unworthy of advanced economies is fallacious and has done serious harm–see my post Faux Manufacturing Nostalgia.  Happily, this attitude has turned around substantially since I wrote the linked post..to the point that manufacturing is being practically over-romanticized…but islands of the “who needs it?” view still exist.

    GE’s reasoning for divesting Appliance seems to have been centered on a desire to focus the company on business-to-business markets rather than consumer markets and, and also, I think, on a perception that there was not sufficient room in the appliance world for product differentiation and a technology edge.  “Technology edge,” rightly understood, includes the complexity/difficulty of manufacturing something, not just the intellectual property embedded in the product itself.  It certainly did not reflect any conclusion that manufacturing is inherently a low-value function.

    It would be silly to argue that a computer programmer in a bank is a “knowledge worker” and a programmer in manufacturing is not.  It would be equally silly to argue that a bank branch manager is inherently performing a more highly-skilled job than a shift supervisor in a factory, or that a first-level customer service rep for Amazon is performing a more advanced kind of work than an assembly line worker, or that an operations research expert doing inventory studies for a manufacturing firm is less of a knowledge worker than his equivalent doing inventory studies for Target.  But this is implicitly the argument that many of the ‘we don’t need manufacturing here’ crew have been making.

    This dismissive attitude toward a vast and complex industry which supports millions of people represents one more example of the constellation of attitudes against which many people rebelled when choosing to vote for Donald Trump.

    Posted in Business, Economics & Finance, Tech | 7 Comments »

    Technology and Offshoring

    Posted by David Foster on 9th December 2016 (All posts by )

    Thought question: If Henry Ford had been able to have the Model T manufactured in Mexico by people making 50 cents a day…and with no need for the assembly line and related productivity-improving technology…would that have been equivalent, in terms of its economic, social, and political consequences, to making it in Detroit on the assembly line with workers making $5.00/day and a 10:1 reduction in unit labor content?

    Posted in Business, Economics & Finance, Tech | 28 Comments »

    Overdrawn

    Posted by Sgt. Mom on 6th December 2016 (All posts by )

    I was kind of intrigued by last week’s Buzzfeed article, attempting to whip up the internet mob for the purpose of going after Chip and Joanna Gaines, who have a hugely popular home renovation show on the HGTV channel, and cannily have never said a word on the show regarding their more or less mainstream Christian beliefs, or their attendance at a mega-church where the pastor apparently is on the record as having expressed disapproval of the concept of the institution of formal marriage being anything other than that of a man and a woman. (Note: I’ve never watched the show myself, although my daughter has. Blondie avers that Joanna Gaines is a one-note designer; her thing is shabby chic. All to the good, since that is my own preference, well-mixed with Laura Ashley comfortable country antique seasoned with a splash of William Morris/Craftsman. And … well, most people have items of décor and large furniture of which they are fond … who the heck clears the deck and redecorates every year or so, in response to the fashion of the moment? Only the very wealthy and socially insecure, I surmise.)

    More power to them – the Gainses and their redecorating business; not the internet lynch mob, always ready to be whipped up to a fine frothing frenzy. Really, this early 21st century is increasingly resembling the 16th, in the ruthless search for the ritual burning at stake by officials or by the annoyingly self-appointed for individuals who refuse to give lip-service to the prevailing social/political orthodoxies. Read the rest of this entry »

    Posted in Business, Civil Society, Conservatism, Current Events, Diversions, Human Behavior | 13 Comments »

    A Week of Thanksgiving

    Posted by Sgt. Mom on 24th November 2016 (All posts by )

    Today is Thanksgiving Day; my daughter and I will share a feast of delightfully orange-flavored brined turkey breast (a recipe lifted from the current issue of Cuisine at Home) plus some sides; as a small dish of baked stuffing using some heels of pumpernickel bread from the bounteously-stuffed garage deep-freeze, oven-roasted Brussel sprouts, garlic mashed potatoes, all served with a dash of the lingonberry sauce from the jar I purchased last weekend from the Ikea grocery department – it tastes very much like cranberry sauce anyway — and finished off with a slice of pumpkin pie, baked this week. The enduring trouble that I have with Thanksgiving is that I don’t much like most of the traditional dishes. Of those that I do, I don’t want to eat leftovers of them from now until past mid-December. Seriously, in many years, I was so tired of sorting out the remainders of a whole turkey I would choose anything else vaguely birdlike for the main entrée, and for Christmas, practically anything else. On some years when it would be just me, I threw tradition to the winds and did a tiny half-pound frozen poulet from HEB Central Market, or a rock Cornish game hen, accompanied by the traditional autumnal dishes that I did like. (These solitary dinners were a treat for me; single servings of exotic and/or expensive dishes that I would never have sampled otherwise.)

    Yes, I did some Thanksgiving days with just me, myself, and I, contra every existing holiday tradition. I experienced some uncomfortable Thanksgiving Day dinners at the houses of acquaintances, but the worst of them was an excruciating dinner wherein I with preschool daughter in tow had been invited by my military supervisor to share his familial table … except that he had somehow forgotten to tell his spouse until the very last minute that he had invited us. Her resentment was a palpable thing, hovering over the table like a fog and curdling every bite that I took. That was the year that I resolved to break no bread on Thanksgiving with any but blood family; if it meant only the two of us or myself alone, then so be it. I did manage to get home for that traditional dinner with blood relatives now and again – which varied the solitary meal program to some degree.

    Besides, sometimes the Thanksgiving holiday was an opportunity to do serious work – the year that I replaced the back fence myself, and ate my supper mid-project from a tray (the tiny poulet year) sitting in the living room and regarding the fence in mid-project. This year is no different, with substantial projects in mid-accomplishment: we have the three-day market event in Johnson City to prepare for; the full-on display of the pavilion, with Christmas lights, special displays and three days’ worth of stock; my books, her earrings. This is a huge event – justifying some preparations above and beyond the usual. Christmas dinner will mark the real end and celebration for us – another year, well-done.
    Read the rest of this entry »

    Posted in Americas, Arts & Letters, Book Notes, Business, Culture, Current Events, Diversions | 9 Comments »

    Attack of the Job-Killing Robots, Part 2

    Posted by David Foster on 15th November 2016 (All posts by )

    In my previous post of this series, I remarked that most discussion of the employment effects of robotics/artificial intelligence/etc seems to be lacking in historical perspective…quite a few people seem to believe that the replacement of human labor by machinery is a new thing.

    This post will attempt to provide some historical perspective on today’s automation technologies by sketching out some of the past innovations in the mechanization of work,  focusing on “robots,” broadly-defined…ie, on technologies which to some degree involve the replacement or augmentation of human mind/eye/hand, rather than those that are primarily concerned with the replacement of human and animal muscular energy…and will discuss some of the political debate that took place on mechanization & jobs in the 1920s through 1940s.

    Throughout most of history, the production of yarn for cloth was an extremely labor-intensive process, done with a device called a distaff, almost always employed by women, and requiring many hours per day to generate a little bit of product.  (There even exists a medieval miniature of a woman spinning with the distaff while having sex…whether this is a comment on the burdensomeness of the yarn-making process, or a slam at the love-making skills of medieval men, I’m not sure—-probably both.)  Eventually, probably around 1400-1500 in most places in Europe, the spinning wheel came into use, improving the productivity of yarn-making by a factor estimated from 3:1 to as much as ten or more to one.

    Gutenberg’s printing press was invented somewhere around 1440.  I haven’t seen any estimates of its effect on labor productivity, compared with the then-prevailing method of hand copying of manuscripts, but surely it was at least 1000 to 1 or more.

    The era from 1700-1850 was marked by tremendous increases in the productivity of the textile trades.  The flying shuttle and other advances greatly improved the weaving process; this created a bottleneck in the supply of yarn, which was partly addressed by the invention of the Spinning Jenny–a foot-powered device that could improve the yarn production of one person by 5:1 or better. Power spinning and power looms yielded considerable additional productivity improvements.

    An especially interesting device was the Jacquard Loom (1802), which used punched cards to direct the weaving of patterned fabrics.  In its initial incarnation, the Jacquard was a hand loom: its productivity did not come from the application of mechanical power but rather from the automation of the complex thread-selection operations previously carried out by a “Draw Boy.”

    Turning now to woodworking:  in 1818, Blanchard’s Copying Lathe automated the production of complex shape–a prototype was automatically traced and copied. It was originally intended for making gunstocks, but also served in producing lasts for shoemakers, and I believe also chair and table legs.

    Another major advancement in the clothing field was the sewing machine.  French inventory Barthelemy Thimonnier invented a machine in 1830, but was driven out of the country by enraged tailors and political instability.  The first commercially-successful machines were invented/marketed by Americans Walter Hunt, Elias Howe, and Isaac Singer, and were in common use by the 1850s.

    By the late Victorian period the sewing machine had been hailed as the most useful invention of the century releasing women from the drudgery of endless hours of sewing by hand. Factories sprung up in almost every country in the world to feed the insatiable demand for the sewing machine. Germany had over 300 factories some working 24 hours a day producing countless numbers of sewing machines. 

    The beginnings of data communications could be seen in gold ticker and stock ticker systems created by Edison and others (circa 1870) , which relayed prices almost instantaneously and eliminated the jobs of the messenger boys who had previously been the distribution channel for this information.  Practical calculating machines also appeared in the 1870s.  But the big step forward in mechanized calculation was Hollerith’s punched card system (quite likely inspired in part by the Jacquard), introduced in 1890 and used for the tabulation of that year’s census.  These systems were quickly adopted for accounting and record keeping purposes in a whole range of industries and government functions.

    Professor Amy Sue Bix, in her book Inventing Ourselves out of Jobs?, describes the fear of technological unemployment as silent movies were replaced by the ‘talkies’. “Through the early 1920s…local theaters had employed live musicians to provide accompaniment for silent pictures.  Small houses featured only a pianist or violinist, but glamorous ‘movie places’ engaged full orchestras.”  All these jobs were threatened when Warner Brothers introduced its Vitaphone technology, with prerecorded disks synchronized to projectors.  “Unlike other big studios, Warner did not operate its own theater chains and so had to convince local owners to screen their productions. Theater managers would be eager to show sound movies, Harry Warner hoped, since they could save the expense of hiring musicians.”

    The American Federation of Musicians mounted a major PR campaign in an attempt to convince the public that ‘living music’ was better than ‘canned sound.’  A Music Defense League was established, with membership reaching 3 million…but the ‘talkies’ remained popular, and the AFM had to admit defeat.  A lot of musicians did lose their jobs.

    Read the rest of this entry »

    Posted in Book Notes, Business, Capitalism, Deep Thoughts, Economics & Finance, History, Tech, USA | 47 Comments »

    Attack of the Job-Killing Robots

    Posted by David Foster on 12th November 2016 (All posts by )

    Here’s a new factory for making automobile frames, specifically designed to minimize the need for human labor.  The CEO of the company that built it actually said, “We set out to build automobile frames without people.”

    At the start of the process, rough steel plates are inspected by electronic sensors, automatically pushing aside any that deviate from tolerances.  Conveyors take the plates through punching, pressing, assembling, and nailing machines, as well as a machine that can insert 60 rivets simultaneously in each frame.  A set of finishing machines then rinse, dry, spray-paint, and cool the frames.  Aside from a few men moving frames between conveyor belts, the floor routine of the plant requires almost no hand labor.

    And today’s robotics and artificial-intelligence advances go far beyond automating routine manufacturing labor and take over the kind of cognitive functions once thought to be exclusive to human beings. Here, for example, is a new AI-based system that displaces much of the thought-work which has been required of the people operating railway switch and signal installations:

    The NX control machine is in effect the “brain” of the system. It automatically selects the best optional route if the preferred route is occupied.  It will allow no conflicting routes to be set up. It eliminates individual lever control of each switch and signal.

    Pretty scary from the standpoint of maintaining anything like full employment, don’t you think?

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Tech | 12 Comments »

    Quote of the Day

    Posted by Jonathan on 10th November 2016 (All posts by )

    Nigel Farage, commenting on the election of Donald Trump:

    “This is a big opportunity for all British business because once we’ve left that awful EU thing we can do our first trade deal with the United States of America. Isn’t that great?”

    Posted in America 3.0, Anglosphere, Britain, Business, Current Events, Elections, Europe, Politics, Tradeoffs, Trump, USA | 2 Comments »

    Voter Fraud (not what you think)

    Posted by TM Lutas on 8th November 2016 (All posts by )

    Today is election day for the US. Tomorrow is the annual meeting for my homeowners association. I’m looking at a fraudulent proxy statement issued in my name for that HOA annual meeting.

    We’ve gotten out of the habit of treating fraud seriously, depending on the high reputational penalties associated with getting caught doing such things in the first world.

    My HOA’s budget is tiny, about an eighth of a million. The amount of energy being spent on controlling it is beyond foolish.

    Posted in Business, Economics & Finance, Elections, Miscellaneous | 6 Comments »

    Quote of the Day

    Posted by Jonathan on 3rd November 2016 (All posts by )

    Home Builders Say Federal Loan Limits Shut Out Many Buyers (WSJ):

    One of the hallmarks of the housing recovery has been the historically low level of new-home construction, particularly at lower price points attainable for first-time buyers. Although a wide range of factors are at play, from slow wage growth to higher regulatory costs, builders say the FHA limits in many markets are shutting out potential buyers.
     
    The challenge is particularly acute in California, which has the nation’s highest upfront fees for new construction, according to housing-research firm Zelman & Associates. Fees to pay for roads, sewers, schools and other infrastructure in California markets average between $40,000 and $72,000 per home, according to the firm’s research, compared with an average of $2,600 in Houston. [emphasis added]

    Posted in Big Government, Business, Economics & Finance, Political Philosophy, Real Estate, Urban Issues | Comments Off on Quote of the Day

    Efficiency and Restaurants

    Posted by Carl from Chicago on 30th October 2016 (All posts by )

    Since I eat out a lot and have frequented restaurants of every stripe over the last few decades I am always interested in restaurant efficiency. The restaurant industry is brutally competitive and it always disturbs me when I eat at a restaurant and enjoy it but then fear that the restaurant won’t survive because it lacks a critical mass to make enough money.

    There is an Italian restaurant called “Grassa” in Portland (you can see their logo, below). They are attached to another restaurant called “Lardo”.

    These restaurants serve high-end food (not luxury cuisine, but far from fast-food) and alcohol but have communal tables and always seem to be packed with a line out the door. They are different because their menu is a large signboard (dishes are frequently updated) when you enter the space and you order your food at a central register and they hand you a “flag” to bring with you to your table. Then when your food is ready, they bring it out to you and take away your flag and you eat your meal. Drinks are brought out first (and appetizers) and you can also flag down one of the servers to order more drinks (although most people tend to have one drink with their meal and then leave, based on a few times that I’ve sat at the restaurant). You can also order your food “to go” at Grassa, as well.

    This model drives peak efficiency at the restaurant. There are many fewer tables than you would need at a “standard” restaurant due to the communal standing tables and the food comes out as soon as it is available (the servers don’t have to take orders, they just serve the food as soon as it is up and return back to the kitchen area, unless they are bussing a table that just left). They don’t have to take reservations or mess with any of that complexity, either.

    Read the rest of this entry »

    Posted in Business, Economics & Finance | 11 Comments »

    The Total Bureaucratization of Hiring and Promotion

    Posted by David Foster on 24th October 2016 (All posts by )

    It seems that one of the next campaigns of the ‘Social Justice Warriors’ will be the elimination of management discretion in hiring:

    The next battlefield after high tech is discretion in hiring–which the activists believe must be limited to force employers to hire any candidate “qualified” for a job as soon as they apply. Only a few radicals are proposing this kind of blind hiring now, but continuing successes in getting firms to bow to their diversity demands will result in a list of new demands. We have already seen Seattle pass an ordinance requiring landlords to rent apartments to the first applicant who qualifies. And similar movements in hiring–supposedly to prevent discrimination by eliminating management choice of who to employ–are coming soon.

    The SJWs will certainly get around to insisting that promotions, as well as initial hiring, be handled in the same way.

    You can be certain that a Hillary Clinton presidency would be far more favorable to this sort of thing than would a Donald Trump presidency.

    If your aspiration is to be a robot, with your every action in life controlled by highly-detailed top-down rules, then you should by all means work fervently for a Clinton presidency.

    Posted in Big Government, Business, Civil Society, Leftism, Management, USA | 16 Comments »

    Worthwhile Watching

    Posted by David Foster on 4th September 2016 (All posts by )

    …especially for Labor Day weekend

    There probably aren’t too many TV series centered around a CNC machine shop…but there’s at least one, and it’s called Titans of CNC.  The producer and central figure, Titan Gilroy–yes, that’s his real name–grew up in rough circumstances, spent some time in prison, and eventually learned machine-tool operation and CNC programming. With these skills in hand, he built a pretty substantial business, Titan America, which is focused on precision machining, mainly producing components of products being made by larger companies.

    The program is about the challenges involved in the operation of Titan America and a portrait of some of its employees and customers.  It is also a passionate argument for the importance of manufacturing in America.  Sponsors include Autodesk, IMCO Carbide Tools, Haas Automation and GoEngineer.

    The series was made for a cable channel called MATV, which is owned by Lucas Oil Products and is targeted towards car people.  It’s available on Amazon streaming, which is where I’ve been watching it.

    There’s an interview with Titan in Manufacturing & Technology News.

    Posted in Business, Management, Media, Tech, USA | 11 Comments »

    What Works and What Doesn’t, Again: A Blush-Pink Frock

    Posted by Ginny on 19th August 2016 (All posts by )

    Ivanka Trump, mother of three and stunning in a sheath, introduced her father at the Republican Convention. Many argue his kids seem great – certainly they appear loyal, attractive, alert, and sensible. But be that as it may. Both Adams and Franklin disowned sons. For most of us, raising children will be our most consequential task and Trump seems to be doing reasonably well. But it’s a thin reed.

    Still, that dress! It represents what moved country after country out of poverty. Causes of that respect across class lines and the rise of a large middle class and greater health for all are complicated: some see the Bible in the vernacular, some see the marriage of the Great Awakening with the Enlightenment, Dutch and English traditions, sea routes. Surely living longer and with more health meant more productivity. Others rightly prize a concept motivating these views, that each has within the divine. Such a belief emphasizes human rights – the free market of commerce, of ideas, of innovations, of speech, of religion. Honoring the dignity and virtuous habits of the bourgeoisie led to a respect for everyman and everyman’s talents. It was huge, that change from 1700 to 2100. And a signifier is a presidential hopeful in the most powerful nation introduced by his daughter in that blush pink dress.
    Read the rest of this entry »

    Posted in Business, Capitalism, Elections, Entrepreneurship, Human Behavior, Trump | 9 Comments »

    Supermarket Parable

    Posted by Jonathan on 5th August 2016 (All posts by )

    At the store they offer plain, vanilla and chocolate soy milk. Chocolate is the only flavor that’s any good IMO. Other customers seem to agree as chocolate is always in short supply and sometimes sold out by the time I get to the store. It seems obvious they should stock more chocolate but they never do.

    I complained a couple of times to guys in the dairy department and once to a manager. They didn’t understand what the problem was so I stopped complaining. When they have chocolate on the shelf I load up.

    Today I took two cartons of chocolate and couldn’t reach a third. One of the stock guys climbed up on the shelf and got it for me. He good-naturedly said that it’s great stuff, it flies off the shelves. I thanked him and mildly suggested the store should stock more chocolate because it’s the most popular flavor. He said that, on the contrary, people who like chocolate should be more considerate and leave some for the other customers. He added that there is a God upstairs and He is watching. I believe this man missed his calling. He could have been a successful bioethicist.

    Posted in Bioethics, Business, Customer Service, Deep Thoughts, Economics & Finance, Medicine, Personal Narrative | 31 Comments »

    Who Built That?

    Posted by Michael Hiteshew on 2nd June 2016 (All posts by )

    Who Built That: Awe-Inspiring Stories of American Tinkerpreneurs ~Michelle Malkin

    Note the ad hominem and generally vile nature of the leftists’ comments. It’s a reflection of who they are.

    Posted in Book Notes, Business, Capitalism, Entrepreneurship, Video | 12 Comments »

    When Texas DUCs Go Quack, Quack, Frack

    Posted by Trent Telenko on 26th May 2016 (All posts by )

    The “DUC” in this case being _D_rilled but _U_n_C_ompleted shale oil & gas wells

    I ran into this article by Seeking Alpha energy analyst Gary Bourgeault over on Real Clear Energy which gave a figure for how many drilled but ‘unfracked’ wells are available for the new extended oil flow fracking technique I mentioned in May 15th 2016 post Texas Fracking and the Death of Big Oil.

    The key passage from “U.S. Shale Oil Boom Over Says CSMonitor – Hahahahaha” below —

    DUC wells waiting in the wings
     
    Another major reason the shale boom isn’t over is the large number of drilled but uncompleted wells waiting to be brought into production. There is an estimated 5,000 in the U.S. which can be quickly brought to market when the price of oil is high enough to reward it. Some companies have been completing them for some time, and more are being completed in 2016.

    There are a lot of implications in that number. Starting with the fact that new oil & gas rig counts are going to be minimal for some time. And the hard economic fact that major politically event driven oil price spikes are going to be extremely short and will drop below 50 dollars a barrel within weeks to three months, given how fast these North American “DUC” wells can be fracked to bring product to market.

    This new age of “banked” cheap oil plays, and the resultant oil price stability, will see off both the “Big Oil” economic model and the political/corporate elites that live by it.

    Update May 27 2016:

    It looks like Zerohedge has come to the same set of conclusions about the “Big Oil” economic model with his post “Peak Petro-State – The Oil World In Chaos”

    Posted in America 3.0, Business, Economics & Finance, Energy & Power Generation, USA | 14 Comments »

    TV Series Review: “American Genius”

    Posted by David Foster on 16th May 2016 (All posts by )

    Over at The Lexicans, Bill Brandt posted an item about an 8-part TV series titled ‘American Genius’…it is about a selection of inventors and entrepreneurs who have had a major impact on technology, society, and history.  It sounded worthwhile and I’ve watched about half of the episodes–thanks, Bill!…definitely worth watching, but OTOH I think there are a few things in the series that should have been covered a little differently.

    Edison vs Tesla is about the AC-vs-DC power wars, and correctly reports on the sleazy fearmongering tactics that Edison used in his unavailing attempt to maintain DC’s dominance.  The show referred to George Westinghouse, who was Tesla’s sponsor in this battle, as “sort of a railroad baron,” completely ignoring the fact that Westinghouse was himself a major American inventor.  Most people would think of a ‘railroad baron’ as someone who owns or manages railroads, not someone who invented the air brake.

    Farnsworth vs Sarnoff  is about the battle to dominate the emerging television industry.  It was presented as a David-versus-Goliath story–though Goliath was in this case named David (Sarnoff)–individual inventor versus ruthless tycoon.  Sarnoff was indeed ruthless, indeed could be fairly referred to as a prototypical crony capitalist…but it would have been interesting to point out that he wasn’t always a Goliath, wasn’t born to that position, but had in fact come to this country as an impoverished Russian Jewish immigrant and had encountered severe and career-threatening anti-Semitism on his path to Goliath-dom.

    Space Race is focused on two individuals, the German/American Wernher von Braun and the Soviet rocket designer Sergei Korolev.  Korolev was played by an actor who looked a little too young for the role at the subject time period:  more importantly, it should have been mentioned that Korolev had been arrested and sent to the Gulag, where he lost most of his teeth due to the brutal labor-camp conditions.  There were psychological scars as well–Boris Chertok , who worked closely with Korolev for years, said that there was only one single time that he saw the man really happy.  In a series focused primarily on the leading characters and their conflicts rather than on technical details, these things deserved to be covered.

    The program refers to a successful Soviet test in 1957 of a missile with intercontinental range, shortly before the launch of Sputnik.  Actually, the test was a failure because the warhead disintegrated on reentry…and reentry, while a critical factor for ICBMs, is not important at all for one-way satellite launches.  The American belief that Sputnik meant all of our cities were vulnerable to Soviet missiles was a little premature–not much.

    I thought Wernher von Braun got off too easily in this program.  The show did mention that the V-2 missile was assembled by slave labor in an underground factory adjacent to a concentration camp: the truly horrific nature of V-2 manufacturing (this was possibly the only weapons system ever made that killed more people in its making than in its employment) could have gotten more emphasis, and the evidence is that von Braun was fully aware of what was going on in this place.

    I’m also not convinced that von Braun was as absolutely critical to US missile and space programs as the show implies.  The program to build the Atlas missile, which was developed in roughly the same time period as Korolev’s R-7, was directed by USAF General Bernard Schriever, with technology expertise provided largely by the newly-formed Ramo-Wooldgridge Corporation and by Convair.  I see no reason why this team could not also have conducted a Moon program, had they been so chartered.

    The show does point out that von Braun, in addition to his technical and management contributions, played an important role in popularizing the ideas of rocketry and space travel…I had been unaware of his work with Disney to this end.  So, in addition to being a genuine rocket scientist (and, arguably, a war criminal in at least a moral sense), von Braun was also one of the great PR men of the century.

    Again, with the omissions and missed opportunities, the series is still very much worth watching.

    Posted in Business, History, Media, Space, Tech, Transportation | 13 Comments »