Before the rodeo [Terry Hawkins] had graduated out of the fields to the position of fry cook. It was better than being A.D.H.D. (A Dude with a Hoe and a Ditch)–after stirring fried rice or flipping hotcakes on a sove ten feet long, he could grill hamburgers, bag them, and stuff them down his pants to sell in the dorm. Sometimes he snuck out with fried chicken under his shirt and cuts of cheese in his socks. Payment came in cigarettes, the prison’s currency. Later he would stand outside the canteen, and trade a few packs for shampoo or soap or deoderant, or “zoo-zos”–snacks of candy bars or sardines. He knew which guards would allow the stealing, the selling. He made sure to send them plates of fried chicken.
While reading this I thought, “This man has, at least, something to offer his neighbors. He can sell them food, something they’re grateful for. The guy with cheese in his socks and hamburgers in his pants is probably a respected member of his community.”
What do I have to offer my neighbors? I have skills, but they’re only of interest to a corporate employer, my boss. I don’t make anything for sale. I can’t raise a barn or train a horse, and even if I could, my neighbors don’t need these services. Even if I had milk for sale from my personal cow, my neighbors would still prefer to buy their milk at the grocery store.
All of these needs that we used to fill by interacting with our neighbors are now routed through multinational corporations that build their products in immense sweatshops in foreign countries.
I don’t even have to go to the store to buy things if I don’t want to–I can order things online, even groceries.
Beyond the economic, modern prosperity has also eliminated many of the ways (and places) people used to interact. As Lewis Mumford recounts (H/T Wrath of Gnon):
To sum up the medieval dwelling house, one may say that it was characterized by lack of differentiated space and differentiated function. In the cities, however, this lack of internal differentiation was offset by a completer development of domestic functions in public institutions. Though the house might lack a private bake-oven, there was a public one at the baker’s or the cook-shop. Though it might lack a private bathroom, there was a municipal bath-house. Thought it might lack facilities for isolating and nursing a diseased member, there were numerous public hospitals. … As long as the conditions were rude–when people lived in the open, pissed freely in the garden or the street, bought and sold outdoors, opened their shutters and let in full sunlight–the defects of the house were far less serious than they were under a more refined regime.
Without all of the little, daily things that naturally brought people into contact with each other and knit them into communities, we simply have far fewer reasons to talk. We might think that people could simply make up for these changes by inventing new, leisure-oriented reasons to interact with each other, but so far, they’re struggling:
Americans’ circle of confidants has shrunk dramatically in the past two decades and the number of people who say they have no one with whom to discuss important matters has more than doubled, according to a new study by sociologists at DukeUniversity and the University of Arizona.
It compared data from 1985 and 2004 and found that the mean number of people with whom Americans can discuss matters important to them dropped by nearly one-third, from 2.94 people in 1985 to 2.08 in 2004.
Researchers also found that the number of people who said they had no one with whom to discuss such matters more than doubled, to nearly 25 percent. The survey found that both family and non-family confidants dropped, with the loss greatest in non-family connections.
I don’t know about you, but I just don’t trust most people, and most people have given me no reason to trust them.
This is Part Three of a series on how incentives affect the distribution of energy/resources throughout a society and the destructive effects of social systems like communism. (Part One and Part Two are here)
But before we criticize these programs too much, let’s understand where they came from:
The Industrial Revolution, which began around 1760 in Britain, created mass economic and social dislocation as millions of workers were forced off their farms and flooded into the cities.
The booms and busts of the unregulated (and regulated) industrial economy caused sudden, unpredictable unemployment and, without a social safety net of some kind, starvation. This suffering unleashed Marxism, which soon transformed into an anti-capitalist, anti-Western ideology and tore across the planet, demolishing regimes and killing millions of people.
Reason.com attributes 94 million deaths to communism. The Black Book of Communism places the total between 85 and 100 million people. Historian on the Warpath totals almost 150 million people killed or murdered by communist governments, not including war deaths. (Wikipedia estimates that WWII killed, between battle deaths in Europe and the Pacific, disease, starvation, and genocide, 50-80 million people–and there were communists involved in WWII, also.)
The US and Europe, while not explicitly communist, have adopted many of socialism’s suggestions: Social Security, Welfare, Medicaid, etc., many in direct response to the Great Depression.
These solutions are, at best, a stop-gap measures to deal with the massive changes new technologies are still causing. Remember, humans were hunter-gatherers for 190,000 years. We had a long time to get used to being hunter gatherers. 10,000 years ago, a few of us started farming, and developed whole new cultures. A mere 200 years ago, the Industrial Revolution began spreading through Europe. Today, the “post industrial information economy” (or “robot economy,” as I call it,) is upon us, and we have barely even begun to adapt.
We are in an age that is–out of our 200,000 years of existence–entirely novel and the speed of change is increasing. We have not yet figured out how to cope, how to structure society for the long-term so that we don’t accidentally break it.
We have gotten very good, however, at creative accounting to make it look like we are producing more than we are.
By the mid-1950s, the Industrial Revolution had brought levels of prosperity never before seen in human history to the US (and soon to Europe, Japan, Korea, etc.) But since the ’70s, things seem to have gone off-track.
People fault outsourcing and trade for the death of the great American job market, but technical progress and automation also deserve much of the blame. As the Daily Caller reports:
McDonald’s has announced plans to roll out automated kiosks and mobile pay options at all of its U.S. locations, raising questions about the future of its 1.5 million employees in the country and around the globe.
Roughly 500 restaurants in Florida, New York and California now have the automated ordering stations, and restaurants in Chicago, Boston, San Francisco, Seattle and Washington, D.C., will be outfitted in 2017, according to CNNMoney.
The locations that are seeing the first automated kiosks closely correlate with the fight for a $15 minimum wage. Gov. Andrew Cuomo signed into law a new $15 minimum wage for New York state in 2016, and the University of California has proposed to pay its low-wage employees $15.
There is an obvious trade-off between robots and employees: where wages are low enough, there is little incentive to invest capital in developing and purchasing robots. Where wages are high, there is more incentive to build robots.
The Robot Economy will continue to replace low-skilled, low-wage jobs blue collar workers and young people used to do. No longer will teenagers get summer jobs at McDonald’s. Many if not most of these workers are simply extraneous in the modern economy and cannot be “retrained” to do more information-dependent work. The expansion of the Welfare State, education (also paid for with tax dollars,) and make-work administrative positions can keep these displaced workers fed and maybe even “employed” for the foreseeable future, but they are not a long-term solution, and it is obvious that people in such degraded positions, unable to work, often lose the will to keep going.
But people do not appreciate the recommendation that they should just fuck off and die already. That’s how you get communist revolutions in the first place.
Mass immigration of unskilled labor into a market already shrinking due to automation / technological progress is a terrible idea. This is Basic Econ 101: Supply and Demand. If the supply of labor keeps increasing while the demand for labor keeps decreasing, the cost of labor (wages) will plummet. Likewise, corporations quite explicitly state that they want immigrants–including illegal ones–because they can pay them less.
In an economy with more demand than supply for labor, labor can organize (unions) and advocate in behalf of its common interests, demanding a higher share of profits, health insurance, pensions, cigarette breaks, etc. When the supply of labor outstrips demand, labor cannot advocate on its own behalf, because any uppity worker can simply be replaced by some desperate, unemployed person willing to work for less and not make a fuss.
Note two professions in the US that are essentially protected by union-like organizations: doctors and lawyers. Both professions require years of expensive training at exclusive schools and high scores on difficult tests. Lawyers must also be members of their local Bar Associations, and doctors must endure residency. These requirements keep out the majority of people who would like to join these professions, and ensure high salaries for most who do.
While Residency sounds abjectly awful, the situation for doctors in Britain and Ireland sounds much worse. Slate Star Codex goes into great detail about the problems:
Many of the junior doctors I worked with in Ireland were working a hundred hours a week. It’s hard to describe what working 100 hours a week is like. Saying “it means you work from 7 AM to 9 PM every day including weekends” doesn’t really cut it. Imagine the hobbies you enjoy and the people you love. Now imagine you can’t spend time on any of them, because you are being yelled at as people die all around you for fourteen hours a day, and when you get home you have just enough time to eat dinner, brush your teeth, possibly pay a bill or two, and curl up in a ball before you have to go do it all again, and your next day off is in two weeks.
And this is the best case scenario, where everything is spaced out nice and even. The junior doctors I knew frequently worked thirty-six hour shifts at a time (the European Court of Human Rights has since declined to fine Ireland for this illegal practice). …
The psychological consequences are predictable: after one year, 55% of junior doctors describe themselves as burned out, 30% meet criteria for moderate depression, and 12% report considering suicide.
A lot of American junior doctors are able to bear this by reminding themselves that it’s only temporary. The worst part, internship, is only one year; junior doctorness as a whole only lasts three or four. After that you become a full doctor and a free agent – probably still pretty stressed, but at least making a lot of money and enjoying a modicum of control over your life.
In Britain, this consolation is denied most junior doctors. Everyone works for the government, and the government has a strict hierarchy of ranks, only the top of which – “consultant” – has anything like the freedom and salary that most American doctors enjoy. It can take ten to twenty years for junior doctors in Britain to become consultants, and some never do.
I don’t know about you, but I really don’t want my doctor to be suicidal.
Now, you may notice that Scott doesn’t live in Ireland anymore, and similarly, many British doctors to take their credentials and move abroad as quickly as possible. The British medical system would be forced to reform if not for the influx of foreign doctors willing to put up with hell in exchange for not living in the third world.
From the outside, many of these systems, from underfunded pensions to British medicine, look just fine. Indeed, an underfunded pension will operate just fine until the day it runs out of money. Until that day, everyone who clams the pension is in deep trouble looks like Chicken Little, running around claiming that the sky is falling.
There’s a saying in finance: The market can stay irrational longer than you can stay solvent.
BTW, the entire state of California is in deep trouble, from budget problems to insane property tax laws. They already consume far more water than they receive, (and are set for massive forest fires,) but vote for increased population via immigration with Mexico. California’s economy is being propped up by–among other things–masses of cash flowing into Silicon Valley. This is Dot.Com Bubble 2.0, and like the first, it will pop–the only question is when. As Reuters reported last February:
LinkedIn Corp’s (LNKD.N) shares closed down 43.6 percent on Friday, wiping out nearly $11 billion of market value, after the social network for professionals shocked Wall Street with a revenue forecast that fell far short of expectations. …
As of Thursday, LinkedIn shares were trading at 50 times forward 12-month earnings, making it one of the most expensive stocks in the tech sector.
Twitter Inc (TWTR.N) trades at 29.5 times forward earnings, Facebook Inc (FB.O) at 33.8 times and Alphabet Inc (GOOGL.O) at 20.9 times.
Even after the selloff, LinkedIn’s shares may still be overvalued, according to Thomson Reuters StarMine data.
LinkedIn should be trading at $71.79, a 30 percent discount to the stock’s Friday’s low, according to StarMine’s Intrinsic Valuation model, which takes analysts’ five-year estimates and models the growth trajectory over a longer period.
“Ebitda” stands for Earnings Before Interest, Tax, Depreciation and Amortisation. There is absolutely no way that LinkedIn, a social network that barely turns a profit, is worth more than Sun, EMC, Compaq, and Time Warner.
Shares normally trade around 20x a company’s previous year’s earnings, though right now the S & P’s P/E ratio is around 25. In 2016, LinkedIn’s P/E ratio has been around 180. (Even crazier, their ratio in 2015 was -1,220, because they lost money.)
Ever wonder where all of that money from QE is going? It’s turning into Ferraris cruising around San Francisco, and LinkedIn is not the only offender.
But these companies will not maintain fantasy valuations forever.
When the deal was announced on Jan. 10, 2000, Stephen M. Case, a co-founder of AOL, said, “This is a historic moment in which new media has truly come of age.” His counterpart at Time Warner, the philosopher chief executive Gerald M. Levin, who was fond of quoting the Bible and Camus, said the Internet had begun to “create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human understanding and creative expression.”
The trail of despair in subsequent years included countless job losses, the decimation of retirement accounts, investigations by the Securities and Exchange Commission and the Justice Department, and countless executive upheavals. Today, the combined values of the companies, which have been separated, is about one-seventh of their worth on the day of the merger.)
So, that was a bit of a long diversion into the sheer artificiality of much of our economy, and how sooner or later, the Piper must be paid.
When I try to talk to liberal friends about the problems of increasing automation and immigration on the incomes of the American working class, their response is that “We just need more regulation.”
In this cheerful fantasy, we can help my friend who cannot afford health insurance by requiring his employer to provide health insurance–when in reality, my friend now cannot find a job that lasts for more than a month because employers just fire him before the health insurance requirement kicks in. In fantasy land, you can protect poor people by making it harder for landlords to evict them, but in the real world, this makes it even harder for the poorest to get long-term housing because no landlord wants to take the chance of getting stuck with them. In fantasy land, immigration doesn’t hurt wages because you can just legislate a higher minimum wage, but the idea that you can legislate a wage that the market does not support is an absurdity worthy only of the USSR. In the real world, your job gets replaced with a robot.
This is not to say that we can’t have some form of welfare or social safety net to deal with the dislocations and difficulties of our new economy. Indeed, some form of social welfare may, in the long run, make the economic system more robust by allowing people to change jobs or weather temporary unemployment without dying. Nor does it mean that any inefficiency is going to break the system. But long-term, using legislation to create a problem and then using more legislation to prevent the market from correcting it increases inefficiency, and you are now spending resources to enforce both laws.
Just like Enron’s “creative accounting,” you cannot keep hiding losses indefinitely.
Or you can have a Japanese or Swedish-style welfare state, but no open borders, (because the system will collapse if you let in just anyone who wants free money [hint: everyone.])
But you cannot just smash two different systems together, heap more laws on top of them to try to prevent the market from responding, and expect it to carry on indefinitely producing the same levels of wealth and well-being as it always has.
All living things are basically just homeostatic entropy reduction machines. The most basic cell, floating in the ocean, uses energy from sunlight to order its individual molecules, creating, repairing, and building copies of itself, which continue the cycle. As Jeremy England of MIT demonstrates:
From the standpoint of physics, there is one essential difference between living things and inanimate clumps of carbon atoms: The former tend to be much better at capturing energy from their environment and dissipating that energy as heat. Jeremy England … has derived a mathematical formula that he believes explains this capacity. The formula, based on established physics, indicates that when a group of atoms is driven by an external source of energy (like the sun or chemical fuel) and surrounded by a heat bath (like the ocean or atmosphere), it will often gradually restructure itself in order to dissipate increasingly more energy. …
This class of systems includes all living things. England then determined how such systems tend to evolve over time as they increase their irreversibility. “We can show very simply from the formula that the more likely evolutionary outcomes are going to be the ones that absorbed and dissipated more energy from the environment’s external drives on the way to getting there,” he said. …
“This means clumps of atoms surrounded by a bath at some temperature, like the atmosphere or the ocean, should tend over time to arrange themselves to resonate better and better with the sources of mechanical, electromagnetic or chemical work in their environments,” England explained.
Self-replication (or reproduction, in biological terms), the process that drives the evolution of life on Earth, is one such mechanism by which a system might dissipate an increasing amount of energy over time. As England put it, “A great way of dissipating more is to make more copies of yourself.” In a September paper in the Journal of Chemical Physics, he reported the theoretical minimum amount of dissipation that can occur during the self-replication of RNA molecules and bacterial cells, and showed that it is very close to the actual amounts these systems dissipate when replicating.
Energy isn’t just important to plants, animals, and mitochondria. Everything from molecules to sand dunes, cities and even countries absorb and dissipate energy. And like living things, cities and countries use energy to grow, construct buildings, roads, water systems, and even sewers to dispose of waste. Just as finding food and not being eaten are an animal’s first priority, so are energy policy and not being conquered are vital to a nation’s well-being.
Hunter-gatherer societies are, in most environments, the most energy-efficient–hunter gatherers expend relatively little energy to obtain food and build almost no infrastructure, resulting in a fair amount of time left over for leisure activities like singing, dancing, and visiting with friends.
But as the number of people in a group increases, hunter-gathering cannot scale. Putting in more hours hunting or gathering can only increase the food supply so much before you simply run out.
Horticulture and animal herding require more energy inputs–hoeing the soil, planting, harvesting, building fences, managing large animals–but create enough food output to support more people per square mile than hunter-gathering.
Agriculture requires still more energy, and modern industrial agriculture more energy still, but support billions of people. Agricultural societies produced history’s first cities–civilizations–and (as far as I know) its first major collapses. Where the land is over-fished, over-farmed, or otherwise over-extracted, it stops producing and complex systems dependent on that production collapse.
I’ve made a graph to illustrate the relationship between energy input (work put into food production) and energy output (food, which of course translates into more people.) Note how changes in energy sources have driven our major “revolutions”–the first, not in the graph, was the taming and use of fire to cook our food, releasing more nutrients than mere chewing ever could. Switching from jaw power to fire power unlocked the calories necessary to fund the jump in brain size that differentiates humans from our primate cousins, chimps and gorillas.
That said, hunter gatherers (and horticulturalists) still rely primarily on their own power–foot power–to obtain their food.
The Agricultural Revolution harnessed the power of animals–mainly horses and oxen–to drag plows and grind grain. The Industrial Revolution created engines and machines that released the power of falling water, wind, steam, coal, and oil, replacing draft animals with grist mills, tractors, combines, and trains.
Modern industrial societies have achieved their amazing energy outputs–allowing us to put a man on the moon and light up highways at night–via a massive infusion of energy, principally fossil fuels, vital to the production of synthetic fertilizers:
Nitrogen fertilizers are made from ammonia (NH3), which is sometimes injected into the ground directly. The ammonia is produced by the Haber-Bosch process. In this energy-intensive process, natural gas (CH4) supplies the hydrogen, and the nitrogen (N2) is derived from the air. …
In 2014, average yield in the United States was 171 bushels per acre. (And the world record is an astonishing 503 bushels, set by a farmer in Valdosta, Ga.) Each bushel weighs 56 pounds and each pound of corn yields about 1,566 calories. That means corn averages roughly 15 million calories per acre. (Again, I’m talking about field corn, a.k.a. dent corn, which is dried before processing. Sweet corn and popcorn are different varieties, grown for much more limited uses, and have lower yields.)
As anyone who has grown corn will tell you, corn is a nutrient hog; all of those calories aren’t free. Corn must be heavily fertilized or the soil will run out and your farm will be worthless.
We currently have enough energy sources that the specific source–fossil fuels, hydroelectric, wind, solar, even animal–is not particularly important, at least for this discussion. Much more important is how society uses and distributes its resources. For, like all living things, a society that misuses its resources will collapse.