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Friday, December 19, 2014

Robot Workers Stoke Human Fears; how we can still win

by John MacBeath Watkins

Finally, a headline that made me feel like I was in the 21st century appeared on the print edition of Tuesday's New York Times:

Rise of Robot Workforce Stokes Human Fears

The e-version of the Times, not restricted by the character count, had a longer headline that did a better job of explaining the fears of human workers as artificial intelligence makes machines more capable, but the headline in the print edition is what a time traveler from 1950 might have expected to see above the fold on the Dec. 16, 2014 New York Times.

In some ways, the future has been late to arrive, but as Louis Althusser noted, "l'avenir dure longtemps" (usually translated as "the future lasts forever," the name of his memoir.) There is plenty of time for the future to happen, and it will arrive in unexpected ways.

Let me first tell you my solution to the automation problem, then I will explain what it means.

We have been managing our economy for a "natural" rate of unemployment and an inflation rate of 2%, with inflation defined by the core consumer price index number. We have no real empirical knowledge of what the natural rate of unemployment is, nor have we any reason to assume 2% is the proper level of CPI growth. We should be managing the economy by some objective metric.

Even the core CPI is subject to external shocks. The inflation metric we should be using is wage inflation, and we should be managing it to match productivity growth. In fact, since we have not done so for a long time, we should be managing for wage inflation higher than that until it catches up to the pre-1980 trend. This would ensure wages don't, in the long run, exceed the structural capacity of the economy, and that they don't trail so far behind it.

One of the things that makes capitalism different from previous systems of market economies is that in most of them, the workers owned their tools, and land and labor were the keys to making a living (which is why if you wanted to be wealthy, you needed to get land or a mine.) The total amount of wealth was presumed to be finite. Capitalism is a system where the tools usually don't belong to the artisan, they belong to those who accumulate and invest capital. And investing capital in technology is often a way to increase wealth, meaning that capitalism isn't a zero-sum game.

The transition from a traditional market economy to a capitalist one is not great for those who used to be the skilled artisans, which is why the invention of mechanized weaving sparked the Luddite uprisings of the early 19th century. The Luddites recognized that while weaving made cloth cheaper, and enabled most people to buy more clothing and make it a smaller part of their budget, it also meant that the weavers, once high-skilled and well-paid artisans, were surplus to requirements.

Eventually, we found things for people to do. The key was to have enough economic activity that the increased productivity does not permanently unemploy workers whose careers have been disrupted by more productive technology.

Economists used to think that there was an inverse tradeoff between inflation and unemployment, a relationship called the Phillips Curve. This was displaced in the late 1960s and 1970s by a new concept, the natural rate of unemployment, championed by Milton Friedman and Edmund Phelps.

Friedman and Phelps argued that for there to be a permanent increase in employment, something would have to change in the real economy. Essentially, he argued, the Phillips Curve relied on an illusion, and when inflation expectations for wages and prices caught up with reality, this would leave unemployment unchanged.

The problem with managing the economy for the natural rate of unemployment is, there is no established way to know what the natural rate of unemployment is. Friedman and Phelps, it would appear, moved us from managing the economy based on an illusion to managing it based on a guess.

How's that working out for us?
United States Labor Force Participation Rate by gender 1948-2011. Men are represented in light blue, women in pink, and the total in black.

Labor force participation peaked in about 1998, which is about the last time we had much in the way of wage inflation, but really, labor force participation has been stagnant or declining since about 1990. That's because wages, like any price, are a signal, in this case, a signal to come one out and get a job. Take a look at the comparison between productivity growth and average real wages:

1990 is about the time real wages for the average worker fell below the 1970 wage level, and it's been there since. Never the less, female participation in the labor force has increased, and women's wages, while they have not caught up to men's, have at least been increasing.

Here is another set of data that most people have not incorporated into their analysis:

- See more at:

While working men's wages fell a bit from 1980 to 2012, men found it harder to get a job. As a result, the decline for income among all men has been much worse than the situation among working men.

Much of the decline in male incomes has been at the median and lower end of the distribution of education:

Data: Hamilton Project 

Dyland Matthews notes about the above chart (and I recommend following the link and reading his full essay)
High school dropouts' earnings have fallen 66 percent since 1969, and people with some college - the median level of education in the US - have seen earnings fall by a third.

Now, there's a good news/bad news situation here. Men's labor force participation has been falling since the 1950s, even though through the 1950s and 1960s their wages were increasing rapidly, so what's causing their decline in labor force participation isn't the integration of women into the work force. The bad news is that their wage gains started falling about the time women's labor force participation increased.

I'm not convinced that this is a case of post hoc, ergo propter hoc. The thing is, at about the same time, we had a major recession, then started managing the economy for the unknowable natural rate of unemployment. Median male income started declining about the time productivity increases and wage increases became de-linked. That's about the time we adopted two of Milton Friedman's big ideas, managing companies for shareholder value and managing the economy for the "natural" rate of unemployment. I strongly suspect that these two ideas played a strong role in removing the link between productivity increases and wage increases.

Since incomes for men have fallen most for the least educated, the indication would be that the kinds of work available do not play to male strengths, such as upper-body strength and a willingness to take jobs with lots of heavy lifting, risk, and inclement weather, which would indicate one possible reason the male workforce participation rate has been falling since about 1950.

Teachers used to say, "you want to dig ditches for a living?" but now, to do that you have to be a heavy equipment operator, and a lot fewer of those are needed than ditch digging humans for the same size ditch. The increase in productivity is in an industry were the demand for ditches is not particularly price elastic.

While many people might say, "that's a pretty good price on shirts, I think I'll get two," few people look at a contractor's rates and say to themselves, "well, I don't really need a new ditch, but at these prices..."

More and more of those risky, physical jobs in the open air have been mechanized. Now, artificial intelligence offers the opportunity to replace humans at inside work with no heavy lifting, which will affect both genders.

This is also an opportunity for those who own capital to take more of the gains from productivity. The question is, why should they? Those weavers who became Luddites were employable, and had they had access to new skills and a hot labor market, they might not have minded so much losing their work as artisans. While the early part of the industrial revolution created great misery and inequality as the capitalists took most of the money, eventually, we figured out how to redistribute the wealth and start the great era of the middle class.

We need to give people access to new skills. Right now, higher education and the student loan program are a mess. How we expect to get a skilled labor force with any spending power out of that is one of the great mysteries of our time. The acquisition of new skills is one of the great levelers for a society, and we've made it tremendously expensive and difficult.

We need to manage for a higher level of employment. The fact that so much of our productivity gains have gone to the top instead of the working class indicates that we are managing for such low levels of employment that there is no pressure for higher real wages. Employers have been able to manage for stagnant real wages across the board, and plummeting wages for the class of people -- white males -- who had been paid best.

Managing for a slack labor market has certain advantages for the capital owning class, and which includes me to a small extent, but is concentrated at the top end of American incomes. Companies can spend their money on dividends and stock buybacks instead of worker's pay. The speculative natural rate of unemployment isn't particularly scientific, but it has provided a rationale for managing the economy for sufficient slack in labor demand to suppress the rise of real wages. The NRU has continued in use not because it is economically useful or provable, but because it is politically useful.

Ah, you say, but if we manage for wage inflation related to productivity growth, what about asset bubbles? I submit that those have as much to do with changes in banking as they do with monetary policy. The real estate bubble accompanied innovations in the banking industry that allowed the sale of securitized mortgages, making far more money available than could be invested by savings and loans making mortgages based on deposits. The great age of corporate raiders was also the great age of junk bonds. The tech bubble actually happened at the same time as some wage inflation.

Asset bubbles may well have more to do with the deregulation of the banking system and the rise of the shadow banking system than with monetary policy, and should be dealt with on that basis.

Wednesday, December 17, 2014

Surge Pricing and Cindi of the Shattered Shoes

by John MacBeath Watkins

There were three parking places in front of Mad Merlin's Joke, Costume, and Magic Emporium, and one was a 30-minute load zone. That is where Cindi of the Shattered Shoes was parked, and she was not done shopping.

She had come out to see if any other spaces had opened up, knowing that she'd been parked for nearly half an hour and her car was about to turn into a pumpkin. She found Jack the Blighter fuming, because the cars parked in front of and behind his Bulgemobile were too close for him to get out.

“Don't worry,” said Cindi, wincing from the pain in her feet that had been caused by a glass footwear-related accident, “I'll move out of my spot and take yours.”

A crafty look came into Jack's eyes.

“Oh, that's just what you'd like me to do,” Jack said. “If the spot's that valuable, I'm keeping it.”

The magic sigal the parking fairy had chalked on Cindi's left rear tire was beginning to glow.

“But the spot's no use to you, because you're done shopping,” Cindi objected.

:”Yeah, well, it's my spot, and I'm not moving,” the Blighter said.

Two people happened along just then. One was Prince Charlie, Earl of Studly, a region famed for its bull semen, the other was a parking fairy.

Maybe it was just the magic blowback from the parking fairy's wand as she turned Cindi's car into a pumpkin, but Studly was so charmed by Cindi that he immediately fell in love.

“Please,” Studly pleaded, “turn this young, beautiful and fecund young woman's car back into its original state, I wish to get busy with her and make some little princelings and princesslings, that my House may continue to rule, and I think it would really impress her if I got her car back.”

“Can't turn it back until the fine is paid,” the parking fairy said. “It's one magic pea.”

“I have a magic pea,” Jack the Blighter confided, confidingly. “I'll sell it to you for half your kingdom.”

“But the going rate for a magic pea is one farm,” Studly objected. “You're gouging.”

“Clearly, you wish to surge withing my lady's garden of delight,” the Blighter said. “Thus, surge pricing applies.”

“I will accept your hand and other projecting parts of you in marriage if you can get my car back to its original state,” Cindi declared, declaratively. The pain in her feet was becoming unbearable, and she really just wanted to sit down in her car. Plus, the guy still had half a kingdom.

“Oh, all right,” said the smitten prince, smitingly for some reason. With a flourish, he signed over half his kingdom to Jack the Blighter.

When he took the pea, Prince Charlie, Earl of Studly, discovered it was hot. As he juggled it in his hands, wincing, Jack winked at him, and Studly remembered that Jacks tend to steal things.

He quickly dropped the hot pea into the parking fairy's proffered purse. The fairy promptly turned to the pumpkin and waved her wand, turning it into an acorn.

“It was a Honda Accord, not an acorn,” Cindi objected, objectively.

“My remit was to return the pumpkin to its original state,” the parking fairy said. “When you bought the car, did you carefully read what it said on the boot? (Like many fairies, the parking fairy had attended an English boarding school.)

“But the lady who sold it to me was so nice!” wailed Cindi. “She said she only drove it to black mass every full moon!”

“Bent old biddy with a wart on her nose and sort of Goth taste in wardrobe?” the fairy asked, questioningly.

“Well, yes,” said Cindi, agreeably.

“You got taken,” the fairy announced. “I'm only allowed to return the vehicle to its original state.”

“I'll bet you'd turn it into a car for another magic pea,” suggested Jack, leering at the prince suggestively.

The prince didn't care to trade off the other half of his kingdom, so he decided to try and persuade the fairy instead, and started moving toward her, raising his hands pleadingly.

The fairy whipped out her wand and shouted “stop or I'll shoot,” while firing her wand. Prince Charlie, Earl of Studly, turned into a frog.

“You saw him!” the fairy said, “He came at me!”

“He had his hands up,” Cindi replied. I'm afraid that replyingly isn't a word recognized by my spellcheck, so I can't tell you how she replied.

“Change him back,” Cindi suggested, suggestively.

“He had it coming,” the fairy said. “the grand jury will clear me.”

Jack sidled up to the frog and offered to sell him a magic pea for the rest of his kingdom.

“No, you don't!” Cindi snapped, snappishly. She was a practical woman in all matters not related to the choice of footwear. “He still has half a kingdom, his offer of marriage is still valid, and under recently passed marriage equality laws, I can marry the frog I love. He's my prince charming.”

“Charlie,” the frog croaked, correctingly, if that's really a word.

Saturday, December 13, 2014

Our echoes roll from soul to soul

by John MacBeath Watkins

One of my wooden boat friends, Rick, in Australia, is dying, and doing so with dignity and fortitude. I posted this for him:

from The Princess: The Splendour Falls on Castle Walls

By Alfred, Lord Tennyson
The splendour falls on castle walls
And snowy summits old in story:
The long light shakes across the lakes,
And the wild cataract leaps in glory.
Blow, bugle, blow, set the wild echoes flying,
Blow, bugle; answer, echoes, dying, dying, dying.

O hark, O hear! how thin and clear,
And thinner, clearer, farther going!
O sweet and far from cliff and scar
The horns of Elfland faintly blowing!
Blow, let us hear the purple glens replying:
Blow, bugle; answer, echoes, dying, dying, dying.

O love, they die in yon rich sky,
They faint on hill or field or river:
Our echoes roll from soul to soul,
And grow for ever and for ever.
Blow, bugle, blow, set the wild echoes flying,
And answer, echoes, answer, dying, dying, dying.

I'm particularly fond of that line about how our echoes roll from soul to soul. Rick, you are a part of all of us now, and what we've learned from you will live on in us, and I hope will allow us to die with the dignity and fortitude you display.

Thursday, December 4, 2014

Tamir Rice and the depraved heart

by John MacBeath Watkins

When I heard that 12-year-old Tamir Rice was shot by Cleveland police after waving a realistic toy gun around, I thought, what a tragedy.  Wouldn't have happened to me as a 12-year-old white kid if I'd been doing something that stupid when I was growing up in Maine, but it's the sort of thing that happens in cities.

Then I heard that the two officers at the scene did not render  first aid to the kid for four minutes, and at that point an FBI agent who happened to be in the neighborhood came along and rendered assistance.

In my opinion, that's a crime.

There are two possible interpretations of this. One is the doofus theory, that the cops were so freaked out by one of them having shot a kid, they didn't know what to do. If that's the case, they were negligent, and so useless in an emergency that I'd say they have no business on a police force.

The other possibility is more sinister and I'd say less likely. Sometimes, negligence is intended to cause harm or death. These are called depraved heart crimes, or sometimes depraved indifference. If the officers at the scene were convinced that they had screwed up to the point where it could cost them their badges, it might have been to their advantage if the kid died and could not testify.

In support of the doofus theory, we have information provided by the previous employer of the cop who shot the kid. Timothy Loehmann, the 26-year-old cop who did the shooting, had previously worked of a police department in a suburb of Cleveland called Independence. The city of Independence has taken the unusual step of releasing a letter recommending the dismissal of Loehmann.


A Nov. 29, 2012 letter contained in Tim Loehmann's personnel file from the Independence Police Department says that during firearms qualification training he was "distracted" and "weepy."
"He could not follow simple directions, could not communicate clear thoughts nor recollections, and his handgun performance was dismal," according to the letter written by Deputy Chief Jim Polak of the Independence police.
The letter recommended that the department part ways with Loehmann, who went on to become a police officer with the Cleveland Division of Police.
"I do not believe time, nor training, will be able to change or correct the deficiencies," Polak said.
So, maybe the guy had issues and should never have been hired. That doesn't explain why his partner, 46-year-old Frank Garmback, also failed to render first aid. Perhaps there's more to the story, but it's hard to think of a good reason for this.

The thing that makes both men look bad, and made me think of the phrase "depraved indifference," is the story they told before they knew there was video of the incident.

From the Daily Kos:

Not knowing that a camera recorded the entire incident, the police told what appear to be at least five lies about what happened.
1. Police said that Tamir Rice was seated at a table with other people.
2. Police said that as they pulled up, they saw Tamir Rice grab the gun and put it in his waistband.
3. Police said they got out of the car and told Tamir Rice three times to put his hands up but he refused.
4. Police said that Tamir Rice then reached into his waistband and pulled out the gun, and was then shot and killed by Officer Timothy Loehmann.
5. Timothy Loehmann was described as a rookie.

1. Tamir Rice as not seated at a table with other people.
2. Tamir Rice does not appear to grab the gun and put it in his waistband.
3. Police shot and killed Tamir in less than two seconds and could not have told him to put his hands up three times.
4. Tamir Rice absolutely does not pull the air gun out of his waistband and brandish it in any way. This fact is so crucial.
5. Timothy Loehmann was not a rookie, but had been an officer for over two years.
If both officers told this story and it didn't agree with the video of the event, that makes it look to me like they colluded on a story that would exonerate Loehmann.  But why would Garman do that?

Anyone who has spent time around cops knows that one of the most important traits a cop can have to survive in the work they do and support those they work with is loyalty, and especially loyalty to your partner.

I don't know if this is a case of misplaced loyalty or if the two men talked about what happened and became convinced that their erroneous account was true. If the latter is the case, it supports the doofus theory and indicates neither man is a reliable witness to a crime, and should not, in my humble opinion, be cops. If the statements of fact that were not true were a conspiracy to clear Loehmann, that would be another reason both men should not be cops.

Even if that were the case, it would not prove that letting the kid lay there bleeding for four minutes was a depraved heart crime. I'm not a lawyer, but it seems to me that you'd have to prove that they were letting him bleed out to eliminate the only other witness to the shooting.

That's a high bar to clear, as it should be, because I find it difficult to believe anyone would do that. But then, I find it difficult to believe anyone kills people for the flimsy reasons they do.

I doubt very much these men will be held criminally liable for failing to render first aid for those four minutes.

But unless I hear a damned good explanation for that failure, I'll always wonder: Did they have depraved hearts, or were they doofuses, or is there something I'm missing here?