It is well known that most of Apple’s manufacturing happens overseas; while Apple is a leader in this, it is far from alone. The article begins with a report of a conversation between Steve Jobs and President Obama. Mr. Obama asks why the work that Apple has sent overseas can’t come home to the US; Mr.Jobs replies to the effect that those jobs will never come back. Apple executives and engineers are cited stating that they have no choice but to send manufacturing overseas because the results of dealing with Chinese manufacturers such as Foxconn are so superior. This article does not emphasize the lower cost of overseas manufacturing; it discusses speed, flexibility, quality, logistics capability, and the like. In fact, the claim is made that because labor is such a small part of technology manufacturing, paying American wages would add up to $65 to each iPhone’s expense and the iPhone is profitable enough that this could be absorbed.  (See Friedman’s book, The World Is Flat, for a discussion of integrated manufacturing and logistics in China.)

Let’s repeat this: the claim is that manufacturing capability and flexibility are the reasons it’s profitable for Apple to manufacture the iPhone in China; cheap labor is not the primary reason. It may be that in our haste to achieve the most profit, we have allowed our manufacturing plant to atrophy and ceded the playing field to our competition. Further, “‘the challenge in setting up U.S. plants is finding a technical work force.’ said Martin Schmidt, associate provost at the Massachusetts Institute of Technology. In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend.”

The Chinese government subsidizes costs for industrialization and fosters the training of workers with appropriate skills. What are we doing? We’re arguing about tax breaks for billionaires and unemployment insurance. Surely, the way Chinese workers are treated and currency manipulations are also factors, but we need to address educating a modern workforce and rebuilding our manufacturing capacity if we don’t want to fall further behind. Is anyone mentioning this sort of thing amid all the sound and fury surrounding  the coming election?

© Charlie Wertz, January 2012

We decided to buy an iPad for my mother-in-law and I decided to buy an iPod Touch for myself at the same time. When we were at the Apple Store to ask questions a couple times recently, the experience wasn’t too bad. Skyrocketing sales of iPhones, iPods, and iMacs have caused these stores to become much busier than they used to be, but we were able to obtain sound information from people who were attentive and competent. Our day of purchase was a little different.

After you make a purchase, someone helps you get started with it. I’ll admit we made a couple errors. The young lady who helped us suggested that we do both at once; my wife could work the iPad while I worked the iPod. This was probably unwise. My wife had left home without her reading glasses and neither of us was experienced working with the touch screen.

They created a new gmail account and a new Apple Id for mother-in-law. I don’t know what was done because I was fighting my own little battle with fat fingers. The gmail account was immediately unusable; the iPad could not connect to it. When the original helper could not resolve this, she called for a wizard; eventually, they did something to reset the account; I’m not quite sure what this meant they did but it did start working. Meanwhile,  I created a couple problems for myself by mistyping on the tiny keypad and needed some help as well.

The thing about this is that the store was very busy and noisy and the folks who were helping us were helping other people at the same time. They would do something, say do such and such and then run off to someone else. Then we’d try whatever they said and wait for them to come back. What they said to do didn’t always work and the whole affair was extremely confusing and disrupting; it’s difficult to convey what it was like. A couple tasks that should have taken a half hour or so took a couple hours. I’m sure that we’d have gotten through the whole business much more quickly and with greater ease if we’d worked on one device at a time and if we’d had a helper who stuck with us. I also suspect the folks on setup duty would be more productive if they took care of one customer at a time.

I’ve been reading in the new biography of Steve Jobs about his passion for detail and his concern for the customer experience. I do wonder what he’d have thought of this. Sure, he might have considered my wife and me idiots, but I don’t think he’d have liked the way the system handled us.

© Charlie Wertz, January 2012

Many young people, especially those in the counterculture, had viewed computers as instruments that could be used by Orwellian governments and giant corporations to sap individuality. But by the end of the 1970s, they were also being seen as potential tools for personal empowerment.

So which has computing, and now the Internet, turned out to be. The obvious answer is that it’s turned out to be both. Computing, and the internet, and nearly any technology affords a form of leverage. Those motivated to do evil can use tools to do more evil faster while those motivated to do good can use tools to do more good faster.

I could now go on about the Arab Spring, Occupy Wall Street, censorship in China and other places, and many other things. For one time, I will curb my natural tendency to rattle on and just leave well enough alone.

© Charlie Wertz, January 2012

What can the president do, can he do more, and, if he can’t why is that? Traditional explanations of the business cycle are based on the notion of lumps and bumps in the way the economy works. Here’s a typical example. Because things are booming, manufacturers ramp up and create too much inventory; when they realize there is too much, they cut back production, putting people out of work; eventually, the excess inventory goes away and hiring resumes. There are limited ways the federal government can smooth the flow: by altering the quantities of money and credit in the economy, monetary policy can encourage or discourage investment; fiscal policy, the way the government spends and taxes, can directly alter the demand for goods, services, and labor; tax policy can also provide incentives for behaviors considered desirable. While the current recession is somewhat different from those we’ve experienced in the past, the government doesn’t have new and different means for fighting back

The problem with these ideas and with many other ideas we’ve been hearing is the hidden assumption that the US economy is a closed system. This was never the case, and now, it is even less so than it ever was. We are now part of a global economy.  (I have already discussed some aspects of this in my recent blog, Manufacturing: Where the Jobs Aren’t.) In 2010, our trade balance with the rest of the world was roughly minus 500 billion dollars. That’s -$500,000,000,000.00. In other words, we as a nation have been spending this much more than we earn year in and year out for quite a while. This is only about 3 1/2% of our Gross National Income each year, but over the years it adds up; it amounts to 3 trillion dollars or $3,000,000,000,000.00 over the last five years. In 2010, while conducting business with China, we bought 270 billion dollars worth more than we sold; the difference with Mexico was 66 billion dollars; the difference with Japan was 60 billion dollars; the difference with Germany was 34 billion dollars; the difference with Canada was 28 billion dollars. Why is this? In some cases, another country has some resource we need and don’t have; oil and rare earths are good examples of this. In these cases, we might go without, develop substitutes, develop our own supplies, or make sure we sell enough other things globally to make up the difference. In many other cases, the reason is that production costs are lower somewhere else than they are here. The most commonly cited reason for this is that people in so-called developing countries will work for less money. Capitalism being what it is, manufacturers choose to build facilities overseas, retailers choose to purchase from companies that manufacture overseas, and consumers choose to purchase things that cost less. The result is that someone in another country has a job while someone in the United States does not. It isn’t always the case that people elsewhere will work for less; sometimes another country is more efficient or the products are of higher quality. Whatever the underlying explanation, we haven’t been doing a very good job of competing in the global marketplace.

There have been and continue to be calls for tariffs and trade barriers. These probably wouldn’t work; people are ingenious when it comes to getting around, over, and under walls between countries. We’d also have to completely withdraw from the World Trade Organization and other international bodies and that is no longer practical. For a long time, many people said  it is fine to allow manufacturing to move away as long as we retain our creative edge and win in design and innovation. You don’t hear that so often these days. It isn’t working out for us because we still lose a lot of jobs and because we aren’t maintaining our edge. Traditional economic theory says that as we import more and export less, the trade imbalance will cause our dollars to become worth less, making foreign goods more expensive for us and our goods cheaper overseas with the result that the situation will magically self-correct. So far that hasn’t been working for us either and we might not like it if it did because all the stuff we buy would be more expensive. It also appears that other countries, notably China, have become more adept than we at managing currency values.

What can be done? We need to continue to address the imbalances in the way the international money system works. We need trade agreements that make sure we have a fair opportunity to market our goods and services internationally. We need to become more competitive; we can do this by becoming more efficient. There are several things we can look at, such as unproductive regulations, inefficient work practices, and automation. We should, as people like Newt Gingrich suggest, carefully evaluate all of our regulations and eliminate those that make our goods and services more expensive without adding value. We do, however, have to appreciate that just as we need laws and police, we need regulations and enforcement agencies to prevent excessive pollution, unfair practices, and  consumer deception. Unfortunately, this can place us at an economic disadvantage if our competitors save money by polluting  and ignoring worker safety. We have to find ways to compete without descending to their level. Union work rules are frequently and with some justification cited as impediments to efficient production. Employers have been combating this by situating new facilities in states with strong right to work laws. Unions and management are beginning to understand that they need to work together in finding ways to be more competitive; this must continue. The problem with these approaches is that they frequently result in lower wages for workers and they may also result in poorer working conditions. We know that things we buy at bargain prices are made in sweatshops by poorly compensated workers. Our challenge is to find ways to compete while maintaining the high standard of living we’ve been used to. Can we do this? We’ve already noted that improving productivity through automation has a downside as well as an upside. There are no quick and simple solutions here.

The balance of payments, of course, is not the only reason a lot of folks can’t find jobs. Another reason is that consumers in the US haven’t been spending as much. Why is this? Obviously, the folks without jobs are spending less. Others are spending less because they are afraid of losing their jobs. Others are spending less because they don’t feel very rich; the bursting of the housing bubble left them with property that is worth a lot less than it had been, mortgage payments they can’t afford, and possibly foreclosure notices; the stock market crash also left many with fewer resources and less inclination to spend. And, don’t forget that our financial institutions, and our stock and bond values are very much affected by the European financial crisis, something our President has little control over.

So, what’s the point of all this? It’s pretty simple. At least part of our jobs problem is the result of things that have happened and are happening in other countries – things that we and our President do not directly control. Some of the proposed solutions we’ve been hearing are simple minded and will have little effect. So, what can be done? In the short run, the biggest thing the government could do to create jobs is to pump more money into the economy. Here, we bump against a little thing called the deficit. Many people believe, with some justification, that the government just can’t spend any more money unless there are either corresponding spending cuts elsewhere or corresponding tax increases somewhere.  In the long run, we need to step up to some major changes in the ways we do things. As we’ve already noted, we need more cooperation between labor and management. We need motivated workers with the education and training to operate in a high technology world; it’s common knowledge that we are falling behind in science and math, but reforming our educational system is a tough job. We need less hedging and speculation in financial markets and more investment in productive capacity. We need to reduce expenses by reigning in the runaway costs of health care. Each of these topics is worthy of its own article. The next time you encounter a sound bite claiming to solve all our problems in a single blow, ask if any of the real problems are being addressed.

© Charlie Wertz, November 2011

The state of California, subject to a 2010 Supreme Court ruling that the state’s efforts to cram in more prisoners constituted cruel and unusual punishment, a violation of the Eighth Amendment, is responding with actions intended to reduce the population of state prisons;

Lindsay Lohan has violated the terms of her probation but probably won’t be sent to jail;

A look at statistics about crime and prison in the US is interesting, amazing, and puzzling.

Ms Lohan has been charged with drunken driving and shoplifting, sentenced to rehabilitation, probation and performance of community service.  Recently, she returned to court, charged with having “blown off” her community service assignment at a women’s shelter, having missed nine appointments and having left after an hour on another occasion. She was taken from court in handcuffs, then released on $100,000.00 bail, pending another hearing in about two weeks. She has been released from jail due to overcrowding four times in the past. The judge is quoted as having said, “If jail meant something in the state of California now, maybe I’d put her in jail.” A day or two later, Ms Lohan was turned away from her community service assignment at the city morgue when she arrived an hour late. The next day, she was cleaning toilets and performing other menial tasks at the morgue. We’ll have to wait to see what happens next.

It’s clear California has a lot more to worry about than Ms. Lohan. The state is required to “decrease its inmate population by 11,000 over the next three months and by 34,000 over the next two years.” Only those convicted of crimes deemed serious or violent will be incarcerated while others will be released on probation or into “alternative community programs.” In many cases, the convicted criminals will become the responsibility of the local community rather than the state. Some are questioning the ability of the local communities to handle the workload. A “revolving door system” has already been in place. Prisoners are released due to overcrowding; they violate parole and are returned to prison; they are released again. This is an expensive and sorry state of affairs.

Who are these felons and prisoners, anyway? Here’s what Wikipedia says.

In 2008 approximately one in every 31 adults (7.3 million) in the United States was behind bars, or being monitored (probation and parole). In 2008 the breakdown for adults under correctional control was as follows: one out of 18 men, one in 89 women, one in 11 African-Americans (9.2 percent), one in 27 Latinos (3.7 percent), and one in 45 whites (2.2 percent). Crime rates have declined by about 25 percent from 1988-2008. 70% of prisoners in the United States are non-whites. In recent decades the U.S. has experienced a surge in its prison population, quadrupling since 1980, partially as a result of mandatory sentencing that came about during the war on drugs. Violent crime and property crime have declined since the early 1990s. In addition, there were 86,927 held in juvenile facilities as of the 2007 Census of Juveniles in Residential Placement (CJRP), conducted by the Office of Juvenile Justice and Delinquency Prevention.

Wikipedia also tells us, “The United States has the highest documented incarceration rate in the world (743 per 100,000 population).” Russia and South Africa are next in line.

According to the Justice Research and Statistics Association,

the index crime rate, which includes the reported crimes of murder/nonnegligent manslaughter, rape, robbery, aggravated assault, burglary, larceny, and motor vehicle theft … was fairly level during the 1930s, 1940s, and 1950s, before sharply increasing until the early 1970s.

According to the FBI’s uniform crime reports for 2010, arrests for drug abuse violations accounted for 12.5% of all arrests in the United States in 2010. This count was negligible as recently as 1965. 31.8% of those arrested for drug abuse in 2010 were black. 28% of those arrested for all types of crime tracked were black. In 2010, 12% of the United States population was black.

So, what can we make of all this? We have a lot of people in jail. Many of them are in jail for drug abuse. A disproportionate number of people arrested for drug abuse and for all crimes are black. Our prisons are bursting. It’s a minor point that Lindsay Lohan may well be staying out of jail because there is no place to put her. The real question is what is going on here. Are people in this country so much worse than those in other countries? Are we overly zealous about putting people in jail? Could the system be improved? Could we be fairer in deciding who to arrest and who to incarcerate?

Why do we put people in jail anyway? Some figure it’s to punish them for having done wrong and that, having been punished, they will do wrong no more. Things don’t seem to be working out that way. Some figure we incarcerate them in order to rehabilitate them so they will become better citizens. This seems like a good idea, but it does not appear we are really implementing it; we’d have to do a lot more than just lock them up, wouldn’t we? Some people are so violent, dangerous, and antisocial, we probably don’t want them anywhere but in jail. We do then have to ask if want them to be mingled with and teaching people who might actually be rehabilitated. Sadly, I doubt that any major changes to the system are likely. I do, however, wonder if we couldn’t find ways to help those who can be helped. We’d have to identify them, lead them to see the error of their ways, motivate them to change, and help them learn to become more productive members of society.

Well, as it says in the title of this article, ya gotta wonder.

© Charlie Wertz, October 2011

Why aren’t more employers hiring? More specifically, why aren’t more employers hiring in the United States? Here’s a probably incomplete list of possible reasons: employers are not hiring because their prospective customers aren’t buying; employers aren’t hiring because they’ve found ways to get things done with fewer employees – they’ve discovered ways to automate the work or they’ve found ways to be more efficient or they’ve found that with jobs hard to find they can motivate the employees they have to work harder; employers aren’t hiring in the United States because it is more profitable to expand overseas or to buy components and services from overseas vendors; employers and prospective employers aren’t hiring because banks won’t lend the money they need to expand existing businesses and start new businesses; employers aren’t hiring because the future is uncertain; employers aren’t hiring in the United States because labor laws, government regulations, and union work rules make it too expensive to do so. Which of these are true? There’s probably some truth to all of them.

For the remainder of this discussion, we’ll focus on automation. This is something that will not go away when the current recession does. The global economy won’t go away either, but we’ll save that discussion for another day. Recently, Farhod Manjoo authored a series of articles at slate.com based on the theme, Will Robots Steal Your Job. He looks at the possibilities for automated pharmacists, doctors, writers, lawyers, and scientists. His findings are sobering. This is a trend that will continue. Robots and computers are not only replacing or reducing the need for human workers in factories, they’re doing it many other places. Some of the eliminated jobs paid very well; some did not. In some cases, people are flat out eliminated. In some cases, people with skills or expertise utilize sophisticated tools to accomplish more than would be otherwise possible. In some cases, it’s just the opposite; the machine produces answers and the humans more or less do what they are told. Additionally, details of many business processes are absorbed into computer programs, then forgotten by most of the humans involved. Many bank employees would be hard pressed to calculate interest and fees by hand; some supermarket cashiers are near automatons, unable to identify products, calculate prices or determine change.

Where is this taking us? Consider this: if we ever reach a state where all work is done by computers and robots, none of us will have jobs; if we don’t have jobs, we won’t have money to buy all the goods and services – no one will. This is probably extreme, but the notion does give rise to some interesting thoughts.

In Bloomberg BusinessWeek for September 26, Peter Coy points out that this is one thing Karl Marx may Have been right about. “Marx predicted that companies would need fewer workers as they improved productivity, creating an ‘industrial reserve army’ of the unemployed whose existence would keep downward pressure on wages for the employed.” Coy also points out that Marx was wrong about a lot of things. I’ll add a couple more. The failure of Communism is often cited as a demonstration that massive hierarchical central planning just doesn’t work very well. Marx also overlooked a basic fact about human nature and society: some people always rise to the top of any social structure and, sadly, some of these focus only on their own welfare to the detriment of everyone else – Feudal Lords, Commissars, and Robber Barons have a lot in common. Neither Peter Coy nor yours truly is suggesting the revolution of the proletariat and all that as the solution to our problems. This does suggest, however, that we may need to consider whether or not our current system of jobs and wages is going to meet our needs moving forward. You can stop holding your breath; I’m not about to reveal some great new social order. In the past, there have been a variety of proposals for Utopian societies; there have also been many examples of Utopian fiction, illustrating the expected benefits of these methods for organizing society. There as many or more examples of anti-utopian or dystopian fiction, suggesting dark sides to all these fine ideas; Huxley and Orwell may be among the best known authors of this genre and, sadly, history has generally proven them more correct.

What then, short of revolution, might we, as individuals and as a society, do to improve our lot in the future?

One song goes like this. The last half century or so has been a time of constant change: new technologies, radical changes to the nature of existing jobs, jobs we’d never have imagined not too long ago. As one homely example, I can note that in one of my earlier lives, I was a draftsman, creating drawings on paper in pen or pencil; we then made blueprints by running special paper through a big machine that smelled of ammonia. Individuals should be prepared for change and expect a life of constant learning. Society should educate for flexibility and the ability to learn. Here’s another idea. Individuals, businesses, and governments need to foster innovation; we need a stream of new businesses and new occupations.

The last thought I have is the most problematic. We seem to have entered an era marked by shrinkage of the financial middle. A very few people have most of the income and most of the money. A big part of the rest of the  income and money is divided in small allotments among many. The middle class may never be eliminated, but it is becoming smaller. Where is this going to take us? Lords and peasants? Some sort of welfare state? It is very likely we will need a different approach to dividing the pie in the long term unless we settle for Lords and peasants. A shorter work week for full pay?  Most likely, something we’d never anticipate will evolve. I hope we’ll like it.

Think about it.

© Charlie Wertz, October 2011

Back to the coffee house, in the Economist for July 9, 2011, takes a more positive view. One observation made is that the advent of the mass audience advertising supported newspaper in 1833 changed the dissemination of news from a multiway conversation to a one way broadcast, controlled, more or less, by relatively few publishers and state outlets. Now, “The internet is making news more participatory, social, diverse and partisan, reviving the discursive ethos of the era before mass media.” They go on to tell us, “ordinary people are increasingly involved in compiling, sharing, filtering, discussing and distributing news,” and “The internet lets people read newspapers or watch television channels from around the world.” This is heavy duty stuff. They do also tell us a bit about the dark side. As major newspapers and television networks lose customers and revenue, there is less investigative reporting, less local news, and possibly less accountability. They also note that there is more partisanship and it’s easier for us to focus only on sources we agree with. They don’t mention it, but there are also a lot of people feeding on the research done by the traditional news organizations, just like I’m doing right now. I am attempting to select key points, identify connections, and add some interpretation of my own. They conclude by telling us this transformation is unstoppable and it is up to us to be “catholic in [our] tastes and demanding in [our] standards.” All in all, this is much more positive take than you’ll usually see in the print media. I also note with some interest, that the on line version of this article contains a link to an Economist report containing statistics on the circulation of various new and old media. The print article mentions the report but doesn’t provide a link.

When my friend sent the article, he appended the hand-written note, “It looks like I’m falling behind!” I have to agree with him. But then, I have to note I’m falling behind too but in a different way. He also sent me a July 2, 2011, Economist article, Too much information. This one notes that the Internet gives us access to massive amounts of data, much of it conflicting and unrelated – a lot of it confusing. If we don’t rise to the challenge of managing and selecting from this cacophony, we are susceptible to distraction and stress. I can attest to this; I have always been something of an information junkie and the availability of so much more than I can comfortably digest is hard for me to handle. This is a problem I share with a lot of people.

One of the things I always tried to discuss when I taught database courses, is the distinction between data and information. The idea here is that it takes organization and reflection to convert raw facts into useful information. I’m no longer sure how I came across Neal Gabler’s piece, The Elusive Big Idea, from the New York Times for August 13, 2011. He decries the fact that we may be living in a post-idea world and, “[while] information was once grist for ideas, over the last decade it has become competition for them,” because, “We are inundated with so much information that we wouldn’t have time to process it even if we wanted to, and most of us don’t want to.” He goes on to suggest that we see fewer “big ideas” for two reasons: there is less creative thinking and ideas are drowned out by the factoids and sound bytes. Are things as bad as Mr. Gabler makes them sound? Probably not, but this is something to think about if you can pry yourself away from all the Facebook trivia for a few minutes. My non computer friend is not trying to digest as many inputs as I subject myself to. Maybe I’m the one who is falling behind.

© Charlie Wertz, September 2011

On September 4, 2011, in  Manufacturing is on the upswing in the United States , Hilda L. Solis, the U.S. secretary of labor, states that manufacturing is thriving, that America’s manufacturing industry is expected to grow 6.2 percent this year, that manufacturers created 24,000 new jobs in July alone, and that since December 2009, the manufacturing sector has created more than 289,000 jobs – more than 1 in 10 of all new jobs created during the current recovery. She concludes by saying that, while we still have work to do, America is bouncing back as a manufacturing powerhouse. She is overly optimistic; we still have a lot to do if we want her words to become true.

Four days later, President Obama spoke to Congress about his plan to boost jobs and put cash in Americans’ pockets. He talked about continuing and expanding payroll tax cuts; he talked about creating jobs by spending on infrastructure; he talked about hiring teachers. He said this would be paid for by eliminating some tax breaks enjoyed by corporations and the wealthy. He said very little about manufacturing jobs. His plan and the bill he subsequently sent to the Congress received a mixed review at best.

I was a young man in the 1950′s in the now rust-belt city of Buffalo, NY; at that time, if you were willing to subject yourself to a manufacturing environment, well-paying jobs were everywhere and union employment afforded decent benefits and job security.    “Fifty years ago,”  according to USA TODAY, “a third of U.S. employees worked in factories, making everything from clothing to lipstick to cars.”  We didn’t recognize it then, but those were the good old days. Today, a little more than one-tenth of the nation’s 131 million workers are employed by manufacturing firms; four-fifths work in services. Manufacturing employment was 19 million in 1977, 17 million in 1995,  and 12 million in 2005. Creating 289,000 manufacturing jobs in a couple years does not compensate for losing 5 million over forty years.  At this rate, forty years from now, we might be back where we were as to number of jobs, but the population will surely have grown and we won’t be ahead.

At the same time, the United States is still a significant manufacturing force in today’s world. According to the National Association Manufacturers, “… even after the painful recession, the United States continues to stand strong as the No. 1 manufacturing economy in the world. The nation accounts for 21 percent of global manufacturing wealth, and 12 million Americans work in the manufacturing sector, earning 22 percent more in wages and benefits than the rest of the workforce.” China is second in the world at 15 percent; Japan is third at 12 percent. US manufacturing produces $16 trillion of value each year; that’s 11.2% of our GDP. If we are number one in manufacturing, why is there such an ongoing trade deficit?

Something significant has happened. What happened? Why? What, if anything, can we do now?

When World War II ended in 1945, the United States was the only country left with any significant manufacturing capacity. While Europe and Japan were in ruins as the result of massive bombing, the oceans had saved us from this fate. When we switched from war time priorities to peace time manufacturing, there was no competition to speak of and there was tremendous pent up demand within the United States and throughout the world. It was very much a sellers market and we were the only sellers. Over the years, the rest of the world rebuilt – in many cases with our help – and by the 1970′s or 1980′s we should have realized we were no longer alone in the world. It took us a long time to wake up and some of us may still be sleeping. Up until quite recently, management could make poor decisions and survive, labor unions could make ridiculous demands and see them accepted. We were fat and happy and a bit lazy and stupid.

Meanwhile, from the 1940′s until now there was an explosion of manufacturing technology, information technology, and logistics capacity. It became possible to produce goods with much less labor input; it became possible to transport components and finished goods all over the world cheaply and effectively.  (See The World is Flat by Thomas Friedman.)  The oceans no longer protect our manufacturers from the rest of the world. Capitalism being capitalism and business being business, many corporations have decided it’s necessary to shift more and more work to off shore facilities and to buy more and more components from overseas. Our tax laws have often encouraged this. Widespread use of robots in manufacturing and elsewhere is another factor here. It’s not too farfetched to predict that robots will someday perform most of manufacturing labor. How will humans then earn the money to buy the goods the robots produce? This is an income allocation problem we’ve yet to seriously address.

As we’ve purchased more and more from overseas and made more and more goods with less labor input, well paying manufacturing jobs have been disappeared. Many have been replaced by a variety of service economy jobs, but these generally do not pay anywhere near as well. Even service jobs have been moved or contracted out of the country. A leveling effect seems to be working; individual income and the standard of living appear to be rising in other parts of the world and falling in the US.

That isn’t all that has been happening. Economists like to use the qualifying phrase, “all other things being equal,” but they never are. A couple other little problems have recently surfaced. For a complex of reasons, mortgages were granted liberally to people who probably couldn’t afford them; these were then packaged into complex securities and sold to investors. Initially, housing prices went up and up and everyone was happy; eventually the bubble burst. Now, we are looking at large numbers of mortgage foreclosures, many home owners and investors feel a lot poorer than they did when things were booming, some financial institutions have failed, and others teeter on the brink. The government has run up massive debts providing benefits such as Medicare Part D, financing two wars, and attempting to buy us out of a recession. As bad as the financial situation of the US government looks, several countries in Europe appear worse off. Combine these “other things” with our loss of manufacturing jobs, and we have a lot of folks out of work.

So. Given all this, what can we do and what should we be doing?

Here are some recommendations from the National Association of Manufacturers.  Create a national tax climate that does not place manufacturers in the United States at a competitive disadvantage in the global marketplace. This means cut corporate taxes. Encourage the dynamic labor market that is one of America’s great competitive advantages. This means eliminate restrictive union work rules. Implement a common-sense, fair approach to legal reform. This means make it more difficult to bring “frivolous” suits against manufacturers. Create a regulatory environment that promotes economic growth. This means eliminate what they see as burdensome regulations. Promote progressive international trade policy that opens global markets, reduces regulatory and tariff barriers and reduces distortions due to currency exchange rates, ownership restrictions and various “national champion strategies.” This means encourage trading partners to treat us more favorably. This also involves combating currency manipulation. These ideas have been echoed by many commentators. They tend to favor capital over labor. Each has merit. Each could be overdone. Some may be expensive to implement.

Here are a couple more thoughts that have yet to be as widely promoted. Improve the skills and preparedness of our workforce. Our educational system just doesn’t seem to be providing graduates with the skills and knowledge necessary to work in modern manufacturing. Update our decaying infrastructure and manufacturing plant. In our haste to take advantage of cheap labor elsewhere, we’ve allowed our own manufacturing plant to deteriorate.

Each of the ideas in the preceding two paragraphs is worthy of a lengthy discussion. Right now, there is also a serious difference of opinion regarding the role of government in addressing the problems and issues I’ve discussed in this article.

Finally, we need to wake up and start looking at the real problems and we need to understand that there isn’t one single simple solution to all of our woes.

© Charlie Wertz, September 2011

What is a Ponzi scheme? According to the Securities and Exchange Commission, “A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” Two points are important. First, current receipts from new investors are used to pay dividends; there is no true investment income; this is in a way  a form of pyramid scheme. Second, this fact is concealed from the investors; they are led to believe the enterprise is making a profit.

How does Social Security work? The fundamental design of the program is that the Social Security taxes paid by people who are presently working are used to pay benefits to people who have retired. It is not the case that the money I paid in while I was employed has been saved somewhere and is now being used to pay my retirement benefits. It is true that in the past the tax payments received by the Social Security Administration have exceeded the benefits that have been paid and the surplus has been invested in United State Government bonds. There is a side argument that since the government has, in effect, borrowed from itself, the money isn’t really there. We won’t go there; if the United States Government ever does default on its obligations, we are all in a mammoth amount of trouble. The more serious problem is that we’ve been living longer and we’ve been less fertile with the result that a smaller number of workers are paying money in compared to the number of retirees taking money out. The result is that if some adjustments are not made, Social Security will eventually go broke and retirees will not be paid. There is some difference of opinion as to when this will happen and what should be done about it. In this respect, Social Security is like a Ponzi scheme; it is a bit like joining a pyramid club.

At the same time, while there are people who do not understand how the system works, the Social Security Administration has never disguised it or claimed otherwise. The government is also relatively up front about the fact that a problem has developed and something has to be done. Many politicians are afraid to step up to the problem because we senior citizens vote and no one wants to look responsible for taking the food out of our mouths, but that’s a different issue.

So the answer is that it is more correct to say Social Security is like a Ponzi scheme than it is to say it is a Ponzi scheme. Current receipts are used to make current payments, but the fact is not concealed and the current problems will eventually be resolved. How should this be done? That’s also another discussion.

© Charlie Wertz, September 2011

Join me in examining an example and see if it helps you refine your thinking on this.

Senator Richard Blumenthal has recently introduced a bill to regulate the storage of personal data by businesses and other entities.  Is a law requiring that proper measures be taken to secure individuals’ data an unnecessary and costly restriction on the activities of businesses or does it provide protections we are entitled to. If, for example, I pay my electric bill on line and the utility company retains my checking account or credit card information but does a poor job of securing the system, someone might gain access, cause me a lot of trouble and possibly make off with my money.

I know from personal experience that left to their own devices many businesses will not choose to go to the expense of implementing a truly secure web site and back end system. It’s not a trivial matter to do this. Many business managers may not understand all the details that must be attended to. Some programmers and system designers may not appreciate the impact of omitting important security features. There can even be genuine  differences of opinion over how far to go securing data. I’m inclined to think legislation requiring appropriate security is a good idea.

It is also true, however, that when laws are written and regulations are implemented, the result can be the requirement of a lot of busy work that doesn’t really solve the problem at hand; government has a way of creating this sort of thing. Those who might oppose this legislation may not be entirely wrong.

Maybe you can come up with a straightforward yes or no answer on this; maybe it depends on how the bill is written. Think about it. Then, employ similar thinking every time you read that some proposed law is a necessary protection or that it is an unjustified governmental  intrusion into our affairs.

© Charlie Wertz, September 2011