The last operating business of our family office corporation was liquidated at the end of 2022 because of the restrictions imposed in California in the name of the Covid public health emergency. Thanks to its automated systems, the business was able to survive on the reduced revenue from small business customers who had also survived the shut down. But, the business could not afford to pay returns to the people who did the work and to us as the owners for the work and money we owners had invested in developing the automation. So, we transferred our shares to the "workers". They were our friends and economic partners, and their only capital was their ability to run the business. We had the money we had saved from the business' profits.
It was hardly an act of charity. If we had "laid off" the workers in hopes of squeezing out a few more months of profit, California's unemployment insurance rules would have swallowed that small amount; and we would have had the legacy liabilities that Donald Trump's "You're Fired" dramas never bothered to mention.
"Automation" in the genuine sense of machinery and software and workflow designs has not been a choice for businesses of any size since microcomputers and bar code scanners learned to talk to one another. They reduce to unit costs of production by an order of magnitude. That fact of life is not yet apparent to "large" companies because their returns on capital is subsidized by the passive investing system that Mr. Green has so elegantly explained. But, for "small" businesses there is no longer any possibility of paying for both investment and labor. That is why no one opens independent sandwich shops and Subway limits its franchise offers to "multi-unit" operators.
Where I live the only good sandwich shop went out of business 10 years ago, but point taken. It's like what Russel Napier is fond of mentioning, access to credit will be the factor that determines success in the coming years.
Great take. Unfortunately (that will be a word heard much more going forward), and even more so during those rare paradigm shifts as we are currently transiting, the vast majority continue using linear models/analytical projections from past experience which are doomed to fail dramatically, as the paradigm shift engages an exponential modality of change at all levels. (AI, 'printing', INFLATION etc). And additionally the 'Bullwhip' process is in effect (due to the exponential) which means that most of the dramatic change happens fast in the later stage. (shock and awe) which results in 'caught in the headlights' freeze ups for the linear minded masses. These rarefied events are times of great risk and even greater opportunity for those very few with the 'Right Stuff' to navigate effectively by accessing the necessary exponential mind shift. This is an extremely difficult maneuver which when successfully accomplished results in (well deserved) fame and generational wealth. Humanity is about to transition to a new path. Will it be to doom or salvation is the only relevant question. In God and Gold I Trust
I sense strong thread in your writings (since FIG started landing in my inbox) pointing to the continued consolidation of businesses.
As my 40+ years of IT work hit it's mid point, I was hopeful that a connected world would support more enterprises of all scales. While there's some evidence of that, what I'm seeing is more of the ecological take on the Maximum Power principle - a species maximises it's energy conversion rate lest it be out-competed by another 'species'.
... and I continue to wonder how this might play out in what appears to be an energy constrained world.
I recently found myself trying to summarise what i see in a bigger picture of Home Management (economy). We've been Inflating into Deflationary forces, as growing pie still fills the political sky. It's been amazing to see that the Dalton-like partial pressures of these two forces has kind-of worked.
There's Mike's analogy of driving a car up hill - a car that has no brakes, to keep in mind. Lately, the concurrent tightening/easing of credit has me seeing Mike's Brake-less Car as the Red Plymouth from the 1971 film Duel.
We're cresting a hill, engine damaged by overheating, selecting Neutral as the gear for heading down the hill...
With the haunted Peterbilt fast approaching (the ghost of diesel refining's past).
A friend tells me that it is easier to use McD's phone application than the indoor kiosks. At least one of the small chicken based local competits has a perfectly fine phonecard fir ordering. So some automation is affordable. More to post on automation.
I think you might be [wildly] overestimating the room available for automation to displace the blue collar. A robot that can figure out how to angle a pneumatic impact tool to unstuck a rusty bolt on a 2005 Corolla brake caliper isn't a robot worth it's cost of capital. Yes, marginal tasks will slowly displace drudgery, but that's hardly new and driven by a lack of low educated laborers. It's overall efficiency. It's much more likely that the highly credentialed educated class find themselves struggling and choosing the necessity of lower pay over no pay and actually displace the need and worthwhile-ness of accelerating automation.
The lower to middle white collar non-STEM workforce will soon be decimated by the biggest robot of all -- AI. I have advised my grand children to get a license as a plumber or electrician before spending a bunch of money on that trans feminist post modern pottery making bachelor of arts degree.
Thanks for introducing me to the Beveridge Curve. That is new to me.
I wonder, is the post-covid vertical shift for low skill labor an artifact of the historically generous gov fiscal transfers? It makes sense that low skilled labor would be more inclined to stay unemployed with the luxury of large government transfers, even with a historically tight labor market, vs college educated labor, which is generally higher paid and probably less sensitive to the impact of government transfers.
If the above hypothesis is true, I would expect the low skilled unemployment rate will stay quite low until the job openings come down quite a bit since the government transfers are much lower now. If the upward curve shift is permanent, however, I wonder what structural changes would be responsible for that....
I live in a wealthy Virginia suburb. This transition is gaining steam. There are ethnic mom and pop places staffed by immigrants, but most are upscale chains. There are alot of exercise places displacing retail...most are chains. Some supermarkets are hiring people with disabilities and have had encounters with workers who had anger issues and seemed to not want to work. Some retail is run almost as a hobby by family members of earners.
To cut to chase: the transition is in first stage. Retail is shifting to pampering jobs: exercise, salons, massages, skincare, niche foods, dogs, nails, etc.
This is akin to 19th century industrialists/landowners with staffs of servants but instead of living on the estate, they drive to the servants or they work in the houses part time. In guilt, the rich here support the left with votes and buy indulgences and on right insist they earned/deserve the priveleges. This is an odd moment and will lead to instability until servant class moved up to better jobs.
From a blue collared workers point of view, automation can only take you so far. I have yet to see the robot that can diagnose and repair an engine fault on a mining loader. I am sure they are working on it.
How do we work towards up skilling the workforce to improve productivity once they loose their jobs?
This is a good reminder of bad decision making based on bad models supported by chosen cherry picked data while not updating beliefs, but we know how hard that is to do! Its easily convenient to put this all on the FED...you can bet the Congress Critters and the rest of the DC will let the blame fall solely on the FED while they do nothing. We really need GameB and like now!
The last operating business of our family office corporation was liquidated at the end of 2022 because of the restrictions imposed in California in the name of the Covid public health emergency. Thanks to its automated systems, the business was able to survive on the reduced revenue from small business customers who had also survived the shut down. But, the business could not afford to pay returns to the people who did the work and to us as the owners for the work and money we owners had invested in developing the automation. So, we transferred our shares to the "workers". They were our friends and economic partners, and their only capital was their ability to run the business. We had the money we had saved from the business' profits.
It was hardly an act of charity. If we had "laid off" the workers in hopes of squeezing out a few more months of profit, California's unemployment insurance rules would have swallowed that small amount; and we would have had the legacy liabilities that Donald Trump's "You're Fired" dramas never bothered to mention.
"Automation" in the genuine sense of machinery and software and workflow designs has not been a choice for businesses of any size since microcomputers and bar code scanners learned to talk to one another. They reduce to unit costs of production by an order of magnitude. That fact of life is not yet apparent to "large" companies because their returns on capital is subsidized by the passive investing system that Mr. Green has so elegantly explained. But, for "small" businesses there is no longer any possibility of paying for both investment and labor. That is why no one opens independent sandwich shops and Subway limits its franchise offers to "multi-unit" operators.
Where I live the only good sandwich shop went out of business 10 years ago, but point taken. It's like what Russel Napier is fond of mentioning, access to credit will be the factor that determines success in the coming years.
Well articulated. It’s happening.
Great take. Unfortunately (that will be a word heard much more going forward), and even more so during those rare paradigm shifts as we are currently transiting, the vast majority continue using linear models/analytical projections from past experience which are doomed to fail dramatically, as the paradigm shift engages an exponential modality of change at all levels. (AI, 'printing', INFLATION etc). And additionally the 'Bullwhip' process is in effect (due to the exponential) which means that most of the dramatic change happens fast in the later stage. (shock and awe) which results in 'caught in the headlights' freeze ups for the linear minded masses. These rarefied events are times of great risk and even greater opportunity for those very few with the 'Right Stuff' to navigate effectively by accessing the necessary exponential mind shift. This is an extremely difficult maneuver which when successfully accomplished results in (well deserved) fame and generational wealth. Humanity is about to transition to a new path. Will it be to doom or salvation is the only relevant question. In God and Gold I Trust
Thanks Mike, for your regular essays.
I sense strong thread in your writings (since FIG started landing in my inbox) pointing to the continued consolidation of businesses.
As my 40+ years of IT work hit it's mid point, I was hopeful that a connected world would support more enterprises of all scales. While there's some evidence of that, what I'm seeing is more of the ecological take on the Maximum Power principle - a species maximises it's energy conversion rate lest it be out-competed by another 'species'.
... and I continue to wonder how this might play out in what appears to be an energy constrained world.
I recently found myself trying to summarise what i see in a bigger picture of Home Management (economy). We've been Inflating into Deflationary forces, as growing pie still fills the political sky. It's been amazing to see that the Dalton-like partial pressures of these two forces has kind-of worked.
There's Mike's analogy of driving a car up hill - a car that has no brakes, to keep in mind. Lately, the concurrent tightening/easing of credit has me seeing Mike's Brake-less Car as the Red Plymouth from the 1971 film Duel.
We're cresting a hill, engine damaged by overheating, selecting Neutral as the gear for heading down the hill...
With the haunted Peterbilt fast approaching (the ghost of diesel refining's past).
A friend tells me that it is easier to use McD's phone application than the indoor kiosks. At least one of the small chicken based local competits has a perfectly fine phonecard fir ordering. So some automation is affordable. More to post on automation.
Excellent treatise, professor, even better than usual.
wow felt like i was taken to school! Very insightful!!
I think you might be [wildly] overestimating the room available for automation to displace the blue collar. A robot that can figure out how to angle a pneumatic impact tool to unstuck a rusty bolt on a 2005 Corolla brake caliper isn't a robot worth it's cost of capital. Yes, marginal tasks will slowly displace drudgery, but that's hardly new and driven by a lack of low educated laborers. It's overall efficiency. It's much more likely that the highly credentialed educated class find themselves struggling and choosing the necessity of lower pay over no pay and actually displace the need and worthwhile-ness of accelerating automation.
The lower to middle white collar non-STEM workforce will soon be decimated by the biggest robot of all -- AI. I have advised my grand children to get a license as a plumber or electrician before spending a bunch of money on that trans feminist post modern pottery making bachelor of arts degree.
Thanks for introducing me to the Beveridge Curve. That is new to me.
I wonder, is the post-covid vertical shift for low skill labor an artifact of the historically generous gov fiscal transfers? It makes sense that low skilled labor would be more inclined to stay unemployed with the luxury of large government transfers, even with a historically tight labor market, vs college educated labor, which is generally higher paid and probably less sensitive to the impact of government transfers.
If the above hypothesis is true, I would expect the low skilled unemployment rate will stay quite low until the job openings come down quite a bit since the government transfers are much lower now. If the upward curve shift is permanent, however, I wonder what structural changes would be responsible for that....
And Powell isn't worried because "we have the tools" to address recession if the Fed goes too far. Let's see how well that works.
I live in a wealthy Virginia suburb. This transition is gaining steam. There are ethnic mom and pop places staffed by immigrants, but most are upscale chains. There are alot of exercise places displacing retail...most are chains. Some supermarkets are hiring people with disabilities and have had encounters with workers who had anger issues and seemed to not want to work. Some retail is run almost as a hobby by family members of earners.
To cut to chase: the transition is in first stage. Retail is shifting to pampering jobs: exercise, salons, massages, skincare, niche foods, dogs, nails, etc.
This is akin to 19th century industrialists/landowners with staffs of servants but instead of living on the estate, they drive to the servants or they work in the houses part time. In guilt, the rich here support the left with votes and buy indulgences and on right insist they earned/deserve the priveleges. This is an odd moment and will lead to instability until servant class moved up to better jobs.
Ah, the Princess Bride, such a great movie.
From a blue collared workers point of view, automation can only take you so far. I have yet to see the robot that can diagnose and repair an engine fault on a mining loader. I am sure they are working on it.
How do we work towards up skilling the workforce to improve productivity once they loose their jobs?
Were the Luddites just early? 😂
This is a good reminder of bad decision making based on bad models supported by chosen cherry picked data while not updating beliefs, but we know how hard that is to do! Its easily convenient to put this all on the FED...you can bet the Congress Critters and the rest of the DC will let the blame fall solely on the FED while they do nothing. We really need GameB and like now!
https://futurethinkers.org/jim-rutt-gameb/