I just got a rare piece of good news: Australian IFM is going to buy Buckeye Partners (BPL) for $41.50 a share, and the MLP rose 28% on the news. My stake went up to about $10,000, and I'm thinking about what to do with the money. For the most part, I'm getting old and want yield, so I'm putting a chunk into one of the preferred stock ETFs (PFF or PGX). To maintain my exposure to the depressed MLP sector, I'm also putting some into Kinder Morgan (KMI) and possibly Kayne Anderson (KYN). I'm thinking of putting the little left over into a robotics and artificial intelligence ETF, BOTZ.
Just yesterday a young academic suggested that artificial intelligence and robotics are going to replace much human labor so that the chief jobs for people will involve human interaction and interpersonal skills. He's probably right about the need for interpersonal skills, but the more generalized fear that machines will replace people is wrong. It goes back to the days of the Luddites and before. In 1589 Queen Elizabeth refused to issue a patent to inventor William Lee because of demonstrations against his stocking frame. The reasoning of both crowd and queen was that technology would replace jobs. That was 200 years before the industrial revolution.
Nothing has been better for freedom than technology. Before technology, the only way to become wealthy was to spare the victims of imperialistic wars and turn them into slaves. The Romans considered slaves to be the living dead because the alternative would have been death due to conquest. The South lost the Civil War in part because slave-based societies are less productive, hence poorer, than technology-based societies.
Perhaps because technology ended slavery, one often reads superstitions about technology's ending people in general. It is easy to see the more slave-like jobs that might disappear, but it is difficult to imagine the less slave-like jobs that will replace them.
There was less technology in 1780 than today. At that time the population of the US was three to four million. If you had said to someone that one day there would be motorized tractors that would enable one farmer to do the work of 50 today, you might have added the conclusion that 98% unemployment would ensue and that the workforce would decline. It would have been difficult to imagine the advent of helicopter factories, the profession of accounting, state university professors, and so on.
In early January I bought NCR, which has since had a nice run with the broad average and is up 30%. However, BOTZ, the robotics index, hasn't had fantastic returns since its founding two years ago:
Source: Maks FS,Seeking Alpha
Apparently, fears about an explosion of robotics overtaking human labor are where the mouth but not the money is.
The reason to be concerned about job replacement is not the technology per se, but its subsidization by central banks and the financial system. When interest rates are artificially depressed, the cost of capital becomes lower, and demand for labor-saving equipment increases. Hence, in the long run low interest rates, the policy of the United States and especially the Democratic Party and its economists like Paul Krugman, have replaced labor with capital. Low interest rates are the chief source of income inequality because they boost stock values, enhancing the income of commercial bankers, investment bankers, real estate investors, stockholders, bond holders, and government employees, and at the same time they reduce wages because of money illusion or inflation and capital substitution.
The Democratic Party further exacerbates the tendency toward income inequality by favoring regulation that squashes human resource development. Minimum wages and mandatory workplace benefits make it more expensive to hire the least skilled, damning them to a lifetime of poverty and dependency. That Democrats consider themselves altruistic in advocating such policies is in the altruistic traditions of Dr. Mengele and Dr. Benway.
Hence, BOTZ, NCR and similar investments are a play on a continued march toward socialism and crony capitalism, not a play on market-driven innovation.
The belief that the stock market will go up forever is a bubble psychology that goes back to the South Sea Bubble, which fooled even Sir Isaac Newton. Since 2009, and especially since President Obama's reelection in 2012, the stock market has been going at a tear. The tear will continue. The editorial page of the New York Times proves it. The Timeswrote this yesterday:
On one side is a small yet vocal minority of Fed officials
who want to head off inflation by raising rates sooner rather than later. On
the other is a majority that thinks a near-term rate hike would stifle growth
and, with it, any chance of restoring health to the labor market. That group
includes Janet Yellen, the Fed’s chairwoman, and most members of the Fed’s
policy committee…The economic evidence indisputably favors Ms. Yellen, who has
indicated that rate increases should not begin until sometime next year, at the
earliest. It will take until then to be able to say with confidence whether
recent improvements in growth and hiring are sustainable.
The reason that the Times's editorial is important is that the nation's hierarchy of decision making with respect tointerest rate policy is as follows:
Investment banker cronies--> Ochs Sulzberger family-->The New York Times--> public opinion among Democrats --> President Obama's opinon --> Janet Yellen's opinion --> Federal Open Market Committee decision
If a Republican were in office, the Wall Street Journal would play the equivalent role.
Rates will be lower, or will increase less, than stock market participants expect because the Democrats have a commitment to boosting the stock market. The Times goes on to make the curious claim that keeping interest rates low will improve real wages; that real wages have declined while interest rates have been kept at historically low levels for the past 43 years does not deter them. Recall the old saying about insanity.
Seeking Alpha says that George Soros is currently hedging the S&P 500. I'm sure that there is a logical or statistical basis for his tactic because all evidence says that the stock market is high now. The support of the Fed will continue to keep the market at high levels into next year, though. I'm not buying the S&P short ETF, SH, just yet. However, I have about 1% of my portfolio in the VIXX index and an interest rate short index, both of which have declined and are near all-time lows. The VIXX index measures market volatility, and it goes up when the stock market goes down. It is at all-times low, which is an indicator that the stock market will go down.
From a policy standpoint the New York Sun's Seth Lipsky continues to offer a still, small voice of financial sanity among the Sodom and Gomorrah of the American media. Sadly, Paul Krugman will have to turn into a pillar of salt before any change in America's addiction to print-and-spend economics ends.
For now, I'm buying a little more Chicago Bridge and Iron (CBI). It's gone up a few percent since Buffett bought a second set of shares; according to Seeking Alpha several other hedge funds are piling in. The sharp decline due to rumors about improper accounting and the firm's president's illness seems to have offered Buffett and other hedge funds a buying opportunity; including pension fund holdings, Berkshire may own 25%.
As the Dow Jones industrial average nears its all-time high, those who are rich need to take a moment to praise the Democratic party and its supporters. It is advantageous to have clever advocates, and who can be a better advocate for millionaires than those who claim that they dislike them?
The elite Democrats of academia, those who advocate taxes out of one side of their mouths and monetary expansion out of the other, are the millionaire's best friend. The Republicans aren't because they claim to favor the wealthy and those who work, and the public and many of the wealthy have yet to understand that the wealthy are not so because they work; they are wealthy because they own.
When Janet Yellen and the Fed reduce interest rates, the value of assets is increased, and the rich become richer. What else can matter to the wealthy? Do gay rights, global warming, great causes, gross income inequality, or a stagnant real wage matter?
All are distractions to the one issue that matters, the one issue about which the news will ever remain silent: the expansion of the money supply, the reduction of interest rates, the inflation of asset values, the suppression of real wages, and the increment to the portfolio.
On behalf of the world's millionaires, I thank Paul Krugman; I praise Janet Yellen; I sing hallelujah to Barack Obama.
Sharad Karkhanis, Professor Emeritus of Kingsborough Community College, has forwarded the above link.
I have just been on the Yahoo! Group of the Republican Liberty Caucus of New York State (membership group at http://groups.yahoo.com/group/RLCNY), and I have been debating with someone who aimed to refute Paul Krguman and the New York Times.
There is a link between what the former KGB agent is saying in the above video and the discussion whether or not to pay attention to the New York Times. As the former KGB agent points out, American liberalism is not a rational or pragmatic belief system but rather a programmed ideology. Because it is not reasonable, it is pointless to attempt to argue rationally with the Times or its ideological acolytes, whether academics who advocate socialism after socialism's repeated dismal failures; Keynesianism; or other forms of state-activist liberalism. As the former KGB agent points out, brainwashed ideologues cannot be convinced through evidence or rational argument.
By attempting to refute the New York Times, we give it credence. Yet it does not deserve credence. I start with my concluding comment and work backward.
Mitchell Langbert: The influence of economists is not so great...The main reason Krugman is well known is the New York Times itself. It is a circular process, so you empower him and it by paying attention. Moverover, the only reason that the New York Times has influence is that Republicans continue to read it and pay attention to what it says. If they stopped, then the Times would become just another partisan voice.
There are lots of economists who publish many articles of whom no one has ever heard. Krugman may have some influence with students, but so did many other economists whose ideas have been forgotten or ignored and whose students forgot them when faced with the realities of the job market and economic events. The repeated failure of the ideas of most (statist) academics has not stopped the current crop from making the same old (failed) arguments. Their chief motivator is power. If the public shows boredom with the Times, et al., and does not pay attention to the nonsensical statist approach that has made inroads this year, the Times will die or change.
Within the past few years there was a takeover attempt by financial interests, but the Ochs Sulzbergers were able to ward them off. The precipitous decline in the newspaper's stock price can be pushed further, and possibly the Times into bankruptcy, which would be a major victory for freedom. Within the past few months the Times has had to obtain a 200 million dollar emergency loan from the Mexican billionaire Carlos Slim. They can be pushed over the edge. This is not your father's world. The Times can be killed.
I would wager that about 1/4 or more of the Times's readers are from the conservative/small government side. Even if it's only 1/8th, including yourself, a drop in readership from roughly one million to 875 thousand would have a devastating impact on the Times. If conservatives stopped taking them seriously and if Republicans stopped referring to them at all, their influence would be reduced. Partisan sources are not influential. Equally important, they might be subject to a takeover by interests with a different perspective. Even a more moderate perspective would be a major improvement.
The Times is a partisan source, but somehow conservatives and libertarians have been convinced to pay attention to them. There may have been a time when their quality was good enough to warrant the attention, but that time is long past. With the advent of the Internet, the Times is facing a major extinction event that conservatives delay by paying attention to them.
The Times has enjoyed a faux reputation as an accurate newspaper and a representative of mainstream views. It is neither. If a large segment drops it, then its claim to objectivity and to being an influence on mainstream opinion is less credible. And if Republicans scorn it or ignore it, not argue with it as though it has a voice of importance and integrity, but scorn it as the fraud that it is, then its influence will end. Which it, as a fringe voice, deserves.
Let's reverse the situation. Do big government types read each issue of "National Review" or the von Mises website and argue with them? Does the New York Times regularly present the Cato Institute's arguments and dispute them? I don't think so. They simply do not pay attention. They characterize the American liberal view as fringe. They win victory by not acknowledging the alternative views and arguing with them, but disparaging them. That is how the two party system has become two versions of state-activist "liberalism": the Times has defined conservatism as the Rockefeller-T Roosevelt-Straussian view, and "liberalism" as the FDR-Obama view, and has ignored the American view. If the Times ignores us, why should we pay attention to them?
There are thousands of economists who disagree with Krugman yet do not get any coverage. The coverage is what gives him influence. And by paying attention to the coverage, conservatives make the coverage possible. If the conservatives laugh at the Times, it will no longer have authority.
Ultimately social science is a smoke and mirrors scheme. There is no interest in what works, only what increases the power of the ruling group, the military industrial complex and the special interests that the Times and Krugman represent. Their arguments need not be taken seriously. They are ideology and can be safely ignored, with no loss in intellectual rigor. So why bother arguing with frauds?
Brian:
I should not have limited my last post to the NY Times. The main issue at hand is not the considerable damage that rag has done to our nation, though if anything that is all the more reason to refute rather than ignore it. My father knew in the late 1950’s who the real Castro was from reading Robert Welch; rather than ignore the NY Times as they praised Castro, he was able to point out to friends the stark contrast between the truth and the lies on its pages. By doing so, he did his part to erode its influence.
The main issue is not the exact number of millions of readers the print edition of the NY Times reaches either; the circulation of its print version hardly defines its influence. I skim its headlines daily online, as I am sure millions more do, and as the ideas are digested and influence the thinking of those millions, the effects ripple outward through myriad channels.
The main issue is the original contention that we should not concern ourselves with Paul Krugman. Lets’ assume, merely for arguments sake, that the NY Times is “fringe” and inconsequential. Krugman’s influence is hardly limited to readers of the Times. He is a major economist and perhaps one of our most influential intellectual foes.
Krugman is one of the most widely read and influential economists in the world today. He has written many widely read books and edited even more than he has written. He has written hundreds of papers and articles that are published all over the world. He has written for Fortune, Slate, The Harvard Business Review, Foreign Policy, The Economist, Harper's, and Washington Monthly and had his articles and ideas published, reprinted, or otherwise disseminated in countless others, from the Huffington Post and USA today to Newsweek . And that’s just print media CNN, MSNBC
Students have been infected with Krugman’s economic virus in his classes at MIT, Yale, Princeton, Stanford, and the London School of Economics. He won the Nobel Prize for Economics. He is a Fellow or Associate or prominent member of a variety of groups and organizations. He has advised the Federal Reserve. If this thumbnail sketch isn’t enough to deem him worthy of refutation, consider that his influence hardly stops at our borders. He has the ear of the World Bank, the IMF, and the UN, as well as other nations. The Asia Times and The Economist have both noted his influence, and the King of Spain gave him an award. (Speaking of awards, how many has he won, including the Nobel Peace Prize?)
Krugman is a dangerous enemy and, as such, we must keep a close eye on him; he must be met head to head, toe to toe, issue by issue, point-by-point.
Last thought: I don’t consider the Libertarian Party “fringe” because of its tiny influence in elections. Our ideas are exponentially more influential than our total votes. While we may only garner a few precious percent nationally, look at the major strides we made in this last election with Ron Paul carrying the ball. Without that effort, we would never have been able to garner support for auditing the Federal Reserve. We are at war. We must renew our spirits and redouble our efforts now, while words can me our most effective weapon. Fight on compatriots!
Mitchell Langbert
Why bother concerning ourselves about Paul Krugman? We're at a point where attention paid to the Times and its writers merely serves to empower them. They don't need to be debunked any more than a writer for the ACORN or AFL-CIO newsletters, or any other partisan group. The best policy toward the Times is to forget its existence and to regard anyone who refers to it as a crank or a flake.
One of the links in the von Mises article is to an excellent list of Krugman quotes arguing for the Fed to inflate a housing bubble: Krugman Did Cause the Housing Bubble (url:http://blog.mises.org/archives/010153.asp).
One of the comments under that blog adds another example of Krugman Gnawing on His Foot (NY Times 8/2/02) (url: http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html): "To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
Another comments links to: Reason Magazine: "Dr. Krugman: This Patient Needs More Blood-letting" - Comment by "Ben" (url: http://www.reason.com/blog/show/134131.html#1305886), which is worth the read just for this Vintage Inflation Propaganda Clip (10:00 min) and the comments under it.
Richard:
While I can't stand Krugman, he is an actual economist and not a journalist. He won a Nobel prize for something that was sensible on location factors in trade, not nonsense. As he is influential, it pays to be aware of what he says. He is not a fringe, marginal figure.
I made a narrow escape from Krugman. I dated his sister-in-law years ago. Imagine if things had developed and I would have to talk to him.
Phil Orenstein just left a comment on a prior blog that Paul Krugman was awarded the Nobel Prize in economics. Given that Krugman is a quack and the field of economics that Krugman represents has the same status as a science as does astrology, I urge the Nobel Prize committee to be fair and to institute a Nobel Prize in astrology to complement the Nobel Prize in economics. I'm sure that there are many smart astrologers out there whose contribution to human knowledge exceeds Krugman's.
Blue collar workers' real wages have stagnated because of labor supply factors. These include:
-The baby boom -Immigration -Diversity
They have also stagnated because of:
-Health insurance costs and -Costs of bureaucracy due to workplace regulation.
Social stratification has increased because of:
-Urban renewal and disruption of blue collar social networks and -Unnecessary college degree requirements.
In other words, supply factors and government intervention have caused the stagnation of blue collar real wages that the US has suffered in the past 30 years.
In recent years, a coalition of the new left and old right has found common ground in attacking freedom of exchange. Their "pro-Corn Law" argument is that trade results in poverty. But they forget about the massive starvation during the Irish potato famine that the "anti-globalization" Corn Laws caused. The argument is based on a post hoc ergo propter hoc fallacy, that because stagnant wages have followed post-war globalization, post-war globalization caused the stagnant wages. The General Agreement on Tariffs and Trade began liberalizing trade immediately after the World War II, but wages did not begin stagnating until the early 1970s when the Baby Boomers entered the workforce and immigration had begun to increase due to the the 1965 immigration law . Amazingly, liberal economists ignore these factors when discussing stagnant wages.
Post hoc ergo propter hoc is a common fallacy in social science because it is difficult or impossible to control for the effects of all variables. Hence, the validity of social science findings must always be regarded with deep suspicion. Yet, despite the lack of evidence of a causal relationship between lower wages and globalization, the mass media has given considerable air time to demagogues like Lou Dobbs, who claim that globalization causes poverty. A bit of common sense suggests that this is improbable, because although employees who lose their jobs sustain losses due to relocation of industry, millions of others pay lower prices because of the same relocation. In turn, with extra cash, consumers either save or consume, which results in renewed demand for labor.
The "golden age" of wages for which Michael Moore, Pat Buchanan and Lou Dobbs yearn was characterized by restrictions on entry of labor supply that artificially propped up wages: the low birth rate of the 1930s Great Depression; the exclusion of Blacks from the best and unionized jobs; the absence of women; and race-based limitations on immigration.
During this "golden age", the federal and state governments further created the conditions for wage stagnation with a search and destroy mission against social networks in blue collar and poor communities that had in the past propped up blue collar entrepreneurship. At the same time, tax exemptions for third party health insurance, Medicaid and Medicare boosted demand for health insurance, indirectly raising labor costs through higher premiums. The costs of these programs include a considerable premium for fraud and bureaucracy. The New York Times recently found that New Yorkers pay one billion dollars for Medicaid fraud, which is likely the tip of the iceberg. Health plans are penalized because unnecessary care and the costs of bureaucracy to control it raise health care costs dramatically. The higher medical costs reduce labor demand.
Paul Krugman, a liberal academic, does not argue that globalization causes lower wages. In an article in Rolling Stone he states the statistical facts that:
"(W)ages have failed to keep up with rising prices...The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000."
Krugman argues that inequality is because of the reduction in the power of unions, greed of corporate executives, and declining real value of the minimum wage. He also argues that American society has become more stratified than European society and he fears stagnation similar to Latin America's. However, Krugman ignores the absence of stable legal systems, the rule of law, individualism and laissez faire in Latin America. As well, he does not mention the key factor to which I allude above: the demographics of the Baby Boom, which dramatically increased the supply of labor. The Baby Boom generation was also the first to see a marked increase in the percentage of college graduation. As well, immigration increased in the late 1960s, just prior to the flattening of real wages (see George Borjas on immigration). Increased labor force participation of Blacks, Hispanics, women and other minority groups beginning in the late 1960s increased further the supply of labor around the time that wages began to flatten. Likewise, hostile state and federal regulation increased labor costs by imposing regulation, bureaucracy and paperwork in a myriad of health and human resource-related areas (OSHA, ERISA) in the early 1970s, likely without increasing workers' standard of living much (see Kip Viscusi on OSHA).
The effects of urban planning in cities like New York that destroyed functioning, racially integrated neighborhoods and replaced them with segregated neighborhoods separated by class and race lines in the early 1960s likely contributed to social stratification; this was exacerbated by the creation of a welfare-dependency culture. The urban renewal and welfare policies of the 1950s and 1960s destroyed entrepreneurial initiative and self-esteem of inhabitants, and created a psychology of welfare-dependency.
All of these factors combined, namely, governmental assaults on low-wage entrepreneurs through urban renewal, regulation and paperwork in the 1960s and 1970s, unpreventable demographic shifts (e.g., entrance of the Baby Boomers into the workforce beginning in 1969), and immigration contributed to stagnant real wages and stratification. Government added to the mess by raising social security benefits in the early 1970s; the raise in contributions further increased labor costs.
Krugman's argument about corporate greed involves the post hoc ergo propter hoc fallacy. While I agree that top executive pay increases have been excessive and too often have failed to reflect stock market-adjusted firm performance, there is no connectionbetween the raises the top managers get and blue collar workers' stagnant wages. Most workers do not work for the large corporations that Krugman is criticizing, where top executives earn in the millions. First, according to the Bureau of Labor Statistics the median worker works in a firm with slightly above 250 employees. These are not the firms with multi-million dollar executive compensation packages. If large firms are inefficiently run, such smaller firms may benefit because the larger firms are less competitive. Large firms' poor governance may increase wages of lower-wage employees of smaller firms, i.e., the median.
Second, the wages of workers in large firms, where there are high executive salaries, are higher than the wages of workers in median firms.
Third, there is no reason to believe that the wages of executives in the large firms influence the wages of the workers in the same firms. Wages are determined by supply and demand and productivity. Firms continue to hire workers until the wage, as determined by supply and demand, equals the marginal revenue product. If the supply increases, there is downward pressure on wages, and the additional workers hired will be less productive and wages will decline. This will in turn increase profit. However, the reverse will occur should the Baby Boomers retire and immigration be curtailed.
As far as stratification, I have just finished reading David Farber's excellent Sloan Rules: Alfred P. Sloan and the Triumph of General Motors (University of Chicago Press, 2002) and could not help but notice the large percentage of automobile executives in the 1910's, through 1940's who did not have college degrees (although Alfred P. Sloan himself was an MIT graduate) but who, because of ability, worked their ways up to the pinnacle of business success. Three examples were William S. Knudsen, Henry Ford, and Walter Chrysler. Today, most inner-city youngsters with engineering talent would not be able to pursue a career in most industries if they, like Knudsen, Chrysler and Ford, failed to get a degree. An exception was the well-connected Bill Gates, whose privileged exposure to computers at an elite high school and family connections contributed to his success (along with his off-the-charts ability).
Brad DeLong of Berkeley argues that imports are not the cause of stagnant blue collar wages, essentially agreeing with Krugman:
"The U.S. is not facing increasing competition from low-wage countries. Imports are not the principal cause of falling blue-collar wages, or falling demand for blue-collar workers. The most rapid growth in the relative share of imports occurs in the 1970s, during which blue-collar wages keep pace with productivity and with the wages of white-collar workers...
"The decrease in blue-collar job demand because we do not produce what we import is roughly offset by the increase in blue-collar job demand by export-producing firms...Blue-collar job demand in construction, machine tools, and other investment-goods industries rises because foreign capital finances more investment in America than would take place otherwise...In 1962 36% of the workforce were blue-collar 'production workers'; in 1992 26% of the labor force falls into the blue-collar category. If today we had the same occupational distribution of employment that we had in 1962, there would be 12,000,000 more blue-collar jobs. Thus 'Globalization' --trading our services for their goods--is responsible for only five percent of the relative decline in the share of blue-collar jobs in our economy over the past three decades."
What is amazing to me is that there has been so much criticism of globalization based on the claim that there is a relationship between globalization and wages, but the obvious supply factors: labor market participation, supply, demographic effects, government regulation, mandated social security and Medicare benefits, health care cost inflation and factors affecting stratification (unnecessary job requirements based on education) are not mentioned.
I have researched and written about employee benefit issues and in my previous life was a corporate benefits administrator. I am currently associate professor of business at Brooklyn College. I hold a Ph.D. from the Columbia University Graduate School of Business, an MBA from UCLA and an AB from Sarah Lawrence College. I am working on a project involving public policy. I blog on academic and political topics.
