Monday, July 24, 2017

Leading by example

Sometimes, as parents, we wish that our children not follow in our footsteps.

Belladonna went camping this past weekend.  It rained.  Her phone got soaked and now it does not work.  Like father, like daughter.

She shopped with great energy and found the replacement phone she wanted for $450.  It was 25 miles away in the city of Jackson, Michigan.  Jackson, Michigan is famous for once having the largest walled prison in the world.  The woman was selling her phone because her car needed repair work.

Belladonna asked if I would come along as she knows that meeting strangers in the place of their choosing while carrying $450 is not always healthy.

The woman was 15 minutes late which seemed a bit odd as we were right outside her apartment building.  Belladonna played with the phone a few minutes and said she wanted it.  She counted out the money and the woman disappeared back into the 36 unit apartment (I counted drier vents while waiting).

Forty seconds later, as I was pulling out of the parking place Bella said, "Crap!  The phone is locked.  I need her password!"

How do you call somebody who just sold you their phone.

After many futile attempts, Bella sent her a message via Facebook.  And now she waits.

I suggested that Bella offer the woman another $20 for the password.  After all, it is inconveniencing the seller a little bit and it is gracious to offer compensation.  Karma can be a bitch or karma can be your friend.  It is much, MUCH better to have Karma be your friend.

The trip down
To kill time on the drive to Jackson we counted vehicles parked beside the road that were for sale.  We counted 16 in the twenty-five mile trip.

The government judges we are in a recession when we have two negative quarters in a row.  Considering that the recession can start in the middle of one quarter and not be enough to flip it to negative, then two solid negative quarters and then another three weeks to compile the numbers; we can be skidding into the ditch for almost nine months before the official numbers recognize that the economy is in the septic tank.

It is a bit like telling the next-of-kin that the corpse has a chest cold.

A solid real-time indicator is the number of vehicles and boy-toys for sale beside the road.  Folks sell their boats and snowmobiles and quads and mud-boggers when money gets tight.  If it is an individual tragedy then the boy-toy gets snapped up by a bargain hunter.  If it is more global in nature then the number of people pitching ballast out of the gondola of the hot-air balloon overwhelms the bargain hunters and you start getting more than one boy-toy every couple of miles.

With sixteen vehicles for sale in twenty-five miles it is a safe bet that the government will declare a recession in 6 months.

Roxy's Cafe
I bought Belladonna breakfast.  She is good company.

The parking lot at Roxy's Cafe was crowded which is a great sign at a diner at 10:30 in the morning.
Where else can you find a Homer Simpson Omelette (#9 for $19.99) or a Gourmet Yuppie Breakfast (Only $329.99)
The menu was inspiring.

The wait staff was awesome.
The restroom was clean.

The other diners were fun to chat with.  One couple was visiting from Dickinson, North Dakota.  The gentleman was a baker by profession and his companion (wife?) was retired.  They both thought very highly of Roxy's Cafe.

Under the gentle guidance of Theresa, my waitress, I ordered the Black Russian sandwich.

Shortly after my new friends from Dickinson, North Dakota left a gentleman sat down at their table.  Like I said, the place was busy.

He was about fifty, maybe fifty-five.  He had situational awareness.  He also had the coolest shirt in the world.  I want one.

So, I struck up a conversation with him.  It turns out you have to know his friend Steve to get a shirt.  Steve's hobby is graphic design and silk screening.

My brother went through a phase when he was into silk screening.  I can attest that these shirts are world class with regard to technical execution.  The shading is very difficult to do with silk screening and Steve executes it flawlessly.

For obvious reasons most of these shirts are purchased by professionals in Law Enforcement.

I emailed Steve and this is his response:

Thank you Joe for the kind words. Public can buy them however we only have a few left in stock. We are working on a new version as we speak. I appreciate it.
PO Box 6555

Jackson, MI 49204

What is cool about this is that Steve is a businessman who offers a service (playing music at weddings) to the general public.  He could have cowered in the background and declined to sell me (and you) these shirts.  Following his convictions might cost him business.

Drop him a line if you want one of these shirts or if you want to support a pro-2nd Amendment business that operates on principle...even if it might cost him a few gigs in the short term.

Sunday, July 23, 2017

Run #5: 2 miles

No drama.

Still taking some walking breaks.

I saw eight raccoons crossing the road into a corn field as I was running.  Fur prices are down.  Raccoon pelts traded for $6-to-$10 in the 1930s.  They sold at auction in March of 2017 in the same range.

Richard Nixon was very good for the fur trade.  Normalizing relations with the Soviet Union opened up an enormous market that valued good fur.  The ruble's loss of value torpedoed that market and raccoon pelts dropped back into the $5-to-$10 range.

The mobility of capital continued

I failed to speak about the mobility of capital in the previous post.

In this context, I am not referring to money as capital.  I am talking about the physical means of production.

As society self-organized and produced goods in excess of immediate needs, enterprising souls ventured forth and traded those excess goods for other villages' and farms' excess goods.  In total, most people's standard of living rose as goods and services that were scarce or difficult to produce locally became more abundant.

Fast forward to the industrial revolution
The means of production was not very transportable early in the industrial revolution.  You cannot easily move a harbor or a water power site.  Steam engines were colossal for the power they produced.  Extractive industries like mining were not mobile.  Foundries and steel mills are enormous and must be sited near transportation and critical inputs like ore and fuel.

It was similar with human capital.  Processes were wing-of-bat, eye-of-newt.  Processes were found by empirical methods.  The science behind the processes was not know.  The master craftsmen who knew how to heat treat steel or make tools was something of a wizard.  They were rare and not easy to replace.

That gave collective bargaining a huge advantage.  Going on strike shut down the means of production and forced the owners to carefully weigh the cost of increased wages versus the cost of lost production.  Since the strikes did not happen in isolation, the owners were able to increase wages because they knew that their competitors would also be forced to do the same.

It should be noted that municipalities were also elbowing their way to the trough to collect their "rent".  They raised taxes because they could. It went beyond the basics of cops and firefighters and collecting the garbage.  Monuments called City Hall were built.  Statues, arts, festivals and other diversions were forcibly subsidized.  Payrolls were larded with nephews, nieces and mistresses.  Consulting fees were paid.

The owners still had "pricing power".  They were able to pass the costs on to the customers.  The customers were still glad to have the burgeoning output and continued to snap up every pin, needle and ingot at the price asked.

Lean manufacturing
Lean or Flexible manufacturing is an entirely different kettle of fish.

Automobile plants are no longer three story, masonry buildings with docks and blast furnaces at one end and the shipping dock at the other.

They are pole barns sided with sheet steel and the floor is at ground level.  The tools are moved from flatbed trucks and train cars by ordinary fork-trucks into the building and then the sides are installed.

They are disassembled and the tooling shipped anywhere in the world by simply reversing the process.  The sides are stripped off of the building and the entire factory can be on-the-road (or rail) in a week.

Work is "standardized".  If you can read English and have a modest amount of physical ability then you can follow the directions.  It may take you 10,000 repetitions to become totally proficient at the most challenging jobs but that is twenty working days at standard production rates.  Simpler jobs (i.e., most jobs) can be learned in three shifts.

The owners of the means of production now have the ability to flee unfavorable environments.    Too many regulations?  Gone!  Too much civil violence and strife?  Gone!  Taxes too high?  Gone!  Infrastructure not being maintained?  Gone!  Too many frivolous law suites?  Gone!

It is a fascinating game.  How much "rent" can suppliers, municipalities and labor extract from the owners before the owners move the factory to a more favorable location?  I expect that folks are watching Illinois with the same interest that baseball fans watch the preseason.  Look for a lopsided score.

Legislators are not used to businesses voting with their feet.  They are still stuck in the old paradigm of harbors, blast furnaces, steel mills and railbeds.  They are ill equipt for the mobility of lean manufacturing and professionals who can do their job just as efficiently sitting beside the pool in Cancun as they can from an office 500 feet above the Chicago Loop.

Saturday, July 22, 2017

Cash cows and the permanance of capital investment

If you came of age in the 1970s or 1980s and bothered to open a business magazine you would have seen articles about the "S" curve.  It was taken as inevitable that technologies, products and corporations followed this curve.

An idea would be born in a lab.  It would smolder for years, perhaps decades as enabling technologies were developed.  One common example was the turbine engine.  It waited for metallurgy and production processes to catch up with the concept.  Then it would "break-out".  Enterprises would produce at a loss to build up market share and to slam the older, less competitive technology into the coffin.

Once the upward trajectory of the new technology was firmly established, firms would sink gonzo funds into product development and production facilities.

Slightly later, competition from other firms would start to blunt the stratospheric growth.  Also, initial pressures from even more advanced technologies might start bending the growth curve toward horizontal.

The final stage was that of cash-cow.  The goal was to push huge volume out the factory door before the technology was rendered obsolete.  Don't invest anything, just keep yanking on the arm of the slot machine.

Imagine that our technology is the second technology.  Image from HERE
This image shows our "S" curve in the context of more and less advanced technologies.

What is less clear about the "S" curve is what happens after "your" technology plays out.

Lag times
Picture an ecosystem dominated by one type of life.  For the sake of this essay let's pick a grass/clover pasture.

Then picture cattle to graze the pasture.

Then picture flies laying eggs on the cow pats and the resulting flies biting the cows.

Picture worms, and bacteria and fungi breaking down feces and bits of root sloughed off the grass and clover.

Picture birds winging in to peck at the fly larvae in the cow pats and to eat the worms.

Each trophic level lags the one it rests upon.  The cattle cannot expand more quickly than the pasture it depends upon.  The flies cannot increase in mass more quickly than the cattle they depend upon.  The birds cannot increase in aggregate more quickly than the flies and worms that they eat.

Those lag times imply that the number of pounds of cattle could be increasing even if every blade of grass and stem of clover died.  Those cows could continue to fatten on the standing hay of the dead sward.

The number of flies could continue to grow.

The birds winging overhead could continue to increase on the shear momentum of the resources stored up the (formerly) vigorous pasture.

Cities and other institutions
And so it would seem to hold with cities and other institutions.

Some natural competitive advantage causes one village to grow and absorb the surrounding villages.  It might be proximity to natural resources, a great harbor, fertile plains or even a pass through or around natural barriers.

The city grows helter-skelter.

In time, parties notice that the capital investments in the city are not very mobile.  It is difficult to move a harbor.  Rent seeking behaviors (strikes) occur.  Decision makers decide to forgo some profit to ensure production continues.  This is most pronounced during the cash-cow phase.

The parties become inwardly focused.  Labor seeks more rent from management.  Management focuses on labor.  Municipalities seek more rent from both labor and management.
Rail traffic map
They fail to see that canals are being replaced by railroads.  Railroads being replaced by interstate highways and air transportation.  Highways and air being replaced by information transmitted through fiber optics.

Higher tophic levels find themselves stranded atop a dead pasture.  Cattle wander the dusty plain looking for grass and finding none.  Later, birds look for flies on dried carcasses with equal futility.

A city at peak economic activity struggles to find employees.  Little does it know that those employees will become a huge burden as the tax base erodes even as the legacy costs grow.  The employee hired at age 19 might be alive at age 99 and still expecting a pension and healthcare benefits.

Thus we find the cities 1920s, the cities lionized by Carl Sandburg, cities of immigrants and former share-croppers working together to  muscle crucibles of molten metal about a factory floor; those cities struggling to make payroll in the 20teens.

I don't think this model is 100% deterministic.  But I think it should give the regions with booming economies pause.  Capital investment can grow legs and walk away.  Advancing technologies can make seemingly impenetrable fortresses a cost rather than an advantage.

It is good to remember that "Pigs get fat and hogs get slaughtered."  There is much art in knowing the difference between a pig and a hog.

The "New car"

I drove Mrs ERJ's minivan today.  I see it passed 200K miles.

Mrs ERJ's minivan is the new vehicle.

The good news is that Kubota is looking at buying a truck.  The last truck he looked at was a 1974 C10 (Chevy) truck.  The odometer only showed 04714.2 miles on it.  The owners were only asking $2000 and it only needed a little bit of work on the motor and transmission and breaks (sic).

I don't think he is going to buy it because it does not have A/C.

Doomsday bunkers

This is one of the articles that accompanied the article.
Forbes, a magazine that is rarely associated with satire or puckish humor ran an article on the rising popularity of "billionaire, doomsday bunkers."  Many of the usual Alt and Prepper sites are citing it.

This map just plain looked wrong so I read the Forbes article.

Do you see that landmass to the east of Florida?  That is Atlantis.  You won't find it on many other maps.

The fact that you can see anything of Florida while a corner of Colorado is flooded should ring an alarm in your head.  The highest elevation in Florida is 345 feet.  The highest elevation east of the Mississippi is Mt Mitchell at about 6700 feet.  The lowest elevation in Colorado is 6800 feet.  That is, every point east of the Mississippi will be flooded by rising oceans before Colorado has a single foot of oceanfront beach.  Sharp-eyed reader Windy Wyo spotted an error hence the crossed out text.  Corrected text now reads: The lowest elevation in Colorado is over 3000 feet above sea level.  All of Florida will be underwater before Colorado has a single foot of oceanfront beach.

So what is this map?
This simulation an elastic/plastic body being impacted was provided by Gify.

Glad you asked.  It is an artist's representation of what the the earth might look like after it was hit by an asteroid of unknown size traveling at an unknown speed and hitting the earth in an unspecified location.

Don't use the Forbes map for any serious planning.  The map is made-for-tabloid trash, intended to gull the patsies.

Friday, July 21, 2017

Knitting my brows in consternation

Tyler Cowen recently posted a list of public institutions that he thinks are still working well.

His list includes
  • The Congressional Budget Office
  • The courts
  • The Senate
  • The media
  • The think tanks
  • The bureacracy
He wrote the following about the media:

The media as investigators have been excellent, though as summarizers of what is really going on I see their performance as much weaker, due to selective reporting.
At a technical level, I wonder how he can have enough data to reach a conclusion regarding the media's investigative prowess?  What basis does he have if all of the news is "filtered"?  Looking at the conundrum through the lens of an economist (and Tyler Cowen is an excellent economist), why would any business invest resources in "investigation" that will produce output that is not salable? 

Lack of a market is an a priori indicator that there will be little or no research.  If there is little or none, then how can it be judged?

I also wonder how one goes about setting standards for research.  In general, we hold the academic model of peer reviewed and replicated studies to be the gold standard.  Even the gold standard has been tarnished.  According to the BBC, two-thirds of peer reviewed studies could not be fully replicated by other scientists.  Given a confidence level of 90%, one would expect 1-in -10 to not replicate.  If the gold standard is failing, how can one hold the slap-dash research of not-very-bright journalists in high regard.

Am I too rough on journalists?  Perhaps.  But if most interesting things are motivated by money and the allocation of resources, then a good newsroom would have several accountants/CPAs on staff to follow the money.  They would also have some retired cops and maybe even a couple of former FBI guys banging on keyboards. 

Who do you see in the news room?  Burned-out 27 year olds who graduated with $100,000 in student debt.  They are expected to put in 50 hours a week and travel on their own dime.  They might as well be selling Cutco Knives or Kirby Vacuum cleaners.  They are desperately looking for gainful employment in other industries, any other industry.

Finally, why is "the media" included in a list of public institutions?  All of the other inclusions are arms of the government.  Is the media an organ or agent of the government?