Tuesday, May 30, 2023

Higher Unemployment Won't Stop Wages from Rising

The net result of these dynamics is official unemployment can soar but employers will still be scrambling to find qualified, willing employees.

The labor market is viewed as a sea of fluid workers. When one industry shrinks and lays off workers, it's presumed the workers will find employment in an expanding sector. So laid-off construction workers will transition to insurance sales, become waiters, go back to school to train for jobs in the healthcare sector, and so on.

It's also presumed that young workers will automatically be hired and trained in whatever sectors are expanding. The fresh clay of high school / college graduates will be molded into whatever workers employers need.

This isn't how the labor market actually works. People have constraints which limit their willingness and / or ability to transition to new kinds of work. These constraints may be physical--many are unable to do demanding physical work--intellectual--they lack the training or mindset needed for demanding knowledge-work--or emotional: high-stress jobs burn people out.

There are social, cultural and financial constraints as well. For example, young people will not take jobs in sectors they have no interest in. Trendy fields attract talent, staid fields are avoided. There may be an expectations gap between what young workers expect in pay and workload and what employers are offering.

Although few seem to have noticed, the pandemic lockdown pushed millions of people into discovering ways to survive without taking fulltime jobs. People get creative when they have to, and as a result of the lockdown, people found they could get by on much less than they once thought. People found nooks and crannies in the economy outside the conventional mainstream of full-time work in government or Corporate America. They have side hustles, work for cash, rent out rooms, live with Grandma and Grandpa (two Social Security checks, yowza), live in a rent-free micro-house and so on.

In other words, there is a vast spectrum of mismatches between what employers want and what the workforce is able to do and willing to do for the pay and work being offered. This has forced employers to loosen conventional demands--for example, offering flex-time for working parents, conceding to remote work, etc.--and offer higher pay and upsides (bonuses, stock options, etc.) to retain workers and poach experienced, willing workers from other employers.

As I noted in Here's How We'll Have Labor Shortages and High Unemployment at the Same Time (April 3, 2023), there are also demographic and generational forces in play. Retiring workers are in many cases taking irreplaceable work experience with them, and the replacement workers lack the requisite training and on-the-job problem-solving. Expectations and standards change with each generation.

As I explained in Wages Going Up for Good: Catch-Up and Blowback (May 24, 2023), wages must play catch-up after 45 years of declining purchasing power. A "living wage" in an era of relentlessly higher costs due not just to inflation but to credit-asset bubbles is much higher than it was in previous, lower-cost eras.

Many workers are still earning close to the same hourly rate I made in 1985 ($12/hour) while official inflation has tripled and the cost of housing has risen five or six-fold, along with higher education, childcare, health insurance, etc.

The net result of these dynamics is official unemployment can soar but employers will still be scrambling to find qualified, willing employees. Wages have to rise regardless of unemployment or recession, but few analysts seem to grasp the social and economic forces in play stretch back generations.




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Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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Friday, May 26, 2023

Sorry Our Demographic Karma Ran Over Your Economic Dogma

Your bogus economic dogma of "growth via the wealth effect" created the demographic karma that will bring down the status quo.

What happens when you bleed your workforce while enriching those who already own assets with one bubble after another, all in the name of "fostering growth"? To answer this, let's modify a felicitous phrase: Sorry Our Demographic Karma Ran Over Your Economic Dogma.

The Demographic Karma is young people can no longer afford houses, healthcare or children and so the birthrate plummets and the workforce shrinks to the point that the bloated, heavily indebted status quo collapses under its own weight.

Demographic-economic chartist CH summed it up very succinctly in a recent Tweet:

@Econimica: Asset/RE bubbles (of assets primarily held by elderly/institutions) must be maintained to avoid a banking/economic crash...but the price will be the ongoing collapse of families/births...saving the present at the expense of the future (again).

This dynamic of Demographic Karma crushing Economic Dogma is global, as evidenced by this Tweet about China's demographic collapse and bubble-economy:

@fuxianyi: Chinese policymakers now face a dilemma: if the real-estate bubble does not burst, young couples will be unable to afford to raise two children. But if the bubble does burst, China's economy will slow, and a global financial crisis will erupt.

The Economic Dogma holds that inflating one speculative credit-asset bubble after another is wonderful because each bubble produces a "wealth effect" in which those who inherited assets or bought assets in the past are greatly enriched by the bubble. Feeling wealthier, they then borrow and spend more freely.

This Economic Dogma--that bubbles are excellent pathways to "growth"--is a form of "trickle down" economics in which the wealthy borrowing and spending more "trickles down" to the middle class and working class.

As the charts below show, this theory is baseless and bankrupt: the rich get richer and richer and everyone else gets poorer and poorer with each bubble. What's "growing" is wealth and income inequality as the demographic consequences of this soaring inequality collapses the social contract.

Let's go through the chart deck.

1. The US workforce is fully employed. Many expect a recession and AI will slash employment and create a pool of unemployed seeking work at low wages, but this isn't how it works. As I'll explain in a future post, the mismatches between the work employers need done and the skills and willingness of the workforce to do the work for the offered wage mean the unemployment rate can be high but workers are still scarce.

2. The expectation that US population and the workforce will ceaselessly expand is not guaranteed, especially if immigration declines. What is guaranteed is the population of retirees will continue rising.

3. Wages' share of the national income has declined for 45 years as the gains of the economy were shifted from labor to capital.

4. The top 1%'s share of wealth soars to new heights in every speculative credit-asset bubble.

5. The middle class's share of wealth plummets in every speculative credit-asset bubble and only gains ground when bubble pop. (We all know what happens when bubble pop: the Federal Reserve fraks out and creates trillions of dollars in stimulus that then flows into the pockets of the wealthy via the next bubble.)

6. Household net worth has skyrocketed far above inflation and the growth of the economy (GDP). As the charts above show, this wealth flowed disproportionately to the top 1%.

7. Thanks to the Fed's latest bubble--The Everything Bubble--housing affordability is at an all-time low. Put another way, the ratio of median income to housing prices is at an all-time high.

8. To stave off the inevitable karmic consequence of extreme wealth inequality--social disorder--the federal government has borrowed and blown tens of trillions of dollars on "fiscal stimulus" to buy the complicity of the 90% left behind.

So sorry Our Demographic Karma Ran Over Your Economic Dogma. Your bogus economic dogma of "growth via the wealth effect" created the demographic karma that will bring down the status quo.


















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Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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Wednesday, May 24, 2023

Wages Going Up for Good: Catch-Up and Blowback

Blowback has its own dynamics, as we'll learn in the decade ahead.

One of the most durable expectations in the financial sphere is that inflation will drop sharply in a recession and the Federal Reserve will lower interest rates back to near-zero. There is a good reason to doubt this: rising wages. Yes, we all hear about the millions of human workers who will shortly be replaced by AI--wonderful for corporate profits!--but few pundits bother looking at long cycles in interest rates and inflation, and even fewer pay any attention to the absurdly extreme asymmetry of labor and capital.

As I've often noted here, labor's share of the economy has fallen for 45 years. Only recently did it reverse slightly. It's not yet clear if this was a brief false-breakout ot a change in trend, but there are good reasons to expect a secular, cyclical reversal that lasts years or even a decade.

In other words, a decade in which labor / wages gain at the expense of capital.

There are two basic narratives that are offered as explanations for how capital siphoned $50 trillion from labor over the last 45 years. One is that the macro-forces of globalization and financialization inherently favor capital and reduce labor's leverage as production and jobs were offshored and US workers entered a race-to-the-bottom competition with developing nations' low-cost workforces--a competition that kept US wages stagnant even as US corporate profits and financial assets soared.

The other narrative starts with the observation that the erosion of wages and the glorification of corporate power was the direct result of specific policies being adopted. The dominance of corporate interests and the stripmining of labor were anything but inevitable: it was engineered by policies that enriched the top 0.01% (the Financial Aristocracy), and the top 10% who own 90% of America's productive capital.

This wholesale transfer of wealth and income from workers to Capital was documented by a RAND Corporation report, Trends in Income From 1975 to 2018. Time magazine summarized the findings: The Top 1% of Americans Have Taken $50 Trillion From the Bottom 90% -- And That's Made the U.S. Less Secure.

(We're told the stagnating wages of the past 45 years) were the unfortunate but necessary price of keeping American businesses competitive in an increasingly cutthroat global market. But in fact, the $50 trillion transfer of wealth the RAND report documents has occurred entirely within the American economy, not between it and its trading partners. No, this upward redistribution of income, wealth, and power wasn't inevitable; it was a political choice--a direct result of the trickle-down policies we chose to implement since 1981.

The net result of this four-decade siphoning of wealth/income from workers was documented by a Foreign Affairs article: Monopoly Versus Democracy:

Ten percent of Americans now control 97 percent of all capital income in the country. Nearly half of the new income generated since the global financial crisis of 2008 has gone to the wealthiest one percent of U.S. citizens. The richest three Americans collectively have more wealth than the poorest 160 million Americans.

In other words, the bottom 90% have very little stake in the status quo: they receive essentially zero income from America's stupendous $140 trillion hoard of private wealth and have essentially zero political influence, as documented in Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens.

We can see these realities in the data /charts. As the charts below (courtesy of the Federal Reserve FRED database) show, wages' share topped out in the early 1970s and trended down for 45 years. Corporate profits skyrocketed 15.7-fold since 1982 while inflation rose "only" 3-fold.

This decline in wages is mirrored by a corresponding decline in the wealth of the bottom 90%. It's not just wages that stagnated--so did the share of the nation's wealth held by the middle class / bottom 90%.

The middle class's share of private-sector wealth (total net worth) has plummeted from 37% in the early 1990s to 28%, a decline of $12 trillion compared to what would have been the case had the middle class continued to hold 37% of net worth.

$50 trillion here, $12 trillion there, pretty soon you're talking real money that's been transferred from the wage-earning peasantry to America's Financial Aristocracy.

We see this vast asymmetry in who collects the primary engine of wealth for the top few: capital gains. Those who already own most of the wealth have pocketed the stupendous gains of the past three decades. Middle class households pocket $4,000 or $5,000 in annual capital gains while those who own most of the wealth pocket on average a cool $1 million--200 times the middle class gain in unearned income.

So why will wages rise, regardless of deflation and AI? Catch-up and blowback. Even if we accept the "gee, we were helpless to stop wage stagnation" story (which is false, as detailed above), financialization and globalization are reversing and so labor can finally play catch-up to capital's asymmetric gains.

If catch-up is suppressed by corporate political power, then blowback kicks into gear. The workforce has had enough of corporate-state pillaging, and while corporations are gleefully planning the elimination of their human workforce via AI and automation, that fantasy isn't going to play out as expected, for automation has limits which I discuss in my book Will You Be Richer or Poorer?.

Nobody thinks that there could be political limits on corporate power, but precious few asymmetries that reward the few at the expense of the many last forever. Blowback has a remarkable ability to careen from nobody notices or cares to full-blown revolt in relatively short order. The greater the asymmetry, plunder and hubris of the Aristocracy, the greater the eventual swing of the pendulum to the opposite extreme. Blowback has its own dynamics, as we'll learn in the decade ahead.

Wages--and the inflation they generate--are going up for good whether anyone thinks this is possible or not. And inflation pulls interest rates higher, whether anyone thinks this is possible or not. It's not just the Federal Reserve that matters; asymmetries, exploitation and plunder matter, too.










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A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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Monday, May 22, 2023

Are You Ready For a Real Recession?

In a real recession, what seemed safe and rock-solid melts into air.

We haven't had a real recession in forty years (1981-82) and so only those who were in the workforce back then have any experience of how far and how fast things we think are solid can unravel. What's a real recession? In the most basic terms, a real recession is an organic, i.e. unmanipulated by central banks, completion of the credit cycle, also known as the business cycle.

The credit / business cycle is intuitively easy to understand. When the cost of borrowing money (a.k.a. the cost of capital) declines and credit standards loosen so more enterprises and households can qualify for loans, the incentives to borrow and spend / expand increase. Lenders start making more money because they're lending more, and borrowers expand their enterprise, buy assets such as bigger homes and retailers sell more goods and services to borrowers who can now access new sources of credit--home equity lines of credit, higher credit card limits, etc.

All of this credit expansion is self-reinforcing. Free-spending consumers boost sales and profits, lenders are expanding as borrowing soars, enterprises expand to meet new demand, and so on.

Then diminishing returns set in. To maintain the gushing river of profits from expanding credit, lenders loosen standards to the point that marginal enterprises, speculations and households all have access to low-cost credit. Since asset prices skyrocketed as credit pushed demand higher, new investments are increasingly at risk of becoming unprofitable. Those who overborrowed are increasingly at risk of defaulting should their income slip even slightly.

Eventually, those who were poor credit risks to start with overborrow and invest in marginal speculations that collapse. These marginal borrowers default, and eventually lenders are forced by the losses to tighten lending standards. This reduces the number of people who qualify for additional credit, and the credit river dwindles to a rivulet.

The wealthy who can still borrow have no desire to add more debt, and those desperate to borrow more no longer qualify to add more debt. (If you're old enough, you might have heard the expression "Prove you don't need the money and then the bank will lend it to you.")

The self-reinforcing expansive cycle turns to self-reinforcing contraction. Lending, consumption, investment and speculation all drop, reinforcing the contraction, a.k.a. recession.

The organic credit cycle is self-clearing: the analogy of the forest fire is apt. All the dead wood of marginal loans and speculations are consumed--that is, marginal debtors default and unpayable debt is written down as losses--and this destruction of bad debt is necessary to clear the financial system and economy for the next growth cycle.

The Federal Reserve has unleashed floods of "free money" every time the credit cycle started its cleansing phase for the past three decades, effectively eliminating the essential writedowns of bad debt and the tightening of credit that set the stage for organic growth, i.e. growth that isn't the result of stimulus extremes such as Zero Interest rate Policy (ZIRP).

Now four dynamics will usher in the long-suppressed real recession conflagration:

1. Diminishing returns on fiscal and monetary stimulus and the easing of credit. Every cycle of Fed largesse yields weaker, narrower growth and exacerbates wealth-income inequality.

2. Inflation is sticky due to fundamental scarcities and structural changes in the global economy. The global economy, demographics and the cost of capital have all changed. Locking interest rates at zero for another 15 years is no longer a viable "fix."

3. Higher interest rates undermine speculation and the asset-bubble dependent economy. Since rates can't be locked down at zero, a truly stupendous quantity of speculative skims and scams are no longer low-risk or profitable. As these skims and scams unravel or go belly-up, they self-reinforce the decay and collapse of all other debt-based skims and scams.

4. Cheap credit has raised costs. High fixed costs push households, enterprises and governments into insolvency. When credit is abundant and cheap, there's little pushback against higher prices: just borrow more. Once credit contracts and the cost rises, borrowing more is no longer an option. The only remaining option is default and insolvency on a mass scale.

As I noted last week, our collective response is now limited to either 1. complacency / denial or 2. panic. We're still anchored in complacency / denial, but the phase shift to panic is just around the next corner.

In a real recession, growth doesn't dip slightly for a few months. It drops for years. In a real recession, employment doesn't dip for a quarter or two, it plummets hard and keeps dropping, quarter after quarter. In a real recession, borrowing doesn't dip for a quarter, it goes downhill for years. In a real recession, spending and consumption don't dip for a few months, they fall off a cliff and then stumble further down the ravine.

In a real recession, the Fed's tricks no longer work. Fiscal stimulus is limited by the overborrowing of the previous decades of inorganic (i.e. credit-dependent) "growth."

In a real recession, the dominoes fall regardless of what policy tweaks are rushed into place. This is what happens when you let the dead wood and risk pile up. Eventually you can no longer suppress the conflagration.

In a real recession, what seemed safe and rock-solid melts into air. Jobs, income, tax revenues and much else that sre seen as utterly dependable will evaporate. One week your bosses tell you how much they love your work and the next week you're cashiered or the whole business is shuttered. Assets that "never go down" don't just go down, they fall in half. And so on.

The solution for households and small enterprise is to change course now and seek to reduce risk and exposure to conflagration. I call this process improving our Self-Reliance.






New Podcast: Its a Waterfall - Risk, Collateral & Productivity (48 min)

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The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
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Friday, May 19, 2023

2023: Echoes of 1973

So what's changed? Everything, but mostly beneath the surface churn of circus and theater.

2023 is echoing 1973 in potentially consequential ways.. It's not just one year, of course; the entire era from 2019 echoes the era that started in 1969, when the second-order effects of postwar policies finally started kicking in.

Consider these similarities / echoes:

1. Major shifts in global capital and trade flows that attracted little notice start to matter in terms of currency valuations, inflation, monetary and fiscal policy and geopolitics: check.

2. After decades of modest inflation, inflation not only rises but is sticky rather than transitory: check.

3. Major shifts in the power structure of global oil markets: check.

4. Cultural and social shifts become divisive, reaching destructive extremes: check.

5. A global superpower is ensnared in a hot war in which the other side is supplied by a superpower rival: check.

6. Political scandals upend the cozy arrangements of political elites: check.

7. A new wave of geopolitical rivalries arise between allies and rivals alike: check.

8. Stock and bond markets keep rallying like nothing's changed, but since things have changed, each rally fails: check.

Let's focus on #8: market participants continue assuming that the past 15 years are an accurate guide to the next 15 years, unable or unwilling to face the enormity of the changes that have already occurred in the fundamental structures of state and private-sector finance and the economy. (I discuss these in my book Global Crisis, National Renewal.)

These shifts guarantee the next 15 years will not follow the low-risk scripts of the past 15 years. I've explained here many times that systems have their own dynamics, and so they don't respond to our desires or opinions or our policy tweaks. No matter how many policy tweaks you throw at diminishing returns, for example, returns still diminish--though you can mask this reality temporarily behind extremes of stimulus and other financial sleight of hand.

Tightly bound systems, i.e. highly centralized systems, unravel far more abruptly than loosely bound systems, no matter how many fiscal or monetary policy tweaks you throw at the system.

Path dependency and dependency chains direct what happens next and constrain policy options no matter how many policy tweaks you throw at the system.

Emergent systems exhibit characteristics that are different from those exhibited by each of the component systems. This means that we can combine financial "innovations" that generate X and economic policies that generate Y and end up with Z (for example, the whole shebang collapses in a heap.) What If the Whole Shebang Unravels?

Emergent systems exhibit characteristics that are different from those exhibited by each of the component systems.no matter how many policy tweaks you throw at the system because policy tweaks don't actually add any meaningful feedback loops or change the tightly bound centralized system. All the tweaks can do is modify a parameter here or there--meaningless to the fundamental dynamics of the system as a whole.

What's different now is our ability to make realistic assessments has effectively collapsed. As a society and economy, we only seem capable of careening between two states:

1. Complacency / denial

2. Panic

Neither are useful in problem-solving. Rather, both are toxic to problem-solving. Not only do we face an inter-connected tangle of emergent problems, we've frittered away our institutional and cultural ability to make realistic assessments, solve the problems in practical, pragmatic ways and agree to share the necessary sacrifices to get the train back on the tracks.

The loss of our collective ability to solve problems means every problem is now unresolvable. The systems dynamics that will play out in the next 15 years are beyond our feeble control, our feeble understanding and our hubristic blindness to our own incapacity to actually solve difficult real-world problems that demand steep costs and long-term sacrifices.

Note that stocks topped out in April 1973 and then crashed for a couple of years. It's May 2023, but given the 50-year time span, that maps almost perfectly.

The world has changed, but punters and speculators are still chasing the same old sectors, plays and strategies. They will continue to do so, very like for a decade or so, as in the 1970s, until they've exhausted their capital or have given up and exited the casino with whatever they still own.

Governments, meanwhile, will do whatever it takes to protect their powers and elites, so the rules will change overnight and what was sacrosanct yesterday is today illegal. Those who exited the previous era with fortunes will find targets have been drawn on their backs (just ask Jack Ma how this works).

Niceties such as "ownership"--such a slippery term, actually--will be jettisoned as essential resources are expropriated, along with the wealth parked by foreigners, and any other tempting stashes of concentrated capital.

So what's changed? Everything, but mostly beneath the surface churn of circus and theater. There is no ideal historical script that tracks the present exactly, but in rough outline, the 1970s might prove remarkable useful as a guide.






New Podcast: Its a Waterfall - Risk, Collateral & Productivity (48 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


Become a $1/month patron of my work via patreon.com.




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Wednesday, May 17, 2023

How Many Dominoes Must Topple Before One Falls on Us?

Everything's abstract until it happens to us.

Dominoes falling are abstractions until one falls on you. Lines of dominoes toppling are an apt analogy to highly centralized systems that are tightly bound, that is, all the transactions that flow through the centralized hubs are interconnected, so when one domino falls, it topples chains of dominoes that then topple other chains.

Two concepts help illuminate this systemic vulnerability to cascading disruptions: dependency chains and path dependency. Dependency chains are set up when each critical component is dependent on a long line of other components working perfectly. One example is our dependence on our vehicle. If one component in our vehicle fails and it breaks down, our life loses functionality: we can't get to work, drop the kids off, pick up meds at the pharmacy, etc.

Path dependency describes the way initial decisions constrain all future outcomes and decisions. For example, moving to the countryside means we can't walk to essential services, we absolutely need a functioning vehicle. The decision to move constrains our options and limits what decisions are within reach.

Some lines of dominoes fall outside our field of vision--until a domino lands on us. A contemporary example is healthcare. Consider the eventual consequences of this: 43% of physicians regret their career choice: AMA.

In major metro areas, the dominoes falling in healthcare aren't yet visible, but in rural counties healthcare is already constrained by shortages of doctors and nurses. Care is implicitly being rationed by long wait times for appointments with specialists. Patients are shunted around for more tests but slots for actual treatment are limited.

Regions which have chosen to close down plants generating 24/7 electricity in favor of intermittent "green" energy and battery backups (green is in quotes because there's nothing green about the production of solar panels, wind turbines or batteries) have established dependency chains and path dependencies that can lead to electricity being rationed via rolling blackouts.

The longer the chain of things that have to work perfectly for us to get what we need, the greater our vulnerability to something down the line breaking down. Thanks to recency bias, we take it for granted that long global supply chains and complex infrastructure will all continue to work perfectly. The entire chain is invisible to us. We only see and only care about the last step: the gasoline in the service station tanks, the goodies on the supermarket shelves, and so on.

We only care when we can't get a doctor's appointment until 6 weeks from now, or we experience rolling blackouts.

We also don't care about constrained options and decisions until a couple of dominoes land on us and we realize just how dependent we are on things we have no control over. Everything's abstract until it happens to us.

Once we understand that the choices we make now have the potential to make or break our future lives, we become more motivated to tease apart dependency chains and path dependencies and figure out what we can do to decrease our vulnerabilities by increasing our self-reliance.

How many dominoes must topple before one falls on us? Very likely fewer than we think.




New Podcast: Its a Waterfall - Risk, Collateral & Productivity (48 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, de la R. ($6/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Henry B. ($54), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.


Thank you, Robert K. ($54), for your magnificently generous contribution to this site -- I am greatly honored by your support and readership.

 

Thank you, Matthew K. ($54), for your supremely generous contribution to this site -- I am greatly honored by your support and readership.

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Monday, May 15, 2023

What If AI Is Only a Cost and Not a Profit Bonanza?

In the real-world, the costs are all we know for sure and profits remain elusive and contingent.

No one knows how the flood of AI products will play out, but we do know it's unleashed a corporate frenzy to "get our own AI up and running." Corporate fads are one of the least discussed but most obvious dynamics in the economy. Corporations follow fads as avidly as any other heedless consumer, rushing headlong into whatever everyone else is doing.

Globalization is a recent example. Back in the early 2000s, I sat next to corporate employees on flights to China and other Asian destinations who described the travails and costly disasters created by their employers' mad rush to move production overseas: quality control cratered, proprietary technologies were stolen and quickly copied, costs soared rather than declined, and so on.

So let's talk about costs of AI rather than just the benefits. Like many other heavily-hyped technologies, Large Language Model (LLM) AI is presented as stand-alone and "free." But it's actually not stand-alone or free: it requires an army of humans toiling away to make it functional: "We Are Grunt Workers": The Lowly Humans Helping Run ChatGPT Make Just $15 Per Hour (Zero Hedge).

"We are grunt workers, but there would be no AI language systems without it. You can design all the neural networks you want, you can get all the researchers involved you want, but without labelers, you have no ChatGPT. You have nothing."

The tasks performed by this hidden army of human workers is euphemistically sanitized by corporate-speak as data enrichment work.

Then there's the stupendous costs of all the extra computing power needed to deliver AI to the masses: For tech giants, AI like Bing and Bard poses billion-dollar search problem

What makes this form of AI pricier than conventional search is the computing power involved. Such AI depends on billions of dollars of chips, a cost that has to be spread out over their useful life of several years, analysts said. Electricity likewise adds costs and pressure to companies with carbon-footprint goals.

Corporations are counting on the magic of the Waste Is Growth / Landfill Economy to generate higher margins from whatever AI touches--don't ask, it's magic--but few ask how all this magic will work in a global recession where consumers will have less income and credit to buy, buy, buy.

LLM-AI is riddled with errors, and nobody can tell what's semi-accurate, what's misleading and what's flat-out wrong. Despite wildly optimistic claims, locating the errors and semi-accuracies can't be fully automated. Errors are inconsequential in an AI-generated book report, but when patients' health is on the line, they become very consequential: I'm an ER doctor: Here's what I found when I asked ChatGPT to diagnose my patients.

This raises fundamental questions about precisely how much work LLM-AI can perform without human oversight, and the all-too breezy claims that tens of millions of jobs will be lost as this iteration of AI automates vast swaths of human labor.

AI excels at echo-chamber reinforcement of risky or error-prone suppositions and policies: Spirals of Delusion: How AI Distorts Decision-Making and Makes Dictators More Dangerous. What's the threshold for concern that the AI conclusions are riskier than presented? How do we calculate the possibilities that the AI conclusions are catastrophically misguided?

At what point will decision-makers realize that trusting AI is not worth the risk? If history is any guide, that realization will only arise from financial losses and bad decisions. For the rest of us, it might just be the novelty wears off as the inadequacies pile up: Noam Chomsky: The False Promise of ChatGPT.

Since all this LLM-AI is "free," what AI-created goods and services will generate hundreds of billions of dollars in new revenues and tens of billions in new profits? The general answer is the profits will flow from firing millions of costly humans and replacing them with "nearly free" AI software.

But since all your competitors are rushing down the same frenzied path to AI, what competitive advantage will accrue to what is already a commodity (LLM-AI)? Nobody asks such questions because the euphoria of tech revolutions is so much fun.

The enthusiasm unleashed by new technologies is selectively euphoric: the benefits will prove immeasurable and the costs will soon be near-zero. But in the real-world, the costs are all we know for sure and profits remain elusive and contingent.

Exactly what gets wiped out by the meteor strike is not yet known.




New Podcast: Its a Waterfall - Risk, Collateral & Productivity (48 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, de la R. ($6/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Henry B. ($54), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.


Thank you, Robert K. ($54), for your magnificently generous contribution to this site -- I am greatly honored by your support and readership.

 

Thank you, Matthew K. ($54), for your supremely generous contribution to this site -- I am greatly honored by your support and readership.

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Friday, May 12, 2023

Our Two Deep States, One Public, One Private

One Deep State is bad enough, but a renegade, predatory private-sector Deep State is intolerable.

In 2007, well before the term Deep State entered the common lexicon, I sketched the interconnected public-private pieces of the Deep State, which I termed the elite maintaining and extending global dominance. This diagram doesn't make all the connections or list all the consequential nodes of influence of course, but you get the idea: elected officials, i.e. "democracy," play a modest role in the entire structure, which displays remarkable continuity regardless of which politicians and parties are currently in power.

That's the whole idea, of course: continuity that can't be disrupted by an election.

What's changed is the emergence of a private-sector Deep State--a.k.a. Big Tech--that has established unprecedented power outside the control of elected officials even as it continues to play ball with the traditional public-sector dominated Deep State of the alphabet federal agencies and informal public-private sector ties.

This private-sector Deep State is free to pursue its own agenda of information-gathering and selling, surveillance, influence and profit-maximizing monopolies while seeming to serve the traditional Deep State as information-collecting and censorship services.

What makes Big Tech a private-sector Deep State is that nobody outside the corporations knows precisely what's in their databases and algorithms or the extent of their capabilities. Sure, they share information with the traditional Deep State players, and censor whomever it's "suggested" they censor / shadow-ban, but that transfer isn't 100% of what Big Tech has in hand. All that transfer is just enough to appear to be playing ball so Big Tech can "suggest" OK, we've done our part, now leave us alone.

The problem with both Deep States is there is no recourse within the system for those censored / shadow-banned, those being tracked, those whose data is being siphoned off and sold to whomever offers a hefty sum of cash, and so on. The basic idea of the US Constitution is that every citizen has some recourse via the judicial or political systems should the state (government) or private entities overstep the boundaries established by the Constitution.

Citizens have no recourse against the predations of Big Tech or the traditional Deep State. Um, hello there, Big Tech, could you please share precisely how and when I've been shadow-banned, who else has copies of the data you've collected about me and how much you "earned" selling my data to third parties? What's actually in your AI tools? Does any public agency have any real oversight power over all the looting, pillaging and predation you're pursuing?

So sorry (heh), you agreed to our terms of service which grant us all the rights and our algorithms and databases are protected proprietary corporate property. So blow chow, pal, you have no recourse. We're a corporation, we have rights; you're only a citizen, you have none. You currently have permission to post photos of puppies and kittens, so just enjoy the photos of puppies and kittens and be happy you haven't yet been digitally erased entirely.

Um, hello there, Alphabet-Soup Agency, could I please have all the files you've assembled on me? Yes, there is a protocol for requesting information (the Freedom of Information Act FOIA), but there are exemptions and delays, so don't hold your breath.

Meanwhile, the nation careens into an era of Polycrisis, defined as a cluster of related global risks with compounding effects, such that the overall impact exceeds the sum of each part. This is of course a classic description of emergent systems, which display characteristics that differ from those generated by each individual component.

I've sketched out a few of these dynamics in the chart below of overlapping crises.

At the same time, the global status quo, regardless of political flavor, is sliding down the backside of the S-Curve (see graph below). Everything that was considered a dependable solution is now the problem. There are no solutions within the existing status quo, and so everyone has no choice but to do more of what's failed spectacularly.

There are no perfect, sacrifice-free fixes to the demise of the debt-funded, waste is growth / Landfill Global Economy, but a good start would be bringing the private-sector Deep State of Big Tech to heel, stripping it of its opacity and powers, relegating everything Big Tech does or attempts to a tightly regulated utility with transparent public oversight.

One Deep State is bad enough, but a renegade, predatory private-sector Deep State is intolerable. It goes almost without saying that I've been shadow-banned for the past 7 years (revealed by the bogus PropOrNot hit list), if not longer, but the mechanisms of this censorship are opaque, not just to me but to the elected branches of government and the shadow-realm of the traditional Deep State.








New Podcast: Its a Waterfall - Risk, Collateral & Productivity (48 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Keith B. ($125), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

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Thank you, R.H. ($1/month), for your most generous pledge to this site -- I am greatly honored by your support and readership.

 

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Wednesday, May 10, 2023

Doom Loops Are Multiplying

We can all pretend to be fantastic until the floor collapses beneath us. At that point, complacency / denial gives way to panic, but it's too late to effect any realistic reversal of fortune.

Doom Loops have been in the lexicon a long time. The basic idea is the decline of one of the inputs holding up the status quo weakens the other inputs. This weakness feeds back on itself, accelerating the decline until a critical support level breaks and the system collapses.

Doom Loops are being used to describe big-city downtowns gutted by remote work, the closure of small businesses and the rise of property crime and chronic homelessness. Once the workforce commuting to downtown fell sharply, the businesses catering to this workforce no longer had a customer base large enough to support them all and so many close.

This mass closure makes the district less vibrant, further weakening commerce.

At the same time, politicians and district attorneys have mandated non-prosecution of non-violent property crimes such as auto break-ins, shoplifting, etc., giving the green light to the criminal class that specializes in property crimes. This increase in property crime forces the closure of flagship retail outlets stripmined by blatant shoplifting.

This shift in enforcement did little to stem the flood of fentanyl and other addictive narcotics into city centers, where the chronic homeless have congregated in sprawling encampments.

While mayors promote declines in violent crimes, they don't mention the impact of human waste, drug-addled homeless and property crimes, many of which are not even reported as small business owners fear reporting losses due to break-ins might result in their insurance policies being cancelled.

Break-ins set Oakland Chinatown businesses back: 'Things were slowly getting better, then all of a sudden the doom arrived.'

The closures of downtown businesses cause tax revenues to plummet, leaving less for policing and other essential services. Criminals quickly catch on and so break-ins occur when police patrols are absent.

Meanwhile, the decline in commuters has crushed transit agencies' revenues, creating giant holes in billion-dollar budgets with few realistic solutions.

The solution being touted is to convert empty office buildings into residences, to replace commuting office workers with residents. This sounds feasible in the abstract, but these conversions are extremely costly, and the attractiveness of decaying downtowns to upscale residents is a question few entertain, for the answer is painfully obvious: who wants to live in a neighborhood of human waste, degradation, rampant property crimes and drugs, all of which have rendered local businesses unviable?

You can be sure the politicians and DAs whose policies exacerbated the decay won't live downtown. Like the people who elected them, they live in wealthy enclaves that are so far protected from the consequences of doom loops.

Once the downtown has been stripped of targets, do you reckon the criminals who specialize in property crimes will retire? Or will they move into the enclaves where the protected class lives?

Another doom loop is gutting rural villages and towns globally. You've probably seen media reports of houses in Italian or Japanese villages that can be had for $1 or some nominal sum, for example: Why Japan is Giving Away 8 Million Free Houses (13 min) (via J.F.). Note: the 8-million number is click-bait.

Left out of these chirpy accounts of $1 houses in charming villages are all the realities that generated the doom loop that hollowed out the villages in the first place: their remoteness, absence of jobs, the dominance of an aging populace of pensioners, decaying, outdated housing requiring costly renovations, the depreciating value of such properties, and so on.

Once the post office closes due to a decline in the populace and the elementary school closes due to a decline in enrollment, the village is doomed. Families with children move away, further reducing the populace, pushing it below the thresholds needed to support a local temple/church priest, a local cafe, etc.

Doom Loops are difficult to reverse. The current zeitgeist, which seems to only have two poles, complacency / denial and panic, is not conducive to practical, realistic appraisals or plans of action, all of which require painful sacrifices and reductions in unsustainable spending to align with reduced revenues and prospects.

This zeitgeist encourages "positive optics" and happy stories disconnected from the realities of the doom loops already in play. Yes, we can all pretend to be fantastic until the floor collapses beneath us. At that point, complacency / denial gives way to panic, but it's too late to effect any realistic reversal of fortune.




New Podcast: Its a Waterfall - Risk, Collateral & Productivity (48 min)

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print)
Read the first section for free


Become a $1/month patron of my work via patreon.com.




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Terry M. ($25), for your much-appreciated generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

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