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Lower Cost Housing, Robots, Alcoholic Federal Reserve, 1974 Wages, FAIR tax, End of Work, End of Affluence, Auto Bailout and more   (week of December 9, 2008)


For more stimulating ideas, please visit the Of Two Minds blog.


Elaine D.

RE: End of Work, End of Affluence II: 3 Ways to Lower the Cost of Housing (December 9, 2008), your column about housing: I would like to add mobile homes. I live in a beautiful large mobile home in a mobile home park; paid $41,000 for my house. The lot rent is $310/mo. I learned about mobile homes after I moved here to Utah from Washington, DC and my then-boy friend owned a mobile home park. I realized immediately what an economical way to live they are. Used to think about, say, a family of 5, should they buy a stick-built house for $350,000 or live in a mobile home and send all their kids to college?

Michael S.

"In other words, regardless of the cost of wages, robots dominate auto manufacturing for many reasons. Nothing will change this reality." ( End of Work, End of Affluence I: Cascading Job Losses December 8, 2008)

the economics here are pretty obvious since, in today's world, statistics based manufacturing methods are used.

i.e. the weaknesses of each robot are identical so you can calculate failure rates based on the understanding of a single robot. that's not possible with humans since human performance is variable and, thus, it has to be audited and that's an expensive process.

so you can't really look at one worker and calculate the cost since, if you want to ensure quality, you need a complete system of checks and balances and so the natural question becomes: who costs the car company more in terms of verification and rework? the robot or the human worker?

now, if a single car costs $20,000, and a robot costs $1,000,000, then the robot only has to make 50 cars better or be 50 cars ahead for the initial investment to pay off.

moreover, if you throw in gas costs, living expenses, health care costs, etc... then technology investments can earn their keep even more quickly.

Rene Descarte noted that a single, master designer could create harmony but a group of designers (workers) couldn't. Hence, when a technological process has a single designer, that process acts in accordance with its designer since it has no free will and, for example, cannot steal.

so, as far as I know, the only advantage which humans have is adaptability and highly adaptable workers (smart ones) probably want to be swimming at the beach instead of working on an assembly line.


Tom

Your website oftwominds is excellent. I have been reading and discerning the financial info here for several years through my biggie size right brain. The real estate bubble has destroyed the US and world economy. Of course there were dozens of other reasons like too many taxes everywhere, outsourcing so much manufacturing to China, media for idiots and manipulated financial markets, but this strong ox of a country (USA) was so stubborn it just pulled the whole world along regardless. Now we have the impossible to pay bailouts and worsening conditions everywhere.

I looks like even the vultures are going to get eaten in this future desert environment and the ox is tired and ready to retire. The real estate was the real weapon of mass destruction that took out the economy. The broken derivatives market is just the radioactive fallout from this recently exploded re bomb. Freshly derived RE bomb Derivatives , 100 times more powerful and deadly, and long lasting will do the real killing. Anyways, sometimes the markets can be overly manipulated and destroyed, at least temporarily.

Consider this analogy, Lots of unusual bubbles left from the waves should have been a warning of some type of tidal wave approaching the island. No, they (people) thought its was a perfect time for a beach party. Everyone was invited (the whole world), and they all attended, the more money they had the closer they were to the shoreline. Everyone with even some spare change went down for a drink. Bubbles and people were everywhere, they all demanded a spot on this beach because of the most amazing waves and record amounts of surfers attached to them. People even surfed drunk at night.

Then a once in a 100 million years planet size meteor hit offshore a few miles. Ohh damm, water actually splashed onto the moon. they did not realize a big meteor would change the tide. The the old island became ready for a completely new start. Did anyone survive? Sure. Some folks in the space shuttle even got some great pics. They just don't bring all their money to the beach and surf and get drunk anymore, at least temporarily.

A family member on my Fathers side died several years ago after a very long life. He spent a lot of time studying economics and wrote two books related to our current situation. The first book is about the savings and loan bailout. The second is about the federal reserve bank and its bad practices of taking advantage of taxpayers. I was just a kid 20-25 years ago when he wrote these books and I remember most people seemed to have bigger priorities and worries back then, But this was his big worry. I always wondered about that fed after reading the book.

Well, It appears this ugly unnatural federal reserve bank has taken on too much and has gotten its ass kicked by natural forces of nature but nobody realizes this yet. Nature can give forever, the fed can't. Nature can take everything back. The fed can't . Does the fed have an ego problem because its confidence is based on an "I always win" history.

When you look at all of history, ask yourself, why can't the biggest ever just learn how to fold their hand one time? They always prefer a quick fix or cheap shot to keep themselves mentally pumped after a loss. So know maybe you have your answer you have been searching for. Just go find someone who does not know how to solve their problems. Maybe a drunk, a compulsive gambler, a workaholic (now the most popular). Expect the same from the fed. And treat them the same way.

Of course regular people will give up or have their vices stopped eventually somehow, some way, and so will the fed, but just in a very dumbed down stupid bureaucratic way. So get ahead and laugh at the loser fed. Get it out of your system and move on. I need to read the stories that really matter here. I never checked out the other stuff on oftwominds but I am sure at least some of it is more deserving of attention sometimes then the money stuff. Sorry to hear about your friend who committed suicide earlier. Its never to late to reach out to help others and get some help yourself sometimes no matter who or where they are! The real gold standard is of course, oftwominds, not ofonemind.


Charlie F.

BTW - In 1974, my Dad worked as a mid level production analyst in Manhattan for Mobil Oil. I believe he made $35K and with this amazingly low salary supported my sister at Washington U, four other children, my mom (who never worked outside of the home), and a 3,500 square foot house with a ĺ acre lot. He had two cars and no credit card debt and was building college funds for all of us. I am speechless thinking of the then and now difference.

CHS NOTE: $35K in 1974 equals about $150K in 2008 dollars. Still, howmany households earn $150K and still can't afford what $35K bought in 1974?

Jim Twamley, Professor of RVing

I posted an article this week entitled, "Another week of bad RV industry news" and so far have received many comments. What is interesting and may be interesting to your readership are the responses. Judging from the responses it appears some are in denial, others are conflicted and others seem to be heavily medicated or work for the RV industry.

As a journalist reporting on the RV beat I told them this was coming last year and received several negative comments. This time I told my readers I was writing the obituary of the RV industry as we know it.

The comments to my article raise several questions:

1. How well prepared are Americans to accept and adapt to the fast paced social changes that are looming dead ahead?

2. Will they respond by shooting the messenger and throwing a temper tantrum because some reporter dares to declare the emperor has no clothes?

3. Will they embrace the facts voluntarily or will they have to slam into a brick wall of economic reality at high speed?

4. Will the collective economic IQ rise during and after this crisis or will Americans continue to be self absorbed and econocentric. (I just made that up replacing "ethno" with "econo" - it's not in my dictionary but it's a fitting d escription of our consumer culture.) The realities of the crisis will no longer allow for econocentric behavior, yet Americans will probably continue the charade long after the music stops.

5. How is this crisis affecting and shaping the psyche of average Americans in all age and ethnic groups? Sociologists should be on top of this issue now if they plan on shedding any light on this when it's all said and done.

The article is here: RV Now.


Jadep

"So how does a society deal with The End of Work when it also means The End of Affluence, even for many of those with jobs? How does government deal with declining tax revenues and rising interest rates? I will continue to explore these pressing issues next week."

You raise excellent questions. I propose that you start with the Iron Law of Economics: "In order to consume, you must first produce." This is a summary statement, the precise statement is as follows: "In order to consume someone must first produce something of value."

Go back and evaluate your own article: "Rangers, meter maids, and meat inspectors" are necessary? Even someone like yourself hasn't fully grasped what a depression means, and you are very realistic. In order to have meat inpectors, society has to produce a surplus to fund them.

So the answer to what is wrong comes back to production. Why don't people want to do business in the USA? Why don't people want to build factories in the USA? And secondly, where is the waste in the system?

So there are answers to fix this, which is to increase production and cut waste. That is how a society would fix this. But, what is reality? What will the USA actually do? I hold that the government will make things a lot worse. Do you really think we will reform our civil courts when lawyers give so much money to the politicians? Will we really eliminate fractional reserve banking and the FED when bankers give so much money to politicians? Will we really return the powers of OSHA and EPA back to the States when that will cut back the ability to get bribes for loop holes? Will we really switch to the FAIR tax (a sales tax with rebates), when the resulting elimination of the IRS will completely shutdown lobbyists?

Let's take a closer look at the FAIR tax. It eliminates all taxes and replaces it with a retail tax on products and services. Everyone receives a rebate of the same amount to cover the tax for necessities, so it is neutral to poor people. It actually raises taxes on the rich due to big dollar items. So let's compare Delta airlines vs. Virgin Atlantic. Delta will pay NO taxes. Their suppliers will pay NO taxes. Workers of both Delta and its suppliers will pay NO taxes. However, people buying tickets will pay a tax whether they get a ticket from Delta or Virgin Atlantic. So Delta will be able to cut the price by $100 for a flight to London. Virgin Atlantic has to pay all sorts of taxes to Britain and the EU.

Bottom line, after passing the FAIR tax, a ticket will cost you a little more, but everyone will want to build facilities in the USA. Furthermore, you will pay no Social Security tax or Income tax. Your actual expenses including tax will drop due to the huge reduction in compliance burdens. I will leave it up to you to see how the FAIR tax can save Social Security even with the elimination of the SS tax.

The FAIR tax would save the U.S. However, it has a zero chance of passing since it will take power away from governments and cut out all the lobbying and bribery. So the U.S. is going down hard. Our job is to think through the consequences of depression and invest/prepare accordingly. Study the Great Depression, Japan, and Argentina.


Michael S.

"so how does a society deal with The End of Work when it also means The End of Affluence, even for many of those with jobs?"

The UN reportedly wants to go back to feudalism so that wealth can be split up centrally. those who can extend technology will get perks; those who try will do OK; and those who sit around will survive.

I'm comfortable with this theory since not all philosophers think that people are lazy since "expressing oneself" is psychologically important.

As far as I'm concerned, a jobs based economy is a terrible economy since nobody argues that automation is bad; IMO, health care will only be saved if labor is removed from the process. thus, we need to chase alternative methods like regenerating body parts.

That's why today's education system needs to be trashed, or at least be transformed, since kids need to envision the future instead of being stuck in the past. They need to ponder the shortcomings of today's methods and think about tomorrow's methods.

The web, I think, will be one of the supporting technologies since literate children can hop on board the web and, as long as society finds meaningful ways for children to engage, they will start creating great things.

so it's time to let our kids out of jail and let them participate in the real world where virtued action is meaningful!

So neoconservative thinking, I believe, is here to stay and our underlying structures will start adapting to support it.

While this might sound non-mainstream, the book "Nurtured By Love" talks about the Suzuki violin method and how children, who tend to imitate their parents, will play the violin spontaneously if they do.

Of course, since diversity abounds in our world, the web will become the ultimate parent where kids can find their souls and learn about the making of great music instead of being locked up in a classroom where all personality and love is averaged out until it becomes meaningless.

And, if this new world happens, the jobless world will become the next perfect world since our human interactions will be full of purpose and not aimed at simply staying alive within a bureaucracy! To the contrary, the gifts which come from intergenerational wisdom will go into bloom!


Dale R.

Ref: End of Work, End of Affluence

Just the other day as I was reading about layoffs, and businesses going under, I thought of my grandson. After this school year, he will have only three more years and he will be out of high school. Right now part time summer work looks bleak, and it looks real bad for our young people to find work after graduation.

I have fear of what will happen to them. They have grown up in a throw away, push button electronic society. Not too many businesses left where you can put in thirty years and retire.

There are many reasons for our decline. When we killed craftsmanship and pride of work for the almighty dollar, in my opinion, we started downhill. 1962, when I finished my tour of duty in the Navy (SeaBeeís), I got a full time job with a phone company (small one at that time). I started working for only $1.65 an hour with only a few benefits. I stayed for 30 years until I retired in a buy-out package. We didnít worry about starting work ten minutes early or working later and expecting overtime compensation. When it came time to quit, we didnít grab our lunch pail and run out the door. At that time, we had working foremen and union presidents that worked side by side the rest of us. We all took pride in our work. That changed when we kept getting bigger and bigger by buying up smaller companies. Working foreman became supervisors behind a desk and the unions became a full time business. Craftsmanship and pride of work disappeared for the almighty dollar.

Food for thought, many things have disappeared:

Mom and Pop stores.

Service stations, which gave service.

Small farms.

Home delivery of milk and etc.

Home truck gardens.

Fix it shops and parts stores.

Meat markets and good deli stores. Etc.


Ronald C.

As you poke around our economic dust bin one area that may provide a good picture of our future is the two income household. Clearly they have used their additonal income leverage to move into the better neighborhoods, capture the best schools for their kids and used their higher income streams to leverage up in RE, stocks, bonds.

Now that credit rationing is in full bloom we can expect the pool of layoffs to reach far beyond the construction/direct factory labor pool that has taken the brunt of the immediate economic downturn. Expect large chucks of the demand side labor pool, financial, RE, sales, marketing, advertising, graphic design,retail, will be get the next employment haircut.

Women have entered the work force in large numbers the past 25 years and may be the next wave of layoff casualties . This of course creates further problems within the asset inflated markets as the leveraged players unload more inflated real estate and stocks onto the forsale pile.


Bob Z.

Depression Update

I was the Director of Payroll for a 90,000 employee Fortune 500 Company before I retired in September 2007. A few weeks ago, my former Company announced that they were closing the facility where I formerly worked, laying off about 80% of the remaining workers at that location, and transferring the remainder to other locations. As for the payroll department I used to run, I am told it is being outsourced to Asia.

Some of your readers may recall this statement from my Mid-August commentary on one of your posts about economic conditions in the US:

Most of the optimists who think that they are seeing light at the end of the tunnel are going to be flattened before they figure out that the light they see is a runaway freight train headed straight for them.

The news from my former Company made me wonder what will drive future US economic growth. Corporate America has successfully de-industrialized the US over the last 25 years, and the number of decent US service sector jobs is dwindling as those jobs are outsourced to Asia as rapidly as possible. So exactly what remaining economic activity is going to provide revenue to US corporations? The unpleasant reality is that the unemployed have a lot less money to spend, and as unemployment increases, economic activity in the US decreases.

Today's report of 533,000 jobs lost in November is a harbinger of even worse economic news to come. While I don't know for certain that your projection of 30 million jobs lost over the next few years is accurate, my guess is that we are going to see months, if not years, of severe job losses, and that at least 5 million more jobs will disappear from the US in 2009 alone. Until the 1990s, recessions and rising unemployment were functions of excess production. When the excess production was worked off, workers were called back to work. Unfortunately for the US, deindustrialization and globalization have caused a paradigm shift, so that old model no longer works. As you noted, the so-called Bush recovery earlier in this decade was achieved not by production of anything useful, but by ratcheting up debt. The party is over, but the overhang of debt remains. And, as you also correctly noted, the real wages of most US workers have been stagnant or declining for decades.

The little wealth controlled by members of the formerly middle class usually consists of a house and a 401K plan. Home prices have been declining for about 2 years and millions of American have seen their 401K accounts turned into 101Ks over the last few months. Most members of the formerly middle class are indebted up to their eyeballs. With increasing unemployment and no source of new jobs on the horizon, it is easy to see that the formerly middle class will default on trillions of dollars of debt, and that debt will never be repaid.

So this is going to be a very long and very ugly Depression. Basic economics tells us that the inputs for economic activity are Capital and Labor. This Depression is the natural result of allowing Capital to successfully prosecute an economic war against Labor for the last 25 years. I suspect that economic recovery will not begin until we as a society summon up the courage to restrain the excesses of Capital. What remains to be seen is whether the tattered remnants of our social safety net will be sufficient to prevent a revolution, or whether this Depression will be even worse than the 1930s.


Gene M.

All the money the Federal government pours in will disappear into the cracks. As Arthur Laffer likes to say, you canít bail somebody out without hurting somebody else. Who is it that gets hurt? If you ask that question on the global scale, the answer isnít pleasant.

As Iíve noted in earlier posts, if the US government wants to borrow the worldís resources, it will get first place in line at the trough, and the result will be even higher credit spreads for US companies, weaker emerging markets (and lower exports), and a shrinking world economy.

Old-fashioned Keynesian stimulus never worked particularly well. But never was there a period in American economic history where Keynesian stimulus was less likely to succeed. If the Obama administration takes Krugmanís advice, we can expect seven lean years.


Gene M.

Somehow I am not surprised that you are a follower of the Tao. I can see it in the tone of your writing and its devotion to truth. In my best and more enlightened moments, I try to follow the Tao also. So in the spirit of your recent items, I add this from the treasure of Lao Tze:

Heaven's Way is to take from what has too much
And give it to what does not have enough.
This is not the way of men, however,
for they take from those who have little
to increase the wealth of the rich.

So who is it that has too much
And offers it to a needy World?
Only someone who knows the Tao.


Ruthann

As always, excellent stuff. Thanks for being a beacon in the fog.

I have a couple of comments [questions] about this Auto bail-out soap-opera.

It is my understanding that a CEO has a contract in hand before accepting a position. This individual knows exactly how the compensation is to be administered; annual pay, bonuses, stock options, spa treatments and pedicures. I can see no wrong in negotiating with your potential /current employer for the best possible deal.

It is my understanding that a UNION represents a group of employees in negotiating a contract. I have not a clue what transpires behind the closed doors of these negotiations; but I have a sense that is it not all as adversarial as we are led to believe. I see no wrong in having an agent negotiate your employment contract. [Personally, I think it un-wise to relinquish that right.]

So far, so good.

HOWEVER, it gets my Irish up when I hear the puppets of the pulpit [congress] outraged at the difference in compensation between a UAW worker and a non-union worker. I see red because I didn't hear same comments ,questions and inquisitions with regard to the outrageous difference in compensation between a CEO and a non-ceo.

Now if someone could help me to understand one thing; why is it okay for CEOs to secure lucrative pay agreements but not okay for union workers to do the same?


Mike D.

RE: 30-year mortgages. It is clear from your and other sites that the "standard" mortgage in America is for 30 years. A 30-year mortgage has always seemed a total rip-off to me and I will give you an example. Let's take a $300,000 mortgage at 6%. Over 30 years, the payments would be $1,799 a month and over 25 years, the payments would be $1,932 a month. This is a difference of only $133 a month but that extra 5 years adds over $68,000 to the amount you pay to the bank. The only party who benefits is the bank! They would like it even more if they could write 50-year mortgages. The difference in monthly payment from 30- to 50-year is only $220 using the above example but you pay a whopping extra $300,000.

In my mind, if you cannot find an extra $133 every month to service a 25-year versus a 30-year mortgage, then you should look very carefully at whether you can afford the 30-year payment month in, month out. I think borrowers should look carefully at their options -- there are plenty of simple websites where one can calculate payments -- and not accept the 30-year term as being engraved in stone.


Harun I.

The idea of a bailout or a "loan" is not going over well with young professionals.

I had a conversation with a new RN and she was appalled at the level of salary at GM for its general worker. She openly pondered how someone in a field that did not require a BS or a state license to practice, nor carried the level of personal responsibility, accountability or risk, could make a salary that rivaled hers.

A conversation with a new attorney at his first job with a firm echoed these thoughts.

The deflation will be global and it will hurt everyone. If pain and suffering are no longer acceptable then we had better give up the things that create these boom/bust cycles.

It is my personal belief that this inflection point will have more to do with the survival of mankind as was the last Ice Age. This is based on data not conjecture or superstition.

While this economic season will be challenging, the rate of human population growth (which is exponential), will pose long-term challenges greater in size and depth.




Thank you, readers, for such thoughtful contributions.


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