Can we sustain economic growth with robots?

Robert Gordon is a well known economist at Northwestern University who is profoundly pessimistic about the ability of our economy to grow in the future. In fact, he believes that the growth that occurred during the hundred years from 1870 to 1970 was something of a historical accident that will be difficult or impossible to repeat. According to an interesting new article in New York magazine, Gordon

believes we can no longer expect to double our standard of living in one generation; it will now take at least two. The common expectations that your children will attend college even if you haven’t, in other words, or will have twice as rich a life, in this view no longer look realistic. Some of these hopes are already outdated: The generation of Americans now in their twenties is the first to not be significantly better educated than their parents. If Gordon is right, then for all but the wealthiest one percent of Americans, the rate of improvement in the standard of living—year over year, and generation after generation­—will be no faster than it was during the dark ages.

Wow, sounds awful. But why?

Electrical appliances allowed women of all social classes to leave behind housework for more fulfilling and productive jobs. Air-conditioning moved work indoors. The introduction of public sewers and sanitation reduced illness and infant mortality, improving health and extending lives. The car, mass media, and commercial aircraft led to a liberation from the narrow confines of geography and an introduction to a far broader and richer world. Education beyond high school was made accessible, in the aftermath of World War II, to the middle and working classes. These are all consequences of the second industrial revolution, and it is hard to imagine how those improvements might be extended: Women cannot be liberated from housework to join the labor force again, travel is not getting faster, cities are unlikely to get much more dense, and educational attainment has plateaued.

We’re not sure we find this argument convincing. Workforce participation, travel, urban density, and education did not improve substantially during the 1980s and 1990s, yet those two decades featured pretty good levels of growth. The cause was largely a revolution in computer technology, which has perhaps now run its course. But the future can perhaps exploit alternative sources of growth such as biotechnology, genetic engineering, nanotechnology, robotics, and other sources we cannot yet imagine. Nobody in 1850 imagined the revolutionary effects of electrification that transformed the 20th century.

In support of Gordon, the article cites Nobel Laureate Paul Krugman.

The classic example of the scale of these transformations is Paul Krugman’s description of his kitchen: The modern kitchen, absent a few surface improvements, is the same one that existed half a century ago. But go back half a century before that, and you are talking about no refrigeration, just huge blocks of ice in a box, and no gas-fired stove, just piles of wood. If you take this perspective, it is no wonder that the productivity gains have diminished since the early seventies.

Is this the sort of argument that Nobel Laureates nowadays find credible? That we can draw inferences about the next hundred years of economic growth by just looking around our kitchens? In any event, in our experience, our own kitchen is considerably different from the one our grandmother had in the 1950s. She had no automatic dishwasher, garbage disposal, coffeemaker, icemaker, microwave, or plastic wrap. Shopping for food in order to stock that kitchen was also a very different experience. In the 1950s, supermarkets were only just starting to become widespread, and they did not stock the same variety of foods; in particular, they did not sell ready-to-eat foods such as frozen dinners and microwave popcorn. Even more tragically, there was no access to craft beers.

But for the sake of argument, let’s concede to Krugman that kitchens have changed less in the last 50 years than in the previous 50. Why focus, however, on just the kitchen? How about the office? In a 1972 episode of the TV series Columbo, the late great Mel Ferrer plays a famous Hollywood writer. A scene shows him in his home office where Ferrer’s character does his work. His office has none of the following: computer, smartphone, cam, internet access, fax machine, scanner, copier, or printer. Just a landline telephone on the desk along with a mechanical typewriter. He keeps all his important records and information as hardcopies, stuffed into filing cabinets. Indeed, we can think of no significant aspect in which the office of the 1970s differs from that of the 1920s. (There were marginal improvements in the telephone, typewriter, and pen, and the ability to take dictation using a voice recorder.) Furthermore, we would argue that the typical kitchen has changed more in the last 50 years than the office did during the 50 years from the 1920s to the 1970s. And Ferrer’s filing cabinet is a reminder that storage of information has perhaps progressed more since 1970 than it did during the 1000 years prior to 1970.

In short, we don’t see how Krugman’s kitchen analogy proves much, as some aspects of life will inevitably change more rapidly than others.

As a counterpoint to Gordon, the article quotes Erik Brynjolfsson of MIT.

After factories were electrified, Brynjolfsson explained, “the amazing thing is productivity didn’t increase in those factories for 30 years—30 years!” It sometimes take a while for humans to figure out how to use innovations, he said, and perhaps we are just now beginning to comprehend the full possibilities of computerization. In Brynjolfsson’s view, we are now in the beginnings of the new machine age, an extended moment of revolution in artificial intelligence. “A child’s PlayStation,” he said, is more powerful than a military super­computer from 1996; a chess program contained on a cell phone can defeat every grandmaster.

A.I. and robotics do seem to rank among the more promising sources of growth. Robots are already performing tasks that seemed impossible not long ago. For instance, Brynjolfsson cites “gardening” as a job that would be difficult for robots to do. But robots are already picking lettuce, and it’s also already possible to purchase a robot that will mow your lawn, so who knows?

Finally, returning to Robert Gordon in New York magazine, we have this bizarre passage.

[Gordon] kept talking about movies: The “We’re not in Kansas anymore” moment when The Wizard of Oz switches from black and white to “the paradise of full color.” The great three-year public frenzy about who would play Scarlett in Gone With the Wind, maybe the first full incarnation of the modern celebrity machine, which ended when three studio executives arrived at a movie theater in the San Fernando Valley and replaced the ordinarily scheduled feature with the new print. “There was a pause, and the movie didn’t start. And then the public-address system came on and said, ‘The program—’ ” Gordon stopped. He was crying. “You see how choked up I get about this,” he said. He rubbed his eyes a bit and continued. “ ‘The program originally scheduled for tonight has been replaced with Gone With the Wind.’ And suddenly they’re going to be able to tell their children and their grandchildren. This stuff is just so powerful.”

Crying about the debut of Gone with the Wind? Well, Gordon this year turns 73 years of age. Perhaps he should consider testosterone replacement therapy.

Green shoots of freedom in North Carolina

While the federal government continues its destructive rampage, like Godzilla on bath salts, against America’s freedom and prosperity, at the state level there are signs of hope and change. Indiana and Michigan have both recently enacted right-to-work laws. And this summer, North Carolina has enacted some significant educational reforms. First, in June, North Carolina passed legislation that “requires public elementary schools to instruct students in cursive writing.” Critics argued that, due to the prevalence of keyboarding, cursive writing is obsolete. But cursive still has some uses, like note taking and signing documents. Also, the process of learning to write cursive teaches discipline and motor control. Finally, leaving school with a good signature is at least something. If schools could opt out of teaching cursive, odds are that they wouldn’t use the free time to teach anything useful like math, science, literature, history, or civics. After all, they’re hardly teaching those now. No, they would probably replace cursive with nothing, so we might as well keep it.

Rachel Jeantel: Says she can’t read cursive.

In more recent news, just this past Friday, North Carolina adopted legislation that abolishes teacher tenure and eliminates automatic pay increases for teachers who acquire master’s degrees. Getting rid of tenure promises to improve accountability, and perhaps make it easier to fire incompetent and predatory teachers. Abolishing the step increase for master’s degrees will save resources without impairing education. A master’s in education, although it’s supposed to be an advanced degree, is really just a useless credential. M.Ed. programs hardly teach anything real or useful and are basically just selling the credential. Teachers pursue the degree merely to get the pay raise. We had one teacher tell us that his M.Ed. program at Boston University was “easier than high school.” Kudos to North Carolina for becoming the first state to put a stop to this racket. Let’s hope other states soon follow suit.

Europe: A Roach Motel for multinational employers?

We recently had an interesting conversation with an executive of one of America’s largest manufacturing companies. The company operates manufacturing plants in many different parts of the world, including Europe. The executive informed us that one of the unique difficulties of operating a plant in Europe is that closing the plant is nearly impossible, even if the plant is losing money. The plant cannot be closed without permission of the government authorities, who presumably have the power to block the firm’s attempt to liquidate the fixed assets. We confess we had never heard of a firm being unable to shut down its own plant. And as seems to happen so often, shortly after our conversation we ran across a news report confirming that our interlocutor was right.

The story involves not our interlocutor’s company, but a different American firm–Goodyear–which has been operating a tire factory in Amiens, France. Goodyear says the plant is losing $80 million per year. Goodyear’s managers have therefore been doing the responsible–and moral!–thing by trying to make changes to stop the losses. Their efforts, however, have been thwarted by the labor union and the French government.

The battle began back in 2007, when Goodyear announced plans to stop making cheap car tyres at the plant and focus on tyres for tractors and other farm vehicles.

Restructuring was urgently needed, it said. Along with new investment, it wanted to introduce a new shift pattern called quatre huits or four times eight, with four teams working eight-hour shifts.

Overall, employees would still have a 35-hour week – in accordance with French law – but they would work rotating six-day and four-day cycles, including nights and weekends.

Unions refused. The next year they went to court to prevent the company laying off 400 staff, and won. Last year they helped scuttle Goodyear’s plan to sell the factory to Titan, an agricultural tyre producer, in a deal that would have seen many more job losses (including voluntary redundancies).

It was in January that Goodyear finally announced its decision to close the factory, describing this as “the only possible option after five years of fruitless discussion”. Cue another legal battle.

Well, maybe if the union had not been so intransigent, and had allowed Goodyear to either restructure or to sell out to Titan, the union would not now be facing a shut down of the entire plant. But unions never seem to think that far ahead.

“French law says if you want to put all these workers on the dole, you have to have a good reason,” says Fiodor Rilov, the CGT union’s lawyer. “This may be an American company, with a headquarters in the US but they are operating on French soil and they have to respect our social rules.”

But if losing money is not a “good reason” for shutting the plant, what is? The French apparently take the position that the workers jobs, pay, and benefits should remain untouched despite the $80 million loss. But that loss can’t merely be wished away–it must be borne by Goodyear’s shareholders. The French position is essentially that they can merely expropriate the wealth of Goodyear’s shareholders. That French “social rule” allegedly deserving of “respect” amounts to little more than theft.

The workers see their conflict in epic terms. Footage of past demonstrations features piles of burning tyres, huge banners and dramatic headgear. Some protesters sport helmets with horns on them – as in the French cartoon Asterix about a plucky Gaulish village defending itself against brutish Roman invaders. Mickael Wamen relishes the comparison.

“Goodyear is the biggest tyre maker in the world,” he says. “It makes $1.5bn profit a year, employs 80,000 people globally and there is only one village which is holding out against them – it is the village of Amiens.”

They treat the people who created their jobs and who sign their checks as enemies:  “brutish invaders.” Sick. And what’s the point of mentioning Goodyear’s $1.5 billion profit? The union lawyer says that like it’s a bad thing. Does Goodyear’s profit give the French the right to steal? Does it make Goodyear evil? Would Goodyear be less evil if the firm were more poorly managed so that it could not make a profit? Note that Goodyear’s managers and shareholders are trying to make money only by selling a product to others who pay for it voluntarily. The French, by contrast, are trying to force others to pay them involuntarily. Who would want to hire these people?

The burly man stands in front of me with folded arms like a bouncer at a night club. “No way,” he says. “You can’t go in. The lawyer is talking and that’s secret.”

Through the glass doors I can see rows of workers from the American-owned Goodyear tyre factory, sitting and listening intently. Many wear red T shirts which say Patrons Voyous – the Bosses Are Thugs.

Can you say ‘projection’?

[The union lawyer] has often stalled or prevented layoffs and won compensation through his imaginative use of the Loi de Travail – France’s fiendishly complex labour law, which runs to 3,371 pages.

Thinking about doing business in France? Nothing says Open for Business quite like 3,371 pages of labor laws.

But this story, like most lamentable dramas of human stupidity and cupidity, contains a dimension of humor. The levity starts after Goodyear wins its court case to shut down the plant. Now the French Minister decides that Titan’s previously spurned offer of a scaled-back plant looks better than no plant at all.

Hollande’s Minister for Industrial Renewal, Arnaud Montebourg, meanwhile, responded to Goodyear’s closure decision by saying he wanted “to bring everyone around a negotiating table” to find an alternative.

But when he tried to woo Titan back to buy the factory, its CEO Maurice Taylor sent him a stinging reply.

“Sir, your letter states you want Titan to start a discussion”, wrote the straight-talking Texan. “How stupid do you think we are?”

He went on: “The French workforce gets paid high wages but works only three hours. They get one hour for breaks and lunch, talk for three, and work for three. I told this to the French union workers to their faces. They told me that’s the French way!”

Montebourg dismisses this as a “grotesque attack” from an “absurd character”.

What’s absurd is a whole continent turning itself into a kind of Roach Motel for multinational employers–they can check in, but not check out–which creates a powerful incentive for never employing anyone in the first place.

A superficial resemblance?

The Red Tape Tower consists of over 20,000 pages of Obamacare regulations, piled high. The Tower is over 7 feet tall, and weighs over 300 pounds. It even has its own Facebook page and Twitter feed. Here’s the Tower making the rounds of D.C.

Seems to us that the pictured pose bears a certain resemblance to the one in this famous image.

The resemblance might seem purely superficial–a group of people straining to elevate something tall. But the two pictures share something important in common: freedom. One symbolizes a victory for freedom, the other a defeat.

Rule of Law slipping away?

What makes America great? Why is America so rich–the world’s superpower–while other countries are so poor? And aside from the material wealth, what accounts for the civil rights that Americans enjoy, and what protects them? The answer is the Rule of Law. The Rule of Law means that the laws are predictable, not capricious, and apply equally to everyone. In particular, the laws apply to those who wield the power of the government. Even the highest officials, such as the President, must obey the law, and the highest law is the Constitution.

Without the Rule of Law, those with power will abuse it. The people will lose their freedom and their rights, and once those are gone, prosperity and material wealth will disappear too. If we lose the Rule of Law, we lose almost everything. That’s why it’s imperative that Americans remain vigilant against violations of the Rule of Law.

For instance, we wrote previously about how the bailouts of auto companies Chrysler and General Motors were illegal and unconstitutional.

NOBODY in Congress voted on the auto bailouts. What Congress did was to appropriate money to bail out the banks, and only the banks; the legislation stipulated explicitly that the money could be used for no other purpose. Nonetheless, the Bush Administration, and later also the Obama Administration, ignored the law and proceeded to use the bank-bailout money to rescue the auto companies…

Recently, President Obama decided to delay the start of the Obamacare mandate that requires employers to provide the type of health insurance than government thinks they should provide. Delaying that mandate is probably good policy, and limits damage to the economy. Indeed, we believe that nearly the whole of Obamacare should be delayed…forever. But aside from the merits of the policy, the problem is that the decision is illegal. Nothing in the legislation indicates that the mandate can be delayed, and so the president has no authority to do so. This argument is made powerfully by Michael McConnell, a former federal appellate judge and now law professor at Stanford.

The Justice Department’s Office of Legal Counsel, which advises the president on legal and constitutional issues, has repeatedly opined that the president may decline to enforce laws he believes are unconstitutional. But these opinions have always insisted that the president has no authority, as one such memo put it in 1990, to “refuse to enforce a statute he opposes for policy reasons.”

Attorneys general under Presidents Carter, Reagan, both Bushes and Clinton all agreed on this point. With the exception of Richard Nixon, whose refusals to spend money appropriated by Congress were struck down by the courts, no prior president has claimed the power to negate a law that is concededly constitutional.

So the Administration is claiming powers that are unprecedented. One would think that such a development would be newsworthy. And indeed, if Americans are going to hold their leaders accountable they need to keep informed by a diligent news media that reports on and challenges abuses of power. Back when we had a Republican president, this was sometimes called “speaking truth to power.” But what we get from today’s media is…(((crickets))). And the media’s unwillingness to pursue the issue is the primary reason that the Administration will almost certainly get away with its lawlessness.

McConnell, like us, is concerned about the long-term consequences.

Of all the stretches of executive power Americans have seen in the past few years, the president’s unilateral suspension of statutes may have the most disturbing long-term effects. As the Supreme Court said long ago (Kendall v. United States, 1838), allowing the president to refuse to enforce statutes passed by Congress “would be clothing the president with a power to control the legislation of congress, and paralyze the administration of justice.”

Maybe all we need to restore and protect the Rule of Law is to elect a Republican president. Not because Republicans have inherently any greater devotion to the Rule of Law, but because a Republican president is seemingly what’s required for the national media to want to do its job.

Unintended Consequenses

Here is a discussion of the Consumer Financial Protection Bureau’s new qualified mortgage rule (Hat Tip: Ralph Frasca):

BOSTON — The Consumer Financial Protection Bureau’s qualified mortgage rule that limits closing costs to 3% of the loan balance will have such a big impact on Midwestern credit unions, one Minnesota-based executive said he’d lose money if he complied.

Jeff Schwalen, president/CEO of the $918 million Hiway Federal Credit Union, presented the problem during an afternoon breakout session on new mortgage rules July 10 at NAFCU’s 46th Annual Conference here.

Schwalen said the 3% closing costs restriction won’t cover his costs for mortgage loans under $135,000. That’s a problem in Minnesota, where the average mortgage loan is just $180,000– Hiway FCU is headquartered in St. Paul–so he’s going to make non-QM loans.

The CFPB plan to limit closing costs to 3% of the mortgage to protect consumers generates the unintended consequence discussed above. A large part of loan origination costs are fixed costs that are more likely to rise above 3% on smaller mortgages. That means that banks will have to stop making loans to the same people the CFBP regulators are supposedly trying to protect. Who needs friends like this?

Abolishing the DHS

Sure, it will likely never happen in our lifetime but Charles Kenny makes an impassioned case:

The U.S. government clearly has a responsibility to control who and what comes in and out of the country as well as to ensure travel is safe from violent attack. But all of the bureaucratic consolidation, additional regulation, and unchecked spending of the past 12 years have served to make trade and travel harder, with little benefit. And DHS has helped create institutional inertia: Its very existence suggests the domestic response to the threat of terror is of equal weight with defense, transport, health, labor, or foreign affairs. It heaps largesse on a range of contractors, all of whom have an interest in hyping the threat of terror to ensure the money keeps flowing.

That’s unfortunate. Beyond the waste of money and the overregulation, the expansion of the homeland security state has created unnecessary fear among a population that should be able to trust its government to send accurate signals about risk. So let’s start sending the right signals. Shut down the DHS, and redistribute the agencies under its umbrella back to other departments, including the justice, transportation, and energy departments. Then start bringing their budgets into some sort of alignment with the benefit they provide.

Treating the terror threat with the contempt it deserves would be good for the deficit and the economy, and a relief for anyone who travels. If that let us focus on bigger dangers instead, it might even save some lives. Closing the DHS is a small government solution that works.