Posts

Manufacturing Jobs Wibble.

I was talking to a Farmer recently (until about 1750, any job which wasn’t involved in agricultural production wasn’t “real”). He was telling me about how his new Tractor (he had one of the four-tracked Leviathans that Richard Hammond chose in that episode of Top Gear) could plough. Basically, the GPS could be set to have the furrows overlap within a few inches. The productivity gains mean that he can plough an extra field or two a day just from not ploughing the same bits twice by eliminating overlap. The Tractor is then hired out at profitable rates to other, smaller farmers. The same is true for Combine harvesters and the like. The relentless focus on efficiency drives productivity improvements, and has done since the industrial revolution.

A small cadre of highly skilled professionals do the jobs with enormous machines once done by vast armies of peasant labourers; which is what’s happening to manufacturing. British industrial production is rising barring recessionary glitches, UK industrial production has kept rising for most of the last 100 years. We are still producing lots of things that can be dropped on a foot. It’s just it’s no longer done by the descendants of those peasants who left the land during the industrial revolution to seek work in factories. Those factories still exist, but they employ a small number of highly paid people to operate machines which do the riveting, welding, assembling and polishing. Each machine takes does the job of hundreds of people.

That’s what happened in Agriculture, and is happening in Manufacturing. And THIS IS A GOOD THING. Because all those people not employed in riveting in Tyneside shipyards or Scything Lincolnshire corn fields are employed doing something else for someone else. All that productive labour has been freed, but we’re still getting the food produced, in abundance the Lincolnshire harvestman would have thought impossible.

The majority of Western economies are now services. Even the Germans, who’ve a niche in Machine tools and Automobiles have only 21% of their economy in making things they can drop on their feet.

And this reflects another point. Manufactured products are getting cheaper, so to have material wealth unimaginable to our Lincolnshire harvestman requires far fewer hours of Labour to achieve. Thus cars, the most expensive manufactured products most of us buy, are getting cheaper relative to average earnings, decade by decade. A reliable runaround would have been beyond the means of a WW2 factory worker, but is available to a cleaning lady now. So the same car forms a smaller part of the economy. Having spent less on the car, we can spend more on clothes, shoes, music, computers, kitchen appliances etc, and in so doing provide jobs to people supplying those things. Above all we can pay for people do do things for us – cut our hair, serve us food in restaurants, mediate for us legally, invest our surplus production into other productive activities, heal our illnesses and so on.

And because more of our money goes into buying services than it does in buying manufactures, it stands to reason most of us will specialise in providing services.

The ultimate logic of Adam Smiths division of Labour is that people will, over time, supply our needs with fewer and fewer inputs as we get better at doing it. Thus an activity, agriculture, which occupied the lives and productive energy of 90% of the population 400 years ago, now only occupies 2%. 100 years ago, people made things. Now we make more, but use fewer people to do it, and instead provide services which so far can’t be done by machine. This list is shrinking.

In time, just as in agriculture, high paying jobs will come from managing machines which produce with extreme efficiency, or by exploiting a niche where people pay an excess for a craft built object. So you can either have a farmer managing an expensive machine, or running an organic farm and charging a premium to people who want to know the name of the cow they’re eating. You can get your clothes mass produced relatively cheaply, or you can pay through the nose for a Tailor on UK wages. You can have your car put together by machines in Nissan’s famous Sunderland plant, or you can buy an Aston Martin, hand-built in Warwickshire.

So the next time you see someone opining of dear old blightly that “we don’t make anything anymore”, remind yourself that we do, it’s just it takes fewer of us to do it. Then ignore everything else that person says, because they clearly know nothing.

Western unemployment is at a high, following a series of financial crises, but to blame this on the death of manufacturing is idiotic. There are structural, cultural and political reasons for excess unemployment, but trying to hold back the tide which has seen manufacturing shrink as a proportion of the economy is wrong, because the very process which sees people replaced by machines is the process by which we all get richer. We’re simply falling down Maslow’s hierarchy of needs. 400 years ago we banished famine, 100 years ago we banished material want. The developing nations, by simple dint of abandoning anti-market orthodoxies, followed us and are achieving in 10 years what took us 100. They are copying us. Chinese growth will slow when they have to innovate to grow. There’s nothing remarkable about their growth, it’s just what happens when you lose the dogmatic Marxist idiocy, take the choke hold off and let people get rich.

Globalisation, the search for efficiencies in production, and international trade has led to countless millions of people dragging themselves out of poverty by embracing the opportunities of trade. Korea and Japan joined the west on the technological frontier. China is catching up. As a result the 70m population of a small, damp, foggy Island of the North coast of Europe had a GDP in the same ball-park as a nation 14 times as populous just a few short years ago, but is now dwarfed by the Asian giant. This isn’t a threat, nor is it evidence of Britain’s “decline”.

The next challenge is to banish stress and misery from our lives. I suspect this will be harder. The only caveat is that I have a great deal more faith in Adam Smith’s “invisible hand” (a much maligned and misunderstood idea) than the idiotic ideas of politicians. Politicians still seem to think manufacturing jobs are special, which suggests they don’t understand why we’re rich. The only limitless resource is man’s ingenuity. Markets aren’t an ideology, they’re simply what works in the absence of one, by deploying that one limitless resource to everyone’s benefit.

QE3 won’t work, the cuts will.

The Bank of England has indicated that it is considering another bout of Quantitative easing. This presupposes that the problem in the world economy is insufficient demand, to which a solution is printing more money. If insufficient demand WAS the problem, the incredibly low interest rates would have encouraged investment and spending. The first two bouts of quantitative easing would have seen demand pick up.

They didn’t. We barely scraped out of recession.

What quantitative easing did do was push up the prices of Gold – a hedge against inflation. Up too went the price of Oil, of Commodities such as copper, and therefore share-prices. Much of the money went into banks, so their balance sheets were artificially boosted. The FTSE100, being mostly miners and banks did very well, for a time. Other commodities, such as food also rose as more money chased a short-term fixed supply. House prices in the UK have been artificially maintained at their inflated level. Most of all, Quantitative easing, a policy of buying bonds has contributed to a bond bubble, where the sovereign debt of the USA, UK, Germany, Switzerland and (for a long, long time now) Japan are paying nothing in real terms.

The cost of this policy is borne mainly by the poor. Inflation has been explicitly blamed on Oil price rises and rises in the cost of , especially in food hurts the poor. While the main beneficiaries are people with assets – the rich. Labour’s left however is clamouring for MORE intervention in the economy, but this isn’t a Keynesian recession caused by aggregate demand. Therefore Keynesian solutions such as fiscal stimulus (spending money, or cutting tax) won’t work any more than monetary ones, at least until the Government books are nearly balanced. So Labour’s solution – to keep spending until we’re Greece won’t work.

So if it isn’t demand, what is causing the problem? First there is a lack of investment opportunities. Whether this is a cause of or caused by the excess bond issuance crowding out other investments is moot. What’s certain is the low interest rates and negative real yields are shielding governments from the effects of their two decades of profligacy. Germany, the USA, Italy and Japan all have enormous stocks of debt. Thanks to Labour’s 10% deficit, the UK is still catching up fast. Most of the debt is internal, to pension funds and citizens of the states involved. The External debt, especially the USAs is mainly bought by China.

This has the effect of keeping the Chinese currency down and the Dollar artificially strong. What this does is boost exports from China at the expense of domestic demand. This is, in effect keeping Chinese poor to allow the Chinese Government to sit on an enormous pile of Dollars. At some point, this has to end. The Chinese will have to allow their people to buy French handbags & Wine, Italian Clothes, German Cars and English Shoes at the cost of devaluing their Dollar reserves. A fall off in demand for Western government securities will force (or allow) Governments to cut spending even as real interest rates rise. As bond prices fall, and the bubble bursts, money will flood out of treasuries and look for more productive investments.

So, can cutting Government spending faster, closing the deficit and restricting the issuance of Government debt help without the Chinese releasing their reserves? A restricted supply of Gilts would lead to the real interest rate falling, helping with deficit reduction. This doesn’t really help prick the bond-bubble, but restricting the supply of Gilts will drive more money into the productive economy. Furthermore the means by which spending will be cut faster – firing and not hiring people in the public sector will re-weight the economy faster towards the private sector. In the Last Quarter, the public sector lost 111,000 jobs, but the private sector gained 41,000. Year to date, the figures are 149,000 fewer public sector workers and 159,000 more private. The cuts are beginning to do their work, and the private sector, against the stark warnings of the left, is taking on the task of picking up the slack. Since public sector employment started falling in the first quarter of 2010, the Private sector has increased employment in every quarter. That’s 617,000 jobs created for 290,000 lost in the public sector. Each of those public sector jobs lost is one fewer wage bill. Each of those extra private sector jobs is one extra tax-payer. This helps reduce the deficit.

But it’s more than the reduced deficit. Most public sector workers aren’t the Nurses, teachers, firemen and doctors which represent the public sector in the fevered imagination of the Left. It’s bureaucrats, so there’s another benefit of having 290,000 fewer of them: They’re not sticking their clip-boards in the way of business hiring and investing. These bureaucrats aren’t unemployable either. For a decade, business has been crying out for literate, competent people who are capable of turning up to work in the morning. In many parts of the country, these people have been working for the state, which has effectively crowded out private sector employment. With that option no longer open, the Private sector is now able to find the people to provide the investment opportunities for capital which have been so lacking since 2005. The fact is this recession, like all recessions is down to malinvestment. In this one we’ve over invested in public sector prod-noses and under invested in the productive private sector.

This has been multiplied across the entire western world, and added to imprudently low interest rates as Governments have pumped money into the economy in a desperate and futile attempt to keep the party going. This monetary and fiscal “stimulus” has had the same effect as moving off beer and onto vodka. Quantitative easing is like offering round the cocaine in an attempt to keep inebriated guests dancing at 4am. The conversation’s still nonsense, but the hangover will be much, much worse as a result.

If the Chinese government can do a bit for us and allow their domestic demand to rise with their currency too, we (and the Chinese people) will be thankful. Chris Dillow argues against the usual reason for stimulus not working (as per this paper, often cited by Tim Worstall & Others including me on discussiong about “stimulus”) keeping suggesting that it raises the currency, harming exports. In this recession, that might not be the case, AUSTERITY in the west may weaken our currencies relative to China’s by slowing the flow of treasuries & gilts which are being purchased by the Chinese in order to keep western currencies artificially high.

The “double-dip” is a misnomer. We’re witnessing the last gasp of an asset and credit bubble which started to burst in 2000 and it ain’t going to be pretty. In truth, we’ve barely left the recession which started in 2007. Unless we free up resources – people, capital from the public sector, we will not get growth. BRING ON THE CUTS. More & faster, please.

China’s bubble

I’ll remind Sunny Hundal of this when China has its democratic (if they’re lucky) revolution. China is not “Leaping ahead of us”, it is catching up, because the choke-hold of communism has been released a bit and the natural entreprenerialism of the Chinese is being allowed to flourish. Slightly less savage repression has led to rapid growth, not because savage repression is a good thing, but because savage repression is merely a bit better than the savage repression AND insane economic policies which went before.

Name something the Chinese has invented*? No? All China is doing to “leap ahead” is putting together things designed elsewhere, from the iPad to rubber dog shit. They are able to do this because the Chinese government is keeping the currency low. This means the chinese worker is denied the fruit of his wages in the form of any imported goods. The Chinese political class Sunny Hundal admires is using currency manipulation to keep an artificially low currency, which keeps Chinese workers relatively poor. This is done to further the mercantilist designs of the Chinese political class. Mercantilism is a failed economic creed (unless you listen to Paul Krugman, who’s descending into Keynsian self-parody).

There is not the tradition of the freedom of thought which brings inventions, progress, problem solving. You have the gradiose schemes of the tyrant, and none of the advances of the free society. So they can build a pretty stadium, and get thousands dancing in time during the opening show. But it is the Indians who are taking the higher value jobs from westeners. BECAUSE they’re free. India has seven times the number of Nobel Laureates of China. India is producing original science. Chinese in the diaspora are also producing original science. In terms of the thought that is going to solve mankind’s problems, China’s a back-water, and will remain so until the Chinese government tears down that fire-wall.

I’ll believe the Chinese are leaping ahead of us when I am using consumer electronics designed in china by a chinese-owned company. When Chinese scientists with Nobel prizes outnumber the number of Asian-American scientists with Nobel Prizes. When the outcome of a Chinese election is unknown in advance.

For the vast majority of people living there China is, and remains a slave-labour camp. For some it presents opportunities to become camp guards, but “ahead of us”. Only the kind of fool who would have admired Stalin 50 years ago could have been capable of saying that China is ahead of us now. Sunny Hundal is just such a fool.

*a bit more recently than “paper” or “Gunpowder”.

Paul Krugman. Wrong. Again.

As if Krugman couldn’t be any more of a self-serving arsehole in providing Nobel Laureate cover for people who think that extra state spending somehow stimulates and economy, people who call themselves ‘Keynsians’ but who would never advocate running a surplus during the good times as Keynes thought necessary for a stimulus to work during recession; now he’s giving ammunition to the people who are advocating the policy that caused the Great Depression: Protectionist trade war.

China is following a policy that is, in effect, one of imposing high tariffs and providing large export subsidies — because that’s what an undervalued currency does.

Of course what this also does is deny Chinese labourers the benefits of their labour. They are kept poor, so that Americans can have cheap TVs.

That should be a violation of trade rules; it might in fact be a violation, but the language of the law is vague on the subject. But leave aside the fine print of the law for a moment: what China is doing amounts to a seriously predatory trade policy, the kind of thing that is supposed to be prevented by the threat of sanctions.

That’s only a problem if you think a trade deficit is a major problem.

Yet the Chinese have taken our measure, and decided that we won’t act. Until or unless that changes, we’re just whistling in the wind.

Again, the losers of this policy are the Chinese people, not Americans.

I say confront the issue head on — and if it leads to trade conflict, bear in mind that in a depressed world economy, surplus countries have a lot to lose from such a conflict, while deficit countries may well end up gaining.

It wasn’t the Wall St. crash of 1929 which caused the depression, it was protectionism. It wasn’t stimulus that pulled the world out of it, countries which kept budget deficits under control fared better than the USA during the 30’s. Krugman has that special form of leftist idiocy which imagines that the economy is able to be controlled and steered by the state. Idiocy here being defined as doing the same thing over and over again, and expecting a different result. Deficit spending stimulating the economy may be OK in theory, but in practice it just hasn’t worked. Ever.

A trade deficit is not in and of itself a bad thing, because the buyer benefits from imports. Sure there might be a few people who used to hammer TVs together who are out of a job because they’re more expensive than a Chinese worker, but the US economy until it started running stupid deficits (yes under republicans I know) used to be pretty good at generating jobs elsewhere. A trade deficit might upset some dick-waving Government officials who measure themselves by statistics, but the American people as a whole are better off for the Chinese “unfair trade practices”.

There’s a chap, Paul, called Adam Smith, you might have heard of him? Didn’t he point out that the buyer AND seller benefit from trade? Americans getting goods cheap, not only keeps things cheap, and therefore Americans richer, it also depresses inflation, meaning interest rates can be kept lower. Hoarding gold – what mediaeval kings thought riches were – leads to inflation. I believe it was called the “mercantilist fallacy” or something.

Or to put it differently, right now we’re in a world in which mercantilism works.

Oh. I see. So the insights of Adam Smith are worth spit are they, Paul? Now that’s hubris, Nobel Prize for economics or not.

In the long run we’ll emerge from this kind of world; but in the long run …

It will be the long run if anyone listens to Paul Krugman, Nobel Laureate, rent-a-gob for the profligate big state, tractor production statistics-spouting left.

In Praise of the Chinese in Africa


Africa’s hope?

Western aid budgets are generally tied to commitments from third-world governments to behave as far as environmental destruction or human rights are concerned, and to spend at least some of the moolah on their people rather than their wives’s shoe collection or at the Mogadishu Mercedes Benz dealership. The Chinese are criticised for plundering the natural resources of Africa without requiring such sops to the conscience of the affluent, but at least their engagement in Africa can be called “investment” and is refreshingly free of leftist cant.

I’ve argued before that the CAP is responsible for more human suffering than the Second World War, and whilst Europeans and Americans are feather-bedding their farmers, they are preventing Africans getting their cash-crops to rich-world Markets. This means that roads and infrastructure to get cash crops out aren’t built and when the crop fails, there are no roads to distribute the food aid, and everyone dies because they are still subsistence agriculturalists or pastorialists rather than steadily specialising and developing in a productive economy. Famines are rarely about failures of crops, they are usually about failures of distribution. They are also about incentives, as Communist ideologically inspired famines of the 20th century showed.

Chinese engineers are overseeing the building of a Road network and railways that are designed to get raw materials to the market. Plundering Africa of its mineral wealth if you like. But nothing’s going to stop those roads distributing aid in time of famine or allowing farmers to distribute surplus in times of plenty. Likewise mobile phone networks are cheap to build and allow communication by farmers about prices for goods in various nearby towns. These networks will follow the mining engineers’ roads too. This allows, paradoxically, farmers to benefit from higher average prices, and consumers from lower average prices. The difference being lower wastage. Roads also allow medicines, and and effective cold-chain to deliver vaccines to the poor (A rare genuine good done by NGOs and development aid) more effectively.

Much Western development aid does not seem to realise that economic activity is like water, it flows down the path of least resistance. You cannot just give clean water if there is no economy to sustain its infrastructure in the long-term. You just create dependency. A road is only going to be maintained if there is an economic rationale like a mine or cash crop to sustain it.

If western governments spent less time worrying about their aid budgets as a percentage of GDP to appease ignorant hand-wringers in Guardian editorials, and allowed the third world to sell food to us instead, there would be an economy in the poor parts of Africa to develop with in the first place. Without the primary industries giving the rationale for basic infrastructure, there will be no economy, and people in parts of Africa will remain miserable supplicants of western charity. If William Kamkwamba and his family were able to sell stuff in a productive economy, they wouldn’t need to scrape together the resources for a solitary windmill and Poppy Spalding wouldn’t be able to bleat about “the world’s poor” after her gap year of misery tourism. If Africa was allowed to trade on equal terms with the west rather than suffer from dumping of Agricultural produce destroying local markets, and were instead allowed to sell maize to us, then NGO wallahs wouldn’t be cruising around in Air-Conditioned Toyotas distributing largesse like a feudal baron’s consiglieri. But I think the NGO wallahs like being the big man, because (with one or two exceptions) they don’t seem to argue for free trade.

So. China raping the continent for its mineral wealth is likely to do more good for the people of Africa than the entirety of western Aid budgets (which in the case of the British Coalition exists behind a budget ring-fence for reasons of political expediency rather than the greater good). It is ironic that Communist China realises that Trade not Aid is the way to develop Africa and raise its people out of poverty. Whilst America and the European Union subsidise agriculture to the tune of twice African GDP, the twin holocausts famine and Malaria in Africa will continue.