This blog has long pointed out that costs of automating work functions have plummeted just as the costs of labor and benefits have escalated. Naturally, many businesses will invest in tech to lower costs.
Investments in automation were going to be happening anyway – but various labor laws are encouraging the adoption of automation more rapidly than it might otherwise occur. The result will be the loss of “starter” jobs which tend to be low skilled retail services where many of us developed our first work experiences and skills.
Says Rahm Emanuel, former Chicago Mayor, Congressional Representative and former Obama Chief of Staff, said this in this news interview. Laid off workers should “Learn to code”.
He’s likely correct that due to structural changes accelerated by the pandemic, many retail jobs may not return. The U.S. had way too many square feet of business space devoted to retail, as compared to other developed nations before the pandemic.
Now with online ordering and delivery services, much of retail is irrelevant. This was going to happen away – but a variety of events accelerated the trend. $15 minimum wage plus mandated benefits dramatically increases labor costs (a variable cost) just as the cost of automation have plummeted (a mostly fixed cost).
It is sort of a “no brainer” [1] – automation, online ordering, even using an app while sitting at a restaurant table – all of these will reduce the need for lower skilled labor.
The Federal Reserve announced a significant change in how it manages interest rates by saying it plans to keep rates near zero even after inflation has exceeded the Fed’s 2% target level.
Having done the virtual equivalent of printing a few trillion $s to paper over the pandemic policy induced recession, apparently this will be paid off via inflation.
Inflation causes the devaluation of the currency you hold – and in effect, taxes everyone that is holding cash.
This means that today’s debts will be paid off with future cheaper dollars. Inflation is good for those who have debts such as the U.S. government and bad for those holding cash.
During inflation (reducing the value of dollars), holding real assets is preferable to holding cash. Because the value of those assets will rise proportional to the devaluation of the currency, all else being equal.
“If you take cash, on the other hand, and you think about it from a purchasing power standpoint, if you own cash in the world today, you know your central bank has an avowed goal of depreciating its value 2% per year,” Jones said in May. “So you have, in essence, a wasting asset in your hands.”
Conversely, inflation rewards those who hold debt – because debts will be paid off in future devalued dollars.
Of course, there is a lot of hand waving going on that “this time its different”. Seems like we’ve heard that phrase before … the current theory is that if no one spends much money, then there is little demand to drive inflation.
That may be true in the short term – there are some items I am interested in buying but they remain in short supply due to supply chain disruptions, so I’m am not buying. Also, this was the year I had planned on – at long last – learning to travel. But all trips were canceled for the year and travel does not look to be fun or convenient for at least another 6-9 months. When supply chains restart and refill and activities like travel and going to restaurants become possible again, will that demand suddenly ramp up?
Nobel economist Paul Krugman, Election night, 2016, writing in the NY Times:
Nobel economist Paul Krugman, July 28, 2020:
As Talib has observed, most economics prognosticators do okay for some number of years – mostly due to luck – and then reality hits. I used to enjoy reading Krugman’s columns but he increasingly went off the rails into politicized nutty land.
I agree with concerns over today’s stock market valuations, however a size-able part of this is the expectation of future inflation due to governments’ mammoth money printing required to accommodate their pandemic policies’ economic destruction.
Actual for May: an increase of 2.5 million jobs and unemployment falling to 13.3%. Same for Canada too.
Economists and their computer models were off in space.
Since much of the country had not yet “re-opened” after public health sociopaths flattened the economy, this is a good number. By June, many more areas are re-opening – will be interesting to see the unemployment figures for June.
Update – I see one financial analyst thinks “It’s different this time” and there is little risk of inflation. So there is that view too. Deflation is certainly likely in the shorter term due to suppressed demand (retail sales and services fell by over 16% in April).
Why the stock market rise? Probably because of future inflation. The U.S. government is printing money like crazy – calling it an “economic stimulus”.
Chart of the U.S. Money Supply from U.S. Federal Reserve:
How will these trillions in spending be paid for? Inflation.
Inflation devalues the dollar making today’s debt’s cheaper to pay off in the future. Governments have always done this. Will this be what happens this time? Who knows for sure?
Inflation taxes everyone simultaneously by lowering the purchasing power of the dollars they hold.
Mandatory physical distancing measures, temperature checks and filling out medical history questionnaires prior to airplane flights, possible Covid-19 testing before boarding, limited or non-existent meal and beverage service on airlines, no more free hot breakfasts at hotels, restaurants allowed to use only 25-50% of their seats, mandatory face mask wearing at all times … and higher prices. Airlines can not keep flying idled seats – someone has to pay for it.. Hotels, restaurants and car rental agencies will have to charge more to fewer customers in order to cover their fixed costs.
What does this mean for travel? It means recreational travel will be limited until a vaccine is widely distributed and people have confidence in its effectiveness. Many will choose to avoid the “new normal” hassles of travel during this time.
This is a though provoking video: Economics theory is based on the idea that wants (demand) exceeds supply. Stated another way, we tend to want more than we can afford – we do not have the resources to acquire everything we may desire. But today we are, for a great many, and for many of life’s necessities, living in a post scarcity world. Once we have fulfilled our basic “wants” we have the luxury of being tricked by marketing into wanting even more (basically, a fake want designed to increase demand).
Maslov’s Hierarchy of Needs tries to explain human motivation in terms of fulfilling the basics, like food and water, first, at the bottom of his pyramid. Above that we seek shelter and safety, then peer support, self esteem and finally self actualization.
The reality of life today is that life is actually quite good – compared to the past. (Poverty is at a global low point, for example. Literacy is at a historical high point, and so on, in spite of the daily dose of fear mongering news media.) In effect, for most people, the goods and services of daily life are not scarce. We enter a world of post-scarcity economics for much of our daily needs.
Most people (yes, there are definitely exceptions) in modern economies have fulfilled the bottom 3 tiers of the Hierarchy of Needs. At this point, our wants become warped. Few people need digital watches (to quote Douglas Adam’s comments about the 1970s) – or for that matter smart phones or any number of other goods and services.
Since we do not really need a lot of “stuff”, marketing tricks us in to wanting things we don’t need. So we acquire more.[1] Because many of our basic wants are satisfied, we create new “wants”. Some “wants” are not goods or services – we have the luxury of time so we build ourselves up (top of the pyramid) by running marathons and ultramarathons or spending time at the gym or the hair salon to look good.
At some point, many people are persuaded to want things they cannot afford today – so lenders step into loan money to acquire stuff (you probably don’t really need). This can be loans for cars, homes, or consumer loans for vacations and home improvement, or accumulation of credit card debt to acquire “stuff” we believe improves our self-esteem (catching up or exceeding those in our peer group). As satirist JP Sears says, “Tesla – pretend to save the environment while looking rich” 🙂
Eventually, our loan payments cause us to cut back on spending on other things. As collective debt loads become too high, economic activity slows down and we enter a recession.
Post scarcity economics means we have the means to be persuaded (by marketing) to acquire stuff we probably don’t need and a ready supply of lenders to enable us to buy it today (versus saving our money).
A small observation: When we choose to purchase an item X, it is not so much a decision to buy X as it is a decision that we are not going to buy Y (and A, B and C too!) Few people think of purchase decisions this way though. But we should be asking ourselves, if I buy X, what product Y am I choosing not to buy? If we did this, we’d balance our spending – and wants – a lot better.
We see this effect at work in government spending. Legislators are constantly asked to spend more money on government programs (let’s call them X). But seldom is anyone simultaneously suggesting what projects (call them Y) we should not be funding in order to fund X. The solution is to buy X – and Y – and just borrow more money.
Keep this in mind the next time you “want” something (X) and ask yourself, what will I give up (Y) to buy X? Most people never ask this question and buy stuff they probably cannot afford. Spending decisions are about choosing between things X and Y, but most people view spending decisions as deciding whether to buy X1, X2 and X3.
[1] Getting tricked in to wanting and buying more is made possible by intense surveillance of our lives both on and offline. As Walmart says
“[W]e have a lot of data and we can gather even more data. [I]f you win their most frequently purchased items, you get the opportunity to serve impulse items online and in-store, and our focus is in driving that sweet spot,” he said.
Businesses are using multiple tricks to manipulate you in to wanting more than you need.
Reality-based Thinkng on Business, Tech, Energy, Transportation
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