Kevin Drum

Big News in Ketchup City

| Mon Sep. 19, 2011 2:39 PM EDT

From the Wall Street Journal today:

In 2006, when activist investor Nelson Peltz battled Heinz for board seats, he pushed the company to make a number of changes, large and small, including developing easier-to-open ketchup packets.

This is in a story about — hey. Wait a second. Did I read that right? Back in 2006, a shareholder activist was demanding that Heinz develop an easier-to-open ketchup packet? Seriously? I guess shareholder activism isn't what it used to be.

Anyway, Heinz has finally complied, introducing a ketchup packet that can be opened at one end if you want to squeeze out the ketchup, or the other end if you want to dip your food in ketchup. It's also bigger than the old packets. I don't like ketchup, myself, so I'm not blown away by this news. But maybe you will be.

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Taxes and the Crazification Factor

| Mon Sep. 19, 2011 2:13 PM EDT

Does the American public want to reduce the deficit entirely with spending cuts, or does it support a combination of spending cuts and tax increases? Bruce Bartlett has been collecting the results of every poll that asks this question, and the answer is clear. On average, 65% of respondents want a combination of spending cuts and tax hikes. In 27 polls going back nearly a year, there are only two where the number is less than 60%.

So that's that. Only 30% of the country wants to reduce the deficit solely with spending cuts, a number that's suspiciously close to the Crazification Factor. The non-crazies all want some kind of balanced approach. If Obama sticks to his guns on this, he's on solid ground.

Our Automated Future

| Mon Sep. 19, 2011 12:48 PM EDT

Yesterday I wrote about the possibility that a new era of mental automation (as opposed to the Industrial Revolution era of physical automation) might genuinely put people permanently out of work. Matt Yglesias disagrees:

One key is that people like other people. When I was in San Antonio recently, I went on a boat tour of the Riverwalk. It came with a human guide who both piloted the boat and told us about the history of the city and the area. I’m fairly certain the driving of the boat could be automated with existing technology, and at a minimum the guide could have been replaced with a recording. But he wasn’t, because the human guide was funny and warm and because tourists prefer to interact with a human guide.

By the same token, people like to go to group classes at gyms rather than watch instructional videos on the Internet. In really fancy buildings in Manhattan, they use old-fashioned human operated elevators. It’s not that you particularly need human beings to conduct face-to-face interaction with other human beings. Rather, it happens to be the case that most human beings prefer to interact face-to-face with other people and as long as that’s the case there will be demand for human labor. The thrilling world of personal services — restaurants, massages, trainers, interior designers, etc. — could employ many, many, many more people. If less human labor is required to manufacture and transport mass-produced physical goods, then everyone will have more custom-built cabinets, more labor-intensive restaurant meals, we’ll go back to wearing handmade suits, etc.

Maybe. But I find this really, really unpersuasive. For starters, lots of guide operations already use recordings and lots of people already do watch instructional videos on the internet. (In fact, in the context of education reform, replacing teachers with online classes is something Matt writes about frequently.) And as for the elevator operator — well, I suppose that's a possibility. Maybe we're destined for a future dominated once again by a wealthy class that employs dozens of people as personal servants on their estates. But I sure hope not.

In any case, none of this is really related to computers getting smart enough to do cognitive tasks that humans currently do. Tape recordings and ostentatiously unnecessary button pushers are just an entirely different class of phenomenon. The more serious concern on this front is with automation that genuinely performs tasks that formerly required human creativity and responsiveness. My example yesterday was truck driving: That's a complex task by current computer standards, but eventually it won't be. And when it's not, anything else that a truck driver can do will be automated too. So what do the truck drivers do? Lead yoga classes? Make bespoke suits?

Maybe. I'll readily concede that 200 years ago I would have found similar explanations for the wonders of automation wanting. "Sure, farmers will be put out of work," says the optimist, "but machines are going to boost economic growth so dramatically that they'll all find jobs on assembly lines!" I probably would have thought that required a rather improbable rate of economic growth, and I would have been wrong. That's exactly how it played out.

So sure. Maybe in 30 or 40 years most actual production, and even most routine services, will be done by machine. But it won't matter because we'll all be giving each other guided tours and yoga classes. Maybe. But guided tours and yoga instruction actually require a surprising amount of cognitive ability, and I still don't know what the truck drivers are going to do. But perhaps the future will surprise me. It usually does.

The End of Netflix

| Mon Sep. 19, 2011 12:18 PM EDT

I got a personal email from Netflix CEO Reed Hastings this morning:

Dear Kevin,

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

Well, OK, this wasn't really an email sent just to me. It was sent to me and several million other pissed off Netflix customers. Still, it's nice that Hastings knows we're pissed-off and wants to explain things. So here's the explanation:

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Huh? Unlike many internet denizens, I wasn't especially cheesed off when I read this. I was just — bemused. Why should I care if they're changing the name of their DVD service? Why should anyone care? And in what way is this an explanation for a big price increase? This is like breaking your neighbor's window and then "explaining" that tomorrow you're planning to take a trip to the zoo. The two things just don't have anything to do with each other.

Meh. Hastings should have saved his virtual postage. More here, if you're interested. My take is that this is the beginning of the end for the DVD service, no matter what Hastings says. He doesn't want the Netflix brand ruined by the plummeting customer satisfaction that's going to follow the almost certain service and selection downgrades on Qwikster once the smoke has cleared. Oh well. Nothing lasts forever. But with Blockbuster gone, Redbox mostly limited to newer releases, and streaming services offering only a tiny selection, where am I going to go if I want to watch some movie made more than a decade ago? I guess I'll just wait for them to show up on cable until the content providers figure out what to do.

Obama's Veto Threat

| Mon Sep. 19, 2011 11:13 AM EDT

Realistically speaking, there's not much chance that Congress will pass either Obama's jobs bill or his new deficit plan. To a large extent, both things are more about political positioning than they are about actually passing legislation. Matt Yglesias spins this out:

In that context, the biggest news out of today’s deficit plan from President Obama probably isn’t the plan itself but an ancillary veto threat. We’ve long known that the White House favors higher taxes on the rich, and also that it’s willing to consider agreeing to some very right-wing notions about Medicare spending as part of a grand bargain to get it. Today, though, the president is clearly stating for the first time that he will veto any plan from the super committee or elsewhere that cuts Medicare benefits without raising taxes on the wealthy. That has practical importance and makes it much more likely that we’ll end up getting the super committee trigger cuts rather than a new Democratic rollover.

If Obama sticks to his veto threat, this is true. And I suspect he will stick to his veto threat. After all, if this is mostly about political positioning, then the position Obama very clearly wants to monopolize is that he's the guy who defends middle-class entitlements while demanding that the rich pay their fair share. A veto threat is a good way to dramatize this, and an actual veto would be even better.

The next step is for congressional Democrats to rein in their parochial interests and back this up loudly and completely. I don't know if they're smart enough to do this, but if they do, it would be pretty good branding. Republicans are the party of low taxes on millionaires even if it means a higher deficit; Democrats are the party of fiscal prudence and making millionaires pay the same tax rates as the rest of us. If they can really stick to this, every scrap of polling evidence suggests it would be pretty popular.

David Vitter's Crony Capitalism

| Mon Sep. 19, 2011 1:34 AM EDT

Time's Michael Grunwald writes today about Louisiana Sen. David Vitter's charges of crony capitalism in the Solyndra affair:

“We can’t afford any more crony capitalism,” Vitter said in Wednesday. Vitter should know. He’s written a bunch of letters to the Energy Department’s loan program seeking loans for renewable energy firms.

For example, on July 1, 2009, Vitter and Democratic Senator Mary Landrieu of Louisiana wrote Energy Secretary Steven Chu to support a loan application by the V Vehicle Company, a clean-car start-up (backed by T. Boone Pickens and the venture capital leviathan Kleiner Perkins) that was planning a Louisiana factory. “This vehicle would serve as a catalyst for job creation,” they wrote. A year later, Vitter joined the entire Louisiana delegation in another letter pushing “expedited consideration” for VVC. Alas, the Energy Department rejected the loan, citing concerns about the company’s financial viability. Vitter must have been annoyed by all this due diligence, because in December 2010–after VVC changed its name to Next Autoworks–he, Landrieu and Congressman Rodney Alexander tried once more. “Every day that Next Autoworks’ application is delayed is another day that workers cannot be hired,” the wrote. So far, no luck.

No wonder Vitter’s angry: His cronies are losing!

Read the whole thing. It's really a delightful post. As Grunwald says, the Solyndra story isn't really about Solyndra itself anyway. It's just another failed investment, after all. "No, the Solyndra story is about renewable energy. If we don’t want to be dependent on petro-thugs for our survival, if we don’t want to broil the plant, if we don’t want the health of our economy to hinge on the energy futures markets, we’re going to have to reduce our dependence on fossil fuels. But certain industries have a strong interest in strangling green energy in its cradle. And those interests are well represented in Louisiana."

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Paul Ryan Insults Our Intelligence Yet Again

| Sun Sep. 18, 2011 9:33 PM EDT

Oh look. What a surprise.

After three decades of public policy that led to the super-rich doubling their share of national income while paying tax rates a fifth lower than before — yes, folks, that's way more money and way lower tax rates — 

After three decades of policies that lavishly rewarded the super-rich — and produced wage stagnation for everyone else, a massive financial collapse that ravaged the middle class, and enormous deficits that they'll be asked to pay off eventually —

After three decades of that, what do Republican leaders call President Obama's plan to raise taxes a bit on millionaires?

Class warfare, of course. The sheer gall is staggering. Still, why should they stop? They'll never get ashamed of hawking that old-time snake oil as long as hawking it keeps working.

Who Will Tend the Machines That Tend the Machines?

| Sun Sep. 18, 2011 5:06 PM EDT

Here's another clip from Christiane Amanpour's interview with Google chairman Eric Schmidt:

AMANPOUR: But what about the very real problem, and that is many businesses seeing, precisely because of the efficiency of, let's say, online, and the new sort of technology, that it is much cheaper to buy a machine to do a job — you don't have to train it, you don't have to pay it wages — rather than hire a person. I mean, this seems to be the structural reality of the economy now.

SCHMIDT: That's been true for a hundred years. It's been true of the industrial era for literally the last century. And over and over again, American ingenuity has meant that people who were displaced were able to find new jobs in these new industries. People who did something manually learned how to operate the machine.

The smart money says that Schmidt is right. People have been complaining since the start of the Industrial Revolution that machines would make people obsolete, and they've been wrong ever since.

And yet.....Schmidt phrases this correctly: "People who did something manually learned how to operate the machine." As long as machines increased productivity enough, they created as many jobs as they destroyed even if it took a tenth the number of people to tend the machines as it did to do the same job by hand. Individuals might lose their jobs, and entire sectors might die, but the economy as a whole would employ as many people as it did before. Requiring one-tenth the labor is fine as long as GDP has grown 10x: Everyone's still employed, and even better, everyone is sharing in the output of a much bigger economy.

But that's starting to change. Now we're starting to build machines to tend the machines. That is, we're not building machines to take over physical labor, we're building machines to take over mental labor. And it's a lot less clear what that does to economy-wide employment. Even if you assume that these machines are more efficient than humans and boost overall productivity, what are the jobs that humans get transferred to? If machines are doing the physical work and machines are doing the supervisory work, all that leaves is jobs for people tending the machines that tend the machines. But once you go two levels deep like that, the economy would have to grow astronomically to keep everyone employed. One hundredth the amount of labor is fine as long as GDP grows 100x, but that's not going to happen. Energy constraints alone will prevent it, at least in the medium term.

We've only barely begun to see the thin edge of this particular wedge so far. But that's because machines still aren't very smart and can only take over supervision of the most routine jobs. Even at that, though, I suspect it's had a small effect on a certain segment of the labor force already. Not the very bottom, which is mostly pure labor and has already been decimated about as much as it's going to be. And not at the middle and top levels, where computers are still years away from being able to take over anyone's job. But what about the segment right in between, where the physical labor is minor and the mental labor isn't much more? That stuff can go away and never come back.

To take an example from the near future, what happens when Google finally builds a safe, reliable robotic car? Truck drivers are all put out of business, that's what. And if we can build a computer smart enough to drive a truck, we can build a computer smart enough to do just about anything else that your average truck driver can do. There's just nowhere to go. In science fiction novels, this gives us all time to corral our inner muses and produce endless entertainments and amusements for each other, but that's not going to happen in real life. Most of the people who lose their jobs because their cognitive skills are inferior to a machine aren't going to suddenly start creating great art. Or even mediocre art.

I'm just musing out loud here, not pretending to have thought deeply about all this. And none of this is anything close to new. But I still wonder just how soon we're going to have to face up to it. Sooner than we think, I suspect.

Google's Chairman Speaks Some Home Truths

| Sun Sep. 18, 2011 2:46 PM EDT

Christiane Amanpour talked to former Google CEO (and current executive chairman) Eric Schmidt today about why businesses are in the doldrums:

AMANPOUR: Everybody says that confidence is the name of the game, that the economy and consumers are not going to start buying, businesses are not going to start hiring again, unless they feel a period of confidence and stability, producing the kind of confidence that's necessary for a hiring binge.

SCHMIDT: The economy is today stuck behind the power curve. It needs a lot of encouragement. It needs not just something like the jobs bill, but also significant government stimulation in terms of buying power and investment. Otherwise we're set up for years of extraordinarily low growth in the economy and no real solution to the jobless problem.

But you say significant stimulus. Obviously this is a political environment where the only real conversation is about cutting. Do you see any expectation or possibility of a climate for more stimulus?

Well that's a political question. But the current strategy is ludicrous. You have a situtation where the private sector sees essentially no growth in demand. The classic solution is to have the government step in, and with short-term initiatives help stimulate that demand. If they do it right, they'll invest in income and growth producing things, like highways and bridges and schools.

....So this is a pretty dark picture that you're painting. Add to that no confidence from consumers, and businesses sitting on something like 2 trillion worth of profits, which they're not going to spend apparently. Does the president have a material problem with the business community?

The real problem is not the business community. The real problem is: the Democrats and the Republicans fight for one point or another in a political sphere, while the rest of us are waiting for the government to do something concrete and predictable. What business needs is predictable, long-term plans. We need to know: Where is government spending going to be, what are the government programs going to be? And off we go.

Business can create enormous numbers of new jobs in America. All we need to see is more demand. What's happening right now is: Businesses are very well-run, they have a lot of cash. They're waiting for more demand. At the moment, business efficiency allows them to grow at 1 or 2 percent, which is what we're seeing today. They don't have to hire more people. And until we solve the problem, people are going to sit idle. And it's a real tragedy.

Why don't more CEOs talk like this? Schmidt is right: American companies need more demand. That's the uncertainty that's dominating their lives right now: economic uncertainty, not the ludicrous specter of regulatory uncertainty that Republican politicians and Fox News keep pretending is our big problem right now.

In the short term, that means doing something. We can argue forever about the relative merits of NGDP targeting vs. higher inflation vs. more stimulus vs. increasing the monetary base, but to a significant extent, these are all different names for the same thing. Eventually they won't be, but right now we should basically be doing all of the above. That would help the business community. If America's CEOs would wake up for a minute and start demanding that the GOP do something about this instead of baying mindlessly about austerity and spending cuts, we might actually get the economy moving again.

Stagnation and Taxes

| Sun Sep. 18, 2011 1:22 PM EDT

Middle-class income stagnation began in the United States in 1973. Before then incomes grew 2-3% a year, but since then have grown only about 1% a year. John Quiggin makes a simple point about why workers don't necessarily feel this for a while:

Standards of living are determined mainly by lifetime incomes, not by income in any particular year. Given the pattern described above, lifetime income for someone who worked, say, from 1940 to 1985 was well below that for someone in a similar class position who started work in 1970, just when the long increase in real wages was slowing for most and stopping for some. For every year of their working life, the 1970 starter gets a wage (adjusted for age, education and so on) that’s as high as the maximum attained by the 1940 starter after 30 years of steady growth. Unsurprisingly, that translates into a bigger house, and more of most items that require savings, whether or not their price has risen relative to the CPI.

To make this more concrete, suppose that Bob earns $10 during the first year of his working life, and forty years later, adjusted for inflation, he earns $20. Bob's average wage over his lifetime was $15, for a total lifetime income of $600.

Now suppose that Alice begins her career at the end of that period, and further suppose that income growth has flattened completely. Alice earns $20 her first year and $20 her last year, for a total lifetime income of $800. So even with a stagnant income, she's still better off than her parents, which is probably one of her main points of reference.

But now even that's coming to an end. Someone who's entered the workforce in the last decade or so not only has a stagnant income in real terms, but also a stagnant income compared to her parents. That's a double whammy, and really brings home the reality that things are tight and are going to stay tight. One conclusion you might draw from this is that if you thought the previous generation was resistant to higher taxes, you ain't seen nothin' yet. When incomes are growing smartly, higher taxes are pretty bearable. When they start to stagnate, they become more onerous. And when they stagnate completely, they become completely intolerable. I hardly need to spell out the long-term problem this poses.