Henry Dampier

On the outer right side of history

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August 12, 2015 by henrydampier 15 Comments

Not Post-Industrial

It’s taken as a given among educated Westerners that Western nations are ‘post-industrial economies’ — meaning that employment in industry as a proportion of the population has declined and will decline for the foreseeable future, and that they will be replaced by jobs in information technology (meaning anything involved with a computer) and in stuff like cleaning up hotel rooms.

This isn’t actually entirely accurate. What’s happened since the 1970s (setting aside the monetary issue) is that the industrial economy was made mostly illegal in the United States and Europe. A combination of labor and environmental regulation intended to improve quality of life made it so that, effectively, the government legislated entire sectors out of existence. At the same time, much of this economic activity was pushed overseas.

In this way, Apple can portray itself as a ‘post-industrial’ company, even when its hardware manufacture supply chain is absolutely enormous. The most efficient structure for them is to keep manufacturing overseas, and much of the retail, design, and software engineering in the United States.

Since the democratic political culture seeks to be comforted and to avoid pain, the often difficult & dirty existence of a factory worker was deemed to be insulting to human dignity, so it had to be pushed on to foreign shores. Putting people on welfare rolls who might otherwise be working on an assembly line at least comforts Americans that they will never find themselves working in a factory no matter how poorly suited to other forms of work they might be.

This shift also tends to be portrayed as a directed form of history — labor agitation ended ‘abusive’ labor practices (in reality it just shifted the ‘abusive’ practices overseas), universal education granted everyone more opportunities, and now no one needs to work in a grimy factory for 16 hours a day, except that plenty of people still do in order to manufacture the same products, just that much of it happens in other countries rather than domestically.

Quibbling about tariffs and most-favored-nation-statuses and even mass immigration all misses the core of why this political structure developed in the way that it did. de Tocqueville wrote in “Democracy in America” that:

If I turn my observation from the upper to the lower classes, I find analogous effects produced by opposite causes. Amongst a nation where aristocracy predominates in society, and keeps it stationary, the people in the end get as much accustomed to poverty as the rich to their opulence. The latter bestow no anxiety on their physical comforts, because they enjoy them without an effort; the former do not think of things which they despair of obtaining, and which they hardly know enough of to desire them. In communities of this kind, the imagination of the poor is driven to seek another world; the miseries of real life inclose it around, but it escapes from their control, and flies to seek its pleasures far beyond. When, on the contrary, the distinctions of ranks are confounded together and privileges are destroyed – when hereditary property is subdivided, and education and freedom widely diffused, the desire of acquiring the comforts of the world haunts the imagination of the poor, and the dread of losing them that of the rich. Many scanty fortunes spring up; those who possess them have a sufficient share of physical gratifications to conceive a taste for these pleasures – not enough to satisfy it. They never procure them without exertion, and they never indulge in them without apprehension. They are therefore always straining to pursue or to retain gratifications so delightful, so imperfect, so fugitive.

If I were to inquire what passion is most natural to men who are stimulated and circumscribed by the obscurity of their birth or the mediocrity of their fortune, I could discover none more peculiarly appropriate to their condition than this love of physical prosperity. The passion for physical comforts is essentially a passion of the middle classes: with those classes it grows and spreads, with them it preponderates. From them it mounts into the higher orders of society, and descends into the mass of the people. I never met in America with any citizen so poor as not to cast a glance of hope and envy on the enjoyments of the rich, or whose imagination did not possess itself by anticipation of those good things which fate still obstinately withheld from him. On the other hand, I never perceived amongst the wealthier inhabitants of the United States that proud contempt of physical gratifications which is sometimes to be met with even in the most opulent and dissolute aristocracies. Most of these wealthy persons were once poor; they have felt the sting of want; they were long a prey to adverse fortunes; and now that the victory is won, the passions which accompanied the contest have survived it: their minds are, as it were, intoxicated by the small enjoyments which they have pursued for forty years. Not but that in the United States, as elsewhere, there are a certain number of wealthy persons who, having come into their property by inheritance, possess, without exertion, an opulence they have not earned. But even these men are not less devotedly attached to the pleasures of material life. The love of well-being is now become the predominant taste of the nation; the great current of man’s passions runs in that channel, and sweeps everything along in its course.

…

The taste for physical gratifications leads a democratic people into no such excesses. The love of well-being is there displayed as a tenacious, exclusive, universal passion; but its range is confined. To build enormous palaces, to conquer or to mimic nature, to ransack the world in order to gratify the passions of a man, is not thought of: but to add a few roods of land to your field, to plant an orchard, to enlarge a dwelling, to be always making life more comfortable and convenient, to avoid trouble, and to satisfy the smallest wants without effort and almost without cost. These are small objects, but the soul clings to them; it dwells upon them closely and day by day, till they at last shut out the rest of the world, and sometimes intervene between itself and heaven.

Although industry created America’s world-leading wealth, the factories themselves seemed to be something to be overcome and progressed past. The factories and refineries were dirty (notwithstanding that there are still many factories and refineries out there — it’s just that people in the middle class don’t want to know anyone involved in ‘dirty’ labor for the most part), physically demanding, inhospitable to women, and oriented to the concrete world of physical production rather than the more subjective aerie of information.

In America, the educated classes tended to strip workers of dignity except as victims exploited by cruel capitalists, in need of rescue by the intellectuals. The intellectuals then proceeded to make the means by which those laborers eked out independence and property illegal in the name of ‘rescuing’ them. Dignity came to be conferred by education and having the right intellectual-opinions rather than by acting out the ethic of work, saving, and religious duty.

In the name of equality, actually being a good person according to the past measuring-stick of virtue no longer mattered. You could have dignity and still be worthless or a malefactor by the old rubric, so long as you had the right opinions or were a member of one of the ever-proliferating victim groups.

In this the democratic revolutions just created a new class of ‘enlightened’ masters deigned to continually liberate the ever-propagating new classes of ‘slaves.’ First it was the actual bonded slaves, then it was the laborers, then it was the women, then the blacks, then the colonized, then the homosexuals, and now the bigamists and barnyard-lovers.

The value is not in the actual liberation, but in the sense of meaning and motivation created by each new ‘liberation.’ Since actual equality is impossible, what changes are the stories about equality and the pretensions to it.

Yet despite all the pretensions to historical progress, many things continue as they have before, with perceptions changing much more than the underlying reality. Because it’s not possible for men to be women and women to be men, you can’t actually change one into the other — but you can demand that everyone pretend as if it’s possible. It’s quite the same with the ‘post-industrial economy’ and the ‘information age’ — it hasn’t been possible to abolish factories, but it has been possible to pretend as if it’s been mostly accomplished.

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July 31, 2015 by henrydampier 4 Comments

Rising Interest Rates & Fried Unicorn Meat

Jim Edwards at Business Insider has published an excellent interview with venture investor Kevin Kinsella which busts a lot of the public relations tales told by some of his competitors.

The Federal Reserve system can’t raise interest rates by that much, but it needs to later this year in order to preserve its institutional credibility. When that happens, even though it’ll be a small hike, it could have the effect of doubling, tripling, or quadrupling yields on high rated bonds — even a slight rise in rates, because they’re so low, could have that effect. Just going back to pre-crisis 2007, rates like the Federal Funds rate were more than 20 times what they are now.

So from the perspective of investors and financial institutions looking for assets that’ll yield a return, the entire environment changes quite quickly, as it becomes more attractive to be a creditor than a debtor.

Just a slight hike creates a lot of competition in the financial markets that’s currently being occupied by high risk stocks, of which tech companies are just a small category.

The ‘unicorn’ thesis is that America is leading the world in creating technologically advanced companies which will catapult the rest of the economy into a golden age.

BI: So let’s say the recession comes along but the underlying business is actually viable. The business is profitable. It may not meet the valuation they hoped, but it’s a real business. My worry is, if I’m the last set of investors in and we’ve now ploughed in some astronomical sum of money, like $1 billion dollars, at a valuation of $10 billion, and it’s all still private equity, then when the market goes down, I can’t sell this. The market is completely illiquid. At least if it had IPO’d, I could bail out of my shares and get some cents on the dollar. But what if you’re Fidelity or Calpers, one of these large institutional investors that comes in at a late stage — how are they going to cash that out?

KK: They’re screwed, they’re completely screwed.

BI: So you have a highly valued asset stuck in an illiquid non-transparent market?

KK: Yeah and that’s what I refer to as the liquidity crisis. Your private valuation has gotten way ahead of any potential notion of what a public valuation could be where you could exit. And therefore the problem is that you’re stuck with the investment.

This is essentially what has happened to high profile companies like Groupon, Zynga, and Twitter (particularly the last in recent days) — private valuation galloped out in front of any sane public market valuation. When the companies went public, they were unable to maintain their private market valuations, despite a lot of gibberish about non-financial metrics. The problems in those companies had less to do with the essentials of the businesses and more to do with impossible prices on the stocks themselves.

The reason why, contrary to protests that this malinvestment is somehow ‘insulated’ from the public markets, is that all of the limited partners investing in these funds have major exposure to the public markets. Illiquid parts of their portfolio have to be covered by liquidations elsewhere. And pension funds in particular which have major exposure to venture investments will often go looking for bailouts from the government.

Attitudes within the venture community tend to be very short sighted because it’s been beneficial — especially since 2007 — to be blind to the broader risks, and to be able to tell convincing happy tales about why all these massive valuations are justified by unconventional measures, buffeted by saying one thing to the general public, while concealing financial problems until the moment the public offering happens or the company gets acquired by a larger one.

The error in thinking being made is similar to the one made by Chinese planners — namely, that the profit and loss system can be ignored, that economic fundamentals don’t matter, and that falsified prices can result in a more efficient allocation of resources than real prices.

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Filed Under: Economics

May 29, 2015 by henrydampier 3 Comments

The End of the Student Loan Bubble

The student loan bubble isn’t likely to end by government decree. Much like other failed lending programs, it’s likely to stop working as soon as demand for the loans abates significantly, whereas the trend over the last several years has been an enormous expansion in the demand for those loans.

The end will come due to selection effects. The people who focus on developing real job skills — and even the creative skills that college is sometimes supposed to inculcate — will continue to trounce many of the people who have shelled out for enormously expensive educations, even from some of the most prestigious universities. Parents who themselves went to college and have sent their own children through the system will continue to see that the system has degraded both in terms of the experience that it provides to students and in terms of the results that it fails to provide.

It’s not likely that any one thing — like internet college-level courses — will provide a replacement for the vast, mosty useless American education complex. Instead, institutions which have relied on ever increasing numbers of eager borrowers will begin to fail. The maintenance costs on extravagant campuses will not be able to bear decreasing enrollments. The huge payrolls of administrative staffs will not be supportable given even a dip in the overall increase in the interest in higher education.

The reversal isn’t that likely to be dramatic and sudden throughout the entire system. What’s more likely are local failures throughout the system, which will eventually cascade into a larger and more obvious failure. What the government might do in response to that is anyone’s guess. The record of the last 40 years suggests that the state will just try to lower the standards even further, increase enrollment even more, and reward failure with more enormous sums of money.

The changes in popular opinion over the last 10 years, though, while difficult to quantify, suggests that there’s more likely to be a contraction, but the stupidity of the bureaucratic left has been known to surprise.

None of this is particularly a problem for us or likely any of you. The more relevant question is what can pick up the shift in demand. The pat answer might be that ‘more people will go into the trades,’ but those trades can only absorb so many of the enormous numbers of largely useless graduates.

Rather than try to come up with a solution that works for the country as a whole — which would be impossible — it’s better to think more in terms of what you would do to increase the chances of your children succeeding. Historically, in times of serious resource restriction, a couple ways to handle that were:

  1. Strict gender roles
  2. Sending your children off to work for already established people

Some combination of both works well for people of all potentials, levels of intelligence, and most levels of scrupulousness. There’s no need to get more complex or institutionally-minded than that. There’s no grand proposal that can end the widespread middle class norms of extended ‘adolescence’ — but we can promote norms of early adult responsibility to counteract the errors of the last century.

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