Wednesday, February 20, 2013

Who needs the facts when you've got theory?

Prof Crabtree at work

Would you be surprised to hear that the human race is slowly becoming dumber, and dumber? Despite our advancements over the last tens or even hundreds of years, some ‘experts’ believe that humans are losing cognitive capabilities and becoming more emotionally unstable. One Stanford University researcher and geneticist, Dr. Gerald Crabtree, believes that our intellectual decline as a race has much to do with adverse genetic mutations. But there is more to it than that.

According to Crabtree, our cognitive and emotional capabilities are fueled and determined by the combined effort of thousands of genes. If a mutation occurred in any of of these genes, which is quite likely, then intelligence or emotional stability can be negatively impacted.

    “I would wager that if an average citizen from Athens of 1000 BC were to appear suddenly among us, he or she would be among the brightest and most intellectually alive of our colleagues and companions, with a good memory, a broad range of ideas, and a clear-sighted view of important issues. Furthermore, I would guess that he or she would be among the most emotionally stable of our friends and colleagues,” the geneticist began his article in the scientific journal Trends in Genetics."

Further, the geneticist explains that people with specific adverse genetic mutations are more likely than ever to survive and live amongst the ‘strong.’ Darwin’s theory of ‘survival of the fittest’ is less applicable in today’s society, therefore those with better genes will not necessarily dominate in society as they would have in the past.


The fact that all the studies show a substantial rise in IQ during the 20th century is beneath Prof. Crabtree's notice, apparently.  If you've got time to waste, his full essay is here


Industrial renaissance in the US: miracle or mirage?

Throughout his presidential election campaign last year, Barack Obama talked up signs of the revival of US industry. Only to be expected from someone seeking re-election, you might think. But he did highlight something tangible that a lot of others outside his political circle have also been discussing: how after years of the outsourcing of American jobs to China and other emerging markets, businesses are now ‘insourcing’ and ‘bringing jobs back to America’.

The notion of the revival of US industry, and of US manufacturing in particular, has been growing for some time now. In the summer of 2011, the prestigious Boston Consulting Group popularised the idea of a ‘manufacturing renaissance’ in its seminal article, ‘Made in America, Again: Why Manufacturing Will Return to the US’. It argued that a ‘combination of economic forces is fast eroding China’s cost advantage as an export platform for the North American market’. Rising costs abroad and falling costs in the United States mean that America ‘is becoming more attractive as a place to manufacture many goods consumed on this continent.’

And it’s not just starry-eyed politicians and consultants hoping that things are on the economic mend. Business leaders have endorsed this prospect of expanding production in the US. Jeffrey Immelt, CEO of the outsourcing pioneer General Electric, who is also head of President Obama’s Council on Jobs and Competitiveness, thinks outsourcing is now outdated as a viable business model. Taking advantage of low-wage Chinese workers at the end of the 1990s, when they earned about 50 cents an hour (about one thirtieth of an American worker’s salary), seemed to make a lot of sense. But now things are more complex (or perhaps they always were?). ‘Outsourcing that is based only on labour costs is yesterday’s model’, says Immelt. ‘Complex trade-offs have always been involved in location decisions, but as these trade-offs have shifted, around 2008, we came to the conclusion that outsourcing was quickly becoming mostly outdated as a business model for GE Appliances.’

Moreover, Immelt has been putting his money where his mouth is: last year GE brought back to Kentucky the production of water heaters and refrigerators that had been outsourced to China and Mexico. Immelt told the Harvard Business Review last March that his company is now ‘outsourcing less and producing more in the US, [and] created more than 7,000 American manufacturing jobs in 2010 and 2011’. At the end of last year the influential Atlantic magazine ran two articles giving many more examples of returning US companies, ranging from home appliance maker Whirlpool, lift maker Otis, and even the frisbee maker Wham-O. Since then, other huge global companies, including Apple and Lenovo, have announced plans to bring production facilities home from Asia.

A range of arguments are advanced to explain the reshoring trend. Most commonly, it’s pointed out that Chinese wages have been rising substantially year-on-year, so the gap in labour costs is now less pronounced. The Boston Consulting Group highlights how ‘wage and benefit increases of 15 to 20 per cent per year at the average Chinese factory will slash China’s labour-cost advantage over low-cost states in the US, from 55 per cent today to 39 per cent in 2015, when adjusted for the higher productivity of US workers. Because labor accounts for a small portion of a product’s manufacturing costs, the savings gained from outsourcing to China will drop to single digits for many products.’

Other champions of the inshoring trend point to a previous overestimation of the benefits of going abroad: outsourcing relationships aren’t that simple to manage, and more complex and expansive supply chains can go wrong, not least when disrupted by natural catastrophes like the 2004 Indian Ocean tsunami and the Japanese one of 2011.

And then there’s all that cheaper energy from booming US shale oil and gas encouraging the reshoring of manufacturing. Techniques such as horizontal drilling and hydraulic fracturing, known as fracking, have transformed North America’s energy landscape, unlocking vast reserves of shale energy that were long thought uneconomic. The shale boom has fuelled a rise of almost one-fifth in US gas production over the past five years. About 30 per cent of America’s gas is now sourced from domestically produced shale gas, according to Goldman Sachs, up from one per cent in 2001. The consensus forecast is that US natural gas production will rise between 25 and 30 per cent from 2010 to 2030.

How has the US benefited from this ‘industrial renaissance’? Not much, so far, judging by the latest data. While America’s trade deficit in energy has improved from where it was a few years ago, it is still no better than it was during the 1980s and 1990s. (See chart below.) Of course, if shale energy production takes off in the way it could, the picture will change dramatically over the next few years.

However, the benefits of the industrial renaissance to the rest of the trade deficit are more difficult to discern. One would expect to be seeing at least signs of a narrowing of the non-energy trade deficit. Manufacturing exports did hit a new record in 2011, but so too did imports. More of the same is forecast for 2012 when the annual figures are published. The American Manufacturers Alliance for Productivity and Innovation (MAPI) reports that the US trade deficit in manufactures actually increased by seven per cent in the first half of 2012, continuing the upward trend since the end of the 2009 global recession.

The broader merchandise trade deficit figures, excluding energy, show a continuing deterioration after the fading of the normal recession-induced improvement, when imports fall away in line with declining production and household consumption. (See charts below.) This suggests, contrary to expectations of an even embryonic industrial renaissance, that the US is becoming more reliant on overseas production, not less.

The trade body, the US Business and Industry Council, concluded that this record trade deficit ‘should put to rest widespread claims by the president and others that American manufacturing is in renaissance mode’. In a more recent study, Alan Tonelson, one of the council’s research fellows, reported that imports in 2011 captured a record share of US markets even for advanced manufactured goods, ranging from semiconductors to pharmaceuticals to ball bearings to machine tools and dozens of other capital- and technology-intensive sectors. And this is an area where the US is supposed to hold a relative competitive strength because of its higher levels of R&D and technology.

The import penetration rate exceeded 37 per cent in 2011, well up on the 25 per cent in the earliest data year of 1997, and slightly up on 2010, when the industrial renaissance supposedly was stirring. Tonelson concluded, ‘The analysis strongly indicates that, contrary to widespread optimism about an American industrial renaissance, domestic manufacturing’s highest value sectors keep falling behind foreign-based rivals.’

Far from economic recovery being driven by a domestic manufacturing revival, the rising trade deficit accompanying a return to even sluggish growth expresses how weak the US production machine continues to be. The fact that we’ve seen a continuing deterioration in the trade deficit, even with the competitiveness benefit to US industry of a fall in the dollar’s exchange rate of over 25 per cent since 2002, including nearly 10 per cent since the end of the recession in June 2009, reinforces how dire is the current state of US industry.

The recent revival of US manufacturing jobs doesn’t do much to justify the renaissance story either. As Obama has highlighted, about 500,000 factory jobs have been created over the last three years since their low of 11.5 million jobs in January 2010. This compares to the US peak manufacturing jobs in the summer of 1979 at 19.6 million. As the chart illustrates, manufacturing employment drifted down slowly and a little erratically for the next 20 years, and then more precipitously with almost 6 million more jobs being lost since the start of 2000.The return of some production to the US from abroad will have contributed some of the recent welcome half-million increase. However, this pick up over three years is less than a quarter of the 2.3 million jobs lost in the two-year period from the official start of the recession in December 2007.



An Icelandic lapse?

Over the last few years, Iceland has provided a bit of counter-narrative to the anarchist critique of political government.

Most western democracies declared their pieces of the international finance sector “too big to fail” and bailed them out at taxpayer expense after the 2008 bank collapse. Iceland took the opposite tack.

Voters in Reykjavik, Iceland’s capital, elected an anarchist mayor, and six members of that mayor’s “Best Party,” to the city’s 15-member municipal council in 2010.

Voters in Iceland’s South, Southwest, Reykjavik North and Reykjavik South districts sent members of “The Movement” to the Althing (Iceland’s parliament, the oldest on Earth). Of particular interest is Reykjavik South representative Birgitta Jonsdottir, a Wikileaks volunteer and press freedom activist whose Twitter records were subpoenaed by the US Federal Bureau of Investigation (Iceland’s Interior Minister courageously refused to cooperate with the FBI’s harassment of Wikileaks).

Not bad, I have to admit, as states go.

Alas, something is rotten in Denmar … er, Iceland. That same Interior Minister, Ogmundur Jonasson, is pushing an Internet censorship agenda in the name of protecting children.

Halla Gunnarsdottir, one of Jonasson’s advisors, is out front with the usual bait-and-switch: “This move is not anti-sex,” she says. “It is anti-violence because young children are seeing porn and acting it out.” In fact, the initiative is neither anti-sex nor anti-violence: It’s just anti-freedom.

Thankfully, some heroes can be counted upon to remain heroic: Birgitta Jonsdottir opposes the scheme. She assesses its chances of passage as “near zero” and its chances of working if it did pass as even lower. Her only sign of weakness in the matter is that she sympathizes with Jonasson, musing that maybe he just doesn’t know any better.

Be all that as it may, Jonsdottir puts her finger on the big problem with political government, even in such an enlightened nation as Iceland: “The fact is that this bill has already made many companies think twice before hosting their business in Iceland — not because they support porn, but because they fear the country’s laws could transit into the kind of full-blown censorship commonly attributed to countries like China and Saudi Arabia.”

Jonasson’s scheme, in other words, produces regime uncertainty (per Robert Higgs, “a pervasive uncertainty among investors about the security of their property rights in their capital and its prospective returns”).

Regime uncertainty is the state’s version of herpes: Its eruptions are unpredictable, it makes people think twice about intimate contact with the carrier, and yes, it sometimes literally kills babies. Among states — even Iceland, as this episode establishes — the infection rate is 100%.

The only issue I take with Higgs’s definition is that he defines it in solely economic terms and with respect to investors. I see no reason why it would not apply just as well to — for example — same-sex couples considering vacations in Uganda.

As Gideon J. Tucker put it in 1866, “no man’s life, liberty or property are safe while the Legislature is in session.” Not even in Iceland.



Book review: Heavens on Earth – How to Create Mass Prosperity

For those who, after five years of austerity (and rising deficit), despair about how to create growth, Heavens on Earth is indispensable bedtime and boardroom reading. In it, JP Floru investigates eight countries which have transformed their economies to create lasting high growth.  In different times and places the methods used to make the switch from scarcity to plenty have been remarkably similar. At times it is surprising: who would think that there are great correlations between the Industrial Revolution in Britain, 2013 Communist China, post-World War II America and Pinochet-era Chile?

“If Julius Caesar had met George Washington in 1760, he would have found the world barely changed. He would have been served food prepared by slaves in a stately home. The average age would have been twenty-eight to thirty-five. Just 250 years later he would have heard talk of missions to Mars...” So what happened? The book brings these arguments to life throughout with such insights.

Meet “Sideline Stan”, the New Zealand Minister of Labour who systematically refused to intervene in social conflicts. Meet Hong Kong’s John Cowperthwaite, who sent statisticians arrived from Whitehall on the first plane back: statistics would only be used to interfere and harm the economy. At the same time Heavens on Earth explains the main economic concepts which are relevant today: the Laffer Curve, Austrian economics, the wisdom of Adam Smith (no coincidence: JP Floru is a Fellow of the Adam Smith Institute) and the workings of Keynesian economics (or rather: why they do not work).

Although well-known existing ideas and quotes are used, at times the book is highly original: “Regulatory Failure Spiral” is the common enough situation of governments trying to rectify failing regulations with more failing regulations. The “Holy Trinity of Profligate Government: taxing, printing and borrowing” is extensively identified and lambasted. As said before, the links between highly different economic cultures may seem surprising. Some may also be surprised to learn that concern for the poor permeates the book. Poverty is not just a state in which people exist, it has to be created: it is created by economic oppression and only free markets can free the poor.




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1 comment: said...

Here's an IQ question.

Let's say you have a town of 1,000 people. Half with IQs under 100 and half with IQs 100 or higher.

Those with low IQs make lots of babies while those with high IQ make few babies.

As the year progress, the average intelligence of the town steadily declines. This is due to:

a. The water
b. Pesticides
c. Twinkies
d. All the above

If you selected any of the above, you're in the first group.