Saturday, April 29, 2017

Tesla's growing pains

From 1974 until 2007, I drove a Saab. My last one had 296k on the odometer when it was destroyed in a tennis-ball-sized hail storm. So I know about driving a car from a niche manufacturer—it's an interesting trip. In 1974, Saab built arguably the most interesting car on the planet—roomy cabin, great driving position, a fold-down rear seat (which allowed me to avoid the dreaded pickup truck even during a major rehab project), good—if not great—mileage, four-wheel disc breaks, great suspension for bad weather and roads, and the big deal—front-wheel drive. In 1974, there were a tiny handful of cars with front-wheel drive and Saab's was easily the best.

Saabs are still being made by a Chinese company. And of course, they are FAR from the most innovative on the planet. In fact, almost every car maker makes some version of the Saab 99. Most are cheaper. Many are better built—the Toyota Camry, for example. It is quite easy to see a quite similar future for Tesla. Yes, Elon Musk has provided the world an enormous gift when he showed the rest of us how to design and build the very cool electric car. But this is manufacturing and there are others who have been making cars a whole lot longer than Musk and are perfectly capable of reducing Tesla to an interesting historical detail.

Toyota could easily build a line of fine electric cars but so far, their big bet on hybrids has seemed to be paying off. They have also built a fuel-cell car so even their electric experiments have avoided the big battery packs. Volkswagen, on the other hand, bet big on "clean" diesels and have clearly lost that bet. They have a huge market in China which is mandating large fleets of EVs. The latest Geneva Auto Show saw Volkswagen's thinking on what their EV fleet will look like—and it just sparkled with innovative thinking. It is very possible that we have already seen "peak Tesla"—the era when the company was redefining parts of the transportation infrastructure may already behind us. From now on, Tesla will be trying to survive in a market where their competitors got his message and will now compete on execution—cost, build excellence, customer support, etc.

But right now Musk hopes to keep building the best cars. And as he is finding out, manufacturing is a LOT harder than it looks. Personally, I think Musk belongs on Mount Rushmore for what he has already accomplished. But the truth be told, he is going to find the going a lot harder when folks like VW start selling an electric Microbus.

Monday, April 24, 2017

Private banks create virtually all money

Do you want to shock, confuse, and probably alienate your friends? Probably the easiest way is to explain what really happens when they sign up for a home mortgage.
  • The bank will engage in a massive invasion of the borrower's privacy in the name of their financial interests. What is really happening is the bank is trying to ascertain if the borrower can actually service the debt—sort of like "hiring" a slave, when you think about it. This step is critically important because without performing loans, banks cannot exist.
  • The bank will then, after the signing of important-looking and expensive documents, create a new balance in the borrower's account. The bank has done nothing except reprogram some computer memory in the bank's electronic books. With a few keystrokes, the bank has put a customer on the hook for a large sum of money payable over 30 years. Roughly 40% of everything the borrower earns in those next 30 years will go to pay off the the creation of those few keystrokes.
This is what actually happens. But because of the massively unequal nature of this transaction, the banking industry has created an amazing body of lies to justify this rip-off. In fact, most of us who subscribe to the above explanation for how banking really works have faced the angry reaction from those who believe the big banking lies should we ever make the mistake of springing too many facts on the credulous.

But now, no less than the Bank of England has come clean and admitted that loans create deposits rather than the other way around. The story of BoE making this amazing admission follows (complete with video.)

Monday, April 17, 2017

The left is finally intellectually bankrupt

The election of 2016 proved to have at least one significant virtue—it fully exposed the corruption and ideological emptiness of the so-called "Liberal" class. None of this gives me a scintilla of joy. When I was young, being a good Liberal was actually something to aspire to—at least that was what I believed after I read Ken Galbraith's The New Industrial State. I believed we were the children of the Enlightenment who were responsible for the overwhelming majority of human progress.

As Thomas Franks and Chris Hedges have so excellently described, those kind of liberals only seem to exist in the memories of us aging coots. If Hillary Clinton and John Podesta are any example, liberals have become amazingly shallow, pathetically ignorant, and corrupt to the bone. Their political ideas are limited to schemes that enrich their friends. Their economic ideas can literally be found in the pages of the Economist. Debbie Wassermann Schultz, the Clinton campaign chair is a hired gun for the payday lending people. They seem to draw the line at actual slavery but that is about the only limit to depths of their neofeudal understanding of economic possibilities.

And in their latest excuse for the pathetic political performance of these thoroughly dislikable charlatans, today's liberals have resorted to actual McCarthyism. The claim that they lost because Russia is childish even by "the dog ate my homework" standards. But that's all they have so they are sticking to their fantasies even though it endangers world peace because in their pinched worldviews, it even makes sense. It made sense to Tailgunner Joe too. So there!

Wednesday, April 12, 2017

"If you build it they will come" and there goes the retailing bubble

One of the great pieces of economic nonsense from the age of Reagan was the "supply-side" notion "If you build it, they will come." The essential idea was that supply creates its own demand. This comforting little nostrum allowed the supply-siders to stop worrying about such "minor" matters as income stability and growth. Soon it also became quite fashionable to stop worrying about the health of local manufacturing. So long as there were goods to sell, who could possibly be concerned about where they came from?

But the ultimate disaster of supply-side thinking is still unfolding. If you actually believe that supply creates its own demand, what's to stop you from building a major mall out in the middle of a lot of nowheres? And so retail outlets multiplied to the point where virtually every person in the land is now near a major distribution of goods. The standard estimate is that we are 'blessed' with nearly 25 sq.' (2.3 sq meters) per capita of retail space (compared to less than 2 sq.' in Japan.)

Unbelievably, much of this retail space was built after it had become blindingly obvious that the internet was going to utterly change the way goods are marketed. It is hard to imagine the staying power of an idea that is mathematically ridiculous but here is the textbook case. Of course the real estate speculators were all excited about turning "empty" land into palaces of greed and envy, but let's not forget the "smart" money like teacher's pension funds that plowed rivers of cash into the idea that there cannot be too many malls.

So now the realization is finally dawning that there is at least 10x too much retail space (and that is even before Amazon eats everyone's lunch.) It it hardly beyond belief that a 2008-style bubble-crash in commercial real estate is virtually inevitable. We still have not figured out how to avoid these bubbles driven by mass stupidity. We are no better off than in 2008.

Sunday, April 9, 2017

Constitutional Foundation of the US Economy: Powers are Implied Not Enumerated

Almost every major advance of the US economy has been nurtured or facilitated at some point by the active involvement and encouragement of the national government. It's been a partnership—sometimes uneasy, sometimes close, but most definitely a partnership—between government and free enterprise, that has led the development of the US economy. This role of the national government was deliberately written into the Constitution, and touches directly on Constitutional issues that the left has ignored, but which the wrong-wing (conservatives and libertarians) have long waged a smear campaign against.

These issues go to the heart of the question: What is the role and purpose of government? They include such specific issues as the General Welfare clause, states rights, implied versus enumerated powers, and the reach and scope of the Commerce clause. Contrary to the idealized wrong-wing myth of the U.S. economy being founded on the principles of laissez-faire, the framers of the Constitution deliberately set out to create a central government strong enough to force the thirteen states into one national economy. To do this, the national government undertook a number of programs and policies to build and strengthen the national economy by encouraging and protecting manufactures and commerce, establishing a national banking system, and promoting and directly assisting the development of transportation.

The first Act of Congress established the administering of oaths of office for federal officials, but the second Act was the imposition of the Hamilton Tariff to protect domestic industry and raise revenue. In 1791, Congress chartered the First Bank of the United States. The Patent Office was created in 1802. Direct federal involvement in the building of transportation infrastructure included projects authorized under the 1807 Coast and Geodetic Survey, and other measures to improve river and harbor navigation, which were formalized and put on a more permanent footing by the 1824 Rivers and Harbors Act. Various Army expeditions to the west, beginning with Lewis and Clark's Corps of Discovery in 1804 and continuing into the 1870s, gathered and disseminated geographical and scientific knowledge that was crucial to opening the West to settlement (see for example, the careers of Major Stephen Harriman Long, Major General John C. Frémont, and Brigadier General Randolph B. Marcy). These expeditions were almost always under the direction of an officer from the Army Corps of Topographical Engineers, an organization that has been almost completely written out of American history, but which comprised the elite of U.S. Army officers. Pursuant to the General Survey Act of 1824, Army officers were assigned to assist or direct the surveying and construction of the early roads, railroads and canals -- whether they were private or state projects did not matter.

Our national government has also played a crucial role in the development of metal-cutting and metal-forming machine tools and mass mechanical assembly, which form the basis of modern industrial economies; the building of a trans-continental railroad system; the application of science to agriculture, and the mechanization of farming; improvements of steam propulsion for maritime transport; development of radio; creation of a nation-wide electricity power grid; creation of a national system of paved roads; development of aviation; development of frozen foods; development of electronics; creation of nuclear power; the creation of computers, and development of the internet.
It is no accident that our national government has played this role of nurturing and facilitating the development of the economy. Such a role was clearly the intent and desire of the Founders—contrary to all the wrong-wing lies about small government and free enterprise. This review of the creation of the Constitution shows that an activist role for government was clearly intended all along. The Republicans and conservatives (I prefer to call them the wrong-wing because so little of what they believe and proclaim about American history is correct) have a directly contrary view of this history.

Monday, April 3, 2017

More on fake news

Perhaps the most interesting story to emerge from the efforts to restore the Veblen farmhouse in Minnesota was the discovery that the Joseph Dorfman biography Thorstein Veblen and His America, long considered the definitive account of Veblen's life and scholarship, was very unreliable. The man who was paying for the restoration had promised, in writing, to the Minnesota Historical Society that he intended to use Dorfman's biography as the definitive word when it came to restoration decisions. But it soon became apparent that the spectacular house that Veblen's father had built on the edge of USA civilization with hand tools did not enhance the narrative that Dorfman was trying to sell. He wanted to Thorstein Veblen to have grown up in a log cabin among barely literate immigrants only to be rescued by the westward advance of Congregational educational institutes like Carleton College. So this monument of ingenuity became a log cabin in his telling.

Needless to say, calling this primo pioneer dwelling a log cabin did not provide much information on how to proceed with the repairs. Fortunately, Dorfman had sent out advance copies to some Veblen family members probably hoping for some sort of endorsement. Older brother Andrew was incensed at the portrayal of the Veblen's economic and social circumstances and wrote several pointed letters trying to get the account changed. Dorfman did NOT want to change his narrative because so much of his bio revolved around the idea that Veblen had miraculously emerged from an impoverished and primitive childhood. After several increasingly exasperated letters where Andrew described in detail the Minnesota farmhouse, he finally sent Dorfman pictures of the house and barn. Not surprisingly, when those letters and pictures were found in the Columbia library, they proved to be VERY helpful in making the restoration as authentic as possible.

But what of the Dorfman biography? The restoration seriously discredited it yet because it hangs around in university collections like so much toxic waste, serious scholars continue to be misled by it to this day. Dorfman was a full professor at Columbia so we  have a situation where someone in a position of trust has seriously poisoned the debate about early 20th-century political thought—mostly because he couldn't be bothered to get the story straight. Personally, I find the real story about Veblen's childhood development at least 100 times more interesting and informative than Dorfman's fairy tale. Dorfman built a comfortable career out of being the go-to expert on Veblen—that he couldn't be bothered to get it right is very troubling to me.

It is clear that fake news has consequences. The kind being retailed for premium prices in academe is especially harmful. It is utterly impossible to make progress or solve problems unless one has a crystal-clear understanding of what's happening. If you have been misled by an Ivy academic, you are really in trouble. You spent a great deal of money and effort to get bogus information so questioning it is especially difficult. Then you must unlearn that bad information in order to replace it with better information. It can take years just to get back to square zero.

Below John McMurtry has written a stunning indictment of fake news and its consequences. He actually believes the problem has become so serious it could even topple the USA empire. Think of it as the consequences of Dorfman's BS multiplied by, oh, a million.