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Mainecoons
03-31-2012, 07:12 PM
A buddy of mine who I consider to be quite brilliant penned this and sent it around to a bunch of us. I really believe it is a worthwhile if a little long read. Because of the rather low length limit on this board, it will be posted in three sections:



DOING WHAT?

Will Smith starred in a movie I, Robot. Will was paranoid that the robots were going to take over the world and harm humans. He was probably right, just off in how it would happen.

In the movie, the robots resembled humans; 2 arms, 2 legs, binocular vision. Today, robots take many forms, almost none of them resemble humans. In fact, they are hard to recognize most of the time.

I keep hearing politicians talking about creating jobs. "Jobs, jobs, jobs" has become a mantra voiced by both sides but not one of them has the slightest idea how to create one. My guestion has been "Doing what?" but I think a better question is "What happened to the old jobs?"

I was in business for almost 3 decades and suffered thru several recession. They were generally short and recovery was robust. They were caused when business expanded too fast, profit margins dropped and the weak fell out and the strong came back stronger. The companies that failed lost employees and the survivors sucked them up and put them back to work. Some of the unemployed found something else to do and life went on.

I think this time is different. I don't think this is a recession at all, I think it is a depression and they are different.

To understand the difference, the best place to look is the last depression.

In the late 1800s, the "Industrial Revolution" took place. The simplest view of this is that manpower was replaced with other sources of energy. Water power was the start and steam power followed. Right behind the power shift came the equipment to use the power. Sewing machines replaced needles and thread, steam hammers replaced people swinging hammers etc. This made work easier but didn't necessarily replace people. People could sew more in a day but there was a market for the items sewn. You can only have so many people working a tunnel face. You could build a tunnel faster but there were plenty of tunnels to build and the machines could drill tunnels where they couldn't be done by hand.

In the early 1900s, Henry Ford made a real difference and, in my opinion, started a depression. Ford not only built cars, he built tractors. At that point in time, most people in the US were in the agricultural business. When the tractor hit the scene, and people began to find themselves without a job. Not only that, the smaller farms began to go out of business since they couldn't compete with the automation and they couldn't justify the automation on small farms. In fact, there was suddenly so much food that prices collapsed and the government actually considered destroying food to keep the prices up. That is still going on today with agricultural subsidies.

I perfer to think of this time period as "mechanization". Water power and steam power were replaced with electricity and electric motors. Animals were replaced with gas powered machines. Suddenly, you had power anywhere you needed it, not just next to running water or close to a steam engine.

What it caused was drastic. The whole population had to adjust to farming requiring a lot less people and finding something else for them to do to eat.

If you ask 50 historians what caused the Great Depression, you will get 50 answers, but this shift from agriculture to other employment certainly had an effect.

Luckily, WWII came along and sucked up people to go fight and to work in the "War Effort". The government borrowed a ton of money to pay for all this and the US was off to the races. They quit producing tractors and cars and started making tanks, Jeeps, planes and boats. Manufacturing bulked up on all levels.

In 1945, the war was over, only to have the Korean War and the Cold War to follow. That kept a lot of the war plants working and the rest of the plants went back to making cars, tractors and everything else that was in short supply for the last 5 years. In addition, Japan, China and Europe were in ruins and needed everything to rebuild. The US was covered up with demand for everything and they were the only place on earth that was undamaged by war with a expandable supply of energy to do it. The "Great Depression" turned into a boom that lasted for decades.

When I got into business in 1975, 30 years after the end of WWII, the boom was still underway.

My business was selling industrial printing equipment to commercial and industrial accounts. I sold all across the spectrum from medical to sporting goods. I went into a lot of industrial accounts over the years all over the US. My guess would be well in excess of 400 plants.

Early on, we sold mostly "stand alone" machines. Each machine had an operator that fed the machine. Labor was cheap and plentiful and machines were expensive.

END PART 1

Mainecoons
03-31-2012, 07:14 PM
Part 2




occassionally, we would build and sell an automated system. These were dedicated machines that were used to produce one part. I spent a lot of hours sitting with engineers and purchasing working out numbers to decide at just what point it made economic sense to build an automated system. The automation was almost always a majority of the finished cost and if the project died, about all you could do is salvage the basic machine. The rest was basically useless. You had to have a lot of parts to justify the automation and you still had to have a human to watch over it when it was running.

Around 1985, computer controls began to come down in price and "controllers" were replaced with computer controls. A computer could do a lot more. You can think of controllers as being really dumb. They will do what you tell them over and over with precision but they have no way to recover if something goes wrong. I once heard an engineer explain it as "it can make bad parts at a fantastic rate". You still had to have a human around to keep an eye on what was happening.

By 2000, things had changed again. Control went from "controller" to "computer" to "smart computer" which is really "robotics". Computers got smaller, smarter and cheaper. Attach a few more sensors and a few camersa and you are close to human capabilities, just a lot faster. I watched a rice qc machine not long ago. It would blow broken grains of rice out of a stream of rice. It was so fast that you couldn't even see it work except in slow motion. It was 99+% efficient both in what it let pass and in what it rejected.

Today, we are going back to standalone machines and replacing the operator with a robot. If you want to change the part being processed, you just call up another program and the robot adjusts, just like a human. A robot can recognize a part, orient it, put it in position, check the result and send the part on its way and do it quickly. It doesn't go on vacation, take breaks, get pregnant, require health insurance, join unions or require training. If you need to double production, you just buy another one and it is up and running at speed in minutes. If it breaks, it knows that it is broke and just quits, signals that it needs help and waits.

In the movie with will smith, the robots looked a lot like humans. I've seen a lot of robots but none looked like humans. The japanese has one that looks fairly human but it is more of an expensive toy than a real workable machine.

For my purpose, "robot" is defined as something that can work without human oversight except for maintenance.

The line between "computer controlled" and "robot" is blurred. For example, if you call a credit card company, a computer is the first thing you get. It can handle most of the needs and if it can't, it hands the call off to a human. Is that a "robot"?. How about a program like dragon? You talk, it types. Is that a "robot"? What about a machine that records tv shows? You program it and it does its thing. In fact, most are so intelligent that they will figure out what you like to watch and automatically capture programs that might be of interest. They can check and see if the program is a rerun and if they have it in storage, will automatically skip re-recording the program.

The biggest robot that i've ever seen is in lakeland, fl at florida tile. It is so big that even when i saw it, i didn't recognize what it was. It is a warehouse that covers about a city block and is 40' tall. Everything that the plant makes (which ajoins the warehouse) comes into the warehouse. It is picked off of trolleys by automatic picking equipment and is stored on racks. The computer is automatically updated. On the other side of the warehouse is the outgoing side. Orders are input and the pickers automatically assemble the orders, shrinkwrap the skids and attach the paperwork. Depending on where it is going, it is either delivered to dock doors for truck pickup or loaded on the right freight car if going by rail. During the day, there are 2 people, 1 watches the operation by computer and 1 drives a forklift to load trucks. At night and weekends, 1 person watches it work. I would hate to think how many people would be needed to do this. Florida tile will never put people back to doing this.

There is a story about a stamping plant in mi. They had 600 employees but couldn't compete with china. The company closed and reopened 2 years later totally automated. It now has 14 employees and it runs 24/7/365 and eats china alive on price. However 586 jobs disappeared and will never be used at that plant again.

The us now produces 2.5 times what it did a decade ago with 50% of the people. The us hasn't quit manufacturing, it has simply changed how it manufactures. It uses a lot less people.. Quality is higher, cost is lower. Also, when things get slow, you just cut the lines off and wait until the business comes back. The robots fire right back up and go again, no training.

People think that this is just happening in manufacturing but it is happening in all industries.

In the medical industry, a nurse used to come by and check on you every hour or two. Now, you are constantly monitored and it is recorded. If something happens, the robot gets someone human to see what is happening. The doc doesn't come by and see how you are doing, he accesses the records and knows as much as if he spent the night at your bedside.

There is a rule that says that 90% of any job can be automated. I'm not sure that is true but as computing power goes up and cost comes down, there are few jobs that i see that can't be automated. Doctors right now are doing prostate surgery using robotics.

The main problem is finding the crossover point where it makes economic sense to do the work initially to replace the employees.

The trend is accelerating and more "good jobs" are going to disappear because they are the easiest to justify automating. The last jobs to be automated will be the low paying jobs but if the savings is good enough, they will go also. Witness the "self checkout" lane showing up in the us.

In the "great depression", farming was what got hit and manufacturing was the savior.

Now, everything is getting hit and sheding jobs. This is going right across all industries and services.

In the 1990s, the "computer age" really took off and everyone ran to get onto the train. By 2000, the train was a wreck and there were plenty of young people that were making 6 figures out on the street. Luckily, apple, google, yahoo and others helped suck them up. A lot of them went home and programmed apps for computers and got rich overnight. Even today, you will find 100s of new apps daily coming out.

As the housing bubble built, millions of people jumped on that train. Builders, real estate agents, brokers, bankers etc. When that train wrecked, at least 5mm people ended up unemployed. If you look at the unemployment rates, uninsured and new food stamp applications, you can see that these people had no where to go to replace those jobs.

I heard some congresswoman say the other day that the problem was education. Maybe she is right but 27% of the student loans are in default. If education is the route to a good job, why are 27% of student loans in default?

I keep seeing openings for virtual jobs with the "college degree perferred" in the ad. These jobs pay minimum wage or just above. These jobs require just above "idiot" intelligence to be able to do a good job. The "college degree perferred" is not in there for advanced education, they are just trying to get the best available for a minimum price.

Now that we have looked at how we got here, what happens next?

I don't see the trend toward automation/robotics slowing, in fact, I see it accelerating. There's a ton of people out there with training and spare time to work out all kinds of automation. Anyone who doubts that only has to go count the number of new apps that show up daily in the apps stores.

I keep hearing "Bring maufacturing back to the US!!!". That is BS. The reason that the maufacturing went offshore was either to be closer to the markets, cost or because it was "dirty". No one in their right mind would try to bring labor intensive work back to the US and pay $15 an hour when they can get it done off shore for a small percentage of that in labor. It isn't going to happen. Steve Jobs told Obama "Those jobs are never coming back" and he was right.


end part 2

Mainecoons
03-31-2012, 07:18 PM
Part 3


markets don't change. If the merchandise is going to end up in india, chances are it will be made there.

The epa will be all over "dirty" operations. Those aren't coming back either.

In my view, the us is going to need fewer and fewer people to do what needs to be done and because there will be a glut of people looking for jobs, the labor rate will go down generally. You may need a degree to be a doctor but nothing says that you can't have a degree and work the counter at mcdonalds. Bankers who were making mid 6 figures figured out that they could live on mid 5 figure jobs if that was all that was available.

You can see this in the us treasury daily inflow rates. The amount of taxes has been decreasing fairly constantly since 2008 and i expect it to drop farther. This is the first time since income tax came into being in the us that the drop has been so long. It is the first time since the great depression that emplyment has taken so long to recover and it is still not up to 2007 levels.

The us needs a bit over 1mm jobs a year to just stay even with the population gain. I don't know where they are going to come from.

I keep hearing that corporations are sitting on huge sums of cash but aren't hiring. I can understand that. Corporations are making and selling all that the markets will bear worldwide. It makes no sense to manufacture stuff and store it in warehouses. When the corporations do crankup, they will go where ever it make economic sense. If they have to manufacture in the us, they will spend on automation first and labor last.

I saw an article on one of the usaf latest fighters and someone said it will be the last with a cockpit. Future fighters will basically be robots. Even years ago, the saying was "we can make 15g airplanes but only 9g pilots". We can make 15g robots and control them from airconditioned rooms in nevada today. The drone that iran captured was a robot by definition since it could function with no human input.

During the "great depression" the us had a lot more cushion to absorb the hit. The country had very little debt and the people were generally more self sufficient. The country was basically divided into "city" and "rural" areas. "suburbs" really didn't come of age until after wwii. Thansportation has horrible. Autos were beginning to appear but the roads were were mostly unpaved and barely passible in wet weather. Trains were the basic long range transportation.

Most of the population was in "rural" areas and these people were fairly self sufficient. They all had gardens and most had livestock of some kind. If they were short anything, there was almost always someone to barter with close by for what was needed. Their actual need for money was fairly small so most survived pretty well during the depression. City dwellers were the ones that really took the hit when unemployment soared.

Today, the opposite is the rule. 2% of the population makes their living in agriculture and 98% are working at other jobs. Unemployed people have no idea how to take care of themselves and feed themselves.

When wwii started the us had a population that was savers. It financed wwii on "war bonds" bought by the citizens. Today, both the government and its citizens are deep in debt. That well is dry.

During the "great depression" there was little or no safety net. Unemployment insurance, welfare, food stamps, wic etc all came later. All those are in place now.

The depression was abating by the time wwii started, but the war and the recovery thereafter were a definate help. The us has been in 2 wars for the last decade so any "war benefit" has already been spent. In fact, bringing a bunch of soldiers home and turning them loose on the economy is just going to make unemployment worse.

A mega change is underway and i don't think that most people understand what is happening. I heard today that best buy is closing 50 big box stores. They overbuilt and now they are having to adjust. The us postal service union is running ads complaining that 100,000 postal workers are no longer needed. Electronic mail (another form of robot) is killing their business.

If you go back to 1900 and look at life in the us, most households has 1 income. There were more shops and they were located in walking distance. Houses were smaller.

I don't think we are going to go back to 1900 style living but things are certainly going to change. Families are going to be forced to live on less disposable income.

Governments are going to have to downsize. They will no longer be able to maintain what they have built and the days of grand government buildings is gone. Tax revenues are just not going to be there.

Ben bernanke claims to be the greatest expert ever on the great depression. He claims that the reason it lasted so long was that the government didn't throw enough money at the problem. As head of the fed, he's thrown tremendous sums of money at this problem and it still doesn't go away. So much for that.....

My view is that the us (and most of the rest of the developed world) is on a downward spiral and it will last until the standard of living begins to approximate the developing countries. At that point, things will even out and the whole world will begin to improve again. This may take 30-50 years. The time between now and equalization is going to be interesting.

Here's some of the tings that i think will happen:

1. The housing market will drop until at least 2017

2. The average house size will shrink

3. Energy costs worldwide will rise in real terms

4. Union pensions will shrink. Some that are drawing pensions now will see cuts.

5. Government payrolls will shrink in both number and payroll. A lot of municipal pensions will fail.

6. Medicare/medicade will be cut and the age of elgiability will go up

7. Ditto social security

8. Civil unrest will happen

9. The college system is going to implode.

10. Municipal bonds will fail.

11. Interest rates will go back to the 8% range for housing

12. Infrastructure will be poorly maintained and fail more

13. The dollar will lose status as the worlds currency

14. The average number of cars per household will shrink

15. The average percentage of people working for the population will continue to shrink.

A lot of businesses haven't caught on to what is happening either. In the fall of 2007, i was in a real estate brokers convention where a vp of wells fargo said the houses were still underpriced and house prices would rise 7-10% a year for the next 3 years. Less than a year later, house prices were in free fall.

"big box" stores like home depot, lowes, best buy, circuit city, staples and office depot were still building new stores in 2009-2010. Part of this was inertia but some of it was being slow to realize just what was happening.

I looked at why this happened and i think the reason is that most of the execs in these companies were aged 50 or below. They had never seen a time where a true depression existed. They had lived all their life in a boom era.

In 2006, ben bernanke was asked about the future of the housing market and said that it might flatten for a short period of time and then continue growing. This is a man who is supposedly the greatest expert on the great depression and he didn't see one right in front of him.

Everyday, i see all kinds of numbers coming out of government about what is happening in the ecconomy. I don't trust anything but the treasury inflow numbers. Suppose that 100,000 people get laid off. Are they making $100,000 average or 10,000? Makes a lot of difference. Same thing for new hires. The labor participation rate is interesting, it has been dropping, but again without knowing who is dropping out or being added it is not really relevent.

The real number is what the treasury is collecting. The better the economy, the better the profits and the better the tax take. It has been running behind last year. I'm going to believe a recovery has started when tax revenues start climbing again.

Governments worldwide are getting into real trouble and i don't see any easy way out. Government benefits and budgets were expanded during the boom times and now the shrinkage is causing the difference to have to be borrowed. With each passing year, the spread between tax revenues and spending is increasing, the number of people with no jobs is increasing. Government are trying desperately to keep people employed, mostly on borrowed money. China has whole cities that are empty trying to keep people working. Greece had extremely low retirement ages, the us has extensive safety nets to keep people fed and happy.

I think the whole thing is beginning to collapse. Just how bad the collapse will be is unknown but it's going to be bad. The population of the world has grown up thinking that each generation is going to live better than the last and that is not necessarily true. Bigger houses, bigger cars, higher paying jobs has been the norm for over 50 years. Cutting back is not on anyones agenda. But that is what is going to have to happen as fewer people actually work.

Foxcomm in china is the largest assembly operation in the world. It employees millions and the pay rate is about 25% of the minimum wage in the us. Foxcomm is going to automate 1/3 of its labor force within the next 5 years. If foxcomm is finding it more economically beneficial to automate at that labor rate, what chance does the us have in competing at our labor rates?

Every government that i look at is planning on "growing" its way out of this. That means more jobs and so i come back to the original question "doing what?"


end

MMC
03-31-2012, 07:26 PM
Which I have also asked when buisness will adopt the model of not hiring full time workers. With the innovation of technology replacing the human element. Thus not having to pay out benefits and can run 24/7. No lunches, no overtime, no holiday pay.

Mainecoons
03-31-2012, 08:02 PM
It all translates to fewer jobs at lower pay. I think my buddy has absolutely put his finger on why things are different this time. Obama is making it worse but it is bad to begiin with. We are entering one of those periods where the old is running out of steam and there is no "new" to take up the slack, put people to work at decent wages, and raise the general level of wealth.

MMC
03-31-2012, 08:10 PM
http://ts1.mm.bing.net/images/thumbnail.aspx?q=5018631137526748&id=3693b39270e2316ed34f7a357666efb7&url=http%3a%2f%2fwww.freakingnews.com%2fimages%2fa pp_images%2frickshaw-1.jpg
Well I don't know about great pay.....but once we are out of oil. We can always go to the human battery. :wink: