Has Everything Changed?

by Dave Schuler on February 21, 2012

Karl Smith writes something that I think should make nearly all of us nervous:

At its heart the issue is that Industrialization Really Was Different, and there is no reason to think it will come again.

The reality of this new world is that you cannot simply work hard and make a good living. Nor, should you expect that if you save for your future you can support yourself.

As for now, it is still in the interest of innovators to tap public equity markets and doing so means that they come under some ā€“ but not absolute ā€“ pressure to pay a dividend.

However, I have a hard time believing this will not come to an end. The money available in private pools will be sufficiently large that innovators can strike side deals that let them walk away with almost all the profits.

Savers will get nothing.

All of our institutions are geared towards a very, very different world than the one that Dr. Smith describes. Many of those institutions have preferential access to power and will fight like the dickens to preserve their prerogatives. Fasten your seatbelts, we’re in for a bumpy ride.

{ 8 comments… read them below or add one }

Icepick February 21, 2012 at 12:47 pm

Savers can do okay in a world with a stable currency. By which I mean NOT a fiat currency. If you know a dollar saved today will purchase as much as a dollar in 30 years, you could do okay. But that’s sort of impossible these days. (And it was always difficult.)

Janis Gore February 21, 2012 at 2:25 pm

Speaking as a senior, it has changed. We are in the health industrial complexl.

Steve Verdon February 21, 2012 at 5:42 pm

Omitted from the quote:

A factory is really big and hard to keep secret. Computer code less so. When you simply write down the process you want or draw the object you want and the computer translates it for you the seep down will grind to complete halt.

We don’t live in the world of Star Trek.

Ben Wolf February 21, 2012 at 5:47 pm

“However, I have a hard time believing this will not come to an end. The money available in private pools will be sufficiently large that innovators can strike side deals that let them walk away with almost all the profits.”

Humans call this rent-extraction and it depends on a pliable government serving the whims of the powerful. There’s nothing inevitable about it nor, as Steve Verdon points out, do we live in a world where we tell the computer what we want and it makes it appear. If we did EVERYONE would be a creator and I fail to see how that would be a negative.

Janis Gore February 21, 2012 at 6:41 pm

Right Steve, General Tso’s chicken doesn’t just appear because you can call it in.

Janis Gore February 22, 2012 at 11:36 am

Drew is correct that we are in a rare situation — the python swallowing the pig — as he puts it. Damned boomers. I’m not properly a boomer baby, but I do have five brothers and a sister.

The question is how we can ramp it down with ease. Between seven of us we have nine children.

Janis Gore February 22, 2012 at 11:41 am

Yeah, yeah , among.

Drew February 22, 2012 at 4:57 pm

I found Mr Smiths concerns overwrought. In addition to mixing notions within his piece, the latter just seems flat wrong.

In the trade we use the terms management investors and “money investors.”. (clever, eh?). Mr smith worries that innovators, entrepreneurs whatever will be able to strike overwhelmingly good bargains with pools of private capital. If he’s saying the (equity) money investors will just roll over and accept below appropriate risk adjusted returns I think he’s crazy. If, on the other hand, he’s referring to savers in the sense of debt providers I would note that C&I loans still carry real returns, unlike artificially depressed govts.

As for his earlier point that the price to labor input ratio is increasing, one must also look at materials input before value add. I think it’s still correct that products are gravitating over time from lower to higher value add after labor and materials. In part no doubt to a response to export of low value added production to low labor cost countries. But I ask how is a trend to higher value added product mix in an economy bad? Do we want to make robotic welders, or 50 cent toys? And if the notion is pure nostalgia for a time when a guy could put a piece of sheet metal in a press, pull a lever and stack the drawn part in a rack for $90k a year, good luck with that.

Finally – and the data just probably isn’t available – I bet if you looked at a similar graph from the last great productivity boom in the early 1900s, or when “innovators” like the people who brought us railroads, textile mills, mass production of cars et c you’d see the same thing. I don’t think this is a new phenomena, just a transitory period reflecting a change in the value of inputs. Same as it ever was.

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