Central Perk

luni, 7 octombrie 2013

Seth's Blog : The Show Me State (of the art)

The Show Me State (of the art)

I could ask you to bear with me through this urgent and important post, but I'm not optimistic that many people will.

The punchline matters more than it ever has before.

"Show me what this is about before I commit to it."

And the follow up: "Now that I know what it's about, I don't need to commit."

It started with the coming attractions for upcoming movies. By packing more and more of the punchline into the TV commercial or the theater preview, producers felt like they were satisfying the needs of the audience to know what they were going to see before they bought their ticket. Instead, they trained us to be satisfied by merely watching the attractions. No need to see the movie, you've already seen the best part.

SportsCenter piled on by showing fans a supercut of every great or heroic play of the weekend--a sports fix without investing the time or living through the drama of the game itself.

Record albums used to require not only listening to the entire side (no fast forward on an LP) but actually getting up and flipping it over. The radio wasn't going to play anything but the A side of the single, so if you liked an artist, you surrendered yourself to 45 minutes of her journey, the way she had it in mind.

A performance artist was on the local public radio station the other day. He didn't want to talk about the specifics of his show, because giving away the tactics was clearly going to lessen the impact of his work. No matter. The host revealed one surprise after another, outlining the entire show, because, after all, that's his job--to tell us what we're going to see so we don't have to see it ourselves.

We don't want to organize the course or go to the lecture or read the book until we know precisely what it's going to be about.

College wasn't like this. You committed to four years, you moved somewhere, and then you saw the curriculum. That's part of why it works. A huge part.

We hesitate to surrender our commitment so easily today. It's easier to read the 140 character summary or see the highlights or read the live blog, so we can check the box and then move on.

But move on to where?

To another box to be checked? We become like the tester in the ice cream factory, surrounded by thousands of flavors, but savoring none of them.

We each have a fixed amount of time. One thing you can do is invest it in knowing the summary of what 23 people said. The other thing you can do is to commit to living and breathing and learning from one of those people. Perhaps you will get more by being exposed more deeply to fewer.

One reason an audiobook can change your life is that you can't skip ahead. And the other reason is that you might listen to it five or six times, at the pace of the reader, not at your pace.

My full-day live seminars have impact on people partly because I don't announce the specific agenda or the talking points in advance. It's live and it's alive. I have no certainty what's about to happen, and neither do the others in the room. A morphing, changing commitment by all involved, one that grows over time.

Yes, I get that there's never again going to be a need to buy an album or to listen to all the songs in order, that you can get the quick summary of any book you're expected to have read, that your time is so valuable that perhaps the only economic choice is to live a Cliffs Notes version of your life.

[Oh, that's right, Cliffs Notes' sales are way down because they're too long.]

In fact, you could do that, but when you do, you've surrendered to efficiency and lost some life, some surprise and a lot of growth.

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duminică, 6 octombrie 2013

Mish's Global Economic Trend Analysis

Reader Question on Robots: What are People Supposed To Do For Their Livelihoods?

Posted: 06 Oct 2013 07:27 PM PDT

In response to my post France Vows to "Save the Bookstores", Fixes Price of Books, Bans Free Shipping by Amazon, reader David writes ...

Hello Mish,

I enjoy your columns, and agree with most of your economic analyses, but I do have a question about this morning's entry regarding France and bookstores: namely, what are people supposed to do for their livelihoods if nearly everything is going to be done by computer and robotics?

This is the issue that Hollande, in his outdated, ham-fisted way--is getting at, and for the record, I don't have the answer, either. The economy needs middle class consumers, but they in turn need money, which they can't earn without quality jobs. In the past, technological development led to more businesses being created than destroyed. The same was true for quality jobs. I believe the experience of the last five years, however, has demonstrated that this linkage is impaired, if not completely broken.

Businesses and quality jobs - livelihoods - constitute the economic foundation upon which a community rests. Socialist remedies to the problem posed by hyper-automation will fail (as have socialist agendas to any problem), but raising the issue does not make one a Luddite.

David

Plight of Bookstore Owners

First let's discuss the plight of bookstore owners. Is it really a bad thing if they go out of business?

For numerous reasons (unless you are a bookstore owner), it's a good thing, just as is was when buggy-whip manufacturers went out of business as autos replaced horses.

For every job lost by small bookstores, additional jobs are created at Amazon and online bookstores. Is the ratio 1-1? Probably not, but it does not matter.

The easily seen (alleged problem) is bookstores go out of business. The unseen benefit is people have more money to spend on other things that they used to spend on books.

Perhaps people take in an extra movie, go out to lunch one more time, pay down debts, or simply save the money for a "rainy day".

All things considered, there is a huge overall economic benefit of lower prices. Yet the Fed, the unions, Keynesian clowns, banks, and various bureaucrats want prices to go up.

Quality Jobs

Let's define a "quality job" as a job that provides sufficient income for standards of living to go up over time.

Note that standards of living go up when prices go down (assuming pay stays constant). Standards of living decline with price inflation, unless wages rise more than inflation.

And that is the crux of the problem.

As I have stated countless times, the problem is not low wages, the problem is rising prices.

And we would have falling prices were it not for the inflationary policies of the Fed (central bankers in general).

Yet, misguided fools in the state of Washington are currently pushing for a $15 minimum wage. More people will lose than gain by such a move, because prices will rise to make up the difference.

Where Will The Jobs Come From?

People ask me all the time: where will the quality jobs come from? Unfortunately, I don't know, nor does anyone else. But just because no one knows, does not imply that no jobs are coming.

One could have asked the same question right before the railroad boom-bust, right before the great depression, right before the internet boom-bust, and right before the housing boom-bust.

So here we are. Unless it's different this time, there will be another advance of some kind that is highly likely to create jobs. I cannot say what or when.

In the meantime, government and Fed policies seriously exacerbate the problem. Higher minimum wages, together with cheap money at low interest rates, and coupled with increased business costs of Obamacare all encourage businesses to shed workers as fast as they can.

Further Reading

For further inflation reading and who benefits from it, please see ...

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Boehner on Shutdown: "This Isn't Some Damn Game"; Several Tea Party Republicans Cave-In

Posted: 06 Oct 2013 10:18 AM PDT

Here is an amusing Bloomberg TV video of House Speaker John Boehner complaining about the negotiation process with President Obama.

Link if video does not play: 'This Isn't Some Damn Game'

Video Transcript

When we have a crisis like we are in the middle of this week, the American people expect their leaders to sit down and try and resolve their difference. I was at the WhiteHouse the other night and listened to the president some 20 times explain to me why he isn't going to negotiate.

I sat there and listened to the majority leader in the United States Senate describe to me that he is not going to talk to me until we surrender. And then this morning, I get the Wall Street Journal out and it says we don't care how long this lasts because we're winning.

This isn't some damn game.

The American people don't want their government shut down and neither do I. All we're asking for is to sit down and have a discussion and to bring fairness, reopen the government, and bring fairness to the American people under Obamacare. It's as simple as that. But it all has to begin with a simple discussion.

Translation

This is some damn game, and I am frustrated as hell to be losing it.

Several Tea Party Republicans Cave-In

In spite of Boehner's frustrated bluff in the video above, he has already signaled the game is over. See Boehner Prepared to Cave-In to Obama; Reflections on the Waiting Game

And not only is Boehner prepared to cave, several tea party Republicans are prepared to concede as well. Nonetheless, Boehner insists he does not have the votes.

Bloomberg reports Some Tea Party-Backed Lawmakers Yield in Obamacare Fight.

The first cracks are appearing in the Tea Party's push to dismantle the nation's health law as three House lawmakers with ties to the movement said they'd back a U.S. spending bill that doesn't center on Obamacare.

Republican Representatives Blake Farenthold of Texas, Doug Lamborn of Colorado and Dennis Ross of Florida, all of whom identify with the Tea Party, said they'd back an agreement to end the government shutdown and lift the debt ceiling if it included major revisions to U.S. tax law, significant changes to Medicare and Social Security and other policy shifts.

Meanwhile, House Speaker John Boehner said he doesn't have the votes to pass an increase to the debt ceiling without packaging it with other provisions. There isn't enough support to pass a "clean debt limit" provision, Boehner said in an interview on ABC's "This Week" program today.

"We've tried a lot of things and used just about every arrow in our quiver against Obamacare," Lamborn, 59, said yesterday. "It has not been successful, so I think we do have to move on to the larger issues of the debt ceiling and the overall budget."

Lamborn said he would back a debt-limit increase if the agreement included an equal amount of spending cuts. He said he's also seeking a deal that includes instructions for major tax-code revisions.

"I recognize the writing on the wall," he said.

Farenthold, 51, was a conservative radio talk-show host when he won election in 2010, defeating 28-year incumbent Democrat Solomon Ortiz.

The Obamacare battle, he said, was for "another day."

"It will collapse under its own weight, especially when the young people -- who are going to be under the individual mandate -- start screaming at what they're having to pay for," he said.

Position Shift

Ross, ranked among the House's most conservative members by both the Club for Growth and the American Conservative Union, said he shifted his position because the shutdown hasn't resulted in changes to the Affordable Care Act. The shutdown also could hurt the party, he said.

"We've lost the CR battle," Ross, referring to the continuing resolution to authorize government spending, said in an interview. "We need to move on and take whatever we can find in the debt limit."

Ross, 53, is pushing for other changes, such as basing Medicare premiums on income and switching to a formula that may make Social Security beneficiaries' cost-of-living increases rise more slowly. Those would be "major reforms" that should win Republican votes.

"I'm not questioning my leadership," Ross said. "I'm just suggesting that we need to take stock of where we've come and realize what it's going to take for where we want to go," he said, adding that he still favors changing the health-care law.

Ross Translated

I'm questioning my leadership on this issue, because this game is over.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Seth's Blog : Looking a gift card in the mouth

Looking a gift card in the mouth

"You qualified."

I'd just purchased $102 worth of stuff at the sporting goods store, and the clerk happily handed me my ten dollar gift card. What a nice surprise. I turned around to the stuff next to the checkout, searching for a $6 item I could now purchase, for free.

"Oh, sorry, you can't use it today. It becomes valid tomorrow."

Not only that, but I noted that it expires in four months.

Not so much of a gift. A manipulation. I better hurry back, the thinking goes, or that thing of value in my wallet will disappear.

Just as insightful is the recent promotion that they did at Staples. Pay $15 to buy the ability to save 10% on most things in the store (not online) for the next sixty days. It turns out that most people spend about $50 on a visit, which means that part of the card pays for itself in that first visit. But, and it's a big but, you've now purchased something that feels like a debt, one that you can only profit from if you head back, and soon.

These, of course, are not gift cards at all. They are motivational cards. And they work.

People are not machines, and purchasing just about anything is as much about emotion and the story we tell ourselves as it is about economic calculation. Charging you for the chance to save money one day is one more step in a dance about feelings.

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sâmbătă, 5 octombrie 2013

Mish's Global Economic Trend Analysis

Pragmatic Look at the Debt Ceiling Debate; Who Broke Washington?

Posted: 05 Oct 2013 11:20 AM PDT

My best friend in high school, David Wise, wrote an interesting OpEd for the Baltimore Sun two days ago. I do not agree with all of it, but he does hit the nail on the head of the critical issue as to who is to blame for the default impasse.

Wise says Obama must not allow a default.

I happen to think that a default would not be catastrophic. However, that debate is moot because the odds of a default are a million-to-one, if not higher. So let's get down to the critical paragraph.

Congress has the power of the purse and the power to tax under Article 1, Section 8 of the Constitution. If Congress authorizes too much spending or permits inadequate revenue generation, it hardly makes sense that it can override the results of the exercise of these Constitutional powers by a mere statute, any more than a person who runs up credit cards purchases could try to avoid responsibility for debts by telling the credit card company that the amount exceeded some artificial total amount of debt that he has vowed not to exceed. Alan Greenspan once said in an interview: "Why do we have a debt limit in the first place? We appropriate funds, we have tax law, and one reasonably adept at arithmetic can calculate what the debt change is going to be."

Ultimate Irony

Please note the irony. Congress has full and complete constitutional power to enact spending, and it does that "too well".

Congress then attempts to enforce a ceiling on the national debt (debt that is 100% caused by Congressional overspending).

Obamacare vs. the Debt Ceiling

Obamacare is a bad bill, and I welcome attempts to modify or delay it, but given that Boehner is Prepared to Cave-In to Obama, and given that Obama is not going to sign any bill he does not like, political grandstanding is going to do nothing except make Republicans look foolish.

Tax Cuts and the Deficit

One can praise Republicans for cutting taxes. But one cannot praise Republicans for failing to cut expenses at the same time.

Wise writes ...

In 2001 the Republicans took control of the White House and both houses of Congress. At that time the U.S. budget was in surplus and the entire national debt was projected to be paid off. The Republicans proceeded to run eight straight deficits — gutting revenue collection while increasing spending — on the way to generating the first trillion-dollar budget deficit under President George W. Bush and leading the economy into the worst financial crisis since the Great Depression — all factors with which the U.S. economy is still contending.

Who Broke Washington?

It is debatable whether the U.S. budget was really in a surplus state when Bush took office. I suggest the surplus was an accounting gimmick that ignored unfunded liabilities.

Regardless, the first trillion dollar deficit did indeed occur on George Bush's watch.

And Bush wasted trillions of dollars on military spending and wars. The country is still paying the price for Bush's war-mongering stupidity.

We also pay the price for a preposterous Medicare bill passed under president Bush that added $500 billion in debt to the books. And the way that law was passed offers insight into what is truly wrong with Congress.

"The Hammer"

Please consider Who Broke Washington? 'The Hammer' Checked Every Sleazy Box

Zero-sum gain: DeLay represents a my-way-or-the-highway mind-set that is so common and corrosive in politics today. Nicknamed "The Hammer," he nurtured a reputation for enforcing party discipline and retribution against anybody who defied George W. Bush's White House. He was known to threaten disloyal Republican lawmakers: Cross him and he'd find and support GOP primary foes. To win, there seemed to be no lever that DeLay wouldn't pull. Even bribery. The House ethics committee unanimously admonished DeLay in 2004 because he "offered to endorse Representative [Nick] Smith's son in exchange for Representative Smith's vote in favor of the Medicare bill."

Runaway entitlements: That Medicare bill extended prescription drug coverage, adding more than $500 billion to the nation's debt-ridden books. President Bush thought that was a small price to pay for a reelection issue. The administration suppressed a report on the costs, an act the Government Accounting Office later called illegal. When the House voted on the bill, Democrats seemed to have defeated it after the 15-minute voting period. But DeLay froze the legislative clock for three hours while his team strong-armed lawmakers, an extraordinary breach of protocol.

Both Parties to Blame

The above article started off with "Tom DeLay didn't break Washington, but he's a living symbol of what broke it."

And that is precisely correct. Yet, Republicans blame everything on Obama and Democrats blame everything on Bush.

If you expect partisan politics out of me, you expect the wrong thing.

I suggest Obama and Bush are among the worst presidents in history. I also suggest the congressional approval rating of 19% is that low for a reason: Spending is out of control, and both political parties are to blame.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Damn Cool Pics

20 Crazy Fetishes

Posted: 04 Oct 2013 07:47 PM PDT

Very weird fetishes.

Agalmatophilia - when you're into mannequins

Oculolinctus - licking eyeballs

Forniphilia - involves behaving like a piece of furniture

Dendrophilia - it's when you're into trees. A lot.

Foot fetishism - attraction to feet

Apotemnophilia - attraction to amputees

Licking doorknobs - a Japanese trend that turned into a fetish

Plushophilia - sexual attraction to stuffed toy animals

Formicophilia - being crawled on by bugs

Paraphilic infantilism - sexual arousal based on dressing or being treated like a baby, also known as autonepiophilia

Teratophilia is when somebody is turned on by deformed or monstrous people

Vomitting is for some reason a huge turn on for many Japanese

Frotteurism - rubbing against a non-consenting person, for example in public transport

Hybristophilia - being turned on by criminals, particularly for cruel or outrageous crimes

Olfactophilia - getting drawn to or turned on to certain smells

Klismaphilia - Enemas, either giving or having

Reptilophilia - when you love your pet lizard too much

Piquerism - sexual gratification through penetration of another person by stabbing or cutting the body with sharp objects

Trichophilia - sexual obsession with hair

Seth's Blog : Understanding marginal cost

Understanding marginal cost

How much does it cost Wikipedia to have one more person read an article? How much does it cost Chanel to produce one more bottle of perfume? How about one more digital copy of a Grateful Dead concert?

The cost of the next item produced is called 'marginal cost'. It doesn't include set-up fees, rent, years of training, insurance or all the other huge costs an organization might pay. It's merely the cost of one more unit.

In a competitive, undifferentiated market, the price will generally be lowered by competitors until it is just above marginal cost. Think about that... If it costs a dollar to make something, and your competitor is selling for $1.10, then in an efficient market, you have every incentive to sell your item for a penny less than that. It's better than not selling it.

There are many implications of this, the first being the explanation of why so much stuff online is free. Free is a magical concept, the place where trial and virality live. If the marginal cost of a new user is virtually zero (and in an ad supported business, a new user is actually profitable, not a cost) then it's no surprise that it's hard to charge for your app when there are other apps that do precisely what yours does.

Big, established companies have traditionally had a difficult time understanding this concept. The market for ebooks, for example, ended up in Federal court because otherwise smart people in book publishing couldn't get their arms around the idea that their marginal cost of an ebook delivered by Amazon was precisely zero. No paper, no shipping, no ink.

Their response was to talk about all of their fixed costs (which are real, and which are important). Things like typesetting and advances and editing and promotion...

But none of those things are marginal costs. That means that someone entering the market, someone with nothing to lose, is happy to wipe out as many fixed costs as he can and then price as close to zero as he can get away with. It's not nice nor does it feel fair, but it's true and it works.

The only defense against this race to marginal cost is to have a product that is differentiated, that has no substitute, that is worth asking for by name.

If your product has a low marginal cost and a traditionally high price, particularly if it's one of a kind in its market, then you're in a great position to benefit from sampling. Which is why vodka companies are happy to sponsor parties and why cell phone companies will do almost anything to get you in the door.

Until you understand the true marginal cost of your products or services, you can't make smart decisions about pricing or customer acquisition.

Industries with zero marginal-cost products and services are inherently unstable until someone figures out how to become the king of the hill, the leader, the one worth picking because everyone else is. When that happens, the truth above about efficient markets goes away... because a market with one dominant leader isn't efficient any more.

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vineri, 4 octombrie 2013

Mish's Global Economic Trend Analysis

Ron Paul Ruins a Great Economic Rant, Being Seriously Wrong on One Key Point

Posted: 04 Oct 2013 12:31 PM PDT

It really pains me to see Ron Paul (or anyone else) make a masterful statement on an issue, then blow it at the end with a nonsensical reference to something that is not going to happen.

To understand what I mean, please consider Ron Paul's article A Grand Bargain for Liberty?

As heartened as we should be by the fight against Obamacare, we should be equally disheartened by the fact that so few in DC are talking about making real cuts in federal spending. Even fewer are talking about reductions in the most logical place to reduce spending: the military-industrial complex. The US military budget constitutes almost 50 percent of the total worldwide military spending. Yet to listen to some in Congress, one would think that America was one canceled multi-million dollar helicopter contract away from being left totally defenseless.

What makes this military spending impossible to justify is that is does not benefit the American people. Instead, by fomenting resentment and hatred among the world population, our costly interventionist foreign policy makes our people less safe. Thus, reducing spending on militarism would not only help balance the budget, but would enhance our security.

Yet both the House and the Senate continuing resolutions not only fail to reduce military spending, they actually authorize $20 billion more in military spending than authorized by the "sequestration" created by the 2011 Budget Control Act. Most of the supposedly "draconian" sequestration cuts are not even cuts; instead, they are "reductions in the planed rate of spending." This is where Congress increases spending but by less than originally planned—and yet they claim to cut spending.

Under sequestration, military spending increases by 18 percent instead of by 20 percent over the next ten years. Yet some so-called conservatives are so opposed to these phony cuts in military spending that they would support increased taxes and increased welfare "military" spending. This "grand bargain" would benefit the DC political class and the special interests, but it would be a disaster for the American people.

Instead of grand bargains of increased spending and taxes, those of us who support limited government and free markets should form a coalition with antiwar liberals to reduce spending on both the military industrial complex and domestic welfare programs. Instead of raising taxes on "the rich" we should also work to reduce all corporate subsidies. This "grand bargain" would truly be a win-win for the American people.

Sadly, even if a congressional coalition to cut both warfare and welfare spending was formed, it would be unlikely to carry the day as long as the Federal Reserve is willing to enable Congress's debt addiction by monetizing the debt. But this cannot last forever. At some point the Fed's policies will result in hyper-inflation and an economic crisis that will force Congress to reduce spending. Hopefully, the growing number of Americans who are awaking to the dangers of our current path can convince Congress to reduce overseas militarism and begin an orderly drawdown of the welfare state before this crisis occurs.

Hyperinflation Nonsense

I agree with every bit of that, save one key phrase "At some point the Fed's policies will result in hyper-inflation".

I certainly do not agree with Fed policy, as the Fed has created asset bubble after asset bubble (with help from misguided policies in Congress and fractional reserve lending). But with total credit market debt approaching $60 trillion, it is absurd to believe $85 billion a month in QE will cause hyperinflation.

Total Credit Market Debt Owed

Worthless US Dollar?

The above chart is surely a sign of inflation, but it's hardly the kind of stuff that will make the dollar become worthless.

The Fed's policies are not going to cause hyperinflation. The idea is silly. Congress could cause hyperinflation (in theory). Yet, Congress is highly unlikely in practice.

And that's just from the US dollar perspective alone. Money supply growth is running rampant in China and numerous other places as well. Credit is exploding in China. Japan is on a mad monetary experiment the likes of which the wold has never seen.

Is the US dollar really going to become worthless against the Yen, Yuan, Euro, and the British Pound?

The answer is no (but hyperinflation requires a yes answer, by definition).

Yet, month in and month out readers send me articles predicting hyperinflation "soon". Please stop. Every reference has been and remains downright idiotic.

Parade of Hyperinflationists, All Wrong

A parade of people predicted hyperinflation by 2008, 2010, 2013, 2014. I will be polite and leave the names off.

I will readily admit that just because something has no happened yet, does not mean it can't. But the odds are about as close to zero as you can get within a 5 year time frame (and probably decades).

On the other hand, all the people who said deflation would not happen or that hyperinflation would happen first were dead wrong:

Total credit declined, consumer credit declined, mortgage credit declined, housing prices and asset prices were smashed, and even the CPI declined.

CPI

Deflation Happened Three Ways

If your view of inflation and deflation are credit-based, the US experienced deflation.
If your view of inflation and deflation are price-based, the US experienced deflation.
If your view of inflation and deflation are based on the purchasing power of money, the US experienced deflation.

The only conceivable way that one could say the US did not experience deflation during the great financial crisis is by money supply alone, ignoring credit. Given credit dwarfs money supply, that is a foolish leg to stand on.

Where to From Here?

Given the renewed advance in credit, rising asset prices, and rising home prices, it's crystal clear the US is back in a period of inflation. We can debate by how much. I suggest more than noted in the CPI as the CPI ignores home prices.

But, is it unimaginable that credit will turn down again? I think not. And my call (based on credit) was the US was likely to go in and out of deflation for a number of years.

Some may disagree with my in-and-out of deflation view, but there is absolutely zero case for hyperinflation. And when Ron Paul and others says such things, they looks silly.

More on Hyperinflation (and Why It's Not Coming)

Summation

Ron Paul made a very nice point on Congressional spending in general, and military spending in particular, then ruined it with a one-liner that is sure to invoke cat-calls from Keynesian and Monetarist clowns who will then ignore asset bubbles and numerous other economic distortions caused by the misguided stimulus they seek.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Never Has Arrived; The Last Mile

Posted: 04 Oct 2013 09:19 AM PDT

Train drivers working for Australian miner Rio Tinto make as much as A$240K (US$224K) per year to haul ore. According to BLS data, that is as much as surgeons in the US, and more than the $151K average of New York State lawyers.

Does that pay schedule make any sense? I do not think so, nor does Rio Tinto.

When costs are ridiculous, companies seek ways to lower them. Thus, the following Bloomberg headline should not be surprising: Rio Replacing Train Drivers Paid Like U.S. Surgeons

The 400-plus workers in the remote Pilbara region who earn about A$240,000 ($224,000) a year probably are the highest-paid train drivers in the world, according to U.K.-based transport historian Christian Wolmar. Australia's decade-long mining boom has sucked up skilled workers, raising wages for engineers to drivers at Rio, the second-largest exporter of the mineral, and its closest competitors, Vale SA (VALE) and BHP Billiton Ltd.

Rio, which last year approved spending of $7.2 billion to expand the iron ore operations, is aiming to have the world's first, fully automated, long-distance and heavy-haul rail system operating in 2015. Its automated rail will have 1,500 kilometers (930 miles) of track, 10,000 wagons and individual train sets 2.3 kilometers long, according to Credit Suisse Group AG. The company is spending $518 million on the program that was announced last year.

"You need to have quite a significant amount of scale" in fleet and volumes to benefit from automation technology, said Evy Hambro, manager of BlackRock Inc. (BLK)'s $7.7 billion World Mining Fund.

Laser Detectors

Rio's rail, port and truck movements are all watched over from a control center in the Western Australia state capital of Perth, 1,500 kilometers to the southeast, that has about 250 controllers working three shifts a day. The rail automation is part of the company's push to use technology to improve productivity and safety and wring out extra capacity from existing assets, Simon Prebble, general manager for Rio's automated trains project, said in an interview yesterday.

The trains have on-board systems that check speed, signals and operate the brake, Prebble said. Rio has installed a new radio-based network to communicate with the trains as well as close-circuit television at every public level crossing, he said. "We also have an obstruction detection system which uses laser scanners to continually look for any obstructions."

Never Has Arrived

Why stop with train drivers? So, what about trucks?

For those who said truck drivers would never be replaced by robots, it appears "never has arrived" because Rio is also going to automate trucking.

From Bloomberg ....

Rio also plans to automate about 40 percent of its Pilbara truck fleet by 2016. The goal is to reduce costs to $15.60 a ton by 2020, from $23.10 a ton in the first half of this year, Paul Young, a Sydney-based analyst with Deutsche Bank said in a report after touring operations last month, citing Rio data. Automation is set to help shave $1.90 a ton off costs and boost output by 20 million tons, or 5 percent, he said.

Technology Progress

Technology progress starts at high end specialties then permeates everywhere. Think of all the features in cars first found in Mercedes or BMW, now found everywhere.

And so it goes with automation. Truck driving will be automated for mines, and in a few years or sooner, it will spread.

Message to 5.7 Million Truck Drivers "No Drivers Needed"

On August 15, 2013, I wrote Message to 5.7 Million Truck Drivers "No Drivers Needed" Your Job is About to Vanish; Time Marches On, Fed Resistance is Futile

I made the claim "Over the next two decades, machines will drive themselves and 5.7 million truck driving jobs will vanish."

Many readers said that I was wrong, citing insurance reasons, city traffic, tight ports, etc. Truck drivers in particular said it would not happen, some citing "last mile" problems.

Check out a few comments from ATA: Self-Driving Trucks Are "Close To Inevitable"

Poli: C'mon guys even if they make it work, comes up some crazy guy with few thousand dollars buy one Russian 150 miles radius GPS/communication jammer and you'll see how many deaths in one minute!!

Hotrod: Are you kidding me? With all the glitches and failure of computers you would have more accidents than ever.

Andrew: And in the beginning, self piloted trucks will all slam into a low clearance bridge in Chicago because the programmers forgot to take into account truck routes in various cities.

Angelo: This is a fantasy and nothing more until we arrive at the "George Jetson" generation. The infrastructure doesn't exist as it took 200 years to build the existing model which is certainly not designed for it, nor can it be retrofitted for such an endeavor.

Kay: I doubt it will happen in our lifetime. There are too many critical components to driving a truck on the road. Decisions have to be made by humans, not machines. If they can ever create a robot with a mind as complex and brilliant as humans and with the dexterity of arms and legs then they might be able to have automated-driving trucks. We aren't there yet and we won't be for another 30-50 years, IMO.

Alchemist: Who will have money to buy the products these automated trucks are hauling? I'd like to know how they expect to sell anything to the vast nation of jobless, impoverished obsolete humans?

One rational person offered this pertinent comment:

Jon: Of course trucking companies are excited about this. So should everyone else. Passenger cars will get the same treatment, just a little slower. Yes us truck drivers will be out of a career. Welcome to the world of technological advancement. It happens to all professions eventually. Get used to the idea.

The Last Mile

Truck drivers talk about how they can never be replaced because of city traffic, tight spaces, etc., etc. It's the "last mile" problem. One possible solution is automated trucking stations just outside major urban areas, where human drivers take over the "last mile".

Recall the "last mile" problem with high speed internet? It's been solved in numerous ways: DSL, Fiber, Cable, Satellite, Wi-Fi.

And so it will be with robot-operated trucking.

Automated trucking will not be here tomorrow, in the US, but it's coming far sooner than anyone thinks.

Fed's Battle Against Technology

The Fed is fighting the deflationary trend of technology. It's a battle it cannot win. Real wages have not and will not keep up as asset bubbles in stocks and equities get bigger and bigger (and income inequality soars).

The problem is not low wages. The problem is high prices, fueled by the Fed and fractional reserve lending. The middle class has be ravaged by Fed policies.

Finally, please note that higher minimum wage laws do nothing but encourage use of more robots.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

luni, 7 octombrie 2013

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