Wednesday, August 17, 2016

Sci-Tech: Globalization will end because of technology, not politics!

This is a science and technology posting… but we’ll start by posing a political question and then answering another... then using technology to answer a big one, about the future of globalization.

1) Candidates, where do you stand on science?  56 scientific organizations representing 10 million scientists and engineers, led by the American Association for the Advancement of Science (AAAS), have posed a list of twenty science-based questions, offered up to Clinton, Trump, Stein and Libertarian Party candidate Gary Johnson. They have until Sept. 6 to send in their answers.

"Most of the questions are entirely unsurprising (and sadly still controversial): AAAS asks how candidates plan to address climate change and growing global energy needs. Some questions are new this year. “There is a growing opioid problem in the United States, with tragic costs to lives, families and society. How would your administration enlist researchers, medical doctors and pharmaceutical companies in addressing this issue?” 

Other new issues included immigration, mental health and biodiversity." Intriguing stuff... And short of nuclear war, can you think of anything more important? Yet more politically neglected?

At this even longer have been the folks at sciencedebate.org - (led by Shawn Otto, author of The War on Science: Who's Waging It, Why It Matters, What We Can Do About It), who have been relentless in trying to get candidates to admit we live in an era of science and that facts matter at least 10% as much as polemics. 

I'd go farther. I'd demand that every member of Congress name his or her science adviser.  If they name a fool or a shill, that would hurt them.  If they name someone eminent from their district, then that eminent person might either sway the politician... or embarrass him.

2) Some of you ask why I pal with John Mauldin, a conservative economist, government-skeptic and dedicated (though less-so with Trump) Republican. What? Other than the fact John’s a terrific guy? Also, his insights and critiques are everything that a sane American conservatism could bring to our national conversation… pro-science & diversity & tolerance-friendly, pragmatic, pro-small-business… everything that today’s GOP is diametrically opposed-to. We need that conservatism back at the negotiating table! Though it will only emerge, phoenix-like, from the ashes of a monstrous Confederacy-madness that Rupert Murdoch raised with his 30 year satanic rites.

How does that relate to today's topic? Here’s a link to one of the best articles on globalization I ever read, by John’s partner Patrick Watson. It explains how globalization got its start with four major technologies… 

...and why four more will bring about its end, returning us to an era of local production, when fleets of ships and pipelines and trucks will no longer be the lifeblood of the world economy.

And yes, they point out that while some have lost, due to globalization, most of the people of this planet have benefited spectacularly. And those (of you) who oppose globalization strictly as a convenient excuse for simplistic protectionism are thus reflexively committing horrific racism.

Those eight technologies changed - or will change - the world. But what Patrick and John leave out is the topmost driver of 70 years of globalization. Pax Americana. Not only did the planetary order set up by George Marshall and Harry Truman protect the world from major war for an entire human lifespan, allowing 90% of nations to spend amounts on arms and armies that were minuscule compared to any past generation…

…but the trade networks they erected were diametrically different than the mercantilist regimes erected by Pax Romana, Pax Sinica, Pax Brittanica and every other empire. Pax Americana has been ANTI-mercantilist, allowing, even fostering, the development of local industries, all over the globe. This simple measure is the one innovation that uplifted first Europe and Japan, then Korea, Taiwan and so on… till now the American consumer is raising-up masses in both China and India at the same time. It is the chief reason that 3/4 of the world's children bring school books back to homes with electric lights, toilets, running water and a modestly well-stocked fridge.

It is the prodigious American accomplishment that historians of the future will most prominently note, far above measly moon landings. And we did it by buying several trillion dollars worth of crap we never needed. Oh, irony.

== End globalization right! ==

But yes, it's time to move on from carbon-spewing globalized trade! For example: 

      "General Electric CEO Jeff Immelt says that “wage arbitrage” is over. Robots do not care where you install them. They cost about the same and work at equal speed no matter where they are. Robotics will greatly reduce the incentive to make goods far from the end user simply to save on labor costs. The new incentive will be to produce in proximity to your customer. This will let you deliver faster and offer greater customization."

Local production, robotics, local food, these trends will build, bringing benefits and troubles of their own. But all the tech trends seem to point in this direction. And about time, because all those cargo planes and cargo ships are helping to cook us!


Given the nature of their newsletter audience, John and Patrick only glancingly nod at the top reason to reduce our use of fossil fuels. 
(Psst... it's pollution-driven climate change!) 
But I won’t begrudge them the gentleness of their ministry to the near-terminally delusional.  At least they are trying.

Oh… before we shift topics... here’s just a couple of science-y news items showing how we will de-globalize.

Vertical farming stacks crops on top of one another in a climate controlled, indoor facility, using aeroponic technology, which involves misting the roots of the plants, using an astonishing 95% less water. The plants are grown organically, in a reusable cloth made from recycled plastic, so no soil is needed. What’s cool is that the technology is mature… it actually works on pragmatic and commercial scales, at least for table greens. Doubtless there are some crops that won’t apply.  But this — plus tissue-culture meat — could loosen humanity’s death grip on the planet’s arable land, just in the nick of time, and make our cities much more sustainable. 

And a Tesla car drives owner to hospital after he suffers pulmonary embolism.
A day after Elon says the "era is coming faster than we think."

== Science in trouble? ==

This lengthy and illuminating article -- The 7 biggest problems facing science, according to 270 scientists – began when the authors sent scientists a survey asking this simple question: If you could change one thing about how science works today, what would it be and why?  

According to one researcher the selection pressures in science have favored less-than-ideal research: "As long as things like publication quantity, and publishing flashy results in fancy journals are incentivized, and people who can do that are rewarded … they’ll be successful, and pass on their successful methods to others." 

The article offers in-depth reflection on a number of problems ranging from peer review to publish-or-perish to funding misallocation and lack of incentives for replicating or disproving earlier works.  Note also a recurring theme that I have promoted for decades, that of transparency – a concept and a methodology that, if not invented by science, certainly has been promoted in this civilization foremost by science.

Alas, the article also has its own problem – a complete lack of big picture perspective.

Dig it, every single one of the listed problems was with us in the past! In most cases far worse than today, with fewer corrective measures in place.  Indeed, the gripes – and proposed solutions – presented in this article are manifestations of a very strong, ongoing, self-critical, self-improvement campaign within science. In large part, we are not witnessing a deterioration of scientific behavior but rather a steady rising of awareness and standards. 

In other words, Criticism is the vitally important Only Antidote to Error.  But not all mea culpas come from realization of turpitude. Reflective criticism can also be a declaration: “let’s get even better!”

It is no surprise that fallible human beings have trouble measuring up to the most honesty-driven pursuit in the history of our inherently delusional species. What stands out is that millions want to try. The very standards by which scientists find their own field lacking are standards brought into our civilization by science.

Of course the background for all of this is a drumbeat War on Science, being waged by bits and corners of one end of the political spectrum… and every corner of the other end. Science and scientists have earned the respect they have from most, sane citizens. Beyond any reasonable doubt, fanatics are hurling much of their calumny out of jealousy.

Indeed, that is why critical self-examinations like this one merit both our serious attention and heed to historical perspective. Clearly, scientists are faulty humans and have a long way to go, like the rest of us.  They are merely (on average) the best and smartest and most knowing and most honest of all professions.

== A science roundup of wowzer amazements ==

The latest – cool-looking – attempt at a flying car. 

A new kind of luminescent cement will be able to absorb enough solar energy to then remain illuminated for up to 12 hours at night, even when the day is cloudy. Brilliant. 

This 250 ton monster digger scours the ocean depths, looking for mineral wealth - gold, copper, nickel, zinc and cobalt. 

A fascinating story of how Oregon scientists discovered the first new blue pigment in 200 years, both brilliant and extremely durable.  

Nippon Steel & Sumitomo Metal has developed an automotive steel sheet that is 30% lighter and 25% stronger than the toughest high-tensile steel now on the market, hoping to help carmakers build more fuel-efficient, safer vehicles.

Using neuro-imaging data, Carnegie Mellon University researchers have identified four distinct stages of math problem solving -- encoding, planning, solving, and responding. Although the study focused specifically on mathematical problem solving, the method holds promise for broader application.

Led by Richard Carson, a Yale-led team of researchers has developed a way to measure the density of synapses in the brain using a PET (positron emission tomography) scan. They invented a radioligand (a radioactive tracer that, when injected into the body, binds to a type of protein and “lights up” during a PET scan) that is uniquely present in all 100 trillion or so synapses in the brain.  With this noninvasive method, researchers may now be able to follow the progression of many brain disorders by measuring changes in synaptic density over time or assess how well pharmaceuticals slow the loss of neurons.

61 comments:

raito said...

Unfortunately, the steel story isn't quite what it seems to be. It was ringing wrong in my head because I know there's stronger steels out there in the market (for example, higher grades of maraging steels).

Buried in the article:
"The highest grade of cold-rolled steel offered by major steelmakers has a strength of 1,180 megapascals. Nippon Steel’s new, lighter material has a strength of 1,470 megapascals."

Up at the top:
"Nippon Steel & Sumitomo Metal has developed an automotive steel sheet that is 30% lighter and 25% stronger than the toughest high-tensile steel now on the market, hoping to help carmakers build more fuel-efficient, safer vehicles."

So, 'on the market' requires that you know what 'the market' is. In this case, 'the market' is 'major steelmakers', not 'all steelmakers'.

So, it's cool and useful, but is not stronger than the 'toughest high-tensile steel' that I can buy.

And it's poorly worded anyway. Strength and toughness are roughly inversely proportional in steel.

RFYork said...

Has anyone even thought to look at the potential damage this monster digging machine might be doing to the oceans?

Tacitus2 said...

(wanders back in....the sign did say Non Economics Happy Hour)

Interesting article. Some of the next gen transformative technologies are already playing out in an unusual place. Iceland.

With high shipping costs and long delivery delays it has become a mecca of 3D printer tech. Oh, the economic smash that bankrupted the joint probably helped out too. And, as a high level trivia question, you can grow bannanas there. Just need cheap heat and electricity both of which are abundant due to geothermal sources.

But as to banannas in Alaska, beware. If you ever take a bananna out on an Alaskan fishing charter you will be told: "either than bananna goes over the side or you do". It is some form of bad ju-ju for reasons that appear to be forgotten.

Tacitus

Guy Srinivasan said...

Thoughts on how Louisiana is handling this natural disaster? Citizens first of necessity, sounds like... https://www.facebook.com/groups/1041613039268073/permalink/1043067335789310/

Alfred Differ said...

At the risk of violating happy hour rules…

Globalization started many centuries ago, but economists rarely know their history or care to give credit where it is due. I’m not blaming them, though. Everyone seems to like the notion that their generation/community/nation is special. I do too, but I’ve had my nose rubbed in a dissonance lately. The Chinese were doing a whole lot of stuff and figured out a whole lot of stuff long, long ago.

What changes is the technology for trading as the stuff being traded changes too. This won’t change in the near future even if we don’t send bananas to Alaska or cheap Chinese exports everywhere else in cargo containers. I expect globalization to ramp UP and bind us all even more in webs of interdependency. If I can buy at a cheaper price some things made locally that currently come from afar, I’ll just use the savings to buy other things instead. Trade will escalate.

Bananas are a special topic to me. I live and work at THE banana port in California. They arrive here at Port Hueneme so young they are still in diapers. 8)

Tacitus2 said...

Oh, its a semi economics post. I slipped a little even in my response.

Tacitus

Alfred Differ said...

Heh. My wife gets annoyed at me when I see everything through an economic lens. I recognize my monomania (and apologize for it) just often enough for her not to toss my stuff on the lawn and change the locks. 8)

In defense of our insanity, economics is really about humans interacting with each other, so talking about it is a good thing. I say that to her too, but it doesn't seem to work as planned. I should probably just shut up and buy flowers. 8)

David Brin said...

Tacitus!

Aric said...

I thought of you when I read this a couple of days ago since you often say glial cells do more than they get credit for.

https://www.reddit.com/r/science/comments/4xtagf/researchers_at_technical_university_of_munich/

"Researchers at Technical University of Munich discovered that our brain actively takes sugar from the blood. Prior to this, researchers around the world had assumed that this was a purely passive process. An international team led by diabetes expert Matthias Tschöp reported in the journal Cell that transportation of sugar into the brain is regulated by so-called glia cells that react to hormones such as insulin or leptin; previously it was thought that this was only possible for neurons."

TheMadLibrarian said...

Tacitus, the Hawaiians have the same superstition. No bananas on fishing trips.

BTW, if ever there was something to make us get off our duffs and work on long distance space travel:
http://www.space.com/33751-earth-like-planet-proxima-centauri.html
Only 4 light years, not too long if we can get up to a reasonable fraction of light speed.

David Brin said...

I'll be checking in rarely for 10 days... World sci fi convention in Kansas City. Followed by a talk at the W. House then NASA's NIAC symposium in Raleigh.

But blather on -- Contrary Brinners! ;-)

Smartest site (almost) on the web.

Tony Fisk said...

Ba-nana, nana, nana...

I wonder how vertical farms provide sufficient sunlight? (I know: RTFM)

donzelion said...

@Dr. Brin (& Alfred) - "Local production, robotics, local food, these trends will build, bringing benefits and troubles of their own. But all the tech trends seem to point in this direction."

Robots we will have, but even if the world's entire manufacturing base shifted overnight to robots, we'd STILL see manufacturing shift overseas from the U.S. (assuming engineers and mechanics in other countries are as good as our own at maintaining them).

The ultimate reason is a simple tax arbitrage. American companies will experiment with, and perfect new products here. Once they mature, production will be scaled up abroad. Every time. In every industry in which products actually mature. This will continue until someone starts talking about "global" v. "territorial" tax rates and realizes how we're shooting ourselves in both feet.

Industrialists in Silicon Valley grasped this in the 1980s when they started shifting production of silicon wafers to Taiwan and Korea. At the same time that the triumph of Silicon Valley was a well-established motif, they were shutting down manufacturing lines, shifting to services linked with their products, and moving the 'low end' to China as quickly as they could to take advantage of tax arbitrage.

Elon Musk will likewise follow suit once he perfects his next round of 'consumer' oriented vehicles (he may manufacture some components in America for 10-15 years or so, but that'll be transitional if the products actually work). (Intel, one of the few tech holdouts that manufactures in America, is a special case, largely because (a) their main product never really 'matures' because of Moore's law, and thus has clear obsolescence, and (b) the opportunities for tax arbitrage from foreign manufacture are offset by the difficulty in raising capital to finance behemoth fabs - and America is still the cheapest country in which to raise capital.)

Duncan Cairncross said...

Hi donzelion
why do you think that the US tax situation is so bad?

From here I don't see any problems
The expensive thing about manufacturing in the USA is the fact that health costs are huge and effectively part of manufacturing costs

This whole "it's cheaper to make it abroad" thing annoys the hell out of me

So many people believe this with no data or information - they simply "Know" that its cheaper to make it abroad!

For a manufacturing operation having the design in one country and the manufacturing in another is actually very expensive - you miss out on the whole synergy that you can get when the design and manufacturing grow together

"Once they mature, production will be scaled up abroad"
I have never ever seen a "mature" product - long before a product is fully mature it will be replaced - all currently manufactured items have "if I was going to do it again I would do....."
It is the nature of the beast!

Paul SB said...

Tony,

These days you almost don't have to RTFM anymore, what with all the Youtube videos. I've seen a few, and there are a number of different scenarios for providing light, from rows of LED light bars over each container, to clever use of mirrors and glass, to very small-scale operations set up on patios where natural sunlight does the trick (better for suburban settings than inner city).

Here's a couple, but I have to get going. I'm sure you can browse what's up there if you have the time and inclination.

https://www.youtube.com/watch?v=-_tvJtUHnmU

https://www.youtube.com/watch?v=t5XNEy76jPs

Jeff B. said...

No one else has commented on the flying car yet, so... while I'm by no means an expert, to me it appears there are at least two serious issue. First, there is almost zero clearance between the main body and the ground- perhaps 10-15cm? Sure, they show it on YouTube landing on a grassy strip, but that was obviously an expert pilot under ideal conditions,and even then the bottom was basically mowing the grass. A rough landing in less than ideal conditions might be a disaster. And second, the tail wheel assembly does not appear very robust, again a problem under less-than-ideal conditions.

And of course the shared problem w. most flying car designs: having to face the hazards of driving your $300K dream to an airfield.

Duncan Cairncross said...

Hi Jeff
A flying car has to do two things well - and none of them do!
They are either bad cars or bad planes - or both!

The basic physics of flight and road transport is against you -
If some super improved materials or power technology comes in then it may become possible to make a usable flying car BUT that same improved technology will probably make cars and planes so much better that the hybrid is still awful in comparison

donzelion said...

@Duncan – The “global” v. “territorial” tax isn’t "bad," so much as a crazy incentive to induce U.S. manufacturers to shift into "service" industries wherever possible, and leave the manufacturing portion to foreign companies. A job's a job, so this transition doesn't actually hurt America as a whole. But it sucks if you work at a factory.

"The expensive thing about manufacturing in the USA is the fact that health costs are huge and effectively part of manufacturing costs"

Correct, but you're talking about expenses while I'm talking about anticipated returns, which matter just as much - esp. during a business cycle iteration when one is choosing where to scale up production.

To review, here's how it works:
(1) The U.S. is the only major country that taxes persons (both people and companies) based on "global" income. When a U.S. company exports anything manufactured here, they pay the foreign tax at the point of sale, and then they pay U.S. income tax.
(2) Every other country taxes based on the "source" of the income. So when a U.S. company sets up a factory in China for sales to Australia/New Zealand, that factory will pay tax at the point of sale, but NOT U.S. income taxes (unless they remit the money to the U.S.).
(3) In practice, this means expected returns on every unit manufactured abroad are up to 40% greater than the expected returns on the same unit manufactured in America when those units are sold in a global marketplace.

40% is a powerful incentive...

"For a manufacturing operation having the design in one country and the manufacturing in another is actually very expensive - you miss out on the whole synergy that you can get when the design and manufacturing grow together"
You are correct, but the implication of those synergies is NOT that manufacturing will stay in America (although some does), so much as that foreign manufacturers will develop and evolve and eventually take over the design themselves. It's an evolutionary process.

Dr. Brin calls this uplift "Pax Americana." I call it "tax structuring": it's not our largesse driving this, or savings on military costs that other countries didn't have to bear - it's our silly tax code.

Silicon Valley offers another interesting illustration. In the 1980s, design/manufacturing synergies led to dominance in semiconductor manufacturing. By the '90s, the focus of manufacturing had already shifted to Asia (esp. for 'mature' products - those in which the design component is a relatively small portion of the product's value). Now, Silicon Valley is dependent for manufacturing on those foreign imports, HP contemplates undergoing the same transition IBM already made by disposing of its computers division - and none of that actually hurt Silicon Valley in the slightest (they're doing quite well, actually).

But it does hurt factory workers in America...

Jeff B. said...

Duncan, amen to that. Though I'd settle for an ultralight rugged enough for PA winters, for the 50mi/80km commute each day.

Or that jetpack they promised us.

Duncan Cairncross said...

Hi donzelion

Your comment about the taxes is simply incorrect
If an American (or his company) is taxed by a foreign government he subtracts that tax from the tax owed to the US government

So he does NOT pay double the tax - he simply pays the US tax - which has so many huge loopholes (for a company at least) that he pays tax at a low rate

This means that your 40% penalty simply does not exist


donzelion said...

@Duncan- Deductions apply after establishing the tax base. The US base is determined after establishing global income. For everyone else, it's territorial inone. That difference can appoach the maximum tax rate - 39.1%.

E.g., Donzelion Inc exports $10 million widgets from the US to Mexico. Donzelion Inc. pays Mexican taxes, then pays U.S. taxes at the corporate rate for all money earned in Mexico. Assuming worst structuring, that comes in at 39.1 right now. Deductions to offset Mexican taxes will mitigate the harm, but US tax will very much apply to all income earned.

However, if Donzelion inc. sets up a Canadian subisiary that manufactures and exports $10 million goods to Mexico, then the only tax payable is Mexico's tax. Donzelion (Canada) is not a US person. - it's exempted from all US taxes (until it sends the money home).

One can describe that as a penalty, but really, it's the simple fact that the incentives favor shifting manufacturing to whatever foreign hub is best situated to both produce and sell product.

bigsteve said...

With Boomers aging the self driving car is going to be a, well boon. Just about the time I cannot drive the technology should be affordable and ready. I could see even a kind of taxi service where you call in a self driving car to take you where you need to go. Having lived in an area where a car and driving skills are essential for survival , I can tell you this would be a major savings.

donzelion said...

By the way, Duncan, this is the main reason why Apple,Google, etc. 'sit' on hundreds of billions of dollars in foreign accounts of their foreign subsidiaries. They are not cheating; they're simply acting as the tax system dictates, and will only repatriate when there's an emergency, or a massive opportunity that requires more cash.

Don't get me wrong - I know how much more complicated it gets through claw backs and related measures. So does the Treasury. But the fundamentals cant really be changed: when everyone else plays the game by different rules, you either change the rules, or someone pays (in this case, it's factory workers in America).

donzelion said...
This comment has been removed by the author.
Alfred Differ said...

@donzelion: I enjoy when people try to make long terms economic projections regarding local production. I listen, but usually conclude the opposite. Their vision is useful, though, because it tells me what they would be willing to pay extra for in the market. People who want local food will probably pay a premium for it. Maybe I should consider selling it to them. People who want local crafts will probably pay a premium too. My wife tried to tap that attitude. How far local sellers get in serving these desires tells me not about the unlikely trend, but about the size of their desire.

It isn’t just tax arbitrage, though. You can find people who provide services similar to what I do much cheaper overseas. As more time goes by, these rates will level out a bit as one would expect for trades in the presence of arbitrage opportunities. AFTER that, it will be tax arbitrage only, but for now it is a number of things. I don’t expect taxation to level out later, though. There will always be transport and transaction costs, so the optimization problem will involve them all. You’ve already pointed out the IBM example.

Once I learned that economics is the study of how humans decide between substitutions in their efforts to solve the Resource Planning Problem (RPP), I gave up imagining long range predictions involving small details. Such efforts make about as much sense as weather prediction, but we know even less about the RPP because the problem domain has a bazillion dimensions and the ‘solution’ is likely highly multi-dimensional too. Even a quick look at our terms shows the problem. Families economize resources and trade for what they need. They can often agree on shared goals. Social units larger than families/tribes start having trouble agreeing on shared goals, so they trade in fragments accepting the disagreements. Once that starts, we aren’t even trying to solve the RPP. Communities don’t economize much yet we lump all trading under ‘the economy’ term. Funny! Hayek had to coin another word (catallaxy) for what communities do, but the word never caught on.

Alfred Differ said...

@Duncan:This whole "it's cheaper to make it abroad" thing annoys the hell out of me

Heh. There are people who thought they knew, tried it, and discovered they were wrong. There are also people who thought they knew, tried it, and discovered they were right, though they might have predicted the margin incorrectly.

It works often enough for Donzelion to be correct. If Duncan Inc wants to have a go at it, though, it would be advisable to hire people who have tried and failed along with some who have tried and succeeded. The failure knowledge will help avoid the obvious pitfalls they know and that will improve the odds the other folks will get it right.

Whether it is his 40% incentive or a 15% one due to other circumstances, shareholders will skin the management team that doesn’t pay attention to it.

donzelion said...

@Duncan- Deductions apply after establishing the tax base. The US base is determined after establishing global income. For everyone else, it's territorial inone. That difference can appoach the maximum tax rate - 39.1%.

E.g., Donzelion Inc exports $10 million widgets from the US to Mexico. Donzelion Inc. pays Mexican taxes, then pays U.S. taxes at the corporate rate for all money earned in Mexico. Assuming worst structuring, that comes in at 39.1 right now. Deductions to offset Mexican taxes will mitigate the harm, but US tax will very much apply to all income earned.

However, if Donzelion inc. sets up a Canadian subisiary that manufactures and exports $10 million goods to Mexico, then the only tax payable is Mexico's tax. Donzelion (Canada) is not a US person. - it's exempted from all US taxes (until it sends the money home).

One can describe that as a penalty, but really, it's the simple fact that the incentives favor shifting manufacturing to whatever foreign hub is best situated to both produce and sell product.

donzelion said...

@Alfred - LOL, duly chastised about the power of crystal balls. When someone makes a projection about the inevitable (e.g., death and taxes), the mere fact that a thing is inevitable does not tell us what they will do in the face of that inevitability.

But it does give us a point for consideration.

"People who want local food will probably pay a premium for it."
There is space for the "Whole Foods" of the world. But comparative advantage is not so easily brushed aside: the fact that we could do something (like grow bananas in Alaska) does not tell us whether we would actually do it (like flying cars - which have existed for decades - but haven't caught on all that much).

"It isn’t just tax arbitrage, though."
Conceded. Tax arbitrage applies mainly for manufacturing (not service industries), and mainly at a certain stage in manufacturing (ramp up to mass production). Most products never reach that stage, and few services ever will. Yet the tax structure is always in play, influencing every trade over borders, every time.

When anticipated returns are adjusted by 40%, that's not a 'small' detail.

But even if it's only a 1-5% advantage (it's much larger than that), the effects compound over time with every transaction. In an evolutionary context, slight advantages like that, compounded over a sufficient number of crucial interactions, results in species change/replacement. One need not accurately predict what a species will look like X years from now in order to accurately assess factors that relevant in changes underway today.

Duncan Cairncross said...

Hi donzelion

You are still wrong
Let’s look at this as shareholders in two companies
Each makes widgets that are sold in the USA

Home Inc. and Away Inc.

Home makes and sells its widgets in the USA – pays 39% tax on profits – pays remainder to Home shareholder

Away makes its widgets in Mexico sells them in the USA –
Yes it can avoid paying taxes in the USA – BUT only by not returning the money to the USA and NOT paying anything to the Away shareholder!!

So I can be a shareholder in Home and get dividends – or a shareholder in Away and get nothing!

It’s a bit different if you are making and selling your goods abroad – but that is as it should be

Duncan Cairncross said...

Hi Alfred
I have no issues with people doing the numbers and showing that in this instance its cheaper to make something abroad

However in most cases they don't actually do that - they start off with the assumption that "of course" its cheaper to make it abroad
And unless they get their noses rubbed in it they don't actually check it

Manufacturing costs are difficult to compare -
The total cost/income for the whole company is trivial to track
But as soon as you inside that level it is very very difficult to do any type of split up

My first encounter with this was when I wanted to spend $100,000 on some new drive-lines for my test cells - the costing that the accounts dept gave me said that the costs I was saving were too low
When I got into the details they were charging 10% of the plant "overhead" to my test cells
Because I had 10% of the staff
BUT my test cells actually represented 80% of the capital cost of the plant and at least that in support costs
When I redid the calculations assuming 80% of the "overhead" the payback was 4 months

When senior management has decided to do something like outsource any reports showing that it is a BAD idea are likely to earn the reporter the sack



Anonymous said...

While researchers, medical doctors, and pharmaceutical companies will doubtless weigh in somehow on the opioid problem (probably with a new pill, and associated corporate profits), why not look to the root causes, as to why the precariat or "those people" might be popping those pills? No? Of course things are going so very well that suicide rates are not breaking the charts, nor is depression a problem under the Western way.

Pax Americana would be slightly credible if America didn't have a habit of cutting democracies in the neck (Iran, '53) or favoring pro-corporate murder machines (Hondouras in '09 among *many* other such examples) or weaponizing the heck out of places that had commies to kill (Afghanistan) and then tossing the US-AID program when hey no commies left to kill (Clinton did have to balance those budgets, y'know). This could instead be seen as a radical intolerance of other ways of life—just ask any Native Amercian how well their treaties have been honored, or how likely an American car-sitter is to be seen using public transportation.

Others place the mercantilist phase at around 1500-1750, followed by a settler-colonial regime from 1850-1930, so how the British Empire remained mercantillist across that change is an interesting question (or, more likely, is a historical inaccuracy for the sake of fitting history to your particular narrative. Not quite as bad as your howler of the 6,000 years of fuedalism thing, though).

Local production? Yeah, right. Where's the local lithium mine? What, there's no such thing? Ho-hum, buisness as extractive usual. Recycling? Perhaps in the future as American slum-dwellers pick nickel and cobalt out of used battery packs... I do wonder what era Elon imagines. Perhaps a blue pill and "happy ending" for the car-sitters, along with the sippy cups and diaper changes?

Robert said...

And yet, Anon, despite the fuckups of Pax Americana, which we have admitted exist, it is still far better than the previous "empires" including Britain, Germany, China, Japan, and others which lacked even the modicum of respect the U.S. shows other nations.

The U.S. is not perfect. But you know something? Not only is it better than what came before, but when the U.S. pulls out of a region, the resulting void ends up far worse than when the U.S. was there. The smarter solution is a gradual pulling out, so that other organizations can step up their presence rather than let anarchy rule.

Especially as anarchy always descends into dictatorships.

Rob H.

Robert said...

This is of course something the Anarchists and anti-American/anti-Globalization crew fail to accept. They like to pretend that if the U.S. were to pull out of the world that things would just continue as-is, and that everything would be great. That governments would collapse and everyone would live in a utopian Anarchist society.

They ignore the fact China and Russia at the very least would be filling the void the U.S. left. They ignore the fact that we'd see other wars erupting. And when I point it out to them and they finally accept it? They brush off the death and suffering as "needed" because they assume they'd be on top rather than dead... or enslaved.

Rob H.

Jumper said...

Without much further to say about it all, I have to note I live a short distance from the lithium mine.
https://en.wikipedia.org/wiki/Lithium_Corporation_of_America

Jumper said...

Anyone who claims mass deaths are "needed" is a monster and should be kept away from sharp knives, and even more so, from any kind of power.

Deuxglass said...

If Globalization is ending because of technology then why are some people still pushing TPP? It seems to me that TPP is irreverent to the coming world. I agree that the tide has turned when it comes to trade between nations. There are many new processes and methods coming online that favor local manufacturing over long-distance shipping of different pieces, all made somewhere else, then assembled in another place to be sent to the customer half a world away. When you think of it, it doesn’t make sense yet the present world economy is based on it. Robots and 3-D manufacturing have little labor input. Mega-factories such as Tesla’s in Nevada have raw material come on one side with finished batteries coming out the other end ready to be sent to the client. That is the future and TPP has nothing to do with it. It is yesterday’s news so get over it. The only part that merits attention is the intellectual property safeguards because in the future most exchanges between countries will be software and information and little else. Dump the treaty and start negotiations on what really matters.

Let’s make no mistake in believing that good-paying jobs will come back just because manufacturing will become local. Those jobs are lost. Robots and AI will do just about everything better than humans. We are moving beyond the industrial age into something we have little idea on what it will be yet we are still using economic theories developed in the 19th Century to guide us. That in itself is ridiculous. When you come down to it, we have no relevent theory of trade, no understanding of the present deflation, and no idea how to solve present problems let alone addressing the problems to come. To be brief, we hope to just muddle through. We have no guidebook. This is where Science Fiction can contribute. Science Fiction has already imagined just about every situation, products, goods, social constructs, dangers and opportunities. Science Fiction authors are consulted to tap their imaginations to help policy-makers foresee and navigate in the new world. I expect that those who live and breathe Science Fiction should now put their imaginations to work imagining what new economic systems would work best in this new world that is fast approaching. Traditional economists are lost as well as most politicians. The people here in Dr. Brin’s blog should step up to the plate and field new ideas on economics because as far as I see, no one else is.

Deuxglass said...

Sorry for the typo

Duncan Cairncross said...

Deuxglass
"Robots and AI will do just about everything better than humans."

Have you looked at the latest DARPA robot evaluation??

https://www.youtube.com/watch?v=8P9geWwi9e0

In the long term YES - but as Keynes said "In the long term we are all dead"

The problem is NOT that people can't do the jobs or even that it is too expensive in the USA (look at Germany)

BUT the money people have a religion that says that it is cheaper to outsource
Like all religions this is not susceptible to arguments or data

Tim H. said...

I suspect a slacker ethic is at work driving outsourcing also "Just let someone else worry about that.".

donzelion said...

@Duncan - "You are still wrong..."
In your example, "Home" and "Away" are selling widgets in America. In such a case, it makes no difference whether the income tax regime is "global" or "territorial." However, once "Away" sells to anyone else (and 85% of the global economy is outside America), they're free of U.S. income tax. "Home" is not. That huge difference is what drove American investment into China.

Now if "Away" opts to remit funds back home to "Parent," then Parent will pay tax on that 'income.' From 2001-2013, that would yield a 15% savings if remittances came in the form of a dividend (35% income tax relative to 20% dividends tax). In 2013, Obama wisely ended that stupid fiasco in the Bush tax cuts, so now it's only a 4.1% savings.

'Away' could also buy shares in "Parent" - yielding a range of potential savings (from 10% to 25%, depending on many factors). 'Away' could also purchase bonds issued by "Parent" (altering the tax calculation in many different ways). 'Away' could also stockpile cash, thereby potentially avoiding the whole 39.1% (depending on circumstances). Indefinitely.

"So I can be a shareholder in Home and get dividends – or a shareholder in Away and get nothing!"
Stockpiling cash increases 'book value' of the company; eventually that'll result in share prices increasing, either as investors follow valuation models, or if 'Away' buys back shares in 'Parent.'

"However in most cases...they start off with the assumption that "of course" its cheaper to make it abroad"
I'm not really talking about cost of production at all. Sometimes, American companies will base manufacturing in very expensive countries (e.g., Germany or the UK), for a large number of reasons. Every time they do so, they will evaluate the tax implications carefully, and often, that will result in net savings (e.g., even if Germany charges a 90% income tax rate, that only applies to income earned from German sources - so if you export everything you make from Germany to other countries, you won't pay much income tax in Germany at all).

Duncan Cairncross said...

So as a stockholder in "away" I can have lots of lovely untaxed lolly
- just as long as it never comes home!

If it does come home it will be taxed UNLESS I manage to use some sort of tax avoidance scam

The same thing - its a scam - I can make it abroad and have lots of money that I can't touch and does ME no good

Now the executives of the company - they can do things with "my" money
I can really see why they like the idea of outsourcing and why they are in favor

But for the shareholders? - it's just a scam

As soon as the shareholders understand what is happening outsourcing will drop dramatically - just after hell freezes over

donzelion said...

@Deuxglass - "There are many new processes and methods coming online that favor local manufacturing over long-distance shipping of different pieces"

Additive manufacturing relies on polymers and other partially treated materials. It also relies on printers, assembly units, parts, etc. Guess where those come from?

The stuff in the shipping containers will change, but there's no reason why the volume of shipping will decline. For decades to come.

"Robots and 3-D manufacturing have little labor input."
Someone has to capture the needs, design the product, deploy the product. Someone has to program the robots, and the more customized their work, the more programming required. Additive manufacturing doesn't necessarily reduce total labor (although it probably will), but it profoundly changes what labor is actually doing - converting much that used to be 'industrial' into very specialized 'services.'

"Mega-factories such as Tesla’s in Nevada have raw material come on one side with finished batteries coming out the other end ready to be sent to the client. That is the future and TPP has nothing to do with it."
We'll have to see. I'll place a wager though that as soon as Teslas are intended for export, production will shift abroad quickly.

"Robots and AI will do just about everything better than humans."
At some point. But remember the rules of comparative advantage, which are one of those 19th century notions that has proven out repeatedly and is yet to be debunked. Even if a robot is better at everything than a human, an AI should still trade with humans whenever it serves its best interests (just as humans tend to do).

"we are still using economic theories developed in the 19th Century to guide us."
We're using many theories developed in the 19th century - and building upon them. Evolution? Electrical theories? To the extent that economics is like any other science, we should expect that old theories stick around for a long time, but new applications alter how we perceive them (up until the point when we actually replace them).

"we have no relevent theory of trade"
We have many good theories, some of which have strong evidentiary bases. Adam Smith had many insights, as did Ricardo and many others.

"no understanding of the present deflation"
Demographics. For Japan, that's the entire story in a nutshell. For Europe, demographics were offset by EU expansion (for a time). For America, immigration is the principle counterbalancing force to deflation.

"we hope to just muddle through."
Quite true. But in our muddling, we'll need to figure out what is old that should be kept, and what should be tossed (e.g., the U.S.'s 'global tax' regime ;-).

donzelion said...

@Duncan -
"So as a stockholder in "away" I can have lots of lovely untaxed lolly - just as long as it never comes home!"
Which is why at least trillions of dollars are sitting in offshore bank accounts right now. Bloomberg puts that at $2.1 trillion. Forbes puts it at $22 - 31 trillion.

"The same thing - its a scam - I can make it abroad and have lots of money that I can't touch and does ME no good"
YOU - as a person - probably won't derive much benefit. If you were a billionaire, or a company with a billion+ in capital, you could do a lot with that money.
(1) Capital gains (as book value increases, share value should also increase)
(2) If you don't realize sufficient capital gains, just do a share buyback (though again, that gets taxed)
(3) Mergers & Acquisitions (sometimes at premiums that make no sense to outsiders).
(4) Other asset purchases (e.g., real estate)
(5) Limited market bond issuance (these can result in very broad and complex tax implications - U.S. parent issues -> foreign subsidiary purchases -> parent company retires the bond - tax effect is tricky, as is the underlying law).

There are many other maneuvers available at the billionaire club (or big corporations). Most of these are too expensive for anyone other than a billionaire to justify (and again, any errors, you're gonna get hit with a hefty tax bill).

"As soon as the shareholders understand what is happening outsourcing will drop dramatically - just after hell freezes over"
Well, services outsourcing is relatively novel compared to manufacturing through foreign subsidiaries. It's also harder to pull off. But the U.S. tax code, on this point, hasn't changed since 1921. During the Cold War, and before container shipping, there wasn't much reason to play this sort of tax arbitrage. Now, you either play, or you lose out to those who do.

Alfred Differ said...

@Duncan: I've learned that I have to put together the ROI argument myself when making a pitch. The Accounting Department rarely hires the creative souls innovators need, so we have to help them. Fortunately the math isn't all that hard to learn. NPV, XNPV, IRR, and all those other calculations should be in every engineer's vocabulary. 8)

If your folks focused upon labor costs, they probably came from the services industry where ~70% of costs get soaked up in wages. Pitches that can't make a dent on that fraction or show a corresponding productivity increase won't make it.

It was an Australian mining engineer who taught me this. Engineers have to take these matters into their own hands.


On the stuff Donzelion is pointing out, though, he has you dead to rights. You are thinking like a Value investor. It is a limiting perspective.

Alfred Differ said...

@Rob H: I'm with you regarding the drama that would ensue with a US pullout, but not because the world would fall apart without us. I don't think we are THAT vital, but we do play a role.

What I like to ask of the anarchists is this. Why do you think the world will do well when we pull back? Most of history has humanity governed by feudal-like government whether by Kings or Priests. Why would it be different this time?

What I like to ask of people who think we HAVE to stay involved is this. Why do you think they'd all fall apart without us? What is it we add that they can't or won't do? The US has a short history as a world power and the world got most of the way to where it is now without us. Why can't they manage to progress more now?

These questions are compliments of each other and drive toward the same point. I don't think many people ACTUALLY know how the US helps the world. I argue that we do, but we mostly do it without understanding how. For example, if we did pull out, can we list the predicted impacts? People suggest one or two and then move on toward conclusions much of the time. I think it is worth more analysis.

Robert said...

My belief is that if we pull out, other powers will quickly fill that void.

One will be Russia. And it will do its absolute best never to let countries pull away from its influence ever again.

Rob H.

Paul451 said...

Donzelion,
" I'll place a wager though that as soon as Teslas are intended for export"

Ahem.

Perhaps I should have asked for your terms first?

Duncan Cairncross said...

Hi Robert
"My belief is that if we pull out, other powers will quickly fill that void.
One will be Russia."

Russia is NOT a "power" it is 14th on the list of world economies after Australia and before Mexico

Do you worry about Mexico? or Australia?

Duncan Cairncross said...

Hi Paul

50,000 Tesla's made in 2015 - 20,000 exported

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LarryHart said...

donzelion:

"we are still using economic theories developed in the 19th Century to guide us."
We're using many theories developed in the 19th century - and building upon them. Evolution? Electrical theories? To the extent that economics is like any other science, we should expect that old theories stick around for a long time, but new applications alter how we perceive them (up until the point when we actually replace them).


Economics is different from physics in one important sense. What has changed in the realm of physics since the 19th century is our understanding of the mechanisms at work. In economics, the mechanics at work have themselves changed since the 19th century. It's not just better understanding of the theories, but different axioms at work. Not quite Orwell's "the opposite thing", but certainly "a different thing".

Deuxglass said...

Continued

“We're using many theories developed in the 19th century - and building upon them. Evolution? Electrical theories? To the extent that economics is like any other science, we should expect that old theories stick around for a long time, but new applications alter how we perceive them (up until the point when we actually replace them).”

Economics is not a science like physics and chemistry even if it extensively uses mathematics. It is a social science and gives inexact and inconstant answers. On the micro-economic level of a company’s decision to build a factory or not, it works reasonably well but it fails on the macro-economic level.

“Demographics. For Japan, that's the entire story in a nutshell. For Europe, demographics were offset by EU expansion (for a time). For America, immigration is the principle counterbalancing force to deflation.”

Yes economists and television stock market analysts have 100% hindsight. They can tell you what happened and why but have a terrible record for predictions. Three years ago no one was predicting deflation or negative interest rates even though the demographics were well-known. No one foresaw a collapse in velocity. Now that we have it they are all saying “of course!” Where were they three years ago?

Deuxglass said...

Continued

“We're using many theories developed in the 19th century - and building upon them. Evolution? Electrical theories? To the extent that economics is like any other science, we should expect that old theories stick around for a long time, but new applications alter how we perceive them (up until the point when we actually replace them).”

Economics is not a science like physics and chemistry even if it extensively uses mathematics. It is a social science and gives inexact and inconstant answers. On the micro-economic level of a company’s decision to build a factory or not, it works reasonably well but it fails on the macro-economic level.

“Demographics. For Japan, that's the entire story in a nutshell. For Europe, demographics were offset by EU expansion (for a time). For America, immigration is the principle counterbalancing force to deflation.”

Yes economists and television stock market analysts have 100% hindsight. They can tell you what happened and why but have a terrible record for predictions. Three years ago no one was predicting deflation or negative interest rates even though the demographics were well-known. No one foresaw a collapse in velocity. Now that we have it they are all saying “of course!” Where were they three years ago?

The only thing we can do is to muddle through and hope for the best. We probably can’t change the deep trends but we can try to adapt to them and hopefully have the courage to enact policies that moderate the nefarious effects of the coming economy while still enjoying its beneficial effects. I am thinking of all the sci-fi books I have read and remembering what type of economies each one had. In the world of Star Trek of the 60’s it looks like they could make anything almost effortlessly except for dilithium crystals and the economy was very socialistic. People competed for status but didn’t seem to care about physical goods. Now days sci-fi economies seem to resemble some third-world slums and people compete for status to acquire the ability to live in luxury. What a difference from forty years ago.

LarryHart said...

It might sound as if I'm routinely cribbing (plagiarising) from the http://www.electoral-vote.com/ site but in fact, the temporal causality runs in the other direction. :)

For example, today (Aug 20):


Clarke cites numerous examples of very secure computers and networks that have been hacked, including some top-secret systems at the Pentagon and at the State Dept. Ironically, Hillary Clinton's email server might actually have been safer than the State Dept.'s since nobody knew about it until fairly recently.


And on Aug 18:

The notion that Donald Trump never intended to be president, and has no interest in actually winning the election, has been hinted at for months by many commentators (including us). Now, something that had the faint whiff of conspiratorial thinking is out in the open. Consider these headlines, all published in the last couple of weeks:

Michael Moore: Is Trump Purposely Sabotaging His Campaign?
Forbes: Trump's Tough Week: Does He Even Want To Win?
The Hill: Is Trump deliberately throwing the election to Clinton?
TownHall: GOP Congressman Openly Wonders if Trump Is Trying to Lose
Fox News: Does Donald Trump really want to win the White House?
RCP: Supporters Are Wondering "Does This Guy Want to Win?"
HuffPo: GOP Operatives Aren't So Sure That Trump Even Wants To Win
MSNBC: Does Trump Really Want To Win?


Just sayin'

Robert said...

@Duncan: Ask Ukraine or the Balkans if Russia is a "Power" or not.

Rob H.

Duncan Cairncross said...

Hi Robert

Just because you have some weak neighbors does not make you a "Power" -
And those same weak neighbors are much more likely to align with their much more powerful neighbors on the west

LarryHart said...

@Duncan,

Russia has nukes and a willingness to use unscrupulous force. Seems to me that makes it a power.

Duncan Cairncross said...

Hi Larry

Does that also make North Korea, Pakistan, India and Israel "Powers"?

And does that make Germany and Italy - "not powers"?

donzelion said...

@Paul451 - read back a bit, and you'll see that I assumed that the model applies primarily for "relatively mature" products. Luxury autos are never "mature" products; complete autos are seldom mature either, but the parts and components tend to be. However, the Model 3 may be sufficiently 'standardized' so that mass exports would make sense. Before Tesla exports 200,000 Model 3's a year (we exported 2 million vehicles in 2014), they will have started manufacturing plants abroad for assembly for any parts that are not sole-sourced from their Fremont or Nevada factories. If/when they reach 500,000 (and I really hope they do), the "exports" will be gradually phased out in favor of foreign manufacturing. I give it about 10-15 years. I do hope they get there.

Note that since Obama took office, the number of car exports from the U.S. increased from 1 million to 2 million. From 1990s - 2013, autos also played the tax arbitrage game, BUT for ongoing investment processes (every time they change a factory to accommodate new designs), they need to remit dividends to the parent company far more often than most tech firms. Once the Bush Tax Cuts expired, the tax arbitrage incentive for foreign dividends dropped from 15% to 4.1% - too small to justify foreign manufacturing (absent other enduring advantages). Just another one of those "prudent" decisions our president made that nobody anywhere gives him any credit for...









donzelion said...

@LarryHart & Deuxglass - re economics - I'll leave defense of its scientific merits to an economist. I think much of that old stuff (Adam Smith, Ricardo, and several others) holds value today (then again, I also think Plato & Aristotle hold some value, even if Aristotlian science is utterly antiquated).

@Deuxglass - Lots of economists anticipated deflation; there's been warnings about it for about 8 years now. That said, lots of analysts anticipate EVERYTHING - they make sixteen different predictions, 2 of them take hold, the rest get buried and forgotten (the web has a strange memory - and it's not hard to remove unfortunate claims and fixate on the triumphs). Still, Schiller, among many others, was quite clear on the deflation prediction in 2010 (perhaps not to clear on the 'what do I do about it' part - at least, not for anyone save paying clients).

You seemed to be despairing about the work of other people in your original comment (and looking to folks here to somehow address the issues). I guess some of us are trying. But really, there's so much more that is right and wise in this crazy world, in so many different corners. (That said, reading Kurt Vonnegut's "Sirens of Titan," I laughed at his vision of the world economy 10 million years from now - which looks hilariously identical to our own).

LarryHart said...

Duncan Cairncross on Russia as a power:

Does that also make North Korea, Pakistan, India and Israel "Powers"?


Pakistan and India probably consider each other to be at least local powers. Israel and North Korea at least so far don't project their power outwardly in the way that Russia does.


And does that make Germany and Italy - "not powers"?


Of course not. I was going for a sufficient condition, not a necessary one.