Job Creators? Not Quite

Henry Blodget:

"Rich people create the jobs."
Specifically, by starting and directing America's companies, entrepreneurs and rich investors create the jobs that sustain everyone else.
This statement is usually invoked to justify cutting taxes on entrepreneurs and investors.  If only we reduce those taxes and regulations, the story goes, entrepreneurs and investors can be incented to build more companies and create more jobs.
This argument ignores the fact that taxes on entrepreneurs and investors are already historically low, even after this year's modest increases. And it ignores the assertions of many investors and entrepreneurs (like me) that they would work just as hard to build companies even if taxes were higher.
But, more importantly, this argument perpetuates a myth that some well-off Americans use to justify today's record inequality — the idea that rich people create the jobs.Entrepreneurs and investors like me actually don't create the jobs -- not sustainable ones, anyway.
Yes, we can create jobs temporarily, by starting companies and funding losses for a while. And, yes, we are a necessary part of the economy's job-creation engine. But to suggest that we alone are responsible for the jobs that sustain the other 300 million Americans is the height of self-importance and delusion.
So, if rich people do not create the jobs, what does?
A healthy economic ecosystem — one in which most participants (especially the middle class) have plenty of money to spend.
Over the last couple of years, a rich investor and entrepreneur named Nick Hanauer has annoyed all manner of other rich investors and entrepreneurs by explaining this in detail...
What creates a company's jobs, Hanauer explains, is a healthy economic ecosystem surrounding the company, which starts with the company's customers.
The company's customers buy the company's products. This, in turn, channels money to the company and allows the the company to hire employees to produce, sell, and service those products. If the company's customers and potential customers go broke, the demand for the company's products will collapse. And the company's jobs will disappear, regardless of what the entrepreneurs or investors do.

Lots of people don't believe this, which seems obvious to me.  Income inequality cuts a large percentage of people out of being able to fully support the economy, while a smaller percentage of the population has way more money than they could ever use to benefit the economy.  Why have we had so many bubbles?  Mainly because all the excess wealth is being employed in speculating for greater gains.  All those dollars are chasing a finite number of potential investments.  If you are really concerned about a balanced budget, you would support taxing more of that wealth, or creating regulations to ensure that more of the national income went to labor.  Most "budget hawks" are opposed to both.

Purdue's Drum Ain't That Large

A Big Lie Written on a Drum

The Boilermakers exaggerate massively (besides when they claim to be the best engineering school in Indiana):

They parade it proudly through the campus on football Saturdays, roll it out during every halftime performance at Ross-Ade Stadium and thump it throughout each game — the giant percussion instrument that boldly proclaims, right on its face, that it is the "World's Largest Drum."
But is Purdue University's Big Bass Drum truly the biggest?
I scoured the Internet, figuring the drum's dimensions likely were buried on some obscure blog, as most pieces of trivia usually are, only to come up empty. There were lots of estimates for the diameter, but they were decidedly less than precise, ranging from 8 feet to 10 feet.
What I did discover right away was that there's a lot of competition for the title of "World's Largest Drum," which probably explains why Purdue keeps the actual dimensions under its hat, er, shiny steel helmet.
A few drums in Asia and Europe easily tower over the Boilermakers' drum, with the Guinness World Record holder in South Korea measuring in at a diameter of 18 feet 2 inches. Even the naked eye can see Purdue's drum doesn't come close.
What's less clear is whether Purdue's drum beats the competition closer to home.
The University of Texas has Big Bertha, which is 8 feet tall and 44 inches wide, and the University of Missouri boasts Big Mo, which measures in at 9 feet tall and 4 feet, 6 inches wide.....
Inside an aging metal cabinet on the first floor was a square paper boxed labeled "Lafayette Journal & Courier — No. 474." We gently placed the roll of microfilm in a nearby reader.
Smith quickly scrolled through the film, slowing down when he reached the 1921 newspapers — the year the drum was built by Leedy Manufacturing Co. We glanced through Journal & Courier issues from May, June and July before coming to Aug. 6, the day after the Big Bass Drum was unveiled.
And there were the drum's dimensions, right on the front page: "Seven feet three inches in diameter and three feet nine inches wide."

Never trust somebody from Indiana.  One of the things I was going to do if I won the lottery was commission the construction of a bigger drum than the one Purdue has, just to stick it to them.  But since the Universities of Texas and Missouri already have, I won't bother if I hit it big.  Seriously, who lies about the size of their drum?

The Reddest of the Red States

Utah's citizens think Senator Lee shouldn't be so crazy:

This battle has taken a toll on his popularity, however. A Brigham Young University survey conducted during the shutdown found that 57 percent of Utahans wanted Lee to be more willing to compromise. The senator’s approval rating dropped to 40 percent — down from 50 percent in June — with 51 percent disapproving.
At the same time, the online poll found, the vast majority of Utah residents identifying with the tea party still backed Lee.
Lee waved off the findings. “The only number I worry about is how many people are being hurt by Obamacare,” he said.
But Lee acknowledged that voters disapproved of the shutdown — especially in Utah, where the federal government is the largest employer. Shuttered national parks hurt the tourism industry and thousands of workers at military installations were furloughed.

Is that why folks are so adamantly opposed to the federal government out west, because it is so much of a part of their lives?  It kind of calls into question that rugged individualism meme when the largest employer in the state is the evil folks in Washington.

Is Silicon Valley A Meritocracy?

Marketplace looks at how it is and isn't:

Michael Arrington, angel investor and founder of the website Tech Crunch told CNN a few years ago that in Silicon Valley “generally speaking, it doesn't matter what your education is. It doesn't matter who your parents are here.  You can become very successful based purely on your brain size and how you use it.”
A favorite example of the anyone-can-make-it-here narrative is the story of Max Levchin, co-founder of PayPal. Lacy knows his origin story by heart.
“Moved from the Soviet Union when he was 16,” she’ll tell you.  “His family had $300 in their pocket and he had to learn English by watching an old television set that he pulled out of a dumpster and repaired. Ten years later or so, he sold a company for $1.5 billion. Ask someone like Max Levchin ‘do you consider this place a meritocracy?’”
So I did.
But first, I wanted to make sure the story that gets told about him was right.
“Yeah, that's remarkably accurate,” Levchin said after I repeated the biography Lacy had told me. “The only thing I'm not sure is precise is the amount of dollars we had in our pocket. It might have been $200 or $400, I can't quite remember,” he laughed.  “But everything else is pretty much correct, including the TV story.”
Then I cut to the chase. Does he think Silicon Valley is a meritocracy?
First, he cautioned that it was hard for him to compare it to anything else, since it’s the only place he’s ever really worked. That said, “on the absolute scale, it seems quite meritocratic,” he told me.  “I've met lots of people that have succeeded independent of their humble or otherwise origins.”
But Levchin also cautioned there are certain details of his story that often get left out. “I was very lucky,” he said.
Luck came in many forms. Even though his parents couldn't afford a TV, they did scrape up enough money to buy him a computer.
“My family was very supportive of the idea that having access to a personal computer would do something good for me, and within a few weeks of landing in the U.S., they gave me a PC to work on, to play with and to explore,” he told me.
And the importance Levchin’s family gave to computer access was no accident.  His mother had been a computer programmer in the Ukraine. His father, grandfather and grandmother were physicists -- prominent ones.
In fact, if you go down the often-cited list of big tech companies with immigrant founder success stories -- PayPal, Intel, eBay, YouTube -- you'll find many of those immigrant founders had a parent who was a scientist or academic.

Just like in the rest of the country, a lot of your access to opportunity in Silicon Valley comes down to who you parents were and what they did.  I think Silicon Valley gets that rep partly because it is a place where nerds succeed, and they don't see as many not-so-smart but better looking people moving up ahead of them.  Plus, the Internet revolution has made them fantastically rich, and they have to find some way to justify it as more than just luck and mass markets at work. 

There's a lot of fascinating technology out there, but look at the list above.  Of those, only Intel actually makes anything.  PayPal is a site which allows people to make credit card transactions securely.  eBay is an online flea market/junk auction.  YouTube found a way to compress a gazillion videos that might have been recorded on VHS and sent in to America's (not really) Funniest Home Videos.  Other than the chipmaker, how much richer are our lives thanks to these inventions.  How about Twitter or this blog?  Is it really a good idea for me to text out whatever I'm thinking to the world?  And a lot of the web guys have gotten rich by being able to mine data and sell it to the barbarian marketers.  While it is good entertainment, a lot of Silicon Valley is just Hollywood run by geeks.

Insourcing Trend Appears Oversold

Bloomberg:

Randy Webb sees scant evidence of a U.S. manufacturing rebound in the Ohio plant where he’s fixed aircraft electronics for 25 years. Honeywell International Inc. (HON) is closing the shop in 2014 as it expands such work overseas.
Webb is among 80 employees poised to lose their jobs in Strongsville, Ohio, outside Cleveland, near where General Electric Co. (GE) will shut a lighting factory in favor of production in Hungary. Delphi Automotive Plc (DLPH) is sending parts assembly to Mexico from Flint, Michigan, and Eaton Corp. (ETN) will make extra-large hydraulic cylinders in the Netherlands, not Alabama...
The U.S. industrial comeback, an idea embraced by President Barack Obama and some economists as 12 years of factory-job losses gave way to three annual gains, is now sputtering. Even with nonfarm payrolls up 1.1 percent in 2013 to 136.1 million, manufacturing has stagnated at less than 12 million. Factories added more than 500,000 positions after falling in February 2010 to the lowest since 1941.
That left the factory workforce through August about 13 percent smaller than the 13.7 million when the U.S. fell into recession in December 2007. In 2000, the tally was 17 million... One discouraging sign that manufacturing employment is recovering: the 13 percent gap between factory payrolls now and before the recession occurred amid a rebound in output, said Tim Quinlan, a Wells Fargo & Co. economist in Charlotte, North Carolina. Industrial production trails a 2007 pre-recession high by only 1.9 percentage points.

The story earlier in the year about GE's Appliance Park made me a little hopeful, but alas, it may have been a bit oversold.  The other thing hurting manufacturing job creation is investment in labor saving technology.  It will be interesting to see if the supposed shale gas manufacturing bonanza occurs.  I'd bet it is decently oversold.

Really? A Shale Bubble?

Say it ain't so:

Many US shale companies that have been beating the drums of shale “revolution” are now facing oil and gas well depletion. In February 2013 the US Energy Information Administration (EIA) warned that “diminishing returns to scale and the depletion of high productivity sweet spots are expected to eventually slow the rate of growth in tight oil production”. It was a cautious but intriguing statement.
Arthur Berman, a prominent shale skeptic who runs Labyrinth Consulting firm in Sugarland, Texas, is not surprised. “The shale gas phenomenon has been funded mostly by debt and equity offerings. At this point, further debt and share dilution are less feasible for many companies” – he wrote in The Oil Drum blog several months ago.
Just like the famous Gold Rushes of the 19th century US shale gas development turned out to be a limited and regional market opportunity.
The average depletion rate of wells in the Bakken Formation (the largest tight oil play in the US) is reported to be 69 percent in the first year and 94 percent over the first five years (37 percent and 50 percent in the Barnett Formation). Due to the lack of reliable data on shale industry many experts (for example, Deborah Rogers from Energy Policy Forum) await possible future write-downs in shale assets. Naturally smaller investors will not hear about the write-downs in the news.
Rock-bottom gas prices on the American market make it extremely difficult to drill more wells and maintain current levels of production, unless technology radically changes.
“The cheap price bubble in the US will burst within two-to-four years,” believes David Hughes, a geoscientist and former team leader on unconventional gas for the Canadian Potential Gas Committee. “At a high enough price, the supply bubble will burst perhaps 10-to-15 years later, when drilling locations become sparse.”
There are also sensational industry reports that reveal how investment bankers promoted shale bubble in order to profit from a short-lived energy boom. Subprime mortgage crisis has shown that the Wall Street is very good at creating financial bubbles.
A lot of the small investors now being solicited by respected investment publications may lose their money, forecasts Professor Robert U. Ayres in Forbes. The shale gas boom was profitable in 2009 but now small players are late for dinner.

Wait, investment bankers may just be selling shit to muppets?  No! Who would have ever guessed that?   I don't know what the shale plays hold.  Apparently, there is a hell of a lot of gas there.  The problem is that it can only be produced right now for more than what it sells for.  I think we'll find that shale oil is overhyped and that the peak in production will come sooner than most folks think.  I will predict that we probably won't here many Chesapeake Energy ads on the Ohio State radio broadcasts this year, unless they were dumb enough to sign a multi-year deal.