Should we tax robots low so they work for us humans, or high so that we humans remain competitive?

Rana Foroohar references “a recent report into the US labour market conducted by the McKinsey Global Institute found that… the biggest reason for the declining labour share, according to the study, is that supercycles in areas such as commodities and real estate have made those sectors, which favour capital over labour, a larger part of the overall economy”, “The silver lining for labour markets”, July 1.

“Do we have a supercycles that favour capital over labour”? At least with respect to real estate, especially houses, the “supercycle” we have is caused by bank regulators much favoring credit to what’s perceived as safe over credit to what’s perceived as risky, without one iota of importance assigned to the need of allocating credit efficiently to the real economy.

Then Foroohar refers to the problem: “shifting labour market dynamics will sharpen the political divides that already exist. Many “left behind” cities are home to more Hispanics and African Americans. Job categories that will be automated fastest are entry-level positions typically done by the young. Meanwhile, the over-50s are at the highest risk of job loss from declining skills”. As “The solution” Foroohar writes; “shift policy to support human capital investment, just as we do other types of capital investment”

Sir, unfortunately it is so much more complicated than that. Just the problems with student debts we currently hear about, evidences that we might not really know about how “to support human capital investments”.

Before social order breaks down, we need to start considering the need to generate decent and worthy unemployments, creating an unconditional universal basic income that serves somehow as a floor and decide what to do with AI and robots. Should we tax these low enough so that they do as much jobs as possible for us humans, or should we tax them high enough for us humans to remain competitive for the jobs they do?

PS. On “a mere 25 cities and regions could account for 60 per cent of US job growth by 2030”, may I venture those cities will not include those with the largest unfunded social benefit plans.

http://perkurowski.blogspot.com/2007/01/should-not-higher-education-be-more-of.html

http://perkurowski.blogspot.com/2012/04/we-need-worthy-and-decent-unemployments.html

http://myubi.blogspot.com/2017/01/my-universal-basic-income.html

https://perkurowski.blogspot.com/2017/02/here-some-disorderly-lose-cannon.html

@PerKurowski

Universal Basic Income seems to be the most neutral and efficient tool to handle the unknown upheavals the use of artificial intelligence and robots will bring.

Sir, Rana Foroohar writes: “A McKinsey Global Institute report out on Wednesday shows that, while digitalisation has the potential to boost productivity and growth, it may also hold back demand if it compresses labour’s share of income and increases inequality.” “Why workers need a ‘digital New Deal’” February 19.

That sure seems to make the case for a Universal Basic Income, a Social Dividend, both from a social fairness angle and from the perspective of market efficiency.

To preempt that really unknown challenge at hand, Foroohar proposes something she names “the 25 percent solution” based on how Germany tackled an entirely different problem, the financial crisis. What it entails makes me suspect it could risk reducing the growth and productivity that could be achieved, and waste so much of the resources used to manage the consequences, so that only 25 percent, or less, of the potential benefits of having artificial intelligence and robots working for us would be obtained.

I worry sufficiently about a possible new Chinese curse of “May your grandchildren live with 3rd class robots and dumb artificial intelligence”; to also have to add “May your grandchildren have to serve the huge debt derived from technocrats defending your generation from artificial intelligence and robots.

Sir, I had more than enough of besserwissers trying to defend us and when doing so causing much more harm. Like when regulators, full of hubris, promised “We will make your bank system safer with our risk weighted capital requirements for banks”.

http://myubi.blogspot.ca/2017/01/my-universal-basic-income.html

@PerKurowski

Why has Ms. Tett waited until now when President Trump is inaugurated to so champion the importance of start-ups?

Sir, for me it is somewhat surprising to read Gillian Tett’s “Start-ups will make America great again” January 20. Of course she is correct in what she writes there, but why did she have to wait until now for recommending Trump to “think small — in a big(ly) way”?

I ask because over the last decade I must have written at least a 100 letters in commenting on Ms. Tett’s articles I have argued the vital importance for the real economy and job creation, of the start-ups and SMEs; and also how risk weighted capital requirements for banks distorts the allocation of bank credit, effectively reducing bank credit availability for those perceived as risky, like SMEs, like start ups. But, during all those years Ms Tett has kept mostly silence on this, and so why right now?

Why has she also not told Mark Carney, Mario Draghi, Stefan Ingves and so many others about this? If in USA, SMEs and entrepreneurs have since Basel II of 2004 found it harder than ever to access bank credit, even worse are the conditions these borrowers have to face in Europe. And by the way, when will Ms Tett also remind those gentlemen who are all involved in bank regulations, that these SMEs / start-ups really never pose major dangers to the bank system, and that precisely because they are ex ante perceived as risky?

Since the introduction of Basel II millions of SMEs, entreprenuers and similars around the world have been denied the opportunity to that bank credit that could have helped our young to find jobs and not have to settle to live with their parents in basements. Well-done Basel Committee!

Finally, does Ms. Tett really need researchers from McKinsey to wake her up on what robots or automation could signify to jobs in general… is this really new news? And where has McKinsey spoken out against regulatory distortion of credit?

@PerKurowski

Shame on you bank consultants! For a quick buck, you sacrifice the future of our children and grandchildren

Sir, Laura Noonan reports: “Post-crisis consultancy spending soars to $200bn”, December 7.

Clearly that must be the cause why otherwise brilliant consultants, like those of the high powered consultancy firm McKinsey & Company, keep absolutely mum on the fact that regulators, with their risk weighted capital requirements for banks, are dangerously distorting the allocation of bank credit to the real economy.

With it, banks no longer finance the “riskier” future but only keep to refinancing the “safer” present and past.

With it, banks finance basements where jobless kids can live with their parents, but not the SMEs and entrepreneurs who could create the jobs the kids need in order for them to have a chance to become responsible parents too.

Since those bank consultants must also have children and grandchildren to who they owe great responsibility, I can only say: Shame on you!

@PerKurowski

Lawrence Summers wants to get the quality infrastructure jobs now, and leave the bill to future generations

Sir, Lawrence Summers writes “Infrastructure investment can create quality jobs [and] expand the economy’s capacity in the medium term and mitigate the huge maintenance burden we would otherwise pass on to the next generation” “Building the case for greater infrastructure investment” September 12. 

And since that is based on taking on more public debt that shamefully sounds like: “Dear lets go out tonight to enjoy that great restaurant. We can leave the bill to our grandchildren, as the interest rates they have to pay are so low.”

Summers backs up his proposal with some calculations that start with “The McKinsey Global Institute has estimated a 20 per cent rate of return on such investments.”

Well Professor Summers, and McKinsey, and so many other, because they do not know, or because they are pushing a statist agenda, completely ignore the fact that currently the sovereign, meaning the government represented by government bureaucrats, for the purpose of setting the capital requirements for banks, is risk weighted at 0%; while We the People, represented by SMEs and entrepreneurs have to carry a risk weight of 100%.

That subsidizes the borrowing costs of the government, by the taxing the possibilities of accessing bank credit of those who we need most to have access to bank credit.

Of course much infrastructure investment needs to be done, but, in order for there being an economy that could use such infrastructure, much more important is it to take down that odious regulatory wall.

Sir, again, banks are no longer financing our grandchildren’s future, they are only refinancing mine, yours, Professor Summers’s and all McKinsey’s safer past.

What a disgraceful way of giving the finger to that intergenerational social contract Edmund Burke wrote about.

@PerKurowski ©

Yes! McKinsey, among others, because of the robotization of our economies, we do need "decent and worthy unemployments"

Sir, Martin Ford of writes that the impact of robotization “portends a social, economic and political disruption for which we are completely unprepared. Widespread unemployment (or even underemployment) has clear potential to tear society apart. It also carries substantial economic risks: in a world with far too few jobs, “who will have the income and confidence to purchase the products and services produced by the economy?” Where will demand come from?” “We are completely unprepared for the robot revolution” May 3.

That is precisely why in 2012 in an Op-Ed I wrote: “We need decent and worthy unemployments”. Sir, I have written several letters on you to this subject but, since you decided to censor me as effectively as the Maduro government of Venezuela has censored me, you ignored these.

And Ford also asks: “who will have the income and confidence to purchase the products and services produced by the economy?” Where will demand come from?”

On this I have also written several letters to you indicating that a Universal Basic Income, might be one way to resolve this, efficiently, while keeping the redistribution profiteers at bay.

FT, McKinsey should it not be: Piketty “Winner of the 2014 Book Business of the Year Award”?

Sir, you, FT states that: “The prize will go to the book that is judged to have provided the most compelling and enjoyable insight into modern business issues.”

Sir, even though during 15 years I was a columnist at Venezuela’s most important paper, until I was expelled by the new pro-government owners, I never considered myself to be a journalist, so I would not know what to do as an FT journalist, if seeing FT approving of Thomas Piketty’s “Capital in the Twenty-First Century” as the “Winner of the 2014 Business Book of the Year Award”.

But, as a consultant, and if a consultant of McKinsey & Company, I would feel much ashamed and would most certainly resign, immediately.

Of course unless all was just a monumental typo and what was really intended was: “Winner of the 2014 Book Business of the Year Award”… with that price I could agree since it must have made Thomas Piketty a quite rich man.

PS. Enjoyable? From what I hear, in number of pages not read by its buyers, this book might go for a Guinness record... hardly something compatible with enjoyable.

Again besserwisser Martin Wolf ignores the regulatory discrimination against “the risky” when accessing bank credit

Sir, I refer to Martin Wolf’s “Legitimate business unlocks growth” June 4.

In it he writes that answering the question “What lies behind the falling productivity and rising share in total employment of small businesses [in Mexico]?” McKinsey advances, as one of three hypotheses, that: “small businesses lack access to credit. 33 percent of GDP, outstanding loans are extraordinarily small. They are also expensive”… “The unmet capital needs of firms with 10 to 250 employees represent 75 percent of what we estimate to be a $60bn credit gap in Mexico”.

But Wolf steadfastly ignores my arguments that I have expressed to him and FT in hundreds of letters… his besserwisser ego does not allow him to do otherwise, and so he does not get it.

Mexico has been on the forefront of applying Basel Committee Basel II bank regulations… and the capital requirements for banks of these instruct banks not to lend to “risky” small businesses because, if they do, they must hold much more capital than when lending to, for instance, the “infallible sovereign” of Mexico.

PS. Sir, again, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks. His problem is that, in this case, he has encountered a more correct and perhaps an even more besserwisser than he is :-)

In order for “Game Changers” to play out their role, the rules of the game need to be fair

Sir, Sir Samuel Brittan surprises us presenting the so simplistic view that “There is nothing wrong with the US economy that a measure of redistribution towards both the less well-paid and public services would not put right” “Yes, productivity matters – but it is not everything” August 23.

I would ask him, what about a little redistribution, in ‘the Home of the Brave’, of bank credit from the AAAristocracy to “The Risky”, to the medium and small businesses, the entrepreneurs and start-ups? Would that not be needed?

And, in order for that to happen, and I explain it again, banks must be required to hold the same amount of capital against loans to both groups, so that both groups stand an equal chance to deliver risk-adjusted rates of returns on bank equity.

While banks are allowed to hold less capital–equity, when lending to “The Infallible”, that is who they are going to lend to… and the real economy and the productivity will suffer as a consequence.

And that will happen no matter how much the US wants to capitalize on opportunities such as those presented by McKinsey in “Game Changers”. You see, in order for the “Game Changers” to play out their role, the rules of the game need to be fair.

The first step needed to stop global finance and local economies from disintegrating.

Sir, Howard Davies and Susan Lund write about the risks of “a system where nations rely on domestic capital formation and concentrate risk in local banking system”, "Three steps to stop global finance disintegration” March 21, 2013.

I disagree. The surreptitious global capital control system imposed by the Basel Committee, with their capital requirements based on perceived risk, concentrates bank exposures, everywhere, to what is perceived as “absolutely safe”. In other words it might be more correct to say “concentrate safety in local bank system”.

Even now, while Basel II is still in effect, a German bank can lend to a triple A rated borrower anywhere, holding only 1.6 percent in capital, meaning being able to leverage 62.5 to 1 its equity, while, if lending to a “risky” German small business or entrepreneur, it needs to hold 8 percent in capital, a leverage of 12.5 to 1. That makes it impossible for the banks to allocate resources efficiently in the real economy.

And so to me the most important step the banking system needs to take is to dismantle that odious Basel regulations which favor “The Infallible”, those already favored, and discriminate against “The Risky” those already being discriminated against. That, which can be done, will be no easy task as so many imbalances have already been built into the system.

But that most probably requires firing all current bank regulators who after more than five years since the mistake must have become apparent, are not recognizing it, and indeed, with Basel III and its liquidity requirements also much based on perceived risk, are digging us even deeper into the hole.

McKinsey has fallen for the same groupthink as the Basel Committee and the Financial Stability Board.

Sir, I refer to the McKinsey report “Financial Globalization; retreat or reset?" March 2013 and on which Gillian Tett bases her comments in “Davos Man’s belief in globalization is being shaken” March 8.

As I see it that report, which measures the volumes of funds sloshing around the globe, lacks the information needed to comprehend not only the causes of the current crisis, but also what is keeping us from being able to work ourselves out of the current crisis.

I refer of course to the global capital controls so inconspicuously imposed by regulators on bank’s credit flows, by means of allowing these to leverage so much more the expected risk and cost adjusted net margins when lending to what is perceived as “absolutely safe” than when lending to what is perceived as “risky”.

If only the McKinsey had explored how, because of these regulations, the perceived safe-havens in the world have and keep on becoming dangerously overpopulated, while the perhaps more productive but more “risky” bays are not being sufficiently explored, that could have opened many eyes, including of course McKinsey’s own.

Instead it recommends staying firm on course implementing the regulatory reforms initiatives that are currently on the way, even though Basel III, by adding liquidity requirements based on perceived risk, could only increase the border controls and protectionism that separates “The Infallible” from “The Risky”.

And when the reports mentions “unlocking what could be a major source of stable, long-term capital and higher returns at lower risk for savers and investors” one can only wonder where on earth they intend to stock the risks of the real economy? Are they thinking about some risk-sink similar to what is used in carbon sequestration? Under which backyard are those toxic deposits to be deposited?

The report speaks about the importance for financial institutions and regulators to have access to better information about risks, like “more granular and timely information from market participants” and “standardized rating systems”. That is indeed important, but the problem is that when both financial institutions make use of the same information simultaneously, as they do now, the banks in the interest rates and amounts of exposure, and the regulators in the capital requirements, then the whole system overdoses on that information, and crashes.

And blithely ignoring what is most constraining the access to bank credit of “The Risky”, the “constrained borrowers”, like large investments projects, infrastructure and SMEs, the report suggests that their needs should be taken care by a full range of new “public-private lending institutions and innovations funds, infrastructure banks, small-business lending programs and peer to peer lending and investing platforms”, as “this can increase access to capital for underserved sectors”. In other words it says: “Keep those filthy “risky” away from our banks, these belong to the AAAristocracy.

Really, is that the way we want to go? Is that the way we the Western World became prosperous? No way Jose! God make us daring!

Sir, McKinsey seems to have been captured by the same groupthink that has captured the Basel Committee and the Financial Stability Board, and some other regulators and experts. And that groupthink, sadly, has our real economies stalling and falling, gasping for that oxygen that risk-taking signifies.

Deleveraging is so much harder on those officially deemed as risky

Sir, in a world of capital requirements for banks based on perceived risks, the banks achieve the most deleveraging by getting rid of what is officially perceived as risky. For instance for every 100 a bank currently drops of triple-A rated assets it will only free about 1.6 in equity, compared to the 8 in equity it manages to free up by dropping 100 of loans to small businesses and entrepreneurs. 

That regulatory discrimination, based on perceived risks, is absolutely indefensible since markets and banks have already cleared for that by means of interest rates, amounts at exposure and other terms. 

It is truly sad to read Martin Wolf´s “A hard slog in the foothills of debt” March 14, as well as the quoted Mc Kinsey report “Debt and deleveraging”, January 2012, completely ignoring the regulatory discrimination against those officially deemed risky, which was already present when leveraging, but is also now, by far, the ugliest facet of deleveraging.