When I finally tell you what it is, don’t be thinking that this measure is what I am advocating. This heading is for didactic purposes only. I was trying to write a post to explain what I know about economics and manufacturing and the post wasn’t working. So I decided I had to break all the concepts down into many posts and push a lot of pictures and editorialising into each post. Because you have to understand a lot of the things that I understand to reach similar conclusions.
My Palletizer Is A Demi-Robot.
What are the main differences between a robot and a more conventional robot-free production line? The main thing is that the conventional production line has many devices that do 1-3 tasks (mainly one) and a robot is a device that does multiple things IN THE SAME SPOT.
Just consider for a moment how disruptive to the flow of materials is a device that does many things in the one spot? Think about that for a little while? And then given that its inevitable (Since manufacturing done right is really logistics in disguise) that you have a flow of materials ….. How much of an advantage is the robot really? And where does my palletizer end and your robot begin?
This may seem really obvious stuff but still its important to try and communicate certain seemingly obvious realities about manufacturing to intellectuals and economists.
So lets think about a typical conveyor with several tasks to be done. The bag is filled with gunk, Its dumped, moved, there is a bag-spreader, then a sewing machine … then the bag is weighed, dumped if its the wrong weight, the ones that are the right weight are tested for metal, and then the bags go to a palletizer at the end of the conveyor to be stacked.
Lets highlight that for a second. My palletizer is a demi-robot and it comes at the end of the conveyor. A robot doing its own thing in the middle of the flow of materials presents a problem to the flow of materials. Its not an insurmountable problem but its worth considering to economists who are stuck on some sort of Kurzweilian fantasy.
Whether we are talking about the big bang, conventional manufacturing, 3-D printing, or robotics ………………. the production of anything complex requires tasks in series and tasks in parallel. Which means the production of anything complex TAKES TIME.
Okay lets bring a robot into the process earlier than my palletizer (I don’t own a palletizer. This is a royal “my” going on for didactic purposes). So now the gunk is dumped in a bag, rolls along the conveyor to a robot. As the robot picks up the bag he weighs it, spreads the bag and sews it (maybe he has got six arms) but before that is done the bag has been checked for metal, and he places the bag on a very short conveyor heading towards my palletizer.
We have saved a helluva lot of space. But are we now more productive? Maybe yes maybe no. Probably “NO” if we have some sort of racial prejudice in favour of robots versus more ordinary machines. So how must we arbitrate in favour of when to apply a robot or not? Or more generally what tells us which machines to buy first? Whether that be a robot or not?
The answer is shockingly simple. You don’t consider a robot as anything different from any other machine. You see to it 1. that your country is training plenty of tradesmen so that maintenance is always working in advance 2. Your country expects and gets workers that take their job seriously, are paid well and are on a mission to get quality production out the door. 3. That your country has excellent money, banking and taxation policies and then 4. You speed the machines up and figure out where problems are occurring.
Now the thing is most people would say I’m being facetious about the first 3. And then they would turn around and say “Look if identifying what to do next is simply about speeding up the machines why doesn’t everybody do that?”
Why don’t we speed up the machines? Let look at numbers 1-3.
Our country has stopped training tradesmen for the most part. So maintenance staff are usually old guys or foreign-born. There is not enough of them and they cost too much. As a consequence maintenance is done after the fact. And in automated factories there will be a lot of jobs, where sometimes it all looks easy. Looks to an outsider like the workers can be complete dopes and you will be wondering why we haven’t outsourced a few of the jobs to the Sudan. This is a sign that we could speed the machines up. But come in another time, work-in progress in a state needing remedial action is piling up all around and the machines are out of action much of the time. The reason the machines cannot be sped up is that much of the time they are in a poor state of maintenance. So its either pretty easy going for the operator or its extremely hard because so many things are going wrong. The more high-tech your factory is, the greater the need for highly skilled maintenance staff. And the more you need operators who take their job seriously and are focused trouble-shooters.
So supposing we have 1 and 2 sorted then? What would be the next step? We speed up the conveyor and the machines that are doing the production on and before the conveyor. And we diagnose which part of the process is then leading to problems and bottlenecks. If easier solutions didn’t present themselves the idea would be to buy a new machine at that part of the process where there was now a bottleneck. It might come to it where the solution was to get some updated capital equipment.
So why don’t we go through these steps? Why haven’t we updated, using this procedure, all the way up to ubiquitous robotics? After all each time you have to buy new gear invariably its better quality then what preceded it. I’ve seen a progression of chargers for the forklifts and they get smaller and better all the time. So we ought to be all fabulously rich and productive.
Well to reiterate we haven’t got that oversupply of maintenance staff. The machines aren’t fabulously maintained in advance of problems. So if you speed up everything you are just going to create a disaster. Buying better gear under this situation would be a redundancy because you are not going to sustain the extra rate of production anyhow.
But even if we were a country that had all these electrically and mechanically gifted and trained people, think of the financial considerations behind the idea of updating the machinery? We are in a capitalist nation. That is to say a nation of state supported usury. And a nation that hasn’t figured out that profits for reporting to the shareholders aren’t necessarily the same thing as that which might rightly be taxed if we want to have wealth creation going on.
So every company is already in debt. Buying other companies, buying back their own shares, buying land, buying factories off other companies, and they may even borrow to pay dividends. Now this company could pay down those debts with revenues instead of buying new equipment. That means that every piece of new equipment effectively carries an interest charge for an open-ended period. Even though that new equipment will get old and depreciate and then get thrown out. We are expected to buy everything with an interest charge to it, that effectively goes on forever though the machinery itself is mortal. So why would all the revenue go on creating greater productive power? Why not buy another factory somewhere, so as to get the value growth from the real estate under it?
Free enterprise economic models say we get rich from profit, being productive, creating wealth. But thats complete bullshit. We get rich from the fractional reserve subsidy. And companies produce some level of profits and create some level of wealth so they can go rent-seeking after the fractional reserve subsidy.
I’ve worked casual all over the place and its very hard for me to think of an occasion where the management sized up the situation and thought “how can we produce more per person” and carried out that strategy via the update of capital goods. I’ve seen them invest for safety reasons (with a gun against their head) which lead to improved productivity. I’ve seen them go in for expansion …. and then you get a whole swag of updated high-tech machinery. What I haven’t seen much of is the systematic upgrading of gear prior to the old stuff having to be trashed.
A functioning financial system doesn’t tax retained earnings for the sole trader. A functioning financial system has loanable funds, going at low interest, to wealth creation. Not to all kinds of other nonsense like land inflation, derivatives, financial instruments and on and on. Wealth creating loans are those which increase revenues or reduce costs by way of capital goods accumulation or update. Or otherwise business renovation more generally. We (in our nation of state supported usury) ponzi up loanable funds out of thin air only to divert these funds to all manner of wealth-destroying foolishness. Wealth destroying in that they are diverted from wealth-creating undertakings. Loans made for non-wealth creating undertakings are not merely neutral. They take resources away from wealth creation and increase the interest rate on wealth creation.
Some people have this idea that you need market concentration to create new technology. Perhaps this idea is inspired by the achievements of Bell Labs and the Xerox company. They worry that a sole trader biased economy cannot create the new stuff. But this is all nonsense. Since producer goods companies, big or small, have to keep improving their gear to stay in business. As a result the rate of technological change and update is imbedded in the rate of capital accumulation and update.
In a functioning setup sole traders as I said aren’t taxed on retained earnings. And loanable funds go chiefly to producer goods accumulation, update, and otherwise business renovation. It will take a very long road to get there. But if there was one easy measure to simulate the end product it would be accelerated depreciation rates for producer goods update. This would be even more effective then cutting the company tax rate. Its buying the new gear that we would want as the only tax rort available for the big companies.
So supposing in the face of a lot of free enterprise sentiment we do the opposite of what a neoclassical would tell you? Suppose we increase the company tax rate. And reversed the dividend franking credits. Then went around like nazis plugging up any tax loopholes. Particularly for multi-nationals. And then we left the big guys with one tax loophole only and that was via expensing all their new producer goods in the tax year of their choosing.
Why this would work much better than any consensus of Australian economists would expect is in its effect on how the funds were being spent. Our big boys would basically be forced to stop being adventurous and making the financial papers. They would be forced to retool all the time. Profits would go into retooling. Only by retooling would they avoid tax in this scenario. It would have an effect on the banking industry too. Its not so much that it would be a panacea, but it would club all these troglodytes into acting a bit closer to how they might act under universally good policy.
We have been through this high-tech revolution but we are not applying the new gear as well as we might.
Now lets take a look at Rothbards “Man Economy And State” on what he says about trade unions forcing wages up:
“A more sophisticated variant of this thesis was advanced by Ricardo and has been revived by Hayek. This doctrine holds that union-induced higher wage rates encourage employers to substitute machinery for labor. This added machinery increases the capital per worker and raises the marginal productivity of labor, thereby paying for the higher wage rates.
The fallacy here is that only increased saving can make more capital available. Capital investment is limited by saving. Union wage increases do not increase the total supply of capital available. Therefore, there can be no general rise in labor productivity. Instead, the potential supply of capital is shifted (not increased) from other industries to those industries with higher wage rates. And it is shifted to industries where it would have been less profitable under nonunion conditions. The fact that an induced higher wage rate shifts capital to the industry does not indicate economic progress, but rather an attempt, never fully successful, to offset an economic retrogression—a higher cost in the manufacture of the product. Hence, the shift is “uneconomic.”
A related thesis is that higher wage rates will spur employers to invent new technological methods to make labor more efficient. Here again, however, the supply of capital goods is limited by the savings available, and there is almost always a sheaf of technological opportunities awaiting more capital anyway.
Furthermore, the spur of competition and the desire of the producer to keep and increase his custom is enough of an incentive to increase productivity in his firm, without the added burden of unionism.70 Monopoly and Competition 719 70On the Ricardo effect, see Mises, Human Action, pp.”
Rothbard may well be right in terms of his perfectly balanced Misean economy. But if he’s talking about the real world he is NOT right. Its true that savings (delayed consumption) can produce the resources that could be used for capital accumulation and update. But in our ponzi setup even if people did save a lot the funds would be diverted to rubbish. Strong unions coupled with accelerated depreciation schedules would bludgeon those funds into capital accumulation and update. I am saying this completely independent of any belief in whether we ought to encourage strong unions in the very long run. I’m just telling you what would happen.
Rothbard claims that there are enough incentives to get the sort of investment we are talking about. Again … under his perfectly balanced Misean setup that probably is right. Under our poxy setup to get things right you almost have to club, impel, bully and force CEO’s and bankers into submission on this score.
The Austrians like tax loopholes. Mises said that tax loopholes were the holes in the box through which capitalism breathes. But these excellent theorists were living in a world of much worse taxation dysfunction and much better banking practices. So they have to be judged wrong under current conditions. Banker dysfunction is so bad, we ought to close almost every loophole we can think of for the big guys …. save except for accelerated depreciation as their last remaining rort.
It seems that I’ve gone against my word. It seems that I am advocating this policy rather than merely pointing things out for didactic purposes. My one strategic wedge issue is to push for no taxes on retained earnings for sole traders. The bigshots can look after themselves. They certainly haven’t been willing to do good things for the rest of us lately.