Labor vs. capital in the driver's seat

One of the keys to a successful middle class is finding a way to keep labor from becoming a simple commodity.  Technology can be a huge help in this regard, allowing an individual with a particular skill set to be far more productive than his neighbors in a particular field such that it makes more sense for them to pay him than do the job themselves.  It can also be highly disruptive, replacing human labor with physical capital and allowing a smaller number of people to sell the same services as a larger group.

For an example, consider two approaches to the problems of traffic safety:  The first, from the Wall Street Journal, touts technology, or "capital" in the classical economic sense.  London, on the other hand, incentivizes labour. 

As a professional roboticist, your pie maker understands the appeal of the capital-intensive self-driving car.  He also understands the tremendous costs and risks involved in bringing that technology to market.  If it goes well, then the potential payoff is huge, otherwise the effort and money invested has no value.  This is the central reason that US tax policy has big incentives for endeavors that can easily lose participants money, instead of wage-based contracts that are safer for the recipient. When the definition of "capital" stops involving machinery, this notion gets a little more complex, and Simon Johnson does a pretty good job of explaining how this system can go awry.

The alternative approach to congestion and safety is regulation, in this case explicit licensing of preferred drivers and penalties for the rest.  In a way, this approach threatens a society with the same problems that Gail the Actuary predicts will befall us due to rising oil prices: Steadily increasing cost of transportation results in a net decline in personal productivity.  Your pie maker can make more pies if he spends less time commuting, i.e. not waiting for a cab or stuck in traffic.  On the other hand, this kind of economic inefficiency results in greater employment at lower levels, curtailing roboticists (and their investors') earning potential in favor of higher velocity of money. 

One of the central questions before the body politic today is whether your pie maker's time is best spent effectively replacing cab drivers or working to make them incrementally safer and more efficient over time.  There are clearly arguments to be made on both sides, and it is not clear which is the truly "pro-pie" position.  The best your pie maker can say at this point is to examine your own interests, not begrudge others their own, and work to find acceptable compromise whenever possible.  Interests are much easier to discuss than "values."

Consider, for example, your pie maker's somewhat unique perspective.  He rides a bike to work and everywhere else he can, largely for health reasons that don't factor into the calculus above.  His commuting interests lean slightly towards the "labor" side as he relies heavily on some very good bike mechanics, and he would prefer there be many somewhat safer vehicles with steadily improving alert systems instead of a few self-driven cars.  His hope is that the desire to keep the marginal product of labor (i.e. per capita GDP) high as energy prices rise will drive enough public and private investment to keep him in biofuel.

Questions for your next Congressional debate

Much of the press concerning the pre-election end of the 112th Congress is focused, rightly, on the unfinished spending and farm bills.  As good citizens we ought to read through this and consider it in light of the upcoming election.  As an added bonus, more time spent reading about legislation means less time watching political ads.

However, here at Pie and Policy we try not to focus on the headlines, and instead step back and look at the larger narrative.  With that in mind, here are two fundamental questions about the next chapter in the United States' history that your pie maker would love to hear his candidates answer:

(1) What size recession are you willing to cause next year?

Consider this: 10% of the Gross Domestic Product (GDP) this past year consisted of the Federal government borrowing or printing money, i.e. borrowing money from the Federal Reserve.  While no one thinks this is sustainable, it means that roughly 10% of all of the mortgages in the US, 10% of the shopping and probably more than 10% of all jobs require the United States to carry a sizable current accounts deficit.  Fiscal responsibility is a good thing, but its meaning gets murky once you put on the green eye shade.  For an example of austerity gone wrong, buy a ticket to Athens, and the Parthenon while you're at it.

There are three fundamentally different answers to that question tossed around this year.  The first is "I don't want to cause a recession at all," which is being pushed by those demanding that there be "no cuts to Defence!" or tax hikes either "for anyone" or "for the middle class."  This approach is known as "kicking the can down the road", and a good follow up question is "how do we get to a sustainable deficit?"  Honestly, the election should hinge on who can provide the best answer to that question.

The second option is to fall off the Fiscal Cliff, which no one seems to want to do, but House Speaker John Boehner warns is very likely.  Odds are good that the current Congress will agree to put the actual decision in the hands of the next Congress, much like happened in 2010, and so this is an entirely valid question of both candidate and challenger.  Left to its own devices, this approach results in a sudden drop of roughly 5% of GDP, so a net loss of 4%.  For comparison, the drop was 2.8% between 2008 and 2009.

The third answer, for which you'll find few serious minded advocates outside of Gary Johnson, is to cause the full 10%, or nearly so, and balance the budget.  The ramifications of that are very interesting, as it would probably lead to a substantial "un-development" of the United States in favor of a Jeffersonian vision.  If someone advocates this and can't describe the consequences, probably best to not vote for them.

(2) When you say "more jobs", doing what and for whom?

Policy has a dramatic impact on which industries are able to get capital, regulatory approval, their goods to market and the cost of production.  If policy favors industries for which there is a ready labor supply and strong demand, then it can be said to be creating jobs.  The GOP's focus on rewarding capital gains over other earned income makes the actual employment of people much less attractive than use of machines for production and increasingly elaborate credit systems for payment, often to workers abroad. Democrats argue for increasing labor and production costs through tighter requirements on work conditions, health insurance coverage and pollution.

In some industries, such as financial services, there is enough demand that regulation such as Sarbanes-Oaxely is more of a public-works program for accountants than an actual hindrance to economic activity.  In others, such as manufacturing, aviation and medical devices, business either moves abroad or doesn't happen.  There are risks and externalities associated with any jobs, and it would be more productive as a polity to discuss those trade-offs than abstract questions about the "size and role of government." 

Justin Beiber and the TEA Party

Your pie maker recently asked an intern from the Institute for Women's Policy Research about how the male ideal changed from "tall, dark and handsome" to "small, pale and pretty."  He pointed out how he had once mistook a picture of the pop star for a five year old, and could not see how someone who might not need to shave yet could attract such attention.  This was intended to be rhetorical, almost an ironic lament, as a hearty diet in his youth and regular outdoor exercise put your pie maker closer to the first category. 

Her answer, however, was both immediate and insightful.  Women do not need the protection of a man anymore, at least women living in the parts of town with good police protection.  There is no need for women to put up with the risks associated with signs of high testosterone levels, as a man able physically defend her is equally able, and somewhat likely, to harm her.  Since laborers are no longer primary breadwinners, at least in families that can afford concert tickets, evidence of physical labor will be a sign of "otherness" at best, lower caste at worst.  Only very rarely would a man working with his hands be pointed out by their mothers or older sisters as objects of desire.  In other words, since women are in many ways better equipped to thrive in the modern economy, it's not surprising that the new heartthrobs are more effeminate.

Herein lies a fascinating view of the psychology of the generation gap that largely defines the TEA Party.  A man who reaches adulthood without the scars, sun-driven wrinkles and callouses that come from learning at the basics of maintaining his own land will rely on contracts with others to ensure the work gets done.  Those contracts require courts, police and a whole body of laws to ensure that they are enforced.  To keep inequities in contracts from turning into civil unrest or threats to public health, they must be monitored by regulators.  The wealth required to ensure that enough of those contracts get paid that an acceptable amount of work gets done requires a financial system that cannot lose money, and so must be carefully regulated and backed by public funds. A nation whose majority work in offices needs to import its goods, requiring globe-spanning security with the equipment and intelligence systems, foreign and domestic, to ensure that the empowering technologies that make life in the US comfortable do not get turned against us.  Someone has to pay for this, and aren't we Taxed Enough Already?


There's no doubt that the Baby Boomers who make up the majority of the TEA Party have benefited from this system, even helped build major parts of it.  But they have ushered in a world whose reward structure is very different from the one in which the Greatest Generation raised raised them.  "Self reliance" is hard, and much of what we used to call "progress" trades it for interdependence.  Successful politicians have managed to keep many of the mechanisms that provide this prosperity hidden via subsidies, tax incentives and mandates on employers and manufacturers, allowing them to run essentially as their own opposition.  When times are good, the costs for this can be easily absorbed in by steadily increasing tax revenues and corporate earnings.  Indeed, regulations create barriers to entry that heavily favor incumbents and enable genuine economic profits.

However, times are not good.  We need to choose whether government influence should become more visible, and our lack of independence made clear, or accept less comfortable lives with fewer services.  Classic notions of masculinity clearly argue for the latter, but it's clear those views are losing cachet.  There is a lot of unfocused anger in the national discussion today, and your pie maker thinks this trend is at the heart of it.  He's not entirely sure which side of it he falls upon, however.  Interconnectedness, another word for specialization, is the core of civilization, but too much leads to fragility, a system rife with single points of failure as each individual is needed to make vital services function.  There is no easy answer, but it helps to ask the right question.

A progressive case for Mitt

Author's note: This is part of a series of semi-satirical pieces your pie maker is writing as a means of studying the writing and argumentative styles of various groups. I'll start with this, now Overcome By Events (OBE), "progressive" case for Mitt Romney. I'm going to try and adopt the language, style and most of the assumptions made by Huffington Post and Slate's left-leaning columnists. Obviously, the argument itself contains flaws, but they should be similar to those common in the writings I'm attempting to imitate.  Comments are appreciated on the style, language and assumptions.  The opinions expressed are not necessarily those of your pie maker, the Pie Cabinet or anyone associated with the production or consumption of pies.

A Progressive Case for Mitt

Take away the wars, tax cuts and bellicose language of the 43rd President of the United States, and what you have is perhaps the most progressive legislative legacy in our history. Consider:

No Child Left Behind: The largest and most forceful effort to compel school districts to educate all of their children.
Medicare Part D: The largest expansion of government health care coverage since LBJ. 
Sarbanes-Oaxley: The most comprehensive and, this is key, quickly implemented overhaul of financial regulation since the Great Depression.
An energy plan with support for lower-carbon fuels: Despite incredibly cheap oil at the time, this laid the regulatory framework to allow domestic gas drilling to explode as well as support for renewable energy.
The largest expansion of Federal spending since Reagan: Under the guise of increasing "security", the Federal workforce expanded rapidly, providing good jobs, benefits and stability to many disadvantaged parts of the country.

There are two reasons for this.  Number one, at least since WWII Americans have expected their Presidents to play against type.  Eisenhower warned us of the Military-Industrial-Complex.  War-hero Kennedy founded the Peace Corps.  Johnson, the Old Southern Gentleman, pushed through the Civil Rights Act.  Nixon, for all his faults, opened relations with China and signed the National Environmental Protection Act.  Reagan raised taxes and Bill Clinton signed the repeal of the Glass-Steagall Act.

The second reason is that progress is inevitable because it is good for business.  The president of Ford has called for a public healthcare system.  Employees whose identities are affirmed, relationships are legal and do not fear discrimination are more productive.  When a society's reactionaries are placated by seeing someone who looks and sounds like them at the head of the state, they are less likely to stand in its way.

Mitt Romney knows better than to say any of this now, but his record in Massachusetts clearly shows his understanding of the importance of governing progressively, even if you have to run conservatively.  He's smart enough to know that it isn't smaller government, but less visible government that people want.  It is unfortunate that we have to choose between progressive government and progressives in government, but the lessons of history are clear.  It may be distasteful, but history suggests that a vote for Mitt is a vote for progress.

Sustainable Substitution #2: The Outdoor Kitchen

During the summer, your pie maker doesn't like to run the oven and the air conditioning at the same time. So, like last time, we turn to a solution that could win the Design for the First World competition: The Fuzzy Wups Outdoor Kitchen.

The key element is the Weber kettle-style grill, which allows both high direct heat and lower, indirect heat from the same heat source. The key is to stage the meal properly so that you're using the coals at each step properly. Consider, for example, your pie maker's Independence Day celebration, pictured below.

Clearly, this approach requires no small amount of effort. The tray in the top picture is required to carry the dough, sauce, cheese, toppings, wings and tools for the "cooking" phase. For the important part, the baking phase, your pie maker recommends one more accessory to make slaving away a bit easier, as shown below.

On discussion and debate

Your pie maker is a huge fan of Information Dissemination precisely because its lead author writes columns like this about The Great Green Fleet. There is no doubt what his opinion is, but it is always presented in a way that acknowledges the humanity and likely good will of those with whom he disagrees. This is the heart of how to disagree peacefully and present opinions that one holds based on consideration of observations, rather than as a fundamental part of one's identity.

Consider, for contrast, the Conservative and Occupy movements. In the recent GOP primaries, affirmation of Conservative credentials played as large a role in the discussion as any policy provision, with the assumption that present Conservative orthodoxy can and ought to be applied to all past positions. Even staffers at the Supreme Court feel that they ought to attack those who break ranks, threatening the Court's legitimacy to affirm their identity. The demands of Occupiers for jobs and social justice are perhaps noble, but the movement, much like the Conservatives they oppose, proclaim more of an identity (we are the 99%) than a coherent message.*

This leads to a poisonous environment for debate because it suggests that all compromise is a failure to uphold one's values, and thus a surrender of one's identity. How do we produce more Gahlrans, more people who are confident enough of their own intelligence and good will to acknowledge it in others? Your pie maker believes the recipe calls for equal parts of humility and affirmation from sources such as this column. Humility because we are all limited, unable to fully understand our own interests much of the time, much less something as complicated as the modern economy. Affirmation because it encourages engagement, creates comfort and allows us to face the often painful cognitive dissonance that's necessary to correct a mistake.

*"Lower taxes" is a consistent theme for Conservatives, and "more taxes for the rich" for Occupiers, but the consensus tends to end around there.

This Week in Pie Making

It's still too early for seasonal fruits in the Mid-Atlantic, so your pie maker has been working through the back half of Ken's magnificent book. This week's was the Canadian Maple Sugar Pie, which is delicious. Elsewhere, the National Oceanic and Atmospheric Administration announced a very pie-friendly approach to invasive species management: put a fork in it, this time for the snake head. Meanwhile, Springfield Butcher, a good shop in Northern Virginia, is taking a direct approach to providing organic, grass fed meat and dealing with an overpopulation problem.

Presidential Pie

A numbered pi plate helps you slice this pie for maximum effect.

Approximately four years ago, then candidate Obama challenged a crowd to produce a sweet potato pie that is better than his mother-in-law's. There were no takers. This is not a sincere attempt to win, although it does represent all of the lessons learned in five years of weekly pie making. Indeed, your pie maker doubts that his President is impolitic enough to choose any stranger's pie over his mother in law's, especially since she lives in the White House. No one would hold fair contest in those conditions unless they were epically bad at relationships, and would have trouble securing his party's nomination, much less the Presidency.

The story of this effort begins with pie crust dough that had been left in the refrigerator for about a week. This has little impact of flavor, but does tend to activate more of the gluten in the flour, so you have to be careful not to handle it too much lest it become tougher than an aluminum pie plate. Turns out the crust will shrink quite a bit, although this is not a problem if you make an upstanding ridge. It's a serious problem if you try to make a checkerboard crust for a Hoosier Sugar Cream Pie. The net result is that 1/3 of the filling from Ken's Sugar Cream Pie had to be left in the pot.

From that mistake, the Presidential Pie was born:

While the crust is shrinking pre-baking, place a pan with

3 sweet potatoes, peeled and diced

to soak in the extra heat. Once they are tender, about 2 crusts worth of pre-baking, pull them out and scoop 2 cups into a food processor and reduce the oven temperature to 350F. Add

2 eggs

3/4 cup whole milk

2/3 cup light brown sugar

3/4 t ground ginger

3/4 t ground nutmet

4 freshly ground cloves.

Adjust spice amounts depending on their age; these amounts are too much for newly purchased spices.

Process the mix until there are only split-pea sized pieces of sweet potato. Around the outer edge of the partially pre-baked crust, place

8 dried apricots

and in the middle, arrange a circle of

8 preserved figs

Pour the mix into a partially pre-baked crust (with an upstanding ridge!) and bake until the center only jiggles a little bit, roughly 45 min. Once the pie is out of the oven and cool enough to touch, scoop about

1/2 whole milk yogurt

into the leftover Sugar Cream Pie filling over low/medium heat, stirring continuously until it has a yogurt-like texture. Pour and spoon this over the mostly-cooled pie and then let sit over night.

PMCIN Pie

Grain Production: You don't need to irradiate homemade pies.

Fruit Production: Access to transport means access to good food.

Animal Husbandry: Sometimes, a subsidy is well hidden, like in the clean up costs of nitrogen pollution.

Housing: A weak government and iffy property rights leads to epic poverty. And, as the Top Gear guys love to remind us, there's isn't a good mobile solution.

Health: The NRDC takes on "Human Security" from a health perspective.

Transportation: NATO's got a webpage on piracy that should help remind us how important Navies are to our way of life.

Energy: The cheap oil is mostly gone, will there be enough of an economy to left to pay for the transition to other sources?

Security: It's prime time for the Navy, maybe not for scientists, but maybe there is hope for us yet.

Epiphany Pie

Last week, the Fuzzy Wups B^n staff celebrated the Solemnity of the Epiphany, sometimes called Three Kings' Day. We celebrated with friends, and, of course, made a pie.

As is becoming the P&P standard, symbolism to celebrate the priest, prophet and king was baked in. The crust used flour and wine vinegar. While your pie maker is interested in entomophagy, locus are hard to come by this time of year, and so had to make do with a honey sweetened cottage cheese pie from Simply in Season (an excellent book for everyone interested in a sustainable kitchen). Not shown in the picture, there was a rough attempt at the Natal Star using a broiled crust with the background darkened with homemade mulberry syrup, itself good enough to be served to royalty.

First PCMIN Pie of 2012

Grain Production: Even in the US, food is getting expensive.

Fruit Production: The vision of the urban farm is getting closer.

Animal Husbandry: Local meats need mobile processing, apparently.

Housing: Who's got a claim?

Health: How to game a study, lawsuits pending.

Transportation: Driving isn't as cool as it used to be, and private infrastructure funding is no balm in India

Energy: Optimism is bad. Waste disposal is often the most hazardous part of production, but helping clean up is a great job creator

Security: Australia is recruiting to build up their navy as the USN and RN downsize. Meanwhile, Mexico's recent history shows us that it's possible to set up multiple warring governments with the profits of the drug trade alone, as long as you don't mind pretty bad services.

Pie-in-the-sky: It starts with wealthy adventurers, then proceeds to iron men in wooden ships. Well, crazy men in leaky ships until we come up with something more poetic.

Bankruptcy in a No Credit Risk world

This is a bit out of date, but with Kodak about to do something very similar, it's topical again.

The AA bankruptcy deal is a great example of "No Credit Risk" in action. Their bondholders will generally have to accept lower rates of return, but given that any leveraged bondholder probably as access to near-zero interest loans, that's not really a big deal. Anyone holding tons of AA stock without a diverse portfolio is pretty dumb, and the recent move by central banks to flood markets with cash have probably offset most investors' equity losses. Customers won't get stranded, or even bothered, by the deal. With the exception of stock options, this won't even touch executive pay.

So, who gets hurt? AA's union workers, retirees and small cities. This is very bad, and makes very clear that managers are welcome to negotiate in bad faith with unions and municipalities because current bankruptcy law protects their personal assets and even their compensation, while their counter-parties have no recourse but to accept further reduced pay and services. The union's primary recourse, striking, is effectively against the law and they cannot go to court to petition for redress because the institution that's harming them is under the judicial branch's protection. In other words, there is no legal redress except to quit, and unless there is a substantial upturn in employment, that option exposes its takers to legal liability for negligence in the care of their families and at a minimum places their own assets at risk to their creditors. Small municipalities often rely on one or two major carriers to provide their business community with access to the outside world, and a major factor in the location of new factories, call centers and offices is airport access. This type of consolidation further reduces the geographic distribution of opportunity to locales near major cities that are more expensive, further decreasing the profitability of labor-intensive manufacturing jobs and requiring that they be done in places with higher cost of living, further increasing workers' reliance on credit cards thus perpetuating the cycle of wealth concentration.

Your pie maker is not opposed to large profits, only to sustained economic profits or those obtained by ignoring their externalities. This is not an obscure question of justice, it is a question of which enforcement mechanism we want to endure under the immutable "Law of Zero Long-term Economic Profits." If there is an industry that is inherently more profitable than any other, a market economy guarantees that people will move into it until it is no longer more profitable than its next-most-profitable competitor unless there are sizable barriers to entry or coercive restrictions that protect the current beneficiaries. In that case, the non-benefiting set must either develop cultural norms that allow them to accept a permanent lower status or pursue efforts to erode the barriers to entry, legal or otherwise. The first is antithetical to idea of an American Dream, and the second explains a lot about the TEA Party and Occupy protests, since the major banks can only hire so many people.

So how do we get from here to what National Academies Sustainability Forum participants refer to as "small 's' sustainability"? The President has offered his Clintonian vision of higher taxes on wealthy households to fund infrastructure spending, and thus increase the velocity of money and explicitly redistribute income. It is generally true that US infrastructure needs help, and that a large number of the unemployed are in the construction trade, so this idea has some merit. However, past experience with substantial increases in government funding [[stimulus]] is that they do not pay for physical infrastructure but instead ship money to preserve existing government contracts with service workers, and so it's hard to call this campaign promise credible. Indeed, attempts at social engineering through the tax code, whether inspired by Robin Hood or Ayn Rand, typically incentivize unexpected behaviors and lead to calls for greater regulatory intervention that creates employment for lawyers and accountants, at least until those markets saturate because there isn't enough economic activity to merit further regulation. The GOP vision of protecting "job creators" from tax liability is laughable on its face, as the main product of their last serious effort to do that is a massive oversupply of unsustainable housing, Depression-level private debt and the highest unemployment rate since WWII.

According to most business owners, customers create jobs. Rich people make the best customers if they feel they can get more out of buying something than they can out of Investing it. Put another way, the best way to create jobs is to convince rich people (i.e. those with disposable income) that the best return on an increasing percentage of their money is to pay someone to do something tangible instead of depositing it with an investment firm. In economics-speak, this means increasing the marginal product of labor relative to capital (in the Basel-III sense, not Adam Smith's). For that, redistribution from wealthy to poor is only marginally effective today as much of the income will simply flow from the industrial executive to the financial investor, often enough the same person, after a finance executive takes a cut. Instead, think of ways to reward people for making and maintaining stuff, for providing services in person that improve quality of life and reduce cost of living.