peter Zeihan 2020

[Emperor Tippy]

Labor cost are not high in any way shape or form, unless you are comparing cost to slave labor in China or Vietnam.

1968 labor cost was 34% of overhead for US Manufacturing.
Today 2017 labor was 3% of overhead for manufacturing.( might be 2016, it has been 4 years since I took that class).

The dollar in 1968 is not the same as today.

That's a disingenuous comparison.

In 1968 manufacturing was incredibly labor intensive with very little automation. The same with the entire supply chain that went into producing those manufactured items. The amount of human labor required to manufacture one unit was at least an order of magnitude greater than it is today (in reality it is multiple orders of magnitude in most fields).

Manufacturing today is a high precision undertaking that generally uses a lot of automated systems that are very capital intensive but have relatively low operating costs. So while labor today takes up a much smaller percentage of the per unit cost of a manufactured good the profit margins on those manufactured goods have not substantially improved.

Take the UAW strikes. If the auto makers give in then they will go out of business. If they try to eat the increased labor costs then they tank profit margins to basically nothing and become unable to fund future R&D and production out of free cash flow and instead have to borrow at relatively high interest rates, they also tank their stock price. The other option is to pass the price increases onto the consumer as higher automotive prices; except one of the biggest limiters currently on new car sales is how expensive new cars are. All increased prices will do is tank market share and in turn reduce profitability still further.

That is especially true when compared to other auto manufacturers. Take Tesla. They are locating more and more of their business in Texas which lets them avoid state income taxes (unlike the Big 3), they aren't unionized and so can get away with a much more agile (and cheaper) labor force, and one of their biggest R&D spends is on figuring out how to replace ever more of their manufacturing work force with robots.

---
Fundamentally, unions are broken in the US and Canada. Frankly, they are parasites on both the corporations and their membership. What unions should do is offer their own retirement and health plans along with becoming something akin to employment agencies. So that a company can go to the Union and say "We need X number of workers with Y skills for Z period of time. How big a check do we have to cut you to get that work force?" and then the union provides the work force. The company gets to off load responsibility for retirement, benefits, recruitment, and a lot of HR issues onto the union while the union gets to focus on providing the benefits that its members actually desire.

But what the UAW is doing right now? It's straight up extortion. In a sane world the Big 3 would be able to just say "Fine, you don't want to work for us? Ok. You are all no longer employed and we are now advertising to fill your previous slots on these terms. And by the way, everyone who went on strike is ineligible for rehire with us."

 

[Zachowon]

More and more, Henry Ford rears his head into the world with how he handled things making more and more sense

 

[PeaceMaker 03]

That's a disingenuous comparison.

In 1968 manufacturing was incredibly labor intensive with very little automation. The same with the entire supply chain that went into producing those manufactured items. The amount of human labor required to manufacture one unit was at least an order of magnitude greater than it is today (in reality it is multiple orders of magnitude in most fields).

Not sure how it is a disingenuous comparison. The straight comparison that shows %of labor cost.
What automation has allowed is more work with fewer man-hours per unit. At the same time 1968-2016 inflation has reduced the buying power of the dollar. Anything close to wages matching inflation would have median family income more than double what it is today. Just since Biden was in office real inflation has passed 20%.

As for labor cost with shifts to 12 hour shifts for many manufacturing positions that dropped labor cost by a huge percentage. Wages for 2 people vs. 3 for every 24 hours, benefits packages are ~50% of direct wages 1less person being paid that. The reality is with more manufacturing moving back on shore labor cost are going to go up after 40+ years of flat or negative wages.

In 1972 a new factory worker's monthly pay after taxes would buy 9 ounces of gold.
Today to be able to buy 9 ounces of gold after-tax income would be ~ $17,000 dollars a month.

Labor cost are going to go up, or you could just bring in millions of illegals, or foreign workers on visas. That will work until the consumer economy stops working because your average worker can not afford to buy your product.

 

[LordsFire]

In 1972 a new factory worker's monthly pay after taxes would buy 9 ounces of gold.
Today to be able to buy 9 ounces of gold after-tax income would be ~ $17,000 dollars a month.

This has a lot more to do with the vagaries of the gold market than of wages. Using this hurts your point, not supports it.

 

[Emperor Tippy]

Not sure how it is a disingenuous comparison. The straight comparison that shows %of labor cost.
What automation has allowed is more work with fewer man-hours per unit. At the same time 1968-2016 inflation has reduced the buying power of the dollar. Anything close to wages matching inflation would have median family income more than double what it is today. Just since Biden was in office real inflation has passed 20%.

In 1968 manufacturing one unit of something took effectively 100% human labor. Assembly lines made that labor more efficient (as did machine tools) but it was still a human directly controlling every single one of those tools and carrying out every single one of those myriad manufacturing processes. Broadly speaking, the only two costs that went into making that unit were 1) the cost of the raw materials and 2) the cost of the human labor. On a per unit basis the percentage of the cost that could be attributed to tooling or other capital costs was relatively miniscule.

Today the manufacturing of one unit of something generally takes basically zero human labor. Modern CNC machines, assembly lines, industrial robotics, and various other automated processes of production have taken the man hour cost per unit down by multiple orders of magnitude. At the same time the relative cost of the tooling to produce those units has risen substantially. So the cost to manufacture a unit attributable to labor vs. capital had shifted from drastically favoring labor to drastically favoring capital.

Basically, if I spend X dollars of capital to the point where one human working the same hours with basically the same amount of training and basically the same level of availability in the labor force can produce the same number of units as a thousand workers could before then the market value of that human's labor has not increased a thousand fold. It is basically the same as it was before, the business is just more efficiently utilizing that same amount of labor.

As for labor cost with shifts to 12 hour shifts for many manufacturing positions that dropped labor cost by a huge percentage. Wages for 2 people vs. 3 for every 24 hours, benefits packages are ~50% of direct wages 1less person being paid that. The reality is with more manufacturing moving back on shore labor cost are going to go up after 40+ years of flat or negative wages.

Labor costs are going to go up on a per employee basis, but they aren't going to go up on a per unit basis. Modern US manufacturing simply is not labor intensive and the skill set required is vastly different from what it was even twenty years ago, much less fifty plus. And no, most US factories aren't working 12 hour shifts if they can possibly avoid it.

In 1972 a new factory worker's monthly pay after taxes would buy 9 ounces of gold.
Today to be able to buy 9 ounces of gold after-tax income would be ~ $17,000 dollars a month.

And that is an absolutely horrid comparison. Gold is a physical commodity of limited availability that increases in total supply at a far lower rate than economic growth. There is a reason that no one sane thinks going back to the gold standard is a good (or even possible) idea. Population growth plus a gold backed currency is incredibly deflationary.

What you should be comparing is what standard of living a given job provided then and now. What percentage of monthly income goes to food, for example.

Labor cost are going to go up, or you could just bring in millions of illegals, or foreign workers on visas. That will work until the consumer economy stops working because your average worker can not afford to buy your product.

Labor costs are going to go up because the Boomers are retiring and taking the largest population block that the world has ever had and removing it from the work force all at once, replacing it with the smallest population block that the world has ever had. We are going from a relative glut of highly skilled, highly experienced, highly educated, labor to a shortage of that labor as the Boomers are replaced.

As for the consumer economy stopping working, the biggest issue there is that the vast majority of the world ceased having children and are literally incapable of consumption driven economies any longer.

---
Employees have, and will have in future, substantial power but unions (as currently structured and working) are basically the worst way to attempt to exercise that power and it will backfire. In previous eras one employee was largely interchangeable with another (especially for most union jobs) and the marginal economic gain to the business from a top tier employee and a meh tier employee was relatively miniscule.

In the modern era that is no longer the case. Take someone whose job it is to troubleshoot the industrial robots at the factory. Assume that the factory produces a thousand units per hour. If a meh tier employee takes two hours to get the problem solved while the top tier employee only takes one hour then that is a thousand unit production difference.

You also have the problem that as labor costs increase the incentives to develop tools that can reduce the amount of labor required for a task increase as well. See what happened when minimum wage got upped, the fast food restaurants started automating their kitchens and putting in self serve kiosks because it suddenly became economically viable to do so.

 

[PeaceMaker 03]

E.T. You make some good points, but the reality is not the textbook, or at least what I see here in Ohio.

The 12-hour shift is the norm outside Union shops. I recently interviewed for a management position for a tier II automotive manufacturer.
The facility has been on 7 days a week for over 6 months, with>20% under staff, and 80% turnover for new hires. All at a wage that is over 20% less than Michigan's wage for entry manufacturing.

They wanted me to come in and help with their labor and training issues. I talked to an employee who had worked 32 days of 12’s. It would have been more but he had to use PTO to go to the doctor. Mandatory overtime due to a lack of workers for most of a year is a management issue, not labor.

Interviewed at a union shop that does 3/4-12’s. 3 days of 12’s and 4 off then flip. Yep, mandatory overtime so more like 4/5’s except you come into work and only work part of the 12-hour shift. Much better benefits direct pay is better.

A new one for me was the non-full-time management position. Only paid for 30 hours not a salary position, no benefits matched by the company, but need to be available as a full-time manager. You can take the mandatory daily meetings remotely( unpaid ). A very short interview as I said thank you and left.

As I pay attention to wages to manufacturing here in NW OHIO, they have been flat for the last few years. As the dollar printing is on turbo-mode inflation in double digits. Since Fiat currency is a commodity, the average pay after inflation has been in the negatives for the last few years.

One manufacturer locally gave all their employees a $500 bonus because of the state of the economy. That covers maybe two months of increased cost for the year. While the same company increased prices 4 times over the year because of increased overhead. That overhead did not include a labor increase on pay.

 

[bullethead]

Yeah, I bounced out of manufacturing three years ago due to how awful the wages were and how few shops were actually in my area.

The overall department management (not the floor management, which was chaotic AF due to reasons) was fucking stupid (let's not replace the saw that keeps breaking for one that does angles too!) and included the bright idea to do five 50 hour weeks in a row, which led to one of our best dudes quitting after some bullshit. The only sensible thing was the 4-10s work schedule and the ability to come in to do overtime.

I got two raises that amounted to $0.45 per hour over two years.

And this was in Florida.

Yeah, labor costs are going to go up... but labor actually working on manufacturing hasn't had shit to do with product costs in a long time. If anything is spiking costs, it's bloated mid-to-upper management and executives funneling profits to themselves.

 

[Typhonis]

Look at how much the 'average' CEO makes compared to the 'average' worker. Don't forget to add in bonuses, benefits, stock options and other goodies they routinely get. Plus if things go to shit the golden parachute.

2018, the company I worked at went under. I got diddly squat as a severance package. Meanwhile the CFI who was there to the end was making $1000 an hour if memory serves me right.

 

[PeaceMaker 03]

Look at how much the 'average' CEO makes compared to the 'average' worker. Don't forget to add in bonuses, benefits, stock options and other goodies they routinely get. Plus if things go to shit the golden parachute.

2018, the company I worked at went under. I got diddly squat as a severance package. Meanwhile the CFI who was there to the end was making $1000 an hour if memory serves me right.

I would argue that Senior management, Advanced education, medical, lawyers, etc are not making exorbitant wages compared to 30 years ago. They have just adjusted wages to inflation. The wages appear overly high because most of America has not had their wages adjusted for inflation.

In 1973 a year at Harvard cost 13 weeks of median family income, ( you could work a summer job and make most of that). 2016 a year at Harvard cost 52 weeks of median family income. Did education cost go way up? Did wages not keep up with inflation?

 

[bullethead]

In 1973 a year at Harvard cost 13 weeks of median family income, ( you could work a summer job and make most of that). 2016 a year at Harvard cost 52 weeks of median family income. Did education cost go way up? Did wages not keep up with inflation?

Both.

That said, I think education definitely went up in cost way faster than wages. Part of that is amenities, part of that is administration bloat.

 

[Cherico]

Both.

That said, I think education definitely went up in cost way faster than wages. Part of that is amenities, part of that is administration bloat.

when I was in education I knew a man whos secretary had a secretary.

 

[bullethead]

Peter talks about the US credit rating drop and how everyone who cared about the deficits got purged from the political parties:


Armenia and Azerbaijan's war might grow to include Turkey and Iran in a tangled web of ethnic and security alliances:

 

[bullethead]

Peter talks about Argentina and a president who wants to make the country rely on the US dollar:


Most of it is an attempt to kill Peronism, but requires Argentina to devalue and buy up all the old currency.

 

[bullethead]

Updates on Venezuela and why EVs are looking like a dead product in the US:

 

[Cherico]

its honestly impressive how far EVs have come but a lot of things still are not there yet.

 

[Bigking321]

They are garbage compared to gas powered cars.

Not in terms of technology but in terms of utility.

And especially in terms of repairs.

Damage a normal car? Replace some parts. Pay the mechanic. Move on.

Damage a ev? Oh the battery has a waiting list and costs about half as much as the car.

 

[Cherico]

They are garbage compared to gas powered cars.

Not in terms of technology but in terms of utility.

And especially in terms of repairs.

Damage a normal car? Replace some parts. Pay the mechanic. Move on.

Damage a ev? Oh the battery has a waiting list and costs about half as much as the car.

its not yet a mature technology, and it takes time for that to happen.

It doesn't help that battery technology is dog shit, seriously everything cool that you want from Sci fi? Its being held back by shitty battery tech. The future came and batteries were not included.

 

[Bigking321]

its not yet a mature technology, and it takes time for that to happen.

It doesn't help that battery technology is dog shit, seriously everything cool that you want from Sci fi? Its being held back by shitty battery tech. The future came and batteries were not included.

Yep. The tech is not at all comparable to how good normal cars are by pretty much any objective measure.

Seems like a freaking fantastic time for blue states to pass laws banning the sale of normal cars.

Freaking clown world...

 

[Marduk]

its not yet a mature technology, and it takes time for that to happen.

It doesn't help that battery technology is dog shit, seriously everything cool that you want from Sci fi? Its being held back by shitty battery tech. The future came and batteries were not included.

The cars in principle already do work well, but the batteries are the root of all problems. They make the cars expensive, delicate, and are a terrible thing for repairability and resellability.
While a normal car can last for 20-30 years, creating a viable used car market with cheap cars for those who don't have or can't spend much money on a car, with electric cars it's dead, because around 7-15 years battery will die and a new one costs as much as half a new car at least.

Yep. The tech is not at all comparable to how good normal cars are by pretty much any objective measure.

Seems like a freaking fantastic time for blue states to pass laws banning the sale of normal cars.

Freaking clown world...

If they were so great there would be no point to banning the normal cars...

 

[bullethead]

Peter tells us about how the Russians are pulling out of the nuclear test ban treaty from the 1990s and how they might not have intact command and control of their nukes:


Striking while the iron is lukewarm, Peter talks about the Hollywood strikes, and expects that by 2030, extras are going to be replaced by digital stand-ins: