Where Can The Working Class Afford To Live

The Daily Escape:

Quilotoa Crater Lake, Ecuador. You get there by bus, and it takes six hours to walk around it.

The Senate is trying to pass their worst possible health care idea. They have already passed a $700 billion military budget, more than even Trump wanted. And they are trying to pass a $1 trillion tax cut for their buddies. Will any of that help you? No.

They should be focused on improving the lives of working class people, but they can’t be bothered with that, because they have no desire to accomplish it. Things are just fine the way they are for Senators.

Wrongo has been remiss by not turning you on to howmuch, a site that creates visualizations about money, and in-depth tools about what things cost in the US. You should spend time checking them out. They created this very interesting chart about where working class people can afford to live in the US:

Source: howmuch

Each bubble represents a city. The color corresponds to the amount of money a typical working-class family would have left over at the end of the year after paying for their living costs, such as housing, food and transportation.

The darker the shade of red, the worse off you are. The darker the shade of green, the better off you are. The size of the bubble has meaning — large and dark red means the city is totally unaffordable. Bigger dark green bubbles indicate a city where the working class can get by. So, where are the best places from a financial perspective for a working-class family to live? These are the top five cities with the net surplus remaining after living expenses:

Fort Worth, TX ($10,447)
Newark, NJ (($10,154)
Glendale, AZ ($10,120)
Gilbert, AZ ($9,760)
Mesa, AZ ($7,780)

The worst five cities are:

New York, NY (-$91,184)
San Francisco, CA (-$83,272)
Boston, MA (-$61,900)
Washington, DC (-$50,535)
Philadelphia, PA (-$37,850)

Yes, a typical working-class family would need to make an additional $91K+ per year in NYC just to break even on a reasonable standard of living. And most job creation is taking place in cities, so the challenge for anyone, working class or higher, is how to afford living in one of them. There are exactly zero affordable cities on the West Coast. More from howmuch:

Of the ten most populous cities in the country, the only place where you can enjoy a decent standard of living without taking on debt is San Antonio. Out of the top 50 largest cities, only 12 are considered affordable. Low-wage workers are better off in smaller cities.

Kevin Erdmann, who blogs at Idiosyncratic Whisk, says the problem is that most coastal cities have closed access to housing, while inland cities have open access. Open access cities have relatively liberal housing and zoning codes that allow for new building, including relatively low-cost housing. Houston is the most prominent example. Closed access cities artificially reduce supply of housing, driving prices up. NYC is the most prominent example. From Erdmann:

You can tell what type of city it is just by looking through the newspaper. In open access cities, people complain that poor people are moving in and taking away jobs, pushing down wages. In closed access cities, people complain that rich people are moving in and bidding up rents.

People in red states have experienced high in-migration of low income people, both natives and immigrants. Poor people are leaving the closed access cities. So, to someone living in a closed access city, it seems racist for people to focus their ire on Mexican immigrants.

And think about what happens if folks in a bad neighborhood manage to do the hard community work to make it somewhat livable. In New York or Los Angeles, the minute that a neighborhood becomes safe, the plots that hold those $100,000 duplexes will be worth $500,000, and the neighborhood will gentrify.

Rinse, lather and repeat, and the cycle starts again.

Can a working-class family live comfortably in your town? If so, can they find work?

Houston’s Petrochemical Industry Fails to Protect City

The Daily Escape:

Ranwu Lake Campsite, Tibet – photo by Arch-exist Photography. Ranwu Lake is a tourist attraction in SE Tibet, and is called the “Tibetan Switzerland”.

Life in the age of corporatism resembles life in the food chain. In a potentially disastrous outcome from the Harvey flooding, a chemical plant in Crosby, Texas belonging to French industrial giant Arkema, has had several explosions of peroxide and other volatile chemicals. From the NYT:

The company had already ordered all workers to leave the damaged plant, and Harris County ordered the evacuation of residents within a 1.5-mile radius.

These chemicals have to be refrigerated. When the plant’s warehouses lost power, they transferred the product to diesel-powered refrigerated containers. But later, the backup generators were swamped by flood waters, so cooling was lost, and the explosions began. On Tuesday, the company released a statement:

Refrigeration on some of our back-up product storage containers has been compromised due to extremely high water, which is unprecedented in the Crosby area. We are monitoring the temperature of each refrigeration container remotely….while we do not believe there is any imminent danger, the potential for a chemical reaction leading to a fire and/or explosion within the site confines is real.

The rains are over, but the chemical fires linger. Richard Rowe, the CEO of Arkema’s American operations said:

The company has no way of preventing chemicals from catching fire or exploding at its heavily flooded plant…the company has no way to prevent…this worst case outcome.

The CEO says, “No way to prevent explosion“. Back in the olden days, that would be known as a “major design flaw”. Most engineers would have recommended placing the generator sets above at least the 100-year high water mark, just to prevent this kind of fun event. They would also put the diesel tanks above that water line.

Maybe next time. The Houston Chronicle had this amazing map of chemical plants in the Houston area:

In case it is hard to read the map legend, the yellow markers are for petrochemical plants that have a “medium” potential for harm based on their location within the 100-year flood plain. The red markers have a ”high” risk for harm. Houston’s ship channel and the surrounding area along the Gulf coast represent about 40% of U.S. petrochemical manufacturing. At least 25 Houston-area plants have either shut down, or experienced production issues due to Hurricane Harvey’s flooding.

Any guesses that the concentration of plants in the Houston flood zone will cause our corporate overlords to think about relocation of a few of these sites? Or, how they best secure them from the next 500-year flood, which looks like it will happen in say, the next five years? From Forbes:

Harvey was a wake-up call, reminding us that it is time to take a more serious look to ensure the safety of the petrochemical industry and the public at large, just as the nuclear power industry has done in reaction to the Fukushima disaster.

But Arkema has worked hard to change EPA rules in their favor. David Sirota reports that the new rules, which were set to go into effect this year, were halted by the Trump administration after a lobbying campaign by Crosby plant owner Arkema and its affiliated trade association, the American Chemistry Council:

Those rules — which would have taken effect on March 14 — were blocked by EPA administrator Scott Pruitt. The move was a big win for the chemical industry that has spent more than $100 million supporting federal lawmakers since 2008.

Apparently, sacrifices must be made in the name of making America great.

The closures are not just disrupting markets; they’re also causing the release of toxic pollutants that pose a threat to human health. The NYT reports that damaged refineries and oil facilities have already released more than two million pounds of hazardous substances into the air.

The sheer number of facilities around Houston that have to come back online at the same time creates another huge emissions problem. From City Lab:

The real problem is that the plants are allowed to operate so close to residential areas in the first place. Houston’s lack of zoning regulations have been front-and-center in discussions about why Harvey has been so terrible for the city, and that’s no different in the discussion about air pollution.

Not to worry, Houston, your petrochemical corporations will be fine. They have insurance. They will get to write off any damage against their profits. They will get tax incentives to rebuild, or if they choose to move, tax credits from the town down the road.

The people? Most will have no insurance to rebuild their homes or to purchase new furniture.

And the pollution impact? A cost of doing business for the petrochemical industry.

Unfortunately, for the people, pollution’s about their health. And there will be no help forthcoming for the most vulnerable Houstonians.

Have a slice of Texas-themed music: Here is Robert Earl Keen, doing “Corpus Christi Bay” from his 1993 album “A Bigger Piece of Sky”:

Saturday Soother – May 13, 2017

The Daily Escape:

Bluebells, Brussels Belgium April 2017 photo by Francois Lenoir

In many ways, it is too easy to criticize Donald Trump. While we can have differing opinions on matters of policy, they only account for a few of the issues Wrongo has with Trump. Most are his unfathomable attempts to avoid telling the truth. Consider his interview with The Economist which posted the entire transcript on Thursday. Let’s focus on this excerpt:

The Economist: Another part of your overall plan, the tax reform plan. Is it OK if that tax plan increases the deficit? Ronald Reagan’s tax reform didn’t.
Trump: Well, it actually did. But, but it’s called priming the pump. You know, if you don’t do that, you’re never going to bring your taxes down.

[Snip]

Economist: But beyond that it’s OK if the tax plan increases the deficit?
Trump: It is OK, because it won’t increase it for long. You may have two years where you’ll…you understand the expression “prime the pump”?

Yes.
We have to prime the pump.

It’s very Keynesian.
We’re the highest-taxed nation in the world. Have you heard that expression before, for this particular type of an event?

Priming the pump?
Yeah, have you heard it?

Yes.
Have you heard that expression used before? Because I haven’t heard it. I mean, I just…I came up with it a couple of days ago and I thought it was good. It’s what you have to do.

Ok, so how did the guy from the Economist keep a straight face? The reporter is thinking John Maynard Keynes, the great British Economist, who came up with the idea of “priming the pump” in the 1930’s. By the way, Keynesian pump-priming is temporary government spending to boost temporarily weak demand. It is designed to boost growth, (and jobs) during a downturn, but we can’t assume that it will boost the economy’s growth rate.

Trump’s idea for pump-priming is more tax cuts. He’s following classic trickle-down economics, and claims that his tax cuts will boost investment, productivity growth, and labor supply, and thus raise the long-term growth rate of the economy. In this regard, Trump conflates Keynes, who’s been proven right, with Arthur Laffer, who wasn’t.

But, didn’t Trump graduate from Wharton with a business degree? Nobody gets out of Wharton without knowing that Keynes was the “pump primer”. And his saying that he coined the phrase ‘prime the pump’ a few days ago? Unfortunately, there are only two explanations: first, Trump is 70 years old and his cognitive skills are starting to desert him. Or second, he is a pathological liar.

Wrongo wants to go with #2.

He just wants to sell America something with his name stamped on it. But since America isn’t buying a hotel, he’s trying to sell Trumponomics, Trumpcare, etc. He does not really care about the details, he just wants to pass it, and to claim it is a success. That’s America’s tragedy.

So with Comeygate, Trumpcare and pump-priming, we all need to unplug and try, just try to relax on Saturday. We had a full moon and clear skies over the fields of Wrong on Thursday, so today we listen to “Claire du Lune” by Claude Debussy. It is the third movement of “Suite bergamasque”. Its name comes from Verlaine’s poem Clair de Lune, “moonlight” in French. Here it is played by Dame Moura Lympany, British pianist, who died in 2005:

Those who read the Wrongologist in email can view the video here.

Sunday Cartoon Blogging – August 7, 2016

At a rally in Virginia, Trump said:

The [economic] numbers are getting worse and worse all the time.

He was saying that he thinks the economy is going to tank, and that he hopes he will benefit politically. It’s clear that if his assertion were true it would help him, but, it’s not:

The BLS reported Friday that nonfarm payrolls rose by a seasonally adjusted 255,000 in July. Revisions showed US employers added 18,000 more jobs in May and June than previously estimated. The unemployment rate was unchanged at 4.9% in July.

In any case, it’s good to know that the Pant Load is rooting for an economic downturn to happen in the next 90 days, so he can personally benefit. Seems like his normal mode of operation.

Sorry Donny, the American economy has now experienced 77 months of consecutive private sector job growth. He’s wrong, but OTOH, it is a very uneven recovery.

On to cartoons. The Rio Olympics dominated Trump’s efforts to command the news cycle this week.

Brazil put its Christ on the Hill statue in an appropriate garb for the Games:

COW Haz Mat

Concerns about Rio’s water reminds us that Congress didn’t appropriate any money for Flint:

COW Olympics Water

Many athletes pulled out due to the Zika virus when the solution was Trump-simple:

COW Citronella

Being in Rio gives athletes a respite from the news at home:

COW Making the Olympics

The ceremonial dumpster lighting kicked off our presidential Olympics:

COW Donnie Dumpster

In other news, voting rights won a few fights:

COW Vote Supression roll back

The Pant Suit vs. the Pant Load – Jobs

The 90% know they’ve gotten the short end of the stick for way too long. Now, with the bad May jobs report that came out last Friday, there is concern that our seven-year recovery, which has not helped everyone, may not last a lot longer.

So, a quick review of the numbers: The BLS reported that the economy had added 38,000 jobs in May, the lowest since September, 2010. Furthermore, the April job gains of 160,000 were cut by 37,000, while the March job gains of 208,000 were cut by 22,000.

So, with 59,000 jobs revised away, and with only 38,000 jobs “created” in May, the net total in today’s report was a net loss of 21,000 jobs in the last 3 months. We haven’t seen this since the 2008 Financial Crisis. And the labor participation rate dropped for the second month in a row, to 62.6%, which doesn’t bode well for the future either.

But the true bad news was that the number of temporary jobs also fell by 21,000. Temporary employment is a predictor of future employment trends, both on the way up, and on the way down.

The temporary-help sector has been the best thing about the economy; we reported in March that more than 100% of the jobs created in the US since 2005 were temp or contracting jobs. The temporary jobs sector peaked in December 2015 at 2.94 million, and has lost 63,800 jobs since then:

Temp Jobs 2006-2015

Wolf Richter thinks that the decline in temporary workers isn’t just a one-month statistical blip, but a five-month trend, and that the sector has become a warning sign that the labor market could be heading towards deeper trouble. From Richter:

This also happened in 2007, when the temporary help sector started shedding jobs even as the overall economy was still adding jobs until right up to the official beginning of the Great Recession. And it happened in 2000, before the 2001 recession kicked in.

We lost nearly 8 million jobs in the Great Recession. Since 2009, the economy has added 14.5 million new jobs. But if we subtract the 8 million jobs lost during the recession, our net job growth was 6 million added, while our population grew by 16.5 million.

Now, not all of the growth in population is a person currently looking for a job. The big contributors are immigrants (both legal and otherwise), and births. Most of the immigrants want work, but they are the smaller fraction of our population growth, while infants, toddlers, and young children do not need access to employment just yet. The Boomers are trying to stay employed and not retire, while Millennials have moved into the workforce.

All of these groups are jostling for jobs. If US job growth can’t accommodate them, their individual situations will get worse, even while the overall numbers might look acceptable on paper.

So the questions for the Pant Suit and the Pant Load are:

Do they think that the lack of GDP growth and our lack of jobs growth is politically sustainable? How long could it go on without seeing pitchforks in the streets?
Where are the jobs going to come from?
What will they do if the jobs fail to materialize?

Hillary Clinton has the bigger problem, since she is presenting herself as the heir of Obama’s (and earlier, Bill Clinton’s) economic policies. She has to play defense on the economy. Trump can jump on the bad data, saying he can fix it, and many people will accept that uncritically.

But don’t count on hearing either candidate say anything that you think is useful. They will look for, and fail to find, “market” solutions to this dilemma created by the “market.”

And market solutions are what they will tell us we must wait for.

It’s Always Groundhog Day in America

Do Conservatives Have a Learning Disability? A few who read the Wrongologist are convinced that Wrongo is just a clueless, woolly-headed Progressive who hates America and the baby Jesus. None of that is true, except for the Progressive part.

From Krugman’s Monday column:

Marco Rubio has yet to win anything, but by losing less badly than other non-Trump candidates he has become the overwhelming choice of the Republican establishment.

PK points out that Rubio:

• Proposes tax cuts, like completely eliminating taxes on investment income — which would mean, for example, that Mitt Romney would end up owing zero in federal taxes.
• Proposes tax cuts that would be almost twice as big as George W. Bush’s as a percentage of GDP, despite the fact that Republicans have spent the Obama years warning incessantly that budget deficits will destroy America, any day now.
• Insists that his tax cuts would pay for themselves, by unleashing incredible economic growth. Never mind the complete absence of any evidence for this claim, or that the last two Democratic presidents, both of whom raised taxes on the rich, presided over better private-sector job growth than Mr. Bush did.
• Called for a balanced-budget amendment, which makes no sense, since he is calling for budget-busting tax cuts. Also this amendment would have been catastrophic during the Great Recession, when deficit spending helped bring us out of a crash.

Finally, Marco Roboto said a few days ago that it’s “not the Fed’s job to stimulate the economy” (although the law says that it is precisely their job). Krugman closes with: (brackets by the Wrongologist)

In short, Mr. Rubio is peddling crank economics. What’s interesting, however, is…he’s not pandering to ignorant voters; he’s pandering to an ignorant [GOP] elite.

It doesn’t require a Nobel Prize in Economics to see the entrenched divisions in our politics. But let’s focus today on the great coup by American Conservatism, convincing its followers that personal opinion counts for as much as any fact.

We live in an America that Conservatives have turned into an oligarchy. The system has been gamed to support the interests of the wealthy. Politicians are able to choose their voters through a cynical, manipulative gerrymandering re-redistricting process. The idea of “one man, one vote” has, via Citizens United, been turned into a largely meaningless exercise in which those with big bucks and an agenda pay to propagandize the American voter, many of whom are far more comfortable reacting emotionally, than thinking critically.

Conservatives like Rubio (and the rest of the GOP) have retreated into a content-free bubble, where they manufacture truth on the fly to suit their purpose. You know this since few on the Far Right put forward cogent, supportable arguments for their ideas, instead lazily relying on a smug arrogance which allows them to laugh off opposing ideas, as does Mr. Rubio.

The problem is, the vast majority of our electorate are largely oblivious to the nuances of the underlying issues. What information they have is derived from main stream media, or right wing propaganda organs, or social media.

Data are boring and unacceptable: My belief is superior to your data or to my own education. It is easier to just vote for the candidate promising to make America Great Again, ignoring the reality of the deep and nuanced causes of our problems.

The rigidity of the Republican doctrine on taxes as outlined by Rubio looks like an alternate version of the movie, “Groundhog Day“, where Bill Murray experiences a time loop in which he repeats his experience until he corrects the problems that had landed him in limbo.

Sadly, in the GOP alternative version, they begin every presidential election cycle with a demand for lower taxes. The tax policy of the previous four years has no effect on this mantra. Nor do the economic trends of the time alter their robotic claim that lower taxes will cure all difficulties. In the Conservative view, a smaller tax bite will trigger an economic boom that offsets the costs of GOP tax cuts to our budget.

In the GOP version of “Groundhog Day”, the GOP doesn’t learn from its mistakes. Unfortunately, this means the entire country suffers from the inability or unwillingness of Republicans to learn from experience.

It’s time to turn off Fox News and set out on a walkabout in the reality-based world.

Angry Men Now a Political Force

The spin after the SOTU was about how angry voters are, and the political opening that creates, despite the genuine good news on the economy. Here is Mr. Obama from the SOTU:

Most of all, democracy breaks down when the average person feels their voice doesn’t matter; that the system is rigged in favor of the rich or the powerful or some narrow interest.

We can’t change the fact that some people are angry, but this article from the Washington Monthly by Andrew Yarrow points to some stunning facts about how men in particular have been left by the wayside of American life:

At least 20% of the nation’s 90 million white men have been pushed to the sidelines, either retreating or storming out of the mainstream of American life. They are not the men you see at work, who play with their children, go out with their wives or partners, are involved in their communities, and earn a living to save for their children’s education and their own retirement. What they do doesn’t register in…the gross domestic product…

Yarrow continues:

We know that they are out there. But they don’t fit old stereotypes of failure, so we’ve had trouble coming to grips with who they are or naming the problem. Parts of their stories have garnered significant attention, but we don’t see that what have been treated as separate problems are closely related.

Here are a few statistics from the article that merit your attention:

• Today, fewer than seven out of ten American men work; in the 1950s, nine out of ten worked.
• Since the 1970s, inflation-adjusted incomes for the bottom 80% of men have fallen, with the most dramatic declines occurring among the bottom 40%, most of whom do not have a college education.
• Today, just half of men are husbands; in 1960, three-fourths of men were married.
• As Barack Obama leaves office, only two out of three children live with their fathers; when John Kennedy was elected President, nine out of ten children lived with their fathers.
• Today, 43% of 18-to-34-year-old American men live with their parents (compared to 36% of millennial women); in 1960, about 28% lived at home.
• There are 36% more women in college than men, whereas in 1970, there were about 35% more men than women in college.
• Men are 50% less likely to trust government than women.
• In recent years, there has been a roughly 20-point gender voting gap, with white men being much more likely not only to vote for Republicans but to express disillusionment and anger toward government; until about 1980, men and women voted roughly evenly for Democrats and Republicans.

The point is that a lot has gone wrong for many white men, a demographic that once was the epitome of privilege and high expectations. And while politicians discuss stagnant wages, broken families and inequality, few notice, much less talk about the probable linkages between these issues and the impact of angry males on our politics.

Some may be thinking that this is a manufactured issue. After all, men still out-earn women, and they still hold most of the CEO and board–level jobs. And none of this white male angst should obscure the continuing struggles of women and people of color, including men of color. African-American and Latino men have had it worse than white men for a very long time.

But we ignore any group’s anger at our peril. The Bundy Brigade’s antics in Utah and Oregon is just one recent example. Many men are mad as hell, and their anger is often turned on scapegoats: Government in the case of the Bundys; Muslims, immigrants, African Americans, and Latinos in the case of others.

In 2016 we are seeing several presidential candidates feeding from the trough of this anger. Playing to the inchoate anger of a sizable minority of white men who have been benched economically, or who simply left the field, is a dangerous demagoguery, one that only benefits the demagogues.

Sunday Cartoon Blogging – December 20, 2015

You are not going to read the entire 2000 page Omnibus Budget Bill, but you don’t have to. The thing that you need to know is that despite years of preaching budget austerity, and preaching that expenses must be paid for, the GOP-controlled House passed nearly $700 billion in unpaid-for tax cuts, none of which were paid for by budget cuts or other tax offsets.

Now, get it out of your head the GOP is fiscally responsible. Remember that Reagan quadrupled the Debt. Bush cut taxes while we went to war. Obama has run up the debt as well, but if ANYONE tells you the Republicans are fiscally responsible, laugh in their face.

In other news, the GOP really needs Santa’s help:

Terror is driving the season:

Terror is driving the season Part II:

And Grinches are multiplying:

Star Wars franchise wants to sell merchandise:

And the Fed raised interest rates for the first time in seven years:

Monday Wake Up Call – July 13, 2015

Today’s wake-up call is for the Eurozone. Despite Wrongo’s generally pessimistic worldview, it was hard to imagine that we’d arrive at the insane juncture we have now reached, that of a Grexit (Greek withdrawal from the Eurozone), but it is all but certain. As this column is written, the Guardian is reporting that a four-page proposal is now circulating in Brussels that indicates that Greece could be offered a ‘temporary’ exit from the Eurozone if it doesn’t agree to a deal with its creditors.

If a Grexit comes to pass, it would be catastrophic, most of all for the Greek 99%. But it should blacken the names of everyone involved, most of all German Prime Minister Merkel. This sorry trajectory is occurring despite the Greek government prostrating itself, offering to meet much more stringent conditions than its voters overwhelmingly rejected in a referendum less than a week ago. Krugman writes that Greek PM Tsipras allowed himself to be convinced, some time ago, that euro exit was impossible. It appears that Syriza (the leading Greek political party) didn’t do any contingency planning for a parallel currency. This has left PM Tsipras in a hopeless bargaining position.

But surrender isn’t enough. There’s a substantial faction of the other Eurozone leaders that want to push Greece out. Germany seems willing to welcome them as the most Southern province of the new German Empire. They are asking for control of $50 billion of pledged Greek assets. This really means control of Greece.

It gives the Eurozone leaders a failed state as an object lesson for the rest of Europe’s near-deadbeats.

Since there are only terrible alternatives at this point, here is a wake up tune for the Eurozone leaders. Perhaps it will help Merkel find a way to offer a less destructive plan to Greece. Perhaps she can remember the debt relief and credit support given to post-Nazi Germany by the Allies, who wrote off 93% of the Nazi era debt in the early 1950s and stretched out the pre-Nazi debt incurred during World War I and the Weimar period well into the 21st century.

Here is our 2nd song of summer, Sheryl Crow’s “Soak Up the Sun”:

Those who read the Wrongologist in email can see the video here.

Sample Lyrics:
My friend the communist
Holds meetings in his RV
I can’t afford his gas
So I’m stuck here watching TV
I don’t have digital
I don’t have diddly squat…

Your Monday Hot Links:

NASA’s New Horizons spacecraft took the first detailed photos of Pluto. The image below was taken on July 9, 2015 from 3.3 million miles away, with a resolution of 17 miles per pixel. It took nine and a half years to get this close, but at this range, Pluto is beginning to reveal the first signs of discrete geologic features:

London has become the money-laundering center of the world’s drug trade. According to an internationally acclaimed crime expert, UK banks and financial services have ignored so-called “know your customer” rules designed to curb criminals’ abilities to launder the proceeds of crime. The National Crime Agency (NCA) states:

We assess that hundreds of billions of US dollars of criminal money almost certainly continue to be laundered through UK banks, including their subsidiaries, each year.

Google’s algorithm shows prestigious job ads to men, but not to women. Researchers from Carnegie Mellon University built an app that found that when Google presumed users to be male job seekers, they were much more likely to be shown ads for high-paying executive jobs. Google showed the ads 1,852 times to the male group, but just 318 times to the female group. Well, you know Google’s use of its corporate motto “Don’t Be Evil”, ended in 2012 so this is probably OK.

Utah Valley University creates a ‘texting lane’ for busy staircase:

Good idea? You be the judge.

Defining Business Success in the 21st Century

In 2012, the Wrongologist reported on the bankruptcy of Hostess, the iconic bakery behind Ding Dongs, Ho Hos and Twinkies. Hostess’ closing was something of a national moment, with people mourning the Twinkie, and possibly, something lost from a better, more optimistic time.

It was also a symbol of the dire state of American manufacturing. Hostess died after a decade of failing health that saw two bankruptcies and five different CEOs. It left behind 36 factories, 5,600 delivery routes and 19,000 jobs.

Then, a partnership between private-equity giant Apollo Global Management and C. Dean Metropoulos, a billionaire turnaround artist known as “Mr. Shelf Space” for his revival of retail brands like Vlasic, Hungry-Man and Chef Boyardee, bought the assets of the defunct Hostess. Now, two years into the comeback of Hostess, we are learning what the cost of putting Ho-Hos and Ding Dongs back on shelves really means: The new Hostess Brands has automated more than 90% of the company’s bakery jobs.

How did they do it? Cherry picking the best assets, modernizing manufacturing and distribution, doubling the shelf life of products and capitalizing on the rare place in pop culture that Hostess products enjoyed:

• The new, smaller Hostess kept just five of the 14 original bakery plants: Of those five, one was sold, and another bakery with 400 employees closed in October.
• They invested in automation: One 500-worker Kansas bakery outfitted with a $20 million Auto-Bake system, now spits out more than a million Twinkies a day, doing 80% of the work once done by 9,000 workers across 14 plants.
• They spent on chemical research, trying to create a longer Twinkie shelf life, and succeeded in extending it to 65 days.
• The longer shelf life enabled a change in distribution. The old Hostess relied on more than 5,000 delivery routes to drop off product to individual stores. It was incredibly expensive (each route required a driver, a truck, gas and insurance), eating up 36% of revenue each year.

What kind of “cream filling” has a shelf life of 65 days?

Now, the company has arisen from the ashes to find a new place on America’s shelves, and they are thinking of an IPO at Hostess. From 9,000 bakery employees at 14 plants to 500 at one plant in Kansas. That’s just the bakery division. Thousands of more supporting jobs were lost when the plants closed for good. This may be an extreme example of automation in the 21st century, but more of it is coming, and it’s going to put a lot of people out of work very quickly.

It used to be that layoffs were a sign of bad management, now they are a sign of good management. Back in the day, bankruptcy was the last thing management wanted. Today, it is a strategic choice.

Destroying jobs is now a badge of honor.

But, no one should blame Metropoulos or Apollo for a winning strategy when, in the prior decade, five different CEOs failed at the task of saving Hostess. They have created a huge turnaround, from Chapter 11 to an IPO in two years. But, it cost thousands of jobs. Automation, layoffs or not, made sense for this business.

We all know that technology creates fewer jobs than it destroys. By some estimates technology could cost half of all current jobs in the next 20 years. So, we can expect an ever-greater number of unemployed chasing the ever-shrinking number of jobs that can’t be eliminated or simplified by technology. Thus, the prognosis for many medium and some higher-skilled workers appears grim. In fact, a good question to ask today is how much can we attribute the fact that the US labor force participation rate is the lowest in 50 years to automation?

The issue is not technology, or robots, or restoring our manufacturing base. Nor is the issue better skills, or technology or outsourcing. We have too many people chasing too few good jobs.

If we forecast continuing technology breakthroughs (and we should), and combine that with the 3 billion people currently looking for work globally, we have to conclude that the planet is overpopulated if the goal is a growing global middle class.

This is why the quest for better technology has become the enemy of sustaining middle class growth in America and the rest of the developed world.

Enjoy that Twinkie while you can still pay for it.

See you on Sunday.

The Wrongologist

Geopolitics, Power and Political Economy

Category Archives: Economics