Monday Wake Up Call – July 1, 2019

The Daily Escape:

East Inlet Pond, Pittsburgh NH – photo by Wes Lavin. The East Inlet area has one of the few remaining virgin stands of forest in the east.

How did Boeing, a company known for meticulous design and manufacturing, screw up the 737 Max so badly? Bloomberg is reporting that Boeing outsourced software development for some of the 737 Max’s software to Indian companies. There are concerns that decision may have contributed to Boeing’s two deadly crashes.

Bloomberg says that starting in 2010, Boeing began relying on Indian software engineers making as little as $9 an hour in their design program. The software engineers were supplied by the Indian software developer HCL Technologies, which now has annual sales of $8.6 billion. The coders from HCL designed to specifications set by Boeing but, according to Mark Rabin, a former Boeing software engineer:

“It was controversial because it was far less efficient than Boeing engineers just writing the code.”

It turns out that the HCL engineers were brought on at a point when Boeing was laying off its own experienced software developers. In posts on social media, an HCL engineer who helped develop and test the Max’s flight-display software, summarized his duties:

“Provided quick workaround to resolve production issue which resulted in not delaying flight test of 737-Max (delay in each flight test will cost very big amount for Boeing).”

This may be resume inflation. Boeing insists that HCL had nothing to do with the Max’s Maneuvering Characteristics Augmentation System (MCAS) software. HCL said that it:

“…has a strong and long-standing business relationship with The Boeing Company, and we take pride in the work we do for all our customers. However, HCL does not comment on specific work we do for our customers. HCL is not associated with any ongoing issues with 737 Max”.

It isn’t unusual for US companies to use outsourced talent. Prior to his dynamic blogging career, Wrongo was CEO of an outsourcing firm. Our clients were the US government, and several big tech and office product companies, including Dell, Microsoft, and Xerox.

But managing outsourcing is tricky, both for the company moving the work out-of-house, as well as for the outsourcer. Unless the parties develop detailed plans, procedures, and follow strict quality control, even top people can produce work that fails to meet design standards.

The typical jetliner has millions of lines of code. From Rick Ludtke, a former Boeing flight controls engineer:

“Boeing was doing all kinds of things, everything you can imagine, to reduce cost, including moving work from Puget Sound, because we’d become very expensive here….All that’s very understandable if you think of it from a business perspective.”

More profits over people.

In 2010, HCL and Boeing opened a “Center of Excellence” in Chennai, saying the companies would partner to create software used in flight testing. Ultimately, there is no denying that testing software plays a huge role in ascertaining safety standards. You can find further information and resources related to software testing and a guide to IEC 61508 Compliance by checking out the Parasoft website. Generally speaking, this type of testing is typical for big companies. Boeing also has a design center in Moscow. From Cynthia Cole a former Boeing engineer who headed the Engineer’s Union from 2006-2010: (emphasis by Wrongo)

“At a meeting with a chief 787 engineer in 2008, one staffer complained about sending drawings back to a team in Russia 18 times before they understood that the smoke detectors needed to be connected to the electrical system…”

A big reason for offshoring is price. Engineers in India make about $9 – $10/hour, compared with $35 to $40 for Indians in the US on an H1B visa, and higher for a US engineer. Anyone who understands offshoring knows that the cost of rework needs to be added to the apparent hourly cost, and in some cases, that can push the real price closer to $80/hour.

For the 787 Dreamliner, much of Boeing’s work was outsourced. It is well-known that the 787 entered service three years late, and billions of dollars over budget, in 2011. That was due in part to confusion caused by their outsourcing strategy.

Was another globalist lesson learned by Boeing with the 787? Not really, if the 737 Max troubles are any indication.

So this cheap labor story is another black eye for Boeing. It goes along with the Justice Department’s criminal probe, and the FAA’s continuing concern about the Max software. Boeing also has disclosed that the company didn’t inform regulators of the MCAS problems when they first learned about them, because engineers had determined it wasn’t a safety issue.

This is more of the crapification of America’s best companies as they chase lower costs. This time, people died.

Wake up Boeing! The high-value, high-risk elements in your product must be sourced at home.

If America had a real Justice Department, Boeing’s management would be in jail.

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Trump Promised Jobs. That’s Why He Won

Take a good look at this map. It shows which counties switched parties in the 2016 US Presidential election compared to 2012. Red counties switched from Democrat to Republican, blue counties switched from Republican to Democrat and the vast majority in grey did not switch parties:

counties-that-changed-partys

Source: Brilliant Maps

Of course, it doesn’t show vote margin or size of the total vote in each county. The main thing this map shows is the large number of counties in the North East and Midwest that flipped to Trump, after having been Democratic counties in the prior election. The effect was large enough to deliver the normally Democratic leaning states of Iowa, Michigan, Pennsylvania, and Wisconsin into the Republican camp.

Tim Duy has an article about how economists and most politicians get so wrapped up that they miss the human element in economic dislocations. Duy makes the point that they ignore two of the negative impacts of job losses. First, they say how lost jobs free up human capital for use elsewhere in the economy. Of course, as jobs are added to the economy, skill levels and training determine whether laid-off workers are part of that equation.

“High-skilled” workers is what we need, but they are not always the kind of workers that were laid off.

Second, Duy reminds us that most workers have little ability to move to where better jobs might be found. Politicians tell us that the economy is shifting to urban and suburban areas; to higher skilled jobs; that workers must go and get retrained. That misses the point.

Most new jobs for those who were laid off will only be found if workers are able to relocate, to move from rural or devastated urban locations to geographic areas where jobs are expanding. Duy notes it is particularly difficult for rural areas:

The speed of regional labor market adjustment to shocks is agonizingly slow in any area that lacks a critical mass of population…Relative to life spans, in many cases the shocks might as well be permanent.

We don’t have answers for most of these communities. Rural and urban economic re-development is hard. The people living in these regions have experienced job losses (or no jobs growth) for decades; positive jobs growth has occurred elsewhere.

And the laid-off workforce isn’t mobile. In effect, we have limited access to housing in our major cities by pushing housing costs beyond the reach of most middle class workers. This, from Kevin Erdmann:

If you lost your manufacturing job in Buffalo, and you’re thinking of moving to New York City because there are more jobs there, you might decide not to move because it is too expensive. It is the affordability that is keeping you out. But, even here, the affordability problem is just the messenger. It is the rationing mechanism for a housing stock that is relatively fixed for political reasons.

If you decide to move to the NYC area, you see that the housing supply is largely fixed. New buildings are hard to get through zoning. Construction costs in big cities are very high. Income taxes are rising rapidly.

Erdmann makes the point that housing in big cities doesn’t move up with increased demand:

So, it doesn’t matter if Brooklyn apartments rent for $500, or $1,000, or $2,000, or $4,000. There isn’t one for you. Fixing this by fixing affordability isn’t going to change the supply curve. It’s simply substituting non-monetary rationing mechanisms for the monetary one.

Trump’s message that US firms need to consider domestic jobs as much as their bottom line, also resonated with middle and upper-middle class households. OTOH, it’s not like Trump took on the Coal Industry on behalf of workers. He blamed federal environmental policy, but that isn’t what caused the loss of coal industry jobs.

Trump doesn’t really have any answers, but he pretends to care while pretending to have answers. Pretending to care and pretending to have answers gave him the switched counties on the electoral map above. People want work. They want secure jobs.

Trump might be running a “jobs” scam, but if it fails, what is the Democrats’ alternative?

We have four years until the next election, two if you are looking at Congress. What policies will work? Will we just trade Trump’s scam for another one peddled by the establishment?

Business as usual hasn’t delivered. The idea that economic growth creates jobs is a pipe dream for many: For the past 40 years, economic growth did not improve wages.

Trump’s promise swung the election. If he fails, what will be the Democrats’ response?

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More Questions for The Pant Suit and the Pant Load

Yesterday, Wrongo broke the bad news about the May job report. Exactly one year ago, Wrongo wrote “Technology Isn’t Creating Enough Middle Class Jobs.” That article spoke about how deploying new technologies continues to cost more and more mid-skilled jobs.

With low interest rates, the cost of capital investments have fallen relative to the cost of labor, and businesses have rushed to replace workers with technology. Because of technology, since the mid-1970s capital and labor have become more substitutable, and it’s a major global trend. Some proof of this is in the article in the Quarterly Journal of Economics, where  Loukas Karabarbounis and Brent Neiman from the University of Chicago found that the share of income going to workers has been declining around the world.

As Brad Delong, economist at the University of California, Berkeley, wrote recently, throughout most of human history, every new machine that took the job once performed by a person’s hands and muscles increased the demand for complementary human skills — like those performed by eyes, ears or brains.

This is no longer true. From Wrongo’s June, 2015 column:

Facebook is touted as a prime player in the knowledge economy, but it only employs 5,800 to service 1 billion customers! Twitter has 400 million total users. It has 2,300 employees.

What is the value of Facebook and Twitter to the jobs economy? These are two of our very “best” success stories, and they only employ 8,100 workers.

These firms have had a huge impact on society, but the total jobs they have created are only a rounding error in our economy.

As the idea sinks in that human workers may be less necessary than in the past, what happens if the job market stops providing a living wage for millions of Americans?

How will people afford to pay the rent? What will happen if the bottom quartile of workers in the US simply can’t find a job at a wage that could cover the cost of basic staples?

What if smart machines took out the lawyers and bankers? Bloomberg is reporting that job loss is on the way for bankers. Banks are racing to remake themselves as digital companies to cut costs. In other words, they’re preparing for the day that machines take over more of what used to be the sole province of humans: knowledge work. From Bloomberg:

State Street had 32,356 people on the payroll last year. About one of every five will be automated out of a job by 2020, according to Rogers. What the bank is doing presages broader changes about to sweep across the industry. A report in March by Citigroup…said that more than 1.8 million US and European bank workers could lose their jobs within 10 years.

They close by saying that Wall Street will go on—but without as many suits.

Some estimates say that automation could cost half of all current jobs in the next 20 years. The OECD thinks the number is smaller. They argued last month that lots of tasks were hard to automate, like face-to-face interaction with customers. They concluded that only 9% of American workers faced a high risk of being replaced by an automaton.

9% of today’s American workforce equals 13.6 million jobs. It just took us seven years to gain 14.5 million jobs, most of which were contractors and temp jobs.

The prognosis for many medium and some higher-skilled workers appears grim.

The corporatists have seen these forecasts. It explains their unwillingness to do anything serious to create effective jobs programs here at home. They don’t need to do anything, because there is a (virtually) infinite supply of skilled and unskilled workers in the overpopulated third world.

So, these are today’s questions for the Pant Suit and the Pant Load, and their answers need to be specific:

  • Where will the household’s income come from when jobs alone can’t provide it?
  • How will we deal with large-scale inequality that requires large-scale redistribution?
  • Is it time to think about how to provide more income that isn’t directly tied to a job?

From Eduardo Porter:

For large categories of workers, wages are already inadequate. Many are withdrawing from the labor force altogether. In the 1960s, one in 20 men between 25 and 54 were not working. Today it’s three in 20. Although the population is generally healthier than it was in the 1960s; work is almost uniformly less demanding. Still, more workers are on disability.

The issue is not technology, or robots, or restoring our manufacturing base. It isn’t better skills, or technology or outsourcing. We have too many people chasing too few good jobs.

This is why we need the presidential candidates to speak the truth about job creation in America.

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Technology Isn’t Creating Enough Middle Class Jobs

Yesterday we talked about how America is losing middle class jobs to technical outsourcing on our way to becoming a land of spreadsheets and flags. Today, let’s discuss another aspect of that; how technology continues to cost more and more mid-skilled jobs. We usually think of technology as a great panacea, making most of our processes more efficient. In fact, many of us can look back on the “sneakernet” of the 1980s and feel good about how far we’ve come with technology.

But technology has also reduced the number of middle class workers required, at a time when American wages are stagnant and benefits are falling for the remaining available jobs.

The meme used to be that if technology replaced workers, new jobs came along and net-net, more people were employed. Although things weren’t that simple, by 1900 if you were displaced, you could get another job because 99% of all jobs were still done only by humans.

Today corporations tell us that the knowledge economy can take as many workers as we can create, and since we can’t create them fast enough, technology firms need more of the H-1B visas we discussed yesterday. This is false. Facebook is touted as a prime player in the knowledge economy, but it only employs 5,800 to service 1 billion customers! Twitter has 400 million total users. It has 2,300 employees.

What is the value of Facebook and Twitter to the jobs economy? These are two of our very “best” success stories, and they only employ 8,100 workers. They have had a huge impact on society, but the total jobs they have created are only a rounding error in our economy.

Much of what we want to buy is produced in factories increasingly run with robots, and maintained and operated by small cadres of engineers. Increased sales of iPhones only add a few sales jobs at $12/hour in the US and not many new factory jobs in China. Also, keep in mind that globally, some 3 billion people are looking for work and the vast majority are willing to work for less than the average American.

We all know that technology is costing jobs, and by some estimates it could cost half of all current jobs in the next 20 years. So, we can expect an ever-greater number of unemployed chasing an 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. With this being said, technology is benefiting a lot of businesses and the way they operate. You’ll get a better understanding of it just by reading these Quotes about AI. Seeing as technology doesn’t look like it is going anywhere anytime soon, we might as well use it to our advantage in a business.

The oligarchs have seen these forecasts. That may explain their unwillingness to do anything serious to create effective jobs programs here at home. They don’t need to do anything, because there is a (virtually) infinite supply of skilled and unskilled workers in the overpopulated third world.

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.

Incomes will continue to stagnate, because automation does not threaten unskilled jobs. This is sometimes called “Moravec’s Paradox”, which says that, contrary to traditional assumptions, high-level reasoning requires relatively little computation, but low-level sensorimotor skills require enormous computational resources. The “Roomba” robotic vacuum cleaner is, despite years of development, just an expensive toy. It has had zero impact on the market for janitors and maids, yet, wages for American janitors and maids have fallen because of competition from the currently unemployed and newly arrived immigrants. While the Roomba aims to be a forward-looking cleaning solution, it still cannot compete with the manual vacuum cleaners, like Bissell’s, that still prove to be the preferred choice despite innovative attempts to move towards automation. See this link for Bissell vacuum cleaners – https://www.bissell.com/vacuums/upright-vacuum-cleaners/

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 the developed world.

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Monday Wake Up Call – May 8, 2015

“Ethics is knowing the difference between what you can do and what you should do.”Justice Potter Stewart

It looks like Scrooge McDuck runs human resources at Disney. Disney World laid off 250 tech workers, who were American programmers and computer operators that have been replaced by Indian techies with H-1B visas. The techs were supplied by HCL America, an Indian outsourcing firm.

H-1B visas are intended for high-level professionals who, in concept, fill jobs for which no Americans are available. 85,000 of these visas are granted each year, and they are in high demand. Technology giants like Microsoft, Facebook and Google repeatedly press Congress to add to the annual quotas, saying there are not enough Americans with the skills they need.

In Disney’s case, the Americans were not only available, they were actually working in the jobs.

The H-1B visa program has been great for tech innovation, and the Wrongologist supports it, but this is an egregious abuse of the corporate right to employment at will, and of the spirit of the H-1B visa laws. From the NY Times:

The chairman of the Walt Disney Company, Robert A. Iger, is a co-chairman with Michael R. Bloomberg, the former mayor of New York, and Rupert Murdoch, the executive chairman of News Corporation, in the Partnership for a New American Economy, which pushes for an overhaul of immigration laws, including an increase in H-1B visas.

Companies speak a lot about teamwork, esprit de corps, and group identity, all in the context of helping the company reach its goals. But the Disney lesson is that we’re really good at ignoring those lofty ideals, while driving an anti-employee, mean-spirited chase of a marginal dollar of profit.

If employers really need a foreign employee resource, they should be charged an annual fee of $50K for each H1-B visa they use. For truly unusual skills, it would be worth the fee. For Disney, who is just looking to buy labor for a few dollars less than the going rate for American citizens, it would remove the economic advantage. We need to ask our corporations to stop defending the indefensible.

Republicans shout from the mountaintops about illegal immigrants, while on the other hand, they are quite willing to add to the numbers of H-1B visas, immigration of a kind. Furthermore, H-1Bs allow for chain migration (kids and spouses) as well, and thanks to new rules, H-1B spouses can work as well.

Time to wake up America! Disney’s H-1B’s are the first step in a process. They have been brought in by Disney so that they can gain the experience to manage Disney’s IT operation. And some time down the road, Disney’s Florida HCL people will work with HCL’s India-based IT workers, allowing Disney to move most of their IT operation over there at a fraction of the cost that Disney pays here.

Corporatism has inverted Henry Ford’s mantra to pay his workers enough to afford his cars. The new mantra is, pay only a few employees enough to afford your goods, and let the government worry about the rest of them.

America has to be more than a spreadsheet and a flag.

Today’s wake-up is another in our spring bird collection. It is the Orchard Oriole, the smallest of North America’s orioles, it builds hanging, pouch like nests during its breeding season. We get both the Baltimore Orioles and these guys in Mid-May:

For those who read the Wrongologist in email, you can view the video here.

Monday’s Hot Links:

The Wall Street Journal had a blog post open letter to consumers asking why consumers didn’t spend more money. Imagine their concern, since mean US family income is stuck at the same level as in the late 1990s. Remember that the WSJ supports the TPP trade legislation, like the last deal that outsourced millions of middle class jobs. Please, WSJ, go back to talking to companies, and leave consumers alone.

A list of the top 50 restaurants in the world. 5 are in the US. Wrongo and Ms. Right are going to #49 later this month.

In a stunning discovery that overturns decades of textbook teaching, researchers at the University Of Virginia School Of Medicine have found that the brain is directly connected to the immune system.

Owning a home no longer plays the same role in the lives of Americans that it has in the past. And it is clear that many middle-income Americans cannot realistically aspire to become homeowners anytime soon. A recent survey conducted by the American Institute of CPA’s found that most Americans are now more concerned about having enough money to retire than about becoming a homeowner.

China has 30,000 tons of gold, (which is almost more gold than the rest of the world’s central banks, combined). It’s also important to make explicit that the Chinese are slowly laying the groundwork for it to take over the dollar’s role as the global reserve currency sometime in the future.

Chinese state media has warned that war with the US may be “inevitable.” Beijing published a policy paper detailing how its military will shift its focus from land and coastlines to the open seas. They criticized “external countries…busy meddling in South China Sea affairs. The money quote:

We do not want a military conflict with the United States, but if it were to come we have to accept it.

 

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