Thursday, May 25, 2017

The Big Issue

One of the biggest issue from now on is going to be how people will be able to earn a living in a world increasingly dominated by computers. But you would not know it from listening to politicians, especially Democrats, who claim to speak for the little guy.

Even though computers and the uses to which they are put--such as Artificial Intelligence (AI) and robots--will not likely displace all jobs, the number of jobs they will eliminate could very well plunge the whole world into a state of economic uncertainty, if not outright permanent depression.

Am I overstating the risk? Isn't it true that ever since the Industrial Revolution, jobs displaced by changing technology have been replaced by even more jobs in other lines of work? Won't retraining for jobs alongside the computer "maintain the equilibrium," i.e., create as many or more jobs than are replaced?

Not necessarily, or even likely. 

A recent report by Professors Daron Acemoglu and Pascual Restrepo, Robots and Jobs: Evidence from U.S. Labor Markets, published by the National Bureau of Economic Research, analyzes the effect of the increase in industrial robot usage between 1990 and 2007 on US local labor markets. Note that this is not a study of the overall effect of automation and computerization on jobs; it is just the effect of robots, which the report defines as 
fully autonomous machines that do not need a human operator and that can be programmed to perform several manual tasks such as welding, painting, assembling, handling materials, or packaging. Textile looms, elevators, cranes, transportation bands or coffee makers are not industrial robots as they have a unique purpose, cannot be reprogrammed to perform other tasks, and/or require a human operator.
The authors note that their report is only "a first step in a comprehensive evaluation of how robots will affect, and are already affecting, the labor market equilibrium, . . . because our methodology directly estimates only the effect of robots on employment in a commuting zone relative to other commuting zones that have become less exposed to robots." But the authors offer a convincing basis for believing that this is a necessary first step and has validity. 

The bottom line? Sizable net loss of jobs and more in the future:
Because there are relatively few robots in the US economy, the number of jobs lost due to robots has been limited so far (ranging between 360,000 and 670,000 jobs, equivalent to a 0.18-0.34 percentage point decline in the employment to population ratio). However, if the spread of robots proceeds as expected by experts over the next two decades (e.g., Brynjolfsson and McAfee, 2012, especially pp. 27-32, and Ford, 2016), the future aggregate implications of the spread of robots could be much more sizable.
A recent UK-oriented report by PriceWaterhouseCoopers, Will robots steal our jobs? The potential impact of automation on the UK and other major economies, attempts a more ambitious task: measuring the effects on employment in major Western economies, principally that of the UK. The methodology is to analyze the effect of automation on specific tasks within jobs. These are the "Key Points":

• Our analysis suggests that up to 30% of UK jobs could potentially be at high risk of automation by the early 2030s, lower than the US (38%) or Germany (35%), but higher than Japan (21%). 
• The risks appear highest in sectors such as transportation and storage (56%), manufacturing (46%) and wholesale and retail (44%), but lower in sectors like health and social work (17%). 
• For individual workers, the key differentiating factor is education. For those with just GCSE-level education or lower, the estimated potential risk of automation is as high as 46% in the UK, but this falls to only around 12% for those with undergraduate degrees or higher. 
• However, in practice, not all of these jobs may actually be automated for a variety of economic, legal and regulatory reasons. 
• Furthermore new automation technologies in areas like AI and robotics will both create some totally new jobs in the digital technology area and, through productivity gains, generate additional wealth and spending that will support additional jobs of existing kinds, primarily in services sectors that are less easy to automate. 
• The net impact of automation on total employment is therefore unclear. Average pre-tax incomes should rise due to the productivity gains, but these benefits may not be evenly spread across income groups. 
• There is therefore a case for some form of government intervention to ensure that the potential gains from automation are shared more widely across society through policies like increased investment in vocational education and training. Universal basic income schemes may also be considered, though these suffer from potential problems in terms of affordability and adverse effects on the incentives to work and generate wealth.
These are just two of many reports and studies in the recent past. More research needs to be done, but it is extremely dangerous to fall back on the nostrum that all will be well because people will be retrained. The chances are substantial that, instead, we will end up with more and more income and wealth going to the most highly educated (which usually correlates with the accident of people's birth) and the great mass fighting among themselves for reduced income from fewer jobs.

The question is, do politicians start talking about this or do they wait for the effects to be solidified? 

From my experience in past Democratic Congressional campaigns, the consultants will solemnly state that candidates can't talk about issues this complicated. So, stick to yelling "Hands Off My Medicare!" while ignoring the long-term threat to Medicare and Social Security solvency. 

Donald Trump taught us one thing: politicians who talk--even (or especially, I fear) dishonestly or ignorantly--about issues that people see and feel for themselves can attract voters. By contrast, when Hillary Clinton was asked at the debates what economic policies she advocated, she immediately started talking about infrastructure spending--a necessary program but not focused on the long-term problems of the process of hollowing out in small towns and cities throughout the U.S. In other words, uninspiring and tone deaf to people's feelings.

The conclusion from the PwC report about the need for a societal response is a warning to politicians that sitting idly by and waiting for automation to wreck people's lives is bad policy and bad politics. 

I am waiting for Democratic candidates and think tanks to start talking about this issue openly and vigorously. It is a hell of a lot better way of demonstrating to people that "we care" and "we hear you" and "we feel your pain" than (a) emitting these hackneyed phrases or (b) talking only about infrastructure programs. 

Being a realist, I expect to have a long and lonely wait.

Tuesday, February 21, 2017

The Piwowar Kerfuffle

Bloomberg reports that the acting Chair of the (at present, 2-member) SEC, Michael S. Piwowar, has requested an examination of delegated authority to the Staff. Delegated authority is authority nominally vested with the 5-member Commission that the Commission delegates to specific staff members.

The SEC has the statutory authority to conduct investigations of possible violations of the federal securities laws or rules, by issuance of subpoenas for documents and testimony. That authority, under the law, can be exercised by "any member of the Commission or any officer designated by it." 

The staff (since 1972 in the centralized Division of Enforcement ) has long since been delegated the authority to conduct investigations, and to suggest otherwise would be scandalous. The issue is whether the Commission should decide what to investigate with subpoena power.

Under 17 CFR § 202.5(a), formal orders of investigation are issued on a case-by-case basis to authorize the issuance of subpoenas. Until 2009, formal orders were issued by the Commission. The Staff would have to submit a memorandum recommending the issuance of the formal order and detailing the evidence, and perhaps the legal theory, justifying the necessary conclusion that it is possible that the securities laws have been or about to be violated. Formal orders were usually obtained within 3 weeks. Rarely, if ever, was the request turned down. Emergency situations requiring immediate action resulted in approval on a "walk-around" (the Commissioners' offices) "seriatim" consideration. I was involved in SEC investigations, on its Enforcement Staff, from 1973 to 1981, and never found the extra effort required to obtain Commission approval of a formal order to be a deterrence to effective enforcement. It added an extra set of eyes to review this very formidable exercise of power--not, generally, a bad thing at all.

In 2009, the Commission was in the midst of the great financial crisis and, not coincidentally, the well-deserved scandal resulting from the abject failure of the Commission Staff to recognize the Madoff fraud. Undoubtedly looking for a way to divert attention from the Madoff (and Sanford) frauds and to make it appear the Commission was "tough," the Commission issued an order delegating, for a one-year trial period, to the Director of Enforcement the authority to approve formal orders of investigation. A year later, the delegation was made permanent. The SEC said that the purpose of this delegation  to "expedite the investigative process by reducing the time and paperwork previously associated with obtaining Commission authorization prior to issuing subpoenas." Perhaps. Meanwhile, the Director "sub-delegated" the power to issue formal orders to a host of senior staff within the Division.

In my opinion, as a former supervisor in the Enforcement Division (1973-1981), Acting Chairman Piwowar is doing no harm by inquiring into the issue of delegation, and there would be nothing wrong, assuming the good faith (and willingness to enforce the laws vigorously) of the Commissioners, with bringing back issuance of formal orders to the Commission. 

A bigger and more important, if less sexy, question is whether the Acting Chairman wants to get to the bottom of what has been a chronic problem, at least in years past, with Enforcement: getting the facts right. Staff recommendations to sue someone have to be approved by the Commission itself. These recommendations are contained in a staff "action memorandum," which describe the factual and legal basis for bringing a particular case against a particular individual or entity. 

The Commission frequently gets the facts wrong in its suits. Why? Because the factual assertions in action memoranda--the content of documents and witness statements--are not always carefully reviewed by supervisors before these action memoranda are sent to the Commission. I required my staff--including the later Director of the Division of Enforcement, Bill McLucas--to annotate their draft action memoranda to the evidence, and I checked the evidence. I do not believe that this is the uniform practice even today, in the age of electronic documentation. It positively should be required, and, if that change were effected, whoever got that done would deserve hearty praise.

Getting the facts wrong is bad for the Commission and bad for the individual or entity that may be falsely accused. Getting it right is the moral thing to do.

Unfortunately, when I left a message with Acting Chairman Piwowar's office seeking to speak with his office and pass on this observation, I got a call back not from his staff but from the Commission's Public Affairs office (apparently because I had said on the phone message that I authored a blog). The flack, smarmily, said "no comment." 

Too bad for Acting Chairman Piwowar. He was on the right track.

Tuesday, January 31, 2017

To Marco Rubio: Oppose Nomination of David M. Friedman

January 30, 2017

Hon. Marco Rubio
United States Senate
Washington, D.C. 20510

Re: Nomination of David M. Friedman to be
U.S. Ambassador to the State of Israel

Dear Senator Rubio:

I urge you to oppose the nomination of David M. Friedman to be the U.S. Ambassador to the State of Israel. You voted for Rex Tillerson to be Secretary of State because you found him to be personally qualified and because you felt it appropriate to give the President the benefit of the doubt in that instance. This was not an unreasonable decision despite your openly expressed doubts about his nomination. I urge you to follow the same approach in considering the Friedman nomination. If you do, you will not be led to the same conclusion. This nominee does not deserve the benefit of the doubt.  

On Facebook, you cited Mr. Tillerson’s “impressive record of leadership” given his role at ExxonMobil. What is the comparable test for a diplomat? Robert D. Blackwell, deputy assistant to the President and deputy national security advisor for strategic planning under President George W. Bush, has written the top two “ideal qualities of a successful diplomat” are to “possess an abiding interest in and passion for the art and craft of diplomacy and international relations” and to “demonstrate an analytical temperament” (which he defines as the opposite of “ideological predisposition and rigidity”).  From what is known of Mr. Friedman, these are not his personal characteristics. They are important for an ambassador to a minor country in a placid region. They are extremely important for one appointed to be a diplomat in the most volatile region of the world.

Being a successful diplomat in Israel requires more than loudly siding with one extreme or another within Israeli society. It requires an understanding and appreciation of the incredible diversity of opinion within Israeli society and an ability to inspire confidence among Arab nations of many different stripes. But there is nothing about Mr. Friedman that suggests that he any capacity to demonstrate the characteristics needed of a U.S. Ambassador to Israel. Indeed, rather than possessing the demeanor of a skilled diplomat, he is intemperate to the extreme. He has engaged in vile name-calling against fellow Jewish Americans who do not share his views on the current Israeli Government’s policies, calling them “far worse than kapos—Jews who turned in their fellow Jews in the Nazi death camps” He has said they are “not Jewish.” As a Jewish American who loves Israel but thinks Mr. Friedman’s policies imperil its long-term security, I consider these to be offensive and disqualifying attacks, and so should anyone who believes in free and open discussion of important issues, not to mention common decency. Mr. Friedman has not limited his personal attacks to fellow Jews: he has attacked anyone in U.S. politics with whom he disagrees as Anti-Semites, including one hundred years’ worth of U.S. diplomats. 

Whether one agrees or disagrees with this or that policy, it takes a special—and thoroughly unacceptable—individual to demonize all those with whom he disagrees. Perhaps one who operates through insult and unalloyed aggressiveness would be one’s choice as his or her own lawyer, but you and I both know that winning against such a lawyer is often far easier than against a quiet, reasonable opponent who picks his or her fights carefully and never engages in ad hominem. There is no question that such would be the overwhelmingly better makeup of a successful diplomat in a sensitive diplomatic post.

Even aside from his disturbing rhetorical tendencies, Mr. Friedman’s strident opposition to the two-state solution and his support for the most extreme elements within Israel’s settlement community disqualify him as a useful representative of the United States. We do not know the details of President Trump’s policy towards the Israeli-Palestinian conflict, although Mr. Tillerson, at his confirmation hearings, supported the two-state solution. We know for certain that Mr. Friedman’s mind is closed to that policy and to the concomitant need to stop expansion of Israeli settlements on the West Bank, which Ronald Reagan recognized was a prerequisite to the hope for peace in that land, based on a secure democratic Jewish state true to the Zionist vision. The alternative—maintenance of the status quo in the hope that Israelis can outlast Palestinians living under Israeli military command, or outright annexation, which will destroy both Israel as a secure democratic Jewish state—is the true illusion. 

David M. Friedman stands in favor of open-ended settlement activity and possibly, annexation, which can lead only to anti-democratic measures and a permanent state of war. He relies, for example, on wholly discredited claims that the number of Arabs in the West Bank is vastly overstated. This is an incredibly thin reed on which to lean Israeli security. Mr. Friedman also stresses the need to build the Palestinian middle class and couples this with the claim that they don’t care whether they are ruled by Jews or Arabs. The belief that there is a non-political bloc of middle-class Palestinians around whom an entire One State policy can be built may be the ultimate in illusionistic thinking, because it would seemingly eliminate the need to be concerned about Palestinians who will kill Israelis for political reasons. Sadly, it is extremely unlikely that, no matter what, a core of Palestinians will be opposed to the recognition of a Jewish state. And it must be remembered that the Arabs can lose every war with Israel but the last one. Israel cannot afford to lose a single one. 

The truth is that U.S. policy has been and continues to be in favor of a two-state solution not because of anti-Israeli or anti-Semitic prejudices. Rather, cold realism dictates this policy. The two-state solution is not an invention of liberals or Democrats. It reflects a basic reality that has long been recognized by fair-minded observers as the only method to provide for a secure, democratic Jewish state. It is supported by hundreds of former Israeli security and military leaders. President George W. Bush explicitly supported it.  As you know, it was recently supported by Mr. Tillerson in his testimony before the Foreign Relations Committee. Indeed, its roots reach back at least as far as 1982, when Ronald W. Reagan was President.

Thus, in a November 2016 paper, for example, Repairing the U.S.-Israel Relationship, Robert Blackwell wrote that one of the “core policy proposals to repair, redefine, and invigorate the partnership” between the U.S. and Israel is to

agree on a set of specific, meaningful measures that Israel will take unilaterally to improve Palestinian daily life and preserve prospects for a two-state solution, linking continued U.S. willingness to refrain from or oppose international action on Israeli settlements or the peace process to Israel’s implementation of such positive, concrete steps.

45 years ago, In September 1982, President Reagan outlined American policy towards the Israeli-Palestinian conflict, which was based on the recognition of a need for Palestinians’ “recognition of Israel’s right to a secure future” and steps leading to eventual Palestinian political independence. Importantly, Mr. Reagan stated unequivocally that “[f]urther settlement activity is in no way necessary for the security of Israel and only diminishes the confidence of the Arabs that a final outcome can be freely and fairly negotiated.” That statement is as true today as it was true then, and Mr. Friedman’s main belief is in the inviolability of further settlement expansion.

Mr. Friedman’s unacceptable beliefs are not limited to his views on settlement policy: he is also harbors dangerous ideas about Russia and Vladimir Putin. He has written: “Vladimir Putin gets it. He may be a ‘thug,’ as he was recently described by Senator Rubio, but he knows how to identify a national objective, execute a military plan, and ultimately prevail.” .

Finally, accepting Mr. Friedman because of a belief that he is broadly acceptable to the American Jewish population is not only an improper test—Jewish voters or donors should not have a hold on U.S. policy towards Israel—but is based on a belief that is completely out-of-date and out-of-touch with reality. Polling of Jewish Americans consistently shows that views such as those of Mr. Friedman are in the minority. Nevertheless, as I have stated, the issue should not come down to whether this appointment is popular or not; it should be decided on its merits. 

You admirably stated in your Facebook post announcing your support of Mr. Tillerson: “Our foreign policy is at its best and most effective when it is grounded in the moral principles and values that have defined us since our founding,” including “democracy and human rights.” David M. Friedman’s views do not pass this fundamental test. He is an extremist being nominated for a position where extremism is the enemy of achievement. If President Trump can achieve the goal of a separate, secure Jewish State, he will deserve the praise of the world. He will not be able to do so through the ministrations of Mr. Friedman if the Senate confirms his nomination. 

Senator, you have the opportunity to do something extremely constructive and courageous when considering the Friedman nomination. Most people understood why you voted in favor of Mr. Tillerson. Presidents do deserve the benefit of the doubt on their nominations, but that benefit stretches only so far. Please do not give the President of the doubt on his nomination. Mr. Friedman does not deserve it.

Sincerely yours,

{Splendid Spitter}