The 1992 CBC Massey Lectures, “Twenty-First Century Capitalism” ~Robert Heilbroner






Robert Heilbroner’s “Twenty-First Century Capitalism” is published by House of Anansi Press in Toronto.

Print edition available at this link and digital edition available here

Artificial intelligence, robots and the future of work, Part 1 (CBC Ideas)


“AI and robots seem to be everywhere, handling more and more work, freeing humans up—to do what? Contributor Jill Eisen takes a wide-angle lens to the digital revolution happening in our working lives. She starts in the nineteenth century, when the Industrial Revolution saw the triumph of machine power over muscle power. Now artificial intelligence is on the verge of replacing our own intelligence. It took decades to adjust to machines out-performing human and animal labour. What will happen when robots and algorithms surpass what our brains can do? Some say digital sweatshops—repetitive, dull, poorly paid and insecure jobs—are our destiny. Others believe that technology could lead to more fulfilling lives.”  This episode is Part 1 of the series.

The Pension Problem Won’t Go Away

From Satyajit Das’s “The Age of Stagnation” aka “A Banquet of Consequences”[1]:

General Motors (GM), once a symbol of America’s industrial might, is now a token of the problems of entitlement programs. Shaped by chairman Alfred P. Sloan, who ironically was indifferent to cars, GM once produced more vehicles than all its competitors combined. In 1955, the company made unprecedented profits of US$1 billion. In the apocryphal words of the chief executive, Charlie “Eugene” Wilson, what was good for America was good for GM, and probably vice versa.

Between the late 1940s and the 1960s, GM and the United Automobile Workers, led by Walter Reuther, negotiated increased employee benefits. These included guaranteed wage increases ties to increases in the cost of living and to improved productivity, more paid vacations, pension benefits (adjusted for government-sponsored Social Security entitlements), disability benefits, and medical benefits for both workers and retirees. GM provided job security, guaranteeing payments to supplement unemployment benefits for workers made idle by plant shutdowns, In 1973, the United Automobile Workers negotiated the infamous thirty-and-out arrangements, enabling any employees with thirty years’ service to retire with full pension and healthcare benefits.

The steel, railroad, and airline industries negotiated similar arrangements for their workforces. By the late 1960s, around 45-50 percent of US workers were entitled to company pensions.

With demand buoyant, GM wanted to avoid labour unrest and lengthy disruptive strikes that would reduce profits. The firm reasoned that higher costs could easily be passed on to buyers. In the 1970s and 1980s , a weaker GM continued to increase benefits, preferring deferred payments to immediate cost increases so as to remain competitive, and obtaining agreement to changed work practices. Critics expressed concern about these future obligations, questioning whether companies could finance the payments. A young management consultant, Peter Drucker, doubted that a company could forecast its ability to meet such obligations decade into the future.[2]

Fast forward to 2017, to another bastion of America’s industrial might, General Electric (GE), whose CEO, Jeffrey Immelt, is set to depart on August 1. Immelt leaves the company with a massive pension obligation — an estimated $31-billion shortfall between pension assets and future liabilities — which will be the proverbial ball and chain around the neck of Immelt’s successor, John Flannery. But we don’t have to feel sorry for Flannery, executives have the ability to exercise real options in their favour to the detriment of the stakeholders who put in years of service at companies, only to see their pension assets mismanaged by the fiduciaries entrusted to oversee them, and by the short term myopia of maximizing shareholder value.

Think of this, GE undertook a $50 billion share buyback plan during the latter stages of Immelt’s tenure. According to Factset  General Electric bought back $21 billion in stock over the trailing twelve months ending fiscal Q3 2016, which helped reduce its shares outstanding by a massive 12.5% over that period. Rather than the lavish expenditures on share buybacks,  General Electric could have spent a portion of those funds on reducing its pension shortfall and embark on de-risking the strategic allocation of its defined benefit pension  plan portfolio. But instead, the binary decision tree outcome was squarely skewed in favour of short term gains so that executives, compensated heavily by their vested equity holdings, would benefit. Who cares a wit for the 231,000 retirees and families and approximately 242,000 current and former workers?[3] This behavior is in keeping with the narrative that all economic gains are going to those at the top of the corporate food chain (see economist Gabriel Zucman‘s chart below). The state of ethics is such that those at the top who are compensated by equity will vote in favour of their enrichment, and they can kick the can of future obligations down the road so that it becomes someone else’s problem.

income-gains Do I have an axe to grind against GE? No at all. For full disclosure I am a shareholder and my holdings of the company’s stock are modest and account for a small percentage of my RRSP. I am long the stock because of the long term view that it will be a major player in the Industrial IoT. As Nick Srnicek states in his book, “Technology after Capitalism” also know as “Platform Capitalism“:

   The competition here is ultimately over the ability to build the monopolistic platform for manufacturing: ‘It’s winner takes all,’ says GE’s chief digital officer. Predix and Mindsphere both already offer infrastructural services (cloud-based computing), development tools, and applications for managing the industrial internet (i.e. and app store for factories). Rather than companies developing their own software to manage the internal internet, these platforms license out the tools needed. Expertise is necessary, for instance, in order to cope with the massive amounts of data that will be produced and to develop new analytical tools for things like time series data and geographical data. GE’s liquid natural gas business alone is already collecting as many data as Facebook and requires a series of specialised tools to manage the influx of data.

But will GE learn from GM’s mistakes? GM was forced to file for Chapter 11 reorganization in 2009, this was the biggest industrial bankruptcy in history and forced concessions from the UAW with respect to retiree healthcare entitlements and compensation. Closer to home, and on a significantly smaller scale, the Sears Canada debacle illustrates how the pension problem won’t go away. Sears Canada’s  $266.8-million deficit in its defined benefit pension plan had meant special monthly payment of $3.7 million in order to raise its funded ratio. Those special payments will be suspended, and the lawyer representing Sears Canada retirees had an expected response:

“The process that Sears Canada is following offers no protection for the retirees’ pension losses, and Sears Canada now also seeks to cut off retiree health and life insurance benefits,” said Andrew J. Hatnay, Partner at Koskie Minsky LLP. “This is a totally unacceptable situation for Sears retirees who earned their pensions and benefits during their employment service for the company.” [4]

The issues touched upon here concern the private sector, but the situation in the public sector is worse, particularly in the US system where the under funding for municipalities and states amounts to $1.3 trillion. It is high time for companies to reflect and reassess their positions surrounding future entitlement to their current and retired employees. Low discount rates for unfunded liabilities won’t go away — the cycle of central bank tightening which is all the rage amongst the financial press will make way for looser monetary policy once the business cycle turns to lower growth and eventually a recession. Moreover, the return assumptions of pension planse —Calpers cut its expected return on assets to 7%— remain too high.

We need to adjust our collective thinking on retirement age and what retirement actually entails. Japan of today is our future in the West tomorrow. There will be people working longer, and people working in their golden years. Defined Benefit plans are going the way of the dodo in the private sector but stories of entitlement debacles won’t disappear as quickly. This is a problem with no easy solution; there is no silver bullet.

[1] The phrase “Sooner or later everyone sits down to a banquet of consequences” is attributed to Robert Louis Stevenson. Das’s book “A Banquet of Consequences” was renamed “The Age of Stagnation” for the North American market.

[2] Peter Drucker, “The Mirage of Pensions,” Harper’s Monthly, February 1950.

[3] Michael Hiltzik, GE spent lavishly on shareholders, shortchanged pensions and still landed in a deep hole , LA Times, June 16, 2017.

[4]‘ Totally unacceptable’: Sears Canada looks to suspend employee retirement benefits in restructure

Noah Smith on Mirowski on Noah Smith on Mirowski on……..and related thoughts

Rishabh Kumar providing clarity and correcting Noah Smith on Philip Mirowski on Noah Smith on Philip Mirowski…

Rishabh Kumar's homepage

I just came across Noah Smith’s post on Mirowski’s social physics thesis (this is the second I believe) where Smith tries to address concerns raised by Mirowski on the ‘casual nature’ of the blog-writer’s understanding of physics envy.

To start with, I quote Noah Smith – “…For more specifics on exactly how ideas crossed from physics to econ, and on which of those ideas remain to this day, one should probably check out Mirowski’s book(though I hope it’s written in a different tone than this interview) …”

The last sentence in bold tells me that Noah Smith has not really read Philip Mirowski, till date, and so probably does not really do justice to one of the best historians of economics in the profession today. I suggest Mr Smith, who often brings out important issues about the discipline with great clarity, take the time to read…

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The Education of an Economist

WEA Pedagogy Blog

threebooksIn our PhD Economics program at Stanford, we learnt nothing about the history of major economic events of the twentieth century. Instead, we were taught the rather arcane and difficult skill of building models. In order to analyse what would happen in an economy, we learnt that you have to construct an artificial economy, populated by rational robots called homo economicus, who behave according to strict mathematical laws. At no point in our studies were we asked to match what happens in our models with any events in the real world; it was assumed that the two always matched. This process of economic modelling permits us to provide exact mathematical answers to a vast range of questions one might ask about the economy. This is undoubtedly a powerful technique, which has earned economics the name “Queen of the Social Sciences”. Our poor cousins in political science, psychology, sociology, geography, and…

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Are we prepared for the Internet of Things?

As we approach an era where virtually everything in our modern societies will be connected all the time — I am referring to the ubiquity of the Internet of Things (IOT) — we unarguably become prone to malicious elements, most notably hacking. We are told not to worry as we aren’t interesting enough. We aren’t plutocrats, CEOs, celebrities, high ranking government officials so we can hide behind a principle  termed “privacy through obscurity.” In essence, while anyone can theoretically be hacked by anyone with enough skill, time, and smarts, most of us simply aren’t interesting enough for hackers to attack.

That thought is of little comfort to professionals in the field of network connectivity and security. The more you know, the less you relax, the less sanguine you are about the possibility of an IOT attack on your own home. Ignorance is bliss.

So that we are all a bit less ignorant, I suggest this article and video by Kevin Roose, I dared two expert hackers to destroy my life. Here’s what happened:

Two excerpts (from Roose’s Fusion piece):

Part 1: Social Engineering

Chris began by compiling a dossier on me, using publicly available information like my email address, my employer, and my social media accounts. Most of this was information I’d made available on purpose, but some of it wasn’t. (They found my home address, for example, by enlarging and zooming in on a photo I’d posted to Twitter of my dog, which had the address listed in tiny type on the dog’s tag.)

Once he had my personal information, Chris and his team went to work. They called Time Warner Cable and Comcast, pretending to be my girlfriend, and figured out whether or not I had an account with either of the companies. (I don’t.) They called the local utility company to see if I had an account there. (I do, but it’s not under my name.) They found my Social Security number on a special-purpose search engine, and took a survey of my social media activities. In total, their dossier on me added up to 13 pages.

Part 2: The Shell

Dan began hacking me with an elaborate phishing scheme. Running a WHOIS search on my personal website, he found out who hosted my site (Squarespace), and registered an available domain name that was one letter away from Squarespace’s. He then set up a fake website that purported to be a Squarespace security page, and sent me a convincing-looking email that claimed to be from Squarespace’s security team, asking me to go to the page he’d set up and install a certificate that would improve the security of my site. I’ve received a lot of phishing emails over the years, and this was the slickest one I’d ever seen—so slick, in fact, that I clicked on it even though I had promised myself I would be extra-careful while the hackers were targeting me.

The certificate I installed, of course, wasn’t really from Squarespace—it was malware he’d written that created what’s called a “shell.” This shell allowed Dan to remotely log into my computer and execute commands it as if it were his own—essentially giving him control of my entire machine.

You can follow Kevin Roose on Twitter here: @kevinroose