By Lambert Strether of Corrente.
Kidding! Partly. Hysteresis is the new seventy-five cent word suddenly popular among economists who’ve figured out — almost eight years on — that the effects of the 2008 crash and subsequent depression were and are long-lasting and irreversible. We used to call that the “new normal,” but that doesn’t sound scientific.
Larry Summers (WaPo, November 3) describes the emerging consensus:
Advanced economies are so sick we need a new way to think about them
Blanchard, Cerutti and I look at a sample of over 100 recessions from industrial countries over the last 50 years and examine their impact on long-run output levels in an effort to understand what Blanchard and I had earlier called hysteresis effects. We find that in the vast majority of cases, output never returns to previous trends.
While there is much more work to be done, I believe that, as of right now, the right presumption is in favor of hysteresis effects, despite their exclusion from the standard models used in almost all central banks.
Paul Krugman (New York Times, November 6):
Austerity’s Grim Legacy
The idea that policies that depress the economy in the short run also inflict lasting damage is generally referred to as “hysteresis.” It’s an idea with an impressive pedigree… [B]ut I think everyone was hesitant to apply the idea to the Great Recession, for fear of seeming excessively alarmist.
At this point, however, the evidence practically screams hysteresis. Even countries that seem to have largely recovered from the crisis, like the United States, are far poorer than precrisis projections suggested they would be at this point.
Martin Wolf (Financial Times, November 10):
In the long shadow of the Great Recession
A recovery is under way, but only in a limited sense. The change in gross domestic product of crisis-hit countries is now almost universally positive. But GDP remains far below what might have been expected from pre-crisis trends. In most cases, growth has not recovered, mainly because of declines in productivity growth.
[E]stimates of potential output track actual output. This suggests that “hysteresis” — the impact of past experience on subsequent performance — is very powerful. Possible causes of hysteresis include: the effect of prolonged joblessness on employability; slowdowns in investment; declines in the capacity of the financial sector to support innovation; and a pervasive loss of animal spirits.
The etymology of hysteresis — “Not to be confused with Hysteria” — is interesting; from my OED: “Greek husterēsis short-coming, deficiency, from husterein be behind, come late, from husteros. And the definition: “[A]ny dependence of the value of a property on the past history of the system.” For example, if I turned the thermostat down yesterday, and the boiler isn’t blasting quite as much money into the air today, my heating system is exhibiting hysteresis. At this point, let us pause to reflect that Summers’ “standard models” can’t model a system that simple.
Anyhow, I want to go back to the original paper on hysteresis, by Larry Summers and Olivier Blanchard (NBER Working Paper No. 1950, “Hysteresis and the European Unemployment Problem,” 1986). But before I do, please look again at the passages quoted from our panel of experts. Hysteresis is seen as something very abstract, rather like the dictionary definition:
- Summers: “output never returns to previous trends“
- Krugman: “policies that depress the economy in the short run also inflict lasting damage”
- Wolf: “the impact of past experience on subsequent performance“
Wolf doesn’t ask who is “impacted”; Krugman writes of “the economy,” a phrase that should always prompt you to ask “Whose economy?”, and Summers, like all the rest, never asks whose behind the “output levels” that are “impacted.” But the original paper from Summers and Blanchard is a little less bloodless. Quoting it:
The central hypothesis we put forward is that hysteresis resulting from membership considerations plays an important role in explaining the current European depression In particular and persistent high unemployment in general. The essential point is that there is a fundamental assymetry in the wage setting process between insiders who are employed and outsiders who are want jobs. Outsiders are disenfranchised and wages are set with a view to insuring the jobs of insiders. Shocks which lead to reduced employment change the number of insiders and thereby change the subsequent equilibrium wage rate, giving rise to hysteresis. Membership considerations can therefore explain the general tendency of the equilibrium unemployment rate to follow the actual unemployment rate. A number of types of empirical evidence consistent with cur hypothesis are adduced.
(Of course, “equilibrium” is a nonsensical fetish object; “the economy” is in “equilibrium” about as much as an aircraft at cruising altitude is in “equilibrium”; any model of aircraft flight will include complex feedback and feed forward loops, which, as Summers points out, the standard, equilibrium-based models do not incorporate.) Now, it’s possible that “membership considerations” have been abandoned by professional economists in work subsquent to 1986; and my purpose is not to rehabilitate it as a formalism. However, what Summers and Blanchard’s original approach to hysteresis does do, and which I would like to restore to centrality, is treat working people as full-fledged, empowered agents in our “model.”
Here I want to turn to the long and excellent comment thread for this Naked Capitalism post: “Martin Wolf on the Low Labor Participation as the Result of the Crapification of Jobs.” — and here we’re finally coming around to aircraft. From Jetfixr in Flyover (lightly edited):
Chickens are coming home to roost in aviation. Maintenance shops are turning away work, because they can’t find help. The Air Force wants to retire the A-10s, because they are maintenance hogs, and they need those mechs for the F-35s.
You would think that “supply and demand” in this case would cause higher pay. Wrong. The free market never seems to work for working stiffs. Companies would rather spend the money bribing government to supply ways for them to keep labor costs down. Like letting non-mechanics fix airplanes, as long as they are “supervised” by a licensed mechanic. Or signing bi-lateral treaties forcing the FAA to accept work performed overseas, without any kind of FAA oversight..
Guys who grew up fixing cars and tractors on the farm are being replaced by newbies whose closest experience to “turning wrenches” is the Playstation controller.
When I started, there was a training policy. That went away in the 1982-86 recession, when the suits discovered how much money they could save by eliminating it..
Then, we had twenty years of 2% pay raises, when the defacto inflation rate was around 6%. This was pretty much the standard for everyone involved in any kind of manufacturing or product support.
The 35-40 year old guy with 15-20 years in is a scarce commodity. You have a situation now where the 50 year old guys still turning wrenches are being shown the door, replaced by 25 year olds with less than 5 years experience. Everthing I’m hearing from my buddies in IT, manufacturing, construction indicates they have the same problems.
On top of this is the suits attitude that, as far as managing tech help, you don’t need to know the job, you just need to know how to manage people.
Jetfixr is describing Wolf’s “impact of past experience on subsequent performance” with a vengeance, right? It seems that the traders and MBAs and economists believe that everything can be solved with price. In fact, that’s not true. You can’t conjure a skilled workforce into being by brandishing a paycheck; real experience needs to be respected and acquired over time; and it seems the neo-liberal dispensation has spent a generation or so systematically disrespecting the real experience and skills of working people working on real systems and throwing it away. (Yes, you can train people, assuming that the training programs aren’t just walking around money for politically connected training firms, or for-profit scams, but training takes time. And that’s what hysteresis is all about, no? And Jetfixr is also describing insider/outsider distinctions in the workforce: Mechanics and non-mechanics; overseas and domestic; 50-year-olds wrench guys vs. 25-year-old gamers; these are all “membership considerations.”)
Not just mechanics; pilots. From JerryDenim (lightly edited):
Pilots are drying up as well for the exact same reasons mechanics are, It’s the result of years of the same short-sighted, greedy squeezing of high-skill workers by management. They were too clever by half, they were so good at squeezing pilots at the low end of the scale for so long people are now walking away or refusing to sign up, basically John Galt in reverse.
I spent ten years being exploited as a “regional” airline pilot and I can tell you that whole industry is a scam and a poster child for what ails the American economy. Regional airlines are fake companies, mere shells that exist for two reasons and two reasons only; 1.) to arbitrage labor and ( 2.) to distance the real owners from their misdeeds and questionable practices. Frequently these supposed independent contractor regionals only have client, giving them zero autonomy and no leverage. In addition to controlling all of the work/flying contracts the parent company or “client” frequently owns significant portions of the regional airline outright… The dichotomy between the regional airlines and their mainline partners is a false construct, but a very important one psychologically for the labor force participants and of course for regulatory and business purposes. The legacy carriers after decades of successfully boosting profits/lowering costs by outsourcing flying to the “regionals” have finally pushed the arrangement to the breaking point. A regional airline job is sold to young aspiring airline pilots as the ticket to the big-leagues, the final stepping stone in the painful career ladder to a legacy airline job. Pilots know regional airline jobs pay crap and the job is tough when they interview, but no one tells these pilots that there is no defined path out of the regionals and many pilots get stuck in the regional ghetto, often bouncing around the bottom of a few regional seniority lists as they get furloughed or chasing short upgrade times as the legacy airlines cycle flying contracts through the “whipsaw”. A lifestyle and compensation package that seemed like a bitter but manageable pill at 24, tastes very different at 34 and by 44 it’s an entirely different proposition. … Meanwhile his quality of life, benefits and income are probably going down. After years and years of this and a few Frontline specials word has finally got out that borrowing two-hundred thousand dollars or more from Sallie-Mae for a university degree and some FAA certificates isn’t worth it for a dead-end job that pays 18k a year, destroys your personal life and can get you locked up for showing up to work with a little hang-over. …
Legacy airlines are now scrambling to fill flight schedules that the regional airlines simply can’t fly anymore for a lack of qualified pilots, but none are proposing the obvious solution: in-house the outsourced regional flying and give pilots a decent paycheck, contract and a stable career outlook. Instead they are lobbying Congress for more of the usual neoliberal solutions like raising the retirement age (yet again, they just raised it for pilots by five years in 2007 which was a five-year career shot to pants of regional pilot gen-xers and millennials already struggling with low-pay and crippling debt) and slashing the credentials required for employment. … Even though the outsourced regional airline business model is at the breaking point and delivering an unreliable and unpleasant product, mainline management continues to double down on the old playbook that killed the goose by pitting the various regional workgroups against one another in a vicious race to the bottom for flying contracts.
Unless the legacy carriers can get Washington and the taxpayers to ride to their rescue their crapification of the airline pilot profession will prove to be too clever by half. I’m betting on a combination of reverse socialism, regulatory forbearance, lowered professional credentials, and relaxed immigration for pilots who want to immigrate to the States from even more depressed economies will save the big three. Anything but a rational and self-preserving shift away from nasty neoliberal squeeze-the-worker policies of the past thirty years.
(Notice that JerryDenim also descibes Blanchard and Summers’ membership considerations). JerryDenim makes all the same points that JetFixr makes. Notice they also, each in their own way, draw the same lesson — having been given, by management, extensive on-the-job training in this regard. JetFixr says: “The free market never seems to work for working stiffs.” JerryDenim says: “Anything but a rational and self-preserving shift away from nasty neoliberal squeeze-the-worker policies of the past thirty years.” These hard lessons are, as well, hysteresis effects. They embody “impact of past experience on subsequent performance.” Do Summers, Krugman, and Wolf really believe that a workforce that has been taught these lessons will, like happy little dwarves, shoulder their tools and march off, whistling, to “return” “output” to previous “trends”?
But wait! you say. These are mere anecdotes. And so they are — only nearly eight years after the 2008 depression have studies begun to be made. (In their columns, Summers, Krugman, and Wolf might also be viewed as introducing a new academic speciality). However, what we can do is point to the effects of hysteresis in the United States. Vanity Fair — see Graydon Carter on “the voice of the New Establishment” — has published an important article, “The Disturbing Truth About How Airplanes Are Maintained Today.” Here’s the flip side of what Jetfixr and JerryDenim are experiencing:
[If my aircraft] needed a major overhaul, presumably it would be performed by the airline’s staff of trained professionals. If Apple feels it needs a “Genius Bar” at its stores to deal with hardware and software that cost a few hundred dollars, an airline must have something equivalent to safeguard an airplane worth a few hundred million.
About this I would be wrong—as wrong as it is possible to be. Over the past decade, nearly all large U.S. airlines have shifted heavy maintenance work on their airplanes to repair shops thousands of miles away, in developing countries, where the mechanics who take the planes apart (completely) and put them back together (or almost) may not even be able to read or speak English.
The airlines are shipping this maintenance work offshore for the reason you’d expect: to cut labor costs. Mechanics in El Salvador, Mexico, China, and elsewhere earn a fraction of what mechanics in the U.S. do. In part because of this offshoring, the number of maintenance jobs at U.S. carriers has plummeted, from 72,000 in the year 2000 to fewer than 50,000 today.
The work is labor-intensive and complicated, and the technical manuals are written in English, the language of international aviation. According to regulations, in order to receive F.A.A. certification as a mechanic, a worker needs to be able to “read, speak, write, and comprehend spoken English.” Most of the mechanics in El Salvador and some other developing countries who take apart the big jets and then put them back together are unable to meet this standard. At Aeroman’s El Salvador facility, only one mechanic out of eight is F.A.A.-certified. At a major overhaul base used by United Airlines in China, the ratio is one F.A.A.-certified mechanic for every 31 non-certified mechanics. In contrast, back when U.S. airlines performed heavy maintenance at their own, domestic facilities, F.A.A.-certified mechanics far outnumbered everyone else. At American Airlines’ mammoth heavy-maintenance facility in Tulsa, certified mechanics outnumber the uncertified four to one. Because heavy maintenance is labor-intensive and offshore labor is cheap, there’s a perception that the work is unskilled. But that’s not true. If something as mundane as the tray of a tray table becomes unattached, the arms that hold it could easily turn into spears.
To be fair, it’s not like a lot of planes are falling out of the sky because the MBAs who run the airlines on behalf of the private plane-using 1% decided to gut a skilled, but hence expensive workforce, for a less-skilled and much cheaper one because markets; the article only lists five, although with this qualifier:
What effect does all this offshoring have on the airworthiness of the fleet? No one gathers data systematically on this question—which is worrying in itself—but you don’t have to look far in government documents and news reports to find incidents that bring your senses to an upright and locked position.
(Note that the Vanity Fair article, as well, describes hysteresis effects. The “off-shore” mechanics are, presumably, climbing the learning curve on aircraft maintenance for the same reason anyone would: Besides the money, and the hostages to fortune, it’s interesting, complex, and fulfilling work. But climbing the learning curve exhibits hysteresis, since it’s time-based, just as the concomitant degradation and insult of our own working people is also time-based. And what happens when the mechanics in El Salvador, Mexico, China reach the top of the learning curve, and collect their diploma, which will read, just as Jetfixr in Flyover’s reads: “The free market never seems to work for working stiffs”?)
And whoever would have thought that mechanics in El Salvador, Mexico, or China might not be able to read complex technical documentation in English? Well, the suits didn’t, and the executives didn’t. Or maybe they thought that documentation is just there for show; after all, “I don’t need to read the documentation for Excel!”MR SUBLIMINAL I know. I’ve read your formulas. Who knows? At this point, let’s note that aircraft maintenance is not the only essential infrastructure that exhibits hysteresis. Sluggeaux writes:
Without skilled trades-persons (such as electricians and jet mechanics), we will continue to experience catastrophic infrastructure failures like the Twin Cities I-35W bridge collapse or the PG&E San Bruno gas pipeline explosion.
We’d better hope we never get into a war with China. It will be a contest to see whose house of cards collapses first. This edifice of crap that corporate America has built can probably survive two weeks.
“I’ll be gone, you’ll be gone” only works with metaphorical golden parachutes. It doesn’t work with real aircraft; the best option there is using your seat as a flotation device. What will it take to get “the New” — now old — “Establishment” to recognize that hysteresis effects are lethal and, more to the point, could kill them? Sadly, I think something more attention-getting and immediate than columns by Summers, Krugman, and Wolf. Pass the popcorn, if the popper still works and there’s power. And corn.[1]
NOTES
[1] No seedcorn. We ate it already.
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Great post! That VF article caught my eye yesterday in Links. Because our system is a closed political/economic loop funded with fiat for political rather than economic goals, and our elephantine military still frightens the world, feedback has no avenue to penetrate the Beltway.
Some external event will eventually fix that, (did you notice the USS Teddy Roosevelt hightailing out of the Persian Gulf after Russia launched its cruise missiles from the Caspian?) and the Neo-Cons continue to whack at every hornets nest they can find. One can hope for and work for reasonable change, but the longer that’s suppressed, the more likely catastrophic change becomes.
Change will come whether planned or not.
The reason why neoliberal economists can’t see the consequences of their models is because they take hysteresis out of the equation. It is time invariant, they literally assume in their models that the consumer and producer are omnipotent. That a producer can foresee the future and make all allocation decisions at one time.
The economy is a chaotic system, it is non-linear, this can not be accounted for in the constrained neoliberal model. If you have the time, watch the lectures on the various schools of economics by Steve Keen.
Looks like hysterisis has been shocked out of equilibrium but it’s hard to know there’s a bubble or not.
It could be dangerous if the hysterisis bubble pops, so just keep saying it 8 or 9 times a day and write it down in sentences. Because you can always clean up after a bubble, but if you pop it you might get letters all over your face.
Eventually you can go back to “new normal” but not yet! Hysterisis, hysterisis, hysterisis . . .
hysterisis …the mini me ‘)
HT LAMBERT
Hysterisisical
Hysteresis doesn’t seem to describe the actual problem. People ‘on the ground’ immediately saw or forecast the problems as the poor decisions were made; it was only outsiders (i.e. flying public or regulators) who missed the problem for so long – what we have is really an accumulation of problems over time that lead to increasingly obvious warning signs of the underlying issue. To invent a new term to indicate “effects after a long time” seems to me to signal that we really are just not perceptive enough.
I bet lots of (mostly local) news stories in the last 15 years have discussed the outsourcing/loss of mechanics jobs, and I bet mechanics new damn well what was going on and expressed the likely consequences to the journalists. Clearly JetFixr has known and observed the effects for a long time!
Seems to me it’s only ‘Hysteresis’ (a seemingly delayed effect) if you’re not paying very close attention.
I originally learned about “hysteresis” in my HS electronics classes :)
“We’d better hope we never get into a war with China. It will be a contest to see whose house of cards collapses first. This edifice of crap that corporate America has built can probably survive two weeks.”
In the second world war, America beat the Germans because they were able to out-manufacture them, building tanks and other armaments faster that than Germany could. I think that in today’s world, the US would lose a conventional war with China, as the USA can hardly manufacture it’s way out of a paper bag nowadys, whereas China has thousands of modern, operational factories. I guess the pentagon thinks that if you depend primarily on drones and bombs it’s less of an issue.
Stalin beat the Germans, we just pinned down some of their troops.
We did beat the Japanese…
To be accurate, the Japanese Navy. The Japanese Army had been bled white by the Chinese (since 1931), punched by Commonwealth troops, and finally trounced by the Soviets.
In the early phase of the second Gulf war (the Iraq quagmire), I stumbled on a paper that revealed the extent to which the USA had lost the industrial capacity to wage a modern war.
I was completely surprised and kept an eye for similar articles. I downloaded the HTML, most URL are probably only accessible via the Internet archive nowadays.
Here is a summary. Pay attention to the dates.
2004-01-11: U.S. ammunition plant reaching its limit, Joseph L. Galloway, Knight Ridder Newspapers.
“The U.S. military’s only plant making small-arms ammunition is running at near capacity, 4 million rounds a day, and the United States still is forced to look overseas and to the recreational industry for ammunition for troops in Afghanistan and Iraq and those training to deploy there soon.
[…]
The Army in late December let two supplemental contracts to Olin Winchester of East Alton, Ill., and Israeli Military Industries for each to produce 70 million rifle rounds per month starting in June.”
—-
2005-02-07: U.S. cranks up ammo output as action, training for Afghanistan, Iraq drain stocks, Stephen J. Hedges, Chicago Tribune.
“The pace of training and combat required of U.S. troops in Iraq is prompting the Army to quadruple its production of small-arms ammunition compared with prewar levels, a move intended to stave off an ammunition shortage like the one the Pentagon faced last summer.
[…]
While the Army is opening up what had been an exclusive contract, Army officials said that not many ammunition manufacturers are capable of meeting the military specifications required for its small caliber rounds.
[…]
During World War II, there were 16 small caliber ammunition plants scattered throughout the U.S. That number was reduced to six during the Vietnam War, and after the war cut further to just Lake City, a facility that was opened in 1940 […]”
—
2005-09-25: US forced to import bullets from Israel as troops use 250,000 for every rebel killed, Andrew Buncombe, The Independent.
“A government report says that US forces are now using 1.8 billion rounds of small-arms ammunition a year. The total has more than doubled in five years, largely as a result of the wars in Afghanistan and Iraq, as well as changes in military doctrine.
[…]
The GAO report notes that the three government-owned, contractor-operated plants that produce small- and medium-calibre ammunition were built in 1941.
Though millions of dollars have been spent on upgrading the facilities, they remain unable to meet current munitions needs in their current state.
[…]
Also, commercial producers within the national technology and industrial base have not had the capacity to meet these requirements. As a result, the Department of Defense had to rely at least in part on foreign commercial producers to meet its small-calibre ammunition needs.”
—
2005-11-01: .50-caliber ammo used so much that supplies run low, David Wood, Newhouse News Service.
“U.S. troops in Iraq are firing .50-caliber machine guns at such a high rate, the Army is scrambling to resupply them with ammunition – in some cases dusting off crates of World War II machine gun rounds and shipping them off to combat units.
[…]
The Army surged production of new .50-cal ammunition, taking on more than 1,000 new workers at its Lake City ammunition plant in Independence, Mo.
[…]
Even that fivefold increase hasn’t been enough.
At Blue Grass, Darryl Brewer, a combat medic in Vietnam, is chief of logistics for the ammunition depot. Recently, he started pulling out .50 cal. crates marked 1945.”
—
2007-11-06: Taiwan ships 1 billion bullets to United States (report), AFP.
“The 5.56 mm bullets are mainly used to replenish supplies which have run low after wars in Afghanistan and Iraq, the Taipei-based China Times reported, citing a military source. ”
—
2009-06-17: Up to $2B for U.S. Army Munitions Orders to Alliant Techsystems, Defense Industry Daily.
“Alliant Techsystems (ATK) in Minneapolis, MN received $42 million in small-caliber ammunition orders from the U.S. Army Sustainment Command in Rock Island, IL to produce 5.56mm, 7.62mm and .50-caliber ammunition.
[…]
The US armed forces have suffered from small arms ammunition shortages in recent years, and their reliance on the World War 2 era Lake City plant as their sole source for military small arms ammunition was a contributing factor.”
—
I stopped keeping an eye on the topic long ago. But already at that time I thought that in a big match against an industrial opponent (China, Russia), the USA might well face failure because it would not even be able to fill the bullet chambers of its soldiers. The fact that in six years (the duration of WWII) the hugely funded Pentagon had been unable to build up enough capacity for somethings as mundane as rifle ammunition is stunning.
…shoot F-35s and V-22s at ’em. That’s fix ’em… All fire directed in RealTime via the command chairs and combat consoles of the Babblespace Managers of the Global In
teroperable Network-Central Babblespace…Glad to see Jetfixr getting some “airplay” on this blog. He’s the real deal and knows of what he speaks.
We are seeing this in American medicine and we already are reaping the “benefits.” A commenter on the H1B visa issue in the Times was a pediatrician in Kansas who said that because of the H1B restriction they could not hire another pediatrician for their practice. I thought to myself……right…..pediatrics, a low pay specialty……why the hell don’t you pay more? Pay enough and Americans will do it…..Pay enough and I’ll move to rural Kansas and do pediatrics and I don’t know anything about it…..I’ll go to school…..Throughout America we are seeing poorly trained “providers”…..nurse practitioners or PAs…….”doctoring” with grossly excessive testing, overmedication and lack of judgement……..not because of venality or stupidity but simply because of limited training……or a “doctor” with training from some storefront “school” in a third world backwater with limited English skills trying to make as much money here as possible to bring his/her entire family line here. Often the “supervisor” of the above mentioned nurse practitioners (with only 600 clinical hours training) or PA’s. As they say…..used to be the doctors, lawyers and pilots lived in one part of town with the nice houses……the pilots are long gone, the doctors are leaving and the lawyers are still there……..although overseas legal work is starting to take off. If we want a national state we will have to restrict trade with tariffs and restrict labor mobility with regulations and visas. It does not look like that is going to be the new world order. It is hard to pledge alleigance to a giant corporate structure, this nation, whose only function is to enrich the .1%. The only solution is to put all doctors on government salary, just like we treat firemen or other public safety employees. Do the same with aircraft maintenance….why not? We don’t outsource Fire protection to the third world, and we do not recruit firemen in Karachi, or Kabul on H1B visas. One reason some of the kids in my family, despite impressive four year college degrees, are now firemen. One reason it is harder to get into the fire department than medical school. So either have borders and have the United States be an independent nation or just open it up and let the world population settle where it wants and the wage and living standards settle to a balanced third world level. You can’t be half pregnant……you can’t be half a nation. When we do it half way…..like not letting Indian trained lawyers get a US law license with their Indian degrees……not letting them take the Bar examination, unlike medicine your are privileging certain groups but subjecting others to world wage competition…..hardly fair….
If you think lawyers have it better than doctors in America, then you are badly, badly mistaken.
Getting to the point of savaging each other, down here at the bottom. Exxcelllennnt!
You made me laugh!! Good point.
I love where Obomba, Hilary and the Dems best idea to fix the one-way porous WW market for labor in the TPP was a scheme to pay workers who will be “displaced” by it.
So: we will borrow yet more billions of dollars from our grandkids with the express goal of lowering the standard of living in America?
(I’m starting to tune out anyone who does not think that torches, pitchforks, lampposts and guillotines are the tools required to get out of this mess).
Interesting. A little hysteresis here or there would not be a problem – in fact, that’s old fashioned capitalism. But what we have is lotsa complex economies interacting globally with each other so that the effects and the lag times involved in half baked neoliberal “business” practices expand out over longer (maybe infinite) periods of time and suddenly you realize, like the guys writing above, that the destruction of all economies has reached critical mass. Think Fukushima – the breakdown of all those complex atoms of uranium and plutonium into component isotopes that are basically useless – not to mention simply toxic waste. Can’t put those little critters back together again.
you only used the word once. You’re not trying hard enough!
Had this conversation with a “service economy / outsourcing” guru before the financial crisis as the degradation was only accelerated by the financial crisis.
Used the very simple example of the trust implicit in boarding an elevator. Then went through the company infrastructure to keep that elevator properly maintained. Then asked how to keep the necessary profit level needed to maintain that corporate ecosystem under the proposed economic models.
Then asked them to do the same analysis on the airlines, the auto industry, the food inspection bureauracracy…
So, Larry Summers et al now come up with the genius insight that the structure of a system — the interplay of forces within that system — matters to the performance of that system. Duh!
And, Lambert correctly uses the Sanders/Blanchard mention of ‘membership’ to note that this genius insight is even more, well insightful, if ALL elements in the structure of the system — all of the forces inter-playing with one another — are accounted for. Not just some of the elements.
So, let’s take a histeresis look at how just some of those important elements — like, e.g., public policy and government and who determines what sits within the Hallin spheres of consensus and legitimate controversy as opposed to the sphere of deviance — are recognized versus those that are not. For example, consider the Republican debate(s).
And then go ahead and vomit…. only, if at all possible, please vomit on Larry, Paul and Martin who, seriously ought to be precluded from commenting on our current dilemmas for histeresis reasons: they and their odd blend of arrogance and ignorance are as responsible as anyone for putting in place the current ‘structure and interplay’ of the systemic forces that determine performance.
They just can’t quite bring themselves to say “demand.”
Lambert,
Your hysteresis example of turning down the thermostat might be a bit more on point if you extended it to say e.g. I turned it down to 65F yesterday because my economic circumstances have deteriorated to the extent that I can no longer afford 70F. Then, over time, I become accustomed to being a little colder and/or knit some woolly underwear to compensate.
This state will then persist until sometime after I’ve noticed that my finances have improved & I can go back to 70F and abandon the woollies (God were they scratchy!).
Strictly speaking hysteresis implies that a system can have more than 1 equilibrium state (total anathema to almost all economists brought up on Arrow/Debreu) and the change between them is basically discontinuous.
That said I must admit that I’m always a bit concerned when I see economists latching on to a well defined idea from physics/engineering/mathematics ‘cos with probability 0.99 they’ll just crappify it into some kind of vague talking point waffle that makes them sound good at conferences
“blasting quite as much money into the air” was too subtle, then?
On paragraph three, that looks very important. Can you expand on it?
First: because so much about this is cool:
‘Chua suggested experimental tests to determine if a device may properly be categorized as a memristor:
The Lissajous curve in the voltage-current plane is a pinched hysteresis loop when driven by any bipolar periodic voltage or current without respect to initial conditions.’
This too, and more explanatory:
hps.cam.ac.uk/whipple/explore/acoustics/lissajoustuningforks
Think multiple attractors.
“multiple attractors” is just what I was thinking. Any one of which our econonmists think is the equilibrium, yes?
Well, that depends on what the definition of ‘the’ is.
Hi Lambert,
Just one thing – I need to be a bit more precise about what I said. Hysteresis implies that a system can have > 1 *internal* state value for a given external input or environment. My “discontinuous” comment really only applies to those systems whose internal state space is discrete (finite if you like) – like a thermostat with only the ON and OFF states separated by a degree or 2. more exactly where a continuous external variable (e.g. Temperature) is being mapped onto a discrete set.
In general hysteresis as considered above applies to fairly simple systems with only 1 or 2 control inputs and one state variable – thermostats, electrical signals considered as logic values, ferromagnetism etc.
So the basis of my snark in the last para really stems from a concern that “economics” has far too many independent variables and a state space so huge that the kind of application of “themostat” hysteresis by Blanchard, Wolfe, Summers, Krugman is probably far too simple-minded. My comment about Arrow-Debreu was meant in this spirit. In their effort to “prove” what might be called the Walras conjecture (all economic systems tend towards a unique price/quantity equilibrium) they had to invoke some extremely powerful mathematics (*) and, even then, all they got was the existence of at least one equilibrium but there could have been many. To get to a unique one they had to invoke some, fairly dubious, extra hypotheses. Hence even in the field of equilibrium economics the possibly existence of multiple stable states has long been known (1950s at least). Blanchard/Summers were already 30 years late with their paper and we could – cynically – count Wolfe/Krugman as bandwagon jumpers
Therefore the question, open from the 1950s, is: Given we are, economically speaking, in one stable state and the uniquifying conditions do *not* hold what would cause us to move to another one – endogenously or exogenously. Mathematically this means understanding “hysteresis”, or path dependence, in a more general, higher dimensional, setting.
(*) For the math geeks among you they used the Kakutani fixed point theorem for set valued mappings. Wiki it & gaze in awe :-).
Query: what are the indicia of a “stable state” that we might currently be in? Looks to me like a whole lot of all this political economy is fluttering like butterfly wings, building leverage on tiny fulcrums, with no more stability than the spurious pile of sand to which grains are continually and randomly added, until *avalanche*….
It’s more complex than that. Imagine a landscape with valleys, lakes and peaks. Within this fitness landscape there is a Blob we call “The Economy”. The blob is pretty dumb, it can only see short distances, but, within it’s range of “vision” it will seek, find and then be orbiting a local sweet spot, growing itself. Then it stays there because every incremental move looks “worse” than the present direction; the blob knows that there may be many places in the landscape that are better but it’s can’t get to them without losses and because it can’t “see” far, it doesn’t know the direction to take.
Then – to make a transition to another maximum, which may or may not be better, “The Economy” needs either to risk taking a desperate jump through hyperspace (changing many state-vectors a large amount in one go) or one has to perturb the fitness landscape itself, to tilt the odds of the blob sensing a new gradient to climb.
In human terms, the jump in hyperspace is a revolution (industrial or the violent kind). The neoliberals figured that they could tilt the landscape, however, our friend the Blob is a fat bastard, the gravitational pull from it’s mass deforms and reshape the fitness landscape on it’s own. The result is that one cannot know where in the world the blow will end up, the paths taken and if indeed the new place is batter than the old one.
In engineering, this is the kind of mess we get into when trying to contain plasma with magnetic fields.
Anyway, Stuart Kauffman (https://en.wikipedia.org/wiki/Stuart_Kauffman) has done some half-understandable (by me) texts on self organizing complex systems. They are good to read to keep the mind trained, but they will not help solving our problems ;-)
The sign of a stable state in a complex system is “small” oscillations in all the parameters that define the system state. These repetitive oscillations mean that the system is moving around an optimal path in the state-space.
If the oscillations in one or more parameters increase or disappear entirely, then there is “tension” building up somewhere – the system is priming itself for a major excursion.
My feeling about the effects of hysteresis relate more to the human body and the effects of malnutrition or junk food in childhood. Malnutrition which results in permanent losses, such as bone structure, overall vitality, brain development, will keep a person from ever doing what a healthy person has developed to do, i.e. run fast, have endurance, have mental clarity. I fear knowledge and discipline have been permanently lost.
Maddow’s Drift cited the nuclear weapons part that degrades over time that no one knows how to make anymore, because the engineers who made the material didn’t write it down and are now in their 90s or deceased.
Over the years I’ve developed a completely irrational fear of flying – now I have a much more rational reason. Thanks for that, I think….
And regarding “Hysteresis is the new seventy-five cent word…” – Why that’s positively sesquipedalian! Too bad Summers et al. are so pusillanimous that they feel the need to hide behind excessive verbiage rather than using the vernacular for their obsequious explanations. I’d never do such a thing…
From Krugman
“Even countries that seem to have largely recovered from the crisis, like the United States, are far poorer than precrisis projections suggested they would be at this point.”
What was the worth of the precrises projections?
“What was the worth of the precrises projections?”
A couple of follow-up questions: How was the projection calculated? What variables were included, and what variables excluded?
Have economists forgotten that the real world is still analog, not digital?
“If the rule you followed…brought you to this, of what use was the rule?”
And I’d bet that Larry, Paul and Martin also agreed with Dr. Walter J. Palmer that Cecil was a “bit sick” after encountering the good doctor’s policy on lions .
WW2 – American manufacturing + Russian manufacturing + willingness of Russians to die in large numbers.
Chinese have manufacturing, good thing they don’t have lots of available manpower..
Willingness to die in large numbers? It wasn’t like the Russians had a choice. After all, they were living under Stalin.
Thanks for pulling this together, Lambert. It’s interesting to think about this term in relation to the idea of “path dependence,” which I believe started cropping up in sociology and poli sci in the 90s and which current writers like Mark Blyth frequently use when talking about how institutional setups tend to reproduce themselves and constrain subsequent options. It seems the difference lies in hysteresis referring to an aggregated outcome qua broadly held perceptions that lacks apparent institutional structuring, even though the conditions it refers to may be reflected in forms of institutional behavior that can become inertial. As you say, it’s a great indicator of how stupefied these people are by equilibrium assumptions.
“killing the goose”
“eating the seed corn”
Good description of neoliberal economics in action.
Neoliberalism: an economic system only the Little Red Hen could love (Provided he’s a high-born member of the plutocracy, of course)!
Something don’t smell right here, at least when it comes to aircraft maintenance. There have been a number of occasions when I have driven I-494 westbound in MInneapolis and I have seen Hawaiian Airlines A330s parked next to the Delta maintenance hanger. Delta has one of the largest A330 fleets in the US, and Hawaiian isn’t even a member of SkyTeam, so obviously Delta and Hawaiian have some type of maintenance agreement-why else would you fly such a big-ass bird to MSP when Hawaiian doesn’t even serve MSP?
Smaller carriers do outsource some aircraft maintenance to the larger carriers.
IIRC, there are 3 types of maintenance checks, Type C occur every 2-3 years and are the ones that are being outsourced. They may take 30 days to perform and involve completely stripping the plane.
There are also Type B checks that performed every 7 days. I would suspect the Hawaiian planes are under going a Type B check.
A little on H-1B’s. A large number of the H-1b’s that come into the US are accountants — you know that high-tech employee that America needs in great numbers because we just can not graduate enough — can you say Big 4. Anyway, a while back I was consulting for a Fortune 500 company. I needed an analysis of an account and they directed me to an H-1b to get it for me. Nice person. I gave them the totals for two accounts that he should come to. He brings the analysis to me. Humm does not agree. I look around and find another schedule I have and figure out he only gave me half the activity I was looking for. I mean I gave him the total he should come to. So, I modify the analysis some and give it to him again to fill in the blanks. Hummm, still does not agree to the totals. A little more work on my part and I am almost there and give it to him a third time and say I need these blanks filled in and it should come to these totals. Third time was the charm. I mean this was an exercise that should have taken 10 minutes and I ended up spending half a day on it.
This is why nothing freaking works in America any more.
You mean you could have done it yourself? Bill Gates, Larry Ellison, Warren Buffet, et al have successfully played the con game. Henry Ford and Thomas Edison came before them. Basically stealing other peoples ideas and profiting from them.
It’s the profit motivator that drives the outsourcing. Hesterisis, then, is the momentum from which it is impossible to pull back from the brink. Equlibrium, then, is the lowest common denominator.
What I suggest, and what many on here will agree, is raising the LCD, in as much as it is possible. The wealth and income disparity we’re currently experiencing is it’s antithesis. Refer back to Gates, et al. Rinse and repeat.
Very nice article. A complicated way of explaining a simple concept, but one which needed to be stated.
Try getting an ISP in a rural area (where 80% of Americans have 1(!) choice of ISP) to fix your issues.
That is, if they can even determine why the price-gougingly expensive service they overcharge you for isn’t working in the first place. If I was half as bad at running my business as these people are at their jobs, I’d be out of business in a month. But I don’t have lobbyists to ensure I have a monopoly in my area, so…screw you, small businessperson.
America is #1. In incompetence.
“Third world” commercial aircraft maintenance shops providing maintenance for major airlines *AA, UA, SW etc) is NOT a new development.
And to be fair to the MSM, this story does come up from time to time. What perpetually surprises me is the general lack of awareness/care exhibited by the public.
I suppose the story would have more legs and there would be a higher level of public awareness if more commercial aircraft were crashing due to maintenance failures?
This all goes to my often stated awe of the ability to design/build/operate these giant cigartubes with wings that seem to pretty reliably carry a disinterested public at +400knts/+30K ASL everyday.
http://www.aeroman.com.sv/?lang=en
I used to fly on TACA and SAHSA back in the early 1980’s when Aeroman was just starting up! I remember one of the many memorable highlights was a flightline mechanic at Le Ceiba Aeroporto in Honduras pouring some rather black looking oil (before synthetic oil!) from a 5 gal. pickle bucket into the port engine of a DC-3. This was before heading directly out over the ocean to a Guanaja, a little island ~80 miles NE. At the time was good for a chuckle before getting on the plane. If the pilot was good w/ it, what the hell, a great plane for ocean ditching and they were excellent pilots. I remember they had TACA and SAHSA placarded on the wings in big black block letter (I guess so they wouldn’t be mistaken for something other than commercial aircraft?) At the time in that geography all airspace was closed at dusk.
Yes, amazing engineering goes into aircraft (and they have a safety culture that encourages the exposure and correction of error). No doubt the MBAs are chewing away at the engineering and the culture too.
trying to strip it the bare carbonfibre as it were.
A lifelong friend of mine is a senior mechanic for of the two big US carriers, a full career in the business. No slouch, but amazingly poorly paid for the level of responsibility IMO. Huge responsibility in fact.
He has plenty of ghastly stories, which includes aircraft sent to central American maintenance facilities specifically to avoid the scrutiny of the FAA. I sent him a link, maybe he will offer some comments.
SW airlines case in point.
They seems to somewhat regularly get grounded every few years and fined for lack of maintenance records (presently in trouble for deferred control surface inspections –IIRC this was what caused Alaskan airlines to loose a 737 quite a few years ago,.. a frozen rudder actuator. — a nontrivial preventive maintenance issue)
The reason Southwest gets fined a lot, is because they are one of the few airlines that still do heavy maintenance in the USA. The FAA has to beat up on someone, just to show they are on the ball.
At least the FAA has “conflict of interest” regs, unlike the SEC. For example, one of my FAA buddies got transferred one, to a different position, because a former airline mech was hired as an airworthiness inspector. According to him, an FAA inspector is not allowed to have any “oversight/inspection” function over a former employer for three years.
The Alaskan Airlines loss was due to the horizontal stabilizer actuator, not the rudder actuator. A real ‘if not for the grace of God” issue for me. I’ve been in the same position as the Alaska Airlines mechanics were on that one. They were just unlucky enough to make the wrong decision for (what at the time appeared to be) the right reasons.
your absolutely right, it was the elevator actuator jackscrew (I was confusing it w/ the USAir flt427) the point of my comment was that it was a case of the carrier looking to economize on inspection intervals. In any case no not the mechanics fault perse.
Extension of maintenance intervals[edit]
Between 1985 and 1996, Alaska Airlines progressively increased the period in between both jackscrew lubrication and end play checks with the approval of the Federal Aviation Administration (FAA).[9] Since each lubrication or end play check subsequently not conducted had represented an opportunity to adequately lubricate the jackscrew or detect excessive wear, the NTSB examined the justification of these extensions. In the case of extended lubrication intervals, the investigation could not determine what information, if any, was presented by Alaska Airlines to the FAA prior to 1996.[9] Testimony from an FAA inspector regarding an extension granted in 1996 was that Alaska Airlines submitted documentation from McDonnell Douglas as justification for their extension.[9]
More intersecting anecdote, I think I have the details more or less right from memory. An acquaintance with one of those Bigg School MBAs went out to seek his fortune. First stop was GM, where in the early ’70s, his gig was in the comptrollers office and the entry on his resume was how he earned GM 20 or so percent of its profit that year by trading dollars for Deutschmarks for franks for yen. Next stop American Airlines, where he “saved the company $20 million” by the hard work (not all by himself, obviously) of reducing the quality of food served on board the flights, the number of wait-staff, and of import here, driving the maintenance down to the FAA minimums and working on further reductions of said minimum requirements.
That drew him to the attention of one Frank Lorenzo, then ramping up the decimation of unionized airline employees via Texas Air and was it Easter? And at each of these job junctures, said acquaintance got a wonderful golden handshake and the marker for a wonderful golden parachute and on to the next Executive Dating Game ritual and fondling of another “Compensation Committee…” Now a person of complete leisure, able to chase whims and interests all over the planet… Bali today, Tuscany tomorrow, studying languages out of boredom, all the stuff that it was thought that the New Economy was going to make possible for ALL of us, right? with a Basic Income Guarantee and some hard work? or replacement by robotic producers serving our human needs?
(I was a helicopter guy in Vietnam and vary particular about doing all required maintenance and repair and more, then on August 18, 1968, day 365 of my “tour,” I and 236 other GIs boarded a rather obviously aged “Seaboard World Airlines,” yeah, this one, https://en.wikipedia.org/wiki/Seaboard_World_Airlines_Flight_253A, a chartered 707. I sat just in front of the wing where I could see the starboard engines, and as the plane was lining up to take off, jet fuel started pouring out of the #3 nacelle — I’m thinking “great, lived through my year and now I’m gonna burn on the apron at Tan Son Nhut” — pilots shut everything down, and a Korean came two-wheeling out in a pickup truck with a maintenance stand in the bed, screeched to a stop alongside the nacelle, used a large rubber mallet and about a 2-foot screwdriver to lever open the over-center latches, heaved up the inboard nacelle half like I have seen many shadetree mechanics open the hood on an old Chevy, dove inside with much dropping of tools and what I guess was cursing and a steady tossing of cut-off bits of .047 inch stainless steel safety wire. All the time the fuel, kerosene, was flowing. It finally stopped, the mech twisted a few more safety wire locks on whatever needed tightening, slammed the nacelle half down and used that screwdriver and a lot of “Swedish steam” to close the latches, and I got to sit bolt awake for like 22 hours, watching that engine for any signs of FIRE, out over the wide Pacific…)
Ok, a bit OT but one of the classic TACA flights
https://en.wikipedia.org/wiki/TACA_Flight_110
TACA Flight 110 was an international scheduled airline flight operated by TACA Airlines, traveling from Belize to New Orleans. On May 24, 1988, the Boeing 737-300 lost power in both engines but its pilots made a successful deadstick landing on a grass levee,with no one aboard sustaining more than minor injuries. The captain of the flight, Carlos Dardano of El Salvador, had only one eye due to crossfire on a small flight to El Salvador, which was undergoing a civil war at the time.[1]
The aircraft, a Boeing 737-3T0 (tail number N75356, serial number 23838), had first flown on January 26, 1988, and had been in service with TACA for about two weeks.[2] On this day, the flight proceeded normally, taking off from Belize City’s Philip S. W. Goldson International Airport and flying over the Gulf of Mexico toward the Louisiana coast…
…The captain of the flight was Carlos Dardano. At just 29 years of age, Dardano had already amassed 13,410 flight hours. Almost 11,000 of these hours were as pilot in command. The first officer, Diamecio Lopez, was also very experienced, with more than 12,000 flight hours under his belt. Captain Arturo Soley, an instructor pilot, was also in the cockpit, monitoring the performance of the new 737.
Passing through 16,500 feet (5,000 m), both engines flamed out, leaving the jet gliding with neither engine producing thrust or electrical power. The auxiliary power unit (APU) was started as the plane descended through 10,500 feet (3,200 m), restoring electrical power. While attempts to “windmill start” the engines using the airflow generated by the plane’s descent were unsuccessful, the pilots were later able to start them using the engine starters which were powered by the APU. However, neither engine would accelerate to normal idle speed, much less to a point where it was producing meaningful thrust. Attempts to advance the throttles only resulted in overheating of the engines, so they were once more shut down to avoid catastrophic failure..
..The pilots landed the airliner on a narrow grass levee at NASA’s Michoud Assembly Facility in the Michoud area of eastern New Orleans, bringing the airplane to a safe stop.[3]
The site has been updated and talks about this very problem.
http://www.mh370site.com/home.html
I love entropy, not smart enough to really grok it but where the Grand flat earth is now somehow fits in this brief physicist-on-physicit Cage Match:
Question
In thermodynamics does hysteresis always cause an increase in entropy?
Additional information
This question came about when thinking about two different definitions of a reversible process:
A reversible process is one that is quasistatic and has no hysteresis.
A reversible process is one that has no change to the surroundings when you do it followed by its reverse.
I am trying to see how these two definitions are equivalent.
share improve this question
asked Oct 15 at 15:26
Joseph
The answer depends strongly on what you mean by “hysteresis”, so please, define it. I am not trying to avoid the answer but would you call a Lissajous curve hysteresis? – hyportnex Oct 15 at 21:36
It is interesting and kind of tricky, if we reverse the cycle in hysteresis, should be entropy decrease? The work would. The only helpful thing that I can think of is that if we apply Jarzynski equality to a cycle, then ⟨exp(−βW)⟩=1, and since the energy does not change, ⟨exp(ΔS)⟩=1. Then using ex≥1+x, we get ⟨ΔS⟩≥0. – hbp Oct 26 at 17:33
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1 Answer
As hyportnex points out, the contention is over the meaning of the words. Define quasistatic as a necessary condition for reversibility, i.e. all reversible processes are necessarily quasistatic, then the task boils down to the logical gap between the converse and the contrapositive of the claim. In other words, one must understand quasistatic processes that are irreversible.
It is easiest to think of a cyclic process. In a reversible cyclic process there can be a leg of the cycle where entropy is decreasing. One can go further. If any leg of a cyclic reversible process has positive entropy, then there must be some leg of the process with negative entropy, and of course the net sum is zero. In an irreversible quasistatic process, there is a dissipative piece of the process, which forces the net entropy to increase. The dissipation necessarily has an effect on its environment hence the wording in (2).
Enter the definition of hysteresis. Suppose as time strictly monotonically increases, the end state of a system is different for different starting conditions, and in particular different starting times. Suppose hysteresis means that entropy is decreasing. This is the second point of contention because one could define hysteresis as a history dependent process, and not specify whether entropy necessarily decreases or increases (locally). With hysteresis decreasing entropy, and a dissipative quasistatic process (not cyclic) the entropy change can be zero (in the quasistatic limit; otherwise this violates thermodynamics). But such a process would not be reversible, since the history determines the end state, and any two unequal start times result in different states. This implies hysteresis is incompatible with equilibrium. But equilibrium is necessary for reversibility. Consequently, since all reversible processes take place in equilibrium there can be no hysteresis, ergo the need for the added condition to quasistatic in (1).
In fact, many physicists, including myself, characterize hysteresis as possessing critical phenomena. In terms of time, this implies the existence of a critical time scale. So in this sense, hysteresis itself is incompatible with quasistatic. So the answer to the original question,
“In thermodynamics does hysteresis always cause an increase in entropy?”
The response, in terms of definitions given here, is that hysteresis always decreases entropy locally, i.e. it causes spontaneous ordering, but the full picture with the environment means there must be either no global change in entropy, or an increase. However such a process cannot be done while remaining at equilibrium, and so the entropy must increase (globally).
Globalized entropy increase? Check… Apparently not a reversible process, then…
Some days, I’m pretty sure life is nothing but a catalytic chain reaction that accelerates entropy over the long term. Consciousness is just one of its epiphenomena.
But beauty and love and kindness are some of the side reactions in that long term process… at least so I read… Is that enough to balance the horror that consciousness can do (see discussion of torture, elsewhere here, and the “legacy” of OBomber and the coterie he fronts for)…
Why do I get the sensation that rapture is being defined by thermodynamics, where even if you backed off infinitesimally the previous state will not return to its previous equilibrium.
Skippy…. and econn sorts are using this to conceptualize reality [more validity seeking]….. halp….
Oh, s..t. I really need to go visit my mother in Indiana – and after my wife’s experience on the train, I don’t think I’ll take that.
That said: this is one of the “contradictions” Marx wrote about. The solution is worker ownership/control, a la Mondragon. No conflict of interest, better management because the workers know what’s actually going on on the floor and are motivated to do things well.
As for how we get there…well, that probably WOULD require an “electoral revolution” – a real one.
“Hysteresis”? Calling it that obscures what it is (several factors in play), the use of this kind of jargon further kills any value contemporary economic “thought” may have to offer.
One of the factors in any pre-recession run-up is FRAUD, the representation of value that IS NOT THERE. In the 2007-2008 event, the rate of contributing fraudulent value was especially high, and we know this already; the volume poorly validated, mis-valued, and/or otherwise flawed asset-backed securities had become significant enough to trigger revaluations cascading across the financial sector and into other sectors.
Fraudulent value doesn’t really exist, so it can’t be recovered; except by further fraud, and new fraud of the same type, in the face of the discovery of the type, is more difficult (at least in the short term), so it’s only to be expected that a recovery from this kind of event will not easily reach previous valuation rates.
But the fraudulent valuation during the run-up period masked another event; a decline in available resources in proportion to population driven demand. Somewhere around 2003 (give or take a few years, depending on how one estimates), we peaked (globally and regionally); the cheapest resources gave out faster and faster, and the cost of production began to increase in proportion to yield. After that point, real global and regional economies would begin to flatten out, if this were not being hidden by fraudulent or otherwise inaccurate valuations.
So absent the resource generation to support further growth at previous rates, what other mechanisms can be used to bolster produce net growth?
Wage suppression is one; quality reduction is another; and both of these have been ongoing previous to the event, further masking the actual impact of the pivot from resource-driven growth to … what is it really? Isn’t this actually inflation driven growth? Real value is not longer increasing at “expected” rates, so various forms of value reassignment are used to prop up growth numbers.
Clearly, I am no economist. I am, however, competent in engineering and physics-related fields. One way or another, hysteresis (when not artificially created) is a consequence of rates of state propagation, state changes being inhibited by things like friction, static transition thresholds, etc; it takes some additional energy to produce change in configuration, beyond the point of equilibrium where a state and its eventual alternate have identical conditions. If there is a parallel in economics, it might be in the psychology of trade, the tendency to try to continue using the rules of a previous condition, even after that condition is no longer current. That kind of hysteresis would be dependent on poor information feedback mechanisms; fraud would be one of those, incompetence another, and impeded communication a third (and since communication at the lower levels (physical, packet, data) is definitely fast and accurate, we must be talking about misinterpretation and failure to recognize meaning.. in other words, back to fraud and incompetence; the communication issues are consequential, not original).
Another factor (pointed out by my friend Ron Granberg), is hoarding; the anti-social refusal to invest wealth. Failure to invest residual wealth is effectively slow suicide in economic terms, since value has to circulate for an economy to operate at all. Value that is taken out of circulation chokes the economy, and collaterally reduces the effective value of the removed components. Naturally, all activity (economic or otherwise) incurs risk; we’ve already blundered into a high risk situation in terms of population and resources, and hidden this from ourselves through indulgence in fraud. Now, consequences like climate disruptions and economic disequilibrium are only to be expected; their consequences remain negotiable, as do their eventual impacts. But one has to start by looking at things as they are, and labels like “hysteresis” only further obscure some fairly obvious evidence and conclusions.
But there is one fun (sort of) insight we can get from hysteresis in an analogy. Stretch a rubber band to a limit close to but before its breaking point. Now let it relax. A rubber band, notoriously elastic, will “snap” back to something close to it’s original shape, but it will not immediately return to its original state. Now there is some hysteresis, in the form of internal friction, the rubber band contracts a little more in the next few seconds. But it will not return to its exact original configuration; stretching close to the limit, we broke a few molecular bonds. Subsequent extreme stretches will break more bonds; we are in a hysteresis condition for our breaking threshold; after enough repetitions the rubber band will actually break, at a stretched length which it was initially able to recover from. We just distributed bond breakage over time… Now take another rubber band and stretch it to its limit, and keep it stretched… it will eventually snap all by itself. Again, hysteresis: it took a while for the bond-breakage rate to cross the critical threshold, but the approach to that threshold began immediately at the beginning of the stretch. Lesson: just because it doesn’t break right way or the first time, doesn’t mean it’s never going to break. It absolutely will break; leave it alone and it will still crumble to dust within a century or two. Even in the massively abstract (not to say fantasy) world of economics, conditions are not static on any scale; conditions may have similar characteristics but they are never actually the same. The constant growth model was always a cheap fantasy (not even an extended abstract of reality), now that party is over.
“Now take another rubber band and stretch it to its limit, and keep it stretched… it will eventually snap all by itself. Again, hysteresis…. Lesson: just because it doesn’t break right way or the first time, doesn’t mean it’s never going to break. It absolutely will break…”
I like your explanation of hysteresis, perfect explanation of how airline management crapified a profession and engineered a pilot shortage for themselves.
. . . The constant growth model was always a cheap fantasy (not even an extended abstract of reality), now that party is over.
But but but how will pensions ever be paid?
Great comment BTW.
a crisis is a terrible thing to waste.
cuo bono?
A couple of points.
Outsourcing aircraft maintenance can work very well if the feedback loop is very tight and work is done with good oversight, but then very little money is saved versus doing the work in-house. The cycle of insource/outsource has occurred many times in the airlines since WW2. Send it out to save money, bring it in to raise quality. One of the problems with outsourcing is you break all the informal connections that existed when the work was performed inhouse and irregularities could be solve by a quick conversation between the workers in the hangar and the engineers nearby. The worst situation is where the inhouse or outsourced culture puts making schedule a higher priority than making it right.
A lot of the problems with outsourcing was that all the unwritten and undocumented information did not go out to the vendor. Another problem is that it takes about ten years for an airplane mechanic to master his profession. A new person will miss information that a senior person would alert to.
Last, many of the non-US aircraft technicians read and understand the reference material better than US workers do, and their professionalism is very impressive. Since I frequently correspond with my counterparts around the world as we work to solve a problem with an aircraft that might be in the US today but somewhere else the next day, I am frequently amazed at the quality of their research and understanding of the situation. They have maintained the mechanic tradition better than their US counterparts. Some of this may have been due to the changes in the US airline industry during the 1980’s where the leads/crew chiefs/chief mechanic and supervisors were the senior experienced people, where now they are the folks who want to be in an office and lack the deep background to be leaders, able to show the mechanics how to fix problems.
Wait a minute – importing massive numbers of foreign nationals lowers wages for those already here? But isn’t invoking the law of supply and demand in economic arguments, well, racist? Aren’t you just scapegoating immigrants?
I have made this point before and will continue to do so. Finance has moved from an important utility function in corporate america, to the only factor in corporate america. It seems a perfect example of the parasite that kills the host, as that has been the end result for the national economic sector. Stock price is the king, no longer a barometer of the market for some big picture assesment of the coporation. It was not by chance that 2008 saw the recovery effort to be fully focused on the banks. The government could have spent a fraction of what ended up on the Fed balance sheet, and had the recovery of 3 centuries. Instead we will go there again, wholesale systemic failure of the financial institutions. Not from failures, but from letting the excess build to it’s rational conclusion.
It’s kind of what is the nightmare scenario for some of the folks portrayed on that horrific new propaganda soap opera, “Manh(a)ttan,” which is supposed to be “about” the drama of launching the effing human political economy into the “nuclear age,” saving us from the Yellow Peril, and a phenom that killed at least one supposedly smart scientist out there in the White Sands — inadvertent critical mass, too much fissionable stuff brought together… all by accident, of course.
“The most persistent principles in the Universe are accident and error.” One restatement of Master Murphy’s Master Law…
We should call it “brain bash reset”.
Great post! Lots of inter-related angles of decay with good exploration opportunities to add to the clue bag. As a front row observer to the destruction of the once proud aviation profession by the predatory and parasitic managerial class, this analysis really resonates. Steve Keen has a recent lecture on thermodynamics as it applies to economics. Wiki associates hysteresis in natural systems with an irreversible thermodynamic change. The cyclical energy input from the collective knowledge and wisdom, as well as devotion, of well educated, well trained, motivated and experienced professionals has been severely diminished in aviation if not lost forever.
Hysteresis: because we’re not allowed to call it by its proper name Depression
This is especially true in areas where this is high complexity.
A design on a 1 cm square piece of silicon will not be understood by any one person right from the start.
The company owns the design, but does not have the knowledge of all that went into that design, nor does any individual.
If any of the key designers have left when it comes to upgrade that design there will be problems, even though they will have left some documentation.
When I am set the task of deigning a function that will go on that chip, it can take a month to understand
the problem before even beginning to work on a solution.
I will usually be working by myself as it is not commercially viable to have more than one person working on each part of the design.
Eventually the design is done and I will run tests on it to make sure it works.
There will be a design review, but no one else will have enough time to really get into the design and understand it, it’s not economic.
No one else will know all the constraints and considerations that went into the design. When it comes to upgrade the design any new person working on it will take months to get up to speed.
This is just one function of many within the chip.
This is a 1cm squared piece of silicon in a very complex world.
The real knowledge lies with the employees and designers that do the work though the company has the end product.
You have a downturn and big layoffs and most of the people go, then you need to update the design.
HYSTERESIS.
I went for an interview in the early 1990s for a firm that had just been through the early 1990s recession and laid off most of its people. They had new orders and wanted to update their designs.
I knew what was involved and declined their job offer.
Hysteresis is a consequence of thermodynamics, in particular entropy. The concept can best be explained by battery re-charging. Every time you recharge your battery, it only restores to 99.9% of the original due to inherent thermodynamic losses. If you keep multiplying by 99.9% enough times, it becomes much smaller – which is why after a couple of years your cell phone battery is “dead”. Metal fatigue often cited for many aircraft crashes is a direct consequence of hysteresis. Neoliberal economists have no idea of thermodynamics. Equilibrium concepts work only so far – as long as external forces or influences are brought in from time to time to restore equilibrium conditions. When such influences are not present due to greed, all of the failures mentioned in this article will happen and will continue to wreak havoc on our society.
I’m not very timely but a timely interview on some things discussed in this post:
WNYC – NPR
The Leonard Lopate Show
Outsourcing Airplane Repair
http://www.wnyc.org/story/james-b-steele/
Thanks for mic toss Lambert!
Very interesting post on hysteresis. You certainly taught me a new word today. I’m struck by how much Krugman’s “hysteresis induced from membership considerations” sounds like his fellow NY Times colleague, Thomas Friedman’s “golden straightjacket”. Hmmm… Perhaps they speak of the same garment?
No doubt the GFC of ’08 has left some very nasty lingering effects, but blaming the financial crisis of 2008 for everything wrong with the economy today seems like a terribly convenient scapegoat for elites who want to avoid reassessing their deeply held world views regarding how capitalism should work. Although I hesitate to use the term, as I have already mentioned I believe it to be a false construct, the dynamics exerting pressure on the “regional” airline piloting profession were in play well before the GFC and those trends, themes, politics, leitmotifs were decades in the making. While the crisis may have exacerbated certain labor-unfriendly economic trends it really didn’t reshape landscape either, definitely not in a meaningful way. Not in aviation anyway. Blaming/scapegoating the 2008 crisis for the sorry state of the US economy in 2015 seems very much akin to how airline management wants to blame the entirety of the current pilot shortage on a law passed by Congress which only became effective in July of 2014. That law slightly increased the minimum amount of experience required of a pilot before he or she could act as a first officer (second-in-command) on an airline flight , but the law also included generous carve outs and exemptions for pilots with military backgrounds or expensive educations. The new law is preventing airlines from scraping the bottom of the barrel as they have had to do during during a few boom-bust hiring cycles of the past, but even scraping the bottom of the barrel will only yield so much. Once its truly dry, what’s gone is gone. You can’t wring blood from a stone and experienced pilots take years to mint. I had double the required flight experience minimums of today when I landed my first regional pilot gig in 2004, but I made the sacrifice to build that time with much different career expectations. Career path, stability, decent pay, quality of life, debt load. Those are the issues keeping potential young pilots out of expensive flight schools and from the grueling, low-paid, and dangerous “time-builder” flying jobs like flight instructing, night cargo, banner towing, etc. these days, not a law requiring a bit more flight time before taking the controls of a airliner.
I’m not exactly sure what Larry Summers had in mind when he said, “Advanced economies are so sick that we need a new way to think about them.” but I agree. I think the give and take, two-way relationship between capital and labor is irrevocably broken. The relationship might not be irrevocably broken in the final sense of the word, but I don’t think anything short of a total overhaul of our entire political system, mental reprogramming of both working class and white collar minds, and a radically strengthened labor movement armed with a sense of purpose and class consciousness can fix the relationship at this point. I think an apt analogy may be a romantic relationship. I think of capital today as a super-competive, domineering, alpha-male. He dominates his romantic partner and “wins” every single argument they have. The relationship is extremely unequal and one-sided. Mr. Capital thinks he is winning, but his partner deeply resents the unfair nature of their relationship and is quietly learning to despise him. She secretly starts to sabotage Mr. Capital behind his back and begins making secret plans to leave him. Yet Mr. Capital mistakenly thinks winning all the time is the same thing as “winning” in the long run. Both Jetfixer and myself have observed the exact same thing from two different positions inside the same industry. Two highly skilled, highly credentialed labor groups participating in professions that have innate barriers to workforce entry, who also happen to be highly unionized and who also find themselves on the right side of supply and demand formula, but yet somehow these workgroups are unable to translate their highly anomalous advantages into material gains in either work rules or compensation. How can this be ? These examples make no sense using models provided by classical economists. Capital has rigged the system so completely none of the avenues of redress formerly open to labor work properly anymore. Capital has bought the political system, made it impossible to strike, corrupted the unions, and they hold a sword over the head of every worker with the threat of outsourcing to the lowest bidder either foreign or domestic. Our democracy is broken, our government is broken and our unions are broken. The only way for Mr. Capital’s girlfriend, Ms. Labor, to win at the present moment is to leave or to choose not to play in the first place.
“Now take another rubber band and stretch it to its limit, and keep it stretched… it will eventually snap all by itself. Again, hysteresis…. Lesson: just because it doesn’t break right way or the first time, doesn’t mean it’s never going to break. It absolutely will break…”
I like your explanation of hysteresis, perfect explanation of how airline management engineered a pilot shortage for themselves.