Author: iamdarcinc

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The Lack of Progress in Computing and Productivity

As “A Much Faster Mac On A Microcontroller” points out, even the cheapest processors today are capable of meeting most peoples’ needs with a couple of major asterisks (the underlying compute hardware in the article is about $10 to $30). I’m not going to claim that Word in 1995 is as good as MS Word in 2026. I get a lot of features on 2026 MS word on my Surface laptop that I didn’t get with my Mac 6100 from 1996. But a 1990s PC did that work while consuming less than 100 watts. A modern gaming PC can push 750 or even 1,000 watts while gaming, and 200 watts or more doing nothing. I would argue the biggest difference in desktop computers is in gaming and media consumption. Productivity has largely been static. And this has some implications for productivity we might want to consider before burning up the planet with AI and filling it with toxic e-waste.

What I will say is that for many use cases, the computer from 1996 is as useful as the computer sold in 2026. I have watched many people use nothing more than Outlook, Word, Excel, and their browser, day in and day out. These are tasks I was happily doing in 1995 on my DOS/Windows 3.1 laptop at work, or my Mac 6100 at home. With fewer features, but the largely the same work. The biggest change is moving from desktop applications to web based applications, real time collaboration, and apps like Teams and Slack.

From the productivity numbers, most peoples’ work computer shouldn’t be a $2,000 computer, or even a $1,000 computer burning 200 watts on average. It should be a $100 computer that consumes under 50 watts when running full tilt, but 5 watts at idle. With reasonably well written software, that cheap machine can do everything you need for the bulk of office workers, including Slack and Web-based applications in Chrome. But even more damming is it suggests that investing in computers has had little impact on productivity. I’m going to show you the best possible argument, with a slightly higher productivity when computers were being deployed at scale between 1994 and 2004.

How to read this chart. Productivity measures output per labor inputs. This looks at the percentage change, quarter to quarter. Why do we get negative productivity growth at points? Because the amount of output drops per labor our due to changes in demand. If you produce a little less but don’t lay off, productivity falls. Annual productivity has grown 1-1.5% in the last 20 years. This, combined with the growth in population of about 1% implied a 2-2.5% real annual growth for the highly developed US economy. (Setting aside the population growth was coming through immigration and the implications current policies have on that for this discussion).

But growth was not likely coming through the computer revolution. In fact, we see productivity grew more before 2000, when offices still had shared computers, than it did between 2008 and 2020, when almost everyone had at least one computer (if not two or three) at their disposal. The software and operating systems were much better in 2010 than in 1995. More computers and computer automation did not imply more productivity. This is known as the Productivity Paradox.

The 1990’s computer revolution had productivity gains about the same as the previous 40 years. So the desktop “computer revolution” didn’t meaningfully impact this measurement of productivity. In fact, the period from 2008-2020, with its ubiquitous computing and zero interest rates should have spurred investment leading to productivity growth. That period had unusually low productivity growth. More computer did not translate into more productivity. Take that in for a minute. The era when we introduced iPhones, iPads, and Android devices, and had capable, cheap laptops and desktops coming out of our ears, along with zero interest rates, had sub-par productivity growth. Maybe that’s a hang-over from the great recession? Before then, between 2000 and 2008 had at best historically normal productivity growth.

Why I focus on the desktop versus the enterprise is because I think there’s a real difference in individual versus institutional computing. I still think there is a lot of needless spending on bells and whistles that drives up the cost, but it’s hard to argue that book keeping and accounting aren’t more productive today. But if one group is getting a lot more productive, we still have to ask if this means another group is less productive to balance the average? Or the impact is so narrowly focused it doesn’t move the broader needle? It’s also possible to argue that technological change means computers are a necessary input to enable or unlock the next productivity gains through robotics and machine automation. Maybe productivity would be even lower absent computers. But I still maintain that most office workers would be only marginally less productive if you put a thirty year old computer in front of them. (Although they might complain a lot. And maybe quit).

Which brings us to artificial intelligence. I use it and find it’s maybe a 5% productivity boost. I can’t just yell at the computer to do things. I have to create a context and prompts to enable the AI to produce something that’s usable. And then I still need to refactor it to bring the quality up above a naive or basic implementation. And sometimes, it’s just faster for me to code it at a production ready level rather than doing all that other work. I could see how some developers actually find it a negative productivity tool. It doesn’t always generate the correct code and I’ve only had reliable success with very popular languages and tools. On legacy code it sometimes generates pure garbage. Adding AI may be no more beneficial to productivity than it has been to put a computer on everyone’s desk, or providing internet access, or Web 2.0 apps, and so on.

Like a lot of AI hype, that tweet in no way matches up with my experience. However, it later came out that what they did was feed the AI tool a year of context and it generated a “toy” implementation. That implies it is not code you would run in production without a lot of work. Sometimes the difference between a “toy” version and a production version is months of effort. Sometimes the real effort is figuring out what to build. A proof of concept or toy version is what I get when I use AI code assistance.

Which brings us to the question of how much money should we spend on AI and related investments? Based on the last thirty years, it’s unlikely that computing related investments will drive significant changes in productivity. And from my personal, anecdotal experience the gains from AI aren’t huge. Right now AI investments appear to be sucking up virtually all the available investment capital, along with energy consumption (causing some communities to face higher electricity and gas prices). What if, after all is said and done, we look at that same chart through 2035 and we don’t see any change in productivity? Think about all the money we would have wasted, all the e-waste we would have generated, and all the other lost opportunities we will not pursue?

Am I an AI doomer? No. We can do something an LLM can’t. We can pull a physical plug out of a wall. What I am is skeptical that this is the vehicle for this level of resource commitment. In fact, I’m for creating even less dependence on computer infrastructure in favor of other infrastructure in everything ranging from water treatment to rail to energy production and distribution. I’m all for diversifying semi-conductor production out of Asia so we have a secure source of semi-conductors if Taiwan is overrun. Some of it will require computers to automate and better manage those resources. And some will require an office worker to plug numbers into spreadsheets and send e-mails. But it’s hard to argue that spending much on new computer based tools for that office worker, or automating that work with AI, would do much for growth.

The Dollar’s Tight-Rope

The dollar is the most often used thing of value in which non-USA countries store their foreign currency reserve. First off, what’s a foreign currency reserve? These are often large sums of currency held by the central banks of various countries to stabilize their currencies. If there’s a sudden shock on the Swiss Franc, the government of Switzerland can buy or sell dollars to mitigate the shock. In some cases, the governments also use reserves to facilitate trade or government purchases. This was traditionally done with gold and silver. However, since 1974, it has largely been done with dollars. Dollars provided by a country that (until recently) was committed to international rules and institutions that facilitated trade and rule of law for disputes.

The dollar is not only a reserve, held by many countries including China and Russia, but also a preferred currency for many international exchanges. When you buy a barrel of oil, that contract is denominated in dollars. (Even though the Saudis did poke Joe Biden in the eye by executing some contracts with China in Yuan – it was a political move, not based economics). If a large bank, or a government, lends money to another country, it will generally do so in dollars. A German bank does not want useless Bolivars, Dinars, Pesos, Drachmas, or Rials. They want dollars, Euros, and Swiss Francs (probably in that order). The country or government receiving the loan also wants dollars. (Although Euros can be fine, as they translate quickly and easily into dollars).

This puts the United States in a unique position, as the world’s supplier of dollars. When we run a deficit, we borrow that money in dollars. If a German bank buys a US treasury bond (a loan to the United States government), it will be repaid in dollars. The repayment risk to the German bank is minimal, as the US can just print all the dollars it wants. The risk to the German bank is the US will be poorly managed, and the value of the dollar will be inflated away. Let’s say the German bank buys the treasury bond for $1,000, expecting to receive $50 in interest every year for the next five years and then the $1,000 principle. At a 2% inflation rate, that $1,000 will be worth about $900 in today’s money. But if the US engages in some very stupid decisions, and the inflation rate climes to 5%, that will be worth $775 in today’s money. Until recently, the US has had largely very sober, responsible economic managers, so the risk was minimal.

How bad can inflation get? We’ve had 5% inflation for short periods at numerous times. It didn’t really bother people that much, because it quickly fell back down. We had around 9% under Biden for a brief period and people lost their minds. But many places have seen inflation rates in the 20% or more range for prolonged periods of time. They still survived as countries. Even hyper-inflated countries have held together. At a 20% inflation rate, the German bank would see $325 returned in today’s money. If that bank had any real fear the US was going to 20% inflation, they’d avoid the bond until it had over a 20% interest rate. But most US debt is actually held by US individuals.

On net, this is a good position. If we want to buy something we make the magic tokens most people want to exchange. If we need more dollars, we can make more. We don’t even have to print them. We just put some numbers in a database. People are also willing to buy our debt, which we will pay back in those same magic tokens we make. Unless we do something stupid, that results in protracted, high inflation, we will continue to hold this unique position. The contenders for this rare status are the Euro and the Yen. No one wants Yuan or other BRICs currencies, not even the BRICS countries. Many countries hold a basket of currencies that include Yen, Euros, Swiss Francs, gold, and silver, but the US dollar is the workhorse currency.

There have been a couple of recent incidents, however, that may interfere with the dollar status. The first is seizing reserves. Specifically, a federal court seizing Argentine dollar reserves held in the US to pay creditors. For any country relying on the auspices of the Federal Reserve to hold their reserves (which many countries do), the chance they are seized by a US court has to be taken into consideration. (The US also holds the gold reserves of other countries as well). Unless you want to have palettes of $100 bills in a warehouse, you may want to hold bearer bonds, gold, and silver in your own country. Along with this was partially pushing Russia out of the financial system for the invasion of Ukraine. Although this was something I felt was necessary at the time, with the recent administration, European countries especially might be concerned. Could UK assets be seized if the UK does something that insults the orange idiot? Before now it was assumed that it would require a lot of legal mumbo-jumbo – but with the administration operating outside the law, it becomes a matter of fiat by the generalismo.

What would the world do? I really don’t know. The idea of crypto currencies stepping into this role is ridiculous. The volatility of any crypto makes holding it as a reserve nearly suicidal. Likewise, gold seems unable to handle the requirements of a much larger trading system than pre-1974 trade. It would also be a boon to the Russians, something many Europeans would rather avoid. However, as we’ve seen, gold has been been climbing steadily over the last year. And it’s hard to detach the timing from the chaotic nature of US policy. The Euro and the Yen are not there yet in peoples’ minds. The Yen may be closer to that role than the Euro, which seems too susceptible to political meddling from Europe. (Which should be a warning to the dollar).

What would happen to the US if the dollar no longer occupied its current position? I think it matters how we get there. If we get there because of an orderly move to more balanced baskets of reserves, not much. But, if we get there because of dollar weaponization or severe inflation, that’s a different story. For one thing, we would be paying higher interest rates on US debt. If it’s an inflation story, both US and foreign bond holders would want higher interest payments. Somewhat less if it’s a weaponization story, but they still would want compensation for added risk. The dollar would fall in value as people demand less dollars. As a country that imports quite a bit of stuff, this would push inflation.

But I suspect the biggest change would be the world no longer has to “grin and bear it,” when the US does something they don’t like. On one side is a fall into policies that degrade the value of holding dollars On the other side is a fall into the world of inflation. Maybe it isn’t a tight rope. Maybe it’s more like a balance beam, with more room for error than I believe. But at the end of the day, the loss of the dollar’s special position would not make America great again.

The Quantum Job Market

We have 3 numbers in fairly short order: JOLTS, first time claims, and the monthly jobs number. What do we have so far? The first time claims continue to come in well below ‘recession’ levels. From that number, the labor market looks tight. The JOLTS data, covered earlier, indicates a functioning labor market and not a great disconnect between people leaving jobs and people getting hired. And today we have the non-farm payrolls number. Let’s also add in the ADP number (which I do not think is as reliable as the payroll data). Both the payroll and the ADP number show a struggling labor market, according to historical metrics. Not a bad labor market, but a struggling labor market. Like most economic statistics, we care more about trends than the absolute number, but a non-farm payroll number indicative of a very healthy labor market would be above 150,000. Although it’s possible to get the occasional blip below 100,000.

Note the left hand side is the crazy period when the job market went nuts after COVID.

So far we’ve had about 160,000 jobs created over the last six months. That’s well below the number we need to absorb new entrants into the economy. The less reliable ADP number confirms the payroll data. The JOLTS data indicates a reasonable labor market and the first time climes show little job loss. This is where I think the first time claims may be under-reporting. If you lose your job, you might make slightly more money driving an Uber than collecting unemployment. I suspect other factors are depressing the actual number of people who would seek unemployment assistance. That’s not necessarily a bad thing, if you can make more money driving an Uber than collecting unemployment. You would be better off, even if you are grossly under-employed.

The red line represents initial unemployment claims, while the blue line is a survey of people looking for full time work.

This is why there is no magic single number, and no magic single sample of that number, that gives you a picture of the US economy. From the numbers, the labor market looks slack but not recessionary. It seems to back up the anecdotes of job hugging (where employers and employees may want to part ways but decide it’s better not to part ways right now), and new entrants having a difficult time finding a job. If it’s true that 70 million Americans engage in some kind of “gig” work, that’s nearly half the labor force (about 160 million participants). And maybe a weak jobs number isn’t as bad as it sounds if people can enter the gig economy instead of a “regular” job, and those people are under-counted. (Setting aside issues of job security, benefits, and the impact of under-employment). Is the labor market indicating recession?

There is something we need to acknowledge. Deficit spending is stimulative. At the end of the 2008 recession, there was a push-back on yet another democrat taxing and spending. And the stimulative policies were tempered by the resistance from republicans. (Although at levels that now seem quaint). That drew out the recovery period because fiscal policy was not injected into the problem. Spending more money than the amount removed through taxation stimulates activity and we may have ratcheted that up with the latest budget. We won’t know the final numbers until 2027. It will depend on actual receipts and actual outlays. There is some evidence the outlays will be higher than anticipated, with the DOGE effort showing an actual increase in government spending. If income tax receipts are weaker than offsets from tariffs, it could easily come in above estimates.

The current CBO estimates put the 2026 estimated deficit at 5.5% of GDP. The percentage of GDP is useful because it allows us to gauge what the real impact of the deficit, given the size of the economy. After all, a billion dollar deficit is a much bigger issue if the economy is only 10 billion dollars in size. The 2026 number may be above (likely) or below (unlikely) estimates given factors we won’t know until later. We won’t know until we actually see the impact of the new tax law, along with actual real spending.

The deficit coming down slows the economy in kind of a natural way, as activity boosts tax revenues and broader employment lowers spending on programs like SNAP and unemployment insurance. This natural brake pulls money out of the economy in higher tax revenues and lower spending, reducing the risk of the expansion becoming inflationary. However, we are doing two things that are expansionary for 2026, which are reducing tax rates and pushing the Fed to lower rates. In the face of already expansionary fiscal policy, this may push inflation for 2026. Unfortunately, it’s almost impossible to know the actual impact on inflation because we don’t know how the economy will react. The consumer in the lower 50% of income is in shambles. Most of the consumption is done by the top 20%, with half concentrated in the top 10%. There may not be the purchasing power for broad inflation, even if high end goods may see a level of inflation.

In addition, lower imports from tariffs boosts GDP, even if it means people are consuming less stuff. Could we be in a world where stagnation is masked as the GDP “increases” due to fewer imports? It’s mathematically possible. You could have patchy inflation depending on what goods you are measuring along with an improving GDP due to fewer imports. (You aren’t better off, you just don’t buy that sweater or bottle of wine, because it’s a little pricey). Combine this with jobs numbers being a less reliable measure of economic health (because workers don’t leverage unemployment insurance and transition to gig work), and you could have a stagnant economy, even if the numbers don’t look bad. You have low unemployment because of gig work and GDP growth from lower imports, even though you are under employed and just can’t afford things you used to buy.

Note that numbers are negative, so sloping up and right means the lower imports.

At the end of the day, the purpose of economics is to understand how these voluntary and sometimes emergent systems of interaction between people create well-being. The purpose of 2% inflation or a target of 4.5% unemployment isn’t because the number is important, but because the well-being of many people seems to change at around those inflection points. If inflation drops below 2%, that is usually because economic activity is slowing and over time we will be worse off. If it goes above 2%, that’s a level people feel it erodes their buying power and they are less well off. If unemployment is too low, there is inflation as wages are bid up, while if it is too high, people are out of work and can’t find jobs. The goal of the specific metric should be to indicate when a change in policy is necessary because people feel their well-being is falling.

But it feels like we’re too focused on the numbers, rather than what they mean. I can’t count how many times it feels like the number itself is the target or the policy is being gamed to meet the target number. This includes “patching up” numbers like the CPI so they under report inflation. (There is mixed evidence on this. But we would expect the CPI goods basket to change as the basket of goods and services from 1976 is less applicable in 2026). When the economy changes, the old metrics used to gauge the health of the economy no longer make sense. Following unemployment claims or number of jobs created, if people are shifting to gig work that isn’t reported through these numbers, may no longer provide a meaningful metric. And yet, we don’t have a widely accepted substitute. Like a quantum system isn’t in one state or another until it’s observed, our economy is both good and bad at the same time, because we lack the metrics to observe it.

My Porcine Aviation Era

I have not had great experiences with AI development tools. I’m not a Luddite, but if the tool takes me more time than just doing it by hand, and I get the same results, it’s not a tool I want to use. In some cases, the code had subtle bugs or logic little better than the naive implementation. Or in other cases, the code was not modular and well laid out. Or the autocomplete took more work to clean up than it saved in typing. And in some cases it would bring in dependencies, but the version numbers would date back from the early 2020s. They were out of date and didn’t match to current documentation. For the most part the code worked, but I knew if I accepted the code as is, I would open myself (or whoever followed me) to maintenance issues at some later date. One might argue that the AI would be much better then, and could do the yeoman’s work of making changes, but I wasn’t sold on that idea. (And I’m still skeptical).

I would turn on the AI features, use them for a while, but eventually turn them off. I found it helped me with libraries with which I wasn’t familiar. Give me a few working lines of code and a config to get me going, and I’ll fix it up. It would save me a search on the internet for an out-of-date Stack Overflow article, I guess. I used prompt files and tried to keep the requests narrow and focused. But sometimes, writing a hundred lines of markdown and a four sentence prompt to get a function, didn’t seem scalable.

Well, pigs are flying and I found something that appears to be working. First, it involves a specific product. At the time of writing Claude Opus/Sonnet 4.5 seem to be quite good. Second, I have a better way of incorporating prompt files in my workflow (more on that below). Third, language matters. I found Claude gave me the same problems listed above when working on a Jakarta EE code base. But Rust is great. (Rust also has the advantage of being strongly typed and eliminating some of the issues I’ve had when working with Python and LLMs). Fourth, I apply the advice about keeping changes small and focused. Fifth, I refactor the code to make it crisp and tight. (More on that below). Sixth, ask the LLM for a quick code review. (More on that below).

The first topic I’ll expand on is changing my relationship with prompt files. Instead of attempting to create prompt files for an existing code base, I started writing a prompt file for a brand new project. I had Claude generate a starter and then added my edits. I believe in design (at least enough to show you’ve thought about the problem). This actually dovetails with my need to think through the problem before coding. I still find writing prompt files for an existing code base tedious. But, if I have to sit down and think about my architecture and what pieces should do, the prompt file is as good a place as any.

The other thing I want to cover is refactoring what the LLM hath wrought. Claude generated serviceable code. It was on par with the examples provided for the Rust libraries I was using. (Which also happen to be very popular with plenty of on-line examples). Claude would have had access to rich training data and pulled in recent versions (although I had to help a little). But the code is not quite structured correctly. In this case I needed to move it out of the main function and into separate modules. But mostly it was cut and past and let the compiler tell me what’s broken. Next, in the refactor, is to minimize the publicly exposed elements. Now I have code that’s cohesive and loosely coupled. The LLM by itself does not do a great job at this. Taste is more a matter for meat minds than silicon minds at this stage.

The final thing I want to touch on is using the LLM to review the code after refactoring. This gives me another data point on the quality of my code and where I might have had blind spots during the refactoring. I work with lots of meat minds and we review each others’ code on every commit. There are some good reviews and there are some poor reviews. And reviewing code is harder, if you’re not familiar with the specific problem domain. But the machine can give a certain level of review prior to submitting the PR for team review.

So that’s what I’ve found works well so far: green-field projects, in highly popular frameworks and languages, performing design tasks in the prompt file, using LLM best practices, refactoring the code after it’s generated, and a code review before submitting the PR. Auto-complete is still off in the IDE. And I’ll see if this will scale well as code accumulates in the project. But for now, this seems to produce a product with which I am satisfied.

[A small addendum on the nature of invention and why I think this works].

Peoples’ ideas are not unique. As one of my relations by marriage pointed out years go, when he moved above 190th street in Manhattan, there seemed to be a sudden run to the tip of the island to find “affordable” housing. In a city of millions of people, even if very few people have the same idea at the same time, the demand quickly gobbles up the supply. Humans build ideas up mostly from the bits and pieces floating around in the ether. Even “revolutionary” ideas are often traced back to maybe a interesting recombination of existing ideas. Moreover, people have sometimes been doing that “revolutionary” thing before but didn’t connect it to some other need or didn’t bother repacking the idea. What’s more important about “ideas” is not the property of the idea but the execution of the idea.

There is still something about invention, even if it is largely derivative, that the LLMs don’t appear to posses. Nor do they have the ability to reason about problems from logical principles, as they are focused on the construction of language from statistical relationships. Some argue that enough statistics and you can approximate the logical reasoning as well as a human, but I haven’t seen solid examples to date. The LLM doesn’t understand what to create, but it does summarize all the relevant examples necessary to support the work of realizing the idea. But even then, there are gaps that we have to fill in with human intention. Does this revolutionize coding for me? No, I estimate it makes me some percentage more productive, but in the 5-15% range. And of the time and effort necessary to realize an idea, coding is maybe 1/3 or less of the effort. And I worry that we’ll never get to the point this technology will be available at a price point that makes the provider a profit while being affordable to most people. After all, there’s a limit to how much you would spend for a few percentage points of additional productivity.

This is Nuts

I’m not sure how the government will prevent private equity or other large investors from buying houses. This is a world-wide problem. Let’s say you bought a rental. You don’t hold it in your name. You form an LLC or corporation and that holds the property. That limits what people can collect to the holdings of the LLC or corporation. That limits any liability for claims to the corporation. Some people have a few rentals. In some cases they’re vacation rentals, which doesn’t directly impact the cost of housing for non-vacationers.

I’m not sure what the legal basis for this is. I’m also not sure how it solves the availability crisis. There is some evidence that landlords in places like New York will hold back inventory to keep rents high, and that software to help landlords estimate rents may serve as a defacto collusion between landlords, but I’m not sure what the concrete evidence is for Blackstone reducing affordability. In fact, this is a global phenomena, with unaffordable housing across Europe and Canada. But there is cheap housing, like the famous 1 euro homes in Italy or Ireland paying people to move to remote towns on their coastal islands. There are just no jobs there. And for all the ranting about left wing socialism, state control of investment decisions is right up there.

Is the Job Market Actually Good?

There is never just one number that gives you the whole economic picture. In some cases the number itself is bogus (CPI) and what we really care about is the change in the number over multiple periods. That’s why policy is rarely made on just one reading. As much as people are complaining about the job market, maybe the actual job market is still in good shape? Today we got the JOLTS (job openings and labor turnover survey) numbers for the last month.

The chart from the BLS looks like it has a lot of openings, with the separations (layoffs and quits) slightly below hires. There is a giant grain of salt on the openings, in my humble opinion. There are a variety of reasons, but what I’ve seen personally are: 1) openings that are just trolling for resumes; 2) openings to justify H1-B visas; 3) ghost jobs; and 4) fishing.

The first are job openings that aren’t for ‘real’ jobs, they’re just to gather resumes from applicants. Who’s out there? What skills do they have? What are their compensation demands? Second are openings to justify H1-B visa requirements by demonstrating it can’t be filled by a current US worker. Third are the jobs posted to show a company is growing and exciting. And finally, they might get lucky and land a person that is way more qualified than they would normally be able to nab. I don’t trust the openings data to reveal important information, and instead I’m just going to focus on separations and hires over the last few months. The pandemic distorts the data.

Here we see that both hires and separations are trending down. This would be consistent with the anecdotal stories of job hugging. Note that separations include both quits (which may often translate to an offsetting hire), and layoffs (which do not necessarily result in a hire). Looking at data from FRED, I suspect that quits have fallen off while layoffs are accelerating, but I haven’t done the math to validate that. However, we are pushing back toward more than one unemployed person per opening. And remembering my suspicion that a number of openings aren’t valid job openings, it means we are probably already more than 1 unemployed person per actual, real job openings.

Is the job market in good shape? I’m not sure it is, but I’m far from convinced it’s in bad shape. After all, it still appears we have slightly more hires than separations (which includes quits and layoffs). So if someone (on average) is getting hired when someone quits or is laid off, we are not in a bad state. And if we ignore the pandemic data, we see the number of unemployed people to open positions is much lower than the recovery after the 2008 recession. But we are certainly not in the post-pandemic world where we hit .7 unemployed people per opening. That was nuts. But if that’s all that you remember, and that’s your yardstick for the labor market, this middling to good labor market must seem like hell.

It Feels a Little Like a Lie

As Q3 GDP arrives, it’s above expectations. I hate anecdotal accounts as a basis for inferring trends, but we have had report after report of worsening conditions for individuals. Whether it’s visits to food banks or layoffs, or retailers pointing to weaker consumers, it feels like Q3 GDP should not have come in at 4.3%. I’m certainly not saying anything ridiculous, like the number is a fabrication or it should have been something negative. I live in the real world (or at lest do my best to discern the real world around me). Somewhere in the 3.5 to 2.5% range felt reasonable.

I’m still digging through the explanations, but one thing that sticks in the back of my mind is feeling like a 4 year economics degree was a joke. All the discussions about stability, or rule of law, or predictability as good soil for economic growth, are out the window. Apparently, you can run the economy like a drunken loon and it doesn’t matter. Or the government stepping in to buy stakes in companies is now a good thing (remember when the evil government stepped in to buy a stake in the big three)? Nosebleed deficits are now okay. Absolutely bonkers ideas from those responsible for our economy, like replacing income taxes with tariffs, is now calmly, if not happily, digested by the markets.

But the biggest shock is the degree to which tariffs don’t matter. It’s part of a larger narrative, where the lower income folks that make the stuff get the shaft and higher income investors and managers are doing better and better. (The managers and shareholders do well as profits, bonuses, and stock awards roll in for moving production overseas, while local workers lose their jobs. While the remuneration is tax efficient, at lower rates for capital gains, the unemployed eventually see their benefits cut because they’re ‘lazy’). We make life better and easier for the top earners while fucking the bottom quartile half three-quarters. Any discussion of taking the surplus from trade and using it to offset the negative impact as jobs shift overseas or are eliminated entirely is sidelined as socialism.

But I digress. We have had chaotic, possibly illegal, and arbitrary tariffs and restraints of trade (like who the fuck thought the government should get a ‘cut’ of GPU sales). And it doesn’t matter. Push for inflationary rate cuts. It doesn’t matter. Heck, I could be wrong, we might not get inflation. Make enforcement a function of bribes to a would-be monarch. No problem, apparently rule of law was not important as long as a bribe gets you what you want. Need to merge? Don’t look for clear guidance to support M&A, just give the grifter in chief and his cronies their vig. Policy clarity can be defined as knowing where and who to bribe.

Am I angry that GDP came in at 4.3%? It surprised me, but I’m not angry. I am frustrated that all the talk about the care and feeding of the economy, the hard choices we need to make to keep it running well, or the degree to which we need the best people running seems like a joke. All the ivy league, PhD, novella-sized CV people apparently were just tooting their own class horns. You took an economics at a community college and think we should return to the gold standard? Who the fuck knows at this point, maybe it will work. You’re a welder who thinks we should stop importing things from Turkey to boost GDP? Sure, why not. Think there’s a trillion dollars of spending that can seriously be cut? Sure, no problem, fuck the math.

Admittedly, this was a rant. Maybe we’re floating on a bubble that may pop badly. And then we might see the effects of stupid policies through the lens of a spiraling economy. And we’ll rediscover we need intelligent, skill people in charge. Or maybe not. Maybe Baumol and Blinder is as much a work of careful fiction as a theology textbook.

But that’s not something I want for me, my family, or my neighbors. Maybe we’ll see the government wade further into business by back-stopping any collapse with “free money” of cheap interest rates, loan guarantees, and buying even more equity in private companies. I remember when that kind of socialism was something Republicans vehemently opposed. Against all the good principles of being careful stewards of the pillars that hold up prosperity. Manipulating rates, funny money deficits, state owned companies, and corrupt officials were something we pointed to as markers of guaranteed economic suffering under tin-pot dictators. I never could have imagined it would be our future.

Here’s When Shopping Stopped Being Fun

This op-ed piece in the New York Times defines fine and shopping in a way I don’t completely agree or disagree with. I think I just differ on emphasis. And I think it’s a symptom that’s spreading. How we go from shopping as being kind of fun, even if we hate to admit it, to dreadful is I think emblematic of larger forces in the economy.

What is the point of a Nordstrom, Macy’s, or Bloomingdales? To cater to middle class customers. That’s where the middle income consumer once bought “nice” clothes and accessories. There are two parts to that experience. The first is getting something that feels worth the money. That can be either because it’s hip or because it’s quality. Sometimes both. The point is, you give them money for something you feel is worth the money along some axis of value. The second part is the experience. That’s an attentive experience, meant to serve (if not slightly delight) the shopper.

I can’t say I’ve enjoyed going into a department store in years. First is the matter of quality. I have items I bought years ago and I just don’t find the same quality now. These were not exceptional. Just decent pants, shirts, suits, or sweaters. If I’m going to shop acrylic sweaters, Amazon is fine. There is no reason to spend $200 on an 85% acrylic, cable-knit sweater when virtually the same thing is available for $50 elsewhere. But moreover, the shopping experience isn’t there. Either you feel like you’re getting herded to the register as fast as possible or no one is around to ring up your items.

First, fewer and fewer companies own the stores in which you shop. Macy’s, Bloomingdales, and Blue Mercury are the same company. Nordstrom is independent, but Bergdorf, Sachs, and Nieman are the same company. Catalyst Brands holds Brooks Brothers, JC Penny, Nautica, and Eddie Bauer. It may seem strange that a mall with a half dozen major stores is only representing two companies. They may attempt to provide unique retail experiences, but there’s no long term advantage to running multiple stores. It’s unlikely the war between margin and profit may sometimes favor large sales volume at lower prices or a smaller sales volume at higher prices. We see consolidation across industries. Monopolies do not necessarily result in higher prices. They may result in lower margins, less choice, and lower quality. But most people only focus on price as the harm.

Second, tastes have changed. If you see someone in a suit, chances are they work for the government, they’re in sales, or they’re going to court in one way or another. Many people dress informally at work. Even though the once promised “age of remote work” is fading into the “return to office” reality, it does not mean suits are coming back. Even customer facing roles are much more casual than twenty years ago. Going to Macy’s to buy a suit is something the middle class worker is not doing as much. While I personally feel that dressing professionally encourages (but never guarantees) professional behavior. That is not a claim based in anything other than my supposition.

Third, the middle class itself is in the late stages of being gutted. Successful retail is bifurcating into low end retail (Walmart and Dollar Stores), and high-end retail. Target, once a discount retailer, is now considered “middle class.” The middle class retailers, ranging from Sears to Bloomingdales, have seen their customer base shrink and will continue to see it shrink. This is evidence of the worsening wealth income inequality in the US. In fact, the middle class retail sector has been rife with bankruptcies over the years.

But the fourth issue is what I think will ultimately kill most US retailers. That is the destruction of the brands themselves. When you buy a t-shirt or sweater from a retailer or a brand, it’s produced by the cheapest producer somewhere in the world. In some cases, the retailer or brand is just buying an already existing product. Why would consumers bother with a brand or retail premium, if already financially stressed, when the same goods are available on-line? The same manufacturer could be selling a sweater both through a brand or retailer and Amazon as one of a dozens of sellers. When the internet removes intermediaries, there is no reason for a brand or a retail experience.

These trends aren’t just effecting retail shopping at the mall. To a greater or lesser degree they are effecting many industries. A shrinking middle class, consolidation, and disintermediation will likely destroy legacy brands and retail channels over time. Surviving brands may become just nameplates or on-line names, with essentially the same product available through a variety of branded and non-branded channels. Would you buy an off-brand microwave? Would you buy an off-brand microwave if you knew that almost all microwave internals are made by just one company? Would you buy the off-brand microwave if the brand premium doubled the cost? Or just added a few dollars? Difference without distinction, a stressed consumer, and the ability for manufacturers to go direct may alter even automobile manufacturers.

Prostitution is Next

It’s arguable there should never have been a ban on marijuana. That said, I think what’s important to the psyche is the relaxation of the ban. And there can be many good reasons why the ban should have been relaxed and how many people will benefit more than be harmed by relaxing the ban. The point is it was a vice we were all told it was wrong for so many (sometimes fabricated) reasons. The ban was relaxed. The same is happening with gambling. It was once illegal, immoral, and even predatory. Now it’s available on your phone in every state, courtesy of sports books and prediction markets. The last serious prohibition left is prostitution. Something which is legal and regulated in some countries and strictly not illegal in others. But in the United States, outside of a few particular counties, is illegal.

There are reasons it is illegal. Some of these reasons are good. Some are bad. Some are documented through rigorous study, but some harms are largely the byproduct of its legal status. Remove the incarceration of women for solicitation, and the risk of getting labeled a sex criminal, and some of the harms go away. But as we sail past broad legality for intoxicants and gambling, prostitution is the only vice still left standing. And many are arguing it should not be illegal. I don’t know that I agree or disagree because many people are disingenuous in their arguments around vices. Some argue for it because they don’t want to be arrested (as a customer or provider), rather than a genuine appeal from reason or data. And some argue against it because of their desire to impose their morality on others. It doesn’t invalidate the arguments, but the motivation makes it harder to judge the argument as honest. I don’t know the correct answer, but given the track record of those that profit from the sale of (often women’s) bodies are rarely the women sold.

It will be a chip shot to the green for Only Fans or a dating site to offer in-person or compensated dating experiences. Ashley Madison was a scam, but how long before a dating app with low prospects allows women to start advertising? (I say women but the same applies to some men, where economic vulnerability has made some men exploitable by other men). After all, this ‘disrupts’ dating, something “we all know isn’t working.” And I can imagine the excuse would be that policing this in practice is impossible, anyway. That many people just use these apps to ‘hook up.’ Like gambling, once the apps move in, and there are investors, it will be legitimate. It will be a business out in the open. And if you don’t like it, it’s because you are a prude or not ‘with it.’ People will do it, so why not offer it through the convenience and safety of an app?

Would prostitutes be better off, if they were able to openly solicit? I could see benefits, such as screening out out violent clients. Although, given the track record of safety in the hands of tech bros in other contexts, it might be a ban is voided by quickly creating a new account. I could see women more willing to file rape charges against clients because they don’t fear arrest. However, I could also see apps black-balling any woman who did file such charges. These disruptive companies are often more subtly exploitive than the pimp. Uber has been accused of manipulating fares to give the impression a living is possible as an Uber driver, but the reality may be a below minimum wage grind. Uber doesn’t need to exploit them, the drivers exploit themselves by chasing smaller and smaller payouts. How well silicon valley would treat sex workers is practice may be as exploitive as the worst pimp.

How likely do I think this is? Ironically, more likely because of the Epstein scandal. With so many establishment men, including David Brooks, Larry Summers, and Bill Gates being seen around Epstein, it could perversely make the prohibition of seeking sex workers a class-based rule. (Not that I have any indication any of these men actually did anything illegal or even unsavory – other than their association with a vile person). If you’re wealthy and elite, it’s accepted, but if you’re not, it’s prohibited. And as we all know, the United States is a country full of temporarily embarrassed billionaires. Why shouldn’t Trey Schifflet from Beckley, WV (a made up persona) be treated to the same earthly delights as his favorite president? Trey, who sits at home smoking weed and playing Call of Duty in his parents’ basement. Who burns up his Uber money gambling through Kalshi on sports. Who has found every dating app frustrating because he’s not a “high status male.” Who looks at his jaw or his height or the slightly more pronounced ears as the real reason he’s passed over. And nothing to do with the fact his app profile features his sucked-in, two-pack abs, and actually calls women ‘females.’

And we live in a world where the pursuit of money is almost a dispensation for wrong-doing. Even Sam Bankman-Fried has has a moment or two of seriously attempted rehabilitation, including possibly restarting his exchange (in name only) FTX. The President and his family are openly grifting using meme coins. It’s not a bribe if you squint your eyes so hard they close. Whose family business works with and may become a prediction market, like Kalshi, to openly take bets. Who has turned the pardon into a coin-operated dispenser, giving pardons to wealthy, well documented, easily convicted, and unrepentant fraudsters. The pursuit of profit is sacred, beyond question, and insured against prosecution if the potentate is given his vig.

In this environment, where subsidizing illegal activity is just “disruption,” why should this last taboo stand? To be fair, there are many who want to see the laws prohibiting sex work repealed because they see women whose exploitation is facilitated through the risk and fear of arrest. Or whose avenues for legitimate work are proscribed because of a prostitution related conviction. But if the tech bros smell blood in the water, or rather money to be made, they will pounce on your resistance to legalizing prostitution. Posts on X, undisclosed sponsorships to creators, and AI slop comments, will drive you to feel bad for believing it should be illegal. It should be just as easy as Uber to order up a date. After all, it’s just like Only Fans, but IRL. It will happen anyway, so in-person access should be legal and available through an App, with the App taking a cut to profitably cover expenses like payment processing and client screening. And once Andreessen-Horowitzes of the world are behind it, it will be a legitimate enterprise, an investment, a company to IPO, and much more than simply pimping and profiting from the vulnerable.

First Time Claims Make Less and Less Sense

The number of first time jobless claims (a weekly statistic measuring the number of folks filing their first claim for unemployment insurance when they become unemployed) has been bouncing around 250,000 for the last year and change.

A related number, the continuing claims, which measures the number of unemployment claimants who are continuing to file for benefits has also been remarkably steady.

While it looks like there was a big jump in May, it was a change from 1,800,00 to about 1,940,000, of about 7-8%. And then it stayed steady. Meanwhile, unemployment has been slowly creeping back up over the last two years.

Meanwhile, we see a definite softening of new jobs created. The change in non-farm employment shows a degree of cooling in the economy.

What would we expect to see, if job creation is slowing, along with an up-tick in the unemployment rate? We’d expect to see more claimants for unemployment insurance. Fewer jobs, more layoffs, and lots of stories about graduates that can’t find jobs (who cannot apply for unemployment insurance), indicate a soft labor market. We see the average weeks of unemployment (how hard it is to find a job once you lose your job), tick up slightly but not decisively, by about 2 weeks, but still within statistical noise.

With today’s CPI coming in a lot softer than expected, this will give the Fed a green light to cut. But as much as we see evidence of a slowing job market, we don’t see more and more people applying for unemployment, what gives? Is this just what a more normal employment market looks like after the go-go job markets of 2021 to 2023? When there were many times more jobs open than there were candidates?

First, we have to remember a few things that may be complicating the first time claims picture. First is that the new graduate cannot claim unemployment. If a new high-school or college graduate cannot find a job, they cannot claim benefits because they haven’t worked for an employer that paid into the insurance pool. If you quit because your commute would be 2 hours (after you moved because even your boss was saying WFH would be the new normal), you are not eligible. If your employer claims it was for cause, you are not eligible. That’s why many employers will try to cite ’cause’ as the termination reason, even though they’re firing dozens or hundreds of people at the same time. Nor are independent contractors. if you were an independent IT contractor at US AID and your contract was terminated, you are not eligible. You basically have to work on a “W-2” basis for an employer that terminates you for non-performance (or criminal) reasons.

Then there are other reasons, such as deciding not to claim benefits, because you can make more money driving for Uber. (Or at least you think you can make more money driving for Uber). If you make more money than your benefit check at a part time job, you can’t claim benefits. Some people won’t claim it out of principle. And some people live in states that felt too many workers were getting cushy at home instead of returning to the workforce and made it harder to claim benefits.

Does an increase in first time claims (or continuing claims) predict a recession? No. It is a trailing indicator. Generally corporate profits fall, along with Wall Street’s expectations of future profits, as the economy slows. At that point corporations realize revenue won’t grow, so they have to cut costs to keep their margins. One quick way is to lay off staff. Often, this is a time for the company to prune their deadwood projects. These are projects they’re putting money into because it seemed like a good idea at the time, but no one seems to be able to kill it now that it’s shown to be a dud. Managers are human, too, and subject to biases like the ‘sunk cost’ fallacy. This is the push that management needed. But sometimes they just reduce head-count to the point of pain, because they can coast on their accumulating inventory until business improves. Only after output falls (a recession begins) does employment really contract.

But it is still striking there’s been so little movement in first time claims. It feels like you could place bets on it being between 220,000 and 240,000 next week and the week after. Do I think it’s being manipulated? No. While it was popular among the right to say Biden’s numbers were all fake and made up, I never thought that claim was based in reality and I don’t think there’s any skulduggery now. Did Trump send a worrying signal by firing statisticians? Yes, but I believe the core of the process is still very much intact. Are the numbers massaged? Yes, sometimes seasonality needs to be taken into account, otherwise the increase or decrease would be overstated and the period to period changes are harder to compare. And if you think that’s an issue, most numbers are also released without seasonal adjustment. So, go look for yourself. Are numbers revised? Yes – because sometimes data doesn’t come in on time. This is especially true of the employment survey, with some employers submitting data weeks after the data was due.

What we may be seeing is a change, or a beginning of a change, in the relevance of this number. Due to a variety of factors, it’s becoming less sensitive to changes in the health of the labor market. If you lose your job, your ability to access smaller benefits may be reduced. And employers may be getting better at incentivizing you to quit and unable to access your benefits. For example, we need you to report to work 3 states away and we won’t help you move. The first time claims may be very slow to move, if at all. Like we are seeing unemployment hit 4.6% but little to no change in the first time claims.