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The WelderDestiny Compass #018 - Ineffective Economic Measures
May 03, 2017
Wednesday, May 03, 2017 / Perth Australia / By Niekie Jooste
Ineffective Economic Measures - Issue #018
In this edition of "The WelderDestiny Compass":
New Economy - New MeasuresMuch of what we have learned about how economic measures work, will change in the new economy that grows out of the machine age. A new economy will need new measures and also introduce new taxation regimes.
These changes will also impact Welders as they ply their trade within this new economy. It is best to start preparing for the changes now, rather than wait for the changes to force you into an unexpected direction.
If you would like to add your ideas to this week’s discussion, then please send me an e-mail with your ideas, (Send your e-mails to: firstname.lastname@example.org) or add a contribution directly into the comments form on the bottom of the e-zine page on the WelderDestiny website.
Now let's get stuck into this week’s topics...
Making Measures Ineffective“Tell me how you measure me and I will tell you how I will behave. If you measure me in an illogical way… do not complain about illogical behaviour…” - Eliyahu Moshe Goldratt
Mister Goldratt was a really good and respected management guru. I believe the principle stated in the quote above is entirely correct, but with respect, I also believe that it misses the critical issue. The critical issue is that if people know how you measure them, then the measure becomes subjected to manipulation and therefore largely ineffective. This is especially so if there are "consequences" attached to the measure.
Businesses the world over link managers' and workers' pay to achieving certain "goals". Typical are the share price of the company, efficiency measures of departments, customer complaint levels and injury rates.
The nett results are that executives manipulate the share prices through inefficient share buy-backs, managers manipulate inter-departmental efficiencies to optimise their own numbers at the expense of the company as a whole, and workers do not accurately report safety incidents or customer satisfaction.
In the case of politicians, the typical measures are inflation, joblessness and economic strength through measures like Gross Domestic Product. (GDP) Over time, these "statistics" have been tortured by government departments to within inches of their lives. These days, the meaning of those numbers are about as reliable as the information supplied by somebody being encouraged by a bit of waterboarding!
The same effect is at work in models that predict share price movements. Many economic gurus have proposed really great methods for predicting share price movements. Initially these measures are great, and have good predictive properties. However, once enough people know about them, and trade accordingly, the new trading patterns start to affect the share prices. This results in volatility and movements that effectively neutralises the predictive value of the proposed model.
In short, if you want a good measure of anything where humans could influence the outcome, don't tell them how you are measuring them!
Ineffective Economic MeasuresWhile it is human nature to manipulate measures to give the answers you are looking for, it is only reasonable to expect that the effectivity of economic measures will change with a fundamental change in economic models.
In previous editions of The WelderDestiny Compass, we looked at a number of ways in which we anticipate the economic models to change. In particular we concluded that the future of engineering jobs was going to be neither utopia, nor dystopia, but rather "nichetopia". To take a look at that edition, click here...
This vision is in line with what many people call the "gig economy". In an economic system where most people have many different "jobs" on a casual, rotational or contract basis, the whole idea of economic measure through Gross Domestic Product (GDP) does not make as much sense as in the past.
As people can easily access knowledge to do just about anything themselves, (just Google it, or Youtube it, or ask your AI) the economic drivers for personal services and even some products change. A lot of work that was previously "outsourced" will become DIY, as people have more unproductive time "between jobs".
As an example, if I have a lot of unproductive time, I may decide to mow my own lawn, rather than employ a gardening service. Or, I may decide to fix my own computer rather than take it to the computer repair shop.
Also, as the "sharing economy" takes off, there will be much more efficient use of assets, resulting in less product sales. (Think ride sharing, accommodation sharing etc.)
In all these examples, the nett effect is for GDP to decrease, although the actual economic activity has not changed. In fact it has increased, but because less money is changing hands, the GDP measure shows a decline in economic activity. The GDP measure is giving us the wrong information. It has become ineffective as an economic measure.
With a decrease in GDP, the normal taxation models will come under pressure, leading to governments attempting to broaden their taxation base. The only real place to address these changes from a taxation point of view will be consumption taxes (e.g. value added tax; goods and services tax etc.) and land taxes.
A "value added land tax" actually has the best potential to even the playing field between the rich and the poor, and is by far the "fairest" tax, but this is unlikely to prevail, because it is the rich that have the strongest influence over the political agenda and consequently what ends up in the tax laws.
Implications for the WelderWithin the nichetopia economic model, (here is that link again...) just about everyone becomes a solopreneur. It also means that you have more control over your lifestyle and how your income is structured and perceived within the economic system. It will allow you to become much more tax efficient.
The medium to long term result of those changes will in all probability be the tremendous rise of consumption taxes.
Counterintuitively, to be successful within the nichetopia model, you need to multi-skill. The multi-skilling becomes much simpler due to the assistance rendered by artificial intelligence (AI) and the associated technologies. None-the-less, you as a Welder will need to broaden your understanding of how the world works, and how things affect each other. You can leave the details to the AI to sort out!
As mentioned in a previous edition of The WelderDestiny Compass, you need to know what questions to ask the AI. That is only possible if you know what the right issues are.
Do you know the basics about non destructive testing? Do you know the basics of metallurgy? Do you know the basics about arc physics? Do you know the basics about mechanical design and stresses and strains? Do you know the basics about information technology? Do you know the basics about economics?
You do not need to be able to make calculations, merely understand the issues from a conceptual point of view. The AI will do the calculations when needed. The software designers will make the application of the concepts intuitive.
Now is the time to get on board this constant learning train. Once the train leaves the station, catching up will be difficult, if not impossible.
P.S. What are your thoughts on how organisational measures are often manipulated? Do you think that the machine era will make current economic measures ineffective? What effect will this have on taxes and your job? Please share your stories, insights and even fears or wishes regarding today's topics directly on the e-zine page on the WelderDestiny website.
P.P.S If you know anybody that you believe could benefit from The WelderDestiny Compass, please forward it to them. If this e-zine was forwarded to you, and you are interested in receiving our future editions, please visit the WelderDestiny.com website and enter your e-mail details into the subscription box. It is a big red box on the home page, so you can't really miss it. - I hope!
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