Juggling Dynamite

Manufacturing is on the move, migrating closer to able customers and available land, resources and infrastructure.  For many companies that means North America is increasingly attractive.  The bad news is robots are going to keep taking the jobs.  We are all at risk of being unskilled labor in the future.  See:  When robots steal your job:

This rise in automation has only just begun and is going to change far more than the manufacturing sector. With the growth of machine learning and artificial intelligence, job losses will not be limited to assembly lines. The service industry, office administration, computer programming, and many other sectors are all on the cusp of automation.

Sure automated operations are highly efficient and can greatly increase productivity.  But all the arguments in favor of greater productivity, make two key presumptions.  The first is that there are customers able to purchase that increased production.  Second, that hours freed up by greater labor efficiency are able to be used more productively in other pursuits.

In reality, unemployed workers make poor consumers and once human labor is not needed to provide for our own food, shelter, utilities, clothing or transportation, what other productive things will people do with their time?  Sure some will devote their energy to solving the world’s other problems, but the masses, what will they do? Surf the net? watch shows? take selfies?  At some point, more free time is completely non-productive where it does not improve health and life quality, nor increase available cash flow.  This is where creative thinking is required, different than the prevailing economic theories about how to produce more product and stimulate more spending through debt.

Henry Siu, the UBC professor who specializes in automation and the decline of middle-class jobs says this question must be on the minds of every worker, leader and policy-maker today.  Among other sectors, Siu predicts that the trucking industry could automate within the span of one to two years, sparking the loss of 8-9 million US jobs alone.  His suggestion may surprise many:  cultivate creative thinkers and study the arts.

How do we prepare for the inevitable job losses? Siu has a counterintuitive suggestion: avoid education that focuses on the STEM disciplines (science, technology, engineering and math). This only trains people for jobs that are the next to be automated, like programming. Instead, we need a work force to take on jobs that computers can’t: to think laterally, to make subjective judgment calls an algorithm can’t, and to solve problems. Not game programmers, but game animators; not payroll clerks, but career counsellors.

The great irony of the robotic revolution may be the unexpected resurgence of the long-derided bachelors of arts degree—you still can’t automate creativity.

News about actor Johnny Depp’s financial problems has classic lessons for everyone that aspire to waste less and retain more net benefit during our lifetime.  As always, it is never about how much we, or asset markets ‘make’, but rather how much net equity and savings we personally retain in the end.

Depp is accusing his onetime financial advisers Joel and Rob Mandel, brothers operating as The Management Group, of fraud and negligence in a $25 million lawsuit filed on Jan 13.  Depp says the Mandels caused him to lose tens of millions of dollars and incur more than $40 million in debt. He says the managers made nearly $10 million in unauthorized loans, caused his Los Angeles residence to go into foreclosure, and racked up nearly $6 million in penalties for paying taxes late.

The advisers filed a countersuit this week alleging that although Depp has made more than $650 million during his career he often spent more than $2 million per month despite warnings from his advisers that he was living beyond his means: “The arithmetic is straightforward: Depp spent more than he brought in, notwithstanding repeated warnings… Over 17 years, The Management Group did everything possible to protect the actor from himself.”  See:  In countersuit, Johnny Depp’s former managers allege extravagant spending.

The laundry list of expenditures, if true, is reckless at really any income level. Just dumb.

“Mr. Depp spent more than $75 million to buy and furnish 14 residences, including his 45-acre French village, and a chain of islands in the Bahamas, as well as $18 million to buy and renovate a 150-foot luxury yacht, the complaint claims. Millions more were allegedly spent on an art collection that includes pieces by Andy Warhol and Gustav Klimt, jewelry, approximately 70 collectible guitars, and enough Hollywood memorabilia to fill 12 storage facilities.

Other examples of Mr. Depp’s “profligate spending” cited in the suit include spending $30,000 a month on wine and more than $3 million to blast the ashes of journalist Hunter S. Thompson from a “specially-made cannon.” Mr. Depp portrayed Mr. Thompson in the 1998 film “Fear and Loathing in Las Vegas.”

Mr. Depp had a staff of 40 full-time employees who cost $300,000 a month to maintain, and paid $150,000 a month for full-time security guards who followed him and his children everywhere, the Management Group claimed.”

But this case also serves as an important reminder that for people to make prudent financial choices that will serve them well over their lifetime, they generally need both personal self-discipline and wise financial counsel. Where one or both are lacking, outcomes are predictably bad, usually repeatedly.

It also should warn that even in the absence of fraud, most financial and pension managers today are not giving responsible advice about appropriate savings levels and risk exposure.  In doing so, they are setting their clients and beneficiaries up for loss and deficits ahead.  Once the next bear market uncovers truth on this once more, the lawsuits will come thick and fast.  Advisers and managers will blame their customers for demanding unreasonable, aggressive ‘returns’ and customers and beneficiaries will blame the advisers for dereliction of duty in not warning them and they were set up for failure.

In truth, there will be blame on all sides, but lawsuits won’t get back the time and potential wasted.  The time to restructure to a sustainable financial plan is before we are forced to.