More on this topic that we've been cir­cling around a lot of late – that of automa­tion and the rise of the robot class. (hope­fully a "peo­ple" that the Supreme Court can bless in time so they too, can con­tribute to SuperPACs).

Iron­i­cally I watched an episode of the Twi­light Zone this past week­end enti­tled 'The Brain Cen­ter at Mr. Whipple's" which actu­ally was right up this alley.

In the year 1967, Wal­lace V. Whip­ple, owner of a vast man­u­fac­tur­ing cor­po­ra­tion, decides to upgrade his plant to increase out­put by installing a machine named the "X109B14 mod­i­fied tran­sis­tor­ized totally auto­mated machine," which leads to lay­offs. Some for­mer employ­ees try to con­vince him that the value of a man out­weighs the value of a machine, but their protests fall on deaf ears. Even­tu­ally, the board of direc­tors find him neu­rot­i­cally obsessed with machines and retire him. Whip­ple joins his for­mer plant man­ager at the bar oppo­site his fac­tory and expresses deep sor­row at his mis­for­tune ("It isn't fair, Han­ley! It isn't fair the way they…diminish us"). A robot now runs his office.

This time we head over to the WSJ:

• In no other U.S. recov­ery since World War II have com­pa­nies been simul­ta­ne­ously faster to boost spend­ing on machines and soft­ware, while slower to add peo­ple to run them. Part of this is the old story of sub­sti­tut­ing cap­i­tal for labor. But a com­bi­na­tion of tem­po­rary tax breaks that allowed com­pa­nies in 2011 to write off 100% of invest­ments in the first year and his­tor­i­cally low short– and long-term inter­est rates have pushed that process into overdrive.
• Instead of hir­ing, com­pa­nies such as Sunny Delight and chain-saw maker Stihl Hold­ing AG are invest­ing in tech­nol­ogy or other ways to make exist­ing oper­a­tions faster and more pro­duc­tive. His­tory sug­gests that invest­ment that increases pro­duc­tiv­ity even­tu­ally will cre­ate jobs and raise liv­ing stan­dards. The mech­a­niza­tion of the farm and the automa­tion of the fac­tory both raised fears of per­ma­nent unem­ploy­ment that were unre­al­ized, as effi­cien­cies in pro­duc­tion of basic com­modi­ties cre­ated jobs in all sorts of ser­vices. Most econ­o­mists say today's surge in pro­duc­tiv­ity will have the same ben­e­fi­cial effect—in the long run. (is it "dif­fer­ent this time"?) In the short-term, how­ever, this burst of effi­ciency allows com­pa­nies to delay hiring.
• Spend­ing on gear and hir­ing usu­ally are more syn­chro­nized. Since the econ­omy began grow­ing again in 2009, spend­ing on equip­ment and soft­ware has surged 31%, adjusted for infla­tion. In the post­war period, only in the wake of the 1982 and 1970 reces­sions has such spend­ing grown faster. Private-sector jobs have grown just 1.4% over the same span. Only recov­er­ies fol­low­ing the 1980 and 2001 reces­sions saw slower job growth.

• The trend toward using labor-saving machines and soft­ware isn't lim­ited to fac­to­ries. W. Brian Arthur, an econ­o­mist at Xerox Corp.'s Palo Alto Research Cen­ter, says busi­nesses are increas­ingly using com­put­ers and soft­ware in the place of peo­ple in the nation's vast ser­vice sec­tor. (that's where it gets scary for the labor force con­sid­er­ing ser­vices dom­i­nate employ­ment) Many com­pa­nies, for instance, use automa­tion to process orders or send bills. "It's not just machines replac­ing peo­ple, though there's some of that," Mr. Arthur says. "It's much more the dig­i­ti­za­tion of the whole economy."
• The U.S. today is sec­ond only to Japan in the use of indus­trial robots. Orders for new robots were up 41% through Sep­tem­ber from a year ear­lier, accord­ing to the Robot­ics Indus­tries Asso­ci­a­tion trade group. That has helped fuel a larger boom in pro­duc­tiv­ity. Out­put per hour worked in non­farm busi­nesses has increased 6% dur­ing the recov­ery. Hours worked are up only 1.5%.
• Peter Mueller, exec­u­tive vice pres­i­dent of the U.S. arm of Germany's Stihl, says he would buy robots and other machines even if they were far more costly. In Vir­ginia Beach, Va., he recently opened the company's most advanced fac­tory for mak­ing chain-saw guide bars, the metal frames that hold the chains in place. The plant has 120 robots that run around the clock every day, with only seven work­ers on each shift. Next year, the com­pany plans to spend $10 mil­lion for machines and soft­ware that will allow the plant to dou­ble its out­put. It will only need six more work­ers to do that.

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Any secu­ri­ties men­tioned on this page are not held by the author in his per­sonal port­fo­lio. Secu­ri­ties men­tioned may or may not be held by the author in the mutual fund he man­ages, the Pal­adin Long Short Fund (PALFX). For a list of the afore­men­tioned fund's hold­ings at the end of the prior quar­ter, visit the Pal­adin Funds web­site at http://www.paladinfunds.com/holdings/blog

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