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Kumar Thangudu

I work on EngineerSF helping companies scale through non-obvious methods.

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American Dynamism is Hype-tastic and We Won't Be Reshoring at Scale Anytime Soon

TLDR: American Dynamism or American reshoring isn’t coming to a city near you at any level of real big scale. [Taken from google images - from A16Z's marketing materials.] I’ll keep updating this post with more reference data as it arrives. There’s been much ado about American Dynamism’s announcement with numerous videos and blog posts and much fanfare on twitter. https://www.youtube.com/watch?v=fp8gAbwhPnk&t=39s Some will claim later that they only meant the top 10-20% of the most advanced manufacturing that matters such as electronics, advanced materials, aviation, and defense. It is an anemic pivot.  There’s a complex and never-ending set of modeling variables for how to decide where to put a manufacturing facility. I trained at the top institution on the planet for Operations Research and Industrial Engineering so I’ve had an insane amount of exposure to this problem at the terawatt hour scale. I outline principles of engineering in another post on this blog. Without modeling everything out and simply using a few basic “heuristics” we save ourselves time and can know that manufacturing won’t come back to the USA at any relevant scale. [In one city in China, they allocated almost $1T to build out infrastructure.] I intend to dive into the tenets of why I don’t believe manufacturing will relocate and as well why there will be many failures and countless delays.  We used to build things in this country…. [Got to put my hands on this one with a fellow lacrosse teammate who became a NASA mechanical engineer. ~$500k+ motorcycle with carbon fiber. Oh the good old days….] The America you Know is Shifting and 50%+ of GDP will Become Gov’t Expenditure[Image]The tribe and crowd of folks hyping American Dynamism comes at a time when 50%+ of GDP will become government expenditure. “Government spending in the United States was last recorded at 37.0 percent of GDP in 2022 . Government Spending to GDP in the United States averaged 25.66 percent of GDP from 1900 until 2022, reaching an all time high of 47.66 percent of GDP in 2020 and a record low of 6.55 percent of GDP in 1907.” I’ve stated over the past 5 years quite publicly that America’s burgeoning infrastructure, healthcare, and pension debt/taxpayer will become onerous and leech into quality of life. A few good data sources to dig into some of this are TruthinAccounting, OpenTheBooks, Adam Michel at Heritage foundation writes, and of course my friend and mentor Adam Townsend.  I believe that Ferguson, Missouri Riots Were Partially a Symptom of America’s Burgeoning Localized Debt[Image] https://www.youtube.com/watch?v=QYszZZg7yxA What rarely gets discussed is the relationship between the region’s debt and how the city got 30% of its tax revenue from ticketing and how that made policing and life onerous in the city. Debtors prisons, municipal violations, etc…. Ask yourself, why would you put your manufacturing facility here in the USA when you know there's a thermonuclear tax bomb headed your way?   Anyhow, I digress. Reasons America Won’t Reshore Manufacturing Anytime SoonLet’s dig into the tactical reasons why American dynamism won’t happen at any relevant scale anytime soon. I’ve espoused this viewpoint aggressively here, but I’ll summarize and try to add more color here.  1. EEOC(Equal employment opportunity commission) overreach  2. Healthcare costs...diabetes hurts all.  3. Pension and Infrastructure risk 4. Materials Energy Balance 5. Onerous Occupational licensure  6. No federal budget  7. Strong USD  8. STEM Talent shortage 9. Asymmetric trade agreements EEOC Mandates & Directives[image.png] Employing, hiring, firing, and the associated junk fees in the USA of getting labor to complete a job are onerous. We’re becoming Germany where employing people is a labor of dealing with labor despots. The latest set of EEOC mandates are a pile of risk rife with lawsuit issues, and the American manufacturing sector is the last area where capital will want to be deployed.  Healthcare Debt[Do you recognize this man? He's more powerful than you know. Most of you have never seen a photo of the man above and have no idea who he is. Some of you will google him but there’s more to him than meets the eye.] America is the only healthcare insurance system on the planet whereby the healthcare insurance companies make money every time you’re prescribed a drug, therapy, or treatment. Full cartelization exhibited by raw complexity. [image.png] The point here is that America’s healthcare system is fully cartelized and a burden on anyone with full time employees. [Image] Adam in his brilliance reminds us that diabetes blows up actuarial tables. He’s likely one of the few people I know who knows the art and science of Obamacare.  I remember hearing that about 2/3rds of Californians cannot afford health insurance and subsist on medicare and medical, need to go dig the figure up. (Please do tweet it to me if you see it)  Pension & Infrastructure Risk [Image] There’s a nurse in the California public medical system that makes $500k/yr and lifeguards who make $300K+/yr. I could go on and on about this but you can read more here, here, and here. Why California Is In Trouble – 340,000 Public Employees With $100,000+ Paychecks Cost Taxpayers $45 Billion “Here, in part, is why California is asking for taxpayers help. Our auditors at OpentheBooks.com found truck drivers in San Francisco making $159,000 per year; lifeguards in LA County costing taxpayers $365,000; nurses at UCSF making up to $501,000; the UCLA athletic director earning $1.8 million; and 1,420 city employees out-earning all 50 state governors ($202,000).”  The TLDR here is that there’s a growing “caste” system in the USA and it is bifurcated by the following:  • Licensed vs. Not • College debt vs. Not  • Hard Assets or Not • Pension/Gov’t Employee/Contractor or Private Sector  • 1099 or W2 • Blue state vs Red state  • Nuclear vs. Joint family structure  Adam does the best job of paraphrasing America’s infrastructure reality, you can enjoy it here and here. Why would a competent manufacturer want to take on these labor inventory risks? (Hint: They don't.)  Materials Energy Balance [Entire novels can be written on the art and science of materials and energy balances. At some point in the future, I will write on how the St.Louis federal stress index and the econometrics of energy and materials balances can be used to predict wars amongst humans.] All systems of energy can be evaluated in terms of the following:  1. Farm to fork cost/kwh  2. Chemical, Geological, and Industrial Process footprint  3. Energy Grid Stress  On the 3rd component of the systems energy evaluation - we must evaluate how generators a. synchronize voltage b. phase with the grid c. storage When you factor in how all of these work, the net conclusion is that it will cost too much energy to dislocate manufacturing systems and move them to the USA in terms of kilowatt hours at any level of relevant scale in any reasonable amount of time profitably. It will be physically impossible with our energy math and as well with America’s energy grid infrastructure to do this in a timely fashion. On a side not, America will have more brown outs and black outs as its grid with its transformer architecture and proliferation cannot support the burgeoning burden of lithium batteries and renewables on the grid. [image.png] [Fixing America's grid is going to cost a lot of money and EVs are a sort of Hari Kari on American taxpayers. Utilities are gov't backed monopolies.] Occupational Licensure40-ish years ago, 1 in 20 Americans required an occupational license to do their job. Today, that number stands at 1 in 4 Americans. In California, that number is 1 in 3. Some attribute California's high recidivism in part to this licensure. [image.png] "66 occupations have greater average licensure burdens than emergency medical technicians. The average cosmetologist spends 372 days in training; the average EMT only 33. That’s a lot of licensing. In the 1950s, only one in 20 U.S. workers needed the government’s permission to work within their occupation. Today it’s almost one in three. [Image] Intrusive regulations, licensing and extraordinary bureaucracy and irrationalities are not a civic virtue, rather it is a lobbied effort to suppress competition, keeping a high barrier to entry for those aspiring to these occupations—minorities, those of lesser means and those with less education. Industry associations benefit by preserving an artificial scarcity, local government collects fees for licensing. It’s a win, win, lose The licensing of lower-income occupations is irrational and arbitrary." I've quoted the above from this post by Adam. I was aware of the problem, but not aware of its depth. The USA is the only country in the world where a plumber can become a multimillionaire. Why you might ask? Occupational licensure. [Image] My plumber in Texas sold his Bugatti car to Canelo, the boxer in Mexico.  No Federal BudgetA lack of a declared federal budget. Adam nails it again. [Image] Strong USD I could go on and on about why the US dollar reigns supreme and so could Adam and our dear friend Dr.Anas Al Hajji. I recommend reading their post on the US dollar and certainly following both.  Building manufacturing with a strong indigenous currency is like fighting gravity. Nonsensical move.  Some of the more blaring reasons it's difficult to dethrone the USD:  • Something like 95%+ of the world's commercial credit is issued in USD. (doesn’t have that stat, but some context) • This stat was originally shared with me by a friend who runs a fund that is a top 25 holder of US single family homes.  • SWIFT/ACH network enforcement via FBI is serious and banking insurance is serious  • Traded Globally[Image] I don’t believe given the other variables of the world, that it’s possible to have both of the above simultaneously for more than a few decades.  STEM Talent Shortage[Do you know the answer? Did you know it in High School?] The evidence is broad and far and wide on this one. We no longer have a technocratic school system in the USA, the evacuation of 60k factories from the USA led to more finance bros running the asylum. The number of CEOs of publicly traded companies who are bean counting CFO / Bookkeeper types would astound the most of you. The max intellectual output of most of them is paper pushing nonsense that is the opposite of the enterprising James Lapeyres of the world. (Go read on him…his story is riveting) In the words of Lee Iacocca, where have all the leaders gone? [1390043401061728 (1).mp4] I don't worship Lee the way he'd probably want to be worshipped, but he brings up a salient point here, we have a trade asymmetry that has to be addressed in the long run.    [The overwhelming Montaukification of our executive class is a problem.] Most American degreed STEM grads cannot pass a PE(professional engineer) exam. As a test to future employees in different companies, I’ve frequently given them JEE questions, they can’t pass and this is India’s college entrance exam to get into the top technical institutes. I’ve done this with students who are graduated from MIT, Google, Stanford, Harvard, etc…. Not all STEM programs are of equal caliber. You’re deluded if you believe otherwise. Asymmetric Trade Agreements All or most of our trade agreements allow other countries to dump goods on the USA. KORUS, NAFTA, CAFTA, TPP, TISA are all just basically acronyms for “let other countries achieve trade surpluses with the USA and they end up exporting way more goods to the USA than we export to them.” Closing Thoughts  The only way to address a problem is to frame it well. One of the mantras in engineering is that you’ll spend most of your time framing and measuring a problem before solving it. I think most of the American Dynamism crowd is well intentioned, but horrifically deluded about how the world works if they’re not talking about any of the above items. We have to reframe the conversation with hard STEM talent that has actually completed industrialist workflows in the past leading the charge.  If you're working on hard tech engineering, feel free to reach out to me. 
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