Skip to main content

The New New Economy -- Where theory goes to die!

Increasingly we are hearing stories about using big data into comprehensive working tools especially with the idea of AI (granted its more intelligent systems that the AI of Scify) will contribute to the world economy.

Already big data and intelligent systems are crowding out trading rooms at an unprecedented rates; why have expensive traders when a computer can do the job 24/7 at little cost. Bond desk have been decimated over the past decade, the same for F/x desk, and virtually all trading that is trough ETF is done via computer systems.

That's the easy part, now come the doctors and the lawyers -- already we are seeing the medical profession being overwhelmed with data, diagnosis was easier when the doctor had only 10/20 data points, but medical technology has come a long way, already the number of data points has increased by nearly an order of magnitude than what was available 10 years ago, lets assume you suddenly have 400 data-points, the human mind is unequipped to deal with so many variables. Suddenly the doctors are only used to write prescription and follow the computer's advise.

Lawyers are already in trouble drafting offering memorandums can be largely done by computer -- if you've ever tried to read these documents you know that 95% of these things are boilerplate -- with a few page of data.  How easy would it be to replace such high cost producers, the same for investment bankers.  Its not like these guys re-invent the wheel every day, they use tried and tested ideas.

Already, we have seen, via robotization, that blue collar jobs are disappearing at an alarming rate, new jobs are being created but at much lower salary points -- they require next to no skills because it has proven valuable for company to automatize the "skilled" portion of their production process.  Don't believe me, what do you think Carrier will be using the US$ 7 million windfall from the Indiana?  You got it, they will automatize process!

The world Western economic model is built on wealth creation, ideally where there's not too much disparity between all segments of the population (very rich people don't consume very much of their income), but now as the AI take over the world, lawyers and doctors and engineers will also face employment issues -- after-all designing a bridge is a simple process for a computer.  what happens as more and more of these profession disappear?

As an example the displacement of taxi drivers and of truck drivers that will certainly occur with the arrival of self driving cars, what about the car industry?  Currently the US consumes about 14 million new cars per annum, and most of these vehicle spend 90% of their life parked, you have self driving cars and the number of cars sold will fall, increasing car utilization from 10% to 40% should lead to a reduction in the sale of new cars by 75% -- its math!  Taxi will no longer require drivers and truckers will no longer be needed.

These all speak of major labor displacement and massive change in the economic system, because since the US system is based on consumption (70% of GDP) what will be left once people's income disappear?  All these doctors, lawyers, taxi and truck drivers will have no employment prospects -- obviously those at the top of the system will reap the benefit of the labor cost cuts, but for how long?

Some would say that the economy will adapt, probably true but for every new economic activity there will be an AI available that will doit better and more cheaply than a human.

The world's economy is simply not ready for this!  This is also true of economic theory...





Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…