Monday, December 12, 2016

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...


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