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Comments

Geoman

His predictions:

"the economy will continue booming, and we will not have a recession"
I agree, however, while the risk of recession is low, it is not zero. There are still macroeconomic events that could generate a recession - say a war in the middle east, or a economic collapse of china.

"we will experience almost zero inflation and might even dip into deflation." I think this is the case - it is very hard to ignite much inflation in the face of widespread technological deflation, and it becomes harder every day. I would also say there is a wealth factor at work. In a poor country everyone needs a home, in a rich country, how many need (or want?) a second or third home? It is not linear, but there is definitely a slowing of demand that comes with a certain level of wealth.

"we will experience unprecedented unemployment" Well, I disagree. Every other technological transition has resulted in an explosion of new jobs, and ultimately, lower unemployment. I think there will be more unemployment on the low end of things, and chronic unemployment could encompass as much as 15% of our society. However, that is not much more than it does now. And I keep thinking of crazy things - Elon Musk wants to colonize mars with 1 million people. Well, there is 1 million new jobs right there. In other words, I'm guessing we'll find interesting things to do with our time and energy. With money running free, every billionaire with an itch will experiment with some new crazy thing - undersea cities, floating cities, colonizing Venus and Antarctica, what have you.

"there will be minimal demand on loans resulting in dropping interest rates." I agree with this - many companies are cash rich, with little idea how to spend the money. That is why the stock market has gone up, and why companies are buying back stock. The need to borrow money just isn't what it was. And many companies are raising capital through stock sales and splits, as opposed to going to the bank, hat in hand. The demand for growth stocks is enormous. In a way, investors are bypassing banks entirely. Banks may only be for small businesses in the future.

Geoman

"there are some researchers that claim that technology is making us less productive. This is certainly true for some disciplines (like management and supervisors)." No, that is a misunderstood.

management and supervisors are "busier" now due to the internet because there is literally more to do. Sure I spend a lot more time responding to emails, but that is happening because communications have improved. It is possible for managers to mange more, faster and safer, than ever before. We do more because we have time to do more, and the technology to leverage our work.

Geoman

When wealth creation outpaces production = inflation.

When production outpaces wealth = deflation.

So all we are predicting here is whether wealth or production will grow faster. In other words, what will be rare and valuable in the future? Nothing. Nothing will be rare or valuable.

Art used to matter - now I can buy a print of any artwork for a few bucks. Sure I can't get the original, but so what?

Diamonds? gold? Once we mine asteroids, we'll have infinite supplies of both. Oil? Give me a break. Food? Our population will likely top out at 10 billion. With AI and genetic advances we have more than enough food to feed 10 billion. I can't live in more than one home, or need more than 2 cars.

So we are heading to the cornucopia future, the horn of plenty.

Everything will descend to the atomic price - the price based on the rareness of the atoms used to make the object. And the fact is - most atoms are not that rare.

I expect the rarest and most valuable thing in the world will become experiences - climbing Everest for example. Sleeping in Cinderella's castle. Swimming with dolphins. Descending to the bottom of the Marianas trench. It will become the only thing of value, the only thing we will trade on. Are you rich enough to travel to the moon? To buy a condo on the ocean floor?

Kartik Gada

Geoman,

Going to the quotes from Mr. Taraboulsi that you excerpted :

"we will experience almost zero inflation and might even dip into deflation."

He is correct. But this is why Central Bank monetary creation is needed. In fact, the amount that can be done without high inflation does not rise linearly but almost logarithmically, i.e. the QE that pushes inflation to 3% is not just 50% above the QE that pushes inflation to 2%, but quite a bit more. Japan's immense QE program has already proven that.

The QE that can be done before inflation even begins to get high is MUCH higher than anyone thinks. That is why the World can do $400B/month as of 2019 without any inflation, if they knew this.

This elasticity is where it becomes very lucrative. Even a small overshoot will correct within a matter of months or even weeks.

"we will experience unprecedented unemployment"

Yes, I disagree with this too. Automation never creates net job loss, except if the government makes it too hard to be an entrepreneur. Any job loss from automation simultaneously means an employer can get that work down without the cost of hiring someone, increasing his own margins.

Geoman

Re. automation - I imagine everything being so cheap one doesn't have to work hard or much to be comfortable. So the idea of "job" is going to become more fluid and perhaps even meaningless.

It is fascinating - when QE started I remember all the inflation fears - how all this money slopped into the economy would create massive inflation. It never happened. When is the last time we saw ANY significant inflation in the U.S.? The Reagan years?

the only place we ever see it is economic basket cases like Venezuela.

Kartik Gada

Geoman,

It is fascinating - when QE started I remember all the inflation fears - how all this money slopped into the economy would create massive inflation. It never happened. When is the last time we saw ANY significant inflation in the U.S.? The Reagan years?

Not just that, but remember that in April 2013, Japan decided to call the bluff of the whole inflation premise, and did 30% of their GDP per year in sheer money-printing. Six years later, they STILL have no inflation.

As we know, oil, gold, etc. all fell by about half in the face of $21T of cumulative money-printing.

The world total has to be taken into account. Due to misguided US tightening, the World QE total has shrunk from $200B/month to $100B/month. I say it should go in the opposite direction, and $400B/month can be done worldwide without any significant increase in inflation. Remember, the amount needed to cause inflation rises not linearly, but somewhat logarithmically. 3% inflation is MUCH further away than 2% inflation. The less-than-terrifying 4% inflation level requires a level of money-printing that central banks are unable to even ponder today.

Geoman

To go just a bit further...

Say I have $60,000/yr, and you have $6,000/yr. I am richer than you in so many ways - I can afford a small apartment, clothing, a car, food. You are maybe living in the streets. If you were to suddenly get my pay, your inflationary demand for goods and services would be huge.

Now say I have $6 million/yr., and you only $600,000/yr. Sure, I'm, still 10 times richer, but the differences between our lifestyles is much less. We both own fine homes, cars, furniture, clothing. You might live slightly higher than I do, perhaps have a private chef, and a second home, but we aren't all THAT different.

As technology makes everything cheaper it also makes us all richer. We are all able to live quite well. Also my incentive to work harder is a lot less. Sure I'd like to make $6 million a year, but heck, I'll happily settle for $600k.

So as societies get richer, as technological inflation gets stronger, we might see a reduction in inflation that is based solely on people "settling" for "less". More money doesn't always translate into more demand, especially at the higher end.

And the wealthy have fewer children, which I can attest, are a huge source of demand!

Kartik Gada

Geoman,

And the wealthy have fewer children, which I can attest, are a huge source of demand!

The very wealthy have many children. Mitt Romney as 23 grandchildren. George Foreman has 12. Eddie Murphy has 10. Roman Abramovich has 7 or something like that.

But the flattening consumption curve is for real. That translates into net worth, and investable assets. Only now, in the 21st century, are investable assets a domain of people outside of the top few percent. As assets grow faster than NGDP, more investable assets accumulate.

But in the simplest sense, the reason for no inflation despite rising wealth, even before the more advanced ATOM concepts, is because of the fact that software is now a significant percentage of consumption, and there is no marginal cost of software. Producers can't run out of supply. The Fed just does not get this, so they raise rates long before any inflation just because the unemployment rate is low (which they think is a harbinger of inflation, but is not).

Drew

Maybe because I'm so familiar with your explanations and predictions, his don't stand out except for aligning with your prediction of low to no inflation. Without the background of the technology deflation sponge, he comes across to me as only warning about the removing of jobs via automation via deep learning. While that may be true, it doesn't give the other impacts and gives a view of change occurring on only one axis - the end of jobs - not the other technology driven changes. And he doesn't build strongly on what the impact of that would be. McAfee and Brynjolfsson have both much stronger backgrounds on that and its possible impacts.
I do think that more follow up on the impact of Japan's economic techniques would be useful - I think people are open to the idea that Japan might be getting to future faster than other significant countries due to their demographics and their successes in that area could be a useful example.

Kartik Gada

Hi Drew,

Thanks. The one thing that surprisingly few people grasp in the 'job loss' debate is that any automation of jobs is simultaneous with the very same function becoming low cost or free for the employer, meaning that ever-rising types of entrepreneurship become possible.

This process can be screwed up by government, of course, which is why something like ATOM-DUES is needed to assist in the re-sorting and re-training.

But any big wave of job automation means that an entrepreneur should be thinking about business models that can use those specific types of automation to generate revenue without having to hire people.

Even now, the US has a record number of jobs, despite ongoing automation (and 15 years after the 'outsourcing' hype cycle).

Japan - Japan is a good example of how GDP growth alone isn't the whole story. They have a trade surplus, and they are much further along in the thought process of 'QE should be permanent'. Hence, other than GDP growth, almost all of their other indicators are doing well.

Geoman

Yes automation is about to take all our jobs, while we have the lowest unemployment rate in decades. It actually seems to be the opposite - if you plot automation against unemployment, it seems as automation increases, unemployment decreases. The exact opposite of what everyone keeps predicting.

Bottom line is automation increases productivity - we get more goods and services for the same effort. In other words we are creating wealth. And Kartik is right - the entry costs for new businesses is decreasing due to automation. All the government has to do is get the hell out of the way.

Why is Japanese GDP stagnant? Because no one is getting married or having children. The population is decreasing, leading to decreased demand. Add to that technological deflation, and it explains a lot. They are stuck in a deflationary cycle that is unlikely to ever end.

Their unemployment rate is 2.4%.

One thing that can increase demand is lowering the unemployment rate - people at the low margin become consumers and contributors. When unemployment is functionally zero, there is no source of GDP growth there.

I see a bit of wealth stagnation - Japanese people have enough money to be comfortable.

So
No children and/or marriage.
Automation deflation.
Low unemployment.
Wealth stagnation.

I think that pretty much explains what is wrong with Japan. I think fixing one or two of these problems would likely get GDP growing again. You can't fix automation or unemployment, not really. You could incentivize children. You might fix the wealth stagnation by slowly withdrawing any government benefits and reducing regulation and corporate barriers. Or with DUES.

Kartik Gada

Geoman,

It actually seems to be the opposite - if you plot automation against unemployment, it seems as automation increases, unemployment decreases. The exact opposite of what everyone keeps predicting.

It actually makes sense that this should occur, once one understand why and how entrepreneurship happens. Mainly because when a function becomes automated, the number of loss-making business models that become profitable exceeds the number of jobs automated.

If a $3M/yr revenue stream that costs $4M/year to sustain (i.e. not a viable business) suddenly sees the cost become $2M/year, a profitable business appeared where there was none, and by definition these examples radiate outward from the automation core.

In other words, if a sphere doubles in radius, the volume increases 8x. That is the analogy of what automation does for jobs. The deflation of cost components causes business model creation in a number of directions that swiftly outnumber the jobs lost.

Skill mismatch is a real problem, but I don't think there will ever be structural net job shrinkage barring government ineptitude.

stephen murray

If we accept the Austrian Premise that central banking causes huge distortions and misallocation in the economy, how does a DUES system , being central bank based, avoid that issue?

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