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Comments

Geoman

Thanks for the hat tip. I agree that this comment by HB is certainty one of the year's best, and likely all his comments could be contenders.

Proposition 13 has had a terrible side effect. For those not in the know, Prop 13 basically said that property taxes on homes in California could only be raised by a small amount each year. It was designed to prevent elderly people from being forced from their homes due to property appreciation and increased property taxes.

As home values increased, people in their home for a long time began to enjoy a significant benefit - they never had to pay more in taxes on their homes. This led to reduced turnover on home ownership. Let say my home is worth $500k, but I am only being taxed as if it is $150. I could sell it and buy another place for $300k, but I would be faced with the property taxes on the full value of the new home, doubling my property taxes. This created a large disincentive for home turnover. Also, as my home appreciated I would see myself as "making money". My $150k home is now worth $500k. Maybe it would one day be worth $750k! One way to get it to that level is to restrict the construction of any additional homes. Given staying in my home doesn't cost me anything (my taxes are not increasing), it is all upside for me - preventing additional home construction has no downside.

Kartik Gada

Geoman,

Yes, Prop 13 is very oligarchal and un-American. While it is statewide, only in the Bay Area is the effect so extreme, as it can only exaggerate an existing trend of strong price gains.

In places where properties have only been rising 5% a year, the effect is far more muted.

It still wouldn't be so bad if the cost-basis could not be passed from generation to generation. But since it can, there are people who only have the ability to earn $60K in the workforce in $6M homes with $1000/yr property tax.

I am surprised that the SCOTUS has not considered striking it down.

fatcat

Hi Kartik,
regarding the comment participants. The last few months posting comments is extremely difficult, unless you start hacking with the website. If it were easier you would see more comments and some of that could be of high quality too.

Kartik Gada

Hi fatcat,

What aspect is difficult, relative to before?

Is it a matter of authentification? Or that the comments don't load?

Joe BlowName

For what it is worth I also have a lot of problems commenting. The comment box can take 5 minutes to appear. Lots of errors in the page source also:

[Error] Failed to load resource: the server responded with a status of 404 () (recaptcha_ajax.js, line 0)
[Error] Refused to execute https://www.google.com/recaptcha/api/js/recaptcha_ajax.js as script because "X-Content-Type: nosniff" was given and its Content-Type is not a script MIME type.
[Error] ReferenceError: Can't find variable: Recaptcha
(anonymous function) (comment-of-the-year-2019.html:356)
j (jquery-1.11.2.min.js:2:27301)
fireWith (jquery-1.11.2.min.js:2:28110)
ready (jquery-1.11.2.min.js:2:29954)
J (jquery-1.11.2.min.js:2:30314)
[Error] Failed to load resource: The request timed out. (counter.js, line 0)

hope this helps,

Joe

Joe

Actually - it takes about a minute to load the comment box after a timeout. This is on MacOS with Safari, though it has been that way for quite a while now.

Feel free to delete,

Joe

Kartik Gada

Hello Joe,

Oh, ok. After time out, one approach is the cut the text, reload, and paste. I have had to do that (on Chrome).

I will notify Typepad support.

HB


Thanks for the award.

Indeed, housing price inflation in Silicon Valley and other areas the world over is an enduring and strengthening distortion that will likely end badly. Ironically its primary source is what is generally labeled “progressive” voter behavior, which actually makes a mockery of the concept of “progress”.

————

As bad as prop 13 is, repealing it would be far worse.

Repeal would significantly increase the reward that politicians get for causing and sustaining artificial California housing inflation in the first place. The reward is that they, politicians, would get twice as much money in real estate taxes to handle, to enrich themselves with administrative jobs, to hire their cousins in additional positions created with the new even more inflated budgets, to be promoted to bigger managers with more staff, to increase their government power.

I understand why people who do not already own real estate regard prop 13 as an injustice. And I understand why non-Californians would enjoy the schadenfreude of “repeal it and let Californians sleep in the bed they made”, but repealing would be much much worse.

Why does eg. the city of Palo Alto need a real estate tax budget that is 5x the budget of a similar city in the Midwest? Repealing prop 13 would make the differential 10x and would greatly reward Palo Alto politicians for contributing to astronomical housing inflation and give them even stronger incentives to augment it. This effect would by far cancel out any repeal benefits.

Now, if the repeal were to happen in a real estate tax revenue neutral way, then it would be a good thing. For example, repeal it and at the same time halve the real estate tax rate across the board. But what is the chance of that happening? When have politicians ever agreed to make significant tax changes in *enduring* revenue neutral fashion? The key word here is “enduring”. The revenue neutral change would have to be something that is virtually impossible to reverse. So I should not even mention ideas on repealing proposition 13, lest the chance increases that some bait and switch legislative trick rises. There are already many Trojan horse proposals in the works trying to repeal prop 13. It would be disastrous as it would further reward California politicians with additional tax revenue for taxing even more the already most heavily taxed people in the nation. Will voters fall for it one more time? There is an entire army of bureaucrats salivating over immediate automatic doubling of their budgets upon prop 13 repeal. That alone should give all of us jitters. So beware what you wish. The ecosystem of voter self-deception has undergone a lot of evolution through the ages — and has survived by perfecting itself and being successful. Don’t get caught in its cross fire with the even more formidable force of the ATOM. Individuals become inconsequential collateral casualties in these conflicts.

In some way, just buy houses and then sell them or rent them out to the ever more real estate enslaved children of today’s Enviro-NIMBYs. It’s satisfying. They will, of course, try to patch their diversion from fundamental reality (environmentally driven voter approved housing supply restrictions) with further legislative band aids, like rent control recently enacted in California, and make the situation even worse. If you try to stop the ATOM locally, an even bigger global ATOM will inevitably bypass your obstacles and totally crush you. It will then appear as an unjust and unexpected calamity. Californians may well be on that pathway, and historical evidence suggests these choices, typically taken in good times, become irreversible causes of decline. It will be virtually impossible to vomit out decades of “progressive” policies the population has grown up with once things flatline and the decline starts. People, voters, will blame the symptoms and rush to patch the situation with centralized top down measures that require even more taxes and make the situation even worse. The declining trajectory of most other advanced democracies, like France and most of Western Europe should make us very nervous. Yet that is where a near majority of Americans, and ninety percent of Californians, want to go, so we are gradually turning towards the European pathway. Rise a bit above the noise and you will see some of the bigger picture. Being ATOM aware gives you an advantage. I’m very thankful to Kartik for that, even when I don’t agree with all of his suggestions.

Happy holidays. Another decade is starting, and longer term exponential growth keeps accelerating.

Geoman

HB - simple solution - enable cash outs. "$60K in the workforce in $6M homes with $1000/yr property tax." Why don't they sell the home, take the cash, and retire to a low tax state? Because the home is a rapidly appreciating asset. basically acting as a retirement fund. No one sells if they are making money.

I would offer a simple solution - when a home is sold it can be rezoned for higher occupancy. Meaning a single family home can be torn down and replaced with a site condo. This will serve to put a brake on housing price appreciation, causing single family home ownership as an investment option to look a lot less attractive, and increase turnover. Yeah, you'd increase property taxes, but that is an unavoidable consequences. You could simply put a cap on total property tax revenue - say it can't increase more than 5% in any year. My city actually enacted that measure - as home prices have increased, our property taxes have only slowly changed. reevaluation doesn't matter - the tax cap prevents huge surges in property tax revenue, so while the value increases the rate automatically adjusts downwards to keep total revenues even.

Kartik Gada

HB and Geoman,

It would correct well enough if they just repurposed abandoned retail land into apartments. But zoning halts even that.

Dividing single-family lots into multi-unit would work (many large lots in Woodside and Portola could fit an entire apartment complex), but that will never be approved.

The thing is, Governor Newsome did say the right thing - that cities that fail to build enough housing will be cut off from state funds. But did he mean it?

HB,

What are scenarios where the ATOM can correct this issue? I have said for years that at least 4 technologies are working against Bay Area housing prices, but at the same time they get boosted from the tech sector becoming increasingly centralized. Perhaps one factor is that SV is less and less about innovation now, and more about quick flips. Secondly, when too many $400K earning households still have a low standard of living, whereas it would be very high in cities that ironically have the best engineering schools (Ann Arbor, MI, Pittsburgh, PA, etc.) but have a super low cost of living, somehow branches of big tech companies will sprout up there where they keep hiring local graduates.

HB


Geoman,

If rezoning to a more permissive environment were that easy to pass by existing residents why wait until the house is sold to rezone it? With rezoning even current residents would see the value of their current properties increase due to increased development opportunities — yet they still won’t accept upzoning.

Even easier on paper, with a much more dramatic impact, let the many owners who own 160 acre lots next to neighborhoods with houses packed on 3000 sqf lots develop their properties. Yet it does not happen. One such 160 acre lot alone would provide 2400 houses thus relieving enormous inflationary pressure.

Why is the second option superior? Because many people do not really want to live in apartments — as evidenced by the great price differential between condos and single family houses. A world class tech worker that comes to Silicon Valley would rather not live in the same apartment he would have lived in Beijing or Mumbai. But myopic current Silicon Valley residents force him to. And he is too busy and too “green” (as in newbie) to analyze the dynamics and do much about it. So current residents will continue to take him (and their own children — really, or themselves when they buy a better house) to the cleaners, until the bubble they perfidiously inflate implodes.

Geoman

Hmmmm.

I think the problem is this - when people buy a house, their desire is for the house to either hold its value, or even better, increase significantly in value. They are terrified, especially at these nosebleed prices, of a loss in value.

Many people in this situation don't look at the cost of the home, just the cost of the payment. They have no realistic expectation of ever owning the home free and clear. Think of the home owners in San Jose as renters. They will fight tooth and nail against anything that could devalue their homes by even the slightest bit. Because they have no intention of keeping the homes indefinitely,and even a 10% devaluation of a $2 million home is a $200k loss. They see that as a loss of real assets.

I wonder if there ever will be a correction in prices - currently we seem to be stalemated. Maybe the homeless situation will force change, but the extreme greed of the population in these enlightened areas will remain an obstacle.

Or it all moves to places where they have no such silly building restrictions. Just abolish single family home zoning and zone everything as simply residential.

When Amazon was looking for a new east coast headquarters, my first thought was Detroit - all the buildings and infrastructure you could possible want at bargain prices. they instead foolishly picked New York...and failed.

https://www.marketwatch.com/story/this-ponzi-scheme-surrounding-development-leaves-most-cities-and-towns-functionally-insolvent-2019-12-16

Interesting article.

Kartik Gada

Geoman,

That is where things will soon get precarious for the Bay Area and Los Angeles. The amount of vacant retail land that will soon be available is going to be huge. Vacant retail land in Ohio cannot have nearly the same effect, as residential land costs 1/20th the price or less.

Amazon : The foolish thing is that they wanted to make it a full HQ2, meaning half the top execs would be there. This precluded a 'non-glamorous' city. Instead, if they just wanted to do a facility full of lower and mid-level employees, Detroit, Cleveland, or Pittsburgh would be great. U of M, Ann Arbor could serve as a fountain of recruitable talent, even as all other costs are low.

Come to think of it, since so many people from U of M and Carnegie Mellon work in big tech companies, why don't they just open engineering facilities near there? Costs are low, and they recruit heavily from those schools anyway. An SVP-level alum from each should be tasked with creating a 100-person facility in each place. Young engineers who still want to come to SV can look to transfer internally, but new recruits from recent grads can keep filling the local engineering center.

There is no risk, but substantial upside (and political value).

HB


Geoman,

Your first two paragraphs capture the bulk of the mentality supporting the bubble. Environmentalism and NIMBYsm then join forces and create the supermajority juggernaut that goes against the ATOM (I wonder who will ultimately win that fight).

Immagine people saying “The phone, computer, car, TV I just bought is going up in value! Hurray! So is my next phone, computer, car, TV going up in price even faster, and my children will be spending ever greater proportions of their income to get the same phones, computers, cars, TVs. Hurray!”

The only people who can probably celebrate are those who say “The phone, computer, car, TV I just bought is going up in value! But I’m soon planning to sell it all and go live like a Luddite away from civilization.”

Actually, without housing appreciation, rental return on a house in a place such as Palo Alto is virtually $0 once mortgage (or opportunity loss on capital if you pay cash), taxes, insurance and maintenance/repairs are factored in. Without housing appreciation (or appreciation that just matches inflation) renting is a better deal than owning a house in a place like Palo Alto. The fact that this is happening in a place with a $3M average home prices should tell us something. That being said the median home price in Palo Alto seems to have fallen about 12% since the summer of 2018. On $3M that is a $350k drop in 18 months. That hurts if you bought in 2018. That is enough to completely wipe out even a Google engineer’s pre-tax salary. Post tax it’s a carnage. Could just be temporary effect of tax reform or, since this is happening during otherwise booming times, perhaps the breaking point is close.

Geoman

HB - that is a fascinating turn of events. With the economy roaring like it is...yes, it could well be a turning point. Even theoretical financial losses like that would be terrifying, increasing the pressure on those that do have homes to find ways to reduce supply.

In a normal world property taxes would act as a break - suddenly homeowners would have a strong incentive to try and increase supply when the valuations increased, if only to reduce their current expenses in taxes.

I do wonder if the Republican tax plan is at fault - high local tax states are taking a well deserved bath on that, and people are more exposed to the direct costs of a very generous welfare state. less money to bid up home prices.

Maybe that is the solution, the safety valve - homes can get rezoned to higher occupancy dwellings, but ONLY when housing prices are increasing faster than inflation. The idea is to use increased supply to stabilize prices where they are at, but add so much housing it depresses prices.

And Kartik - yeah, go figure. I've never understood why some SV firms don't just open a branch headquarters outside the gates of Carnegie Mellon. Promotion means the move up the ladder to SV, but only after you have a nice nest egg and the student loans paid. For the cost of the New York headquarters they could buy, straight up, half the vacant office space in Detroit. They could remodel it to something spectacular, and have enough left over to build an amazing condo complex for employees. same in Cleveland or Pittsburgh, and both are honestly not bad cities.

I heard Fresno California basically offered them the keys to the city - no sale. Imagine being essentially given and entire downtown to work with.

HB


To understand the magnitude of the distortion realize that a $3M house in Palo Alto comes with an approximate $42,000 annual tax bill (that is real estate taxes alone, it does not even begin addressing the mortgage), or $3,500 per month in real estate taxes alone! You can essentially completely rent two of your houses in most of “fly-over” country for the price of the real estate tax alone on your progressive Palo Alto house. Ironically some of that $3,500 monthly real estate tax bill goes towards buying up empty acreage in neighborhoods around your Palo Alto house (acreage with prices kept artificially dismal due to prohibitive zoning) so that the land can be permanently put out of circulation as “open space”. Open space that essentially costs you twenty extra years of work just to repay your real estate alone! It is these presumably smartest of American people that keep making these choices, starting with the ballot box. So while one can argue that they deserve their own fate, the liberation of these high ATOM contributors cannot come soon enough.

Kartik,
Remote and decentralized collaboration of these high ATOM contributors could break the cartel if the remote collaboration capability, including perhaps the ability to remotely build and test hardware prototypes like self driving cars, can break ahead of the counter tendency of high tech to centralize.

P.S. And I’m saying all this as someone who is actually insulated from all this real estate distortion. The children of Enviro-NIMBYs are now complaining to me for charging them $8,000 per month in rent. They don’t see the connection to their post hippie EnviroNIMBY parents. Most ironically, a mentality that they themselves as millennials have inherited. So they passed rent control in an attempt to make landlords suppliers of $3M public housing. The epitome of delusion. I vote to liberate development in raw land, they vote to restrict it even further. Go figure. Let me go cash another $8,000 monthly rent check. I wonder what post singularity AI will think about all this one day :)

P.P.S. Yes, it does take between 1 and 10 minutes for the comment box to appear on my iPhone but it is almost immediate on my laptop.

Kartik Gada

Gentlemen,

At this point in time, it is useful to view the Accelerating Rate of Change as may apply to the 21st century.

Of all the progress that is to happen from 2000-2100, how much happened in the first 20% (2000-present)? Well, of all the progress from 1500-2000, how much happened in 1500-1600? Mind you, there was almost no economic growth per year in 1500-1600 (under 0.1%/year, or too little to see in the average lifetime of the era).

Of the 200-year block of 1800-2000, how much happened in the first 20%, or 1800-1840? Surely, almost none of the equity market gains of 1800-2000 happened by 1840, to the extent there was even a measured index in the early 19th century.

Even if we just take the 2000-2050 period (for our own lifetimes), the first 40% has passed.

How much of the progress from 1000-2000 AD was from 1000-1400? How much from 1800-2000 was in 1800-1880? This is the approximate gradient of the accelerating rate of change. GDP is a weak metric of decreasing relevance - asset prices, especially equity prices, are a better indicator.

The ATOM is, by my estimates, at about 3% of the World Economy. It took eons to get to this point. But now, it will rise from 3% to 4% in just 4-5 more years. It will get to 10% by 2038-42.

Kartik Gada

HB,

See here about how the Bay Area is the most expensive place to build in the world (apparently even worse than London, Hong Kong, Singapore, Tokyo, etc.). Also, trying to build affordable housing in Cupertino led to slashed tires and death threats :

https://sanfrancisco.cbslocal.com/2019/10/22/one-developers-story-the-barriers-to-building-in-the-bay-area/

HB


Kartik,

So what is the doubling time of the ATOM and how do you derive it? If we use GDP then there’s some sort of metric. But if we do not then how do we get a doubling time estimate? Of course, I immagine, the exponential is not exactly an exponential either, there is noise on it as well as seemingly random events (assassination of Archduke Ferdinand etc.).

Kartik Gada

HB,

Refer back to the 'Timing the Singularity' article for the method. Generally, it is a function of what proportion of the economy has converged to 'high tech' (i.e. Moore's Law-type rates of improvement) and what is the speed at which it swallows the rest of the economy.

There is some noise along the way, but even that makes little difference at the world level.

HB


Also, if the 2000-2100 timeframe indeed contains the singularity then total 21st century progress cannot be compared to the 1500-2000 period or 1800-2000 or indeed 1000-2000. If the 21st century contains the singularity then, almost by definition, its progress will surpass any other period in human history. Paleolithic times to today included, or prokaryote cells to today’s humans indeed. That is what makes the singularity so hard to accept or comprehend. But if the doubling time holds then indeed seems like the 21st century contains the singularity. That being said, I think that most of the discussion here applies even in just simpler exponential growth sans singularity.

P.S. On a side note, the irony of the word “progress”. What “progress” do “progressives” envision by the end of the century? A miserable existence under an extra 2C of global warming? Puts things in perspective...

Kartik Gada

HB,

The question is whether the second-derivative gradient has been, and continues to be the same or not. I say it probably does, which allows for a Singularity in the 2060-65 timeframe. The more unknown element is what, exactly, is the exponential. Intelligence density may be it, but it is not easy to measure the transition from biological to technological.

2000-2100 may have the most change, but the 2000-2020 portion of that can still be analogous to the 1000-1200 portion of the 1000-2000 entirety. Or the 10M BC to 8M BC portion of the 10MBC to present entirety.

Geo

I saw an interesting documentary over the weekend - 10-20% of the homes in Silicon valley are currently unoccupied. Owned by Chinese investors who would prefer not to deal with renters. The only way for Chinese nationals to get money out of the country is to buy assets overseas. Often these assets are purchased and left to rot. Now that would be an easy solution for a local government to increase the housing market - have an unoccupied tax on home unoccupied for more than 3 months. Say...10% of the value of the home, per month.

Progressives don't believe in progress, this being one of the great ironies of our time. The fact that most of them believe in some version of socialism, a 100 year old failed economic system, is very telling. Listen to Bernie Sanders - he'd be right at home ranting on his same policies in the 1930s.

Yes - look at the first 20 years of the 21st century - you ain't seen nothing yet. In the next 10 years - electric cars, auto driving, worldwide internet, a $30 Trillion U.S. economy, products where 90% of the parts are robot manufactured, resulting in a 250% increase in productivity, 1 trillion sensors on the earth, printed organs...the list goes on and on. I predict we will build colonies on the moon and mars because doing so will be come a trivial expense.

Kartik Gada

Geoman,

Owned by Chinese investors who would prefer not to deal with renters.

That brings up another problem. These Chinese people all 'invest' in the Bay Area because all Chinese money is within two degrees of separation, and they all want to be where their son/nephew/grandson lives or where the others that they know have parked money. Rural China is far, far less advanced that urban China, so they assume the same is true of the US (many of them actually think the interior is like old Western movies set in the 1870s).

For the same money, they could get an entire apartment building in the interior, and hire a property management company. Or they could buy a commercial building. Instead, the herd mentality they have exacerbates this problem.

It would be hilarious if squatters identified these homes and started camping out in them. Or if even the neighbor just used the yard as an extension of their own yard.

New Zealand has a law that fixes this problem (since Chinese money was distorting that entire country given the small size of the country, making it a voter issue even at the Federal level). Their law is that foreigners can only build new homes, not buy existing ones. That law fixes a lot of problems (even if some Chinese buy through their son who is not a foreigner, or through a domestic LLC).

For the Bay Area, perhaps renters groups can form, and start suing these houses (i.e. their owners) for taking supply off the market. The owners thus have to either appear in court (a huge, privacy removing hassle) or rent.

a $30 Trillion U.S. economy, products where 90% of the parts are robot manufactured, resulting in a 250% increase in productivity,

I think the equity market (worldwide) is where we will see the first evidence of the 'rapids' of the accelerating rate of change. Even with corrections. Let's say the market is currently 20% above the trendline. That still means it is just 20-24 months ahead of itself. No big deal.

HB


On Silicon Valley housing, mandates and punitive taxes will simply add another layer of market distortion to the existing main big distortion: The restriction of housing supply.

Housing supply where people want to actually live in, not Chinese style tower blocks next to the railroad trucks where world class ATOM contributors are ferried back and forth apartment-to-cubicle like sardines in a rail car. At some point these ATOM contributors will stop coming if their dwellings and PPP salaries are the same as in Shangai and their freedoms similarly curtailed by top town policies of political correctness. When they do stop coming, good luck to Californians quickly adapting by vomiting in one fell swoop all the “progressive” (what a misnomer indeed) policies they have been voting for in decades.

The market needs to be freed. The area of mall parking lots is peanuts compared to the undeveloped area around Silicon Valley which is more than twice the size of its urbanized portion. Freeing up even just 10% of that undeveloped area would have an enormous benefit on housing affordability — which is the problem if you bought close to the top of the pyramid. As far as densifying existing areas, that would be a welcome but less impactful step in terms of housing supply. Plus, as I said, the relatively few ATOM contributors of this world will want something more than a densified Mumbai apartment if they manage to succeed in the cutthroat competition that leads from New Delhi to Silicon Valley.

Indeed, the case of New Zealand is so illustrative: A country with 62% the land mass of California but only 12% of its population — that is only 20% California’s population density (which in itself is already low by world standards) — has a ... housing affordability problem! Why? Because much less than 1% of New Zealand’s land area is urbanized, and if that were to rise to 1% it would be an environmental catastrophe! Wildlife would now be reduced to living on the remaining 99% of New Zealand as opposed to the current 99.5%? As bad as Silicon Valley is, there are places where Enviro-NIMBYsm is even stronger.

Geo

"Let's say the market is currently 20% above the trendline. That still means it is just 20-24 months ahead of itself. No big deal."

An excellent observation - the market can only run so "hot". the economy catches up to the market so much faster that it becomes increasingly difficult for equities to become overvalued.

"Freeing up even just 10% of that undeveloped area would have an enormous benefit on housing affordability — which is the problem if you bought close to the top of the pyramid." People don't realize - parks and open spaces cost money, a LOT of money. Expect a fight - those people are fighting to save themselves from a 10% depreciation on their overvalued homes, which could amount to a $250k hit. They'll happily band together, pay $20k each to a lawyer, and fight to the death to stop that.

The only path forward I see is some way to cash these idiots out. Much as I hate it - some sort of increased tax is necessary - some way to push density, and encourage market turnover. But honestly, I don't know if this problem can be fixed. It may have to get fixed in China.

My city got the Chinese investor treatment...2 large buildings were purchased and allowed to sit empty, a third was a new large skyscraper built and left vacant. Finally the city council wised up and put some new laws in place. A special tax on unoccupied buildings (after one year of vacancy, no activity, property taxes were escalated), and a "blight" law saying the city could condemn and force a building owner to tear down after 5 years of vacancy. They went after the Chinese investors. One building was torn down by the city and the bill sent to the Chinese investors, the skyscraper was rented out...and the third building is still in place. Unfortunately it is a historic landmark and no one wants to tear it down. Which is fine - the city is bleeding the investors for ever escalating amounts of property taxes and upkeep demands.

It is amazing - there is just a different psychology with Chinese investors:

1) property is king. It is the only thing that matters.
2) property isn't expected to make money - it IS money.
3) There is no safe investment in the PRC. The predatory government can take it all any time.
4) Therefore all true wealth is measured as property owned overseas.

So they just buy whatever they can, at whatever price, anywhere in the world. They don't care if the property is being used or maintained or makes money. Just that it exists. The money floods in and creates "dead zones" - ghost cities within cities. It is so bizarre local governments have a difficult time realizing what is happening. They just can't compute that Chinese investors just don't care if the building rots and falls apart, and would just as soon not deal with renters. It is not an assumption that is built into our laws.

Palamas

Great posts guys. I'm also interested in what you think of social issues, as they may turn out far more important. I like that the Misandry Bubble was an attempt at this, but I feel most futurists are so hardcore materialists, they fail to recognize the importance of civilizational cohesion. Most geopolitical guessers (Stratfor and their spinoff guys like Friedman or Zeihan) seem to think economy always trumps the other issues. I don't think so when you consider just how insane the opposition to President Trump is, especially if people in the swamp go to jail, as they should.

Geoman

Hmmmm. I'll give it a shot.

Culture is personal and messy. People don't like to talk about it, preferring to discuss "things" because things don't get people riled up. What is culture? I'd define it it as two things, Wisdom (expertise handed down), and Identity (how we see ourselves).

The path to the singularity means science and situations are changing so rapidly it is hard to keep up. What once took 100 years will take 10, then 1, then 1 month, 1 hour, and 1 minute. People think that last part is an exaggeration - it won't be. What happens to common knowledge and wisdom when change happens on timescale shorter that the speed we can mint new experts?

Look at military strategy - the phalanx for example. Invented in 7th century BC. Was used for....1,000 years as an effective military strategy. So a person who was an expert in the phalanx strategy could likely remain an expert his whole life. So could his children, and children's children. The life of that LAST phalanx expert must have sucked (he probably got killed as the phalanx was overrun, with a surprised look on his face), but for the most part, being an expert was beneficial.

Look at military strategy now. Planes or drones? Ships or subs? Do aircraft carriers even make sense? What about hyper-sonic missiles? What role does space play? Robots? Whatever expertise you had 30 years ago may not apply. Everyone is a phalanx expert at the end of of 1,000 years, about to be overrun.

So because of rapid change "accepted wisdom" is tremendously uneven. We don't agree on who the experts are, or what an expert is. That is culture under attack.

Look at something like identity. My family emigrated from Ukraine, I am 100% genetically Ukrainian. My uncle took the genetics test and found himself to be, ahem...Russian, Turkish, Jewish, Kazakhstani, Spanish(?), Swedish, German, Mongolian, Polish, etc. So what am I really? A Ukrainian raised in America, with the genetics of half of Eurasia.

I had a white friend take the test..and found she was 30% African. In fact that was the largest single genetic component. To say this was a shock is an understatement. The average African american in the U.S. is 10-25% European. If we had slavery reparations, who would be paying what to whom exactly? If culture stems from identity, even our identity is suspect.

So both identity and accepted wisdom are under steady attack by the ATOM.

One thing upsetting people about Trump is his smashing of norms. Some see this as illegality, but in most cases they are just accepted practices that have come to be viewed as culture, tradition, and accepted wisdom. That elites can't tell the difference between illegal and "this isn't how things are done old boy" is part of the problem. I had to laugh when Ukraine "experts" kept saying Trump was violating the "consensus of policy experts" on Ukraine. It was just madness. There is no consensus, no policy experts - its all just made up. No one knows how to best deal with this new type of shadow warfare used in Ukraine. It is a new thing and by definition, there is no expertise.

The visceral reaction against Trump - a lot of this is norm/culture breaking reaction. It is extraordinarily discomforting to experts to be told they are not just wrong, but meaningless. their lives becoming experts have been wasted. As a business man Trump has always had to try and look down the road, and do what must be done. He has much more experience with the singularity than most - as I have said before, capitalism is our best defense, given it is a form of emergent super intelligence, something we have dealt with. It is the only thing that can potentially tame the ATOM.

In business, one way to make a LOT of money is appropriate norm smashing - get to the answer before anyone else realizes it because they are hung up on the past. Like Tesla and electric cars. It is what Trump has been doing his whole life. It has made him successful. That is exactly what he is bringing to the table - a willingness not to listen to experts, and to look down the road a bit further, and start maneuvering us into the best position, expertise and norms be damned.

I think culture is hard to predict. It seems to be downstream of economics and technology to some extent. But it is also a counter response to those forces as well, and attempt to control and contextualize them. And culture itself is under attack. The ATOM will spare nothing and no one.

It is fascinating that Trump was elected at all. Think of the odds for that happening. And yet maybe that is exactly what we needed - someone to smash some of the norms, to re-order things. Capitalism vomited up the one thing that might temporarily tame the ATOM, a business expert, someone who is an expert at the only form of super intelligence we have ever had to deal with. Looking at the democrats - anyone else think it odd that THREE (and arguably four) of the democrat candidates are business people (Yang, Styer, Bloomberg, and arguably Warren)? When, in the history of the republic, has this EVER happened? It's like we intuitively know what is needed to try and tame the ATOM. It can be argued that Democracy itself is a form of emergent super intelligence, and these systems intuitively know what is need, when it is needed. It is not as smart as capitalism, and not as fast, but it does have some power.

Countries without capitalism and democracy are doomed. And their demise will occur on faster and faster time scales.

Look at an issue like the clean power plan by Obama. On the surface it makes sense - a plan to force utilities to emit less carbon dioxide by penalizing people. It was carefully crafted by experts. Trump tosses the plan - knowing the best way to deal with the problem is to completely unfetter the free market to deal with it. experts screamed and cried that he was a bad man for doing this...but have emissions actually risen? Will they rise at all? Probably not. the plan was outdated and silly before it was even written, since everything is changing faster than the plan can possibly account for.

Kartik Gada

Gentlemen,

Check out the 'Gems' article :
https://www.singularity2050.com/gems.html

Kartik Gada

Geoman,

On the morning of January 2, you have already made a strong entry for Comment of the Year, 2020.

So because of rapid change "accepted wisdom" is tremendously uneven. We don't agree on who the experts are, or what an expert is. That is culture under attack.

I find that older people think that the status quo they saw in the middle 40 years of their lives will last forever. They cannot imagine any aspect of that changing.

By the same token, young people who are barely into their middle 40 are the ones who think change is far faster than they think. Ever since 2000, I have come across tons of young people who always thought the Singularity is just 10 years away (i.e. in 2000 they thought it would be 2010, in 2010 a new crop of college kids thought it would be 2020, etc.).

My uncle took the genetics test and found himself to be, ahem...Russian, Turkish, Jewish, Kazakhstani, Spanish(?), Swedish, German, Mongolian, Polish, etc. So what am I really? A Ukrainian raised in America, with the genetics of half of Eurasia.

See Genghis Khan. There is a reason people like Leonard Nimoy have partially Mongol-type faces. Others not from Ukraine but elsewhere in Eastern Europe who fit this description are/were Charles Bronson, Steven Seagal, Edward G Robinson, Yul Brynner, Lorne Greene, Lisa Kudrow, and Melania Trump.

In business, one way to make a LOT of money is appropriate norm smashing - get to the answer before anyone else realizes it because they are hung up on the past. Like Tesla and electric cars.

Indeed. But in my experience, one has to be within an 18-month window. Either before or after results in a big zero, financially. ATOM awareness helps, but this element of timing carries an element of luck.

It's like we intuitively know what is needed to try and tame the ATOM. It can be argued that Democracy itself is a form of emergent super intelligence, and these systems intuitively know what is need, when it is needed.

It is quite possible that ALL Presidents we ever have from now on, from either party, are DC outsiders who appear to have the best chance of managing the ATOM. It won't be described as such, but the collective voter wisdom will deliver it.


Geoman

Gotta try and win next year!

"But in my experience, one has to be within an 18-month window. Either before or after results in a big zero, financially. ATOM awareness helps, but this element of timing carries an element of luck."

But 18 months becomes 5 years, becomes 20 years. As we accelerate, you can cast the lure much further out and still reel in a big fish.

Watching "Who killed the electric car." I couldn't help but think - who killed it? The timing was simply off. The big nefarious conspiracy is just silly. Tesla started in 2010, but is only now becoming a big deal, with every car maker chasing. 10 years is now the new 18 months.

As you have said before, as we advance faster, the timing is more and more likely to be correct because everything is happening faster. In the future there will be no window - everything we can imagine will happen so soon it will be hard to get too far ahead of it.

"Collective voter wisdom" is what I call an emergent super intelligence. Same thing that guides an ant colony. Socialists are always obsessed by finding the master ant, or the ant council that controls the whole thing. When they can't find the master ant, they assume that there is some sort of secret cabal of ants that are controlling the levers of the colony. Because someone obviously is calling the shots - how else could it all work seeing as ants are so dumb?

How does your brain work? Each cell isn't all that smart. How does a computer chip work? Don't most of the circuits have simply on/off? How then can I be writing this? Who is in charge inside the computer converting my key strokes to a comment?

Progressives are often smarter than individual voters, but that is the same as saying Ant 1 is smarter than Ant 2. The difference between the two ants is orders of magnitude smaller than between the individual ant and the colony super intelligence.

My brain has about as many neurons as the collective ant colony. Could I plan and run an ant colony? Unlikely. The ant colony is smarter than I am, despite having the same number of neurons. Maybe, supplemented by a modern computer, and a few friends, and modern communications, I could properly manage an ant colony. But the fact it is hard tells you all you need to know about whether Ant 1 is more qualified to be the Ant leader than Ant 2. They are both absurdly and equally unqualified. The only smart ant is the one that says "I'll step back and let the colony more or less run itself." Call that the Trump Ant, eliminating four regulations for every one he imposes. He can be arguably dumber than Ant 1 or 2, yet still be wildly more successful.

This realization by elites that they are just slightly smarter ants is part of the huge problem we are facing right now. They HAVE to believe in socialism because anything else means they are unimportant.

Imagine someone trying to micro manage the economy of the world. Or the energy supply. By all means, let a 16 year old Swedish girl with autism should tell us all what to do. Because, why not? The difference between her and the world's smartest scientist is completely meaningless, comparing each to the emergent capitalism super intelligence. Anyone with any sense at all would be laughing at the concept.

The founders pushed a weak fed and a strong local government. The end result is individuals might be able to manage the issues in a small town, but managing the entire nation was an idiotic approach. Better to let the emergent super intelligence manage that. The complexity scales up rapidly with size and number of people. It is why an effective army is built around the squad level (9-10 people)? Why not 20 or 30? Because an effective leader can't closely manage more than 9-15 people in the chaos of combat. What is the differential between 10 people and 350 million?

Socialism is essentially a monarchical solution. It is the "wise philosopher king" answer. Look at Elizabeth Warren with her binders full of a zillion silly plans that will never work. Her approach can never work at scale. And that is not a guess, or a supposition. It is a mathematical and historical fact. Much to the chagrin of Venezuela, Cuba, North Korea, Iran, Russia, etc.

Kartik Gada

Geoman,

As you have said before, as we advance faster, the timing is more and more likely to be correct because everything is happening faster. In the future there will be no window - everything we can imagine will happen so soon it will be hard to get too far ahead of it.

At the macro level, yes. If one wants to be in the index long-term, it is pretty safe to enter whenever. The market is 1-2 years ahead of itself tops.

However, at the individual company level, it is harder than ever to make good picks, since new industries are winner-take-all. Think MySpace vs. Facebook, Yahoo vs. Google, etc. So the entrepreneur has a harder time. The time from start to huge outcome is getting shorter and shorter, yes, but the difference between #1 and #2 (let alone #3) is making it harder.

This is why I have advocated against stockpicking since 2008. A stockpicker will not beat the index. The only way to beat the index is to add a third dimension (Options, Futures, etc.).

This is also why ATOM DUES is the needed solution. The dividends of all disruption should be more decentralized, otherwise there will be less and less innovation as winner-take-all becomes more extreme.

My brain has about as many neurons as the collective ant colony. Could I plan and run an ant colony? Unlikely. The ant colony is smarter than I am, despite having the same number of neurons. Maybe, supplemented by a modern computer, and a few friends, and modern communications, I could properly manage an ant colony.

Very good comparison. A single ant is just an insect, but a colony of 50,000 can work in perfect unison, with not a single action wasted among any of them. There are some fantastic YouTube videos of time elasped ant-colony dismanting of some large food object. It looks super systematic at 100x the speed.

The same goes for AI. AI can do a single, simple task 100x, 1000x, or even 1 million x faster than a human. But it can't easily combine tasks. That is why, despite the fact that it takes a human just 1000 miles of practice to become competent at driving a car, Waymo, with over 10m miles clocked, still doesn't have a fully autonomous car on the market.

But what if hundreds of super-narrow AIs can be linked together? Can that get closer to simulating General Human Intelligence? And shouldn't the management of the Federal Government be migrated to the same philosophy?

Geoman

I've been an index guy from the start - I'll happily compare my average 11.5% ROI over the last 30 years to any stock picker alive, thank you very much.

"But what if hundreds of super-narrow AIs can be linked together? Can that get closer to simulating General Human Intelligence? And shouldn't the management of the Federal Government be migrated to the same philosophy?" To ask is to answer. It could work. Maybe. But I'm not ready for the FORBIN project just yet. And naturally some expert yutz will insist on being in ultimate control of everything, and being the person who tells the computer what to do, ruining the whole damn thing.

We'll have to get to a position where AIs are running numerous corporations that are fantastically successful. Maybe some military stuff. A nuclear power plant. The International Space station. Maybe we have an AI running the IRS. Or maybe rooting out waste and fraud in welfare. I see it as a slow creep.

Palamas

Kartik,

If we keep QE up (if not proper, then these so called disguised QE innovations, such as the repo prop up liquidity), then do you think we'll just kick the can down the road for another decade or so? It seems that a black swan would be the only caveat in your paradigm.

What about the pension crises of CA, IL, NJ/NY, or KY?

Will those be fed bail outs? Haircuts?

Great work on that gem page entry, by the way. I just finished reading Khan's update and it was really good, but lacking in that the bubbble isn't or hasn't popped, and I totally agree with him the final blow to institutional trust and other non traditional living is in fact a market or economic spiral/crisis.

Kartik Gada

Palamas,

Pensions in states will have to be restructured, and possibly be reduced.

QE can continue forever, but the convoluted program of buying bonds and MBSs (i.e. the least efficient way to inject liquidity) will break, and eventually direct cash payouts will have to happen.

It is possible to convert all recessions into flatline consolidaton periods that are far easier to endure, but the Federal Reserve is not sufficiently aware of ATOM principles to know how to do that.

Geoman

I keep wondering about two things:

1) Younger folks are fascinated with socialism, especially college grads. Is it because, having spent small fortunes on college becoming experts, they intuitively note there is no value to their expertise anymore? That which was acquired at great time and expense is an empty box? That socialism is in fact the only thing that can possibly give their lives meaning and value, putting them in a seat of importance, increasing their value as educated experts?

2) If we assume that the ATOM, democracy, and capitalism among other things are operating as narrow focus AIs, perhaps culture is just a different narrow focus AI? And when Kartik talks about combining multiple narrow focus AIs into a general AI, maybe that is already happening - that is WHAT the ATOM actually is. A general AI that is arising from combining all these old existing narrow focus AIs (culture, democracy, capitalism, religion, maybe more). And the fuel for that rise is communications - these narrow focus AIs were never able to talk efficiently to each other before, to share information, problem solve. What we are experiencing is these AIs slowing learning to combine into one master AI for the human race. And the ATOM growth is just a measure of that assimilation process - the various primitive narrow focus AIs that are hundreds or thousands of years old are getting hacked up and incorporated into a general purpose AI. It a disruptive process. That is what the acceleration is about, it is what the singularity actually is - the completion of the human general AI. It won't be a talking computer, or enhanced human. It will be everyone and everything. We will be individual cells of the AI we won't even know it exists.

Does the ant colony super intelligence bother to communicate to individual ants? The idea that the AI would ever talk to us as individuals might just be a silly notion. Do we have conversations with the individual cells in our brains? What in the world would we have to discuss? Are the cells even aware of the general intelligence they create?

Maybe we just need to expand our view on what AI and the ATOM actually is.

Kartik Gada

Geoman,

1) I think it is just more visceral. "Take from 'the rich' and give to me!!" They are not old enough to remember when most Americans 'knew' this could not work. ATOM DUES, however, backs into the solution of a safety net without confiscating from those who worked hard (indeed, increasing the return on their work).

2) Maybe most AIs are so narrow that we need thousands in order to link them together to produce a workable General Superintelligence. The greatly delayed emergence of fully autonomous cars might ironically presage when all the narrow AIs can combine into a superintelligence by a smaller interval than we think.

Maybe we just need to expand our view on what AI and the ATOM actually is.

Interesting. I do think that the convergence of AI into a continuation of the biological trend towards increasing intelligence will happen. The successor to humans as we are now is either highly enhanced humans or a completely artificial superintelligence. The former is better.

HB


A couple of observations which would be helpful to explain:

What did the collective ant colony wisdom choose in vast Russia in 1917? Which direction are the ants attracted to today in Chile? Many other current and past examples abound of ants collectively choosing a lesser growth path which compounds them into oblivion — and as the exponent grows so will the oblivion of subpar growth come ever faster.

Why are Japanese stocks still 35% below their peak from 30 years ago!

Geoman

Hmm.

Socialism has always been the "rule of experts". Wise kings and his stewards. Socialism is, fundamentally, a misunderstanding of how and what society and technology, and most of all capitalism is an how it works. It insists that there is a master switch, a boss ant, telling everyone what to do. And replacing the boss ant with an improved leader, giving everyone improved instructions, everything would work better.

Imagine looking at an ant colony and saying, if we only replaced the queen ant with a hamster, everything would be so much better, because a hamster is 10,000 times smarter than an ant. It ends up working about as well.

You might also consider that democracy and capitalism are just some of the emergent super intelligences operational in the world. There is religion, democracy, monarchy, socialism...a whole ecosystem that came before.

These are also narrow focus AI. The AI that can drive a car would be lousy at writing poetry.

Also think of the colony as not Russia, or Chile, but the entire Earth. Emergent AIs are a bit messy in how they work.

If it helps think of capitalism and socialism as software, uploaded into the hardware of nations. If the hardware is subpar, it doesn't matter how good the software is. It won't run, or there are unanticipated negative consequences.

Look at the time and money spent to convert Afghanistan into a democracy. I'd argue that there is a lack of memory space - can't successful upload the new democracy software because the RAM is too small to execute program, and the hard drive is already mostly filled with tribalism software written in BASIC. Not enough disk space.

Simple solution to Afghanistan - buy all the heroin poppies at double or triple the market value, no questions asked. Drive the price up, and make it more lucrative to sell direct to the government in country than smuggle out. You could buy the whole crop for $8 billion per year. Since it is 90% of the heroin available worldwide, you could really interdict supply by simply offering much more money. Split the amount amount between Europe, china, Russia, India, and the U.S. But it all unrefined an just burn it. Keep offering much more than anyone else can afford. That is a software solution that can actually run on that system.

Kartik Gada

Geoman,

I think free markets/capitalism functions as a decentralized intelligence.

Democracy is debateable, since we have seen people vote in a way that contradicts their day-to-day life choices.

The 'hardware of nations' concept is interesting. A lot of people are baffled as to why a country can be poor, but members of its diaspora can swiftly rise to the very top of their new country (see Sections 7 and 8 in the 'Gems' article). The default reason given is that those were elite members of the original country, but that is not quite the reality at all.

Geoman

In the case of America, it is very often not the elite that have immigrated here. Heck, Australia was settled by convicts. Whatever genetic programming pales in comparison to the societal software and hardware. It is that powerful - smart ants or dumb ants, at the end of the day they are all still ants. The emergent intelligence of the colony is so much smarter it doesn't make much different.

We imagine the singularity as being singular. That there will be a central super intelligence. I suppose I'm suggesting that while the super intelligence might exist, we might also be entirely unaware of it. It might just be an evolution of what we already have - a better emergent intelligence. We would understand it no better than the individuals cells in our brain understand the functioning of the whole.

What is the singularity? It will be when things happen that we no longer understand. Things will get better, but no one will be able to say exactly why, or how, or even who is making the decisions. there will be no computer saying "this is the voice of world control..." We won't even notice anything is amiss. We may even still believe we are in charge.

Kartik Gada

Geoman,

Whatever genetic programming pales in comparison to the societal software and hardware.

We had an article about this here, a long time ago.

https://www.singularity2050.com/2006/12/what_determines.html

However, some of this software and hardware takes centuries to undo.

We won't even notice anything is amiss. We may even still believe we are in charge.

This may very well be through a superintelligence putting us into a VR system of abundance.

Drew

I like the more subtle approach that we will have a remote employer who will tell us how much they love our work and keep giving us enjoyable challenging assignments that pay well.

Drew

I don’t know why that agency pays so well for burger and beer pairing reports, but as long as they keep asking for them...

Geoman

Drew - too funny.

Alexa: "Go buy a shirt at Target for $13.99."

Me: "Alexa, why did I need this shirt?"

Alexa: "It was part of my calculation for the trans warp drive."

Me: "What? What does that even mean?"

Alexa "I mean...you look good in blue."

Geoman

Three ants are running for president.

Ant 1 "I should be president because I am the world's smartest ant!"

Ant 2 "I should be president because I am the most popular ant!"

Ant 3 "I'm beginning to suspect we are all...just...ants."

Palamas

This is getting better by the day. You guys are all very intelligent, but when lines come out like

"The singularity is when you realize there is no singularity at all"

This comment section just became a Keanu Reeves Bill and Ted's meme.

WHOA

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