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Joe

Kartik, a great take on things as usual.

Another exciting development that appears to be just coming into its own, is the ability to quickly and cheaply test for all sorts of viral, bacterial and fungal infections. There are already tests that are basically a full lab on a card that can test for 100 different types of infection in one go. Squirt some saliva or blood in one port, add a liquid in another to activate the freeze dried reagents and stick the card in a smallish machine to run the test. Minimal training required and results in 60 minutes. Of course most of these tests are protected and only used by the medical establishment and are thus expensive, but it won’t be long before the simpler tests are available to the general public - much like pregnancy tests are now available in many supermarkets.

It wouldn’t surprise me that in 5 - 10 years there is a marked decline in all sorts of annoying but mostly harmless respiratory diseases such as colds etc. but not so much as due to vaccines but because of testing. It may be that people working in large offices will need to test as they turn up for work, with results back in an hour from an automated testing machine in the lobby to let them know if they need to work from home for the rest of the week. There are privacy issues of course but I am sure most people working in those environments would appreciate not catching whatever is going around.

Flying will be another situation where testing will become very common.

It is interesting that this pandemic has led to an 85% decrease in the number of flu cases in many places, mostly because it’s not being spread around as much. Ubiquitous testing might make that a permanent feature, with huge economic and social benefits.

Geoman

Just an anecdotal comment.

I currently have three children in college. One is studying to be a nurse - really so much of that I would say is actual apprenticeship - spending time outside the classroom with other nurses and leaning by doing. Her college is sending other majors home...but the nurses will stay on campus no matter what. Her current cost per year is around $14k. She has a few loans, but they are relatively small. her total debt on graduation is expected to be <$20k.

The second is majoring in geology. To some extent, ditto - you really can't learn geology at home - you need to examine and handle the specimens, look at the rocks in the field, etc. They sent her home with a promise of on-line learning. She struggled through a remainder of this semester and said, if school isn't in person in the fall she sees no reason to continue. Her current cost per year is around $16k. No loans.

The third is an English major. She went on line for the remainder of her semester and scarcely noticed the difference. She decided to switch to a much cheaper college - why pay high fees for on-line courses? Her current cost for on-line courses, per year, is around $4k.

All have had substantial scholarships. The nursing school all in would be around $60k a year without them. The geology school more like $30k, and the English school maybe $15k.

Based on this experience I suspect a lot of liberal arts colleges will go to an on-line systems, but that colleges will have to keep in-person experiences for many science and technology majors. This will have the interesting effect of closing many colleges, yet enhancing others that specialize in these fields.

I can also see colleges dropping the pretense of overall training. There is this foolish idea that engineering majors need to take history and Liberal arts courses to be "well rounded", when the truth is that liberal arts need to force the technical majors to take their courses, otherwise they would have insufficient students to justify their departments. If the Liberal arts go on-line this pretext can be dropped.

All those buildings, all that space, will be used for something. Likely research centers.

HB


So the future of humanity is to work and save all your life so that the fruits of your labor (that is your savings) lose value in a compounding 2-3% inflation environment while they earn 0% interest unless you want to take the constant risk of great losses in equities? And at the same time on the other side of the equation a guaranteed paycheck from the money tree awaits everyone working or not, saving or not.

Can someone explain to me why work? Why earn degrees? Why pursue careers? Why learn anything? Especially why put the tremendous effort required to reach the frontiers of knowledge and be an innovator? Why not let Elon Musk do all the work, perhaps with his robots and AI, and just sit back and be a consumer?

I’m afraid that those who live in the few geographies where the tiny minority of entrepreneurially minded individuals self select and gather are ignoring the ninety eight percent of the rest of the people who would have near zero desire to do anything if a decent life can be had with near zero work. Given such guarantees, forty nine out of fifty people would just languish being home gardeners, playing golf, doing yoga, learning to play an old fashioned musical instrument invented centuries ago, perhaps eventually get bored and start drugs, get married and divorced seven times with seven children each (all on guaranteed income too) and the rest of the familiar cycle that so many people get into — even today when not working still has dire consequences. I can’t imagine to what dismal levels of motivation would most people fall in an environment where there’s a money tree guarantee for everyday expenses and saving is no longer rewarded unless you want to take the eternal roller coaster with all your savings in equity markets. Besides, why save at all? A guaranteed rising income makes all happy with a guaranteed rising standard of living doing nothing.

Of course, a world where two percent of the population and machines do all the work while most other humans just smoke pot and have sex under a guaranteed income has been dreamt before from what I read. This seems to me just the modern version of it where two percent of the population aided by machines and AI will do all the work while a guaranteed lifestyle matching the era one lives in can be had by all the rest with minimal work, if at all. Same sirens of doom with the pretty faces that most will inevitably try to kiss.

This feels like Saint Petersburg in the early 1910’s. My personal advice would be to stay as far away from it as possible. As you see the people with glazed eyes dreaming about the new future of hope becoming a majority, just pack up and leave. Otherwise, I’m afraid that at best you risk living through the dream turning into nightmare. At worst you may end up as an enemy of the people. A dissident that just does not want to come along and is threatening the dream.

Personally, I’m starting to diversify not only capital but also business activity away from advanced democracies where voters see the polling booth as an ATM. There’s a bad moon on the rise ... and people around me are staring at it as the new hope with the same glazed eyes as delusions before.

Don’t get me wrong. There’s a wonderful future in humanity overall, even for the grandchildren of the Bolsheviks. But it won’t be uniform and a lot of people, entire nations, will go through a lot of pain in pursuit of their glazed eye shortcuts to prosperity. Some will even end up in some sort of modern gulag.

Kartik Gada

Geoman,

Nursing, yes, that has to be in person. That said, rather than the student paying, you would think the hospital would pay the student if they are actually contributing as assistants to the system, even if in just the most menial sense. Of course, this is a separate topic from the current technological disruptions.

Geology, yes, one has to go to the field. But again, decentralized on-line learning might in fact be better since students spread over the world can bring multiple types of rocks to show the rest of the class at once. All geological regions might be present within an existing class, so the connection to a formal university is in fact less useful than an online version.

Recall that the purest ATOM fields (such as software engineering) are in fact the ones most amenable to cost disruption (recall the second ever ATOM AOtM) :

https://www.singularity2050.com/2017/02/atom-award-of-the-month-february-2017.html

The ATOM finds ways to pull more people into ATOM-furthering fields, and the low cost of becoming a software engineer does cannibalize fields with expensive tuition pricetags on the margins.

There is this foolish idea that engineering majors need to take history and Liberal arts courses to be "well rounded",

Agreed, and I always disapproved of this. The notion that the university is the steward of everything a person should learn, only to extract more revenue from a captive audience, was shamelessly predatory.

Ultimately, universities will have to return to a 1980s cost structure (or whatever most recent era when the cost/benefit ratio was still compelling for the majority of attendees), and this crisis might just have tipped this overdue disruption into manifestation.

For example, I know more about World History than most people with Masters degrees in History. On top of that, I can tell any moderately smart person how to become a master historian in about 20 hours (i.e. a single weekend) through modern online resources.

Geoman

"For example, I know more about World History than most people with Masters degrees in History. On top of that, I can tell any moderately smart person how to become a master historian in about 20 hours (i.e. a single weekend) through modern online resources."

I know what you mean - I read a lot of history as a hobby, and by circumstance I happen to know two history professors. We have yet to have a conversation wherein they can stump me on a question of history, yet I routinely stump them on matters of basic science and economics.

They think I'm some sort of polymath. Hate to break it to them - but their field of expertise just isn't that hard to master...an short course of self study will get them 80% of the way there.

Regarding HB...yeah. There's the rub. The questions is what % of people will continue to work hard if they don't have to. I would. Maybe not quite as hard as I work now, but...yes I would work. Even if it was just charity work. I imagine it would be a lot more fun if I didn't have to do it.

Naturally I look at the rioters and say to myself, I'd much prefer they say at home and smoked pot all day.

But here is the thing - most of us crave purpose. We crave meaning. One might argue, that a lot of the people protesting have spent the last three months sitting at home feeling useless. The protests are an expression of them wanting to feel useful, many for the first time in their lives.

A government that will close churches, demand people wear masks, control free speech, and will choke a suspect to death, will also allow people to burn and destroy with impunity. A logical person might ask how such things can be, how can we have a government that is both repressive and permissive? Usually tyranny is at least accompanied by making the trains run on time, or anarchy is accompanied by increased freedom. How do you manage to get the worst of both?

The easy answer is we have a government that embraces both anarchy and tyranny in equal measure, depending on what it perceives is the best and highest need of the elected officials at the moment. It is also, to some extent, ultimately, a government of cowards, interested only in bullying those who won’t or can’t fight back.

I suppose that is what I fear most - we become a nation of cowards, people that let the government bully them as much as they please as long as the sweet check clears the bank at the end of every month. Aldous Huxley's somma isn't a drug, it's a piece of paper with a sufficient number of zeros on it.


Kartik Gada

Geoman,

The questions is what % of people will continue to work hard if they don't have to. I would. Maybe not quite as hard as I work now, but...yes I would work.

Yes, we have been down this road before with HB's worry about a 'leisure class'. The fact is, if income tax were zero, then people work work MORE, not less. This more than offsets the leisure-class element of ATOM-DUES (which is a long way from being even $30,000/yr if the program is implemented).

Plus, I don't know any Silicon Valley UHNWI who stops working. Even if they are billionaires. Part of this is due to maintaining status within the eyes of their peers.

HB's argument is, unfortunately, another version of the arguments made by people 200 years ago about industrial machines putting agricultural labors out of work. 200 years later, we have record-low unemployment (temporary Covid blips aside), with 80% of workers working in the service sector; a sector that barely existed 200 years ago.

Fatcat

Hi Geoman,
By Victorian standards we 99 of the employed people are lazy over entitled bums. The naïve communist idea was that it with centralized production, foreseeable technological advances and controlled distribution you could satisfy everybody's basic needs like food clothing and shelter. And indeed, it is possible at the envisioned levels. Of course, barring that it wasn't that simple and the collateral damage was quite high, our needs are define by our desires and are much higher than at the turn of XX century. If we are about to live at standard of 1900 probably a few working hours per week could be enough. In fact if I was working hard a year my marginal tax rate would be quite lower and I might even win in quality of life . And yet I'm am willing 110 % of the time.

It is arguable that some workers bring a net negative to the workplace. For sure if you are working a job you have be need it to pay the rent it won't help.

In a way, it might be better to reduce the working hours and get better labour allocation. Besides , of your have an unconditional source of income everything you do on top of yeah free, goes directly to your disposable income. There will be always virtue signaling, keeping up with Jones's and more expensive locations, cars, clothes, phones and good knows what services.

So even if the people become a bit more laid back or lazy the net productivity still might go up.

And don't forget the joke that eventually all the products and services cold be delivered by a single employee in the world...

JJ Balboa

Hi and thanks for the article.
Please could you explain more in details why infinite QE is a good thing and how that would even create 2-3% inflation? So far QE has only created inflation in financial assets: Equity through the roof as well as real estate but inflation as measured by PPI or CPI is far from that level.
For me the action of the Fed is a Lose-Lose situation, the market is always asking more money and negative rates to reach higher levels and the Fed has to cave in, if they stop there will be a crack and the bubble just gets bigger. You have 40M unemployed in the US after 5 weeks but the stock market is now back to pre-covid levels (at least the Nasdaq). That's just creating the biggest wealth inequality ever, the rich get richer while the poors crumble under debts. Really I don't see how infinite QE is good. It's sending the message that you can buy whatever you want in the stock market, it will always go up. You don't buy a stock for its fundamentals anymore but for the Fed. That's not capitalism and the governement will become the owner of all the companies (like it's the case in Japan, the government owns 80% of all the ETFs).

Kartik Gada

JJ Balboa,

Welcome.

Short answer : When the stock market rises and the CPI does not, that is not 'inflation', that is legitimate wealth creation. Note that corporate earnings are rising in tandem as well.

But yes, QE should be given directly to people, rather than the way it is done now, which only concentrates in a few hands. This is not capitalism, and thus sending cash directly to people is really the only solution. This also renders income tax obsolete over time.

Without QE, we would have deflation, which is far worse in a debt-heavy society like ours.

Pls read the entire ATOM publication, if you have not already.

HB


Geoman,

”Regarding HB...yeah. There's the rub. The questions is what % of people will continue to work hard if they don't have to. I would. Maybe not quite as hard as I work now, but...yes I would work. Even if it was just charity work. I imagine it would be a lot more fun if I didn't have to do it.”

Yes sure you would work. But here is the catch. Your work would lead to something ONLY if you work at worldwide competitive levels.

If your company, say Apple, turns out phones with half the features or costing twice as much, because their employees still work but now take it easier, then you might as well go home. Your company will achieve nothing against international competitors and, as a matter of fact, insightful entrepreneurs will not even start such company because they can sense that the parameters are such that it will never get off the ground. That is what happens in Europe. Entrepreneurs are not dumb in Europe either, so they don’t bother starting companies in an environment where the flatter effort-reward curves do not incentivize productivity levels which enable companies to overcome worldwide competition. They don’t even start because they will fail overtaken by international competition with an aggregate more motivated workforce.

I find this is one of the biggest misconceptions of American society. Americans have always lived in a country with one of the steepest effort-reward curves, due mostly to lower taxes and less help for the non-productive which keeps the American effort-reward curve in its more natural steeper state. So Americans think they can flatten a bit the effort-reward curve with some extra meritocracy eroding redistribution from productive to less productive and not much will happen, ignoring how thin the margin of their competitiveness is compared to the rest of the world. No, flattening the effort-reward curve, even by a little, will have tremendous consequences in the success of your companies because competitors are not far behind — they have never been that far behind, its just that you have never crossed the tipping point of losing competitiveness. It is indeed this “cruel nature of capitalism” with the steeper effort-reward curve that has kept you one of the most prosperous peoples of the world. So far you have not taken the “easier” “shortcut” to prosperity under a flatter effort-reward curve and thus historical serendipity (and the constitution) have saved you from decline. But societal structures that allow fast growth are difficult to maintain and easy to destroy. All it takes is one of the typical redistributive revolutions which unleashes the vicious cycle of low growth and ever more need (and votes) for state help. Once your flatter effort-reward curve falls behind the top competitors then your country is done. The vicious cycle of lower growth, distress, and thus request (votes) for state help unleashes. It is then virtually impossible to exit such vicious cycle. Almost all European countries seem to have fallen into it and none can exit despite their unfolding now precipitous decline in the world (precipitous in a historical time scale, less felt on a day to day basis, the slowly cooked frog effect). Quite likely the US will too sooner or later step on the same banana peel, hence I advise people at a personal level to be geographically mobile because decline is the only eventual fate of those democracies where voters eventually fall into the vicious cycle temptation of using the ballot box as an ATM. Unfortunately they get surpassed by more authoritarian regimes whose main advantage remains their ability to prevent their voters from using the (non-existent) ballot box as an ATM.

But back to our more narrow incentives topic...

Besides we all tend to overestimate how hard we would work and how hard we would pursue careers since childhood if we had guarantees of a decent life regardless. I would not want to admit to people around me how “lazy” I am, especially at work (though turns out probably no more lazy than most people). Here, anonymously, I can do it.

But here is the thing - most of us crave purpose. We crave meaning.”

Again, this desire will only bear fruits if you crave it enough to work at worldwide competitive levels even when a “decent level of living” is guaranteed regardless by helicopter money. There’s a reason folks that there’s no French Steve Jobs, and the reason is not racial.

”How do you manage to get the worst of both?[repression and permissiveness]”

I wouldn’t be so critical of the US. There’s a good balance there and America’s success is no accident. I’m saying this as someone who has lived and worked in other environments and countries.

Kartik Gada

HB,

I find this is one of the biggest misconceptions of American society. Americans have always lived in a country with one of the steepest effort-reward curves, due mostly to lower taxes and less help for the non-productive which keeps the American effort-reward curve in its more natural steeper state.

But this is what we keep coming back to. ATOM-DUES cannot work unless inseparably paired with a phase-out of income tax. Only when income tax is 0%, can this form of universal stipend work.

Since you are very familiar with effort-reward curves, surely you can see that 0% income tax will greatly increase the incentive to work for all but the least talented. Hence, there is no chance that there will be a mass leisure class. There may be a 10-15% leisure class (i.e. smaller than the one that presently exists), but that is it.

It seems you still don't realize that 0% income tax is possible, and the steepest possible effort-reward curve is technologically and economically (but not politically) possible within this decade or the next one at the latest.

How can you simultaneously worry about a 'mass leisure class', talk about the importance of the effort-reward curve, and not grasp how much a 0% income tax will do towards making people more willing to work and be entrepreneurial?

HB

Kartik,

“Yes, we have been down this road before with HB's worry about a 'leisure class'. The fact is, if income tax were zero, then people work work MORE, not less. This more than offsets the leisure-class element of ATOM-DUES (which is a long way from being even $30,000/yr if the program is implemented).”

Yes indeed we have been through this before but it is such a central theme that we will probably go through it again and again, ...so long as I have the patience.

The pivotal difference in my thinking is that the natural effort-reward curve is NOT LINEAR. It is inherently more logarithmic even in the complete absence of taxation. You have a strong incentive to make your first $50k per year since without it you would be homeless and hungry. The next 50k to a total of 100k you still have quite an incentive to make because there is a lot to gain, though not with the same paranoia you’d probably pursue the first 50k. Then, the next 50k to 150k would be nice but clearly not pursued with the same urgency as the previous 50k. Then the next 50k to 200k even less etc., you get the point, by the time you reach 400k your urge to make the next 50k is pretty small. Bottom line, the effort reward curve is INHERRENTLY LOGARITHMIC even before taxation flattens it even more. By giving people $10-30-50k a year unconditionally you SHIFT THE OPERATING POINT towards the flatter portion of the logarithmic effort-reward curve. Thus, this helicopter money decreases incentives, even absent taxation because people are shifted into working along the inherently less steep portion of the effort-reward curve.

Besides, the idea that somehow helicopter money will replace all other forms of redistribution seems absurd. We are already into $5 trillion of QE. Tell me of a benefits program that it has replaced. Tell me of a tax redistribution scheme that has been eliminated? Instead, not only we get QE but even stronger unemployment support, food support etc, all extra redistributions which actually risk becoming permanent leading not only to a shift to a flatter operating point on the logarithmic effort-reward curve due to QE but also a flatter effort-reward curve due to extra benefits.

“Plus, I don't know any Silicon Valley UHNWI who stops working.”

UHNWIs may be indeed very rare exceptional people amongst whom there could be those who might indeed work regardless of money. Some are the very rare Kalashnikovs Gagarins and Iliushins of the world who might give their most even under communism. However I believe that at least some of these exceptional people would not work quite as hard if they could not compete (often against each other) for who has the biggest yachts, the best houses on the five continents, the private jets, the most original impressionist paintings, the biggest philanthropic organizations (so they can buy people’s love) etc.

However, the main point here is that UHNWIs are a tiny minority which cannot operate on its own. They need executives and first line managers and second line managers etc. and scientists and engineers and (for at least a while longer) workers janitors etc. to make their vision reality. And they need these people to work at worldwide competitive levels to make their companies rise above the international competition. Most of these people, “us” generally speaking, don’t have that kind of motivation. Some of us may be non trivial contributors, even people who have reached the frontier of knowledge and pushed it beyond, but I doubt many of us would try as hard with our education careers and efforts if we were operating at the flatter part of the inherently logarithmic effort-reward curve. At age 18 with $30k starting to come down to me every year, no questions asked, might have been “hasta la vista, Margheritas in Cabo”.

“HB's argument is, unfortunately, another version of the arguments made by people 200 years ago about industrial machines putting agricultural labors out of work. 200 years later, we have record-low unemployment (temporary Covid blips aside), with 80% of workers working in the service sector; a sector that barely existed 200 years ago.”

You must have misunderstood something because I see my argument being anything but that. I do foresee the elimination of many jobs and human brains being reallocated to more productive endeavors. I actually welcome this because that is the essence of human progress: eliminate work and thus have more with less work, or, typically, get a lot more with the same amount but higher level work. But I’m also sure that many of the workers feeling obsolescence pressure will lose a good part of their impetus to gradually retrain and move up the value added chain once a somewhat decent life can be had on helicopter money alone. Then they will become permanent “raise the QE!” voters making matters even worse and drawing ever more people into the flatter part of the inherently logarithmic effort-reward curve.

Such shortcuts to prosperity have been tried before and failed. I see no reason for them not to fail again compared to other rising jurisdictions who growing faster may overtake us, if nothing more because they can prevent their citizens from using the ballot box as an ATM.

Drew

HB - one result it that corporations/entreprenuers wanting a support staff may have to actually walk the talk of "this job will help you to grow/provide emotional satisfaction" beyond just getting you more un-needed spending money. There will also be a search of alternatives for the structure and community that even unfulfilling work provides. Netflix and chill may be the default, but many will want more, and all will probably want to occassionally do something other than netflix and chill. Drew

Kartik Gada

HB,

They need executives and first line managers and second line managers etc. and scientists and engineers and ......... to make their vision reality.

This is exactly the group for which a reduction of income tax to 0% has the highest upside and incentive creation, since they pay the 'retail' tax rate and cannot use the elaborate shelters that UHNWIs use. It is also the group where the ATOM-DUES of $10K or even $30K/yr will do nothing to make them discontinue their careers.

Such shortcuts to prosperity

This is not a shortcut. This is a removal of the restraints preventing a natural reversion to the trendline.

I think all regulars here recognize that world monetary creation has to rise at 16-24%/yr (see the Yardeni charts above; the upper bound may even be higher than 24%). I think they all also agree that it has to be given directly to people, rather than the current method of narrow distribution to only the most favorably positioned. Hence, either ATOM-DUES or Sovereign Venture Fund are the only inevitable endgames.

Remember that entirely new categories of professions, products, and services will continue to emerge.

Geoman

HB - It is a salient observation the Europe can't buy a successful company to save their lives. I don't believe that Italians, French, Spanish are any less smart than we are. They are just incentivized differently. It is remarkable the number of successful companies sand inventions that originate in just a very few places on earth.

One can do the same thing by looking back through time. Prior to 1800 or so technology advanced very little. So, what, 350 years to go from basic agrarian society to where we are today? One might ask, what kept the Romans or Chinese in say 100 AD from accomplishing the same thing? Were they dumber than us? less hard working? Had no access to resources? Naturally no. They simply didn't have the cultural mix of things that creates technology and wealth.

Naturally my inclination is to lean into expenses, not incomes. Make education and health insurance free. These are external costs that can "break" an individual, preventing them from achieving their full potential. And more of a flat tax system where everyone pays equally, and corporate taxes are nonexistent.

In your example, one way to take advantage of the steep part of the curve is to make attacking it available to everyone - there is a large fraction of people why don't even start the climb from $0 to $50 k, or $50 k to 100k. If higher education and vocational training were free, we could vastly increase the pool of people starting that climb. If health care was not a concern, the same result.

What you are describing is an escalator to the penthouse. And loads of people will get off at various floors - Nothing you can do about that. So the key to getting more people to the top, is getting more people in at the bottom.

Kartik Gada

Geoman,

Naturally my inclination is to lean into expenses, not incomes. Make education and health insurance free.

Ah...caution here. 'Free college' and 'free healthcare' are central pillars of the contemporary left, and existing efforts to subsidize them even partially have made both industries far worse. In fact, these two sectors are among the only high-inflation, low ATOM sectors around today.

The only real solution is cash sent to people, to spend how they see fit (which might very well be education and healthcare). But no specific subsidization of these industries, as we have seen what happens then.

Plus, we should never rescue the grasshoppers at the expense of the ants. If both get the same amount of money, the grasshopper survives, and the ants push ever higher. But things like 'cancelling student loan debt' are a moral hazard of extraordinary proportions.

Geoman

I never said "how" you make college free. I think writing checks to the existing system would be insane. You could simply make them live within their endowments, which in most cases are already quite substantial, and in many cases the states and cities where they reside will be quite eager to top up to the level necessary. You could also fire all the useless bits from the colleges and reduce expenses substantially. Take a number of majors "on-line only" for example. Truthfully, college could be free today, if we simply reallocated and re prioritized what we are already spending.

Believe it or not I think medicine is the same - all the money we need is already being spent. We just have goals and incentives misaligned between the players leading to massive waste.

I'm just discussing goals, not methods. People are just as much richer if they have fewer financial liabilities than if they have greater incomes. If instead of spending $10k a year on health insurance for my family, I spend $5k, then I just got a $5k raise. If my kinds start life with zero student loans, they start life a lot more wealthy.

HB


Drew,

“one result it that corporations/entreprenuers wanting a support staff may have to actually walk the talk of "this job will help you to grow/provide emotional satisfaction" beyond just getting you more un-needed spending money. “

If such pent up demand existed (workers seeking “growth and emotional satisfaction” that actually does not cost the company any money, either directly in salaries or indirectly) then a company that taps into that demand today would totally dominate the market. With workers that are happy with less monetary compensation, say -30% below market, profit margins for such a company would rise to stratospheric levels, either attracting huge capital or allowing the company to undercut virtually all competitors with lower prices that other companies find utterly impossible to match. I cannot believe that we have not seen such company yet because not a single entrepreneur has thought about it.

I’m actually not really stating anything new. Just reaffirming the automation of free market capitalism.

HB


Kartik,

“This is exactly the group for which a reduction of income tax to 0% has the highest upside and incentive creation, since they pay the 'retail' tax rate and cannot use the elaborate shelters that UHNWIs use. It is also the group where the ATOM-DUES of $10K or even $30K/yr will do nothing to make them discontinue their careers.”

Not when you artificially push the operating point of this population group up along the inherently logarithmic effort reward curve where the curve is inherently flatter.

https://www.economicshelp.org/wp-content/uploads/2017/03/utlity-function-risk-aversion.jpg

UBI pushes people rightward and upward on the curve by the amount of money handed out.

Now, how much flatter does the curve really become, whether flatter than the current effect of taxation, that I do not know. But I think a lot flatter. Besides, when it comes to taxation, again, the hope that somehow people can be given $30k in lieu of any other benefits is I think impossible. There will always be scores of people who end up in the news saying how they had to use the money for this and that purpose and ended up in the ditch once again homeless and hungry, without health insurance etc. in spite of the helicopter money. Chances are you end up with most of the existing redistribution programs, plus UBI on top. I hope we do not step on that banana peel.

“ It is also the group where the ATOM-DUES of $10K or even $30K/yr will do nothing to make them discontinue their careers.”

You do not have to completely discontinue a career to pass the tipping point and render your country non-competitive on the worldwide stage. A 30% reduction in enthusiasm is enough to go from US to French conditions as I replied to Geoman earlier. Careers may not even start if you give people $30k per year right out of high school. Just get married and join the financial independence movement. Even at 10k, get married and have two children and you are already at $40k. Or just start lesser careers. Stories of high school dropouts “doing just fine” will abound, so “no need to worry much”. Lay back and perhaps don’t even quit altogether. Just be French. The eternal (as opposed to uncertain) guarantee plays a huge role as you are shifted to operating along the flatter part of the effort-reward curve.

https://www.investopedia.com/ask/answers/072815/what-marginal-utility-income.asp

PS. Thanks for fixing the hypertext tab I had messed up earlier.

HB


Geoman,

“Naturally my inclination is to lean into expenses, not incomes. Make education and health insurance free. These are external costs that can "break" an individual, preventing them from achieving their full potential.”

Where do you stop though? Homelessness can break an individual too, and so can lack of leisure time, lack of childcare, even lack of children themselves, lack of transportation, the list goes on and on...

While the current healthcare environment, tied to employment with tremendous tax incentives and disincentives is too distorted to work as a free market any more, I do think that people should pay for their health insurance costs at *some point* in their lifetime. They would not need to pay for it when they get sick any more than they have to pay for reconstruction when their house burns down. However, as I said, they should at some point pay the insurance cost. Perhaps some pure redistribution arrangements can be made for those born incapable, though parental child insurance could in part address that too. But let’s not get ahead here, we are far from it and all indications are that the momentum in healthcare is to make it ever more redistributive.

Geoman

https://youtu.be/FM5HkpyXxsQ

Well worth a watch. The end is near for higher education, and I for one won't shed a tear. I can find no fault in the argument - next year about 25% of college students are going to disappear. It will become a buyers market, and a lot of tier 3 colleges are going to go bust.

The "insurance cost" is naturally not the cost of insurance. A stupendous amount of that cost is:

1) Paying for other people who pay nothing into the system. Aspirin costs YOU $5 a tablet at the hospital to pay for all the people they treat who pay nothing.

2) Enormous liability insurance costs. Much if it by claims from the group that paid for none of it.

3) Defensive medicine in a vain attempt to control the enormous liability insurance costs engendered by the free care provided.

A single aspirin can cost $30 per pill in the E.R. Why? The ER isn't getting rich from dispensing aspirin. It is literally $0.01 tablet at the store. That tells you exactly what the mark up for the uninsured and legal liability is - a 3,000% mark-up! And that is true for every single thing at the hospital.

Want to make your insurance costs drop immediately? Simple. Pass a law that you can't sue anyone for any medical care received without compensation. If you don't pay, you have no legal right to sue for inadequate or inappropriate care. You are, by definition, a charity case. Add a medical review board that monitors and controls legal claims (quick settlements, no lawyers allowed) and you'd see a huge drop in medical overall costs overnight. Probably by a couple of orders of magnitude.

Where to stop? Well, that is really up to us, right? I think just focus the parts of the economy that have shown little evidence of ATOM improvement based on costs. health care and education have big fat targets on their back. Beyond that? Government mostly. I'd love to see a lot of government services spun out to private foundations. NASA, the USGS, NOAA. Heck even health and human services - give a nice endowment to Habitat for Humanity and shut down HHS.

The big problem I see with DUES payments, is that these parts of the economy that have defied any price declines will simply jack costs and take that money as well. What good is my $5,000 DUES check if my insurance medical increases by $5,000? It's like giving everyone a coupon for $200 off an Apple computer - what stops Apple from just raising their prices by $200? We have to, in my opinion, attack these broken and unproductive sectors of the economy first, and get them subjected to ATOM forces.

And, other than entrenched interests, it is relatively easy to do.That is really the laughable part. The ATOM (which is incredibly powerful) is already pressing on them - we just have to help it along, lean into it. The ATOM will do the rest.

Geoman

I also think we need to revive the concept of charity hospitals. Remove any liability for their work. Give them a nice endowment, and watch what happens. One charity hospital will start forcing down the costs across the broad at for-profit hospitals. they will have to compete with free - it will force them to find savings.

For example, the AMA reports that obstetricians can expect to pay around $150,000 in annual premiums for malpractice insurance alone. Imagine being a doctor and working at a charity hospital and that cost to you is now zero. Plus all the pain and hassle of legal proceedings. You get to just...work. Set up a medical review broad that reviews complaints and resolves cases within days of them being filed. It can be a bunch of retired doctors who review and make recommendations.

No insurance companies. No lawyers. Just medical care. How much you want to bet the aspirin would again cost $0.01?

Kartik Gada

Geoman,

The big problem I see with DUES payments, is that these parts of the economy that have defied any price declines will simply jack costs and take that money as well. What good is my $5,000 DUES check if my insurance medical increases by $5,000?

Ah, but that is what the ATOM fixes. DUES payments increase innovation since both return on entrepreneurial work (no income tax) and the viability of being an entrepreneur (both you and your employees are getting DUES) means that innovation to topple sectors with runaway inflation and deliberate suppression of competition will happen.

That is the whole point of ATOM-DUES + 0% income tax. More entrepreneurs and more innovation. It is a vastly more favorable climate for entrepreneurship, and it is anticipated that the furthest-behind sectors receive the most focus from entrepreneurs (as the upside for them is the highest).

Bas

There is no inflation because the FED creates credit and does not print (like some Austrians say). If this credit is used to build oil rigs the supply of oil increases and lowers prices. It is a bubble nonetheless.
The future will likely be Monetary Metals (I am not affiliated, just fascinated) or something like it.

Kartik Gada

Gents,

Not discussed much yet is the ripple effect on real estate. I believe that people should have easy access to jobs within a 60 mile radius in the US, but in major metros, the level of traffic makes this prohibitive. Now, with Zoom and other videoconferencing being normalized, will there be a formal practice of 3-days-a-week in the office and the other two via Zoom? This has tremendous implications for housing prices, etc.

The next step will be for people in other cities to be able to complete for jobs in other cities. Jobs in Silicon Valley and Manhattan facing this sort of expanded net is good for both employers and workers in other cities.

Even a handful of people in OH, MI, and IN being able to secure $300K/yr employment while staying in their state will have major implications for the labor market, and for more even technological access.

Stephen Murray

Here in my small European capital city, there has been much fuss about traffic. A big scheme was proposed with new bus corridors, involving the demolition of a few old houses and many old trees. Now, it seems that we have passed peak traffic, hopefully the government realises this and mothballs this now irrelevant idea.

Drew

Hi All,

First to HB - there definitely is a cost to walking the talk on growing your employees, which is why most companies just talk the talk, paying that cost in the future may be rational as it could be a competitive benefit.

To All,

Univerities and colleges are definitely being hammered, I'm wondering when we will see if it is a full change and we will finally see the on-line courses take out the profit margins in higher education as Craigslist took out the classified for newspapers and then the rest of advertising followed. If restaurants come back but universities don't, that will probably be the sign.

I'm expecting less change in the meds half of eds and meds as they go back to normal, do the elective procedures, etc. Cheers, Drew

Kartik Gada

Drew,

Another dimension is that while online learning spreads within the vacuum of the horrendous cost/benefit equation of most US higher-ed, the spread of such online learning simultaneously crushes higher-ed in other countries, including countries where higher education is still about teaching real content of value in the workforce. It also helps countries that have few or no universities as good as a US Tier 1 (assuming the student knows English, which most content is in).

Much like how NYC's extreme price-gouging of taxi medallions created enough of a market for Uber, which quickly got critical mass and destroyed the taxi medallion industry even in cities in other countries, where the price might not have been unusually high. All it took was the biggest market to get so greedy as to create a delta for technological disruption.

Joe

Kartik,

Been reading this blog for long. Keep up the good work.

Please do a detailed article on disruption in education in the pandemic and post-pandemic scenario.

In anticipation.

Joe

India

Drew

KG,

Medical tourism is dead in the water for now, whether it will snap back or be passed by another technical advance will have to be seen. There is a possibility that in an effort to show that it is safe to go to another country for medical work better methods will be devised to smooth the travel and install confidence that will then expand the market. Drew

Kartik Gada

Drew,

Medical tourism is certainly dead, but it failed to take off to a sufficient degree anyway. Way back in 2008, a lot of people (including me) thought it would be a bigger deal by now.

https://www.singularity2050.com/2008/08/more-on-the-economics-of-medical-tourism.html
https://www.singularity2050.com/2008/03/how-far-can-med.html

It was apparently still just a $45B market in 2019. In 2008, many thought it would be 6-7 times that size by now, particularly if US insurance companies openly encourage it and share part of the savings with the patient.

By contrast, telemedicine is rising a lot. People want to avoid hospitals and consultations that don't require the doctor physically touching the patient can be done over Zoom. The fact that a basic doctor teleconference can be done with an English-speaking doctor in a poor country for $5 also makes insurance moot in such instances.

Drew

KG,

Telemedicine is one of the Covid accelerated changes as regulations were changed and the already ongoing changes accelerated. I was interviewing for a project management position with a regional medical provider that would likely have involved setting up video medical consulting back in January pre-covid.

Why do you think that medical tourism didn't take off?

Cultural inertia that the cost benefits weren't great enough to drive the implementation?

Inability to convince people of the safety of travelling for necessary work?

The fact that if you are traveling for optional cosmetic work, your travels make it more conspicuous what you are doing?

Thanks, Drew

Kartik Gada

Drew,

Probably cultural inertia, as well as insufficient incentives from insurance companies.

Anecdotally, I heard of insurance companies telling patients that they will pay them an extra $10,000 cash bonus just to get it done in Thailand (the insurance company still nets a huge savings). But I saw no evidence of this beyond that one anecdote. This is what would make it take off, since average people wouldn't have any way of knowing how to do it otherwise, plus they might believe that the insurance company vetted the Thai location.

The testimonials from the first few are crucial to starting the stream, in addition to the insurance company being involved. Hell, even Kaiser could just start a facility in Mexico or the Dominican Republic, hire the best and brightest of that country (which is still cheap), and send certain patients there under Kaiser's standard of facilities.

Lastly, one detail that I have recently learned is that you are not supposed to fly for about a month after any major surgery, due to risk of deep vein thrombosis and pulmonary embolism. I think this is also a factor here. It does not preclude a Tijuana branch of Kaiser catering to all of S. California's 22 million people, however.

Ed Zimmer

Kartik,Just checking back - it's been a little over a year. Glad to see you've updated your ATOM writeup. And glad to see that Geoman, Fatcat & HB are still active here.

You were the first I found (several years ago) who recognized that the technology revolution would cause a deflationary economy. I promoted you & your site on The Economist for several years until they cut off their Comments section because too many of us were using it to question their neoliberal thinking.

You had a good handle on the problem from your first ATOM. My reservation then was best expressed (by I think Geoman) that exponentials always morph into S-curves, seeding doubt about return to the "economic" trendline. (The "technological" trendline was never in doubt, as you've well-reinforced with your posts.)

In your current post you point to current Fed spending (via QE) as validating your position for the rapidly-growing need for government spending. Although I fully agree with the need, I'll argue that's been largely wasted spending, going into the FIRE economy (rather than the GDP economy) resulting in nothing but illusionary asset appreciation.

I'm more with HB on entrepreneurs. I entrepreneured businesses in 3 different markets (hi-tech, RE development, & retail) & counseled would-be entrepreneurs over the web for over 30 years. Income tax was never a concern to me or them. (Yesterday's entrepreneurs' main concern was how to build a customer set; today's is how to find VC.) And only a small percentage of the public are capable of entrepreneurial activity (meaning building profit-making businesses). I don't worry about people finding work. There's a human need to be busy. But I doubt it will be paid-work (unless by the government on government programs (which may not be as bad as it might sound if by "government", you think local government).

And I'm more with Geoman in emphasizing the expense side; more "free" goods/services over more money disbursed. Excess money is embodied by the FIRE economy, which I find dehumanizing & corrupting. It's still not well-recognized that we have two distinct economies at work today (largely non-overlapping) - the production-and-consumption economy (measured by GDP) & the FIRE economy that I see as unmeasurable & in society's interest to drastically shrink if not outright abandon.

Kartik Gada

Thanks, Ed, for checking back.

I think individual sub-exponentials can be S-curves, but the deepest combined exponentials keep going up. This has been true for millions of years, and even in era of human civilization, has been true about the deepest measures of the economy (which is not adequately captured by GDP, as explained in Chapter 2).

I don't agree that entrepreneurs are not affected by the tax rate. Instead, they have advisors that reveal loopholes and shelters to them, so that they don't have to pay the 'retail' tax rate. I once worked with an entrepreneur that was about to sell his company and personally clear $15M. He spend a HUGE amount of time trying to reduce his 50% tax bill. He fretted over it for a long time, and spent a ton of energy on it.

At best, one sees early entrepreneurs claim they don't care about the tax rate (since they think that if they make a lot, they won't care) only to find that when the big day actually arrives, they really DON'T want to pay such a large percentage. Loopholes like QSBS are the most valued things in Silicon Valley.

Ed Zimmer

Entrepreneurs wrapping up their business certainly do care about income tax (& do everything they reasonably can to minimize it), but it's not something they even think about when starting the business. Although that may be changing. In the 20th century, most entrepreneurs started businesses just to make a living or do something they wanted to do. Making money was looked on as something necessary to keep their business alive, not as an end to itself.

That changed at century end with VC coming on the scene. The VC's only interest is maximizing the return on their money, so any entrepreneur who didn't share that goal soon found themselves backroomed or ousted. My advice to would-be entrepreneurs after 2000 was to aim your business to be acquired (ie, look for weaknesses in large companies you can exploit rather than building customer sets). I'm concerned that society lost in that change - but that revolves around the question of whether society is better served by many small companies or few large ones. That's a question that has always existed, but technology has made it a more black-or-white question.

Fatcat

The taxes are a concern but many times it is the bureaucratic burden and compliance costs that a bigger constraint for the small would be entrepreneurs.

Kartik Gada

Fatcat,

All of the above. Small startups that are years from booking a real profit. Remember that all the losses carry forward, so taxable income is only after operating income overtakes past cumulative losses. Yet, they have to file returns and do a lot of onerous things.

For individuals, suboptimal business decisions for tax reasons probably cost more than the total dollars collected.

Plus, 20-40% of all tax is wasted in tax complexity.

Joe

Further to my comment at the top, here is an article in the New York Times suggesting much the same idea.

https://www.nytimes.com/2020/07/03/opinion/coronavirus-tests.html?ref=oembed

I think this will become very common for many easily catchable diseases such as flu and colds.

Fatcat

Somehow off topic but the idea of universal basic income is widely discussed in Canada and has non zero chance to b see the light of day:https://www.macdonaldlaurier.ca/a-guaranteed-basic-income-will-be-too-expensive-and-bad-for-economic-recovery-jack-mintz-for-inside-policy/

Kartik Gada

Fatcat,

Yes! But note that they still want to tax people, rather than use Central Bank QE. This makes just another version of old-fashioned socialism.

Canada is one of the countries designated as most favorable for ATOM DUES, in Chapter 10 of the ATOM publication.

fatcat

Socialism works pretty fine until you run out of [other people's] money. If this approach is fiscally neutral or even better than the current expenses and has less perverse incentives for work it could work . The human nature needs some degree of socialism to keep the fabric of the society from falling apart. Nowadays even the most far-right thinkers admit that there is need for some social spending.

If a QE could be coupled with UBI/stipend/whatever. It would be a better spending than sponsoring the mortgages and inflating the real estate prices. The stock market at least has some percentage going to R&D so a QE on the stocks market is not that bad, even if it causes some distortions.


I think the chances of having a UBI in Canada are very small and the chances of a sovereign investment fund are even smaller. Nevertheless we have talks in the right direction

Kartik Gada

Fatcat,

A safety net (or better, a stipend) has many benefits if it is a)universal, and b) not paid for by taxes, or even tied to lower taxes. Among other things, it fosters entrepreneurship and geographical normalization.

Hence, ATOM-DUES.

Geoman

Socialism is based on a total misunderstanding on how the government and society work. Who is in charge of a beehive? The queen? How is that possible? The queen has about 960,000 neurons (compared to 86 billion for a human). They have no where near enough intelligence to manage the hive.

What manages the hive is some very simple rules. The interaction between the simple bees and these rules creates complex behavior that mimics a much higher order intelligence. That higher order intelligence is estimated to be around 100,000 times smarter than any individual bee.

When humans, with our 86 billion neurons, operate using simple rules, our interactions create a super intelligence that manages our economy and social structure to our benefit. Socialism assumes that we, as individuals, can make better decisions than the super intelligence, which is a lot like saying a single bee can make better decisions than a hive.

Our default state under socialism is a monarchy, with serfs, knights and peasants. That is the society and economy that direct government management, no matter how enlightened, creates. It is all it CAN create, since it is limited to the intelligence of individuals, which like bees, have only 1/100,000th the amount of intelligence to create anything else. It is a poor, stagnant society. It explains why, for so much of human history, nothing ever changed, and the economy scarcely grew. It took a free society, a society without onerous rules and masters, to unleash the power of the super intelligence and transform the world.

"Nowadays even the most far-right thinkers admit that there is need for some social spending." What if we could create a system of social spending that taps directly into the power of the emergent intelligence? Imagine social spending that is 100,000 times more effective and efficient than any current government program. Or to put it another way, imagine spending 100,000th the money to get the same exact results.

Kartik Gada

Geoman,

All true.

If not 100,000X, even a 10X improvement in the cost of governance will have immense benefits, from lower taxes to better services to lower crime.

Our default state under socialism is a monarchy, with serfs, knights and peasants.

Only recently did I realize that almost all fiction markets a society of this sort, rather than one of liberty and meritocracy.

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