3. Technological Disruption is Pervasive and Deepening

 

There is a single light of science, and to brighten it anywhere is to brighten it everywhere.

– Isaac Asimov

Any sufficiently advanced technology is indistinguishable from magic.

– Arthur C. Clarke

 

(Video).  Third Millennium Economics has Already Enveloped Your Life :  If we are to begin to believe that a centuries-old trend of accelerating economic growth is ongoing and about to take us to very high growth rates, we have to take the analysis to a much more personal and precise level.  We have to observe and measure how this trend has enveloped your life.

The ubiquitous meme embedded into most discussions of technological progress is Moore’s Law.  The iconic observation by the great Gordon Moore of Intel traces its origins back to 1965, where an article in Electronics Magazine described how the number of transistors in an integrated circuit is destined to double every year (later revised in 1975 to double every two years).  Now, half a century later, this publication aims to introduce a next-generation, two-axis concept to the venerable and still-valid but nearly-succeeded Moore’s Law.

Anyone who has purchased computers over the years has come to expect the price of computing power to halve every 18-24 months, making the expanding constellation of gadgets cheaper and smaller.  But for most people, the observation stops there.  They don’t see the true long-term implications of this pricing phenomenon beyond the need to upgrade their computer or smartphone every few years.  This oversight is akin to missing the forest from fixating on an individual tree.

Since Moore’s Law is limited to semiconductors, and specifically to comparing one chip to the next one chip, the unknown sister of Moore’s Law must be mentioned alongside it.  Data storage technologies have improved in a manner identical to Moore’s Law, even though it involves different technologies only indirectly related to semiconductors, in entirely different companies.  One dollar purchases more storage than one billion dollars could have purchased forty years ago, and that storage occupies much less space today.

But there is yet another layer to this exponential progress, which transcends even Moore’s Law and the equivalent for storage.  Consider that on top of the approximate 18-month doubling times of both computational power and storage capacity, both of these industries have grown by a combined average of approximately 14% a year for the last fifty years.  Individual years have registered much higher or lower growth than that, but let us say that the trend growth of both industries continues to be 14% a year.  Software price-performance doubles at a much slower rate (6-9 years per doubling, by many estimates), but nonetheless is an exponential improvement in its own right.

This revenue growth rate is a general indicator of device proliferation and technology diffusion, and many visible examples of this surging wave present themselves to the observant eye.  Consider the television programs of the 1970s, where the characters had all the household furnishings and electrical appliances that are common today, except for any product with computational capacity.  Yet, prosperity has risen greatly since that time, and it is obvious what the only catalyst could have been.

Closer to the present, among 1990s sitcoms, how many plot devices would no longer exist in the age of mobile phones and Google Maps?  Take a program as widely viewed as Seinfeld.  Refer to the episode entirely devoted to the characters not being able to find their car, or each other, in a parking structure (1991), or this legendary bit from a 1991 episode in a Chinese restaurant.  These situations are simply obsolete in the era of mobile phones.  The ‘Breakfast at Tiffany’s’ situation (1994) created by George Costanza would be obsolete in an era of Netflix, Wikipedia, and YouTube.  The ‘Soup Nazi’ of 1995 could avoid aggravation today by exclusively taking and fulfilling online orders for pickup.  He would never have to see a customer face to face, just as well since he now has to contend with Yelp reviews.

In the 1970s, there was virtually no household product with a significant computing component.  In the 1980s, many people bought basic game consoles like the Atari 2600 and had digital calculators.  They purchased their first VCR, but only a fraction of the VCR’s components were exponentially deflating semiconductors, so VCR prices did not drop that much per year.  In the early 1990s, many people began to have home PCs. For the first time, a major, essential home device was pegged to the curve of 18-month halvings in cost per unit of power.  In the late 1990s, the PC was joined by the Internet connection and the DVD player.  In the 21^st century, dozens of new devices have been added, many of which constituted the high-tech augmentation of traditionally low-tech appliances.

We can now proceed to the real-world test.  Everyone reading this can tally up all the items in their home that qualify as ‘technological deflation’ devices, which is any hardware device where a much more powerful/capacious version will be available for the same price in 2 years.  You will be surprised at how many devices you now own that did not exist in the eighties or even the nineties, but you just cannot imagine living without today (this poll started with the first version of this publication in 2016).

Include : Actively used PCs, LED TVs and monitors, smartphones, tablets, game consoles, VR headsets, digital picture frames, LED light bulbs, home networking devices, laser printers, webcams, DVRs, Kindles, robotic toys, and every external storage device.  Count each car as 1 node, even though modern cars may have $4000 of electronics in them.

Exclude : Old tube TVs, film cameras, individual software programs and video games, films on storage discs, any miscellaneous item valued at less than $5, or your washer/dryer/oven/clock radio just for having a digital display, as the product is not improving dramatically each year.

 

 

 

By my estimation, the approximate number of devices in an average US home that are on this curve, by decade :

1970s and earlier : 0

1980s : 1-2

1990s : 2-4

2000s : 5-10

2010s : 12-30

2020s : 50-100

2030s : Hundreds?

This progression is even more striking when you consider how many devices are simultaneously consolidating.  A smartphone now has a camera, storage, music player, calculator, alarm clock, and GPS system within it, removing all of those as separate devices.  Despite the understatement inherent to counting nodes, more and more nodes, themselves rising in average complexity, continue to enter daily life.  There was no metric of technological advancement before the modern era that was progressing so rapidly and widely.

This effect is visible across every type of electronic device.  Take a look at this chart of Apple iPod unit sales in relation to iPhones and iPads (chart from Statista).  There is great beauty in a chart like this.  It initially encapsulated how when a combination of technologies (storage, batteries, music software, processing, etc.) finally becomes inexpensive and compact enough to be combined into a device of the right price, size, and utility, the sales of the novelty skyrocket.  Yet when the functionality becomes mature just a few years later, the entire iPod becomes a subset of the more advanced iPhone or iPad.  Individual iPods no longer sell at that point, much like individual calculators no longer sell.  The entire lifecycle takes little over a decade, despite the multiple generations of improvement within this period.

Extrapolating a bit, we can project that the average home of 2025 will have various wonders.  Multiple ultrathin TVs hung like paintings, robots for menial cleaning, VR-ready goggles and gloves, sensors and microchips embedded into clothing, table-sized surface computers, intelligent LED lightbulbs with motion-detecting sensors, and server-class home computers, to name a few.  The home network of at least 15 nodes manages the entertainment, security, and energy systems of the home simultaneously.

At the industrial level, the changes are even greater.  Just as with telephony, photography, video, and audio before them, we will see medicine, energy, manufacturing, media, and legal industries become information technology industries, and thus set to advance at rates much faster than before.  The economic impact of this is staggering.  Deflation has traditionally been a bad thing, but the ATOM has introduced a second form of deflation – a benevolent one.

Another way to look at it is to chart how many units of a certain technology can be purchased relative to GDP per capita.  In an article from Prof. Mark J. Perry, we have a comparison of what was available to consumers in 1964 vs. 2016 (let alone 2020).  This is an incredible illustration of how much quality has improved relative to purchasing power over a 50-year span, even though merely inflation-adjusted dollars are used, rather than Nominal GDP per capita.  If NGDP per capita were used, then the impact is further quadrupled.

Now, when one expands the scope of this observation about proliferating deflationary nodes, we can add up the revenues of the semiconductor, electronic storage, software and other such technologically deflating industries.  As of 2020, this calculation comes to about $2.7 Trillion/year, or 3% of World GDP.  This figure was just 2% of World GDP when the first version of this publication was released in 2016, just 1% in 2004, and only about 0.5% of World GDP in 1992, so rapidly deflating products and components are becoming an ever-rising percentage of all economic output.  If the proportion doubles again in the same pattern, then it could be 6% of World GDP by 2030 or so, and continuing to rise after that.

This progressing convergence of World GDP with technology is exceedingly important to every aspect of the future economy, from central bank monetary easing to inflation/deflation to the fiscal health of governments.  Since almost every new product or service is created and delivered through a process that uses increasing levels of technology, this phenomenon is getting woven into the fabric of everything.

 

The Panoply of Creative Destruction :  Words like ‘disruption’ and ‘destruction’ are usually associated with negative events.  This consequently leads many to have a subconscious aversion to technological progress.  There is insufficient understanding of Joseph Schumpeter’s concept of ‘Creative Destruction’, where the process of technological change topples existing norms and replaces them with new ones in a new power hierarchy.  A great book and documentary series to examine is ‘How We Got to Now’ by Steven Johnson.  Mr. Johnson chronicles the iterative and messy process through which light, sound, time, and other fundamentals were eventually harnessed for modern human use.  The accelerating rate of change is visible across his narration of historical events, and his work is an excellent prequel to the subject matter we are about to examine.

Proceeding to the present, it is not technological disruption that is new, but the exponentially rising rate of change means more sectors, businesses, and lives are being transformed at greater speed through an ever-widening cascade of disruptions.  This chart from BlackRock displays the rising speed of proliferation of each new disruptive technology.  The effect is not even fully captured in this US-only chart, since a worldwide chart, which I could not locate, would reveal an even faster acceleration.  The accelerating rate of change is visible here as well, and a continuation of this trend indicates that upcoming technologies will vault from 0% to 50%-80% penetration within just a few years.

This effect can be across industries that have been unperturbed for decades, or by the creation of entirely new industries altogether.  Furthermore, for the very first time, evidence is emerging that seemingly unrelated disruptions have some degree of interconnectedness with each other.

Incumbents often go to great lengths to suppress disruptions, even if they themselves attained the position through some previous disruption.  Whenever an incumbent industry has a misguided belief that disruption can be prevented outright by going to the government to get protectionist barriers erected around it, that industry merely experiences a temporary delay in the disruption, after which the reversion to the trendline is necessarily sharper.  The script unfolds predictably.  The incumbents focus more on political favors than innovation, which is usually a poor strategy when multiple industries are simultaneously seeking favors from the same government.  In the meantime, the successors ascend to great heights at a speed the regulatory complex cannot handle, and the entire situation becomes more headline-grabbing than it otherwise may have been.  Examples of such industries include publishing, taxis, and universities, all of which predictably ended up seeing their disruption happen in a compressed time, with the post-disruption landscape ending up where the general trendline would have predicted anyway.

Silicon Valley continues to be ‘ground zero’ for creative destruction, but there are many other innovators in various locations across the globe, quietly tinkering on something that could topple a major incumbent thousands of miles away.  Quite a bit of disruption happens from incremental refinements crossing a certain threshold, rather than a radical new product category, and hence Asia is a major source of disruptive sparks in its own right.

Just a few of the examples of creative destruction that are currently underway include :

1) Artificial Intelligence (AI), after decades of quiet progress unnoticed by those outside the field, is now on the brink of making an immense economic impact, due to both parallel computing and big data both reaching cost effectiveness as enabling technologies.  Many aspects of productivity can be greatly accelerated in a manner that is orthogonal and complementary to most other professions and industries.  This empowers one person to do the job of four in some cases, or to embark on an entirely new type of career in others.  On one hand, it is exciting to anticipate the trillions of dollars of output that will soon be generated with minimal input.  On the other hand, input-optimization is a fancy way of saying that millions of jobs might get displaced.  While new, higher-paying jobs will be created in different fields and different countries, the same workers cannot simply transition to those new jobs, nor is the creation immediate after the displacement of the old jobs.

AI is the single biggest disruption on the horizon, as it directly affects the greatest number of jobs across almost all industries.  It could simultaneously lead to a dividend of productivity that can flow more freely across borders than most other types of productivity.  The dichotomy of AI will cause great confusion to readers of media output from the dueling camps.  This topic will be specifically addressed in more detail later in this publication, for AI is the conduit via which fundamental modernization of the state's function and fiscal flows will become inevitable.

2) 3D Printing accelerates many aspects of design, prototyping, and manufacturing, enabling greatly improved or even entirely new processes, products, and services.  From this, the thresholds of fixed cost and economies of scale can lower to unprecedented levels, decentralizing and democratizing all aspects of manufacturing.  This transforms everything from commodity consumer goods to international supply chains to the production of aircraft, spacecraft, and buildings.

The technology can now print in over 200 different materials representing a wide range of cost and durability. ‘Personal Manufacturing’ will soon be accessible to average households.  An individual could download a design and print it at home or the corner store, rather than be restricted to only those products that can be mass produced.  Many complicated shapes that could never have been produced as single units can now be printed, greatly increasing the speed and flexibility of manufacturing.  Certain aspects of construction can take a major leap forward, and it is quite possible that by 2025, construction of basic structures takes less than one third the time that it does today.  This, of course, will deflate the value of all existing buildings in the world at that time, as is expected of any commodity in the in the economics of the third millennium.

3) Computing itself is on the brink of its first major transition in about 60 years.  Semiconductors may no longer be able to further shrink transistors after around 2021 or so, finally retiring the venerable trend described by Moore’s Law.  This is not the obituary of technological progress, as Moore’s Law is not the first, but rather the fifth paradigm of computing (as Ray Kurzweil has elaborated upon in detail in his books).  The low-cost parallel computing enabled by NVidia's GPU allowed computing to advance on a vector no longer bottlenecked by transistor sizes (neural networks that run AI are more suited for parallel computing).  Hence, transitioning to a successor to semiconductors is just the next handoff.  Integration of discrete computing components such as the CPU, GPU, Memory, and Storage into a single unit will be another revolution in computing efficiency, enabled by new computing paradigms.   Technologies like memristors may have a major role in this consolidation, as well as capturing an additional dimension of gains (literally) from their suitability for 3D chipsets.  

Quantum Computing, an entirely different approach to computing, is no longer mere science fiction.  Quantum computing functions by chaining together ‘qu-bits’, which unlike digital bits, can reside in a state of ‘0’ and ‘1’ at the same time.  The power of the chain rises as an exponent of the number of the qu-bits that are chained together, and as the ability to create longer chains arises, quantum computing can greatly surpass the power of any conceivable digital computer.  By some estimates, this may be possible by the 2030s, enabling multiple branches and technologies of computing to reside in different niches.

4) Education, both higher and lower, is being disrupted by the day.  The education sector has long operated under the fundamentally flawed principle that the cost of the same educational program can rise over time.  To the contrary, costs should naturally decline over time, since education is just another form of information and thus governed by the same forces of transmission as other information technologies.  Compounding the certainty of their imminent disruption, many universities, overconfident about their irreplaceable status in American society, have bloated their cost structures with excessive administrative personnel.  These administrators have, in turn, taken on a role of political activism that has muddled the priorities of many universities away from education and career preparation.

In the meantime, several companies have produced courses and even entire degrees that can be completed online at the fraction of the cost of an in-residence degree and without the need for relocation.  Employers such as Google have moved quickly to recognize these alternatives as legitimate substitutes to traditional credentials when evaluating potential hires.  Such employers effectively indicate that a debt-free candidate at age 19 might have the same chance of getting an entry-level position as a debt-laden candidate at age 22.  After initial resistance, other industries will gradually follow suit when they see enough LinkedIn profiles of successful Google employees without degrees.  Eventually, many high-paying careers will require educational preparation that need not be expensive at all.  These careers will in turn pull away bright adolescents from careers that may require massive student loan debt.

This example is particularly effective in demonstrating how the ATOM is self-reinforcing.  The fields that among the most relevant to technological progress, such as Computer Science, are the ones most suitable for being delivered via low-cost, online degrees, attracting more students away from less ATOM-infused fields.  Additionally, the coronavirus pandemic of 2020 may just be the tipping point that moves a large portion of education to the more efficient and pragmatic online model, since many schools and universities have been forced to shutter for months.    

The other dimension of ATOM acceleration of education is personalization through AI.  Classroom-based methods are suited to only one learning style, when there are in fact over 50 different learning styles.  As online educational tools use AI to customize to a student's learning style, the software draws from the experience of all other students of that style to adapt to each successive student, removing the problem of geographical dispersion of people with similar learning styles.  As this sort of AI progresses, the speed of learning for users of such AI could rise 25-50% or more.  

5) The transportation sector is currently a nexus of several simultaneous technological overhauls.  Strong, light nanomaterials are entering the bodies of cars to increase fuel efficiency and safety.  Engines are migrating to hybrid and electrical forms and reducing energy wastage through new design innovations, with electric vehicles now comprising 3% of new cars sold in 2020.  New models of ride-sharing such as Uber will alter assumptions about car ownership while monetizing unused seats.  The declining price of computing ensures that the timeline for luxury features to trickle down to average cars continues to compress.  The $25,000 car of 2025 will be superior to the $50,000 car of 2000 in almost every technical measure.

By many accounts, consumer behavior has altered to where people consider it normal to ‘upgrade’ their perfectly functioning 8-year-old cars to a newer model with better electronic features.  This may seem odd, but people did not tend to replace fully functional television sets before they failed until the 2004-05 thin-TV disruption, and the same product lifecycle dynamic will manifest with automobiles.

By 2032, self-driving cars will be readily available to the average US consumer, and will constitute a significant fraction of cars on the highway.  The savings from self-driving cars will be manifold, from quicker commutes to fewer traffic fatalities to less pressure to widen roads (at a cost of $10M/mile or more).  Self-driving cars will revise existing assumptions about highway speeds and acceptable commute distances.  This effect of a ‘longer leash’ will whittle down real estate prices of expensive areas, which are expensive partly due to pre-ATOM transportation assumptions.

6) The financial services industry currently charges $600 Billion in fees for the $20 Trillion in annual worldwide credit/debit card transactions.  This is a legacy of a structure established in an era when computing power needed to process transactions was expensive.  Today, several ventures are seeking to modernize transactions to eliminate this cut that ensconced incumbents take.  Major financial services companies may see shrinkages in revenue, and will have to innovate and create new value-added services.  The companies that do a better job of this than their competitors will accrue all of the industry profits, while the others will go bust.

Other product areas of ‘Fintech’ involve reducing the hefty costs and fees associated with mutual funds, custom portfolios, and mortgage processing, where a number of startups have already emerged.  On the systemic side, an area of disruption is ‘distributed ledger’ technology.  A distributed ledger enables the formation of Smart Contracts.  Such a capability provides a degree of transparency and incorruptibility that may dramatically reduce the cost of transactional security and contract integrity.  Smart Contracts can automate many forms of contracts that are both expensive and available only in very granular, retail forms.  For example, a lawyer may have a certain contract template, and then charges clients $6000 for each one, with only minimal customization.  If he has 1000 clients over a few years, that is 1000 x $6000, or $6 million in fees.  If 1000 such lawyers all do the same thing, then that is $6 billion in fees charged by 1000 lawyers to 1 million clients.  Instead, a Smart Contract automates all this and delivers it at less than 1/1000th of the cost, eliminating almost $6 billion in cost across the economy, generating technological deflation, and increasing access of this sort of contract to people who were not willing or able to pay $6000 in the old order.  This can be applied to a wide range of contracts, as well as government transactions such as registrations, filings, and the disbursement of benefits and grants.  Many aspects of government efficiency (federal, state, local) could rise 25% or more.  

7) In the healthcare sector, there are a number of disruptions seeking to crack the innovation-obstructing walls erected across the industry in country after country.  This is a major front in the battle between technology and excessive graft/cronyism.  The endless frustration that technology has not yet overcome these barriers to bring cost-deflation and market competition to an industry notoriously averse to them may be at a turning point within a few years.

The cost of genome sequencing plunged by a factor of 1000 in an extraordinary 4-year burst from 2007 to 2011, and is still dropping further.  While this has not yet created proportional cost reductions across other parts of the healthcare sector due to the enabling components being more static, as those costs inch down, more people will sequence their genomes.  From this, networks of common genetic patterns will form by the 2020s.  This will accelerate research around the genetics of disease as medicine begins to take on a ‘search engine’ flavor.  When AI enters the equation, as patients feed symptoms and photographs into some deep learning engine, the engine becomes better at diagnosing ailments, which increases broader usage, which increases the engine’s precision further in a self-reinforcing loop.  A human doctor cannot assimilate the input of thousands of patients dispersed across various geographies, and the engine serving as the AI doctor can be accessed from home, at any hour, and certainly at much lower cost.  As some physicians realize they need to practice medicine in collaboration with these new technologies, the more genome and AI savvy MDs will thrive, while those who still adhere to the paternalistic paradigm will be left behind.  As the medical profession transforms from the greater proliferation of the ‘for patients, by patients’ medium of knowledge, this will begin to lower costs.

Another disruption is surgical robotics, where incisions can be small and precise instead of large enough for the surgeon’s hands.  This minimally invasive approach reduces risks and recovery times of major surgeries by 50-90%.  Intuitive Surgical, the premier manufacturer of surgical robots, currently holds many key patents in this sector.  As their patents expire, the cost of surgical robots will drop greatly as more entrants into the marketplace generate competition and make up for lost time.  As more surgical robots connect to the cloud and begin to incorporate AI, the learnings of any one robot will immediately be available to every other robot accessing that repository of algorithms.

The persistent problem of healthcare innovation being obstructed by excessive government involvement in each transaction is the creation of the perverse situation where technological changes actually increase costs in the short term.  This is because the weight of disruption is not yet enough to generate ‘cracks in the dam’ levels of pressure.  As the scope of technological disruptions eventually becomes too much to regulate, the present disgrace will be overcome and will then finally see costs decline.

8) The energy sector is in the midst of numerous long-overdue disruptions that would take several pages to fully describe.  The compound effect of multiple disruptions has introduced competition between sectors that were previously unrelated, in a superb example of how the ATOM works.  

In one of the most important predictions at The Futurist, I predicted, in early 2011, the permanent decline in oil prices, on account of Third Millennium Economic principles.  Oil is unlikely to rise above $70/barrel for a very long time, if ever.  

Electrical vehicles displace oil consumption with electricity, even while the electricity itself starts to be generated through solar, wind, and ultra-low-cost natural gas from hydraulic fracking technology.  Photovoltaics (PV), in particular, has been following a steady price decline trend for over 40 years under Swanson’s Law, and is soon going to be the most cost-competitive form of electricity in the lower latitudes that contain most of the world’s population.  Note the logarithmic scales on both axes of this chart, indicative of exceptionally rapid progress even by ATOM standards.

The electrical economy will be further transformed by revolutions in lighting and batteries, which will lower electrical bills, enable more accessibility to electricity in developing nations, and smooth out spikes that arise from supply-demand mismatches.

The creative destruction in energy will extend to the geopolitical landscape, where we see many petrostates much weaker in 2020 than they have been in decades.  Eventually, very few countries will be reliant on energy that originates further than 2000 miles from their own borders, and the practice of transporting liquid hydrocarbons to another hemisphere will be seen for the strange historical aberration it is.

9) After decades of stagnation, space exploration is finally seeing a handoff from being the exclusive endeavor of 3-4 major governments to being a target for private enterprise.  Private spaceflight is becoming cost-effective through companies like Elon Musk’s SpaceX.  From these flight capabilities, asteroid mining might be a decade away from yielding trillions of dollars of valuable elements from nearby asteroids, which will of course crush the price of valuable metals on Earth, facilitating new industrial applications and more technological deflation.  There is a particular interest in heavier (i.e. precious) elements that are rare in the Earth’s crust (having sunk to the center) but more common within certain asteroids due to lower mass and thus gravity.  This could collapse the price of gold, platinum, and other metals due to the supply increase.

3D Printing adapted for space can construct elaborate structures in space itself merely by refilling the orbiting printer with printing filament, which is far easier than launching finished products from Earth.  Large, orbiting mirrors might serve to reflect sunlight towards a desired location on the Earth’s surface, such as onto a major city during nighttime.  The progress in semiconductors, storage, batteries, and data transmission is particularly valuable for space as it permits satellites and probes to shrink down to a mass that can be launched without rockets, while wireless software updates can upgrade them continuously from Earth.  We are about to have thousands of times as many images from space, of objects never before imaged in such detail, as we have had in the past.  

10) E-commerce is not new, and was the basis of the 'dot-com bubble' of the Y2K era.  However, the real value of e-commerce is not the mere ability to save retail overhead costs and have products delivered to the home.  There is a second layer of value that is only being realized now, twenty years after the first wave.  This value is from the data collection inherent to e-commerce.  It has been long known that companies like Google and Facebook provide their products and services for 'free' because they monetize user data.  Amazon does this too, even though its products are not free.  Amazon and other e-commerce retailers thus have the ability to undercut brick and mortar retail even further without incurring a loss, as the data layer is a second source of money. 

E-commerce, prior to the coronavirus crisis, was about 12% of total US retail, and the coronavirus quarantine pushed it higher.  Even after the crisis abates, it may stay at a permanently higher level on account of this fast-forwarding of growth.  The shift away from brick and mortar retail has many effects, particularly in the United States, where allocation of land to physical retail is far higher than in most other countries.  This land will have to be repurposed, which is a huge dividend of new land available for pressing contemporary uses, such as housing.  Local governments are not dynamic enough to modernize zoning ordinances and permits to enable the free market to repurpose this resource at market speeds, so there could be disruptive pressure on this front as well, due to the gales of creative destruction unleashed by e-commerce's inexorable rise.  The entire concept of suburbia, within a US context, will have to be reoriented and reimagined.  

 

These disruptions are just some of the examples in the pipeline for the next few years, shaking the foundations of old, rigid structures.  The ATOM Award of the Month (ATOM AotM) chronicles such disruptions across every possible sector, as well as their linkages to seemingly unrelated technological disruptions.  The common theme among all of them is their deflationary nature, and their process of destroying certain types of jobs while creating other jobs elsewhere at higher renumeration.  This is creative destruction at its finest.

The typical process of creative destruction results in X wealth being destroyed in one sector, while 2X, 3X, or more wealth is created instead by different people in different sectors.  For each of the disruptions listed above, ‘X’ might be a trillion dollars or more.  Yet that is not even the best part, for each disruption exerts a reinforcing effect on every other nascent disruption, as each are dynamic components of the broader ATOM, and hence Third Millennium Economics.

 

All Technological Disruptions are Interconnected :  In the midst of a technological disruption, neither the incumbents nor the disruptors pay much attention to parallel creative destruction in distant industries and countries, under the assumption that it is entirely unrelated.  On the contrary, my proprietary research has discovered that all technological advancement, and all creative destruction, is interlinked by varying degrees of distance.  It is not a constellation of many isolated techno-centers operating in different industries and geographies, but one unified ATOM, where one successful cycle of creative destruction strengthens the prospects of each subsequent candidate technology in the pipeline, and the aggregate economic volume of such disruption rises exponentially.

One of best examples of this can be illustrated by returning to the example of the crude oil market.  When oil prices began to rise around 2004, various people who project every trend linearly from a rear-view mirror analysis descended into hysteria about ‘peak oil’, with some going so far as to insist that economic prosperity would regress back to that of the 19^th century once oil became 'too expensive'.  By contrast, technologically and economically literate observers were untroubled, since they knew that higher oil prices would necessarily cause a market response across the entire phalanx of mitigating technologies from every direction.  Drillers worked to improve their hydraulic fracking methods.  Material scientists worked on lighter yet stronger materials for cars.  Battery innovators worked to increase charge duration.  Engine designers worked to increase engine efficiency through a re-imagining of the humble spark plug.  Each group represented a component of a holistic response to expensive oil prices.  As each column advanced on the problem from a different direction, speeding up as oil got more expensive, there was never any real chance of oil staying significantly above $110/barrel for a lengthy period, and as of early-mid 2020, it is down to a mere $20-25/barrel after years of ongoing disruption of oil supply and demand.  Gold and copper may seem to have no relation to oil, but the same process of disruption manifested there as well.  The high price of gold created a larger market window to prospect for more supply, and aerial drones increased prospecting efficiency by orders of magnitude in remote locations.

A second example, which happens to be imminent, is the retail sector of India.  Anyone acquainted with India knows that the retail experience is still of a 19^th century nature, with inconvenient layouts, cash payments, rude haggling, and prices varying by over 50% between merchants less than 100 meters apart.  The supply chain is so inefficient that half of all fruits and vegetables rot before reaching the point of sale, and routine shopping that may take an hour in the US takes half a day in India.  Since these ‘mom and pop’ operations are a powerful voting block, the government has erected steep barriers to obstruct the entry of foreign retail chains such as Wal-Mart and IKEA.  These multinationals would, by their very operating presence, improve infrastructure, logistics, and price competition across India, yet this overdue progress is being thwarted through electoral politics.  The ATOM, in response, has merely redirected to move the disruption to a higher, broader plane.  If international-grade brick and mortar retail is being obstructed, that makes it simultaneously easier for e-commerce to emerge.  If landline Internet proliferation was not rapid enough, the smartphone delivered wireless Internet access deep down the pyramid, which in turn made e-commerce accessible.  This is one of the great examples of how the ATOM invariably bypasses obstructions in proportion to how stifling they are.  In India today, the e-commerce sector is projected to grow at over 30%/year for the next few years, enabling an improvement across roads, consumer finance, and marketing, that otherwise was progressing at the most sclerotic of rates.

The same principles apply to more widely dispersed areas of innovation.  As described above, many poorer countries are resistant to the implementation of even 20^th century technologies.  But as one product, the smartphone, managed to percolate through the dense barriers to reach people with no prior Internet access, cracks began to emerge in the technological time-capsules that such societies represent.  Many other technologies are now gaining a long-overdue foothold even there through this new conduit of ATOM transmission.  Apps to facilitate education, health, agriculture, and transportation can easily spread to a huge number of people who were far below the economic threshold one previously associated with advanced technology usage.  Since the smartphone is often the first electricity-consuming device for some of these rural users, it forces the emergence of a power grid where there was none before.  The government ineptitude that failed to provide electricity is bypassed by the decentralized nature of photovoltaics and the rapid price declines seen under Swanson’s Law.  This in turn creates electrical power that in turn enables other devices to be used in these areas for the first time.

What this demonstrates is that the ATOM has a certain aggregate amount of disruptive capacity that rises each year with accelerating rates of technological progress.  More specifically, the magnitude of each individual disruption at a particular time determines how much of the ATOM is occupied until the disruption manifests, after which that portion of the ATOM moves on to the next disruption.  By monitoring and measuring the various instances of creative destruction underway at any given time, one can estimate both the size of the ATOM and the force it will exert on subsequent disruptions once the completion of current disruptions frees up ATOM capacity.  If toppling a formidable problem like $110+ oil occupied a substantial fraction of the ATOM for over 7 years, then the completion of that disruption frees up that portion of the ATOM for the next one.  This could be one similarly huge obstacle or a dozen smaller ones.

Under the concept of human civilization merging with technology prophesized by Ray Kurzweil, this could be the early evidence of a unifying fabric of technology that leads to a ‘Technological Singularity’ in a few decades time.  While that topic is beyond the scope of this publication (see my Singularity article here), what is apparent now is how a pipeline of disruption, and the allocation of the ATOM between them based on how sweeping, complex, and ‘due’ the disruption is, can be estimated.  This provides a path to more precise forecasts.

 

Creative Destruction and Human Collateral Damage :  While the gains of wealth and productivity look excellent at the highest level of macroeconomic statistics, the human cost incurred by the sifting sands are a different matter.  By current trends, the US economy seems mired in a long-term status quo where vanishing industries force many laid off workers to start in new industries at the entry level for half of their previous compensation.  The net new wealth created by the new industries often does not reach the average household.

One could declare that income diversification is the golden rule of the early 21st century, and those who fail to create and maintain multiple streams of income are imperiling themselves.  In such a climate, the best career one can embark on, which will never be obsolete, is that of the serial entrepreneur.  This is true, but not everyone is cut out to be an entrepreneur, or has the cushion of savings that could enable them to pursue entrepreneurship.  Furthermore, the current tax code is not friendly towards entrepreneurship at all.  Hence, only a fraction of the people who could succeed as entrepreneurs are in fact full-time entrepreneurs.  

The US citizenry often sees a baffling paradox of weak employment and low labor force participation despite high corporate earnings growth.  Technological disruption is blamed for this without simultaneously being praised for the new jobs it creates.  Big paydays for entrepreneurs will make the headlines frequently, right alongside stories of people who saw their entire profession vanish and have not found new employment for years.  This has been sheepishly designated as the ‘new normal’, complete with an industry devoted to directing opprobrium to designated scapegoats.  But given what we have seen about the accelerating rate of economic growth, this is certainly not where the trendline should have delivered us by now.

Amidst these sweeping waves of technology, human society is stratifying.  Some people find this creative destruction to be exhilarating, while others find this to be extremely stressful.  Given how complicated and unpredictable these economic reorientations appear to the majority of people, the role of government has to be to cushion the process of creative destruction in a very agnostic yet acceleration-aware manner.

Ultimately, the ATOM has an economic effect analogous to a double-edged sword.  Technology leads to ever-rising rates of economic growth, but also causes disruptions that lead to stress and uncertainty.  If only there were a set of ideas that could enhance the former while minimizing the latter properties of technology.  If we could monetize the accelerating rate of technological change in a manner that reduces, rather than increases, the dislocation stresses that workers face from this process of creative destruction.  Despite this, the last thing the government should do is attempt to pick winners and losers, for this is a moral hazard that weakens the system and the faith that people have in it.  Fortunately, there are a few solutions available, both comprehensive and efficient.

Continue to : 4. The Overlooked Economics of Technology

Comments

[MSimon]

I became an aerospace engineer sans degree in '86. I was an early adopter. My education? Books. Magazines. A home electronics lab.

[Geoman]

"smartphone now has a camera, storage, music player, calculator, alarm clock, and GPS system within it" Guess what killed Radio Shack?

[Geoman]

I should add, I have an Apple 5 phone. The 6 is better....but why bother?

Again, as I posted before, infinite growth requires infinite needs. And My iPhone 5 pretty much does everything I could ever want. I have a hard time imagining buying a faster, better phone. How many nanoseconds must be shaved from search?

We may be satisfied before we reach the technological limits, which may in turn slow progress and growth.

[Geoman]

The jobs that will be lost will be on the menial end of things - fast food, truck driving, etc. People don't realize we manufacture just as much as we ever did, but with fewer and fewer people. Offshoring will end once the robots come, but entire factories will be run by a dozen people.

There will become a class of people nobody wants - the unintelligent and uncreative. The only solution I can see is a universal minimum income. Or perhaps a requirement for a certain number of community service hours for each person, in exchange for a paycheck.

I have noticed a distinct rise in blue collar love - shows about people renovating houses, cutting logs, mining. We become ever more jealous of people not slaved to a computer. People who can work with their hands will be considered part of the upper class, while keyboard surfers will be relegated to the soon to lose their jobs....I guess my point is, it doesn't have to be the way most people imagine - the guy fixing a toilet may become the most valuable commodity in an accelerating world...

A valuable commode commodity...

[Kartik Gada]

Geoman,

People don't realize we manufacture just as much as we ever did, but with fewer and fewer people.

Yes. See Chapter 4, and the '$10 Trillion of output with one person employed' line.

The only solution I can see is a universal minimum income.

Hence the DUES, and the exponentially rising nature of it. Remember that when two gang-member teenagers shoot each other, the cost to the taxpayer is several times more than the two shooters could ever generate in their lives. DUES somewhat reduces that.

We may be satisfied before we reach the technological limits, which may in turn slow progress and growth.

The world is still only at $11,000 per capita PPP, so there is a lot more growth to go on a worldwide basis, even if only to elevate emerging markets to US levels. The question is whether that is the ceiling, and the US is near to it.

To examine that, think of how when a product category saturates, new ones arrive to generate new demand. The desktop PC saturated as you described, then the laptop (which used to be much more expensive), now the phone and tablet. VR is the next big consumer hardware category, and will generate hundreds of billions of $ of new revenue until it, too, reaches a plateau, and so on.

When more health treatments emerge, they will be expensive but the wealthy will spend money on them, as another example of new demand..

I see relatively few wealthy Americans deciding to stop working. The vast majority of them keep on going, long after they have no financial reason to...

[Geoman]

"I see relatively few wealthy Americans deciding to stop working. The vast majority of them keep on going, long after they have no financial reason to..."

Well, you see the people that make that decision, what you don't see are those that chose not to continue. I know several, including 2 cousins that basically decided at 50 to take up golfing since they had more than enough money to service their needs indefinitely.

[Kartik Gada]

I know several, including 2 cousins that basically decided at 50 to take up golfing since they had more than enough money to service their needs indefinitely.

That is still uncommon, as a percentage. Plus, don't underestimate how many of them would go back to work if the income tax rate were zero and NGDP was 6-7% rather than 3%. If any of them have any alimony or child support obligations, however small, that further forces a decision like the one you described.

There were tons of books written in the 19th century about how when basic necessities were met for most people, most would stop working (and the definition of basic necessities at the time would seem very modest today). That did not happen.

Plus, you are forgetting :

1) The DUES is not that large for a long time yet. It is only $400/month in 2016, and does not rise to $100,000+ until the mid-2030s.
2) In America, 75% of all govt. spending is already a transfer between individuals. Your complaint has to take into account from what baseline we are starting.
3) Income taxes going to 0% changes everything, incentive-wise.
4) A fear of too many people choosing not to work is mutually exclusive with a fear that too many jobs are being replaced with automation.

Consider the combination of all factors.

[fatcat]

"I see relatively few wealthy Americans deciding to stop working. The vast majority of them keep on going, long after they have no financial reason to..."
The moment you can have meaningful life extending treatments for the super reach
They can find very real motivation as literally their lifes will depend on their income. Say you can grow an artificial heart/ling/leaver for 10 million dollars. Suddenly, a net worth of 5mil is if not life threatening at least not so comfortable in and guaranteed to cover all your essential experiences

[Drew]

Re-reading,one thing that leaps out at me is "since education is just another form of information and thus governed by the same forces of transmission as other information technologies" as an incorrect assumption - there was a long emphasis on people reading books and learning from them, but the goal was transformation, even if the more common result was sorting, credentialling and often warehousing people. Sorting and credentialling are information activities, but transformation and warehousing are not. This is the area that we have been waiting for the snap back the longest, and even now, the trouble the higher education industry is not facing is better alternatives, but that credentialling is less useful as it becomes more and more common - and thus contains less useful information.

[Drew]

*is now facing is not better alternatives

[Kartik Gada]

Drew,

The process of education has increased in accessibility and lowered in price. However, for some students, college is a luxury consumption good (further confirmed by the recent scandal), so they are not price-sensitive. But the fact that admission was the only hurdle, and even very subpar students faced no risk of not graduating further exposes how decoupled the credential has become from a) education, and b) rigor.

[DTM]

I like these arguments but I come back to two concerns.

The first is that of limited physical space and resources. We can all have the fancier gadgets, but there isn't room for everyone to have a detached house in the city. Your point about self-driving cars opening up longer commutes and thus more land is a good one, but it brings me to my second concern:

Whatever efficiencies we find to meet a physical-resource-limited need will cause an increase in population such that the per capita need will return to the pre-efficiency-finding level. More land I can commute to, that's good, but once it's all bought up how does that help the next generation who is priced out?

Higher density housing is a practical option of course, but it is a decrease in quality of life, which if I understand right this philosophy doesn't necessarilly call for.

Do you see any natural limits to population, and thus its ability to neutralize the per capita quality of life improvements coming from efficiency gains?

Apologies if you cover this in more detail later in the series.

[Kartik Gada]

DTM,

Whatever efficiencies we find to meet a physical-resource-limited need will cause an increase in population such that the per capita need will return to the pre-efficiency-finding level.

Excluding SS-Africa, the entire rest of the world combined is at sub-replacement fertility rates.

The US, at least, is nowhere close to this problem. Remember, not everyone dislikes higher density. Single people like it more (more new people to meet), and fewer and fewer people are marrying at all.

Do you see any natural limits to population,

In theory, yes, but as the RoW excluding SS-Africa is already below replacement rate, this is not a worry.

[DTM]

That is heartening about overall population growth.

I do take your point that some like density, but in crowded tech centers like SF, Boston, and Toronto the demand for less dense housing far outstrips supply. Cities like that by the way are the problematic cases; even if worldwide opulation is plateauing, the populations of those cities are growing because that's where jobs can be found.

Perhaps in the future tech jobs will no longer cluster in a few major cities? I know that tech tends to cluster because employers and employees are drawn to the large available pools of each other, but I've often wondered why some companies don't move to an area with cheaper COL, pay 2/3 as much (with which their employees can live like kings), and proceed to destroy their competition.

[Kartik Gada]

DTM,

We were having exactly this discussion on the main blog :

https://www.singularity2050.com/2019/12/comment-of-the-year-2019.html