The Rise of the Machines

Advances in AI, supported by incredible advances in mechanics, have brought us seemingly to the brink of two huge milestones in the history of the human race –  the automation revolution and the adoption of renewable (bottomless, not limitless) energy.  The 20th century saw us harness machines to leverage our physical capabilities thousandfold, capped by the internet age which has made worldwide communication instantaneous and made all of man’s knowledge and experience ubiquitous.  Now we are about to step into a new age in which technological advances make manual labor and low-level human control obsolete, and bring plenty to all.  This will be a time when the lowest two tiers of Maslow’s Hierarchy of Needs – physiological and safety – will be, by default, satisfied.

Source: https://upload.wikimedia.org/wikipedia/commons/thumb/3/33/MaslowsHierarchyOfNeeds.svg/2000px-MaslowsHierarchyOfNeeds.svg.png

The two tiers at the bottom mainly consist of the basic supply chain activities – production, sales, and delivery.  When machines replace us humans in carrying out these activities, we should enjoy an exponential improvement in performance.  On the other hand, we will need even more copious amounts of energy to power the machines.  Amazingly, it seems that we have reached the point where we have figured out all the pieces, at least in principle.

Production – Automated factories are not new, but they are becoming ubiquitous.  Especially with the advent of 3D printing, the precision of computers and robots is the enabling factor for modern mass-production.  Hopefully, there will always be a role for the human to play, perhaps in esthetics-related areas such as finishing and quality control.  On the other hand, did you know that you are the first human being to see a LEGO block when you open the package?  And it’s not just factories that are automated; robots and drones are becoming commonplace on traditional farms, and state-of-the-art greenhouses and hydroponic facilities need perfectly-tuned computer management to function at their ultra-high efficiency levels.  Even in your own home, when it comes to something like cooking a great cut of beef sous vide, who needs ya!

Sales – Once you make the gizmo or grow the carrot, you need to get it into the hands of the consumer.  The front-end, profit-making part of this is the retail business.  Amazon and eBay have demonstrated that the web is the best salesman in town.  Automated self-checkouts are common in modern supermarkets and are even set to squeeze out the legions of students and senior citizens manning the counters at McDonalds and all your other favorite fast-food joints.  I’m generalizing but not exaggerating when I say that I can make a better buying decision by spending 15 minutes on the internet than by spending 2 hours with 98% of salespeople that I run into.

Delivery – Amazon and drones.  Say no more.  Actually, I’m still not too comfortable with the drone thing, mainly because I believe that low-altitude flight is too complicated to leave to machines, at least for now.  I’m not talking about getting a cruise missile to hit within a 1-meter target zone, but rather getting a drone quadrotor to maneuver around my neighborhood airspace and safely drop off a package on my front doorstep without crashing into a tree, my roof, my dog, or my kid – and just try and get my signature!  Yet, I suppose that it’s only a matter of time until they figure out how to control and maneuver the drones with the required amount of precision.   And as for rail and road transport, I’m all in favor of letting the robots drive.  I’ve had a couple of near-miss experiences involving motor vehicles and stupid drivers and that’s plenty to convince me.  As an aside…  I’m not a big fan of Uber as an alternative to taxis, but wouldn’t I love it if I could simply summon a robot vehicle to deliver something (whether it be human or non-human cargo) at the press of a button.

Energy – The ongoing shift away from fossil fuels towards solar and nuclear power will eventually reach the point where the cost of energy is, for all intents and purposes, insignificant.  Some estimates indicate that the amount of terrestrial surface area needed to power the world solely by zero-emission solar is, simply, no big deal.  Of course, the huge challenges to installing world-scale solar generation facilities are economic and political.  That said, massive solar farms are becoming quite a thing.

The Human Factor – Many are hopeful and optimistic that the human factor will continue to be essential, possibly in areas such as design, planning and management  However, it may not be unwise for us to take a prudent approach in preparing to take our places in the future economy.  How likely is it that a machine will be able to do the job better/faster/cheaper than me?  The answer may be shocking!

So, the stage is set for the Rise of the Machines.  Will humanity face an existential crisis?  Let us hope not.  But certainly, and shortly, we are going to witness some incredible changes to the mode of human existence on planet Earth.  Among the possible developments may be a fundamental change in the cost of things… in fact , the cost of everything, including money.

The Low Interest Rate Trap

You know, back in the day, a 25 basis point rate hike was usually just one step of many in a tightening cycle of, say, 2 to 2.5%.  Accordingly, you would expect that the actual economic impact of a single 25 bp hike would be slight and most likely outweighed by the impact of the signalling effect.  Furthermore, interest rates would have been anywhere from around 5% to 10% (or even pushing 15% in Canada back when I was a kid), so interest rate duration wouldn’t have been a major factor.

Now, however, the Fed says that it can’t pull off a single 25 basis point hike without pushing the economy into the abyss.  What the heck?  Sure, the first rate hike seems scary because it will be only the first of a series, and interest rate duration is higher now that rates are around zero.  A rate of hike 0.25% is still potent and fearful … not to be used indiscriminately.

Come on… 25 basis points is only 25 cents on $100.  Let’s say that I lend you $100 at first interest-free, and then I want to charge you 25 whole cents a year interest, but you can’t take it…  Well, this is just a variation on the old saying that if I owe you $100,000 it’s my problem, but if I owe you $100,000,000 it’s your problem!  An economy that can’t handle a 0.25% interest rate hike without keeling over is an economy that has serious, serious issues.

And while 25 bp on the upside looks like a bullet to the temple, all the helicopters in the world seemed to have accomplished zilch in stimulating growth.

Many observers believe that the global economy has fallen into an enormous poop hole, tarted up by the cosmetic effects of phony money and good-looking statistics (otherwise known as lies and damned lies).  To make things worse, this poop hole is in uncharted territory.  This is the kind of situation where we fear to look in the mirror and see how deep in poop we really are.

Final thought:  How did we get into this situation?  I believe it’s all about globalization and the information revolution.  Those led us into this mess…. perhaps they also will point to the way out.