20 April 2014
A couple of recent articles in the Financial Times about the global debt market caught my attention. On Wednesday 16 April 2014 the FT ran “Risk seekers seize the day in South America: Investors are being drawn to bond issues in Argentina, Venezuela and Ecuador,” by Benedict Mander. Nation-states with very troubled financial histories (such as the three named) are not only able to sell their debt, but the writer says that Argentina, “has admitted to receiving loan proposals from international investment banks after local media reported that it was negotiating a $1bn loan from Goldman Sachs.”
Mander’s article also mentions the return of the “carry trade,” that is to say, borrowing money where it is really cheap and loaning it out again where money comes dear. During those years when Japan was loaning money at an effective zero rate, the carry trade was big business, as that zero percent money could be re-lent at 5 or 6 percent elsewhere. In my previous post, Rhine Capitalism, I discussed German bankers trying to present themselves as humbled and chastened by the past financial crisis, welcoming regulation as the price of stability. But that’s not the message we’re getting from the Financial Times, where we find a detailed record of the reconstruction of spectacularly risky financial schemes that will, in due course, have their day or reckoning.
On Thursday 17 April 2014 the FT ran “Investors get selective as frontier debt rush slows: Buyers of poor countries’ bonds are becoming more careful about risk vs reward,” by Elaine Moore, which discusses the “exotic debt” of nation-states such as Sri Lanka, Pakistan, Ghana, and Nigeria (also called “frontier markets”). Dollar-denominated bond issues in such unlikely places as sub-Saharan Africa find plenty of takers, though rates vary from country to country. The article states:
“Internal conflicts, political instability and poor credit records are all being factored in, but what economists say is really propelling the increasing differential in yields between borrowers is the knock-on effect of China’s economic evolution.”
It seems that China’s transition from an export-led growth model to a consumer-led growth model based on internal markets is re-configuring the global commodities markets, as producers of raw materials and feedstocks are hit by decreased demand while manufacturers of consumer goods stand to gain. I think that this influence on global markets is greatly overstated, as China’s hunger for materials for its industry will likely decrease gradually over time (a relatively predictable risk), while the kind of financial trainwreck that comes from disregarding political and economic instability can happen very suddenly, and this is a risk that is difficult to factor in because it is almost impossible to predict. So are economists assessing the risk they know, according to what Daniel Kahneman calls a “substitution heuristic” — answering a question that they know, because the question at issue is either too difficult or intractable to calculation? I believe this to be the case.
In Monday’s Financial Times (which is already out in Europe, so I have read it over the internet but haven’t received my copy yet) there is another debt-related article, “Eurozone periphery nurses debt wounds” (by Robin Wigglesworth in London). This article mentions, “the high demand for peripheral eurozone debt in recent months,” which would seem to be a part of the above-mentioned trend of seeking out higher rates of return and accepting higher risks in order to get those higher rates.
These are perfect examples of what I recently wrote about in Why the Future Doesn’t Get Funded, namely, that there is an enormous amount of money looking for a place to be invested, and that nation-states are pretty much the only thing on the planet that can both soak up that kind of investment as well as being sufficiently familiar to investors — the devil they know — that the investors don’t balk when offered high returns even in a risky debt market.
What is the lesson here? Is it simple investor greed that sees 8 percent and can’t resist? In the cases of Venezuela and Argentina, we have nation-states that are not only politically and economically unstable, but these countries have governments that have spectacularly mismanaged their respective economies, along with a history of nationalizing private assets. This mismanagement is now being rewarded by the global financial community, not least because investors are so worried that they might miss an opportunity. But if events go south while your money is invested in Argentina, you may well find yourself expropriated of your wealth and excoriated by a populist regime (those holding out for payment on the last defaulted bonds have been called “vulture funds”). What kind of rationalization hamster runs its endless cycles in the investor’s brain, convincing them that they can get a few years of eight percent on a billion dollars — which is nothing to sneeze at, being 80 million dollars a year — before the situation collapses, like it did for earlier investors?
There are all kinds of visionary projects that could be funded with this money — projects that would advance the prospects for all humanity — and perhaps at a rate of return not less than that offered by “exotic debt,” but the Siren Song of nation-state debt issues paying at 8 percent or better is too great of a temptation to resist. So why do uncreditworthy nation-states get billions while business enterprises and private opportunities go begging? It is an interesting question.
It is a bit facile (even if it is also true) to point out that most nation-states fall into the category of “too big to fail,” and that the international community will bail them out time and time again, no matter the level of corruption or mismanagement. (We hear constant talk about the evils of “austerity,” and about the terrible things that the IMF and the World Bank are doing by lending these poor, long-suffering nation-states more money, but very little about the evils of the profligacy that necessitated the austerity.) This is a bit too facile because even small nation-states, the default of which would not be particularly ruinous, often receive similar treatment. What’s going on here?
There is more at work here than merely shoddy lending practices that are opening up entire classes of investors to risks that they do not understand. This is an artifact of the international nation-state system that prioritizes the impunity of nation-states, whether in regard to human rights, economics, or any other measure you might care to apply. Nation-states are not held to account, and because they are not held to account they have become reckless. For the institutional investor looking for a place to park a few billion dollars, even severely compromised nation-states may appear to be the only game in town. I won’t hold my breath for the day when one of these institutional investors will put their money into some more productive, less reckless investment instrument, but I won’t stop hoping either.
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18 April 2014
Thursday’s Financial Times included a special supplement on “Frankfurt as a Financial Centre,” and this supplement included the article “Deutsche Börse hopes that its philosophy has global appeal.” And what is the philosophy of Deutsche Börse AG? According to chief executive Reto Francioni, the philosophy of Deutsche Börse AG is “Rhine capitalism.” So what is Rhine capitalism?
Here is a quote from Reto Fancioni from the Financial Times article that employs this interesting formulation:
“We share the same basic belief that the market economy also has to fulfill a social obligation, and that the ‘Rhine capitalism’ model of an economy buffered by corporations and focused on the long term, with strictly regulated markets — which are free for that very reason — is fundamentally superior to the Anglo-American capitalism model of deregulation.”
Further along in the same article we find the following:
[Deutsche Börse AG] hopes that its philosophy of a capitalism based on long-term careful planning will find a more receptive audience worldwide.
If you take a minute to read the mission statement and core values on the Deutsche Börse AG website you will find the usual corporate platitudes, though the following sentence underlines the quotes above from the Financial Times article:
We stand for integrity, transparency and the safety of capital markets. We support regulation that advances these qualities.
A New Year’s reception speech by Reto Francioni on the Eurex Group site repeats some of his thoughts on “Rhine capitalism” in a slightly different context. After stating his strong support for the European idea — saying that “there are no alternatives” to a united Europe — Francioni goes on to say:
…we share the same basic belief that the market economy also has to fulfill a social obligation and that the “Rhine capitalism” model of an economy buffered by corporations and focused on the long term, with strictly regulated markets — which are free for that very reason — is fundamentally superior to the Anglo-American capitalism model of deregulation.
This very interesting claim, however, was preceded in the speech by this…
I am a fan of good regulation. But I stress the word “good”, meaning professional. After all, we are involved in a global competition in regulation.
The US remains a pioneer in many respects… They are ahead of us in re-regulation of capital markets and they made use of the crisis to rapidly create new and effective banks and stock exchange
organisations which have been strengthened through mergers and disciplined through sanctions.
Francioni really sounds like he’s trying to have it two ways here: he acknowledges that the US is ahead of Europe in re-regulation but then also holds that “Rhine capitalism” is distinctive because it does not endorse the Anglo-American model of deregulation. So which is it? Is the US leading in re-regulation, or is it guilty of a reckless deregulation that stands in stark contrast to “Rhine capitalism”?
Francioni is talking like a politician when he talks about Rhine capitalism embracing regulation and being the stronger for it while saying that there is a global competition in regulation so that “good regulation” is called for. I doubt that you could find an Anglo-American banker who would have anything but praise for “good” regulation. For this statement to have any content at all it would need to explain the difference between good regulation and bad regulation, preferably citing actual examples of each.
Setting aside Francioni’s double-speak about regulation, what are we to understand by “Rhine capitalism” on the basis of his public pronouncements? We can include within “Rhine capitalism” at least the following:
1. the market economy has social obligations
2. corporations “buffer” the market economy
3. the market economy should be focused on the long term
4. the market economy should be strictly regulated
5. free markets are free in virtue of being regulated
6. regulation of the market economy should be professional
All of these are nice ideas, but they all beg the question. What are the social obligations of a market economy? Are they the obligation to increase the wealth of a society, or to attempt to impose an elusive “safety” and “stability” on markets? How do corporations “buffer” the market? Are corporations to have privileges over and against sole proprietors and partnerships in their role as market buffers? Or is this rather a veiled criticism of the role of private equity? What is the long term for Rhine capitalism? Are we talking about ten months, ten years, or ten centuries? I certainly don’t see in Europe (not to speak of the Rhineland) any more willingness to fund the future than I see in the US. What is a strict regulation, and how are we to distinguish between good and bad regulation? Between professional or unprofessional (amateurish?) regulation? How much strict regulation means that a market is free in virtue of its regulation?
Although I don’t expect that my questions will be answered, I don’t ask them merely rhetorically. I really would like to know exactly what “Rhine capitalism” is, though I think the key to understanding the idea is this: Rhine capitalism is not Anglo-American deregulation. In other words, whatever the British and Americans are doing, we aren’t doing, but we’re still capitalists.
I worry that, in the wake of a devastating financial crisis, European bankers selling themselves to a suspicious public now focused on resentment of “the one percent” by defining “Rhine capitalism” as a vague alternative — the one thing that is clear is that it is not Anglo-American deregulation — are really selling a bill of goods. Francioni offers all kinds so reassuring ideas about a carefully planned, strictly regulated market that fulfills social obligations, but we are right to be suspicious of this in the same way that the working class is right to be suspicious of wealthy bankers. Bankers who claim to do good usually end up making a mess of things, and the bankers that usually benefit society the most are those than focus on making the most money.
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15 April 2014
Why be concerned about the future? Will not the future take care of itself? After all, have we not gotten along just fine without being explicitly concerned with the future? The record of history is not an encouraging one, and suggests that we might do much better if only provisions were made for the future, and problems were addressed before they become unmanageable. But are provisions being made for the future? Mostly, no. And there is a surprisingly simple reason that provisions are rarely made for the future, and that is because the future does not get funded.
The present gets funded, because the present is here with us to plead its case and to tug at our heart strings directly. Unfortunately, the past is also often too much with us, and we find ourselves funding the past because it is familiar and comfortable, not realizing that this works against our interests more often than it serves our interests. But the future remains abstract and elusive, and it is all too easy to neglect what we must face tomorrow in light of present crises. But the future is coming, and it can be funded, if only we will choose to do so.
Money, money, everywhere…
The world today is awash in money. Despite the aftereffects of the subprime mortgage crisis, the Great Recession, and the near breakup of the European Union, there has never been so much capital in the world seeking advantageous investment, nor has capital ever been so concentrated as it is now. The statistics are readily available to anyone who cares to do the research: a relatively small number of individuals and institutions own and control the bulk of the world’s wealth. What are they doing with this money? Mostly, they are looking for a safe place to invest it, and it is not easy to find a place to securely stash so much money.
The global availability of money is parallel to the global availability of food: there is plenty of food in the world today, notwithstanding the population now at seven billion and rising, and the only reason that anyone goes without food is due to political (and economic) impediments to food distribution. Still, even in the twenty-first century, when there is food sufficient to feed everyone on the planet, many go hungry, and famines still occur. Similarly, despite the world being awash in capital seeking investment and returns, many worthy projects are underfunded, and many projects are never funded at all.
What gets funded?
What does get funded? Predictable, institutional projects usually get funded (investments that we formerly called, “as safe as houses”). Despite the fact of sovereign debt defaults, nation-states are still a relatively good credit risk, but above all they are large enough to be able to soak up the massive amounts of capital now looking for a place to go. Major industries are also sufficiently large and stable to attract significant investment. And a certain amount of capital finds itself invested as venture capital in smaller projects.
Venture capital is known to be the riskiest of investments, and the venture capitalist expects that most of his ventures will fail and yield no returns whatever. The reward comes from the exceptional and unusual venture that, against all odds and out of proportion to the capital invested in it, becomes an enormous success. This rare venture capital success is so profitable that it not only makes up for all the other losses, but more than makes up the losses and makes the successful venture capital firm one of the most intensively capitalized industries in the world.
Risk for risk’s sake?
With the risk already so high in any venture capital project, the venture capitalist does not unnecessarily court additional, unnecessary risks, so, from among the small projects that receive venture funding, it is not the riskiest ventures that get funded, but the least risky that get funded. That is to say, among the marginal investments available to capital, the investor tries to pick the ones that look as close to being a sure thing as anything can be, notwithstanding the fact that most of these ventures will fail and lose money. No one is seeking risk for risk’s sake; if risk is courted, it is only courted as a means to the end of a greater return on capital.
The venture capitalists have a formula. They invest a certain amount of money at what is seen to be a critical stage in the early development of a project, which is then set on a timetable of delivering its product to market and taking the company public at the earliest possible opportunity so that the venture capital investors can get their money out again in two to five years.
Given the already tenuous nature of the investments that attract venture capital, many ideas for investment are rejected on the most tenuous pretexts, rejected out of hand scarcely without serious consideration, because they are thought to be impractical or too idealistic or are not likely to yield a return quickly enough to justify a venture capital infusion.
Entrepreneurs, investors, and the spectrum of temperament
Why do the funded projects get funded, while other projects do not get funded? The answer to this lies in the individual psychology of the successful investor. The few individuals who accumulate enough capital to become investors in new enterprises largely become wealthy because they had one good idea and they followed through with relentless focus. The focus is necessary to success, but it usually comes at the cost of wearing blinders.
Every human being has both impulses toward adventure and experimentation, and desires for stability and familiarity. From the impulse to adventure comes entrepreneurship, the questioning of received wisdom, a willingness to experiment and take risks (often including thrill-seeking activities), and a readiness to roll with the punches. From the desire for stability comes discipline, focus, diligence, and all of the familiar, stolid virtues of the industrious. With some individuals, the impulse to adventure predominates, while in others the desire for stability is the decisive influence on a life.
With entrepreneurs, the impulse to adventure outweighs the desire for stability, while for financiers the desire for stability outweighs the impulse to adventure. Thus entrepreneurs and the investors who fund them constitute complementary personality types. But neither exemplifies the extreme end of either spectrum. Adventurers and poets are the polar representatives of the imaginative end of the spectrum, while the hidebound traditionalist exemplifies the polar extreme of the stable end of the spectrum.
It is the rare individual who possesses both adventurous imagination and discipline in equal measures; this is genius. For most, either imagination or discipline predominates. Those with an active imagination but little discipline may entertain flights of fancy but are likely to accomplish little in the real world. Those in whom discipline predominates are likely to be unimaginative in their approach to life, but they are also likely to be steady, focused, and predictable in their behavior.
Most people who start out with a modest stake in life yearn for greater adventures than an annual return of six percent. Because of the impulse to adventure, they are likely to take risks that are not strictly financially justified. Such an individual may be rewarded with unique experiences, but would likely have been more financially successful if they could have overcome the desire in themselves for adventure and focused on a disciplined plan of investment coupled with delayed gratification. If you can overcome this desire for adventure, you can make yourself reasonably wealthy (at very least, comfortable) without too much effort. Despite the paeans we hear endlessly celebrating novelty and innovation, in fact discipline is far more important than creativity or innovation.
The bottom line is that the people who have a stranglehold on the world’s capital are not intellectually adventuresome or imaginative; on the contrary, their financial success is a selective result of their lack of imagination.
A lesson from institutional largesse
The lesson of the MacArthur fellowships is worth citing in this connection. When the MacArthur Foundation fellowships were established, the radical premise was to give money away to individuals who could then be freed to do whatever work they desired. When the initial fellowships were awarded, some in the press and some experiencing sour grapes ridiculed the fellowships as “genius grants,” implying that the foundation was being a little too loose and free in its largesse. Apparently the criticism hit home, as in successive rounds of naming MacArthur fellows the grants become more and more conservative, and critics mostly ceased to call them “genius grants” while sniggering behind their hands.
Charitable foundations, like businesses, function in an essentially conservative, if not reactionary, social milieu, in which anything new is immediately suspect and the tried and true is favored. No one wants to court controversy; no one wants to be mentioned in the media for the wrong reason or in an unflattering context, so that anyone who can stir up a controversy, even where none exists, can hold this risk averse milieu hostage to their ridicule or even to their snide laughter.
Who serves on charitable boards? The same kind of unimaginative individuals who serve on corporate boards, and who make their fortunes through the kind of highly disciplined yet largely unimaginative and highly tedious investment strategies favored by those who tend toward the stable end of the spectrum of temperament.
Handing out “genius grants” proved to be too adventuresome and socially risky, and left those in charge of the grants open to criticism. A reaction followed, and conventionality came to dominate over imagination; institutional ossification set in. It is this pervasive institutional ossification that made the MacArthur awards so radical in the early days of the fellowships, when the MacArthur Foundation itself was young and adventuresome, but the institutional climate caught up with the institution and brought it to heel. It now comfortably reclines in respectable conventionality.
Preparing for the next economy
One of the consequences of a risk averse investment class (that nevertheless always talks about its “risk tolerance”) is that it tends to fund familiar technologies, and to fund businesses based on familiar technologies. Yet, in a technological economy the one certainty is that old technologies are regularly replaced by new technologies (a process that I have called technological succession). In some cases there is a straight-forward process of technological succession in which old technologies are abandoned (as when cars displaced horse-drawn carriages), but in many cases what we see instead is that new technologies build on old technologies. In this way, the building of an electricity grid was once a cutting edge technological accomplishment; now it is simply part of the infrastructure upon which the economy is dependent (technologies I recently called facilitators of change), and which serves as the basis of new technologies that go on to become the next cutting edge technologies in their turn (technologies I recently called drivers of change).
What ought to concern us, then, is not the established infrastructure of technologies, which will continue to be gradually refined and improved (a process likely to yield profits proportional to the incremental nature of the progress), but the new technologies that will be built using the infrastructure of existing technologies. Technologies, when introduced, have the capability of providing a competitive advantage when one business enterprise has mastered them while other business enterprises have not yet mastered them. Once a technology has been mastered by all elements of the economy it ceases to provide a competitive advantage to any one firm but is equally possessed and employed by all, and also ceases to be a driver a change. Thus a distinction can be made between technologies that are drivers of change and established technologies that are facilitators of change, driven by other technologies, that is to say, technologies that are tools for the technologies that are in the vanguard of economic, social, and political change.
From the point of view both of profitability and social change, the art of funding visionary business enterprises is to fund those that will focus on those technologies that will be drivers of change in the future, rather than those that have been drivers of change in the past. This can be a difficult art to master. We have heard that generals always prepare for the last war that was just fought rather than preparing for the next war. This is not always true — we can name a list of visionary military thinkers who saw the possibilities for future combat and bent every effort to prepare for it, such as Giulio Douhet, Billy Mitchell, B. H. Liddell Hart, and Heinz Guderian — but the point is well taken, and is equally true in business and industry: financiers and businessmen prepare for the economy that was rather than the economy that will be.
The prevailing investment climate now favors investment in new technology start ups, but the technology in question is almost always implicitly understood to be some kind of electronic device to add to the growing catalog of electronic devices routinely carried about today, or some kind of software application for such an electronic device.
The very fact of risk averse capital coupled with entrepreneurs shaping their projects in such a way as to appeal to investors and thereby to gain access to capital for their enterprises suggests the possibility of the path not taken, and this path would be an enterprise constituted with the particular aim of building the future by funding its sciences, technology, engineering, and even its ideas, that is to say, but funding those developments that are yet to become drivers of change in the economy, rather than those that already are drivers of change in the economy, and therefore will slip into second place as established facilitators of the economy.
What is possible?
If there were more imagination on the part of those in control of capital, what might be funded? What are the possibilities? What might be realized by large scale investments into science, technology, and engineering, not to mention the arts and the best of human culture generally speaking? One possibility is that of explicitly funding a particular vision of the future by funding enterprises that are explicitly oriented toward the realization of aims that transcend the present.
Business enterprises explicitly oriented toward the future might be seen as the riskiest of risky investments, but there is another sense in which they are the most conservative of conservative investments: we know that the future will come, whether bidden or unbidden, although we don’t know what this inevitable future holds. Despite our ignorance as to what the future holds, we at least have the power — however limited and uncertain that power — to shape events in the future. We have no real power to shape events in the past, though many spin doctors try to conceal this impotency.
Those who think in explicit terms about the future are likely to seem like dreamers to an investor, and no one wants to labeled a “dreamer,” as this a tantamount to being ignored as a crank or a fool. Nevertheless, we need dreamers to give us a sense as to what might be possible in the future that we can shape, but of which we are as yet ignorant. The dreamer is one who has at least a partial vision of the future, and however imperfect this vision, it is at least a glimpse, and represents the first attempt to shape the future by imagining it.
Everyone who has ever dreamed big dreams knows what it is like to attempt to share these dreams and have them dismissed out of hand. Those who dismiss big dreams for the future usually are not content merely to ignore or to dismiss the dreamer, but they seem to feel compelled to go beyond dismissal and to ridicule if not attempt to shame those who dream their dreams in spite of social disapproval.
The tactics of discouragement are painfully familiar, and are as unimaginative as they are unhelpful: that the idea is unworkable, that it is a mere fantasy, or it is “science fiction.” One also hears that one is wasting one’s time, that one’s time could be better spent, and there is also the patronizing question, “Don’t you want to have a real influence?”
There is no question that the attempt to surpass the present economic paradigm involves much greater risk than seeking to find a safe place for one’s money with the stable and apparent certainty of the present economic paradigm, but greater risks promise commensurate rewards. And the potential rewards are not limited to the particular vision of a particular business enterprise, however visionary or oriented toward the future. The large scale funding of an unconventional enterprise is likely to have unconventional economic outcomes. These outcomes will be unprecedented and therefore unpredictable, but they are far more likely to be beneficial than harmful.
There is a famous passage from Keynes’ General Theory of Employment, Interest and Money that is applicable here:
“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”
John Maynard Keynes, General Theory of Employment, Interest and Money, Book III, Chapter 10, VI
For Keynes, doing something is better than doing nothing, although it would be better still to build houses than to dig up banknotes buried for the purpose of stimulating economic activity. But if it is better to do something than to do nothing, and if it is better to do something constructive like building houses rather than to do something pointless like digging holes in the ground, how much better must it not be to build a future for humanity?
If some of the capital now in search of an investment were to be systematically directed into projects that promised a larger, more interesting, more exciting, and more comprehensive future for all human beings, the eventual result would almost certainly not be that which was originally intended, but whatever came out of an attempt to build the future would be an unprecedented future.
The collateral effect of funding a variety of innovative technologies is likely to be that, as Keynes wrote, “…the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.” Even for the risk averse investor, this ought to be too good of a prospect to pass up.
Where there is no vision, the people perish
What is the alternative to funding the future? Funding the past. It sounds vacuous to say so, but there is not much of a future in funding the past. Nevertheless, it is the past that gets funded in the present socioeconomic investment climate.
Why should the future be funded? Despite our fashionable cynicism, even the cynical need a future in which they can believe. Funding a hopeful vision of the future is the best antidote to hopeless hand-wringing and despair.
Who could fund the future if they wanted to? Any of the risk averse investors who have been looking for returns on their capital and imagining that the world can continue as though nothing were going to change as the future unfolds.
What would it take to fund the future? A large scale investment in an enterprise conceived from its inception as concerned both to be a part of the future as it unfolds, and focused on a long term future in which humanity and the civilization it has created will be an ongoing part of the future.
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1 February 2014
In my previous post, Autonomous Vehicles and Technological Unemployment in the Transportation Sector, I discussed some of the changes that are likely to come to the transportation industry as a result of autonomous vehicles, which may come to be a textbook case of technological unemployment, though I argued in that post that the transition will take many decades, which will allow for some degree of reallocation of the workforce over time. Economic incentives to freight haulers will drive the use of autonomous vehicles, because of their relatively low costs and ability to operate non-stop, but many people today are employed as transportation workers, and these workers, though today in high demand, may find themselves with greatly changed employment opportunities by the end of the twenty-first century. A whole class of workers who today earn a living wage without the necessity of extensive training and education, stands to be eliminated.
Today I want to go a little deeper into the structural problem of technological unemployment. In my previous post, Autonomous Vehicles and Technological Unemployment in the Transportation Sector, I mentioned the recent cover story on The Economist, Coming to an office near you… The argument in an article in this issue in The Economist, “The Onrushing Wave,” is that automation allows for capital to substitute for labor. I don’t disagree with this entirely, but there is no mention in The Economist of regressive taxation or decades of policies that have redistributed income upward.
The same article in The Economist mentions the upcoming book The Second Machine Age by Andrew McAfee and Erik Brynjolfsson; the authors of this book recently had an article on the Financial Times’ Comment page, “Robots stay in the back seat in the new machine age” (Wednesday 22 January 2014). The authors try to remain upbeat while grappling with the realities of technological unemployment. One answer to “resigning ourselves to an era of mass unemployment” proposed by the authors is educational reform, but we know that education, too (like employment), is undergoing a crisis. The same socioeconomic system that is making it possible for capital to substitute for labor through automation is the same socioeconomic system that has been driving young people to spend ever-larger amounts of borrowed money on education, which has lined the pockets of the universities, transformed them into credentialing mills, and has driven employers to escalate their educational requirements for routine jobs that could just as well be filled by someone without a credential.
Both The Economist article and the Financial Times article cite Keynes, who in a particularly prescient passage in an essay of 1930 both foresaw and largely dismissed the problem of technological unemployment:
“We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour. But this is only a temporary phase of maladjustment. All this means in the long run that mankind is solving its economic problem. I would predict that the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. There would be nothing surprising in this even in the light of our present knowledge. It would not be foolish to contemplate the possibility of a far greater progress still.”
John Maynard Keynes, Essays in Persuasion, “ECONOMIC POSSIBILITIES FOR OUR GRANDCHILDREN” (1930)
It is remarkable that Keynes would so plainly acknowledge technological unemployment as a “new disease” and then go on to dismiss is as “…a temporary phase of maladjustment.” It was Keynes, after all, who penned one of the most famous lines in all economic writing about how misleading it is to appeal to the long run while dismissing the temporary problem:
“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
John Maynard Keynes, Monetary Reform, New York: Harcourt, Brace, and Company, 1924, p. 88
Economists would indeed set themselves too easy, too useless a task if they dismiss technological unemployment as a temporary phase of maladjustment. But, to be fair, economists are not social engineers. It is not for economists, in their role as economists, to make social policy, or even to make economic or monetary policy. This is a political task. It is the role of the economist to understand economic policy and monetary policy, and it is to be hoped that this understanding can be the basis of sound practical recommendations that can be presented to policy makers and the public.
It is well worth reading the whole of Keynes’ essay on the economic possibilities for our grandchildren, in which he suggests that human beings have evolved to struggle for subsistence, but that the growth of technology and capital are going to bring an end to this struggle for subsistence, thus marking a permanent change in the human condition (which Keynes calls, “solving the economic problem”). In short, Keynes was a classic techno-optimist, and he thought it would take about a hundred years (from 1930, so 2030) to get to the point at which humanity has definitively solved the economic problem. He does add the caveat that population control, the avoidance of war, and the employment of science will be necessary in addition to economic effort to solve humanity’s economic problem, and presumably, if we fail to heed Keynes’ caveats — as we certainly have since he wrote his essay — we will likely hamper our progress and delay the solution of the economic problem.
What I find remarkable in Keynes, and in the techno-optimists of our own time, is their ability to speak of the coming age of maximized abundance as though it were all but achieved, and to neglect the whole struggle and negotiation that will get us to that point. Keynes effectively consigned a century to being a temporary phase of maladjustment, and recognized that this temporary phase may stretch out over more than a century if matters don’t proceed smoothly. But for Keynes that isn’t the real problem. Keynes feels that, “the economic problem is not — if we look into the future — the permanent problem of the human race.” He then goes on to blandly state:
“…there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society.”
In other words, what bothers Keynes is the troubling prospect of leisure for the working classes. To Keynes and the techno-optimists, I say there is nothing to worry you; that the millennium has not yet arrived, nor are we prepared for it to arrive, since the masses of the people will continue to struggle for subsistence for the foreseeable future. In the contemporary economy, we see no measures put into place that would indicate a shift toward institutions that would ease us into the paradise of maximized abundance promised by automation. There are, of course, the traditional workplace protections put into place throughout the industrialized world in the early part of the twentieth century, which include benefits for the unemployed, protections for those injured on the job, and a minimal stipend for the elderly, i.e., the worker after retirement. None of these traditional protections, however, begins to go far enough to support the unemployed worker for extended periods of time, or eases him into our out of his unemployed condition into sometime sustainable for the indefinite future.
If you lose your job at the age of 50 and have another 15 years to go until retirement (assuming a retirement age, and therefore eligibility for retirement benefits, at age 65), the benefits available to unemployed workers are not going to pay your mortgage for 15 years. And if you sell your house and move into an apartment, those benefits are not going to pay your rent. There are food banks and clothing banks for the destitute, so that in an industrialized nation-state you are not likely to go without some minimal amount of food and clothing. Perhaps, by hook or by crook, you find a way to maintain yourself for 15 years without becoming homeless and ending up as an invisible statistic, begging for change on a street corner. At that time you might get the minimal stipend provided for the elderly, and this might sustain you until you die. But what kind of life is the survival that I have described? It is simply another form of the struggle for subsistence, which Keynes’ thought would be eliminated by the solution of humanity’s economic problem.
While the unfortunate scenario I have outlined above consigns an individual to a relentlessly marginal life, others who have managed to find a more fortunate niche for themselves in the changing economy will have a house or two, a car or two, dinners at nice restaurants, a good education for their children, vacations, and all the things that money can buy in a market economy. The kind of problems that Keynes imagines in his essay, and which techno-optimists ever since have been (implicitly) imagining — that is to say, the problem of what individuals will do with all the time hanging heavy on their hands when they no longer have work to do — would be a kind of situation in which material goods become so cheap that they are simply given away to people. But are we going to give away the kind of good life that the fortunate enjoy?
All you have to do is to drive (or walk) through any large city in the world, and in a recession you will see block after block of empty store fronts, and if you read the classified advertisements you will find countless empty apartments waiting to be rented even as there are homeless people living on the street. We know that the owners of the empty store fronts could rent them out if they were willing to drop their asking price, but there is a limit below which landlords will not drop their price, and they would rather hold on to their properties, paying property taxes and maintenance expenses while their property remains idle, in hopes that a tenant will appear who is willing to meet their price. This situation could be met by government income redistribution, if money collected as taxes were spent to subsidize rentals, to give storefronts to small businesses or to rent empty apartments outright in which the homeless might live. But we already know what government programs like this are like. Individuals have to jump through hoops — in other words, they must be ready to humiliate themselves and to grovel before a functionary — in order to receive the “benefit.” Many people will not do this (I wouldn’t do this), and would thus opt out of well-intentioned programs that would make housing available to the homeless — with strings attached.
Suppose, however, you’re willing to grovel and you get your government apartment. What then? You will still be trapped in an extremely marginal position. You won’t be getting a penthouse suite with a view, you won’t be given a Ferrari to drive, you won’t be given an Armani suit, and you won’t be given an all-expense-paid trip to the south of France to sample the food and wine of the region. Who gets the penthouses and the Ferraris and the Armani suits and the vacations in the Dordogne? In other words, how do we allocate luxury goods in an economy of maximized abundance? Ideally, there would be no limits to consumer goods; that’s what “maximized abundance” means, but we all know that we are not going to be living in a world in which everyone has a Ferrari and an Armani suit.
How far can abundance be stretched? Are we to understand maximized abundance (or what Adam Smith called universal opulence) in terms of equal access to luxuries for everyone, or in terms of freezing social arrangements in a particular configuration so that each level of society receives its traditional share of goods? In other words, are we going to understand society as an egalitarian paradise or a feudal hierarchy? History has many examples of feudal hierarchies, and no examples of egalitarian paradises. Those societies explicitly constituted with the goal of becoming egalitarian paradises — i.e., large scale communist societies of the twentieth century — turned out to be even more stultifyingly hierarchical than feudalism.
There are some rather obvious answers to the rhetorical questions I have posed above, and none of them are particularly admirable. Luxury goods may go to those who are born into great wealth, or they may go to those who are particularly expert in some skill valued by society, or they may be reserved to reward government functionaries for loyal service. All of these arrangements have been realized in actual human societies of the past, and none of them constituted what Keynes called a solution to the economic problem for humanity.
Perhaps you think I am being trivial in my discussion of luxury goods, mentioning Ferraris and Armani suits, but I employ these as mere counters for the real luxuries that make life worth living. By these, I mean the experiences that we treasure and which are uniquely our own. The richness of a life is a function of the experiences that comprise the life in question. In market economies as they are administered today, if you have money, you can afford a wide variety of experiences. And if you are poor, your experiences are pretty much limited to staring at the four walls of your room, if you are lucky enough to avoid being homeless.
Believe me, I could easily elaborate a scenario that would stand with the best of the techno-optimists. I have observed elsewhere that, while seven billion human beings is a lot for the Earth, in the Milky Way it is virtually nothing. With the declining birth rates that characterize industrial-technological civilization, we will need every human being simply for the task of expanding our civilization into the Milky Way, leaving the machines to do the dead-end industrial jobs that once trapped human beings in unenviable circumstances.
There are endless interesting things yet to be done, and we will need every living human being freed from drudgery simply to begin the process of establishing a spacefaring civilization. This is a wonderful vision of considerable attraction to me personally. This is the world that I would like to see come about. The problem is, virtually nothing is being done to realize such a vision, or, for that matter, to realize any other techno-optimist vision. On the contrary, policies being implemented today seem formulated for the purpose of discouraging the kind of society that we need to begin building right now, today, if we are to defy the existential risks with which we are confronted as a species.
We could accurately speak of contemporary economic circumstances as “…a temporary phase of maladjustment…” if we were actively seeking to mitigate the maladjustment and to build an economy that would prepare us for the future. This is not being done. On the contrary, people who lose their jobs are viewed as failures or worse, and are condemned by economic reality to live a life of straightened circumstances. The struggle for subsistence continues, and is likely to continue indefinitely, because despite Keynes’ claim to the contrary, humanity has not yet solved its economic problem, although the economic problem is no longer a problem of production, but rather a problem of distribution and allocation.
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Technnological unemployment has been back in the news in a big way. There was a widely reported study, The Future of Employment: How Susceptible are Jobs to Computerisation? by Carl Benedikt Frey and Michael A. Osborne (cf. Half of jobs to be lost to computerisation?), and recently The Economist devoted a cover to the topic (Coming to an office near you…), with several stories inside the magazine considering technological unemployment from a variety of perspectives.
I have visited the question of technological unemployment several times, most particularly in the following posts:
Developments that touch upon technological unemployment — the actual automation technologies, our understanding of these technologies, and the conceptual infrastructure employed in attempting to make sense of economic and technological trends — evolve so rapidly that it is necessary to revisit the question on a regular basis, even while sedulously remaining focused on the big picture so that we do not mistake some passing and ephemeral trend for a development that will define a new era of history.
The big picture of technological unemployment is that it is part of the ongoing industrial revolution, which changed the relationship of human beings to each other and to the planet they occupy, and which continues to unfold with unprecedented developments. Some who write about the industrial revolution make a series of distinctions between the first, second, and nth industrial revolutions, but none of these finer distinctions have been universally recognized, so they only tend to create confusion. Indeed, when I was reading an article about technological unemployment last week the writer called technological employment the second industrial revolution, either unaware or unconcerned that others have already called previous developments (as, for example, electrification or assembly-line production) the second industrial revolution.
I prefer to think of the industrial revolution as one, long, unfinished process, beginning in England with the use of fossil fueled steam engines to power machinery and changing continuously up to the present day, as new technologies emerge from the previous generation of technologies. This technological innovation that began the industrial revolution and sustains it in our time I have called the STEM cycle. Because of the STEM cycle, the industrial revolution continues to revolutionize itself, always producing new technologies and new technological dislocations in the socioeconomic system, but it is the structure of technological change itself that defines the industrial revolution and the industrialized societies that have arisen in its wake.
The same conditions that held in the earliest automation of formerly manual tasks continue to hold today: some tasks are easier to automate than are other tasks, and some parts of a given task are easier to automate than other parts of the same task. The automated production process tends to break down tasks into their simplest constituents, automate the automatable tasks, and then stitch together the whole in an assembly-line production process in which the gaps between automated tasks are filled by human workers who continue to perform the tasks (and parts of tasks) that cannot be readily automated. Thus industrialization gives us the “job of the gaps” employment structure, and continuing technological innovations narrow these gaps, reducing employment.
However, even as entire classes of employment disappear, new classes of employment appear — as unprecedented as the technological innovations that spelled the end of previous forms of employment — and this has allowed industrialized economies to continue their balancing act of keeping the majority of their populations employed while enjoying the rising productivity that results from continuous technological improvement of the production process. However, there is no guarantee that this balancing act can be maintained indefinitely — or even that this would be a desirable state of affairs. Imagining a permanent future of dead-end industrial jobs is a kind of dystopian scenario that offers little hope. However, the utopian scenario of human beings freed from stultifying labor by technological unemployment seems too good to be true.
I will discuss some of the implications for technological unemployment in relation to the transportation industry, since I know something about the transportation industry, having earned by income in the industry for the past three decades. The rapidity of the development of self-driving cars (autonomous vehicles) is a testament to the rapid gains of technology and computerization as they bear upon transportation. When, in the past, people imagined an automated road transportation network (and this is a staple of futurist thought that has been imagined many times), it was assumed that radio transponders would have to be built into roads and infrastructure to guide a vehicle along. Instead, laser range finders and radars construct a local map of the terrain, which is then compared to high resolution maps of the actual environment, and the precision of GPS systems allows the vehicle to navigate through the map. (Of course, it’s a bit more complicated than that, but that’s the abbreviated version.)
The development of autonomous vehicles is a potential boon to the transportation industry. One of the greatest challenges to the industry has been the ability of motor carriers to find a sufficient number of drivers to haul their loads, and recent hours of service (HOS) regulation changes have increased the limitations on the number of hours a driver can drive in a day and in a week. Autonomous commercial vehicles, when they become both practicable and legal, would potentially mean unlimited freight capacity and trucks operating twenty-four hours a day, seven days a week. Driver shortage would no longer be a problem for freight haulers.
While most driving is routine and could easily be handled by an autonomous vehicle, there is a significant portion of the driving day which is likely to elude automation for some time to come. Driving a tractor-trailer within a congested urban area is much more difficult that driving a passenger vehicle in the same conditions, and it will take longer to automate this process than the hours on the open highway between major urban centers. There is nothing in principle that cannot be automated, and when the technology is available it is likely that autonomous tractor-trailers will be safer in traffic than human drivers. However, a single severe collision involving injury or a fatality would likely be picked up by the media and one would expect a headline something like, “Killer Robot Trucks on our Highways!” This would likely to delay the development of the industry for years, if not decades. Due to the obvious liability issues, one would expect that the technology would not be rolled out until it is fully mature, and even then accidents will happen. (I have elsewhere argued that industrial accidents are intrinsic to and ineradicable features of industrial-technological civilization, and traffic accidents are among the most common of industrial accidents.)
Other than the complexities of driving in crowded urban conditions that put other drivers, cyclists, and pedestrians at risk of life and limb, there are aspects of freight hauling that will not be easily automated. Another aspect of our industrial-technological civilization is that it runs clock around and year round. There is never a break. Freight moves every day of the year, and if the transportation infrastructure is slowed or stopped, store shelves are quickly bare. Other than unpredictable snow storms that shut down highways, there are predictable inclement weather conditions that occur on all roads at high elevations. In the continental US, thousands of trucks every day go through mountain passes, and it is not usual in the Rockies or the Cascade Range for drivers in mountainous areas to chain up their vehicles every day simply to be able to complete their trip. Tire chains are a nearly archaic technology, but they are effective, and nothing else will get a truck through snow and ice like chains. Believe me, I’ve been there. I know whereof I speak.
I think it will be a very long time before any robot or automated system will be able to chain up a tractor-trailer in inclement weather conditions. There are automatic chains available, but their use is limited, and they won’t get you through deep snow. Putting tire chains on a tractor-trailer is physically demanding and difficult to do well. No doubt there is a way to automate the process, but it won’t happen in a robust form any time soon — and here by “robust form” I mean a dependable way of getting a truck through a mountain pass on a daily basis.
I can foresee a day when tractor-trailers are automated for long stretches of highway in flat country, and dual-purpose vehicles are sometimes piloted autonomously and sometimes driven by human drivers. It might be possible to station drivers on the outskirts of cities, who would then get into autonomous vehicles and drive them within urban areas. Or drivers might be stationed at the bottom of mountain rangers, and get in the trucks to take them over the pass. But in a severe winter, the snows come down the side of the mountains, and the stationing of drivers to take over in inclement conditions might have to change daily. Under such conditions, it would be an open question as to whether it would be more cost effective to simply keep drivers in the trucks all day rather than attempt to constantly shuttle drivers to where they would need to be to take over autonomous vehicles where these vehicles could no longer safely operate. So truck drivers aren’t yet quite out of a job, even when autonomous tractor-trailers become a reality.
The process of automating commercial vehicles is likely to spread out over many decades, which will allow for realignment of employment within the industry over time. And driving, of course, is not the only job within the transportation industry. There is the warehousing and loading of freight, maintenance of vehicles, and many other functions. It will be a very long time before automated roadside service for breakdowns will be possible. Autonomous vehicles will be more technologically complex even than the trucks on the road today, and they will break down with some regularity (breakdowns, like industrial accidents, are an intrinsic part of industrial-technological civilization). Automated vehicles broken down on the shoulder of the road will have to be serviced by human technicians for many decades to come, and a stranded automated vehicle would also be a soft target for cargo theft, which creates a new kind of “opportunity” for human beings within an automated economy.
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3 July 2013
Eighth in a Series on Existential Risk:
Every Risk is also an Opportunity
It is a commonplace that every risk is an opportunity, and every opportunity is a risk; risk and opportunity are two sides of the same coin. This can also be expressed by distinguishing negative risk (what we ordinarily call “risk” simpliciter) and positive risk (what we ordinarily call “opportunity”). What this means in terms of existential thought is that every existential risk is an existential opportunity, and existential opportunity is at the same time an existential risk.
If we understand by risk the uncertainty of frequency and uncertainty of magnitude of future loss, then by opportunity we should understand the uncertainty of frequency and uncertainty of magnitude of future gain. The relative probability of a loss is offset by the relative probability of a gain, and the relative probability of a gain is offset by the relative probability of a loss; both are calculable; both are, in principle, insurable. Thus these risks and opportunities represent the subset of uncertainties that present actionable mitigation strategies. Where uncertainty exceeds the possibility of actionable mitigation, we pass beyond insurable risk to uncertainty proper.
In existential risk scenarios, our very existence is at stake; in existential opportunity scenarios, again, our very existence is at stake. To formulate this parallel to the above, we can assert that existential risk is the uncertainty of frequency and uncertainty of magnitude of future loss of earth-originating life and civilization, while existential opportunity is the uncertainty of frequency and uncertainty of magnitude of future gain for earth-originating life and civilization. In formulating the existential condition of humanity, there is little that is risk sensu stricto, since much of the big picture of the human future is given over to uncertainty that lies beyond presently actionable risk. However, the calculus of risk and reward remains, even if we are not speaking strictly of risk that can be fully calculated and thus fully insured. In other words, the existential uncertainties facing humanity admit of a distinction between positive uncertainties and negative uncertainties. Any valuation of this kind, however, is intrinsically disputable and controversial.
Given that our very existence is at stake in existential opportunity no less than in existential risk, a future defined by the realization of an existential opportunity might be unrecognizable as a human future. Indeed, the realization of an existential opportunity might be every bit as unrecognizable as the realization of an existential threat, which means that the two futures might be indistinguishable, which means in turn that existential opportunity might be mistaken for existential risk, and vice versa.
Faced with a stark choice (i.e., faced with an existential choice), I think few would choose extinction, flawed realization, permanent stagnation, or subsequent ruination over species survival, flawless realization, permanent amelioration, or subsequent escalation. (If, in moments of decision in our life, we make our choice in fear and trembling, how must we fear and tremble in moments of decision for our species?) Any such choice, however, is not likely to be visited upon us in this form.
Much more likely that an explicit choice between an utopian future of astonishing wonders and a dystopian future of dismal oppression is an imperceptibly gradual process whereby a promising future suggests certain day-to-day decisions (seemingly seizing an opportunity) which lead incrementally to a future with unintended consequences that greatly outweigh the promises that prompted the daily decisions that led to the future in question. This is how history generally works: by degrees, and not by intention. (Notwithstanding the Will Durant quote — “The future never just happened, it was created.” — that I mentioned in Predicting the Human Future in Space.)
In so far as industrial-technological civilization continues its exponential growth of technology (growing incrementally and often imperceptibly by degrees, and not always by intention), and therefore also the growth of human agency in shaping our environment, the expanding scope of this civilization will mitigate certain existential risks even as it exposes humanity to new and unprecedented risks. That is to say, industrial-technological civilization itself is at once both a risk and an opportunity. Civilization centered on escalating industrial-technological development exposes us to escalating industrial accidents and unintended consequences of technology, unprecedented pollution from industrial processes, changes in our way of life, and indeed changes to our very being as a result of the technological transformation of humanity (i.e., transhumanism).
At the same time, escalating industrial-technological development offers the unprecedented possibility of a spacefaring civilization, which could establish earth-originating life off the surface of the earth and thereby secure the minimum redundancy necessary to the long-term survival of such life. The transition of the terrestrial economy to an economy fully integrated with the industrialization of space — a process that I have called extraterrestrialization — could not take place without the advent of industrial-technological civilization.
Yet the expansion of business operations and interests into extraterrestrial space is a paradigm of uncertainty — no such effort has been made on a large scale, and so the risks of such an enterprise are unknown and cannot be calculated, fully managed, or insured against. Space operations therefore exemplify uncertainty rather than risk, and for the same reason that such operations are uncertain, their execution is potentially beset with contingencies unknown to us today. This does not make such an enterprise is too risky to contemplate — this is the only imaginable contribution that industrial-technological civilization can make to the long-term survival of earth-originating life — but we must undertake such enterprises without illusions or the subsequent losses endured may become socially unsustainable leading to the end of the enterprise. Subsequent unforeseen losses resulting from the transition to a spacefaring civilization may even be interpreted as a form of subsequent ruination, and thereby conceived by many as an existential threat. How we understand existential risk, then, affects what we understand to be a risk and what we understand to be a reward.
In the larger context of industrial-technological civilization we can identify individual industries and technologies that represent in themselves both risks and opportunities. The most fantastic speculations of transhumanist utopias, like the most dismal speculations on transhumanist dystopias, constitute unprecedented opportunities (or risks) implied by the present trajectories of technology. One of the best examples of risk and opportunity in future technology are the possibilities of nano-scale robots. The development of nano-scale robots could, on the one hand, provide for unprecedented medical technologies — robots that could be injected like an inoculation which would treat medical conditions from the inside out, repairing the body on a microscopic scale and potentially greatly improving health and extending longevity. On the other hand, nano-scale robots loose in the biosphere could potentially cause great harm. if not havoc, perhaps even resulting in a gray goo scenario.
In so far as any proposed existential risk mitigation initiatives prioritize safety over opportunity, any concern for existential risk could itself become an existential risk by lending support for policies that address risk through calculated stagnation instituted as a risk-averse response to existential threats. The question then becomes how humanity can lower its exposure to existential risks without reducing its existential opportunities. The attempt to answer this question, even if it does not issue in clear, unambiguous imperatives, may at least provide a framework in which to conceptualize problematic scenarios for the human future that some may identify as desirable while others would identify the same as a moral horror — such as transhumanism.
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Existential Risk: The Philosophy of Human Survival
8. Existential Risk and Existential Opportunity
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9 May 2013
Fifth in a Series on Existential Risk
Thinking about the Epistemology of Risk
A personal anecdote
What is risk? I have considered this question several times, in different contexts, as, for example, in Risk Management: A Personal View and more recently in Moral Imperatives Imposed by Existential Risk, but today although I want to consider some highly general philosophical ideas about risk, and I am going to start with a highly personal anecdote — a human interest story, if you will. Ultimately I need to make the philosophical effort to bring together these many threads of risk into something more general and comprehensive — but first, the personal story.
When my mother retired, she had for a few years been paying into a private retirement annuity. Upon her retirement she was in a position to begin drawing from this annuity, so I spent some time on the telephone with the financial representative. We had some long calls before we settled on an option that would best serve the financial interests of my mother. The amount she had saved up was not large, but it was enough that she was able to arrange for a fixed monthly payment in perpetuity, in return for handing over the lump sum of her annuity to the financial services company into which she had been making contributions to her annuity.
My mother was surprised to find that if she surrendered her capital to the financial institution with which she had the annuity, that they would promise to pay her a certain amount every month for the rest of her life, regardless of how many payments they had to made. I explained that financial institutions hire professionals called actuaries who calculate the likelihood of how long individuals will live and when they are likely to die. The actuaries make their judgments from statistics, not knowing the individual person. I assured by mother than she is far more healthy than the average person of her age, that the actuaries don’t know any details about an individual’s life, how active they are, what foods they eat, how the individual responds to stress, and so forth.
The actuary as non-constructivist
The actuary engages in classic non-constructivist thought in asserting that a certain number of persons of a certain age will die within a certain period of time, within identifying exactly which individuals are the ones who will die and which individuals are the ones who will live. The actuary sees the big picture (the aerial view of populations, as it were), and from the perspective of investing billions of dollars and insuring the financial security of millions of people, it is the big picture that matters. While life and death is everything to the individual, it is fungible to an institution, and the actuary embodies the institutional point of view.
While it would be possible for an insurance company or a financial institution to pursue a constructivist methodology, in practice this would be unwieldy and inefficient. A constructivist actuary would need to start from the ground up with the facts of the life of each individual, building a detailed profile from verified data. All of this requires time, and time is money. No insurance company or financial institution that pursued this method on a large scale could make a profit, because any gains from the strategy would be offset by the additional costs incurred by information gathering effort.
Actuaries can be extremely accurate on a statistical basis, considering populations on the whole, even while they can be completely wrong in regard to individuals who are members of a given population. Some individuals who are part of a population that dies, on average, at 65, may well live to be 75, 85, or 95 and still not skew the average for the population on the whole. Another individual might die much younger than the average without skewing the average on the whole.
If you know individuals personally, and you know that, for example, someone tends to drive in an erratic and dangerous manner that very well might get them killed, then you have knowledge that the actuary does not have — knowledge, in fact, that the actuary doesn’t even try to address. The actuary might control for age, gender, marital status, geographical location, and all the ordinary information you might put on a questionnaire. Just this much information can be very valuable. With more information, much more can be done, but no financial institution or insurance company could pay to have agents follow investors or policy holders to learn their personal habits, and therefore build a more accurate risk profile for the insured.
The individual possesses knowledge that the institution — financial, insurance, governmental, or whatever else — does not possess, and the individual can leverage this ellipsis of knowledge in order to get a better deal for themselves.
Leveraging knowledge to manage risk
This is an obvious application of the distinction between uncertainty and risk. The more knowledge one has, the less one’s picture of the world is about uncertainty and the more it is about known risks, which are quantities for which one can take preventative or prophylactic measures. To make it personal, if you know someone is an awful driver, you avoid riding with them, and if you know someone becomes aggressive and belligerent when drunk, you avoid going drinking with them, or you take other measures that will protect you from the consequences of beings around a belligerent drunk. If you are especially cunning, you can even turn such known risks to your advantage (transforming a risk into an opportunity), employing calculated risks in a ruse or as a distraction. We all know people like this, and we know that they, too, are a danger to be avoided.
The lesson here is that when you have detailed personal knowledge about a situation, the calculation of risk can change dramatically. Or, to be more precise, matters that are given over to uncertainty in one model become objects of knowledge and therefore in a more epistemically intensive model are transformed from uncertainty into risk, and as risk are amenable to rational calculation. The scope of the calculus of risk expands and contracts, waxing and waning in proportion to knowledge. (Even the actuary, with all that he does not know, knows enough about what matters to his institution that he is dealing with a controlled, calculated risk and not uncertainty.)
Another personal anecdote about investing
Another personal story to illustrate how knowledge bears upon risk: recently in Rationing Financial Services I discussed the different financial services that are available to the working class, of a very basic if not rudimentary character, as compared to the advanced and sophisticated financial services available to the wealthy and the well-connected.
I also mentioned in this post how far my views are from the mainstream, and in my earlier post on Risk Management: A Personal View I mentioned a personal anecdote about how a financial adviser had expressed surprise by the risks that I was taking, when I didn’t believe myself to be taking any risks of particular note. In my most recent consultation with a financial professional, as I was asking questions about various investment products, one banker actually said to the other banker, “I don’t think that these [investments] will be risky enough for him.” I smiled inside. You would think I had been riding a superbike at 90 MPH on a winding mountain road without wearing a helmet. Not quite.
My tolerance for risk is not based on a thrill-seeking personality — I’m not about to take up BASE jumping — but rather upon knowledge. And in so far as I leverage my knowledge to shift the epistemic balance from uncertainty to risk, I am taking a calculated risk, against which I might insure myself (if I felt inclined to do so), but I am not plunging myself into blind uncertainty — in other words, I’m not a fool rushing in where angels fear to tread. The more knowledge one has, the less uncertainty one faces, the more one is presented with calculated risks in place of uncertainty.
When it comes to the investment products available to the individual of ordinary means, the options were really Hobson’s choice — i.e., the choice between what is offered and nothing. The process gave the appearance of choice, because there were a great many funds in which one could invest, and reams of information describing these investments, but really what it all came down to is that they were widely distributed funds of funds that would approximately track the market. I said to my banker than buying into these funds is simply the same as placing a bet on the S&P. If it goes up, you do well; if it goes down, you lose. End of story. I didn’t want the appearance of choice, I wanted the reality of choice.
I asked my banker if any of the funds focused on any particular industry, or resource, or were invested in any particular country or region of the world. No. None of the choices had any distinguishing features of this kind. They were all strategies for, one way or another, gaming the domestic US market to try to get a few more percentage points of profit than the next fund. In this case, having detailed knowledge of the world made no difference at all. If one cares to guess at the direction of the S&P, or if one feels that one has studied the domestic US market sufficiently to predict the direction of the S&P, then you have knowledge that is appropriate to this investment climate. Otherwise, your knowledge is useless and can’t be leveraged to your financial benefit. (I could, of course, become a day-trader, but I really don’t think that’s my thing.)
Knowledge and statistical probability
If you have both real knowledge and real options, your investment portfolio can be less at risk than placing a single bet on the direction of the US market, but my attitude in this respect was treated as one of welcoming more risk — because the requisite knowledge was not taken into account. Knowledge is a factor in the calculation of risk. In fact, knowledge constitutes one among “all factors not really indeterminate” which Frank Knight identified as being crucial to the determination of statistical probability (cf. Addendum on Existential Risk and Existential Uncertainty).
If you lack knowledge about the structure and functioning of the global economy, then your ability to choose wise investments is not likely to be any better than your ability to guess the direction of the US market average, and this is the presumption of ignorance that is built into the kind of investment options available to most people. Or if you think you know what is going on, but your knowledge is merely illusory, you might be lucky or you might by unlucky in investing, but your chances are no better than an up or down gamble. But if you have the knowledge of many different sectors of the global economy, and of many different industries and of regions of the world, it really isn’t much of a challenge to be able to improve your chances over the 50/50 guesswork involved in a bet on the S&P.
A curious parallel
Our collective situation as a species is in some ways not unlike my individual situation as an investor: being “stuck” on the surface of the earth, we have Hobson’s choice when it comes to existential risk management and mitigation: the earth or nothing. Take it or leave it. That’s not much of a choice, and it is curiously parallel to my own lack of choices in investments. And this lack of choices gives us no opportunity to leverage our growing knowledge of the cosmos from recent gains in space science in order to get the edge of existential risk. Our knowledge of the universe, at present, makes no difference at all in mitigating existential risk.
The more knowledge that we have of the cosmos, and of the human position within a cosmological context, the more knowledge we will have concerning the exact existential risks that we face. That increase in our knowledge will serve to transmute existential uncertainty into existential risk, sensu stricto, and in so doing will possibly present us with clearcut options of “insuring” against the existential risk in question. But our civilization, in its present form, has a presumption of ignorance built into it. There are countless existential risk mitigation and management options that we simply cannot pursue because we are planet-bound.
Existential risk mitigation aspects of space-based science and industry
When, in the future development of earth-originating extraterrestrial civilization, we begin to construct large-scale scientific instruments off the surface of the earth — say, a large radio-telescope array on the far side of the moon, sheltered from the EM spectrum noise generated by our busy earth — our ability to see deep into the cosmos (farther and more clearly in terms of distance, and therefore also in terms of time) our knowledge of astronomy, cosmology, and astrophysics will increase by an order of magnitude beyond the kind of observations that are possible from the surface of the earth.
Thus large space-based scientific installations will have a two-fold value in the mitigation of existential risk:
1) such facilities would be a function of space-based industry, which in turn would be a function of space-based human presence, and it would be a sustainable human presence in space that would be the first step in overcoming the manifest vulnerability of a species confined to a single planetary body, and …
2) the knowledge yielded by such facilities would significantly increase our knowledge of the universe, and hence of our place in the universe, which knowledge, as we have seen above, is crucial in transforming unactionable uncertainty into actionable risk
In fact, these two existential risk mitigation aspects of space-based science and industry are integral with each other: the space-based position allows us to exploit opportunities not available on the surface of the earth, and the knowledge gained from this enterprise will raise our awareness of opportunities now only dimly perceived.
To adequately assess our existential uncertainty and transform it into existential risk that might be mitigated and managed, we need to acquire existential knowledge — that is to say, knowledge of the existential milieu of human beings, a cosmological equivalent of situational awareness. What situational awareness is to the individual facing existential threats, knowledge of existential risk is to the species facing existential threats.
The more existential knowledge that we have, the better we can calculate our existential risk, and the better we can manage and mitigate that risk.
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Existential Risk: The Philosophy of Human Survival
5. Risk and Knowledge
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23 April 2013
In my post Existential Risk and Existential Uncertainty I cited Frank Knight’s distinction between risk and certainty and attempted to apply this to the idea of existential risk. I suggested that discussions of existential risk ought to distinguish between existential risk (sensu stricto) and existential uncertainty.
In Knight’s now-classic work Risk, Uncertainty, and Profit, Frank Knight actually made a threefold distinction in the kinds of probabilities that face the entrepreneur:
1. A priori probability. Absolutely homogeneous classification of instances completely identical except for really indeterminate factors. This judgment of probability is on the same logical plane as the propositions of mathematics (which also may be viewed, and are viewed by the writer, as “ultimately” inductions from experience).
2. Statistical probability. Empirical evaluation of the frequency of association between predicates, not analyzable into varying combinations of equally probable alternatives. It must be emphasized that any high degree of confidence that the proportions found in the past will hold in the future is still based on an a priori judgment of indeterminateness. Two complications are to be kept separate: first, the impossibility of eliminating all factors not really indeterminate; and, second, the impossibility of enumerating the equally probable alternatives involved and determining their mode of combination so as to evaluate the probability by a priori calculation. The main distinguishing characteristic of this type is that it rests on an empirical classification of instances.
3. Estimates. The distinction here is that there is no valid basis of any kind for classifying instances. This form of probability is involved in the greatest logical difficulties of all, and no very satisfactory discussion of it can be given, but its distinction from the other types must be emphasized and some of its complicated relations indicated.
Frank Knight, Risk, Uncertainty, and Profit, Chap. VII
At the end of the chapter Knight finally made his point fully explicit:
It is this third type of probability or uncertainty which has been neglected in economic theory, and which we propose to put in its rightful place. As we have repeatedly pointed out, an uncertainty which can by any method be reduced to an objective, quantitatively determinate probability, can be reduced to complete certainty by grouping cases. The business world has evolved several organization devices for effectuating this consolidation, with the result that when the technique of business organization is fairly developed, measurable uncertainties do not introduce into business any uncertainty whatever. Later in our study we shall glance hurriedly at some of these organization expedients, which are the only economic effect of uncertainty in the probability sense; but the present and more important task is to follow out the consequences of that higher form of uncertainty not susceptible to measurement and hence to elimination. It is this true uncertainty which by preventing the theoretically perfect outworking of the tendencies of competition gives the characteristic form of “enterprise” to economic organization as a whole and accounts for the peculiar income of the entrepreneur.
Frank Knight, Risk, Uncertainty, and Profit, Chap. VII
Knight’s distinction between risk and uncertainty — between probabilities that can be calculated, managed, and insured against and probabilities that cannot be calculated and therefore cannot be managed or insured against — continues to be taught in business and economics today. (It is a distinction closely parallel to Rumsfeld’s distinction between known unknowns and unknown unknowns, though worked out in considerably greater detail and sophistication.) Knight’s slightly more subtle threefold distinction among probabilities might be characterized as a tripartite distinction between certainty, risk, and uncertainty.
Knight acknowledges, in his account of statistical probability, i.e., risk, that there are at least two complications:
1. that of eliminating all truly indeterminate features, and…
2. the impossibility of enumerating the equally probable alternatives involved
Knight’s hedged account of risk obliquely acknowledges the gray area that lies between risk and uncertainty — a gray area that can be enlarged in favor of risk as our knowledge improves, or which can be enlarged in favor of uncertainty as additional complicating favors enter into our calculation of risk and render our knowledge less effective and our uncertainty all the greater. That is to say, the line between risk and uncertainty is unclear, and it can move, which makes it doubly ambiguous.
These hedges are important qualifications to make, because we all know from real-life experience that additional complicating factors always enter into actual risks. We may try to insure ourselves, and therefore to secure our interests against risk, but fine print in the insurance contract may deny us a settlement, or we may have forgotten to pay our premiums, or a thousand other things might go wrong between our careful planning and the actual events of life that so often preempt our planning and force us to deal with the unexpected with insufficient preparation. As Bobby Burns put it, “The best laid schemes o’ Mice an’ Men, Gang aft agley, An’ lea’e us nought but grief an’ pain, For promis’d joy!”
Such consideration span the entire universe from field mice to galaxies. A coldly rational assessment of risk can be made, and resources can be expended to mitigate risk to the extent calculated, but not only are the limits to our knowledge, but we don’t know where the limits to our knowledge lie. Indeterminate features can creep into our calculation and equally probable alternatives could be in play without our even being aware of the fact.
Some events that pose existential risks or global catastrophic risks can be predicted with a high degree of accuracy, and some cannot. Even about those risks that seem predictable to a high degree of accuracy — say, the life of the sun, which can be predicted on the basis of our knowledge of cosmology, and which thereby would seem to give us some knowledge of how long a time we have on earth to lay our schemes — admit of indeterminate elements and equally probably scenarios. The end of the earth seems a long way off, if the earth lasts almost as long as the sun, and putting our existential risk far in the future seems to diminish the threat.
There is a famous quote from Frank Ramsey (who died tragically young in a mountain climbing accident, as might happen to anyone, anytime) that is relevant here, both economically and philosophically:
My picture of the world is drawn in perspective and not like a model to scale. The foreground is occupied by human beings and the stars are all as small as three-penny bits. I don’t really believe in astronomy, except as a complicated description of part of the course of human and possibly animal sensation. I apply my perspective not merely to space but also to time. In time the world will cool and everything will die; but that is a long time off still and its present value at compound discount is almost nothing.
From a paper read to the Apostles, a Cambridge discussion society (1925). In ‘The Foundations of Mathematics’ (1925), collected in Frank Plumpton Ramsey and D. H. Mellor (ed.), Philosophical Papers (1990), Epilogue, 249
Despite Ramsey having referred (in another context) to the “Bolshevik menace” of Brouwer and Weyl, it has been said that Ramsey became a constructivist not long before he died. This conversion should not surprise us, given Ramsey’s Protagorean profession in his passage.
Protagoras famously said that Man is the measure of all things, of those things that are, that they are, and of those things that are not, that they are not. (πάντων χρημάτων μέτρον ἐστὶν ἄνθρωπος, τῶν μὲν ὄντων ὡς ἔστιν, τῶν δὲ οὐκ ὄντων ὡς οὐκ ἔστιν.) Protagoras may be counted as the earliest of proto-constructivists, of which company Kant and Poincaré may be considered the most famous.
In the passage quoted above, Ramsey is essentially saying in a modern idiom that man is the measure of all things, even of time and space — that man is the measure of the farthest reaches of time and space, and in so far as these distant prospects of human experience are inaccessible, they are irrelevant. Ramsey is important in his respect because of his consciously chosen anthropocentrism. In a post-Copernican age, this is significant. We are all, of course, familiar with the advocates of the anthropic cosmological principle, and their implicit anthropocentrism, but Ramsey gives us a slightly different perspective on anthropocentrism. Ramsey essentially brings constructivism to our moral life, and in so doing suggests that the moral imperatives posed by existential risk can be safely ignored for the time being.
What Ramsey is saying here is that we can make a definite calculation of the lives of the stars — and also the expected life of our sun — and that we can insure against this risk, but that the risk lies so far in the future that its present value is practically nil. In other words, the eventual burning out of the sun is a risk and not an uncertainty. On the contrary, it is not an uncertainty at all, but a certainty. Just as the finite amount of oil on Earth must eventually come to an end, the finite sun must also come to an end.
What our growing knowledge of cosmology is teaching us is that we are not isolated from the wider universe. Events on a cosmic scale have influenced the development of life on earth, and may well be responsible for our development as a species. If the earth had not been hit by an asteroid or comet about 65 million years ago, mammals may never have developed as they did, and we would not exist. And if our solar system did not bob up and down through the galactic plane of the Milky Way, resulting in geophysical rhythms from the the gravitational interaction with the rest of the galaxy, a distant asteroid of comet might not have been dislodged from its stable orbit and sent careening toward earth.
Given our connection with the wider universe, and our vulnerability to its convulsions, what we know about our local risks (which is not nearly enough, as recent unpredicted episodes have shown us) is not enough to make a calculation of our vulnerability. What appears superficially to be a calculable risk has uncertainty injected back into it by the cosmological context in which all astronomical events take place.
If the death of the sun were the only existential risk against which we needed to insure ourselves, we would not need to be in any hurry about existential risk mitigation, because we would have literally millions of years to build a spacefaring civilization and thus to insure ourselves against that predictable catastrophe. But in our violent universe (as Nigel Calder called it) scarcely a million years goes by without some cosmic catastrophe occurring, and we don’t know when then next one will arrive.
Carl Sagan rightly pointed out that an event that is unlikely to happen in a hundred years may be inevitable in a hundred millions years:
The Earth is a lovely and more or less placid place. Things change, but slowly. We can lead a full life and never personally encounter a natural disaster more violent than a storm. And so we become complacent, relaxed, unconcerned. But in the history of Nature, the record is clear. Worlds have been devastated. Even we humans have achieved the dubious technical distinction of being able to make our own disasters, both intentional and inadvertent. On the landscapes of other planets where the records of the past have been preserved, there is abundant evidence of major catastrophes. It is all a matter of time scale. An event that would be unthinkable in a hundred years may be inevitable in a hundred million.
Carl Sagan, Cosmos, Chapter IV, “Heaven and Hell”
Perhaps in one of his most quoted lines, Sagan said that we are “star stuff,” and certainly this is true. However, the corollary of this inspiring thought is that our star stuff is subject to the natural forces that shape the destinies of stars, and in shaping the destiny of stars, shape the destiny of men who live on planets orbiting stars.
Understanding ourselves as “star stuff” entails understanding ourselves as living in a dangerous universe replete with devouring black holes, gamma ray bursts, supernovae, and other cataclysms almost beyond the capacity of human beings to conceive.
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17 March 2013
Since posting Automation and the Human Future a few days ago, a reader has directed by attention to Technological Unemployment Amidst Stagnation at All Systems Need A Little Disorder by Ashwin Parameswaran. I have previously mentioned Ashwin Parameswaran’s blog, Macroeconomic Resilience, in my post Self-Dissimilarity.
While my last post credited the fear of technogenic unemployment primarily to recession-induced pessimism, Parameswaran takes technogenic unemployment very seriously, and anticipates “Transitioning To The Near-Automated Economy,” even considering the changes that must come about in education as this transition is made. What Parameswaran writes is so wonderfully sane and reasonable, and I agree with so much of it (indeed, it warmed my heart to see him refer to our economy today as “neo-feudal” as this is a point that I have made many times), that I hesitate to differ with him, and I don’t need to differ with Parameswaran too much if we adjust our expectations to la longue durée and make it clear that we are not talking about what is going to happen within 25 years or so.
I am certainly not beyond speculating on the possibility of very different employement structures. In my post Counterfactual Conditionals of the Industrial Revolution, I suggested the possibility of an industrial revolution of a different sort — an industrial revolution resulting in a society in which the supply and the demand for labor were not nearly so close to being in equilibrium as they are today. For despite the problems of unemployment that plague advanced industrialized societies, the astonishing thing about it is not that there is unemployment, but rather that supply and demand of labor are so nearly identical. In a different kind of society, a different kind of industrial civilization, this approximation of employment demand to employment supply might not obtain.
As long as we take a sufficiently long time-horizon I am willing to agree that we will be eventually transitioning to a near-automated economy. In a comment made on the Los Angeles Times article L.A. 2013 — about an article from 03 April 1988 (from the Los Angeles Times Magazine), seeking to predict a quarter century into the future to 2013, Yves Rubin wrote…
“In general, such futuristic articles should multiply time spans by at least 10. Downtown Los Angeles “may” look like in this article’s cover photo in 250 years!”
I largely agree with this. In 25 years we see little change, but in 250 years we are likely to see significant change. Think back to the world 250 years before the present — the world of 1763, when the Treaty of Paris was signed, ending the Seven Years’ War — and if we compare that world, without electricity, without the internal combustion engine, before the industrial revolution, and before the United States existed, with our world today, we can see how radical the changes to the familiar world can be in a future an order of magnitude beyond the modest 25 years of the 1988 article about LA.
I am willing to admit without hesitation that, 250 years from now, we may well have realized a near-automated economy, and that this automation of the economy will have truly profound and far-reaching socioeconomic consequences. However, the original problem then becomes a different problem, because so many other things, unanticipated and unprecedented things, have changed in the intervening years that the problem of labor and employment is likely to look completely different at this future date. If the near-automated economy becomes a reality in 250 years — a scenario that I will not dispute — I don’t think that this will be much of a problem, because we will need machines producing the goods we need to expand the human presence in the Milky Way. Seven billion people is a lot on the surface of the Earth — and there will be even more people by that time — but when spread out in the galaxy, seven billion human beings isn’t even enough to scratch the surface, as it were.
The transition to a near-automated economy (contemplated in isolation from parallel synchronous changes) would require adjustments so radical that it would be an open question, once these changes were in place and the near-automated economy is up and running, whether we would still be living in the same old industrial-technological civilization we have come to know and love, or whether this historical discontinuity was sufficient to cause a rupture that results in the constitution an an entirely new civilization — perhaps even constituting a preemption event that ends industrial-technological civilization by replacing it with whatever comes next. Over time, these adjustments will happen more or less naturally, but contemplated in one fell swoop the necessary adjustments seem incomprehensibly radical.
In the article Real Robot Talk in The Economist that I quoted in my last post, Automation and the Human Future, the author wrote that, “modern economies continue to use wages as the primary means by which purchasing power is distributed.” What mechanism other than wages can be employed as a means for the distribution of purchasing power? How could goods and services be allocated within an economy without the quantification that wages effect? (The problem is similar to that of allocating capital and resources within a socialist economy: how is capital to be allocated to enterprises without a pricing mechanism?)
This is another example of thinking in conventional terms about a time in the future when conventional assumptions will no longer hold. By the time the automated economy will seriously alter social relationships, so many other things will have happened, and will be happening, that terms like “labor” and “capital” and “goods” and “services” will have come to take on such different meanings that to formulate things in the old way would be nothing but an anachronism.
It is to be expected that measures will be taken in the attempt to preserve the present structure of civilization as long as possible (and in so doing to preserve the familiar meanings of familiar terms), and some of these measures may seem quite drastic in their attempts to preserve certain institutions. For example, we may see mass mobility of labor across nation-state boundaries allowing technogenically superfluous labor to seek opportunities for work in regions of the world not yet transformed by the technologies of automated production. As entrenched as the nation-state is in our contemporary thought, it is not as entrenched as our idea of civilization, and we would sooner compromise the nation-state and the international order based upon the nation-state than we would allow our civilization to lapse.
Yet, in the fullness of time, not only will our nation-states lapse, but our distinctive form of civilization will lapse also, and it will be replaced by another form of civilization, as yet unknown to us.
It is one of the distinctive features of civilization that the problems intrinsic to a given form of civilization emerge simultaneously with the civilization and disappear with the disappearance of that civilization; that is to say, for the most past, the problems of a particular form of civilization are not passed along to new forms of civilization, which have their own problems. I take this to be one of the most fascinating features of civilization, and I don’t think that it receives sufficient attention in the study of civilization. What it implies is that, like an artist’s work, a civilization’s problems are never resolved, only abandoned.
The problem of royal legitimacy, for example, scarcely exists today, and in so far as it exists at all it only exists as a holdover from an earlier form of civilization that no longer exists, as is the case with the constitutional monarchies of Europe. But the intense debates over the divine right of kings simply don’t exist any more. The problem was never “solved” but was intrinsic to the form of civilization in which royal authority was central, and once royal authority was no longer the central organizing principle of civilization, the “problem” of royal authority, its source and its legitimacy, simply disappears.
Of course, one of the ways in which one kind of civilization succeeds another is through a radical innovation that “solves” (in a sense) the problems of the earlier civilization, but in so “solving” the problem another kind of civilization is created, and so the solution does not obtain within the previous civilizational paradigm; it defines a new civilizational paradigm, within its own problems (to become manifest in the fullness of time) awaiting a solution that will initiate another civilizational paradigm.
Automated production issuing in maximized abundance and the demise of employment as we know it today would constitute a transition to a distinct form of civilization from the industrial-technological civilization that we know today, and the emergence of a future industrial-technological civilization in which maximized abundance becomes an established fact and human labor superfluous to the maximized abundance would also constitute a changed socioeconomic context that would interact will all other synchronous historical events transpiring in parallel and therefore in mutual relations of influence.
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14 March 2013
During the early years of the industrial revolution, people (including young children) worked the kind of hours in factories that they have been accustomed to working on farms during agrarian civilization. That meant a lot of 14 and 16 hour days. After the initial misery of the “factory system,” things got sorted out and the hours of the work day fell precipitously. Eventually, the work week fell to a standard 40 hours, though in the most productive economies in the world today many if not most people routinely put in overtime hours.
Futurists, however, instead of seeing this declining workweek in historical context as a one-time transition from one kind of social organization to another, forecast that the work week would go on shrinking, from 40 hours to 30 hours, from 30 hours to 20 hours, and eventually automation would make human labor unnecessary. Given this forecast, one of the great social problems that industrial civilization would have to face would be that of what everyone would do in a society of maximized abundance and scarce employment.
It was widely thought by “progressive” thinkers that Europe was on the cutting edge of this revolution in labor and employment, as many European countries statutorily limited the work week to a certain number of hours. In far more recent predictions it was suggested that the vast common market created by the European Union would come to dominate the world economy. (Up until the recent financial crisis, Parag Khanna was predicting ascendancy of Europe as a global force.) Yet European economies proved stagnant, and not a vibrant source of innovation and growth, whether economic or technological.
The optimistic futurism of the 1970s is especially easy to ridicule (though it is often no more wide of the mark than more recent futurist predictions), and I think that this is due to the fact that the early Space Age of the 1960s significantly raised hopes and expectations, when these hopes and expectations were not swiftly gratified with jetpacks, flying cars, and vacations to the moon, the whole enterprise of technological futurism fell into disrepute.
Many supposedly “failed” predictions of futurism — supposedly falsified by history like the political triumph of a given economic system and secularization — may yet come true but on a time scale that lies beyond the brief attention spans of the mass media. Given the fact that big ideas move very slowly through history, like the passage of large prey through the gut of a snake, and given the tendency of the mass media to build up the idea of the moment into a kind of hysteria, only to see interest in that idea collapse soon after, it is nearly inevitable that the same ideas will come up time and again as they continue their passage through contemporary history, going through periods of being considered prescient alternating with periods of being believed to have been “disproved” by history.
Recently the once-discredited futurist idea of widespread automation leading to maximized material abundance issuing in sharply increased and persistent unemployment has been making a significant comeback in the popular press. Let’s make a quick review of how the idea appeared in mid-twentieth century futurism.
In a book intended to be a non-hyped, non-flashy exercise in futurism, Stuart Chase made the case for automation and posed the problem of persistent unemployment for a mass society:
“Computers and automatic mechanism have already taken over a great deal of routine work, such as bank bookkeeping, and they are expected to take over a great deal more. Not only large plants and offices will be computerized, but also small organizations, as the hardware becomes less costly. What then will happen to people? …If people have no jobs, how can they buy the products made by the workers who remain? If, on the other hand, it is possible to subsidize the jobless as consumers, what happens to their nervous systems, self-confidence, and character? Most of us would rather be occupied than not… but in what form?”
Stuart Chase, The Most Probable World, 1968, Chapter 10, “Is man a working animal?,” p. 136
The idea of automation even plays a central role in Valerie Solanas’ S.C.U.M. Manifesto, where the benefits of automation are accepted uncritically:
“There is no human reason for money or for anyone to work more than two or three hours a week at the very most. All non-creative jobs (practically all jobs now being done) could have been automated long ago, and in a moneyless society everyone can have as much of the best of everything as she wants. But there are non-human, male reasons for wanting to maintain the money system…”
Others saw further and thought more critically. Only a year after Stuart Chase’s book, Victor C. Ferkiss had a much more grounded understanding of what technology would mean in the workplace, and his account gives a sense of technological dystopia à la Metropolis, in contradistinction to the wide-eyed technological utopianism that mostly prevailed when he wrote the following:
“Automation has seemingly done little to reduce the drudgery of work. Where the assembly line exists, it is still irksome… Where the old centralized rigid processes have been automated with machines taking over routine tasks, working conditions, especially psychological one, have not improved. Such evidence as exists indicates that the watchers of dials — the checkers and maintainers — are likely to be lonely, bored, and alienated, often feeling less the machine’s master than its servant. Dealing with computers can be as frustrating for the worker as for the client-consumer, with data on a print-out even more difficult to check and rectify than that in human accounts or reports.”
Victor C. Ferkiss, Technological Man: The Myth and the Reality, 1969 (Signet Mentor 1970), Chapter 6, “Technological Change and Economic Inertia,” pp. 122-123
Such quotes and observations could be multiplied at will; I took my quotes from books that I happened to have on hand, but, as I wrote above, it was a prominent feature in mid-twentieth century futurism to ask what would become of the working masses once automation deprived them of labor, and therefore — presumably for the privileged few writing about the problem — the content and meaning of working class lives.
Now the problem of job loss due to automation is being posed again, and almost in precisely the same terms, notwithstanding the computing and telecommunications revolution that has occurred in the meantime. I cannot help but speculate that these elite worries over restive, unemployed masses are almost entirely due to the stagnant if not depressed condition of the global economy since the financial crisis that started unrolling with the sub-prime mortgage debacle in the US, and subsequently moved on to other unemployment-inducing crises around the world.
An article in The Economist, Real robot talk (from 01 March 2013), revisits the theme of technologically-induced (we might even say technogenic) unemployment from automation and robotics. The article finishes with these wise observations:
“Technological progress sufficient to cause these kinds of dislocations should also generate overall economic gains large enough to make everyone better off. But just because everyone could be made better off by progress doesn’t mean that everyone will be made better off. There must be an institutional framework in place to ensure that the gains from growth are shared.”
However, the rest of the article is not nearly so enlightening. The Economist article offers three possible responses to technogenic unemployment:
1. more education for less skilled workers
2. protecting less skilled jobs through regulation
3. direct wealth transfers
I am struck by the utter lack of imagination in these three proposals. If this is all than an elite publication like The Economist has to offer, clearly we are in serious trouble. The whole idea of trying to educate everyone to the level that the elites believe themselves to have attained begs so many questions that it is difficult to know where to start. Therefore I will limit myself only to the comment that many if not most entrepreneurs are drop outs, and the highly educated work for the entrepreneurs who create companies, and so create jobs and opportunities and increase productivity. As for protecting low skilled jobs, this is perhaps the worst possible suggestion, since it would directly impact the increase in productivity that could potentially free those in wage-slave drudgery from their mechanizable tasks. And direct wealth transfers have been tried, almost always with disastrous results.
A similar recent article that is a sign of the times is The Rise of the Robots by Robert Skidelsky. (I won’t quote Skidelsky, since his website says, “Reprinting material from this Web site without written consent from Project Syndicate is a violation of international copyright law.”) A Manichean contrast between optimists and pessimists runs through Skidelsky’s piece, as though the parties to the argument had nothing on their side except temperamental inclinations.
This isn’t about optimists or pessimists, except in so far as present-day commentators are pessimistic because their banker and journalist friends are feeling the pinch, too. That’s what happens when a persistent recession takes a chunk out of contemporary economic history. When the present downturn has passed — it hasn’t passed yet, and by the time it’s over I suspect many will come to speak of a global “lost decade” — I predict that talk of technogenic unemployment will also pass until the next crisis.
In the longer term of industrial-technological civilization, abundance may yet become a problem, and meaningful work a privilege, but we are a very long way from this being the case. The industrial revolution is only now transforming Asia, and it has yet to transform Africa. The problem of global technogenic unemployment cannot be a persistent economic blight until the global economy entire has been technologically transformed by industrialization — incidentally, the same conditions that must obtain for the experimentum crucis of Marxism (another supposedly disconfirmed idea from history).
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