I haven’t quite worked through my reaction to some recent pieces in the Financial Times that seem to merit comment, so forgive me for picking out a just a couple of tidbits that still might serve as grist for discussion. One thing that has long bothered me is the worship of innovation. Relatively early in my career, I had a consulting gig with a venture capital firm where my job was to look at oddball deals. I learned that quite a few bona fide inventions and technology improvements, even though they might seem cool and engineers would get excited about them, didn’t add up to a business opportunity. The most common failing was they didn’t represent a big enough improvement over the status quo to justify customers making the needed behavior changes to adopt them. And an even earlier
Yves Smith considers the following as important: Income disparity, Social policy, Social values, Technology and innovation, The destruction of the middle class, The dismal science
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Yves Smith writes How Climate Change Influenced Australia’s Unprecedented Fires
Yves Smith writes Integrating Black and White American Economic History
Yves Smith writes The Impact of CEOs in the Public Sector: Evidence from the English NHS
I haven’t quite worked through my reaction to some recent pieces in the Financial Times that seem to merit comment, so forgive me for picking out a just a couple of tidbits that still might serve as grist for discussion.
One thing that has long bothered me is the worship of innovation. Relatively early in my career, I had a consulting gig with a venture capital firm where my job was to look at oddball deals. I learned that quite a few bona fide inventions and technology improvements, even though they might seem cool and engineers would get excited about them, didn’t add up to a business opportunity. The most common failing was they didn’t represent a big enough improvement over the status quo to justify customers making the needed behavior changes to adopt them.
And an even earlier lesson came in college, when I majored in the history and literature of the modern era, which meant the Industrial Revolution to World War II. The first generation, and arguably even two, of the Industrial Revolution led to a decline in worker incomes in England. The revolutions of 1848 were mass pushback against the dislocations of the rise of factory work. So while industrialization eventually increased living standards, the transition costs exacted a great toll on laborers who didn’t live long enough to reap the benefits. And we are now suffering the long-term cost of environmental degradation.
So I have to confess to not being persuaded by the handwringing over the US losing out in 5G. Early last year, I heard a staffer in the Department of State say it was common knowledge that there was no business case for it, which would be news to anyone reading the press. Perhaps that’s the result of the cost of more tightly spaced cell towers.
Obviously device producers would love to force yet more product obsolescence on their users. But how many people really want smart homes, particularly as the tales of misbehaving heaters, stoves, and locks, and worse, bricked systems and vendor failure become common? Yet consumer durable makers are similarly eager to force smart products onto consumers to justify higher prices, no matter how marginal the added utility. And that’s before getting to my pet peeve: I do not want my devices spying on me.
Contrast this Luddite view with the opening section of a Financial Times column earlier this week by Rana Foroohar:
Anyone who still doubts that the US is economically decoupling from the rest of the world should take a look at a proposal the commerce department put forward last week. This would allow its secretary Wilbur Ross to prevent imports of any new technology deemed a “national security threat”. The broad language could apply not only to Huawei chips or Chinese dot-coms, but to European hardware, software and data services, too, if they are deemed to be linked to a “foreign adversary”.
Such a link is very possible now Europe is being pulled into China’s technology orbit via the 5G standards and technologies that make up part of the Belt and Road Initiative. I spoke recently to a senior executive at a strategically important US technology company who told me it is becoming legally tricky for him even to speak to his counterparts in Europe, because of the various restrictions that the Trump administration has put in place.
That’s scary, because one of the most important things the US could do right now to ensure both national security and its own position in the 21st-century digital economy would be to work with allies on transatlantic standards for emerging technologies like 5G, artificial intelligence and so on. In fact, that was a key recommendation in a recent Council on Foreign Relations task force report entitled “Innovation and National Security: Keeping Our Edge.”
If one wants to get worked up about the US actually being a laggard or being at risk of becoming one, it’s a little late to get worked up now. How about what passes for Silicon Valley talent focusing on….help me…apps? How about our slow and overpriced broadband? How about our generally terrible infrastructure, which is imposing a cost on citizens and businesses on a broad basis? America’s lifespan is falling, and the priority is 5G?
And that is of course before weighing the energy costs of new infrastructure and consumer devices. And even if the manufacturers succeed in making the networks more energy efficient, given that 5G would move massive amounts of data, the data center energy costs are likely to make 5G a meaningful global warming net negative.
The reason I am increasingly a Luddite is I see too much use of technology to curtail our economic rights and even now our supposed ownership, or otherwise enable better rentierism. Consider this factoid from an important Martin Wolf piece on how he would go about reforming today’s rigged capitalism:
One of Prof [Thomas] Philippon’s most striking conclusions [in his book The Great Reversal] is that the unit cost of financial intermediation has not fallen in the US over 140 years, despite technological advances. This stagnation in costs has, alas, not meant financial stability. There is also evidence that there is now simply too much credit and debt.
Now I very much need to read exactly what Philippon means by “unit cost” but since he can’t measure internal costs (with shared overheads, this is not a trivial question and firms like McKinsey often get hired to data wrangle and opine), one assumes this is transaction costs. So it is probably safe to conclude that at a minimum that all of the computerization of banking, tremendous extension of consumer lending and investment products, the widespread use of innovations like derivatives (yes, they’ve been around since ancient times, but in nothing like modern variety and volumes), securitizations, automated order matching….hasn’t made finance more efficient, at least from the user end. That presumably means all the efficiency gains were captured by the producers. And since transaction volumes have gone up considerably, you see finance services taking a larger share of economic activity.
Technology is working towards the creation of a new debt cropper society. It may not get anywhere near as far as it did in the Reconstruction Era, but having to pay and pay and pay (then via jacked up financing charges, now via restricted ownership rights leading to unnecessarily high costs, particularly from having to replace consumer durables more often or pay high authorized servicer repair costs), but the trend is underway. First consider this section of a 2010 post by Matt Stoller:
The phrase ‘the man’, as in ‘fight the man’, referred originally to creditors. ‘The man’ in the 19th century stood for ‘furnishing man’, the merchant that sold 19th century sharecroppers and Southern farmers their supplies for the year, usually on credit. Farmers, often illiterate and certainly unable to understand the arrangements into which they were entering, were charged interest rates of 80-100 percent a year, with a lien places on their crops. When approaching a furnishing agent, who could grant them credit for seeds, equipment, even food itself, a farmer would meekly look down nervously as his debts were marked down in a notebook. At the end of a year, due to deflation and usury, farmers usually owed more than they started the year owing. Their land was often forfeit, and eventually most of them became tenant farmers.
They were in hock to the man, and eventually became slaves to him. This structure, of sharecropping and usury, held together by political violence, continued into the 1960s in some areas of the South. As late as the 1960s, Kennedy would see rural poverty in Arkansas and pronounce it ’shocking’. These were the fruits of usury, a society built on unsustainable debt peonage.
At the time, Stoller’s concern was foreclosures and other forms of debt-induced penury. But this section of Philip K. Dick’s Ubik, which seemed fantastical when I read it in my youth, now appears all too imminent:
He hung up. And abandoned the hope of enticing and/or threatening the clean-up robots into entering his muddled apt. Instead, he padded into the bedroom to dress; he could do that without assistance.
After he had dressed – in a sporty maroon wrapper, twinkle-toes turned-up shoes and a felt cap with a tassel – he poked about hopefully in the kitchen for some manifestation of coffee. None. He then focused on the living room and found, by the door leading to the bathroom, last night’s greatcape, every spotty blue yard of it, and a plastic bag which contained a half-pound can of authentic Kenya coffee, a great treat and one which only while pizzled would he have risen to. Especially in view of his current abominable financial situation.
Back in the kitchen he fished in his various pockets for a dime, and, with it, started up the coffeepot. Sniffing the – to him – very unusual smell, he again consulted his watch, saw that fifteen minutes had passed; he therefore vigorously strode to the apt door, turned the knob and pulled on the release bolt.
The door refused to open. It said, “Five cents, please.”
He searched his pockets. No more coins; nothing. “I’ll pay you tomorrow,” he told the door. Again he tried the knob. Again it remained locked tight. “What I pay you,” he informed it, “is in the nature of a gratuity; I don’t have to pay you.”
“I think otherwise,” the door said. “Look in the purchase contract you signed when you bought this conapt.”
In his desk drawer he found the contract; since signing it he had found it necessary to refer to the document many times. Sure enough; payment to his door for opening and shutting constituted a mandatory fee. Not a tip.
“You discover I’m right,” the door said. It sounded smug.
From the drawer beside the sink Joe Chip got a stainless steel knife; with it he began systematically to unscrew the bolt assembly of his apt’s money-gulping door.
“I’ll sue you,” the door said as the first screw fell out.
Joe Chip said, “I’ve never been sued by a door. But I guess I can live through it.”