The Amish and the AI
Marc Andreesen said “software is eating the world.” An expanded versions of this says intelligence (working up to AI) turns every good into commodities. Software will turn the car into the PC. Band names and design have some value, but fuel efficiency standards destroyed design. Deere (DE) is battling farmers who want to hack into the operating system of its tractor software. Deere knows once the software can be hacked and replaced, the tractor becomes a commodity. Cars will face the same dilemma. The path forward is to write the software for self-driving cars or become the Dell of autos, going back to (as much as possible) a 1950s world of diverse design all able to run any software. The business model will resemble that of mobile phones.
The value in assets increasingly comes from intelligence. Owning the intelligent companies is the key to making money. But many companies do not have intelligent hiring policies or intelligent corporate culture. Google looks smart on the product side, buy dumb on the human side. Their current employees are smart, but there’s reason to think they’ve already started not hiring the best and brightest. The most ruthlessly efficient companies will win. Those who give in to social pressure will be weakened by competitors.
Software is easily copied. We think of socialism in terms of money, but in a world dominated by software, the more likely path of “socialism” is to reduce penalties against piracy. Copying software doesn’t cause a loss of value for the owner (except in cases where it might lose value such as trading software that exploits flaws in other systems/humans.)
The best companies are those who can combine intelligence in both hardware and software. Apple (AAPL) is a good example today, but Apple’s advantage mainly lies in its marketing. It’s a consumer brand though, and consumers are fickle.
I think we are nearing the top of the mania phase. We can see the future, but it will take time to get there. Buying Internet stocks in 1999 was dumb, but the thesis was correct.
Reformed Broker: Just own the damn robots.
In Kurt Vonnegut’s 1952 novel, Player Piano, we are introduced to a future in which only engineers and managers have gainful employment and meaningful lives. If you’re not one of the engineers and managers, then you’re in the army of nameless people fixing roads and bridges. You live in Homestead, far from the machines that do everything, and are treated throughout your life like a helpless baby. The world no longer has a use for you. Anything you can do a machine can do better, and you are reminded of this all day, every day by society and the single omnipotent industrial corporation that oversees it all.
He wrote this 65 years ago. It couldn’t have been more apropos to what we’re witnessing now than if had he written it this morning, right down to the nostalgia-selling demagogue who seizes the opportunity to foment rebellion amongst the displaced and disgruntled. When millions of people start seeing their purpose begin to erode and their dignity being stolen from them, the idea that there’s nothing left to lose starts to creep in.
In the book, the result is a violent rebellion against the machines. In the real world, we’ve resigned ourselves to investing in them instead.
We could be in the midst of the first fear-based investment bubble in American history, with the masses buying in not out of avarice, but from a mentality of abject terror. Robots, software and automation, owned by Capital, are notching new victories over Labor at an ever accelerating rate. It’s gone parabolic in recent years – every industry, every region of the country, and all over the world. It’s thrilling to be a part of if you’re an owner of the robots, the software and the automation. If you’re a part of the capital side of that equation.
If you’re on the other side, however – the losing side – it’s a horror movie in slow motion.
The only way out? Invest in your own destruction. In this context, the FANG stocks are not a gimmick or a fad, they’re a f***ing life raft. Market commentators rhetorically ask aloud what multiple should investors pay to own the technology giants. That’s the wrong question when people feel like they’re drowning.
What multiple would you pay to survive? Grab a raft.
At some point, the tipping point will be hit and the gap between capital owners and non-owners will explode. I usually think of this in terms of technology: a handful of people will invent powerful AI and they will become Kings in the new world order. But another way is through politics. Why do owners of capital want to share it with surplus population? Why does wealthy Catalonia want out of Spain, Venice and Lombardy out of Italy? Why does Silicon Valley want out of California, if not America? Now the stupidity of the West’s immigration policy becomes more clear. Layer ethnic and racial divisions on top of capital creation and you have a recipe for political fracturing.
One second after universal basic income (UBI) is created, everyone who receives it becomes surplus population. Abortion has already eliminated Down’s Syndrome in many countries. Fertility drugs will come with UBI. It won’t be hard to push fertility rates close to zero. Eventually the “Amish” (religious fundamentalist groups) will own the world, and maybe 100 million capital owners will run little kingdoms. If you assume the singularity, eventually it is just the Amish and the AI.
Along with owning the intelligent forces of creative destruction, handling the surplus population will be a growth industry. The private prison industry already boomed. Next won’t be iron bars, but gilded cages. The government (in whatever form) dispenses UBI through highly immersive VR games. Game addicts become the wealthiest and do best in the VR-world. Since it’s VR, people don’t have to live in the same VR-world though. Everyone can be served their addiction. The gap between reality and the virtual widens such that few want to leave. People have already voluntarily chosen this lifestyle with gaming, social media and government welfare. No one will be forced into the system, few will complain about it. Many people who own capital will be consumed by the system eventually. Most people who turn to fundamentalist religion won’t be.
If you behave like a Puritan, you have all your bases covered.