From Mr ‘Code will Eat the World’, Marc Andreessen, a take on AI.
Everywhere the government is involved gets more expensive. Everything with technology involved gets cheaper. As he puts it:
The sectors in red are heavily regulated and controlled and bottlenecked by the government and by those industries themselves. Those industries are monopolies, oligopolies, and cartels, with extensive formal government regulation as well as regulatory capture, price fixing, Soviet style price setting, occupational licensing, and every other barrier to improvement and change you can possibly imagine. Technological innovation in those sectors is virtually forbidden now.
He goes on to make the point that because this is true, education and health are taking larger and larger shares of GDP. Since they are bigger parts of the economy there will be more and more jobs for people ticking boxes and issuing licences. It sounds ridiculous but the statistics don’t lie. We know for example that the number of administrators in hospitals grows all the time and there is no way the medical cartel will let artificial intelligence through the door without a huge fight.
Is it true that technological innovation in some sectors is forbidden? The comments from Australia’s Chief Scientist which we covered some weeks ago illustrates the answer. She talked about the government not being ready for the change, specifically “we have to manage this”. ‘Manage it’ will mean special interest groups not losing their jobs; ‘manage it’ will mean the sacred government cows of health and education will be the very last dominoes to fall when they should be the first.
Andreessen on education:
We are heading into a world where a flat screen TV that covers your entire wall costs $100, and a four year college degree costs $1 million.
Some people are certainly seeing the light at university level. Pretty much everything you learn can now be accessed for free and learnt in 20% of the time. The same is also true for secondary and primary education but people love the childcare aspect of the educational prison, so it will be a while yet before it trickles down.
Let’s face it, if someone came to you for an interview and said “I’m 20, I’ve never been to university but I can program computers in three different languages, I’m bilingual and I did it myself for the price of a computer and some electricity”, there would be no further questions. You’d be hiring them.
The maximum benefit to AI that I see right now is the possibility for people who may have struggled to set themselves apart for lack of access, who do not have that problem now.
The full article here is a good one.
A case in point
The Federal Treasurer has brought forward the release of Australia’s latest Productivity Commission review. For the uninitiated, an economy can only grow as fast as its population plus its productivity improvements. Everything else is smoke and mirrors. The Treasurer says he knows this, so bringing forward the publication is both necessary and good.
Dr (of political science) Chalmers said digitalisation, Australia’s ability to grapple with the energy transition, and ensuring the care sector could efficiently meet growing demand would be critical to future productivity outcomes.
He says the words but will almost certainly deny every opportunity for productivity to advance because nearly every aspect of those improvements will impact the government’s own sacred cows.
The last productivity review made 28 recommendations. None of them were implemented in full. For example, it recommended a more proactive and results-oriented education system that supported better teaching, at school and university, to ensure a workforce suited to the digital age. How does that reconcile with the outright ban on AI that has been instituted in public schools?
We have seen the same behaviours with regulation in Australia for digital assets. ASIC and the ASX move seemingly as slowly as possible, nobody makes a decision because decisions might get you fired. The status quo actually pays your wages when working for the government; change might not. There is no thanks for bringing in new technology that means fewer people are employed. That is not the game at all.
In the end we’ll get two economies, a pretend economy run by bureaucrats and another one run by code. The trick to success will be pretending to participate in the pretend one and actually participating in the other. One example of this I currently see is in schools; people participate because that is the socially accepted behaviour, they then pay for a legion of private tutors because they aren’t really satisfied with the core product they are pretending to enjoy. I don’t claim to be immune either, I’m not.
Bond bores like myself might enjoy this new (and currently free) toy. You can configure the holdings of US Treasuries and track those holdings over time. Suffice to say the two largest holders Japan and China can’t dump the stuff quick enough.
The longer term dynamic was that the huge industrial economies of Japan and China had massive surpluses with the USA for decades and they used the dollars to buy Treasuries. China realised there was no real advantage to this some years ago and started buying up Africa and Australia instead. I must say, the strategic rationale for that is sound and appears to be working with the access to resources China now has.
For Japan the story is different. Their economy is in slow motion collapse and they need dollars to prop up the Yen. There are no more spare dollars to finance the American overdraft.
Foreign holdings down 10% in one year is a massive shift in appetite for American debt. I keep asking, who is going to buy this stuff? The two biggest buyers are gone and interest rates keep creeping up as a result.
If you want to play with the toy, you need to register here. Choose the free option and away you go.
Right on cue, Australia’s biggest bond shill Chris Joye loomed large again this weekend with an opinion piece on why bonds and cash are wonderful. I must say there is a reasonable case for cash at the moment but the risk profile of bonds looks awful.
To allocate to anything other than cash and high-grade bonds, one would want to be paid a risk premium of 4 per cent to 5 per cent, which translates into minimum expected returns of 9 per cent to 10 per cent.
I just cannot for the life of me understand why bonds would be a good investment. They carry existential risk and have no asymmetric upside. Aside from that, they are getting absolutely crushed at the moment and have been for a while. What type of investment is it where the best you can hope for is to get paid back and not lose that much purchasing power? No thanks. Surely it isn’t just me that thinks so. His own fund’s performance for the last three years pretty much lays it out.
Mr (no) Joye’s fund has returned an annual average of minus 2.02% for the last three years, less 66bps of fees per annum. $100 invested three years ago is now worth around $92. That sounds bad but feels about right for a bond investment. If you adjust for inflation it would make your eyes water.
What I find remarkable is the army of sycophants that chime in behind every piece he writes.
I shouldn’t be too conspiratorial but why would a guy with a performance record like that be so lauded? Why would he have privileged access to the government and the RBA? Why would he have tenure at Australia’s major financial newspaper? Simple, aside from being entertaining, he is the Australian government’s number one salesman and if you don’t see it then you should do exactly what he says: buy bonds and hold cash.
A German walks into a bar and orders a fancy beer.
The bartender tells him, “100 euros!”
The German is shocked. “100 euros? Yesterday it was only 10 euros!”
“Well, today it is 100 euros.”
“But why 100, damn it?”
Bartender: “I’ll explain it,
– 10 euros is the beer,
– 10 to help Ukraine,
– 20 assistance to European countries who have imposed sanctions and are not members of the EU.
– 20 euros in aid to the UK, for successful implementation of sanctions against Russia.
– Then 30 euros are sent to the Balkan countries as aid to buy furnace coal/keep their corrupt politicians.
– and finally, 10 euros for a gas subsidy for the EU fund to help maintain sanctions!”
The German silently with internal anger takes out the money and gives the bartender the cash.
The bartender takes it, puts it in the cash register and gives him 10 euros back.
German in disbelief: “Wait, you said 100 euros, right? I gave you 100, why are you giving me back 10 euros?”
“… There is no beer.”