I am skeptical of the technological singularity ever happening–or happening soon, as people like Kurzweil predict–but it’s possible. And, something less is possible too–a substantial increase in the effect of technolgy on productivity–perhaps enough to counteract the bust. See the figure below: this is a sketch of how I have long pictured the business cycle.
In this chart, imagine a free market emerging at the left axis. GDP increases, with ups and downs, before a central bank is formed. When the central bank with fractional reserve banking is introduced, it inflates the supply of money and credit which sets in motion the first boom, and the recurring boom-bust cycle described by Mises and Hayek. The Austrian insight is that not only does this hurt some and harm some (by redistribution or uncertainty effects), but that it also destroys wealth (because of malinvestment). This means that even if there is an underlying average growing GDP (the lower dashed line)–that is, the GDP increases over time despite the cycle–it is less than it would have been if the cycle had never been imposed (that’s the upper dashed line). The cycle in effect exerts a drag on growth; or it reduces the slope of the rate of increase in GDP over time, in addition to making it more volatile and causing redistribution due to inflationary effects.
Now see the right elbow of the curve–if some super-advances in technology, or even a technological singularity, occurs, so that it boosts the average rate of growth of productivity and GDP enough, it is conceivable that the “down” or bust part of the cycle would be relative only. We are still worse off than we would have been, but in this case a “recession” would be a period of, say, 4% annual GDP growth instead of, say, 20%.
I am not predicting this. I am only saying it’s an effect. Even on the middle part of the curve, which is what we appear to have had from about the 1910s to the 1970s or so, the average upward growth of GDP ameliorates the bust because it is relative to that general upward trend (which is partly due to increasing technological advances). As a crude example, if we experience a bust, while at the same time the price of computers and electronic devices keeps falling and their qualities are rapidly improving due to technological progress, then consumers experience less of a bust than they would otherwise. It’s just an empirical question of the comparative downward slope of the bust, and the upward average slope of GDP grown. They could cancel out, or one could dominate the other. Up till now the bust of course always dominates, and I don’t expect it to reverse, but it could, or could be signfiicantly ameliorated.
I reckon the singularity is 100years off. It is reckoned at the moment by the pace of technological change. I think it is more meaningful to look at it as the rate of increase of natural unemployment. Heres my logic.
1. In any economic system there are a group of people who cost more to employ than they generate in return. There is no perfect measure to identify this cohort, however IQ is a fair proxy. I define the term IQ Employment Limit (IEL) to the highest IQ level at which more than 50% of that population are unemployed.
2. It is the business of Governments to provide for the population. Governments both right and left believe in the possibility of full employment. The Left believes in equality of outcome; “Everyone given the right chances can be successful”. The right believes in minimum Government; “Lack of employment is laziness”.
3. The sub-prime market emerged and was encouraged by both Clinton and Bush as it met their common agenda to manage the less economically productive members of society. It met the needs of a low inflation financial regime as it provided high returns from high interest rate mortgages.
4. A good mortgage in 1995, could be a bad mortgage in 2005. Lending to a cohort of similarly competent people in 1995 and 2005 is not the same. The job market is becoming inherently more difficult with simpler jobs being automated or offshored. People close to the limit of being economically productive in 1995 were unproductive in 2005.
5. The change in the level of capability to be employable in the market is a smooth change as it is driven by myriad technological and business process changes, however the change in banking practice and government policy is discontinuous. So unemployment waves come in shocks as policy makes a quantum shift to catch up with market conditions.
Consequences of this argument:
6. Since the IQ distribution of the population is not linear but is in a bell curve then as IEL increases at a steady rate of about a third of an IQ point per year, the impact on the population accelerates until an IEL of 100 is reached. This means that discontinuities in economic reality compared to Government and Banking policy are going to become more severe and more frequent over the next 20 or 30 years.
7. I guess d(IEL) of 1/3 IQ/yr. This is a conservative estimate of the rate of change of IEL, d(IEL). Futurologists suggest a technological singularity in 2040/2050. If this were true it would suggest a d(IEL) of 1.5IQ pt/yr leading to a singularity when IEL is at about 140 (more like at 2100!!). I reckon IEL is at about 80 today.
8. If we estimate a shock for every additional 4% of the population that are moved to be on the wrong side of IEL then the next shock will appear about 2015, additionally, since we are on the upward slope of the bell curve, the subsequent shock could happen as soon as 2018.
9. Government needs to radically reform policy to deal with d(IEL) as a real concept and as the major social force that will affect us over the next 30 years (yes more so than Global Warming or the Rise of China). Right now both Left and Right are complicit in ignoring the problem.
10. Even as more of us become incompetent in the workforce the world is getting richer and richer. People are out of work because systems can do the same job with better quality cheaper. There are plenty of resources available to fix the problem, just no thought on how to apply them.
11. It’s going to get us all in the end, the concept of the technological singularity means that ultimately we are all out of a job, I might think I’m smart, I might be ok for the next 10 years, but IEL will get our children if one of the discontinuities doesn’t get to you first!