The Pre-Singularity Economic Environmentgreenspun.com : LUSENET : Surfing the Singularity : One Thread
Many individuals are beginning to recognize the dramatically exponential rate of change -- and market valuation increase -- that exists in the computer and computer-driven industries. Many analysts and managers are beginning to recognize that every business, regardless of its product or service, can be evaluated as a better or worse generator, user, and architect of information and information processing systems. Yet in this environment of increasing recognition of the computational nature of business, any new computational technology (such as the internet, or wireless, or MEMS) will be exploited by self-interested participants to generate colossal "bubbles" or "hype waves" of temporary market valuation, superimposed on top of the real longer-term picture of accelerating growth. These promotional bubbles, and their corresponding crashes, bring instability to a market that is already chaotic due to ever more rapid technological change. Does all this suggest that future markets may become too volatile for individual investors?
This does not appear to be the case for several reasons. Investors learn to reduce their risk by strategies such as diversification and professional fund management. Marketmakers also learn to decrease volatility, by limiting activity to protect the market's value. Furthermore, it is always the earliest hype waves in any new industry that are the most overblown, and the earliest technology revolutions that are the most economically damaging to individual businesses. In any specific context, the parties who have lost assets due to temporary valuation conditions (statistically always the large majority of the parties involved) slowly learn discrimination in the presence of positive and negative hype, thus dampening the temporary waves. A similar discrimination is quickly learned in the adoption of new technology—again, after both ignoring and overreacting to it in early periods.
This does not suggest that hype waves and technology disruptions will ever disappear. For example, there are many who profit from hype waves, in both directions. A hype boom in any sector changes the rules of business temporarily, by selecting for a subset of companies which attempt to become good at continually purchasing other companies with their inflated stock (consider Cisco or JDSU). This may in turn keep their valuation higher for a longer (but still limited) period, speeding the emergence of larger and more complex companies in that sector, which can occasionally increase the rate of true growth.
Yet the record of the last century seems to show that despite the chaos of successive new technologies and the regular interference of new hype waves (both manic and depressive), we have seen only temporary positive or negative deviations of market value away from the long-term picture of a smooth exponential curve of accelerating growth in inflation-adjusted valuation. Furthermore, the deviations due to disrupting technology and hype have clearly become either more time-compressed or less dramatic (and occasionally, both) the more complex our market-based society becomes.
For example, the Great Depression of 1929 lasted about a decade in the U.S. and was quite severe. Yet a few 1920's paychecks invested broadly and simply in the technology giants of the day, like Ford or CTRC (the precursor of IBM) would be worth multi-millions today, even accounting for occasional depressions and bankruptcies. Furthermore, all subsequent U.S. depressions have been both much shorter and less extreme. The Japanese have just experienced a 10 year "Lost Decade", but this depression was itself a response to a previous boom, and quite gentle (Japan has simply, and perhaps temporarily, lost its recent claim to top economic status). The U.S. has recently (2000) exited a five year temporary and unrealistic boom in internet and technology valuations, and we should therefore expect a corresponding corrective (and again unrealistic, relative to the long term curve) depression in those valuations. But if history is our teacher, this disruption will be even gentler on our society (if not on particular companies or technology investors!) than past temporary deviations from the exponential curve, and should itself last no longer than five years, if not be significantly shorter. Understanding this big picture of the Pre-Singularity environment allows one a large measure of immunity against the manias and panics of the daily business, investment, and technology communities.
It has been suggested that the introduction of human-independent computational systems (AI's) might represent a disruption on a scale never seen before, such that human-based methods of valuation will become irrelevant. I would agree that human-centric perspectives will at some point be replaced by, and must evolve into, a "transhuman" perspective, but I would argue strongly against this being perceived as fundamentally disruptive by the human beings involved, for many reasons, better introduced in my forthcoming book. Yet perhaps the easiest way to understand why the markets which presently exist to solve human problems will not be destroyed once technology has surpassed unmodified humanity is to examine the record of computational technology's effect on society to date, as we have briefly done above. The more computationally complex any system becomes—whether it be a society or a self-organizing AI—the more self-balancing, integrative, and convergent it becomes. For more evidence than this, I'll ask you to wait for my book.
The bottom line seems to be that even with the continual disruptions and volatility we should expect in the economic world in coming years, these disruptions will cause decreasing real damage to the markets and societies they spring from. Therefore we will continue to witness accelerating levels of investment in and performance from the technology sectors, and particularly the computer-dependent technology sectors, within all developing (change-permissive) countries.
It's going to be both a satisfying and continually surprising century.
-- Jim Morris (email@example.com), December 29, 2001