Crypto Market Commentary 

22 April 2020

Doc's Daily Commentary


The 22 April ReadySetLive session with Doc and Mav is listed below.

Mind Of Mav

Automation In The Context Of De-Globalization

The coronavirus pandemic has pushed the world into uncharted territory — and in some industries, that’s leading to an automation boom.

Even as unemployment percentages climb into the double-digits, automation is filling some of the gaps. But when the dust settles, will automation and AI have replaced those jobs for good? The answer is complicated and differs by industry, but one thing is clear: Automation trends that were already on the horizon will happen faster now.

The crisis isn’t just accelerating the transition to automation: According to experts, it’ll also boost investments powering that change. There’s a lay view that automation might slow because the technology is expensive and firms would be hesitant to make capital investments in a crisis. However, economic literature over the last decade shows that these investments are made especially during a crisis.

It might seem that in hard times, in a downturn, human labor would be cheaper and therefore automation would go down. But, in fact, it’s the opposite. Because of the crisis, the bottom line, and a crash in revenue, humans become relatively more expensive compared to automation.

In three recessions over the last 30 years, 88 percent of job loss took place in routine highly automatable occupations. And that was essentially all of the jobs lost in the crises. So, these crises have historically inordinately been visited on workers whose work actually was automatable.

So, let’s address the question of what’s different this time? What makes this economic downturn a catalyst for change?

The thing that is different this time is that automation, which already has sights on less-educated, lower-skilled workers is beginning to apply more to middle-skill and even higher-skill professional and white-collar work, which may become more susceptible given the improvement of things like AI. Research has shown that AI is disproportionally utilized in white collar, middle management, or upper management areas.

This is known as Moravec’s paradox: the observation by artificial intelligence and robotics researchers that, contrary to traditional assumptions, reasoning requires very little computation, but sensorimotor skills require enormous computational resources, i.e., data analysis is easier than trying to replicate the motor functions of the human hand.

So it could be that all of this use of telecommuting technologies and communication gear may be pointing to the readiness for more wholesale reorganization of offices that may well put more pressure on not just workers in more routine, traditionally automatable occupations, but more professional ones. The big takeaway here is that downturns drive more, not less, dislocation through automation — and all bets are off about how that will work through this cycle, where the event is huge and there may be more ready to go automation, AI, or remote work platforms.

The potential scale of this event isn’t just going to bring an end to the plentiful supply of jobs we’ve had. It’s also going to bring, because of this automation link, a new round of much more structural change again, in both what the demand for skills is and what the labor market looks like.

So, we’re not just losing a job-rich decade; we’re likely diving back into a period of tech-driven structural change. That’s going add complications for workers, and it’s going to really, really ratchet up the anxiety that I think people feel. Because it’s not like there’s going to be a return to the same normal. There’s likely going to be the insertion of new technological platforms that will change and really alter what normal is.

We could also look beyond the technological perspective.

When we start to see a return to previous levels of output and consumption, US/CAD manufacturing, healthcare, and technology companies will be the largest growth areas in the future. With the world understanding that they cannot rely on cheap labor, companies will need to rethink their supply chains we will see more domestic growth in these industries.

As we discussed yesterday, globalization is being attacked by three D’s: Deglobalization, Decentralization, and Decoupling.

What this means is that conventions are shifting. For example, as countries shift away from China for manufacturing needs, other countries, particularly Vietnam, Pakistan, Mexico, and increasingly those on the African continent. Of course, even before the Coronavirus there was growing interest in locating key supply chain nodes outside of China. Unfortunately, the cheap labor element is still very much in play – factories in poorer countries with lax standards and minimal ability to keep value-add within their own borders. It’s simply reality that you can’t build a TV for 400$ or a sweater for $9.99 in a country with human rights and labor unions.

This move away from China can be seen as the natural outcome as China became wealthier and it was no longer as affordable to put unskilled sweat shop labor there. It’s a positive shift for two reasons:

  1. It pushes jobs into poorer countries around the world, increasing their wealth.
  2. Western nations aren’t reliant on a single nation for so much manufacturing, allowing the supply chains of the world to diversify and develop their own immunities against future disruptions like Coronavirus — the sudden realization that their country can’t manufacture basic medical protection equipment because that was outsourced has been a sobering experience for governments of the world.

This is what I think is really interesting, though:

The jobs that are suited for robots will come back to America and Western nations. The jobs not suited for robots will go to Vietnam or somewhere else that enables low cost. That’s why I’ve advocated investing in robotics and AI for some time now.

This is what the hardcore UBI advocates miss, even while arguing that UBI helps to offset increasing unemployment with increasing automation: We actually have an automation shortage. It’s why we need to outsource to these other countries in the first place.

Truly, how much sense does it make on a long-term timeline to continue to have manufacturing of most basic consumer goods done on the other side of the world and of notoriously low quality? Yes, at the end of the day it is a cost and benefit equation as the sole driver of outsourcing labor is doing it for pennies there for what takes dollars here.

But, that equation is rooted in a human based production model — and one that is fundamentally about rich nations exploiting populations of poorer ones. The equation is also rooted in a fundamental assumption that factory automation today is expensive and it only works for large scale with companies that have deep pockets.

Add to this the current nature of automation: very much task constrained. You’d be surprised how many tasks human labor does even with relatively simple assembly lines — again, the joys of Moravec’s paradox. Trying to convert that labor to automation is often impractical.

This is where we find ourselves. The automation problem is fundamentally not that automation is bad, it’s that we don’t have enough automation. Things are too difficult to automate and that is the problem. Hopefully that changes.

In the meantime, there will always be parts of the world where it is cheaper to manufacture than others — which isn’t to say this is a bad thing as it gives developing nations a way to get ahead.

The long-view equilibrium state that the automation process aims for is one in which these opportunities no longer exist — and this is the secret to globalization. In order for the current form of globalization to perpetuate, it needs to fail perpetually by operating as a zero-sum game.

That’s always been where I’ve found fault with this system: Zero-sum runs contrary to the fundamental selling point of modern trade theory – comparative advantage, i.e., non-zero-sum.

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