The AI Revolution

artificial_intelligence

This post could leave you feeling strange, bewildered, or skeptical, as it does me. I know I’m outside of my comfort zone.

Tim Urban’s posts on AI

A reader sent me a series of Tim Urban papers on the coming Artificial Intelligence revolution. Reading the two-part series (Part I, and Part II) is one of those mind-bending experiences that people otherwise achieve by paying a lot of money, traveling to Bali, and using exotic mild-altering substances.

As the Keanu Reeves character once said in the movie Speed: “Whoa.”

And sure, there’s the economic impact to consider from Artificial Intelligence, which we can somewhat easily imagine. But then there’s the impact beyond that, the part that leaves me feeling shaky.

Keanu_Reeves_whoaIn myriad industries – data management, financial trading, the military, manufacturing, robotics, and gaming to name a few – artificial intelligence experts are training computers in intelligent functions. The economic impact is massive and promises accelerating gains.

Of course we use artificial intelligence already in everyday life in ways unimagined just ten years prior, before the widespread use of iPhone-type devices and apps. My mapping app tells me the best route to drive my kids to school. Siri responds to my voice to tell me who won the World Series in 1918. (If you need Siri to answer that last one, sigh, you know nothing.)

In a paper resulting from a National Bureau of Economic Research conference in September 2017, “Artificial Intelligence and Economic Growth” economists attempt to grapple with the Artificial Intelligence revolution. Is it something that will offer incremental improvements in automation, with the analogy that we move up the automation foodchain, like from the plow to the tractor to the combine-harvester in the 19thand 20thCenturies?

Or does AI instead change the rate at which we innovate, such that economic development occurs at an accelerating pace? Change in this second case happens exponentially – like we see in graphs of population explosions, or the spread of infectious diseases. If AI helps automate physical production – or even more compellingly – automate idea production, then an exponential economic growth explosion due to AI seems increasingly plausible.

ASIThe economics paper argues that one big effect will be economic gains to people who control capital versus people who provide labor. That makes intuitive sense since increased automation favors the investor over the worker. From a financial perspective, the innovators who achieve the biggest breakthroughs in AI will likely reap huge rewards. So, plausible long-term effects of AI include accelerating economic growth and accelerating inequality. Which, okay, sounds like a path we’re already on.

But the most intriguing part of Tim Urban’s papers has to do with the question of whether artificial intelligence advances so quickly that we achieve the Singularity? And if so, when? And then what?

The Singularity

The Singularity, if you’re not a sci-fi or artificial intelligence nerd, refers to that future moment when machine or artificial intelligence gains enough self-learning momentum that it becomes “unbound,” no longer limited to human input or human-level intelligence to advance. It simply surpasses us and keeps on gaining intelligence.

If that happens, we don’t have a good way of understanding the economic (not to mention moral, environmental, or existential) implications. On the positive side, a super-intelligent machine could solve problems that humans simply can’t solve. On the negative side, what guarantee do humans have that a super-intelligent machine wouldn’t disregard our humanity, in the pursuit of solving whatever task it’s working on? The “turn the computer off and turn it back on” hack that the IT department always tells us to do won’t work when the super-intelligent machine knows that trick in advance.

Here’s a bewildering and unsettling thought, as suggested by Tim Urban, who himself builds on the work of other futurists and data scientists. The Singularity may happen in my lifetime.

The “in my lifetime” statement is a crazy-sounding claim, except that it’s backed by a sort of rough consensus belief among computer scientists, economists, and experts on the rapidly observable change in computing power and artificial intelligence technology over recent decades.

Tim_urban_artificial_intelligenceNormally I don’t go in for this kind of fuzzy futurism, except for one thing. AI advances are driven by the mathematics of exponential growth. And the mathematics of exponential growth leads us to previously unexpected results.  Bear with me here for a moment on an analogy from finance, where I am more comfortable.

Things that Compound Grow

A guiding principle of this blog, my book on personal finance, and everything I try to teach about finance is that the exponential growth of invested money leads to an unexpectedly wealthy future. Since exponential growth occurs in technology, artificial intelligence, and other areas of economic growth as well, I have to be open to the unexpected future there as well.

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AI, like populations and money, responds to exponential growth math

Machine computation speeds have increased by a factor of 10 raised to the power of 11 (10 with 11 zeros after it) since World War II, comparing the giant vacuum tube machine of 1943 to today’s fastest computer. Most lay people know a popular version of what’s known as Moore’s Law, which observes that computing power doubles every 18 months. Miniaturization, memory storage, and costs all improve in similarly exponential ways. Continuing our compounding improvements in AI, futurists estimate that computers are on pace to match total human intelligence somewhere between 2045 and 2080. From there, rapid advances would likely far surpass human intellectual capacity.

As Tim Urban concludes in his paper, the big issue in artificial intelligence really isn’t economic gains.

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Will It Be A Nice God?

Nor is the big issue whether China or some other country is getting ahead of the United States in research into AI. That last issue is kind of like worrying about who will finally capture the Iron throne when Winter is Coming.

No. Rather, if Urban’s summary understanding of our best minds on AI are right – if you give some credence to the Singularity possibly in our lifetime – then the real question Urban asks us to ponder about the Singularity is:

Will It Be A Nice God? 1

A version of this post ran in the San Antonio Express News and Houston Chronicle.

 

Please see related posts

High Speed trading and D&D alignments

Book Review on Book By Ric Edelman

Book Review: Flash Boys, Not So Fast, by Pete Kovac

The Rise Of The Machines

 

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  1. This kicker of a phrase is taken directly from the end of Urban’s Part One, and frankly is just too good not to repeat.

The Capital Gains Tax Cut Proposal – Dead Letter?

About two months ago the Trump Administration floated the idea of a new tax break on income from capital gains, requesting a review by the US Treasury of the idea.1 The tax break would in effect protect investors from having to pay capital gains taxes that result from inflation.

The response from the lamestream media – of which I am a proud member – was swift and condemnatory. “Unilateral Tax Cut for the Rich!” said the New York Times headline. “$100 billion tax cut for the rich” wrote Vox, and “Huge Windfall For The Richest 1%” said The Washington Post. The Times followed up with an Op-Ed questioning its legality, “Trump’s Crony Capitalists Plot a New Heist.”

As a general rule, I enjoy new income tax proposals. They’re fun and instructive. That doesn’t mean I think we should frequently enact new tax laws willy nilly. I just mean that, because taxes are the means by which government leaders most clearly enact their philosophy of what makes for a good society, tax proposals are a great way of figuring out what our leaders care about, and also what we care about.

In reviewing tax proposals, generally we should ask the following questions: Is it practical and enforceable? Does it reward or discourage economic behavior that we want? Is it fiscally prudent? Finally, is it fair? I’m interested in all these questions.

So how would the tax break work?

Capital gains occur when you buy an investment – a business, a stock, some real estate – and then sell that for a gain. If you made a profit of $100,000 on buying and selling your investment, the money you make gets taxed, generally at 20 percent, or $20,000. The proposal would allow you to avoid taxes on the portion of your gains attributable to inflation. But if inflation accounted for half of that $100,000 gain then under this new proposal you’d only owe taxes on half the gain, or $10,000. So yes, this represents a potentially big tax cut.

The tax cuts would be especially beneficial under two scenarios. First, if inflation is high, and second, if the investment is held over a long period of time, such that inflation accounts for a significant portion of the gains. One theory floated by proponents of the tax cut is that wealthy people holding highly appreciated stock, for example, would be motivated to sell if they faced a lower tax bill. Texas Representative Kevin Brady, Chairman of the House Ways and Means Committee is reported to favor this reform, because “I think we ought to look at not penalizing Americans for inflation.”

Beyond those ideas, what’s the main case for this tax break? If you ascribe to the idea that investment and risk-taking is the engine of the economy, then rewarding risk-taking should lead to a more revved economic engine. Lower taxes might mean higher rates of investment, which should mean more economic growth. It’s a theory.

More than a theory, it’s an axiomatic beliefs of Republican leadership, currently in charge of the executive and legislative branches. These beliefs drove the tax changes of December 2017. Larry Kudlow, the top economic advisor to the White House, favors lowering capital gains through inflation-adjustment.

Is it legal?

Critics object to the idea that the US Treasury would enact this inflation-adjustment rule, rather than have Congress pass a tax reform law. Traditionally, constitutionally, the power of taxation resides with Congress. In practice however, the executive branch often leads the charge in proposing changes to tax laws.

What has taken some commentators by surprise is the Trump administration’s proposal that they enact the tax break through executive means. Hence the claims of illegality.

Smaller-scale capital gains on home ownership, small commercial properties, and small businesses – already benefit from targeted tax breaks and tax deferrals like homeowner exemptions and Section 1031 exchanges. Middle-class owners of stocks would tend to own them through tax-protected IRA and 401(k) retirement accounts. so would not pay capital gains taxes, and would not benefit from this change. This proposal seems specifically calibrated for larger-scale investments and the wealthiest taxpayers.

So is it fair?

This is where societal context matters the most, at least to me.

This proposal, theoretically sound or not, legal or not, smacks of class warfare from above. Here’s the context.

If we started from a relatively equal society then I’d be open to the theory of juicing investment through a targeted capital gains tax break. That’s not where we are.

The trend of the last 30 years has sharply increased inequality.

An estimated 65 percent of the gains from the 2017 tax law change will go to the top 20 percent of earners, who will benefit from the drop in corporate tax rates.

The Washington Post – citing a Wharton School study – found that 86 percent of the estimated $100 billion tax cut over the next 10 years would benefit the highest earning 0.1 percent of Americans, the top one-in-a-thousand wealthiest folks. $95 billion of the $100 billion tax cut would benefit the highest earning 5 percent of Americans. So, yeah, this tax cut overwhelmingly favors the people who are already well off.

We already have an income tax system that greatly favors “capital” over “labor.” What I mean by that is that if you are well off and primarily make money from your money – from investments in stocks, businesses or real estate – you generally pay a 20 percent tax rate on the money you make each year.

When you make money from your labor, however your tax rate increases with your salary but above about $50,000 your tax rate on labor will range between 22 and 37 percent.

Finally, can we afford it?

We are far from fiscally sound. The 2017 tax change is likely to increase the deficit by $1 trillion. By comparison, with a price tag of only $100 billion over ten years, this proposal is only a small bad thing, but definitely not a move in the right direction.

 

 

 

 

 

 

 

 

 

 

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  1. This week, President Trump floated the idea of yet another tax break, although Congress – the folks who write tax laws – claims it has no idea what he’s talking about