Category Archives: Economics

Climate disaster and how to avoid it

Today the IPCC came out with its sternest warning yet about the dangers the world faces if global warming isn’t held to 1.5degC.

The thing is, we already know how Governments can do this. They tax the things they want less of and incentivise the things they want more of. This is simple and it works.

Take electric cars. If you want sales to grow fast bring in an effective incentive scheme. Norway leads the field on this. Its electric car policy saw a huge increase in the sales of electric cars. In 2015 22% of new car sales were electric and this is expected to grow to 30% in 2020. This was achieved through low road tax, VAT exemption, free parking for EVs and access to bus lanes, for example.

Or alternative energy.

Solar energy went from virtually nothing to 3% of the UK’s total energy generation between 2010 and 2017, driven by reducing costs for photovoltaics but mainly by Government incentives in the form of the Feed In Tariff

Government actions matter. Concerned about the rising cost the Government changed the policy in 2016 with the result that solar installations plummeted by 74% year on year in March 2016. Solar will continue to grow because the economics are getting better, but more slowly that it would have otherwise.

Windpower is another case in point. Antipathy to onshore wind has effectively stopped dead development of new onshore wind, the cheapest form of renewable energy. Offshore wind is still growing strongly, though, and is now bidding for contracts below that offered to nuclear projects.

Governments all have a balancing act to perform, trading off the immediate needs of the electorate, without whom they will not remain in power, and the longer-term needs of the country. 

To encourage the growth of more environmentally-friendly transport options – cycling, walking, public transport, electric cars – raising fuel taxes is a sensible policy. And yet petrol prices are a sensitive issue with the public so we have not had a rise in duty for nine years

The best hope of avoiding the short term trap is the law. The Climate Change Act of 2008 was a great example of this – in effect the Government willingly making a rod for its own back.

This law obligates the Government to reduce CO2 emissions to at least 80% below the 1990 baseline. This allows citizens and environmental groups to hold the Government’s feed to the fire if they don’t live up to this challenge. This doesn’t eliminate the short term decisions which will have a potential long-term detrimental effect, but it does make it far more likely that course correction is forthcoming. 

It will be interesting to see what this month’s budget tells us about the balancing act.

The answer to post-industrialisation

It’s not hard to see the effects of post-industrialisation in Britain. Today’s Observer carried a vivid account of its effects in Ebbw Vale, a once-thriving steel town.

And there are some sensible suggestions about how to deal with the aftermath, as well as the next wave of de-employment which will soon be upon us, brought about by the increasing use of robots and AI. As the article quotes:

“Automation is a risk to many occupations across Wales and the UK,” says Professor Julie Lydon, chair of Universities Wales who recently wrote an article entitled The Robots are Coming.

The key to avoiding a repeat of the devastation caused when the mines and factories shut is investment in skills, according to Lydon.”

So his solution, common to many, is to “focus on developing skills which are with you for life, and make you more adaptable and employable through your career.” This is easier said than done. He says it will mean “building on existing collaboration between universities, employers and colleges, and finding new ways to provide these skills, such as through degree apprenticeships.” This is all good stuff, and the right thing to be doing now, slightly ahead of the automation drive to come. But as automation pushes further and deeper into the economy, it won’t be enough.

This approach doesn’t address the longer-term. It’s hard to see many jobs which won’t be capable of automation in the future. And if we continue simply to focus on “jobs” as if this is a synonym for a fulfilled life, we will be attempting to solve the short-term problem while leaving the much larger challenge completely unaddressed.

We need to start teaching our children to develop meaningful lives with or without “jobs”, or we may find ourselves slipping into a world where we try to out-compete automation at any cost in a quest to hang onto the “jobs”, a losing battle and one which will cost dear.

Why Musk will get it right with the Tesla 3

  Tesla made headlines last week when the launch of the much-awaited Tesla 3, the economy-priced electric car for the masses, garnered 325,000 pre-orders at $1,000 a pop in the very first week. Some are pointing out that Tesla has missed a lot of deadlines along the way and that the success of the 3 is by no means assured. 

But yesterday we saw the first successful landing of a Falcon 9 rocket at sea. The previous attempts all failed for one reason an another, but this was the point; Musk is a physicist by training and temperament and he knows that doing hard things needs a lot of experimentation. And experimentation means failure. And failure is good because it shows you want needs to change to succeed in the end. 

Tesla may have missed a lot of deadlines in the past but with each model the performance has been better. One thing is for sure; Tesla has been learning hard and fast about what it takes to make a successful mass market electric car. 

The era of emulation and what it means for us

Robin Hanson
Robin Hanson

What is the next phase for humanity? Robin Hanson set out to answer this question in a thought-provoking and lively talk to London Futurists on March 19th.

He argues that humanity has been through several distinct economic growth phases each of which has been “exponential” in character. The first lasted nearly 200,000 years from the moment Homo Sapiens first emerged as hunter-gatherers. These early humans were vastly superior to the animals they replaced, successfully exploiting their environment through the use of organisation and tools. The next economic era began with the arrival of agriculture about 10,000 years ago and brought about a huge acceleration in development, with efficient use of labour and larger and more sophisticated societies. This ended with the birth of the third era, the industrial era, which started around 1760. Again, an exponential increase in economic output and efficiency. This gave way to the computer age in which we currently are. The exponential periods of these eras has been becoming shorter and shorter with world GDP doubling roughly every 15 to 20 years today.

What, Hanson asked, could create an economy which doubles every week or month?

And the answer he comes up with is – robots.

What Hanson means by “robots” is true general artificial intelligence and he argues there are three ways to do this: better software, a comprehensive theory of intelligence, or emulating a human brain.

And it is his belief that the most likely scenario is that we will first develop the capacity to emulate a human brain and that this should happen “sometime in the next century”.

All we need, he argues, are “many parallel computers” which are capable of scanning a human brain, modelling every brain cell type and recording what we see and then “running the model”.

This doesn’t mean we need to understand how a brain works – he thinks we may be centuries away from this. But we would be able to run what he calls “EMs” – short for emulations.

If we had them there would be a new age – the age of EM.

It is this new era, then, that he sets out to describe. Running in software, EMs are effectively immortal -“like houses and cars, if we choose”. But it’s unlikely EMs will choose to be – much more likely that they will spawn short-lived versions of themselves to carry out repetitive or one-off tasks and then shut these down when they have served their purpose.

The new age will have new morals – EMs will probably be OK with termination and respooling.

Partly this is simply a result of obsolescence – “Currently if the economy doubles every 15 years your skills as an individual become obsolete in that time.” This is why we retire and let the next generation learn the next set of skills. “In the world of the EM faster emulation means faster obsolescence.”

They will run faster because, even though these new consciouses are essentially human brains, “human brains are parallel so more hardware means more speed.” And they will take up very little space as they only really need to inhabit robot bodies when they need to do something in the physical instead of the virtual world. Hanson believes most of the time they will inhabit a purely virtual environment.

Hanson sees the birth of EMs as inevitable – they will be developed to speed economic development. And in the early days humans will own the EMs – much like slaves were owned. But just like slaves, some EMs will “buy” their freedom and from there they will quickly make up more and more of the economy (which may now be doubling in a matter of weeks or days).  Because they are so cheap to create (an EM could be copied millions of times at very little cost) and because they cost so little to run he says wages will effectively fall to way below human subsistence wages.

Humans will be eclipsed. The whole human race will retire.

Whether that retirement is a happy or a tragic one is very much up to us, he believes, as we will be quite rich enough as a whole to ensure a good outcome, although those riches will be extremely unequally distributed.

But either way, we might be retiring into a very different world. “Robots don’t need nature” he says. “They may choose to save nature but don’t need to.”

And if we are thinking all this doesn’t sound too good, and that we humans are bound to resist, he doesn’t really buy the “robot wars” scenario, either. “There wasn’t a farmer-industry war during the switch to the industrial era.”

So if this new era could begin soon, how long will it last? Hanson believes that because EMs will be running so fast the whole era could last just a couple of years. After that, maybe they will develop true software AI which will spawn the next era – who knows….

Robin Hanson is an associate professor of economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University.

More promise for solar breakthroughs

Sample 3D Modules
Sample 3D Modules Credit: Allegra Boverman

The 3D solar towers being developed by MIT illustrate just how much further we have to go in stretching the still new technology of solar power. These experimental towers are up to 20 times as efficient as today’s flat roof panels.

If the British Government needed any further evidence that the plans for Hinkley Point are misguided, this should give them pause. Guaranteeing to pay three times today’s price for electricity for the next 30 years against a backdrop of dramatic increases in efficiency of solar power (which has already reached price parity in many places at today’s prices) is lunacy.

I would be tempted to conclude that the decision is ideological, but I just can’t see how a Conservative government getting into bed with a French state utility and the Chinese Government to make their white elephant a reality gels with the Conservative free market philosophy. Perhaps it is simply that having large grey boxes hidden away on the coasts are easier on the eye than rooftop solar panels and windfarms? Who knows.

The industries of the future

The question Alec Ross set out to answer at the RSA today was: “If the last 25 years shaped by Internet, what comes next?” Industries of the Future His book The Industries of the Future addresses the question more fully, but for the audience today he focussed on two examples: robots and AI, and genomics.

He began, though, with central thesis: if land was the raw material of agricultural age and iron the raw material of the industrial age, then data is the raw material of the information age.

“We now live in the age of zettabyte, he said. “90% world’s data has been produced in the last two years.” There are now 16bn internet connected devices and by 2020 that number will have grown to 40bn. “Harvesting of actionable business or medial intelligence from this data will create the trillion dollar industries of the future.”

But now for the two example industries of the future.

” The cartoons of the 70s will be the reality of 2020s,” he argues. One of the key advances is the fact that we finally seem to have cracked the problem of robots grasping – a surprisingly difficult task, he says. The other is the advent of “cloud robotics”. This means robots don’t have to be packed with hardware and software if they are connected to the cloud. “We don’t have to invent millions of very clever robots.”

He uses the example of Foxconn, the Chinese giant responsible for vast numbers of iPhones and Samsung Galaxies. Foxconn is a poster child for globalisation with 973,000 employees in China. But the ceo says he’s not going to hire any more people and instead is now buying $14k robots. He argues humans are “CAPEX-light, but OPEX-heavy” whereas robots are the opposite.

This is the start of a profound trend. “Cloud robotics coupled with rise of AI will mean a move to non-routine and cognitive work.”

The second industry of the future he focussed on is the commercialisation of genomics. “It has been 15 years since the first mapping of human genome and finally we are now within two or three years” of really beginning to reap the benefits he says. Diagnostic test are now in development with are over 100 times more sensitive than MRI scanning, holding out the prospect that we could have an annual blood test which could detect virtually all cancers at stage 1, when they are eminently curable, he predicts.

However, all these advances come with “promise and peril”.

“Tomorrow will be better than today for most of us. But you have to be pretty clever to navigate your way through with the pace of change increasing all the time.”

There were other topics which came up in the Q&A on which he had salient views:


Cyber security: “Weaponisation of code is the most signification development since the weaponisation of atoms. The difference is weaponisation of code is much easier. Once it is done it can be copied. I have a very dark view – the threat from cyber weapons is closer than that of nuclear weapons.”

The importance of gender equality:  “There is a correlation between women on board and economic performance,” he said, citing a study from the Peterson Centre for International Economics.

Economics: “This the the key question,” he said.  The problem dynamic is “bounty and spread”. When Instagram was sold to Facebook for $1bn it had only 20 employees. Kodak, which went bust at pretty much the same time, had 120,000 employees. When we create these internet billionaires we have a “corresponding obligation to use the resources of the plutocrats to avoid creating a violent under-privileged underclass”.

R&D: “Those states and societies (like Russia) which have dialed R&D down are saving money in the short term but killing themselves in the long run.” China, he says, is being smart. “They believe they missed out on the commercialisation of the Internet and they are putting a spectacular amount of investment in genomics and clean tech” so they don’t miss out of these coming revolutions.


Loss aversion and the EU referendum

eu-union-jack-flagsGiven the prevalence of the “loss aversion” cognitive bias, it should in theory be highly unlikely that the British population votes to leave the EU. As a refresher, here’s how Wikipedia defines it:

In economics and decision theory, loss aversion refers to people’s tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are twice as powerful, psychologically, as gains

The “out” camp have to persuade the electorate that leaving the EU will result in upside for them and the country. The “in” camp on the other hand need to focus on the benefits of the status quo and the risk of downside to the electorate and the country from leaving. Given the mechanics of loss aversion it should be very much easier for the latter than the former, especially against the backdrop of a split electorate.

Network Society: the coming socio-economic phase transformation

The world is headed for a big transition, says David Orban, entrepreneur and Singularity University faculty member, speaking at a London Futurists lecture in London on February 6th.

“Technology created humans,” he says. “And we continue to use reason to advance technology for humanity’s benefit.” But the key to the future wellbeing of society lies in practicing open science and having an open society, he says.

David Orban
David Orban

Historically we are always “shackled to moral norms by limitations of technology” he says. For example we had child labour because our technology wasn’t good enough to run industrial revolution mills without them. We had slavery because our agricultural and engineering techniques were running behind our economic development.

Now we destroy the environment because it is deemed necessary in order for economies to grow and citizens to consume. Once these ills become untenable, necessity drives alternatives, he says.

Widespread social and cultural change only happens once a robust technology platform underpins them

The networked exponential technologies which are coming next are going to profoundly disrupt the Nation State, he argues.

Solar panels are a good example. When people put solar panels on their roofs they make lots of small decisions, each of which doesn’t cost much. When the State makes energy decision for the country it is done by one big, long term centralised project (think Hinkley Point). The opportunity to call the future wrong is vastly more in the second case than the former.

Another example is 3D printing. This can stop waste from centralised manufacturing getting it wrong but distributes power to the consumer.

And growing food hydroponically in the basement of apartment blocks, reduces waste by bringing food production close to the consumer, using exact quantities of nutrients and light and heat, and growing year-round.

And there are lots more examples, he says:

  • Health sensors keeping people healthy
  • MOOCs educating people wherever they are
  • Crypto currencies reducing the cost of transactions and challenging the power of the banks
  • Even Airbnb competing with security agencies through “a self-reinforcing reputation system which expels from the network if breached”

All such examples are inevitably portrayed as passing fads, he says, but they are in fact part of unstoppable trend.

In this environment exponential technologies lead to exponential uncertainties, he says. There is great value for those whose get it right.

The next trillion dollar companies are being born right now

What has to happen next, he argues, is for computers to be allowed to make decisions by themselves. The world is rapidly become too complex and fast-moving for humans to be the only decision-makers. The LHC, for example, throws away 99% of data itself because it knows it is of no value and the human scientists would become overwhelmed. “Self-driving cars need to make their own decisions.”

Dumb machines must lose and smart machines must win

The idea that it is essential for humans to have the last word was fatally undermined when Andreas Lubitz decided to deliberately fly Flight 9525 into a mountainside, he says. “Planes must be able to disobey and save their passengers.”

But for computers to make decision we need to make them moral. We have a “cosmic responsibility to adapt and face our challenges” he says. We need a global network of ideas which can evolve scaleable solutions. First there will be a science of morality then we will need to engineer morality into our machines. It is, he says, inevitable.

The promise of the fully networked society is great, but the outcome isn’t a given.  “It is up to us whether this phase transition will be peaceful or not”, he says. The current levels of inequality will be just the start unless we meet the challenge to change society so that everyone can enjoy the coming benefits. “We cannot continue vilify the unemployed as we do now,” he says, because in the future we all will be unemployed.

David Orban is an entrepreneur, a member of the Faculty of, and Advisor to the Singularity University, and the Founder of Network Society Research, a London based global non-profit.

The end of the German Economic Miracle?

There was an interesting article in The Observer today which argued that the German Economic Miracle maybe coming to an end. The argument was that the obsession with balanced budget had resulted in years of underinvestment in infrastructure and innovation and that the country was therefore unprepared for the challenges of it’s changing demography.

The Observer quoted Christian Democrat politician Jens Spahn saying:

“While we have been enjoying our success, we’ve been falling behind in key areas such as the digital economy. Today people across the world may be buying BMWs and Mercedes cars because of their quality engineering, but tomorrow we may be choosing one car over the next because it has superior software.”

I must say I agree with him on the car front – German cars definitely don’t prioritise software and to my mind it is unquestionable that software functionality will become more and more important for car buyers – to the point that it may indeed become a deal-breaker.

At the same time I’m not sure I really buy the picture of German industry starving for investment in advanced technologies. I have recently (and co-incidentally) been very struck by the number of times it has been a German firm behind innovative precision engineering products which have popped up in various TV programmes. In Grand Designs, for instance, any really innovative module systems seem to be built in Germany and then shipped in on the back of lorries to some forlorn plot in rainy England. And I seem to recall the huge tunnel boring machines which are cutting Crossrail tunnels under London are – you guesses it – German. And I seem to remember that the dramatic lattice work for the roof of the new Canary Wharf Crossrail station is also German.

I realise this is all rather anecdotal – but still…. it makes me wonder if the article is writing off German industry a bit too soon….