Nine theses about the future, excerpted from a late-night message to a friend:
1) “The Great Stagnation”: Technological growth is slowing down. The industrial revolution has mostly petered out. Digital technology is an exception, but even now we’re already starting to hit the end of Moore’s law. Software will advance longer and faster than hardware, but it too will hit diminishing returns.
2) “Robots are stealing our jobs”: Automation will continue to replace labor. A few trends will accelerate this. First, as poor countries develop, the price of their labor will rise and automation will become more attractive. Second, as oil gets more expensive, transportation becomes less profitable and manufacturing will become more distributed and move back to developed countries, where labor is expensive and automation is attractive. Third, as technological growth slows down, it will be easier to invest in expensive, durable capital with less risk than exists today. (One way this thesis could be wrong is if technology cheapens human labor faster than robot labor, e.g., major advances in agriculture and house-building but not in CPUs or motors.)
3) “The Sharing Economy”: Digital technology will make it easier than ever to share capital goods. Historically, it made sense to own expensive things like cars, even if you underutilized them, because ownership gave you a lot of option value. However, in the future, services like Zipcar may make it much more feasible to share cars by giving you option value without the high fixed costs of ownership. There are tons of opportunities, not just in cars, for digital technology to dynamically allocate high-fixed-cost low-utilization capital. (Of course, there are many barriers too.)
4) “USA, USA, USA!”: The USA is in much better shape than people realize. We have amazing agriculture, amazing energy resources (especially with fracking), amazing freight rail, amazing internet innovation, and amazing universities. Despite all the ills of our country and despite China and other countries catching up, the USA will remain a global superpower.
5) “Digital goods will be bundled”: It makes no sense to sell digital goods, which have almost no marginal cost, in the same way as physical goods, which have high marginal cost (except for in the short run, maybe, to meet people’s expectations). Eventually many digital goods will be bundled or else given away for free. It is an economic inevitability. Cable companies have known this for years, and companies like Netflix, Spotify, Amazon, Google are also realizing this.
6) “Average is over”: Another consequence of digital goods being so cheap to distribute is that economies of scale will kick in and markets for digital goods will become more winner-take-all. This will result in fewer companies and possibly fewer jobs producing fewer products with giant budgets (i.e., blockbusters). This is already happening with movies, video games, and TV. (People don’t realize it, but in this sense sports are a digital good. It costs about the same to televise an NFL game to 1 million people or 1 billion people.) A result of all this is that digital goods will get cheaper and people will consume more of them.
7) “Personalization”: In some ways, technology will reduce personalization. Because smartphones must be mass produced to be economical, it’s not feasible for everyone to have a unique smartphone like they have more unique art or clothes. Nonetheless, as wealth rises, people tend to spend more on fashion and style and personalization, and I predict this trend will not abate. Personalization will flourish as computer-controlled manufacturing technologies make it easier to personalize physical goods and software makes it easier to personalize digital goods.
8) “Social stratification”: A consequence of increasing automation and winner-take-all digital markets is that income inequality will continue to rise. There may also be fewer jobs, as innovation slows and the creation of new jobs fails to match the automation of old jobs. The average person may enjoy cheaper goods, but not necessarily a higher income. When people realize that economic growth is slowing down and that the average worker is not necessarily getting richer, it may change generational attitudes.
9) “Scarce commodities”: This is speculative, but I am concerned that the world may be overconsuming its non-renewable resources, such as oil, helium, indium, or other rare elements. The main problem is that we have never faced this problem before (on a global scale, at least), so there is no institutional memory of such a problem. I think it’s very difficult for large groups of people to solve problems that have never appeared before. Markets are not as efficient in scenarios like these.