Sunday, August 20, 2017

"Technological Revolutions and Financial Capital"

From the now-defunct NYU class blog "Experiments in Digital Economics".

And to the FT's Izabella Kaminska* right up front:

je lui tire mon chapeau for pointing out that it might be worth keeping track of Perez.

From Experiments in Digital Economics, Feb. 12, 2014:
Carlota Perez argues that the economy is a structurally engineered system of collapse and reward. Every half century capitalism produces a chain of events that repeat themselves time and time again. First, an innovative, disruptive technology comes into the world that essentially causes a revolution and upends the current infrastructure/establishment. This rupture enables a financial bubble to build. Once it grows to an unsustainable, overwhelming size, it bursts and the economy collapses. Upon collapse, a fertile ground comes out of the destruction, which leads to a “golden age”. Once the excesses of the “golden age” take root, political unrest arises.

Why is the economy intentionally built as a house of cards? Tech revolutions replace one technology with another, which leads to massive change and a subsequently explosively volatile period in markets (and potentially massive profitability). The new wealth that accumulates at one end is often more than counterbalanced by the poverty that spreads at the other end. With enough discrepancy in wealth, as noted, political unrest boils over. In theory, the practical task of setting up an adequate regulatory system / safeguards would seem essential to minimize suffering and instability. But the safeguards that exist are only present as to the extent that they enable the continuation of the system that they are designed to oversee.

Perez cites Schumpeter’s “Creative Destruction” theory (destroy old to forge new) as pivotal. Tech revolutions lead to paradigm shifts, which result in inclusion-exclusion mechanisms. Then, Perez writes of an “installation period” that is divided into two sections known as “irruption” and “frenzy.” How are these maintained? The first tech revolution enables the subsequent revolutions. Again, a product of design. Most of core assets of tech revolutions already existed. Every revolution combines truly new tech with others that are simply redefined. Big bang events initiating the revolutions are also bringing cost-competitive or cheaper options to the surface, which leads to investment, lending etc.
  • 1st, Industrial rev > led by Britain (1771)
  • 2nd, Age of steam and railways > led by Britain, then USA (1829)
  • 3rd, Age of steel, electricity and heavy engineering > led by USA then Germany (1875)
  • 4th, Age of oil, the car and mass production > USA > (1908)
  • 5th, Age of info and telecommunications > USA > (1971) 
She explains the technological revolution requires an entire network of interconnected services and infrastructures in addition to the primary technology that enables the new technology to take hold. An example would be when automobiles were invented, the subsequent services that need to be in place for the proliferation of automobiles would be gas stations and mechanics, but for these secondary services to be profitable, there would first need enough cars on the road. Additionally, people need to be educated with how the technology works, a social assimilation of the technology, transitioning it’s use into second nature. This period is painful for those who are awaiting the profits from the new technologies. The “excitement” at the beginning of a technological revolution “divides society” by “widening the gap between rich and poor” because of the frenzy of investment, and a “rift” occurs between “paper values and real values,”  though mentions nothing about how or why she thinks this happens.
   Characterizing the surge of a technological revolution can be divided into four main phases with a turning point at the center of these phases: Irruption, Frenzy, the turning point, Synergy, and Maturity. Irruption is when the new technology is introduced, the “techno-economic split,” with unemployment and the decline of the old industries. Frenzy is a time where there are “new millionaires at one end and growing exclusion at the other,” and mentions protests as almost a natural feature of this inequality, but that eventually fades. Other features include intense investment in the revolution, and decoupling with the whole system, and this is when the financial bubble happens. The Turning Point is “neither an event nor a phase; it is a process of contextual change,” when regulations balance the excesses and unsustainable features, and where the institutional recomposition and the “mode of growth” is defined. Synergy is known as the Golden Age, with coherent growth with increasing externalities, marked with production. The final phase, Maturity, fades into the Irruption of the next revolution, but is seen as the socio-political split, with market saturation of the last products and industries, and disappointment versus complacency. The first two phases fall within the Installation Period, where the last two are in the Deployment Period.

Governing these phases of the technological revolution are the those who control Financial Capital, and those who own Production Capital. Financial Capitalists possess wealth in money or other “paper assets”, acting only to increase wealth, and always seeking to make their money grow; making money with money. Production Capitalists seek to create new wealth by borrowing money from Financial Capital to produce goods and services,  and by innovating and expanding, seek to reap as much wealth as possible off of the laborers. The relationship between these two sets of people changes through the phases of the revolution. During Irruption there is a love affair with Financial Capitalists with the revolution....MUCH MORE 
HT Value Investing World, August 17, 2017

Also at EDE, LazyCoin:
A new currency that stores non-value.
1....LazyCoin is a currency that quantifies lack of activity. With LazyCoin, the more you do nothing the more value you create. 
2 The Minting Process: Proof of Non- Work
Minting new LazyCoin requires participation from at least two parties: one or more Generators, and one Verifier. The role of the Generator is to do nothing. The Verifier observes the Generator to ensure that he or she is doing nothing. When the Generator finishes producing LazyCoin, the Verifier signs a blank LazyCoin, making note of the date and the amount of LazyCoin produced. The Verifier gives the newly minted, certified LazyCoin to the Generator to complete the minting process....
...MORE, but be forewarned, from here it descends into madness

*A couple of Ms. Kaminska's refs to Carlotta Perez:
Davos: Historians dream of fourth industrial revolutions
In the future, we will all be rental serfs

And an Alphaville guest post by Perez:
How to forward a new golden age