Why will people colonize space?

Stanford_Torus_interior.jpg

Noah Smith over at Noahpinion does a rundown on why Firefly doesn’t really resonate with him. I agree with his take:

But in Firefly, why do we – meaning the crew of Serenity – go to space? It’s not for a higher purpose. There’s no science being done, no galaxy being saved. The show’s theme song may be about freedom, but unlike many of the people around them, Mal and his crew aren’t colonists. They aren’t going to found a new, more liberal republic on the virgin soil of a distant world. They aren’t going to build a city on a hill. They have no quest, they seek no knowledge, they fight for no cause, they meet no aliens. Their existence is simply a big fat middle finger to the government in the distance.

And for the same reason, it doesn’t resonate with me much, either.

But neither Noah and I are space colonists. I can’t speak for Noah, but I am above all else a science fiction fan, wedded to romantic notions of human expansion into the wider universe as a higher calling. A secular religion, if you will. Being human feels good, mostly (and I say that as someone who has experienced plenty of strife and difficulty, as well as physical disabilty and mental illness). And being human in the technologically augmented universe of fifty  or five hundred years from now — boosted by 3-D printers, artificial intelligence, robots, smart drugs, transhuman implants — will probably be significantly better, just as the present is vastly better (less poverty, less child mortality, less starvation and hunger, greater variety of tools and products, etc) for the vast majority than fifty or five hundred years ago.

So, if being human feels good, why not go forth and make more of the universe human? After all, if we earthly humans — and our vast chain of simpler and simpler evolutionary ancestors — are little more than awakened chemical elements, why not go forth, spread out, and wake more of the universe up? Let more of the universe experience love, emotion, mathematics, music, logic, technology, and all of the other things that make us human. Could there be a more manifest destiny?

In reality, though, I suspect that the motivations for space colonization will be far baser and more mundane. America’s early European colonists were not exactly motivated by the romantic ideals of free speech and free religion. They were much more motivated by lebensraum, and freedom from rulers they did not like.

First, resources. Resources are limited on earth Asteroid, moon and interplanetary mining offering up the potential to vastly expand the human resource base. This, of course, is basic economics. Humans are often greedy and avaricious. On earth, resources are guarded by the international military order and mutually assured destruction. Invading a country to take its resources is, to say the least, increasingly difficult. And I predict it will get more so as more and more technology (e.g. drones) up the stakes in terms of mutually assured destruction.

In space, no such thing. The universe is — to the best of human knowledge — effectively limitless. If the U.S. — or Microsoft, or China, or SpaceX —  seizes one asteroid, there are plenty more to seize. Once we’re done with near-Earth asteroids, beyond that there’s the asteroid built, and Venus, Mars, Jupiter and their moons, and so on. Then there’s the Kuiper belt and Oort cloud and onward and outward to the nearest stars. Beyond the nearest stars are billions more in our galaxy. And beyond that, lie billions more galaxies. If we are alone in the universe, there’s a whole universe for us to bring to exploit (or, in my romantic vision, bring to life). If not, then we may well have to fight other species for that right.

Hunger for resources and for lebensraum, I expect, will be a very major factor in bringing humanity to the stars, then.

But so too will also be the need to stick a “big fat middle finger to the government in the distance.” In absolutely no way are we humans ideologically homogeneous. Watching the rise and fall and rise of Donald Trump and American nationalism is reinforcing this point.

I am a universalist humanist, and that view stems directly from my view of humanity as a planetary species with the potential to go interplanetary. The vast majority of humanity are substantially more tribal than I am. And very many different tribes of people alienated by the earthly mainstream are likely to want to go. Racial and religious and ideological and tribal supremacists will go to space seeking out their own pure paradises, where rules are set by them, and not by the mainstream. And let them go, these Nazis, and radical Islamists, and cultish sects, and neo-Confederates. Let them fly off to some distant planet or asteroid or space station off in the black infinities to pursue their authoritarian dreams, rather than have them subjugate a corner of the Earth.

The point is that these ideological minorities have far more concrete reason to travel away than anyone from the mainstream. Our species is not homogeneous. That is one of our strengths. Our decentralization allows us to experiment with different modes of government and ideology. Our species over the aeons of history has undoubtedly been carried forward to each new generation by many men and women that we today would deem to be insufferably awful — genocidalists, bigots, rapists, murderers, alongside a few who, I assume, we would see as good people.

It doesn’t matter if we are carried to the stars by the dull and the bad. The point is that we are going. And we — the species — are as a whole species neither dull nor bad. Our children all possess the capacity to deviate from us. Such is the long and winding road of genetic and cultural evolution. Maybe that doesn’t make for great science fiction. But often reality is unspeakably dull, and unspeakably bad.

Universal Basic Income Is Inevitable, Unavoidable, and Incoming

12 1238_Image.jpg

The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. Money, they say, does not grow on trees. (Only as figures on the screen of a computer).

In this world, universal basic income seems like a rather distant prospect. Yes, there are some proposals, like Switzerland and Finland, both of which are holding a referendum on universal basic income. But I expect neither of them to pass. The current political climate is just too patriarchal. We live in a world where free choice is unfashionable. The mass media demonizes the poor as feckless and too lazy and ignorant to make good choices about how to spend their income. Better that the government spend huge chunks of GDP employing bureaucrats to administer tests, to moralize on the virtues of work, and sanction the profligate.

But this world is fast changing, and the more I study the basic facts of economic life in the early 21st century, the more inevitable universal basic income begins to seem.

And no, it’s not because of the robots that are coming to take our jobs, as Erik Brynjolfsson suggests in his excellent The Second Machine Age. While automation is a major economic disruptor that will transform our economy, assuming that robots will dissolve jobs entirely is just buying into the same Lump of Labour fallacy that the Luddites fell for. Automation frees humans from drudgery and opens up the economy to new opportunities. Where once vast swathes of the population toiled in the fields as subsistence farmers, mechanization allowed these people to become industrial workers, and their descendants to become information and creative workers. As today’s industries are decimated, and as the market price of media falls closer and closer toward zero, new avenues will be opened up. New industries will be born in a neverending cycle of creative destruction. Yes, perhaps universal basic income will help ease the current transition that we are going through, but the transition is not the reason why universal basic income is inevitable.

So why is it inevitable? Take a look at Japan, and now the eurozone: economies where consumer price deflation has become an ongoing and entrenched reality. This occurrence has been married to economic stagnation and continued dips into recession. In Japan — which has been in the trap for over two decades — debt levels in the economy have remained high. The debt isn’t being inflated away as it would under a more “normal” rate of growth and inflation. And even in the countries that have avoided outright deflationary spirals, like the UK and the United States, inflation has been very low.

The most major reason, I am coming to believe, is rising efficiency and the growing superabundance of stuff. Cars are becoming more fuel efficient. Homes are becoming more fuel efficient. Vast quantities of solar energy and fracked oil are coming online. China’s growing economy continues to pump out vast quantities of consumer goods. And it’s not just this: people are better educated than ever before, and equipped with incredibly powerful productivity resources like laptops, iPads and smartphones. Information and media has fallen to an essentially free price. If price inflation is a function of the growth of the money supply against growth in the total amount of goods and services produced, then it is very clear why deflation and lowflation have become a problem in the developed world, even with central banks struggling to push out money to reinflate the credit bubble that burst in 2008.

Much, much more is coming down the pipeline. At the core of this As the cost of superabundant and super-accessible solar continues to fall, and as battery efficiencies continue to increase the price of energy for heating, lighting, cooking and transportation (e.g. self-driving electric cars, delivery trucks, and ultimately planes) is being slowly but powerfully pushed toward zero. Heck, if the cost of renewables continue to fall, and advances in AI and automation continue, in thirty or forty years most housework and yardwork will be renewables-powered, and done by robot. Water crises can be alleviated by solar-powered desalination, and resource pressures by solar-powered robot miners.

And just as computers and the internet have made huge quantities of media (such as this blog) free for users, 3-D printers and disassemblers will push the production of stuff much closer to free. People will simply be able to download blueprints from the internet, put their trash into a disassembler and print out new items. Obviously, this won’t work anytime soon for complex objects like smartphones, but every technology company in the world is hustling and grinding for more efficiency in their manufacturing processes. Not to mention that as more and more stuff is manufactured, and as we become more environmentally conscious and efficient at recycling, this huge global stockpile of stuff acts as another deflationary pressure.

These deflationary pressures will gradually seep into services as more and more processes become automated and powered by efficiency increasing machines, drones and robots. This will gradually come to encompass the old inflationary bugbears of medical care, educational costs and construction and maintenance costs. Of course, I don’t expect this dislocation to result in permanent incurable unemployment. People will find stuff to do, and new fields will open up, many of which we are yet to imagine. But the price trend is clear to me: lots and lots of lowflation and deflation. This, ultimately, is at the heart of capitalism. The race for efficiency. The race to do more with less (including less productivity). The race for the lowest costs.

I’ve written about this before. I jokingly called it “hyperdeflation.”

And the obvious outcome, at the very least, is global Japan. This, of course, is not a complete disaster. Japan remains a relatively rich and stable country, even after twenty years of deflation. But Japan’s high level of debt — and particularly government debt — does pose a major concern.  Yes, as a sovereign currency issuer borrowing in its own currency the Japanese government runs no risk of actual default. But slow growth and deflation are stagnationary. And without growth and inflation, the government will have to raise taxes to cover the deficit, spiking the punchbowl and continuing the cycle of debt deflation. And of course, all of the Bank of Japan’s attempts at reigniting inflation and inflating away that debt through complicated monetary operations in financial markets have up until now proven pretty ineffectual.

This is where some form of universal basic income comes in: ultimately, the most direct stimulus for lifting inflation and triggering productive economic activity is putting cash in the people’s hands. What I am suggesting is that printing money and giving it away to people — as opposed to trying to push it out through the complicated and convoluted transmission mechanism of financial sector lending — will ultimately become governments’ major backstop against debt deflation, as well as the temporary joblessness and economic inequality created by technological acceleration. Everything else, thus far, has been pushing on a string. And the deflationary pressure is only going to become stronger as efficiency rises and rises.

Throw enough newly-created money into the economy, inject inflation, and nominal tax revenues can rise to cover the debt load. Similarly, if inflation gets too high, cut back on the money-creation or take money out of circulation and bring inflation into check, just as central banks have done for the last century.

The biggest obstacle to this, in my view, is the interests of those with lots of money, who like deflation because it increases their purchasing power. But in the end, rich people aren’t just sitting on hoards of cash. Most of them do have businesses that would benefit from their clients having higher incomes so as to increase spending, and thus their incomes. Indeed, in a debt-deflationary spiral with default cascades, many of these rentiers would face the same ruin as their clients, as their clients default on their obligations.

And yes, I know that there are legal obstacles to fully-blown helicopter money, chiefly the notion of central bank independence. But I am an advocate of central bank independence, for a variety of reasons. Indeed, I don’t think that universal basic income should be a function of fiscal spending at all, not least because I think that dispassionate and economically literate central bankers tend to be better managers of monetary expansion and contraction than politically motivated — and generally less economically literate — politicians. So everything I am describing can and should be envisioned as a function of monetary policy. Indeed, what I am advocating for is a new set of core monetary policy tools for the 21st century.

Is the rent really too damn high?

new study from Harvard University shows that in the last thirty years, rents have risen and the income of renters has fallen:

[America’s Rental Housing]

Read More At TheWeek.com

Permanent Employment Stagnation?

Paul Krugman says that we may have reached a “depressed equilibrium” that unemployment may remain elevated for a long, long time to come:

We had what felt like an epic intellectual debate over austerity economics, which ended, insofar as such debates ever end, with a stunning victory for the anti-austerity side — and hardly anything changed in the real world. Meanwhile, the pain caucus has found a new target, inventing dubious reasons for monetary tightening. And mass unemployment goes on.

So how does this end? Here’s a depressing thought: maybe it doesn’t.

True, something could come along — a new technology that induces lots of investment, a war, or maybe just a sufficient accumulation of “use, decay, and obsolescence”, as Keynes put it. But at this point I have real doubts about whether there will be events that force policy action.

First of all, I think many of us used to believe that sustained high unemployment would lead to substantial, perhaps accelerating deflation — and that this would push policymakers into doing something forceful. It’s now clear, however, that the relationship between inflation and unemployment flattens out at low inflation rates.

Last week, I wrote a piece arguing much the same thing:

It is also possible that we have reached what John Maynard Keynes called a “depressed equilibrium” where capital continues to be hoarded and not used to raise employment levels back to the pre-crash norm, and grow the economy out of the slump. With a private sector awash in debt and refusing to take on more to act as a source of growth, the only other agency with the ability to borrow and spend the economy back to growth is the government.

As the rate of technological growth accelerates, the chances of a technology shock that greatly increases investment seems to rise. New technologies coming onto the market in the coming years — lower-cost photovoltaic solar, 3-D printing, synthetic fossil fuels and more exotic things like asteroid mining — have a lot of potential to create a lot of demand. Yet, just as advanced manufacturing technologies have done in the past, they may end up destroying more jobs than they create. This could further accelerate the big post-2008 redistribution trend — falling wage and salary incomes and rising corporate profits as a percentage of GDP:

This general trend toward the obsolescence of labour is worrying. With less and less demand for labour in the economy due to things like robots, computerisation and job migration we could see more and more people sitting around doing nothing and collecting unemployment cheques. Perhaps this is the accidental fulfilment of the leisure society that Keynes envisaged. As humanity has gotten better at fulfilling our material needs, it takes less labour to do so. The unemployed are caught between a rock and a hard place; social and governmental expectations that able-bodied people should work, up against the economic reality that the demand for labour just doesn’t exist.

Without a technology shock or other exogenous shock, there may be another route out of the depressed equilibrium, and mass unemployment. I am not entirely convinced by Krugman’s argument that high unemployment won’t produce systemic price deflation. With core inflation at its lowest point in history in the United States and falling it does appear possible that the deflationary trend is beginning to accelerate even as headline unemployment gradually creeps down. This has after all been the norm in Japan for the last twenty years. With accelerating deflation, it seems much likelier that we will see both monetary and fiscal policy throwing money at lowering unemployment. But in the long run, if the trend toward the obsolescence of labour continues, this may only buy some temporary respite for the unemployed. In the long run, individuals, governments and society may have to adjust attitudes toward work and employment and adapt to a new normal encompassing less work, and more leisure.

The “Unemployment Is Voluntary” Myth

Loyd S. Pettegrew and Carol A. Vance of the Ludwig von Mises Institute ask and answer a question:

Why does a large portion of the population choose not to work when there are many jobs available? The answer is simple. If you can receive 2-3 times as much money from unemployment, disability, and/or welfare benefits (subsidized housing, food stamps, free cellphones, etc.) as you can from a temporary or part-time job, and live a life of leisure, why work? In 2011, the U.S. government spent over $800 billion on this “welfare,” exceeding expenditures on Social Security or Medicare.

So, is it true? Is the reason why unemployment is elevated that millions of Americans are choosing not to work because of cushy government welfare provisions?

After all, welfare payments as a percentage of GDP and unemployment have risen in tandem:

U6vswelfare

However, in this case it is clear that correlation is not causation. Why?

Well, if labour was truly slacking off then we would expect to see a shortage of labour. But instead we see an elevated level of applicants per job openings:

dr-7-people-in-pool-job-ope

This means that there are not enough job openings in the economy even for the number of current jobseekers, let alone the discouraged workers and disabled individuals who are claiming welfare. If the Federal government were to throw them all off welfare, the number of jobseekers per opening — already elevated — would soar. This means that the issue causing unemployment is not individuals dropping out of the labour force, but an economy that isn’t creating jobs very rapidly. So welfare is not acting as a disincentive to work, in this case. It is acting as supplementary income for those who cannot otherwise find an opening in the economy due to factors like job migration and automation reducing the level of labour desired by employers.

Under other conditions, it is possible that welfare payments could act as a disincentive to work. If there were a low number of applicants per opening, then welfare that paid better than the lowest-paid jobs available could be seen as a disincentive to work. But now, with job openings at a very low level? Don’t be ridiculous.

Chinese Treasury Contradictions…

One mistake I may have made in the two years I have been writing publicly is taking the rhetoric of the Chinese and Russian governments a little too seriously, particularly over their relationship with the United States and the dollar.

Back in 2011, both China and Russia made a lot of noise about dumping US debt, or at least investing a lot less in it. Vladimir Putin said:

They are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar. If [in America] there is a systemic malfunction, this will affect everyone. Countries like Russia and China hold a significant part of their reserves in American securities. There should be other reserve currencies.

And China were vocally critical too:

China, the largest foreign investor in US government securities, joined Russia in criticising American policymakers for failing to ensure borrowing is reined in after a stopgap deal to raise the nation’s debt limit.

People’s Bank of China governor Zhou Xiaochuan said China‘s central bank would monitor US efforts to tackle its debt, and state-run Xinhua News Agency blasted what it called the “madcap” brinkmanship of American lawmakers.

But just this month — almost two years after China blasted America for failing to cut debt levels — China’s Treasury holdings hit a record level of  $1.223 trillion.  And Russian treasury holdings are $20 billion higher than they were in 2012. So all of those protestations, it seems, were a lot of hot air. While it is true that various growing industrial powers are setting up alternative reserve currency systems, China and Russia aren’t ready to dump the dollar system anytime soon.

Now, the Federal Reserve has to some degree further enticed China into buying treasuries by giving them direct access to the Treasury auctions, allowing them to cut out the Wall Street middlemen. Maybe if that hadn’t happened, Chinese Treasury ownership would be lower.

But ultimately, the present system is very favourable for the BRICs, who have been able to build up massive manufacturing and infrastructural bases as a means to satisfy American and Western demand. In that sense, the post-Bretton Woods globalisation has been as much a free lunch for the developing world as it has been for anyone else. And why would China and Russia want to rock the boat by engaging in things like mass Treasury dumpings, trade war or proxy wars? They are slowly and gradually gaining on the West, without having to engage in war or trade war. As I noted in 2011:

I believe that the current world order suits China very much — their manufacturing exporters (and resource importers) get the stability of the mega-importing Americans spending mega-dollars on a military budget that maintains global stability. Global instability would mean everyone would pay more for imports, due to heightened insurance costs and other overheads.

Of course, a panic in the Chinese mainland — maybe a financial crash, or the bursting of the Chinese property bubble — might result in China’s government doing something rash.

But until then it is unlikely we will see the Eurasian holders of Treasuries engaging in much liquidation anytime soon — however much their leaders complain about American fiscal and monetary policy. Actions speak louder than words.

Is Bitcoin A Bubble?

One key hallmark of Bitcoin’s price rise from the beginning of 2013 to now, where it has just crept above $240 a coin — up $100 a coin from the last time I wrote about Bitcoin — has been the oft-repeated mantra that Bitcoin is in a speculative bubble, and its price may be due to imminently collapse. This has spawned article after article after article after article — people were calling Bitcoin a bubble at $30 a coin, at $60 a coin — yet the price keeps climbing (and those who were discouraged from investing at lower prices missed out on spectacular gains). It is certain that at some stage the sellers will outnumber the bidders and the price will fall or crash. But when?

I ended my last article on Bitcoin joking that Bitcoin had a much better chance of being part of the monetary future than Groupon did being part of the future of commerce, and that I wouldn’t be surprised to see Bitcoin at some stage trading at Groupon’s record market cap — enough to price Bitcoin at $2,000 a coin. But this was a joke. Bitcoin and Groupon are fundamentally different investments; Bitcoin is an experimental deflationary crypto-currency instrument and anonymous payments system, while Groupon is the equity in an experimental company. That means Bitcoin is a whole new asset class. And not a fantasy asset class, but one that is rapidly permeating the spheres of human consciousness, an idea that is replicating and multiplying at a rate far beyond its original audience of crypto-anarchists, heterodox monetary theorists, and black marketeers.

I don’t really see Bitcoin (and its crypto-currency siblings) facilitating trade a great deal in the future (although, its deflationary-nature might make it attractive to merchants who wish to hoard it). During Bitcoin’s recent run (or more accurately, hyper-deflation) Bitcoin’s velocity has actually fallen sharply as its rising value has encouraged hoarding. Gresham’s Law implies that whenever possible Bitcoin’s deflationary nature will subordinate it to fiat currency for transactions. State-backed currencies tend to depreciate year-on-year, encouraging spending and discouraging saving. That is treated by central bankers as an imperative of monetary policy. Yet Bitcoin’s deflationary nature encourages the opposite, implying that Bitcoin is not a threat to state-backed fiat but a complementary currency, an intangible, anonymous, global and infinitely mobile counterpart to tangibles like gold.

Gold remains a part of the global financial system, a savings instrument alongside its tiny role as an industrial metal and its larger role as jewellery. Credit-Suisse estimated that total global financial assets in 2012 were $223 trillion, of which gold makes up 0.6%, translating to a $1.338 trillion market cap for gold as a financial asset, (although a larger amount of gold — around $8 trillion total at current prices — exists in other forms like jewellery).

There are no fundamental ways to estimate the value of assets like gold or bitcoin, and their values are entirely in the eye of the beholder. But we know Bitcoin is presently vastly outperforming gold as a speculative savings vehicle, and in spite of the fundamental differences (particularly that one is tangible, and one is not) this may drive more and more investors — including institutional investors and funds looking to diversify into something slightly futuristic — into Bitcoin. If Bitcoin’s market cap were to rise to equal that of gold’s as a percentage of global GDP today, that would imply a price of $160,650 per Bitcoin, far, far higher than any price target I have yet seen. Even if Bitcoin were only to rise to 10% of gold’s market cap, that would imply a Bitcoin price of $16,065, still far higher than any price target I have seen. Even at 1% of gold’s market cap, Bitcoin would still fetch $1607 per coin, an almost-sevenfold increase over today’s price.

And gold is by no means a widely-held asset in today’s global financial system. If Bitcoin grew to 1% of the global financial system today each each coin would reach $267,600 in price.

These are, of course, fantasy figures based on back-of-an-envelope calculations, and should not be taken seriously. But what they show is that if the idea of Bitcoin continues to flourish — and if fund managers, and institutional investors begin to hunger for a slice of yield — then there is more than enough liquidity out there today to drive Bitcoin far, far higher.

On the other hand, if Bitcoin is outlawed worldwide by governments (perhaps due to concerns over money laundering and tax evasion) then of course any chance of it beginning to attract any such levels of interest are nil.  But the current government approach to Bitcoin so far appears to be one of attempted regulation rather than outright warfare.

At some stage Bitcoin may be supplanted by competitor crypto-currencies, but so far it is by far the most widely-adopted, and cryptography experts agree that its cryptography is sound, so there is no reason to assume that this may occur anytime soon. But judging by the birthrate and deathrate of social networks in recent years, a fast birthrate and deathrate for crypto-currencies is by no means out of the question. Technology is a fast-paced world where yesterday’s prize-pig is today’s turkey, and already there exist currencies built on similar technology to Bitcoin trading at much lower levels — Litecoin, Namecoin, Freicoin, PPCoin, Novacoin, etc. Whether these act as supplements or competitors remains to be seen, but it may be helpful to remember that while social networking sites today remain hugely popular, the early leaders in that field like MySpace and Friendster are nowhere to be seen. Is it possible that Bitcoin is the MySpace of decentralised crypto-currencies, and that the Facebook and Twitter are just around the corner? Yes — perhaps a platform with a more consumer-friendly interface than Bitcoin will come to dominate the field, making up a sizeable chunk of global financial assets, and Bitcoin itself will dwindle.  Certainly, the source code is available to larger organisations (Facebook? Google? Amazon? Banks?) who may wish to experiment with their own decentralised crypto-currency systems.

It is really hard to say what ultimately will occur, but Bitcoin does demonstrate the principle that anonymous, deflationary crypto-currency can be an attractive complementary proposition in a world where inflationary state-backed fiat currency has become the norm. I would caution that holders of Bitcoins — particularly those sitting on large long-term profits — should seek to diversify both into real-world assets like real estate, productive assets like farmland and factories, and index funds, as well as into new crypto-currencies as they emerge, particularly ones built with more consumer-friendly interfaces that may come to dominate the market. Bitcoin could easily end the year below its current price, but as Bitcoin grows in the public awareness this is decreasingly likely. In the long-term, a market cap target of 1% of gold’s market cap (currently, that would yield a price of $1607 per coin) seems viable, especially if larger players including institutions begin to experiment in the strange new world of crypto-currency.