Rise of the Machines by Stephen Duneier First published December 9, 2014
The very first tool, known as an Oldowan chopper, was invented 2.6 million years ago (see image). It wasn’t until 1.7 million years ago when the next major technological breakthrough occurred with the invention of Ancheulean Hardware (see image). Take a good hard look at the images to fully fathom the leap forward in technological innovation that was achieved over a 900,000 year span.
Invented 2.6 Million Years Ago
Invented 1.7 Million Years Ago
13,000 years ago, man was still traveling in small nomadic packs. Its travel patterns dictated by the migration of the animals it hunted and the seasonality of the plants it gathered. It wasn’t for another 1,500 years that the 1st known village was created, made possible by the invention of a granary, where grains could be stored for future use. This allowed for the use of seeds to grow their own food and the advent of farming. We may think of GMO crops as a new phenomenon, but it is merely an extension of what began during the stone age, 11,500 years ago. It is called domestication, the process of changing crops through human interference. When humans began to favor the tastiest, highest yielding, easiest to harvest plants, they interrupted the natural cycle. If you think about it, rightly or wrongly, what companies like Monsanto are doing is an extension of that on a molecular level, by selecting genes and breeding crops to be ever more useful to humans.
10,000 years ago, animal domestication began. Having meat and milk readily available, as well as hair and skin for warmth, man began to urbanize and seasons no longer controlled them. The efficiency provided by these early technological innovations changed civilization forever. Hunters and gatherers suddenly found themselves out of work. They learned new skills, like tilling soil, spreading seeds, shearing sheep and milking cows.
Employing beasts of burden allowed for plowing, yet another leap forward in productivity, displacing many of the highly skilled agricultural workers. Luckily, they’d had a good 1,500 year run before the animals took their jobs, though. At the time, I’m certain it must have been very stressful for those who lost their place in the hierarchy to the stupid beasts, but as a species, we look back on it as the dawn of civilization.
Freed from the burden of farming, specialists developed new skills and new technologies. Home construction was improved with the invention of plaster, which required heating limestone at 1,000+ degrees for days. A mere 3,000 years later, what was learned by those fire workers led to metal work. The Bronze Age lasted 2,000 years, leading to the Iron Age for 600 more. With each advancement, efficiency and productivity soared, displacing workers, but also freeing them for other pursuits, such as the arts and sciences, which led to yet further advancements (and greed and politics, but that’s a topic for a future piece).
Fast forward to 1958, when Herbert Simon, Nobel Prize winner and co-inventor of the “General Problem Solver”, a computer program designed to solve any logic problem, predicted that a computer would be the world chess champion by 1968. He was wrong, and many publicly and loudly mocked his ridiculous prediction at the time. Although computer chess programs improved their ELO chess rating each year, it wasn’t until 1997, 39 years after his prediction was made, that Deep Blue beat the world chess champion, Gary Kasparov. At the time, Deep Blue had 32 processors and could calculate an astounding 200 million potential chess moves per second. $100 million and 5 years later, Blue Gene was employing 131,000 processors to routinely handle 280 trillion operations every second. Today, free apps on your mobile phone have achieved grandmaster levels and regularly beat the top human players.
Our ancestors existed as hunter / gatherers for millions of years. For tens of thousands more, we were primarily an agrarian society. Manufacturing dominated the American job market for a hundred years and services for half that time. The pace of change is increasing at an astounding rate, but we are slow to acknowledge just how rapid it is. The point I am trying to make is that our species has been innovating and improving productivity for millions of years. With each leap forward, the gap between one leap and the next has been getting shorter and shorter, and with it, the time afforded people, and society as a whole, to adjust, has been been shrinking too.
Bookkeepers and accountants have been replaced at an astounding pace by Quicken, which is now being replaced by the tax authorities own websites. Lawyers have been undermined by LegalZoom. Stock brokers replaced by E-Trade. Before our very eyes, the skilled laborers of the service sectors are being replaced by technology (and it’s not even very sophisticated technology), but these are the jobs for which our universities continue to prepare their students. They are creating the next generation of hunter/gatherers just as the world is moving to farming. It’s the reason why America is now more highly educated than at any other time in its history, yet we are experiencing a skills gap.
For millions of years, humans have been using technology to free them up to do the tasks that require greater computational ability. It would appear, we may have hit the tipping point, where humans actually can’t keep up with the pace of change. We are the wrench in the gears. High school students are graduating with the same exact skillset as they did more than 50 years ago, and college students aren’t very different. What humans used to do because it would cost hundreds of millions of dollars for technology to accomplish, can now be done by technology for a fraction of the cost to have it done by a person. Technology is learning at a faster pace than people.
So, is this the end for mankind? The rise of the machines? In my opinion, the answer is an emphatic, "NO!", but just as farming led to the end of mankind as it had existed for millions of years before, so too will life as we know it be changed forever, and that change is happening, now. Unfortunately, we aren’t adjusting the metrics we’ve been employing to gauge its impact, because we’re at a loss as to how to go about it. That has implications for your entire macro economic dashboard, and those of the world’s policymakers. The point of this piece is to continue the story I’ve been telling in the previous Macro Radar issues. It is still more context for understanding the macro economic fundamentals. In the next installment, I will discuss the Lottery Economy in some detail, but here is a teaser to get you thinking.
The Lottery Economy Eastman Kodak was a key player in the photography industry almost from its very beginning, with the town of Rochester, New York perhaps its greatest beneficiary. A big, successful business can have a tremendous influence on the area surrounding it. The wealth that is brought in and then distributed across a large, highly educated workforce attracts others. Homebuilders, restaurants, suppliers and even educational institutions pop up in order to service the demands of the personnel. By attracting a more highly educated population, it also draws other businesses that look to tap into that talent pool. Universities receive funding from local benefactors, and spit out graduates who have been educated in the fields in which the region specializes. (Think NYU and Columbia for finance, Stanford for hi-tech and USC for film.)
Kodak isn’t alone in being so influential that the mere mention of their name conjures up images of the city in which it resides. It’s hard to separate Microsoft from Seattle or Ford from Detroit. Of course, other business eventually bulk up the economies of those cities as well. Starbucks in Seattle, Chrysler and GM in Detroit, and Bausch & Lomb in Rochester, to name a few.
It is estimated that since the first photograph was taken in Paris in 1838, 3.5 trillion photos have been snapped. Amazingly, a full 10% of them, or 350 billion were taken in the last year alone. Even more incredible is that the business that had until very recently commanded a full 90% of photo related sales, and actually invented the digital camera, filed for bankruptcy at the same time.
At one point, Kodak alone employed more than 60,000 people in the town of Rochester. Today, that number is less than 1/10th of that. On the flip-side, in the same year that Kodak defaulted and entered bankruptcy, one of the biggest players in photograph development and dissemination, was purchased for $1 billion. That company is Instagram and at the time, it had just 13 employees. No town is rising up to support it. No new universities pumping out graduates to fill its ranks. No homebuilders, restaurants or suppliers are needed to service its workforce. Welcome to the Lottery Economy!
About the Author For nearly thirty years, Stephen Duneier has applied cognitive science to investment and business management. The result has been the turnaround of numerous institutional trading businesses, career best returns for experienced portfolio managers who have adopted his methods, the development of a $1.25 billion dollar hedge fund and 20.3% average annualized returns as a global macro portfolio manager.
Mr. Duneier teaches graduate courses on Decision Analysis in the College of Engineering, as well as Behavioral Investing, at the University of California. His book, AlphaBrain, is due to be published in the spring of 2017 (Wiley & Sons).
Through Bija Advisors' coaching, workshops and publications, he helps the world's most successful and experienced investment managers improve performance by applying proven, proprietary decision-making methods to their own processes.
Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America, Managing Director in charge of Emerging Markets at AIG International and founding partner of award winning hedge funds, Grant Capital Partners and Bija Capital Management. As a speaker, Stephen has delivered informative and inspirational talks to audiences around the world for more than 20 years on topics including global macro economic themes, how cognitive science can improve performance and the keys to living a more deliberate life. Each is delivered via highly entertaining stories that inevitably lead to further conversation, and ultimately, better results.
His artwork has been featured in international publications and on television programs around the world, is represented by the renowned gallery, Sullivan Goss and earned him more than 50,000 followers across social media. As Commissioner of the League of Professional Educators, Duneier is using cognitive science to alter the landscape of American K-12 education. He received his master's degree in finance and economics from New York University's Stern School of Business.
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