Disruptive Technology
Part II: Possible Hedges Against the Robot Apocalypse

Disruptive Technology
Part II: Possible Hedges Against the Robot Apocalypse

Garrett Baldwin

This is the second part of a two-part article called "How to Hedge Against the Robot Apocolypse." 

Part I can be read here

May 25, 2015

Here Are Potential Solutions to Improving Income Distribution as Disruptive Technology Emerges

In a 1949 article called Why Socialism, Albert Einstein addressed his concerns about impact of technology on employment.

"Technological progress frequently results in more unemployment rather than in an easing of the burden of work for all," he wrote. 

Einstein idealistically proposed the establishment of a socialist economy as a solution to dealing with technological unemployment.

Of course, he wouldn’t live long enough to see the glorious consequences of socialism in Russia, Cuba, or even Venezuela today. Putting both capital and technology in the hands of government has proved to be a remarkable disaster historically. (The U.S. government spent more than $2 billion on a healthcare website and unrolling of the Affordable Healthcare Act with the grace of a gaggle of drunk clowns falling out a car door.)

Ruling out theory, and aiming toward more market-based approaches, let us explore a number of possibilities that politicians, investors, and entrepreneurs have proposed or might consider in today’s world.

1) Expand Opportunities for Crowdfunding and Incentivize Small Business Owners to Provide Employees with Equity

Some modern solutions are underway, and they begin with the way capital is allowed to flow across the economy.

As we examined last week, deregulation of the crowdfunding industry could be a major boon to Americans looking for ways to hedge against job instability. It’s not clear that crowdfunding is going to be an immediate solution to the jobs crisis, this will allow new companies to emerge.

For years, only accredited investors – those who earn more than $200,000 each year or maintain a net worth of more than $1,000,000 (excluding their primary residence), or they are entities with more than $5 million in assets – could put their money into venture capital outlets. With the surge in new technologies and digital properties over the last two decades, the richest Americans were able to build incredible wealth due to their ability to tap into the private markets.

Crowdfunding equity might need to go further – offering tax incentives for investors or ensuring the investment of tax credits into existing global technology companies that are ahead of the curve. The primary concern, however, is that private equity companies and angel investors will remain in-demand from startup companies for their leadership, knowledge, and deeper pockets.

It’s not earth-changing, and there are downsides, but it’s an important first step.

2) Encourage Stock Market Ownership or Broader Capital Onwership

In his 1976 book titled Peoples' Capitalism: The Economics of the Robot Revolution, James Albus argued that the world would be able to expand capital ownership across various classes in a way that would enable everyone to become a capitalist and gain income from their ownership of capital assets.

The idea that more people are able to have shared equity is probably past its time given the immense percentage of wealth owned by a small percentage of Americans.

If the government’s goal is to provide Americans with a healthy retirement, the logical stance would be for them to own Google Stock, and not T-bills earning 3% on an annual basis.

For the better part of five years, the top 1% has enjoyed the wondrous Keynesian experimentation of pumping trillions into the stock market. While benefits have been extended to the wealthiest owners of global stocks, the number of Americans who are actually participating in the stock market these days continues to erode.

Boosting confidence in the markets is a critical step toward addressing inequality, and investor education on technological investment is central to expanding the ownership society.

3) Make Human Capital More Affordable:

Income taxes and social security taxes are levies on one thing: Human capital production.

So, Robert Reich’s proposals to raise taxes, even on six-figure incomes, will invite more robots.

If anything, taxes on human capital should be reduced to maximize cost value against the cost of implementing automation into a company. For those in favor of replacing that pool of government revenue, they’ll likely need to focus on production taxes elsewhere. Capital gains are a likely target, but there may be more incentives to robotize our government agencies.

Progressives might consider alterations to the tax code. Rather than hammering Americans with social security taxes, the IRS calculates the role of technology in each business and tax robots instead of human beings. But altering the tax code isn’t enough.

Changing the way employees are compensated is another critical factor. And providing opportunities to unlock new classes of entrepreneurs is more than just teaching creativity and classes on how to start a business. And that brings us to our next factor.

4) Eliminating Excessive Occupational Licensing Regulations

Entreprenuerialism is challenging enough. It’s hard to do it with an arm tied behind your back.

There are hundreds of industries in the United States that are burdened by excessive regulatory hoops that mid-tier skilled entrepreneurs must jump through in order to start their own business.

And many of these entrepreneurs want to operate in industries that require very little automation or threat from robotics.

For example, these industries include interior design, hair-dressing, beauty treatment and other operations that tend to require small workforces, but face immensely complex layers of bureaucracy to get started.

This tends to be a local and state problem, but the Federal government every now and then creates burdensome regulations through their laundry list of Alphabet Soup agencies that make it virtually impossible for entrepreneurs to get their dreams off the ground.

5) A Basic Income For All

This isn’t popular among the well-moneyed crowds and it’s often referred to as a socialist concept.

However, the ability to streamline the dozens of entitlement programs and ensure that consumer spending remains well-oiled are the primary arguments. The Universal Basic Income in many ways is a tonic to save market capitalism, ensuring a constant injection of capital cycling through the markets. The first massive bailout was for the banks. The next one might be coming to address a massive economic gap that makes it harder for people to afford the goods and services being curated by robotics in the first place.

The technology owners still will make an immense amount of money.

Other variations of the type of system include a shift to a four-day work week, or the possibility of two workers sharing the same role. This has been proposed by technology owner Larry Page of Google as a way to provide ways for more people to gain employment.

However, it’s unclear how well-paid these employees would be and what sort of career path each might enjoy in the future due to less responsibility and fewer hours.

Perhaps the compromise can be found if taxes are reduced if through more streamlined efforts, taxpayers are able to…

6) Cut Out the Middle Man?

Should the rise of robots fuel the elimination of millions of jobs, and that’s an assumption we’re making, the solution surely is not more government administrators harvesting more tax dollars or politicians having backroom deals to create loopholes for corporate backers.

Anyone who is a proponent of redistribution of limited wealth or should be more anarchic than totalitarian in nature. Tax reform that reduces the beast of Washington spending is critical.

Today, 15 cents of every dollar that goes to Washington stays within 100 miles of the town. That has made Washington so utterly disconnected, as five of the six richest counties in America surround the D.C. area.

That would warrant greater transmission of supposed government payments directly to shareholders from robot-owning companies, and not sending that money to government where a bureaucrat can skim their share off the top.

But good luck getting anyone to get anyone who loves to tax and spend from allowing companies from identifying ways to make that ever work.

Unless we begin to debate new approaches and begin to think beyond the typical two- or four-year election cycles, we’ll truly only be left to one solution.

And only Washington will be to blame when this strategy is all that remains.

7) Leave Every Man for Himself (and give them investment insight)

Technological advancements are happening faster than new sectors can emerge, train and hire workers, and show remarkable profitability. The robotics industry might create a million jobs, which looks great on paper, until we see the squeeze of lower-tier workers replaced.

With luck, these workers will benefit from a liberalization of the trades industry, deregulation in the service industries, a boost in crowdfunding entrepreneurialism, and a greater emphasis on local economies.

Furthermore, those “jobs of tomorrow” that politicians love to discuss so often, are going to rely further on technology and the consolidation of the industries of yesteryear.

Investors (and Americans whose jobs are threatened by robots) are therefore better off looking for ways to hedge their finances by examining six ways to invest in radical changes in technology. This is a simple guide to understanding not only how to invest in innovation, but what innovation truly looks like across multiple waves of history.

Investors should start looking at these opportunities:

  • Invest in the robots that can accelerate trade and expedite the transfer of goods or services. Each day, more than 100,000 flights take to the sky, sending cargo and passengers around earth. But we still rely on aviation technology from the 1960s to do so. Opportunity exists for companies that can improve logistics at any point in the supply chain, particularly with the growth of sensor technologies. If you can build it or ship it faster, reduce service and travel time, you have an advantage and a profitable hedge. This is desirable on the widest scale possible.
  • Invest in companies that improve the speed of information flow, transfer of capital, or methods of conversation. Information moves at the speed of light, and technology has been critical to maximizing communication across the world. But investing in companies that stand most to profit from the transfer of information and capital (see PayPal/Twitter/Facebook), you’ll be able to hedge against the fact that future employees will be required to do so in the future.
  • As it becomes more difficult to increase speed and delivery efficiency, a natural focus for robotics and technology implementation is cost efficiency -- using fewer resources, while expanding size and scale. One of the central costs is naturally the electricity used to power gadgets across a supply chain. Alternative energy investment is a formidable investment opportunity as it challenges more conventional resources to the point of grid parity. Energy processes that are capable of utilizing less fresh water at a time when water costs may spike in certain areas of the United States is also a bleeding edge investment arena.
  • Invest in innovations that have the power to harness previous innovations to maximize profitability. A classic example is the iPod and the MP3 player. The former was immensely successful because of the introduction of another sales innovation, the digital Apple Store, which vastly changed the future of the online global marketplace. Collaboration in vertical integration of technologies is also a prime investment.
  • Finally, an often the most over-ignored, invest in universally adoptable innovation. Remember, innovations bypass cultural barriers such as common language, religion, or political ideology. Everyone in the world wants or needs a phone, food, and housing. Many companies that aim to solve the most basic problems in the world – food, water, energy, communication, health, and technology – and own the technology that will continue to fuel the world long after the next wave follows.


About Garrett Baldwin

Camden 2

Garrett Baldwin is the Managing Editor of the Alpha Pages. He has covered the financial markets since the onset of the RBS collapse in 2007. An author and Baltimore native, he earned a BS in journalism from the Medill School at Northwestern University. He holds an MA in Economic Policy (Security Studies) from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University and will finish an MBA in finance from Indiana University in 2015.

Twitter: @garrettbaldwin, @alphaeditors, @thealphapages


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