Thomas the Think Engine

We’ve all seen technology proceed like greased lightning.

In my lifetime, we’ve gone from typewriters to internet-enabled laptops. We’ve seen smartphones go berserk and enormous progress in survival rates for cancer. These fields have transformed. It is tempting to predict more exponential change in the field you’re most excited by.

For example, last night I watched a couple of documentaries on stem cell research that were mind-blowingly exciting (1, 2). Want to see a paraplegic stand? Click on that first link.

But caution is needed.

The fields in which we see progress are affected by survival bias. We don’t see the frustrated scientists trying and failing to revolutionise other fields. Look around you and much is as it was 100 years ago. I’m sitting at a wooden chair at a wooden table, wearing woolen socks and leather shoes. The alphabet is the same as it was, and so is my keyboard layout. There’s a clock on the wall telling me the time with two rotating hands. I just got over a common cold. I’m eating brown rice and snowpeas. It could be 1850 – if not for the macbook.

So not everything is on the brink of revolution. Which is why I have to pull back on my former enthusiasm for autonomous cars.  I admit I was focused on the potential upsides – in traffic, in accidents, in parking, and on the successes Google has had with its autonomous car program. Google is backing the project, appointing the old head of Ford. But even Google fails sometimes, as with Google Wave.

“The benefits are so great that we will force ourselves to accept them, even with a few risks,” I told myself.

But then I started thinking about the development path, and I became significantly cooler on the chances of success.

Autonomous cars will only break through once they are trusted.

TRUST

Humans set a very high bar for risk in situations where they perceive they are not in control. (This is why people object to tiny risks of living downwind of a polluter and won’t let their kids walk to school, but still eat chips and drive fast.)

Autonomous cars won’t just have to prove they are safer than humans at driving, but much safer – for car occupants, other road users, pedestrians, wildlife and pets.

THE LONG TAIL

Computer operated cars are probably already better than humans at driving in car traffic on freeways and on busy roads. Humans are dreadful at mundane repetitive tasks that require paying attention.

But car crashes can happen in odd moments.

This is where humans excel. We dominate computers at dealing with problems we never saw before.

Humans will remain best at dealing with things like:

1. A big black garbage bag blows onto the road but we know we needn’t swerve as we can tell it is light by the way it moves.
2. Kangaroos are on the side of the road so we better slow down because they often jump in front of the car.
3. It’s Saturday afternoon, there’s just been a football match, some sort of fight is happening on the side of the road, and you know someone could easily step out into traffic as part of the brawl.

etc, etc.

Many serious crashes occur in scenarios that are in the long tail of distributions. Machine learning will not cover them all, so there will remain a few scenarios (I predict on the basis of statistics alone) in which autonomous cars continue to perform predictably worse than humans despite the best efforts of programmers.

RISKY LAUNCH

Other types of software can launch with “beta phases” where failure is embarrassing, but not catastrophic. But the testing that will have to happen before any serious real world traffic experiments involving autonomous cars will be enormous. Google’s experiments driving round California are good, but still limited in scope and scale.

A few high-profile crashes will be enough to set a very high technical and legal bar for autonomous cars. The concept of surrendering ones life to a machine is a staple of science fiction because it irritates a real issue in human psychology – control.

MANY OPPORTUNITIES FOR SETBACK

It is not just technical problems that can hold up autonomous cars indefinitely. Political, road engineering, PR and software challenges will impede getting autonomous cars to the point where people trust them and forgive their mistakes.

For just one example, the FBI is opposed to driverless cars, according to a brand new report. Solving that will be tricky. And when it is solved another impediment will arise.

There’s a lot of fail points. I suspect – again on the basis of pure statistics – one will resolve into a  big sticking point for a long time to come.

SUCCESS WON’T LOOK LIKE SUCCESS

Cars will continue to have more and more sensors and autonomous capabilities. But during this time, non-autonomous cars will continue to be sold.

Traffic will be mixed for at least the next 50 years. Some freeways and highways will perhaps be autonomous-only. But not places where there are pedestrians, bicycles, shops, parking, and of course traffic lights. So the benefits of full autonomy will not be realised for a very long time. Don’t hold your breath.

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The upside of the failure of the fields about which we are most excited is that we might get blindsided by a revolution in a field where we didn’t expect any improvement. Nano technology, GM foods, high-speed trains, smell-o-vision: any of these could be the one in which a breakthrough happens that turns out incredibly positive.

When the euro was adopted, cash was still a big thing. Economists hailed the savings in transaction costs that would come from Europe having a single currency.

At that stage, we had not had the GFC. The currency union did not cause the GFC, but it sure made recovering from it tough. When the global economy is foundering, the importance of having an independent currency and an independent monetary policy is suddenly very clear.

Now we see what happens if your economy is screwed but your currency and monetary policies are made far away.

 

Some countries get a free ride and others suffer.

The problem is especially acute for those under 25.

This is how Europe is poisoning itself. All those young southern europeans – 23 years old and no job – are seeing their human capital withering on the vine. Among them are growing numbers who will vote for extremist parties in a decade’s time, because the promise society made to them has not been kept.

If you don’t get a job early on, you can be stuck without one for a long time, and then channeled into low-value work.

Here’s what the IMF says about youth unemployment:

“Unemployment can exact a big personal toll on young people. Failure to find a first job or keep it for long can have damaging long-term consequences on their lives and career prospects. But youth unemployment also has broader social consequences and contributes significantly to growing income inequality in advanced economies.”

Economic problems are worst in Greece, Portugal, Italy and Spain. Luckily these are not the countries with the biggest populations, nor the strongest warring traditions. But they are not without their flash-points.

I’m not predicting a world war. But separatist movements and terrorism are on Europe’s doorstep and remain very possible within its borders.

Terrorism has already struck Spain, in Madrid in 2004. Spain also contends with two separatist regions – Basque and Catalonia.

Greece has Golden Dawn, a party somewhere between far right and neo-nazi, which got 7 per cent of the vote in 2012 elections, putting 18 representatives into Greece’s Parliament. IN 2014 it won 9.4 per cent of the vote in European Parliament elections.

Even Italy has a major political party that wants to split the country in half – Lega Nord.

These movements won’t need much encouragement to blame Germany for their plight while it enjoys rapid growth and very low unemployment.

What the countries of Southern Europe need desperately is the kind of quick shot in the arm that can come from rapid exchange rate devaluation. Then, independent monetary policies that can help them get back to growth in their own time. And they are not going to get that in the Euro.

The national debts of these countries will appreciate as their currencies fall. The inevitable need to restructure that debt is the major sticking point for letting these countries go. But paying the debt down while the countries remain inside the strangling embrace of currency union also seems unlikely. If the issue is left too long, radical politicians may take power for whom debt default is minimo.

For the good of the future of Europe, we need to bring back the Peseta, the Drachma and the Lira.

(For a deeper discussion of debt and the issues of the euro, I recommend reading this post at the blog of Michael Pettis)

Uber must be very confident in its continued growth. Because it has just alienated its early adopter crowd in order to appeal to the mass-market.

Uber functions a bit like AirBnB but matching passengers with cars. It’s an app uses limo drivers and non-professional drivers to increase supply at reasonable prices.

To say it has been successful is an understatement. A recent funding round valued it at $18 billion. 

But Uber’s PR strategy has been an unusual one. It has gone out of its way to appeal to economists. 

Traditionally, taxis charge the same fare no matter how many people are in the taxi rank. The whole industry is a byzantine mess of regulations. But Uber is much less regulated and has a wholly variable pricing model.

Uber prices go up when demand is high. It charged one customer $82 for a one-mile journey at 1.50am on New Years’ Eve.

The wildly variable prices should help get cars on the road when they are needed, and make sure people who really need a ride (about to miss a flight, on way to hospital) get a car ahead of those simply heading into town to window shop.

They also worked as a terrific PR boost. Every economics blogger and every financial newspaper there is has been writing excitedly about Uber for years. (1, 2, 3).

That may have been a side-effect of a revenue maximising strategy, but it worked very effectively. Uber’s aggressive expansion into a whole lot of markets has been welcomed – a lot of regulators, political advisors and decision-makers *are* economists.

But now, surge pricing is done. After a whole lot of complaints, New York City has forced Uber’s hand, and it has got rid of surge pricing during emergencies  (e.g a blizzard) across America.

Is this rational?

It might be. Uber’s market is not economics graduates, it’s humans. And humans love what they see as fair. To defend fair, they are not afraid to cut off their nose, seemingly to spite their face.

I’ve written before about how people will hurt themselves to teach other people a lesson. This can explain why people shop around for bargains. Even if we spend more on petrol going to the cheaper shop, it can be satisfying to deny a profiteer our business.

Surge-pricing was seen as unfair. Killing it is a sign of Uber’s expansion.

It is now in the business of appealing to people whose interactions with markets are shaped by their own feelings, not the things they learned in economics class. It is time to take complaints about surge pricing (“price-gouging”) seriously.

(If you’ve made it this far, you’ll probably love this piece at Noahpinion on how complaining about price gouging is a legitimate strategy for signalling the shape of the demand curve away from the familiar parts that normally form equilibirium.)

I’m pretty powerful.

I’m an educated citizen in a democratic country. I live in an electoral division that could be won by a couple of parties. I have free speech and a twitter account. I’m enfranchised and privileged.

But right now I feel absolutely powerless.

I want to stop cruelty being done in the name of Australia. I want to help people who need help. I want to treat asylum seekers with compassion.

But I feel like I can’t.

I sit here in front of my high definition internet, reading about boats full of desperate people bobbing around in the tropical seas, and I can’t think of a single thing to do. And I am as angry, if not angrier, than I have ever been.

My taxes pay for the drones that go looking for asylum seeker boats to turn back, for the barbed wire that surrounds those that already slipped through, for the immigration officials that make the policy tick, and the elected officials who set the whole thing in motion. I can’t think of anything more infuriating.

Why so cruel?

The idea that we can prevent future asylum seeker boat arrivals through cruelty to asylum seekers who already left was always a grey area. A very dark grey area.

It’s not unlike the medieval idea that you prevent social decay by cutting off hands and stoning people. It seems to be the ends justifying the means – and ignores a strand of enlightened thought that goes back a long way (esp. in western christianity) suggesting we should be merciful to the weak.

But the philosophical objection is not as powerful as the practical. The arrival of two boats recently shows that our regime of deliberate cruelty is not even working.

I went to a protest on Saturday, to say at least something about the current government’s policies. It felt utterly impotent.

There’s a lot of policy in the world I disagree with, but very little – not even public transport policy! – that gets me into such an emotional state as the way my name and tax dollars go to mistreating asylum seekers.

It’s unfair and I feel like there’s nothing more I can do.

Powerless. This is how much of the world feels, I guess.

My first ever video blog. I am open to feedback!

I’m venturing out of the house today, to bring you the blog from the glamorous surrounds of the Grand Hyatt, where the annual Melbourne Institute Economic and Social Outlook conference is taking place.

Say what you will about the state of our nation, but the fact we can gather all these eggheads into such an opulent ballroom to ponder on the distant future suggests that things are not so bad, relatively to many other places and points in history. (I will note that I had to pass a phalanx of police to get inside though.)

The biggest point of interest for me so far today was a comment from renowned contrarian economist Warwick McKibbin.

He was talking about the policy outlook for climate change, and he made a strong case for action. “Even if you don’t believe in climate change, other countries are acting,” he said, citing research done for the Howard Government at the time of the Kyoto Protocol.

“If you look at global effect of the Kyoto Protocol on Australia, 80 per cent of its costs were in what other countries did to our exports.” he said.

“That was ignored,” McKibbin said. “Even if we think this is a myth, other countries are taking action and that will have an impact.”

With the carbon tax all but gone and the Renewable Energy Target at risk, the costs of an approach that see Australia out of step with the rest of the world deserve more attention.