I’ve been thinking a lot about the possibility of a economic singularity lately.
When we think about the acceleration if adaptation of new technologies and the price mechanics of it, there’s a clear trend.
Things get adapted into our everyday lives ever faster. It took at least a couple of decades before “everybody” had televisions. Nearly a decade before everybody had a CD-player. It took five years for the adaptation of DVD players. During the last couple of years everybody has gone on the net (which means that they have a computer).
Think about digital cameras. Nobody, but geeks and pros, had one a couple of years ago. Today, some manufactures has stopped producing old-fashioned point-and-shoot cameras!
And things get ever cheaper. There seems to be a sweet spot around the 50us$ price point for consumer electronics that gets reached ever faster. It took a long time before you could get a cheap TV. Not that long before you could get a cheap CD player. Cheap DVD players have been here for a year now. Computer parts are extremely cheap, when you remember to figure in performance and storage capabilities. A cheap Dell can be had for 500us$ and it probably much faster than anybody normal will need for a long time.
Where is this taking us?
Well, first of all there is a natural lower limit to these things, namely that they take resources to create and deliver. The Postage & Packing fee on you latest on-line shopping adventure is no smaller than a year ago and you didn’t get your things delivered in half the time. Your latest DVD player still contains 500g of metal and 400g of plastic.
It takes energy to prepare all these things – energy is the key. And energy prices are going to rise. But we will get better and better at creating things using less and less energy, especially as energy prices rise. But what if the trend goes unchecked – what if the sweet spot for consumer electronics become 5us$? If your new computer is 50us$? Your new mobile (san subscription subsidies) is 20us$?
Well, my prediction is that this will not happen. We can already see the trend in mobil phones. Feature creep. To justify the price point on these machines more and more functionality has to be added. Camera. PDA functionality. Keyboard? Bigger screen and a hard-drive for watching movies? There’s simply no reason to produce a product so cheap that it’s impossible to keep a profit margin on it.
Mind you, a basic 5us$ mobile phone will still be produced, but it will be sold as a throw-away thing – maybe made of paper and to be recycled after a couple of hours of usage (included in the price).
Interesting I should find your blog. I have been thinking about the effects of globalization for years. I see what I believe is a problem brewing for the global economy and it was not until I realized that what I was thinking about was akin to an "economic singularity" and did a web search on that term that I found someone else writing about the same thing.
The dynamics of the problem as I see it are similar to the basic physics of the earth’s weather system and specifically wind. If we start with a pressure gradient wind will be created. This wind is capable of producing energy and doing work (i.e. a windmill). Once the imbalance has been corrected, the wind stops flowing and now the system is not capable of producing wind energy. It is only when the sun, a source outside the earth-system, creates another imbalance by heating the earth unevenly, that the wind blows again and creates energy in the system.
Now let me relate the above dynamic to the current global economy. Capital flows around the globe instantaneously as do product ideas. Most economists now recognize that products/services tend to exist on a continuum with one end being a commodity and the other end representing a highly differentiated product. When Kodak came out with the first production camera it was a highly differentiated product and very near that end of the continuum. It took 50 years to slide down the continuum to a position closer to commodity. The first personal computers took 20 years to become near-commodities. Cell phones took 10 years. With capital and information flowing instantly around the globe competing products are being created ever faster and the period of time when an idea can reap "windfall profits" is shrinking. Profit margins of U.S. based companies (and I believe all industrial countries) have been steadily decreasing (in the aggregate) since the 1940’s. Maintaining a "product imbalance" is becoming increasingly difficult. Maintaining an "novel idea imbalance" is increasingly difficult. Maintaining a capital (which could differentially fund some projects and not others) imbalance is increasingly difficult. Although natural resources tend to be clumped in certain areas of the world as an economy moves away from physical production to an "information economy" natural resource imbalances become less important.
My point is that, an economy is an engine and like the windmill, it requires some sort of imbalance to power it. There are some hard limits to the trends I mention above. At some point, the period of time that a company can reap better-than-commodity profits may becom so brief that it will not be enough to cover R&D or other investment costs. At some point new ideas will only be novel for a few days. If the global economy is not able to create meaningful imbalances there will be no "flow" and without flow there is nothing to drive the economic engine.