is technology the seed of the next crisis?charvey/teaching/...• p2p financing • robo-advising...
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Is Technology the Seed of the Next Crisis?
Campbell R. HarveyDuke University and NBER
January 2020CH
MMS 562F – Tech Driven Transformation
Campbell R. Harvey 2020 3
Horses
• Late Victorian England, 3.3 million working horses
• 1893 there were 300,000 working horses in London
4http://www.victorianturkishbath.org/6DIRECTORY/AtoZEstab/Animals/LonTotSF.htmhttp://www.horseandhound.co.uk/videos/news-videos/international-working-animal-dayCampbell R. Harvey 2020
Horses
• Each horse producing 15-35 lbs of manure every day• About 4,000 tons left on the streets every day • Not just the manure, the average life of a working horse was 2-3
years – so many carcasses abandoned on the streets
5http://www.victorianturkishbath.org/6DIRECTORY/AtoZEstab/Animals/LonTotSF.htmhttp://www.horseandhound.co.uk/videos/news-videos/international-working-animal-day
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Horses
• 1894 Times of London:“In 50 years, every street in London will be buried under nine feet of manure.”
Campbell R. Harvey 2020 6http://www.industrialoutpost.com/understanding-the-great-horse-manure-crisis-of-1894/
Horses
1915 London: • No horses used for trams or cabs• The motor carriage is the
technological disruption
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Horses were disrupted by technology
• Minimal impact on labor• Drivers switched to taxis - motorized carriages• Stable hands pumped gas at service stations• The main losers were the horses: UK working horse population
plummets to 25,000
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Two Views of Technology
The Dark ViewKarl Marx (Das Kapital, ch. 15 “Machinery and Modern Industry”)• Technology is an instrument of the
capitalist to increase profit at the expense of labor
• Technological advances will lead to mass unemployment
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Two Views of Technology
The Bright ViewEmpirical evidence began to shape a more nuanced view• Technological change can lead to short-term disruptions but there is no
evidence of long term effects on employment• For example, 100 years ago over
50% of the U.S. population worked on farms; today it is less than 2% (yet much more food is produced and it is cheaper)
https://ageconsearch.umn.edu/bitstream/59390/2/eib3.pdfhttps://phe.rockefeller.edu/docs/Nature_Rebounds.pdf 10Campbell R. Harvey 2020
Two Views of Technology
The Bright ViewEmpirical evidence began to shape a more nuanced view• Three basic ideas:
– It is crucial to take the benefits of technology into account when predicting the impact on the economy and labor specifically
– Labor is mobile and will eventually find new jobs– Different technologies have different demographic impacts, e.g., the
tractor displaced relatively unskilled labor while the computer displaced skilled labor
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Globalization and Technology
Historically, technology has made goods and services more portable leading to increased trade• Increased trade generally associated with increased average growth
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Unequal Benefits of Globalization
Campbell R. Harvey 2020 13https://www.govinfo.gov/content/pkg/ERP-2017/pdf/ERP-2017.pdf p. 60 https://inequality.org/facts/income-inequality/
Unequal Benefits of Globalization
14https://inequality.org/facts/wealth-inequality/
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Unequal Benefits of Globalization
Very little mobility –
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Unequal Benefits of Globalization
Very little mobility –
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U.S. not “land of opportunity”
Unequal Benefits of Globalization
Unintended consequences
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Unequal Benefits of Globalization
Unintended consequences
18Campbell R. Harvey 2020https://www.independent.co.uk/news/world/europe/muhammad-cartoon-competition-cancelled-geert-wilders-netherlands-a8515801.html
Unequal Benefits of Globalization
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Unequal Benefits of Globalization
• Outsourced labor and immigration are but a side-show in a much more important force: Technology
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Unequal Benefits of Globalization
• In contrast to outsourced labor and immigration, there is nothing policy makers can do to stop or slow the impact – you can’t prevent a company from buying a machine
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Rise of the Machines
Cray 2 is the world’s fastest supercomputer: 1985-1990 • CPU: 1.9 GFLOPs*
• Weight: 5,500 pounds• Cost: $32 million (current $)
Campbell R. Harvey 2020 22*1.9 billion floating point operations per second
Rise of the Machines
iPhone 11 Pro:*
• 1,000 GFLOPs (CPU alone)• Likely 7,000 GFLOPs (with GPU)• 512 GB storage• 6.63 oz• $1,000
23*A13 Bionic. https://www.apple.com/iphone-11-pro/specs/ September 10, 2019 Also note the Apollo guidance system had only 4K of RAM. Campbell R. Harvey 2020
Rise of the Machines
Revolution #1:Computing Power
Campbell R. Harvey 2020 24https://phys.org/news/2015-08-silicon-limits-power-electronics-revolution.html https://upload.wikimedia.org/wikipedia/commons/6/62/Moore%27s Law over 120 Years.png
Rise of the Machines
Revolution #1:Computing Power
Campbell R. Harvey 2020 25https://phys.org/news/2015-08-silicon-limits-power-electronics-revolution.html
In contrast to most applications, the future is very easy to forecast
https://upload.wikimedia.org/wikipedia/commons/6/62/Moore%27s Law over 120 Years.png
Rise of the Machines
Revolution #1:Computing Power
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In contrast to most applications, the future is very easy to forecast
http://www.jaymaron.com/gamehardware.html
Rise of the Machines
1981 - $300,000 1987 - $50,000 1990 – $10,000 1994 - $1,000 1997 - $100 2000 - $10 2004 - $1 2010 - $0.1 2020 - $0.01
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Revolution #2: Data generation and storage
Cost per GB
https://aws.amazon.com/s3/pricing/https://diskprices.com/
Rise of the Machines
Revolution #3: Methods• Maturing of combined methods from statistics, computer science,
engineering and mathematics
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Rise of the Machines
Revolution #4: Open-source code• Coding is a shared activity. No longer necessary to ‘reinvent the
wheel’.
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How Technology Impacts Finance and Growth
Key initiatives:• P2P Financing• Robo-advising and Asset Management• Blockchain and Smart Contracting• Machine learning
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P2P Finance
Landscape:• P2P Lending• Crowdfunding• Payments and New Banks
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P2P Finance
Implications:• Makes it possible to for entrepreneurs to obtain financing that was
not possible in the past• Allows anyone to make microinvestments in firms – previously,
investments in startups were reserved for select “qualified” investors
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P2P Finance
Implications:• WeChat Pay has 1+ billion users• Alipay has 1+ billion users!
Campbell R. Harvey 2020 33https://www.electran.org/wp-content/uploads/MPC_StateofMobilePayments-Report-FINAL.pdf
P2P Finance
Implications:• WeChat Pay has 1+ billion users• Alipay has 1+ billion users!
Campbell R. Harvey 2020 34https://www.electran.org/wp-content/uploads/MPC_StateofMobilePayments-Report-FINAL.pdf
P2P Finance
Implications:• WeChat Pay has 1+ billion users• Alipay has 1+ billion users!
Campbell R. Harvey 2020 35https://www.electran.org/wp-content/uploads/MPC_StateofMobilePayments-Report-FINAL.pdf Saks Fifth Avenue
Photo by David Yermack
P2P Finance
Implications:• Allows the unbanked to join the world of Internet commerce• Large swath of skilled employees in traditional banking will be
displaced. • Traditional banks at great risk.
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Robo Asset Management
Landscape:• Algorithm gives low cost advice to a retail investor based on an
algorithm that selects a “diversified” portfolio that matches the investor’s risk preferences
• Not just for the retail investor – many institutional investors turning to systematic trading algorithms for asset management
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Robo Asset Management
Implications:• Large shake out of asset management industry with thousands of
smaller asset management companies closing because they are unable to compete with the large companies that have invested in big data and machine learning
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Blockchain and Smart Contracting
The opportunity:• Imagine a world were transactions costs are near zero, the
integrity of the transaction can be quickly verified, the transaction happens almost immediately, and the system is secure from outside attack. This is the blockchain opportunity.
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Blockchain is a Ledger
A very special ledger…• Quickly and easily accessed and
shared by many -- distributed• Immutable (you can only add
to it – you cannot alter history)• Cryptographically secured
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What can Blockchain Technology do?
Solves many problems• Verification of ownership• Efficient exchange of ownership
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Almost Anything can be Tokenized
1. First Gen/Gold 2.0: Bitcoin (BTC), Litecoin (LTC)2. Distributed Computation Tokens: Ethereum (ETH), Tezos (XTZ), EOS, and DFinity3. Utility Tokens: Programmable blockchain assets: Storj, Golem (GNT), Sia (SC), FileCoin
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Almost Anything can be Tokenized
4. Security Tokens: Represent stocks, bonds, other assets, ASX initiative– STO=Security Token Offering; ETO=Equity Token Offering
5. Stablecoins:– Fiat Collateralized: USDT, USDC, TUSD, LBXPeg, JPMcoin, Libra, – Natural Asset Collateralized: Digix Gold (DGX), Tiberius Coin (TCX), Swiss Real
Coin (SRC), – Crypto Collateralized: MakerDAO’s DAI– Non-Collateralized: Basecoin– National Cryptofiat: Fedcoin, Petro, Eurocoin, CADCoin,…
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The Education of Jamie Dimon
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The Education of Jamie Dimon
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The Education of Jamie Dimon
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The Education of Jamie Dimon
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The Education of Jamie Dimon
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All in
Almost Anything can be Tokenized
5. Stablecoins:– Fiat Colleralized: USDT, USDC, TUSD, LBXPeg, JPMcoin, Libra– Natural Asset Collateralized: Digix Gold (DGX), Tiberius Coin (TCX), Swiss Real
Coin (SRC) – Crypto Collateralized: Maker DAO’s DAI– Non-Collateralized: Basecoin– National Cryptofiat: Fedcoin, Petro, Eurocoin, CADCoin,…
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Secret “Project Libra”
https://www.wsj.com/articles/facebook-building-cryptocurrency-based-payments-system-11556837547?mod=searchresults&page=1&pos=11
Almost Anything can be Tokenized
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May 3, 2019
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This one is blockchain-based and interacts with WhatsApp, Messenger and Instagram (with potentially 2b users) • Linked to a basket of currencies• $1 billion allocated to the project
April 25, 2019
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April 25, 2019
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Online marketplace services, namely, providing a marketplace for buyers and sellers of digital currency assets; Operating an online marketplace featuring footwear and clothing; on-line retail store services.
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Who is Next?
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Who is Next?
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Who is Next?
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Blockchain is About More than #DeFi
Near zero transactions costs have many implications• Enables micropayments (enables pay for view, listen, mobile
communication, email, Internet, continuous dividends); new assets• Disrupts traditional banking and investment banking – almost all
functions; Central bankers also interested.• Disrupts exchanges, OTC markets, settlement function; new barter• Widespread use in companies for supply chain and supply integrity• Financial reporting• Unprecedented security• Protection (and monetization) of individual identity
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Machine Learning
Four forces:• Computing power and the rise of GPU• Growth of big data• AI and Machine Learning advances• Open source software
[Separate presentation available on request]Campbell R. Harvey 2020 64
This Time is Different
Technological change is not new:• Taxi industry disrupted by Uber• Taxi drivers sign up with Uber
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This Time is Different
Technological change is not new:• Taxi industry disrupted by Uber• Taxi drivers sign up with Uber• Where do they go next?
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This Time is Different
Technological change is not new:• 13.1 million Americans work in transportation related jobs• 4.6 million in the for hire
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https://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/transportation_economic_trends/ch4/index.html
This Time is Different
Where will they go?
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This Time is Different
Where will they go?• Not here!• Many studies have shown
that retraining fails after age 30
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This Time is Different
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• World Economic Forum: The Futures of Jobs Report, 2018
The Losers
Unskilled and medium skilled workers in developed markets:• Very difficult to retrain• Lost generation will cause political problems (we have just seen the
beginning)• Crucial to train the next generation so there is not a second lost
generation which could be very toxic
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Who are the Winners?
Vast amount of human capital is underutilized• Little or no access to schools• Unbanked
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Who are the Winners?
Vast amount of human capital is underutilized• Little or no access to schools• Unbanked• This will quickly change
Takeaways
Technology will play a key role in next wave of globalization• Easy to forecast yet we often ignore the implications• We can no longer afford to manage the “average”. Yes, growth
will increase – but it will not be good for everyone• It is crucial that policy makers, corporate leaders, and educators
develop a strategy to deal with the inevitable
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Humans Beware
We need to avoid the fate of Phlebus the Phoenician
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Humans Beware
O you who turn the wheel and look to windward,Consider Phlebas,
who was once handsome and tall as you.
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Humans Beware
O you who turn the wheel and look to windward,Consider Phlebas,
who was once handsome and tall as you.
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Humans Beware
O you who turn the wheel and look to windward,Consider Phlebas,
who was once handsome and tall as you.
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Concept of Neural Lace introduced
Humans Beware
• 2016 Elon Musk on Neural Lace: “If you assume any rate of advancement in AI, we will be left behind by a lot. … Even in the benign situation in AI, we would be so far below them in intelligence we would be a pet –like a cat.”
79https://www.youtube.com/watch?v=ZrGPuUQsDjo
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Humans Beware
• 2016 Elon Musk on Neural Lace: “If you assume any rate of advancement in AI, we will be left behind by a lot. … Even in the benign situation in AI, we would be so far below them in intelligence we would be a pet –like a cat.”
80https://www.youtube.com/watch?v=ZrGPuUQsDjo
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Humans Beware
We are already cyborgs• There is no where to hide
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The New Acronyms
82https://www.youtube.com/watch?v=ZrGPuUQsDjo
Campbell R. Harvey 2020 https://en.wikipedia.org/wiki/Brain%E2%80%93computer_interface
• BMI = Brain Machine Interface• BCI = Brain Computer Interface • MMI = Mind-Machine Interface • DNI = Direct Neural Interface
It is just a matter of time.
83Campbell R. Harvey 2020https://www.wsj.com/articles/elon-musks-neuralink-advances-brain-computer-interface-11563334987
Future work
Forthcoming...
#DeFi: The World of Decentralized FinanceCampbell R. Harvey
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Watching the watchers
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Campbell R. Harvey 2020 89https://www.nytimes.com/2019/12/17/technology/china-surveillance.html
Campbell R. Harvey 2020 90https://www.nytimes.com/2019/12/17/technology/china-surveillance.html
Facial recognition
Plus IMSI-catcher technology --international mobile subscriber identity which allows for MITM attack
Contact – Follow me on Linkedin!
[email protected]@camharveyhttp://linkedin.com/in/camharveySSRN: http://ssrn.com/author=16198PGP: E004 4F24 1FBC 6A4A CF31 D520 0F43 AE4D D2B8 4EF4
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