Musings Report 2019-21 5-25-19 Is the Tech Bubble Bursting?
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Is the Tech Bubble Bursting?
This week in the blog I've explored technology's ties to financialization and deflationary trends in prices and profits.
The basic idea here is that the tech bubble has been inflated by a unique set of circumstances:
-- financialization, one manifestation of which is unprofitable Unicorn companies going public at lofty valuations (see chart)
-- the establishment of quasi-monopolies that have become immensely profitable.
These conditions are changing.
1. Many tech giants (Microsoft and Apple) are moving to monthly services, in effect becoming profitable utilities. These may be profitable but they are no longer fast-growing in terms of revenues or profit margins.
2. Calls for regulation of lightly regulated data-marketing corporations (Facebook and Google) are rising.
3. The weakness of Lyft and Uber stocks after their IPOs suggest a slackening appetite for betting on growth at any cost as a business model.
4. As noted last week, the profitable build-out of the past decade has been integrating web services with mobile telephony and data-mining social media and search. These have now been built out, so the tech cycle has reached stagnation in the S-Curve--a reality visible in Google's recent earnings disappointment.
There are two other trends that don't attract quite the media attention that soaring profits do:
1. Previous tech cycles / bubbles were founded on technologies that had the potential to greatly boost productivity. This cycle ( integrating web services with mobile telephony) is more about consumer convenience and distribution of services such as AirBNB and Uber than productivity.
To the degree that entertainment and the addictive distractions of social media are now at everyone's fingertips, and people are checking their phones hundreds of times a day, productivity has very likely suffered rather than increased. These media are a drag on the economy.
2. The services that are now distributed to mobile telephony are tremendously deflationary to revenues and profits. No need for a camera or iPod music player any more, to note just one example.
More pernicious is the deflationary impact on revenues and wages. The number of Uber drivers who earn the equivalent of what taxi drivers once earned (no great sum in most cases) is small.
In effect, Uber monetized an under-utilized asset--individuals' privately owned autos--and stripped out the labor overhead that accompanies employment (and makes it expensive to employers).
These moves transfer income to the owner of the distribution network (Uber, AirBNB, etc.) while offering a slice of income to the owner of the asset being monetized (the privately owned auto or flat).
Whatever income security exists in this distribution of income goes to the owner of the distribution network (Uber, AirBNB etc.) rather than the owner of the asset that's being monetized.
The labor component of the service is poorly paid and stripped of income security and other standard benefits: Uber drivers don't qualify for unemployment, disability, healthcare etc. unless they pay those very costly labor overhead expenses out of their own pocket.
This model is under pressure on multiple fronts. Municipalities are starting to push back against the monetization of housing that's zoned for residential use only, and against the low wages and zero benefits paid to "gig economy" workers.
In other words, it isn't just absurd IPO valuations that are suggesting this tech bubble is about to burst--the fundamentals of the business models and the deflationary impact of technology are about to challenge the outsized growth of all Big Tech revenues and profits.
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Highlights of the Blog This Past Week
Superbugs and the Ultimate Economic Weapon: Food 5/24/19
China's Insurmountable Global Weakness: Its Currency 5/23/19
Technology Is Not Just Disruptive, It's Disastrously Deflationary 5/22/19
Two Intertwined Dynamics Are Transforming the Economy: Technology and Financialization 5/21/19
Best Thing That Happened To Me This Week
Our tiny volunteer tomato patch (from seeds in our home compost) keeps producing enough tomatoes to enjoy and give away.
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Musings on the Economy: Trade with China
Since trade with China is in the news, here are the official import-export figures: Trade in Goods with China (US Census Bureau)
2018 US exports to China: $120.341 billion US imports from China: $539.503 billion. deficit: -$419.162 billion.
On a "purchasing power parity" basis, China's GDP is estimated at $23 trillion, while the US GDP is around $20 trillion.
On the face of it, US-China trade isn't that big a piece of either nation's GDP. US exports to China are a small sliver of GDP.
The question of trade quickly becomes more complicated once we examine the relative importance of trade in creating jobs and profits.
Based on official currency exchange rates maintained by China, China's GDP is $12 trillion. If we consider this number, as imperfect as it is, we discern the possibility that trade remains a core driver of employment and income in China.
If this is the case, then the potential damage from a trade war is asymmetric: China remains much more dependent on its exports, especially to the US, than the US is dependent on its exports to China.
From Left Field
Researchers Discover Secret Recipe of Roman Concrete that Allowed It to Endure for Over 2,000 Years (via Chad D.)
The Professor and the Adjunct: Can universities fulfill the promises of academia if they depend on contingent labor? -- crunch-time in academia...
Facebook, Instagram and Twitter are parasites. Maybe they should disappear: Senator -- now that this view is mainstream,expect regulation....
The Rise of the Rural Creative Class (via Kevin M.) A growing body of research shows that innovative businesses are common in rural areas, and rural innovation gets a boost from the arts.
how to enjoy the end of the world (1:03 hours)
The media is lying to you about Trump’s China tariffs -- another over-hyped media frenzy?
College Illiteracy is Growing -- part of a larger trend: learning doesn't matter, credentialing matters. That's how empires crumble....
What If Presidential Hopeful Andrew Yang Is Right? -- he's tech-savvy, which sets him apart....
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WINTER IS COMING FOR HOLLYWOOD: WHY L.A. IS GROUND ZERO FOR THE NEXT TECH APOCALYPSE -- software can compose scripts that aren't much different from standard-issue scripts--and generate fake actors...
America’s Cities Are Unlivable. Blame Wealthy Liberals. The demise of a California housing measure shows how progressives abandon progressive values in their own backyards. The truth hurts... expect a mass exodus from the SF Bay Area and LA enclaves...
Rural Americans would be serfs if we abolished the Electoral College
A Map of the Future of Water These great aquifer systems are being mined, primarily for irrigation in the overlying, mega-food-producing regions of the world. This disappearance of groundwater places regional and global water and food security at increasing risk.
Water scarcity may ultimately also limit food production. The food industry is the largest user of water worldwide, consuming far more than is available on an annual renewable basis. In fact, most of the world’s food-producing regions are in a state of chronic water scarcity, with no end in sight given current rates of production and levels of agricultural efficiency.
"These pains you feel are messengers. Listen to them." Rumi
Thanks for reading--
charles |
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