In the rapidly evolving landscape of the early 21st century, an entirely new economic paradigm is emerging that challenges our traditional understanding of value creation and wealth distribution. It’s urgent that we move to get a handle on this enormous shift so that we can survive and thrive through the inevitably painful adjustments inherent to such periods of historic change.
In this article, we’ll begin to define the key features and attributes of the emerging system of Intelligence Economics and we’ll explore what it means for traders, investors and humanity as a whole.
Post-Capitalism
As I have discussed in previous articles, we have already transitioned from Capitalist economics into a transitional regime of “Debt Monetarism”.
Current economic activity is primarily driven by future value brought forward into the present through debt. Debt does not represent current value; it represents the potential for future value. Since capital is value generated from the transformation of diverse inputs into a functional increase in new use value, the system can no longer be considered capitalist. The predominance of debt monetarism means that, functionally, capital no longer drives the national and global economies.
Debt monetarism is, however, merely a transitional stage. It is a massive bet on the future. It is a gamble that we will be able to borrow from the future to bootstrap the exponential growth of current value generation. A large portion of this bet has been placed on Artificial Intelligence, Robotics and other associated technologies. Will this wager pay out?
If Artificial Intelligence and its associated complex of technologies (which I prefer to call “Technological Intelligence“) is successful, then a fundamentally new economics based on Intelligence will be born. The economic flywheel of Data>Information>Intelligence will spin, exponentially increasing the generation of new economic value and producing a fundamental transformation of society and the world. There are strong reasons to think that this is, in fact, in its nascent stages now.
If, on the other hand, the AI technological revolution is somehow aborted, then the global economy will almost certainly collapse under the weight of the unsustainable debt burden and the promised future will not be realized. A descent into war, chaos and darkness is a real possibility in that scenario.
So economically, humanity is at a very real crossroads. We can progress into a bright, new future based on Intelligence Economics, or we can cling to past models that have already exhausted themselves and risk falling into a new Dark Age.
One of the deciding factors is the extent to which we can conceptualize this reality and the choices that it poses. This includes the ability to understand the nature of economics in terms of the general principle of informational Entropy reduction as well as a rigorous description of the operating principles of Intelligence Economics.
From Raw Marble to Fine Masterpiece: Understanding Intelligence Economics
When Michelangelo, the stood in his art studio before a massive block of marble he regarded it with a unique perspective. While his contemporaries approached the stone with a preconceived design in mind, Michelangelo instead open-mindedly traced the grain of the marble to gradually discover the form of the statue that lived inside the block. This is why history counts Michelangelo as the master among the Renaissance masters and his works endure as touchstones of beauty and craft to this day.
The key takeaway here is that Michelangelo’s novel creative process, which he no doubt acquired through many tries, failures and successes, itself represented a higher level of Intelligence relative to the established approach to sculpting. It is not merely the statue which represents value, but even more so the intelligently evolved process which produces it.
This process of revealing the statue hidden within the stone is an apt metaphor for Intelligence Economics. In the same way that Michelangelo chipped away excess marble to reveal the form of David, modern economies are increasingly focused on tossing away the “informational chaos” in data sets to reveal productive insights that create economic value.
Data>Information>Intelligence
Intelligence Economics involves turning raw data into actionable information that in turn yields progressively improved processes for achieving the reduction of data into information. Intelligence is both the output of the system, the processes of the system and the capacity of the system to adaptively produce better processes. An exponentially improving flywheel of Data>Information>Intelligence is set in motion that continually transforms not merely the material world but the very methods by which we engage with it. This process of reducing “informational chaos” (scientists and information theorists refer to it as “informational entropy“) is fast becoming the primary driver of economic value in the Age of Intelligence.
For decades, companies like Google have transformed the chaos of the internet into organized, accessible information. Amazon has been using vast amounts of chaotic customer data to predict and fulfill our needs, often before we even realize we have them. But now, with the introduction of Technological Intelligence into the mix, it is the creation of ever newer and better processes for turning data into information that is the real economic value, rather than the information itself.
While the Capitalist Economics of old was based primarily on the transformation of material inputs into new use value, Intelligence Economics is organized around the ability to harness and deploy Intelligence, both human and technological, in creative processes that create economic value through the transformation of Data and Information into Intelligence.
In summary: Intelligence, in the economic domain, is the capacity to create progressively improving use value through increasingly adaptive methods.
The Human Element
It’s crucial not to overlook the human element in the Intelligence Economics equation. The integration of the unique capabilities of Human Intelligence and Technological Intelligence will be a defining feature of this new paradigm.
Currently, most perceive Human and Technological Intelligence to be separate and distinct phenomena. We perceive TI as something alien and potentially hostile. “Doomers” forecast an inevitable dystopian enslavement of humans to AI–or worse.
But from the first time a prehistoric human struck a stone into a cutting edge until this very moment, the cultural, social and economic history of humanity has been an intimate feedback loop between our cognitive Intelligence and the technologies we have produced from it to transform our world. The paradigm-shifting difference unfolding now is that the technology itself, beyond being an embodiment of our Intelligence, is itself becoming an Intelligence, soon with active, agentic properties not unlike our own.
The creative, productive interaction between Human and Technological intelligence that is emerging right now is the new flywheel of the Data>Information>Intelligence Economy. It is a single, integrated system, not a clash between alien and hostile forces.
Jobs, Meaning and Human Life
Of course, many are legitimately concerned about the disruptions to employment and the potential that, deprived of their jobs, most people will find life to be meaningless. Certainly, this is something that must be addressed.
The weavers of early English industrialism were challenged by the automation of fabric production by early technology. The “Luddites” resisted the change and were ultimately put down, now a derisive historical footnote.
The Ottoman Empire was the center of world knowledge and technology. When the printing press was invented in Europe, the Empire banned the innovation as a threat to the predominance of the clergy and a vector for heresy. The Ottoman Empire subsequently fell behind and was supplanted by as the information technology of the time spread learning and innovation across the continent.
While the changes at hand now are of an entirely higher order, these lessons of the past are still relevant to our present. New technology always reshapes both the society and the individual human. Those who adapt most readily to the innovation thrive and those who do not are left behind.
We have always only had one job, in the final analysis. Any economically valuable task worthy of compensation involves reducing the informational entropy in a given domain. Whether that involves sweeping up the sawdust from the shop floor or organizing data into a set for training a neural network, we all have the same job. A swept floor is in a functionally higher state of Intelligence than an unswept floor. An organized data set that will successfully train a neural network is a higher state of Intelligence than a raw data set.
How will this core principle be applied going forward? How will we all contribute something to the growing Intelligence that is now emerging?
Organic and Synthetic Data
It is almost universally agreed upon that one of the bottlenecks in the new economy will be the sufficient generation and capture of organic, human generated data for the training of newer, better TI. While synthetic data (data created by TI itself) can be very useful, at a certain point the data generated through successive iterations of synthetic data loses resolution and breaks down. This means that systems which actively generate and capture organic data through direct human interactions with TI will be critical and significant drivers of value and growth going forward.
In this context, everyone who interacts with TI will have the opportunity to contribute valuable organic data to the system. And a properly configured system will encourage that participation by rewarding it, most likely through some form of blockchain tokenization.
Systems which actively reward dynamic “human in the loop” are going to generate the data gold of the new Intelligence economy. What might those systems look like?
I’m personally building such a system now, and venture investors who want to get on the ground floor of the economic engine of the new economy are encouraged to contact me.
Universal Basic Income and Human Fulfillment
We need to consider how to manage the transition to a fully TI-integrated economy, addressing the inevitable job displacement and exploring new models of value distribution, including public and private policies for “Universal Basic Income” and other support mechanisms.
Hybrid organizations like OpenAI and many other novel post-capitalist structures will continue to emerge, and as they crank the Data>Information>Intelligence flywheel, they will come up with new and innovative ways to return value to users and the general public at large including grant programs, public infrastructure projects, free medical facilities and more. Government will, of course, create its own programs, but I expect that much of the value transfer will take place in private decentralized networks like Decentralized Autonomous Organizations.
The ultimate goal will be to harness these technological advancements to free people to fully develop every aspect of their humanity in an age of abundance: mental, intellectual, creative, emotional, experiential, and physical.
The best way to counter “joblessness” will be to provide ample, free opportunities for people to expand their personal horizons through education, creative training, physical fitness and other opportunities for personal growth and development. A well-rounded, higher Intelligence population will also contribute more to the Data>Information>Intelligence flywheel, resulting in greater benefit to all.
The Bifurcation of Markets
As it becomes increasingly clear that the future of the economy will be based on the generation and distribution of Intelligence as the primary economic value, we’re witnessing a significant divergence in stocks. A huge gap is opening up between entities based on the old models of economic value and those aligned with the new emergent model of Intelligence Economics.
This bifurcation is being reflected in stock prices, with both smaller and more traditional enterprises falling behind and starting to decline, while companies aligned with the new model are seeing accelerating growth. Here are the ratio charts of SPX 500 to Wilshire 4500, QQQ to IWM and QQQ to DIA:
These charts show a dramatic outperformance by a narrow coterie of tech stocks relative to both smaller issues and the industrials of the Dow 30. Historically, such massive divergences have often led to bearish periods in the broader market.
However, it’s important to note that many traditional technical and fundamental measures of analysis and performance may have become less useful or even obsolete as this new paradigm takes hold. The replacement of market mechanisms by debt monetarism in finance and economics means that this time could indeed be different.
Investing in the Intelligence Economy
For investors, understanding this paradigm shift is crucial. Here are some key considerations:
1. Focus on companies excelling at the Data>Information>Intelligence flywheel. Look for opportunities in AI, machine learning, and data analytics sectors.2. Be cautious of traditional enterprises that fail to adapt to the new model. Consider the potential risks associated with companies heavily reliant on old economic models.
For investors, traders, and indeed all of humanity, understanding and adapting to Intelligence Economics will be crucial in navigating the challenges and opportunities that lie ahead.
Conclusion: Embracing a Future of Abundance and Human Potential
As we stand at this economic crossroads, the choice is clear: we can progress into a bright, new future based on Intelligence Economics, or we can cling to past models that have already exhausted themselves. The success of this transition depends on our ability to conceptualize this new reality and make informed choices. By embracing this new paradigm, we have before us the potential to create a future of abundance, where technology and human potential combine to solve our greatest challenges and unlock unprecedented opportunities for economic, social and personal growth and development.
In this short article, I have only introduced significant new concepts that I will continue to elaborate upon and expand going forward. Be sure to follow me here as well as on my web site and socials, as there will be much more to come as we build out our understanding of the new paradigm of Intelligence Economics.
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