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One Hedge Fund CIO's Conversation With His Uber Driver

In his latest weekly letter to clients, One River CIO Eric Peters shifts his attention away from his two favorite topics of monetary policy and capital markets, to unveil a streak of contrarian skepticism on the topic of "technological disruption", and in his trademark anecdotal style, present a hypothesis that would be most unwelcome in virtually every Econ 101 class and Venture Capitalist Headquarters: stating that "we should be careful not to overlook the possibility that today’s disruptive technology companies may be not much more than mechanisms to drive wages down to subsistence levels” alleging that “these companies rely less on technological innovation per se, but on changing employment styles and reducing total wages, while imposing harsher working conditions."

His conclusion: “the nature of technology depends very much upon what the public can be induced to put up with.” 

And just to make his view more palpable he presents the following conversation with his Uber driver:

“Paying my way through college,” said my Uber driver. I was asking about his life.

 

“My girlfriend pays most of our rent.” She’s carrying $150k in college debt. Four years of university, one year abroad. Spain. Then graduate school.

 

“She’s got a job at Verizon. I think she’s doing really well. They gave her a promotion.” Sounded like he really loved her. But didn’t have the remotest idea what she did for Verizon. Or how much her monthly loan cost.

 

I asked what he’d do with his degree? “No idea. I just don’t want to graduate with that much debt.”

In a separate tangent, here is Peters on another case of disruptive technology:

Amazon is building an army of 10k independent Tokyo couriers by 2020 to eliminate their reliance on the major parcel delivery companies.

 

The company ships 300mm packages per year in Japan, 10% of door-to-door deliveries. The jobs-to-applicants ratio for cargo delivery drivers is 2.01, outstripping the 1.25 ratio for the broad economy, denoting a labor shortage. But pay remains inexplicably low; the work is hard, back-breaking.

 

The new Amazon army will be small mom and pop proprietors. Each one unable to bargain. Divided, conquered by technology.  

Just as Jeff Bezos likes it.

Finally, we excerpt three anecdotes on the interplay between "technological innovation" and the now defunct Phillips curve.

“Quantitative Easing and all of its paraphernalia of ‘managing inflation expectations’ was always a scholastic fantasy,” said the Englishman. “First and foremost, it was a way of charging the public for bailing out banks without being forced to make the case in parliament,” he continued. “Second, it was a political expedient for central banks to be seen to be doing something to protect their ‘independence,’ and third, it was a sign of the self-regarding over-confidence of central bankers that precise control of the inflation rate was within their power.” 

 

“The BOE chief economist analyzed the relationship between unemployment and inflation since 1500,” continued the Englishman. Nerds call this relationship the Phillips Curve, and they’re hyperventilating because it appears broken. With US unemployment at 4.4%, inflation should be rising swiftly. Ain’t happening. “It appears the Phillips Curve is an artefact of its time.” From 1500-1700 it was flat. From 1860-1950 it sloped steeply upwards. It’s flat again. “There’s no ‘normal’ Phillips Curve, because the labor/capital bargain is always evolving.”

 

“We should be careful not to overlook the possibility that today’s disruptive technology companies may be not much more than mechanisms to drive wages down to subsistence levels,” said the Englishman. “These companies rely less on technological innovation per se, but on changing employment styles and reducing total wages, while imposing harsher working conditions.” I called an Uber, this convo had gotten too depressing. “The nature of technology depends very much upon what the public can be induced to put up with.”