Sunday, August 5, 2018

An Information Age Income Model

Inequality has become a political hot button primarily because a shrinking middle class is leading to a bimodal population with regard to income.  It is important to recognize that, as the middle class shrinks, both the upper class and lower class are growing with the upper class growing about twice as fast.

The most common statistics being quoted revolve around the income and wealth of the upper 1%.  This is, of course, good political rhetoric but poor analysis.  The implication is that the '1%' are becoming wealthy through unfair circumstance; they are born wealthy; they were lucky; they got an unfair advantage; they cheated, etc.  It is understandable that people don't  want to think that the wealthy earned their wealth fairly.  However, wealth inequality is primarily the result of the Pareto distribution, known more commonly as the 80-20 rule.

The distribution is named after Vilfredo Pareto, a 19th and 20th Century Polymath who found that 80% of Italian real estate was owned by 20% of Italians.  However it proved to not be a trait of just the Italian economy.  The Pareto distribution started popping up everywhere.  For example, 80% of peas come from 20% of the pods.  80% of sales comes from 20% of the salespeople.  In fact, a Pareto distribution is a hallmark of a statistically fair game.

It is widely published that the top 1% of Americans hold 40% of the wealth.  What does Pareto say would be the result of a fair game?  In this regard, .8³=51.2% and .2³=0.8%.   1% computes to 52.8%.  In other words, a "fair game" could be expected to result in an even greater concentration of wealth and income than prevails today in virtually all of the developed world..  However, it should be recognized that it would be fair in a mathematical sense only.  Social justice considerations would likely not consider it fair at all.


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Still, many, perhaps most, people are inclined to consider modern wealth inequality to be the result of a rigged game, while the facts don't really support that.  Rather, as some wise people have noted, life is not fair.  Pareto assures that there are relative winners and losers.  This is partially because the modern Western society is based upon free enterprise, expressed through a 'dominance hierarchy'.  However, primarily it is a simple result of income and wealth being earned by value added and Pareto applies to actual contributions.

Free enterprise is extremely efficient, but it is heartless.  As Pareto demonstrates, it tends to create a small percent of 'winners' at the expense of many 'losers'.  Having said that, because at some level society is, and should be, viewed as a social contract, the notion that the value of labor is zero is counter to that proposition.  If income varies consistent with a Pareto distribution, that is what it would be implying.  In recognition of this practical reality that people won't work if they are not paid, we propose here an income model I=MW+P where MW is the value of productive effort in the form of a minimum wage, whether de jure or de facto, and P is The Pareto share that, calculated as P=I-MW, can be considered a recognition that those who add more value  through above average competence, innovation, capital, etc. should be rewarded with greater purchasing power.

While nothing more than a recognition of how liberal democracies function, it places discussions of income inequality on more firm theoretical ground.  In other words, while establishing MW or minimum wage is somewhat arbitrary, one can approach it analytically by subtracting the Pareto Distribution from the actual income distribution and the remainder is the aggregate MW which allows us to calculate a minimum wage.  While precise, it fails on the basis of social justice.  We prefer establishing a democratically arrived upon  value for MW and then considering whether it is consistent with the computed P = Pareto and if not, consider why and what, if anything, we, as a society, should do about it.

We can make a philosophical statement about MW, such as, "Every full time worker should have the resources required to fund a dignified life".  While it certainly sounds like an appropriate criterion, it still leaves plenty of room for interpretation and, therefore, disagreement.  I happen to agree with it.  

For example, one could find the rent for a marginal, but healthy, 3 BR apartment, divide it by 28% which is often cited as the qualifying income for housing.  This would establish a minimum income for a married couple with two children.  Suppose that rent is $1,200 per month.  This would result in a calculated MW of $12.36 per hour with both parents working.  This logic won't compel a consensus on a proper minimum wage.  However, it should lead to an organized discussion amenable to objectively supportable positions.  

We disregard the 1% as a measure of the wealthy.  The problem is that if the number of the wealthy changes significantly, the income of the 1% will change significantly and in ways not reflective of the change in income for its members.

The more technically supported measurement of income inequality is the GINI index which measures the  deviation of the income distribution from perfectly equal distribution. The generally accepted position is that a high GINI, which indicates greater inequality of income, is intrinsically bad.  However, it is a continuous function with no points of inflection.  Therefore, while relative inequality is properly measured, there is little or no criteria for establishing a point of fairness or economic justness. 

The free enterprise principle, with some modification, is that one's right to consume should be commensurate with the value one adds.  This contrasts with the Marxist philosophy of "From each according to their ability, to each according to their need".  The income model, herein proposed, is predicated upon the free enterprise principle and, as such, extremely high incomes are accommodated. In other words, if one  creates 10,000,000 USD of value added, one should receive 10,000,000 USD in compensation, save for a potential reduction for MW, if the established value is more than the actual value added.

As we set a framework for considering what should be MW we can also consider a framework to replace ''the 1%'.  There could be many ways to describe the wealthy.  One could be to see whether a family can afford the cars of the rich.  Husband drives a RR Wraith.  Wife drives a Bentley GTC and they have a Escalade for a SUV.  Per normal budget guidelines, a family needs about one million USD income to afford this fleet.

Neither the home cost calculation of minimum wage, nor the auto calculation for the definition of the wealthy should be taken as a serious argument for definitions.  They are intended as simple examples of a basic logic.  Most governments establish official poverty levels. However, these are not dignity levels and the two may not bear a consistent relationship to one another.


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By bifurcating household income into two distinct factors, minimum wage and pareto distributed free enterprise income, arguments over income inequality cannot be so easily conflated. One discussion would revolve around what constitutes a dignified life. Another conversation will revolve around any difference between the calculated and actual Pareto portion. These discussions will organize the issues but almost surely won't drive a consensus. However, differences in positions will then require more rigorous support..

The MW+P model will also inform the discussions about taxation and social policy. There are three categories of citizens with regard to the model. They are

1) people who cannot achieve MW without community assistance. This could be because of disability or simply, based upon economic conditions, because they cannot compete successfully for existing job openings 2) 
The bulk of citizens who earn more than MW but less than the income defined as wealthyand 3) the wealthy, which, as likely defined, will constitute less than 1% but more than 0.1%.

It seems obvious that taxing group 1 would be fruitless. Taxes on the wealthy, most of whom are extremely mobile, must recognize that, if their taxes are too high, rather than raising revenue, it will result in the wealthy moving themselves and their businesses out of their current tax jurisdictions.

That leaves tax policy a matter of the rates and progressivity between 0% and the wealthy rate. This allows for sufficient latitude to facilitate robust disagreement but puts a practical upper limit on the revenue that can be raised via income tax.  Reviewing the tax policies of developed countries suggests that the top tax rate that is supportable is around 35%


There is also plenty of room for disagreement on the degree and nature of group 1. One could argue that some members of group 1 should experience a lifestyle below the agreed upon level of a dignified lifestyle.  The main argument would be that giving members MW would disincentive them from aspiring to moving into group two.  However, in Western civilization, that may be a very unpopular position, and will not be articulated by any mainstream decision makers.


Some may argue that beyond a progressive tax at the bottom of group 2, the tax rate should be flat.  Others may wish a heavily progressive tax.  However, they are limited to the rate levied upon group 3.


Enlightened tax policy will result in an objective calculation of the tax rate for group 3.  It is a calculation similar to the Laffer Curve.  A low rate will generate low revenue.  As the rate increases revenue will increase until the number of members of group 3 who leave the taxing authority will increase sufficiently to reduce total revenues.



  

Thursday, June 28, 2018

Humanoid Robots May Be Imminent

Star Trek: The Next Generation, set in the 2360s had a crew member, Data, that was an android or humanoid robot.  While a Data is not likely any time soon, a reasonable facsimile may be available far sooner than is generally imagined.  Current technological progress is not inconsistent with a product introduction around 2030.  However, while completely functional, it will in no way be artificial general intelligence as imagined in ST:NG or by Singularitarians.

The problem of creating a humanoid robot is comprised of two pieces -.  one, the robotic body, two the artificial intelligence.  Both technological pieces are currently exploding. What is necessary, primarily, is to bring together the various technologies that are currently being developed into one robot.

First, about simulated artificial general intelligence (AGW)
In 2005, Ray Kurzweil published, The Singularity is Near.  I had not yet started blogging, but I argued vociferously within my intellectual circles that, because Moore's Law would not continue to 2040, the Singularity was not only not near, it likely was far, far in the future.  I got nothing but push back at the time, but now most observers recognize that Moore's Law is dead and that progress henceforth will be much slower.  There are, of course, those who still believe that we are in a pause and that Moore's Law will reignite.  Many of them still pursue the goal of AGI (Artificial General Intelligence) which is a cornerstone of the Singularitarian vision.  While that is both anthropomorphic and overblown, if not totally improbable, simulated artificial intelligence is right around the corner, it will likely be given an I/O modality that will be a very credible humanoid.  I am not talking about in the mid 2040s; I am talking about something closer to the late 2020s.

Right now, there are quite a few natural language internet search engines.  Apple's Siri, Microsoft's Cortana, Amazon's Alexa or Android's Google Voice are the mostly widely used.  With these systems, the user asks a question of the 'assistant' verbally and they receive an answer, not from a third party website, but from the virtual voice assistant.  Sometimes, as Siri does quite often, it will be with a citation, such as 'According to the World Health Organization, France has the best Health Care system in the World'.  

These natural language interfaces are becoming more and more capable, accessing your calendar, Google Maps, Pandora, Waze, etc.  "Out of the box", Siri will not play chess with you, but that is a simple interface problem that techies can and do solve.  The same is probably true for IBM's Doctor Watson or other medical databases.  In fact, Siri can piggy back on IBM's Watson software.  In other words, making Siri or any other virtual voice assistant appear to be as smart as the total Internet is just a simple problem in programming.  In fact, likely, within five to ten years, natural language assistants will be able to do just about anything you want them to do.  They will likely pass the Turing Test and seem to be an insanely knowledgeable and capable human.

There is no doubt that such an advanced Siri or Alexa is not true Artificial General Intelligence.  When it interacts with the user, it is acting as a natural language I/O device.  When it plays chess with the user, it is accessing programs that determine the next best chess move through algorithms, not through anything resembling true thought.  Siri or Alexa is not conscious.  It has no reflective ability that allows it to contemplate its own existence.  One may argue that the Internet, collectively, is intelligent, but it is not so in the same way as we mean when a human is intelligent.  It is most definitely an artificial intelligence and the 'general' in AGI is simulated.

The 'Personal Assistant' Robot
This 'personal assistant' can, today, easily be put in a robot.  In fact, right now, it is being put in telephones.  The PAR is farther in the future than the simulated AGI into which the current personal assistants are morphing.  However, they are not that far in the future and the first ones will probably appear in about a decade.  Already, Boston Dynamics has plans to offer its 'spotmini' to the general population.



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By this method, the PAR it will accurately simulate AGI and appear to be a conscious entity more knowledgeable,  and expert than any human.  However, as we know with current personal assistants, chess programs, etc. it is not AGI.  It is SGI or simulated general intelligence.  While the quest for AGI will likely continue in the lab, SGI will be a cheaper and less troublesome product.  SGI is the future and it is here in rudimentary form, already.  And the competition is stiff and improvement is therefore rapid.

Scene analysis is critical to the effectiveness of a PAR.  Fortunately, due to multiple applications, the technology is advancing rapidly.  Clearly, Boston Dynamics has installed relatively good software.  This acrobatic display by their Atlas requires astonishing scene analysis.  It may be that soon their robots will exceed human capabilities.  Obviously, the average human could not duplicate this display of scene analysis and body control.




Not surprisingly, but equally important, Boston Dynamics Atlas robot can run over uneven terrain with amazing ability.  So, we see that the technology needed to allow robots to move about freely in a human or nature environment is already here.  The question is, how low can they get the cost.  A million USD robot will have very little consumer application but a 25,000 USD robot probably will assuming that it comes with sufficient manual dexterity and SGI.

Boston Dynamics is not a leader in robotic hands and fingers.  This research and development has been driven primarily by prosthetics and it is already very advanced.



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The construction of human-like bodies and faces, driven, in part, by competition between sex robot manufacturers, is progressing rapidly.  The companies that are creating the most humanlike faces are not at state of the art voice interaction, but, while not at the point of fooling anyone are getting quite good.  It is important to note, especially those presented by Hanson Robotics, that many videos of human-like robots are scripted and presented as real AI that is well beyond current technology.

However, as Siri and Alexa demonstrate, the current AI is quite sufficient to function as a useful personal assistant.  We are seeing that these executive programs are advancing rapidly.

It is clear that bringing together the most advanced current technology, in just a few years a first shot at a humanoid robot would likely be successful.  The business potential may be enormous.

Of course, the likelihood of market acceptance will be based, among other things, upon price vs. benefits.  One of the primary benefits is to organize and execute the details of one's life.  As Google demonstrates here, much of what can be done already. However, picking up dry cleaning, grocery shopping, etc. will require a physical presence.

The other significant benefit is as a domestic, that cleans, cooks, gardens, does home and auto maintenance, etc.  It is, in fact, the primary benefit of a humanoid robot, over a virtual robot, such as Alexa.

Robots have no life of their own, so the only down time is for maintenance.  They may need 10% for charging and maintenance.  At $10 per hour equivalent, the net present value of a robot's work will be around 500K USD.

While the present value may be 500K USD, the cost will need to be less in order to be a successful product.  A basic robot may cost the same as a luxury car, say 100K USD.  There will also be some operating costs.  A total monthly cost may be around 1,000 USD.

With, say a 2% initial market penetration, the industry may start St about 100 billion USD but has the potential to grow much, much larger.

The basic models will likely look like Atlas or Asimo.  Many people find the more human robots 'creepy' and they actually prefer the Asimo style models. There is controversy right now over Harmony, the sex doll, by Real Doll.  Real Doll and and it's competitors are naturally the most aggressive group in pursuing human like-robots.  On one hand, most people will likely have a negative reaction to this degree of human simulation, but on the other hand, some people may be willing to spend substantial funds to create very life like and custom designed robots, a la Stepford Wives.

Most humanoid robots are currently not for sale, the exception being Harmony, which costs 15,000 USD.  She is, however, far from complete, with no movement below the neck.  However, if the initial price point is 100,000USD there is plenty of room for improvement.

There are many activities that will be appropriate for PARs, but there will also be plenty of roles where people will prefer humans.  Home domestics, hotel house cleaning, etc. will likely be robots, however, fashion consultants, personal trainers, wait staff, doctors, police, etc. likely will remain human because people will prefer the 'high touch' of real people.