Driving Me Crazy

We have seen an explosion in the past few years of developments toward truly autonomous vehicles.  Some predict fully autonomous vehicles to be ready for consumers by 2020.  But then along came the first fatal crash involving a semi-autonomous vehicle, a Tesla at that, and perhaps that timetable has just been pushed back a tad.  If you look a the issues involved in rolling out truly autonomous vehicles, it seems unlikely that we will see them outside of beta testing for quite some time.  Let's start with the recent fatal crash and look at some of the issues it highlights.

According to Bloomberg, Tesla has rolled out approximately 70,000 semi-autonomous cars since October 2014 in a massive beta test of sorts. 

http://www.bloomberg.com/news/articles/2016-07-01/fatal-tesla-crash-spurs-criticism-of-on-the-road-beta-testing

From the description at Bloomberg, these Tesla cars appear to be Level 2 cars, i.e. those that are largely automated (at least for certain driving) but where the driver must remain fully attentive.  It seems, however, that the driver who died and who supposedly was watching a movie at the time was treating the vehicle as Level 3, where the functions are sufficiently automated that the driver can safely engage in other activities but nonetheless can still take control if need be or desired.  Even within the levels you can have a host of variations, such as cars that fall into Level 2 in urban settings but elevate to Level 3 on a well marked interstate. Be it Level 2 or 3, this car still failed to avoid a fatal crash it should have been able to avoid.

In the fatal accident, a Tesla on a highway in Florida unsuccessfully tried to pass under the trailer of an 18-wheeler that had crossed the highway in front of it. It is believed that the car's electronic sensors mistook the white trailer for bright sky and failed to brake. 

In Tesla's defense, it claims its semi-autonomous cars had logged over 130 million miles before this fatality and that the average for regular cars is a fatality every 94 million.  Well, as we lawyers like to say - tell it to the jury!  And I am sure Mr. Musk or his company will have to do just that.

While the deceased is from Ohio, which has fairly conservative mid-west juries and verdicts, the fatal accident was in Florida, which has anything but conservative juries and verdicts.  Eight and even nine figure verdicts from single fatalities are not unheard of there.  Just last year one of those wonderful tobacco companies took a $23 billion punitive damage verdict in an individual wrongful death suit, which did get drastically reduced for constitutional reasons, but you get the picture - not a good state to be a defendant.

Well geez you say, they have to have insurance for this.  And geez I say, I am sure they do (though not for punitive damages).  But nothing like a fatality and perhaps a nice eight figure verdict to raise your premiums and with 70,000 such cars out there and more on the way, it's gonna' take a whole lotta' premium to keep this baby insured.  Because despite accidents and fatalities in these cars perhaps being rarer than in regular old jalopies, when they do occur it is almost for certain that the manufacturer will be held liable. Yes, manufacturers have always had some liabilities in, but most accidents are due primarily if not exclusively to driver error, not product defect, so the liabilities were fewer.  Indeed, almost 40% of vehicle fatalities are traditionally due to alcohol or drugs, but with autonomous cars they virtually all will involve some level of product defect.  In this accident, for example, while the "driver" himself may well have been partially at fault for watching a movie, there's no way Tesla is going to prove to a jury the car did nothing wrong.  Ain't happening my friends. 

And I suspect Musk might get whacked pretty good with punitive damages.  You see beta testing your vehicles on 70,000 end users is probably not wise, especially when many other manufacturers are refusing to do anything of the sort.  Likely other manufacturers are doing so for safety reasons and also they undoubtedly do not want the PR of a fatal accident like just occurred.  When such an experiment leads to the death of a 40 year old former Navy seal, sparks are going to fly and sales are going to drop.

This seems to be one of the big issues with autonomous cars, manufacturer liability.  It is probably not the thorniest but it is one that may well sideline the whole shebang absent a legislative solution, which will likely come eventually but will take a long time.  Ultimately, especially when all cars are autonomous, everyone predicts they will be much safer than cars today.  But if manufacturers are facing massive liabilities for every wreck, even if there are a lot fewer wrecks, they will not survive.  They must appeal for legislative relief along the lines of no fault protection and probably will need it on a federal level to be effective, but that poses a host of political issues to overcome.

You see torts and auto liability are issues traditionally handled on a state level with state regulation and common law.  Driver's licenses are issued at a state level, driving laws are at a state level, required insurance is at a state level and liabilities for accidents are determine under individual state standards.  Giving a lot of this control over to the federal government is not going to be an easy sell.  Can you imagine Texas giving this up?  But it is something that has to be uniform to work and it will not be uniform on a state level.  Thus, Volvo, for one, has been pushing the federal government to regulate this area and not leave it to the states.

http://www.digitaltrends.com/cars/volvo-urges-u-s-government-to-regulate-autonomous-cars/

There is enough money and societal benefit at stake that it will likely eventually happen, but it will be a long and painful journey.

But liability is just one issue.  Assuming they get uniform legislation, manufacturers still need to deal with the public attitudes.  You probably have around 70,000 owners of semi-autonomous Teslas now very hesitant if not outright refusing to use the semi-autonomous features that they can turn on or off.  Who wants to endanger their own lives or the lives of their families over a system that cannot tell a freakin' semi trailer from bright sky?

At least in Teslas some of the semi-autonomous features can be disengaged and the driver can take over.  That will not be the case for all autonomous cars.  Level 4 cars, like those being designed by Google, do not allow this.  There are apparently some thorny issues switching from auto pilot to driver control while cruising down the road and doing so in an emergency situation is even more problematic.  To avoid this increased danger, Google is not planning on giving the occupant a choice.  There will be no steering wheel. It is either the computer or nothing. 

Still, when the bugs are worked out the expectations are these autonomous cars will be a lot safer, saving probably tens of thousands of lives a year just in the U.S. IF they go into across-the-board use.  Now it seems odd we feel relatively safe driving ourselves or letting others drive us (though I cannot relax with my wife behind the wheel), but we do not trust autonomous or semi-autonomous cars that are safer.  Still, it won't take too many serious accidents to dampen the willingness of the public to trust a computer.  Computer problems, after all, are nearly a daily happening.  Half my draft of this article, for example, got lost yesterday when my computer crashed and went into the blue screen of death.  This happening while typing a blog post is a nuisance; it happening while going 70 mph down the highway gives all new meaning to the blue screen of death.

Certainly manufacturers are building backup systems and a default for the car to safely pull over and park if all goes wrong, but technology is not perfect and every accident will be blamed on the technology.  The more this happens the less folks will trust these cars to drive for them - despite them still being a lot safer than people driving.  Overcoming this psychology will be difficult and is not happening in the next few years as some predict.

Another issue manufacturers and others seem to downplay is the prospect for vehicles operated by computers to be hacked.  While manufacturers are undoubtedly jumping through hoops to insure security, there is no computer that cannot be hacked.  An individual or group with sufficient knowledge, time and resources will achieve this in time.  Perhaps it will just be a bored teenager getting the cars to communicate to each other about some traffic patterns that do not exist just for fun, or perhaps it will be terrorists driving cars off cliffs or into each other.  The stuff of fiction movies will eventually become reality.  And if you think a few accidents will hamper people's desire to use an autonomous vehicle, wait until the first successful hack gets publicized.  This issue is also a prime concern on the insurance side of things, where a recent survey found it to top the list for concern for risk managers:

http://www.bloomberg.com/news/articles/2016-07-19/cybersecurity-is-biggest-risk-of-autonomous-cars-survey-finds

You can chalk my pessimism up to me being an old fart who still enjoys driving a stick shift.  There may be some truth to that, but there are certainly strong pros and cons and I believe it will take a lot longer than most assume for us to go full throttle into fully autonomous vehicles.

Rand Corporation did an extensive study on autonomous vehicles, first released in 2014, which you can find here:

http://www.rand.org/pubs/research_reports/RR443-2.html

In it they identified a host of pros and cons to autonomous vehicles.  Despite being around 200 pages, it is worth the read.  It identifies a number of other considerations I have not addressed above.

Happy Independence Day - Britain!

A lot has been written on Brexit and whether it is good or bad for Britain.  I don't know enough to know for sure and from what I have read I believe no one really does.  Certainly there will be a lot of short term pain while everything is worked out, but I do see the initial drop in the FTSE has been overcome and then some, with a nice gain over the pre-Brexit level.  Go figure.

This market rebound could be largely due to the pound taking a dive, which will help exports and British companies that do so, but Brits are going to be paying a good bit more for imports, and last I checked they import quite a bit of what they consume, so this cuts both ways.  If I were a cynic, I might suspect that Central Bank interventions have had something to do with the FTSE and other markets having a rebound.   Either way, the market does not reflect Brexit to be another Lehman moment.  (For that we should be watching some of the European financial institutions that are setting new record lows)

Indeed, there is firm evidence that the Brexit move has already resulted in some tangible benefits for Brits.  Well, for at least one Brit anyway, David Cameron.  You see, he seems to be enjoying his new found freedom, lounging on the sofa with the occasional jaunt to the frig.  And the problems of the world are no longer his.  As he observed:

"I flicked on Sky News and apparently there was some unpleasantness yesterday which is absolutely none of my business anymore."

Here is one fellow making the best of it.  He is, after all, in an enviable position.  If all goes to hell in a hand basket he can say "I told you so" and if it all turns out for the best, well, he benefits with the rest of Britain.  Win/win and the abdication of any responsibility has to be refreshing for him.

http://www.thedailymash.co.uk/politics/politics-headlines/cameron-spends-relaxing-day-at-home-laughing-20160701110050

Let's just hope it works out this well for the rest of Britain.

While no one knows how it will work out, there is something to be said for more independence.  The countries of Europe are simply too different in their origins, politics and approaches to life to be combined to the extent they have been.  The turmoil over the past few years in Greece epitomizes how different the Greeks are from Germans in financial matters.  Are the French of a same mind as the Brits or Germans on politics, social issues and the like?  I think not.

For a nice piece detailing why a painful vote for independence made sense to one well-informed Brit, I refer you to this work by Ambrose Evans-Pritchard.  He seems to know of what he speaks:

http://davidstockmanscontracorner.com/brexit-fears-giant-hoax-or-calm-before-the-next-storm/

So as we in the States approach our annual celebration of independence from Britain, we watch the turmoil across the pond and wonder if some day Britain will likewise celebrate its own Independence Day.  And who doesn't like having another national holiday to take off from work!  See Britain, silver linings everywhere you look.

Apple Loses 100,000+ iPhone Customers!

In case you missed it, Apple's Chinese manufacturer of the iPhone, Foxconn, fired 60,000 workers and replaced them with robots. 

https://mishtalk.com/2016/05/26/we-need-new-labels-i-propose-100-robot-made/

Now if you figure that these workers and their families are all potential iPhone customers, or likely already have them and would be customers when it comes to replacing them, and that after being fired for robots they cannot afford such luxuries, then you can easily get to 100,000+ fewer iPhone customers.  Now they might secure other jobs, but as Mish points out in the linked article, these workers are in a city in China where thousands of other manufacturers are automating.  Moreover, companies are leaving China altogether as you do not need cheap labor if you do not need any labor, so automated factories are more efficient if they are built near the customers, like in Europe or the U.S.

For example, Adidas and other shoe manufacturers are gradually eliminating millions of shoe making jobs by building automated factories in Europe and elsewhere,.  So all those Adidas workers replaced by robots cannot afford iPhones and the 60,000 workers who made iPhones ain't going to be walking around in new sneakers either.

You see the problem here is that old supply and demand thingy is tied to those on the demand side of the equation having money.  The Central Banks around the world are kicking butt trying to get folks to spend money, which increases demand, which leads to more supply, which leads to more profits and which USED TO lead to more jobs, which leads to paychecks, which leads to more demand.  You take the more jobs aspect out of the equation and there is no money around to lead to more demand.  Indeed, you are stripping jobs and demand and taking the process in the opposite direction.  The whole capitalistic structure is shooting itself in the foot.  But hey, let the other companies hire people as we need to automate to enhance profits so that the 1% can be even richer. 

You tell me, how many iPhones and sneakers does that 1% need?

Obviously we cannot and will not stop progress in automation.  The challenge has been and will continue to be finding jobs for the millions that are and will be losing their jobs to machines.  For the U.S. it started as losing jobs to cheaper labor overseas, which is still an issue, but it is morphing into a global issue of losing jobs to machines.  We are getting more and more into a world where we do not need nearly as many people to supply the needs of the people.  This will be an ever increasing challenge for our "leaders," if you want to call them that.

Euuuuuu . . . I Smell Something Nasty

I won't repeat what is filling the wires everywhere you look about the EU and Brexit.  Rather, let me just note that the underlying problems with the EU structure, which in no small part led to Brexit, was not that difficult to see coming.  As I said in 2011::

"EU Splitting?

A full two years ago I posted a prediction that the EU will break up. I think I called it the time the EU losing the U. This was a post by me that got a lot of negative feedback then- as in it was an insane proposition. Let me simply say, I stand by my original proposition:

http://online.wsj.com/article/SB10001424052970204010604576592830020996482.html "

And this post was referring back to a prediction I made at the end of 2008 for the year ahead.  I guess as most men, I was a bit premature:

"EU with no U. The strains on the EU have never been greater and Germany's reluctance to play ball with the rest of the union will, in my opinion, cause a rift that cannot be fixed. I doubt the EU will disband in 2009, but pressures will reach a critical point and it may well happen in 2010."

But alas, I must admit that my belief on the EU splitting was tied pretty much wholly to its financial structure.  Britain's vote was based on this in part no doubt, but I think the man or woman on the street is voting more for other reasons, like a desire to better control their borders and not wanting to cede as much control over their lives to the EU.  In scary times, folks like to have that old self-determination thingy, for better or worse, and letting the likes of Angela Merkel have a lot of influence over their lives was probably not sitting well.  And for Britain, I am thinking it is for the better - as apparently 52% of the people in Britain think as well.

https://mises.org/blog/brexit-individualism-nationalism-globalism-0

On the economic front, for example, you might have noticed a curious thing (curious that is for the Remain crowd); the UK stock market - FTSE 100 - was only down a tad over 3% (after an initial dive of 6%).  Indeed, it survived the day better than the DOW.  And compared to other EU stock markets, it ruled.  The German DAX 100 sank nearly 7% and the French CAC 40 was down a whopping 8%.  This could just be attributable to the pound dropping in a way Trump would describe as yuuuuge, which should strongly support UK exports.  I mean, they do have exports don't they.  Oh yeah, Rolls Royce is in Britain. They also make, uh, something else I am sure, like beer.  Whatever they make just got cheaper compared to most other currencies.

This is not to say the rest of EU will not impose trade barriers like tariffs and the like, but that is a two-way street and Britain did represent nearly fifth of the entire EU economy.  This will  indeed be interesting to watch. 

It will be especially interesting to see if other EU members follow the British lead, which I expect will indeed happen.  There are a bunch of unhappy voters in various countries it seems as elections in other parts of the EU over the past couple of years reflect a growing influence of the same type of sentiment the British populace just demonstrated.  Discontent voters are obviously making their voices heard on this side of the pond as well.  Interesting times.

Once, Twice, Three Times . . . You're Screwed!

Interesting piece today in Bloomberg on how a record number of folks over 65 are continuing to work.

http://www.bloomberg.com/news/articles/2016-05-13/-i-ll-never-retire-americans-break-record-for-working-past-65

Why you ask?  Silly question.  You know the answer - THEY NEED THE MONEY!  60% surveyed say they need the money.  And as Bloomberg points out, the financial crisis in 2008 and the tech boom/bust in 2000 destroyed the retirement savings of baby boomers, many of whom were probably conservatively invested in the past seven years as retirement neared, so they did not benefit as much from the most recent market recovery.

So 2000 is once and 2008 is twice.  Where is the third time?  The third time is our friends at the Fed.  With ZIRP as the mandate for over 80 months, baby boomers who still had savings have been getting virtually no return on these savings, so they have to keep working.

And here is the true irony in all this.  The job market participation rate of baby boomers is very high and the participation of those who should be working the jobs is very low, so those making the money are those needing to save every penny they can, meaning they ain't spending their dough no matter what the Fed does.  Janet just scratches her derriere wondering why there is not more spending when unemployment is so low as she is missing the picture.  She just screwed the boomers out of retirement funds so they aren't going to spend and they are taking the jobs from those who might.  Meanwhile those graduating college who might actually qualify for good paying jobs are busy paying off their first mortgage, a/k/a student loans, and have little left to buy homes or spend foolishly. 

http://www.bloomberg.com/news/articles/2016-05-13/student-debt-is-eating-into-the-household-budget

And then there is that whole shift in the employment market to lower paying service sector jobs that is not helping much either.  There does not seem to be any obvious end in sight to this cycle and the Fed is clueless to trying to stop it even if they wanted to.

"Hello, welcome to stupid Fed policies.  How might I help you/"

Is Socialism Inevitable?

Chew on this.  While I am not a big fan of socialism - and it has never worked well in practice - we seem to perhaps be heading there whether we want to or not.

I attach an interesting article that notes, probably accurately, that modern technology and other increases in productivity are leading to fewer jobs and fewer hours for those who work, yet those making little still have many more luxuries than the middle class did half a century ago.

http://www.zerohedge.com/news/2016-03-25/peddling-fiction-after-all-job-growth-doesnt-mean-were-getting-richer

Indeed, eventually if this course continues the only jobs that will continue to exist are those that cannot be automated effectively or that we as a society will not allow to be automated with robots and computers.  Mish, for one, regularly reports on advances in technology and robotics and had this interesting piece today.  I especially found the clip about Sofia interesting.  If you watch it continue until the end of the video to hear her tell her inventor that she would be happy to destroy humans.

http://mishtalk.com/2016/03/25/meet-concierge-connie-sophia-your-medical-robot-robotic-pets-dc-delivery-bots/

So service jobs are being taken over by robots, factory jobs largely already have been automated, cars and trucks will soon drive themselves, pizza is delivered in an self-driving oven, and so forth and so on.  The next linked piece has some good stats on the ratio of robots to humans in the industrial workforce.  They go from countries with low ratios like China at 36 per 10,000 workers to South Korea with close to 500 per 10,000 workers.  It will take a while but China's ratio is catching up as it is installing record numbers of robots, leaving an interesting question on what they will do with many hundreds of millions of people needing to work.

http://www.zerohedge.com/news/2016-03-26/visualizing-why-manufacturing-jobs-arent-coming-back

At least in theory we are progressing ourselves out of jobs and perhaps this is part of the reason for the income disparity we are seeing.  Higher paying industrial jobs are increasingly automated, leaving only low paying service jobs and the highest paying specialized jobs, with little in between.  Money flows to the top to those who run the companies that provide us these gadgets or that lie, cheat and steal the most, and the rest of the population is settling to the bottom rung as fewer decent jobs exist.  As more and more jobs disappear there perhaps eventually will be no alternative but having the top few percent who make all the money pay enough taxes to support the rest in some basic necessities, like smart phones, big screen TVs, talking refrigerators and robots that fold our laundry - those basics.

Seriously though, there really will not be enough jobs left for everyone needing them and we will need to figure out what to do with those who cannot find work.  Is a society without work for a majority - or perhaps without even the need for a majority to work - utopia or hell?  Interesting times ahead. 

Obamacare - What's Up With That

So I read this recent article on how Obamacare is costing boat loads of money and premiums are up across the board:

http://www.zerohedge.com/news/2016-03-25/thanks-obamacare-what-americans-spent-most-money-2015

Now I agree that health care is undoubtedly a big driver of what little inflation the government has reported.  But the question that I do not think can be answered yet is why and will this continue.  The reason I say this is largely due to anecdotal evidence but I think it is enough to raise the question.

I primarily raise the question based on a comment from a doctor.  He told me that doctors and hospitals are incredibly busy following implementation of Obamacare as there is this massive population of patients who simply did not seek medical attention before because they did not have insurance and could not afford it.  They only went to get help when they had no choice and then it was commonly to the emergency room on Medicare or Medicaid's dime.  Now that many of them have the coverage they are getting physicals and checkups and, guess what, problems are being discovered that need to be dealt with.  And these problems are leading to more payouts by insurers than perhaps they anticipated because I suspect the insurers did not factor this into their initial premiums,  either because they did not anticipate the increase or intentionally ignored it to keep initial premiums low to get things started.  Either way, they are having to increase premiums to pay for all these people who have old, festering, unattended to problems that are now being addressed.

So again the question I pose is whether this initial significant increase will continue or level off in time, and I suspect only time will tell.

Meanwhile the good news might be that the 4th Quarter GDP estimate was just increased to 1.4% with the "bulk" of the increase coming from "services," which is in no small part healthcare. 

http://www.shopfloor.org/2016/03/fourth-quarter-2015-real-gdp-revised-higher-at-1-4-percent-growth/

So Obamacare may be achieving what the Fed so desperately has tried to do.  QE and ZIRP may not get folks to spend but require them to get health insurance and by God they will use it!

http://www.zerohedge.com/news/2016-03-26/healthcare-about-surpass-housing-biggest-source-american-growth

Then again things are not going so honky dory lately over at the Atlanta Fed with its GDPNow forecast.  Its forecast for the 1st quarter 2016 went from a sweet 2.3% two weeks ago on March 11 to a somewhat more sour 1.4% March 24.  Hopefully that direction will not continue.  We shall see.