Re: Lyle's Laws

Peter C. McCluskey (
Wed, 8 Jan 1997 08:11:50 -0800 (Hal Finney) writes:
>From: "Peter C. McCluskey" <>
>> (Hal Finney) writes:
>> >Now consider how this model works as we approach an era where industrial
>> >production grows explosively, due to nanotech, or AI, or self-reproducing
>> >cheap robots, or some other breakthrough. This can cause returns from the
>> >stock to begin increasing at a rapid rate, even faster than the discount
>> >factor reduces them. The result could be that the infinite sum above
>> >diverges! The stock will in fact, today, have an infinite value to you.
>> This assumes the discount rate is unaffected by the explosive economic
>> growth. But what sane person would use a discount rate that is significantly
>> lower than the economic growth rate?
>I was using a different model of the discount rate, where it is a
>psychological measure of the pain inherent in postponing present
>gratification for future reward. A dollar today is more fun than a
>dollar next year, and the degree to which this is true for you will
>determine your own personal discount rate. People whose discount rates
>are higher than average (who hate waiting) will tend to be borrowers,
>and those with lower than average rates will tend to be lenders.
>It is true that this model does not obviously explain why discount rates
>tend to equal long term growth rates, so it might be more plausible to
>assume that they track each other. But it is not clear to me how the
>existence of rapid growth will affect people's willingness to forego
>pleasures until tomorrow.

The economic growth rate is normally a lower bound to the market interest
rate because if the interest rate were lower, it would be profitable to
borrow to finance more investments. People who would be willing to settle
for a 1% return will demand a 30% return if the growth rate is sufficient
to use up all the capital that is available at 30% interest rates.

>> >I would expect the financial explosion to occur a few years to perhaps a
>> >few decades before the productivity explosion, depending on how farsighted
>> What would cause the value of labor to decline relative to capital
>> years before the cost of duplicating human-level intelligence is
>> reduced?
>I don't understand what you are getting at here. I argued that the
>value of productive investments is more than commonly recognized, and
>that eventually the value would therefore increase. This would imply
>that the value of labor will decline relative to capital, not because
>labor is less valuable, but because capital would be more so. To take

Unless you have discovered some absolute unit of value, this distinction
is unclear to me.

>an exaggerated example, spending your money on a robot which will build
>a million more for free would be better than spending it on a hairdresser.

It isn't obvious that building the first such robot will require a
different mixture of capital and labor than today's products require.
Once we get robots smart enough to reproduce with zero human intervention,
I don't know what will happen. I was assuming that required human-level
intelligence, but I admit I can't justify that assumption.
Your robot example still doesn't explain why you expect the capital /
labor ratio to rise years before the productivity explosion.

>> What would cause the value of cash and cash-like assets to decline?
>> One of the reasons that these assets have value is the ability they
>> provide to quickly move one's assets into new (unanticapted) investments.
>> Since my intuition is that the period you are talking about will
>> produce enormous uncertainties about which companies will produce
>> or benefit from breakthroughs in nanotech or AI, I expect I will
>> value cash fairly highly.
>Cash is not a productive asset, so to the extend you hold it you
>are foregoing the income that you could have made by investing it.
>If investments are growing much faster than today, then holding cash
>will be more costly.

Cash is a productive asset. It produces flexibility.

Peter McCluskey |                        | "Don't blame me. I voted | | for Kodos." - Homer Simpson |     |