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Mac comments on A thought on AI unemployment and its consequences - Less Wrong Discussion
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Upon review of all these comments, I was excited to craft a reply. So I started describing the theoretical reasoning and supporting empirical evidence for the theory of comparative advantage and its labor market interpretation. I also researched historical unemployment rates during periods of great technological progress. After a short while, a much more profitable idea dawned on me. Introducing...
Mac’s Unemployment Nightmare Insurance Policy
Worried that technological advances will leave you jobless? Hedge that risk!
Confident that automation will wreak havoc on the economy? Put your money where your mouth is!
For an annual premium that’s just a fraction of your benefit, Mac promises to pay out when the U.S. unemployment rate exceeds 35%. That’s a whole 10% lower than the worst case scenario in the Quartz video, so what are you waiting for? Call us today! 1-800-MAC-RICH
Hm... why would I buy technological-unemployment insurance? If I'm understanding the theories right, in such a scenario, income/returns to equities should increase markedly. So wouldn't I be better off taking my premiums and buying stock market indexes? Unlike other scenarios like life insurance (where death could strike at any time and so self-insurance can be a bad idea), everyone seems to agree that there's not going to be any such spikes within the next, say, 10 years, and that allows for a decent nest-egg to be built up.
Equities are not guaranteed to hedge this risk. Equity total returns are influenced by many factors, including: interest rates, valuation metrics, economic sensitivity, inflation, the tax regime...and on and on. Moreover, tons of research has shown that major equity indexes incorporate relevant information into their prices very quickly, so it is unlikely that you know something the market does not (see Efficient Market Hypothesis).
I'll expect your call 10 years from now.
Sure, but so is your insurance fund. Worse, actually, since if you structure your investments wrong you may go flat bankrupt, which would be pretty much impossible if I'm holding indices.
Yes, but that's irrelevant. In this scenario, I'm insuring, not investing. I don't care about average or risk-adjusted returns or stuff like that, I care only that in those states of the world where there is severe technological unemployment likely affecting me, I have assets of value. So the question is, in technological unemployment scenarios (whatever their probability, howsoever they are priced into the efficient market) would my equities be worth more? I think they would.
I dunno, so far I'm not impressed by your prospectus. :)
Mac, I think you may be underestimating the level of knowledge of the other commenters here. It's not like we haven't heard of David Ricardo or of the EMH.
What fraction?
How about for every year from now until either of us dies I give you $1k if the US unemployment is below 35% and you give me $20k otherwise?
That would be a pretty bad deal for you.
Deal! Tell your friends too!
Note to SEC: This isn't real.