Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, and whatever else made me think last week.

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In today’s post: health wearables replace fitness tests; the zero-sum TikTok game; as more companies fall for "AI" forecasting tools, expect feedback loops and volatility in the economy to amplify; hidden stars; special effects are going through a rough patch resulting in some unfortunate viewing experiences; anecdotal rural renaissance; immigration restrictions create future skills shortage; CHIPs Act; and, much more below...

Stuff about Innovation and Technology
Guardians’ Health Tech
The Space Force division of the US Armed Forces is replacing annual fitness exams with wearable tech health monitoring, which will be active throughout the year. The program uses Garmin watches, Oura rings, and software from Austin-based FitRankings. Space Force plans to use the system to improve overall fitness, including mental health, sleep, and eating habits. Although not mentioned in the article, Oura also has proven capable of early-detecting illnesses like COVID. I imagine that function would be quite useful for isolating sick Guardians (that’s the name for Space Force members) before a virus spreads among ranks.

Ultrasound Patch
Engineers at MIT have developed a wearable ultrasound patch that can collect images over a two-day span with similar resolution to traditional ultrasounds: “The new device consists of a thin, rigid scanner array possessing 400 ultrasound transducers per square centimeter. This array is coupled to a soft, durable, sticky layer that can bond onto skin. The entire sticker measures 3 millimeters thick and 2 square centimeters in size...They could watch how the jugular vein widened after volunteers went from sitting or standing to a supine position; how the heart swelled after a half hour of exercise; how the lungs behaved during jogging and cycling; how the stomach distended and shrank as the volunteers drank juice that later flowed out; and how biceps became flooded with blood after lifting weights.” While the patches remain tethered for now, the creators plan to develop a wireless version that sends data (collected once every 30-60 minutes) to be analyzed in real time by smartphones. Further uses include monitoring tumor growth, fetal development, and lung function (e.g., of patients afflicted with COVID).

TikTok Creators’ Raw Deal
Hank Green, CEO of YouTube media conglomerate Complexly and co-host of vlogbrothers, describes the zero-sum nature of TikTok for content creators. Whereas YouTube shares 55% of revenues with creators, TikTok has a capped fund of around $1B for US creators. So, as more content creators join the platform, everyone’s slice of pie shrinks. TikTok reportedly set a goal of $12B for 2022 ad revenues, and the total Creator Fund is estimated to payout $2B worldwide over three years. Assuming the payout is roughly ratable, that would translate to around a 5% revenue share, or 1/10th of YouTube’s 55%. In contrast, YouTube ad revenues were $7.34B in Q2 2022; assuming flat revenue growth and applying the 55% payout to the total sum (which isn’t necessarily accurate, as not all content is created by registered creators eligible for compensation; qualifying revenue may be only half that, or ~15B) gives a $16B annual run rate, or 24x TikTok’s dispensation (or, at the lower end, perhaps $8B, which is still 12x TikTok’s payout). Green describes the inevitable moment when creators realize a platform is not what they thought: “I think that creators are often super aware of the fact that they are in the attention game, rather than the money game. That is what motivates most of them at the beginning before any money is present. I think in that way, [TikTok] is certainly an attention hedge, if not an economic one. At the same time, even after two-plus years of being a TikToker...I do not feel like it is a stable place. It is going to be interesting to see when that moment of self-awareness arises in enough people, because it happens on every platform...I think it’s been interesting, because it isn’t really when creators start to feel that way, it’s when audiences start listening to them about it. Right now you can make a TikTok about how annoyed you are by some decision TikTok made, but it doesn’t matter unless the audience is going to watch that instead of the next thing that they could immediately swipe to. It’s just not going to get any views.” Given his long and successful history in the industry (Complexly has some YouTube channels, like Crash Course, with over 10M subscribers) Green’s perspective merits consideration. If we believe that long-term, thriving ecosystems are those that create the most non-zero-sum outcomes for their participants (which, for a media platform, includes viewers, creators, advertisers, and the platform itself), then there is a potential cancer growing at TikTok. Creators’ comparative disadvantage would only not matter if the rewards system for content creators and/or the relationship between content creators and their audience were changing, for which evidence is lacking. It would seem TikTok needs to significantly increase revenue sharing and allow a closer connection between fans and creators if they want to avoid becoming a fading memory, as is the fate of most social networks.

Magic AI-Ball
Companies are being increasingly conned into buying decision-making software and tools claiming to use “AI” and algorithms to predict their future path through a complex adaptive system like the economy. In one example, McKinsey makes the following sales pitch for their AI forecaster QuantumBlack: “Transform faster. Innovate smarter. Anticipate the future. At QuantumBlack, we unlock the power of artificial intelligence (AI) to help organizations reinvent themselves from the ground up—and accelerate sustainable and inclusive growth. We do this by harnessing the foresight and precision of data and technology with the creativity and understanding of people. The result? Hybrid intelligence, a source of competitive advantage that transforms how companies think, operate, and disrupt.” (Seriously!? Hopefully, I am not the first person to break the news that consultants are full of bologna.) Like “dotcom” twenty five years ago, “AI” is fast becoming a standard marketing gimmick that won’t materially change the underlying businesses for at least a decade or two (see AI is the New Dotcom for more). Complex adaptive systems science teaches us that we can only prepare and adapt to the future, not forecast it with any accuracy. However, most peddlers of prediction engines either don’t realize this paradox or choose to ignore it. A great recent example of the failure of highly sophisticated tools/algorithms to predict the future is Amazon’s SCOT system, which, along with human influence, incorrectly predicted future ecommerce demand during the pandemic, leading to substantial over-building of capacity. Despite AI being largely a catch phrase (for now), the increased use of AI tools/software add-ons will have one tangible impact: a significant increase in the amplitude of feedback loops in the economy. Amazon's SCOT error is one such example as the company over hired and overbuilt, and is now reversing what would have otherwise been a much smaller increase in capacity. In the stock markets, we saw volatility rise with increasing implementation of quantitative strategies and autonomous algorithmic trading, in some cases creating feedback loops that impacted the underlying securities’ fundamentals. If a lot of corporations are using similar algorithms from a handful of software companies to forecast demand, and those algorithms are using similar data sets, the collective reactions will cause positive and negative feedback loops, depending on the situation. In many cases, elements of chaos will be introduced, meaning small changes to the initial conditions of the predictions will be amplified throughout the system. Economies, unlike software, move slowly; but, as industries become more and more digital, the pace of change will speed up dramatically, allowing the feedback loops to express more speedily. The silver lining to Amazon's SCOT debacle is that they were the first major retailer to adjust to the slowdown in consumer spending, leaving us with some hope that eventually digital tools will dampen outcomes, rather than amplify.

Regarding the current flood of AI snake oil: First, we should be highly skeptical of all tools (and humans!) that claim to help predict the future. Second, we should expect increasing volatility and reaction speeds across the economy, with an accompanying level of chaos and unpredictability. The antidote is to build systems with resilience and adaptability at their core. This strategy applies to companies, portfolios, and any system that has a network of interacting agents, and it should provide some level of inoculation against rising volatility. Lastly, I’ll propose one area where I think AI tools could be quite useful but which is currently lacking good, practical examples: explaining the present. Rather than predicting the future, using AI tools to explain why things are the way they are, why systems function the way they do, little of which we seem to understand, could have far more positive implications for successfully plotting a path through future uncertainty.

Miscellaneous Stuff
Baby Galaxies Show Prodigious Star Formation
Early analysis of images of very young galaxies from the new JWST telescope is already revealing new insights into our astral history. Some of the farthest specks of light come from galaxies only 300M years after the start of the Universe and show more structure and star formation than expected for their young age. These galaxies also exhibit the presence of heavier elements (like oxygen), forged when stars explode. Thanks to ultrasensitive instrumentation, anywhere you point the JWST’s mirror, you are likely to find unexpected and scientifically interesting things (like a supernova) hanging out in the background of whatever you are trying to image.

Not So Special Effects
Movie visual effects are one of my favorite artforms, and I’ve been enjoying the new Disney+ series on the legendary Industrial Light & Magic studio founded by George Lucas (the streaming series is simply called Light & Magic). The crew at ILM is responsible for all of the best effects you’d recognize from the last 40+ years. I always feel nostalgic for effects that had a major impact on me growing up; however, I find many of today’s special effects a bit off-putting, especially over streaming. One reason is that the effects industry largely renders in 2K, which looks more fake on our high-res 4K screens. This leads many productions to shoot live action in 2K, render the CGI, then upscale the entire thing to 4K. One reason for the 2K effects is that’s what the vast majority of movie projectors are capable of in theaters. And, most people (not me!) probably sit too far from their TVs to truly appreciate 4K or higher at home (my general rule of thumb is to sit at most the same distance from your TV as the diagonal length of the screen for 4K content). Further, the industry is overworked and understaffed following the glut of content produced for the streaming wars. One of the remedies to set the industry up for better linkage between production and post-production effects is shooting on virtual stages with Unreal Engine (Disney’s StageCraft virtual stage was actually created by ILM; here is an interesting interview with ILM's SVP Janet Lewin who oversees that business). So, it’s a confluence of factors (as it always is!) that has created a subpar viewing experience on home TVs for most virtual effects, which is a shame for the authoring group of artists and engineers, who have historically pioneered new technologies. Maybe the end of the streaming wars and the building of more virtual stages will give the pause needed to take effects to the next level of quality.

Stuff about Geopolitics, Economics, and the Finance Industry
AMD’s Ecosystem Approach vs. Intel’s Silo
Here’s a portion of my appearance on CNBC last week discussing AMD and how leveraging TSMC’s ecosystem is non-zero sum, aiding their share gains against Intel as compute becomes more heterogeneous.

Rural Renewal
The WSJ reported on window and door maker Pella, which is spending $30M to make their headquarter town of Pella, Iowa more attractive in order to recruit workers. With $1B in revenues, 10,000 employees, and 30 locations, the company has been struggling to make its hometown competitive. This story is of course anecdotal, but it could become representative of what it will take to lure workers given the increasingly stagnant workforce in the US, particularly if we continue to see evidence of reshoring of manufacturing. Such activity would likely take place in smaller towns and more rural areas, which have seen population declines and a lack of investment as globalization gutted many regions. For years, there appeared to be an accelerating migration to urban areas and cities, but that largely seems to have just been a factor of demographics and timing from the wave of millennials. The underlying desire to live in smaller, more affordable communities, which has been enabled for some folks by the work-from-home trend, may be the stronger force at play. The often referenced housing shortage in the US is largely a factor of geographic relocation; therefore, if new job opportunities allow migration back to the areas we've drifted away from, there may be ample supply of affordable places to live. I've opined about this rural renaissance in the past, and there is little evidence for it so far, but the logic stubbornly persists. Two quotes from Kurt Vonnegut come to mind on this topic: “What should young people do with their lives today? Many things, obviously. But the most daring thing is to create stable communities in which the terrible disease of loneliness can be cured.”; “Human beings will be happier, not when they cure cancer or get to Mars, but when they find ways to inhabit primitive communities again.”

Hampered Immigration Spells Trouble for Healthcare
Speaking of a stagnant labor force, it’s projected that 40% of practicing physicians in the US will be over the age of 65 within a decade. And, this comes at a time when an aging population will increasingly burden the healthcare system. There are a host of reasons for this dearth of docs, but one of them is the difficulty of getting skilled workers into the US. The 2023 applicants for H-1B skilled worker visas increased 57% y/y to 480K, although only 26% of applications were selected by lottery for processing. It’s a wildly backward approach to immigration – we should instead be doing everything we can to backfill the skilled labor shortages arising from declining birth rates decades prior. I hate pessimism because it’s a useless sentiment, but this labor shortage – both skilled and unskilled – will only get worse from here without a major policy about-face.

Quasi Semi Resilience
Complex systems teach us that fat-tail events are more common than we think and to prepare for the unexpected. In an ideal world, Western companies will keep making semiconductors throughout Asia, leveraging the highly sophisticated supply chains that have developed around this incredibly complex process. As we’ve noted in the past (see: How a Handful of Chip Companies Came to Control the Fate of the World), today’s concentrated supply-chain risk could send the world decades into the past if catastrophe (war, pandemic, or natural disaster) were to strike a very small number of locations. So, it would be smart to build redundancy and resilience, especially given the current geopolitical environment, even if the extra capacity comes with increases in both cost and cyclicality (which is potential, but unlikely, for the latter). The pending CHIPs Act passage is one step toward helping that redundancy along. An additional option (which we suggested a little over two years ago in this op-ed) is for the big US chip designers, who would be out of luck rather quickly if disaster struck, to chip in to jointly fund a much larger, $100B chip supply chain in the US (and Europe could likewise do the same). Starting this process now would be ideal, as it will take at least a decade to build out. Regardless, we are at least out of a state of denial, and that’s the first step toward building a more resilient chip supply chain, which is the no. 1 engine powering the analog-to-digital transition for the global economy.

✌️-Brad

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