Han Dieperink: The near and distant future
This column was originally written in Dutch. This is an English translation.
By Han Dieperink, written in a personal capacity
The speed of technological progress is increasing exponentially. This phenomenon is known as the law of accelerating returns. The more advanced a society is, the faster it progresses, simply because it is already more advanced. This has major consequences for the economy and financial markets.
Imagine a time machine that takes someone from 1750 to 2025. Someone from a time without electricity, when long-distance communication meant shouting loudly or firing a cannon. This person would be shocked to see our world. Shiny capsules race along highways, conversations take place with people on the other side of the ocean, sports matches are followed live from thousands of kilometers away, and music performances from 50 years ago are played at the touch of a button. Our 'magic squares' capture images, generate maps and enable us to communicate directly with others.
Compare this to traveling back in time from 1750 to 1500. The person from 1500 would certainly be impressed by discoveries in astronomy and physics, amazed by European imperialism and would have to update his world map. But in terms of daily life, the differences would be much smaller. This illustrates a fundamental principle: human progress accelerates. This principle is known as the law of accelerating returns. The more advanced a society is, the faster it progresses, simply because it is already more advanced.
Exponential growth
The speed of technological progress is increasing exponentially. The entire twentieth century could have taken place in the space of twenty years at the pace of the year 2000. The progress made between 2000 and 2014 is equivalent to a full century of development. Between 2014 and 2021, another century of progress was made. At this rate, the 21st century will make a thousand times more progress than the last century. The world of 2050 will therefore be barely recognizable. The average smartphone user already has more knowledge than the American president – the most powerful man on earth – had in the early eighties.
Yet people have trouble understanding exponential growth. We think in straight lines when it comes to history. We look at the progress of the past 30 years and project that forward to the next 30 years. But we should be thinking exponentially. Even a steep exponential curve appears linear if you only look at a small part of it. Furthermore, exponential growth follows S-curves: periods of slow growth, rapid growth and flattening. Our experience makes us stubborn about the future. We base our expectations on what we know and have difficulty imagining exponential changes.
Impact on financial markets
If we think logically and expect historical patterns to continue, we must conclude that much more will change in the coming decades than we intuitively expect. Advanced civilizations continue to make greater leaps until they make a leap that completely changes life as we know it. What sounds unbelievable may turn out to be surprisingly close. Exponential progress also has major consequences for the economy and financial markets. Sectors are being transformed in ever shorter time frames or are disappearing completely. Streaming services have replaced video stores, smartphones have made separate cameras and GPS systems superfluous. This pace will only increase. The average lifespan of companies in the S&P 500 has already dropped from approximately 60 years in the 1950s to less than 20 years today. This will continue to decrease, forcing long-term investors to redefine what 'long term' actually means.
Traditional valuation models that assume linear growth are becoming less useful. How do you value a company that is growing exponentially or is threatened by exponential change? Moreover, new industries will emerge around technologies that are still in their infancy or do not even exist yet. Think of how the internet, social media and cryptocurrencies have created new investment categories. Investors who understand how exponential growth works can profit from the underestimation of growth potential. Investing in companies that innovate and adapt quickly is becoming increasingly important. Success in an exponentially changing world depends on flexibility and foresight.
Exponential growth also brings new risks, however. Cyber security threats are increasing and algorithmic trading can cause market crashes. The most important lesson for investors is that the past is less and less a reliable guide. In a world of accelerating change, adaptability and an open mind become crucial.
General artificial intelligence
Generative artificial intelligence is currently the focus of much attention. Systems based on generative artificial intelligence process statistical data and can support humans, but not replace them. To achieve human-level intelligence, a computer must understand complex concepts such as the subtle difference between happy, relieved and satisfied.
The key to general artificial intelligence (AGI) is computing power. An AI system that wants to be as intelligent as the human brain must have a comparable computing capacity. Moore's Law predicts that the computing power of computers will double every two years, making AI systems exponentially more powerful.
This leads to a potentially explosive development: artificial intelligence that improves itself to become super-intelligence. This starts with AGI, which performs at a human level and programs itself to improve. Each improvement makes the system smarter, leading to an ever faster spiral of growth. Scientists estimate that AGI will be achieved around 2040, and the step from AGI to artificial superintelligence (ASI) could then happen extremely quickly – possibly within a few hours.
Superintelligence
A superintelligent system would be unimaginably powerful. It could manipulate atoms, reverse aging, cure disease, solve hunger and even influence the climate. At the same time, it would be capable of ending all life on earth. Intelligence has historically always been linked to power. An ASI would become the most powerful entity in the history of life on earth.
For investors, this means that all economic rules can be rewritten. Traditional assumptions about growth, labor and capital can fundamentally change. In a world moving towards AGI, adaptability becomes the most important quality. Success requires a constant reassessment of assumptions and investment strategies.
Exponential growth forces us to look at the future differently. What seems unthinkable can become reality much faster than we expect. Those who know how to adapt have an advantage in this fast-paced world.
