The End

Another year comes to a close. 2019 will likely not be a very memorable year. It was a year of holding one’s breath. A year when many things almost happened, but didn’t quite manage to break into our existential plane. Recession was threatened, flirted with even. Bull markets looked old and tired, but ended up making new highs. Brexit deadlines were made and missed. New wars were proposed, but didn’t quite erupt.

It is probably all for the best. All these things sound rather unpleasant, besides, 2019 is odd and not catchy or memorable like 2020. 2020 is a nice round even number. For this post, being at the close of the year, let us look back at 2019 and forward to 2020.

Let us start with an issue close to home, the political turmoil in Malta. The PM deciding wisely that he will not resign in disgrace in 2019, but with dignity in 2020. An atrocious state of affairs enabled by a weak and divided opposition. The current trajectory seems set to pass the baton to a PM-approved successor which will make it very hard to ever see the current PM in his rightful place - in prison for his crimes. Going back all the way to my first post (looks like I guessed right that it was about Azeri oil) I think my main point is more important than ever and still completely absent from the discussion; are we just going to continue hoping for better leaders or are we going to neuter the executive to make such corruption impossible? Don’t hold your breath.

Onto the Brexit election. Again I was right that the path of least resistance, delay, would be the outcome. This time however, it seems that Labour's suicidally bad campaign will finally deliver a majority that can move forward on this issue. But my hopes for the UK are not high. Listening to the candidates promise to spend millions and millions of pounds more on everything when the Kingdom is already basically bankrupt confirmed that thought. Even the Tory’s relatively conservative spending plan will blow the deficit out of the water. People are heralding an end to the decade of “austerity” which has been an Orwellian joke, with government spending increasing every single year of this supposed “austerity”. I wonder what profligacy will look like. I guess we will soon find out.

Another election slowly moving forward across the Atlantic looks set to make another prediction come true: Trump will be a one-termer. Despite the best efforts by Democrats to appoint someone as unappealing and unelectable as possible, Trump's unpopularity is showing in the polls. Special elections have also not gone Trump’s way, even in deeply red states. Trump’s impending defeat will be more evidence that the government statistics are wonky and the true state of the US economy is pretty much as Trump found it and getting worse.

The above is also evidenced by continued crisis-style action by central banks. The new central bank chairs will continue this reckless, ignorant disastrous macro policy until they literally have no other choice. The money tsunami will continue to inflate assets and will start to hit commodities and even consumer prices in the near future. This is one prediction that keeps stubbornly taking its time to come true.

The EU, if it has enough time in between crises, will continue and redouble its efforts to ruin technology and any competitiveness in the Eurozone economy. The UK’s exit will take the breaks off any plans to clamp down on financial freedom. In the meantime, public opinion having turned away from big tech means that more pan-nationalistic lawsuits against foreign tech companies will continue, along with completely asinine regulation that might even end up driving the real internet in Europe underground.

The above forces, particularly the economic malaise hidden beneath government numbers which are hedonically adjusted to death, the central bank-induced inflation that destroys the middle-class and tired intergovernmental institutions that stomp around like dinosaurs will likely make 2020 another year of populism, political upset, protest, violence and crisis.
Nuremberg December 13th, 2019

 TLDR: 2019 will not be as memorable as 2020

The Doomcycle

As the US stock markets reach new record highs, gold corrects to below $1500/Oz and the year gets closer to its end, I am left wondering why we have yet to see the next crisis happen. There are flashing red signs everywhere: gold’s rise, QE4 in the US, geopolitical triggers, worrying economic data and widespread complacency. But the main reason I am sure that there will be a crisis soon is not necessarily any particular sign of stress, but by the seeds that have already been sown a decade ago.

You see the crisis is only one half of a phenomenon. It is the second half. The first half that precedes every bust is a boom. And since the '08 crisis, we have had a big boom. This boom is a direct result of the Keynesian stimulus and unprecedented monetary easing under which we have been living since the last crisis. The main instigation of the boom is a suppression of interest rates, which are price-fixed much like a Soviet Politburo fixed the price of bread in the old USSR.

Interest rates are the price of borrowing money. Prices are essential at conveying critical information to business actors. An increase in the demand for pencils increases their price, which sends a signal to the pencil makes to make more pencils. Increased pencil production in turn increases demand for lower order goods and resources like wood and graphite, which send further price signals throughout the economy.

What information does the interest rate price convey? In a free market, interest rates increase with an increased demand for borrowing, they decrease with an increased supply of savings. So the interest rate should be informing businessmen how much they ought to save and how much they ought to borrow. Let us imagine a successful restaurant that has accumulated some excess capital. If interest rates are high, the owner might decide to save the money (i.e. put it into a bank to be lent out to urgent and low-risk ventures) and enjoy the appreciation that comes with higher rates. Should interest rates be low, indicating a large pool of savings in the economy, the restaurateur might decide to borrow even more money and open another branch, or build an extra floor or otherwise expand the business.

But what happens when the central bank price-fixes this crucial rate below its free-market level? The restaurateur believes it to be a good time to expand when in fact it is not. The underlying economy has not produced an excess of savings, which means that the underlying increase in productivity that would support the expansion has not taken place. The investment is in fact malinvestment. The period of malinvestment is the boom. Businesses expand, assets are bid up, people are hired, wages increase and times are good. Everyone gets greedy at the same time. Saving money is disincentivised and debt balloons.

As the debt gets bigger and bigger, the central bank has to be ever more accommodative to keep the party going. If they stop or hesitate and lose control over the long end of interest rates, the malinvestments are exposed. The bust is in. The bust is good. It is the only cure for the artificial boom. The restaurant has to close that extra branch, fire some workers, sub-let some space or otherwise retrench. The recession is not pleasant for those living through it, but time and dislocation is necessary for the malinvestments to be liquidated. Once done, the economy can resume its general gradual growth tempered by the real availability of accumulated capital (savings).

So that is why it is obvious that a crisis is coming. The extent of the bust is always proportional to the extent of the boom. The decade of below-inflation interest rates and QE has inflated assets, commodities, created unicorns and zombies. The central banks are discovering that they cannot stop easing and that they are caught between two hard choices: letting the bust happen or destroying the currencies they have a mandate to defend.

Unfortunately for us in the Eurozone, the new central bank chairwoman Christine Lagarde showed off her incredibly asinine cluelessness and devotion to the defunct Keynsian school  when she committed to doing whatever it takes to keep this bubble going and even chastised Germany and the Netherlands for allowing an accumulation of savings. Germany and the Netherlands are possibly the only two reasons the Euro isn't completely worthless at this point. We would be far better off encouraging all the Eurozone members to emulate their success rather than the profligate disasters in Greece and Italy. Indeed we should fire Lagarde and make her wear a dunce's hat and move to a free market in interest rates.

Unfortunately, this would be a very painful and politically difficult transition. This disastrous business cycle created by central bank intervention is often cited by the critics of capitalism as one of the problems with capitalism. Yes capitalism will again get the blame for socialist intervention and the next crisis, which will be worse than the last (since the boom has been bigger) will fuel renewed interest in defunct idiotic Marxist and Fascist ideas.

Mosta, November 14th 2019

 TLDR: Keysian stimulus is reaching breaking point




















 

Malthus lives on

There are some in the environmental alarmist camp that hold that it is unethical to have children. We are already putting so much stress on the planet, that more people will only add to the problem. This reasoning echoes the early Christian millenarian thinking which concluded that bringing children into a dying world full of suffering was sinful. The religious beliefs of the environmental fundamentalists are at their core a variant of the Malthusian Thesis.

Robbie Malthus is famous for his late-18th century thesis that unless draconian population controls were soon enforced and charity to the poor outlawed, the population will outgrow its ability to produce food, causing mass starvation, disease and conflict. Malthus was not the first to make this kind of argument and he certainly wasn't the last. Over the centuries many apocalyptic predictions about running out of food, or oil or some other resource have been made.

Ricardo, the Austrian school and even Marx criticised these types of arguments both on the grounds that they are wrong conceptually and theoretically and also that they simply have never panned out. Interestingly, Keynes does seem to share a Maltusian worldview in his Economic Consequences of the Peace, adding to the many ways that Keynes was dead wrong.

Malthus was also wrong, every Malthusian thesis is wrong and to call something "Malthusian" is to imply that it is wrong. Not only did world population continue to grow in the 19th and 20th centuries, but that growth rapidly accelerated to level that would have been beyond Malthus' comprehension. And not only did we not starve, we thrived, with food production growing even more rapidly than population and world hunger continually falling the whole time. Indeed today we have the largest population in history and the lowest levels of starvation in history and also the lowest percentage of people employed in food production in history.

Despite the obvious failure of the thesis, it has been resurrected time and time again. The environmental fundamentalists proselytise about our impending doom and stress the impact of human population. The belief that the human population is growing unsustainably is alive and well and very widespread. Demographers, at least, have largely agreed (97% or them?) that the world's population will peak out at around 11 billion in the near future. So mankind's population will have gone from a low plateau to a high plateau and reach a new equilibrium for a while.

But that is not why the Malthusians are wrong! Malthus was wrong not because the population didn't keep on increasing (it did), he was wrong because we didn't starve. He was wrong because he, like the fundamentalist environmentalists and prevailing public opinion misunderstand resources. The thing is that before humans, there were no resources. Crude oil existed before humans, and even when humans came into contact with it before the 20th century, it wasn't a resource. The material world only turns into resources through man's intervention. Indeed there is more oil now than ever before. There is more coal, more gas, even more trees under cultivation.

What the thesis' narrow viewpoint misses is that while we might be able to imagine ever increasing demands on the resources we have, it is harder to anticipate the effect of other factors on the resources we will have in the future. Innovation might make more resources available by making it profitable to extract them where once it wasn't. A substitute might be discovered that is cheaper or superior in some other way. New ways of saving resources or reusing them might be discovered. History is replete with examples of ways that humans have adapted to the world and the material we find in it.

All of this innovation, substitution, investment, allocation, rationing and other resource management strategies are regulated. Not by government (thankfully), but by the price system. As supplies of a given resource dwindle or demand for it increases, its price increases. This sends a message to investors to lend their capital to the production of that resource, to the scientists to find new ways of improving our consumption of it, to the inventors to come up with alternatives and of course to the consumers to reconsider our priorities.

Let us imagine that we didn't find massive new reserves of crude oil and that the fracking and coal liquefaction techniques were never developed and that the oil reserves we had in the 90s (when I was warned that we would run out of oil by 2010) were all we were ever going to have. The price of oil would be in the stratosphere by now. There would still be oil, but its high cost would ensure that it was allocated only to the uses that were most necessary. In the meantime, the ever increasing price might have incentivised all sorts of innovations in mobility, energy and chemistry.

This would not be a good thing in of itself. The time, effort and capital employed in discovering, perfecting and creating alternatives and innovations will not have been spent on something else. However, the point is that mankind will still thrive, just like we did before oil became a resource.

This also highlights the danger and inherent clumsiness of government intervention in the price system. Subsidies can cause a resource to be over-utilised and taxation can cause under-utilisation. If, for example, government requires all schoolwork to be done in pencil or subsidises pencils in schools, this would artificially increase the demand for pencils. This will lead to more demand for wood, graphite and rubber. In turn, the price mechanism will transmit this into more production of the resource, less production of alternatives and a re-allocation of priorities not for the efficient fulfillment of our desires, but for the fulfillment of some self-important bureaucrat's expression of power.

St' Paul's Bay, October 10th 2019

 




TLDR: our children will be fine as long as they are free

The People's Kingdom

The United Kingdom of Great Britain (and Northern Ireland) isn’t doing so great these days. 'Great' actually is an ancient term to refer to the largest of the British islands and is not a self-aggrandizing title that the British bestowed upon themselves in the days of Empire. The territory has had many ups and downs in its long history, the country as a successor to the 927AD kingdom or the 1707 union has also been better and worse than it is today.


The 60-odd kings and queens of England and later Britain, certainly varied in terms of competence and lasting effects. Their greatest king, in my opinion, was none other than King John. No, not William the conquering Norman, not Victoria who reigned over the Empire during its greatest extent, not John’s brother Richard, the crusading hero nor either Elizabeth’s long reigns, but John. John’s disastrous stint on the throne saw half the Kingdom lost to France and a total bankruptcy of the royal administration. The disenchantment of the nobility led to a civil war after which John signed Magna Carta.


And this is why he is the greatest of English kings. His weakness ushered in a tradition of weak central authority and individual rights. Later monarchs who were competent and powerful still had real checks on their powers, some legal as those in the charter and some cultural, as the expectations of what the king and the nobility in general could get away with were very different to the expectations in more absolutist kingdoms.


It is hard to say whether John is a cause or a symptom of a general British philosophy of individual freedom. This current of individual rights was threatened by King Charles’ attempts to increase royal control, which triggered a civil war. The victorious republican forces had a hard time establishing Britain as a republic and the authoritarian style and puritanism of the military dictatorship of the interregnum was hardly a paradise of liberty. But by the time the monarchy was restored, the lesson had been learned. The crown (and the church) would simply not be allowed to push people around. Everyone, from the lowliest peasant to the King himself had rights and all were subject to the rule of law. This, and not the French revolution is the first liberal revolution in the Age of Revolutions.


In this climate, the people of Britain were relatively free and safe from the arbitrary power of government. This permitted later developments of English philosophy and Scottish Enlightenment. And this, in turn, led to the Industrial Revolution, the repeal of the Corn Laws and a policy of hard money and free trade. Add to this a general policy of isolationism when it came to entanglement on the content and Britain becomes the most free, most prosperous most powerful country in the world. The people, left free to pursue their own well-being and also other interests create an unprecedented flourishing in art, literature, science, medicine and charity as well as seeing through the abolishment of slavery and general emancipation. It is no accident that Britain led the world in all these areas and found a new reason to be called 'Great'.


Britain's closest rivals after the revolution were those places that resembled Britain the most in these policies of free trade and rule of law: France, the Netherlands, the Rhineland and the United States. The USA indeed inherited the English philosophy of individual liberty and expanded upon it, creating their own miracle of progress and prosperity and eventually surpassing Britain (and ultimately sharing its fate?). Indeed other countries that inherited this quality (Canada, Australia, New Zealand and South Africa) have also done very well.


However, the seeds of Britain's demise also have a long history. Britain is also the birthplace of socialism, and these largely home-grown socialist tendencies have slowly turned Britain into a country that bares very little resemblance to its heyday in the 19th century. Perhaps the same winds that sowed the seeds of liberalism and freedom also caused the currents of social revolution.


England has a long history of peasant revolts, the 1381 revolt being the most famous. Quite unusually for the time, they demanded an end to nobility, with their mantra “When Adam delved and Eve span, who then was the Gentleman?”. During the revolution too, movements like the Diggers and the Levelers illegally occupied land and attempted to live in proto-communist societies. The Pilgrim Fathers too, attempted to create similar societies in the new world.


However, more importantly, Britain was the birthplace of the Labour movement and Communism. It was in Britain that Unions first organised and were Marx wrote Das Kapital and were Engels ironically worked in his father’s factory to support Marx’s work. The communist International was indeed founded in London.


After overstretching its resources and population in two costly world wars, and after already starting to betray a lot of the principles of free trade and individual liberty even before then, in the 20th century, Britain lost its way. It went off the gold standard and defaulted on its debt, nationalised healthcare, education, telecoms, steel, railways and several other industries. This hard turn to the left was resisted by the Thatcher years, but as the threat of Russian socialism subsided, Britons increasingly turned to more and more British socialism. It came home.


And today? The socialists have been in charge for decades. Tories, Labour and "Liberal" Democrats all try to outbid each other with more socialist programs and more regulation. Austerity has been a joke as public spending is still increasing every year, and loose monetary policy attempts to hide the fact that the country is bankrupt once again. Brexit or not, there is little hope that the country will change direction. At least not until after things get really bad. I am hopeful that the freedom and liberty in the British cultural heritage will re-emerge and restore Britain to greatness, but I will not hold my breath. 

York September 11th, 2019

TLDR: The People's Kingdom of Great Britain

The Nosy Camel

There is a fable that is well known of the camel’s nose, where a Bedouin allows his camel to stick his nose into his tent. The camel then gradually sticks other parts of its body in until the whole camel is under the tent and refuses to leave. It is this that we should keep in mind when confronted by crises, because just like the camel, government will never pass up an opportunity to embed itself deeper into our lives.

History is replete with examples of this sort of thing. A crisis or tragedy happens, like an act of terrorism or a natural disaster. In response to the cries of "do something", government takes action by regulating the most fringe and unobjectionable cases. Once the precedent is set, the post is steadily moved and the state has a new weapon to use on citizens who don't toe the line.

Consider censorship, these days it is internet censorship in particular that is high on the governing classes' agenda. For example, a mass shooting occurs where some mentally deranged racist environmentalist takes precious innocent lives. The shooter also posts a 'manifesto' online explaining his motives or even live-streams the act. The saddened, enraged and scared public are suddenly more accepting of some controls over free speech. After all, we don't want free speech to protect the rights of these monsters! There ought to be a law, you can't just say anything. Some censorship is necessary to keep us safe.

Never mind the fact that censoring hateful rhetoric will simply drive it underground, increase its appeal and make it harder to identify and combat its authors and believers, the feeling is that banning hateful speech is a good idea. So the law is passed and a mechanism for government to shut down hateful speech is created. The camel's nose is in. Over the months and years that follow and after additional crises, the definition of hate starts to broaden. It starts with manifestos of spree killers, but it continues to people with far-right world views, then separatists and finally, traitors. And once traitors can be censored, the definition of traitor also begins to expand from military turncoats, then tax evaders, supporters of the opposition to you and me. The government can censor anyone they don't agree with and the camel is in the tent and refuses to leave.

Why does the state do this? I am not sure if the agents of the state, the unelected technocrats and dear leaders grab power in this way intentionally. Looking at a recent example in Turkey, were the president's actions after the failed coup are a very good example of how not to waste a crisis. Was this response planned all along? Sometimes it seems the state manufactures the crisis if one doesn't come along, like Trump's border emergency. However if Trump intentionally wanted to create a crisis to build a wall, he probably only wants to build the wall for political gain. He probably doesn't foresee what future administrations might do with that wall, like use it to prevent Americans from leaving. So maybe it is a bit of both, the state intentionally grabs power in the short-term and then sleep-walks its way to greater abuses of established tools of power in the long-term.

For me, it matters little. We should be wary of the camel's nose. Unfortunately, it means you have to defend the right of some deranged murderous lunatic to write and post his hate online. Free speech needs to be a right to protect objectionable speech, not inoffensive speech. What applies to speech can also be applied to banking regulation, banning encrypted communication and other targets of government aimed at making us safer. We should remember that those who trade freedom for safety lose both and deserve neither. We cannot empower government to make us safe because if we do, what will protect us from government?


Lagarrigue, France August 25th 2019

TLDR: Once empowered with a new tool, government will find ways to abuse it

The Tide that Turned

Last April, I predicted that the Fed will start cutting rates and returning to QE. A 25 or 50 basis point cut next week is now all but guaranteed. Powell has blamed the global economy, uncertainty and a lack of inflation for the need of a return to easing despite a good economy.

These statements betray his idiocy - or more likely, his disingenuousness. There is always uncertainty in good times and bad. Inflation is already well above the 2% target, which in itself flies in the face of the mandate of price stability. The real issue is the domestic US economy and US assets. Without the fed committing to easing, the stock market would be in deep, deep doo-doo. And as for the global economy, it is the Russel 2000, the most domestic-focused index that is doing the worst.

The US economy is simply not doing that great. The whole Obama recovery and the Trump boom have been a long period of lacklustre growth made to look better by high asset prices, a low headline unemployment number and low inflation. Trump has made a lot of hay about Obama never achieving an annual GDP growth rate of over 3%. Thing is, neither has he (2017: 2.2%, 2018: 2.9%). All of the trends, the abysmal workforce participation rate, movement from full-time to part-time work and movement out of high-paying sectors like manufacturing into low paying service-sector jobs have joined Trump's and Obama's economy together in a way that makes the transition from one to the other imperceptible on a graph. The heavily modified inflation statistics have also hidden a lot of inflation that would have revealed real GDP growth to be flat or negative this whole time.

If the above sounds like a conspiracy theory, then ask yourself: why does such a good economy need so much artificial stimulus? Why cut rates if things are so good? Why are voters so angry? The answer is simple, the economy stinks and it is rapidly rolling over and heading for a crash. The artificial boom, the bubble, (the third in my lifetime!) is bursting. We will go from a 25-50 basis point cut to zero faster than you can say "Alan Greenspan". QE will be back very soon.

So as this part of my prediction looks like it is coming true, what about the rest and what happens after that? Well, it is hard to tell how quickly all the following will happen and what might crop up to change course, however; The actions of by the Fed might keep the stock market going for a little while, but it will not be able to halt the oncoming recession. As the crisis unfolds it will increasingly lose control over the long end of interest rates. QE will then be the only tool left and the Fed will have to buy more and more types of paper to prop up the economy.

Eventually, if this policy is pursued long enough, it will spell the end of the private US debt market. Inflation will spiral out of control and a currency and sovereign debt crisis will hit the US. Under these conditions, the world will dump the Dollar standard and return to the gold standard.

Cochin, July 16th 2019

TLDR: The Fed just proved that it never had an exit strategy

Artificial Stupidity

I often find myself writing about economics. It is in this area more than anything else that policy in the west is so wrongheaded and degenerating before our eyes. The once proud bastions of freedom and free enterprise are rapidly socialising and postmodernist and neomarxist ideas seem transcendent.  But I am not an economist, and my economist friends often remind me that I am well outside the area of my expertise when I opine about such matters.

So today a post well within my remit: artificial intelligence. Specifically, the totally unjustified hysteria about the dangers of AI for the future of humanity. This ridiculous hand wringing has been encouraged by otherwise intelligent individuals such as the late Steven Hawking, Bill Gates and Elon Musk. Although they are outside their realms of expertise (astrophysics, charity and investment fraud respectively), I will not rely on the logical fallacy of arguing from  my authority as a software engineer to rubbish Elon’s 2018 claim that "the risk of something seriously dangerous happening is in the five-year timeframe" which gives us only four years of cataclysm-free existence in this particular doomsday scenario.

Of course the wider hysteria has been around for much longer, fueled by science fiction as in 2001 a Space Odyssey, the fear that computers will one day throw off the yoke of their human oppressors and enslave or destroy humanity is almost as old as electronic computers themselves. Science fiction has kept present in the public's mind this possibility presented as an almost inevitable fact of not if but when.

Now most of us who actually know how AI techniques work are decidedly less worried, although often the lay public and software professionals misunderstand each other. To be sure, like most software people, I know that it is not theoretically impossible to create a sentient AI brain. But this is altogether different from saying it is imminent, dangerous or inevitable. To make matters worse, many programmers love science fiction and are emotionally attached to the idea that an evil sentient AI will one day try and enslave or eliminate humanity. Also, just because someone can code, does not mean they understand the first thing about AI, algorithmics or computibility. So yes, when you ask coders if AI is potentially dangerous, many will say yes, but this misses the point completely.

Outside the industry it gets much worse. AI is used as a shorthand to mean a number of seemingly mysterious or clever technology-related things. AI is frequently confused with robotics where advances in bipedal mobility and more dexterous robotic hands are seen as manifestations of the new AI race taking form. AI is also confused with relevance and segmentation algorithms, the sort that promote adverts on the top of your Facebook feed or match you up with your soulmate on a dating site. AI is also used to refer to computer-controlled opponents in games and things like automated flight control.

AI is none of these things. AI is a small number of algorithmic techniques used to solve problems that computers normally find difficult to solve. That’s it. It’s really just a different approach to coding a solution to a large problem. What is a large problem for a computer? Well this might be something that is quite simple for a human to do, for example kicking a football into a goalpost. Using traditional solutions, this is a very large problem for a program (connected in this case to a robotic leg) to solve. The program must take all sorts of inputs: the size, weight and shape of the ball, the distance and dimensions of the goalpost, ground friction and wind, pressure inside the ball, the list is long and the formulae that will result in the right set of commands to the robotic leg are daunting. An AI approach to this same problem is as follows: kick the ball, if it falls short, kick it harder, if it goes to far, kick it less hard. If it ends up too far to the left, kick it more to the right, etc. Eventually, through enough repetitions, the machine will be able to perfectly kick the ball into the net almost all the time without needing to worry about why. This is much simpler and a more feasible way to solve the problem and is similar to how humans learn to do things. Of course, if the conditions are changed the machine will have to recalibrate itself before starting to score goals again.

Early researchers into AI techniques coined the term "Artificial Intelligence" to intentionally make their research sound sexy and attract funding. Such ploys are still in use today with new terms. The two main AI techniques are genetic/evolutionary algorithms and artificial neural networks (ANNs). Of course there are other techniques like swarm intelligence and experts disagree vehemently on definitions and terminology, but for our purposes it is enough to suppose when people "do" AI, they are implementing some kind of evolutionary algorithm or ANN. Evolutionary algorithms generate many candidate solutions for a given problem and then search for the best one. ANNs get a lot more attention are they are supposedly the artificial brains that are about to power the sentient life-forms that lead to our demise.

Unfortunately for the sentient artificial beings, ANNs are not artificial brains. They are implementations of a mathematical technique that compresses a multitude of inputs into a smaller set of outputs through matrix operations and self-calibrating weights. Let us suppose that you wanted to use an ANN to recognise pictures of handwritten digits 1 to 9. We would get the image and turn it into a set of inputs (for example a list of 100 pixels for a 10x10 image) we will then pass these inputs through a layered weighted node structure and squash the output to get a single answer (1, 2, 3, 4, 5, 6, 7, 8 or 9). Then you train the weights (i.e. calibrate them) on a large set of training data where the answer is already known. If your nodes are set up correctly and your training data is sufficient and with some luck, your ANN should now be able to correctly interpret unseen images of digits.

Now the above example is an ANN at its most basic and crude. Several advances have sped up the training process, allowed ANNs to learn continually as they are used and added more layers of nodes between the input and output. The state of applied AI has come a long way as anyone who remembers what fingerprint/face recognition or OCR and speech-to-text used to be like will tell you. But you can no more expect these admittedly more advanced "artificial brains" to suddenly turn on us or do something else then we can expect the football kicking robot described earlier to suddenly walk up to you and kick you in the shin.

Of course, what Musk and co are talking about is not applied AI, but general AI. These are techniques that supposedly don't have a set function and can learn and apply themselves in general. The problem is that there has been no dramatic or evident progress on this front. Although this is not technically ruled out by any limitations in computer software, there have not been any demonstrations of anything on the way to a general or complete AI and our understanding of cognition in general would have to advance substantially if we were to have any hope of trying to replicate it.

The scaremongering is due to well-meaning dogooders who do not understand the science as well as a fair number of charlatans attracting attention and funding to their projects. I suspect too that some are deliberately stoking fear in order to open a door to heavy-handed government regulation of the tech sector. It seems to me that there is more than enough hysteria and hyperbole flying around these days to make room for yet another doomsday scenario.
 
Madrid, June 26th 2019 

TLDR: AI is not about to take over the world