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How will travel sector stocks fare in the post-pandemic, emissions slashing world?

That the international travel sector is, thanks to the Covid-19 pandemic, in a bit…
The post How will travel sector stocks fare in the post-pandemic, emissions slashing world? first appeared on Trading and Investment News.

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That the international travel sector is, thanks to the Covid-19 pandemic, in a bit of a crisis is not really news. When you have a business with significant fixed overheads from staff costs to expensive airport slots, rented hangers and all the other non-elastic bills that come in every month it tends to be a bit of a problem when the world unexpectedly stops travelling almost overnight. And doesn’t start again for a year and a half. Or at least not to anywhere near the levels all those overheads were built up to be able to handle.

In 2019, after nearly two decades of consistent annual growth fuelled by the world’s developing economies and growing middle class, over 4.5 billion passengers were carried by the world’s airlines. Data from the early part of 2020 indicated that figure would rise to over 4.7 billion passengers by the end of the year. A rate of growth consistent with what the airline industry had become accustomed to.

Number of scheduled passengers boarded by the global airline industry from 2004 to 2022(in millions)

chart

Source: Statista

Then Covid-19 appeared on the scene. News reports covering a concerning new virus that had appeared in a huge Chinese city most of us had never heard of before were watched with interest. Perhaps a little apprehension clouded some minds as the reports grew in frequency.

But it wasn’t the first time a scary sounding new virus had reared its head in southeast Asia. There was SARS in 2002 and MERS a decade later. Both were an issue but a relatively localised one. They certainly didn’t rip through the world economy and bring international travel to a practical halt. But Covid-19 did.

In an effort to control the new coronavirus’s spread, governments around the world brought in restrictions on people’s movements and interactions. They varied in their level of strictness with island nations like Australia and New Zealand shutting their borders relatively quickly and Italy barely allowing anyone to leave home for weeks as the virus ripped through especially the country’s northern towns and cities.

Elsewhere, with Sweden the prime example, a more laissez-faire approach was taken and life went on much as it had with very few obligatory restrictions imposed on people. In the UK and U.S. politicians attempted to find a middle ground that balanced keeping the spread of the virus under enough control that health services wouldn’t be overwhelmed. But that involved asking everyone who possible could to work from home for well over a year. And local and international travel restrictions.

For the international aviation industry, the impact was drastic. An expected 4.7 billion airline passengers throughout the year was actually 1.8 billion by the time the bells chimed for New Year 2021. This year isn’t looking much better with just 2.28 passengers expected on international flights, well under half of the numbers that would have been anticipated before March 2020.

International vaccine programmes mean borders have now re-opened and the recovery is underway. But the industry expects it to take at least another couple of years, some think more, before passenger numbers return to 2019 levels. The extra expense and hassle of mandatory testing on most international trips involve, the need to wear masks for hours on end, health concerns many still have, and other inconveniences that have reduced enthusiasm for personal travel.

Domestic travel is returning as we return, at least part-time to office environments, visiting family and friends and taking day trips, weekends and staycations. But passenger numbers on trains, buses and internal flights are still significantly down on pre-pandemic levels and will take some time to recover.

Share of the total gross domestic product (GDP) generated by the travel and tourism industry worldwide from 2000 to 2020

chart

Source: Statista

The impact on the global travel sector, and the individual companies that it is comprised of, has been devastating. In 2019, the travel and tourism sector accounted for over 10% of global GDP. In 2020 that halved to a little over 5% meaning the equivalent of the value of  5% of the world’s economic output was lost by a single sector.

It’s not the first crisis the travel sector, and especially aviation, has faced. 9/11 was a major blow but the industry largely struggled through the drop-off in air passenger numbers that followed the horrifying scenes of hijacked passenger jets crashing into the Twin Towers in New York. Until the Covid-19 pandemic, what followed was almost two decades of solid growth in international travel.

But this time is different. Passenger numbers fell much more drastically for much longer and the recovery will take place over years, not months. And the impact has been sector-wide and not restricted to aviation. To survive, travel companies have had to take on huge debts while slashing costs by downscaling.

Europe’s largest tour operator, the German company Tui, was bailed out by €4.3 billion in loans provided by Germany’s state bank. The company is worth around 60% less than it was two years ago.

tui ag

U.S. airlines have been kept afloat by over $60 billion in government aid. British Airways owner IAG has seen its net debt rise from €7.6 billion at the end of 2019 to €12.1 billion by this summer. An almost €8 billion loss was booked last year and another of over €3 billion is expected this year. Shareholders have also seen their equity stakes diluted by rights issues which raised billions.

The company should now have more than enough cash to see out the pandemic and most of its debt is not repayable before 2026, though some is and likely to be re-financed. But that debt will have to be eventually serviced and reduced through future revenues. That is likely to mean no dividends for the next few years at least and a delicate balance will have to be maintained between growth and keeping a lid on overheads.

ft chart

Source: FT

Short-haul carriers like Easyjet, Ryanair and Wizz Air haven’t been hit quite as hard with European travel less affected than long-haul routes. But they have still seen passenger numbers plunge and the number of flight routes they maintain slashed. They’ve all also been forced into raising billions through a combination of rights issues and debt that will have to be repaid. In total, the travel sector has lost an estimated $6 trillion to the pandemic, according to the World Travel and Tourism Council.

As it attempts to inch towards recovery, the travel sector faces additional headwinds. Inflation, supply chain chaos and staff shortages are driving up overheads quickly meaning returning business is less profitable before still lower passenger numbers are factored in.

Over the next few decades the sector, especially the aviation sub-sector, will also come under enormous pressure from shareholders, passengers and government to reduce emissions. That will require huge investment in new technologies on top of servicing the massive increase in debts taken on over the past two years.

Is the travel sector doomed and it’s time for investors still holding on to equity to bail out?

In every crisis, there is, however, always opportunity. Rights and debt issues from travel and tourism sector companies over the past year and a half have unanimously been accompanied by optimistic statements of intent that the cash raised will not only cover losses until the sector gets back on its feet. The money will also allow the companies to gain market share over less liquid competitors over the next few years.

The obvious caveat to that optimism is that most major competitors have been doing and saying the exact same thing. They won’t all gain market share from each other over the months and years ahead. Of course, many smaller companies unable to raise liquidity in the same way will fall prey to heavily capitalised public companies or those backed by private equity. A lot of those that survive will be hamstrung by the need to pay back emergency loans underwritten by governments, which calls their continued mid to long-term survival into question.

Among smaller and mid-sized travel companies, some will be innovative enough to pull through. Many won’t. The impact of the past couple of years will also almost certainly mean many big names won’t either, even among those who have raised billions. A decade of sector consolidations is likely with M&A deals reshaping the industry.

Which travel companies will survive and eventually prosper post-pandemic?

The travel sector appears split between those executives and investors convinced history shows things will return to normal even if it takes another 2-3 years. That faith is underpinned by the argument we humans have short memories and regardless of the scale of a catastrophe we eventually return to previously ingrained patterns of behaviour.

One is the outspoken Ryanair chief executive Michael O’Leary. He sees neither the pandemic nor the need to reduce harmful emissions as having a long term effect on his industry:

“The idea that post-Covid people will never travel again, or post-COP people will stop flying or flight shaming? [It’s] never going to happen.”

Flight and accommodation booking platform Expedia’s chief executive Peter Kern has a similar view. He thinks there may be some changes such as business travellers no longer taking flights for one-day meetings but that otherwise business travel is “largely going to come back”.

Hilton chief executive Chris Nassetta echos that opinion with

“it’s all well and good not travelling . . . until Goldman Sachs loses three IPO deals to Morgan Stanley because their bankers were on Zoom calls and Morgan Stanley was out [there].”

Airbnb’s Brian Chesky sees things differently and is convinced the travel sector has changed for good and that evolution will continue over coming years:

“In our mind, the world is totally different because of the pandemic…..one of the biggest changes to daily living since World War Two . . . This to me is a revolution, I don’t think travel is going back to where it was because I don’t think the world is going back to where it was. We believe in a world where people have new found flexibility they haven’t had before.”

Chesky thinks the future is longer trips that will see people take advantage of work-location flexibility to take extended visits to places or perhaps combine business travel with tourism by staying for a holiday after a work trip. Airbnb says its biggest growth area is stays of over 28 days and that it expects to evolve from a short-term rentals business to a “travel and living” company.

Tony Capuano of the hotel giant Marriott also thinks longer trips combining work and leisure will become more common and international trips purely for in-person meetings much rarer. His group’s strategy over the next several years will presumably reflect that belief.

Depressed valuations in the travel sector of course offer investors an opportunity to ride the recovery. But there is also an argument many valuations are not depressed enough, given the economic realities companies face and the sector’s unclear future. The winners will be those that not only raised enough money to not only survive but to acquire less liquid competitors.

But that in itself won’t be enough to guarantee future returns for investors who guess M&A activity over the next several years most accurately. Companies can grow but remain frail or inert in their expanded size.

Investors will also have to choose the companies that have gotten their predictions of the sector’s future evolution right and adapted their strategies to take advantage. Investing in the travel sector will be a minefield for years and highly risky. There will inevitably be heavy losses for some and major gains for others. That’s the reality of volatility and uncertainty. As an investor, you’ll have to decide if you are willing to take on the considerable risk of chasing the prospect of attractive gains through exposure to travel companies.

The post How will travel sector stocks fare in the post-pandemic, emissions slashing world? first appeared on Trading and Investment News.

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“I Can’t Even Save”: Americans Are Getting Absolutely Crushed Under Enormous Debt Load

"I Can’t Even Save": Americans Are Getting Absolutely Crushed Under Enormous Debt Load

While Joe Biden insists that Americans are doing great…

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"I Can't Even Save": Americans Are Getting Absolutely Crushed Under Enormous Debt Load

While Joe Biden insists that Americans are doing great - suggesting in his State of the Union Address last week that "our economy is the envy of the world," Americans are being absolutely crushed by inflation (which the Biden admin blames on 'shrinkflation' and 'corporate greed'), and of course - crippling debt.

The signs are obvious. Last week we noted that banks' charge-offs are accelerating, and are now above pre-pandemic levels.

...and leading this increase are credit card loans - with delinquencies that haven't been this high since Q3 2011.

On top of that, while credit cards and nonfarm, nonresidential commercial real estate loans drove the quarterly increase in the noncurrent rate, residential mortgages drove the quarterly increase in the share of loans 30-89 days past due.

And while Biden and crew can spin all they want, an average of polls from RealClear Politics shows that just 40% of people approve of Biden's handling of the economy.

Crushed

On Friday, Bloomberg dug deeper into the effects of Biden's "envious" economy on Americans - specifically, how massive debt loads (credit cards and auto loans especially) are absolutely crushing people.

Two years after the Federal Reserve began hiking interest rates to tame prices, delinquency rates on credit cards and auto loans are the highest in more than a decade. For the first time on record, interest payments on those and other non-mortgage debts are as big a financial burden for US households as mortgage interest payments.

According to the report, this presents a difficult reality for millions of consumers who drive the US economy - "The era of high borrowing costs — however necessary to slow price increases — has a sting of its own that many families may feel for years to come, especially the ones that haven’t locked in cheap home loans."

The Fed, meanwhile, doesn't appear poised to cut rates until later this year.

According to a February paper from IMF and Harvard, the recent high cost of borrowing - something which isn't reflected in inflation figures, is at the heart of lackluster consumer sentiment despite inflation having moderated and a job market which has recovered (thanks to job gains almost entirely enjoyed by immigrants).

In short, the debt burden has made life under President Biden a constant struggle throughout America.

"I’m making the most money I've ever made, and I’m still living paycheck to paycheck," 40-year-old Denver resident Nikki Cimino told Bloomberg. Cimino is carrying a monthly mortgage of $1,650, and has $4,000 in credit card debt following a 2020 divorce.

Nikki CiminoPhotographer: Rachel Woolf/Bloomberg

"There's this wild disconnect between what people are experiencing and what economists are experiencing."

What's more, according to Wells Fargo, families have taken on debt at a comparatively fast rate - no doubt to sustain the same lifestyle as low rates and pandemic-era stimmies provided. In fact, it only took four years for households to set a record new debt level after paying down borrowings in 2021 when interest rates were near zero. 

Meanwhile, that increased debt load is exacerbated by credit card interest rates that have climbed to a record 22%, according to the Fed.

[P]art of the reason some Americans were able to take on a substantial load of non-mortgage debt is because they’d locked in home loans at ultra-low rates, leaving room on their balance sheets for other types of borrowing. The effective rate of interest on US mortgage debt was just 3.8% at the end of last year.

Yet the loans and interest payments can be a significant strain that shapes families’ spending choices. -Bloomberg

And of course, the highest-interest debt (credit cards) is hurting lower-income households the most, as tends to be the case.

The lowest earners also understandably had the biggest increase in credit card delinquencies.

"Many consumers are levered to the hilt — maxed out on debt and barely keeping their heads above water," Allan Schweitzer, a portfolio manager at credit-focused investment firm Beach Point Capital Management told Bloomberg. "They can dog paddle, if you will, but any uptick in unemployment or worsening of the economy could drive a pretty significant spike in defaults."

"We had more money when Trump was president," said Denise Nierzwicki, 69. She and her 72-year-old husband Paul have around $20,000 in debt spread across multiple cards - all of which have interest rates above 20%.

Denise and Paul Nierzwicki blame Biden for what they see as a gloomy economy and plan to vote for the Republican candidate in November.
Photographer: Jon Cherry/Bloomberg

During the pandemic, Denise lost her job and a business deal for a bar they owned in their hometown of Lexington, Kentucky. While they applied for Social Security to ease the pain, Denise is now working 50 hours a week at a restaurant. Despite this, they're barely scraping enough money together to service their debt.

The couple blames Biden for what they see as a gloomy economy and plans to vote for the Republican candidate in November. Denise routinely voted for Democrats up until about 2010, when she grew dissatisfied with Barack Obama’s economic stances, she said. Now, she supports Donald Trump because he lowered taxes and because of his policies on immigration. -Bloomberg

Meanwhile there's student loans - which are not able to be discharged in bankruptcy.

"I can't even save, I don't have a savings account," said 29-year-old in Columbus, Ohio resident Brittany Walling - who has around $80,000 in federal student loans, $20,000 in private debt from her undergraduate and graduate degrees, and $6,000 in credit card debt she accumulated over a six-month stretch in 2022 while she was unemployed.

"I just know that a lot of people are struggling, and things need to change," she told the outlet.

The only silver lining of note, according to Bloomberg, is that broad wage gains resulting in large paychecks has made it easier for people to throw money at credit card bills.

Yet, according to Wells Fargo economist Shannon Grein, "As rates rose in 2023, we avoided a slowdown due to spending that was very much tied to easy access to credit ... Now, credit has become harder to come by and more expensive."

According to Grein, the change has posed "a significant headwind to consumption."

Then there's the election

"Maybe the Fed is done hiking, but as long as rates stay on hold, you still have a passive tightening effect flowing down to the consumer and being exerted on the economy," she continued. "Those household dynamics are going to be a factor in the election this year."

Meanwhile, swing-state voters in a February Bloomberg/Morning Consult poll said they trust Trump more than Biden on interest rates and personal debt.

Reverberations

These 'headwinds' have M3 Partners' Moshin Meghji concerned.

"Any tightening there immediately hits the top line of companies," he said, noting that for heavily indebted companies that took on debt during years of easy borrowing, "there's no easy fix."

Tyler Durden Fri, 03/15/2024 - 18:00

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Sylvester researchers, collaborators call for greater investment in bereavement care

MIAMI, FLORIDA (March 15, 2024) – The public health toll from bereavement is well-documented in the medical literature, with bereaved persons at greater…

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MIAMI, FLORIDA (March 15, 2024) – The public health toll from bereavement is well-documented in the medical literature, with bereaved persons at greater risk for many adverse outcomes, including mental health challenges, decreased quality of life, health care neglect, cancer, heart disease, suicide, and death. Now, in a paper published in The Lancet Public Health, researchers sound a clarion call for greater investment, at both the community and institutional level, in establishing support for grief-related suffering.

Credit: Photo courtesy of Memorial Sloan Kettering Comprehensive Cancer Center

MIAMI, FLORIDA (March 15, 2024) – The public health toll from bereavement is well-documented in the medical literature, with bereaved persons at greater risk for many adverse outcomes, including mental health challenges, decreased quality of life, health care neglect, cancer, heart disease, suicide, and death. Now, in a paper published in The Lancet Public Health, researchers sound a clarion call for greater investment, at both the community and institutional level, in establishing support for grief-related suffering.

The authors emphasized that increased mortality worldwide caused by the COVID-19 pandemic, suicide, drug overdose, homicide, armed conflict, and terrorism have accelerated the urgency for national- and global-level frameworks to strengthen the provision of sustainable and accessible bereavement care. Unfortunately, current national and global investment in bereavement support services is woefully inadequate to address this growing public health crisis, said researchers with Sylvester Comprehensive Cancer Center at the University of Miami Miller School of Medicine and collaborating organizations.  

They proposed a model for transitional care that involves firmly establishing bereavement support services within healthcare organizations to ensure continuity of family-centered care while bolstering community-based support through development of “compassionate communities” and a grief-informed workforce. The model highlights the responsibility of the health system to build bridges to the community that can help grievers feel held as they transition.   

The Center for the Advancement of Bereavement Care at Sylvester is advocating for precisely this model of transitional care. Wendy G. Lichtenthal, PhD, FT, FAPOS, who is Founding Director of the new Center and associate professor of public health sciences at the Miller School, noted, “We need a paradigm shift in how healthcare professionals, institutions, and systems view bereavement care. Sylvester is leading the way by investing in the establishment of this Center, which is the first to focus on bringing the transitional bereavement care model to life.”

What further distinguishes the Center is its roots in bereavement science, advancing care approaches that are both grounded in research and community-engaged.  

The authors focused on palliative care, which strives to provide a holistic approach to minimize suffering for seriously ill patients and their families, as one area where improvements are critically needed. They referenced groundbreaking reports of the Lancet Commissions on the value of global access to palliative care and pain relief that highlighted the “undeniable need for improved bereavement care delivery infrastructure.” One of those reports acknowledged that bereavement has been overlooked and called for reprioritizing social determinants of death, dying, and grief.

“Palliative care should culminate with bereavement care, both in theory and in practice,” explained Lichtenthal, who is the article’s corresponding author. “Yet, bereavement care often is under-resourced and beset with access inequities.”

Transitional bereavement care model

So, how do health systems and communities prioritize bereavement services to ensure that no bereaved individual goes without needed support? The transitional bereavement care model offers a roadmap.

“We must reposition bereavement care from an afterthought to a public health priority. Transitional bereavement care is necessary to bridge the gap in offerings between healthcare organizations and community-based bereavement services,” Lichtenthal said. “Our model calls for health systems to shore up the quality and availability of their offerings, but also recognizes that resources for bereavement care within a given healthcare institution are finite, emphasizing the need to help build communities’ capacity to support grievers.”

Key to the model, she added, is the bolstering of community-based support through development of “compassionate communities” and “upskilling” of professional services to assist those with more substantial bereavement-support needs.

The model contains these pillars:

  • Preventive bereavement care –healthcare teams engage in bereavement-conscious practices, and compassionate communities are mindful of the emotional and practical needs of dying patients’ families.
  • Ownership of bereavement care – institutions provide bereavement education for staff, risk screenings for families, outreach and counseling or grief support. Communities establish bereavement centers and “champions” to provide bereavement care at workplaces, schools, places of worship or care facilities.
  • Resource allocation for bereavement care – dedicated personnel offer universal outreach, and bereaved stakeholders provide input to identify community barriers and needed resources.
  • Upskilling of support providers – Bereavement education is integrated into training programs for health professionals, and institutions offer dedicated grief specialists. Communities have trained, accessible bereavement specialists who provide support and are educated in how to best support bereaved individuals, increasing their grief literacy.
  • Evidence-based care – bereavement care is evidence-based and features effective grief assessments, interventions, and training programs. Compassionate communities remain mindful of bereavement care needs.

Lichtenthal said the new Center will strive to materialize these pillars and aims to serve as a global model for other health organizations. She hopes the paper’s recommendations “will cultivate a bereavement-conscious and grief-informed workforce as well as grief-literate, compassionate communities and health systems that prioritize bereavement as a vital part of ethical healthcare.”

“This paper is calling for healthcare institutions to respond to their duty to care for the family beyond patients’ deaths. By investing in the creation of the Center for the Advancement of Bereavement Care, Sylvester is answering this call,” Lichtenthal said.

Follow @SylvesterCancer on X for the latest news on Sylvester’s research and care.

# # #

Article Title: Investing in bereavement care as a public health priority

DOI: 10.1016/S2468-2667(24)00030-6

Authors: The complete list of authors is included in the paper.

Funding: The authors received funding from the National Cancer Institute (P30 CA240139 Nimer) and P30 CA008748 Vickers).

Disclosures: The authors declared no competing interests.

# # #


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Separating Information From Disinformation: Threats From The AI Revolution

Separating Information From Disinformation: Threats From The AI Revolution

Authored by Per Bylund via The Mises Institute,

Artificial intelligence…

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Separating Information From Disinformation: Threats From The AI Revolution

Authored by Per Bylund via The Mises Institute,

Artificial intelligence (AI) cannot distinguish fact from fiction. It also isn’t creative or can create novel content but repeats, repackages, and reformulates what has already been said (but perhaps in new ways).

I am sure someone will disagree with the latter, perhaps pointing to the fact that AI can clearly generate, for example, new songs and lyrics. I agree with this, but it misses the point. AI produces a “new” song lyric only by drawing from the data of previous song lyrics and then uses that information (the inductively uncovered patterns in it) to generate what to us appears to be a new song (and may very well be one). However, there is no artistry in it, no creativity. It’s only a structural rehashing of what exists.

Of course, we can debate to what extent humans can think truly novel thoughts and whether human learning may be based solely or primarily on mimicry. However, even if we would—for the sake of argument—agree that all we know and do is mere reproduction, humans have limited capacity to remember exactly and will make errors. We also fill in gaps with what subjectively (not objectively) makes sense to us (Rorschach test, anyone?). Even in this very limited scenario, which I disagree with, humans generate novelty beyond what AI is able to do.

Both the inability to distinguish fact from fiction and the inductive tether to existent data patterns are problems that can be alleviated programmatically—but are open for manipulation.

Manipulation and Propaganda

When Google launched its Gemini AI in February, it immediately became clear that the AI had a woke agenda. Among other things, the AI pushed woke diversity ideals into every conceivable response and, among other things, refused to show images of white people (including when asked to produce images of the Founding Fathers).

Tech guru and Silicon Valley investor Marc Andreessen summarized it on X (formerly Twitter): “I know it’s hard to believe, but Big Tech AI generates the output it does because it is precisely executing the specific ideological, radical, biased agenda of its creators. The apparently bizarre output is 100% intended. It is working as designed.”

There is indeed a design to these AIs beyond the basic categorization and generation engines. The responses are not perfectly inductive or generative. In part, this is necessary in order to make the AI useful: filters and rules are applied to make sure that the responses that the AI generates are appropriate, fit with user expectations, and are accurate and respectful. Given the legal situation, creators of AI must also make sure that the AI does not, for example, violate intellectual property laws or engage in hate speech. AI is also designed (directed) so that it does not go haywire or offend its users (remember Tay?).

However, because such filters are applied and the “behavior” of the AI is already directed, it is easy to take it a little further. After all, when is a response too offensive versus offensive but within the limits of allowable discourse? It is a fine and difficult line that must be specified programmatically.

It also opens the possibility for steering the generated responses beyond mere quality assurance. With filters already in place, it is easy to make the AI make statements of a specific type or that nudges the user in a certain direction (in terms of selected facts, interpretations, and worldviews). It can also be used to give the AI an agenda, as Andreessen suggests, such as making it relentlessly woke.

Thus, AI can be used as an effective propaganda tool, which both the corporations creating them and the governments and agencies regulating them have recognized.

Misinformation and Error

States have long refused to admit that they benefit from and use propaganda to steer and control their subjects. This is in part because they want to maintain a veneer of legitimacy as democratic governments that govern based on (rather than shape) people’s opinions. Propaganda has a bad ring to it; it’s a means of control.

However, the state’s enemies—both domestic and foreign—are said to understand the power of propaganda and do not hesitate to use it to cause chaos in our otherwise untainted democratic society. The government must save us from such manipulation, they claim. Of course, rarely does it stop at mere defense. We saw this clearly during the covid pandemic, in which the government together with social media companies in effect outlawed expressing opinions that were not the official line (see Murthy v. Missouri).

AI is just as easy to manipulate for propaganda purposes as social media algorithms but with the added bonus that it isn’t only people’s opinions and that users tend to trust that what the AI reports is true. As we saw in the previous article on the AI revolution, this is not a valid assumption, but it is nevertheless a widely held view.

If the AI then can be instructed to not comment on certain things that the creators (or regulators) do not want people to see or learn, then it is effectively “memory holed.” This type of “unwanted” information will not spread as people will not be exposed to it—such as showing only diverse representations of the Founding Fathers (as Google’s Gemini) or presenting, for example, only Keynesian macroeconomic truths to make it appear like there is no other perspective. People don’t know what they don’t know.

Of course, nothing is to say that what is presented to the user is true. In fact, the AI itself cannot distinguish fact from truth but only generates responses according to direction and only based on whatever the AI has been fed. This leaves plenty of scope for the misrepresentation of the truth and can make the world believe outright lies. AI, therefore, can easily be used to impose control, whether it is upon a state, the subjects under its rule, or even a foreign power.

The Real Threat of AI

What, then, is the real threat of AI? As we saw in the first article, large language models will not (cannot) evolve into artificial general intelligence as there is nothing about inductive sifting through large troves of (humanly) created information that will give rise to consciousness. To be frank, we haven’t even figured out what consciousness is, so to think that we will create it (or that it will somehow emerge from algorithms discovering statistical language correlations in existing texts) is quite hyperbolic. Artificial general intelligence is still hypothetical.

As we saw in the second article, there is also no economic threat from AI. It will not make humans economically superfluous and cause mass unemployment. AI is productive capital, which therefore has value to the extent that it serves consumers by contributing to the satisfaction of their wants. Misused AI is as valuable as a misused factory—it will tend to its scrap value. However, this doesn’t mean that AI will have no impact on the economy. It will, and already has, but it is not as big in the short-term as some fear, and it is likely bigger in the long-term than we expect.

No, the real threat is AI’s impact on information. This is in part because induction is an inappropriate source of knowledge—truth and fact are not a matter of frequency or statistical probabilities. The evidence and theories of Nicolaus Copernicus and Galileo Galilei would get weeded out as improbable (false) by an AI trained on all the (best and brightest) writings on geocentrism at the time. There is no progress and no learning of new truths if we trust only historical theories and presentations of fact.

However, this problem can probably be overcome by clever programming (meaning implementing rules—and fact-based limitations—to the induction problem), at least to some extent. The greater problem is the corruption of what AI presents: the misinformation, disinformation, and malinformation that its creators and administrators, as well as governments and pressure groups, direct it to create as a means of controlling or steering public opinion or knowledge.

This is the real danger that the now-famous open letter, signed by Elon Musk, Steve Wozniak, and others, pointed to:

“Should we let machines flood our information channels with propaganda and untruth? Should we automate away all the jobs, including the fulfilling ones? Should we develop nonhuman minds that might eventually outnumber, outsmart, obsolete and replace us? Should we risk loss of control of our civilization?”

Other than the economically illiterate reference to “automat[ing] away all the jobs,” the warning is well-taken. AI will not Terminator-like start to hate us and attempt to exterminate mankind. It will not make us all into biological batteries, as in The Matrix. However, it will—especially when corrupted—misinform and mislead us, create chaos, and potentially make our lives “solitary, poor, nasty, brutish and short.”

Tyler Durden Fri, 03/15/2024 - 06:30

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