With each passing day, it seems, technology wields more influence over human activity. Nothing resembling a slowdown of that progression is in sight, and in fact it’s very likely to last indefinitely.

Vincent Deluard

Vincent Deluard

Those sound like plain facts, don’t they? Yet a new report from Fortune 500 financial services firm INTL FCStone offers some counter-arguments, at least with respect to technology’s influence on capital markets and corporate productivity.

The author, Vincent Deluard, a global macro strategist at the firm, has been making a case recently, as have other observers, that a long-term upturn in bond yields is in the offing. The resulting higher cost of capital could interfere with companies’ cash-hoarding ways and create a savings squeeze.

He was briefly knocked off course, though, by talk at a recent event that technological progress could be a game-changer.

“At the time, I could only agree,” he acknowledges. “The global economy will run out of cheap capital, but it may not matter because artificial intelligence, the internet of things, and the sharing economy are already allowing many companies to produce more with less capital.”

However, upon further thought, he writes, he could have offered several rebuttals, which he makes in his report. He titled it, “Will Unicorns and Robots Kill My Case for Higher Rates? Four Reasons Why Tech Will Not Prevent a Global Savings Squeeze.”

First, even machines have physical limits, Deluard points out. Integrated-circuit components “are approaching the atomic size, which will eventually end the easy productivity gains of Moore’s law,” the report states. Gordon Moore himself has made the same argument.

“Moore’s law has powered the remarkable progress in video games, weather forecasts, missiles, spreadsheets, cell phones, and PCs,” Deluard writes. “However, an intrinsic property of exponential growth (or shrinkage in this case) is that it cannot go on forever.”

Second, he writes, the practical impact of many disruptive technologies may be overhyped. For example, while AI machines beat humans at chess, they fail to write logical paragraphs or understand the meaning of language.

Deluard adds that many Silicon Valley innovations will not work in developing markets without massive investments in old-world infrastructure. For example, “Fleets of self-driving Ubers [taking] engineers to their offices may be a realistic vision in the orderly suburbs of Palo Alto, but much less so in the endless traffic jams of Sao Paulo and Jakarta.”

The progress of artificial intelligence in image recognition, sound processing, and, to a limited extent, general intelligence may have led to a sense of overconfidence, he opines.

Third, according to Deluard, many technology giants and unicorns alike have been able to keep prices low because “investors never asked them to turn a profit…. In an age of free money, venture capitalists gladly burned investors’ cash in the hope of finding the next Google.” But when bond rates normalize, he writes, unicorns will need profits, which will require higher prices, and “investors will not be so willing to bleed money.”

He points to the “curious case” of Netflix’s market capitalization, which has increased by $51 billion since 2014. Over the same period, the company’s operating cash flow totaled negative $3.6 billion. And Blue Apron, he notes, spends $63 to acquire a single customer that, on average, delivers a profit of just $102 over three years.

Deluard says that the question posed in the report’s title — would unicorns and robots destroy his case for higher rates? — is actually upside down. Rather, he adds, whether higher rates will destroy robots and unicorns “seems like a more fitting question for the times.”

Fourth, he writes, “humans’ ability to innovate may be infinite, but societies’ tolerance for disruption is not.” The extant second machine age has created inequalities that in turn have triggered a backlash. Regulators, he says, are “sharpening knives” to come at “the FAANGs” — Facebook, Apple, Amazon, Netflix, and Google.

“Voters are rallying around class and race totems as the politics of anger and identity spread via social media,” Deluard observes. “The cost of capital should increase to reflect these new political and social risks.”

By its very nature, Deluard continues, technological progress disrupts social order, forcing humans to change behaviors, customs, and habits that were formed over centuries. “Contrary to computers, our brains cannot be wiped clean of their past and rewired to accommodate a new software,” he writes.

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