Finance

Federal Reserve officials at their March meeting expressed concern that inflation wasn’t moving lower quickly enough, though they still expected to cut interest rates at some point this year.
At a meeting in which the Federal Open Market Committee again voted to hold short-term borrowing rates steady, policymakers also showed misgivings that inflation, while easing, wasn’t doing so in a convincing enough fashion. The Fed currently targets its benchmark rate between 5.25%-5.5%

As such, FOMC members voted to keep language in the post-meeting statement that they wouldn’t be cutting rates until they “gained greater confidence” that inflation was on a steady path back to the central bank’s 2% annual target.
“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent,” the minutes said.
In what apparently was a lengthy discussion about inflation at the meeting, officials said geopolitical turmoil and rising energy prices remain risks that could push inflation higher. They also cited the potential that looser policy could add to price pressures.
On the downside, they cited a more balanced labor market, enhanced technology along with economic weakness in China and a deteriorating commercial real estate market.

U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee on interest rate policy in Washington, U.S., March 20, 2024.
Elizabeth Frantz | Reuters

They also discussed higher-than-expected inflation readings in January and February. Chair Jerome Powell said it’s possible the two months’ readings were caused by seasonal issues, though he added it’s hard to tell at this point. There were members at the meeting who disagreed.

“Some participants noted that the recent increases in inflation had been relatively broad based and therefore should not be discounted as merely statistical aberrations,” the minutes stated.
That part of the discussion was partly relevant considering the release came the same day that the Fed received more bad news on inflation.

CNBC news on inflation

CPI validates their concern

The consumer price index, a popular inflation gauge though not the one the Fed most closely focuses on, showed a 12-month rate of 3.5% in March. That was both above market expectations and represented an increase of 0.3 percentage point from February, giving rise to the idea that hot readings to start the year may not have been an aberration.
Following the CPI release, traders in the fed funds futures market recalibrated their expectations. Market pricing now implies the first rate cut to come in September, for a total of just two this year. Previous to the release, the odds were in favor of the first reduction coming in June, with three total, in line with the “dot plot” projections released after the March meeting.
The discussion at the meeting indicated that “almost all participants judged that it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected,” the minutes said. “In support of this view, they noted that the disinflation process was continuing along a path that was generally expected to be somewhat uneven.”
In other action at the meeting, officials discussed the possibility of ending the balance sheet reduction. The Fed has shaved about $1.5 trillion off its holdings of Treasurys and mortgage-backed securities by allowing up to $95 billion in proceeds from maturing bonds to roll off each month rather than reinvesting them.
There were no decisions made or indications about how the easing of what has become known as “quantitative tightening” will happen, though the minutes said the roll-off would be cut by “roughly half” from its current pace and the process should start “fairly soon.” Most market economists expect the process to begin in the next month or two.
The minutes noted that members believe a “cautious” approach should be taken.

Don’t miss these stories from CNBC PRO: More

If any politician has the demeanour to ease tensions with Beijing, it is Janet Yellen. America’s treasury secretary comes across as a twinkly eyed professor, rather than a foreign-policy hawk. Sure enough, she used a recent trip to China, which ended on April 9th, to praise the “stronger footing” that Sino-American relations are now on compared with a year ago. Ms Yellen was not merely there to extend an olive branch, however. She also carried a warning for China’s banks: those that help “channel military or dual-use goods to Russia’s defence-industrial base expose themselves to the risk of US sanctions”.Ms Yellen’s warning marks the latest escalation in America’s financial war with Russia. Since Vladimir Putin’s invasion of Ukraine in February 2022, lawmakers in Washington have issued sanctions on nearly 3,600 Russian targets, according to Castellum.AI, a compliance firm. Allies, especially in Europe, have issued many more. Central-bank reserves have been frozen and exports of military goods banned. SWIFT, a messaging service used by 11,500 banks to make around $35trn-worth of cross-border payments a day, has banned some of Russia’s biggest banks. Yet none of this has stopped Russia from outproducing the West in artillery shells, holding its frontline and gearing up for a big push.One reason Russia’s defence industry has held firm is that, although America and allies have tried to cripple it, others have not. Many countries, including big ones, such as China and India, and financial hubs, such as the United Arab Emirates, want to stay out of the fight. Hence the weapon Ms Yellen is now brandishing: sanctions on not just Russian firms, but banks anywhere in the world that aid them.Such measures can be devastatingly effective. In 2018 America’s Treasury announced it was considering designating ABLV Bank in Latvia a money-laundering concern for helping North Korea to dodge sanctions. Out of fear of being designated similarly, other institutions began withdrawing funds from ABLV en masse, and the bank collapsed within days. Milder secondary sanctions have been used to cut Iranian firms out of the global financial system, by levelling huge fines against foreign banks that deal with them.America owes this extraterritorial reach to the role its currency, and hence its banking system, plays in international finance. The ultimate threat against foreign banks that refuse to comply is that they lose the ability to clear dollar transactions, which must eventually be processed by those with accounts at the Federal Reserve. Such is the dollar’s dominance in trade, cross-border payments and capital markets, this in effect banishes the victim from the global financial system.And so America can get foreign banks to enforce its sanctions, even if their own governments do not. Its efforts to do so are far from perfect: private outfits that are friendly to Iran, for instance, might be happy to risk losing access to dollars in return for the chance to carry on doing business there. But even they—or, say, a small Chinese bank—might think twice about risking the same treatment as ABLV. Since the White House issued an executive order in December authorizing the Treasury to go after those aiding Russian defence firms, Chinese banks have reportedly been pruning their relationships with such clients.The trouble is that America’s allies loathe this sort of behaviour. Its reimposition of secondary sanctions on Iran in 2018 annoyed European Union officials so much they started searching for ways to keep financial channels open without recourse to the dollar. For the Treasury to throw its weight around similarly in Beijing, where politicians are rather less friendly, is a much greater provocation—especially given the “no limits” partnership China declared with Russia in February 2022.Europe’s response in 2018 highlights the graver problem with secondary sanctions: they prompt other countries to devise workarounds that ultimately erode America’s influence. The eu’s attempt was a damp squib, but since 2015 China has been promoting CIPS, an alternative payment network to SWIFT that lies beyond the Treasury’s reach and now has more than 1,500 members. That figure has doubled since 2018 and, according to LeaveRussia, a Ukrainian campaign group, includes around 30 Russian banks.Banishment from the dollar clearing system, in other words, is less of a punishment than it once was. And it seems Ms Yellen’s emollient tone in Beijing could only do so much. As she prepared to leave, another visitor was arriving. It was Sergei Lavrov, Russia’s foreign minister—to discuss, among other things, Eurasian security and how to oppose hegemonism. ■ More

New York Community Bank, the regional lender that needed a $1 billion-plus lifeline last month, is offering the country’s highest interest rate for a savings account.
NYCB raised the annual percentage yield offered via its online arm, My Banking Direct, to 5.55%, higher than any other bank’s widely available account, according to Ken Tumin, an analyst who tracks rates for his website DepositAccounts.
The standout rate could be a sign that NYCB is facing funding pressure, Tumin said.

A New York Community Bank stands in Brooklyn on February 08, 2024 in New York City. 
Spencer Platt | Getty Images

New York Community Bank, the regional lender that needed a $1 billion-plus lifeline last month, is offering the country’s highest interest rate for a savings account.
NYCB raised the annual percentage yield offered via its online arm, My Banking Direct, to 5.55%, higher than any other bank’s widely available account, according to Ken Tumin, an analyst who tracks rates for his website DepositAccounts.

The standout rate could be a sign that NYCB is facing funding pressure, Tumin said.
“It looks like they’re trying really hard to attract deposits,” Tumin said. “My Banking Direct has been around for a long time, more than 10 years, so them having an aggressive rate could be a sign of neediness” for funding.
NYCB’s woes began in January, when it said it was preparing for far greater losses on commercial real estate loans than analysts had expected. That set off a downward spiral in its stock price, downgrades from rating agencies and multiple management changes. The bank announced a capital injection from investors led by former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital on March 6.
In the month before the rescue was announced, NYCB shed 7% of its deposits, falling to $77.2 billion by March 5, the bank said in a presentation.

Nothing ‘crazy’

During a conference call held after the capital raise, analysts asked how NYCB managed to retain so much of its deposits during the tumultuous period.

“We didn’t do anything crazy relative to deposit pricing,” NYCB chairman Sandro DiNello replied. “We didn’t go out and offer 6% CDs or something like that in order to make the numbers look good, if that’s what you’re concerned with.”
NYCB didn’t return a call for comment on its funding strategy.
Joseph Otting, a former comptroller of the currency, took over as the bank’s CEO on April 1, about a week before the rate increase.
Despite the turnaround plan, shares of NYCB still trade for under $4 apiece and are off more than 68% year to date.

Forced to pay up

Other banks offering rates higher than 5% right now tend to be newer or smaller players than NYCB, according to Tumin.
Among established banks, the average high-yield savings rate is about 4.4%, and several of them (including American Express, Goldman Sachs and Ally) have dropped rates in the past month, he said. The NYCB rate also tops accounts listed on NerdWallet and Bankrate.
Customer deposits at My Banking Direct are insured by the FDIC up to the standard $250,000.
Over the past two years, savings account rates have broadly been on the rise.
Since the regional banking crisis consumed Silicon Valley Bank and First Republic last year, smaller players have been forced to pay higher rates for deposits compared to giants like JPMorgan Chase in order to compete, said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual.
“When a bank has to go out and advertise a much higher rate, it’s typically because they have a deposit problem,” Stucky said. “It’s not hard for customers to switch banks anymore.” More

China needs to convince people that home prices are on their way up in order for growth to pick up, Richard Koo, chief economist at Nomura, told CNBC’s Steve Sedgwick.
“For them to come back and borrow money, we need a narrative that says, okay, this is the bottom of the prices, the prices will start going up from this point onwards,” Koo said.
He added that a reason why Beijing is reluctant to stimulate the economy now is that authorities view China’s prior support program as a failure.

Pictured here is a real estate project under construction in Huai ‘an city, Jiangsu province, China, on April 8, 2024. 
Future Publishing | Future Publishing | Getty Images

BEIJING — China needs to convince people that home prices are on their way up in order for economic activity to pick up, Richard Koo, chief economist at Nomura Research Institute, told CNBC’s Steve Sedgwick last week.
Business and consumer appetite for new loans have had a tepid start to the year, while home prices dropped at a steeper pace in January than in February, according to Goldman Sachs’ analysis.

In other words, as Koo warned last year, China may be entering a “balance sheet recession,” similar to what Japan experienced during its economic slump.
“For them to come back and borrow money, we need a narrative that says, okay, this is the bottom of the prices, the prices will start going up from this point onwards,” Koo said.
But it’s not clear whether prices have reached an actual bottom yet. Koo and other analysts have pointed out that in China’s policy-driven economy, house prices have not fallen as much as expected given declines in other aspects of the property market.

Chinese officials have said that real estate remains in a period of “adjustment.” The country has also been emphasizing new growth drivers such as manufacturing and new energy vehicles.
Real estate and related sectors have accounted for at least one-fifth of China’s economy, depending on analyst estimates. The property market began its latest slump after Beijing cracked down on developers’ high reliance on debt in 2020.

That coincided with the shock from the Covid-19 pandemic.
It also comes as China’s population has started to shrink, Koo pointed out — a big difference with Japan, whose population didn’t start to fall until 2009, he said.
“That makes this narrative, that the prices have fallen enough, you should go out and borrow and buy houses, even more difficult to justify because [the] population is now shrinking,” Koo said.

Lessons from history

China’s economy officially grew by 5.2% in 2023, the first year since the end of Covid-19 controls. Beijing has set a target of around 5% growth for 2024.
However, many analysts have said such a goal is ambitious without more stimulus.
Chinese authorities have been reluctant to embark on large-scale support for the economy. Koo said an underlying reason is that Beijing views its prior stimulus program as a mistake.
About 15 years ago, in the wake of the global financial crisis, China launched a 4 trillion yuan ($563.38 billion) stimulus package that was initially met with skepticism — and a 70% drop in Chinese stock prices, Koo said.
“It was heading toward balance sheet recession, almost,” he said. “One year later, China had 12% growth.”

But Beijing kept up its stimulus package even after the country had achieved rapid growth, which led to an overheating of growth and speculation, on top of corruption, Koo said. “That’s one of the reasons why this government, Mr. Xi Jinping, is still reluctant to put [out] a large package because so many people think the previous one was a failure.”
Looking ahead, Koo said China should stimulate its economy to avoid a balance sheet recession, and that it should cut that support once growth reaches 12%. “Once the borrow[ing] is coming back, then you can cut, but not before.” More

A decade ago finance ministries were gripped by austerity fever. Governments were doing all they could to cut budget deficits, even with unemployment high and economic growth weak. Today things are very different. Across the West, most economies are in better shape. People have jobs. Corporate-profit growth is strong. And yet governments are spending a lot more than they are taking in.No government is more profligate than America’s. This year the world’s largest economy is projected to run a budget deficit (where spending exceeds taxation) of more than 7% of GDP—a level unheard of outside recession and wartime. But it is not the only spendthrift country. Estonia and Finland, two normally parsimonious northern European countries, are running large budget deficits. Last year Italy’s deficit was as wide as in 2010-11, following the global financial crisis of 2007-09, and France’s grew to 5.5% of GDP, well above forecasts. “I am calling for a collective wake-up call to make choices in all of our public spending,” announced Bruno Le Maire, its finance minister, last month.Chart: The EconomistSome countries have been more reserved. Last year Cyprus ran a surplus. Greece and Portugal—close to balancing their budgets—look like the model of fiscal rectitude even if they still have colossal debts. Still, the general direction is clear. The Economist has analysed data from 35 rich countries. Whereas in 2017-19 the median country in our sample ran a budget surplus, last year it ran a budget deficit of close to 2.5% of GDP (see chart 1). Measures of “primary” deficits (excluding interest payments) and “structural” deficits (abstracting from the economic cycle) have also sharply widened.Two factors explain the splurge. The first relates to taxes. Across the rich world, receipts are surprisingly weak. In America, revenue from income taxes deducted from pay fell slightly last year. Meanwhile, “non-withheld income taxes”, including on capital gains, tumbled by a quarter. Britain’s capital-gains-tax take is running 11% below its recent high. And Japan’s self-assessment tax take for this fiscal year, which includes some levies on capital gains, is on track to come in 4% below last year’s.Taxmen are suffering because of market ructions in late 2022 and early 2023. Tech firms, which pay big salaries, let staff go, trimming income-tax takes. As share prices fell, it became more difficult for households and investors to sell shares for a profit, reducing the pool of capital gains. Last year few people made money from flipping houses as property prices dropped. Senior staff at private-equity firms, who often receive income in the form of investment returns rather than a conventional salary, had a bad year.The second factor is state spending. Following the whatever-it-takes fiscal policy of the covid-19 pandemic, governments have retrenched, but not fully. In Australia elderly people in care homes may still receive financial assistance during a covid outbreak. Only in mid-2023 did Germany completely wind down the job-protection schemes implemented during the pandemic. America is still paying out substantial tax refunds to small businesses that kept people on during lockdowns. In Italy a project concocted in 2020, designed to encourage homeowners to green their homes, has spiralled out of control, with the government so far disbursing support worth €200bn (or 10% of GDP). The name of one of the schemes, “Superbonus”, would be amusing were it not so profligate.Politicians have also become more prepared to intervene—and spend money—in order to right perceived wrongs. After Russia invaded Ukraine and energy prices soared, governments in Europe allocated about 4% of GDP to protect households and companies from the effects. A few, including Poland and the Baltics, are now spending big on guns and soldiers. President Joe Biden wants to forgive as much student debt as he can before America’s presidential election in November.How long can the firehose keep blasting? At first glance, it looks like it could keep going for a while. Markets have gone on a tear, which will boost tax receipts. And a government’s debt sustainability does not change solely owing to what happens to the budget deficit. It is also a product of overall public debt, economic growth, inflation and interest rates. Since the end of the pandemic, inflation has been high and growth has been solid. Although rates have risen, they remain fairly low by historical standards.Chart: The EconomistThese conditions put politicians in a fiscal sweet spot (see chart 2). We calculate that in 2022-23 the median rich country was able to run a primary deficit of about 2% of GDP and still cut its public-debt-to-GDP ratio. The nominal value of debt would have risen, but, helped by inflation, the size of the economy would have risen by even more. A few countries faced an even more favourable environment. Italy’s debt ratio has fallen by about ten percentage points of GDP from its peak in 2021, despite its loose fiscal policy. France’s ratio has edged down, too. Greece—combining favourable economic conditions with tight fiscal policy—has seen its debt-to-gdp ratio fall by a stunning 50 percentage points.American exceptionalismNow that is changing, however. The interest rates facing governments are not yet falling, even as economic growth and inflation come down. This is already making the fiscal arithmetic more daunting. For instance, the Italian government’s primary position consistent with a stable debt ratio has fallen from a deficit of 1% of GDP last year to a surplus of 2% in this one, according to our calculations. America is in a pretty similar position. Further falls in inflation, a slowdown in growth or higher rates would make it more difficult still for governments to stabilise their debt.Small wonder that talk of fiscal consolidation has recently become louder. The Italian government believes it will soon be reprimanded by the EU for its stance. In Britain the opposition Labour Party, which hopes to take power before long, promises fiscal rectitude. The French government talks about cuts to health spending and unemployment benefits. America is the outlier. In the world’s leading economy, the conversation still has not turned. Ahead of the election, Donald Trump and Mr Biden promise tax cuts for millions of voters. But fiscal logic is remorseless. Whether they like it or not, the era of free-spending politicians will have to come to an end. ■ More

A decade ago finance ministries were gripped by austerity fever. Governments were doing all they could to cut budget deficits, even with unemployment high and economic growth weak. Today things are very different. Across the West, most economies are in better shape. People have jobs. Corporate-profit growth is strong. And yet governments are spending a lot more than they are taking in.No government is more profligate than America’s. This year the world’s largest economy is projected to run a budget deficit (where spending exceeds taxation) of more than 7% of GDP—a level unheard of outside recession and wartime. But it is not the only spendthrift country. Estonia and Finland, two normally parsimonious northern European countries, are running large budget deficits. Last year Italy’s deficit was as wide as in 2010-11, following the global financial crisis of 2007-09, and France’s grew to 5.5% of GDP, well above forecasts. “I am calling for a collective wake-up call to make choices in all of our public spending,” announced Bruno Le Maire, its finance minister, last month.Chart: The EconomistSome countries have been more reserved. Last year Cyprus ran a surplus. Greece and Portugal—close to balancing their budgets—look like the model of fiscal rectitude even if they still have colossal debts. Still, the general direction is clear. The Economist has analysed data from 35 rich countries. Whereas in 2017-19 the median country in our sample ran a budget surplus, last year it ran a budget deficit of close to 2.5% of GDP (see chart 1). Measures of “primary” deficits (excluding interest payments) and “structural” deficits (abstracting from the economic cycle) have also sharply widened.Two factors explain the splurge. The first relates to taxes. Across the rich world, receipts are surprisingly weak. In America, revenue from income taxes deducted from pay fell slightly last year. Meanwhile, “non-withheld income taxes”, including on capital gains, tumbled by a quarter. Britain’s capital-gains-tax take is running 11% below its recent high. And Japan’s self-assessment tax take for this fiscal year, which includes some levies on capital gains, is on track to come in 4% below last year’s.Taxmen are suffering because of market ructions in late 2022 and early 2023. Tech firms, which pay big salaries, let staff go, trimming income-tax takes. As share prices fell, it became more difficult for households and investors to sell shares for a profit, reducing the pool of capital gains. Last year few people made money from flipping houses as property prices dropped. Senior staff at private-equity firms, who often receive income in the form of investment returns rather than a conventional salary, had a bad year.The second factor is state spending. Following the whatever-it-takes fiscal policy of the covid-19 pandemic, governments have retrenched, but not fully. In Australia elderly people in care homes may still receive financial assistance during a covid outbreak. Only in mid-2023 did Germany completely wind down the job-protection schemes implemented during the pandemic. America is still paying out substantial tax refunds to small businesses that kept people on during lockdowns. In Italy a project concocted in 2020, designed to encourage homeowners to green their homes, has spiralled out of control, with the government so far disbursing support worth €200bn (or 10% of GDP). The name of one of the schemes, “Superbonus”, would be amusing were it not so profligate.Politicians have also become more prepared to intervene—and spend money—in order to right perceived wrongs. After Russia invaded Ukraine and energy prices soared, governments in Europe allocated about 4% of GDP to protect households and companies from the effects. A few, including Poland and the Baltics, are now spending big on guns and soldiers. President Joe Biden wants to forgive as much student debt as he can before America’s presidential election in November.How long can the firehose keep blasting? At first glance, it looks like it could keep going for a while. Markets have gone on a tear, which will boost tax receipts. And a government’s debt sustainability does not change solely owing to what happens to the budget deficit. It is also a product of overall public debt, economic growth, inflation and interest rates. Since the end of the pandemic, inflation has been high and growth has been solid. Although rates have risen, they remain fairly low by historical standards.Chart: The EconomistThese conditions put politicians in a fiscal sweet spot (see chart 2). We calculate that in 2022-23 the median rich country was able to run a primary deficit of about 2% of GDP and still cut its public-debt-to-GDP ratio. The nominal value of debt would have risen, but, helped by inflation, the size of the economy would have risen by even more. A few countries faced an even more favourable environment. Italy’s debt ratio has fallen by about ten percentage points of GDP from its peak in 2021, despite its loose fiscal policy. France’s ratio has edged down, too. Greece—combining favourable economic conditions with tight fiscal policy—has seen its debt-to-gdp ratio fall by a stunning 50 percentage points.American exceptionalismNow that is changing, however. The interest rates facing governments are not yet falling, even as economic growth and inflation come down. This is already making the fiscal arithmetic more daunting. For instance, the Italian government’s primary position consistent with a stable debt ratio has fallen from a deficit of 1% of GDP last year to a surplus of 2% in this one, according to our calculations. America is in a pretty similar position. Further falls in inflation, a slowdown in growth or higher rates would make it more difficult still for governments to stabilise their debt.Small wonder that talk of fiscal consolidation has recently become louder. The Italian government believes it will soon be reprimanded by the EU for its stance. In Britain the opposition Labour Party, which hopes to take power before long, promises fiscal rectitude. The French government talks about cuts to health spending and unemployment benefits. America is the outlier. In the world’s leading economy, the conversation still has not turned. Ahead of the election, Donald Trump and Mr Biden promise tax cuts for millions of voters. But fiscal logic is remorseless. Whether they like it or not, the era of free-spending politicians will have to come to an end. ■ More

In “Permutation City”, a novel by Greg Egan, the character Peer, having achieved immortality within a virtual reality over which he has total control, finds himself terribly bored. So he engineers himself to have new passions. One moment he is pushing the boundaries of higher mathematics; the next he is writing operas. “He’d even been interested in the Elysians [the afterlife], once. No longer. He preferred to think about table legs.” Peer’s fickleness relates to a deeper point. When technology has solved humanity’s deepest problems, what is left to do?That is one question considered in a new book by Nick Bostrom, a philosopher at the University of Oxford, whose last book argued that humanity faced a one-in-six chance of being wiped out in the next 100 years, perhaps owing to the development of dangerous forms of artificial intelligence (AI). In Mr Bostrom’s latest publication, “Deep Utopia”, he considers a rather different outcome. What happens if AI goes extraordinarily well? Under one scenario presented in the book, the technology progresses to the point at which it can do all economically valuable work at near-zero cost. Under a yet more radical scenario, even tasks that you might think would be reserved for humans, such as parenting, can be done better by AI. This may sound more dystopian than utopian, but Mr Bostrom argues otherwise.Start with the first scenario, which Mr Bostrom labels a “post-scarcity” Utopia. In such a world, the need for work would be reduced. Almost a century ago John Maynard Keynes wrote an essay entitled “Economic Possibilities for Our Grandchildren”, which predicted that 100 years into the future his wealthy descendants would need to work for only 15 hours a week. This has not quite come to pass, but working time has fallen greatly. In the rich world average weekly working hours have dropped from more than 60 in the late 19th century to fewer than 40 today. The typical American spends a third of their waking hours on leisure activities and sports. In the future, they may wish to spend their time on things beyond humanity’s current conception. As Mr Bostrom writes, when aided by powerful tech, “the space of possible-for-us experiences extends far beyond those that are accessible to us with our present unoptimised brains.”Yet Mr Bostrom’s label of a “post-scarcity” Utopia might be slightly misleading: the economic explosion caused by superintelligence would still be limited by physical resources, most notably land. Although space exploration may hugely increase the building space available, it will not make it infinite. There are also intermediate worlds where humans develop powerful new forms of intelligence, but do not become space-faring. In such worlds, wealth may be fantastic, but lots of it could be absorbed by housing—much as is the case in rich countries today.“Positional goods”, which boost the status of their owners, are also still likely to exist and are, by their nature, scarce. Even if AIs surpass humans in art, intellect, music and sport, humans will probably continue to derive value from surpassing their fellow humans; for example, by having tickets to the hottest events. In 1977 Fred Hirsch, an economist, argued in “The Social Limits to Growth” that, as wealth increases, a greater fraction of human desire consists of positional goods. Time spent competing goes up, the price of such goods increases and so their share of GDP rises. This pattern may continue in an AI Utopia.Mr Bostrom notes some types of competition are a failure of co-ordination: if everyone agrees to stop competing, they would have time for other, better things, which could further boost growth. Yet some types of competition, such as sport, have intrinsic value, and are worth preserving. (Humans may also have nothing better to do.) Interest in chess has grown since IBM’s Deep Blue first defeated Garry Kasparov, then world champion, in 1997. An entire industry has emerged around e-sports, where computers can comfortably defeat humans; their revenues are expected to grow at a 20% annual rate over the next decade, reaching nearly $11bn by 2032. Several groups in society today give us a sense of how future humans might spend their time. Aristocrats and bohemians enjoy the arts. Monastics live within themselves. Athletes spend their lives on sport. The retired dabble in all these pursuits.Everyone’s early retirementWon’t tasks such as parenting remain the refuge of humans? Mr Bostrom is not so sure. He argues that beyond the post-scarcity world lies a “post-instrumental” one, in which AIs would become superhuman at child care, too. Keynes himself wrote that “there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy…To judge from the behaviour and the achievements of the wealthy classes today in any quarter of the world, the outlook is very depressing!” The Bible puts it more succinctly: “idle hands are the devil’s workshop.”These dynamics suggest a “paradox of progress”. Although most humans want a better world, if tech becomes too advanced, they may lose purpose. Mr Bostrom argues that most people would still enjoy activities that have intrinsic value, such as eating tasty food. Utopians, believing life had become too easy, might decide to challenge themselves, perhaps by colonising a new planet to try to re-engineer civilisation from scratch. At some point, however, even such adventures might cease to feel worthwhile. It is an open question how long humans would be happy hopping between passions, as Peer does in “Permutation City”. Economists have long believed that humans have “unlimited wants and desires”, suggesting there are endless variations on things people would like to consume. With the arrival of an AI Utopia, this would be put to the test. Quite a lot would ride on the result. ■ More

Listen to this story. Enjoy more audio and podcasts on More