Publications

- June 1, 2017: Vol. 4, Number 6

The Cloud over the CIA: Amazon has a new deal with the intelligence agency to host and keep safe its classified data

by Mike Consol

Nothing is bigger in technology these days than cloud computing, and nothing is bigger in real estate than industrial properties, many of which host the servers that create the cloud computing space. Sitting at the intersection of these two businesses is Amazon founder and CEO Jeff Bezos, whose company has warehouses across the country stuffed with products ready for shipment to consumers, as well as so-called server farms that house endless racks of servers that are the backbone of Amazon Web Services, the biggest of all the cloud computing services and the most profitable division at Amazon. It all just got sweeter for Bezos, as the U.S. Central Intelligence Agency has inked a $600 million contract with Amazon to build a “private cloud” for the CIA and its vast data needs. That is more than double what Bezos paid to buy The Washington Post, which reports on the CIA and its activities. The potential conflict of interest is manifest and has some people disconcerted. Critics are demanding that, at a minimum, the Post must disclose its CIA connection whenever reporting on the spy agency. More than 15,000 people have signed a RootsAction petition to that effect. Then again, the idea that Post reporters would capitulate and remain silent in the face of pressure from Amazon’s executive suite is pretty farfetched.

THE DEPOPULATION BOMB

The Economist writes that despite a recent influx of 1.2 million refugees, Germany faces near-irreversible population decline, which bodes poorly for the future productivity of the European Union’s largest economy. Germany has long relied on migrants, but the EU countries that send them also have aging populations. The population of the former East Germany (which, if it were still a country, would be the world’s oldest) will shrink from 12.5 million in 2016 to 8.7 million by 2060. Many parts of rural Europe struggle with the same issue, notes the magazine.

WHO GETS STUCK WITH THIS BILL?

A hot topic of conversation and speculation these days is how people and economies will deal with the destruction of jobs by advances in technology. Algorithms, automation and robotics have already wiped out an untold number of jobs in manufacturing and threaten to wipe out many more in a host of other lines of business.

What to do? Technology pioneer and Microsoft cofounder Bill Gates suggests taxing robots (or any technologies that replace human workers) to help ensure sorely needed tax revenue does not fritter away completely. During an interview with Quartz, an online news site, Gates said a robot that replaces a human worker should incur taxes equivalent to that worker’s income taxes. His argument goes like this: Taxes, paid by a robot’s owners or manufacturers, would be used to help fund labor force retraining. Former factory workers, drivers and cashiers would be transitioned to health services, education and other industries with job opportunities where human workers will remain vital. The idea, he says, is to slow the progress of automation so it can be better managed.

That is not good enough, countered Larry Summers, the former U.S. Treasury Secretary during the Clinton administration, in an opinion piece he wrote for the Washington Post because a tax on robots would not eliminate job destruction and would constitute “protectionism against progress.”

Michael Lind, a fellow at the New America think tank, said robot producers should be taxed, but instead of channeling the money to retraining, the better path would be to make tech-displaced workers eligible for existing government benefits earlier.

“You have a 54-year-old truck driver displaced by a robot,” he told CBS News. “Why not lower the age of Medicare eligibility for him? Why not lengthen the term for unemployment insurance?” (Regarding the official retirement age, that still stands at 65, though Social Security offers reduced benefits as young as age 62. Regarding the newly unemployed, most U.S. states offer 26 weeks of payments.)

While people are casting about for a solution, automated manufacturing technology is becoming affordable for smaller companies, suggesting the plausibility of replacing human workers with robots is poised to accelerate.

HEDGE FUND COUNTDOWN

Hedge Fund Research Inc. has reported the number of active hedge funds is at its lowest level since 2012. Close to 1,100 hedge funds closed or were liquidated in 2016, compared with the opening of 729 new funds. High fees and poor performance have dogged the hedge-fund business.

2017 is not looking much brighter thus far. Consider that the organization’s Fund Weighted Composite Index — a broad measure of hedge fund performance — was up just 3.09 percent for the year at the end of April, less than half the 7.24 percent gain for the Standard & Poor’s 500 Index through May 15, 2017.

 

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser.

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