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July 10, 2012

My predictions for innovation in the next 3 years

Filed under: Uncategorized — Tags: , , , , , — admin @ 12:12 pm

All I can say is that I see some very simple stuff here on the ground in NYC.

People’s jobs have been eliminated, by a combination of outsourcing and then automation. Big businesses figured out how to cut out employees and get the same job done. The public sector is also laying people off (still better than 2008 though). The businesses that are really hiring are ambitious startups. Mostly in the tech sector.

So I believe the JOBS act will help a lot in funding the startup. Until then, what will happen is that people without the right skills will sit around with their parents, be unemployed for longer, and spend less on consumption. They will accept jobs for lower wages because it’s a big risk to go back to school and waste another 4 years of their life on something (like a law degree, which I keep mentioning) that may not give them any more money on graduation, but give them even more debt.

I can see it with my friends. And for the time being, the above should explain why our economy is stagnant.

Now here are my predictions based on logic and what I observed:

Innovation in Finance

It would make sense that low interest rates discourage savings and therefore stimulate investment. We already have zero savings but basically they are supposed to stimulate more lending by banks.

The problem is, the banks don’t have much incentive to lend at low interest rates. They can just sit there with little activity, along with the rest of the economy. What this really does is cuts out the banks as the middlemen. The banks will do precious little compared to before, while interest rates are low. They don’t have as much money being saved in their money market accounts and they won’t be lending a lot.

What is really going to happen is that the financial intermediaries will be cut out, or at least take the form of kickstarter / angellist. Basically we will enter a new age starting in 2013 of investment funds, where anyone can invest in companies. Also people-to-people lending on prosper.com and lendingclub.com was already possible, but I think it will increase as well. In short, we will have INNOVATION in the financial intermediaries, besides banks.

And the JOBS act is a step in the right direction and I applaud it.

Innovation in Education

Since lower and middle class consumers will earn less money they will have less credit — and their demand won’t be the main driver of the economy. The rich people however will be more able than ever to get loans from the banks which are looking for lending opportunities. They will pick up the slack from the poor and middle class because they have more savings in the banks.

We can already see this because the average savings is zero but we know the lower and middle class are highly in debt (at least until they default, in which case that money disappears from the system and the foreclosed properties drop in value). Basically there will be a growing disparity between the rich and the poor, unless we are able to reform the educational system and align it more with the jobs that will be needed in 4 years. And that’s a tough thing to do.

The thing I really am looking forward to is udacity, coursera, udemy and others disrupting the education sector. College should be mostly about socializing and certifications. It shouldn’t be spending its money on lectures, which is wasteful — one great professor teaching only 300 students while mediocre ones teach the rest. Students missing out when they go to the bathroom or zone out. No, lectures should be delivered at home, the classroom should be inverted. Then education will be much cheaper. Students and professors both want this, it will happen.

f only we can also reform education and invert the classroom, we can help get this economy back on track.

So here is what we really need in the coming few years, and the stage has been set

  • Innovation in the financial intermediaries
  • Innovation in education systems

If you’re a developer or investor and want to do something about it, reach out to me. I have some plans in the works :)

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