An asymptote is a straight line that constantly approaches a given curve but does not meet at any infinite distance.
In other words, the process cannot be improved further.
This happens to all things in nature. Economists sometimes call this as “diminishing marginal utility”. In layman terms, this is also called “plateau” of growth curve … somes as “S” curve.
All are asymptotes.
Are we reaching limits in several domains at the same time?
Supply Chain Efficiency Asymptote: For uninitiated, Supply Chain efficiency is an powerful measure of productivity gains in an economy. Without productivity gains, there can be no economic growth.
I first noticed this as a Supply Chain Management consultant more than 10 years ago. That no company I was working with, was able to increase their forecast accuracy beyond 75% (at product – company level). Vast majority of companies’ accuracy is between 65% to 75%.
In spite of all the talk of IoT / Industry 4.0, I believe net gains in supply chain is likely to be marginal. They will come from new companies joining technology driven SC management, not from companies who are already efficient.
Microchip Nanometer Asymptote: We have already reached 3 nanometer thickness. Any thinner, we are talking of single atom level of etching.
A silicon atom is .2 nanometers. It would be impossible to create a silicon transistor smaller than that. Short of quantum computer breakthroughs, or new material to make chips, it appears current technology has reached its limiting sizes.
- Does it mean there will no speed gains / processor but any new gains?
- Will have to come from new adoptions i.e. growing sideways. But no inherent productivity gain?
Ideas Asymptote: We came accross this disturbing paper from Nature recently on “Papers and patents are becoming less disruptive over time”.
I’ll directly quote the article here:
“Using data on 45 million papers and 3.9 million patents from six large-scale datasets, together with a new quantitative metric—the CD index—that characterizes how papers and patents change networks of citations in science and technology. We find that papers and patents are increasingly less likely to break with the past in ways that push science and technology in new directions. This pattern holds universally across fields and is robust across multiple different citation- and text-based metrics”
Market efficiency Asymptote: We wrote about our own research into market efficiencies and concluded that true and perfect efficiency (i.e. zero arbitrage) may not be possible.
Interest rate Asymptote: Interest rates have been on since 1300’s according to this article by The Economist:
So, the ‘zero’ and negative rate regime we have experienced in last 15 years (20+ if you count from dot-com era), is really a part of a giant long trend. Having reached this asymptote, interest rates don’t have any place to go in the short run but up …
Raises some important questions:
- Once the Fed defeats latest bout of inflation, and inflation is returned to 2%, will they return to maintaining the fed fund rates at 2%?
- Since interest rate is really a reflection of productivity gains in an economy (which in-turn is reflected in forecast accuracy above), are we then looking at decades of low productivity / low growth environment?
Human nature will not rest at asymptotes. Big breakthroughs will come. Perhaps with next Einstein like genius. Till then, we will grind on.
We believe that market will remain sufficiently inefficient for us to keep generating profits for us and our customers.