Tuesday 24 October 2017

Blade Runner 2049 - musings

This is going to be a long post! And it is not a movie review because I am incompetent, intellectually and artistically to analyse such movies. Also, this post has many flights of fantasy which, to anybody with some knowledge on the subject, show my absolute imbecility, and ignorance. As the topic line goes, these are ‘my’ musings. I am not sure that not having read Alvin Toffler before writing this is a good thing or not.

Thank goodness I had seen the original Blade Runner 1982 on laptop a few days back. I was prepared to watch the latest Blade Runner 2049, which got released to great critic reviews. I have never been able to appreciate completely cerebral movies like Interstellar or Inception because I am not knowledgeable enough to understand the concept fully, nor do I have the imagination to understand the world beyond the way I see it. So to bolster my appreciation of such movies, I read storyline and detailed reviews. Of course, it dilutes or moulds my own unadulterated view on the movie. But it is better than not understanding most of the movie. So I read review of Blade Runner 1982 after watching the movie to know if there was anything deeper that I had not understood. On reading the reviews, I realised that while the movie had deep connotations but it was more appreciated for its path-breaking vision of the future world and its technical finesse. People of my generation who have grown up on many future-gazing movies with designs of how people, cities, automobiles, gadgets will look like would find it a tad difficult to appreciate that Blade Runner 1982 was path-breaker in the genre. It gave the first blueprint which the later movies built on.

Visionary presentation aside, Blade Runner raises important existential questions. And I admit upfront that I dare to plunge into this discussion without adequate conceptual understanding, or reading of literature on the subject, including novels by Philip Dick (on whose novel ‘Do Androids Dream of Electric Sleep’ this movie is based); and without the philosophical bent of mind. Nevertheless, my one and half cents. The premise is that of a future world where a powerful corporation has created bioengineered robots, or androids, whose advancement has pitted them against humans. Mind you, what we are talking about here is many steps ahead of Artificial Intelligence or AI as is is vogue nowadays. It is not just about machines becoming intelligent, it is about machines becoming more and more human-like. The movie calls these androids replicants.

Blade Runner 2049 shows the world few decades after the first edition of the movie. From the violent, outcast replicants of the first movie, replicants now are more docile, have become part of the mainstream, and do not have a fixed life span.

Difference between humans and machines

To me, the key idea of the Blade Runner movies is to question the differences between humans and machines. In every frame, every dialogue, the movies bring this issue to the core. Further as a corollary, the movies question ‘what makes humans human?’ And then it attempts to debunk all possible answers. The idea of intelligence being a differentiator has been long rested, we are way past that in these movies - replicants are as intelligent as humans, if not more. The movies explore the possibility of machines acquiring more complex human-only preserves such as emotions, memories, experiences, even reproduction. So we have replicants who are crying when they commit a crime, replicants with planted memories, replicants who feel love, desire sex, even sacrifice.

In Blade Runner 2049, to me the most intriguing part was the relationship between K, a replicant and Joi - now how to explain her - she is the embodiment of a computer program, a hologram. The movie seems to be challenging the viewers - ‘In case you were disbelieving androids, here is a hologram which can behave like humans. So Joi fills up for a wife to K - possibly satirizing the price we humans put on relationships. And she ‘learns’ to be as good a wife as she can - tries out new dishes, changes her clothes as per K’s mood, not just arranges for a prostitute - so that K can have real sex - but also superimposes herself on the prostitute to give K the best of both worlds. It does not stop here - Joi is also processing information, analysing the events as they unfold and discussing possibilities with K. And when the danger is near, she is willing to sacrifice her existence so that K’s life is not compromised. There is a scene where K is about to kiss Joi in rain (the edges of the hologram jar slightly when the raindrops fall), and just then his phone rings and Joi’s image freezes and K (a machine himself) wistfully realises the futility of loving a hologram. It is like the director is showing the boundless possibility of a machined life and yet pointing out the limitations.

At all times, replicants behave so much like humans that it is difficult to differentiate between the two. For people like me who are not submerged in the world of sci-fi, AI and cybertronics, it is strange to see such machines. I am not able to fathom how does a machine cry? While Blade Runner 2049 is premised on the concept on replicants reproducing, I think that is only where you draw the line on the possibilities. Replicants having sex is unbelievable enough, the fact that they reproduce is just an extension. Ironically, it appears that there is a race between humans and machines to reach to the other end of evolution - just as replicants want to become more like humans, humans are becoming heartless like machines.  

What gives humans superiority? Is it possible that we are all replicants of another world?

Increasingly, Blade Runner has characters for whom it is difficult to decipher whether they are humans or replicants (the famous puzzle of whether Rick Deckard, central character of Blade Runner 1982, is human or replicant). More interestingly in Blade Runner 2049, K, at one point, doubts that he is not a replicant but a human. This again goes back to the central question - what makes humans human? Can all those things which make us human be ‘replicated’? And further, if we make something with all replicated features, is it not human?

Inherently, I believe there is a superiority complex in humans and we treat everything else (machines, animals) with disdain for being under-developed, on parameters we are not sure of. In fact, this superiority complex may be the root of our complacency and thus our fall. Why do we have this superiority complex? Possibly because collectively we have not been beaten as yet.  Another offshoot of the superiority angle is - is it not possible that we are replicants to ‘humans’ of some other universe, humans who are more evolved than us on totally different parameters. What can be those parameters? I have no clue. Are all the possible parameters which can define something a finite set? I know I am bordering on questioning what defines ‘life’ or ‘live’ forms. But what the heck - for all we know Earth may be an off-world of another world.    

Can humans and machines peacefully coexist?

Whatever sci-fi I have seen around evolution of machines sees them as taking evil form, once fully developed. They would enslave, or completely eradicate the humans. To me, Blade Runner raises the possibility of peaceful coexistence. What if humans get out of their superiority trap and see developed machines as inevitable. In a sense, humans need to accept that just like we start with a clean slate and learn everything from our birth onwards, then why to hate machines learning gradually?

Can the two reach a pact to live together. One argument is that humans, over more than 5000 years, have not been able to live peacefully amongst themselves, it is difficult to have hope for them living with replicants. So, what if the world has only replicants? Given the reducing differences between them and humans, there does not appear to be much of loss. But can the cycle turn again? Can the world comprised only of replicants see the development and overtake by another kind?

Why does the future always have to be grim?

I think that deep inside, most people are optimists. Otherwise life itself is not possible. Even if this hope is not for oneself but for one’s progeny or for the future generations. Anybody who plants a tree hopes that it will flower and bear fruit long after he is gone, many scientific journeys are undertaken despite knowing fully that they will not bear results in one’s lifetime but on the hope that the next generation would take it up. The act of raising a child is premised on hope for a better future for them. When one goes to sleep, one is hopeful of waking up alive, mostly. Just imagine if populace at large is totally hopeless about the future, the society and the life as we know, would collapse. Of course, survival instinct is a strong tenet as well, but that alone cannot take humanity far. Hope is essential.

But seeing all movies which gaze into the future, it is easy to lose hope. All of them portray a grim world. The common themes which play across such movies (Blade Runner, Mad Max, Children of Men, Hunger Games, Equilibrium, Wall-E, Minority Report) are - authoritarian governments ruling with the fist and distant from the masses both literally and figuratively, over-indulgence of technology, cities filled with grey towers, masses which are famished and grisly, large tracts of barren land, absence of any greenery or natural beauty, large metal junkyards, ghost devastated cities, no laughter, only a sense of survival instinct. These movies inspire no hope. They only talk of a world where most human traits like love, empathy, sympathy, happiness, hope have been crushed.

But why is most future prediction so pessimistic. I was reading the book Civilisation by Nialll Ferguson which mention how many Christian religious texts talk about an impending apocalypse, how many thinkers talk about civilisations containing within them the germ of their destruction, as an example - The Course of Empire paintings by Thomas Cole. There is a cyclicality to the whole thing - cycle of destruction and resurrection.
Put it another way, why is past always rosy?

To deviate slightly, I have a felt a preponderance in people to view past more favourably than the future. I am not necessarily contradicting my initial argument of people being optimists, just that past is largely loved. It is not unusual for those of certain vintage to feel that most things - life, emotions, habits, values were better in their heydey. In fact that was the message that I took from the Woody Allen movie ‘Midnight in Paris’. The central character, in 2010 travels back in time to 1920, the period he loves more than his present. In that period, the characters are more appreciative of 1800s. We attach beauty to nostalgia, to memories. This is my side theory - apart from really horrific events, we tend to forget, or at least overlook, painful events of the past. The human mind is eternally satisficing, looking for things to hold on to, and it is very difficult, emotionally sapping, to hold on to pains of the past. We like to hold only to beautiful events of the past.

Old and new will always joust - I think it is more about how that conflict is managed. Increasingly the conflict is becoming violent. The pace of change has increased over the last few decades which people find difficult to keep up with. It is an accepted fact that generation changes in 10-15 years instead of longer earlier. I find people around me mostly exclaiming - ‘how glorious yesteryears were’, ‘in our times, things used to be so better’, or ‘we are living in such depraved times!’. I think people accept material improvement but think that the value system has degraded. Life has seemingly become more complex than what is used to be.

Is technological progress inversely related to moral and value systems?

Cutting aside the rhetoric in India around degradation due to increasing western influence, is there some merit in seeing the moral effects of technological progress? I believe there is and that is the price we pay for a seemingly better life. Born in 1982 and growing through the last three decades, I feel I have seen a period of very rapid change which has been out of grasp of everyone. Most of this change has been technological, mainly in the mode of communication. Television, telephone and internet have been at the center of the change and these changes are so closely spaced that people have found difficult to catch breath and realign the social structures.

Despite all the developments purportedly to ease life, people now complain of ‘fast life’, ‘paucity of time’. Social connections are reducing and becoming tenuous. Mobile and internet allow us to get most work done without having to interact with anybody (in fact most business models nowadays are built around reducing the need for human interaction). Over the years, the smallest social unit has reduced - from a village few centuries ago, to a neighbourhood, to a family, to an individual now. And the gradations of the society have increased - from relatively flat structures to long hierarchies now.

Another impact of the technological progress is the information overload which is having huge social and political repercussions. While it is good to be more informed, there are two downsides - a) more information means more noise also, and b) decreasing levels of faith or trust. The level of exposure which anybody is exposed to has increased manifold and this assault on senses has the tendency to confound than to make things simpler. Lot of information that one gets is either useless or incorrect or misrepresentation - to sift through all this requires greater skill which is not easy for anybody. So it is common to hear refrains of young kids being exposed to objectionable material, or to find governments going to great extremes, even violent at times, to prevent ‘sensitive’ information becoming common knowledge. More information, and the increasing amount of junk and misinterpretation that comes with it, also makes it difficult for people to trust, to be able to take anything on face value without reading about it on the internet. And there is lesser need to collaborate, to talk, to negotiate, thus lesser personal touch. All this is creating a fragmented, antagonistic society. Increasingly the society is grappling with the issue - balance between free flow of information, which is seen as the cornerstone of an evolved society, and the downsides of information overload. Then there is the challenge around human rights - does it apply to one person or to a  mass? At the same time, I admit all these are not necessary apocalyptic - societies have the ability to correct its course, but one never knows for sure.

And other problems..

I am sure less percentage of population now dies of epidemics or diseases then say 500 years ago. Further, I had read long back that we are living through a period of relative peace than ever in our history. This is counted as deaths through murders, armed conflicts, wars etc. These factors, along with increasing life expectancy, means we have a larger population to manage. And the increasing expectations of material comforts mean we need more resources. All this is putting stress on the resources and the environment, as we understand it now. Thus all the hue and cry. We are emitting more pollution; generating more non-recyclable waste; while we are comfortable with respect to most minerals, water resource is a concern; and the overall concern around making irreversible changes to weather cycles, geology, flora and fauna which can have sweeping, non-fully-comprehensible impact that would require undoing some bit of thousand years of evolution in order to survive.

And then there is the problems of political and economic systems around the world. After much trial and error over centuries, the world has largely settled on democracy as the standard way of government and capitalism as the de-facto economic model. While these are the best we seem to have, they are not without challenges. There has been a periodicity of financial meltdowns which creates huge financial and social instability; unequal distribution of wealth stratifying the society; control of resources by a few and growth of mega corporations. Further, the politics keeps oscillating between right-wing orthodoxy; left-wing egalitarianism; liberal carelessness; intellectual partisanship, each of which poses threats.

And I am not in a position to discuss the psychological implications of the way society is unfolding - incidents of road rage, student suicides, domestic violence, sexual assault, paedophile are some pointers. So is the increasing narcissism of the masses.

Is there a tipping point? Can we predict it? Can we avoid it?

Apocalypse can have many forms, but there are usual suspects for causal factors - nuclear holocaust triggered by a shaky hand on the button or declining trust; environmental disaster which is gradually boiling and which can turn for the worse; and of course the rise and rise of machines. Will the apocalypse happen in an instant - like a nuclear bomb, or will we reach it gradually - one sure step after another? I am not capable to answer. More likely, it is gradual with a tipping point which comes relatively suddenly. I find the parable of ‘frog in boiling water’ very interesting. Put a frog in boiling water and it will jump out instantly. Instead put it in normal water in a pot on fire and heat the water gradually, the frog will not jump out but will slowly burn to death. Are we all like frogs, burning slowly to our doom?  

Going into rise and fall of civilisations is a large study which I would not get into here. But in current times, to me it seems like we are on a path of progress which will eventually lead to the scary state portended by many futurists. I definitely feel that there are genuine concerns, the three gravest as per me are - technological (machine invasion), environmental (say an ice age), and socio-political (nuclear war/big-daddy). We are past the age of innocence, and there is greater cynicism and antagonism in the air. We are creating mega corporations which threaten to challenge individual freedom and free will some decades down the line.

Before I proceed, let me admit that a lot of what I say may not hold. One way to check is to compare the present with the prediction of this period made in the past. For eg. the original Blade Runner talks about the year 2019 which is just two years away but it will be nowhere as diabolical as the movie predicted. And we certainly will not have replicants or an off-world by that time. Or the novel 1984 by George Orwell published in 1949 predicted a dystopian future which eventually did not turn out ‘as’ bad. But fundamentally we may just be questioning the pace of change - the change itself is not being challenged.  

The real ordeal is that despite understanding a knowing a lot of it, it still seems inevitable. It is difficult to get off this path. While one would want a balanced approach - advancement without its pitfalls, it is a utopian wish. Technology will progress and it is difficult to say that only so much and no more. Nor is it possible to thresh good from the bad easily - it is a moving goal really. I believe there will be a tipping point, when we go off the cliff but only by experiencing apocalypse will we know that it exists - there is a degree of fatality to it.

Do any rules hold? What is future? Is it everything that we can make?

Sunday 8 October 2017

Systematic Withdrawal Plan - Saving Tax on Debt MF

When one is looking to park funds safely and generate reasonable risk-free returns, bank FD is at the top of the options. But the biggest deterrent against FDs is the high taxability, especially for those, like me, falling in the highest tax bracket (30.9%). Returns on bank FD, i.e. interest, is entirely taxable in the hands of the investor for the entire period of holding and redemption.

To beat this, one looks for instruments which offer similar safety but with lower taxability. Enter the frame, debt funds. These are mutual funds schemes which invest in debt instruments of various nature, tenor, risk and return. Such instruments can be Central government bonds, state government bonds, corporate bonds, commercial papers, Certificate of Deposits, floating-rate bonds etc. Taxation on debt mutual funds is split between tax on Short Term Capital Gain (STCG) and Long Term Capital Gains (LTCG) where in short term is defined as 3 years and less. STCG gets added to the normal income of the investor for taxation similar to FD, and thus taxed at 30.9% at the highest slab. LTCG is taxed at 20% but with indexation, which means that the principal value is indexed at the rate of inflation (as per the Cost Inflation Index (CII) published by the Government of India) and only the returns generated over and above this indexed value is taxed and that too at 20%.   

So, prima facie, debt MFs can give higher post-tax returns if the tenor is more than 3 years, else their returns are similar to bank FDs (assuming similar risk profile or nominal return). This can dissuade many investors, including myself, who look for debt MFs with shorter tenor or those that give steady cashflows (similar to interest on a bank FD). In fact longer tenor in debt MF can lead to higher risk as there is probability of some of the inherent investments (say corporate debt) going bad.

Purely out of tax dis-attractiveness, I have been wary of debt MFs. But recently, I came across an option in debt MFs which can give steady cashflows in the short term with lower tax incidence than FDs. Mind you, this specific case is applicable if you are looking for debt MF investment from a shorter term perspective. If the investment horizon is beyond 3 years, than debt MFs would automatically give superior post-tax return than bank FDs of similar annual return, because debt MFs have tax rate of 20% with indexation. So the feature under discussion is the Systematic Withdrawal Plan or SWP. This is withdrawal (more accurately redemption) of a fixed amount of money at a fixed interval from the debt MF (equity MF also have SWP option but that is not under discussion here). The interval can be as frequent as per month. (Caveat: my entire premise of this blog post is based on reading of certain websites. I have not been able to verify this from more authentic source say a mutual fund itself. But I have invested in debt MFs based on this)

Each withdrawal from a MF means redemption of units which at the prevailing NAV of the fund equate to the SWP amount. The capital gains incidence is calculated on each SWP. But importantly it is calculated only on the units which are redeemed and not on the entire units held (including balance units). This leads to much lower taxable capital gains, or taxable STCG. What this essentially does is that it is pushes the capital gains to later periods. And assuming that an individual is willing to hold the investment just one day beyond 3 years, then his tax incidence (which includes the tax on capital gains that he has saved from prior years) would reduce drastically.

It sounds a bit cryptic, let me present some worksheets.



The concept here is that the debt MF has an effective p.a. rate of return (which is equated to a bank FD rate, or the opportunity rate) and we decide to withdraw a specific amount (SWP) every year. And the entire corpus is withdrawn 1 day after the end of 3 years so that the investor falls under the tax bracket of 20% with indexation (beyond 1 day after 3 years would make no difference to the calculations). The end result being judged here is the effective tax rate on the debt MF which in the base case above is 8.71%. Remember, our benchmark is 30.9% which is the effective tax rate on bank FD. Lower tax incidence than this is a saving to the investor, also shown in value terms (Rs. 4,576) above for a Rs. 1 lakh investment.


One trivial case is to set the SWP to 0, which means we are withdrawing the entire investment in bulk at the end of 3 years, and this case would get the lowest tax incidence because no capital gain is getting taxed at the effective rate of 30.9%. Just that that may not be the goal of many investor and the purpose of the whole exercise is to find an alternative to that.

Remember, this model would serve limited purpose in case a very high amount of the original investment is redeemed before 3 years, because in that case, returns are taxed at 30.9%. Mathematically as long as even a small amount is not redeemed after the third year, the return would be superior to bank FD but the gains would not be much. The idea here is to suggest an option wherein ‘some’ periodic cashflows can be generated with some tax savings.

Scenarios are presented below:

   
Some notes from the scenarios:
  1. The left top-most cell in first scenario table shows 0% tax incidence because here no amount is withdrawn and rate of return is same as rate of inflation (assumed), thus there would be nil gains after indexation.
  2. As SWP amount increases, tax incidence increases because greater amount falls under 30.9% tax rate.  
  3. For higher MF return rate also, tax incidence percentage increases because we generate higher returns than the inflation rate which increases the post-indexation gains.  
  4. Our benchmark IRR on bank FD is 4.84% (7% * (1-30.9%)) and each of the case above would give a higher IRR.

To conclude, I have presented a case wherein one can generate higher post tax returns from debt MFs. Agreeably, this works in specific scenarios and may not make an attractive proposition from every investor - especially those looking to increase returns in shorter investment horizon. But it does for me.  

The Health Diary - Part I

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