Thousands lined up in front of bank branches all over the UK - driven by the gut wrenching feeling that only decisive personal action could protect their life savings from this now failing bank. Such was the scene over a period of weeks as for the first time since 1866, depositors in the United Kingdom decided en mass that their money was not safe - precipitating a run on Northern Rock, a major British bank. Bank runs make for the quintessential TV drama, featuring palpable fear, paranoia, mass and even mob action, little guy against "the man" and the potential of seeing normal people in business suits and postgraduate educations storming the now disputably impregnable bastions of finance and stability.

But, what if they held a bank run and nobody showed up? How could this happen? Indeed, has it ALREADY happened but nobody noticed?

About three months ago there was this lead from an AP story:
----------------------------------------------------------------------------------
E-Trade shares plummet on credit writedown, analyst says bankruptcy a possibility
Associated Press
Article Launched: 11/12/2007 12:27:25 PM PST

NEW YORK - Shares of online brokerage E-Trade Financial Corp. lost more than half their value Monday, with a Citigroup analyst saying customers were poised to flee and the company was at risk of bankruptcy. Other analysts said the pictures was not as bleak, though, and the company said assets actually improved in October. It also moved to reassure customers that it could withstand a substantial writedown of assets and remain in business. Shares of E-Trade tumbled 58.7 percent, to $3.55. Earlier in the session, shares fell as low as $3.50. Shares had traded between $8.02 and $26.08 during the past year. The online brokerage firm said Friday afternoon it would take an undisclosed writedown on a portfolio of securities and collateralized debt obligations, known as CDOs, backed by mortgages.
_________________________________________
After reading this and similar articles, an EtradeBank customer I was with instantly decided to take her money out via her laptop to transfer it to another bank using Etrade's online banking capability. In that moment I saw her transfer $100,000 to a decidedly less scary bank. It occured to me then that her action was without doubt being repeated by who-knows-how many myriads of depositors from all over the US in real time, perhaps - causing a "Flash Run" on Etrade. So, if this really did happen, why didn't we hear about it? Why didn't Etrade suffer the same reality show as Northern Rock? Because there was nothing suitable to show on CNN and the evening news...no drama, no lines at branches going around the corner, no man on the street interviews railing against the Man. Nothing except the sudden and vast flows of capital in the form of keystrokes and electrons from one institution to others. When there are physical runs on banks, the fear feeds on itself causing otherwise unaware depositors to become terrified and then vote with their feet to assail the doors of that bank. However, in the case of an online Flash Bank Run, this secondary effect does not occur. In the lack of TV news, most people ended up hearing about Etrade's woes, staying home in droves.

Now the interesting question is - is this a good thing? Probably and to a degree, it is a very good thing. Without going into the prudence of bank loan practices of the last several years, on a macro level it is almost always a bad thing for people to lose trust in their currency, leading as it does to horrific human consequences. Once again, our emerging "solid state" society is making profound changes in the way civilization works. But can we really see it anymore?

Posted by Ben Young at 07:27 PM | Permalink | Comments (1)

Almost three years ago I wrote a post entitled "Things are About to get Interesting."

My thought then was that fab labs will change everything. Why have huge retail stores when most of the things you need can be quickly manufactured at a local commercial fab lab or at home?

I still think that fab labs will be part of what pull us away from the SUV/Wal-Mart lifestyle. But the fab labs haven't really arrived yet, and we are already shifting away from retail shopping. The New York Times informs us that this year's Christmas sales rose only 3.6% over 2006, but that online shopping rose 22.4%. This is double-bad-news for Wal-Mart. Their pie's not growing much...AND Amazon's getting a bigger piece.

[ - H/T to the JammieWearingFool]

Phil and I visited about the advantages and disadvantages of online Christmas shopping at the beginning of this week's FastForward Radio show.

UPDATE: Well, I should have picked a retailer other than Wal-Mart. My wife reminded me that Wal-Mart does a lot of business online.

Posted by Stephen Gordon at 07:45 AM | Permalink | Comments (1)

Last night (Friday, October 26^th), at Phil's kind invitation, I had the distinct pleasure of attending the Boulder Future Salon's monthly meeting and participating in a lively and far-flung consideration of the month's selected topic: "Moore's Law"

Continue reading "Boulder Future Salon Considers "Moore's Law"" »

Posted by Michael S. Sargent at 03:03 PM | Permalink | Comments (0)

Money is an invention of consciousness used to coerce behavior in others. Put more clearly, it's a device used to get you to do what you would really rather not do at the moment. It is based on human memory and the human ability to believe that there is such a thing as “the future.” When you combine memory and belief, you can get faith and hope. Thus, the power of money is founded on faith and hope.

Historically, Money has proceeded from the utterly tangible and intrinsically useful such as sheep, land and salt, to the symbolic (i.e. you can’t eat it or plant it…gold, silver, jewels) to the abstract/hypothecated (paper money, big stones with holes, sea shells) and finally for the first time in history, we have virtual or invisible money (electronic bits in the cyber ether, ledger entries). At each step in the process of virtualization of money there are dramatically lower transaction costs and dramatically higher probabilities and ease of counterfeiting by either criminals or governments.

In the first instance, there’s not much use in trying to counterfeit a cow. It’s pretty easy to discover that two guys in a cow suit are an udder fraud when there’s no milk coming out. So, the trust component of physical property / commodities is high…not much need for faith or currency laws…but transaction costs are also very high. At the other extreme, where we are today, money has become so hypothecated - so gaseous that it’s like the barely remaining grin left over as the Cheshire cat disappears – managed by rat’s nest of rules and regulations to ensure the continued legitimacy of the currency.

Opportunities and temptations for market manipulation correlate with virtualization and speciation of money. Today we have literally 10’s of thousands of money creators tenuously connected with official mints of governments. Each of these creators contributes a variant species of money. Some examples of these species are: stocks, bonds, derivatives, credit cards, receivables factoring, loans, balance entries in computer networks, futures contracts etc.

Let’s take a look at stocks as one example of money creation. Who creates stock? An entrepreneur gets an idea, gets two experienced business buddies to join in and incorporates a concern with 10,000,000 shares of stock. The stock has zero value, or for legal purposes, par of .0001. The founders then use their reputations from past success and a back of the envelope plan to get funding from angel investors. The stock is now worth 10 cents per share. The company has no product whatsoever.

Why do angel investors invest in nothing? Because they believe in a highly abstract concept called a market. What does this “market thingy” purport to offer to angel investors? A collective group of individuals who have more money than they need today who out of fear of and greed for the future are willing to bet excess money for the promise (see: mutual fund salesmen) of additional money in the future to fund a thing called “retirement” – otherwise known as “slow death”…i.e. I want the best slow death money can buy. (see: www.methuselahfoundation.org)

In aggregate this excess money (capital) presents an opportunity to take the original nothings (stock) that the angels bought from the entrepreneur and to later offer it with more nothings (the angel’s money electrons floating around in a network somewhere). By the time the stock gets to an IPO, there may really be some “somethings” in the company – perhaps some patents and a proof of concept with some reference customers who say they are gonna buy lots more of these somethings. So, long story short, the original par value of nothing has grown infinitely to perhaps $15 - $135 a share at the IPO. No one from the Federal Reserve or the mint has created any money. The company did it through “the market.” Legal counterfeiting.

With these fundamental dynamics in place we can now examine and compare similar phenomena in nature…Earth - the ultimate venture capital incubator.

Our story begins as the sun beats down on the ocean, where tiny sea plants (phytoplankton) objecting to the heat respond by releasing high quantities of cloud-forming particles on days when the sun's rays are especially strong. The compounds evaporate into the air through a series of chemical processes that result in especially reflective clouds. This, in turn, blocks the radiation that was bothering the phytoplankton. In other words, collectively, they make umbrellas made of clouds. These clouds move over land masses and drop rain onto savannahs where gravity collects the excess water into pools. Over time, an ecocosm emerges at the pool that attracts animals interested in the benefits of the pool – even though they did nothing to create the water or the ecocosm. As the herds grow, predators arrive who discover that when the herd’s heads are down while sucking from the pool, their backs are turned and are easy prey. The predator’s strategy is to get as much herd as possible, while the getting is good. Naturally such easy prey attracts more and more predators – eventually leading to organized and cooperative behavior – such as lions who hunt in packs. This makes it more and more difficult for an individual predator to compete – in fact, the pride will turn the individual predator into prey until they are removed from the competition. Thus, predation becomes institutional in nature.

Of course the herd notices that some of them are getting “killed” from time to time, but they have very short memories (http://www.adm.uwaterloo.ca/infocs/Study/Curve.html) and frankly don’t really care about what happens to the “other guyzelles.” They herd simply because each member of the herd has a better probability of not being dinner when it’s hunting time than if they were alone. If the herd gets to drinking too much of the pool, the whole system adjusts as both prey and predators die off proportionately.

Gradually equilibrium of prey/predator emerges where everyone gets what they individually decide they need. The herd gets its low energy / low yield slow, but steady food and the predators get their highly concentrated hits. As long as the predators don’t scare the herd so bad that they induce a stampede, everybody not dead is happy. If however, the predators go too far, they will induce a stampede and everybody in sight gets trampled, exhausted and totally terrified…interestingly, the pool is not mobile – so while the pool may have been depleted due to overdrinking by the herd, gradually the incubator function (remember the phytoplankton?) will cause more rain to fall and the pool will once again begin to fill. The stampede will become a hard wired memory in the herd and many will refuse to return…but some, who’ve been through it all before, will come back early and get lots of free drinks. The ecocosm of sun, clouds, rain, pool, herds and predators is - “a market.”

Are financial markets manipulated? Of course. The real question is: are they IMMORALLY or ILLEGALLY manipulated. One can answer the question simply by asking – Is it in the nature of predators to be nice and play by the rules?

For a clear “spin-free” answer, try entering the following query into Google …
"neither admitted nor denied" OR "admit or deny" settled

Go ahead…do it now.

What you get is a list of over 160,000 hits listing the very clear proof that market predators do what they do…and unlike most industries, Finance has a special “get out of jail free” capability built into the law…all they have to do is turn over a large portion of the carcasses – the settlement - over to the masters of the feast – and then they can go back to their predations.

So, to review, entrepreneurs make stock out of nothing to generate money (which is nothing) to convince angel investors to contribute their nothings in exchange for nothing (stock) in the hope of getting lots more nothings. Gradually there’s enough nothings that sometimes there’s actually Something (product/service) that pops out. Then in the hope of getting lots of these and similar somethings in the future (which never actually exists – there’s only NOW), the herd invests their nothings in the hope of getting lots more nothings in the future to buy the somethings. Along the way day traders (piranha) and brokerages / investment bankers (organized predators) convince themselves that they provide a service to society by managing the pool, culling the herd and shepherding the sheep…and the master of the feast works to preserve the natural order of things.

Now some of you may object to the characterization of so much activity is based on nothing. As anecdotal evidence, I offer up the curious case of Therese Humbert whose apparent wealth generated enormous economic activity in late 19th century France. “…In her elaborate Parisian apartments on the Avenue de la Grande Armée, Thérèse kept a strongbox. It was supposed to contain four documents. The first was the final will and testament of an American millionaire, Robert Henry Crawford, naming Thérèse as sole beneficiary…” Until it was found that she actually had – and had always had – nothing – resulting in the near collapse of the French banking system and the destruction of many fortunes.

See: http://www.nytimes.com/books/00/07/09/reviews/000709.09kaplant.html

How can it be that almost no one on the planet has ever heard of perhaps this most powerful economic actor in late 19th century France? Because more than anything, those who sell investments in the Emperor’s new clothes can never ever admit and therefore remember that after all is said and done – the emperor was and is naked. There is no money. Therefore Markets are indeed manipulated – or rather, PEOPLE are manipulated. To spend their lives in pursuit of a mass psychosis of nothings. For my part, I’d say, once you have enough of nothing it’s time to move on to something really valuable…like curiosity, applied intellect, love, kindness, air, water, fire, perception, mountains, family, death, Life – the key thing is Life!

Posted by Ben Young at 09:09 AM | Permalink | Comments (6)

This Reuters article:
Centennial time capsule car found ruined | Oddly Enough | Reuters

Got me thinking about a couple of things. First, how might the time capsule have been done better (please confine speculation to approximately mid-century technology), and second, what would constitute

"an advanced product of American industrial ingenuity with the kind of lasting appeal that will still be in style 50 years from now."

with respect to early twenty-first century technology?

Please discuss in the comments.

P.S. I think I'll do some checking into how the economics of the capsule contents might have been improved. I'll let you know if anything particularly interesting comes of that.

UPDATE (Moments later): a bit of searching yields a price range of about $900 to $11,000 for similar era Belvederes in conditions ranging from semi-restored to ... iffy. A restored 1956 done by hot-rod legend Boyd Coddington's shop goes for $29,500

UPDATE FROM STEPHEN:

I'm reminded of Doc Brown's 70 year preservation of his time traveling Delorean:

Notice how this was portrayed in Back to the Future III. Dr. Brown put the vehicle up on pylons. It's covered. And it's in a sealed room.

A mine would be far superior to a natural cave because caves tend to be damp (they're usually formed by water). The preserver could choose a place in the mine where drainage is assured. Barring a cave-in or the renewed mining activities, this sort of time capsule would be perfect.

But even as portrayed in BTTF III, certain parts - like the rubber wheels - didn't fare so well. Even a carefully preserved car would need a lot of work before it would be ready for the highway.

Posted by Michael S. Sargent at 09:23 PM | Permalink | Comments (1)

A while back, I wrote about the possibility of updating the Three Laws of Robotics as goals in order to make them a more practical means of getting at a friendly artificial general intelligence. This kicked off some interesting discussion, including some debate as to whether my "goals" really aren't just rules rephrased. In which case, the argument went, they probably wouldn't help all that much. Michael Anissimov commented:

What would work better would be transferring over the moral complexity that you used to make up these goals in the first place.

Also, as you point out, these goals are vague. More specific and useful from a programmer's perspective would be some kind of algorithm that takes human preferences as inputs and outputs actions that practically everyone sees as reasonable and benevolent. Hard to do, obviously, but CEV (http://www.singinst.org/upload/CEV.html) is one attempt.

That's really the crux. Moral complexity does exist in algorithmic form...within our brains. And that goes to the difference between laws and goals. My goals are what I'm trying to do, both morally and in other areas. There are some sophisticated software programs running in my brain made up of things that I've been taught, things I've figured out for myself, and things that are built in. All of these add up to provide me the tendency to act a certain way in a certain situation. The strategies that drive that software are my moral goals.

Laws, on the other hand, exist outside of myself. I am not specifically programmed to do unto others as I would have them do unto me. I have some tendencies in that direction, but there's nothing stopping me from acting otherwise, and -- let's face it -- I often do. I have tendencies to be nice, fair, just, etc., but I also have tendencies to try to get what I want, to get even with those who have wronged me, to try to be a bigshot, and so on. These tendencies compete with each other, and my behavior overall is some rough compromise.

An artificial general intelligence (AGI) built as a reverse-engineered human intelligence would be in the same position. It would have the "moral complexity" Michael mentioned, but also the baggage of competing tendencies. You could no more guarantee such an intelligence's compliance with a rule or set of rules than you could a human being's.

A law like the Golden Rule is a high-level abstraction of certain strategies (algorithms) that produce a desired set of results. On a conscious level, I can use that abstraction to determine whether my behavior is where I want it to be:

Wife complained of being chilly when I got up at 5:00 AM to work out. Covered her with blanket. Good.

Sped up on highway in attempt to keep a guy trying to merge from going ahead of me. Not so good.

Commenter on blog revealed that he doesn't really understand the subject at hand. Ripped him to shreds. Bad.

Through discipline and practice, I can "program myself" with it to try to move my tendencies in that direction. But I can't write it into my moral source code and set it as an unbreakable behavioral rule. That's partly because it's too vague and partly because I simply lack that capability.

Presumably, I could be externally constrained always to follow the Golden Rule, no matter what. If my actions were being constantly monitored, and I was told that the I would be killed immediately upon violating the rule...I'd certainly do my best, now wouldn't I?

Still, I'd have a hard time believing that anyone holding me in such a position was much of a practitioner of that rule him or herself. If the people trying to enforce the rule on me in this manner told me that it was for my own good -- that they were trying to make me a better person -- I don't know that I'd buy it. And if I figured out that they were only doing this to protect themselves from harm I might to do to them, I think I would pretty annoyed with them (to say the least.)

I would expect a reverse-engineered human intelligence to feel the same way, so I don't think attempting to constrain an AGI in such a manner would be a particularly good idea, especially not if we have a reasonable expectation that it will eventually be smarter and more powerful than us. On the other hand, letting it use the process I described above -- evaluating its own behavior against a defined standard -- an AGI might achieve far better results than I have, if only because it can think faster and would have much more subjective time in which to act. This is the notion of recursive self-improvement that matoko kusanagi referred to. The trouble with recursive self-improvement on its own, as Eliezer Yudkowsky and others have pointed out, is that if the AI starts "improving" in a direction that's bad for humanity, things could get out of hand pretty quickly.

If the artificial intelligence is a modified version of human intelligence, or new intelligence built from scratch, we raise the possibility of building a moral structure into the intelligence, rather than trying to enforce it from outside. That's the idea behind the the Three Laws and my Three Goals -- that they would somehow be built in. But they certainly can't be built in in anything like their current form. Michael Sargent (and others) pointed out the weakness of that approach, the less important goals have to take the back seat to the more important ones:

Each Goal must have a clear and unbreakable priority over the others that follow it and thus, in the order stated, collective continuity trumps individual safety ("The needs of the many outweigh the needs of the few, or the one."), individual safety (broadly construed, 'stasis') trumps individual liberty ('free will'), and happiness ('utility', a notoriously slippery concept for economists and philosophers to get a firm intellectual grip on) trumps both individual liberty and individual well-being (allowing potentially self-destructive behavior on the individual level insofar as that behavior doesn't exceed the standard established for 'safety' in Goal 2).

I see the reasoning here, but I'm not 100% convinced. Consider the goals that drive a much simpler AI, system -- the autopilot system found on any jet airliner. The number one unbreakable goal has got to be don't crash the plane. But there are many other goals that might drive such a system:

Don't move in such a way as to make the passengers sick.

Don't waste fuel.

In landing, don't go past the end of the runway.

Above all, the system will seek to ensure that first goal. But within the context of ensuring that first goal, it also has to do everything it can to ensure the others. And, yes, it can and must sacrifice the others from time to time in service of the first. So the plane might temporarily move in a nauseating way, or it might waste fuel, or it might even slide past the end of the runway if doing any of those things help ensure the first goal.

Reader TJIC suggested that an AI programmed to meet the Three Goals as I defined them...

1. Ensure the survival of life and intelligence.

2. Ensure the safety of individual sentient beings.

3. Maximize the happiness, freedom, and well-being of individual sentient beings.

...would end up creating a nanny state wherein human freedom is always sacrificed to individual safety. And he may well have a point, but I would argue that just as an autopilot can be calibrated to allow whatever what we deem the appropriate relationship between having the flight not crash and not make us sick, so could these three goals be calibrated in such a way so as to maximize human freedom within an acceptable level of individual risk -- whatever that might be.

Getting back to the vagueness problem, it's hard to calibrate the goals as stated, seeing as they are written in an awkward pseudo-code that we call human language. If we want to improve on the algorithms that are built into human intelligence, or develop entirely new ones -- in other words, if we're going to come up with algorithms that will provide us the ends stated in the goals -- we're going to have to do it mathematically.

But that isn't necessarily going to be an easy thing to do. Eliezer Yudkowsky argues that developing an AI and setting it to work on doing some good thing are relatively easy compared to the third crucial step, making sure that that friendly, well-intentioned AI doesn't accidentally wipe us out of existence while trying to achieve those good ends:

If you find a genie bottle that gives you three wishes, it's probably a good idea to seal the genie bottle in a locked safety box under your bed, unless the genie pays attention to your volition, not just your decision.

Again, I think this goes to the issue of calibration of the system. Eliezer wants to calibrate what the AGI does with the coherent, extrapolated volition of humanity. Volition is an extremely important concept. Earlier, I mentioned the golden rule. If I decide that I'm going to do unto others as I would have them do unto me, I might start handing out big wedges of blueberry pie to everybody I see. After all, I like pie and I would love it if people gave me pie. But if I give my diabetic or overweight or blueberry-allergic friends a wedge of that pie, I wouldn't be doing them any favors. Nor would I be doing what I wanted to do in the deepest sense.

Eliezer describes the concept of extrapolated volition as meaning not just what we want, but what we would want if we knew more, understood better, could see farther. Coming up with a coherent extrapolated volition for all of humanity is a tall order, especially if we're doing it not just for the sake of conversation, but in order to enable a system which will try to realize that which is within our volition.

I like to think that humanity's CEV would look a lot like the three goals that I've written. And I honestly believe that the algorithms that power human progress do work, in a rough and general way, towards those goals, which is why people are generally freer, safer, and happier than they have been in the past -- though obviously not without many, many, appalling and horrific exceptions. So perhaps our calibration efforts involves feeding the AGI algorithms that will enable it to speed our progress towards those goals while cutting the exceptions way down. Or eliminating them, if that's somehow possible.

So to finally come around to it, what will those algorithms look like?

Maybe we can take hint from the study of Game Theory. Robert Axelrod held two tournaments in the early 1980's in which computer programs competed against each other in an attempt to identify the optimal winning strategy for playing the iterative version of the the famous Prisoner's Dilemma. In the one-off version of the game, the optimal strategy is to screw the other guy. (This is not the sort of thing we want to go teaching the AGI, at least not in isolation!) However, when multiple rounds of the game are played, something else begins to emerge:

By analysing the top-scoring strategies, Axelrod stated several conditions necessary for a strategy to be successful.

Nice
The most important condition is that the strategy must be "nice", that is, it will not defect before its opponent does. Almost all of the top-scoring strategies were nice. Therefore a purely selfish strategy for purely selfish reasons will never hit its opponent first.

Retaliating
However, Axelrod contended, the successful strategy must not be a blind optimist. It must always retaliate. An example of a non-retaliating strategy is Always Cooperate. This is a very bad choice, as "nasty" strategies will ruthlessly exploit such softies.

Forgiving
Another quality of successful strategies is that they must be forgiving. Though they will retaliate, they will once again fall back to cooperating if the opponent does not continue to play defects. This stops long runs of revenge and counter-revenge, maximizing points.

Non-envious
The last quality is being non-envious, that is not striving to score more than the opponent (impossible for a ‘nice’ strategy, i.e., a 'nice' strategy can never score more than the opponent).

Therefore, Axelrod reached the Utopian-sounding conclusion that selfish individuals for their own selfish good will tend to be nice and forgiving and non-envious. One of the most important conclusions of Axelrod's study of IPDs is that Nice guys can finish first.

Bill Whittle has written recently that the qualities listed above underpin western civilization, and help to explain why the West has out-competed other civilizations, who operate using different strategies:

Now, this is where my own analysis kicks in, because frankly, nice, retaliating, forgiving and non-envious pretty much sums up how I feel about the West in general and the United States in particular. The web of trust and commerce in Western societies is unthinkable in the Third World because the prosperity they produce are fat juicy targets for people raised on Screw the Other Guy. Crime and corruption are stealing, and stealing is Screwing the Other Guy. It’s short-term win, long-term loss.

I would add that if we look at the three goals as goals for humanity rather than for artificial intelligence, we see better progress towards them in western societies than elsewhere. In the tournament, the winning strategy, embodying all of the above characteristics, was called tit-for-tat. Interestingly, the computer program driving that strategy consisted of only four lines of BASIC code. That's very interesting, and it suggests a startling possibility -- like a simple recursive formula producing a complex Mandelbrot image, the moral complexity we're looking for might just be packed into a very simple set of mathematical relationships.

So in order to develop and calibrate an Artificial General Intelligence that carries out our three top goals (or that helps us to achieve our coherent extrapolated volition) one of the important parameters to explore is how the AI relates to us and to other AIs. The secret might ultimately lie in playing nice with the AI, and teaching it to play nice with us and with other AIs. Not just because we want it to be nice, but because nice turns out to be -- at a mathematical level -- the best way to play.

UPDATE: This entry has been republished at the website of the Institute for Ethics and Emerging Technologies.

Posted by Phil Bowermaster at 12:46 PM | Permalink | Comments (7)

Economist Brad Delong on the startling economic growth that has occured over the past 350 years:

One quibble -- who says we won't be around a couple of centuries hence?

Some interesting commentary here. Not surprisingly, many readers of Delong's blog are left-leaning buzzkills. And, of course, there's only one critter in the universe more annoying than them!

I like the Morning Coffee format. I think when I re-launch the L2si Report one of these days I might just have to do it as a video podcast.

UPDATE: To put it in terms agreeable to the game:

Web 1.0 The Speculist
Web 2.0 L2si Report Video Podcast

Posted by Phil Bowermaster at 08:34 PM | Permalink | Comments (1)

While we're reminiscing, one of my favorite entries over the past few years had to do with the relationship between life extension and wealth accumulation, to wit:

So let's put $600 a year into our account (that's a measly $50 a month) for twenty years and then revisit it after a total of 150 years has elapsed. After all, 150 years is just a drop in the bucket to someone with an indefinite lifespan.

By then, our initial disciplined investment will have grown to more than $160 million. After doing the inflation buzzkill adjustment, we see that in the year 2155, $160 million will get you right around what $3 million will today. That's not bad. Plus, if you can hang in there for another 50 years -- take a part-time job, write a book, I'm sure you can think of something to kill the time -- you will have a little more than $28 billion (yep, billion with a B) which will buy you approximately what $21 million (with an M) will today.

An interesting discussion ensued about life in a world where posicles cost five grand. Earlier this year, we spotted a news story about a forward-thinking guy who was planning to put the future wealth principle to work.

This idea has legs. We're going to have to spend some more time on it in the years to come.

Posted by Phil Bowermaster at 11:11 AM | Permalink | Comments (3)

We linked earlier this week to piece by Richard Florida on Cato Unbound about the future of the creative economy. Robin Hanson has now written a critique of Florida's ideas aimed not so much at that particular essay as it is Florida's book on the creative economy, which I have not read so I am not prepared to discuss the merits of the case.

I am inclined to agree with Hanson when he states that the next major development in the evolution of human society will be driven by technology. No surprise there, I guessd. In fact, if anyone reading this is new to this blog (and hasn't read about this kind of stuff before), you may be wondering what the heck this "Technological Singularity" thing is. Hanson provides an excellent introduction to it:

In a universe that was doubling in size about every ten billion years, life and animals appeared on Earth. The largest animal brains then doubled in size every thirty million years. About two million years ago humans achieved important brain innovations, and the number of humans then doubled every quarter million years. About ten thousand years ago we learned to farm instead of hunt, and the human sphere then doubled every thousand years. Finally the industrial revolution occurred, and the world economy has since been doubling every fifteen years.

Our history has thus been a sequence of steady exponential growth modes, with sudden transitions between them. Could yet another new mode appear soon, growing even faster?

Looking at the number of doublings each previous mode experienced before the next mode showed up suggests that a new mode should appear sometime in the twenty-first century. Since each mode grew over one hundred times faster than the previous mode, the next economic mode should double every week or two. And since each transition has taken less time than the previous doubling time, the next transition would take less than fifteen years.

Smart machines, Hanson argues, are what will get us there. And I agree. But in dismissing the significance of Florida's Creative Economy, Hanson describes a model of change that I can't fully subscribe to:

The truth is that the artistic creations or intellectual insights we most admire for their striking “creativity” matter little for economic growth. Instead, most of the innovations that matter are the tiny changes we constantly make to the millions of procedures and methods we use. And changing these procedures does not require free-spirited self-expression. Instead, it is quite natural for people to constantly think about tiny changes to their procedures as they follow those procedures. In fact, we imagine far more such changes than we can afford to pursue.

Numerically, this is undoubtedly true. In that sense, "most" of the changes that occur are, in fact, these small incremental improvements that Hanson describes. Such changes are indispensable and amazingly powerful over time. The Japanese business culture of quality is predicated on the idea of fostering gradual, continuous improvement. But even in the business world, such a model is not sufficient. Occasionally, a bigger level of change is required -- where what is needed isn't a tweak on a procedure, but a full-blown redesign (or re-engineering) of fundamental processes.

A call center can continuously improve its call-handling methodology, helping its customer service representatives grow more efficient and effective. Over the years, little changes to the script, to how calls are worked through the queue, to who handles which problems, and so on can make for a much more efficient operation. But then one day somebody has the bright idea of implementing an AVR system and everything changes.

An AVR system isn't a phase change on the scale of humanity, but it is one on the scale of a call center. Hanson correctly describes the trade-off between incremental and transformative (or continuous and discontinuous, if you prefer) change. But he does not acknowledge that the trade-off occurs at all levels. The fact that the Creative Economy isn't the next big step in human evolution doesn't mean that it isn't an important change; and the fact that incremental procedure changes occur more frequently than creative leaps forward doesn't mean that they are more important.

Posted by Phil Bowermaster at 10:40 AM | Permalink | Comments (0)

Over on Warrior Class Blog, Will Brown poses a strategy for an economic model of the Singularity. He begins by putting some definition in place around the idea of money.

Money provides a transportable mechanism for assigning value to things under variable circumstance, both in the present and in predicted future circumstance. It offers a mechanism for determining the worth of something under varying circumstance relative to other things. It further creates the means for arriving at a mutually acceptable exchange of things real and ephemeral between disparate people. It also, and here we arrive at an often little recognised consideration, creates the motivation for recording these valuations for future (or distant) consideration. In other words, money gave rise to writing.

Personally, I think money is a means of increasing MEST density. As John Smart explains it:

Life's history has been doing more and more (universal computation) with less and less (physical resources, MEST per standard computation), and we will soon be doing almost everything with virtually nothing. I call this driver MEST (Matter, Energy, Space, and Time) -compression, -efficiency, or -density, and it appears to be an unrealized developmental attractor for all complex systems.

Where Will asserts that money was a driver behind the development of writing, I think John would say that both money and writing are products of this ongoing process of doing more and more with less and less. Writing encodes knowledge so that it need not be memorized and can be shared over time. Writing can encode information related to transactions, while money, as it evolves, comes to encode the transaction itself.

The first transactions that humans engaged in were straightforward bartering. So many bushels of grain equals so many big varieties of fish or some larger number of smaller fish. Barter is awkward and time-consuming. As Will points out, the introduction of coins represented a kind of economic Singularity in its own right -- value was abstracted (encoded), providing a huge leap in the number of transactions that people could engage in.

But that was just the beginning. Let's jump ahead to the Renaissance and the introduction of paper money. The original bank notes allowed a merchant to complete a transaction without actually having to lug chests of gold around. Just as chests of gold were a huge improvement over barter -- a chest of gold is much easier to transport than its equivalent value in cattle or slaves -- bank notes were an enormous improvement over chests of gold coins.

Moving into more recent times, checks represent a MEST compression relative to cash, credit cards a MEST compression relative checks, and PayPal a MEST compression relative to credit cards.

The evolution of commerce parallels the evolution of technology and the ethical evolution of human society, which itself may simply be playing out the script handed to it by this tendency to increase MEST density.

Take slavery. Ultimately, it was abandoned (by the West, anyway, and most of the world) because economic enticements to work and adopting a model of wage slavery were more productive. This struggle was vividly dramatized by the American Civil War. Why did slavery come to an end in the South? Because the slave-powered Confederacy was no match for the industrialized Union. The Yankees had MEST density on their side.

It wasn't just that slavery was wrong and needed to end. That was true, but it wasn't enough. Slavery was just as wrong when Spartacus led his rebellion against the Roman Empire. But in that pre-industrial world, the Romans had the greater MEST density working for them.

We can find parallels in ethical developments such as environmental consciousness and animal rights. Societies tend to adopt these ideas as soon as they can "afford" it; that is, as soon as their implementation would not hinder the ongoing compression of matter, energy, space, and time in overall economic activity.

Because of the increase in MEST density that it represented, industrialization was more productive than pre-industrial individual contribution. Today, post-industrial (even de-industrialized) individual contribution may prove more productive than industrialization ever was. From slave to serf to factory worker to middle manager to freelancer, our freedom has grown not because the world has become nicer, but because the road to niceness and the road to MEST compression appear to be on a parallel course. Let's hope that continues to be the case.

Of course, not every step in the sequence has been a net positive move. A hunter-gatherer may have enjoyed more freedom than his great-great-great grandchild living as a slave in a proto-city-state. And a farm laborer may have lost freedom and quality of life by taking a factory job (although he gained something in the deal, or he probably wouldn't have made the move.) But overall, we seem to be enjoying more liberty as a result of the continuous MEST spiral.

Where does that eventually take us? Will writes:

[I]t seems likely to me that the principal “item” of exchange beyond our physical selves (our interactions with each other) will be the products of our imaginations.

I like the sound of that. But if we buy and sell the products of our imaginations, what currency will we use? Cory Doctorow has provided one possible answer. If reputation and imagination are what drive the future economy, the best advice you can give a young person would be to be creative, be a good person, and be effective at whatever you choose to do.

Interestingly, that's pretty much the advice I would have given anyway.

UPDATE: Will Brown comments:

My basic point, Phil, was that we will continue to need some mechanism for exchange whatever our individual abilities may allow us, at least for as long as we remain recognisably human.

I think I have to dis-agree with John Smart's concept (or at least your presentation of it) as being wrong ways 'round though. MEST is a process that occurs when conditions permit, not that creates conditions themselves (we can argue the metaphysics of the effect of potential, but my position is that percieved benefit is the actual driver and that MEST is simply an expression of refinment of that perception to added, previously unpercieved, benefit). Thus, money gave rise to accounting (record keeping anyway), which gave rise to writing, which together put in place the means for the MEST process to occur.

Your Spartacus example supports this, I believe, since the "slave army" handily defeated several Roman armies in the course of the rebellion. As long as the slaves continued to advance, Rome's MEST density potential couldn't be realised on the field of battle. It was only after Sparticus and company attempted to conquer a part of the republic (to persue the same MEST density potential) that Roman forces defeated them.

I think that something quite like the present e-bay model will become the dominant trade mechanism in the coming years, which will require some form of universally accepted transactional medium like money. Why re-create the wheel? That said, I also think much of what will be traded will be personal services (and those transactions will likely make present-day stock derivitive trades look simplistic by comparison) and the ephemeral "products" of our imaginations, like entertainment, education, consultation and simple advice. I am less concerned by the question of what currency will be used than I am that some form of currency will be used. Given that stipulation, a strategy to transition from the present model to that future model seems useful.

I think my presentation of John Smart's ideas might have been overly brisk. In the piece I linked, he presents a highly controversial idea in his Second Law of Technology:

2. Humans are selective catalysts, not controllers, of technological evolutionary development.

Read that in the contect of his First Law of Development:

1. The universe is an evolutionary developmental system, with both a rigged long-term developmental outcome and an unknowable short-term evolutionary path.

So the perceived benefit may be the apparent driver for any particular instance of progress -- generally represented by an increase in MEST density. We develop things (technology, social structures) that increase MEST density because of the benefits these things bring us, not because we have any particular interest in increasing MEST density. But if we take a broader view, we see that we (human beings) might well be a developmental optimum in a universe that was already hard at work increasing MEST density for billions of years before we existed.

Posted by Phil Bowermaster at 04:25 PM | Permalink | Comments (4)

Tech Central Station columnist Arnold Kling sees Kurzweil's "The Singularity is Near" as a new theory of economics.

Being an economist, Kling would tend to see many of Kurzweil's insights in that light. And a sociologist might think the book is about sociology. Cosmologists, biologists, and computer scientists will no doubt see the book as derivative or illuminative of their work. It looks somewhat like a legal treatise to me. Everybody's right. Most fields of study deserve some credit for moving our civilization forward. And the Technological Singularity impacts us all.

In his column Kling demonstrates that most economists are still depending on linear models to project economic growth.

Economists routinely forecast annual growth in U.S. labor productivity of roughly two percent for the next several decades.

That's actually worse than linear thinking. We passed that level of annual growth in productivity years ago.

...since 1992, productivity growth has sped up. As this article from the Federal Reserve Bank of San Francisco points out, "The performance of productivity in the U.S. economy has delivered some big surprises over the last several years. One surprise was in the latter half of the 1990s, when productivity growth surged to average an annual rate of over 3%, more than twice as fast as the rate in the previous two decades. A bigger surprise has been the further ratcheting up...productivity growth averaged around 3.8% for the 2001 through 2004 period.

Kling makes clear that if an exponential growth in productivity holds, many of the fiscal problems that worry us today can be easily paid for by the economy of tomorrow. If the average income moves from $35,000 today to $250,000 in 2025 in real spending power as predicted by the exponential model, then all fiscal problems become manageable. The national debt, social security, medicaid, etc.

Kling is cautiously optimistic:

...I am still not comfortable watching our government accumulate obligations to future entitlement recipients at the current rate. As of now, however, the data on average productivity growth over the past decade is reasonably consistent with the hypothesis that the economy is winning the Great Race.

Read the whole thing.

UPDATE from Phil: The productivity numbers that Kling mentions seem particularly encouraging. I speculated about how encouraging these numbers might be last year in response to some earlier Arnold Kling TCS pieces about productivity.

But what struck me about Kling's analysis in light of Kurzweil's book is what it might have to say about the Solow computer paradox. In 1987, economist Robert Solow made his famous observation:

You can see the computer age everywhere but in the productivity statistics.

For years, productivity lagged while industries were being computerized. While the new technology should, in theory, have brought about marked increases in productivity, those increases were not forthcoming. No shortage of theories were offered up to account for the productivity lag, including what might be called the Tetris/Porn theory. But hindsight now shows us that the lag was a temporary one, and productivity really does seem to be growing in leaps and bounds as a result of the computer revolution.

In an e-mail exchange, I asked Kling whether these productivity numbers mean the end of the Solow computer paradox. He said that many economists agree that it does, including Brad DeLong, but that Solow himself may be maintaining a skeptical position on the matter. Time will tell. Meanwhile, Kling recommends this as a good backgrounder on what's been happening with productivity.

Posted by Stephen Gordon at 03:37 PM | Permalink | Comments (3)