Gill Eapen's Blog, page 43

Real finance

Recent observations by a previous Fed chairman that it is puzzling why one would advocate a reinstatement of Glass-Steagall act because he could not see how the crisis in 2008 would have been avoided had it been in effect, is symptomatic of regulators who are good tacticians but not strategists. From Princeton to Wall street, financial institutions and their regulators still believe intermediation is “God’s work.” Academics, slaves to economics text books from last century, still believe financial intermediation is integral to markets and the economy. If the former chairman is intellectually honest, he may want to revisit the transcripts from Jackson Hole in 2005, before spewing wisdom. The one who came before him, who spewed infinite wisdom for many decades seem to have finally realized, “something was wrong.” He is still selling wisdom at $75K per pop. Meanwhile financial malls, that do everything but intermediation, with a skewed incentive to take risks for their bonuses that depend on the upside potential emanating from their actions and they are generally not accountable for the downside risk, invest into fooling both the academics and the regulators.

Although the chairman may be an expert of the depression era, what he may be missing is that the modern economy needs very little finance as we know it. Any financial activity, that does not have a direct connection to real assets and real investments, adds no value to the economy. Real assets today comprise of only two things – real estate and intellectual property. Financial intermediation in the former can now be done by the internet and it does not require “God’s men,” behind oak desks in the penthouses. And financing needed to develop and nourish IP is not something the mega banks have any clue about. They are dinosaurs with a ridiculous combination of disparate businesses with conflicting incentives that still pose a systemic risk to the entire population.

Glass-Steagall is a necessary condition to eliminate the greed of the ignorant and I am sure “God” will approve.

Hilbert hotel

Recent news that scientists have realized a quantum Hilbert hotel using a beam of light is indicative of the power of thought experiments, validated by simple experiments. Both interesting thought experiments as well as simple validation techniques are on the decline not only in Physics but also in other fields. In the Hilbert thought experiment, a hotel with infinite rooms, fully occupied, could make an additional room by shifting occupants one room up. More generally, the same hotel could make infinite empty rooms by shifting people to even number rooms leaving an infinite number of odd number rooms. The human brain that evolved through practical needs of Sapiens, has been lured into thoughts it was never designed to have.

Thought experiments on Infinity and zero (absolute nothing), such abstract concepts, are in a favorable direction to nourish the brain and perhaps move it into the next quantum state of knowledge. It takes no investment, no heavy machinery and not even high mathematics. It, however, takes imagination, something that has been draining out of humanity. Humans have been unable to internalize infinity and zero, perhaps because of the limitation of the brain but it is more likely because the brain gets inundated with the finite continuously. The thoughts that envelope the finite are mediocre at best and they are not extensible to the abstract nature of infinity or zero.

Thought experiments are possibly the best path to fundamental shifts in human knowledge.

ET’s very large SUV

Recent discovery of an object by NASA’s Kepler telescope around a star, some 1500 light years away that cannot be explained by typical exoplanet properties, has raised speculation that it may be an artificial structure, created by advanced intelligence to garner energy from the star. A simpler explanation, such as a fragmented comet could be more valid, but certainly less interesting. Astrophysics, quickly degrading into bedtime stories of fancy, may yet have a long way to sink in conventionalism, before it could make a contribution.

Humans, seeking intelligence elsewhere, with attributes similar to theirs, seem to forget that their own experiences clearly show that intelligence is a network process. The mighty bacterium, able to dance with billions in unison, appears much more intelligent as a system than humans could ever be. By substantially increasing the diversity and the probability of favorable mutations at the micro-level, the system is able to evolve and adapt faster in a universe that appears hostile in every direction. Harnessing energy in such systems will be an internal process and may not require structure-building or star-domination, only phenomena humans are able to understand fully. Granted, finding such intelligence will remain outside human capabilities for the foreseeable future, if not for ever.

The recent fervor in seeking extra-terrestrials, is symptomatic of the limited understanding of humans of the formation, development and propagation of intelligence.

Training Schrödinger’s Cat

A recent article in Nature describes a possible break-through in quantum computing. Engineers at the University of New South Wales seem to have built a quantum logic gate in Silicon, possibly opening up a pathway toward practical quantum computing in Silicon based processors. In theory, the technology could turn conventional bits into quantum bits, allowing traditional chip architectures to morph into those supporting quantum computing.

This is good news. As many philosophers worry about singularity, for no apparent reason, creative engineers have been moving the goal posts closer to practical quantum computing. It is a technology discontinuity, something if shown to be practical, could substantially change the economic prospects of a whole generation, currently stuck in a plateau of no innovation. They are beginning to realize that calling a phone 6, 7, 18 or 6S is not really innovation – it is packaging. They are realizing that creating fake computer generated voices in marketing announcing Sherlock Holmes and Watson, is not really innovation, it is bad sales technique. They are realizing that skipping version 9 and going straight to 10 is not innovation, it is a cheap gimmick. They are realizing that names that are difficult to pronounce are not really technologies but ways to siphon money out of companies who want to jump on the latest band wagons.

The next discontinuity is not in software – it is in hardware. Unfortunately, world's largest hardware companies do not seem to understand it and the world is now replete with incompetent software companies – creating operating systems, applications, "artificial intelligence" and databases – with no innovation content.

Mirror, mirror…

There is an audible buzz in the air ever since NASA finally announced the “well kept secret” - there could be water – the flowing variety – on Mars. This is exciting news, and it brings back visions of Green men (I wonder if they were women) walking out of shiny space crafts – the “contact,” humanity has been waiting for a long time now. There have been more good news – subtle but nonetheless important – related to the same. A recent article in “Astrobiology,” shows “Earth like planets,” orbiting close to stars likely have magnetic fields – making them even more “Earth like,” allowing life to flourish like bacteria on a dirty towel.

It seems like we are nearing the historic occasion – predicted by NASA to be 2020, when life would absolutely be discovered outside Earth. All efforts are focused on finding the “twin Earth,” with Oxygen, flowing water, a magnetic field and a hard surface to stand on – where humanity will ultimately shake hands with an organism – 6 ft tall with two hands and legs, cone shaped head and (hopefully) with a sense of humor. Some of the greatest living physicists don’t think ET will be in a playful mood at all, for they argue ET will make contact only to extinguish humanity. Not sure who is right, but how could one blame ET to take such an extreme stance.

Mirror, mirror…. who is the best organism in the universe? Don’t tell me there is nothing else – the right answer is – humans who are superior to a vast array of sub intelligent creatures across the universe.

The multiplicative effect

With world population at 7.5 Billion with only 40% having an internet connection, the information multiplicative effect on global economies is significant if complete saturation can be achieved. At the current rate, saturation is unlikely to arrive for another two decades. Accelerating this has beneficial effects on all economies and the UN could possibly lead an effort in this direction with investments from all participants. Countries such as the US that will benefit disproportionately, with a dominant presence in search and social media, may be willing to invest their fair share in this direction.

Information has become a basic necessity for humans – an indication that they are slowly maturing into a level 1 society. For 100 thousand years they struggled with food and sex, attributes of a primitive society and although half the world population is still locked into the same objective function for survival, there are reasons for optimism. In a fully connected world, there will be billions of brains – quantum computers in their own right – analyzing and interacting with newly emerging information at any point in time. With that, humanity could possibly escape from the trivialities of politics, clan conflicts and ego – and look outward in concert for the first time. It is a powerful notion – a brain storm with a billion brains is possible now and one can escape dreary conference rooms, conventions and the status-quo. We could reach a slope where only innovation matters and not tenure, color, elitism and even skills and know-how. Those who make new and valuable things will be the leaders and the next generation will look back in astonishment how a society with similar intelligence content as they could behave so inexplicably in the past.

The information multiplicative effect, so powerful that anybody ignorant of it should not be leading anything – countries, companies, localities and even households.

Elite efficiency

A recent paper (1) studies the “distributional preferences of the elite” and makes a somewhat obvious (startling to them) conclusion - “the elite” prefers not to distribute compared to the general population. There are many problems with the study including the premise and the definition of the “elite,”  comprising of the graduates of the Yale Law School (YLS). The assertion is that these graduates are destined to power and influence (and presumably wealth) and hence the “branding” of “elite.” Institutions and researchers looking backwards and frozen in time, may be in for a shock when they look outside their theoretical and historically adorned windows and see the future.

How do we test a hypothesis that YLS students prefer not to redistribute compared to a random graduate? Could we use the same study and data? Suppose we prove that YLS students are not “elite” at all because the probability of a YLS graduate to have any influence on society is roughly equal to a random graduate, what would it imply for the study? Economists tend to use fancy words and create complexity so that they can live within their secluded ivory towers, contributing nothing to society. In this context, what exactly does equality-efficiency trade-offs mean? Does it mean that the “elite” like to keep the money for themselves and phenomena that cannot be understood in this framework is assumed to maximize efficiency?

Practical educators and researchers should stop wasting time assigning labels and useless observations in a label prone, segregated and tiring society.

(1) The distributional preferences of an elite
Raymond Fisman1,*, Pamela Jakiela2, Shachar Kariv3, Daniel Markovits4
1Department of Economics, Boston University, Boston, MA, USA.
2Department of Agricultural and Resource Economics, University of Maryland, College Park, MD, USA.
3Department of Economics, University of California, Berkeley, Berkely, CA, USA.
4Yale Law School, Yale University, New Haven, CT, USA.

The human syndrome

The human syndrome, a disease that has been with humans ever since they arrived, has been declining for several centuries. A complex phenomenon, that has many symptoms including empathy, compassion, anonymous charitable giving and effective altruism, has been tackled well by modern humans. Eradication efforts around the world that include institutionalized religion, racism and a variety of modern segmentation schemes, have been exceptionally effective in reducing the prevalence and spread of this horrible disease. Systematized education at all levels seem to have also aided the efforts to eradicate the disease.

It has been a triumph for humans. They have been able to nearly get rid of irrationality and imagination, characteristics of environments that aid the spread of the disease. More recently, large swaths of humans immersing in prescriptive sciences, engineering and technology, has acted as an inoculation against it. Although complete eradication could be a few decades away, the reliable negative slope in prevalence is encouraging. The biggest danger appears to be the tendency of humans to be emotional and their occasional excursions into thinking about the world as a system. Such CNS deficits, could be treated effectively with available medicines. Perhaps a cocktail of such medications coupled with the policies pursued by the ignorant, could do the trick.

The human syndrome, that has held humans back for over 100 thousand years, is nearly history. This is apt as the “singularity,” dreamt by the technologists would require humans and mechanical robots to be indistinguishable from each other. We appear to be very close to it.

Fusion, it is here (almost)

Ever since a brilliant member of the Homo Erectus produced fire for the first time nearly 2 Million years ago, their descendents have been trying to tame and use energy optimally. More recently, humans have been getting smarter with alternatives to wood burning, including fossil fuels, biofuels, nuclear energy, hydro, solar, wind and tidal. For many decades now, it has been obvious to many that most of these are inelegant solutions to the energy problem.

Burning hydrocarbons, albeit easy to do, has possible long term negative effects on the environment and biofuels take more energy than they produce. Nuclear fission, often fails to account for the costs associated with the storage of waste materials, with half lives exceeding 50,000 years. Solar, the darling of environmentalists, is not economical – in all varieties, photoelectric and concentrating-solar and it is an industry propped-up by subsidies, devised by politicians looking for brownie points. Hydro power has displaced massive populations across the world, with long term deleterious effects on the ecosystem. Finally, tidal and wind, better understood by public, show low efficiency and they are pushed by “green companies,” who make turbines for profits.

The energy problem is far from being solved. Lately, however, there are glimpses of hope – Lockheed, Alpha Energy and National Ignition Facility – to mention a few, seem to be making great strides to taming fusion. Ever since humans understood how stars worked, it should have been obvious that there is only one avenue to pursue to solve energy. Better late than never.

Fusion could lead to zero cost energy and that will make most tactical problems that consume humanity currently, utterly irrelevant.

Accreditation revoked?

The famous school in Philadelphia, that has produced many capable people in politics and business, appears to be running out of steam. Its recent entries into politics appear less convincing – some paranoid and others ignorant, that the professors of the illustrious school may be holding their head in eternal shame. Even its business school, famous for finance and business, seems to have produced somebody who does not understand that the asset side of the balance sheet is not equivalent to net worth. Did the business school allow skipping Accounting 101 in its business program? How else would one explain it?

In a world crowded by educational institutions, accreditation should be at risk if graduates of a school, that it has awarded degrees to, do not understand basic stuff. Even if that person got a D in Accounting, the fact that the school was willing to hand out a degree, should be sufficient to put its accreditation at risk. It does not matter if it has Nobel Laureates in its faculty, if the school graduates a person of complete ignorance, one has to question the system. It has been tried before, another famous son of a school, up north, argued, he did not know accounting to avoid going to jail.

It is time for the famous school in Philadelphia to give up its accreditation, for its graduates seem to lack basic intelligence and knowledge.