Maquina Lectora

Notes of a curious mind

Category: Economics (Page 1 of 2)

The Age of Em by Robin Hanson

I really don’t know what to make of this book.  It was on my bedside table for more than 3 weeks. This is very, very unusual. It is not that I couldn’t read it, it was actually quite interesting but I could manage only a few pages at a time, and that’s because I needed time to think about and reflect on what I had just read. It sounded so weird and so unbelievable that I wasn’t sure if this was a serious work from an accomplished academic, as Dr Robin Hanson, or a science fiction dystopia. Perhaps, it’s both.

Ok, let’s start.  Nowadays, our economy doubles roughly every 15 years, from every 1000 years during the farming period. If this trend were to continue, we should expect, according to the statistics models, that sometime during the next century, our economy to go to doubling every one month, or so.  This will last for a couple of years maybe, and then something entirely different will happen that would change everything. What will cause that disruptive change? The arrival of artificial intelligence, that is robots, smart enough to substitute wholesale for human workers.

There are several stories how this will become possible. One scenario is that we will keep writing and accumulating better software. At this rate, we need about three to four centuries for a full AI. Another scenario is that humans would be able to modify their biology so as to achieve a superhuman intelligence. Robin Hanson, who studied physics and was a software engineer before he become an economics professor at George Mason University, believes there is an entirely different way, and that is porting software from where it already exists, and that is the human brain.

To do that we need three things. First, fast computers, much faster than those today, second, scanning machines that will be able to produce a most detailed scan of the human brain with all its particular cell features and connections, and finally, computer models that would be able to process signals for each brain cell.  If we have all these, then we can have robots which will be whole brain emulations or “ems,” for short.  Robin Hanson expects that the first ems will appear within roughly a century or so.

Emulations are not a new idea, there have been in science fiction for many decades. Arthur Clarke investigated this idea in his novel The City and the Stars, in 1956 and more recently in 2003, in his novella The Cookie Monster, Vernor Vinge explores the idea of conscious computer simulations.

In The Age of Em, Robin Hanson focus on robots and how the world would look like at the next big era after ours. He explores what happens in this strange world that it is dominated by trillions of ems that live and work in liquid-cooled skyscrapers, in very dense and very hot cities where they can quickly interact with other ems. He talks about the physics the economy, the organisation and their attitudes to law, politics, love, sex, and a lot of different other things.

Ems are smart, efficient, conscientious and workaholics. They basically work all the time but despite their hard work, they earn just enough to survive. Because they are so many and because it is easy – although not inexpensive – to make a lot more, the value of the work goes down. It is the supply- demand concept of economics.

Ems congregate in related “clans” and make use of Decision Markers to make key group decisions. Psychologically are very human.  They are not ordinary humans, but they have all the psychological tendencies that humans have. They are after all emulation of human brains that are put on a computer. Therefore, they develop relationships, they have friends, lovers, work connections. Some ems have bodies, others do not.

Emulations do not have to feel pain, or hunger. They don’t have to face death as they can make billions of copies of themselves.  Em ethics are different from ours. Their society is less democratic and gender-balanced, more divided into district classes, and its leaders are more accessible and trusted.

But what about humans? If they survive, they will retire somewhere outside the dense cities and will live on pensions doing whatever they want to do. It is not very clear, humans are not the purpose of Robin Hanson.

The Age of Em is an efficiency, undemocratic utopia or dystopia, depending on your perspective.  The em scenario is not entirely persuasive to me but the book provides a baseline for future study in the important topic of artificial intelligence.

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

This is a general impression and overview of the book as my knowledge on economics is rather limited.

“For many centuries, money and banking were financial alchemy, seen as a source of strength, when in fact they were the weak link of a capitalist economy,” writes Mervyn King in his book The End of Alchemy.  He must know something about it. As Governor of the Bank of England for a decade, and before that a leading academic economist, Mervyn King has long been at the heart of the British policy-making establishment.

We have seen this alchemy when subprime mortgage bonds were given triple A-rating and more recently, when John “Mac” McQuown created a hybrid security, called  eBond, which would embed credit default swaps (CDS) into corporate debt and will be able to transform junk-graded debt into the equivalent of AAA-rated notes. What could possibly go wrong?

Mervyn King says he is not interested in the blame game, which is probably just as well considering that he was governor of the Bank of England at the time of the great crash of 2007-08.

“Blaming Individuals is counterproductive, he says….. A generation of brightest and best were lured into banking, and especially into trading, by the promise of immense financial rewards and by the intellectual challenge of the work that created such rich returns and the crisis was a failure of a system, and the ideas that underpinned it, not of individual policy-makers or bankers, incompetent as greedy though some of them undoubtedly were. There was a general misunderstanding of how the world economy worked.”

Apparently, the “brightest and best” somewhere, somehow, lost their way.

Disequilibrium, radical uncertainty, the prisoner’ s dilemma and trust, are the four concepts that Mervyn King have run through this book in order to explain the nature of financial alchemy and the reasons for the present disequilibrium of the world economy.

Even though the largest banks in the biggest financial centres in the advanced world failed, triggering a worldwide collapse of confidence and the deepest recession since the 1930s, King insists “that nothing much has really changed in terms of the fundamental structure of the Western banking industry”. Just increasing the money supply after a crisis “only perpetuate the underlying disequilibrium.” Without reform of the financial system, another crisis, bigger than the last one, is certain, he adds.

King insists the merging of risk-taking investment banking with retail and commercial banks handling the taxpayer-guaranteed deposits of households and firms altered the business model and culture of banks during the Eighties and Nineties. Rather than breaking up banks retail and investment divisions, he suggests a reform based on the “Chicago Plan” of the 1930s. It is, basically, the IMF’s “Chicago Plan Revisited” by Jaromir Benes and Michael Kumhof, which envisages the separation of the monetary and credit functions of the banking system, by requiring 100% reserves.

In addition, he argues, it is necessary to embark into a major programme of raising productivity. It should be a global effort that would take many years, and will require small and deferent measures in each country, but as long as people believe that there is a coherent plan to boost productivity in the future, then they will have more confidence in willing to spend more today.

It won’t be easy. Faith in capitalism, understandably, has been badly shaken, and will require bold action to restore this faith. “Capitalism is far from perfect – it is not the answer to the problems that require collective solution, nor does it lead to an equal distribution of income or wealth.” But it is the best way to create wealth because it provides incentives for the innovation that drives productivity growth. Only when people are free to pursue, develop and market new ideas will they translate those ideas into increased output.

The End of Alchemy is mostly a book about ideas.  A significant attempt to reach not only the economists but also a broader, more general audience.

Reaganomics vs. the Modern Economy by Michael Douglas Gilbert

Modern economy is different and more complex from primitive economy, says Michael Gilbert in his book “Reaganomics vs. the Modern Economy: The Conflict that divides America“.  The defining characteristic of the modern economy is the ‘impossibility of true self-sufficiency.’  Today we cannot go out and supply ourselves with food, clothing and shelter. In order to survive, we need to buy our necessities with money from a store, to interact with the marketplace. This kind of economy does not bode well for the economic theory known as ‘Reaganomics’, a term used to describe the economic policies of President Ronald Reagan that promoted tax cuts, slashing of government spending and the deregulation of domestic markets.

The prevailing view is that the high oil prices stemming from OPEC’s cartel’s oil embargoes in the 1973 has caused the stagflation that inflicted so much damage to the US and world economy. But, Fed Chairman Arthur Burns argued in his book “The Anguish of Central Banking” in 1979 that the inflation appeared to be the result of a plethora of forces:

“the loose financing of the war in Vietnam, the devaluations of the dollar in 1971 and 1973, the worldwide economic boom of 1972-73, the crop failures and resulting surge in world food prices in 1974-75, and the extraordinary increases in oil prices and the sharp deceleration of productivity.”

Whatever the forces that caused the 1970s recession, the dominant view is that it was Reagan’s policies that ended it.  Michael Gilbert does not agree with this view. The improvements in the American economy in the 1980s, he says, “has nothing to do with Reaganomics”. It was the market forces – a market correction that would take nearly ten years – that worked beautifully to end stagflation in the United States and the rest of the western world. In other words, Ronald Reagan was lucky and the misconception that somehow he turned the economy around has distorted US’s economic policy. Furthermore, it is responsible for the attack, shrink, shut down and underfund government.

Read More

The problem with the Europe is the euro, but can it be saved?

The problem with the Europe is the euro, or more precisely, the creation of the single currency without establishing a set of institutions that would enable Europe’s diversity to function effectively with a single currency. Yet, the euro is still worth salvaging, says Joseph Stiglitz in his book The Euro: And its Threat to the Future of Europe.

The eurozone was flawed at birth, argues Stiglitz.  While the euro was a political project, the “political cohesion” – especially the implementation of policies and the progressive transfer of   national sovereignty to EU – was not strong enough to give euro a chance to succeed.  Joseph Stiglitz was one of the many US economists that have been sceptical of the single currency project from the outset and rightly points out that the conditions and the rules laid down during the drafting of the euro by the 1992 Maastricht Treaty and later during its actual creation in 1999, have been inadequate. The lack of factors that could frame European monetary union, such as cross-border fiscal transfers, growth strategy, and employment, have contributed to the severity of the 2008 crisis.

Greece, a country which was hit particularly hard by the financial crisis of 2008, was furthermore affected by the Troika’s ideological views and presumptions, says Stiglitz. The troika policies are counterproductive, while the emphasis in austerity and the repayment of debts owned, rather than the restoration of growth and an increase of living standards of the people in the country have devastated effects in Greece’s economy. Taking into account Stiglitz’s experience with Greece’s social, political and economic system, he was consulting ex-prime minister George Papandreouit was rather odd to read at the book that ‘it was mostly private sector misconduct, not public sector profligacy that brought [the country] into crisis’. Without ignoring the mistakes of Troika, (IMF has released a critical report on how it handled the crisis in Greece and has identified where things went wrong), it was mainly Greece’s political system’s inability to handle a difficult situation.  What is irritating, coming from an experienced economist like Joseph Stiglitz, is Stiglitz’s view that it was ECB’s mistake – and not the Greek’s government’s –  the closure of banks in the summer of 2015. He totally overlooks  the  fanciful expectations of the newly elected Prime-minister Alexis Tsipras and the disastrous role of his finance minister Yanis Varoufakis during that traumatic period.

Read More

The Reproach of Hunger by David Rieff

There has been a considerable reduction in extreme poverty over the last 25 years. The number of people living in extreme poverty worldwide has reduced by more than 50 percent. Still, according to most recent estimate of the UN Food and Agriculture Organization,  233 million people in sub-Saharan Africa are hungry or undernourished  and 795 million people are hungry worldwide.

The causes of poverty are varied; rapid population growth, harmful economic systems, local conflicts and deterioration in the environment, have a negative effect on families’ income. Poverty is the principal cause of hunger and undernourishment and malnutrition. Poor people are forced to devote a far higher share of income to buying food. A sudden fall on their income or rising food prices can have devastating effects. Without enough food, people are likely to become ill and unable to work to earn a sufficient income to buy food. They start reducing the quality of the food they eat and spend less on their other needs, such as clothes, shelter, medicines, school for the children.

Following the success of the Millennium Development goals (MDGs), UN have now committed to a bolder set of objectives, one of them is to eradicate poverty by 2030 and to do so in an environmentally sustainable way. It is a worthy and expensive objective. The role of philanthropy and private-public ventures in achieving this goal is crucial.

The Reproach of Hunger: Food, Justice and Money in the 21st Century is a dense, detailed and rather pessimistic analysis of the global food crisis.  David Rieff exposes the challenges and the contradictions of modern philanthropy and addresses some big questions.

There is now a new generation of wealthy technocrat philanthropists who offer a big part of their wealth to solve a few of the world’s problems.  Philanthrocapitalism or venture philanthropy, as it is known, because of its alignment with core business interests, has become a formidable and innovative force for social good. But it also raises some difficult questions, argues David Reiff. He emphasises that he does not doubt philanthrocapitalists’ sincerity to do good, but he is also criticising their un-democratic operations. David Rieff doesn’t claim to have all the answers. He argues that the solution to hunger is political but he falls into the trap of moralism to justify his position.  This is a convincing way to reason if you can get your readers to accept your moral rules. But people do not generally agree on the same moral rules.

This is a thorough and well-researched book, rife with references on poverty, inequality, international development, and the “charitable industry”, but it lacks  perspective and it misses clarity.

And the Weak Suffer What They Must?

They say that men with huge egos need constant praise. It is not going to happen with Yanis Varoufakis and his book ‘And the Weak Suffer What They Must?’, I am afraid.

Sadly, there are no revelations about his disastrous five months as Greece’s finance minister, just a few anecdotes here and there. It is rather a history of the international monetary system that starts with the Nixon Shock of 1971 and the end of the gold standard system of monetary policy for international exchange of gold deposits. It was this event that forced Europe, Germany and France in particular, to create a stable monetary system of its own, “yet without the necessary shock absorbers”, meaning the mechanisms and the institutions that could help implement some sort of economic adjustment, namely, one fiscal policy, with at least some redistribution to address imbalances across the Eurozone.

Yanis Varoufakis is a clever man and a good story teller. He delivered an interesting book. But not a stimulating or thought – provoking book that one would expect from ‘the most interesting man in the world’ according to the quote at the back cover.

Page 1 of 2

@ Maquina Lectora, 2017 & All rights reserved