09/04/09 Baltimore, Maryland
From California comes word that the summer program of Singularity University came to an end this week. The idea of SU is simple enough. Put smart people together with the latest technology; let them figure out solutions to the world’s problems.
‘The Singularity’ is an idea from Ray Kurzweil. The gist of it is that computers will soon be smarter than humans; by the middle of this century they’ll be smart enough to figure out how to get smarter and smarter, faster and faster.
No doubt, many of them will go into finance. And no doubt, many will make a fast buck. But will more smartness really make the world a better place? According to the singularists, increased brainpower will be able to solve all sorts of problems – from global climate change to market crises.
But the brain is a big disappointment. No mechanical engineer has ever improved the old-fashioned kiss. Nor has any brain ever straightened out the business cycle. Dumb as a slide rule, the brain does what it is told to do; it doesn’t ask questions. Tell it to build a bridge and it is on the case. Put it to work packaging tranches of toxic assets or selling aluminum siding…it is just as happy with one task as with the next. And the more a man’s brain bends to a challenge, the more it elbows out of the way his finer senses…and the dumber the man becomes. He turns his back on his own intuition as well as the accumulated wisdom from previous bust-ups and bruises. Like a man who has gone crazy, as G.K. Chesterton put it, all he has left is his sense of reason. Then, with nothing more to work with, he comes down on his work like a blacksmith’s hammer on a fine Swiss watch.
During the bubble period, the big banks were the biggest employers of top graduates from the world’s top schools. Oxford, Cambridge, Harvard, Yale…the financial sector drew them in like flies to an open latrine. The financial industry made so much money it had a hard time explaining it. The smart dudes did not toil in the fields, neither did they spin. Then, what did they do? They earned millions, bought BMWs and got dates with actresses. They claimed they were doing a fine job of allocating the world’s wealth and making everyone better off.
But when the bubble blew up, it was apparent that the financial world they created was fragile and perverse. Not a single one of the largest Wall Street banks survived without government handouts. And a news report from this week tells us that Americans were so damaged by the Bubble Epoque that their discretionary spending has now been cut to levels not seen in 50 years. The geniuses wiped out a half-century of economic progress in the richest, most successful economy the world has ever seen.
Smart people were also to blame for the biggest single error of the last century: central planning. The central planners thought they could fix the supposed evils of the natural economy with logic and reason. The idea was so alluring half the world fell for it. If the Nobel Committee had been on the ball they would have given Karl Marx a prize.
If the bug had come from stupid people…smart people might have avoided it. They might have come through the period without permanent scaring. But the wheezy intellectuals behind it were too clever for their own good. They soon infected the top universities…and the government. They convinced almost everyone that central planning was the wave of the future and that anyone who stood against it was a bumpkin, a parasite or a fool. Then, in the name of human progress, they took control in two of the world’s largest countries and turned them into prison camps.
But by the last decades of the 20th century it was obvious even to central planners themselves that it wouldn’t work; in both Russia and China, the planners simply gave up.
Central planning didn’t work because people had plans of their own. They resisted. Then, the planners brought down their hammers. “If you’re going to make an omelet, you have to break some eggs,” said chef Vladimir Lenin. The “Black Book of Communism” puts the death toll as high as 100 million.
Then too, central planning didn’t work for less obvious reasons. Planning requires information. The planners had plenty of it. But private individuals had far more – local, current, more accurate information from first-hand observation and experience. With better information, they could make better plans. Most important, individuals didn’t limit themselves to only the fresh fruit of their rational brains. They put their hearts in it…and drew on instinct and tradition – the distilled spirits of previous generations – giving them a huge advantage over the apparatchiks.
But the brains kept at it. When the forensic experts sifted through the debris from the 2007-2008 financial blow-up they found fingerprints from a whole list of Nobel winners. It was they who had developed the formulae and the theories that deceived investors, and themselves. They believed they could tame risk…by calculation! They figured out the odds and worked out prices – to as many decimals as needed to put investors to sleep. And then along came a risk they had not foreseen – the risk that their own formulae were claptrap and that they were idiots.
Meanwhile, the brains were at work in the public sector too. There, they were still pushing central planning…albeit on a much less ambitious scale than in the last century. In Western countries, government economists fixed lending rates and credit policies in order to encourage over-consumption. In the East, they fixed exchange rates and recycled credit back to their customers in the West in order to encourage over-production. And what ho! Wouldn’t you know it; now the world has too much debt and too much capacity.
And so the brains are back on the job. In China, the government boosts production. In America, the central planners are trying to boost consumption. In short, the fixers are still fixing. And soon, the world will be in an even worse fix than it is now.
Enjoy your weekend,
Bill Bonner
The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Thank you for your consistently excellent views. I would only add that computers are “garbage in-garbage out” until they do begin to reason and reject flawed input.
I think much of the so-called miscalculation and error by the intelligentsia may instead be corruption; as in whoops, I just stole a wad of money that’s gone now. Sorry…I misplaced that billion, I’ll try harder next time!
Thank you for your insight. Your comments are a breath of fresh air in an evironment of academic and moral manure. C. House, Ph.D.
Computers won’t make a difference. They are just good for organizing data as well as data conversion. That won’t change anytime in history. Thoese who claim otherwise are liars and/or want to manipulate.
Thanks for posting your academic credentials TWICE, Charles House, Ph.D. That lends credibility to your statements. I feel better knowing those words are from a big bad Ph.D!
It dosen’t matter what handle is hung on someone. It’s the desire to read, study and make some common sense decisions. education only gives the real person the ability to use what they have. Someone else’s information and be true but may be false and you have nothing.
Amen Larry. Hopefully Mr. Oversized Ego was just kidding.
Nice article as usual. But shouldn’t we be just a little more cynical about the financial meltdown? Isn’t it possible that the masters of the universe were simply confidence artists using their new and “brilliant” risk reducing/high yielding Nobel Prize winning investment formulae to sucker people into making investments they shouldn’t have.
Their true brilliance is in the way that they structured everything to get away with “legally” draining billions of dollars of money away from pensions, foundations and individual investors. The masters of the universe knew what to do with this money – spend it – on Hamptons beach houses, fine automobiles, over the top parties and beautiful women!
Now all they have to do is stick to their story about having made a mistake determining the appropriate risk variables in their investment algorithims. Hey, anybody could make a mistake; right.
I’m suggesting that these guys knew what they were doing from the beginning. They have no character, morality or ethics (just like our elected leaders who are letting them get away with the crime of the century).
I am not a usual reader of yours, just arrived here because of your mention of the Singularity University, with which I am involved as an Advisor, and its European Lead. You make rather cynical comments on what “brains” can accomplish. I must admit that my spontaneous reaction is “What else is there?” What can we use, if not our rational analyses, our trial- and error-based scientific methods, the cumulative, yes, brainpower of our societies to face, and hopefully overcome our challenges?
Tell me when someone has figured out how to impart wisdom and common sense upon a computer or a politician.