Convinced that the people are the only safe depositories of their own liberty, and that they are not safe unless enlightened to a certain degree, I have looked on our present state of liberty as a short-lived possession unless the mass of the people could be informed to a certain degree.

-Thomas Jefferson

Ever since the global financial meltdown of 2007-08 I’ve thought, off and on, about what, exactly, economics was.  Not in a philosophical or, really, a pedagogical sense, but in a purely practical sense.  As in, what does Economics do for or mean to the population at large?

Watching the video below, and noting how far not only perception is from reality, but how vastly further reality is from what people want it to be, I think those chasms represent part of an answer.




1. the process of formulating generalized ideas or concepts by extracting common qualities from specific examples

2. the act of withdrawing or removing


1. Difficult to understand; abstruse

No matter the extent of a persons’ genius, the scope of their intellectual reach, all of us have finite brain power.  The storage and processing our brains can do is limited, however impressively large those limits are for some.  And so to deal with the complex world we have built we use abstractions to blur away, or conceal, the complexity that lies underneath what we are working on or thinking about.  We see this in everyday life, in things as simple as a car dashboard, showing us a simplified readout of the status of the operations of the engine and the systems that support it.  But while abstraction is useful, vital really, in smoothing out the bewildering complexity of modern life, that it conceals what undergirds it can make it a tool of deception, rather than clarity.

Consider how abstraction is used in technology, programming in particular.  At a low level, a CPU has a set of instructions that is offers to operate on various data registers.  And though they might be similar, every processor, or at least every processor vendor, will provide a different instruction set.  A programmer that programs in that low level instruction set, or assembly language, will need to be very aware of the particulars of the CPU architecture, and exert a lot of effort making sure that they are properly moving the right data to the right areas of the CPU.  And their program will only work on computers with the specific CPU they built their assembly language program for.

Now enter higher level programming languages and compilers.  Programming languages, particularly those considered object oriented, allow the programmer to focus on the data structures and the algorithms that operate on them, rather than the particularities of a specific CPU instruction set.  The programmer can even come up with their own data types and structures if they like.  The compiler then turns the higher level program into the machine language that the CPU will ultimately read.  And notice that you will only need one compiler for every type of CPU as well.  You can write a program once in a higher level language, and as long as there is a compiler written for it, it can be run any any CPU.  This allows for incredibly more complex, and useful, software to be written.

Abstraction is also critical to computer networking.  Sending a packet halfway around the world and back may take only 100 milliseconds or so, but it is a hugely complex endeavor.  The jouney will most likely utilize a plethora of disparate technologies like DSL, DOCSIS, SONET, Metro Ethernet, MPLS, and possibly a host of others.  To help manage the complexity is the OSI layered model, lower levels, and higher levels, are “black boxes” whose operation is abstracted from those not working directly within them.  Someone writing a program that sends IP packets to and fro does not care, does not need to care, about what transport technology is being used, whether it is DSL, a cable modem, Frame Relay, or Ethernet.  So too, the developers of Ethernet did not need to care about the particulars of the higher level protocols that their technology will transport, whether it be IP, IPX, or IPv6.  In this way, the modularity and abstractions involved allow the millions of nodes that make up the global Internet to interoperate.  There is no one who knows the particulars of all the technologies found on the Internet, nor does there need to be, as long as their points of conjuncture are well defined, the internal working of connected pieces can be kept pleasantly blurry.

Now compare that usefulness with how abstraction has been used in the world of finance, specifically with Collaterlized Debt Obligations (CDOs), those financial weapons of mass destruction responsible for so much recent economic destruction.  Put simply, they are a collection of underlying debt instruments, such as home mortgages, globbed together or “securitiezed” into a single unit (though with tranches) that kinda look like a bond that pays an attractive rate of interest.  They get maddeningly complex, with CDOs containing other CDOs (CDO²), and yes, CDOs containing CDOs containing CDOs (CDO³), and something called a synthetic CDO, which I honestly don’t understand but which seems to have a tenuous hold on anything that could be called reality.

The upshot is that the mass of underlying loans is abstracted away into the CDO, a AAA rating and nice return are all that are meant to be seen, not the festering meat hidden inside of shitty, poorly documented loans made to people who were unlikely to be able to pay them off unless the housing market continued to skyrocket.  Ostensibly this abstraction spread out the risk of the underlying mortgages, but in reality it just concealed, and fobbed off, the huge risk of all the sketchy mortgages onto the CDO investors.

And sometimes it looks like the CDOs may have even been meant to fail.  Take the famous case of Abacus 2007-AC1, a CDO deal set up by Goldman Sachs that collapsed almost as it got started. It was alleged that hedge fund runner John Paulson had some hand in picking the underlying residential mortgage backed securities, designing them to maximize losses from a housing collapse.  He had bet against the CDO you see, and made a fortune when it crashed.  In the end the SEC brought a suit against Goldman Sachs, which was settled for $550 million, though Goldman admitted to no wrongdoing.

The whole mess is pretty neatly illustrated by the artwork accompanying this Rolling Stone article by Matt Taibbi.  A chef is pushing rats and other sundry parts into a meat grinder, while out the other end pumps ground red meat in the shape of AAA (the highest credit rating, or good as gold).  How to detect a product is tainted if the underlying bits are abstracted away, all ground up?

Which I suppose is all a roundabout way of saying that the abstractions we use to build and interact with a hugely complex world can be used as a helpful tools or as means of deception.  So why is it you can feel pretty relaxed  trusting the code form the public repository you downloaded and incorporated into the program you are writing, but as far as that CDO or other exotic structured financial product you are perusing…well a phrase like caveat emptor doesn’t even begin to capture the dangers lurking beneath the fine print?

For starters the code in the repository is completely transparent, you can look through every line of code if you care to, you may even contribute by improving it if you’re so inclined.  Then there is the reality of communities built around learning, sharing, and contributing to a code base that allows for the incremental development of more complex, sophisticated, and useful software.

Contrast that with financial engineers whose role model is Gordon Gekko.  Men, who when they are not collaborating with their competitors to rig LIBOR or bids on municipal bonds, are gleefully slitting their throats.  Fine fellows like Fabrice Tourre, a former VP at Goldman Sachs and player in the Abacus deal mentioned above.  The SEC brought civil charges against him because of that deal and he was found liable by a jury on six of seven charged in August.  Emails to his girlfriend helpfully reveal his psychology:

More and more leverage in the system.  The whole building is about to collapse anytime now?.?.?.?  Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!

Anyway, not feeling too guilty about this, the real purpose of my job is to make capital markets more efficient and ultimately provide the U.S. consumer with more efficient ways to leverage and finance himself, so there is a humble, noble, and ethical reason for my job :) amazing how good I am in convincing myself !!!

The boilerplate mumbling justification about making capital markets “more efficient” is by the book, but the end bit does reveal a touch more self awareness than I would have given his type credit for.  Anyway, as important as regulation and regulators are, I don’t see a technocratic solution to the problem.  People like the Fabulous Fab will never be constrained by rules, and in fact the more rules, the more complex the rules, the more fissures and cracks to be found and exploited.  To get a feeling for how difficult it can be to investigate and prosecute financial crimes, have a read of this recent Matt Taibbi blog post.

There just appear to be far too many people focused on making capital markets more…efficient, on exploiting the dizzying complexities of the modern world, particularly the world of finance, to engineer massive wealth for themselves…and not a whole lot for anyone else.  As opposed to people who build and hone things that actually improve lives.  I’m not sure of the answer, but it’s a fundamental problem that doesn’t speak well to who we’ve become.

Further Reading:

Complexity is (almost always) the Enemy

The Frog and the Scorpion

Through the power of the twitter, I was recently reminded of a blog post by Sam Harris of a few years ago.  It’s titled How to Lose Readers (Without Even Trying).  Harris wrote it in response to the reaction to a previous post of his, How Rich is Too Rich?, in which he had had the audacity to muse about the efficacy and morality of raising taxes on the rich.

He was a bit stunned.  Keep in mind that Harris has spoken and written about a myriad of controversial topics, including religion, torture, free will, and profiling at air ports.  His writing has elicited so much controversy in fact, that he’s dedicated a page to it: Response to Controversy.  And it’s the response to his ideas on taxation that  left his swimming upstream though a tide of outage

Do you have too many readers of your books and articles? Want to reduce traffic on your blog? It turns out, there is a foolproof way to alienate many of your fans, quickly and at almost no cost.

It took me years to discover this publishing secret, but I’ll pass it along to you for free:

Simply write an article suggesting that taxes should be raised on billionaires

You can declare the world’s religions to be cesspools of confusion and bigotry, you can argue that all drugs should be made legal and that free will is an illusion. You can even write in defense of torture. But I assure you that nothing will rile and winnow your audience like the suggestion that billionaires should contribute more of their wealth to the good of society.

If there is another example that illustrates, as clearly and depressingly, the enormous success of free market fundamentalism in penetrating and lodging into the popular consciousness than this passage, then I haven’t come across it.  How the propaganda has been so successful I wish I could say, but clearly the theology that’s been most successful in the US over the past 40 years isn’t the theology of Christ, or New Age mysticism, but the theology of the billionaire and invisible hand of the perfect market that has bestowed upon him his well deserved wealth.

Harris identifies one of the high priestesses behind this theology and take her, very satisfyingly, to task:

It is difficult to ignore the responsibility that Ayn Rand bears for all of this. I often get emails from people who insist that Rand was a genius—and one who has been unfairly neglected by writers like myself. I also get emails from people who have been “washed in the blood of the Lamb,” or otherwise saved by the “living Christ,” who have decided to pray for my soul. It is hard for me to say which of these sentiments I find less compelling.

As someone who has written and spoken at length about how we might develop a truly “objective” morality, I am often told by followers of Rand that their beloved guru accomplished this task long ago. The result was Objectivism—a view that makes a religious fetish of selfishness and disposes of altruism and compassion as character flaws. If nothing else, this approach to ethics was a triumph of marketing, as Objectivism is basically autism rebranded. And Rand’s attempt to make literature out of this awful philosophy produced some commensurately terrible writing. Even in high school, I found that my copies of The Fountainhead and Atlas Shrugged simply would not open.

“Autism rebranded” is a great, succinct way of putting it.  Cutting the core, Harris has a great diagnosis of the fundamental problem with these ideas:

And lurking at the bottom of this morass one finds flagrantly irrational ideas about the human condition. Many of my critics pretend that they have been entirely self-made. They seem to feel responsible for their intellectual gifts, for their freedom from injury and disease, and for the fact that they were born at a specific moment in history. Many appear to have absolutely no awareness of how lucky one must be to succeed at anything in life, no matter how hard one works. One must be lucky to be able to work. One must be lucky to be intelligent, to not have cerebral palsy, or to not have been bankrupted in middle age by the mortal illness of a spouse.

This should be obvious given a few moments of self-reflection, that is apparently isn’t speaks to the power of the propaganda.  Whether this power comes from the ability of the propagandist or flaws within us, I don’t know.  But, given the quality of Rand’s writing, I tend to lean towards the latter.

Continuing on with the award winning series of “everything is rigged’ posts, here is a link to an informative piece at Barry Ritholtz’s blog.  The title is “Banks Are Manipulating Gold and Silver Markets”, but it goes on to list all kinds of market rigging, like energy, commodities, interest rates, currencies, etc.  With a plethora of links (as opposed to a plethora of piñatas).

I wonder:  At what point does the ubiquity though space and time of a phenomenon lead you to the conclusion that it’s a feature, not a bug?  Just how easily, and readily, is the invisible, though iron clad, hand of the market thwarted or appropriated?  The expansive list provided at the link would indicate that the answer is pretty damn readily.

In anything approaching a rational discourse, the endless lists of fraud, abuse, and manipulation that is the history of capitalism would serve as a insurmountable indictment against the benevolent, all powerful god of the free market.  But there is always a true believer to offer up a theodicy.  Like any fundamentalist, the market fundamentalist is looking for the practice of the pure, the true faith, one unsullied by the grimy compromises of this fallen world.  Something he will never find, at least not until he shuffles off this mortal coil to his final reward.

What’s become obvious to me: the markets aren’t magic, they’re us.  They always have been.  Markets are powerful, useful tools that can spurn innovation and improve lives.  They are tools created by us, and they can be broken by us.  They can be used for good or bad.  Having lived through the last five years of economic crisis and stagnation, how could you come to any other conclusion?

There are about 7 billion people living on the planet.  Evolution has given us large and maddeningly complex brains.  Even discounting the occasionally deleterious affects of politics, religion, and culture in general on the human psyche, the sheer weight of the numbers dictate that you’ll find some number of people who are malevolently deranged.  That would appear to be a fact we have to labor under at least until our understanding of the brain is advanced far beyond where it is today, something, I think, that is well over the horizon.

Meanwhile technology marches forward at a steady clip.  And that includes destructive technology.  Only a hundred years ago nuclear weaponry was but a twinkle in a theoretical physicists’ eye, with the ICBM technology to deliver multiple warheads anywhere on the globe being the stuff of science fiction.  Chemical and biological weaponry advances apace.

While the Boston bombing has currently caught the media spotlight, it is the intersection of madness and gun technology that has been occupying the clutural and political realm.  The Sandy Hook shooting prompted an extensive national conversation about how to keep guns out of the hands of the mentally ill.  Legislatively no action has yet been taken, with a bill to expand background checks on gun purchases dying in the Senate.

So, at least so far, we seem incapable of even beginning to address the intersection of guns and madness.  But what about when this intersection doesn’t mean a few dozen dead, or even a few hundred, but a few hundred thousand or a few million?  What about when there is no margin for error?  Today there are nine nations with nuclear weapons, five who are members of the Non-Proliferation Treaty ( US, Russia, France, United Kingdom, and China ), one that doesn’t declare that they have nuclear weapons ( Israel ), and three non signatories of the NPT ( India, Pakistan, North Korea ).

Looking at Pakistan, the next thing to a failed state, with radical Islam a powerful force, one has to wonder if bronze age eschatology can be kept from meaningfully intersecting with technology that can quickly wreak biblical levels of destruction.  Can those lines be kept parallel forever?  It’s an odd quirk of the human mind that a single brain can make use of the powers of reason and science but at the same time be addled by unreasonable delusions.  Francis Collins, the head of the National Institutes of Health, saw a froze waterfall and was thus convinced of the divinity of Jesus Christ.  Isaac Newton, arguably the greatest genius is history, spent an absurd amount of time on alchemy and finding hidden messages in the Bible.

We tend to have a optimistic view of technology as progressive and liberating.  But even beyond the potential uses of technology by governments to surveil and control citizens, the practical matter of the destructiveness of some technologies may mean an inherent incompatibility with our notions of individual liberty and democratic government.

This is not to say that all technology is destructive or by its very nature irreconcilable with liberal democracy.  But what if there is no room for error?  What if freedom doesn’t mean the occasional shooting spree or pressure cooker bomb, but the occasional briefcase ( or pen? ) nuke obliterating half a city, or the occasional outbreak of an engineered super flu?  What sorts of laws would constituents demand of their legislators then?

I’m not sure these are questions that will need to be answered in our lifetime.  But at some point technology will progress to the level that (even more) highly destructive technology is relatively simple, cheap, and easy to use.  Because how can the march of technology be stopped?  Would we really want it to be?  And so with any margin of error diminishing, someone is going to have to figure out how to prevent that technology from intersecting with human frailty, stupidity, and malevolence.  What would those laws look like?  What kind of society would result?  These are questions we should think about, because we might not have the luxury of handing them off to our progeny.