The Product is the Promise: Finance and Social Values

In the first paragraph of my book A Demon of Our Own Design (Wiley, 2007) I observe that “You don't deliberately obliterate hundreds of billions of dollars of investor money. And that is at the heart of this book – it is going to happen again. The financial markets that we have constructed are now so complex, and the speed of transactions so fast, that apparently isolated actions and even minor events can have catastrophic consequences.” I then spend a significant portion of the book explaining the mechanics that lead the financial markets to lurch from crisis to crisis; why is it that while engineering in other fields increases safety, financial engineering seems to make things get worse. I suggest that the problem stems from the complexity and tight coupling that we introduce into the markets; complexity through financial innovations, tight coupling through leverage.

A system that is both complex and tightly coupled will almost inevitably have occasional accidents, what engineers term “normal accidents.” Attempts to reduce these accidents by adding in safety measures might actually increase their frequency because the safety measures add further complexity. This is not merely a philosophical point; in my book I go into detail on how some notable accidents – Chernobyl, Three Mile Island and Value Jet – occurred because of the added complexity from safety measures.

We can delve more deeply into the question, because even if we accept the argument from normal accidents, it still seems that financial markets have more than their fair share. Crises seem integral in financial sphere in a way that they do not in other industries. So we can pose the question of what it is about financial markets and the financial industry that make them different. There is an obvious and at the same time deep answer, one that relates to the essence of social interaction.

Lender or Borrower Be
“To breed an animal with the right to make promises—is not this the paradoxical task that nature has set itself in the case of man?” – Nietzsche

In the Stanford “Marshmallow Test”, a child is placed in a room alone with a marshmallow and told that he may eat the marshmallow now, but if he waits ten minutes without eating it he will get two marshmallows. The punchline for the test is that there appears to be a relationship between the ability to wait and success later in life. (Not considered is how much the child actually likes marshmallows – I imagine an astute child who hates marshmallows eating the one immediately so as not to face eating two later. Neither is considered how much the subject ate for lunch before the test).

This is a test of an innately human trait: the willingness to sacrifice today for a later reward. For Toynbee, this trait is the mark of civilization, because it is only through building structures, clearing land, planting trees, all designed to find function beyond one's own life, that civilization can take root. When this trait occurs between two parties, we have created the relationship of the creditor and debtor. For Nietzsche, the promise enacted between creditor and debtor is the source of conscience and mercy. And, ultimately it is also the source of feudal classes and of what we now call capitalism.

The human trait of binding oneself now to gain a reward in the future leads to our ability to make promises. And the ability to make promises leads to three other traits: First, a conscience. And, because conscience only goes so far, the right to mete out punishment for non-performance. It also requires that people be similar, or at least predictable, because unlike a trade in the present, a promise is an abstraction that requires both parties share the same context.

It is through the creditor/debtor relationship that the rudimentary concepts of economic exchange – setting prices, determining values, agreeing on equivalences – evolved to introduce concepts of rights, contract, obligation, and means of settlement into society. With regard to the ability to enforce the terms and to punish those who fail, it also introduced the concepts of measuring one's power against another. And the promise required yet other characteristics we find essential to civilization: the ability to reach and record an abstract understanding, and to trust.

Nietzsche takes this beyond the corporeal to the extreme of the spiritual, where the realization of the promise is not in one's lifetime. The creditor becomes Christ, salvation to the debtor in the future for obedience and faith in the present. Nietzsche states, “we stand before the paradoxical and horrifying expedient that afforded temporary relief for tormented humanity, that stroke of genius on the part of Christianity: God himself sacrifices himself for the guilt of mankind, God himself makes payment to himself."

The Abstraction of Promises
It is the role of creditor and debtor that differentiates finance from economics. The most common and primitive economic act, that of trading goods, whether in kind or through a medium of exchange, does not have an temporal separation and does not invoke a promise. The promise and its traits come about once the roles of creditor and debtor become part of society, that is, once a financial exchange occurs.

In measured steps, finance has added layers of abstraction to the creditor/debtor relationship. In early society promises were made in kind. One good was delivered in exchange for the promise of another. Then collateral was attached to the loan – if the item being loaned formed the collateral, it was the equivalent of modern-day mortgage bonds. Collateral also could take the form of an agreement to be punished in the face of non-performance; the preverbal pound of flesh. With the advent of money came the promise made in terms of a payment that required a notion of equivalence, a general obligation bond. As with any promise there was the risk of default, but otherwise the payment made and received was fully defined in monetary terms. This made debts more easily transferable, creating what was essentially a bearer bond rather than an obligation to a specific creditor.

With the advent of mercantile trade in Medieval Europe came capital for financing the fleet and crew in exchange for the promise of a share of the bounty. This is the critical step in differentiating promises in finance from those in other areas, because the promise was defined in terms of unknown value. The final step in the chain of increasing abstraction and uncertainty came with forward contracts, where both the roles of the creditor and debtor were blurred. Both parties owed and were paid, but the exchange occurred in the future. One or the other part of the exchange was of uncertain value – indeed it did not yet exist – and funds could be more easily borrowed if the uncertain value was converted to a certain one.

Promises, Punishment and Mercy
In a primitive society, the punishment for reneging on a promise could be severe. This was because the “shadow of the future” was short, and because the debtor might not be brought to punishment. But as the structure of society progressed, punishment became more certain. People formed societies where reputation was critical, and as the societies became more stable, the failures of the debtor could be absorbed more easily. As people became more wealthy and their status secure – and those with wealth were the likely creditors – they could afford to reduce the severity of punishment. One path of this social evolution led to the feudal relationship of lord and vassal: the beneficent creditor and the loyal debtor. This process came to the point of contributing to a societal role for forgiveness and mercy. Nietzsche observes that:

It is not unthinkable that a society might attain such a consciousness of power that it could allow itself the noblest luxury possible to it— letting those who harm it go unpunished. “What are my parasites to me?” it might say. “May they live and prosper: I am strong enough for that!” The justice which began with, “everything is dischargeable, everything must be discharged,” ends by winking and letting those incapable of discharging their debt go free: it ends, as does every good thing on earth, by overcoming itself. This self-overcoming of justice: one knows the beautiful name it has given itself—mercy.

So we can see the path from the trait of sacrificing for the future leading to the concept of creditor and debtor; the creditor and debtor bound by a promise; and the concept of a promise helping to establish the form of society and its moral structure. It is no wonder, given its genealogy, that many view capitalism as something more basic than a form of economic organization, indeed that it is viewed by some as having moral, even religious, overtones.


Note: This post draws heavily from Nietzsche: On The Genealogy of Morals, from which the quotes are taken.

Wrestling and the Olympics

The International Olympic Committee has announced that wrestling will be removed from the summer games starting in 2020. I find this decision incomprehensible. I can only rationalize it if I rethink the Olympics as, well, some grand-scale ratings event. But if it has to do with athletics, and if it seeks to maintain a thread of history extending back to the Athenian Olympics, this decision is nonsensical.

In the meantime, we have golf enter the Olympics. Not too many years ago that would have been thought to be a joke. For others, like tennis and soccer, the Olympics is overshadowed by other tournaments. Who would rather win the Olympics than Wimbledon or the World Cup? And yet others, like swimming, have become a numbing presence. We are treated to just about every possible permutation of ways to traverse water: pool lengths = {1, 2, 4,...} x swimming styles = {breast stroke, freestyle, butterfly, backstroke, medley} x participants in the event = {one person, four people}. And add to that a panoply of events for diving into the water and dancing around in the water. Why? Because it sells advertising.

In terms of combat sports, wrestling is the last bastion. The Olympics have structured the rules for boxing in way that has degenerated it into a game of tag with gloves. Tae Kwon Do is a game of tag with the feet. I have already discussed the bastardization of these sports by the Olympics. And I have proposed that the Olympics reach back to the ancient games to add the one event that is not in the modern Olympics: Pankration. In our modern day this is best represented by mixed martial arts. Given the role Brazil has had in the development of MMA, it would have been fitting to have it introduced in 2016. Well, that isn't going to happen. The Olympics is moving one step further away from athletics, and rather than adding to the ancient roots of the games, they are severing one of the remaining links.  

A Short Story Inspired by the Work of Borges

Note on this post:

In the last while we have been provided with plenty of fodder for reflections on the virtual society. A virtual girlfriend that is (surprise) not real; a new product to help connect the dots across our indelible social network footprints; another product gathering steam that allows us to create footprints that, like those of real humans, wash away. (On the last two, here is a great article, crumbling footprints and all). 

A few months ago I had a post on the short stories of Borges, highlighting how various of his stories foreshadow issues of the virtual age, specifically the emergence of the double, i.e., a real and virtual self, and the problems that come with perfect memory and complete knowledge, which, though of course never obtainable, nonetheless seem to be the asymptote of the virtual age. Below I have written a short story that uses Borges as an inspiration. It reflects on some aspects of the virtual age, though without setting it directly in the world of social networks, virtual girlfriends, and indelible pasts.

I wrote this because I thought it would be fun to do. (And because I was sick with the flu). I hope you enjoy it, but don't expect it to be like any of my other posts. And it is a work of fiction. 

To say I knew Sophia Gallager, or that I had even met her, first requires defining a difference between reality and fantasy. It is easier to say, and say definitively, that Sophia did not know herself, and from that starting point then to ask how I or anyone else could have known her. I saw her once passing by the stairs near her father's study; I saw her at a gallery showing, animated and beaming in front of her work, paintings which were rarely seen beyond a small group of admirers, and rarely outside of her presence, and spoke briefly to her there; and after she passed away I learned about her, the core of what I know about her, from two artists who had befriended her from the outset of her professional life.

My brief acquaintance with Sophia came about because of a business meeting with her father, Roland; one that was weighty at the time but is now of no consequence.

I flew into New York and took a car out to his Hampton home on Georgica Pond. Depending on the temperature and rainfall, Georgica Pond, separated from the Atlantic by 100 feet of beach, could be a serene jewel populated with egrets and herons and the sound of the surf in the distance, or could be swampy and mosquito-ridden, which should not be surprising, because it is technically a marsh, not a pond. Worse, the water could rise up to encroach on the lawns and overflow the septic tanks of the likes of Stephen Spielberg and Ronald Perelman, forcing rats from their usual habitat on the pond’s periphery to new shelter in the homes’ basements. This happened earlier in the summer, and persons unknown solved the problem by shoveling a drainage ditch through the sand from the pond to the ocean in the dark of night. The force of the water pushing through the ditch opened up a broad channel, and the water rushed out of the pond, along with untold numbers of bait fish, crabs, and snapping turtles. By the time the pond dwellers woke up, the lawn-swallowing, septic-tank filling water had been replaced by stench-filled muck. With their food washed out into the ocean, the birds left too.

For the most part, the Georgica Association was spared during these occasional overflows because it commanded the more elevated west side of the pond. That still did not stop suspicion for landing on a few of the more low-lying Association members, Roland included. Of course, the thought of him actually heading out in the middle of the night with a flashlight and shovel and digging a trench the length of the sand bar was ludicrous. Whether it was him or someone else – other likely candidates included Simon Peyton, who already had a bad reputation because he would station armed guards to intimidate kayakers lest they come too close to shore to gawk at his mansion – the police concluded it has to be someone with a strong and loyal staff, since no one would risk hiring a team of migrants and have word spread out. Roland and Peyton certainly fit into that group, but then so did most everyone else with pond frontage.

Members only, the Georgica Association’s entrance was an unobtrusive wooded road by a farm stand. During the summer months the entrance was manned by a college student with a clipboard sitting on a lawn chair. There was a time when the Georgica Association sported a nine hole golf course, later divided into tracts for houses, but there remained a softball field for its Softball Sunday game and four clay tennis courts, tennis whites mandatory. It also had the only private beach in the Hamptons. At least technically that was the case; this goes back a century and apparently the judge was a relative of one of the Association members at time. Which might be why the Association was careful not to assert this too forcefully, since it was not clear how well things would turn for them this time around. But the meetings of the Association did discuss things like placing the volleyball nets on the beach strategically to make it difficult for traffic to interfere with their space.

The houses in the Association were Yankee understatement. A few remained summer-only residences with no heat and thin clapboard. Most were, at least by Hamptons standards, modest houses, wooden framed with scrubby landscaping. Roland’s was the notable exception. After making a study of all the available the south-of-the-highway parcels, a study that included several runs of helicopter reconnaissance, he settled in this, the last great enclave of Waspishness in the Hamptons, on a teardrop-shaped piece of land that is surrounded by the pond on three sides, (and therefore can be seen from the pond and surrounding houses on three sides), where he built a gleaming white 18,000 square foot house with twin gazebos, marble Ionic columns and antique statuary.

I drove up to the lawn chair-housed, clipboard-laden student, who checked my name off his list, and then into the Association enclave to meet Roland. The first thing I noticed once I reached Roland’s house, besides the iron gate, marble columns, figurines, stone walls and cameras, was that he had a moat. The moat connected to the pond on both ends. The water was running like a rivulet. The water level of the pond was the same both where the water was coming in and running out; the water current was generated through a series of underground jets. A bridge arched over the water, a smooth, white concrete strip with no railings on the sides. There was a large stone-paved parking area to the side of the front door. A young woman was waiting there, standing primly, feet together and hands cupped in front of her waist, like a dancer in first position.

We passed into a courtyard by the side of the house. It had white marble tiling, railings held up by balusters made of fluted marble columns, and a dozen statues on pedestals. There was something strange about the statues. They were shiny and smooth. I looked more closely at the arm of one, or what was left of the arm, and ran my hand against a textured and slightly translucent shrink-wrap covering.

The woman, Ms. Willoughby, explained, “It is a protective treatment. These are antiquities, a few date back to nearly 500 BC. The marble becomes weathered and porous over time from exposure to the elements. And here by the ocean the weathering would be especially pronounced. So the plastic encasement protects them. Comparable to being maintained in a climate controlled setting.” She brushed her hand along the leg of the figure. “ I am one of his curators. Although my focus is principally on the contemporary collection.”

Interspersed with these statues were others that did not have this covering, These, Ms. Willougby explained, were of more recent vintage – a few years old if that – crafted by the Milanese sculptor Michello Zegna. The antiquities were of limited supply, so he had these fabricated to fill up the spaces between the columns. Somehow these statues, which she called “contemporary antiquities”, became items of art in their own right, with Zegna been anointed as the master. And being regarded as art, fetched substantial prices at auction. Only Roland and a few others had the connections to Zegna to purchase this art. By occasionally putting pieces up for auction – pieces from their private collections – and by the fact that they were noted as both rich and major collectors, in short, by their ability to control supply and to generate demand, they managed, De Beers-style, to have these contemporary antiquities sell at auction for seven figures.

(I later was in Milan and decided to take a detour to see Zegna's studio. With Ms. Willoughby providing me an introduction, I took a taxi to Studio Michello, which occupied a warehouse in the Marreau district of Milan, an industrial section of the city separated from the epicenter of the fashion capital by six miles, the I-20 roadway and the cargo railway. The machining of marble blocks into replicas of Greek statues was an industrial-strength exercise, noisy and dusty. The principle tools were pneumatic chisels and rotary sanders. It was not an activity that would be tolerated in chic artist lofts, nor could such a space support the materials. The marble blocks had to be trucked in on flat beds and transported into the studio by forklift. No building’s elevator, even a freight elevator, could carry the weight of the blocks. So Studio Michello started its operation along side a ceramics refractory, an iron-working plant that made see-saws, jungle gyms and other playground equipment, and various unoccupied warehouses that, with the emerging fame of Zegna, transformed in the past two years into an artists’ colony.

The studio had been a metal fabrication shop before Zegna took it over. His production office was the old shop foreman’s office. It was reached by a metal step-up walkway, elevated and glass enclosed to provide a good view of the floor. Large fans attached to ducts which in turn ran from the office through an outside wall to give it a separate air supply and positive air pressure so the dust of the factory floor would not permeate the office. The production floor opened up to truck bays facing a broad alleyway where the marble was delivered and the crated statues started their journey to collectors.

Zegna had a front office accessed from the street in the same space where the fabrication business’s front office had been, but Zegna had built the space out to create a show studio for the occasional visit by the principals or the curators of its limited clientele, a workplace that would not require ear protection and face mask, where visitors could see genteel ‘finishing touches’ put onto the works by a team of ‘Italian artisans’, much as street artists take their already-painted work and spend hours painting and repainting the last few inconsequential touches of sunset as potential buyers stroll by. The real artisans out back in the production area, the men doing the actual work, were Indonesian. Though he hired the cream of the crop, they were still far cheaper than anyone he could find locally, or even from Eastern Europe, and they came from a strong tradition in stone work, a tradition that had faded in Italy over the past two generations).

We continued the walk without further conversation, diagonally across the courtyard and up a few steps and into a side entrance of the house. It had an L-shaped desk near the inside wall, the chair facing out to windows across the room. Beyond the desk was an arrangement of two stuffed chairs, a sofa and a coffee table.

It was here that I caught a first glimpse of the world of his second child. Along the wall were three paintings. In the center there was a simple line drawing by Jean-Michel Basquiat. The two either side were primitive, shallow, even by comparison to the Basquiat. Roland came in while I was studying one of them. “That is from my daughter, Sophia. She is a painter, though not generally known outside of a small circle.” He offered the chair nearest the door, with the best view out onto the vast mud flat that, in non-drainage times, would have been the pond. Beyond the pond I could see a strip of white sand followed by a strip of dark blue ocean.

Roland had a double chin, was balding with grey hair, and was overweight. He had on a brown long-sleeved shirt and beige shorts. His body was pear shaped with too-short arms that barely reached below his waist, though this was muted by his oversize, untucked shirt. After we sat down, his partner Parley Pratt came up on the screen, walking toward a table, teleconferenced in from his vacation home in Idaho. I wouldn't have given Parley's appearance much notice, except for the contrast with Roland. He was tall and lean with a rugged face, gray hair cut close. He could have been a movie version of a cowboy or a farmhand, and he did have something that was close to a real cowboy pedigree. He grew up in Wyoming, his father an fifth-generation rancher. Juxtaposed against Roland's public school clip, Parley seemed to have what I could only guess was a Rocky Mountain western accent.

Parley started the conversation off with some chit chat, which led to anecdotes about their early days in business, and then, passing the baton to me, asked about my personal background – where I grew up, what I like to do with my spare time, that sort of thing. I started down the path, then interjected, “I don't want to bore you with this.”

Roland replied, “No, go ahead, there's no time constraint here. We’ll stop you if it gets too boring.” Then he added, “Oh, and if you don’t mind, we would like to record our meeting, because being the summer, there are others who will be on the team who couldn't make it.”

This recounting of my life story was a calibration exercise to allow them to assess the conviction and even the truthfulness of what I would say during the course of our business discussions, and for that, having a recording was essential. Even if not boring, any life-story monologue is off the point, but I knew from my preparation that their interest was not as much in what I said but rather in how I said it. Their vacationing colleagues were actually non-vacationing professionals of a Maryland-based consulting firm that would take the tape and video – New York law required the disclosure of the taping, but not their video recording – to assess periods where I might be hedging or where I lacked conviction. (And, if it got to that, where I was simply lying). The point of boredom would come only when they received an indication of some sort that the calibration was completed.

This would give them fodder for the next stages of our negotiations. (Which, as I already intimated, ended without any result). This technique of their's had become an open secret, and in spy-versus-spy fashion I had a few sessions with another consulting firm to prep for the meeting. The exercise was simple: obscure the calibration phase with noise. For the visual aspect, I looked down randomly, switched my position in my seat for no particular reason, darted my eyes between them and avoided their eyes at other times. In short I was a fidgeting mess, fidgeting in any number of ways that are used to read visual cues. I did the same with my voice; clearing my throat, hesitating sometimes and doing speed talking without pauses at others, imagining at times I was giving a speech to a crowd, and then at others speaking sotto voce. I was assured that if I did this well (and I could have taken medication that would have made it all but effortless, though with some loss in concentration for the more substantial part of the meeting), the result would be as useful for them as if I had taken a polygraph while running an obstacle course.

So much for the intrigue of this meeting. Though it might be worth its own, more complete account, I now come to the point of this particular narrative.

Sophia was a Korean orphan who, along with her older brother, had been adopted by Roland and his now-deceased wife. It is difficult to appreciate given the glitter of modern-day Seoul just how backward a country Korea was when Sophia was an infant. I had occasion to visit Korea then and many times since, and have been awestruck by the changes. Even for the working household, the living conditions were rugged. The typical Korean house had an outdoor kitchen where meals were prepared and dishes washed, even in the dead of winter; it had an indoor bathroom, but usually nothing more than an opening to a “honey pit” under the floor, with crumpled newspaper as toilet paper. The kitchen was outdoors because the stove was fueled using yontan, coal briquettes that emitted noxious fumes and was not designed with an exhaust system. These soldering briquettes were also placed in containers under the thin, lacquered floors of the houses, and occasional leaks into the heated rooms led to hundreds of deaths from carbon monoxide poisoning every winter.. The heating was hardly sufficient in any case; there was never a respite from the cold during the winter. The view of child rearing among the labor class was to allow hardship in infancy to toughen up their children. Babies were slung on mothers' backs with a cloth tied around their waste, their heads unsupported. Infants were put to sleep on stiff straw pillows that flattened the back of their heads over time. It goes without saying that the lot of an orphan was more difficult.

An orphan adopted into the U.S., as thousands were in those years, had won the lottery. They moved from the bottom rung of society, with little hope for the future, into a world of opportunity and comfort. And Sophia and her brother did so in spades by ending up in the home of a well-to-do family, that over the years after their adoption became a fabulously wealthy family.

The world lay before them – education at elite schools, money and connections to pursue a career in any field, to become a patron of the arts and a philanthropist. Unfortunately, their harsh orphan years left scars. Both were mentally challenged and emotionally distant. As Sophia moved into adolescence, she dropped ever further behind her classmates, both in academic work, and physically and socially as well. However, through the efforts of her father, Sophia still had a fulfilling career, after a fashion. Sophia liked to paint, though she was no more remarkable in this than in any other sphere of her life. Still, her father seized on this interest. A major patron of the arts, he determined a plan for her to live the life he had wished for her. He embedded her into the coterie of his artists' community. The artists were attentive to the quid pro quo, and in any case were game for a play. They allowed her to feel that she was one of their own. They discussed her works with her enthusiastically, bought her paintings to add to their personal collections, arranged shows and gallery exhibitions, by invitation only – since any outsiders might burst the bubble – to show her work.

Roland graciously extended me such an invitation at the close of my meeting that day. He was hosting a gathering of artists that very night – under Ms. Willoughby's direction – with a private showing of their newer works, just down the hall in the main rooms of his home, and in the Athenian courtyard, weather permitting. So that evening I stood out in the courtyard, now with the sun stretching the sculptures with long summer shadows, and saw Sophia standing before a painting on an easel. She was short, stocky, and in her mid-thirties. She stood with little movement, like someone nursing an injured back. I walked over to meet her, and as I closed the distance, before I could make out what she was saying, I could hear bass drum undertones from the thick thud of her tongue.

I introduced myself, and two young artists quickly joined us. As it turned out, I became fast friends with one of them, named Paolo. It was his painting on the easel. As it also turned out, or occurred to me later in the evening, they had come to hover over us in order to intervene in the conversation if I unwittingly injected the wrong dose of reality. The dose of the reality being to add a critical air to the fact that Sophia was being feted as a prominent and appreciated artist. Though with little talent, painting was all she had, and she had an enviable life built around it. This arrangement, of course, was kept quiet. Sophia never became aware of it; a task that was not as difficult as it might have been given that she lived a sheltered life, remaining in the Murdock home, and was not astute nor inquisitive.

So the revelation of this strange story: Roland controlled his world, even created a world to his liking, to the point of imposing this on his own daughter. But is there a better world for Sophia than the one that he did create, one where she would have been happier and more fulfilled? It is a fact that she never did accomplish what she experienced, didn't create the value she believed she did, nor have the friendships and respect, the apparent adulation, that was showered on her. She lived in the equivalent of Nozick's experience machine; she experienced a life that had been concocted for her, but did not act in its reality.

Sophia's life was, to her understanding, filled with adoration and fulfillment, a life many others, unaware of the particulars, might have envied. The question I came to, one actually that the two artist acquaintances put forward, was whether they or I would enter into the same. If we had her limitations (which only looked to be limitations to us, but were not limitations of which she was aware), would we be willing to, with no prior recollections retained, live her fulfilled life? (Or should I call it an apparently fulfilled life)?

The question to ask concerning Sophia is whether her life, one of futile and hopeless labor, one with no real purpose, is a life others would be willing to follow. If you could be transformed as was Sophia into a fantasy world that fulfilled your dreams to be a great artist, an athlete, a scientist, with a veil placed between your world and the real, if you could live and die while thinking that fantasy was real, would you do so?

Some years after our gallery meeting, Paolo confided in me that as a witness to this, to what he regarded as an existential rift, he collaborated with Sophia in some of her work to have it rise to something meaningful, but soon stopped on that course because he realized he was replacing one form of a virtual life with another. Or adding on to it, because in doing this, Sophia, rather than being herself, and merely reflected as something different, was being made to be something other than herself by his efforts. Rather than altering the mirror, he was altering her.

Sophia died peacefully in her sleep on May 6, 2005; the funeral limited to family members and a few close friends. She was forty-four years old.

No one who knew her has written an account of her life. What I write here, which I dare to write only because her father has now passed away as well, will therefore be her lasting memorial, (her work, such as it was, has scattered to the wind). Absent such self-reflection, this is no more than a casual reminiscence.   

Learn, Signal, Network, Party

An article today in the New York Times discusses the growth of on-line courses, and the plan by the California higher education system to integrate some of these courses into the brick and mortar curriculum. On-line courses allow students around the globe to experience the same courses, taught by the same, world-renowned professors, as those who have jumped the hurdle to get into prestigious universities and paid $40,000 a year to study there.

In some cases it is even better than physically sitting in the real lecture. A friend of mine who teaches a popular MBA class at Harvard gave a set of his lectures for one of these programs. He was set up in a lecture hall-turned production studio, complete with a set of bright-eyed students. (The bright-eyed students – models hired by the company to give the ambience of a classroom). The end result has the production quality of an HBO series. It was watched by over 150,000 students in the first few months after its release, compared to under a thousand a year at Harvard – and at Harvard, the class is oversubscribed.

For the technical subjects like computer science, or, for that matter, accounting, the on-line programs may have a shot at competing with what you get in the brick and mortar world. Beyond the lectures, which you can capture as well on-line as in the lecture hall (where the class size is so large that direct interaction with the professor is all but impossible), most of the learning in computer science comes from interaction with the computer, with other students, and with instructors in small study sessions. The various on-line programs are creating solutions to allow learning through all of these channels.

If on-line programs end up developing to prepare students as well as the college classroom does, will they supplant enough of the function of the university to have a material effect on college-level education? Will they affect the limitations that arise from the tight admissions and hefty price tags for the top-tier schools? Will they shutter lower-tier schools? That is going to be a big area of debate for the next decade as these on-line programs develop and refine themselves, and as we see the quality of the product that emerges.

I want to as the next question: If it does as well in teaching what a student needs to know for these technical fields, or, for that matter if it does it even better -- we have to admit that as a possibility as well-- what else remains of the college experience that it fails to replicate? I think the U.S. college system is founded on four objectives: Learn, signal, network, and party. Once we have learning out of the way, what becomes of the other three?

Signal

One thing you do not get if you take Stanford classes on-line that you do get if you graduate from Stanford, even if you master the material just as well, is a Stanford degree. And the value of that degree is as a signal to the job market that you are smart – though what it should signal is something more modest, which is that you did very well in high school – and that you are well trained. This signal is missing for those who do the courses on-line.

But what is the value of the signaling? It is not very valuable if either, a) there is a low-cost, accurate method to gauge ability before hiring, or b) it takes time to gauge ability, but the employee is earning his keep while that ability is assessed.

The first approach works for many technical fields, especially when it comes to computer science. Set someone down to write a few programs and it quickly becomes evident whether they really know what they are doing. Throw in some math problems to verify that they really know their differential equations (though why anyone cares at this point is a bit of a mystery to me). And maybe add in some brain teasers for fun. Granted it is not perfect, but neither is the signal coming from where you graduated and your GPA.

Perhaps this process will become institutionalized, for example by allowing students in the on-line courses to take the same tests as the brick and mortar students in a controlled, verifiable setting. If you studied the same thing and did as well on the tests, then why should an employer care about the technicalities of the degree? What if they can get the on-line student on board for a few thousand dollars less? If it turns out that the market prices the difference at, say, $10,000 a year, and if after a few years the work history dominates the degree in assessing your future, then the $160,000 extra investment does not look too good.

The second approach, used in less technical fields like the entertainment industry, is to let graduates do apprenticeships where the cost of hiring and firing is low. A Harvard degree might give a bit of an edge for this sort of a job, but it is not a guarantee someone will have the difficult-to-define abilities for the job. So the entry hurdle is low, undergraduates from all over can get low-paying or non-paying work doing menial but useful tasks, and over the course of what might be several years they are either moved up the entry-level ladder or are weeded out. The proliferation of internships we have seen over the past few years might be a cyclical phenomenon resulting from the poor job market, but it also might be an emerging structural part of the post-college employment process, to some extent supplanting the college's signaling function. Although this has not been the model for technical fields, it could provide a second approach to deal with the noisier signals that come from the on-line programs.

Network

A century ago, or even less, the old college tie and the old boy network were the main take-aways from the college years. Even today, the network with other students might be the most valuable part of a top-tier MBA. And no doubt it is also valuable in a technical field. But networking now has a life of its own. Supported by the machinery of social networks, on-line programs are already working on building these networks, ones that can be far more extensive than within any university. And when it comes to technical areas – and for that matter, even in non-technical areas – networking and interacting virtually is pretty much the way things go even with the student sitting three seats away in the real classroom.

Party

Once you take the learning, signaling and networking out of the picture, what is left? Well, it might be what, in reality, is the largest component of what goes on in our undergraduate system: taking four years off to have a good time. For many students, the history and English classes are the dues they have to pay.

I think you could pull out half of those who go to college, put some of them into a year or two of vocational training (on-line or not), put others directly into the workplace in an apprenticeship or internship, and see a positive effect for the economy. So although partying is the one aspect of the college experience that cannot be replicated by an on-line higher education, that will be a net gain to society.

Note: One obvious caveat in all of this is that although on-line courses have a good shot with technical subjects, for liberal arts and humanities the task is more difficult. These require small group discussions and intense interaction with the professor. I think for those who seek such an education, the model also is different from that of the large real universities. To my mind, the model is that of any of a few dozen small liberal art colleges with an interactive and focused curriculum.  

My Work on Agent-based Models

Today there is a New York Times article on my work on agent-based models and related points.  The paper the article refers to is linked to here. And there is related discussion, dealing with stress testing issues and agent-based modeling, in the Office of Financial Research 2012 Annual Report, pages 46 to 58.

The Great Migration of the 21st Century

One lesson we should keep in mind as we recover in the aftermath of Sandy is that we are slow learners. Although the vulnerability of many of these communities is undeniable, we have resolved to rebuild the homes. That resolve will no doubt weaken if the region is revisited by similar disasters, and those displaced will be forced to move on. If climate change is at the root, that will happen. There will be a crescendo of such disasters, replaying thousands of times in populated areas across the globe. Hurricane Sandy thus has given us a glimpse into what will be the dominant theme of the twenty first century: forced migration.

Historically, migration has been driven by need, such as a disparity in economic situation, or because the migrating group reached the limits of the land given population growth. The migration may be into uncontested, virgin land; what is referred to as wave migration. Or it may be migration into other populated areas, which can lead to a new elite displacing the existing elite, to changes in status and a redistribution of wealth, but with the two societies existing side by side. A third type of migration, prominent in the barbarian period in the first millennium CE, is not based on economic need or population constraints, but on a nomadic culture pillaging the riches of the lands they invade. The first two are demand-pull, the third is supply-push.

I can envision any of these migration models playing out in the next century. Gradual migration and assimilation, or a gradual replacement of the indigenous population with a new elite, or one of invasion and warfare. Or wave migration; less likely but particularly interesting because the very effects of climate change will open up new, previously uninhabitable land even as flood and drought make other land uninhabitable. The plot of James Bond's “A View to a Kill” comes to mind; there the villain planned to trigger a massive earthquake that would plunge most of the California coastline into the sea, turning his holdings of inland desert into new, prime oceanfront real estate. Climate change and rising sea levels replaces the earthquake and villain with an alternative plot.

How bad can this sort of thing get?

The Last Great Migration: The Barbarians

There has been revisionist history over the past decades recasting the invasion of the barbarians; the use of the term migration in place of barbarian invasion is representative of this shift. And the barbarian invasions were a great migration. But it may be too early to discard the view, depicted in accounts of the time, that the feudal Europe we recognize emerged from the wave of a thousand years of invasion and ethnic cleansing.

The headline statement for this period is that the barbarians laid waste to everything, and over time forest and swamp intruded where there had been civilization. By the ninth century, there were miles of formerly populated countryside devoid of people, and those in one village lived their lives with little knowledge of other villages. In Spain the Vandals divided the country among themselves, but not before they destroyed the land. When the Goths conquered the Vandals, they fled from Spain, crossed the Straits of Gibraltar to Africa, and continued with unrelenting ruthlessness. A contemporary writer gives this account:

They carried their destructiveness into every corner of it; they dispeopled it by their devastations; exterminating every thing with fire and sword. They did not even spare the vines and fruit trees, that those to whom caves and inaccessible mountains had afforded a retreat, might find no nourishment of any kind. Their hostile rage could not be satiated, and there was no place exempted from the effects of it. They tortured their prisoners with the most exquisite cruelly, that they might force from them a discovery of their hidden treasures. The more they discovered the more they expected, and the more implacable they became. Neither the infirmities of age nor of sex; neither the dignity of nobility, nor the sanctity of sacerdotal office, could mitigate their fury; but the more illustrious their prisoners were, the more barbarously they insulted them. The public buildings which resisted the violence of the flames, they leveled to the ground. They left many cities without an inhabitant. When they approached any fortified place, which their undisciplined army could not reduce, they gathered together a multitude of prisoners, and putting them to the sword, left their bodies unburied, that the stench of the carcasses might oblige the garrison to abandon it.

The barbarians were equal opportunity destroyers. No matter what their station, those who survived their invasions uniformly found their living standards diminished as this migration proceeded. The Barbarians were rural and to some extent nomadic, mingling agriculture with hunting and herding. If the land became exhausted, they moved on to clear virgin land while the forest closed in behind them. They lacked many techniques for cultivating and preserving the land. They used slash and burn methods which quickly led to diminishing yields. Before the migration, under the late Roman Republic, the average yield in Italy was four times the seed. After the migration, in thirteenth-century England, yields were at least three times the seed. But in the barbarian age the largest harvests were twice the seed, the lowest ones fell below one and a half times the seed. This means that at least half of the cultivated area served to produce seed, a dearth in production compared both to what existed before and what would exist thereafter.

But, on the bright side...

The barbarians brought about some equalization for the lower classes. Social inequality grew dramatically during the Roman period; ancient Rome had rich aristocrats and well-off freeman farmers, but also had landless laborers and slave labor. The long depression of the barbarian age fostered the growth of a new, intermediate class that combined the now landless freemen and the freed slaves. This new social group became the serfs of Feudal society. The reduced efficiency in agriculture increased the demand for labor; there was work for every man. Indeed, labor often was in such short supply that the landholders had to bid for their services. So, strangely, the barbarians became a leveling force for society even as they broadly diminished the standard of living.

Conclusion

Anyone who lived through the life cycle of the baby boom knows two things about demographics. First, demographic cycles are slow but inexorable. And second, perhaps because they move so slowly, they are often ignored. It was obvious with the emergence of the baby boom post-World War II that over the course of the next five to ten years there would be a tidal wave of bodies coming into elementary schools, and that in ten to fifteen years that tidal wave would hit high schools, then colleges, then the housing market. Yet we lived through split sessions because schools were not built to accommodate this boom, even though there was more than adequate lead time. (And many of the schools that did get built then were torn down once the baby boomers move past school age, just in time to miss the next demographic wave – the children of the baby boomers).

Climate change will progress at an even slower, imperceptible pace. And unlike demographics, where the changes in birthrates are undeniable, climate change exists in a cloud of uncertainty. Not only do some question its existence, but even those who take it as a given cannot clearly project its course. The point is that we miss even the obvious risks if they move slowly enough, and the realities and effect of climate change remain less than obvious. And there are few risks that are as slow moving but substantial as those associated with climate change. The frog in the pot is the operative analogy.

Barbarians overran Europe as far as Scotland to the north and Portugal to the west; the land was carved up and administered by this new elite, with the original landholders displaced and the laborers becoming serfs. The Burgundians and the Visigoths took two thirds of their respective conquests, each Burgundian housed as a “guest” with the former landholder now living in a small part of his former estate. The Vandals seized the best land in northern Africa with no regard for the former inhabitants. The Lombards in Italy took a third of the land. The Franks took possession of much of the land in France.

The newly arrived became lords of their holdings, the previous tenants and farmers became their serfs. In the end this great migration gave us the Feudal Age, a social order that defined Europe for eight hundred years. What will appear a century hence, after the great migration on which we are soon to embark?

A Crack in the Foundation of Economics -- More Readings

Last year I did a post on a mathematical error that has dictated the direction of important work in economics, and more especially finance. The discovery of this error, by U.K. mathematician Ole Peters, has slowly gained some recognition, though for some reason the journal where the original paper was published has not been willing to publish this correction.

At its root the error is obscure -- as would inevitably be the case for it to have persisted for so long and for its incorrect conclusion to be relied on by such luminaries as Paul Samuelson and Kenneth Arrow.  But more has been published about it after my post which do a better job at explaining the problem and its implications. So for those who are interested -- and you will be interested if you think about how a portfolio grows over time, how the policy for a group relates to the results for individuals, or the implications (correct and mistaken) of the St. Petersburg paradox -- I am providing links to them here:

The first is an interview with Ole by Michael Mauboussin, and the second is a paper by a group at Tower Watson. It is significant that the bulk of the notice for this is coming from industry rather than academics, and that the core group that is providing notice is the affiliated with the interdisciplinary Santa Fe Institute.

Jorge Luis Borges and the Emerging Virtual Age

Perfect memory, complete knowledge, the creation of a personal, imaginary world, the nurturing of a virtual life, and living the double life of the real and the virtual; these, the trajectory of the virtual age, are the central themes in the short stories of the Argentinian writer, Jorge Luis Borges. Borges wrote in the first half of the twentieth century. He was a literary prodigy, works of his published while he was still a child. And, perhaps because he knew that he faced the specter of blindness in mid-life due to a genetic condition, Borges read voraciously and developed a command of literature, mathematics and history in his early years.

I have already discussed one of Borges' works, Funes the Memorious, in a previous post. Funes has perfect memory, a gift on the one hand but a curse on the other, because in reflexively recalling every detail of his current and past surroundings, activities, thoughts and conversations, he cannot reason abstractly. Sartre has pointed out that the process of thought, the pathway from knowledge to meaning, requires negation, i.e., willfully ignoring some aspects and focusing on others, and this Funes cannot do. I related Funes to the end result of the virtual age, where most all of our activities – and certainly our activities within the virtual world – will be indelibly committed to the cloud.

Here I will discuss other of Borges' works of fiction with the same objective of illuminating aspects of the virtual age, two in particular:

1. We are creating and inhabiting our own virtual world. It most immediately appears in computer games and avatars, but it also appears with a bit more subtlety through our on-line image. Our Facebook selves are not our real selves, and our Facebook friends are not really our friends. Like the sultry-voiced grandmother as a phone sex worker, as we extend further out past a small circle of real friends we are to a greater and greater extent who we wish to be or who we think others want us to be in a virtual world. (My eight year-old daughter is a twelve year-old French girl in Poptropica).
2. We are moving toward a world where there is perfect memory and unlimited knowledge. Knowledge of the world and our history through Wikipedia, of where we are and what we are doing through social networks. If something is put into the cloud, it might well be there forever. And when we inhabit our virtual selves we capture all of our history, because all that is virtual begins in the noosphere.

A number of books have discussed the social implications of the present state of the virtual age, none better than You Are Not a Gadget by Jaron Lanier, who, not just incidentally, popularized the term “virtual reality”. But a discussion of society in the virtual age requires more than a look at the world today. The term “age” suggests a longer-term process, and if it is indeed an age, we are just climbing over the cusp. The feudal age lasted from about 800AD to 1400 AD, the industrial age that started with the Industrial Revolution in the 1700s – actually glimmers of the industrial age extend back to the 1400's – has been with us for the better part of three centuries. If the virtual age really is an age of similar import, we can take the trends we see today and push them forward to an all but unimaginable extent. So rather than thinking of the virtual reality of today, think of something along the lines of Nozick's experience machine. Or, Borges' world of Tlon. And rather than thinking of the facts-at-your-fingertips of today's wikipedia, think of Borges' Aleph.

The reason to look at Borges' work in the context of the emerging virtual age is not to plot a path for the future in terms of science fiction. It is to see the implications on ourselves and society. For Borges, the intrusion of the fantastic world into the real leads to alienation; the gift of perfect memory and complete knowledge leads to stifling of our innate, human capacity for creativity.

A side benefit of using Borges' work as the substrate for this discussion is that it is a quick read. Many of the stories I will reference are ten pages or less.

Creating Our Virtual World
I will start with two short stories where Borges creates virtual worlds, where man inhabits a world of dreams and disquieting fantasy.

The Circular Ruin

The grey man kissed the mud, climbed up the bank with pushing aside (probably, without feeling) the blades which were lacerating his flesh, and crawled, nauseated and bloodstained, up to the circular enclosure crowned with a stone tiger or horse, which sometimes was the color of flame and now was that of ashes. This circle was a temple which had been devoured by ancient fires, profaned by the miasmal jungle, and whose god no longer received the homage of men. The stranger stretched himself out beneath the pedestal.

In The Circular Ruins an old man enters the ruins of an ancient temple, his goal to dream a man, to “dream him in minute entirety and insert him into reality.” That is, to create his real offspring by virtual means, part by part through a painstaking process of dreams. In order to do so he himself moves further and further into this virtual world of dreams, to the point that he finally is only awake to the real world a few hours of the day. He dreams his son “entrail by entrail, feature by feature, in a thousand and one secret nights” until, finally, the dreamed one awakes.

The Dreamer is tormented by the fear that his son will discover he is nothing more than “a mere simulacrum,” and so it is with some relief, but also humiliation and terror that he discovers, some time later, that he also is an illusion, that someone else was dreaming him. As suggested by the title, there is a possibly endless recurrence of one virtual world being dreamed up within another one, each depending on the previous one for the shadow of its life. With the subjugation of the real into the virtual, The Circular Ruins depicts a gray world where there is an absence of time and of history.

Tlon, Uqbar, Orbis Tertius

The contact and the habit of Tlön have disintegrated this world. Enchanted by its rigor, humanity forgets over and again that it is a rigor of chess masters, not of angels. Already the schools have been invaded by the (conjectural) "primitive language" of Tlön; already the teaching of its harmonious history (filled with moving episodes) has wiped out the one which governed in my childhood; already a fictitious past occupies in our memories the place of another, a past of which we know nothing with certainty - not even that it is false.

For the imaginary inhabitants of Tlon life is no more than a subjective projection of the mind with no material existence. Indeed, there are no nouns in Tlön's language, only impersonal verbs and adjectives. For example: there is no word corresponding to the word "moon,", but there is a verb which in English would be "to moon" or "to moonate." What we might say as "The moon rose above the river" is for them "upward behind the onstreaming it mooned." They do not conceive that the spatial persists in time. The perception of a cloud of smoke on the horizon and then of the burning field and then of the half-extinguished cigarette that produced the blaze is considered an example of association of ideas. Because reality is strictly mental, the sciences on Tlön are all subordinated to one discipline: psychology.

As in The Circular Ruin, Tlon invades the real world with one of fantasy. But rather than taking a dream and making it a reality, on Tlon the reality pursues and is embraced by the dream. Rather than the real being created by the virtual as occurs in the Circular Ruin, in Tlon the virtual envelopes the real. In The Circular Ruin the dreamer created a son that at least apparently was real, in Tlon there is no material at all. Their world permeates the real world, the real world is yielding, disintegrating under its influence, its fictitious past replacing real history.

Much as you could do in virtual space where you can build whatever world, on Tlon there are numerous competing schools of metaphysics: one that negates time, another that thinks all existence a dream. That is, for all of its complexity and seeming randomness, Tlon is built by man, using man's rationality and with man as its deity. Because of this, once the world became aware of Tlon – through the work of a journalist (from Tennessee!) who exhumes all forty volumes of the lost Encyclopedia of Tlon – “Manuals, anthologies, summaries, literal versions, authorized re- editions and pirated editions of the Greatest Work of Man flooded and still flood the earth.” Almost immediately, reality yields on more than one account. The truth is that it longed to yield. How could one do other than submit to Tlön, to the minute and vast evidence of an orderly plant? It is useless to answer that reality is also orderly. Reality is based on divine laws which we never quite grasp. Tlön is surely a labyrinth, but it is a labyrinth devised by men, a labyrinth destined to be deciphered by men.

All things of Tlon sweep the world because "any symmetry with a semblance or order" – order which is possible in a fantasy world designed by man, but not in the unfathomable world – is preferred to the unfathomable nature of the real world. People forget their national pasts, studying Tlon history, learning Tlon languages, giving over their very existences to Tlon. Borges predicts that ultimately "English and French and mere Spanish will disappear from the globe. The world will be Tlon."

The notion of virtual and real enter from the outset of the story: One of the heresiarchs of Uqbar, the country from which the literature of Tlon originated, had declared that mirrors and copulation are abominable, because they increase the number or men. The mirror in a virtual sense; copulation in a real sense.

Related to the theme of the intersection of the real and virtual world is that of The Double: two people entwined as if they are one person, or one person appearing as two, occurs repeatedly in Borges' fiction. The Shape of the Sword, Theme, and The Life of Tadeo Cruz are examples of a man represented in ambiguous terms. In The Shape of the Sword, the same person is the betrayer and the betrayed; in Theme the same person is a hero and a traitor; and in The Life of Tadeo Cruz two people are as if they are one in terms of their experiences and personal characteristics. Manifest in these stories is the interplay of the real and the fantasy. Can the two be kept separate, is one real and the other an illusion, if one is lost is the other lost as well? The classic Borges' treatment of the double is his very short story, Borges and I.

Borges and I

I shall endure in Borges, not in myself (if, indeed, I am anybody at all), but I recognize myself less in his books than in many others', or in the tedious strumming of a guitar. Years ago I tried to free myself from him, and I moved on from the mythologies of the slums and outskirts of the city to games with time and infinity, but those games belong to Borges now, and I shall have to think up other things. So my life is a point- counterpoint, a kind of fugue, and a falling away―and everything winds up being lost to me, and everything falls into oblivion, or into the hands of the other man.

I am not sure which of us it is that's writing this page.

Borges and I is the culmination of the melding of the real and the virtual, where the real selves and the virtual selves can no longer be distinguished or set apart. The narrator, the “I”, is private, and in the lexicon of the virtual age, is the real. The “I” in this story enjoys the little things – the real things – of life: coffee, maps, the charm of old typefaces. “Borges” is the public version of the self, the version that is transmittable electronically and can be molded to meet the expectations of the broad virtual audience (and "friends"), that has no connection to the substance of life, but rather exists for the view projected to others.

The private man is the man who experiences, the public man is the one who projects an image. Ultimately, it is not just, as the final sentence of the story expounds, that the “I” and the “Borges” cannot tell who is doing the writing, but that neither can lay claim to be the real person. That is taken over by the collective conscientiousness of all the readers. When the “I” dies, little memory of him will remain; it is the public “Borges” that will be recalled.

All Information does not equal All Knowledge

The Library of Babel

When it was announced that the Library contained all books, the first reaction was unbounded joy. All men felt themselves the possessors of an intact and secret treasure. There was no personal problem, no world problem, whose eloquent solution did not exist―somewhere in some hexagon.

That unbridled hopefulness was succeeded, naturally enough, by a similarly disproportionate depression. The certainty that some bookshelf in some hexagon contained precious books, yet that those precious books were forever out of reach, was almost unbearable.

The Library of Babel contains an all but countless number of books stacked within its hexagonal rooms. Each book contains four hundred ten pages, each page contains forty lines, and each line can contain eighty characters. So each book has a total of 410 · 40 · 80 = 1,312,000 characters. There are 25 characters that can be used to fill the slots, twenty-two letters along with a blank space, a period and comma. (There are no numbers nor are there capital letters). The library contains a book with every possible combination of those characters. So any history (including a detailed history of the future), description of a place or person, philosophical discourse or religious tome will exist somewhere in the library. That is, subject to the constraints on the length of the books, the library contains all knowledge. More than that, it contains all possible knowledge. There is no action, no flight of imagination that has not already been inscribed in one of the books. To have command of the library is to have the attribute of God, knowing all that has occurred and will occur, knowing what is in the hearts of all mankind.

The problem is that this knowledge is not indexed, and the vastness of the library assures that the knowledge it contains will never be accessed. For every book that has content the librarian must traverse multitudes of books, one might have the letters mcv repeated from start to finish, or another with the exact same sequence, but ending in mvv. But even a book with seemingly random letters, there will be another book that can be taken as a dictionary which, in its random language, gives meaning to those letters in such a way that the former book leaps forth with meaning. And because there are many such dictionaries, the same text, meaningless to us, can have multitudes of meanings, some of terrible significance.

But even if you find a book that made sense, and even if it seems on point, you can never know if it is fact or fiction. For each book that is in some sense true and correct, there will be innumerable others that vary ever so slightly from that correctness, or are patently false: “the faithful catalog of the Library, thousands and thousands of false catalogs, the proof of the falsity of those false catalogs, a proof of the falsity of the true catalog, the gnostic gospel of Basilides, the commentary upon that gospel, the commentary on the commentary on that gospel, the true story of your death, the translation of every book into every language, the interpolations of every book into all books, the treatise Bede could have written (but did not) on the mythology of the Saxon people, the lost books of Tacitus.”

It is the juxtaposition of limitless knowledge with the fruitlessness of accessing that knowledge which is the core theme of this story. Just how large this library is is all but unfathomable. Indeed, a book has been written on the mathematical features of the library. Given that each of the 1,312,000 slots can be filled in any of 25 different ways, there are 25^1,312,000, or about 10^1,834,100, distinct books in the Library. (Actually, it is even more than that, because each book has a title on its spine, and perhaps for every book, it must appear with all possible titles. But we will leave this out of the calculation, because even without it, the number of books is about as large a number as we can contextually conceive). Our known universe could not contain even a minuscule portion of the books in this library. The known universe is about 10^27 meters across. If we take the universe to be a cube 10^27 on each side, and assume we can fit a thousand books in each cubic meter, then our universe could hold 10^81 · 10^3 = 10^84 books. If we were to do that, it is 10^84 books down, another 10^1,834,016 books to go. Even if we shrink the books down to the size of a proton, 10^-15 meters across, so we could pack 10^45 books in each cubic meter, the known universe would only hold 10^126 of these books.

The frustration that there is unbounded knowledge that is out of reach breeds superstitions, even gods and religions. There is a belief in what is called the Book Man. On some shelf in some hexagon, it was argued, there must exist a book that is the cipher and perfect compendium of all other books, and some librarian must have examined that book; this librarian is analogous to a god. “Many have gone in search of Him. For a hundred years, men beat every possible path― and every path in vain. How was one to locate the idolized secret hexagon that sheltered Him? Someone proposed searching by regression: To locate book A, first consult book B, which tells where book A can be found; to locate book B, first consult book C, and so on, to infinity...(In fact it can be shown that such a compendium cannot exists; the library itself is the only compendium).

Funes the Memorious
He knew the forms of the clouds in the southern sky on the morning of April 30,1882, and he could compare them in his memory with the veins in the marbled binding of a book he had seen only once, or with the feathers of spray lifted by an oar on the Rio Negro on the eve of the Battle of Quebracho. Nor were those memories simple—every visual image was linked to muscular sensations, thermal sensations, and so on.
No one has ever felt the heat and pressure of a reality as inexhaustible as that which battered Ireneo, day and night, in his poor South American hinterland. It was hard for him to sleep. To sleep is to take one's mind from the world; Funes, lying on his back on his cot, in the dimness of his room, could picture every crack in the wall, every molding of the precise houses that surrounded him.

Those on Tlon do not reason about reality because they do not live in the real world. In contrast, Ireneo Funes cannot reason because he is too bound up in reality; he is in incapable of breaking away from the onslaught of facts in order to think abstractly. Funes says to his interviewer, "My memory, sir, is like a garbage heap." His story is about the need to be able to forget, the paralyzing effect of perfect memory.

Except for his gift of perfect memory, Funes is frail in every dimension. Paralyzed and bedridden by the same accident that led to his indelible memory, he cannot do anything based on this gift; it remains tethered to his mental and hence virtual world. He knows everything that he has experienced, but cannot digest this knowledge. Unlike those in the Library of Babel, he is not frustrated and depressed by this disconnect between having everything at hand but in a useless form. Rather, he is the proto-web surfer, happy to frolic in the sterile virtual world, collecting and recalling facts without any further purpose. Still, he chooses to stay in a darkened room to contain the press of data on his mind. At the age of nineteen, Funes dies of pulmonary congestion, a physical mirror of his mental congestion. As far as stories about the perils of too much information go, this on ranks at the top.

The Aleph

Under the step, toward the right, I saw a small iridescent sphere of almost unbearable brightness. At first I thought it was spinning; then I realized that the movement was an illusion produced by the dizzying spectacles inside it. The Aleph was probably two or three centimeters in diameter, but universal space was contained inside it, with no diminution in size. Each thing (the glass surface of a mirror, let us say) was infinite things, because I could clearly see it from every point in the cosmos.

The infinite Aleph contains within its small sphere a simultaneous vision of millions of delightful and horrible acts, all occupying the same point. Looking at it is to have a god-like vision that the narrator can only compare to the descriptions of Persian mystics, Ezekiel's flight to prophesy, and Alain de Lille's description of a sphere whose center is everywhere and circumference nowhere. Yet the other-worldly Aleph is located in an improbably real-world setting, the basement – the nineteenth step up from the bottom of the basement, to be exact – of a condemned house in a run-down neighborhood. To gain this ineffable vision, the narrator must lie down on a tile floor in a narrow space more like a cistern than a basement, on a humble couch, in the company of a crate of empty bottles and a pile of burlap sacks. Taking one of the burlap bags as a pillow, the he stretches out, precisely situated on the couch in "something of a pit."

There are a number of points of irony in The Aleph in addition to that of finding the fantastic Aleph in such a comically real-world setting. One is that in spite of having free access to the Aleph, Carlos Argentino, the proprietor of the Aleph, still is a bad poet. (Though he does manage to be a prize winning poet). A second is that in the real world, absent the Aleph, the narrator holds to a sublime memory of dignity and beauty of his dearly departed Beatrice, but in the light of the Aleph he sees her less flattering post-mortal state of nothing but bones. The Aleph captures everything without filtering, and therefore shares the same limitations as Funes exhibits with his perfect memory. Again we come back to Sartre's notion of negation. There is no device in the Aleph for negation, and so Beatriz, who was remembered by a limited and generous memory now is also seen in the stark, present reality.

Note: I have taken from The Unimaginable Mathematics of Borges' Library of Babel for the numerical calculation of the vastness of the Library of Babel, and from Borges and His Fiction for literary interpretation of Borges's work.

The Great Labor Reset: Labor Laundering, Self-Sourcing, and Other Tales of Woe

In a recent post I discussed the potential for long-term, structural unemployment, the possibility that some of what we are seeing in the unemployment picture will not be resolved by an economic upturn. The focus of the post was on how robots and computers are increasingly replacing labor as a factor of production. One question, though, is why should we see this strongly manifest in the labor market now. The move toward robotics might be inexorable, but it also is gradual. So certainly it should not be the source of sky rocketing unemployment in the wake of the 2008 crisis. This gets to other effects of the crisis on the labor market.

The Great Labor Reset

The most opportune time to do a structural home renovation is after a fire has gutted the house. The crisis of 2008 did the same for the labor market. As much as anything else, the 2008 crisis provided the cover for making changes in the labor market that would have been fraught with institutional push-back in a normal environment. There are institutional barriers to outsourcing labor, reducing benefits and wages, and moving full time workers to part time, even if a purely neoclassical analysis suggests these changes can be absorbed by the supply and demand equations of the labor market. So some of what we have seen in terms of shifts in the labor market is not simply a reduction in hiring, but a change in the labor-employer contract that would not have sat well outside of the fog of war coming from the 2008 crisis.

Labor Laundering

One change in the labor market is what I call labor laundering. Many employers need to protect good will with their customers and cannot be seen as bullying workers. So they outsource their labor pool to contractors, most commonly operating in other countries, but also domestically through what are basically next-generation temp agencies. For example, warehouse packing is the sweatshop job of our time. The article “I Was a Warehouse Slave” gives a day-in-the-life view of these workers, effectively paid for piece-work, without benefits, with one-day notice job security, in physically grueling conditions. More than 20 percent of the American workforce is now “contingent” – temporary workers, as well as contractors and independent consultants.

Labor laundering only works if the workers are far removed from the customers, so that the consumers don't see how the sausage is being made. Which means it works better for remote, on-line retailing than when the workers are in the neighborhood store. Thus labor laundering gives the on-line retailers an advantage as far as labor is concerned.

Everything else equal, it is more efficient to do production domestically rather than outsourcing it abroad. The use of robots and the rising costs of labor in the principle outsourcing countries are both eliminating the advantages of outsourced labor. Labor laundering is meeting these rising labor costs from the other directions, reducing the costs of domestic labor. So although manufacturing is moving back to our shores, for labor and employment the picture is not as pretty as it might seems.

Self-Sourcing

In my recent post on this topic I focused on robots taking over many labor-intensive tasks, some of which were considered beyond the reach of such automation. When there is labor involved, often the role of the robot is taken on by the consumer; we are outsourcing to ourselves. It is not very subtle stuff: self-checkout, self-ticketing, managing our own calendars, correspondence and travel arrangements. On net, even if the total time required for these tasks ends up being greater than in the days of cashiers, ticket agents, and secretaries, the cost to the producer is reduced because the labor is us. The same is true for a lot of our entertainment; Facebook and web surfing being good examples. The nature of this consumption leads us to do a lot of the work.

Workers of the World – Goodnight!

What do all of these unemployed and underemployed going to do?

I don't have a ready answer to this, but I have toyed with a thought experiment, one that – as most thought experiments do – takes things to the extreme: What if an alien race came to earth and said that if we allowed them to live in the desert sand of the Sahara and Gobi and left them alone, they would generally (if times were good) provide us with most of our consumption needs – food, housing, energy, transportation. What if they told us they would gave us all experience machines to keep us happy, (I wrote about this a while ago; it is aconcept most closely tied to the late 20^th century philosopher Robert Nozick. Think of taking aspects of our virtual world a few iterations further, so that we can plug games, realty shows and other aspects of our non-work lives into our brains so that we are pretty much living a world of our own design), so that our demand for consumption was readily sated. What is the social contract that would be drawn up between us and the aliens? I might try to follow up on this question in a later post.