This Is the End


Markets, Risk and Human Interaction

May 14, 2011

Avatars in Love

May 14, 2011
A New York Times article reports on avatars in World of Warcraft finding love, which they then consummate through their players, who are real people. As one of my French friends says, it is a turvy topsy world. It reminds me of a Star Trek episode where two ethereal and compatico aliens made up of pure intelligence decide to inhabit the bodies of the Star Trek crew in order to experience the physical world. It doesn't work out well. The humans start to die, so, being of moral character, the aliens retreat into their disembodied state, but first have one last fling in order to consummate their love (with a kiss – it was 1960's television).

We, like WoW's Avatars and Star Trek's Sargon and Thalassa, are straddling the virtual and the physical. The trend is moving toward the former, but most of us still remain in the camp of preferring the latter. But if we do take the leap to living more in a set of virtual worlds, what is the problem with that? One reason, that I will discuss in this post, is that the virtual world is one of limited depth and created with compete intentionality and rationality, and thus strips away much of what makes us 'real'. This might be so obvious that it is not worth writing about. Obvious now, but I do not think it is only in science fictions and thought experiments that we will find games and virtual reality that blur the line beyond our ability to perceive the physical from the virtual.

We are Living in a Materialist World
What is a person?” If I knew the answer to that, I might be able to program an artificial person in a computer. But I can’t. Being a person is not a pat formula, but a quest, a mystery, a leap of faith. – Jaron Lanier

Materialism is a thread of philosophy that views man as inhabiting a deterministic world driven only by the laws of nature. Given that our virtual worlds are driven by a set of (virtual rather than physical) laws laid down by their decidedly finite creators, are completely understandable and solvable, devoid of the spiritual and mystical which the materialist denies, the virtual worlds pose a materialism of a new sort. Consider the Turing Test, which I discussed in a previous post. If we end up being successful in developing a machine that can fool people into thinking it is a person, that can use algorithms to successfully feign personal experience and emotion, then we have gone far towards proving this materialist case.

Indeed, success with the Turing Test is a prerequisite for replacing the physical with the virtual, because people still want human interaction, or the appearance of such interaction, when they occupy their virtual worlds. So creating your own made-to-order world also will mean populating it with made-to-order people, friends created based on the sort of information used now in social networks and dating sites; great friends based on your background, the books you read, music you listen to, sites you visit, perhaps personality tests and the types of e-mail you write. Friends that are then updated and refined based on who you are clicking with. You end up in a virtual world that you prefer to any real world you could find, you end up with apparent humans that are more interesting and tuned into you than any real humans would be.

The virtual worlds we create and occasionally inhabit are materialist because in the virtual world everything comes with a purpose, everything – even randomness – has to be created by rational, conscious action. Everything is constructed with a defined cause and effect. As Lanier writes in You are Not a Gadget:

The definition of a digital object is based on assumptions of what aspects of it will turn out to be important. It will be a flat, mute nothing if you ask something of it that exceeds those expectations. If you didn’t specify the weight of a digital painting in the original definition, it isn’t just weightless, it is less than weightless. A physical object, on the other hand, will be fully rich and fully real whatever you do to it. It will respond to any experiment a scientist can conceive. What makes something fully real is that it is impossible to represent it to completion.

The virtual at once seems to be covering everything but at the same time seems to leave everything of substance out.

The Virtual, Worlds Gone Mad
You cannot call up any wilder vision than a city in which men ask themselves if they have any selves...
You cannot fancy a more skeptical world than that in which men doubt if there is a world. – G.K. Chesterson

Materialism was the rage in early 20th century England, and the Catholic apologist G. K. Chesterson wrote Orthodoxy as a charge against its dogma. In Orthodoxy, Chesterson likens the world of the materialist to that of a madman. The real world, the world of the sane, is filled with mystery, with infinite depth that cannot be plumbed. In contrast, the world of the madman is limited in scale, rational in its construction, and self-contained. We can say of the virtual what Chesterson says of the materialist:

His cosmos may be complete in every rivet and cog-wheel, but still his cosmos is smaller than our world. Somehow his scheme, like the lucid scheme of the madman, seems unconscious of the alien energies and the large indifference of the earth; it is not thinking of the real things of the earth, of fighting peoples or proud mothers, or first love or fear upon the sea.

The complete intentionality of the virtual world, like that of the real world in the eyes of the materialist, can give the impression of humanity, but it is the humanity inhabited by the madman who can not see anything without it having set about with a cause. Chesterson wrote that, “The madman is not the man who has lost his reason. The madman is the man who has lost everything except his reason”.

The virtual world has nothing but reason; it is rational and consistent, because it is developed through the rules of logic and mathematics. Virtual materialism takes materialism to an extreme: In the virtual world there is not even a place for the material. It is a world where one has no self, a world in which there is no world.

Commodity Prices and Paradigm Shifts

May 14, 2011
Jeremy Grantham put out a great quarterly letter about the scarcity of commodities and the marked rise of commodity prices, calling this “the mother of all paradigm shifts”.

Two interesting points in his letter are:
  1. China consumes between 25% and 50% of many important commodities.
  2. Prices for nearly all commodities are two or more standard deviations above their long-term mean; four standard deviations for iron ore, coal, copper and silver.
The recent drop in commodity prices notwithstanding, this and other analysis lay down the groundwork for his concern about the end of falling commodity prices. No one can deny that, absent one hundred per cent recycling, non-renewable resources extracted from a finite world will finally run out. And, furthermore, that we are using these resources more now than we have in the past, and given the growth of China and other countries, there are major sources of consumption that were a rounding error even a few years ago.

But insofar as the large dislocations in prices are due to the rapid increase in demand from China (and the lag in production gearing up to increase supply in response), the increase in commodity prices does not forebode a paradigm shift. Just an increase in demand. And much of the increase in demand is short term. China's explosive demand will finally drop from its stratospheric level, either because China's economic development falters or because China is finally totally covered over in cement.

Paradigm Shifts -- The Usual Suspects
The rise in demand from China does not constitute a paradigm shift – nor does a continuing rise in demand as other countries move up the development trajectory and follow suit.

Nor does the recent rise in speculative demand. This has been a focus early on of Michael Masters. The relatively small supply of commodities compared to the demand that can arise from pension funds and other institutions investors, which lately has trickled down through the use of EFTs to include retail investors, all can create sizable distortions; big money chasing after a limited supply of commodities, coupled with underlying inelastic demand -- because, for example, people still need to eat.

Nor is there a paradigm shift due to technology, though obviously technological change alters resource demand, sometimes for the better and sometimes for the worse. Two examples in the positive column are the reduction of copper demand due to fiber optics and wireless, and the drop in demand for silver due to digital photography. One in the negative column is the increased demand for rare earths for electronics. But technological improvements and increased efficiency are a given in our current paradigm and cannot be considered paradigm shifts; neoclassical models of growth theory have included adjustments for technological change since the 1960s.

The mother of all paradigm shifts
But there is a paradigm shift underway, maybe even the mother of all paradigm shifts, and it is coming from a direction where Grantham and other bears are not looking.

The real paradigm shift, or more like a paradigm drift, because it is slo wly enveloping us, is that we are moving toward preferences and lifestyle where we will simply consume less. A lot less. Like improvements in efficiency, changes in tastes and preferences are nothing new, but this time is different.

I have already discussed this in previous posts on life in the experience machine and the world of smaller scale. In The Accidental EgalitarianI make the point that with the increased focus on technology – where we spend more and more of our time on our cell phone, doing emails, watching DVDs and surfing the web – there is less of a difference between how the super rich and the reasonably well off spend their time hour by hour during their typical days. The point of that post is that in practical terms the income gap is not as large as it might seem; that several orders of magnitude differences in income don’t make all that much difference in what these people do with their time. The point here is a corollary: those activities do not require much in the way of material consumption, and therefore not much in terms of commodities.

In The Technology-Driven Consumption Trap I argue that in the not-so-distant future the main items we will demand, beyond food, clothing and shelter, are “game systems” that approach the level of Nozick’s experience machine, allowing us to have the experience of being anyone we want, wherever we want (even in a world we have designed), accompanied by whomever we want, all in Realicta Immersion 3-D® with full sensory feedback.

Our demand for housing and transportation, two of the biggest commodity hogs, will be lower. McMansions will be totally passe. It should already be dawning on people that most all of our non-sleeping hours at home are spent in the kitchen and its adjacent family room. Living rooms and dining rooms are relics. When people internalize the fact that they spend most of their non-sleeping, non-bathroom, non-eating time in a ten by twelve foot space with their various experience machine prototypes, large homes will, by and large, go the way of cars with fins and chrome.

We obviously will not need to drive around as much, given that so much of what we want is delivered to us electromagnetically. And, getting back to real goods and technological advances, if we take the web-based distribution a few steps further, rather than having thousands of cars running from one store to the next, a couple of delivery trucks will ply the streets. So per-capita consumption of energy and resource-intensive infrastructure will decrease.

Given our evolved interests a few decades hence, most of us will be spending a fraction of our income on consumption. There just won't be a lot that we will demand that requires nonrenewable resources. What we will demand will be in the way of electronic products, which will only consume a few ounces of such commodities. We will basically eat, sleep, work and then veg out. Give us food, plumbing, heat and our two-hundred dollar experience machine games, and we will be happy as a clam.
People who are staring at a tsunami of demand for commodities from the developing world and predicting a doomsday of $400 oil and $4000 gold are missing the longer-term retreating tide of demand as citizens of the developed world actually demand decreasing amounts of energy, large goods, and heavy infrastructure. We won't be packing up and moving to Mars, as the science fiction solutions to resource depletion propose. We will pack up and move into the virtual world.

May 2, 2011

Readings on the Financial Crisis

May 02, 2011
The following reflects my personal views.

The two best treatments of the financial crisis are both free for the reading, courtesy of the U.S. government.

The first to hit the press, the 600-page Financial Crisis Inquiry Report, is the product of a year and a half of work, seven hundred interviews, over a dozen hearings, and millions of pages of documents. The report is not as tome-like as it appears. It is a 400 page book (albeit one with small print) followed by 200 pages of references, appendices and dissents. Don't let the dissents bother you -- they are dealing with second-order issues.

What is most remarkable about this report is that it is written like a best-seller. For example, each chapter subsection begins with a clincher quote taken from the interviews. This not only keeps the story line going, it also allows the Commission to put forward some strong views through the eyes of the crisis participants. It will keep you on the edge of your seat, or at least as far toward the edge of your seat as any of the scores of crisis books written over the past few years.

The second work is the Anatomy of a Financial Collapse, a.k.a. the Levin-Coburn Report of the Senate Permanent Subcommittee on Investigations. This report, which came out in mid-April, weighs in at 640 pages of text, which includes almost three thousand footnotes. It is a brilliant work, constructed through four case studies that show the mortgage mess wending its way from the banks (WaMu), ducking past the regulators (OTS), then turbocharged by the rating agencies (S&P and Moody's) before landing into the waiting arms of the investment banks (Goldman with Deutsche Bank in a supporting role).

While the FCIC report covers the entire landscape, the Levin-Coburn Report, by putting the crisis into a set of interconnected and detailed case studies, distills the essence of the crisis with an historian's perspective and a novelist's flair.