I wrote about Facebook in a blog in January, pointing to ominous clouds on the horizon. (And, one looking at the future of Facebook and the world in 2011.)

For an update. Those clouds now are overhead. With the ever-growing realization that Facebook has been a channel for manipulating our life-as-we-know-it (literally so), there is the drumbeat of #deletefacebook (which I joined last week). And with this are articles showing how difficult it actually can be, which bring to the fore just how deeply Facebook has plunged itself into our being.

There are how-to guides to find alternative to Facebook. There is the recounting of the times Zuckerberg has skirted over the line on privacy, each followed by the ritualistic apology. And there is Colbert's acerbic humor on "Suckerberg", which includes screen shots showing the mind-blowing amount of information Facebook holds on various staff members of his show -- including call's made from one staffer's cellphone, the family tree of another,  and the data for the face-recognition of a third.

Many people will leave Facebook and use alternatives. Some will discover they can leave without using social network alternatives at all. People who stay with Facebook will opt out of everything they can think of, especially related to sharing their personal information with advertisers and apps. (As part of the mea culpa this time around, Facebook is centralizing the privacy settings so you don't have to navigate through twenty different places to do the job.) People will log into apps using their email addresses rather than Facebook, thwarting the insidious tunneling by Facebook beyond its own borders.

Whether people leave or decide to stay with tighter privacy controls, the targeted advertising and third-party sharing that is the life blood of Facebook will be eroded.

Beyond these short-term, but possibly devastating reactions that are focused on Facebook, it is becoming all the more likely that we are at the beginning of a broad sea change in how we view social networking and in our willingness to give up privacy for a song. Jaron Lanier pointed out the faustian bargain we have made with Facebook, Google (which at least gives us something of value in the search engine) and the like, and proposed a path for us to be enfranchised for the personal data we toss into the world.

There is an alternative to the business model of mining personal data, which is having Facebook and others move to a subscription model. But this will not sustain the valuations Facebook currently enjoys. People are not likely to pay out of pocket anywhere near the value that is implied by giving the world all of their personal data. Which suggests just how much we all are giving away.

The following is a brief, contemporary account of our world, which we call, for obvious reasons, the Amazon Dystopia. I leave it undated -- Nadir.


The dystopia is most evident in the control of the working class. During work and commuting time all workers are mandated to wear a “health watch”, a wristband that monitors their movement. The wristbands also tell the time and weather. Workers also wear “world view” collars and glasses equipped with biometrics and a 360 degree video display to determine the level of their exertion, and where they are fixing their gaze. The collars can generate electric impulses to encourage workers. If they fail to perform, there is summary dismissal. The government has recently added a worker-terminating explosive charge if workers are found engaging in treasonous behavior – which includes “robust criticism or a marked lack of enthusiasm.”

Cocking and the Rise of the Plutocrats

The elections are determined by majority vote, but the people’s choice becomes the tool of the wealthy once ascending to office. This transformation is known as “cocking”. This is an unfortunate play on the Koch name, but one that is not classified as robust criticism.

Cocking was first revealed in the Washington Post, which reported that the Koch brothers, a center of corporate political power, presented various incumbents with a check made out to their opponent for $25 million, with the threat that the check would be handed over to the opposition if the incumbent did not act in what the Koch brothers considered to be the best interests of the country. The threat only had to be made good one time, and the story planted for the Washington Post team to uncover, (with a Pulitzer for their efforts), before compliance to the threat became absolute.

The Consolidation of Power: From the One Percent to the One
The cocking grew, and political power became increasingly consolidated with those with the deepest pockets, until it finally has become a plutocracy of one. And having power over the press has helped to correctly frame the new order for the masses. At least the small subset of the masses that is not placated by free, unlimited streaming of videos and music.

From Each According to His Need

A value-added tax is now a primary source of revenue. Essentials such as food, clothing, and school supplies pass through a taxation station, the “fulfillment center”. Its operation is based on extensive records of every citizen, both their biometrics, gazing patterns, queries, social interactions, and of course consumption history, to infer their preferences, to the end of taxing them more highly on their purchases based on the algorithmic determination of how much they need them. This principle is promoted with the slogan, “from each according to his need.” All purchases are made with the certification of the buyer that they will not resell or redistribute, with the delivery chain iron clad from the fulfillment center to the consumer's doorstep to reduce the risk of missteps.

Luxury goods by definition are not needed, and therefore generally are exempt from taxation.

To Each According to His Abilities

The tax is paid to the agency that is responsible for the building and maintaining of this distribution system. This payment is tax exempt, because it already is a tax. The agency is in private hands because the government has determined to leave to business those things that it can do best, as measured by the profit they can extract. Thus the slogan, “to each according to his abilities.” As has been noted in various recent Washington Post articles, this is the most sure way of adding to the economy, and thus to the wealth of all individuals.

The Revolt of the Masses

Note by the conveyor of this account: As with any dystopia there is a plucky, fearless group that is fighting back. Led by Kadir and his former-rival-but-now-lover Sabella, a beautiful woman who is good with knives, this group is bringing in others to fight against the tyranny of the plutocracy.

Note by the second conveyor of this account: They are discovered and killed. The end.

Twitter was not available to the pod people in The Invasion of the Body Snatchers. They had to confront the humans directly, pointing and screeching to muster the mob to attack. But now that we have Twitter, a pod person in our day and age can efficiently and remotely signal a human to the pod-people mob with hashtag HumanToo.(This hashtag is already used in other contexts, but always by humans, so no problem.)

We don't have body snatchers right now, and, for what it is worth, we have put in legal protections should the event ever occur. Barring a dystopian state, (probably inevitable should the instance arise), no one can take someone's body without due process. No one can point and screech and have the mob take over from there.

At least that is true if body snatching is considered an assault on civil liberties that are protected by law. I suspect that is the case. Just as there are other actions that require due process. No one can be incarcerated without due process. No one's property can be seized without due process. However, there are harmful actions that can occur outside the constraints of due process, like accusations that do not rise to a threat of harm or to libel. While immune from the requirement of due process, they can destroy one's character and reputation. (Thus the term character assassination.) It can leave the victim unemployable, and set them apart from society.

The pod people had bad intentions from the start, at least from the human's perspective. But sometimes there are things going on that justify some pointing and screeching. Unfortunately, what starts off with noble motives can move into body snatcher mode. And when pointing and screeching is given free rein, that is where things inevitably arrive. With the excesses, the social winds finally turn, and any value, any noble cause, is lost in the process, even met with a backlash.

In a recent post I discussed McCarthyism. This is a good example of how a legitimate concern -- there really were spies tied to the Soviet Union infiltrating the government, intent on subverting our government -- can turn into body snatching. Accusations could be made without support. People could be targeted mistakenly or even for ulterior motives. (And, getting back to the pod people, what if a timid pod person is not body snatching, but is only body touching. Do we pile him in with the full-throttle snatchers?) All with the result that, in so charge an environment, and based on the accusation alone, they were destroyed.

I enjoy studying American history of the post-World War II period, and just remembered that earlier this week we passed the anniversary of a milestone for that period: On December 2, 1954, the United States Senate voted 65 to 22 to condemn McCarthy for "conduct that tends to bring the Senate into dishonor and disrepute", signaling the erosion of the crushing anti-communist excesses of the previous years. McCarthyism has been applied indiscriminately and almost invariably incorrectly to any number of perceived political and social excesses, but it is worth recalling it for what it was.

First, to criticize McCarthyism is not to diminish the real threats. We must understand that at the time there was a real, broadly recognized threat to the U.S. Through documents from Soviet archives and Soviet messages, we know that the Soviet Union engaged in substantial espionage activities in the United States during the 1940's, that the Communist Party in the U.S. was being funded by the Soviet Union, and that it was used as a base for recruiting spies. We should not have McCarthyism diminish the reality of the subversive elements of the time.

The threat was real, but the reaction to that threat was a frenzy, often described as a witch hunt, that was particularly focused on those in the entertainment industry and government. A simple accusation was sufficient for people to be attacked, lose their job and even their career, with no further prospects for employment at more than a menial level. President Truman remarked that, "A man is ruined everywhere and forever. No responsible employer would be likely to take a chance in giving him a job." Those who were accused had no recourse because the process took place through extra-judicial channels; no response could hold sway. Pleading the Fifth Amendment during the proceedings was taken as an indication of guilt.

What is more, although there were instances of serious attempts at subversion, there also were many who were attacked for activities from decades earlier that, though perhaps outside the social and political norm, had been benign. These were pulled up and judged with the now more stringent standard. It was as if a law had been enacted, and those who did not follow that law in the past were found guilty.

Yet at the time, these excessive and unlawful efforts which cast aside any notion of due process were supported by many thoughtful people. For example, William F. Buckley Jr., a prominent conservative intellectual, wrote that McCarthyism “is a movement around which men of good will and stern morality can close ranks." Certainly there were those who were opposed, but popular opinion – and no doubt the concern that those who opposed the juggernaut would be painted with the same brush – keptthem silenced.

The political climate of McCarthyism declined through the 1950’s as public opinion shifted, and a number of court rulings pushed back against the processes that supported it. Most notable is one in 1956 that pushed back on using the invocation of the Fifth Amendment to infer guilt. The Court wrote that “we must condemn the practice of imputing a sinister meaning to the exercise of a person's constitutional right under the Fifth Amendment”, and in 1957, when the Court condemned cases where “Guilt or innocence may turn on what Marx or Engels or someone else wrote or advocated as much as a hundred years or more ago.”

The baby boomers have changed our society as their demographic wave has washed over one institution and norm after another. Split sessions for public schools, a new level of competition for elite colleges, the free love generation and the rise of student protest, the housing bubble, the creation of the Millennials, (a.k.a. the echo boomers). They have the numbers and the political will to do things, and they have time and again pushed against the norm. To use the phrase of one baby boomer, they think different.

The final change will occur with the crashing of that wave: The availability of assisted dying for all. Assisted dying is already becoming the norm for those with terminal illnesses. Australia is the most recent to join the ranks of Sweden, the Netherlands, Belgium, Canada, Columbia, and Luxembourg, as well as California, Colorado, Washington, D.C., and Oregon in the U.S. (I use the term assisted dying broadly, to also involve giving the subject a lethal drug, and not literally being on hand as they take it and pass away. That is what is allowed in California.)

Currently there are restrictions, like having a terminal illness, especially one that is either painful or imminent. But once the mechanics are in place and the threshold has been passed, it is only a matter of degree to have assisted dying for those who decide that their debilitating state makes them no better off than one who is terminally ill. Once we have clear diagnosis tools for Alzheimers, for example, I can imagine voluntary assisted dying protocols along the lines of a more successful and less surreptitious Alice Howland in the film Still Alice.

The way is being paved to make this more acceptable. For example, consider the context provided by a recent full section in the New York Times devoted to the bleak world of old age and dying in Japan. We will see more articles depicting the emptiness of old age, the drain on society and our children, arguments that we should take charge of our death just as we do our lives -- this is the sort of thing that resonates with the baby boomers, also called the "me generation" -- and even arguing, as I have, that keeping someone alive can be akin to torture. I also have argued in a past post that we could help matters along by giving payments (obviously to a designated beneficiary) if someone elects to forgo expensive treatments that would only delay death by a short period.

...An Actuary is someone who wanted to be an accountant but didn't have the personality for it....An introverted actuary stares at his own feet, and extroverted one stares at the other person's feet....What is the difference between God and an actuary? God doesn't think he is an actuary...."Look at the white horses over there." Actuary: "They're white on this side, anyway."

Unfortunately, when it comes to the mess our pensions are in, actuaries are no joke. Pension funds labor under actuarial assumption for expected returns that are mainly pulled out of thin air without any regard for financial economics. Does anyone really think pensions will be able to grow at seven percent or more per annum? When they are constrained by their various constituents to hold 50% to 60% in bonds and cash? (See Figure 3 of this OECD publication.)

Those unrealistic assumptions lead to unsupportable levels of contributions, and thus pensions are underfunded as a matter of course. You know the assumption are wrong when virtually every pension is on the negative side of the ledger. But the actuaries do not seem to have been trained in the concept of making course corrections. Nor do they educate themselves in financial economics to better evaluate the mess they are creating.

Why am I going into this? Over the weekend I attended an event honoring a former colleague of mine from my days at Morgan Stanley, Jeremy Gold. He is an actuary who has spent his career trying to move the pension actuaries toward a firmer foundation in financial economics -- to have them at least avail themselves of what financial economists can provide. In the mid-1980's, Jeremy and I worked together in the Fixed Income Research Group at Morgan Stanley. He and I went on various trips to push fixed income products, and to market the fledging new strategy of portfolio insurance (flying out once to have dinner with the head of the Port Authority of Los Angeles, who we discovered, part way through the first course, had -- surprise -- thought we were selling port insurance). We co-authored a paper in 1988, In Search of the Liability Asset, that is still on various reading lists, maybe not for actuaries, but at least for those in finance.

Jeremy left Morgan Stanley in the late 1980's to get a Ph.D. from Wharton, and spent the next twenty years as a thorn in the side of the actuarial profession, pushing them to add financial and economic structure to their methods. One of the best and most widely read of his works for this is the paper Reinventing Pension Actuarial Science.

At the base of it, finance is not actuarial science. It is not predicated on repeatable, or even known, probabilities. There is no appeal to the law of large numbers for the systematic risks of the financial system.The future does not look like the past. There are no mortality tables for asset returns.

...What do actuaries and Packer fans have in common? They both think that history will repeat itself...

So if you want to be the arbiter for over 20 trillion of U.S. pension assets, a good start is to do it based upon a foundation in finance.

What will be the longest-term damage of the Trump era? A strong, principled leader will restore some semblance of decency and ethics. Foreign governments might view this period as a bad dream, or an outlier event that veered the U.S. away from a now-returning normal. The anti-scientfiic and pro-industry biases in the various departments and agencies can be rectified just as quickly as they were enacted.

There has been plenty of discussion of where the long-term damage might be on the world stage; the new path governments and businesses are taking toward China -- this might have been inevitable, and Trump has been nothing more than an accelerant; the move toward center stage of China and Germany as world leaders.

But within the U.S. the long-term damage will be more subtle. It will be the loss of the oral tradition, of institutional memory, in our government. That is, the loss of processes and interactions that are conveyed by word of mouth and by example as opposed to by written instructions.

The U.S. Treasury is a case in point. I worked there after the financial crisis, helping draft the Volcker Rule, setting up the risk management structure to get information up to the Financial Stability Oversight Council, and building an agent-based models to help assess financial instabilities. I just went back to the Treasury for the first time since the start of the year to find that is has been gutted. This is not something that is on many people's minds, but it has implications that will be felt far beyond the time that a new administration comes on the scene that wants to return the department to a more normal state.

The reason, in a nutshell, is that what the Treasury does -- and what, for that matter the State Department, a department that is in even worse shape, does -- is not in any manuals. It is set on a foundation of what might be called oral tradition. People know how things work, how to get things done, and if the keepers of the oral tradition leave, it all has to start back up from scratch.

When a new administration comes in, it is the normal course of business for all the appointees to be replaced. Generally the new appointees come from outside government, and have not had previous experience in the Treasury. They rely on the staff, which mostly stays from one administration to the next. They know the process for getting things done, for developing and administering policy.

The Treasury is not a regulator per se, but it tends to be the center of communication -- and the referee when necessary -- for the agencies that do have regulatory authority: the SEC, FDIC, CFTC, etc. There is a process that has been honed over many administrations for doing this job, for acting as the central switchboard for dealing with financial issues. What happens when the switchboard operators walk out the door, and there is no operation manual to leave behind?

We take the will to live as a positive attribute, and naturally so; it is, of course in our genes. Whatever subset of our species took a lackadaisical view toward the prospect of death was screened out long ago. We look with admiration on those who battle against terminal illness -- “She’s a real fighter” -- and look down on those who take their own lives. Fighting for your life is the genetic prime directive.

Thus the recent death of Brittany Maynard spurred a flurry of news articles and posts on the Death with Dignity movement. There will be a lot more to come on this topic, and the movement will gather steam because whatever is in the crosshairs of the baby boomers weighs down on society as a whole. Soon the baby boomers will come to the last stage of their demographic wave, a wave that has progressed and altered society as it has moved through their life cycle, from crowding elementary schools into split session, to overcrowding colleges, to buying houses to retiring. The last area they can affect is the mode of dying, so this will become a topic we will increasingly hear about over the next few decades. And ultimately some form of Death with Dignity will become standard in the US.

I have weighed in on another medical issues in one of my past posts making the controversial suggestion that people be compensated for some of the savings incurred if they select a cheaper but less efficacious course of treatment. Here I am going to barrel ahead with another one: a short vignette where I place the alternative to Death with Dignity in a disturbing but I hope illuminating context, that of a torturer and victim. The victim is the one struggling with a painful, debilitating terminal illness. The torturer is in part nature, in part the social norms that insist death proceed along its natural course, and in part the medical community that might be taking the Hippocratic Oath too literally. (And that, unfortunately, has a conflict of interest in keeping a dying patient in their revenue stream):

A particularly invidious development in techniques for torture, more common than many realize -- or are willing to admit -- starts with inducing periods of searing pain while a physician stands at the ready to assure the victim does not succumb to the torture and die prematurely, and indeed that he remains as alert as possible. I mention dying prematurely because the spectre of death is another standard component of this brand of torture. At the start, the victim is advised that no matter what transpires, the process will end in death. Indeed, there is a program for increasing the stages of torture until death occurs. This program is determined before the torture has begun. The victim is given only a rough estimate of when termination will occur; the randomization is added so the victim remains in a state of uncertainty; this to add a psychological element to the torture.

The torture has been “improved” over time to match the physical pain with other aspects of psychological terror. Probes are skillfully inserted into the victim’s brain, and slowly but steadily the victim’s motor skills are degraded. Depending on the approach, this can occur by sequentially inducing paralysis -- first by subtle tremor, then seizures, and eventually ending in full paralysis, starting with the extremities, but then moving to the bowels and finally the lungs. (This is a more clinically desirable replacement for the old school method of dismembering the extremities one at a time; the effect is functionally the same, but can be controlled to progress in a more psychologically devastating manner). More recently, thanks to better mapping of the brain, the degradation of motor skills has been accompanied by degradation of mental abilities, ranging from memory and speech to broader cognitive function. (Which, of course, cannot be allowed to progress too far too quickly, lest it inhibit the victim's awareness).

A common practice is to force the victim’s family members to observe the torture at every step, and even to encourage them to try to comfort the victim, but of course this is done with little effect as the torturer progresses the pain and dysfunction toward its inevitable end. Essentially this leads the victim to be tortured a second time at each stage, because he is left to observe his family’s helplessness in seeing what is transpiring, adding another clever wrinkle to this carefully developed strategy.

There comes a point where the victim and his loved ones plead with the torturer to bring it to its inevitable end, to speed up the clock that is set to bring the drama to its close. But this falls on deaf ears; that would defeat the whole point. There is no early exit from the meticulously planned progression.

And yet another wrinkle is being considered, though still under research and subject to the approval by the ethics board under which the torture establishment operates. In the room, which, despite its clinical appearance and ongoing medical support, we literally can term a torture chamber, is a switch that a loved one can pull to speed up the termination. But this is effectuated at the peril of incarceration. So now the drama is confounded: the victim has to absorb the torture to protect his loved one, the loved one is torn to save the victim while sacrificing herself.

I have written various posts on social policy related to the question of whether and how we redistribute income. One argument of equal opportunity and social egalitarianism is that it is fair to control for the randomness of life. For example, take the luck of the draw in who your parents are. If your best career choice was to be born into a wealthy family, if you got ahead because your father could pull strings to get you an internship at a big investment bank; because you built up your high school resume by spending a summer building houses in Tibet while a classmate had to spend the summer working at the 7-11; or because you could afford two years of one-on-one tutoring for the SAT, the result might be to score higher in an objective standard of selection and have a thriving career and high income as a result. But is that objective standard a fair standard, is it really merit based?

I think of income redistribution as an ex post policy. Another approach is to make ex ante adjustments to level the playing field, and then step away and let the chips fall where they may. When properly executed the ex ante approach is consistent with a meritocracy, and indeed creates a better, deeper and more successful meritocracy than ignoring the differences in essential endowments.

Assume that there is an objective standard for merit, and a test that correctly ranks the subjects in terms of that standard. (For the record, though basing merit on a testing regime is common in many societies, I do not advocate it). Also assume that we can identify the factors that govern success on the test that are within the control of those taking the test, such as how hard they work, as well identify as the factors that are beyond their control. Given these two assumptions, one scheme for the redistribution, suggested by John Roemer (and in this short post I cannot do justice to his argument and stray from it in various respect), is first to define what constitutes the endowment of important characteristics that are outside a person's control, and then assign people to cohorts based on their levels of this endowment. For example, if the endowment is parents' wealth and parents’ education, we place people into cohorts based on the level of these two factors, with the cohorts made narrow enough so that we can take all those in each cohort as being the same with respect to the endowment.

The social policy is to reward the top one percent of those in each cohort equally, and redistribute as need be in order to do so, and do so for the next percentile across each cohort, and so on all the way down. The idea is that the cohorts take into account differences due to what is beyond a person’s control – the endowments on which the cohorts were based – whereas the person’s place within the cohort is based on those things that are within their control, such as how much effort they expend. That is, by definition a person is not responsible for his cohort, and should not be rewarded or disadvantaged by it, but he is responsible for where he sits in that cohort. So when we make decisions in terms of social policy, whether it be redistribution of income or equal opportunity, we adjust percentile by percentile across the cohorts.

Redistributing income or other rewards percentile by percentile across the cohorts is an ex post approach to social egalitarianism. It is ex post because we look at results versus the endowment and ask how we can make things fairer given the outcomes, where we have determined that fairness means people should be accountable and rewarded only for those things that are within their control.

We can use this methodology on an ex ante basis, where we adjust to create equal opportunity rather than equal ex post reward. Applying the cohort approach ex ante is consistent with a merit-based policy. Doing so requires one more assumption, namely that we only put in the endowment things that are both outside the person’s control and also are improvable if targeted with resources. The aspects of the endowment that we adjust for are those that only make a difference over time and where any reallocation occurs before that difference is significant. This means we do not adjust for innate ability or genetically-based advantage, even though these are things that are outside of one’s control. We do not define the cohorts based on these things, we do not equilibrate these through matching percentile by percentile across the cohorts.

To give a sense of the ex ante social program which melds social egalitarianism with the objectives of a meritocracy, consider the following, which makes a good story and also happens to relate to an actual situation. A number of ten year-olds are trying out for a spot on the school's tennis team. There is one spot available, and at the end of the day it comes down to a match between two boys. One has taken tennis lessons for years and practiced many times a week, the other has only played casually every now and then. The well-trained boy wins the match, but only barely. Given his lower endowment of lessons and practice, the loser is a remarkable talent. On the basis of an ex post meritocracy where the established metric was who won the match, the comparatively mediocre boy got the spot. Yet what is a meritocracy ex post is a mediocrity ex ante. Absent the resources for training and competition the inexperienced boy would receive from being on the team, he goes back to other activities, and the world must make due with one less exceptional tennis player. We will all survive; but the point repeats itself many times over in fields that are weightier.

If we take the amount of tennis training as the endowment that is outside one’s control, the boy without the past training might be at the top one percent of the bottom cohort, while the boy who beat him might be in the middle range of the top cohort. A merit-based social policy will reallocate resources for training to the inexperienced boy; perhaps a level of resources equal to that which the top one percent of the top cohort is receiving. If our measures are correct, and if, as assumed above, the reallocation is given early enough in the child’s formative period, we will have someone who is exceptional at tennis who otherwise would have fallen by the wayside. And we will have used those resources more efficiently than if we kept them with the other boy.

The approach I am describing is not the one we are take in the U.S. when we attempt to level the playing field by making adjustments to create equal opportunity. The social program we follow in the U.S. fails in part because it does not distinguish between that which is within and outside of one’s control. It does not even attempt to define cohorts and pick across the various percentiles to reflect effort. And when it moves into ex ante sphere, it throws resources at differences that are not improvable. (There is one program that might appear to move in this direction: The top ten percent of students from every Texas high school are admitted into the university system. We can think of each school as representing a cohort, with the program giving the same opportunity to those in the top decile of each. But it is pointed in the direction of ex post rather than ex ante social egalitarianism because by the time of high school graduation a student who has had poor preparation is likely to be too far gone for the equal opportunity to yield equal results).

In addition to fostering a fairer society, the ex ante approach described above will yield better results than running people through the merit-based process absent this social policy because there will be a larger group that is equivalent to the top decile of the top cohort. But no matter how well we execute ex ante social egalitarianism, we cannot get away from addressing it ex post as well. Not everything can be measured, and some things that can be measured cannot be mitigated. At some point we have to say we have done enough; we do not want the end result to be physicians equally drawn from the top of each cohort if, at the end of the day, all of the ameliorative actions have failed to close the gap. The question that remains then is at that point, ex post, do we enact a social policy to redistribute income, or do we consider the social task to be completed?

Thomas Piketty's book Capital in the Twenty-First Century has been lauded for its detailed analysis of data and for the end result of that analysis, a sweeping statement of an inexorable widening of the distribution of wealth between those with capital and those without. There is unabashed glee among those who have bemoaned the plight of the middle class as the one percent has pulled away, waving the book as the gotcha ya for income redistribution. As should be clear from some of my previous posts, I am one of those people bemoaning the plight, but I am a little slower than many others to take up the Piketty banner.

The book's argument looks at wealth and growth data over the past three centuries, and takes its implications forward with a similar, historical scope. In the twenty-first century” is just that; Piketty is willing to push the implications of his analysis not just over the next decade or two, but about as far as you want. To hear people discuss it, he has discovered the equivalent of a law of physics, namely that capital grows faster than GDP, and if those who own the capital are taking a larger share than GDP has to offer, those without capital must be taking less. Given the miracle of compounding, this is going to lead the capitalists not only to pull away from the proletariat, but pretty much to own everything.

It is easy to run into problems when you are assuming the future will look the past, all the more so when you are also assuming exponential growth. Capitalism is not a law of nature; it need not look the same in the future as in the past; it doesn’t even need to be at the core of society. In the sweep of history, capitalism is a recent development, one that happens to encompass roughly the three hundred years Piketty is using for his analysis. So we should temper our excitement; his work is really based on one, very long-term, sample. To see this point, rather than looking back for three hundred years, go back a few thousand. In the West we have had two other periods comparable in many respects to that of the Industrial Era of today: The Roman Era, and then roughly a thousand years later the Commercial Era. Capital has been the dominating force this time around; in the others it was the military/political complex and the Church, respectively. And in both cases, the writers of the time assumed the structure of the era would go on indefinitely. It was just the way the world worked. If we went back to the these times, the theme would be the consolidation of the political corpus or of the Church, the analysis would not have been centered on the divisions between those with capital and those without. (I won’t get into the comparable time period in China’s history, but given that Piketty cloaks his thesis with the scope of all human history, he should add a second sample to his analysis and see how his thesis fits the dynasties in China over the past couple of millennium. My bet is, not so well).

Will the future look like the past?
What might move us away from capitalism being the universal underpinning for society? Can the world look different in the future? Of course it can. How that happens and what comes next is an open question – people can't even agree on what led to the end of the Roman Era, and there we have the advantage of history to guide us. But here are some things just to give a flavor of the ways in which the capitalist system might be nudged from the current being the true and final state of mankind:

Maybe the need for capital will diminish. All of the discussion of labor and capital presupposes that labor and capital matter. Will we move into a production mode where our demands are met with low capital expenditure? Piketty recognizes the obvious point that if there is little need for capital – and technology could bring that about – then his argument is no longer valid: “If capital is of no use as a factor of production, then by definition its marginal productivity is zero. In the abstract, one can easily imagine a society in which capital is of no use in the production process. ”It might be something to think about in the abstract, but in his view it is not worth lingering, because “in all known human societies, including the most primitive, things have been arranged differently.” That is a pretty broad statement. Even if true, if extrapolating exponential growth is one red flag, a dismissal based on an its-never-happened-before argument is a second.

Maybe we will all become capitalists. Look at the low amount of capital that has been needed for many recent start-ups. Those supplying the labor are also the owners and bring with them their own capital. Perhaps those who labor also be those who own the capital with which they labor? In subsistence agriculture, each farmer owns his own capital, his plot of land. Why not subsistence capitalism? We already have outsourced many tasks to ourselves by using the cheap capital of computers and the Internet; and will be able to do more as 3-D printing and crowd sourcing comes of age.

Maybe the implications of differences in income and wealth will diminish. All of the discussion of wealth and income distribution presupposes that differences in income and wealth matter. As Piketty notes, the nineteenth century novels focused on wealth. Wealth was measured by the number of servants, and thus wealth as a multiple of average earnings x income from capital was key determinant of status. What is the focus today; what might it be twenty or thirty years from now? Looking at the middle class, which is the focus for both Piketty and many of his adherents, could we end up in a world where the differences from a day-to-day lifestyle standpoint are compressed between the super rich and the 'doing OK'? This can happen if what both the super rich and we spend our time on is inexpensive. We are heading in the direction already. We share the same smart phones and spend time in front of the same screen consuming the same content. Of course when it comes to rare wines, contemporary art, and airplane views of Central Park, a gap will remain. But for many of the super rich, we already are seeing erosion; a generation ago cars divided the rich from the middle class; now some of the wealthiest drive the same car I do.

Maybe the consumption of capital-intensive goods will diminish. Consumption drives capitalism. What happens to the consumption of the products of the Industrial Age if we move into a more virtual economy? Consumption of virtual goods almost by definition does not require a lot of the brick and mortar capitalism that has dominated the Industrial Age. Some things, like cell phones and televisions are getting cheaper and cheaper, others like education more and more expensive. If those in the lower rung weight the former more heavily than the latter – and if at the end of the day we find the day-to-day consumption of even the wealthy is also biased that way (I say “at the end of the day” to mean in the post-college years), then much of the discussion of the distribution of wealth becomes moot.

The Exception is the Rule
Piketty notes that the events from 1914 through 1945 altered the course of expanding inequality, and did so even into the 1970’s and 1980’s. “One major lesson is already clear: it was the wars of the twentieth century that, to a large extent, wiped away the past and transformed the structure of inequality.” But that is now the past, and we are back on track: “Today, in the second decade of the twenty-first century, inequalities of wealth that had supposedly disappeared are close to regaining or even surpassing their historical highs.”

The period of retrenchment from his law of growing inequality is hard to take as an aberration given that it extends nearly seventy years. That is a big chunk of time, even if you are looking at a period from the 1700’s to the present. But Piketty does pull out this period as an aberration, as an exception to the rule. But it is not. It is part of the rule. It is an example of the ebb and flow of society and nature, of the noise that destroys and supplants family fortunes, states, and civilizations. It is not unique: for example, in the fourteenth century we had the Black Death, the Hundred Years’ War, and years of devastating famine. Not to mention financial failures that dwarf those of the Great Depression – but they in turn were so dwarfed by the other calamities that they hardly merit a footnote for the period.

Piketty is unequivocal about the effects in the early twentieth century being an aberration, but not about why it was a period when his thesis did not obtain. “…we must insist on the fact that the fall in the capital/income ratio between 1914 and 1945 is explained to only a limited extent by the physical destruction of capital (buildings, factories, infrastructure, etc.) due to the two world wars…In fact, the budgetary and political shocks of two wars proved far more destructive to capital than combat itself.”

So it was not just the destruction of capital, but political shocks. But if that, here is another idea: The period between 1914 and 1980 was the only extended period from the ushering in of the Industrial Age to now where there was no industrial revolution. The first industrial revolution ran from about 1760 to 1840. The second went from the latter half of the 19th century (around the time of the introduction of Bessemer steel in the 1860s) until World Was I. And the third industrial revolution, the computer age, began to gather steam in the 1980s. So I could take Piketty's data and argue that the disparity occurs during periods of industrial revolution, and falters otherwise. No industrial revolution, no problem.

But I'm not going to move into a teleological discussion on how our society could be transformed, anymore than I would talk about the demise of the Roman or the Commercial Era, except to point out the obvious, that unexpected things come along. And to note that, as I have pointed out elsewhere for the financial markets, the more complex and tightly coupled a society or era, the more likely something that does come along can exact a fatal toll.

Conclusions are Opinions
We can move on from Piketty’s thesis to his policy conclusions, and do so independent of the arguments that make up the bulk of the book. It is enough to have the opinion, as many already do, that the disparity in income and wealth is too great, and that the immobility up and down the ladder also is too great. Or that, absent political action, these will become too great in the future. What disparity and immobility is too great is a matter of opinion, and after his analysis, that is how it remains. And if the issue is that the disparity will become too great in the future, the prudent course might be to wait and see what the future brings. The question of redistribution is a political, even a philosophical issue, not an economic one. (A side note: He differs from some others in arguing for taxes on wealth, but that is nothing new. Indeed that is how things were taxed in the China’s Song Dynasty).

Piketty’s opinion seems to be that if we project out to the point that the wealth gap becomes what it was during the Belle Epoque of the early 1900's, we have gone too far. Another person could argue that such a disparity is fine, and then we are at the “agree to disagree” point of the argument. He does ask, “Taking all these elements into account, what is the “right” split between capital and labor? Can we be sure that an economy based on the “free market” and private property always and everywhere leads to an optimal division, as if by magic?” There are not many who really believe in that magic. The question of the ideal split between labor and capital has been debated for over two centuries, which is to say it is a question that will probably never arrive at an answer. Marx stated it as the center of class warfare, couching it in terms of the working day:

The capitalist maintains his rights as a purchaser when he tries to make the working-day as long as possible…. On the other hand...the laborer maintains his right as seller when he wishes to reduce the working-day to one of definite normal duration. There is here, therefore, an antinomy, right against right, both equally bearing the seal of the law of exchanges. Between equal rights force decides. Hence is it that in the history of capitalist production, the determination of what is a working-day, presents itself as the result of a struggle, a struggle between collective capital, i.e., the class of capitalists, and collective labour, i.e., the working-class.

Marx begins with an acknowledgement of the perception of rights on the part of both the capitalist and the laborer, but then argues that the question of the length of the working day cannot be solved by an appeal to rights, but only through class struggle, wherein “force” decides between “equal rights”. (Force can mean physical force, but can also mean the force of the political process).

It is difficult to do much more than simply take sides when it comes to economic rights, because what we call economic rights are really nothing more than the bargaining in an exchange between those providing labor and those providing capital. The social and economic pie has to be split, and there is no objective way to do so. There are some areas of fairness in the civil sphere – freedom from slavery and torture – but what are the rights inherent for a particular term of exchange between the parties in a trade?

Where does this battle lead? For Marx, left unfettered capital digs it own grave, for Piketty, it grows without bound and swallows the world. For Marx, the return on capital falls to zero, for Piketty it persists above the growth rate of the economy. We can argue that Marx is wrong because up to this point we have not witnessed his outcome. I argue that Piketty is also wrong, because he makes the common error of assuming the future will look like the past, even as he recognizes that the past holds a source of failure for his thesis.

Views and opinions expressed are those of the authors and do not necessarily represent official OFR or Treasury positions or policy.

In a recent Time Magazine article, the president of Bard College, Leon Botstein, joined a chorus of criticism of the SAT, going so far as to call it “part hoax and part fraud.” Criticism is coming fast and furious because the SAT has just unveiled a new, improved product to try to fend off a trend among competitive colleges to downplay the role of the SAT, and even to eliminate its use entirely. (The not-for-profit status of the College Board, which produces the SAT, does not put the company beyond reacting to a profit motive; not-for-profit does not exactly mean you don’t get benefits from pulling in more revenue).

Among the critiques are that performance during one afternoon in the junior year of high school should not govern a student’s future (the SAT is not only used for college admission, but also by employers further down the road); that the SAT has little to do with what really constitutes learning and productivity (I haven’t done anything useful in my work by pulling the right answer off of a multiple choice test for as long as I can remember); that it correlates with income more than it does with anything else; and that what has now become years of SAT preparation detracts from more productive learning.

And that is just the start of the list. By its very nature as a standardized test, to the extent colleges rely on the SAT they are looking at exactly the same criteria, so the same sort of students will percolate to the top of the stack. The creative and off-the-wall student who adds the richness and intellectual diversity that a college seeks might be blown off course because there is no reason to think that such a student will do well in a timed, multiple choice test – or even that such a student will have an interest in the many hours of preparation courses required to be competitive in the test. To take the effect of the SAT exam on creativity to the extreme, read a previous blog post I wrote on the effect standardized testing has had on creativity in Asian countries.

You would think that in the emerging world of big data, where Amazon has gone from recommending books to predicting what your next purchase will be, we should be able to find ways to predict how well a student will do in college, and more than that, predict the colleges where he will thrive and reach his potential. Colleges have a rich database at their disposal: high school transcripts, socio-economic data such as household income and family educational background, recommendations and the extra-curricular activities of every applicant, and data on performance ex post for those who have attended. For many universities, this is a database that encompasses hundreds of thousands of students.

There are differences from one high school to the next, and the sample a college has from any one high school might be sparse, but high schools and school districts can augment the data with further detail, so that the database can extend beyond those who have applied. And the data available to the colleges can be expanded by orders of magnitude if students agree to share their admission data and their college performance on an anonymized basis. There already are common applications forms used by many schools, so as far as admission data goes, this requires little more than adding an agreement in the college applications to share data; the sort of agreement we already make with Facebook or Google.

The end result, achievable in a few years, is a vast database of high school performance, drilling down to the specific high school, coupled with the colleges where each student applied, was accepted and attended, along with subsequent college performance. Of course, the nature of big data is that it is data, so students are still converted into numerical representations. But these will cover many dimensions, and those dimensions will better reflect what the students actually do. Each college can approach and analyze the data differently to focus on what they care about. It is the end of the SAT version of standardization. Colleges can still follow up with interviews, campus tours, and reviews of musical performances, articles, videos of sports, and the like. But they will have a much better filter in place as they do so.

In a recent New York Times opinion piece, Paul Krugman assessed the possibility that the economy is in a new, constant state of mild depression, and suggests several reasons why this might be occurring, including slowing population growth and a persistent trade deficit.

To this I would like to suggest another one, which has been a topic of some of my previous posts: We simply demand less in terms of the consumption of produced, brick and mortar types of goods because that is not where we are spending our lives. Granted, we need a place to live, food to eat, a car to get around, but now we are not living to eat, we are eating to live; we are living to do things that do not require a huge industrial machine. (I won't even get into the point that insofar as we require the output of the industrial machine, it is now being run with less labor required).

Take a look at how people are spending their non-working, non-sleeping, non-eating time. It is increasingly doing things where the sum of the goods required are a chair, a table, and the machinery necessary to get a window into the virtual world, whether for binge-watching Breaking Bad, juggling texting with downloading photos, watching YouTube, or, for those who are creatively engaged, producing those YouTubes, in the case of my nine-year old, making movies on Movie Star Planet. The more we are focused on these activities, the less we feel invested in the homes where we generally occupy a five by ten space for our virtual activities, or in our car, which we now use as a transportation vehicle for those occasions where we venture out.

It doesn't take much of a reorientation in this direction to make a difference; and it takes even less when, as Krugman points out, there already is a drop in the demographically-driven demand even if everything else is held constant. And the forward path from here has the potential to be far more troubling that for the demographics, which at this point are mostly behind us. As I have written elsewhere:

We are in the year 2025: Because of advances in production technology, much of the path from extracting the required renewable resources through to the production and distribution of most of the items we demand can be accomplished with automated methods overseen by a small cadre of engineers. The main items we demand, beyond food, clothing and shelter, are the nth generation social connection systems. We are approaching the level of Nozick’s experience machine; we can anyone we want in whatever world we want, accompanied by whomever we want. If you think you used to burn a lot of your free waking hours with your jumping between email, video games, Facebook, and HBO way back when….

Given our evolved interests, most of us are spending a fraction of our income on consumption. There just isn’t a lot that we demand. What we do demand is cheap, and doesn’t require much of any labor to produce. 
Or, doesn’t require production at all. For those who have the money to burn, demand is moving increasingly toward things like land, art, rare wines and Super Bowl tickets, by and large transfers without any economic impact. These notwithstanding, conspicuous consumption is also being dampened; what you wear or drive no longer is so dominating a signal; a far better picture of you and your status is just a few clicks away.

We are a society that basically eats, sleeps, works and then veges out. Not surprising, I guess, given that the tip of the spear of the economy, such as it is, are those same kids who a decade or two earlier were living at home with their parents after college, after graduate school – well, some still are. Though many of us now have our own prefabricated SmallHouse® (McMansions are a thing of the past; no one needs all that space, and, like mink stoles post-Mad Men, social norms regard these as the extravagances of a bygone era). That plus a car, food (the former rarely used, and both produced very inexpensively), our two-hundred dollar experience machine, and we are happy as a clam.

I don’t know exactly how this economy of the future works, but I can tell you that it is not working well. Where is the money coming from for even this minimally consumptive society? What levers can we pull to get ourselves out of this stagnant economy, to reduce unemployment?

Note on this post:
In the last while we have been provided with plenty of fodder for reflections on the virtual society. Avirtual 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.

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.