Inefficient accounting

Recent research that shows conflicting and confusing but significant impact on stock prices during policy discussions around a suggested change in the “Fair Value Accounting,” rule, is puzzling at the very least. Common sense should indicate that the value of a firm and thus the prices of securities that subdivide that value do not change by accountants moving money around or changing reports. Hence, the change in prices of certain securities due to an anticipated accounting rule change could only happen if the policy forced a transfer of value from one set of stakeholders to another. Regulatory bodies, apparently in an attempt to “fix the economy,” through creative accounting, were overactive in policy-making during the financial meltdown. A deeper dive into basic economics may be the least one could do before heading out to Washington to engage in such activities.

Value is never generated by moving money around or by reporting financial statements differently. Value is only created by innovation and that happens only in real markets. Accounting, a necessary evil, should be as simple as possible, so that policy makers do not have to burn the midnight oil in the next crisis trying to “relax” and “tighten” accounting rules to save the economy. Simple accounting, however, could substantially increase the unemployment rate as it will flush out the value destroying activities in the financial sector, that is growing like cancer on real productive parts of the economy.

The prescription to grow the economy is simple – let entrepreneurship thrive in a regime of simple and consistent reporting of financials.

Autoimmune games

Recent news from Johns Hopkins that game theory could have applications in cancer treatment is in a profitable direction. Windows of predictable regime switching by cancer cells appear to be the optimal time to attack them – by disrupting the lactate transport mechanism, slowing down cooperation. It is further proof that there are common foundational aspects to the behavior of complex systems. Those able to step out of the dogma of disciplines are more likely to invent in any field.

Biological systems, a complex dance among symbiotes, parasites and own cells, are not well understood by modern medicine. Although it has been easy to kill the invaders that are mutating slowly, other valiant attempts at controlling system behavior seem to have failed. This is because medicine has been a closed science that perpetuate ideas from ancient times. Humans have been humble enough to accept that they are unable to understand the work of God fully and thus set out to mend the components of their bodies by selectively intervening on organs and other components. Such intervention, however, is fundamentally symptomatic with no implications for long term welfare, happiness or utility.

Medicine could benefit significantly if it can shed dogmatic views and look outside their opaque walls for new ideas.

Data neutrality

As the “net neutrality” debate kicks in – effectively forced by a handful of monopolistic companies who almost already control the internet in an attempt to make it even less accessible, it is encouraging to see that the city of San Francisco (SF) is heading in the other (and correct) direction. The recently appointed Chief Data Officer (CDO) of SF is initiating a strategic plan for making data open. Data, the only remaining valuable raw materials in the world, are largely locked up by a handful of companies, generating monopoly profits for them.

It is high time that data are democratized. As the economy shifts into making every decision data driven, delegating the meaning of the phrase “gut feel,” to the pain one gets after a heavy and unpleasant meal, existing and antiquated monopoly laws need to be rewritten. The industrial revolution is over and today’s economy is not driven by the manufacturing of nuts, bolts and automobiles – it is driven by information and intellectual property (IP). Real monopolies of today are those who are hoarding data and those who have unfair advantages in the use of the central nervous system of the economy, the internet, to create and lock up IP. The fact that the regulators are even considering the argument that the internet needs to be subdivided, providing more skewed advantages to those who already operate as monopolies indicate that they are completely out of touch. A congress, filled with octogenarians and a bureaucracy, only slightly younger, are in no position to make laws in the information age.

Net neutrality and democratized data are necessary conditions for unbridled innovation and economic growth. Anything less will be a step back – something regulators are well advised to stay as far away as possible.

Don’t cry for me

It was an enjoyable spectacle – something that lifted the spirit of at least half the world. Sport, perhaps the only human invention, that may provide a safe outlet for the clan like behavior that is integral to the human psyche. It is much less expensive – even a dozen billion $ invested in the recently concluded famous ball game, is a mere drop in the bucket, if it can keep the testosterone laden humans under control and perhaps avoid other more expensive endeavors, grown men and women engage in around the world. Some sport, however, still suffer from hooliganism, an expression of the same ideas that have kept humanity under check from advancing further.

Real champions are sportsmen – they play the sport seriously and accept victories and defeats as part of the game. They do not attempt to win at any cost and they lift mere humans from despair and afford them abundant joy. They move whole countries, something their mediocre leaders simply cannot do and they unite them – not to war against others but to see how unity could add value to entire societies, countries and humanity itself. They script beautiful stories on the field – some tragedies, some even comedies but always engaging.

It is important to nourish truly global sport – something that could engage large swaths of the world population. If we do, perhaps, we can alleviate the pain and tribulations served every day by ego and ignorance around the world.

Engineers discover uncertainty

A recent paper in Science describes simulations and systematic analyses of uncertainty as a way to simplify predictions of material properties such as density, hardness and reactivity for so called “designer materials.” Conventional engineering – in education and in practice – focus too much on deterministic methods of evaluation and design, an artifact of the use of traditional materials that are well understood. But such designs are of little use in the modern world, already replete with ugly structures and weak materials. Additionally, most of the traditional engineering designs could be fully handled by computers.

The next frontier for engineering has been designer materials that could substantially change industry, electronics, energy and drug design. The use of deterministic and antiquated tools of yesteryear have been successful in slowing down innovation for the past several decades. Precision has to be abandoned and faster experiments with approximations have to be embraced. Trends need to be evaluated, hypotheses need to be formed, tested and proved and errors are to be expected. Once variations are accepted, then it is easier to predict, test, refine and retest. These techniques have been in use in many areas and it is time that such ideas entered engineering and materials science.

Materials scientists and engineers, laggards of the technology cornucopia, need to come to the party soon.

The end of mind?

In a recent study (1), the authors seem to have made the following interesting observation:

“In 11 studies, we found that participants typically did not enjoy spending 6 to 15 minutes in a room by themselves with nothing to do but think, that they enjoyed doing mundane external activities much more, and that many preferred to administer electric shocks to themselves instead of being left alone with their thoughts. Most people seem to prefer to be doing something rather than nothing, even if that something is negative.”

Most of the study subjects appear to be men. Does this indicate a systematic atrophy of the human mind? Is this the end of thoughts? Is this the beginning of regression to nothingness?

Humans have been busy most of their evolutionary history – they had to sense and avert danger in every corner, hunt for food incessantly and later fight other clans constantly for superiority and survival. Humans have been both tacticians and a strategists, adept at maximizing within the constraints presented. They even ventured into abstract realms – philosophy, art and mathematics – that provided little direct utility to the problems at hand. Some even had visions of space travel and rocketed to nearby pebbles as a precursor. The human mind has been active – perhaps till very recently.

Now, we find ourselves unable to think and preferring electric shocks to boredom. How did we get here? Where do we go from here? Is this a segregation of mind share? What role do society, education and industrial organizations play?  Humans, the most unlikely species to dominate the World, may have overshot their own capabilities.

(1) Just think: The challenges of the disengaged mind

Timothy D. Wilson1,*,
David A. Reinhard1,
Erin C. Westgate1,
Daniel T. Gilbert2,
Nicole Ellerbeck1,
Cheryl Hahn1,
Casey L. Brown1,
Adi Shaked1

The education gap

A recent article in NY times points out correctly that there is a subtle difference between the statement that “the US has the best universities” and “of the top 25 universities, most are in the US.” Indeed, an education gap has opened up between the very top and the average available college education in the US. Many believe that the recently fashionable online education trend will even out the field, making college education fully democratic. Educators, policy-makers, rating agencies and the public appear to be missing several important considerations here.

Before one can measure and rate the outcome of a process, one has to define the objectives of the process itself. In the last century, education was supposed to train graduates for “jobs.” However, in an economy that does not create many jobs, the objective of education has to be fundamentally redefined. Today, education has to be something that prepares graduates for the non-jobs – add value to society through innovation and advancement of knowledge and ideas. These are volatile endeavors – most offering no stability and often result in catastrophic failures. In a jobless economy, the next generation has to be taught skills that are not necessarily related to parroting out standardized answers to Arithmetic, Physics, Chemistry and Biology questions (PISA scores, for example) – or churning out engineers and doctors like perfectly predictable stack of pancakes in the “International house of pancakes.”  High scores in standardized exams and high graduation rates in environments that are designed to create “bricks in the wall,” are not good metrics for the success of education.

It is important to fully redefine the objectives of modern education before one could conclude on its effectiveness. The content drilled into the brains of the merry college goers of today, is largely a commodity and it generally correlates badly to eventual success. It is the ability to look outside the content and find relationships among apparently disconnected fields that will hold the key for future success. On that measure, the US schools, still offer much higher flexibility than the antiquated systems of the East. Further, the top schools in the US continue to command the lion’s share of innovation in the world – a true measure of how good education is.

Stupidity of the crowds

Recent research from the Max Plank Institute for Psycholinguistics in the Netherlands show that Chimpanzees quickly copy arbitrary behavior of others in close proximity. The researcher noticed how a female chimp named Julie repeatedly put a blade of grass for no apparent reason in her ears and that behavior was copied rapidly by other chimps who observed it. This has implications for humans, who share most of the genetic make-up of chimps. Copying observed behavior of others may have had some evolutionary advantage for humans – at the very least it may have allowed them to experiment. It appears that such a notion is now built into the psyche of humans. This may have some negative consequences in the modern world.

For example, in the financial markets – there appears to be a tendency to follow arbitrary behavior of others, however stupid that could be. It has been established that in large markets, outcomes are generally efficient even though individual participants could be irrational and stupid. However, if copying is an in-built behavior pattern of the closest cousins of the chimps, then one could envision persistent excursions away from efficiency. Hedge funds, for example, may arbitrarily attempt a trade that could be replicated by many others – not because they understand it but because it is compelling to copy. The short term volatility in the market could be explained by such chimp-like behavior.

This behavior is equally apparent in real markets. For example, it is often observed that in large meetings within operating companies in which the participants are ambivalent as to the choices presented, a preemptive selection decision by one is quickly followed by many. In such experiments, the crowd could reach diametrically opposite decisions just because the first mover had preferences in one direction or another. Large companies are generally managed by chimp-like instincts exhibited by one and quickly adhered to by others.

It is ironic that large-brained animals – chimps and humans – may be more prone to group-think than others such as cats, who exhibit more individualistic preferences.

Maximizing children

Recent research from the University of Wisconsin-Madison shows that early stress – such as poverty and abuse - has a lasting deleterious effect on children’s brains. Stress at ages less than five seems to impact even the structure of the brain with predictable negative effects all through life. Policy tacticians, counting today’s debt and tomorrow’s votes and busy shutting down the government may be well advised to take a more holistic and macro view of societal costs and health.

Education and health with unambiguous positive network effects on society could substantially influence the trajectory a nation or society could progress in. Now, it appears that even micro-effects such as early childhood stress may have to be considered in the design and provision of healthcare if societies want to nourish healthy, productive and intelligent future generations. Maximizing human resources is an important strategic goal for any society and if that is understood then one could delve into policy implications.

Humans, born totally incompetent and unprotected, require systematic nourishment in early part of their lives. Evolution seems to have assumed that societies would care for the children and accordingly selected a design with a large brain attached to a feeble body that can be pushed through a narrow canal at birth. Such a design requires a system of support, for without it the results are obvious. But in more subtle ways, even if the children survive physically, it appears that they get hurt mentally if sufficiently protective environments are not afforded. The brain, a fantastic organ, requires close attention in the formative years and it appears that modern societies do not understand this well.

More practically, there are two primary questions modern societies have to grapple with. First, given that a child requires specific considerations at least in the first five years, should parents be punished if they are unwilling or unable to provide the required environments for them?. Since the child is a luxury item and a choice, more thought and planning are needed prior to a decision to have children. And, second, assuming no policy will be perfect and that transitions will be problematic in any case, how should societies treat children born into environments unable to provide the evolutionarily required conditions?

As the politicians and policy makers – some octogenarians – are utterly incompetent and incapable of understanding and thinking about the future, it seems that we are entering a very problematic time. “Serving the country,” is not a job and it requires people who recognize at the very least that they have become ineffective.

The age of AI

Computer scientists from the University of Washington and the Allen Institute for Artificial Intelligence in Seattle claim that they have created the first fully automated computer program that teaches everything there is to know about any visual concept (1). Artificial Intelligence has been the most hyped and the least effective of concepts for over three decades. Determinism and rules based logic – underpinnings of the shallow understanding of human knowledge by humans, have put a lid on progress in this field and it appears that such a constraint could be for ever.

Watson, the current champion, has perpetuated the same ideas even though it dazzled ordinary humans by its ability to memorize rules and retrieve them fast. Not impressed, the autonomous car maker of the West, unleashed the “neural net” of immense proportions on the web where it invented search, only to realize that the beast only went looking for “cat videos.” And now, some academics claim that all they need is raw computing power to create something that will learn “everything there is to know.” It is indeed impressive.

Artificial Intelligence is showing its age. No amount of computing power is going to help humans learn how stupid they really are.

(1)http://esciencenews.com/articles/2014/06/13/new.computer.program.aims.teach.itself.everything.about.anything

Homocentrism

Nearly 500 years ago, a heliocentric view of the solar system was proposed. It was reluctantly accepted over time – by the religious and not so religious, as it fundamentally shook the core belief system of humans – the idea that they are not at the center of the universe. Further intellectual excursions into defining the universe, first as infinite and then as very large, possibly supplemented by alternatives, have been eating into the psyche of humans, as they struggle to forfeit superiority.

They never really let the idea go. The fact that Earth revolves around the Sun and the solar system revolves around the center black hole of the Milky Way and the galaxy itself revolves around the center of gravity of the local group, that represents a tiny part of the space-time continuum of one of the many possible universes, never sinks in. Astrophysics and Astrobiology, arguably the most progressive of scientific disciplines of the present, still invest significant resources looking for Earth’s twins and Human’s alter-ego, across the universe. They argue that life will be found on an “Earth-like planet,” rocky with a density of 5.5 grams per cubic centimeters, revolving around a “Sun-like” star in the “habitable zone,” that affords the same temperature and radiation shields, with an atmosphere replete with oxygen and oceans with plenty of water to drink, bathe and perform religious ceremonies. Such is the power of homocentrism that leading science fiction writers find extra-terrestrials travelling to Earth to be similar to humans - eyes, legs, hands and a brain, supported on long and flexible necks, albeit with a different skin color, something humans hold dear. The less sophisticated ones create crafts that travel across space-time and find creatures, well dressed and fed, ready to converse in English.

The discovery of thousands of exoplanets has led to a feeding frenzy and heart-break for most for they are yet to find something with the precise dimensions and density of their beloved home. Exolife has eluded them and this has forced them to lower some standards. Some are now willing to accept that the Sun is no ordinary star and that there are ten times as many dwarf stars as Sun-like stars with one-tenth the energy, occupying space near and far. This has expanded the “habitable region,” where Earth’s twins would be found, albeit such a discovery may not be as exciting. On that Earth, just next door, orbiting a dwarf, they still hope to find organisms, animals and human clones of similar proportions, aerobic and hydrophilic, living, fighting and killing each other, occasionally looking for their twins elsewhere. They are ready to sacrifice the Sun but not the Earth, an ironic twist to the story of “scientific discoveries.”

Homocentrism, the curse of humanity, may have substantially limited humans.

The value of natural assets

A recent paper in the Journal of the Association of Environmental and Resource Economists highlights some issues most finance professionals either do not understand or tend to forget. However, it falls short of describing how value emanates from a basket of interacting options on the underlying tangible stock of natural assets. Such frameworks have been available for decades, but business schools and finance professional tend to focus on how to better count today’s money rather than value tomorrow’s options. Machines are fully capable of counting money and it is unclear why industries such as finance and accounting employ so many people with inferior skills compared to computers.

However, “the strategic thinking” exhibited in the paper should also be approached with caution. Ever since humans arrived on the planet, they have been worrying about “running out of” natural resources. This is understandable from an accounting sense for non-renewables and from a management sense for renewables, the latter if optimized with well understood portfolio techniques provide growing and prosperous paths to the future. Such a thinking, however, is based on static assumptions on technology and human ingenuity. What environmental economists (and non-economists) do not fully appreciate is that technology discontinuities could substantially remove the concerns of previous regimes within very short time-spans. So, although it is certainly important to manage the stock of fish, forests, ground-water and other such resources, it is much more important to effect a leap in technology that could make such concerns go away. Current education systems provide skills heavily focused on the present but not the future. This is why the “singularity,” feared (or hoped for) by the “intelligentsia” may never arrive.

Although the paper does not address this, from a policy perspective, it is also important to prioritize – For example, fish, forest and ground-water could become the least of our concerns if an asteroid of measurable size heads our way. Although self-driving cars and phones that glow under water are laudable goals for the current technology leaders, they should realize that humans are imprisoned on a small planet in the midst of an unbelievable amount of space debris. It is a miracle that we have the opportunity to think about managing our forests better.

The data problem

It appears that the “data age” has arrived. Aided by century old Mathematics and latest technologies for the collection of large amounts of data, nearly everybody seems to be excited about the insights that are going to be revealed. Will data prove the existence of God? Will data tell us precisely when each of us will depart from this Earth?  Will data finally usher in the long feared “singularity?” Are data enough to create insights and make better decisions?

Economists and scientists have a checkered history in the use of data to prove what they believe. A hypothesis, once stated and believed, can always be proven with data. The man from France who made a strong case for wealth redistribution may have to now relook at the raw materials he used to build the leaning edifice. The listeners to the Satellite echoes and the finders of the ocean pings, who knew precisely where the metal bird fell and sank may now have to relook at the data they collected and analyzed. Analyzing data with preconceived expectations have proven to be dangerous in many fields – Medicine, Economics and High Energy Physics, included. Data have helped many careers and it has killed many others.

Data are not enough – Common-sense and logic are still important.

Reaching Type II

Over the ages, many have wondered if humans could transform into a Type II society. Different definitions exist for Type II society, one humans could aspire to, most of which are related to technological capabilities to harness and use energy. Although this forms the foundation of measurement, a more holistic approach will be to combine such metrics with the characteristics that are likely in such as civilization.

In the status-quo society, humans are such poor users of available energy, most waste time thinking about sustainable population rates and running out of fossil fuels and minerals. The most popular worry of humanity today – global warming – would be such a trivial matter in a Type II society with zero cost energy. With a nice example of controlled fusion in close quarters, the Sun, which produces many times more than what is currently consumed if humans could harness what reaches the surface through highly inefficient current technologies, it is ironic that humans have not progressed further on fusion.

One characteristic of type II societies will be a dearth of tactical issues – problems that consume inferior societies, never able to solve them strategically. Such issues include, in addition to directly energy related problems, other attributes such as death, taxes, wealth, ego, pain and all segmentation schemes – such as class, country, race, region, religion and physical characteristics. There will not be any needs in a Type II society – such as food, health and information – with zero cost energy comprehensively providing food on demand, the cure for death making health irrelevant and all information permeating through every thinking cell. In Type II societies, with aspirations to reach Type III in the future, biological systems may simply reduce to thinking machines, with little utility for any other noise. If the status-quo Mathematics is the right way to think about it, then, all thinking cells have to connect in a massive network able to self propel to the next level of imagination.

To assess if a Type I society such as humanity is showing promising signs of moving toward Type II, one may measure a percentage of the population who could imagine such an outcome. By any measure, humanity appears doomed as most of the 7 billion appear locked in their own little boxes and an embarrassingly high percentage still looking to satisfy basic needs. The rest spend most of their time worrying about death, taxes, ego, pain and segmentation as if these are the most important issues.

Tactics weigh down on humanity and it seems highly unlikely they could rise above it.

The elite racists

Racism has been in the air – some utterly stupid and others less so – some allowed themselves to be taped and others less so, some very rich and others less so, but most sharing the same characteristics. Racism is not about the words you utter but the actions you take.

I have seen racists before – brain surgeons, technologists and graduates of IV leagues who went down to South America to “study cultures.” They have been explicitly racists but it did not move a single muscle in the beast’s infrastructure, for it was expected and accepted. Graduates of the elite schools and rejects of the elite consulting firms, for they were not corrupt enough to land in jail – racism was not enough for them to rise to the top. They practiced racism all their lives but still, they could not become the one behind the white masks. They shunned anything beneath them as they portray – schools, consulting firms, investment banks – for if you are not from the one – gold coated and corrupt, you could not be accepted to the country club.

Racism, a highly sophisticated notion, is everywhere – not just in audio tapes and it is practiced by the best and the brightest of the world.