Untestable simplicity

Cosmology has been unable to advance any further understanding of the universe for nearly a century. However, aided by fancy mathematics and fancier machines, physicists have been successful in creating a false perception of knowledge progression during this time as they danced their way to Nobel prizes and professorships. Some have even been successful in making the field “approachable” for the common woman through lecture circuits, books, blogs, podcasts and countless TV appearances. Even sitcoms have become “socially responsible,” teaching the couch potatoes about black holes and time travel through the comedy of idiots representing wise men. The general and continuous lowering of standards, aiding entry based on popularity and not competence, has resulted in a crop of physicists who are good story tellers but not much else.

The collective groan heard across the physics departments in major universities when the LHC failed to detect exotic partners to the much anticipated Higgs Boson or the conspicuous absence of her bridesmaids, the SUSY particles, could only be attributed to broken strings on their mathematical violins and the possibility of curtailed funding to mend them. It is ironic that the “theory of everything,” was done in by the potent concoction of the particle soup – something that the man who made the last meaningful contribution to physics, warned against. The dangerous combination of declining imagination and accelerating technology to make finer and finer measurements of noise has resulted in the field coming to a grinding halt. To top it all off, mathematics, a tool that helped humanity build civilizations in the past has now turned into a trick to prove anything or to create theories that do not need to be proven.

Experimentalists have been “defending” the field against occasional excursions into imagination – such as the multiverse - on the premise that a theory, if not proposed along with predictions that can be experimentally tested, is not worthwhile. They steadfastly cling to such a practical notion that most are willing to accept any level of complexity in existing alternatives as long as something could be tested. This is indeed noble. However, judging from their contributions for the past hundred years, it is unclear if such a posture is valuable for humanity.

Simplicity, even at the cost of untestability, should dominate the discourse in physics.

Data loss?

A recent report in Current Biology Indicates that a large percentage of the data, supporting scientific publications, are lost due to lack of access to the original authors and obsolete data storage techniques. Underlying data to scientific publications are apparently lost at an astonishing rate of 17% per year. Current expectations of the life of data are significantly different from what was considered to be acceptable 20 years ago.

What is an acceptable span of life for data today? Do data remain relevant for ever? Should data have an expiry date? Data, as we all know, are the raw materials to insight generation but that does not necessarily mean that they should exist for ever. In a world of exponentially increasing data, the challenge is to extract any information content in them quickly and discard the rest. Storing data for ever is likely going to create problems in many different dimensions.

The basic notion that more is better is not at all true for data. Scientific experiments such as the LHC create data at such a rate, it is virtually indistinguishable from random noise, unless one is looking for something specific. Large companies create so much data that many are coming to a grinding halt. The star of the data revolution has been googling its way into such endeavors as creating a human brain through artificial neural nets and curing death on the premise that there is nothing one cannot accomplish if data were available. Based on the artificial brain’s proclivity to seek cat videos on the internet they may be right on one account but not on others.

Data are very close to random noise. More of it is unlikely to solve problems.

Shilling out

A recent Nobel laureate has derided his fellow prize winner as “the catholic who has discovered that God does not exist.” He argues that humans are psychologically imbalanced and make irrational decisions. That is fair enough – one has to just observe our leaders in Washington to understand this is a truism. What he misses however is the simple idea that predicting irrational behavior of aggregate markets – a large number of idiots – is not easy. If this is not true, Yale would have amassed all of the world’s wealth by now. One could observe this is not the case – neither for the University nor for its illustrious champion. It is also not true for its foundation – one would imagine with such knowledge, the professor would have helped it a bit. Alas, alpha is not that easy to capture.

Market efficiency has been a lightening rod for many practioners, those who make money by moving money around for no other purpose. It is ironic that an economist of such stature will fall for the same. It is indeed puzzling that the Nobel committee will find such an argument compelling. Getting wrapped in psychology, albeit being good fodder for story telling, is not amenable to creating frameworks for the behavior of large and complex systems. Measuring real estate prices is one thing – many could do that, but imagining how complex systems function in aggregate is another. If one could indeed predict “bubbles,” why not do that routinely – and become the richest man on earth? Is it just the altruistic endeavors in education that is holding him back? or is it that practicing what is being professed is not as easy as it seams?

To make this clear, once and for all, all he has to do is to predict the next bubble and bet his entire career, home and savings on it. Then, perhaps, he can find some disciples.

Slow evolution

A recent book “The Ghosts of Evolution of Nonsensical Fruit, Missing Patterns and other Ecological Anachronisms” points out that Avocados appear to prefer designs that seem to rely on creatures who lived a few million years ago to perpetuate their seeds. Is this a case of a time warp or just incredibly slow evolutionary trajectories?

Avocados, clinging to a strategy that worked for many millions of years, may find themselves extinct, eventually. Is the speed of evolution an important attribute of survival? The fact that Avocados are still around implies processes that replicate transmission, albeit at lower efficiencies. This is an important learning for more advanced life forms as well. The fact that the form has survived does not mean that it is the fittest, it is just that natural laws have not gotten to them.

Humans should be worried.

Leaning PISA

Results from the recently concluded PISA (Program for International Student Assessment) test show sobering results for US teenagers, lagging behind in Math, Science and Reading to their Asian counterparts in aggregate (although certain states such as MA and CT are on par or above). Although these are important metrics, there are more fundamental questions for education systems worldwide.

Is education about getting high scores in Math, Science and Reading? What’s the correlation of such high scores to eventual success – perhaps defined as the contribution to society – in the advancement of knowledge and humanity? What Math, Science and Reading are being tested – are they from last two centuries or something newer? How do such high scores correlate with the GDP growth of the countries associated with the star test-takers? What do the students who capture such superior scores eventually do with their lives?

What is education for? Is education about taking and performing in tests? Does education improve intelligence or does intelligence portends education? What has been the educational background of people who changed the world? Were they good test takers or something else? What are contemporary tests really testing – is it the ability to take tests, acquired knowledge or intelligence? How does culture affect measurement by tests? Do tests motivate students to learn? How does one learn? Is it from books and classes?

Educations systems, world-over, have gotten it completely wrong. In the East, they cram information into the brains of kids, essentially destroying any innate creative capabilities. In the West, they de-prioritize fundamental knowledge, creating students with stars in their eyes but with no hard skills to back it up. And PISA shows up – testing, ranking and reporting as if it means something. It doesn’t.

The only metric of a good education system is the end result. Does it produce individuals and teams who advance humanity? If not, it does not mean anything.

It is complicated

A recent article in Nature that shows Native Americans may have arrived 24,000 years ago and they are a mixture of two distinct populations – East Asians and Western Eurasians is interesting. Current technology on human genome may be more aptly applied in this manner rather than the misguided attempts at predicting the probability of disease.

Humans have been circling the Earth for long. Contemporary populations that subscribe to country, color or religion are akin to those who may find the meaning of life based on the color of ice-cream that was consumed yesterday. It is such a preposterous notion that a large percentage of the 7 billion current humans are driven by such ideas of cultural purity. They have figured out how to divide themselves so infinitesimally small that the preferred human in close proximity has nearly zero chance of carrying anything resembling them in her genes.

Is this lack of information or just a bug in the physical hardware that they are endowed? If it is the former, then the biggest productivity boost for humanity could come from disseminating information on migratory patterns for the last 50,000 years to all inhabitants. If it is the latter, then, God save us.

Free-less education

The rise in freelance lecturers in US educational institutions is concerning from many perspectives. The first question is why this is happening. If this is emanating from cost reduction (and profit enhancement), it is akin to short-sighted companies focused on next quarter’s EPS instead of better products and strategies. A related question is whether the decline in full-time tenure track faculty is a conscious effort to contain R&D (and perhaps costs).

The US business schools have been educating bean counters for many decades now. They equip them with the “latest tools,” fully capable of demonstrating maximum earnings in their companys’ income statements. Now, there are indications that the administrators of these venerable “not for profit” institutions are practicing what they have been teaching. Sure, reducing costs are important but if it adversely affects the products they make, in this case the graduates of these schools, it is going to come back and bite them later.

It is time that the universities in the country rise to the accountability of creating the best educated generation, yet. If they regress to the gimmicks of failing companies, they have only themselves to blame for the results.

Network dominance

A recent study in the Proceedings of Royal Academy: Biological Sciences shows that the breadth and depth of one’s network are important determinants of skills acquisition and retention. This makes intuitive sense but now data proves it as well. In the context of expanding electronic social networks, it will be interesting to assess the correlation between skills and network scope.

Human brains have always been terribly constrained in the absence of external stimuli. An interesting question is whether the quality of one’s network is as important as its size. Those with stringent criteria for network building with ex.ante biases are likely to build “pure” networks. Such networks, however, are unlikely to extend the thought processes of the participants. On the other hand, promiscuous network builders may build very large systems quickly but may derive little benefit from it as diversity may create a level of noise that is incomprehensible. Logically, then, there is an optimal network building strategy to maximize skills building.

The next battleground – social networks – present a challenging design problem for humans.

The value of time

A recent study from the Mayo clinic that shows extremely high mortality in patients who are over 75 years old who have elected to undergo dialysis is sobering. With over 40% of the sample population passing within six months and a high percentage unable to return home, one has to wonder if decision-making could be improved. This is indeed a difficult question, one that may not have a clear answer, but it is worthwhile to think about it.

If human life cannot be infinitely sustained, then, there is an optimal decision point to extinguish it. If the objective function is a combination of individual and societal utility, maximization of value would require a mutual decision. If human life is standardizable, allowing high substitutability, life would appear to be a wasting asset. In such a situation, life will unambiguously lose value with time and the option held by the individual and society mutually to terminate would be optimally exercised earlier than what current norms allow. Thus, modern societies need to postulate better exits for its members.

On the other hand, if science and technology slopes indicate a step-function change to improve the life span of humans by orders of magnitude, then, exercising the option to exit early is suboptimal – both for the individual and possibly for society. In a world of declining aggregate number of humans, such an exit is extremely expensive. Assuming substitutability, the value of a human life, then, is a function of stock and flow of humans as well as the forecasted lifespan of an individual.

Thus, the value of remaining time for an individual can be reliably forecasted using a few attributes such as total population, net rate of growth and the probability of extension of human lifespan in the near future.

Intelligent evolution

A recent article published in the journal of PLOS pathogens show data indicating that evolvability is an important characteristic of selection. This is a finding that points to the importance of optimal control in a multi-stage game of evolution. Random mutation and single stage selection always sounded too simplistic to many. Now, it appears that evolution is not necessarily that straight forward.

Ridiculing each others’ position has taken much of the air time for debating evolution. There is no theory (let alone hypothesis) that could NOT be modified with new data and insights. Those bowing to the super creators of religion fight endless wars with the super scientists, who have figured it all out. Well, in physics about 4%, in biology less and in economics lesser. Flexibility of mind is much more valuable than conventional belief systems. As much of the world turn around predictable axes, the rest have to attempt to move thoughts forward.

If evolution, indeed, is a multi-stage game and selection shows optimal control, then, one has to question contemporary ideas. If evolution is intelligent, what may not be?

Horizontal innovation

Recent research from MIT shows structural and mechanical guidance from snails and clams improve the designs of robots. This is in a favorable direction of the application of Mathematics, informed by optimal designs from Biology. Vertical specialization has been substantially dampening breakthrough innovation in both engineering and medicine. Synergistic cooperation between mathematicians and biologists could steepen the innovation trajectory in both.

Engineers have been utilizing data in creative ways for centuries. This is a discipline that has invented and utilized much of the analytics, currently rediscovered by scientists. The basic notion that biological systems are too complex to be systematically analyzed using data, kept the discipline back for decades. Now, human genome and big data seem to have broken the shackles.

However, one has to be careful jumping into “big noise,” with presumed success. There will be setbacks and some may declare victory prematurely at the first sign of success. There is significant potential here but it would require professionals with limited horizontal view to trade their egos for a chance of higher success.

Involuntary terraforming

News that a new species of bacteria was found in two category 4 clean room facilities used for assembling payloads for space in two different parts of the World illustrate the difficulties of executing sterilized exploration. This coupled with the fact that earthly organisms were found on Mars probes indicate that the first inhabitants of the planet continue to fool their somewhat more evolved cousins. This is concerning, as humans have a forgettable history of negatively influencing areas they have explored in the past.

Physical exploration of space appears too archaic in the presence of improving technologies for remote viewing. More importantly, the fascination to physically explore the Solar system, apparently to find life, may have to be tempered based on the recent hypothesis that there are at least 8 billion Earth like planets orbiting Sun like stars in the Milky Way alone. Human exploration of the Solar system for extraterrestrial life is a bit like riding a bicycle around the house in an effort to find Lions or some other majestic animals. It is unlikely.

It is time we rethought micro space exploration. The expected information gain from such exploits is close to zero.

Maximum MOM

India’s successful launch of the Mars Orbiter Mission (MOM) is good news. After a few weeks in the Earth’s orbit, the orbiter will be heading out to the famed red planet. The journey, however, is fraught with danger with only the ESA making it in the first attempt.

Ref: NewScientist

A larger question is why India (and before that Japan, China and the ESA) attempted to develop their own technology for the Mars mission. After the US and Russia have already demonstrated viable technologies to reach the orbit and then land on Mars, it is unclear why reinventing such technologies is an economically good decision.

The utility a country derives from developing its own Mars mission may have four parts.

Public Pride (PuP) = Pride from achieving something for humanity

Private Pride (PrP) = Pride from showcasing the country’s accomplishments

Public Data (PuD) = Data and information that will be disseminated publicly

Private Data (PrD) = Data and information that will be held confidential

V = PuP + PrP + PuD + PrD

If the total cost of the mission is C, the the return to the country is (V-C)/C. However, since the true economic value of pride is close to zero, the country’s real return from such missions is low. It can, however, boost this return by acquiring such technologies from countries that have already demonstrated viability.

For example, in India’s case, if it is able to swallow the less valuable pride, then it could buy the technology (from the US or Russia) for just PrD. By doing so, it loses PrP but the selling country will likely subsidize PuP and PuD. In this case, its return from the mission is (PuP+PuD)/PrD. This is likely substantially higher than developing the technology on its own. At the very least, the cost will likely be an order of magnitude less.

More generally, society can maximize return on space investments if follower countries (after a single country has accomplished the goal) simply buys the technology from the leader to execute missions.

Behavioral flexibility

A recent study in The American Naturalist suggests that animals show an equal level of behavioral unpredictability as humans. Observations of adult male mosquitofish over a period of time also seem to indicate that some individuals are more unpredictable compared to others. The authors hypothesize that such unpredictability represents behavioral flexibility that facilitates learning or creates confusion for predators.

These observations have implications for modern organizations also. Large enterprises implement organizational constraints to reduce behavioral volatility of its employees – in how they work, execute tasks, get trained and deliver products and services. They also measure time and effort at detailed task level and they generally view volatility in such metrics as undesirable. These actions by companies may be decreasing the ability of their employees to experiment and learn. The long term impact of this could include declining innovation rate, lack of job satisfaction and stagnant productivity.

Unpredictability and behavioral flexibility may have a positive impact on the viability and growth of organizations.

Ref: Flexibility : Flexible Companies for the Uncertain World.

http://www.crcpress.com/product/isbn/9781439816325

NIFting LIFE

Recent news that the National Ignition Facility (NIF) has surpassed a critical benchmark – obtaining more energy than provided in a fusion experiment is a significant milestone toward free energy, an outcome that will help solve two tactical problems faced by the Earth, environmental degradation and colliding asteroid vaporization. No cost energy production has become a critical need in a system, wobbling toward extinction, either by the actions of its inhabitants or by space debris that envelop it like fruit flies around a rotten apple.

Lasers focused on a target container for hydrogen fusion – a mini Sun

Ref: BBC News

NIF, plagued by technical difficulties, has been behind on its own goals. But it seems to have accomplished what it set out to do a full year before. If the results are verified and replicated, they successfully demonstrate the concept of sustainable hot fusion with energy accretion. This should boost efforts to scale up fusion into practical power generation.

Ref: LIFE at LLNL

The aptly named, Laser Internal Fusion Energy (LIFE) at Lawrence Livermore National Laboratory (LLNL) has been making conceptual power plant designs based on NIF experiments and it appears that we are moving ever closer to reality. Although the goal is to deliver fusion based commercial energy by 2020, recent advancements may allow an accelerated deployment.

Fusion, the only known source for clean energy, may ultimately help humans sneak out of disaster, just in time.

Music to the inventors

Research from Michigan State University shows a high positive correlation between involvement in arts and crafts in childhood (<14 years) to innovation (measured by patents) and business creation later in life. Training and early participation in music, creative writing, photography and other such artistic areas appear to positively influence out-of-the-box thinking, a critical attribute of innovation and new business creation.

It has long been argued that the superiority of the US in innovation is related to its flexible education system that focuses more on whole brain development. Although US may not top other countries in test scores in hard sciences, it does produce a high level of creativity per capita, far in excess of any other country. There is a clear trade off between early specialization in sciences and later creativity. Well known technical institutes around the world, understandably proud of their ability to create a large number of engineers and doctors at will, may be missing a trick. The world may need less human robots in the future, highly efficient in applying what they are taught and it may need more creative individuals who can innovate and create new businesses. An education system focused on creating employees is significantly less valuable than one nourishing inventors and entrepreneurs.

Arts and crafts – that propelled the human psyche out of a dreadful life focused on food and sex – may ultimately give a more substantial makeover for humans.

Option value of organs

A recent study in the Clinical Journal of the American Society of Nephrology argues that assigning a benefit, say $10,000, to a kidney donor could increase available organs for kidney transplantation by 5%. Although the price elasticity of kidneys is unclear, it seems logical to assume a normal market equilibrium. Ethical issues aside, the owner of an organ may be sub optimizing decisions by not exercising the put option optimally.

Organs are wasting assets, the market value of which are declining over time. The utility one gains from her organs is a function of remaining lifetime – with the asset lost in a catastrophic end. The net value of the asset is the difference between the two, that may show a U shaped curve. The put option held by the owner on her organs has an optimal exercise horizon prior to death. This is especially true if the organ is not essential to life, or acceptable backups exist as in the case of donating one out of the two functioning kidneys.

Tangible economic incentives, if applied correctly, can induce optimal exercise, with beneficial societal impacts.

Lonely baby

Recent discovery of a lonely planet without a star, a mere 80 light years away from the Earth is interesting from many angles. The newborn, just 12 million years old, may indicate a failed star at six times the size of Jupiter. Although ejection theories are abound, this could be a case of star formation in zones not considered active. With this unexpected finding, the frenzy of extra solar planet discovery continues to increase.

However, we now know that planets are out there in large quantities and in every size, age and composition. One has to wonder if further exploration of these somewhat uninteresting objects is a good use of limited resources. It is unclear why so much passion exists in the identification and cataloging of planets. Is it the need to verify the already known structure of the universe or perhaps a desire to find life elsewhere. If it is the former, there is enough data to confirm that planetary systems are replicated across the universe. But if it is the later, then, it is advisable to look closer.

With limited understanding of all the life on planet Earth and possible life in close proximity in the solar system, it does not make sense to seek it elsewhere. If this is driving a good part of the thought processes of budding knowledge seekers, this has the potential for destroying further advances.

Efficient Chicago

The idea was simple but the implications are huge. It is clear to those who understand frameworks but less so to others. The notion that information is quickly reflected in the prices of traded assets, standardized and liquid, in markets that implement clear rules of engagement and property rights, is elegantly obvious. It is, however, singularly confusing to active investors, individuals and institutions, a sizable chunk of the US economy.

The dominance of the Chicago school in shaping economic thinking continues. Recently minted Nobel Laureates – Fama and Hansen, seem to complement wonderfully in the grand tradition of theorization and empirical support. Their work has direct practical consequences for investment decisions and asset pricing models. More importantly, they also provide guidance on resource allocation across the economy.

For example, efficient markets mean passive investing dominates, a conclusion that is robustly supported by empirical observations. Even though risk adjusted excess returns (alpha) is shown to be zero (after management and transaction costs) across investment managers (a direct conclusion of Fama’s Efficient Market Hypothesis), significant resources – money, people and time – are wasted across the world by actively managing liquid investments. One has to wonder why the venerable investment banks and financial institutions, filled to the brim with the brightest, engage in activities that add no value either to themselves or to the economy. To make matters worse, there are over eight million active traders in the US alone, ably assisted by the brokerage houses, pushing buttons and pulling levers arranged on multiple screens in such complexity that they rival the cockpit of the space shuttle. As the markets close every day, some rise like vampires – mad, fast and crazy - aiding and abetting the following day’s trades and newly emerging traders. This is a massive misallocation of capital across the entire economy. This is indeed a systemic issue for the economy where agents are engaged in value destroying activities for a large cohort of the economy, presumably because of monopoly rent and hidden options yielded from asymmetric information between the adviser and the client. Such a market failure, if corrected by appropriate policy actions, could significantly improve global productivity.

Hansen’s method of moments help mere mortals make reasonable models for complex macro phenomena. His focus on incorporating the agent’s thoughts, beliefs, doubts and learnings into modeling her actions and the systematic consideration of uncertainty that is evolving stochastically, is refreshing. Determinism has been the bane of theoretical finance for long and the incorporation of uncertainty in accepted models may help measure risk better – both locally and globally. Policy makers will benefit if they understand that flexibility embedded in policy decisions are valuable in the presence of uncertainty.

Chicago has had an unbelievable run – primarily because of its commitment to embracing unconventional ideas early and nourishing them over long periods of time. However, there are indications that the school is becoming more conventional and it is less inclined to accept emerging ideas. If it deviates from a formula that has been successful for nearly a century, it can quickly mean revert to mediocrity, ably demonstrated by its peers today.

Fusion, fusion everywhere but not here

Recent news that NASA may be making progress toward fusion rockets for inter-planetary travel is encouraging. Given the level of knowledge humans appear to posses, it is embarrassing to be in a situation that limits available energy. Everywhere we look, energy is free and it comes from fusion. The inability of humans to master this universal trick is puzzling, especially because zero cost energy would have set them free – with unlimited food, water and automatically cleaned and stabilized environment for ever.

Digging toxic materials out of the ground and burning them in their unstable green house for energy seem to reveal a level of societal stupidity that is incomprehensible. The tree huggers and hipsters, perhaps with better intentions but with equally stupid notions of energy creation have been clamoring for wind, photovoltaic cells and nuclear fission. Is this because of lack of understanding or is it driven by localized incentives that simply will not allow societally optimal solutions?

Energy creation has to stick to a few simple constraints. The process cannot create waste that needs to use energy and time to process, it cannot affect habitats and the environment and more importantly, it cannot consume more than it produces. What is left?

Connected brilliance

A recent article in the journal of Brain hypothesizes that the unusual level of high connectivity between the left and right hemispheres of Einstein's brain may have contributed to his brilliance. If true, this has implications for many areas including childhood brain exercising and education in general.

Typical designs of the human brain seem to promote hemispherical specialization. This may be an unintentional effect of evolution that may have afforded an advantage to being good in one activity or another. If the objective functions of the individual and society are relatively simple, optimal brain design may be dominated by specialization. After all, it is possible to create an efficient hunting group by assembling spotting, throwing and carrying skills in separate individuals. This seem to have continued in the modern world even in the presence of somewhat more complicated needs.

Education systems that stress focus may create highly specialized individuals, akin to robots that possess a limited, albeit being efficient, skill set. As the information and knowledge needs of society increase, there is a natural push toward specialization. However, education systems that cater to this trend are trading off creating individuals with the ability to transform the world to those who can efficiently work in it.

Education systems providing whole brain content may be able to provide a desirable software connectivity overlay to ordinary brains. It is not realistic to expect another Einstein but perhaps universities can devise ways to incrementally improve what they are provided with.

Simulated colonies

A recent article in the Journal of Proceedings of the National Academy of Sciences shows that a simple mathematical simulation explains the formation and progression of human populations between 1500 BCE and 1500 CE. The authors appear proud that their models explain reasonably well how large scale societies formed. However, it also indicates that “intelligently designed” humans resemble ants and bees than something more substantial.

For most of the history of humans – a few parameters that describe the interactions of ecology and geography were enough to explain and forecast their behavior. Sporting fairly simple objective functions that include food, sex and power, human societies flourished with less flexibility and depth shown by ants and bees. They have been understandably proud of the accomplishments of the last few centuries in which they devised faster and more destructive ways to perpetuate the same goals.  Now, simple mathematics prove societal behavior can be easily modeled.

As they dream of perpetuating their genes across the solar system and beyond, humans may benefit from some introspection – what they have done thus far and why they may not do anything different in the future.

Downward mobility

A recent article in Sociology Mind, demonstrating that check cashing outlets strategically target high crime neighborhoods, is an indication that analytics and targeted marketing are kicking into top-gear. Demand for goods and services will be met with supply at prices that will clear the market. The providers of services will maximize profits by selecting the most desirable locations, consumers, products and prices. This is true for crime, guns, prostitution, check-cashing and other such entities. From a policy perspective, however, this has societal implications.

If the reduction of crime has a net economic value to society, then regulating agents that aid crime may be optimal. However, this is an analytical (and empirical) question as regulation adds costs to society by introducing artificial constraints to market clearing mechanisms, resulting in dead-weight losses. The positive spill-over and long-term beneficial effects of crime reduction has to be evaluated against the likely cost of regulations. Both the benefits and costs are uncertain and thus, policies that are staged, introducing flexibility to future course corrections are optimal. Since crime almost always has a perpetrator and a victim, the question is how to shut down access to resources for those who commit the crimes. This is not unlike cutting the blood supply to certain types of cancers. This is, however, a complicated problem as the victims rely on the same mechanisms to live.

Policies have to have a temporal dimension – possibly starting with a severe action (such as government controlled access) with a well laid out plan to move toward a full market based mechanism. The most beneficial policy is not a stagnant one but rather a system with clear and well-articulated transition from necessary regulation to solve the issue at hand to market based mechanisms.

Uncertain governance

As the politicians in Washington battle for their beliefs and brownie points, the coming generation has to seriously consider effecting a transformation in the current governance system. The two-party dysfunction has reached its peak and the halls of the capital are now filled with ignorance and incompetence. The “representatives” simply do not represent the knowledge and capabilities of the population, as over half of them never cared to even vote in recent elections. It is time to move to the future. It is time to break the shackles of irrelevant rules and regulations and equally antiquated law making procedures.

The representative form of democracy is already obsolete in the presence of contemporary and emerging technologies. The elections, controlled by a minority, almost always result in a choice that could be marginally better than the alternative presented, but never the best. Unless the participation in the electoral process can be substantially increased, it will remain to be a sham – an inefficient process to control the damage. The current process elects a handful of people, completely disconnected from the present and with obscene incentives to perpetuate the past. They are ill-equipped to understand the choices in front of them, let alone select the best alternative. Most likely still have fax machines in their offices even though they may not know how to use them. To expect them to effect the best policies for the country is irrational.

The best way to get out of this nightmare is to move to a form of direct democracy – using technology. There is no need to create an inefficient layer between the people and the policies. Alternatives can be easily presented to the people and voted on by the entire country. Perhaps then, the “representatives” can return to their homes and towns and start collecting social security, if it is still available.

Failure

The failure of science to propel thoughts and the failure of religion to lift humanity have left most in the dust – some yearning for meaning and others for food, to sustain themselves. Humans have demonstrated irrationality by living while some attempt to concoct grand theories to explain the inexplicable. In the noise of segmentation – countries, colors and beliefs – homo-sapiens shall sub-optimize and possibly destroy a fantastic quirk in space-time, that is habitable.

They had done it before, erasing sophisticated Neanderthals and running over their cousins across the continents to the South.They had done it before, by pretending superiority and waging wars to prop up their own egos. They had done it before, by travelling far and wide, by injecting diseases and false hopes to the indigenous. They had done it before, by raping and pillaging what is not theirs and then asserting meaningless theories to justify their actions. They had done it before,  by allowing the stupid to rule them and then becoming submissive in their own homes and valleys. They had done it before, by asserting privilege to be talent and initial conditions to be inevitable. They had done it before, by beauty, strength and ignorance.

The failure is irreversible in the presence of societal inflexibility.

Regulatory obsolescence

A recent article in Anesthesia & Analgesia points out that iPhones can already be equipped with Pulse Oximetry – currently only available through expensive and rather bulky equipment in the OR and preparation rooms. However, these devices on smart phones are not yet approved for use. This regulatory overhang is holding back the application of cutting edge technologies in medicine and other areas.

Regulatory agencies with rigid and prescriptive rules are ill-equipped to move at the speed of technology. In such a regime, regulations are likely to constrain the population to antiquated, costly and more risky methods than what may be afforded by contemporary technologies that are more effective but are not proven in the traditional tracks. Unfortunately, the education, skills and knowledge of regulators are unlikely to keep pace with rapidly changing technologies. Thus, decisions made by humans are increasingly less efficient in the creation and implementation of regulations.

A better regulatory regime may be one that describes the expected outcomes in quantitative terms and let technologies, that satisfy such end points, to be automatically approved.

Chandra’s coma

Recent observations from NASA’s Chandra observatory that shows the enormous scope of the Coma cluster of galaxies leave the amateurs dumfounded. The features of this epic structure, spanning over half a million light years, cannot be easily explained. The marriage of at least two giant elliptical galaxies has resulted in a structure of fantastic scale, held in shape, apparently by gravity.

The observation of such structures, ironically, raises more questions than answers. The paradoxical information loss in a black hole, sometimes explained away by the pasting on the surface, leading to the possibility of the universe being a hologram, may need to be revisited. The question is whether peeking into the past is a fruitful activity – does it provide new information or just cloud already established ignorance?

It may be time to look to the future, for the past is too dull or inexplicable with available tools.

Rajan : Intellect to spare

As I walked up to the shabby building in downtown Chicago, battling the bone chilling wind from the lake in 1992, I was looking forward to Rajan’s class. I made the trip from Hyde Park in anticipation of new information and I was never disappointed. Albeit being contemporaries at IIT, my engineering path left me distinctly ignorant of economics and he gave me more than I was bargaining for.

Freshwater economics was refreshing as it provided a robust framework, not unlike the engineering I was used to. The young professor was already showing brilliance as he systematically explained traditional finance from 6 PM to 9 PM. My first peek into research was also instructive with an empirical study into decision-making in financial markets. I attempted to soak the knowledge in with unreliable results. It sounded interesting but it was unclear if managers in firms made decisions that way. Later,I would find that managers were worse, much worse.

The theory was clear – but in practice it turned out be nearly useless. Chicago’s tendency to be enamored by deterministic models is its Achilles heel, as it argued what should be without asking why it is not so. Not many make decisions discounting cash flows but most do calculate an NPV that is swept aside by decision-makers as either irrelevant or incorrect – and for good reasons. Decisions were never that simple – neither in companies nor in the macro economy.

It will be interesting to see if he can bring back an economy in shambles, driven to hell by socialistic and ignorant policies for over five decades.

Mad, fast and dumb

Recent research from the University of Miami warns that the emergence of the “ultrafast machine ecology,” – referring to algorithmic trading - may create more market crashes. This “predatory” behavior, the author argues, is reaching a stage of instability and may need to be regulated. These arguments, based mostly on an engineering view of financial markets seem to be suffering from a lack of understanding of what markets are. Assuming that regulation is the only medicine for any symptom is problematic for many reasons.

First, let’s look at what financial markets are for. They are set up for the trading of standardized paper that represent the value of real assets. Nobody is forced to buy or sell such instruments and markets fundamentally mean that anybody is able to buy and sell those at any time and ideally at any place. The rules that govern such markets are simple – everybody is allowed to analyze publicly available information and make decisions for herself. Granted, the simple rules – equal access to information, no insider trading and no preferential access to trading are not consistently implemented – but that is a different issue.

Second, application of technology to trade is an innovation – but such innovation has not resulted in risk adjusted excess returns (alpha). Nobody has cornered all the wealth in the world yet by algorithmic trading. So in spite of the mad, fast and dumb bunch that shout from the TV screens every evening, the many supercomputers and light years of cable wrapping around the exchanges and the brilliant physicists and mathematicians who fine tune the algorithms continuously – academic studies show that none of these create alpha. Finally, the presumption that “regulation” will solve these “problems” implicitly assumes that the regulators have perfect information to make the optimal rules. If the last decade is any indication, one cannot imagine regulators are that smart.

Analysis of financial markets and trading behavior based on engineering rules is unlikely to provide any insights. Further, assuming that regulation is needed over the application of emerging technologies for trading is wrong, philosophically and practically. It would be a lot better if regulators focus on implementing the rules that already exist consistently and sending the offenders to jail quickly.