Category Archives: Book review

How ergodicity reimagines economics for the benefit of us all

By Mark Buchanan – The principles of economics form the intellectual atmosphere in which most political discussion takes place. Its prevailing ideas are often invoked to justify the organization of modern society, and the positions enjoyed by the most wealthy and powerful. Any threat to these ideas could also be an implicit threat to that power – and to the people who possess it. Their response might be brutal.

In the real world, through the pages of scientific journals, in blog posts and in spirited Twitter exchanges, the set of ideas now called ‘Ergodicity Economics’ is overturning a fundamental concept at the heart of economics, with radical implications for the way we approach uncertainty and cooperation. The economics group at LML is attempting to redevelop economic theory from scratch, starting with the axiom that individuals optimize what happens to them over time, not what happens to them on average in a collection of parallel worlds.

The new concept is a key theme of research initiated by Peters about a decade ago, and developed with the collaboration of Gell-Mann and the late Ken Arrow at SFI, and of Alex Adamou, Yonatan Berman and many others at the LML. Much of this view rests on a careful critique of a model of human decisionmaking known as expected utility theory.

But there is one odd feature in this framework of expectations – it essentially eliminates time. Yet anyone who faces risky situations over time needs to handle those risks well, on average, over time, with one thing happening after the next. The seductive genius of the concept of probability is that it removes this historical aspect by imagining the world splitting with specific probabilities into parallel universes, one thing happening in each.

The expected value doesn’t come from an average calculated over time, but from one calculated over the different possible outcomes considered outside of time. In doing so, it simplifies the problem – but actually solves a problem that is fundamentally different from the real problem of acting wisely through time in an uncertain world. more>

The end of us

By Thomas Moynihan – As ideas go, human extinction is a comparatively new one. It emerged first during the 18th and 19th centuries. Though understudied, the idea has an important history because it teaches us lessons on what it means to be human in the first place, in the sense of what is demanded of us by such a calling.

For to be a rational actor is to be a responsible actor, which involves acknowledging the risks one faces, and this allows us to see today’s growing responsiveness to existential risks as being of a piece with an ongoing and as-yet-unfinished project that we first began to set for ourselves during the Enlightenment.

Recollecting the story of how we came to care about our own extinction helps to establish precisely why we must continue to care; and care now, as never before, insofar as the oncoming century is to be the riskiest thus far.

The story of the discovery of our species’ precariousness is also the story of humanity’s progressive undertaking of responsibility for itself. One is only responsible for oneself to the extent that one understands the risks one faces and is thereby motivated to mitigate against them.

It was the philosopher Immanuel Kant who defined ‘Enlightenment’ itself as humanity’s assumption of self-responsibility. The history of the idea of human extinction is therefore also a history of enlightening. It concerns the modern loss of the ancient conviction that we live in a cosmos inherently imbued with value, and the connected realization that our human values would not be natural realities independently of our continued championing and guardianship of them.

But if human extinction was first spoken about in the 18th century, where was the notion prior to this point? What about the perennial tradition of end-of-the-world scenarios coming from religion? For a start, prophecies concerning religious apocalypse provide us with a final revelation upon the ultimate meaning of time. Prognoses concerning human extinction, instead, provide us with a prediction of the irreversible termination of meaning within time. Where apocalypse secures a sense of an ending, extinction anticipates the ending of sense. They are different in kind – not degree – and therefore different in their origins.

So, why was human extinction and existential catastrophe not a topic of conversation and speculation prior to the Enlightenment? more>

Tackling precarity in the platform economy—and beyond

To focus on online platforms in isolation would miss the point that they are part of a wider phenomenon of spreading and intensifying precarity at work.

By Sacha Garben – In our increasingly digitalised world, a crucial role is played by online platforms. These platforms—dynamic websites which constitute digital public squares or marketplaces—affect the economy and our society in various ways and their regulation (or lack thereof) is increasingly the subject of public and political debate. Whether it be the way in which Facebook deals with personal and public information, the influence of Airbnb on our habitat, Uber’s effects on the taxi sector or the working conditions of Deliveroo couriers or tech-workers on Amazon Mechanical Turk, the ‘disruptive’ effects of the activities of the platforms regularly make headlines.

A key social problem is the labor status of those working in the online-platform economy. These drivers, riders, cleaners, designers, translators, technicians and others are often formally contracted as independent and their working arrangements tend to exhibit features which are difficult to square with the traditional employment relationship. These include use of their own materials (such as the driver’s car), autonomy concerning working hours (logging into work via a smartphone app), the short duration of the relationship (translation of perhaps a single sentence) and its multilateral character (the platform linking the producer and consumer).

At the same time, the worker may well be economically dependent on the platform work, the contractual independence can be constructed in rather artificial ways—such as if a driver works full-time for a platform for several years yet remains formally contracted per journey—and the platform can exert significant control over the work and the person performing it.

Furthermore, their ‘independent’ status often means platform workers lack the benefit of the social, labor, health and safety protections which in most countries are connected to an employment contract—even if their precarious working conditions and socio-economic position very much require such protection. more>

Updates from Ciena

How coherent technology decisions that start in the lab impact your network
What is the difference between 400G, 600G and 800G coherent solutions? It seems to be obvious, but is it just about maximum wavelength capacity? Why are different baud, modulations or DSP implementations used, and more importantly, what are the networking implications associated with each?
By Helen Xenos – 32QAM, 64QAM, and hybrid modulation….32, 56, 64, now 95Gbaud? Are they really any different? Fixed grid, flex grid, what’s 75GHz? Is your head spinning yet?

Coherent optical technology is a critical element that drives the amount of capacity and high-speed services that can be carried across networks and is a critical element in controlling their cost. But with multiple generations of coherent solutions available and more coming soon, navigating the different choices can be difficult. Unless you are immersed in the details and relationships between bits and symbols, constellations and baud in your everyday life, it can be confusing to understand how the technology choices made in each solution influence overall system performance and network cost.

To clarify these relationships, here is an analogy that helps provide a more intuitive understanding: consider performance-optimized coherent optical transport as analogous to freight transport.

The goal of network providers using coherent is to transport as much capacity as they can, in the most cost-efficient manner that they can, using wavelengths across their installed fiber. This is similar to wanting to be as efficient as possible in freight transport, carrying as much payload as you can using available truck and road resources. more>

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Updates from Chicago Booth

How machine learning can improve money management<
By Michael Maiello – Two disciplines familiar to econometricians, factor analysis of equities returns and machine learning, have grown up alongside each other. Used in tandem, these fields of study can build effective investment-management tools, according to City University of Hong Kong’s Guanho Feng (a graduate of Chicago Booth’s PhD Program), Booth’s Nicholas Polson, and Booth PhD candidate Jianeng Xu.

The researchers set out to determine whether they could create a deep-learning model to automate the management of a portfolio built on buying stocks that are expected to rise and short selling those that are expected to fall, known as a long-short strategy. They created a machine-learning algorithm that built a long-short equity portfolio from the top and bottom 20 percent of a 3,000-stock universe.

They ranked the equities using the five-factor model of Chicago Booth’s Eugene F. Fama and Dartmouth’s Kenneth R. French. Fama and French break down the components of stock returns over time into five factors: market risk, in which stocks with less risk relative to their benchmark outperform those with more risk; size, in which companies with small market capitalizations outperform larger companies; value, where a low price-to-book ratio outperforms high; profitability, where higher operating profits outperform; and reinvestment, in which companies that reinvest outperform those that don’t. more>

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Optimizing for Human Well-Being


By Douglas Rushkoff – The economy needn’t be a war; it can be a commons. To get there, we must retrieve our innate good will.

The commons is a conscious implementation of reciprocal altruism. Reciprocal altruists, whether human or ape, reward those who cooperate with others and punish those who defect. A commons works the same way. A resource such as a lake or a field, or a monetary system, is understood as a shared asset. The pastures of medieval England were treated as a commons. It wasn’t a free-for-all, but a carefully negotiated and enforced system. People brought their flocks to graze in mutually agreed- upon schedules. Violation of the rules was punished, either with penalties or exclusion.

The commons is not a winner-takes-all economy, but an all-take-the-winnings economy. Shared ownership encourages shared responsibility, which in turn engenders a longer-term perspective on business practices. Nothing can be externalized to some “other” player, because everyone is part of the same trust, drinking from the same well.

If one’s business activities hurt any other market participant, they undermine the integrity of the marketplace itself.

For those entranced by the myth of capitalism, this can be hard to grasp. They’re still stuck thinking of the economy as a two-column ledger, where every credit is someone’s else’s debit. This zero-sum mentality is an artifact of monopoly central currency.

If money has to be borrowed into existence from a single, private treasury and paid back with interest, then this sad, competitive, scarcity model makes sense. I need to pay back more than I borrowed, so I need to get that extra money from someone else. That’s the very premise of zero-sum.

But that’s not how an economy has to work. more>

Your Job Will Be Automated—Here’s How to Figure Out When A.I. Could Take Over

By Gwen Moran – Automation is increasingly making its way into the workplace, raising concerns among employees about the ways technology will change their jobs—or eliminate them entirely. A June 2019 report by Oxford Economics predicts that 8.5% of the world’s manufacturing positions alone—some 20 million jobs—will be displaced by robots by 2030.

Some tasks aren’t easy to evaluate. A 2013 paper, “The Future of Employment: How Susceptible are Jobs to Computerisation?” found that roughly 47% of jobs were at high risk of being automated with advances in artificial intelligence.

Carl Benedikt Frey, Ph.D., co-author of that paper and author of The Technology Trap: Capital, Labor, and Power in the Age of Automation says predictions around automation’s impact have become very polarized: Either you believe that the robots are coming for many jobs—leaving many with no employment—or you believe it’s going to change the nature of work. more>

Consumerism isn’t a sellout – if capitalism works for all

By Richard V. Reeves – The essential thinginess of capitalism has been one of its most-criticized features. Materialism, and specifically consumerism, are almost always used as pejorative terms. Nostalgic conservatives, egalitarian progressives and environmentalists loudly agree on at least one thing: we are just buying too much stuff.

They’re not wrong. The U.S. self-storage market is already worth $38 billion, and growing fast. Almost one in ten households are now renting extra space. One feature of late capitalism is that many of us have more things than we have space for things.

At its best, however, consumerism is a powerful, positive force. It allows for the expression of identity, it can hold sellers to public account, and it drives new thinking and development. But this is only the case when consumers are being served fairly in the market. Today, there is a pressing concern about whether the forces of “bigness” – a trend toward fewer larger companies – combined with a reluctance on the part of governments to intervene in consumer markets, is dampening innovation and narrowing choice.

Before worrying about whether the market is serving consumers, we need to agree that it should. Critiques of consumerism have to be taken seriously before examining whether contemporary capitalism is friendly to consumers. These critiques usually come in four types: moral, aesthetic, financial, or environmental.

The moral critique of consumerism is that the acquisition of things displaces more worthwhile activities or priorities. Instead of shopping, we should be spending time with friends and family, in places of worship, or in nature. more>

Nobel Economist Says Inequality is Destroying Democratic Capitalism

By Angus Deaton – As at no other time in my lifetime, people are troubled by inequality.

Across the rich world, not only in America, large groups of people are currently questioning whether their economies are working for them. The same can be said of politics. Two-thirds of Americans without a college degree believe that there is no point in voting, because elections are rigged in favor of big business and the rich. Britain is divided as never before and, once again, many believe that their voice doesn’t count either in Brussels or in Westminster. And one of the greatest miracles of the 20th century, the miracle of falling mortality and rising lifespans, is no longer delivering for everyone, and is now faltering or reversing.

At the risk of grandiosity, I think that today’s inequalities are signs that democratic capitalism is under threat, not only in the US, where the storm clouds are darkest, but in much of the rich world, where one or more of politics, economics, and health are changing in worrisome ways. I do not believe that democratic capitalism is beyond repair nor that it should be replaced; I am a great believer in what capitalism has done, not only to the oft-cited billions who have been pulled out of poverty in the last half-century, but to all the rest of us who have also escaped poverty and deprivation over the last two and a half centuries.

But we need to think about repairs for democratic capitalism, either by fixing what is broken, or by making changes to head off the threats; indeed, I believe that those of us who believe in social democratic capitalism should be leading the charge to make repairs. As it is, capitalism is not delivering to large fractions of the population; in the US, where the inequalities are clearest, real wages for men without a four-year college degree have fallen for half a century, even at a time when per capita GDP has robustly risen. more>

What’s driving populism?

If authoritarian populism is rooted in economics, then the appropriate remedy is a populism of another kind—targeting economic injustice and inclusion, but pluralist in its politics and not necessarily damaging to democracy.
By Dani Rodrik – Is it culture or economics?

That question frames much of the debate about contemporary populism. Are Donald Trump’s presidency, Brexit and the rise of right-wing nativist political parties in continental Europe the consequence of a deepening rift in values between social conservatives and social liberals, with the former having thrown their support behind xenophobic, ethno-nationalist, authoritarian politicians?

Or do they reflect many voters’ economic anxiety and insecurity, fueled by financial crises, austerity and glottalization?

Much depends on the answer. If authoritarian populism is rooted in economics, then the appropriate remedy is a populism of another kind—targeting economic injustice and inclusion, but pluralist in its politics and not necessarily damaging to democracy. If it is rooted in culture and values, however, there are fewer options. Liberal democracy may be doomed by its own internal dynamics and contradictions.

Some versions of the cultural argument can be dismissed out of hand. For example, many commentators in the United States have focused on Trump’s appeals to racism. But racism in some form or another has been an enduring feature of US society and cannot tell us, on its own, why Trump’s manipulation of it has proved so popular. A constant cannot explain a change.

Other accounts are more sophisticated. The most thorough and ambitious version of the cultural backlash argument has been advanced by my Harvard Kennedy School colleague Pippa Norris and Ronald Inglehart of the University of Michigan. In a recent book, they argue that authoritarian populism is the consequence of a long-term generational shift in values.

As younger generations have become richer, more educated, and more secure, they have adopted ‘post-materialist’ values that emphasize secularism, personal autonomy and diversity at the expense of religiosity, traditional family structures and conformity. more>