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Nassim Taleb Interview on His New Book Anti-Fragility

May 14, 2011 / Klint Finley

Nassim Taleb

Great new interview with Nassim Taleb by one of his former teachers at Wharton:

Taleb: The events in the Middle East are not black swans. They were predictable to those who know the region well. At most, they were gray swans or perhaps white swans. One of the lessons of “Wild vs. Mild Randomness,” my chapter with Benoit Mandelbrot in your book, is what happens before you go into a period of wild randomness. You will find a long quiet period that is punctuated with absolute total turmoil…. In The Black Swan, I discussed Saudi Arabia as a prime case of the calm before the storm and the Great Moderation [the perceived end of economic volatility due to the creation of 20th century banking laws] in the same breath. I was comparing Italy with Saudi Arabia. Italy is an example of mild randomness in comparison with Saudi Arabia and Syria, which are examples of wild randomness. Italy has had 60 changes in regime in the post-war era, but they are inconsequential…. It is a prime example of noise. It’s very Italian and so it’s elegant noise, but it’s noise nonetheless. In contrast, Saudi Arabia and Syria have had the same regime in place for 40 some years. You may think it is stability, but it’s not. Once you remove the lid, the thing explodes.

The same kind of thing happens in finance. Take the portfolio of banks. The environment seemed very placid — the Great Moderation — and then the thing explodes.

Herring: I would agree that people knew the Middle East was very vulnerable to turmoil because of the demographics, a very young population, and widespread unemployment, the dissatisfaction with the distribution of income and with regimes that were getting geriatric. But knowing how it would unfold and knowing that somebody immolating themselves in a market in Tunisia would lead to this widespread discontent — and we still don’t know how it will end — is a really remarkable occurrence that I think would be very difficult to predict in any way.

Taleb: Definitely, and it actually taught us to try not to predict the catalyst, which is the most foolish thing in the world, but to try to identify areas of vulnerability. [It’s] like saying a bridge is fragile. I can’t predict which truck is going to break it, so I have to look at it more in a structural form — what physicists call the percolation approach. You study the terrain. You don’t study the components. You see in finance, we study the random walk. Physicists study percolation. They study the terrain — not a drunk person walking around — but the evolution of the terrain itself. Everything is dynamic. That is percolation.

And then you learn not to try to predict which truck is going to break that bridge. But you just look at bridges and say, “Oh, this bridge doesn’t have a great foundation. This other one does. And this one needs to be reinforced.” We can do a lot with the notion of robustness.

Wharton: Nassim Taleb on Living with Black Swans

(via Chris Arkenberg)

Economists Debate: Are Conflicts of Interest, You Know, Bad?

April 20, 2011 / Klint Finley

One portion of the devastating documentary about the global financial collapse, Inside Job (which won an Oscar, so you have to see it), dealt with academic economists—specifically, the ways that they became financially tied to banks and other players in finance, and how that may have compromised the entire practice of economics. It even showed the heads of the economic departments at Harvard (pictured) and Columbia blithely asserting that there was no need to disclose their financial conflicts of interest in academic papers. It was sickening.

We’re pleased to announce that a documentary has actually affected something in the real world! Well, kind of. The economics profession has formed a committee! A prestigious committee. A committee that will talk about whether there needs to be, get this, ethical standards, in economics. Can you imagine?

But here’s the thing: the committee isn’t even proposing an end to conflicts of interest. It’s only pushing for disclosure.

Gawker: Economists Debate: Are Conflicts of Interest, You Know, Bad?

(via Alex Pang, who was earlier asking for different reasons whether it was time to emigrate to Singapore)

The Future of Manufacturing is Local

April 1, 2011 / Klint Finley

iPad covers manufacture

Good stuff, but I couldn’t help getting this icky “all those people who have been downsized and laid-off and otherwise had their lives destroyed by the hollowing out of the U.S. economy just just need to shut-up, stop complaining and pull themselves up by their bootstraps” vibe from the article.

“Manufacturing isn’t dead and doesn’t need to be preserved,” she says. “Let’s stop fixating on what’s lost. Let’s see what we have here, what’s doing well, and let’s help those folks do better.” […]

SFMade helps companies assess a product’s “manufacturability,” which sometimes results in an adjustment of (for instance) the design, to make it easier and less costly to manufacture. SFMade will then help companies either connect to existing contract manufacturing resources in the city or establish their own production capacity. Instead of assuming that things like sewing, printing and assembly need to happen overseas, SFMade is working to reconnect local production capacity to big companies (i.e., San Francisco-based Levi’s, exploring the possibility of local sample production). Other large San Francisco-based corporations have initiated relationships with SFMade, like Bank of America (which felt it had lost its footing as a “local” business) and Virgin America (which features local products for sale onboard its aircraft and in their San Francisco terminal). […]

Similar efforts are happening in New York (and indeed, The Times’ City Blog spotlighted the things still made in the city, from lightbulbs to envelopes, in the Made in N.Y.C. series two years ago). Though it launched post-9/11 as a strategy to lift the city back up, Made in N.Y.C. has evolved over time. Sustainability has become a large part of its mission: member companies can post the environmental impacts of their manufacturing processes on the Made in N.Y.C. Web site, with those excelling in greener process and product able to earn a “green apple.” Tying economic growth inextricably to environmental stewardship has so far been a strong strategy.

New York Times: The Future of Manufacturing Is Local

(via Chris)

Good News for Data Geeks, Bad News for Everyone Else

March 11, 2011 / Klint Finley

not hiring

I have a new piece on the dismal impact of information technology on the workforce at ReadWriteWeb:

Last week we told you that enterprises are investing more into business intelligence and analytics initiatives. This week there’s more good news for professionals in this area: according to KDNuggets, salaries are rising for analytics and data mining professionals.

Based on a poll with approximately 250 respondents, KDNuggets found that salaries are up from its 2010 poll in North America, Western Europe, Asia and Latin America. (There is no mention of Eastern Europe, Africa or Antarctica.)

It’s a good time to be a geek, particularly one with a background in statistics, analytics and data mining. But a bad time to be almost any other type of worker.

For example, The New York Times reported on software that can process legal documents at a fraction of the cost of hiring lawyers and paralegals:

“Some programs go beyond just finding documents with relevant terms at computer speeds. They can extract relevant concepts — like documents relevant to social protest in the Middle East — even in the absence of specific terms, and deduce patterns of behavior that would have eluded lawyers examining millions of documents.”

That’s good news for the people who develop that software. But for people in the legal profession? Not so much.

ReadWriteWeb: Good News for Data Geeks, Bad News for Everyone Else

Supplemental reading:

Paul Krugman: Degrees and Dollars

Paul Krugman: Autor! Autor!

Krugman, again, on the same issue back in 1996

And, less dreary but probably less realistic:

Jobs 2.0: Data-centric Jobs for Generation Y

Photo by Daniel Lobo

Brainsturbator’s Best Books of 2010

February 28, 2011 / Klint Finley

After the New Economy

Justin Boland lists his favorite reading of 2010. Here are some highlights I particularly want to read:

After the New Economy, by Doug Henwood.

The majority of my reading in the past year has been in Economics, shaped by a couple new jobs that required me to become a fake expert in the field. Perhaps in the near future I’ll do a separate Reading List focused on that, but for now, let me recommend one single volume as the best written, most thoroughly documented book on the subject: Doug Henwood’s After the New Economy. Henwood does something really remarkable here. There are dozens of sources per page, but he juggles an academic level of density with J.K. Rowling readability. He keeps all his math & policy discourse grounded in real world effects on actual working human beings. All in all, this book is fucking devastating because it uses nothing but the US economic system’s own numbers and words—there is no moralizing here. Along the way, Henwood also provides an education in deciphering market metrics and business news. He is a concise and scrupulous teacher. Henwood is often framed as a rabid Socialist, but I get the impression his political agenda is that of a disgruntled accountant…he’s just angry that the numbers don’t really add up on the American Dream.

Equally Worthy: his earlier book Wall Street: How It Works and for Whom is just as good and thorough. Most fans of Henwood suggest starting there, and it is powerful stuff. If you’re interested in a guide to Wall Street, though, the unfortunately named Eric J. Weiner has cornered the market with What Goes Up: The Uncensored History of Modern Wall Street as Told by the Bankers, Brokers, CEOs, and Scoundrels Who Made It Happen, an “oral history” where three generations of Hidden Rulers talk candidly about criminal conspiracies they got away with. It is awesome and very inspirational.

C Street, by Jeff Sharlet.

Sharlet has been doing important work for a long time now covering Christian Dominionist movements, especially in military and political circles. His previous book, The Family: The Secret Fundamentalism at the Heart of American Power, is essential reading if you’re not already familiar. (Start with “Jesus Plus Nothing.”)

Theocrats are scary people, and Sharlet tracks the most powerful among them carefully here. This is the grey zone where The Family morphs into The Fellowship, which has also been referred to as ”The Christian Mafia” and a ”Frat House for Jesus.” This is serious material,of course: the ghost network he outlines in C Street shaping foreign policy, domestic initiatives, and partisan talking points. The amount of media collusion and access to corporate money here is nothing short of spooky.

Brainsturbator: The 2010 Brainsturbator Reading List

Alternatives to Austerity, and a Left/Libertarian Alliance Revisited

February 22, 2011 / Klint Finley

When Thomas Friedman proposed that Americans needed to get used to making some sacrifices if we want to get the deficit under control, I wrote:

What’s the underlying cause of the debt crisis? Certainly Americans buy a lot of crap we don’t need, and on credit too. But consider:

–The decline in real wages in the US
-Obama only proposes to raise taxes on those making over $250,000 a year
-The bailout, at tax payer expense, bailed out the wealthy
–The wealthy routinely avoid paying taxes
-That 23% of the federal budget goes to defense spending (much of which goes to unaccountable private firms)

Who should we be asking to make some sacrifices?

Joseph Stiglitz offers a plan to reduce the U.S deficit he calls an alternative to austerity. Summarized:

Increase “high-return” public investments, even if it increases the deficit in the short term. I assume he means infrastructure.
Cut military expenditures. He doesn’t say how much.
Eliminate corporate welfare.
Slightly increase taxes for the top 1% of earners – by about 5%.

Stiglitz concludes with a dismal note:

There’s only one problem: it wouldn’t benefit those at the top, or the corporate and other special interests that have come to dominate America’s policymaking. Its compelling logic is precisely why there is little chance that such a reasonable proposal would ever be adopted.

This sounds about right to me, apart from the lack of specifics in some areas. It’s got me thinking, though – what essentials can the leftists and libertarians agree to? Could something like this be agreed upon:

Fix public infrastructure, even if it increases the deficit
Cut corporate welfare
End tax loop-holes for the rich
Reduce defense spending by at least 50%

Could we then agree to disagree about social welfare, tax cuts for everyone except the rich and tax increases for the rich? Would libertarians agree to increase public spending on infrastructure? Would the left be willing to put aside tax increases for the rich, or environmental regulations for the time being?

I’ve been cynical about the potential for a left/libertarian alliance since libertarians nearly universally supported Ron Paul in 2007. But now that Paul is trying to form a left/right alliance himself, perhaps it’s an idea whose time has come.

Is IT Investment Hurting US Job Growth?

February 21, 2011 / Klint Finley

not hiring

Here’s my coverage of how information technology may be hurting the economy:

Forrester released today a report called Caution: IT Investment May Be Hurting US Job Growth. The report’s authors – Andrew Bartels, Christopher Mines and Sarah Musto – note that despite record corporate profits, unemployment remains unchanged. Forrester notes that poor job growth both causes and is caused by poor economic growth. It’s a vicious cycle.

The report suggests that corporations are investing in IT instead of hiring workers. The analysts looked at research from 62 industries to find out what’s going on. The report says that the industries with the highest IT investment are also the ones with the biggest decline in jobs. The analysts conclude that there is a causal connection between IT investment growth and the lack of employment growth.

Forrester is not the first to suggest this. Gartner VP and fellow Tom Austin’s blog post on the same subject lead us to ask last year “What Can IT Do To Stimulate the Job Market?” And AMI Partners claimed last year that cloud computing would result in 200,000 – 250,000 job losses over the next decade. […]

“Looking across these 62 private sector industries, we found a modest but statistically significant inverse or negative correlation between IT investment and employment,” the report says. The effect was most pronounced in manufacturing.

ReadWriteWeb: Forrester: Is IT Investment Hurting US Job Growth?

Winning the Future

January 28, 2011 / Klint Finley

Dr. Manhatten: Nothing Ends

If you watched the American State of the Union address last night, in part or in total, you couldn’t have escaped noticing one particular phrase: “win the future.” President Obama used it (or “winning the future”) nine times in the speech; he used “future” 15 times, in total. You might think that, as a futures guy, I would be thrilled at the Presidential shout-out, but I’m not.

When thinking about the future, “winning” is a terrible metaphor. It’s not just that “winner” implies “loser;” it’s not just that “win” demands competition. For me, the fundamental problem with the metaphor is that “win” means that the competition is over. Okay, we’ve won the future… now what? Everybody goes to Disneyland? Or if “win the future” means the future is a prize, once we’ve won it, what do we do with it? I don’t think my office bookcase is big enough to hold the whole future. I might have to get a storage locker.

James Cascio: Winning the Future

Is the Green-Collar Dream Dead?

January 18, 2011 / Klint Finley

Green collar jobs

Evergreen Solar announced last week that it was closing its plant in Devens, Mass., laying off 800 workers, and moving production to China.

Evergreen’s factory had received more than $40 million in subsidies, which led many to see the plant closing as lesson in the futility of green energy and industrial policy. But what does Evergreen’s story really teach us about solar energy, public subsidies and the future of American manufacturing? […]

America has had many high-tech breakthroughs over the last half-century, but those innovations rarely provided abundant employment for the less educated workers who need jobs most. The Devens closing reminds us that even when ideas are “made in America,” production is almost always cheaper in China.

Failed public investments, like the money spent in Devens, reflect the fact that public officials are rarely skilled venture capitalists and that governments pursue many objectives that lead them away from solid investments. It’s easy to see why any governor would be excited about a green-energy manufacturing plant in a less prosperous area of his or her state. But the same forces that made Devens political catnip meant that it was unlikely to be a long-term success.

Economix: Why Green Energy Can’t Power a Job Engine

My quick take: Governments should invest in infrastructure and people (education, health care, etc.), not in companies.

Also, green collar jobs, if they are to come from anywhere, will largely come from infrastructural investment: installing solar panels, renovating buildings, etc. Not from subsidizing corporations.

Pay the Poor

January 5, 2011 / Klint Finley

The program, called Bolsa Familia (Family Grant) in Brazil, goes by different names in different places. In Mexico, where it first began on a national scale and has been equally successful at reducing poverty, it is Oportunidades. The generic term for the program is conditional cash transfers. The idea is to give regular payments to poor families, in the form of cash or electronic transfers into their bank accounts, if they meet certain requirements. The requirements vary, but many countries employ those used by Mexico: families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention. The payments almost always go to women, as they are the most likely to spend the money on their families. The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow. […]

The program fights poverty in two ways. One is straightforward: it gives money to the poor. This works. And no, the money tends not to be stolen or diverted to the better-off. Brazil and Mexico have been very successful at including only the poor. In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap.

The idea’s other purpose — to give children more education and better health — is longer term and harder to measure. But measured it is — Oportunidades is probably the most-studied social program on the planet. The program has an evaluation unit and publishes all data. There have also been hundreds of studies by independent academics. The research indicates that conditional cash transfer programs in Mexico and Brazil do keep people healthier, and keep kids in school.

New York Times: To Beat Back Poverty, Pay the Poor

The criticism I’ve heard of this sort of program from the hard left is that the money is essentially a small bribe to keep the poor from rising up and affecting real change. That may be true – but it’s hard to argue with with real results.

My biggest concern is the fact that the World Bank is financing all of this in the form of loans. What happens when it’s time for the countries to pay up?

I’d be interested in seeing a comparison of these conditional transfers with the U.S. welfare system.

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