Thursday, August 1, 2013

Praise to the Cult of Speculation - at whose expense?

A Brief History of Predicting the Unpredictable,
by James Owen Weatherall, Scribe, 286pp. 

Reviewed: 27 July 2013

The genius of the capitalist system is that it provides an orderly, large-scale means for individuals and groups to pool their savings and direct them to new investment on a scale beyond the scope of any individual investor.  It also provides the means by which the risks of investment can be spread across a wide range of individuals, balanced against the opportunity for profit.

But for this beneficial process to continue, there must be a general trust that it works for mutual benefit. If individuals, or investment managers representing them, lose faith that the opportunity for profit is in reasonable balance with the risk of loss, they will not put their hard-earned savings into the pool, but instead seek lower risks in cash or perhaps bricks and mortar real estate.  With these choices, they reduce the pool of capital available for investment in risky but genuinely productive activity.

When the $60million-salaried head of Goldman Sachs investment house travels the world complaining that investors have "lost their appetite for risk", who does he hold responsible?

Nobody who reads The Physics of Wall Street could continue to believe that the risk and reward of equities and financial instrument investments are in balance for the passive investor. Clever speculation techniques, supported by massive technological advantage and availability of massively liquid financial resources, ensure that the superior speculators will always do better in creaming the profit and evading the risk. Where else would the $60million salaries and bonuses be coming from?

The daily value of your superannuation or other financial investments is now determined by algorithms and strategies that arise from studies of casino gambling, chaos theory, the survival of migrating salmon and earthquake prediction. 

Any factual economic news about interest rates, employment figures or exchange rates is no more than the latest roll of the dice in a game where the accumulated savings of people and enterprises are predated by traders whose sole art is in predicting where prices might move, and trying to get there before their competitors.  Financial markets are an ecology in which long-term investors are the herbivores, and short-term speculators are the carnivores.

This book notes how Nobel Prize-winning economists have lost millions in the stock markets, while several of the most successful fund managers have never studied economics but had backgrounds in physics or higher mathematics.  With no interest in social or economic causes and effects, they have developed sophisticated methods to analyze price movements as a means of predicting opportunities for profit.  It tells you how they did it and why you can't beat them..

Richard Thwaites is a helpless dependant on the chaos of financial markets.

Tuesday, April 30, 2013

Grasping the universe, with mathematics


by Neil Turok,
Allen & Unwin, 294pp. 

To write a book about infinity is tough, and to review it is not easy either.

Few things that should interest us more than the basic questions about how we, and everything we know, came into existence.  Our oldest creation stories tried to describe the universe in the language and ideas available to our ancestors, mostly metaphors drawn from human experience.  Now we expect things to be explained in a language that can apply universally to the material world as we perceive it, without entirely negating the spiritual dimensions we infer as a means to fill the gaps in our understanding.

Uncomfortably for me and many others, that language is mathematics, as applied to the science of physics. Both these domains can be intimidating to many seekers after the truth, who are more accustomed to the floating worlds of emotion and intuition. Most will turn aside, which is a pity.
It was a bold decision for the producers of the Canadian Broadcasting Corporation's annual Massey Lecture series to commission Neil Turok in 2012.  Turok held a chair in mathematical physics at Cambridge and published, together with Stephen Hawking, a theory on how universes come into existence.  He now heads the Perimeter Institute in Canada, which supports the study of theoretical physics and campaigns for wider community understanding of what physicists are on about, and why it matters.

This book is the texts of those lectures. The Universe Within  is about the ways  human minds have grappled to understand the infinities and imponderables of all matter and energy, from smallest sub-atomic energy states to the possibly infinite multiplicity of universes that share time and space with everything we humans are able to observe.
 Broadcasting is strictly linear - you can't double back to re-hear a paragraph. You get it or your miss it. Turok does his best to catch the average curious mind  with anecdotes and colorful metaphors, but I have to wonder how many millions of polite Canadians could genuinely grasp what he was on about from beginning to end.  Even with the advantages of the book for, it was a tough read for someone with lifelong amateur curiosity into the general concepts of cosmology and physics.
 If you do follow Turok, you will end up accepting that our universe is expanding at an accelerating rate, having started as a microscopic dot of unbelievably compressed energy some 4-5 billion years ago.  The expansion is probably powered by unmeasurable "dark matter" and "vacuum energy".  It is not the job of physicists to ask why this happened, but they are increasingly confident that they know how it happened.  Turok inclines to the view that our current expanding universe is just one instance of an infinite number of expansions, followed after a few billion years by contraction, and then another Big Bang to start the expansion again.

A lot of this seems disconnected from human experience because mathematical reasoning is not the same thing as common sense. The greatest conceptual leap takes us from classical physics to the realm of quantum mechanics.  In this framework the  universe is in constant flux on many dimensions and there is no truth, only probability.  The job of physicists is to provide theories with reasonable probability.  As it happens, the chance of our own universe even existing is at a very low level of probability. However, because the number of possibilities is infinite, sooner or later our universe would be bound to pop up.  After the shock, probability actually makes more sense than certainty to the human brain.

Richard Thwaites has maintained a cautious interest in scientific cosmology since reading John Milton's Paradise Lost as a teenager.

Monday, January 21, 2013

Those sailor-explorers were tough - like Matthew Flinders

FLINDERS: The Man who Mapped Australia,
by Rob Mundle, Hachette, 386pp. 

Reviewed: 19 January 2013

When I was reading this book, I was appalled to find that a couple of GenX liberal arts graduates from Australian universities had never heard of Matthew Flinders.

OK, it's timely to revise the history earlier generations were taught, in which everything was cast in terms of glorious expansion of the British Empire.  But it is sad that intelligent, humane, socially-responsible Australians have no idea how this country came to be what it is today. If you don't know history, you are easily led into delusion.  That is why history needs to be written, and written again, and written again, so we know where we came from to inform choices on where we might go next and how to get there.  End rant.

Matthew Flinders was one of a generation who harnessed the curiosity of the Enlightenment to the mercantile competition of European colonial empires.  The British seizure of Australia was a pre-emptive strike against their traditional enemy, the French, who were newly invigorated by the Napoleonic regime that followed their revolution.  It was an extraordinary period, in which French and British scientists helped each other in the cause of discovery, at the same time as their political and military masters were fighting for global dominance.

Flinders was inspired by a childhood reading of Robinson Crusoe.  He sailed with Captain Cook and also with Captain William Bligh, performing a series of intrepid exploratory voyages in small sailing boats around the uncharted coasts of Australia.

It is hard these days to understand that several decades after the discovery of Tasmania (Van Diemen's Land), no European knew whether or not it was joined to the mainland (then called New Holland).  Sea routes were all hazardous, navigation always risky, so it was not unusual for sea captains to avoid uncharted waters.

The risks of coastal exploration were extraordinary. Wooden ships were often frail if not rotting, and always at the mercy of the weather. For much of Flinders' voyage around Australia, the planks of his ship Investigator were leaking up to fifty tons of seawater per hour, all of which had to be pumped out by hand.

Flinders also experienced what we now call “political risk”. With the assistance of  grand figures like Sir Joseph Banks, Flinders had obtained  official documents to grant him safe passage through French territories and ports, regardless of the bilateral circumstances. Unfortunately, by the time he was heading home to report his explorations, the French regime had been infested by a cohort of hyper-nationalists vying for the attention of Napoleon.

When Flinders' ship limped into Mauritius, he fell into the hands of  Governor Decaen, one of these 19th century neo-cons, who had been persuaded that France had a mission to extinguish the British colonisation of Australia.  Flinders was kept on Mauritius for six priceless years as a kind of hostage to Decaen's political ambitions.

When finally released, Flinders returned home with just enough strength to complete the massive 350,000 word account of his major expedition, dying within days of the publication of A Voyage to Terra Australis in 1814, aged forty.  His explorations had been completed before he reached the age of thirty.

Lessons for today include how Flinders' ambitions were at times given crucial support by well-placed sponsors, and at other times frustrated by political chicanery, negligence, or sheer bureaucratic inertia. It reminds that history is so often personal, and that in the competition of empires, Australia has never been the main game.

Read the full review here

Tuesday, January 1, 2013

Corporate Spying Undermines Capitalism

by Neil Chenoweth, Allen & Unwin, 402pp. 

Reviewed: December 2012

If you believe that democracy and private enterprise are, on the whole, better systems than others for the delivery of human welfare, it is always chilling to read how self-destructive uncontrolled capitalism can be.

A decade ago, Rupert Murdoch's News Corporation mobilised high-tech intelligence resources against its competitors in the global PayTV business.  Financial journalist Neil Chenoweth has hounded News Corporation for many years, and this latest chronicle of misdeeds reads like a spy novel.  But the combatants work for private corporations, not states.  There are no innocent parties, only winners and losers, in a world where law is seen as a tool and business ethics are for wimps.  And because it is true, the story raises serious questions over the ability of national governments to provide a business environment in which rule of law can be taken seriously.

The competition was for control of  the credit-card sized smart cards that give access to satellite PayTV.  The security of those cards is the key to billions of dollars in PayTV revenues.  Since the inception of pay television, independent hackers and organized pirate rings have repeatedly broken the codes to provide unauthorized access via a black market in forged smart cards.

PayTV companies fought back to defend their revenues, but then used the same capabilities to attack their competitors.  News Corporation's card security development company - News Datacomm (later NDS), was based in Israel and employed mainly ex-Israeli military and intelligence operatives.  

NDS infiltrated the internet chatrooms where hackers would boast about their achievements, developed contacts, and recruited agents.  They employed former police detectives and intelligence operatives for many nationalities, including a former head of Scotland Yard’s criminal intelligence bureau.  These agents used their contacts with state agencies, bugged phones, burgled homes, set traps, and employed every device familiar to readers of crime fiction – with apparent disdain for the law.  In the heat of it, some star European and American hackers seem to have been double agents, triple agents, or simply playing all sides for as long as they could.

Eventually two competitors, Canal+ and the US Echostar system, sued NDS for sabotaging their security codes.  The claims were for hundreds of millions in lost revenue, let alone any share price implications or criminal liability.  News Corporation had twenty lawyers in the California court-room, the plaintiffs had three.  Despite compelling evidence,  NDS was found guilty of only a minor misdemeanour with a $45 penalty.  By this time, News Corporation was a significant propaganda supporter of the Republican Party.

Tales like this explain why democracy is in decline in the developing world.  When high principle in Western societies is so undermined by corruption and political pragmatism, why should leaders of less stable societies behave any differently? We can learn more about realpolitik by reading 16th Century European histories than by believing the speeches of venal "democrats".

Richard Thwaites was working on broadcasting policy issues while Australia’s pay television system was being introduced.

Monday, November 26, 2012

A Challenge to the Economics Profession

GITTINS' GOSPEL: The economics of just about everything,
by Ross Gittins,
Allen & Unwin, 312pp. 

Reviewed: 24 November

There is a welter of information and analysis, online and in print, that competes to influence our views and understanding of what might broadly be called "the economy".  At least nine tenths of this is nothing to do with the underlying  structures and trends that will determine our future material and social welfare. That bulk is usually about the ephemeral trivia of market speculation - will shares and bonds prices rise of fall in the short term.  It is no more useful than the form guide for a horse race, and serves the same purpose - to draw in more speculative spending by those of us who are no better than punters betting blindly.

A few commentators make genuine efforts to cut through the promotional flim-flam and remind us that "the economy" boils down to a social contract underpinning all of our employment, production and trading activities.  It cannot be discussed intelligently in isolation from whatever human values we see as important in holding society together and meeting the common challenges of sustaining our world.

So if you are suspicious of the economic claims and counter-claims of our politicians and lobbyists, then you will enjoy reading Ross Gittins as I did.  If you are not suspicious but you care about society, then you need to read someone like Gittins. For thirty years his economic commentary columns have shone skeptical beams through the fog and dust kicked up in the name of economics, often by professional economists blinkered by ideology or by the need to sell their services to somebody.

Did you know Adam Smith, patron saint of market economics, added an important qualification to his most famous observation about the primacy of self-interest in human decision-making. Adam Smith followed it up with "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it". Rational self-interest is the founding assumption of modern economic modelling, but Gittins doubts any of us are predictably rational. Neither can our perception of self-interest be taken for granted. 

Gittins deplores the trite and self-serving neo-liberal assumption  that governments have no role until free markets can be shown conclusively to have failed.  The Global Financial Crisis is only the latest example of how unregulated markets tend to become corrupt, at vast cost to both suppliers and consumers.  Governments alone can set rules for "a better capitalism" through democractic process informed (he hopes) by more rigorous media commentary and analysis.

Gittins is not alone.  There is a growing rebellion of  behavioural economists who take a broader view, embracing a range of non-monetary considerations for economic policy – such as social equity.  Is growth a genuine economic benefit, or a short-term illusion?  Can any serious economic policy ignore the environmental costs?  Can fairness be ignored, when all history shows that inequality imposes heavy costs on social cohesion.

Sunday, September 16, 2012

Ocean Issues not just for greenies

How Our Seas are Changing,
by Callum Roberts,
Allen Lane, 390pp.  

Reviewed: 19 September

I was reading this book while the Australian government was deciding whether to give a trawling licence to one of the world's largest floating fish factories.  The ships owners have headed for Australian waters after exhausting, and being expelled from, other fishing zones off Africa and in the South Pacific.

Callum Roberts is a professional ocean conservationist. The fishing industry lobbyists and libertarian economists would therefore dismiss his arguments as biased.  No doubt the same arguments were made by denialists as earlier human societies in the middle east and  in Central America, and Southeast Asia devastated the environments on which their advanced civilisations depended.  

The deafening political noise around atmospheric carbon emissions can distract us from the even more critical state of our planet’s oceans.  The plight of the seas is not about the extinction of photogenic clown-fish or pretty pink corals – it is about threats to the very engines of life as evolved on this planet. Earth only acquired its oxygen-rich atmosphere in the latest ten percent of its history, and it was ocean-dwelling bacteria that generated the oxygen in quantities that enabled the evolution of land-based plants and animals, ourselves included.

The oceans are still the primary forces that drive earth’s atmosphere and the climate we experience from it.  The web of micro-organisms that condition the water, oxygenate the atmosphere, and feed the next level of life, is becoming unbalanced with potentially dire consequences.  Excess nutrients, flooding from our agriculture and aquaculture practices, create semi-desert monocultures where once biodiversity prevailed in the nurseries of oceanic life.

Roberts supports the harvesting of marine life for human consumption, but he castigates the stubborn way that humans persist in destroying that upon which our growing population depends.  Since the development of steam-powered trawlers, we defy an elementary rule of capitalism, by consuming the capital resource rather than the income it generates.  More and more mechanical power has been employed to harvest smaller and fewer fish.  Without drastic restorative action, Roberts sees our strip-mined oceans reduced to supporting vast rafts of plastic rubbish and populated by little more than hordes of jellyfish and scavenging prawns.  The evidence of recovery is overwhelming when marine reserves are properly implemented.

Monday, August 27, 2012

What can we learn from the London Underground?

A Passenger’s History of the Tube,
by Andrew Martin,
Profile Books, 304pp.

Railway books have such a passionate and distinctive following that its hard to read one without feeling like a nerd.

On the other hand, the way a community builds, uses, and thinks about its public transport system is a key insight into the values of the people who make up that community - whatever their diversity.

To use public transport is one of the few collective experiences of daily life that crosses social divides, or in bad cases may accentuate them. 

The history of London’s Underground, or “Tube”, make a meta-narrative of that city’s development over the past two centuries. 

London was first to try the principle of building underground thoroughfares. It tried private and public models of investment and ownership. It tried competitive and centralised models of operation.  It reflected fashions in in engineering, architecture, and urban development principles. It embodied the aesthetics of its time in design, advertising and public communication.

London had the luck to be built mainly on soft clay that made tunnelling relatively cheap, but that didn't stop many lines falling in and out of bankruptcy. Urban transport is one of those fields that defy economic rationalism, because the benefits are too thinly spread to be allocated to individual users.

Most public transport users both love and hate their networks, but Andrew Martin mostly loves the London Underground, warts and all.  A barrister turned journalist and author, he has published six detective novels on railway themes, and edited a weekly column called “Tube Talk” for London's Evening Standard magazine. 

There’s a huge culture of complaint, commentary and anecdote among Tube travelers who include every class and kind. Martin provides lots of fun and color in this tangled history, while keeping the reader aware of the evolutionary forces that have shaped the Underground, and London with it, since the 1850s.

Richard Thwaites lives and works in Canberra, a car-based city sadly lacking in effective public transport.