Is Technology Evil?
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This column started out being titled “Is Goldman Sachs Evil?” until I realized the issue is far more broad. It began with a blog post by my old boss Jim Casella, who now runs Asset International, a financial publisher. Jim concludes after a review of some recent and very negative press that Goldman isn’t evil, per se, just cocky. But by comparing the investment bank to sports teams and players I think Jim makes a grave error. Goldman Sachs isn’t evil, just stupid. And that stupidity comes in the form of their witless abuse of technology.
Jim’s sports analogies are misplaced because while sporting events must inevitably have winners and losers economies don’t. TRADING has winners and losers but Goldman is an INVESTMENT bank (worse still, they are now a bank holding company) pretending to be on the side of economic growth. Trading relies on finding and exploiting inefficiencies in the system while investing grows the economy. Trading is a parasite on investing. I’m not saying to ban it, I AM saying that technology has enabled outfits like Goldman to be such efficient parasites that they threaten the survival of their hosts.
This is fine if we look at it as a process of evolution. Maybe what we are going through lately is natural selection that will over time improve our culture and society. But that’s not the way it is being pursued by Goldman and others: they aren’t envisioning some future after they’ve killed their host, nor do their techniques allow the host to recover before being bitten again. I’ve talked with these guys and they are clueless about the implications of their work. The deepest they’ll go is to allow that China will likely be the next economic superpower so they’ll just move their operations to Beijing or Shanghai.
That doesn’t do much for Ma and Pa back on the farm.
Economies need a little slack to function smoothly but these companies are removing all of it. All they need to be is a little less greedy, but their greed apparently knows no bounds.
Their techniques usually come down to the application of technology. Faster computers and bigger pipes allow the relentless application of small advantages that eventually suck profit out of the market. The answer is bigger and bigger guns wielded by bigger and bigger players, which is fine unless you aren’t a big player, which pretty much describes the rest of us.
This process builds financial bubbles until they pop then it is left to the despised government to fix things. But what if government runs out of options? Then there is economic revolution. That’s what happened in the former Soviet Union in 1989 — a process we in the west cheered at the time.
But what if it happened to us?
We can’t imagine that. Our economic policy doesn’t imagine it, nor does our foreign policy, because superpowers don’t acknowledge weakness.
But we ARE weak.
It all comes back to technology. Remember the work of Black and Scholes that underlay the staggering growth of derivative securities was based on thermodynamics. We use principles from one area in another to good effect, but what makes an efficient heat exchanger can make a deadly security.
There’s a sore failing here, I believe, in the application of ethics to technology.
Ethics? What does ethics have to do with Boyle’s Law?
Maybe nothing, maybe plenty, but the overall problem is that those who claim to understand ethics aren’t so good at the technology parts, and vice versa. We saw that with Enron, which was technology gaming the market, and we evidently haven’t learned much since.
Google’s corporate motto is “Don’t be Evil.” I thought that was silly when I heard it first. But now I think it is the height of wisdom. Because the techiest of techie companies probably knows better than most the power of tweaking systems to death.
It’s possible. We CAN kill our own culture trying to preserve or defend it. Understanding that and helping to make change as painless as possible comes down to the best efforts of those few people who really understand the complexity of our society — many of whom are readers of this column.
Everything is interconnected in this era where technology drives society yet few really understand technology. If someone can take down Twitter because of a petty grudge then ANY information system is vulnerable. Sometime neglect is all it takes.
And neglect is all around us.
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I must be dense. I think I understand what you are trying to say, but would prefer that you make a clear and lucid statement of the problems you see.
I can’t speak for the author, of course, but my interpretation was that GS is to the economy at large what the Big Three were to Detroit. And if left to ‘prosper’ in the same heavily subsidized and legally favored fashion, the economy at large will start looking increasingly like Detroit.
So, you know, not good.
The problem isn’t what you state it to be.
The problem is that criminal acts are not prosecuted in this country. When crime pays in a (Godless/ethicless) society it will collapse. Note all of the third world. Unpunished criminal graft, corruption, and greed is everywhere there are failed societies.
We are joining them.
Just the other day, I heard the phrase that describes what you are trying to say. Crimogenic environment.
“When crime pays in a (Godless/ethicless) society it will collapse.”
Iran, is pretty god-fearing nation. Most of the economy is state owned, inflation is triple digit, and corruption is rampant. http://www.heritage.org/Index/Country/Iran I think you can leave out the parenthetical and the sentence is fine, no need to drag religious bigotry into the discussion.
I’ll place parentheticals as I please. Your perspective on faith, though the mode, is hardly competent (I viewed your link to philobyte
.
I hate translated emoticons. They add more than I intended.
You seem to be talking about Quants and (bad) mortgage schemes simultaneously. However, the connection is elusive to me. Could you clarify?
If Goldman makes China the next economic superpower, won’t that help Ma and Pa Chinese people?
Not in the least, because China is becoming just as owned by large corporations as the US is. Perhaps more so, because the Chinese government views its citizens as ignorant pawns to be shuffled around the board when they get in the way of business — and acts to keep them as ignorant pawns in every way possible.
You are right about the government treating us little guys like little pawns, but they simply treat the corporations as knights, bishops and rooks. A huge bureaucracy will sacrifice any of them to preserve itself, and grow. To paraphrase Pogo: “We have met the enemy and he is big government.”
Sorry, I don’t find this post convincing at all. The analogy of trading to parasitism is an interesting if overused one, but it doesn’t really further your argument. As Brian commented, mortgage securitization and trading are very different. In fact, if banks had held onto less of those securities and… traded them, they would have been in far better shape. There’s a great case to be made that improved quant trading improves markets because it speeds up price discovery and reduces volatility.
The Soviet Union analogy is equally poor if not worse.
Remember, revision, revision, revision. And kill your darlings.
I think what Cringely is saying is that the financial traders are modern day privateers. They are authorized by the government to steal from the government’s enemies, which would be everyone that isn’t in our government and that has something worth stealing. The privateers and the government split the booty and the war goes on.
I don’t think it can be much clearer. Goldman Sachs used to do investments. Investments are the process of giving money to people so something gets done. Trading is different. Trading, especially high-speed computer trading (like, in fractions of a second), simply siphons money away from some people to give it to others. Nothing is made, nothing is supported, nothing is produced – except more money in the accounts at Goldman Sachs.
If one is investing, one is trying to make something come out of the face that money can make things happen. If one is simply trading, then it doesn’t matter if the money goes to cancer drug development, tobacco, or useless ‘securities” made up of mortgage hamburger. All that matters is at the end of the day, you have more money than you did in the morning.
The potential for evil when you don’t plan – worse, when you don’t care – is staggering. “Don’t be evil” is an acknowledgement that yes, technology pursued simply to make money can result in chaos, pain, and destruction for people who weren’t even involved: insane disparities of wealth, and potential economic collapse.
Clear?
Clear?
When will we learn that just because something can be done does not mean it should be done? When will we learn that financial markets cannot regulate themselves and that citizens should be made to put the interest of their country before their own financial gain? In the past when someone had completely sold out their own country they were called traitors and charged with Treason. Buying imports is one thing (America has always done that since Colonial Times) but to plan the downfall of the American economy and hand it over to China just because they want to be rich is another thing totally. There has got to be a line in the sand.
I Agree with Fred. The US has all the hallmarks of a failed state and will collapse. Goldman Sachs is just one of the more visible symptoms of that process (as are the occupations of Iraq and Afganistan). But lets listen to an expert on failed states and subsequent collapse:
http://www.energybulletin.net/node/23259
Expert? The first line of the article states he’s not an expert!
[...] listening to http://www.cringely.com/2009/08/is-technology-evil/ [...]
I think that though you’ve identified a problem, you haven’t located the underlying cause. High-speed trading is allowed by exchanges and allowed by current legislation and if there is money in it people will do it.
What might be needed is legislation that mandates a cool down period on all purchases, and a minimum holding period for all trades. I don’t think we can get rid of puts, but we could have heavier fines for unsupported or failed puts.
It is in our nature to pursue any small advantage. Clearly the people at Goldman are oblivious to the larger picture. But can we really expect them to be otherwise? They are only acting within their narrow vision as an investment house bent on profit. The problem arises when such a business invades the regulatory bodies, turning oversight decisions to it’s own ends. At that point, the bodies appointed to take the bigger picture into account have been undermined. If these bodies were actually doing their jobs, simple solutions would make all the difference. Solutions like transparent derivative markets, Tobin taxes and making all public businesses pay dividends on gross profits. Very simple plans that would have major stabilizing effects on our economy. Instead we get endless pages of legislation, written by the lawyers of such firms, made to look like action, but only disguising the gates to business as usual.
[...] Cringely on technology – Is Technology evil? – Link. [...]
[...] to come at things from a slightly different vantage point. My last blog inspired him to write “Is Technology Evil?” (www.cringely.com) He clearly did not like my sports analogies and found wisdom and inspiration in [...]
I am not sure if I agree with your post here. See you do make the best point, I don’t think you have actually given a large amount of thought to the opposite side of the argument. Perhaps I could do a guest post or a follow-up, just tell me.
[...] magazine (print? Whassat?) article on Goldman Sachs. It was a nice fluff piece, but I agree with Cringely’s view on why GS is evil — they’re a trading house masquerading as an investment bank. Their most profitable [...]
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