... in economy

Hamiltonian cathedrals and the the Jeffersonian bazaar

04 Sep 2013 | 755 words | economy europe

Tumblr pointed me to a fascinating essay on the structure of our economic system. In ‘The American cloudVenkatesh Rao explores the economic system of the United States by applying the much hyped cloud metaphor to the production, flows and consumption of goods. While it is not without flaws (reading it one might be tempted to believe that the USA are a self sufficient economy without any connections to the rest of the world) the essay provides an interesting perspective on our times.

At the core of his essay is Rao’s analysis of the US as an assemblage of Hamiltonian cathedrals and a Jeffersonian bazaar1:

Over the course of two centuries, the Hamiltonian makeover turned the isolationist, small-farmer America of Jefferson’s dreams into the epicentre of the technology-driven, planet-hacking project that we call globalisation. The visible signs of the makeover — I call them Hamiltonian cathedrals — are unprepossessing. Viewed from planes or interstate highways, grain silos, power plants, mines, landfills and railroad yards cannot compete visually with big sky and vast prairie. Nevertheless, the Hamiltonian makeover emptied out and transformed the interior of America into a technology-dominated space that still deserves the name heartland. Except that now the heart is an artificial one.

The makeover has been so psychologically disruptive that during the past century, the bulk of America’s cultural resources have been devoted to obscuring the realities of the cloud with simpler, more emotionally satisfying illusions. These constitute a theatre of pre-industrial community life primarily inspired, ironically enough, by Jefferson’s small-town visions. This theatre, which forms the backdrop of consumer lifestyles, can be found today inside every Whole Foods, Starbucks and mall in America. I call it the Jeffersonian bazaar.

Structurally then, the American cloud is an assemblage of interconnected Hamiltonian cathedrals, artfully concealed behind a Jeffersonian bazaar. The spatial structure of this American edifice is surprisingly simple: a bicoastal surface that is mostly human-habitable bazaar, and a heartland that is mostly highly automated infrastructure cathedrals. In this world, the bazaars are the interiors of cities, forming a user-interface layer over the complex tangle of pipes, cables, dumpsters and loading docks that engineers call the last mile — the part that actually reaches the customer. The cities themselves are cathedrals crafted for human habitation out of steel and concrete. The bazaar is merely a thin fiction lining it. Between the two worlds there is a veil of manufactured normalcy — a studiously maintained aura of the small-town Jeffersonian ideal.

Assuming that this is analysis is (at least partially) true for the US it would be extremely interesting to map his idea of a bicoastal cloud surface onto Europe. Europe has a much more complicated geography than the US. We have no bicoastal population centres and the notion of heartland is difficult to establish in terms of geography. It might very well be the case that the geography of the European cloud is the inverse of what Rao describes: the human-habitable bazaar is found in the very centre while the feeder infrastructure can be found at the edges. More likely the european cloud would look like a accumulation of smaller clouds that take very different shapes, which is very illustrative of the growing pains that Europe is experiencing in trying to establish an single digital market.

Still it is clear that the separation between population centres and production and distribution centres that Rao highlights also exists over here. Rao ends his essay with a recommendation to the inhabitants of the Jeffersonian bazaar to venture out and explore the inside of the cloud:

To the Jeffersonian sensibility, Hamiltonian cathedrals are often little more than infrastructure porn. But to establish a direct, appreciative relationship with these technologies, unmediated by instrumental metaphors and currencies of interaction, you have to walk among them yourself. You have to experience train yards, landfills, radio-frequency ID-tagged seven-day cows and other such backstage oddities in the flesh.

This is something I can indeed recommend. My last, rather unexpected, experience with Hamiltonian cathedrals was a family vacation during which the vacation farm that we were staying on turned out to be a (indeed well obscured) industrial production facility for organic produce and diary complete with the above mentioned radio-frequency ID-tagged seven-day cows and semiautonomous, GPS guided robot tractors.

  1. The terminology is obviously borrowed from Eric S. Raymond’s influential essay ‘The Cathedral and the Bazaar‘ that referred to two competing software development models. In Rao’s essay the the two models are not competing. Instead the bazaar can only exist by virtue of the cathedral. ↩︎

An unlikely group of social innovators: The Amish

16 Mar 2013 | 433 words | business copyright economy religion

Planet Money has a gem of a story on ‘the Business Secrets Of The Amish‘. The story zooms in on how the Amish, who have made their living through small plot farming for centuries, have adapted to an environment that does not allow for this lifestyle anymore:

What you see in this hall is the transformation of Amish culture. Up until certainly the 1970s the vast vast majority of amish men were farmers. They lived at home, typical plot size would have been about a 130 acres, which is enough for a family, you know a dad and a few boys to farm using horse-powered machinery. But they lived in places like Lancaster county and Holmes county, Ohio where land prices have gotten bigger and bigger, the Amish have doubled in the last 40 years because the have so many children and what has happend is more and more kids can’t afford to buy farms and the fathers can only divide the farms so many ways. If you have 7 boys your 130 acres pretty quickly becomes too small to even be worth farming and then what happens to their boys? So for the first time ever a majority of Amish men in America are not farming, they are finding other ways to make a living.

So right trough the 1960s into the 1970s all of these guys’ fathers or grandfathers would have been farmers and there might have been in any community one or two guys who farmed but also did a little carpentry on the side or a little blacksmithing on the side. But now you have tens of thousands of amish businesses, tens of thousands of people who have industry, this convention center here in a few months this is going to be the Amish furniture show and it is not for the general public, it is not ‘oh lets go down to Amish country and get a nice dressoir’, this is serious business: Walmart, Sears, JC Penny come here to buy, to place orders with huge amish factories, this is serious business. […]

The flexibility that the amish have shown in adapting to this new social reality is quite remarkable (especially if you compare this to the way the entertainment and publishing industry react to the change in economic fundamentals in their business environments). Who would have thought that a 320 year old religion that is known for it’s adherence to a strict set of behavioural rules (referred to with the delightful Germanism ‘Die Ordnung’) would turn to what is currently hyped as ‘Social Innovation’ to ensure their survival?

The market's clock speed is laughable

Just finished reading ‘Red Plenty‘ by Francis Spufford which has replaced ‘Turing’s Cathedral‘ as my favourite book from this year. In fact the two books probably should be read together. Red Plenty picks up approximately where Turing’s Cathedral ends and offers a rather fascinating peek into how the invention of electronic computers interacted with the planned economy of the Soviet Union under Khrushchev and his immediate successors.

Red plenty follows a community of scientists (economists, computer scientists, cycberneticans and biologists) who propose to reform planning of the soviet economy along the principles of linear programming. The ultimate goal of this exercise is to accelerate economic growth and to bring into being a state wherein there are sufficient amounts of commodities available for to satisfy the needs (and desires) of every citizen (a.k.a communism). This provides fascinating insights into the functioning of the planned economy and the soviet bureaucracy as well as the hopes and fears of those involved.

One of the reasons why this is such a good book is that it really forces you to acknowledge that there a legitimate reasons to question the capitalism and the market as the only viable and sane economic arrangement. While it is clear that the particular approach that is portrayed in Red Plenty has failed with disastrous consequences reading the book reinstalls the notion that another world should be possible.

As Jo Walton notes in his review Red Plenty is at its best where it describes specific problems that appear as a result of economic planning. One example is the following account about running an algorithm that optimises potato delivery to Moscow on an early Soviet mainframe computer. I particularly enjoyed reading this in the light of recent debates about algorithmic trading. Compared to the current practice of trading for the sake of trading this account of crude algorithmic non-market optimisation actually makes sense.

The BESM. A picture of what? Of potatoes. The electrons flowing through the vacuum tubes represent digits; and tonight the digits the BESM is processing represent potatoes. Not, of course, potatoes as they are in themselves, the actual tubers, so often frost-damaged or green with age or warty with sprouting tubercles – but potatoes abstracted, potatoes considered as information, travelling into Moscow from 348 delivering units to 215 consuming organisations. The BESM is applying Leonid Vitalevich‘s mathematics to the task of optimising potato delivery for the Moscow Regional Planning Agency. Seventy-five thousand different variables are involved, subject to 563 different constrains: this problem is out of reach of fingers and slide rules. But thanks to computers, thanks to the BESMs inhuman patience at iterating approximate answers over and over again, it is a problem that can be solved.

The BESM is using Leonid Vitalevich’s shadow prices to do what a market in potatoes would do in a capitalist country – only better. When a market is matching supply with demand, it is the actual movement of the potatoes themselves from place to place, the actual sale of the potatoes at ever-shifting prices, which negotiates a solution, by trial and error. In the computer, the effect of a possible solution can be assessed without the wasteful real-world to-ing and fro-ing; and because the computer works at the speed of flying electrons, rather than the speed of a trundling vegetable truck, it can explore the whole of the mathematical space of possible solutions, and be sure to find the very best solution there is, instead of settling for the good-enough solution that would be all there was time for, in a working day with potatoes to deliver. You don’t, in fact, have to look as far away as the capitalist countries to find a market for purposes of comparison. There is still a market in potatoes, right here in Moscow: the leftover scrap of capitalism represented by the capital’s collective-farm bazaars, where individual kolkhoznik’s sell the produce from their private plots. Somehow, in the hardest times, there are always piles of green leeks here, and fat geese, and mushrooms smelling damply of the forest, and potatoes dug that morning; all so expensive you’d only shop here if money was no object, to stock up for a birthday or a wedding party. When the trade is briskest, the recording clerks sally out from the Ministry of Trade’s little booths and walk among the stalls, carefully writing down prices. But how slow it is! How slowly things move, as customers jostle in these triangles of waste ground next to the city’s bus stations and train stations, compared to the ten thousand operations per second of the BESM!

The markets clock speed is laughable. It computes at the rate of a babushka in a headscarf, laboriously breaking a two-rouble note for change and muttering the numbers under her breath. Its stock arrives one sack or basket at a time, clutched on a peasant lap. It calculates its prices on cardboard, with a stub of pencil. No wonder that Oskar Lange over in Warsaw gleefully calls the marketplace a ‘primitive pre-electronic calculator’. In the age of the vacuum tube, its an anachronism, good only for adding a small extra source of high-priced supply to the system, for those moments when the modern channels of distribution can’t quite satisfy every consumer need. And now even that function is becoming obsolete. When Leonid Vitalevich’s program reorganises Moscow’s delivery system, the efficiency gains should fill the state shops with enough cheap potatoes for everyone. Now, as the seconds pass, the BESM is steadily shaving away the average potato delivery distance in the capital. At present, it seems, a spud must travel an average of 68.7 kilometres from cold-store to shop: but in the basement of the Institute of Precise Mechanics it is already clear that 61.3 kilometres is possible, 60.08 kilometres, 59.6 kilometres, and still the program is showing that the optimum has not yet been reached. The shorter the distance, the fresher the potato, the smaller the spoilage this is the best index of success the programmers can come up with, since price as such is not available to them as a quantity to be minimised. The state selling price of potatoes has been fixed for many years. 57.9 km, 56.88 km. This is very nearly a 20% improvement. Soon Moscow’s potato supply will be 20% better. 55.9 km, 54.6 km. Its a new world. (page 115f)

Also – and somewhat predictably – reading red plenty has added a new place i want to visit to my growing list of such places: the beach in Akademgorodok (at the bottom-left of this picture)

Crop from a photo by Elya via wikimedia commons

The future of copyright will most likely not be determined by a cost benefit analysis

29 Jul 2012 | 238 words | copyright economics economy future review war books

So i finally managed to start reading the ‘Future of Copyright‘ anthology that contains the winning essays from a contest organised by the Modern Poland Foundation. So far (i have not read them all) my favourite essay is ‘Give‘ by Togi, which i read as powerful argument that systemic change (and not just reform) is not only much needed but also possible. While his overall line of argument is pretty convincing (to me), i have a bit of trouble following one of his (her?) central arguments (Mike Linksvayer makes a very similar point in his review of the anthology):

At the point where government profit from copyright/IP is negated by the cost of its enforcement (both in monetary terms and in terms of public goodwill), free culture will be permitted.

While this would be the logical thing for governments to do, there is ample evidence that governments don’t work like this. This seems to be especially true in conflicts that are rhetorically packaged as ‘wars’. The ‘war on drugs’ is the best example of this (if this does not make sense to you listen to the last point bought forward in this episode of the planet money podcast), but it is also true for the ‘war on terror’. Given this i think it is rather naive to expect (as Togi does) governments to succumb to rational economic thinking when it comes to the war on piracy sharing.

Belgium: l’économie de la débrouillardise?

02 Jan 2012 | 153 words | belgium economy

Wired has a short interview with Robert Neuwirth author of Stealth of Nations: The Global Rise of the Informal Economy which highlights some of the points made in the book (the main point being that combined the informal economy worldwide would be the second largest economy after the US). The interview hints at some fairly interesting observations such as merchant-driven product innovation and multiple layer interfaces between formal economy multinationals and their informal sales forces. Hopefully the book explores these in some more depth.

Midway through the interview wired has placed this map of the world which shows the size of each country’s underground economy, as a percentage of its GDP. While the map is not entirely credible (Iran and Indonesia having informal economies that account for less than 10% of GDP?) the most striking feature (for me) is the color of Belgium…

Map of countries by informal economy as percentage of GDP

Economy 101

12 Oct 2011 | 264 words | copyright economy

Stumbled across this little hidden gem in an interview on ‘Tendencies and stakes of copyright’ that Lorena Boix Alonso (Deputy Head of Cabinet of Neelie Kroes) gave to the Forum D’Avignon (emphasis mine):

For example, according to recent studies many consumers are confused about what they are allowed to copy or record concerning content leading to negligible costs of reproduction they have legally, to the point that in many cases consumers are even paying for unauthorised access to content. Moreover, they do not seem to be aware of the value of IPR. With digitisation of content, users tend to forget the creativity part behind an item and do not measure the impact of their action. These factors make IPR enforcement difficult. This is why IPR enforcement actions by governments are often not understood by the users.

This is quite an amazing quote. as far as i understand economics, value is not something that is determined by the producer of a work and that consumers need to become aware of.

Instead value is something that is usually determined in market transactions between suppliers and consumers. As long as misguided ideas such as the one expressed by Lorena Boix Alonso in the interview above are used to structure the discussion about copyright in the digital age, we will never manage to resolve this discussion.

Instead of fabulating about inherent values of digital goods (and then leaning on policy makers to somehow enforce these fantasies), rights holders really need to understand that what they need to do is making offers to consumers that are attractive to them.

Why the U.S is and will remain miles (sic!) ahead of europe.

If you want to understand this you simply have to listen to the below excerpt from a planet money interview with Mark Zandi the chief economist of Moody’s Analytics and contrast that with the petit bourgeois, xenophobic attitude towards immigration that is prevailing in Europe:

and again, fundamentally we are fine. we can’t loose the sight of what makes our economy really tick though and that is: the most educated population, the best infrastructure and most importantly of all that we continue to attract the best and brightest from all over the planet, because as long as we can do that we are gonna be just fine.

Stock trades, art and algorithms

26 Sep 2010 | 686 words | algorithms art economy future modernity technology

If you ask me one of the more fascinating things going on out there right now is high-frequency trading. High-frequency trading (HFT) occurs when traders program computers to buy and sell stocks (or other financial products) in quick succession under certain, pre-defined circumstances. (a good starting point to learn more about HFT is this planet money episode or this ai500 article by Joe Flood).

Apparently High Frequency trading enables successful trading firms to skim of enormous surplus off these transactions (up to 1 million USD per day according to the planet money episode mentioned above). Not surprisingly this behavior can also act as a destabilizing factor wrecking havoc on stock markets. It has been one of the contributing factor’s to the ‘flash crash‘ which saw the Dow-Jones index plunge nearly 1,000 points in seconds on the 6th of may 2010.

If you believe wikipedia (which of course you should not) High Frequency trading is currently responsible for 70% of the equity trading volume in the US. Needless to say the practice is generating a fair share of controversy among economists.

At the core of this controversy are the merits of HFT: does is make macro-economic sense (because it ensures the liquidity of markets and limits market volatility) or is it detrimental to the economy at large (because it extracts value from markets based on no other fact than that prices tend to move)?

While this debate is going on it appears that there are even stranger things occurring in the field of high frequency trading: in August the Atlantic reported on research undertaken by a market data firm called Nanex that unearthed trading patterns that do not seem to make sense even by the high obfuscation standards of HFT. The article in the Atlantic claims that these strange patterns are the result of ‘mysterious and possibly nefarious trading algorithms’ whose ways and reasons of operation are known to no-one:

Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there’s no way they’d ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants.

When you visualize this you get something like this (graphs by Nanex):

According to the Atlantic it is unclear what exactly causes these patterns to emerge. The Nanex researchers have come to the conclusion that these algorithms are most likely an attempt by trading firms to introduce noise into the marketplace in order to realize a competitive advantage:

Other firms have to deal with that noise, but the originating entity can easily filter it out because they know what they did. Perhaps that gives them an advantage of some milliseconds. In the highly competitive and fast HFT world, where even one’s physical proximity to a stock exchange matters, market players could be looking for any advantage.

On the other hand there are much more poetic explanations for the emergence of these patterns, that abandon the idea that these patters serve a purpose all-together:

On the quantitative trading forum, Nuclear Phynance, the consensus on the patterns seemed to be that they simply just emerged. They were the result of “a dynamical system that can enter oscillatory/unstable modes of behaviour,” as one member put it. If so, what you see here really is just the afterscent of robot traders gliding through the green-on-black darkness of the financial system on their way from one real trade to another.

Whatever they are, these patterns are also outright beautiful. The above visualizations remind me on the work of german artist Jorinde Voigt, who’s stunning drawings (pdf) often rely on algorithms as a source:

Konstellation Algorithmus Adlerflug 100 Adler, Strom, Himmelsrichtung, Windrichtung, Windstärke -Jorinde Voigt Berlin, Oktober 2007

p.s:Sara says that these stealth trading bots remind her of the tiger in Jonathan Lethem’sChronic City instead. p.p.s: Also just finished reading ‘the Fires‘ by the aforementioned Joe Flood. brilliant book, highly reccomended.

Abi --> putzen

18 Jul 2005 | 165 words | germany work capitalism economy

In eastern Germany you get your abitur (the secondary school exam that entitels you to study at a university) after 12 years (where i grew up you have to do 13 years of school for the same exam), but apparently it also gets you less:

There are areas in east germany where more than a quater of the population is unemployed. And that is after the young and educated have left to find their luck elsewhere. This picture taken in greifswald (a port city in the north of meckelemburg vorpommern where unemployment rate is something like 19.8%) sums up the misery pretty well – if you ask me:

There are two stickers on the car. The white one advertises a personal housekeeping service, that is flexible, fast and cheap (eg an activity all the way at the bottom of the capitalist chain of exploitation) and the yellow sticker proudly states that the owner of this car has just (summer 05) gotten his or her abitur…

meanwhile... is the personal weblog of Paul Keller. I am currently policy director at Open Future and President of the COMMUNIA Association for the Public Domain. This weblog is largely inactive but contains an archive of posts (mixing both work and personal) going back to 2005.

I also maintain a collection of cards from African mediums (which is the reason for the domain name), a collection of photos on flickr and a website collecting my professional writings and appearances.

Other things that i have made online: