Rise of the Machines

I wrote this opinion piece for the New York Times in the fall of 2008. Since then I’ve become addicted to financial crisis entertainment and parables of the second gilded age: books, movies, documentaries, Matt Taibi in The Rolling Stone, and the incomparable Gretchen Morgenson in the New York Times business section.

The gateway drugs were William D. Cohan’s House of Cards and the Oscar-winning documentary Inside Job by Charles Ferguson, followed by Michael Lewis’s The Big Short, Andrew Ross Sorkin’s Too Big To Fail, and Reckless Endangerment by Gretchen Morgenson and Joshua Rosner. The first serious crisis film that made me feel the fear was HBO’s adaptation of Too Big To Fail; unfortunately it’s not out yet on DVD. But Margin Call looks quite promising, released in theaters and Video On Demand via Amazon and others.

As far as I can tell, the $65 trillion is still missing. Nobody has been prosecuted. And the Fed and the Treasury are still trying to pretend that the money will show up one day, if they can just keep up appearances until it happens.

Rise of the Machines, by Richard Dooling, from the New York Times, Sunday, October 11th, 2008.


“BEWARE of geeks bearing formulas.” So saith Warren Buffett, the Wizard of Omaha. Words to bear in mind as we bail out banks and buy up mortgages and tweak interest rates and nothing, nothing seems to make any difference on Wall Street or Main Street. Years ago, Mr. Buffett called derivatives “weapons of financial mass destruction” — an apt metaphor considering that the Manhattan Project’s math and physics geeks bearing formulas brought us the original weapon of mass destruction, at Trinity in New Mexico on July 16, 1945.

In a 1981 documentary called “The Day After Trinity,” Freeman Dyson, a reigning gray eminence of math and theoretical physics, as well as an ardent proponent of nuclear disarmament, described the seductive power that brought us the ability to create atomic energy out of nothing.

Freeman Dyson

Freeman Dyson

“I have felt it myself,” he warned. “The glitter of nuclear weapons. It is irresistible if you come to them as a scientist. To feel it’s there in your hands, to release this energy that fuels the stars, to let it do your bidding. To perform these miracles, to lift a million tons of rock into the sky. It is something that gives people an illusion of illimitable power, and it is, in some ways, responsible for all our troubles — this, what you might call technical arrogance, that overcomes people when they see what they can do with their minds.”

The Wall Street geeks, the quantitative analysts (“quants”) and masters of “algo trading” probably felt the same irresistible lure of “illimitable power” when they discovered “evolutionary algorithms” that allowed them to create vast empires of wealth by deriving the dependence structures of portfolio credit derivatives.

What does that mean? You’ll never know. Over and over again, financial experts and wonkish talking heads endeavor to explain these mysterious, “toxic” financial instruments to us lay folk. Over and over, they ignobly fail, because we all know that no one understands credit default obligations and derivatives, except perhaps Mr. Buffett and the computers who created them.

Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It’s not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers. Or maybe we are lost in space, with Dave the astronaut pleading, “Open the bank vault doors, Hal.”

As the current financial crisis spreads (like a computer virus) on the earth’s nervous system (the Internet), it’s worth asking if we have somehow managed to colossally outsmart ourselves using computers. After all, the Wall Street titans loved swaps and derivatives because they were totally unregulated by humans. That left nobody but the machines in charge.

How fitting then, that almost 30 years after Freeman Dyson described the almost unspeakable urges of the nuclear geeks creating illimitable energy out of equations, his son, George Dyson, has written an essay (published at Edge.org) warning about a different strain of technical arrogance that has brought the entire planet to the brink of financial destruction. George Dyson is an historian of technology and the author of “Darwin Among the Machines,” a book that warned us a decade ago that it was only a matter of time before technology out-evolves us and takes over.

George Dyson

George Dyson

His essay — Economic Dis-Equilibrium: Can You Have Your House and Spend It Too? — begins with a history of “stock,” originally a stick of hazel, willow or alder wood, inscribed with notches indicating monetary amounts and dates. When funds were transferred, the stick was split into identical halves — with one side going to the depositor and the other to the party safeguarding the money — and represented proof positive that gold had been deposited somewhere to back it up. That was good enough for 600 years, until we decided that we needed more speed and efficiency.

Making money, it seems, is all about the velocity of moving it around, so that it can exist in Hong Kong one moment and Wall Street a split second later. “The unlimited replication of information is generally a public good,” George Dyson writes. “The problem starts, as the current crisis demonstrates, when unregulated replication is applied to money itself. Highly complex computer-generated financial instruments (known as derivatives) are being produced, not from natural factors of production or other goods, but purely from other financial instruments.”

It was easy enough for us humans to understand a stick or a dollar bill when it was backed by something tangible somewhere, but only computers can understand and derive a correlation structure from observed collateralized debt obligation tranche spreads. Which leads us to the next question: Just how much of the world’s financial stability now lies in the “hands” of computerized trading algorithms?

Here’s a frightening party trick that I learned from the futurist Ray Kurzweil. Read this excerpt and then I’ll tell you who wrote it:

But we are suggesting neither that the human race would voluntarily turn power over to the machines nor that the machines would willfully seize power. What we do suggest is that the human race might easily permit itself to drift into a position of such dependence on the machines that it would have no practical choice but to accept all of the machines’ decisions. … Eventually a stage may be reached at which the decisions necessary to keep the system running will be so complex that human beings will be incapable of making them intelligently. At that stage the machines will be in effective control. People won’t be able to just turn the machines off, because they will be so dependent on them that turning them off would amount to suicide.

Brace yourself. It comes from the Unabomber’s manifesto.

Theodore Kaczynski, "The Unabomber"

Theodore Kaczynski, “The Unabomber”

Yes, Theodore Kaczynski was a homicidal psychopath and a paranoid kook, but he was also a bloodhound when it came to scenting all of the horrors technology holds in store for us. Hence his mission to kill technologists before machines commenced what he believed would be their inevitable reign of terror.

We are living, we have long been told, in the Information Age. Yet now we are faced with the sickening suspicion that technology has run ahead of us. Man is a fire-stealing animal, and we can’t help building machines and machine intelligences, even if, from time to time, we use them not only to outsmart ourselves but to bring us right up to the doorstep of Doom.

We are still fearful, superstitious and all-too-human creatures. At times, we forget the magnitude of the havoc we can wreak by off-loading our minds onto super-intelligent machines, that is, until they run away from us, like mad sorcerers’ apprentices, and drag us up to the precipice for a look down into the abyss.

As the financial experts all over the world use machines to unwind Gordian knots of financial arrangements so complex that only machines can make — “derive” — and trade them, we have to wonder: Are we living in a bad sci-fi movie? Is the Matrix made of credit default swaps?

When Treasury Secretary Paulson (looking very much like a frightened primate) came to Congress seeking an emergency loan, Senator Jon Tester of Montana, a Democrat still living on his family homestead, asked him: “I’m a dirt farmer. Why do we have one week to determine that $700 billion has to be appropriated or this country’s financial system goes down the pipes?”

Hank Paulson, Former Treasury Secretary

Hank Paulson, Former Treasury Secretary

“Well, sir,” Mr. Paulson could well have responded, “the computers have demanded it.”

Richard Dooling is the author of “Rapture for the Geeks: When A.I. Outsmarts I.Q.”

Congress Shall Make No Law . . .

The First Amendment

Congress Shall Make No Law . . . Abridging The Freedom of Speech

Law students spend the better part of three years beetling their brows over the study of constitutional law—a mercurial, opaque, highly theoretical system of textual exegesis, which nobody but the tenured and long-winded professor pretends to understand. And the capsheaf of con-law contwistification is First Amendment law. The First Amendment protects “the freedom of speech” and has spawned an absorbing delusional system of case law, because the harder you work to understand it, the more complex and inscrutable it becomes, until its tracts and tiers and modes of analyses, its time, place, and manner restrictions, its public and private figures and forums, its symbolic expressions and invasions of privacy–all evanesce into vaporous metaphysics.

The average citizen knows only that the First Amendment does not mean what it says (i.e., “Congress shall make NO law . . .”), because Congress in fact makes laws abridging the freedom of speech (laws against child pornography, obscenity, fraud, so-called “fighting words,” and so on). To the layperson, the First Amendment must mean whatever nine robed Platonic Guardians say it means: “This political speech is good, we’ll protect it. This obscene speech is bad, we’ll call it ‘unprotected speech’ and let governments ban it.” Voila! And if that’s the case, why can’t The Nine read the First Amendment to ban the speech of the Westboro Baptist Church and protect the grieving families of fallen soldiers from lunatic religious delusions on the most painful day of their lives? Or why can’t the Court allow Congress to regulate campaign financing to protect us from wealthy Wall Street corporations and moneyed special interests?

The First Amendment Does Not Protect Burping

Is Burping Protected By The First Amendment?

When the Supreme Court addresses these questions, they steer between two competing principles of First Amendment jurisprudence that will never be reconciled (think Scylla and Charybdis, a rock and a hard place, the horns of a dilemma).

One principle is called the marketplace of ideas, first formulated by Justice Oliver Wendell Holmes, who wrote:

“The best test of truth is the power of the thought to get itself accepted in the competition of the market. –Abrams v. United States (1919)

To Justice Holmes, there’s no such thing as good or bad speech, only speech that competes in the Darwinian marketplace and lives or dies. The Court’s job is to strike down any attempts by the government to regulate the marketplace of ideas. Of course, there are the inevitable exceptions, because Holmes was also the Justice who wrote: “The most stringent protection of free speech would not protect a man falsely shouting fire in a theater and causing a panic.”

Justice Louis Brandeis offered a parallel and sometimes competing principle of First Amendment theory eight years later, when he articulated what might be called the purpose of the First Amendment:

“Those who won our independence . . . believed that freedom to think as you will and to speak as you think are means indispensable to the discovery and spread of political truth; that without free speech and assembly discussion would be futile . . . ” –Whitney v. California (1927)

See how Justice Brandeis suggests that the First Amendment does not exist to protect all speech; it exists to protect speech that leads to the discovery and spread of “political truth.” Brandeis wants to protect speech, not because it’s an absolute value or good for the soul, but because it’s essential for democracy and civic republicanism. Quite a different concern than Justice Holmes’ marketplace where it’s every idea for itself and survival of the fittest. In fact, Holmes would probably say that there is no such thing as “political truth.” Truth is whatever the marketplace says it is. If the Gangnam Style YouTube video beats out President Obama’s State of the Union address, so be it.

The Marketplace of Ideas?

The Marketplace of Ideas?

And the best description of these two ideas as applied to a single case is Stanley Fish’s Opinionator column What is the First Amendment For? published in the New York Times shortly after the Supreme Court’s opinion in Citizens United v. Federal Election Commission. Fish sees Justice Kennedy’s majority opinion and Justice Steven’s dissent in Citizens United as a replay of the age-old war between the marketplace of ideas and the protection of “political truth”:

Kennedy, along with Justices Roberts, Alito, Thomas and Scalia (the usual suspects), is worried that the restrictions on campaign expenditures imposed by the statute he strikes down will “chill” speech, that is, prevent some of it from entering the marketplace of ideas that must, he believes, be open to all voices if the First Amendment’s stricture against the abridging of speech is to be honored. (“[A] statute which chills speech can and must be invalidated.”) Stevens is worried — no, he is certain — that the form of speech Kennedy celebrates will corrupt the free flow of information so crucial to the health of a democratic society. “[T]he distinctive potential of corporations to corrupt the electoral process [has] long been recognized.”

So who wins? Well for now, it’s the marketplace of ideas. The Roberts Court is poised to strike down another Arizona campaign finance law. The idea behind the Arizona statute is to “level the playing field” by providing matching funds to candidates who accept public financing. But to chief justice Roberts, leveling the playing field is government meddling in the marketplace of ideas, as evidenced by his questions at oral argument.

“I checked the Citizens Clean Elections Commission Web site this morning,” the chief justice said, “and it says that this act was passed to, quote, ‘level the playing field’ when it comes to running for office. Why isn’t that clear evidence that it’s unconstitutional?”

For the moment, at least five justices on the Court list toward the marketplace of ideas when it comes to First Amendment analysis, but when new Platonic Guardians arrive on the bench, they may have a different opinion.

Lego Antikythera Mechanism

The Antikythera Mechanism

The Antikythera Mechanism

The Antikythera Mechanism is the oldest known scientific computer, built in Greece at around 100 BCE. Lost for 2000 years, it was recovered from a shipwreck in 1901. But not until a century later was its purpose understood: an astronomical clock that determines the positions of celestial bodies with extraordinary precision. In 2010, a fully-functional replica was built out of Lego. (See YouTube video here).

However, as I pointed out in Rapture For The Geeks, the abacus is the oldest “computer,” as far as we know.

500 B.C. – the Abacus

Technology and math have had a symbiotic relationship ever since Early Man’s first wife ran out of fingers and toes while counting her husband’s shortcomings and character defects. With twenty or more reasons she’d be better off with some other mug, Early Man’s wife used pebbles, stones, sticks, or other handy objects arranged in columns along lines drawn in the sand. The word “calculus” is Latin for pebble, and these arrangements of pebbles and other objects were the first free-form abaci (the plural of abacus and an important word in early Babylonian Scrabble games). Using abaci, our female ancestors suddenly became proficient at tracking dozens of compound male personality defects, multiple moral turpitudes, hundreds of failures to hunt, gather, bring dead gazelles home, and keep up with the Cro Magnon Joneses.


By 500 B.C. or thereabouts, the Babylonian wives had perfected the abacus—the first formal implementation of reusable hardware capable of calculating abstract data. Before that Early Man had used “counting sticks” or “tally sticks,” which were good for recording a single transaction by making notches on them, or perhaps for whacking the other party to the transaction in the head if they gave you the “short end of the stick,” but the abacus was the first true counting machine.

Any mention of abaci still reliably elicits the old chestnut about how a skilled abacus user can outperform most calculator-equipped college students, especially if the college students are American. However no one has yet pitted a skilled abacus user against a Cray XT5 “Jaguar” supercomputer.


As man evolved and gathered more wives unto himself, the complaints about him multiplied in number and kind. The spreadsheet had not yet been invented, so early wives relied on ever more advanced mathematical concepts and theories, including multiplication of complaints against Early Man and division of Early Man’s assets.

Eventually, the Babylonians and Greeks discovered important geometric concepts like the Pythagorean theorem, which states that in any love triangle, the square of the sum total of the wronged wife’s divorce settlement is equal to the square of the philandering husband’s assets plus the square of the other woman’s assets.

Later came algorithms and logarithms, which are extremely important to math and technology, but are also difficult to understand and explain, which is why the menial mental labor involved in understanding them has been outsourced to India and to Asian countries, where the people are clever and non-obese.

From Rapture For The Geeks: When AI Outsmarts IQ