A.I.: The New God of Economics, Banking, and Finance
“Over a century ago, Nietzsche observed, ‘Almost 2,000 years and no new God!’ Indeed, though hundreds of new religions appear and disappear every year, it has been centuries since a truly new great religion has appeared on this planet. We are overdue for a new god.” —Paul Saffo, futurist, writing for The Economist
In the aftermath of the financial crisis—first in the U.S. and now in Europe—there has been a steady chorus of influential and prominent thinkers testifying that the field of economics is in none other than a full-blown existential crisis. George Soros, for example, speaking at the Italian Festival of Economics last month, said “there has been a widespread recognition, both among economists and the general public, that economic theory has failed.” Then there’s Paul Saffo, writing for Foreign Policy who states, “we know more about weather systems and the like than we know about the global econosphere, and our weather forecasting is unquestionably better than our economic forecasting.”
Just recently Andrew Haldane and Benjamin Nelson at the Bank of England laid out in comprehensive detail the massive shortcomings of current economic thought by pointing to our inability to account for non-linear dynamics, self-organizing criticality, and preferential attachment in the complex adaptive network that is our modern economy. Understanding such a system is perhaps possible by physicists, sociologists, ecologists, or weather forecasters aided by extremely powerful tools of computation but is still years ahead of the predominant thinking within governments and central banks attempting to manage their economic, banking, and financial systems.
Tempting as it is to disregard this crisis of economic theory and practice as the mere result of flawed assumptions, the true heart of the matter is whether we even have the ability to model or predict the complex behavior of humans and machines interacting at this level. As long as the world remains relatively “normal”—in the statistical sense of a bell-curve—conventional economics has its place. But now, with chaos dangling its fat tail over their heads, governments and regulatory agencies fear they have lost the tools necessary to prevent the financial system from collapsing under its own weight. Like a pile of sand that has reached its maximum height, the addition of one more ill-timed bank failure, natural catastrophe, or terrorist attack is feared “to cause the whole edifice to collapse in an uncontrolled cascade.”1
Rather than debate how we got to this point, however, I think it is most important to keep in mind that no matter what the odds of catastrophic collapse are, policymakers have made it absolutely clear that they intend on doing everything in their power to prevent the worst from happening. If that means the loss of sovereignty for large groups of people or nations—so be it. If that means too-big-to-fail banks must continue to get bigger—so be it. In a highly integrated global economy where the linear cause-and-effect relationships of previous forgone economic theory no longer hold, the modus operandi is save all those who pose too much risk, ask questions later. Better to do too much than too little, it is believed.
Of course, this ad-hoc approach of a bailout here, a liquidity injection there, is not a sustainable or scientific methodology. Given the widespread recognition that “traditional [Keynesian-style] institutional interventions are woefully inadequate as dampening mechanisms”, Foreign Policy’s Saffo says “a new Bretton Woods is in our future, a moment when chastened global leaders will commit to building a new institutional order.” But what will this “new institutional order” look like? By invoking Bretton Woods does he envision the restoration of a future gold standard to “chasten” loose governments and central banks still under the spell of Keynesian economics? Far from it.
Echoing the advice of Haldane and Nelson at the Bank of England, Saffo points toward a completely new and different solution—a deus ex machina he calls the “global economic observatory.” “Imagine”, he says, “an institution with the analytic resources of Wall Street players, the reach of Google, and the openness of Wikipedia”; an entity that can “leverage the capacities of cyberspace” and explore the “market implications of rapidly spreading social media” to warn policymakers ahead of time of impending threats.
Saffo was named a “Global Leader for Tomorrow” by the World Economic Forum for good reason. His track record in forecasting future trends and communicating big ideas has gained the attention of many prominent and influential people. Without a doubt, self-proclaimed “futurists” like him and Ray Kurzweil believe that A.I. will not only rule the world one day—with or without our blessing—but, as Saffo wrote in The Economist, also provide the answer to the ongoing story of “human misery served up by war, revolution and natural disasters...from which a new god could spring.”
I, for one, look upon this “global economic observatory”—or all-seeing eye atop the financial and monetary pyramid—in a different light. If it forecasted an imminent collapse of the global economy due to resource scarcity and price shocks for which the most efficient solution is a massive reduction in global population by a few billion people, what would global leaders do? Will they let nature take its course or proactively do all they can for the good of the system? If they didn’t act, would it act for us instead? These are legitimate questions when you place too much power or faith into a non-human automated system. As it may turn out, the difference between non-human and inhuman could be trivial.
Perhaps you’re thinking this is all speculative nonsense. That A.I., Skynet, or whatever you want to call it, will never happen. That the divine spark of human intelligence can never be created in a machine. Then again, it wasn’t God who created the algorithms taking over the stock market today, or the supercomputer that beat the best we could offer at chess or Jeopardy—it was mere human beings aided with the power of technology. Still don’t believe it is possible? Perhaps it doesn't matter what you believe—Saffo, like many others, will believe in it.
"There is one thing stronger than all the armies in the world, and that is an idea whose time has come." —Victor Hugo
1"Tails of the Unexpected" by Andrew Haldane and Benjamin Nelson, Bank of England
About Cris Sheridan
Cris Sheridan Archive
|12/09/2016||Tax Cuts, Earnings, and Expectations||bcast|
|12/08/2016||Neil Dutta on US Economic Outlook, Risks of “Too Much Fiscal Stimulus”||bcast|
|12/07/2016||Senescence and the Science of Aging||bcast|
|12/02/2016||Stratfor’s Reva Goujon: Major Geopolitical Changes Coming in 2017||bcast|
|12/01/2016||Macro Ops’ Tyler Kling: Bond Market Has Peaked; Watch US Dollar!||bcast|
|11/30/2016||Andrew Zatlin on Trump, Google, and the Leaning Tower of San Francisco||bcast|
|11/25/2016||Why Your Next Car Will Be Driverless||bcast|
|11/24/2016||The Advancing Arms Race for Market Intelligence||bcast|
|11/23/2016||Avi Gilburt on Gold, S&P 500, and Market Timing||bcast|
|11/18/2016||Jim Bianco: Currency Markets Repricing for Potential Trade War||bcast|