Wednesday, January 14, 2009

The Dark Side of Ferguson's Thesis

I was far too tired last night to try watching The Ascent of Money at 10 PM, but my VTR captured it. Thus, I should be able to digest it at a time when my mind is fresher; and, if necessary, I can deal with it in smaller doses, rather than trying to take in the full two-hour packaged in one gulp. Nevertheless, I found myself thinking about "Ferguson's thesis" while reading "A Chill on 'The Guardian.'" This is a piece that Alan Rusbridger, Editor in Chief of The Guardian, wrote for the latest issue of The New York Review, in which he tries to provide an expository account of the prolonged (and highly expensive) history around a libel suit that global retail giant Tesco filed against The Guardian. After reading this piece, I am hesitant to provide too many details about the case itself, save that The Guardian had made mistakes in a story about Tesco's tax avoidance strategies (and a footnote makes it clear that "Tax avoidance does not mean illegal tax evasion in the American sense"); and Tesco chose to take legal action even after The Guardian had publicly acknowledged and apologized for their errors.

Nevertheless, there is one paragraph from the article that throws an interesting light on what Robert Skidelsky (coincidentally in that same issue of The New York Review) took to be the primary theme of Niall Ferguson's book The Ascent of Money: A Financial History of the World:

Throughout history men have been more ingenious at finding ways to make money than to make things.

My first reaction upon reading this was that it provided a bracing reality check to all those technology evangelists (particularly the ones with pulpits in Silicon Valley), who not only believe passionately that technology can solve all problems but also have managed to inject their religion into such gatherings as the World Economic Forum, probably to the detriment of the global economy (or at least those in the economy on or over the brink of poverty). However, the paragraph I have in mind from Rusbridger's article reveals the dark side of this theme:

The truth is that the advance tax planning undertaken today by most global companies is as intelligible to the average person as particle physics. This state of incomprehension extends to most journalists, editors, parliamentarians, and, importantly, company directors themselves—executive and nonexecutive. It is the very problem these same people have in trying to understand the epidemic of "innovative financial products." In the middle of October's banking implosion, Dan Bögler, the managing editor of the Financial Times, said:

Unfortunately, financial journalists—and the FT has better-trained financial journalists than others—don't really understand this stuff, and they join a long list of people that starts with bank regulators, central bank regulators and money managers.

Perhaps what is called for is the need for a critique of innovative practices themselves, whether they pertain to making things or money.

The particle physics simile provides a good point of departure for such a critique. I would argue that conversations about science, whether they involve specialists or the lay community, ultimately revolve around the powers of description that are applied to the phenomena being discussed (which regular readers will recognize is the argument I recently tried to make about conversations concerned with the performance of music). The descriptive strategies of science tend to be built upon foundations of defining and exercising appropriate abstractions; and one way to view mathematics is that it provides the "ground rules" for how those abstractions can be both defined and applied. Thus, the insights of pure mathematics often provide new approaches to representation that simplify concepts whose descriptions had previously been complex. My favorite example is the expressiveness of the fundamental operators of vector calculus, which vastly simplified James Clerk Maxwell's four fundamental equations of electromagnetic theory. These days it sometimes feels as if there is a sprint-speed relay race taking place between advances in pure mathematics and the demands for expressive representations required to support conversations about particle physics. Where José Ortega y Gasset, in The Revolt of the Masses, once accused experimental science of being "the work of men astoundingly mediocre, and even less than mediocre," we now see theoretical physicists seeking advances through the manipulations of complex mathematical representations with little regard to whether or not any "physical reality" (whatever that may mean these days) lies behind those representations. This is not to disown my own doctoral degree in applied mathematics but just to recognize that our powers of effective description do not always keep up with our powers of innovation.

For better or worse, most of us do not have to worry about following any ongoing conversations about particle physics, let alone trying to engage in them. However, what we have learned from our current economic crisis is that the consequences of failing to understand conversations about "innovative financial products" have been extremely serious. Furthermore, it is not as if we had not received warning signs about such consequences. Enron may have been the highest-profile example of innovative thinking that both rose and fell over the failure of those responsible for oversight to "really understand this stuff." However, if Enron led to new regulatory standards for oversight, innovative thinking just shifted the playing field to new domains to exploit. Back when he was at Yahoo! Udi Manber used to say that spam protection is best viewed as an ongoing arms race, and this may be the best metaphor for the relationship between those who try to regulate financial practices for the sake of a common good and those who apply their innovative skills to evading such regulations.

Where, then, does this leave Ferguson's "long view of history?" My guess is that this is the question that will most occupy the back of my mind as I watch his television program. No historical perspective can be trivialized to Jacob Bronowski's "ascent of man." One cannot tell a story of progress without including accounts of regress through wars, plagues, and what the twentieth century came to call "crimes against humanity;" so it is clear that economic history will have its own "accounts of regress." Future historians will probably write about our current circumstances in that light, just as the Chairman of the Federal Reserve wrote about the Great Depression. So I suppose I shall watch The Ascent of Money to see whether or not Ferguson is as perceptive about regress as he is about progress. John Kenneth Galbraith was able to do that in his television series, The Age of Uncertainty; and watching his program prompted me to read his book for more thorough reflection. Hopefully, I shall emerge from my two hours with Ferguson with the feeling that his book will also sustain such reflection.

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