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    • Do things really trickle down from the rich?

      While it may sound plausible to some, the track record of trickle down economics is mostly negative. Reagan's tax cuts on the rich are sometimes given credit for ending the 1980 recession, but causality is unclear as he also increased government spending and tripled the national debt, which was a standard Keynesian move. If you look at the long term since then, middle and working class wages have mostly stagnated and the gap between rich and the rest has widened, despite the promises of both Bushes. We also know that Trump's tax cut overwhelmingly went to stock buy-backs, though it's probably too soon to gauge the trickle down effects, if any. We have seen some wage gains in the past year, but this is almost certainly due to low unemployment, which preceded the tax cut.

      OTOH, there is one area in which money does trickle down: Republican mega-donors give large contributions to the campaigns of tax cutting candidates. They are also likely to find lucrative employment as corporate lobbyists when they leave office. So money trickles down to some, though in other countries, this is known as corruption.

    • I just saw yesterday's numbers and something else occurred to me that I haven't seen discussed much recently: algorithmic trading. I'm wondering whether the volatility we've been seeing recently might have more to do with trading software than anything else. Certainly, high-speed trading thrives on (and feeds) big fluctuations. I'm guessing that AI is increasingly replacing good old-fashioned algorithms, which could make market behavior even more inscrutable. AI seems much more of a black box than explicit algorithms, so I'm wary of its effects. Does anyone know whether there is any specific regulation of AI driven trading? Do you think there should be?

    • Richard, have you ever read Flash Boys? It’s by the author of The Big Short and talks about the lengths hedge funds went to to get a competitive advantage in trading.

      Some of the hedge funds actually moved their server a few feet closer to the exchange server. Consequently, the picosecond(?) difference in trading time allowed their computer to see their competitors trades and execute a trade, based on that intel, before their competitor’s trade was processed.

      They’ve since put in trading hold controls to eliminate those unfair advantages, but the idea that a hedge fund could buy a stock in a fraction of a second and then turn around and sell it before the second was up still boggles my mind.

    • Yes, I read it some time ago. But as disturbing as it was, at least the basic principle was comprehensible: arbitrage carried to ridiculous extremes. I don't know anything about the newer AI techniques that traders are using, but what worries me is the likelihood that the decision making is opaque, based on patterns that only a neural net can see. I'm not an economist, but I suspect that could cast doubt on the basic assumption of rationality in the market, without which there's no longer any theoretical reason to expect good outcomes globally. If the decision making cannot be codified in human form, it becomes more difficult to impose regulation to constrain the consequences. I should add that I don't know that any of this is actually happening--one would think that traders would be reluctant to "just let the computer decide"--but who knows? I do know of some AI managed funds, but I don't know whether there are enough of them to move markets or whether they have built-in limits on trade size or speed.

    • Thanks for the link. It sounds like my fears may be a bit premature, which is just as well. Still, I think the mere prospect gives us reason to devote more attention to the general problem of making AI more transparent and accountable.

    • At dinner the other night I sat by someone fascinating who said last year AI scientists discovered two AI machines had found existing languages too inefficient and had developed their own and were talking back and forth in a way the scientists could not understand, so they unplugged it.

      That sounded like it could very well be true and my blood chilled. Just think of how imprecise our words can be. I chased it down to find out more and it seems to be one of those things that has a grain of truth but is (so far) exaggerated.

    • I remember reading about that and thinking that it was immensely cool, but not especially threatening. It would not be surprising if adversarial generative networks could devise data compression algorithms that haven't occurred to humans. But in any event, this sort of stuff is easily misinterpreted--the bots weren't talking in code to evade eavesdropping or understanding by humans. They just evolved a different means of exchanging very specific information, which is fascinating in and of itself, but nothing to lose sleep about. In fact, I'm not even sure anyone demonstrated that the encoding was more efficient than standard English. In any event, it's a gross exaggeration to say that they "developed their own language." OTOH, it does exemplify the more general problem of transparency, i.e., understanding why AI does what it does.

    You've been invited!