Who Owns the Future? (12 page)

Then there were the exquisitely positioned schemes. The most notorious of these are the servers that accomplish high-frequency trading. They tap directly into the hubs of markets and extract a profit before anyone else can even get a trade in edgewise. This sort of thing was just getting started when I bid Manhattan adieu. (My place was damaged in the 2001 attacks, and I moved out to crazy Berkeley.)

Every scheme I encountered was completely legal, as far as I know. Of course there are lingering questions about the legality of
some of what happened at the most visible Wall Street firms—the ones that ended up receiving the most gargantuan bailouts at the public’s expense in the wake of the 2008 financial crisis.

The quiet world of the quirkiest financial Siren Servers was racking up numbers that compared to the big players, however. Some of them came out of the recession quite well and others did not.

The most successful runners of financial Siren Servers were often unconventional, or at least the more unconventional ones were the ones who wanted to talk to me. There was one guy whom I only ever saw in his silk robes, hanging out by the spa in his sybaritic, giant loft in TriBeCa.

Later, I heard the same thing from other masters of the universe: It ultimately comes down to having some special “in,” some special connection, or some special knowledge. You needed to know the right people to get the special data, or the special tap into the market’s computers, or the agreements to let your algorithms automatically enact trades in far-flung locations where such things had not happened before.

Ultimately, there was an old-fashioned old boys’ club obscured under the tangle of cables in the foundation of the newfangled digital network.

While there is never an absolutely sure thing, in the upper reaches of finance certain schemes come close to perfection. In the past, the perfect investment always rested on at least a touch of corruption. There was some chink in the law that you depended on.

There are certainly such legal maneuvers these days, such as tax loopholes for hedge fund managers. But the cores of these businesses, where the profit comes from, are in many cases more organic, more pure than previous “sure things.” If you can pull money out of sufficiently advanced math, then the law couldn’t keep up even if it tried.

Just as this book left my hands, regulators in Europe began to consider the regulation of high-frequency trading. I hope they appreciate the nature of the challenge they face. To an algorithm, a circuit breaker or timing limit is just another feature in the environment to be analyzed and exploited. Algorithms will “learn” to trip circuit breakers at the right millisecond to capture a profit,
for instance. If the frequency of trades is limited, then some other parameter, like the phase, or relative timing, of trades, will be automatically refined in order to find an advantage. The cat-and-mouse game can go on forever. Undoing the Siren Server pattern is the only way back to a truer form of capitalism.

This is what computers appear to have made possible in some cases (though I can’t know enough to be absolutely sure): a new path to a “sure thing” that sidesteps the nasty old business of having to court politicians.

What is absolutely essential to a financial Siren Server, however, is a superior information position. If everyone else knew what you were doing, they could securitize
you
. If anyone could buy stock in a mathematical “sure thing” scheme, then the benefits of it would be copied like a shared music file, and spread out until it was nullified. So, in today’s world your mortgage can be securitized in someone else’s secretive bunker, but you can’t know about the bunker and securitize
it
. If it weren’t for that differential, the new kind of sure thing wouldn’t exist.

SECOND INTERLUDE (A PARODY)

If Life Gives You EULAs, Make Lemonade

The information economy that we are currently building doesn’t really embrace capitalism, but rather a new form of feudalism.

We aren’t creating enough opportunity for enough people online. The proof is simple. The wide adoption of transformative connecting technology should create a middle-class wealth boom, as happened when the Interstate Highway System gave rise to a world of new jobs in transportation and tourism, for instance, and generally widened commercial prospects. Instead we’ve seen recession, unemployment, and austerity.

I wonder if thinking about lemonade stands might help. A prominent political meme for the Republican half of America in 2012 went like this: “You built it.” This was a retort to an out-of-context attribution to President Barack Obama: “You didn’t build that,” originally referring to infrastructure like roads.

The contention was approximately that entrepreneurship is the most fundamental activity, and can close its own loops. Business would solve more problems if it were just left alone. Government taxes and regulation are the problem. Removing those things is the solution. Who needs infrastructure? Businesses would build their own roads if the government would just leave them alone.

Some girls who had created a lemonade stand were famously assembled on television by critics of the president and asked if they had built their business, or if the government had.
¹
I wish children could experience earning money online today, but that is harder to do than starting lemonade stands.

Can we compare the Internet to the road that must precede a lemonade stand? The government built the road. The whole idea of a public road is to push entrepreneurship up to a higher level.

Without the government there would have most likely been a set of incompatible digital networks,
*
mostly private, instead of a prominent unified Internet.
²

*
Al Gore played a crucial role in bringing that unity about when he was a senator, following in the footsteps of his father, who had facilitated the national system of interstate highways.

Without the public road, and utterly unencumbered access to it, a child’s lemonade stand would never turn a profit. The real business opportunity would be in privatizing other people’s roads.

Similarly, without an open, unified network, the whole notion of business online would have been entirely feudal from the start. Instead, it only took a feudal turn around the turn of the century. These days, instead of websites on the open Internet, people are more likely to create apps in proprietary stores or profiles on proprietary social media sites.

I have had more than one heated argument with Silicon Valley libertarians who believe that streets should be privatized. Here’s the EULA
³
no one would read in the utopia they pine for:

Dear parents or legal guardians of ________________

As you may be aware, your daughter is one of _______ children in your neighborhood who recently applied for a jointly operated StreetApp® of the category “Lemonade Stand.”

As the owner/operator of the street on which you live, and on which this proposed app would operate, StreetBook is required by law to obtain parental consent. By clicking on the “yes” box at the bottom of this window, you acknowledge you are ________’s parent or legal guardian, and also agree to the following conditions:

1. A percentage of up to 30% of revenues will be kept by StreetBook. [
This clause reflects the revenue model established in app stores
.]

2. You will submit lemonade recipes, your stand design, signage, and the clothing you will wear to StreetBook for approval. StreetBook can remove your stand at any time for noncompliance with our approval process. [
This provision is also inspired by the practices of app stores
.]

3. All commerce, not limited to lemonade purchases, will be conducted through StreetBook. Customers must have StreetBook accounts even if they live on a street owned and operated by a StreetBook competitor. StreetBook will place a hold on all moneys in order to collect interest, and might place a longer hold if any party makes claims of fraud or activities that violate this agreement or any other residential use agreement. [
This provision is inspired by the business models of online payment services.
]

4. A $100 annual fee must be paid to be a lemonade stand developer. [
This is again an example of following in the successful footsteps of app stores.
]

5. Limited free access to StreetBook’s curb in front of your house is available in exchange for advertising on your body and property. The signage of your lemonade stand, the paper cups, and the clothing worn by your children must include advertising chosen solely by StreetBook. [
This follows on the model of social network and search companies.
]

6. If you choose to seek limited free access to use of the curb in front of your house, you must make available to StreetBook a current inventory of items in your house, and allow StreetBook to monitor movement and communications of individuals within your house. [
This follows on the business model pioneered by search, social network, and other seemingly free services.
]

7. By accepting this agreement, you agree that any liabilities related to accidents or other events in the vicinity of your StreetApp® will be solely the responsibility of you and other individuals involved. We provide the ability for you to connect with others, and profit from that, but you take all the risk. [
The general character of EULAs inspires this clause.
]

8. You acknowledge that you have been notified that StreetBook’s internal procedures for security and privacy don’t take into account how our systems might be taken advantage of by criminals or pranksters who are able to combine data we give out freely with data given out freely by other businesses, such as the privatized utilities you are signed up to. You agree that you will have to learn to think like a hacker if you wish to be in control of your accounts. [
Wired reporter Mat Honan was famously hacked because lulz-seekers could use information from different Siren Servers to assemble enough data to steal his identity. But no single server was to blame, naturally.
]

9. For additional fees, you can purchase “premium address” services from StreetBook. These include lowering your visibility to door-to-door solicitors and increasing your visibility for food delivery and repair businesses you have contacted. By accepting this agreement, you agree to receive information about our premium services by phone and other means. [
This clause was inspired by the practices of certain social networking and review sites.
]

10. Portions of your local, state, and federal taxes are being applied to the government bailout of StreetBook, which is obviously too big to fail. You have no say in this, but this clause is included just to rub it in. [
This clause is inspired by the success of the high-tech finance industry.
]

Please click “next” to proceed to page 2 of 37 pages of conditions.

Click
here
to accept.

StreetBook is proud to support a new generation of entrepreneurs.

STREETBOOK MAY CHANGE OR AMEND ANY AND ALL ASPECTS OF THIS AGREEMENT ENTERED INTO BY YOU AT ANY TIME. STREETBOOK ACCEPTS NO LIABILITY OF ANY KIND.

PART THREE

How This Century Might Unfold, from Two Points of View

CHAPTER 8

From Below

Mass Unemployment Events

Will There Be Manufacturing Jobs?

The key question isn’t “How much will be automated?” It’s how we’ll conceive of whatever
can’t
be automated at a given time. Even if there are new demands for people to perform new tasks in support of what we perceive as automation, we might apply antihuman values that define the new roles as not being “genuine work.” Maybe people will be expected to “share” instead. So the right question is “How many jobs might be lost to automation if we think about automation the wrong way?”