Machines Rule!

Science Fiction writers, who are perhaps the only group of thinkers taking these questions seriously, usually assume that the era when artificial intelligence rules over human-societies will only arrive after AI achieves human level intelligence or greater. But there is perhaps a way in which AIs already rule, long before they have reached such a level.

JP Morgan recently won the prize for ‘Most Cutting Edge IT Initiative’ at the American Financial Technology Awards 2011. It won this award on the basis of taking end of day risk calculations down from eight hours to 238 seconds. According to its backers, the continued use of super-computers for financial trading will allow the company to:

to minimise its risk and respond more effectively than its competitors to rapidly changing marketing conditions, particularly the financial turmoil in Europe,” said John Barr, research director of financial markets and head of EU research at the 451 Group.

JP Morgan is not alone in its quest to use Teraflop performing computers, fiber-optic networks and black box algorithms to seek to master the financial markets. Kevin Slavin, the founder of the gaming company Area/Code, of all things, gave a beautiful TED Talk in which he discusses the power of algorithms in our world (and not just the financial world).  In that talk, Slavin points out how computer based trading, so called black box or algo trading now comprises 70% of the US stock market- in other words 70% of stock market transaction are now decided by not just mediated through computers.

Black box trading puts a premium on speed, and so Slavin points out how this has led to the strange phenomenon of whole buildings in the heart of Manhattan being hollowed out and filled with computer servers for the advantage of a few nano-seconds. By far the biggest existent absurdity is an an 825 mile trench dug over the last several years to house fiber-optic cables linking Chicago and New York. As Slavin points out, a massive project of terraforming in the name of a slice of time unperceivable by human being, which portends other transformations of even greater scale. His argument is hammered home by recent plans to build a trans-Atlantic fiber optic cable that will cost 400 billion and save traders a whopping 5 milliseconds.

David Brin has a great article on what might be called an ecological understanding of such high speed trading. He compares financial algorithms to parasites.

Want the exact parallel in nature for these systems? It is those gut parasites or e-coli or salmonella, or Typhus, who nibble away the gradient of potential profit that the human trader perceives, between the current asking price and what he or she feels the stock may soon be worth.  These programs can now detect people getting ready to buy a stock they like, and pounce to snap it up first, then offering it to you at just a little higher price. You lose a bit of that gradient, because someone – a program – who did none of your research simply pounced faster than you ever, possibly could.

His solution to this problem is the imposition of a very small Tobin-Tax that would slow trading down to be closer to the level of “human-thought”. So far, so good.

The problem begins when Brin, by suggesting that the kind of super-conscious and dangerous AI, which is the persistent bogey-man of Sci-Fi writers, might emerge from such civilian rather than military sources,  looses sight of the brilliant argument he had been making. For super-computed algorithms need never be as smart as us to “gain control”. They might in fact be given control without ever evolving beyond the level of an extremely efficient and rapidly evolving virus. For, if 70% of the market is now controlled by algorithms, and financial markets are increasingly more powerful than democratic politics, then the machines, in some sense already rule. Something which would indeed have come, as Brin points out, as a “surprise”.

Replace the words markets with algorithms in the comments below by historian of democracy Mark Mazower and you should see what I mean.

MAZOWER: Part of this, I think, is because of the timeframe that we are now becoming accustomed to. If we are in an age in which the markets rule and the markets are not the trading and commodities markets, but they are the financial markets, then the politicians feel that they have to respond to everything in seconds and minutes. And so, part of this is a tussle between how important decisions will be made. Will they be made by the market and on the basis of the ribbons dictated by the market, which is to say extraordinarily short-term and fluctuating?

Or will they remain in the hands of the politicians and those people who elected the politicians?

SIEGEL: You mean that the nature of European democracy is actually at stake in this process of trying to deal with the financial crises?

MAZOWER: European democracy is not under threat. I don’t see alternatives of the kind that existed in the early 20th century to democracy. I discount those. But the extent to which politics remains an area for autonomous decision-making, that is very much up for grabs or will politicians simply be driven by their anxiety about the markets and how the markets will respond to this or that measure? And that is where, it seems to me, that the Franco-German axis has its interest. Because, whether or not you see Sarkozy and Merkel acting in a particularly democratic manner, they are acting as politicians in the name of the state to preserve a political enterprise.

The grand struggle, seems to me, markets versus politics. And then how democratic that politics is, well, that’s the question we have to think about.

The, one might say, almost algorithmic logic of it all appears to be this: Our financial markets are evermore dominated by a myriad of machines without self-consciousness or human-level intelligence. This machine-run market is increasingly at odds with our own democratic self-governance, and has, throughout the financial crisis, been proven to be more powerful than our democratic institutions. In other words, the machines, in a sense, already rule.

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11 comments on “Machines Rule!

  1. […] the Tunnel.  Advanced algorithms now effectively run our financial markets, and this despite their corrosive effects on the public will expressed through democracy. Intelligent machines are now increasingly called upon to fight our wars despite the ethical and […]

  2. […] done by machines. I initially took, indeed I still take, the rise of algorithms in finance to be a threat to democracy. It took me much longer to appreciate Slavin’s deeper point that algorithms have become so […]

  3. […] the first area to develop deep, rapidly changing interconnections based on the digital revolution. Only a few years back, democracy seemed to have come under the thumb of much more rapidly moving markets, but now, […]

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