Ian Angell and Ash Khanna

Learning to love Spam

2009-03-09T23:59:00.000-07:00

Posted by: Ian Angell

I used to be very annoyed whenever spam mail managed to penetrate my mail filters. But no more! In a flash of enlightenment I found myself in awe of the sheer ingenuity (as well as the brass nerve) of the spammers. Now I see spam as an amazing phenomenon. Spam seems to pop up out of nowhere - although the ISPs, Google, Uncle Tom Cobbley and all, are of course involved.

I started collecting spam, studying it! Of course I make sure to use (free) e-mail accounts extraneous to my normal Internet existence to avoid disruption. Thanks to Google, Yahoo, Hotmail that's easy. Now I send e-mails consisting of one word ('holiday,' or 'car,' or 'restaurant,' or 'loan'), using one unique e-mail account for each experiment (and not using that account for anything else), and wait to see what pops up - then drawing charts of the rate of incoming spam. Some of the accounts I've set up are left unused by me, so I can attract in and have a control experiment of the type of spam e-mails that are out there in the white noise.

I've just challenged the students on my course Global Consequences of IT at LSE to see who can attract the most spam - the winner gets a free lunch at a local Thai restaurant. I'm interested in the various strategies they can devise to maximize spam attraction.

Why not try this out for yourself? Set up your own laboratory, and learn to love spam! The internet is truly a wondrous ecosystem composed of the most fabulous creatures - spam is just one. It's fascinating getting to grips with their Natural History.

To this end I will be setting up a separate blog under the name WebCoherence to invite anyone interested to join in the experimentation. I've still to work out the practicalities, but if I can interest a large number of people, then we can focus 'The Human Computer' at the issue, and find out some very valuable statistical information about the reality of how the web operates.

The duality of Digital Identity: We ‘r’ what we do!

2008-10-05T07:23:00.000-07:00

Posted by: Ash Khanna

The ‘science’ of digitization follows from the worldview of Newtonian Mechanics; i.e:

Materialism: All that matters is ….. ‘matter’ (i.e. tangible / quantifiable)
Reductionism: Take it apart and analyze the pieces
Determinism: We can predict the outcome

But to understand even the ‘gene’, the atomic representation of an individual’s identity, this world view is unsophisticated:

“When a gene product is needed, a signal from its environment, not an emergent property of the gene itself, activates expression of that gene.”
(Nijhout, 1990)

In fact, according to 'Quantum entanglement':

"The peculiar situation is:
the best possible knowledge of a whole does not necessarily include the best possible knowledge of all its parts
even though it may be entirely separated....."
(Schrodinger, 1935)

Hence, the objective syntax & semantics of mediating artifacts that facilitate the storage, communication, aggregation and processing of ‘personal data’ are in ‘tension’ with the impressionable, subjective and indeterminate but holistic perception of ‘personal identity’.

There is a significant increase in the (digital) devices and applications that individuals use to transact and interact. Also, “my”, voluntary (e.g. online registration, blogs, etc.) and informed (credit card transactions, online medical records with the NHS, etc.) or involuntary (e.g. bank sharing account details with the tax man) and unknown (e.g. profiling my online behavior and selling it to marketing companies) are ‘traces’, over time, of my activities in the digital environment. In other words, the digital identity of the person grows.

Ownership of my ‘identity’ is expressed as a need to control these traces of digital activities, individually. But the sustained management of the dispersed multiplicity of these traces is humanly impossible. Hence the individual can feel a sense of greater than objective loss for the ‘violation’ of a trace of her/his identity.

Hypothesis:

'There is a correlation between the increasing awareness and assertion by individuals of their ‘right of and to identity’ and the frequent use by ‘others’ of their digital data(s).'

It will all end in tears

2008-09-28T16:30:00.000-07:00

Posted by: Ian Angell

Bear Stearns, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, then AIG and Washington Mutual – and over here Northern Rock, HBOS, and Bradford & Bingley – and so many, many more. Newspaper headlines scream out that the markets have failed. Nonsense. The turmoil we are seeing is the markets finally operating properly again. For get one thing straight: they haven’t been working over the past few decades of greed and degeneracy. But you can always rely on markets to reassert themselves.

Since the early 90s I have been warning that all this nonsense would all end in tears – I am called “the Angell of Doom” because of my predictions about the control freaks who think they are immune to the uncertainty implicit in the real world. Number mysticism, aided and abetted by computer technology, has turned the world’s financial markets into a huge global casino. First we had ‘the chartists’, who claimed to predict stock movements by pattern matching, as if the market was some recurring dendrochronology. Then came the ‘Masters of the Universe’ and their mathematical models. Developed by the likes of Nobel Laureates Robert Merton and Myron Scholes, these methods are designed to beat the system. Accordingly, hedge funds leverage already huge amounts of money into astronomical sums that are then placed as bets. These ‘big swinging dicks’ of Wall Street and the City of London believe in the mathematical guarantee of ‘riskless risk’, that they can beat the system.

With the vast sums involved even very small percentage gains turn into a tidy profit. Indeed they did win big in the 1980s and 1990s, which is why the banks have been happy to ‘lend’ them ever-increasing sums of money. Then in 1998 along came Long Term Capital Management (LTCM), which had leveraged its $4.5 billion into a $1.25 trillion bet, suddenly lost 44% of its capital. Only swift action by the US Federal Reserve Bank avoided global financial Armageddon. Banks had to write off hundreds of millions of dollars, but that was child’s play to the subprime mortgage nonsense of 2008, the credit crunch, and the ‘shorting’ of bank stocks.

These financials models and assorted trickery can only ever be a pale shadow of what actually happens, and can never emulate the subtle, and not so subtle, checks and balances and the feedback of unknown and unknowable interactions. It seems that neither the chartists, nor the masters of the universe had ever heard of Goodhart’s Law. Charles Goodhart, a distinguished LSE Professor of Economics, says: “any observed statistical regularity will tend to collapse once pressure is placed on it for control purposes”. What he is saying is that you cannot mix up cause and effect. Any observed regularity in society is an effect, but the moment you measure it, and use that measure as the basis of control, you are making the false assumption that it, (the regularity), is the cause of your observation.

Underlying all the self-assured mathematics of financial instruments and hedge funds is a manipulation of observed regularities. However, once the sums involved had become so massive, the gamblers had in fact changed a bet into an attempt to control the system. Collapse was inevitable. How could they believe that computerised mathematical models are some kind of computerised Viagra for business? Ten years ago I labelled the bonus-swilling Masters of the Universe as just a bunch of dick-heads, although the damage they have caused is far worse than even I imagined.

The collapse we see is not the markets failing, quite the contrary – the markets haven’t been operating freely for quite some time, and this always creates tensions that eventually will be released, sometimes catastrophically.

All these government bailouts are yet another bunch of control freaks thinking they can manipulate the market, and deny Goodhart’s Law. Fat chance. Always, the will of the market will out. More tears before bedtime I’m afraid.

Be Afraid! Be very Afraid!

2008-08-22T02:58:00.000-07:00

Posted by: Ian Angell

Be afraid! Be very afraid! Paranoia. That’s what I learned at this year’s back-to-back Black Hat and DefCon conferences in Las Vegas – among the computer world’s premier security events. In the former, hackers line up to tell Chief Security Officers of the latest vulnerabilities in their companies’ computer systems. In the latter, the hackers tell each other of the latest ‘cool’ flaws.

And those vulnerabilities range from the sublime to the ridiculous. Over coffee, a pasty faced youth in dreadlocks enthused over his discovery that by passing certain sequences of electronic signals into the XXXX chip, he could bypass the security and learn all its secrets. A more soberly dressed pair of presenters told of how a certain banking system contained a very embarrassing flaw. Pay a negative sum of money into another’s bank account, and that amount flows back into yours!

At Black Hat we were invited to access the Internet via a free but hostile wireless network that was ‘aggressively monitored.’ If they managed to hack into your system then you were shamed with your name placed on the ‘Wall of Sheep.’ It was a long list. A coward, I used a wired network, but as it turned out that too got hacked!

The talks listed vulnerabilities in system after system, many I had never heard of. But not hearing of them was no comfort – they were all deeply embedded, fundamental parts of the computer systems I use every day, or in the banking system that holds my hard earned money, or in prescription drug dispensing systems, or in heart pacemakers, or in Radio Frequency Identification (RFID) cards and similar chips. Think of the recent problems with Oyster cards. And its not just malicious attacks on such systems – the intrinsic and ever-increasing complexity means that cack handed attempts at correcting the faults can be just as devastating. It’s not just TfL who has problems. As I am writing, the Massachusetts Bay Transit Authority is seeking a restraining order to gag three students from MIT talking at DefCon.

Everyone is in denial. I was being told that every system is compromised, from top to bottom - from the most sophisticated software layer to the lowest level of electronic activity. It seems that only the threat of legitimate violence by the state against troublemakers was keeping the show on the road. Attending the ‘Meet the Feds’ panel was a must, but I failed to get in.

Crowds of Hell’s Angels, goths, tattooed mohawks in tartan, multiple body-piercings, adolescent geeks and pony-tailed denim-clad pensioners had already crammed the room. Exasperated fire marshalls ushered the excess audience away into other more esoteric presentations, normally the reserve of smug in-crowds. No matter, the chief Fed thoughtfully wore a big sheriff’s star on his chest, and was happy to talk later with all who approached him … although his miserable message was of a tidal wave of security threats.

Be afraid! Be very afraid! I’m seriously considering abandoning the Internet, and taking up knitting.

Ian Angell on Intellectual Property Rights

2008-08-04T02:25:00.000-07:00

This video, where Ian Angell talks about Intellectual Property Rights (IPR) and Museums, was made in January 2008 during a visit by Dr. Prodromos Tsiavos to Ian's office. The voice you hear is pRo's. Prodromos was interviewing Ian as part of his research, and the Departmental video camera was close at hand, and so pRo had the idea of videoing Ian's responses.

Part 1

Part 2

The Greatest Thing Since Sliced Bread!

2008-07-30T10:56:00.000-07:00

Posted by: Ian Angell

As a professor in a department that researches innovation, I am increasingly being asked about this hot topic. Rather than giving a bald ‘definition,’ let me talk around innovation, and that may hopefully clarify things.

Let’s get one misconception out of the way immediately: that creativity comes with the lone genius having a flash of inspiration, … the light-bulb moment! It’s a lot more complicated. Innovation isn’t a single event, rather it’s a continuous process. I’m with Thomas Edison: “genius is 1% inspiration, 99% perspiration.”

The creative process was mapped out in three stages by the nineteenth century German scientist, Herman Helmholtz as: Saturation, Incubation, and Illumination. French mathematician Poincaré added the extra notion of Verification.
Saturation: fill the mind with the problem – until the point where extra data won’t take you any further forward.
Incubation: Keep thinking - mental activity must continue, even subconsciously.
Illumination: The ‘light bulb’ comes on. This is not some single moment, but the result of a long drawn out process.
Verification: even then the idea must be checked empirically.

Numerous other authors have extended this list over the years:
First Insight ➔ Preparation ➔ Saturation ➔ Incubation ➔ Illumination ➔ Verification ➔ Evaluation ➔ Elaboration.
Here the original list of four has been topped and tailed with:
First Insight: a vague recognition
Preparation: collecting the necessary resources
Evaluation: is the result of any use/value?
Elaboration: taking it further; adjustment, expanding its utility.

Two further entries hover over the whole process:
Determination: keep going despite frustrations and set-backs.
Context & Timing: being in the right place at the right time, so that you can convince others to use your invention and that they begin to see it as “the greatest thing since sliced bread.”

And what is so great about sliced bread? The great invention shouldn’t be called sliced bread at all, but ‘pre-sliced’ bread. Whatever we choose to call it, its invention exhibits all the above features of innovation.

Otto Frederick Rohwedder, from Iowa, first filed a patent for a loaf-slicing machine in 1912 – he even sold his jewellery business to fund development. Kidney disease didn’t stop him, nor did his workshop burning down, destroying his tools and prototypes. Even so, the world’s first mechanically sliced bread didn’t go on sale until July 7, 1928 with the Kleen-Maid loaf. {For a much fuller description I recommend you read Frank Passic's essay Bread Slicer Inventor lived in Albion at www.albionmich.com/history/histor_notebook/040215.shtml}Rohwedder had met with resistance from bakers, who thought that sliced bread would quickly go stale. That argument faded when in 1928, the Continental Bakery of New York introduced Wonder Bread, an unsliced loaf with a waxed paper wrapper to conserve freshness.

But that wasn’t the whole story. The clincher turned out to be a particular electric toaster invented by Charles P. Strite, although his toaster wasn’t the first. That accolade seems to belong to a British firm: Crompton & Co in 1893. In the intervening years many more types were produced, among the most notable being the D-12 introduced by General Electric in 1909. {Toasters have an absolutely fascinating history, and I wholeheartedly recommend that anyone interested in innovation should visit http://www.toaster.org/, where they will get a dynamic and particular sense of how innovation progresses.}

During World War I, Strite worked in a factory where each day he saw toast being burnt in the cafeteria. The problem was people took their eye off the bread as it toasted. His solution was a toaster that did not require human attention: the Toastmaster! This was a spring-loaded, automatic, pop-up toaster with a variable timer. Sold to restaurants from 1919, it hit the retail shops in 1926.

Using Rohwedder's machine, pre-sliced Wonder Bread was in mass-production by 1930. Sliced bread in waxed paper wed to the Toastmaster was a marriage made in capitalist heaven. Its market penetration following the Wonder Bread advertising campaign is legendary. By 1933, 80% of all the bread sold in the United States was pre-sliced and wax wrapped.

Here we have a clear example of how no product of the creative mind comes into existence in a flash, or in a vacuum – it co-evolves with other artefacts. Every invention and creation stands on the shoulders of past giants; but it also needs the popular acceptance of other prior inventions, which together spark interest in the marketplace. However, if access to those inventions is restricted, then there will be no experimentation, no variation, no creativity.

Most innovations are applications/variations that spring from prior innovations, exactly as Herbert Kroemer, the 2000 Nobel Physics Laureate, explains in his Lemma of New Technology: “The principal applications of any sufficiently new and innovative technology always have been – and will continue to be – applications created by that technology.”

The same can be said of innovation in general. Innovations do not come from orthodox creators, but from users on the margins, who are free to experiment with radical ideas. What Kroemer is implying is that although a technological innovation occurs in a particular context, numerous people must run with that innovation to create a whole raft of derivative applications, which could not even be imagined by the original inventor. If that inventor restricts what can be done with his work, in effect banning derivative works, then he is limiting its potential, and cutting off all future revenue streams.

There is no knowing in advance what the really useful applications will be. There needs to be wide-scale experimentation – the more the merrier. Natural selection will bring the successful to the fore. According to Saul Godin, unless the idea of the innovation’s utility has captured the imagination of the market, unless the idea has spread, then there is no selection – natural or otherwise – and so nothing happens. Over-charging for, or overprotection of intellectual property will ensure that the innovation stays in the wilderness.

Suppose that Crompton & Co. had been allowed to copyright the concept of an electric toaster in 1893 – then derivatives would have been blocked; Strite would not have created the pop-up toaster; and Rohwedder’s sliced bread would not have achieved the status of being “the greatest thing!”

Photo permissions, with thanks:
Otto Rohwedder: Frank Passic; http://www.albionmich.com/
Charles Strite and Toastmaster: Eric Norcross; http://www.toaster.org/

No Pearls in this Oyster

2008-07-16T16:36:00.000-07:00

Posted by: Ian Angell

On Saturday  12th July, between 5.30am and 9.30am, at least 60,000 passengers who swiped their Oyster Card, Transport for London’s pre-payment system, had them corrupted.  To avoid rush hour chaos on Monday, bus and tube commuters travelled for free if  their cards registered an error.

So the Oyster Card system failed. Surprise! Surprise! The only property that systems have in common is that THEY ALL FAIL … eventually. It’s not a question of if, but when. And the bigger the system, the greater the opportunity of failure.

I and colleagues at the LSE tried to warn government ministers about their national ID card scheme. All we got for our trouble was slander and abuse. Such offence is typical of those who subscribe to the “pixie dust” school of technology: computation is a magic substance to be sprinkled over problems, that, hey presto, vanish.

Systems are much more like a life form: they are entropic, they degrade over time. In the case of databases, they pick up errors, and then data error compounds data error. For instance the DVLA in Swansea admitted in 2006 that a third of entries contained at least one error, and that the proportion was getting worse.

It’s caused by the complexity in the interaction between computer installations and human activity systems. We've all had encounters with computers getting it wrong. For years the banks insisted that ‘ghost transactions’ with their ATM machines were frauds by cardholders, when they were in fact system errors.

Usually the minor day-to-day problems with a system are resolved by a sensible employee, rather than by the managers who administer the system. There's a duty of care for the company to take bus passengers home when they find themselves stranded in a remote spot because their card has unexpectedly run out for whatever reason - especially given that there is no display to show how much is left on their card when they "touch in" on a reader in the middle or at the rear of a bendy bus, or on the card itself. The fact that the cash fare is exorbitantly more than the Oyster fare, bullying any regular traveller into choosing the Oyster, reinforces the need for an on-card readout.

This does raise the question of whether there are other problems with the Oyster Card, but on a much smaller scale. TFL couldn’t deny this weekend’s shambles, but can we be absolutely sure that no previous case of fare dodging was a system failure?

It's the US$ stupid! [Part 1: The Super-shear]

2008-07-16T15:13:00.000-07:00

Posted by: Ash Khanna

The recently revealed troubles of the 'BIG DADDIES' of the US mortgage system (Freddie Mac & Fannie Mae) and the subsequent support initiated by both the US Treasury & Fed can threaten the stability of global commerce!

Don’t believe me? Then look at the evidence:

In an extra-ordinary set of actions the US Treasury & Fed worked out a mechanism, over a weekend. Further, Henry M. Paulson, Jr., announced the ‘bail-out’ package on a Sunday to try and prevent further erosion of the market-value, of these over leveraged institutions, before equity markets opened for business on Monday the 14th of July.

On the 15th of July, 2008, for the first time in US history both the Chairman of the US Federal Reserve and the US Treasury Secretary are called by the US Senate House Select Committee on Banking to explain the state of affairs under their executive charge. Further, their boss the ‘chief’ executive, the US President is, in parallel, addressing the press, to infuse confidence into the ‘system’ on their “psychological” assessment of the US economy. There is more, all the ‘global’ news channels were covering this ‘choreography’, live! This is an unprecedented event, three most powerful men in the world, desperately selling to the world - “We are doing ‘exactly what we did and has been done by our predecessors,’ so calm down, PLEASE” – in unison!

The ‘ailment’ is VERY serious!

[Action(s) plan by US Fed & Fisc]
- The US Fed opens the discount window to mitigate liquidity risk.
- The US Treasury pumps in capital ($15 billion(+) each) in exchange for equity to shore up the Capital Adequacy, of these ‘”share-holder” (!?!) owned institutions
- The Treasury lines up $300 billion(+) of ‘available’ credit to mitigate ‘solvency’ risk!
- Still further, the Treasury creates a ‘temporary’ regulatory institution to further guarantee (government protection/‘stamp’) quality of collateral – in effect any paper emerging from these institutions will be like government bonds!

[Effect]
-US M3 money supply increases, further…..
-US fiscal deficit increases, further….
-Dollar slides further...
-Oil and commodities experience the 'predicted' "super-spike", as they tactically become the value investments…..
-“Inflation” soars, further…..
(If I was an oil or commodities trader, I'd be laughing my way to the bank!)
Doesn’t all this sound familiar? US sub-prime crisis, bail-out, and effect!

BUT the real story is going to be about those investment banks that are 'lucky' enough to still have an operational mortgage trading desk:

[Effect continued…..]
-The US Treasury is going to 'stamp' the mortgages held by Freedie Mac & Fannie Mae, hence making them tradable paper, again (the ‘perception of risk’ is in effect lowered)
-Structuring / collateralizing back in - like a tidal surge [any % of $5.3 trillion is massive volumes!]
-These new avatars of CMOs will HAVE TO BE SOLD at HUGE DISCOUNTS to maintain 'cash-flow' of Freddie Mac & Fannie Mae for them to try and stay above water and their executives to still have a job and decent bonuses ;-)!
(The mortgage securities traders are in for a windfall!)

The US Mortgage market is, still, the largest capital market in the world, by far! In effect it is the largest engine of credit production for the world. So the resultant effect of the ‘bail-out’ package(s) will be to add fuel to the US$-credit engine!

Another bail-out cycle, in less than 4 months! The scary bit is that relative to Fannie Mae & Freddie Mac, Bear & Sterns seems so long ago and so insignificant in size. Further, IndyMac Bank’s collapse (the third largest financial disaster in the US) has gotten relegated to a footnote so quickly!

The frequency of these crises is increasing and the size of potential destruction is increasing exponentially – predicted as early as 2002 in the documentary “Commanding Heights” based on a book by Daniel Yergin and Joseph Stanislaw. [ http://www.pbs.org/wgbh/commandingheights/ ]

I acknowledge that the troubles of Freddie Mac & Fannie Mae are only served as ‘circumstantial evidence’ of the under-water ‘super-shear’ that the global economic system is undergoing. But it should provoke policy planners and executives to have the courage to be bold and encourage fresh thinking. They have repeated past-practice too often and for far too long.

The starting point like I have said in my previous blog-post is not purely economic; the starting point is of a political nature:

Does a value reserve system, which permits the monopolistic position of the US$, serve the needs of an increasingly globalizing and inter-dependant economic environment that we are already witnessing at the start of the 21st century?
How do we introduce competition in the value reserve system?

The biggest immediate threat to global commerce is the collapse of the US$, the only truly international value reserve currency.

Do we have a “Plan B”?

(To be continued…..)

Updating 'the New Barbarian Manifesto'?

2008-05-24T04:51:00.000-07:00

Posted by: Ian Angell

{I find it hard to believe that the New Barbarian Manifesto was first published as far back as January 2000 at the very start of this new millennium. Yes, I do know that the millennium officially began in 2001, so I don’t want pedants writing to tell me. Time flies, and Ash has been pestering me for a while to produce a new edition, and that has got me thinking about how I came to write the book in the first place.}

The Manifesto actually took me the best part of a decade to produce, although I had been chewing over the ideas for much longer. Subconsciously, it was the reason I chose to apply for the chair in Information Systems at LSE in the first place. By coming here, I was in effect leaving the world of academic Computer Science behind. I had realized that LSE was the only seat of British Higher Education where I would be given a free hand to develop my counter-cultural stance on how Information Technology was polarizing our society. Most Computer Science in the UK is about promoting the technology, not studying it warts and all.

I had come to agree with Karl Marx on a number of issues, including his recognition that all technologies alienate. {That self-realization came as quite a shock to an unabashed anarcho-capitalist like myself. Interestingly enough, Ash too quotes Marx throughout his PhD dissertation, and if anything he is more of a capitalist that me}. Societies are all alienated from technology, and by technology. Technology creates winners and losers, and this places enormous stresses on the social institutions of the status quo.

Each society, each community, each ‘ethnos,’ is the result of compromises made over the years between members of the group, which differentiates and separates it from other groups. I wanted to get to grips with how new technology was causing the fragmentation I was observing in our society, and how it seemed to be precipitating new communities. How does new technology destroy our institutions and rituals? Will we start to form new ones? What will they look like?

I wanted to ask these and many other questions, not from the perspective of a social scientist, but as a technocrat and technophile. However, I must disabuse you of any notion that I set out to focus on computers and telecommunications. My cyberspace is no off-planet experience. It is merely the delivery mechanism for information. The high-tech medium has only changed the form and scale of that delivery. To me, information content does not exist in some mystical dimension. Information is the same as it always has been, something reserved for the planet-bound human brain, to communicate between people within human society; still very much down to earth. What really interested me was how this new form of communication was creating new forms of community.

So the New Barbarian Manifesto was about the eternal struggle between the individual and the collective. It was not a work of science fiction or cyberpunk. It was not steeped in Star Wars, Star Trek, Neuromancer, Mad Max or Blade Runner. And even though the Times, the Guardian, and the Independent all called me the ‘Angell of Doom’, the book was not written as an example millenarian doom and gloom.

The ideas underpinning the book were not post-modern, not even modern. They were not twenty first century ideas, not even twentieth century. Some will have gathered that from the title of the book The New Barbarian Manifesto, which was inspired by that much maligned German philosopher Friedrich Nietzsche, whom I claim predicted, one hundred and twenty years, ago the rise of the Information Rich Knowledge workers, and the reaction of their fellows:

“But now there are coming New Barbarians {cynics, experimenters, conquerors}, a union of spiritual superiority with well-being and an excess of strength. … Prometheus was this kind of barbarian.”

The new barbarians of the book-title are the innovators who destroy the degenerate, and start a vigorous new society. But in doing so they must face up to Old Barbarians, who insist that society must return to the false-certainties of a mis-remembered past.

Although my major philosophical influence is Nietzsche, the underlying theme of the book is as old as humanity, a mythology that was written down over two and a half thousand years ago. My archetypal New Barbarian is no Luke Skywalker, Mad Max, or Terminator, but, as Nietzsche tells us, Prometheus. Prometheus, the forethinker, the Titan master craftsman, who brought fire and civilization to humanity; the new barbarian who helped mankind survive and prosper. In Aeschylus’ play, Prometheus Bound, on the orders of Zeus, Prometheus is chained to a rock, and as a punishment for helping mankind, an eagle eats his immortal liver. Prometheus is the archetypal figure of defiance against tyrannical power.

In a world destabilised by new technology, wherever we look we see terrified masses, easy prey for re-vitalised Old Barbarians tyrannies: socialists, communists, fascists, racists, nationalists, religious fundamentalists, … democrats! What does the individualistic child of the Enlightenment do when confronted by bigots from the left, the right, and the centre? For a rabid fundamentalism has been let loose, from which there can be no indifference. Everywhere self-righteous totalitarian ‘pious commentators’ have “become virtuous from indignation” (Nietzsche) and set out to take control. To quote Herbert Marcuse: “Domination is transfigured into administration.” Everyone must be on message, or pay the price.

Homosexuals, immigrants, atheists, women are facing the not-so-subtle instruments of domination, repression, unfreedom, servitude. What must they do? The answer is as old as mythology: become New Barbarians. Hence the New Barbarian Manifesto.

The New Barbarian Manifesto is a reworking of the eternal conflict between innovative individual new barbarians (Prometheus) and the old barbarian leaders of the tyrannical collective (Zeus). I did consider calling the book Prometheus Unbound, but unfortunately the poet Shelley beat me to that title by a hundred and eighty years.

The book is badly in need of updating – the examples in it are now well over a decade old. I have proposed to my publishers that I turn the old edition into a Wiki, and make it freely available on the Web. I want to invite all and sundry to add in up-to-date examples. Naturally, correspondents would be named and credited for each new addition they make, with the final version published as a new edition. It’s a great model for book production, Many of those mentioned would buy a copy of the new version, and tell all their friends about it – creating a ready-made market. Furthermore, I don’t need to waste my time compiling an Index – the reader will already have the pdf online to download and search.

But the publishers don’t even reply to my e-mails - I am about to re-transmit my proposal to them yet again. Maybe this time they’ll reply, or are they so stuck in their old financial models that they doesn’t see the opportunities?

Money as a self-referential system

2008-05-22T03:05:00.000-07:00

Posted by: Ian Angell
{Ash’s comments on the madness in money markets have spurred me to write on what I consider to the basic problem: the paradoxical nature of money}

We all know what money is don’t we? According to the famous economist, Professor J.K. Galbraith: “Money is nothing more or less than … what is commonly offered or received for the purchase of goods, services or other things.” Money circulates as a consensus, a statement of trust in the value that permeates such instruments of exchange. It even addresses the thorny question of what value is: money is the commodity whereby value is expressed as price. Bearers of monetary tokens believe the promise, that on demand, or even after a period of time, they may exchange amounts of that money for goods and services to the value specified, or for alternative promissory instruments to the same value.

But why do we accept these circular promises? Because money works! And why does it work? Because everybody else accepts money as having value! In fact the modern world couldn’t manage without it.

Surely money must be more than mere self-referential social convention? It is, after all, underpinned by the whole complex science of Economics. Or is that too just another social convention? For there is a sting in the tail of Galbraith’s comforting statement. The scientific/economic portrayal of money is not sufficient because of the failure of these descriptions to address that most human and private, irrational and perverse of issues, namely ‘value.’

Cynics, like my esteemed colleague Emeritus Professor Kenneth Minogue would no doubt say that money is raised by government for the sole purpose of paying for itself - a classic self-referential system. All of economics is just a side effect of this system operating. This raising of money is made possible by institutionalising ‘property.’ The commonly perceived notion of ‘personal property’ is of ‘things belonging to someone.’ However, for a long while this somewhat naïve view of property has been superseded by a far more pertinent definition: property is a government-sanctioned monopoly right over an enclosure, which is legally enforced through their courts.

Government, and government alone, claim the right to signify ownership – but at a price. They will bestow rights of ownership on those groups that generate the maximum revenue for the state – government will seize under-producing property and transfer it to those who promise productivity. Whatever the pretence, this has nothing to do with what is popularly understood to be the moral justification of property owning.

‘Ownership rights’, therefore, are rented from the state, to be paid for, which means some of these assets, or rather the government-guaranteed rights over the assets, must be made productive; namely turned into property, monetized, and subsequently rented or sold – either way, new debt is incurred somewhere in the economic system.

Government can seize these assets through the courts at any time, simply by passing laws claiming ownership for itself, before possibly transferring it to others - at a price. However, the government cannot behave arbitrarily, because excessive seizure will limit the willingness of individuals to turn their assets into property, undermining the viability of the whole system – a harsh lesson that is eventually learned by every socialist state.

When paying the required price, rendering “unto Caesar the things which are Caesar’s” (as recommended in Mathew 22:21), the normal assumption is that government money is being used, namely the notes and coins that the government prints and mints. But that would be wrong. Most of the money supply is actually created by the population itself, over and above the government float: that float being a mortgage on state-owned property and future taxation.

In England a £50 bank note states that the Bank of England promises to pay the bearer £50 on demand. When a customer goes into an English bank and demands £50, what is she given? Another note with the same promise – just a piece of paper. What an amazing alchemy, only in this case it is paper and not lead that is being transmuted into gold!

The real magic, however, lies elsewhere. The vast majority of money does not exist as the notes and coins of the government float, rather as imaginary numbers that the government-backed Fractional Reserve System allows to be written into a bank ledger. Every time a loan is taken out, the bank – which, by the way, doesn’t need to have all the money requested - simply magicks that money into existence. All it needs is the customer’s promise to repay, and it has government-backed threats to ensure that the customer does repay, and with interest. The state’s money supply depends on the total debt incurred when purchasing or renting various property rights within its jurisdiction, which is why they must guarantee that the majority of debtors repay their debts. This they achieve by intimidating debtors with the threat of legal action, and for which they rake off their cut in this extortion racket. The more assets that can be turned into property, the greater the debt, the greater the supply of money.

However, this must not be seen as some form of conspiracy between the banks and government – rather a paradox. It is a systemic consequence of the way that money operates: money is a promise to repay a debt, with money! The beauty of this self-referential system (that is both money and property) is that no one is in control; everyone involved is trapped, sleepwalking through an explosion of peculiar emergent economic and social effects. We are all stakeholders (to a greater or lesser extent) in money and property, and in this role most of us have a vested interest in keeping the system going. From this position, government may be seen as an emergent homeostatic sub-system, necessary for maintaining the continuity of the system.

The system itself is, however, in a permanent state of unstable equilibrium. If too many customers demand that their ledger entries are returned in cash, in the form of those pieces of paper, a ‘run’ on the bank will result, and the magic collapses. A bank can also collapse when too many people default on their loans. Both situations occurred in the winter of 2007/2008 when problems with US sub-prime mortgages triggered the financial woes of Northern Rock Building Society, Bear Stearns and many other institutions worldwide.

Only blind confidence (and not a little ignorance) keeps this whole self-referential anti-gravity cash machine from crashing to earth. The whole process stays aloft because of the time-lag between borrowing and repayment (in full, plus interest.) But repayment requires the creation of brand new money in that interim, in order to pay the interest over and above inflation. This must lead to an exponentially increasing demand for money, that itself needs an increased scale of indebtedness.

Unfortunately, there is a serpent in this economic Garden of Eden. The symbiosis between government, banks, and major ‘rentiers’ is not enough keep the show on the road – it needs a perpetual supply of new energy (new debt) to keep the implicit exponential growth going. The artificially closed economic system that cannot remain homeostatic indefinitely – exponential growth is unsustainable. The monetisation of real estate, raw materials, food, and labour (and its products) can only go so far. We cannot keep raising prices to generate more debt, because that debt has to be repaid. New assets have to be created within the human value system. It requires the input of new energy to avoid the decline into entropic death – hence the need both for creating new property, and re-enclosing unproductive old property, thereby reviving it.

There can never be enough old money around to fund the requisite exponential growth, even when inflation is taken into account, and so governments must always be on the lookout for discoverers, innovators and entrepreneurs that can facilitate the creation of new property (raw materials, inventions, customers etc.) in order to generate an infusion of new debt, and hence new money. If that new property is not forthcoming, then the whole self-referential system starts oscillating out of control. Does this situation sound familiar?

Information Asymmetry & Inflation: Have the inmates taken over the asylum, again!?! [Part 3: The "speculative pressure"]

2008-05-21T16:21:00.001-07:00

Posted by: Ash Khanna

Part 3: The “speculative pressure”

On the 21st of May 2008:
Oil futures for 2016 were US$140.
Oil crossed US$132 in the spot market.

Over the last 2 to 3 years we have seen a huge increase in volatility due to moving more from a physical group of companies trading to a financial – based scenario. Further, according to Mr. Lie, a trader at Statoil – one of the largest exporters of oil: “If it’s a weak market we have to go out and sell it more actively, if it’s a strong market they come and buy it from us.” J P Morgan will begin physical trading in oil by the end of the year! From Goldman Sachs to J.P Morgan, investment banks are sharply increasing commodities and energy trading desks. In 2007, J P Morgan increased its desk by 50 and suggestions are of an equivalent increase this year. Financial Crisis?????

– Poker ;-)!!!!!

The convenience of commodity derivatives is responsible for the ongoing price rises. The ‘trader’ of these financial instruments is very distant from the physical product and hence the value chain of production – i.e. he’s a speculator. He does not want to receive (nor does he have) a tanker load of oil or a million bushels of wheat at his door-step when a derivative contract expires. Speculating involves transferring products from a point in time where the product is valued less to a point in time where it is valued more. But commodity derivatives are risk mitigating instruments - contracts.

“Value creation through the arbitrage across space and time of risk,” is a sophisticated economic concept meant for economists. It is not a market creating / sustaining communication (i.e. ‘sales-pitch’) - and will have limited (if any) market appeal. What markets need is a simple & compelling “story”.

On the other hand – “China & India will continue to grow at the current scorching rates at least for the next decade – 2.5 BILLION people are rapidly increasing their standard of living – they NEED MORE FOOD, MORE CONSTRUCTION, and MORE ENERGY.”

It is this well broadcasted (and accepted - I have to admit) story-line that is giving (the false sense of) the value to these (overpriced) commodity derivates - contracts. It’s more ‘hope’ than ‘value’ in my opinion – i.e. China & India will HAVE TO buy, eventually.

Pretty compelling stuff, but the “story” is incomplete!
What prices can they afford (are willing to buy at) in the short to medium term from this market, and how much? China & India are still regulated economies and essentials at reasonable prices for sustained growth and ‘sustenance’ are subject to government oversight & controls! [Enron’s Dhabol (India) – misadventure!]

Look at some recent (& well known) events:
China & India are aggressively pursuing bilateral trade agreements with major commodity and energy producers. India bans export of certain commodities. India bans futures trading of certain commodities. Thailand, wants to set up an OPEC like cartel for major rice exporters. Kazakhstan, a major wheat exporter, temporarily bans wheat exports.
The point I’m trying to make is that there is cognitive dissonance between the ‘sales-pitch’ and real demand.

The recent momentum in prices is because of big hedge funds and financial institutions, which makes the market move by % points rather that 30 – 40 cents like it was 3 or 4 years ago. These sudden big movements affect ‘trust’ – as traders can never be ‘off-duty’. Hence they are in high stress 24 hour jobs which makes market sentiment prone to extreme reactions. That means that minor news of fundamentals, such as the output of a single refinery, may be given too much weight.

Further, the recent humongous bail out, from the credit crisis, was not free of cost. These FIs have to not only get their books to ‘show’ healthy-profits, but pay central banks ‘interest’ for the liquidity which has been pumped into the financial system, and that to FAST! – Else they will lose the trust of their investors and confidence in the current financial system (their system) might be irrevocably damaged.

Till fall 2007 property prices were rising, globally, at unsustainable rates, now it is energy and commodity prices! The ‘activity’ has just shifted from the mortgage securities trading desks to the commodities and energy trading desks. Hence we are told Wall Street is near the end of its (recent) troubles (thanks to the recent bail-outs) but the long agony of Main Street has begun (i.e. sharp rises in energy and commodity prices). Till fall 2007 only home buyers were paying exorbitant prices now everyone has to pay a lot more for ‘essentials’. Especially the ‘unprotected’ consumer, for example: the Indian consumer is currently protected from the exorbitant rise in oil prices as compared to the US or UK. Well someone has to absorb the recent losses of the bankers and get them back to good health (i.e. billions of dollars in quarterly profits!) – Else there will be a “melt-down!”

Despite significant shrinkages in the mortgage markets (i.e. sub-prime write-offs – market correction), the infusion of liquidity by the central banks to kick-start the money markets, has (un-intentionally) managed to maintain excessive liquidity (created since the post 9/11 low interest rate era) in the financial system. Due to the lack of trust & confidence in the market (and because of fears of regulatory retaliation) most positions are being kept on the balance sheet, hence the money shows in the system. Further, due to the near freezing of the mortgage markets the liquidity available with the banks is being diverted towards the commodity and energy markets as safe value investments.

No body seems to have the answers or rather the right (responsibility) to solve the problem. The US Fed, ECB, BoE, BoJ or other central banks have the responsibility of controlling ‘aggregate’ inflation. An ‘independent’ central bank does not have the right to influence ‘asset price bubbles’. If ‘fisc’ intervenes (significantly – to affect some change) then it will be labeled as anti-market – “ANTI-BUSINESS!”

I’m sure the economists; technocrats (including some central bankers) are beginning to realize that they have been made suckers of. Hence recent out-bursts like those from: Horst Kohler, the former head of the IMF and President of Germany, comparing bankers with alchemists who were responsible for “massive destruction of assets” and that the Global financial markets have become “a monster” that “must be put back in its place”; Or the suggestion of the Jean Claude Trichet, the President of the ECB, on the 20th of May, 2008, that we are still in the ‘middle’ of the financial crisis.

To get to grips with this seemingly vicious circle of events we need to get back to basics:
· Price rise is caused by inflation not the other way around i.e. monetary inflation causes price inflation.
· The risks (limitations, abuse) associated with the monopolistic position of the US dollar as the international reserve currency. There has to be healthy competition for value reserves in this era of rapid globalization – Else the global economy will remain at the mercy of the mistakes and excesses of the few. [ I would recommend that you read Ian’s posting on the “Future of Money” http://ianangell.blogspot.com/2008/04/future-of-money.html ]

Here is the other, significant, bit of information that is not available, reliably – relevant ‘monetary inflation’ figures – and more specifically, the US M3 money supply. (http://en.wikipedia.org/wiki/Money_supply )

Some private analysts claim that the year–on–year M3 money supply is currently more than 16% (e.g. http://www.shadowstats.com/alternate_data - and some claim it is as high as 20% http://www.nowandfutures.com/key_stats.html ). [If these figures are right inflation data, globally, grossly understates actual inflation – i.e. the rate of price rise.]

The authoritative source i.e. the US Federal Reserve stopped publishing the M3 money supply figures in March 2006!

The current inflation is not the about the China & India ‘story’. It is actually about the limitations & abuses (risks) to the world economy of a single value reserve (i.e. currency – USD) in a rapidly globalizing world.

The solution is not economic to begin with; it is about ‘soft-power’ and ‘the will to power’. Do Japan (a deeper and diversified engagement, more than just carry-trade), the Euro-zone countries China, India, Brazil, Mexico, Singapore, the (currently under negotiation) Gulf Common Currency countries have the capability and capacity to compete with the United States of America and the most successful product ever created, the US$?

Part 1: http://ianangell.blogspot.com/2008/05/information-asymmetry-inflation-have.html

Part 2: http://ianangell.blogspot.com/2008/05/information-asymmetry-inflation-have_20.html

The joke of non-linear supply and demand

2008-05-21T01:20:00.000-07:00

Posted by: Ian Angell
{Ash's latest posting has prompted me to write this piece}

“You can take a horse to water, but you can’t make it drink. The trick is not making the horse drink, but making it thirsty.”

“Business isn’t selling something you have to someone who needs it, but something you don’t have, to someone who doesn’t need it.”

The old jokes are always the best, and nowadays the joke is on anyone who enters a commodity market wanting to buy something, rather than just using it as a place to park/gamble money in futures options. And who are the suckers who actually want to buy? Everyone who needs food to eat, fuel for energy, raw materials for production. Phinaes T. Barnum put his finger right on it: “there’s one born every minute.”

With all the uncertainty in the banks worldwide, where do the ‘jokers’ place their money to take advantage of the ‘suckers’? Into the markets for commodities, which have become a Barnum and Bailey Circus.

The jokers believe they can use the demand/supply curves so beloved of economists to advantage, but they miss the point, and their jokes rebound. These jokers either demand but don’t want the commodities, or supply but don’t have the ‘goods.’ What they don’t realise is that their preconceptions of these curves actually feed back and affect the underlying data, and consequently negate the curves themselves by triggering an ‘uncertainty principle.’ In the linear world of theory, the consequences of an action stop with a reaction; in the non-linear world of practice who knows what havoc the feedback will cause?

Pointing mathematical instruments at the market complexity in the practical world of ‘non-linear supply and demand’ can only create instability, because the only certainty is uncertainty.

There’s no point in measuring something that will change the moment it is measured, and because it is being measured - like the nonsense of British healthcare targets: surgeons push dying patients out of the operating theatre into the corridor, so that ‘death in surgery’ figures are kept low.

In conditions like today’s commodity markets, the jokers are setting off a non-linear positive feedback sequence, triggering a chain of events within a system that affects their analysis, something the jokers themselves don’t appreciate. The meaning created when they interpret the supply and demand through their own personal filters, is invalidated by the very act of interpreting.

The systemic nature of this situation is often neglected due to the fact that the smug jokers are using the curves to second-guess meaning in the minds of others. When those ‘others’ also contain large numbers of jokers, all confident that they can take advantage of their superior(!) economic (and hence linear) knowledge, then the joke is on them. They are all thinking the same way, and this multiply-reinforcing subjective interpretation will always totally distort the objective world of data.

Goodhart’s Law comes into play. Charles Goodhart, a distinguished LSE Professor, famously noted: “any observed statistical regularity will tend to collapse once pressure is placed on it for control purposes”.

Thus the jokers too have become suckers. Welcome to the cosmic joke that is non-linear supply and demand.

Information Asymmetry & Inflation: Have the inmates taken over the asylum again!?! [Part 2: It's the market, stupid!]

2008-05-20T03:35:00.000-07:00

Posted by: Ash Khanna

Part 2: It’s the market, stupid!

I was disappointed by a recent Martin Wolf - FT column. Disappointed because I do give serious consideration to his opinions, but this time it was regurgitation. On the issue of commodity and energy prices he seems to have lost his (seemingly independent) voice and joined the salesmen in their sales pitch - i.e. the rise in (essential) commodities and energy is primarily (or at least suggests a trajectory) reflecting ‘the fundamentals’ – supply and demand – implying - learn to live, with these inflated prices! As made explicit in Part 1, I acknowledge that fundamentals have been playing a significant role, but the current prices in no way can be justified based on ‘fundamentals’ – Especially when reliable demand figures are not available!

Readily available supply side information, too, is biased. In fact we are bombarded with ‘analyses’ of (relatively micro) supply disruptions as reasons for the recent increases in the price of oil. How come then the supposed mammoth Alaskan, the more recent (and quickly disputed) Brazilian discoveries and super deep wells in Russia, don’t bring down prices, equivalent to the ‘size’ of the potential find? How come we don’t hear much about new discoveries and advances in extraction technologies? This bias of information is ‘broadcasting’ an ‘asymmetric bet’. George Soros attributes such events to the “manipulative function” of the ‘reflexive market’. In less than a year we have been, ‘regularly’, told, first, that the era of ‘cheap energy’ and (more recently) ‘cheap food’ has ENDED! Is it me or does this smell like “Propaganda” - Edward Bernays (one of the fathers of the field of ‘public relations’) called this scientific technique of opinion-molding the “engineering of consent”. Sounds conspiratorial, well it’s not. Have we forgotten the Enron traders (i.e. Californian power cuts), already?

“Markets are inefficient!”

On the 16th of May, 2008 we got to know (from FT.com & Reuters.com) that:
US industrial production fell 0.7% in April 2008, reflecting the biggest drop in the US manufacturing sector since September 2005. Common sense suggest – if less industrial production less consumption of energy – meaning reduced demand from the world’s largest consumer! Further, the Oil Cartel’s Monthly Oil Market Report says – world demand 40,000 bpd less than its previous forecast due to high oil prices – seems to corroborate common sense.
But guess what? –
The 16th saw a surging demand from China, helped bolster heating oil prices. According to Reuters.com oil “re-bounds” near $125 on heating oil supply strain, as China & Europe “scramble for barrels, thinning global supply.”

Excuse me - Aren’t we in the middle of cataclysmic global warming?
HEATING Oil in the SUMMER, at those prices?????

Further, this ‘demand’ somehow overshadows the largest fall in industrial production in the US since fall 2005 and completely rejects demand figures from the most significant conglomeration of oil producers!

But it gets even more confusing; US Energy Information Administration said natural gas storage rose 93 billion cubic feet last week, above ‘expectations’ for an 87 bcf build. Does this suggest reduced consumption, increasing reserves at exorbitant prices (!?!) or ‘hoarding’?

Anyway, a couple of days after that -
Saudi Arabia declared it will increase production (some analysts suggest - against its own better judgment but under pressure from the US President):
Oil prices surge…..Cross $128 because of “speculation” that this will increase the US strategic reserve!!!!!??????

Information asymmetry and panic may tactically work in the favor of such “speculative pressures”, but this is not sustainable, indefinitely.

The markets are NOT always right!

Part 1: http://ianangell.blogspot.com/2008/05/information-asymmetry-inflation-have.html

Part 3: http://ianangell.blogspot.com/2008/05/information-asymmetry-inflation-have_21.html

The End of the European Union!

2008-05-18T03:19:00.001-07:00

Posted by: Ian Angell

What do you get when you mix the British Pound (B£) with the EURO?

Donning the cap of a ‘Futurologist’ and pontificating on such questions, I’ve had great deal of fun over the past two decades. Never one for false humility, I can say I’ve been very good at it. Just look in The New Barbarian Manifesto and you’ll see a number of my successful ‘prognostications.’ I prefer using that word, rather than ‘predictions,’ because of the way I use my crystal ball - I don’t predict the future, I forecast the present. That’s my secret – I spot trends in the near past, and just follow the trajectories. The hints are everywhere, you just have to see them – and for that you must reject orthodox thinking.

“Don't state the matter plainly, but put it in a hint;
learn to look at all things with a sort of mental squint” (Lewis Carroll).

It helps to be standing on solid philosophical ground, which provides the consistent perspective needed for that mental squint – anyone who has attended my lectures won’t be surprised to learn that my particular guru is Friedrich Nietzsche.

Nietzshe’s one-liners slice across the hypocrisy of the political classes and strikes at the heart of so many issues. Consider: “Many too many are born. The state was devised for the superfluous ones.” This one quotation lies behind my questioning of employment policies. Mass-production methods needed an over-supply of humanity; the Machine Age spawned the nation-state, but with its demise what is to be done with the glut as we enter the Information Age?

Territory in itself is a liability. New Barbarians do not waste resources subsidising large tracts of land filled with rusting industry and populated with the unemployed. To protect their wealth, rich areas will ‘rightsize’, ensuring a high proportion of wealth generating knowledge workers to wealth depleting service workers.

Barbarians will reject the liberal attitudes of the present century. The expanding underclass they have spawned, and the untrained migrants they welcomed previously, are now seen as liabilities.

I have seen the future .... and in that future, democratic government won’t disappear, but its role will be to nurture, propagate and supply the quality human raw material. Democratic government, or any other kind for that matter, is merely the supplier at the bottom end of the value chain that ultimately supplies wealth. This wealth is not the product of labour, but of individual intellect and determination.

The majority of society, the service and production workers, the unemployed and the underclass, are a drain on a region’s economic potential. In the Information Age, governments based on a universal franchise and chosen by this majority are governments elected by losers. The ‘politics of envy’ is suicide, and the ‘will of the people,’ voting for full employment, a minimum wage, and fair(?) taxation, is merely the turkeys voting for Christmas. The big political question of the coming decades is how to find a socially acceptable means of dismantling democracy. Even with strong political leadership this will be an extremely difficult task, but much of the West, with its cast of parliamentary degenerates, hasn’t a hope.

All these pressures fermenting the Information Age will produce new winners and new losers. Where does the European Union sit in all of this? Its outmoded collectivist and bureaucratic institutions, so steeped in the ‘Factory Metaphor’, are incompatible with the aspirations and expectations of the entrepreneurial networks that are creating the New Order of business. European politicians think that all businesses are run for their benefit, to pay for schemes that will buy them votes.

And you will never reduce government expenses, because those expenses have a vote. The European Union is a disaster waiting to happen. I’m not alone in saying that: Alan Greenspan is convinced that the EU is finished unless it finally leaves the Industrial Age and scraps its highly restrictive labour laws. I ask you to contrast the sentimentality of the European Union’s vision of a Socialist “Information Society”, against the hard-edged American Dream of an “Information Economy.” That says it all. The smart money is on the USA. And that’s only for the medium term. The US too will degenerate unless it can revitalise the American Dream. The future lies with China, India, Brazil, and a few 'Smart Regions.'

The European Union (EU) won’t make the jump from EU to an e-U, but to an e-USSR. The EU is just the USSR with a forty-year time lag.

The European Union is just another collectivist disaster waiting to happen: the USSR with a forty-year time lag – the EU-SSR. The USSR was born in the Russian Revolution in 1917, and died on the Berlin Wall in 1989. The EU was born with the Treaty of Rome in 1956. My prediction for the year of its demise … 2028.

What do you get when you mix the British Pound (B£) with the EURO? A new world currency that will replace the dollar? No! The anagrammatic ROUB£E.

Wales – a Land of Magic and Invention

2008-05-17T03:38:00.000-07:00

Posted by: Ian Angell

I Believe in Magic, and that our world is full of magic! Not the nonsense of New Age mysticism, or of Voodoo, not the magic of Harry Potter, rather a sensible age-old sorcery that has its fundamental beliefs fixed by the unchanging human condition. It is a sorcery that has underpinned the development of humanity from the very beginning, but which has been overlooked in the twentieth century’s urge to develop a unifying pseudo-science that ‘explains’ everything. That oversight has led to the myth of control, and acts of hubris on a monumental scale. {How ironic that I find myself teaching in Britain’s foremost university of the social sciences, when I believe there can be no science of society – all society is grounded in magic!}

I first learned of magic back in childhood. There the world is a magical place for us all. Within the realm of imagination, within the realm of chance, within the realm of necessity, the ‘improbable’ can and does happen. That having been said, I should add that the ‘impossible’ stays impossible.

Thankfully, this magical world of my childhood still exists in me, and I still see the world of grown-ups as an alien place, an insane place of denial. I have always been able to discard the jaundice of adult disbelief, where so many find themselves jaded by disappointment, and directed by cynicism. For me, the real world inhabited by humanity is still this magical world. It has always been that way, and it always will be: a world of intrigue and subtle influences, a world of an irrational and perverse humanity, a world of wonder!

I learned of this magical reality growing up in the ‘Land of my Fathers’ {the title of the Welsh national anthem} The country of my birth is the Principality of Wales, the runt of a Siamese twin that for nine hundred years has been attached in some form or other to its bigger and more politically powerful English neighbour. Yet over the centuries it has managed to perpetuate a national identity and maintain its own language, thanks to a culture of magic and invention. The country has a fervent and thriving national culture that claims ethnic links stretching back to the prehistoric Celtic invasion of Britain and to the pre-Roman/pre-Christian Druids.

However, that culture was born in magic, not historical fact. Nationalists conveniently forget that the population of Wales trebled in size in the late 19th century, with immigrants needed in both the iron and steel and the coal industries. This is proof, if proof was needed, that nationality is in the software and not the hardware, since the present gene pool does not have a majority Ancient Welsh component! Take myself for example. The surname Angell, means English – although born in Wales my paternal ancestors had more in common with Hengist and Horsa than with the Druids and their Eisteddfodau. {Hengist and Horsa were two brothers who led the invasion of Britain around 450AD by the Jutes, Angles and Saxons (collectively known as the Anglo-Saxons), who pushed back the Celts to the margins of the British Isles; a druid was a priest/magician of the ancient Celtic tribes; an eisteddfod is a competitive festival of poetry and music.}

Wales has a proud tradition of story-tellers, bards and poets, but they would have borne very little resemblance to the 'druids' of present day Eisteddfodau who parade around in bed-sheets, celebrating their links with a mythical Druidic past.

Today's rituals are in fact an eighteenth century romantic fantasy, dreamt up by the likes of Iolo Morganwg (a.k.a. Edward Williams). He claimed to have uncovered an ancient manuscript that described various Druidic rituals. In 1792 he brought together a group of friends in the first Gorsedd of Bards, not in Wales but on Primrose Hill in London. Of course he had written the mystical book himself! Nevertheless his ceremony continues right up to the present. Well-known bards have included actor Richard Burton, even Rowan Williams, the archbishop of Canterbury, and of course the late and much lamented Queen Mum.

Iolo had got wrapped up in what started as the imaginings of seventeenth century English antiquaries like John Aubrey and Inigo Jones, who yearned for an ancient British culture to rival that of Egypt, Greece and Rome, and culminated in the 18th and 19th century Romanticism that fuelled nationalistic fervour across Europe.

Some of the stories, to which the latter-day druids lay claim, such as the Mabinogion {a collection of Welsh folk-tales written down between the 11th to the 13th centuries}, do have an ancient and legitimate pedigree. However, their interpretation, and the motives claimed for them, are pure modern invention.

And the mythology contains pseudo-ancient stories, like that of Beddgelert. Prince Llewelyn the Great returned from a hunting trip to find his baby’s bed-chamber in total disarray and covered in blood. His dog Gellert stood amidst the chaos. Convinced that Gellert had harmed his young son, Llewelyn drew his sword, and in a fury killed the hound.

However, the baby was safe. The blood was of a wolf that Gellert had killed in protecting the baby.

Full of remorse, Llewelyn buried the dog in a field in Snowdonia, at Beddgelert {literally: Gellert's grave}, where he placed a simple stone to mark the grave. No doubt the town elders of nearby Blaenau Ffestiniog had heard of the fable – there are similar examples in the Hindu, Persian, Hebrew and Buddhist traditions. Their town had been on the main stagecoach route to Ireland, however, with the coming of the railways, they were by-passed. Their solution to the financial difficulties: invent the Beddgelert story to bring in the tourists. And they're still ripping them off - £2 for the car park!

As for attracting tourist money, let’s not forget the village of Llanfairpwllgwyngyllgogerychwyrndrobwllllantysiliogogogoch, with a name containing 58 letters, including 11 L’s, four side by side. This mouthful in the Welsh language means “the church of St Mary in the hollow of the white hazel near the fierce whirlpool of Tysilio by the red cave.”

The village started off as plain old Llanfair Pwllgwyngyll; two words, meaning the Church of Mary in the borough of Pwllgwyngyll. However, in the 1880s a tailor from nearby Menai Bridge decided to add a few more syllables as a publicity stunt to pull in the tourists on their way to Holyhead to catch the boat to Ireland. It worked, and it’s still working. Tourists come from all over the world and pay their money for a platform ticket, to buy trinkets and snacks in local shops, and to be photographed next to the 15-foot sign on the railway station of a village with no other notable attraction. Of course some idiot in the local authority put a lamp-post just in the right spot to ruin the best shot.

The Welsh were taught this magical lesson (of how to invent a story that would part people from their money) from no less an authority than a Pope, Callistus II, who canonised St David {the Patron Saint of Wales} on March 1st 1123 {March 1st is the Welsh National Day.} Callistus decreed that in the Heavenly Current Account, two pilgrimages to St David’s in Pembrokeshire were worth one to Rome.

Saint David was a Celtic monk, abbot and bishop who lived in the sixth century, and was one of over 500 Welsh saints who helped spread Christianity among the pagan Celtic tribes of western Britain, and beyond. So was David so different from all those other run-of-the-mill saints? The reality was much more mundane. Hordes of British pilgrims, a type of twelfth-century football hooligan, were descending on Rome, causing huge problems for the Vatican. By raising the status of the Welsh saint, Callistus cleverly cut his costs and sent the troublemakers west, to Saint David’s monastery instead.

I can’t leave St. David without mentioning one fact, which in itself could be the basis of a new tourist industry. David was baptized by his cousin, Saint Elvis, who came from Prescelly: that right by Saint Elvis Prescelly. No joke! There really was a St Elvis, and he was St David’s cousin.

But seriously, Vernon Presley, Elvis’s father, named his son after Saint Elvis. Vernon knew that his family originally came from the Prescelly Mountains – that’s the origin of the name Presley. Who knows, maybe among the King’s British fans, two trips to Pembrokeshire will become the equivalent of a visit to Graceland?

That’s enough of Welsh mythology. If I start on about King Arthur and his Round Table we’ll be here all day. But let me get something straight here. I am not being snide or cynical about these myths, legends and tourist attractions. Far from it! I speak of them with a sense of awe, and as a magical inspiration.

I see nothing fundamentally wrong, immoral or deceitful about creating such delusions. As far as I am concerned the behaviour of the good men of Blaenau Ffestiniog and Menai Bridge is typical of the Magic out there in the development of all cultures. Every culture is a collection of delusions, and the rituals that support those delusions for a particular self-selecting grouping of humanity. These delusions make us comfortable in the world, and with ourselves, by reinforcing what we see as virtues, all the while making the dark side disappear. And the delusions that work best are the ones that work on the primitive (and on the child) in us all.

Magic!

Information Asymmetry & Inflation: Have the inmates taken over the asylum, again!?! [Part 1]

2008-05-08T16:54:00.000-07:00

Posted by: Ash Khanna

Part 1:

During the ‘credit-boom’ years, low inflation was attributed to the “China factor”.

Now, in the “credit-crisis” era, high energy, food and metal prices (the prime contributors of the current high inflation, globally) are because of China & India!

This flip has happened in less than 10 months! Are others also questioning the convenience of such statements as ‘explanations’? Is this a ‘sales-pitch’ of the commodities trading desks of banks?

Why am I so cynical? - because of statements like this:
“Some of the factors that are more likely to influence oil supply and demand, such as figures of oil demand from China, are not available.”

(Anthony Reuben, BBC Business 20th February 2008) http://news.bbc.co.uk/2/hi/business/7255447.stm

Further, do ‘we’ have (know of) reliable demand figures for the other commodities like wheat, rice (i.e. food), steel, copper (i.e. metals), etc. from China?

Now I’m no finance wiz who can mathematically prove that one plus one is not equal to two. But common sense asks: If we don’t know the demand figures how does ‘the market’ determine price? Answer: “It speculates!” Most financial experts agree that “speculative pressure” in the commodities market, especially for oil, food and metals, is high.

I don’t claim that there is not a significant increase in demand from India and China. Actually, from a development lens it is a very good thing! In fact China has been growing at over 10% for over a decade and India at about 8% for half a decade. These growth figures are sustainable for at least the next decade, has been common knowledge for a few years now. So what happened in the last 4 months that oil prices rose by 25%? Some of the brain-washed will claim that it is the effect of the decline in the dollar. Then, now, that the dollar is showing signs of stabilizing (if not recovering) - how come Arjun Murti, an ‘energy strategist’ at Goldman Sachs, is ‘warning’ of the likelihood of a ‘super-spike’, past $200 in the next 6 months?

Informed by the cliché : "Markets are inefficient!" There are some inter-related questions we should really be asking:

Why have the prices of ‘essential’ commodities shot up so sharply? (I emphasize the word ‘essential’.)
Who is buying and what instruments are being used to trade in these commodities at such inflated prices?
Who can afford such prices?
What is the source of the liquidity glut in the commodity market?

It is my (and I believe a lot many others) opinion that the prime cause of current global inflation is this so called “speculative pressure”. The unintended consequence of the central banks pumping in hundreds of billions into the financial markets to bail out banks exposed to the now toxic “sub-prime mortgages”. (– which had the real potential to explode into a full-fledged “credit market meltdown”. Thankfully it is only a “crisis”!)
[I stopped counting around half a trillion dollars! – Does some one know the exact bail-out figures, details?]

Part 2: http://ianangell.blogspot.com/2008/05/information-asymmetry-inflation-have_20.html

Part 3: http://ianangell.blogspot.com/2008/05/information-asymmetry-inflation-have_21.html

Friedman's 3rd Globalization: Complexity is Opportunity!

2008-05-02T05:59:00.000-07:00

Posted by: Ash Khanna

For a successful knowledge worker ‘complexity’ is an opportunity!

In the knowledge economy, business is a ‘servant’ (i.e. to provide a ‘service’) of complexity. Success implies fuelling the complexity of the competitive environment, - which is on an exponential growth curve because of rampant ‘innovations’ in physical technologies, social technologies and successful businesses, not despite them.

Innovation is nothing new. We are simply more aware of it. Similar to the affects of shipping routes, and the road networks; the emerging, pervasively networked (i.e. ‘conversation’-dense) environment is bringing people together. In effect we are irrigating ideas and creatively farming triggers at rates unprecedented in human history.

Innovation, the ‘hunt’ for value, is the engine for ‘growth’ (as in creating NOT as in grabbing 1% more of)! Let me elucidate.

What is called ‘financial innovation’ today has its roots in the 1970s – 1980s [i.e. the 1st mortgage security department on Wall Street at Salomon Brothers; and the high-yield (junk) bonds of Derxel Burnham (aka Michael Milken)]. The current ‘avatars’ are (the infamous) structured finance products like CDOs, CMOs, etc. – “the credit crisis”. The products may be in trouble but the ‘phenomena’ is sound. They were ‘democratising capital’!

‘Peer-production’, mediated by the ‘Internet’ and other ‘Interactive Digital Media (um)’ are being more audacious. The phenomena being invoked: “democratising innovation” (von Hipple) or unleashing the “wealth of networks” (Benkler)! And it’s here to stay.

The ‘opportunity’ is that potentially good ideas come the way of and are experimented on by motivated individuals or small groups (within or external to the firm) at a far greater pace than the typical (industrial mode of production informed) institutions and organizations can infer the opportunities let alone act on appropriating from them. Further, the socio-business environment is extra-ordinarily (and for some uncomfortably) optimistic. Because of the emergence at this level of granularity, competition is ferocious!

This necessitates a radically enhanced capacity to include complexity in the ‘art of organising’. The source of this complexity is the quest to achieve effectiveness in intellectual activity based transactions - a difficult (i.e. “complexity catastrophe”) and expensive [i.e. dead weight losses like lawyer costs and other market distortions, caused due to the non-rival nature of the primary input and output (i.e. information)] task for older, scaled ‘structures’ to appropriate value from.

This is not a result of the failures of business leaders but a result of their successes, which has facilitated the inclusion of over a billion more people into the global economic system - that they have till now so well ‘commandeered’.

But guess what? ‘War’ is dead! - (Another “success disaster!”)

The shift from martial, command and control, towards the opportunistic, self-organizing of collaborate and coordinate, is not an instance but an inevitable evolutionary trajectory. The sobering message is that innovation is and has always been about the creativity, talent and the resourcefulness of people!

When Social Networks become a Nuisance

2008-05-01T01:19:00.001-07:00

Posted by: Ian Angell

I’ve just logged off Facebook, having wasted nearly forty-five minutes. There were 27 requests asking to be my friend, but I only knew about half of them. I can’t imagine why the other half would want to be my friends.

There were stupid virtual gifts, offers of a virtual knighthood, adverts for stuff I wouldn’t want in a million years, tedious facile applications and surveys (do I really care what proportion of the brain-dead prefer Pepsi to Coke?). I’ve been shown lists of favourite books, and what passes for music: bands with daft names like Flatulent Freddie and the Snot Nosed Psychopaths droning some tuneless ditty.

Personally, I use Facebook as a private personal network. During the odd break I like to find out how ex-students are getting on with their lives. I’m looking for the odd short message telling me of how their lives/careers are progressing – the odd photo of their families or on vacation is fun. It’s perfectly OK to ask me for a reference (although strangely they seem only come in LinkedIn, not Facebook!) I am not interested in friends of friends; one degree of separation is as far as I want to travel. {The next 2 sentences were added after I read the comment from Govind.} One aspect of social networks that is often forgotten is exclusivity. Far from inviting everybody in, many network members want to keep everyone else out - and why not?

Yet most of what I see are lists of superficial facts, invites to parties (where they play the junk music), adolescent ‘I hate Manchester United’ jibes shared with the world, and facile comments about ‘what I’m feeling now!’ The scale of garbage postings seems to be increasing exponentially. Don’t people realise that this drivel is being read by HR departments – postings say far more about you than your CV ever does.

How do we filter out this overload? It seems we’ve lost track of what the network is for. If we’re not careful we’ll throw the baby out with the bathwater. I’m already seeing a sharp rise in postings like ‘X is withdrawing from Facebook until further notice.’ This is only to be expected when social networks become a nuisance.

Intellectual Property Rights 'regimes' are archaic!

2008-04-30T13:54:00.000-07:00

Posted by: Ash Khanna

Organizations (or Soft Technologies) are the most sophisticated of innovations we as a species create, maintain and grow.

As so eloquently pointed out by Hernando de Soto, the reason that many western economies are advanced is because they have developed ‘sophisticated property rights’ systems over centuries, facilitated by, emergent, democratic institutions and the rule of law. This in turn facilitated the industrial revolution and informed the structure of their institutions and organizations.

Today the global economy is predominately service based. The contradiction is that it is ‘served’ by institutions and organizations primarily informed by the 20th century (and even earlier)! The great level playing field is in the intellectual property rights systems – which according to me should evolve into ‘activity based property rights systems’ – (details for another posting(s)) that may be characterised, at best, as ‘developing’, globally.

Tangible resources are inadequate and existing jurisdictionally sensitive, industrial rights (i.e. patents) and copyright laws are archaic. It is derisory to expect such 'regimes' to facilitate sustainable high economic growth (as experienced by few countries during the second half of the 20th century), globally. Quite simply as far as intellectual property based transactions are concerned it is the ‘wild west’! And what that means for businesses that are ‘classified’ under the banner – “service economy”, its high risk and hence (potentially) high return!

From a business perspective you have to go back to the basics and ask yourselves: “What are we trying to get done and what structures are we using at multi-firm levels or intra-firm levels?” The stakeholders have to engage. They have to understand, “How a ‘business process’ makes 'business sense'?" They have to appreciate the "Why?" of an economic activity.

Management, to begin with, has to become fluent at implementing issues related to: control rights (contract or ownership); incentives; relational contracts. In the medium term they have to be educated in identifying and aggregrating transactions that are of the intellectual activity kind and the nature of ‘property rights’ that may emerge (and be currently associated with them).

The macro challenge lies in establishing activity based property rights systems comparable to the advanced existing property rights systems that may effectively accommodate ‘incentives to entrepreneurs’ and hence facilitate all the five types of innovations according to Schumpeter – i.e. new products, new methods of production, new sources of supply, the exploitation of new markets, and new ways to organize business.

Rats or New Barbarians?

2008-04-29T06:45:00.000-07:00

Posted by: Ian Angell

According to today’s newspapers, WPP, the advertising giant is considering a move to Eire in order to escape the UK’s increasingly complex and expensive tax regime. This comes fast on the heels of the non-dom tax fiasco. A decade ago I was warning that a time was soon approaching when companies would be jumping ship in large numbers to escape penal taxation. All taxation is theft, and if firms tire of being ripped off then they will simply move! When will British idiot socialist politicians realize they do not have the power to intimidate global corporations. Escaping ‘UK Inc.’, these companies are not rats leaving a sinking ship {although it is sinking}, they are simply taking on the role of New Barbarians.

Let me quote a few paragraphs from my book The New Barbarian Manifesto:

A spectre is haunting the Globe – the spectre of New Barbarians. All the Powers of the old world have entered into a holy alliance to exorcize this spectre of enlightened self-interest: churches and monarchies, capitalists and socialists, populists totalitarian nationalists, militarists, and spies for the state.

Where is the party in opposition that has not been decried as self-interest by its opponents in power? Where the Opposition that has not hurled back the branding reproach of self-interest, against the more advanced opposition parties, as well as against its reactionary adversaries?

Two things result from this fact:
I. The New Barbarism is already acknowledged by all World Powers to be itself a Power.
II. It is high time that New Barbarians should openly, in the face of the whole world, publish their views, their aims, their tendencies, and meet this nursery tale of the Spectre of New Barbarians with a Manifesto.
{With apologies to Karl Marx and Friedrich Engels, authors of The Communist Manifesto.}

“We all have two choices: follow ‘new barbarians’ and advance to an uncertain future, or obey ‘old barbarians’ and their fundamentalist gospel of a false past. The new barbarians represent the winners in the new economic reality, leaving the losers to circle their wagons around old values and rituals, easy prey for the old barbarians. The outcome of their coming battle will be a world of three zones. The First World is the libertarian realm of new barbarians that supports the rights of the individual, not of the tribe. The Second World is an uneasy compromise between old barbarian ideologies and the modern world. Their mode of governance focuses exclusively on the rights of the collective. Might is right in the Third World, a place of terror and repression. Putting it brutally, the three worlds are an open society, a closed society and no society.

If trapped in the two lesser Worlds, you will be forced to conform to old barbarian rituals. Therefore, you must throw in your lot with the new barbarians. The alternative is to be left to the mercy of the masses, forced to accept the mind control of religious, political and ethnic bigotry – or suffer the consequences. The history of every human society has been of the tension between the individual and the collective, between the self and the tribe, between private aspirations and social norms. Today you are again faced with the three evils of religion, ethnicity and socialism. You must flee to the First World of ‘Smart Regions’, to prosper in a climate of individualism and of intellectual and financial freedom. Should such individuals fail to escape in large enough numbers, then a new Dark Age will engulf us all.

Welcome to the future. Welcome to the ‘Brave New World’ of The New Barbarian Manifesto.”

The Web 2.0 Gold Rush

2008-04-28T06:18:00.000-07:00

Posted by: Ian Angell

Everywhere I see major corporations frantically joining the rush to profit from Web 2.0. {What an awful term – it implies a new version, an upgrade, when nothing could be further from the truth}.

The mere mention social networks gets companies foaming at the mouth. Mickey Mouse start-ups are attracting investment from financial investors who really should know better. Yes there are a few good ideas out there, but Web 2.0 is not going to be populated by thousands of Facebooks. Many, nay most of these new applications are just plain daft. The Internet bubble rides again!

We’ve seen it with Second Life (SL), the 3-D virtual social interaction space. Businesses are buying virtual islands in SL to create ‘interactive branded experiences.’ A veritable business paradise? Not so! Of the tens of millions of registered users, only a few tens of thousands are active. SL is an untraceable source of spam. Malicious software can steal virtual property, corrupt data, falsify marketing information, vicious rumours circulate, and there is the possibility of money laundering. Never forget for every social network there is an antisocial one.

Web 2.0 is awash in litigation over design theft, and the infringement of intellectual property rights – the Scrabble spat with Facebook is a case in point.

And yet the mere mention of blogs, mashups, podcasts, web feeds, widgets, or wikis get businesses hyperventilating. Something wonderful will happen, and they want their share!

Yes there are fortunes to be made, but extreme caution is needed, and sensible choices made. Just diving into social networks is folly, because they are fundamentally anarchic and uncontrollable.

In the frenzied rush for gold, the miners are blind to where the real money is being made. A lesson should be learned from the original gold rushes. In the first wave it was picks, shovels, pans and mules – supplying equipment and transport – that made the money. Very few of the miners ever struck it rich. This was followed by the WWW of the second wave: selling Whisky, Weapons and Whores, where the real fortunes were made.

Ash and Ian

2008-04-27T12:16:00.000-07:00

Posted by: Ian Angell

Ash Khanna and I have worked together on a number of research and teaching projects over the past three years, and tomorrow (April 28th) he is returning to India.

During that time we have had many enjoyable discussions about various topics in the application of computing in business - we intend to continue our debates electronically. Over a most enjoyable farewell lunch today (at the Benares Restaurant in Berkeley Square - highly recommended) we came up with the idea of running this blog jointly. From today, each entry will carry the name of the author(s) - and if the piece is by a sole author, then the other will add comments.

We have had many (friendly) differences of opinion over the years, and we often bring our students on the Techno-legal course at LSE in on the debate. It seemed like a good idea if we continued this process, although now we want to broaden the discussion to include everyone who reads this blog.

The Future of Money?

2008-04-26T16:38:00.000-07:00

In this blog I want to resurrect an idea that I first published in the Financial Times over a decade ago: Off-Planet Banking!

Oh, if only money could talk … would it say goodbye?

We all know what money is, don’t we? Money is the notes and coins that governments print and mint to facilitate economic transactions. Money is a statement of faith in the value of instruments of exchange. Bearers of such instruments believe the promise that, on demand, or soon after, they may exchange amounts of that money for goods and services to the value specified, or for alternative promissory instruments to that value.

Most of us in advanced economies assume that every commercial transaction requires money! But does it? Barter is primitive! Or is it? Surprisingly, spontaneous new forms of barter and exchange are occurring all over the Internet, by-passing money at least in part. House owners swap properties for vacations. Social networks, appearing in games like World of Warcraft or Facebook, leak out into the real world, and on the basis of newfound friendships, exchange advice and barter services. Why bother? The recipients of such ‘favours among friends’ don’t need to dip into their savings, and they avoid the need to pay sales taxes; and the seller was paid with a promise of reciprocation that carries no burden of income tax.

Bartering is just the start. A shared sense of trust is all it takes to create a currency. Local communities have such trust in abundance, so they can issue their own notes of credit that will pay for goods and services in and around the locality. The idea of a Local Exchange Trading Scheme (LETS) was first introduced in Canada to kick-start the local economy of a depressed mining community, which boasted a high degree of internal community trust. They cut right across the vicious circle of untrusting formality that is the banking system. Banks work on credit-worthiness calculated on formal employment status, or ownership of capital goods. When you are not credit-worthy, the cost of borrowing goes up, and you become even less credit-worthy. With LETS the uncredit-worthy get credit.

LETS need trust; trust needs a sense of community; social pressures in a community ensure that all debts are repaid, reinforcing a virtuous circle of communal trust. A closed community can play this non-profit zero-sum game for the mutual benefit of all. Everyone starts at zero, and keeps track of debits and credits by double entry bookkeeping of IOU tokens. Usually measured in hours of work, these tokens assume that an hour’s labour is the same, no matter what the work; baby-sitting, gardening, window cleaning, hair-dressing, consulting. However, as the market for such tokens got more sophisticated, some schemes have introduced agreed differential rates to pay for more highly skilled work like doctoring, accountancy or advice on computing.

The idea of token money is not a new idea. It was the origin of bank notes. Chinese family businesses, which have spread across the globe in many diaspora over the generations, use Fei-Chien (flying money) to bypass the national financial regulations of their host countries. A huge underground banking system based on a code of trust has developed within the worldwide Chinese community. In India the system is called Hawalha (Hindi for trust) Banking. These systems are as old as money itself, and far more ancient that what we would call banking.

How does hawalha work? The basic model is that a person in India (say) hands over a large sum of Rupees, and in return is given half a bus-ticket. He then travels to England where, at a prearranged meeting, he matches his half bus-ticket with the other half sent by mail to his contact. He is then paid in Sterling, a sum equivalent to his original payment – minus a fee. My Indian students tell me they would never bypass Indian Government currency regulations in this way.

This confused situation is becoming even more confused as new technology changes the nature of government money. Such money is becoming electronic information; mere strings of binary bits stored on a smartcard. Using this technology, now Global Exchange Token Schemes (GETS) are possible. What constitutes money will no longer be monopolized by national governments. “Money does not have to be created legal tender by governments. Like law, language and morals it can emerge spontaneously. Such private money has often been preferred to government money, but government has usually soon suppressed it” (Hayek). In the Information Age, in the age of Internet can government keep suppressing it? Hayek’s vision of the Denationalisation of Money can now become a reality.

The LETS (and now GETS) idea can become a mechanism for company money. Then buying and selling goods and services within the company community, employees and customers, becomes a form of transfer pricing, which like the above schemes are invisible to the taxation authorities. In devising loyalty schemes, supermarkets are basically the issuing ‘plastic money’. Companies can go much further. The real issue is not “dollar bills, but Bill’s dollars” {can anyone tell me the origin of this quotation?}; Bill Gates’ dollars. A company can issue a proportion of its equity as digital cash. Instead of the value of money decreasing as governments profit from the hidden tax of inflation, the value of money can actually increase if the company’s shares go up in value. Such alternative currencies can spring up anywhere. With networked tills accepting digital cash, the transaction costs of exchange will become insignificant. It will be of little consequence for traders whether there are one or one thousand currencies in circulation.

Such company schemes can be computerized and they can go global! And why be restricted to the globe? Why shouldn’t information wealth leaves tribal grounds and moves to the deregulated common grounds of space? Although both international law and domestic law are applicable to this 'Global Commons', operators can choose which domestic order is most favourable, convenient, and tax efficient. There “We need banking, not banks” {again can anyone identify the source of this quotation?}, so why not off-planet banking. Satellite companies have spare capacity. A satellite acts as a depository for digital cash, and hand-held PCs linked to ‘transceivers’ move cash anywhere, anytime. It will be secure because customers send not only their digital cash and other information capital, but also the digital safe that secures it – and they hold the only key.

The virtual reality of off-planet commerce beckons: this illegitimate offspring of 'pirate radio' and the 'flag of convenience' is not such a silly idea. Off-planet commerce will service any (information) product that can be dematerialized. Pop-records, films, books, newspapers, sporting events, software, money are all now just strings of binary bits. Payment can be by credit card (or soon digital cash), just like products advertised on CNN are sent by mail from warehouses based in low tax countries to minimize price and cost.

With only the most rudimentary telecommunications infrastructure even poor states can get in on the action – they merely act as tax-havens and data-havens for footloose organizations. There are no barriers to entry; this is hi-tech business by proxy. Previous disadvantages of the Third World, like bribery, corruption, incompetence and political instability, are obstacles no longer; since, except for a brass plate, a company has no physical presence there – business is all off-planet.

The big-boys of the G7 cartel can no longer use their technological superiority to keep the rich pickings for themselves. The Third World no longer has to plead for crumbs, it too can slice the cake. The OECD are already crying foul over the “unfair lowering” of tax rates and a “race to the bottom” that could lead to “fiscal degradation” of the tax base. They “ain’t seen nothing yet.”

These pressures will make a mockery of restrictions on international money transfers. Disintermediation and dematerialization are the key words. Strapped for cash, governments will tax anything in solid form: taxes on physical property will inevitably rise, and property values will fall. Frantic taxmen are even talking of a “bit-tax”: they intend to extort their share of this trade by taxing data flow by volume; just like they do with whisky. Under the smokescreen of chasing narco-dollars, the USA is using money-laundering laws to track down tax-flight dollars in Switzerland and Grand Cayman; Germany wants to staunch the haemorrhage of euros to Jersey, Guernsey, Liechtenstein and the Isle of Man. The battle has only just begun. Soon under-reporting of taxes will snowball into the total migration off-planet of a state’s taxation capacity.

But dematerialized E-cash is the ultimate in ‘liquidity’. If income or sales are taxed at ‘source’, that source will find its lowest tax level. If that tax is based on ‘residence’ then it can be collected only if the authorities have global access to data on international money flows. Off-planet commerce will purge itself of intermediaries who meekly report their audit-trails to governments. When there is a direct link between buyer and seller, like in the black economy, both sides have much to gain by keeping their transactions to themselves. Look to the horizon; through a sky full of laundered and untaxed dollars the Information Age is dawning. The rich individual is finally free of the grasping and ungrateful tribe, and will escape to what William Rees-Mogg calls “the greatest tax haven of them all, Bermuda in the sky with diamonds.”

The term ‘Capital Flight’ will take on a whole new meaning. The worldwide government conspiracy over the issuing of money will finally be smashed. Then, like in William Gibson’s science fiction novels, governments will try to ban money. The ‘control freaks’ of government will have finally lost the plot.

So we all know what money is ... or do we?

Politician Jokes

2008-04-26T13:28:00.000-07:00

In this blog I’ve brought together some of the jokes about politicians that I’ve collected over the years. Just like Will Rogers, in my writings I don’t make jokes about politicians, I just watch them and report the facts. So I really shouldn’t be asking for more political jokes, I’ve seen too many of them get elected. However, if you have any more please let me know.

You just can’t win these days. Do something wrong and you get fined; do something right and you get taxed. You work six months a year for the government. Even government employees don’t work that much.

Nothing is certain except death and taxes. Only death isn’t an annual event, and governments can’t make death any worse than it is. Democracy is four wolves and a lamb voting on supper. Taxation without representation may be tyranny, but it’s a lot cheaper than the alternative. That’s why I don’t vote for someone, I vote against the rest. If you’ve half a mind to read their manifestos, that’s all you’ll need. Although, if voting could change anything, it would be made illegal.

There is only one way to look at a politician, and that’s down. You can always tell when a politician’s is lying: his lips are moving. A politician will double-cross a bridge when he comes to it, so that he will always be there when he needs you.

Criminals take the money and run. Politicians run and take the money. Parliament is like a bunch of bananas; not a straight one among them. I’ve got a lot of friends in politics. They’re the best money can buy. That’s not strictly true. There are some honest politicians. They are the ones who, once bought, stay bought. It’s a shame how the 99% give the 1% a bad name.

So please send me any new jokes. I’ve had to shelve quite a few since John Prescott is no longer Deputy Prime Minister: How do you recognize John Prescott’s PC? It’s the one with Tippex on the screen.

Then there are the oldies but goldies;
A surgeon, a gardener, and a politician were walking down the street when they saw a ‘lady of ill repute’. The surgeon said “of course, surgery is the oldest profession. Surgical skill was needed to remove Adam’s rib in order to create Eve.” The second quipped “and where did the Garden of Eden come from? Only a gardener could make order out of the chaos.” “And who do you think created the chaos?” said the politician.

Another Government Cockup

2008-04-25T03:03:00.000-07:00

This blog is just in case anyone missed this latest government ‘cockup’ (taken literally).

According to a spokesman, the Office of Government Commerce is “an organization that's looking to have a firm grip on government spend!” They spent £14,000 on a new logo:

It was to appear on pens, mouse mats etc. (It’s best not to ask why a government organization needs to go in for all this branding nonsense!). Anyway, it only took a moment for staff to turn the logo through ninety degrees and for hysterical laughter to break out all across the office.

Whoever designed this logo must also have thought that government is just a bunch of “w*****s”. Look out for the OGC branded material on e-Bay; staff can’t believe their luck over their windfall.

This is yet another example of 'residual category' mentioned below, and the 'tunnel vision' of control freaks who don't understand that the rest of us, by taking a different perspective, may see the world differently.

“I am not a number.” Fighting the government over ID cards.

2008-04-22T09:56:00.000-07:00

“I am not a number. I am a free man!” The words of Patrick McGoohan as Number 6 in the TV series ‘The Prisoner’. Quite appropriate since I am writing this blog in the hotel in Portmeirion, where the series was filmed.

I say, I say, I say. Why won’t government politicians have photos on their ID cards? Because no one can decide which of their two faces to use. Strong words you might think; but NOT when your team has been slandered by brain-dead ministers simply for publishing the results of your research on ID cards.

In this blog I’m going to tell you about the experience of a team of Information Systems academics at LSE (Gus Hosein, Simon Davies, Edgar Whitley, myself and others) trying to inform public debate on the UK government's ID card proposals. We published our report, The Identity Project, on June 27^th 2005. Among the many findings, we gave our cost estimates: between £10 billion and £19 billion over ten years. The government figure was just over £5 billion.

To be honest I personally expect the figure to be much higher, but we stuck on these numbers because they are easily justified using figures obtained from the Home Office itself – not that they are the most reliable of departments, as we have recently discovered. We used their numbers, because we weren’t looking for trouble. But trouble we got. The present British government believes in shooting the messenger with bad news.

Ministers went on the offensive – offensive being the operative word. No less that the then Home Secretary, Charles Clarke, went on the BBC to accuse us of spinning, and leaking material to the press for maximum exposure (like they do.) Tony Blair, the then Prime Minister, attacked us in the House of Commons. Second rate ministers lined up to pour scorn on our Report. Classic Socialism 101: “if you can’t rubbish the message, rubbish the messenger.”

Our figures were “simply mad,” and we were “technologically inept.” Simon Davies, a lead researcher, was singled out, and ‘smeared’ on the Today Programme on Radio 4, and all over the media. The reason? The press had fallen on our figures, to say that ID cards would cost £300 per person; not £93 as the government insisted. And guess what rigorous research gave them £93? A little birdy has told me they got it from a focus group – apparently, £93 is the amount that the market will take. When you stand up to bully-boy politicians you’d be amazed how many little birdies get in touch to dish the dirt.

But nowhere did we actually claim that each person would be charged £300 for their ID card – that was the press. We only gave the total price. There is no way of calculating total costs, because it is impossible to comprehend the consequences: we may know the price of ID cards, of any technology, however, the costs will accrue from here to eternity.

Indeed, I would be the first to admit that the project could end up in profit. If the world’s many other totalitarian regimes are convinced that ID cards are a great idea, then the income from sales could far exceed expenditure. I bet the government is now sorry that they toppled Saddam Hussein – he would have been first in the sales queue. Still … they can always count on the likes of Mugabe, Gadaffi and Kim Il Sung.

Anyway, it was all good knockabout stuff. Prior to the first Commons Vote (June 29^th, 2005), the LSE Director, Sir Howard Davies, was telephoned by a senior Civil Servant and asked to pressurize us into withholding our report until after the vote. But Sir Howard, an ex-civil servant himself, had gone native. He came up trumps, publicly rebuking both Prime Minister and Home Secretary in a letter to the Times. The issue was raised at an LSE Governors meeting, where Bob Worcester of MORI waded in. He said his findings showed that whenever the government says one thing, then 83% of the population believes the exact opposite.

We were given the governors’ total backing. They had actually read our report, which our critics obviously hadn’t. If I say so myself, it is an excellent piece of academic work … unlike the Home Office’s response, which was appallingly written, and full of factual errors. I likened it to “a student summer project from a 3^rd rate university.” Don’t take my word for it – you can see for yourself: the LSE report, the Home office response, and our response to their response are all on the LSE web site.

Thankfully I work for a university that won’t be intimidated by bully-boys – how many other British universities can say the same? Be quite clear, intellectual freedom is under attack in today’s Britain, and by the very same people who insist that “the innocent have nothing to fear from ID cards.”

Anyway the government needn’t have worried; after a very rough ride, the bill was finally passed by the voting fodder in the Commons on 13^th February 2006, albeit with some nominal concessions, and received Royal Assent in March.

This project has fiasco written all over it. I say this not as a privacy advocate, because I’m not one, but as a student of Information Systems; one who subscribes to the cockup theory of history, not conspiracy. This ID card system will be one almighty cockup.

The ID card project, as proposed, is going to be one of the biggest computer systems ever envisaged – far more complex than the NHS system. It’s a disaster waiting to happen. £5.8 billion – don’t make me laugh!

Nevertheless I see silver linings among the dark clouds of ID cards. There’s huge money to be made from this vast gravy train. During the recent Commons vote I was praying for a government win. That may surprise you. I’m a professor of information systems: of course I want to study the Titanic from the drawing board to the iceberg. Of course I want to observe what will be the biggest in a whole line of public sector disasters. {Have there been any successes?}

And anyway, I’m going to make a good living on the lecture circuit, poking fun at this dog’s dinner of a system. I’ve got at least five years of profit before the mess becomes so obvious that I’ll have to bow out with one final “I told you so."

A Manifesto for Information Systems

2008-04-20T16:31:00.000-07:00

I wrote this piece with a colleague Bernhard Straub nearly two decades ago – it is still just as relevant today, which only goes to show how little has changed in the intervening years. Quite depressing really.

Computer output carries a weight of meaning and authority that is derived from the dominating position of science and technology in the mind-set of Western society. The early successes of computer installations has generated and reinforced a platform of authority for information technology, and lays claim to scientific legitimacy, from which to justify further action. It is easy to be seduced into accepting an equivalence between the functionality of computerized models and the behaviour of ‘real problems’, where control over the model becomes control over the underlying problem. Knowledge is substituted with a mutual understanding, by way of an agreed explanatory framework - information technology - that assumes for itself the position of a superior interpretative power. What we can know about a problem situation is replaced by what we can explain within the limitations of information technology. The validity of decision-making shifts from objective knowledge to a numerical justification based on this self-propagating consensus authority.

Information technology is just another technological enterprise whereby man feels he can subjugate nature by mere will. The sheer power of optimistic rationality insists that progress (being in control of a better world) is achievable through rational (expressed as scientific and technological) thinking. In light of this dominant mind-set, it was inevitable that computer based information systems would be thrust as a panacea upon organizations, all with the highest motives. However, after the enormous success of IT over the past thirty years, as the idiotic ‘eighties give way to the no-nonsense ‘nineties, it is high time that we reconsider the trajectory of past, present and future developments.

Despite the growing number of computer system failures and the absurdity of confusing means with ends, form with content, functionality with solution, IT still whispers in our ears that computerization really is a competitive advantage, even in companies where IT is not a core-technology. What is more, we are haunted by images of competitors gaining a commercial lead by introducing IT. This undercurrent makes it easier to justify expenditure on IT schemes, when everybody else does, rather than to explain why we should not invest. But it is ideological blindness, and not the reality of advantage, that is bouncing us into these decisions. As a consequence, the portrayal of IT as a controllable tool goes unchallenged in a vicious circle of the blind leading the blind. A legacy of this technology is a rigid framework of ‘social engineering’, forcing organizations to accommodate the requirements of IT, and not the reverse. The mounting strain that this loads onto individual organizations necessitates a major rethink about the applicability of information technology. For IT is not a prescription, or even a proscription to action, but merely an interpretation of the commercial environment. Information is not a commodity, but a consequence of context.

Caution and skepticism are the healthiest perspectives to adopt, where neither the technology nor environment are in steady-state. Computer derived answers are inert; they do not reflect the nuances of ‘being there’, and the consequent differences between the model and the modelled. The promise of rationality and control that characterizes the optimism of computerization hides a darker aspect. Systems have more in common with organisms than mechanisms. To see computer based information systems as easily manageable tools, as suggested by the technological approach, is dangerously misguided. Computerization is a prisoner of societal consequences that cannot be controlled, no matter what the management regime. The task of IT-management is to cope with the manifestations and consequences of technological and organizational change.

Against this background of commercial uncertainty, business decisions will require a broad and solid understanding. This stance must be more than just a token tribute to philosophical problems and questions of meaning. It is not good enough to respond with an anti-intellectual ‘so-what?’ for this is a statement of complacency towards the questioning of cherished beliefs, hardly a stance that should be taken by a strategist in the face of uncertainty. Understanding must be disconnected from the prevalent authority. There is a crying need for a reassessment of the problems associated with the expansion of technological systems as integral parts of organizations. As new technology is confidently applied in ever more unstructured environments, the unsuitability of its instrumental rationalism brings about more frequent and increasingly disastrous consequences. The designers of grand schemes optimistically believe that, by mere intention, they can confine the consequences of using a computer installation to the achievement of a ‘wish list’ of their original goals. They fail to see that an evolving system is not the original installation, but what it has become, what it will become, and not what it was intended to be.

In response to this uncertainty, computerized bureaucratic systems are applied, increasingly rigid and inadequate structures leading to deadening conformity and repression. In their models, designers and bureaucrats can only see a tidiness that is a limited snapshot of fragments of ordered functionality and usability. Yet users know they are working in operational environments that are messy and vague, caused by the debris of detail in the unfolding history of a system and its environment. This debris holds the potential of disorder, and when reconstituted by a particular contextual significance and relevance, it can form an erratic and unpredictable nature. Rather than minimizing the risks and maximizing the opportunities nourished by this systemic behaviour, computer systems and methods that are built on narrow intentions and simple goals lead inevitably to counterproductiveness.

A new approach is needed, one that will deal with the consequence of technology, as embodied in the observed behaviour of organizations. This approach must balance the advantages against the limited applicability of computers, and be grounded in a theory based on experimentation and contingencies, and a sympathetic reaction to the disposition of the social and commercial environment. It must not be based, naively, on the belief that a description of the situation via models and structures will enable us to be ‘in control’. We can only control in the sense of formulating and precipitating actions or intentions, but this is not being in control of consequences. It is a delusion to assume that we are in control of IT, and to conclude by extension that organizations can be controlled accordingly. Even our vocabulary conspires in this self-deception. ‘Organizations’ are not totally organized, there is much that is disorganized and unorganized, even un-organizable. IT must be used to maintain flexibility and adjust tactical intention, so as to relate consequences to perceived strategic aims. Continuous experimental feedback within each organization is essential if we are to emphasize information and separate it from technology. We need this new attitude in order to overcome the cynical opportunism widespread in many stakeholders who are promoting ‘certainty through information technology’, preying as they do on the business world racked with doubt and uncertainty. They can no longer shift responsibility for tangible consequences onto a technology that ultimately cannot be culpable.

Money makes the world go around?

2008-04-20T10:59:00.000-07:00

Money makes the world go around. Oh no it doesn’t! It’s inertia that makes the world go around … until it stops.

Inertia! What a powerful influence, or at least that’s what John Donahoe, the new boss eBay, is hoping. Donahoe is raising eBay’s fees and changing its rules, and assuming that its clients won’t desert the auction site in their droves for another fleamarket.com. Some of the smaller players in this eBay ‘community’ are threatening a boycott this May Day. The activists claim that the site is favouring the big players to the detriment of the vast number of small timers.

The Internet is really fascinating. Why is it that one site (possibly two) rise to dominate each sector, and people stay loyal despite better offers appearing in the more boutique specialist competitors? Don’t give me that brand loyalty nonsense. Brand recognition, yes! Google, Amazon, eBay, Skype, Facebook/Myspace are the first points of call in their particular sectors, and so they rule their particular roosts. Do they give a superior service to their clients, or is it apathy or laziness that fuels this inertia? Is it an example of ‘better the devil you know’? Or is it the gravitational pull of a critical mass, preventing large enough numbers to break away to form a viable competitor?

Whatever the reason, it is only to be expected eventually that familiarity breeds contempt. Is eBay taking its community for granted? If so, they had better beware. Entropy is a permanent fact of every system. A ‘tipping point’ will eventually be reached where the system dives into decline, and users will move on to more favourable climes.

I wonder which of the Internet Big Boys will be the first to fail?

Automation Complacency

2008-04-20T10:24:00.000-07:00

It never ceases to amaze me how history repeats itself – and we never seem to learn from it. The same old problems seem to keep on cropping up. In this short blog I’d like to refer to one particular form that I call ‘automation complacency,’ where high-tech devices and a faith in systems lull us into a false sense of security.

Here is an example from nearly twenty years ago. On October 17, 1989, the earthquake in San Francisco knocked out all ATM and EFTPOS machines. {By the way do we still use the term EPTPOS (Electronic Funds Transfer at Point Of Sale) today? In the UK we just say ‘chip and pin.’} After the ‘quake no-one could buy badly needed goods (like food!) because their credit/debit cards were useless with the EFTPOS down, and they couldn’t use cash because no-one had any with the ATMs out of action! Utility had become reliance, reliance had become dependence, and an accident was waiting to happen

There’s another earthquake story from ‘Frisco. I don’t have the exact details, so I’d be grateful if any reader can fill in the gaps. It concerns a company {unknown} that had conscientiously developed a disaster recovery programme. Like good boy scouts, they were prepared for all eventualities. An exact back-up system of their computer facility was housed in Arizona, which could be on-line at the flick of a switch. They even had emergency drills, where all staff rushed to the airport and flew off to Phoenix {I think}, so they could deliver a normal service to their customers in a matter of hours

Confident, or is that complacent, that their system had all the angles covered, a major earthquake duly came, {I’m not sure of the date} and the backup system swung into action. However, unlike in the dry runs, this time all the staff rushed home to check that their families were unharmed!

Has anyone got similar stories of automation complacency?

Golden Rules

2008-04-20T10:20:00.000-07:00

We all know the golden rule of life, namely “the guy with the gold makes the rules.”
But let’s not forget the 2 golden rules of system design:
1. Leave the firm before the system goes live.
2. Find someone you can blame and build him into the design.

Do any of you have real-life examples of these rules in action?

The Fallacy of the 'Residual Category'

2008-04-19T08:15:00.000-07:00

I've finally succumbed to pressure from the 'Angellists' (if you don't know who they are, it's best not to ask) to start a blog. So it's all their fault.

I’ll start by sounding off on a favourite theme of mine: the only property that systems have in common is that THEY ALL FAIL … eventually. But it’s true. I’m always on the lookout for perverse systems failures, so please let me know if you come across any novel examples.

It’s all to do with the complexity in the interaction between computer systems and human activity systems. The evidence is there for all to see. Consider the problems with biometric databases. Baroness Anelay of St Johns, with a group of British parliamentarians, was once given a demonstration of a facial recognition system. It failed; indeed the system subsequently crashed, twice. The reason? A 'gentleman' at the biometrics company told the baroness that her face was “too bland.”

In 2000, Raymond Easton, a 49-year-old man living in Swindon was charged with a burglary in Bolton, 200 miles away. His DNA matched some found at the crime scene. The problem was Easton was in the advanced stages of Parkinson's disease, and could barely dress himself. Only after an advanced DNA test was the initial match proved to be a ‘false-positive’: this is when innocents are identified as guilty, for whatever reason – ‘false-negatives’ are when the guilty slip through the net.

Television programmes like CSI (Crime Scene Investigation) trumpet the myth of forensic investigators vacuuming up biological material from the scene of crime, and comparing DNA samples with a computerised database, until finally out pops the criminal’s name: end of story! Nothing is that simple. Official figures admit to a 4% error in the database. Felons will vacuum up DNA from football crowds and collect cigarette-ends. Low paid hospital staff will be compromised to supply hospital detritus: samples of blood, skin, saliva, and other biological material. Aspiring criminals, while perpetrating a crime, will randomly scatter an arbitrary collection of DNA material all over the crime scene, and the whole system will be compromised.

Fingerprints are problematic. In 1997 Shirley McKie was a police detective in Kilmarnock, Scotland. During the investigation of the murder of Marion Ross, it was claimed that she had accidently left her thumb print inside the house where the murder took place. McKie was adamant that she had not entered the property, and this was affecting the credibility of the police case. She refused to back down, and was arrested in a dawn raid the following year and charged with perjury. The only evidence was the thumb print allegedly found at the murder scene. Two American experts testified on her behalf at her trial in May 1999 and she was found not guilty. The Scottish Criminal Record Office would not admit any error, but Scottish first minister Jack McConnell later said there had been an "honest mistake". On February 7, 2006, McKie was awarded £750,000 in compensation.

The Chaos Computer Club (CCC), the long-standing German hackers’ club, has shown how to capture fingerprints, transfer them onto a foil, and then wear it to beat biometric readers across Germany. To add insult to injury CCC has published a fingerprint of the German Interior Minister, Wolfgang Schauble, a vocal supporter of biometrics.

All of these cases are examples of problems resulting from self-referential tunnel vision, all caused by the fallacy of the ‘residual category’. In creating a computerised system, designers first identify and then categorise certain entities (and their properties) as being of interest – as data. Focussing on these data categories, everything else is dumped into one big residual category, and ignored. However, the representation of each ‘interesting’ element can only ever be a pale shadow of the totality of the thing itself. All other aspects of that thing are deemed unnecessary, and they too are discarded in the residual category. The categorical representation of ‘each thing as data’ is not identical to the thing-in-itself: because ‘the map {the overall data structure} is not the terrain.’

Each shadow element will remain ‘structurally coupled’ to the ‘rest of the world,’ but in creating the computerised system all these couplings are cut and discarded. Therefore, treating the ‘remainder’ as a separate ‘residual category’ implies that these couplings have simply disappeared, which means the two parts (the data, and everything else in the residual category) no longer comprise the original ‘whole.’

Hence, the system, by its very nature, introduces an asymmetry: the couplings are made to disappear from any representation … but they are still there in the world. The two artificially separated parts continue to operate (and perhaps interact) as the unobservable whole. Because of this asymmetry (between the world as it is, and as it is represented), all data is conditional, but those conditions are necessarily unobservable, unappreciable. However, they can be appreciated by others who take a different perspective, and derive different categorisations outside this self-referential loop.

System designers (and users) always have tunnel vision, assuming that everything in the residual category will mind its own business and not interfere. However, the analysis implicit in the system’s design is not the only one. A different perspective will beget different observations, different interpretations, different categorisations … a different analysis and a different system that will compete with the original. Natural selection, and not mathematical sophistication will decide which system is the most appropriate.

This non-referential aspect of every data entity in the system means that all such data is necessarily a misrepresentation. Another observation is required to clarify the situation, however, that too will introduce new distinctions, bringing with it new partially unobserved interferences, new (mis)representations.

This problem is apparent in all attempts at categorisation. A choice of categories may solve preconceived problems, however, bewildering situations will inevitably arise that finesse, even reverse, the best intentions of analysts.

Truncated and trailing structural couplings, so casually discarded by the system, stay on to haunt and interfere with the user, and they can reassert themselves in the most inconvenient ways. One particularly good example of how opportunists can take advantage of the asymmetry is the so-called ‘click fraud’ in on-line advertising.

Analysts from Google, Yahoo and others have developed the highly profitable pay-per-click system. Anyone can display ‘Google ads’ on their Web sites, and any visitor who clicks on the ‘ad.’ is transferred to the advertiser’s site. Every click is charged to the advertiser, and the income is shared down the food chain, some eventually ending up with the site displaying the advertisement. Apparently advertisers get better value for money than with old media, because they only pay for ‘live ones,’ those interested parties who bothered to click on the ‘ad.’ The value of this business in the US alone is well in excess of 10 billion dollars annually.

Those not interested in the products supposedly don’t click the advertisements. Oh no! People in this residual category of ‘disinterest in the products for sale’ may take a very different perspective, and show a lively interest in the ‘free money’ on offer – hence the ‘click fraud.’ I should add that I’m not sure it is a fraud. If a company announces ‘get someone to click on my site and I’ll pay you,’ then they shouldn’t be surprised if some of the visitors come from the residual category of non-customers.

The opportunists who categorise the world differently set up dummy sites filled solely with ‘Google ads.’ They then hire people to click on the ‘ads’, with no intension of buying anything of course, and in this way sites can make quite a few ‘bucks per click’. Such moneymaking antics have even been automated. It has been estimated that this click fraud costs business around half a billion dollars a year. Google, Yahoo are intercepting the more obvious frauds, but it still goes on.

Aren’t residual categories wonderful? I’d love to hear of the particular experiences of anyone (anonymously of course!) who has set up such a site.