Economics in the Age of SkyNet

Despite my own admittedly superficial knowledge of our modern economic system, I've always argued (amongst friends and co-workers) that we are on the verge of serious economic catastrophe due simply to the fact that the economic scorecard has become so completely de-coupled from the real economy of commodities, goods and services.

There is a truly delicious op-ed by Richard Dooling in the NYT this weekend that explains this de-coupling in terms of the drive for more and more complex economic instruments and algorithms.  The story concludes:

We are living, we have long been told, in the Information Age. Yet now we are faced with the sickening suspicion that technology has run ahead of us. Man is a fire-stealing animal, and we can’t help building machines and machine intelligences, even if, from time to time, we use them not only to outsmart ourselves but to bring us right up to the doorstep of Doom.

We are still fearful, superstitious and all-too-human creatures. At times, we forget the magnitude of the havoc we can wreak by off-loading our minds onto super-intelligent machines, that is, until they run away from us, like mad sorcerers’ apprentices, and drag us up to the precipice for a look down into the abyss.

As the financial experts all over the world use machines to unwind Gordian knots of financial arrangements so complex that only machines can make — “derive” — and trade them, we have to wonder: Are we living in a bad sci-fi movie? Is the Matrix made of credit default swaps?

When Treasury Secretary Paulson (looking very much like a frightened primate) came to Congress seeking an emergency loan, Senator Jon Tester of Montana, a Democrat still living on his family homestead, asked him: “I’m a dirt farmer. Why do we have one week to determine that $700 billion has to be appropriated or this country’s financial system goes down the pipes?”

“Well, sir,” Mr. Paulson could well have responded, “the computers have demanded it.”

This reminds me that it's almost time for the yearly Singularity Institute. I wonder if they will finally have a robust discussion on whether we should embrace the Singularity -- which they view as inevitable (and near) -- instead of just a bunch of nerds in trench-coats and cowboy hats telling us that it will be great simply because they hope it will.

Fareed Zakaria argued this week in the lead-in to his GPS interview with George Soros:

The house of cards is collapsing and we have an opportunity to build a house of bricks instead.

Indeed.  And we must.