Scott Aaronson on Quantum Computing

8. December 2011

I am reading the blog of Scott Aaronson from time to time as I am still a bit into theoretical computer science: I did a lot on algorithms and machine learning theory during my studies at University. Scott is the most articulate blogger on quantum computing and wrote recently a very good piece for the New York Times – Quantum Computing Promises New Insights, Not Just Supermachines.

In a talk at Carnegie Mellon University Scott gives more details.

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Why Iceland?

24. November 2011

This summer I visited Iceland for three weeks. I did know only a little bit about this country:

It is small, it is in the north of Europe, there are only a few Icelanders speaking a very difficult language, the landscape must be beautiful, Björk was born there and it went bankrupt in 2008.

It was a great trip I enjoyed a lot and I learnt a lot about a country rich in natural ressources (hot water), very well educated and relaxed people living there and the landscape is indeed very beautiful. On Flickr are some photos.

Later on I stumbled on an blog entry about the changes in the political environment after the crisis, which got me even more interested. I went to Amazon, searched for books on the topic and bought Why Iceland?: How One of the World’s Smallest Countries Became the Meltdown’s Biggest Casualty, written by Ásgeir Jónsson. He was the chief economist at Kaupthing, one of the three big banks of Iceland. He tells the story from the early beginnings in the 90′s of the last century until the bitter end in 2008. As an insider he has an extensive knowledge of what was going but tries to stay very objective. Sometimes he appraises options but this helps to get a deeper understanding.

When I think about it again a couple month later the two most important learnings for me are:

1. The Icelanders basically copied the business model of the City of London – make money from money. To be able to compete they had to take the same or even higher risks – high risk delivers high returns! But high risk might become effective which happened in 2008. The Icelandic banks failed in the same way as the English banks, but they are not important for the world economy, they were a pain in the ass for the City of London and Wall Street. So no problem to let them fail and anyway the Icelandic government had simply too less money – the banks were way too big compared to the GDP of Iceland. The big boys in London and New York got bailed out by their governments – too big to fail.

We will see that happening more often in the future: I was recently in Mongolia and their government has big plans to make the capital Ulaanbataar a center of finance.

2. What scares me much more is the fact that the British government used anti terror laws to take over banks: they declared Kaupthing a terrorist organization like Al-Qaeda. Afterwards they confiscated the UK subsidary of Kaupthing and sold it of ING. This triggered the bankruptcy of Kaupthing as it implied a breach of contracts allowing bond holders to step out. Additionally the holders of CDS pushed for a bankruptcy as they would receive lots of money. BTW, I understand now very well the opinion of Warren Buffett that CDS are financial weapons of mass destruction.

Basically the British government declared war on foreign banks to protect their interests – their banks and citizens. This is simply crazy, it is an abuse of laws which are anyway very questionable. The question is will they do it again? I think so, there is too much money on the table in the City of London.

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Driving to happiness

31. October 2011

Drive, the new book of Daniel H. Pink should be a standard introduction text to people management at each good and bad MBA program. This might be a bold statement, however, it is similar to a statement given in the book:

… the way how work is organized today is simply obsolete, old technology to be thrown over board …

The “technology” is management about which Gary Hamel thinks that it is

… a technique to be learned at university and executed the same way as drilling a hole…

In my humble opinion this fits very well with the definition of management as given at Wikipedia

As a discipline, management comprises the interlocking functions of formulating corporate policy and organizing, planning, controlling, and directing the firm’s resources to achieve the policy’s objectives.

Doesn’t sound very motivating, does it? Let’s continue with the three classes of motivation as defined by Daniel Pink:

Motivation 1.0, the basic needs to survive and reproduce ourselves.
Motivation 2.0, the carrot and sticks to produce more and better, the prevailing method of today’s capitalism (and to some extend also of gone communism I believe).
Motivation 3.0, the forces driving us to do a great job and enjoying it – the “drive” to do so. Most of us have some experience with it, but work is usually the place named last where this happens.

Daniel Pink introduces to the insights of psychology and behavioral economics, e.g. citing the study of Dan Ariely I wrote a bit in More on Greed and telling the story of Mihaly Csikszentmihalyi, who defined the the term “flow“. The last chapters are fully with references to tricks, books and other references. My personal favorite is “Take a Sagmeister” – watch the explanation here and don’t be surprised if you get caught by it – I am heavily infected….

Once we realize that the boundaries between work and play are artificial, we can take matters in hand and begin the difficult talks of making life more livable.

This might be difficult, but at least the book is easy to read.

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The Gold Bubble

21. July 2011

Gold bars
Dambisa Moyo wrote in her book How the West was Lost:

Housing stock is a unique asset because once one lives in a house it does not generate an income or a cashflow yield. In that sense, the benefit of owner-occupied housing should be viewed as a conveniences (non-cash generative) yield. Because there is no cashflow, in order to generate a positive return on housing investment, the government needs to engineer price increases. Naturally this creates a treadmill effect, where prices have to keep going up and up and up in order to keep the positive returns going. These prices mean ultimately that what the economy ends up with is a bubble that invariably blows: making property less for occupation and more for speculation.

Let’s substitute housing with gold and make some more changes to the statement:

Gold is a unique asset because once one puts it into the safe it does not generate an income or a cashflow yield. In that sense, the benefit of storing gold should be viewed as (emotional security) yield. Because there is no cashflow, in order to generate a positive return on gold investment, the markets need to engineer price increases. Naturally this creates a treadmill effect, where prices have to keep going up and up and up in order to keep the positive returns going. These prices mean ultimately that what the economy ends up with is a bubble that invariably blows: making gold less for productive use and more for speculation.

I think there are many “engineers” out like Sprott Physical Gold Trust: they suck up gold from the market and put it into their safes driving up prices, creating a big bubble. If I got it right my remaining question is when will the bubble burst?

Photo by Brian Giesen by Creative Commons Attribution 2.0 Generic.

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The Seven Heavenly Palaces

9. June 2011

Fondazione HangarBicocca is a new center for contemporary art in Milan. It opened 2008 and is located in a huge old factory in the north of Milan, a place where once coils for electrical trains were built.


Anselm Kiefer built a large permanent installation in the main hall called “The Seven Heavenly Palaces”.


Some information and good pictures of the creation can be found here. It is an incredible experience to see and feel the installation, some of the tension might be captured in my little video.

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Living Aid

31. May 2011

Reiner Luyken who works as a journalist for Die Zeit read the book Dead Aid and decided to give investing in Africa a try.

He registered at Kiva, a micro credit platform for everybody who wants to invest in projects all over the world. Reiner invested EUR 250 in one project in Sierra Leone, a pretty big sum as he found out later. Most investors go for smaller sums – typically US 25 – and spread their money over many projects. Reiner traveled to Sierra Leone to meet the woman he had given credit to establish a restaurant. He went there twice again- after a couple of month as well as after a whole year to find out what had been done with his money meanwhile.

Reiner’s conclusion is that it works – it might not work as imagined and reported on Kiva, but his money made a difference: a woman once barely able to feed her kids had become an entrepreneur adding to the economy of Sierra Leone.

The article Mein gutes Geld is available only in German.

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Nudging or Price Signals?

1. May 2011

Jonah Lehrer wrote an excellent article for the Wall Street journal asking the question Is ‘Nudging’ Really Enough?. The most important insight of Behavioral Economics is that humans are far from rational in many economic matters. They make bad decisions, e.g. smoking, eating unhealthyly and not saving enough for retirement. Scientists showed that people’s behavior can be changed by small measures – “nudging” them. Lehrer cites a study in Sacramento which tried to reduce electricity usage. To “nudg”e people, the electricity bill in Sacramento shows the neighbors’ consumption and billing, too. Making it transparent as well as giving the possibility to compare a fairly abstract number shall nudge people into competing to use less electricity. The decrease of 1.5% was far less than expected, basically a failure.

I think sometimes the most efficient and only choice to change people’s economic behavior are price signals. The usage of electricity will decline when Sacramento raises prices. But setting price signals is very unpopular amongst politicians because the public reaction will be irrational and mainly comment the biggest initial affects but no rational thought will be spent on the long term benefits for society.

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Total Factor Productivity

6. April 2011

Recently I flipped through the masses of blog entries on Marginal Revolution and stumbled on an interesting link: The Great Stagnation and Total Factor Productivity. The blog author David Beckwarth reviews the latest book of Tyler Cowen, The Great Stagnation, and presents some numbers on the development of Total Factor Productivity. These seem to confirm the decline of productivity growth but the author questions them pointing out the troubles to measure productivity gains by information technology and in services.

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How the West was Lost

3. April 2011

I read Dambisa Moyo’s first book Dead Aid some time ago and liked it a lot. So I was looking forward to read her new book How the West was Lost, published in February 2011.

In this book Dambisa Moyo addresses the economic troubles of the Western world, in particular those of the USA which led to the financial crisis of 2008. She concludes that if these troubles won’t get fixed the USA will loose its leading economic and political position in the world, falling back behind many other countries, up to a complete failure in the end.

Moyo identifies the causes for the troubles in the misallocation of the three main drivers of economic growth: capital, labor and total factor productivity.

  1. A lot of capital was put into the housing market thus investments generating no cash flows and therefore no direct return. The only way to get a return are higher prices. When prices increase, more people invest more money into the housing market as returns seem to be attractive. There is per se nothing wrong but it got awful when the government started to push into this direction: low interest rates and subsidies (tax breaks, guarantees for subprime by Fannie Mae and Freddy Mac, etc.) made investments in the housing market very attractive: high returns with almost zero risks. The result was the big asset bubble which burst in 2008.

    The capital placed in the housing market could not be invested in other opportunities creating direct returns and adding to our economic well being – from a society’s perspective capital was not allocated in the most beneficial way.

  2. In labor several developments lead into the wrong direction starting with the education of young people: universities in the USA and Europe produce many lawyers and business administrators but not many engineers and scientists. But our economies are based on inventing, creating and building products and services, not administrating and regulating them. My personal experience is that it is very hard to find qualified engineers (I am looking for software engineers and computer scientists), but it is easy to find staff for for non-engineering positions – I can always choose from a flood of applications.
    It ends with our pension systems which delay big cost blocks into the future. Dambisa Moyo has some very harsh words for this:

    Forget Bernie Madoff, forget Allen Stanford, the biggest Ponzi scheme has got to be the looming car crash that is Western pension funds. And like any well-run Ponzi game, its results will be devastating. It will all end in tears.

    I agree and would like to add that we run into it with eyes open: e.g. in Austria, the official retirement age for men is 65 but men retire at an average of 58. They withdraw earlier from the system instead of contributing to it as long as planned – such systems must break at a certain yet unknown point in the future.

  3. Productivity gains are not always considered beneficial by the public opinion as they destroy jobs. But Moyo also looks into other sectors in which we need big productivity gains – health care and energy efficiency. The cost of health care is increasing faster than our economies, mostly driven by the aging of our society and technological, most of the times more expensive advances in medical treatment. Soon we will not be able to afford it. Then we can cut down the level of service or we make big gains in productivity – providing same or better level of service at lower cost. As a sad example productivity declined in the UK from 102 in 1997 to 96 in 2004.

The simple conclusion is that the USA and Europe have to put new policies into place to solve the problems. These measures have to include the rising nations like India and especially China, the largest creditor of the USA. In putting new policies into place these nations have a „comparative“ advantage:

In places like China, the state is paramount and its government acts in the interest of and for the greater good of China as a whole even if at the expense of the individual. In contrast Western governments have embedded in their very foundations that the rights of the individual supersede everything.

I don‘t want to praise the political system of China but I want to add the fact that Western politicians are lost fighting for their interest group’s benefits. In these fights they overlook the point that giving benefits to one group disadvantages other groups and this might not be in the overall interest of a society nor fair at all. Policies able to fix the troubles will take away benefits from many groups in the short term benefitting all in the long term. To overcome this hurdle is the biggest challenge to make the required fundamental changes possible.

I marked many interesting statements in the book, actually way too many. One of my favorites is Moyo’s differentiation of „best“ and „worst“ bubbles:

If you‘re going to have a bubble, the „best“ type of bubble is a productive asset bubble financed by capital markets. The technology boom of 1995 to 2000 is an example of this. After a time the bubble burst, the equity values are wiped out, but there is no vicious de-leveraging process the gums up the banking system and causes a credit contraction. The losses can be contained. In addition, when the dust settles, the productive asset eventually returns to its proper valuation and ends up being owned and put to productive use.
The „worst“ type of bubble is one in unproductive assets financed by banks. Japan‘s real estate bubble between 1986 an 1990 is one such example.

A lot of people lost smaller or bigger amounts of money in tech bubble (including myself) but I agree with Moyo‘s view: the over-investment in the late 1990‘s internet boom created a lot of economic value (and cash flow) later on as told very well in The World is Flat by Thomas Friedman.

Dambisa Moyo introduces the reader to the underlying economic principles and common economic misbelieves of politicians, bankers and home buyers. Her writing is again easy to read and compelling in arguments and examples. She is giving now a lot of talks on her book and posts the links to the audio and video recordings at http://twitter.com/dambisamoyo.
Again, a very important and good book!

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Tiger Mothers

20. February 2011

Tiger Mother
Three weeks ago the book Battle Hymn of the Tiger Mother by Amy Chua made it onto the front page of the Die Zeit‘s feuilleton . I got sucked into a weird story: a chinese law professor at US elitist university Yale writes a book about educating her two daughters in a rather opressive manner that is bascially an affront for Western minds.
I wanted to dig a bit deeper and ordered the book some days later. I finished reading it by now and think it is a very good read. Amy Chua tells the story of her daughters’ education in a clear style, explaining both Western and Chinese educational thinking.

For example, if a child comes home with an A-minus on a test, a Western parent will most likely praise the child. The Chinese mother will gasp in horror and ask what went wrong. If the child comes home with a B on the test, some Western parents will still praise the child. Other Western parents will sit their child down and express disapproval, but the will be careful not to make their child feel inadequate or insecure, and they will not call their child “stupid,” “worthless,” or “a disgrace”. Privately, the Western parents may worry that their child does not test well or have the aptitude in the subject or that there is something wrong with the curriculum and possibly the whole school. If the child’s grades do not improve, they may eventually schedule a meeting with the school principal to challenge the way the subject is being thaught or to call into question the teacher’s credentials.
If a Chinese child gets a B – which would never happen – there would first be a screaming hair-tearing explosion. The devastated Chinese mother would then get dozens, maybe hundreds of practice tests and work through them with her child for as long as it takes to get the grade up to an A.

The statement is a provocation for most Westerns as the “Chinese approach” seems to be the opposite of Western parenting – today’s approach! I think many decades ago Western and Chinese parenting were pretty similar. Parents in Europe and America had the same drive as in China nowadays to prepare their children for a better life as theirs, pushing them to get educated. But while we got wealthier and more educated our understanding of the world has changed and therefore also the treatment of our children. China becomes wealthy now as their economy is growing very fast. The better economic situation and better education might change their style of parenting as well and it might shift to one very similar to the Western style.

On the opposite, I think that some parts of the Western societies still or will use some Chinese methods. Especially the uneducated and poor people (the growing part of our society) are not able to do better themselves, but they understand that education is a precondition to have a better live.

In the last chapter the author Amy Chua tells the story of the book – every single sentence was reviewed by her husband and children and adapted until all could agree on it. One could say the book is a family therapy but at least a very readable and sometimes funny one because Chua often makes fool out of herself without any hesitations.

The Wall Street Journal published an excerpt with the provoking title Why Chinese Mothers Are Superior which got the book a lot of attention – over 7000 comments! The New York Times wrote about some reactions including death threats (it’s America!) in Fashion & Style (!!) section by the title Retreat of the Tiger Mother. Economist blogger Tyler Cowen has some more thoughts and references – Observations about Chinese (Chinese-American?) Mothers.

Photo by dpape by Creative Commons Attribution 2.0 Generic.

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