by Jaron Lanier
Finally the middle-class levees were breached. One by one, they fell under the surging pressures of superflows of information and capital. Musicians lost many of the practical benefits of protections like copyrights and mechanicals. Unions were unable to stop manufacturing jobs from moving about the world as fast as the tides of capital would carry them. Mortgages were overleveraged, value was leached out of savings, and governments were forced into austerity.
The old adversaries of levees were gratified. The Wall Street mogul and the young Pirate Party voter sang the same song. All must be made fluid. Even victims often cheered at the misfortunes of people who were similar to them.
Because so many people, from above and below, never liked levees anyway, there was a triumphalist cheer whenever a levee was breached. We cheered when musicians were freed from the old system so that now they could earn their livings from gig to gig. To this day we still dance on the grave of the music industry and speak of “unshackling musicians from labels.”1 We cheered when public worker unions were weakened by austerity so that taxpayers were no longer responsible for the retirements of strangers.
Homeowners were no longer the primary players in the fates of their own mortgages, now that any investment could be unendingly leveraged from above. The cheer in that case went something like this: Isn’t it great that people are taking responsibility for the fact that life isn’t fair?
Newly uninterrupted currents disrupted the shimmering mountain of middle-class levees. The great oceans of capital started to form themselves into a steep, tall, winner-take-all, razor-thin tower and an emaciated long tail.
How Is Music like a Mortgage?
The principal way a powerful, unfortunately designed digital network flattens levees is by enabling data copying.* For instance, a game or app that can’t be easily copied, perhaps because it’s locked into a hardware ecosystem, can typically be sold for more online than a file that contains music, because that kind can be more easily copied. When copying is easy, there is almost no intrinsic scarcity, and therefore market value collapses.
*As we’ll see, the very idea of copying over a network is technically ill-founded, and was recognized as such by the first generation of network engineers and scientists. Copying was only added in because of bizarre, tawdry events in the decades between the invention of networking and the widespread use of networking.
There’s an endless debate about whether file sharing is “stealing.” It’s an argument I’d like to avoid, since I don’t really care to have a moral position on a software function. Copying in the abstract is vapid and neutral.
To get ahead of the argument a little, my position is that we eventually shouldn’t “pirate” files, but it’s premature to condemn people who do it today. It would be unfair to demand that people cease sharing/pirating files when those same people are not paid for their participation in very lucrative network schemes. Ordinary people are relentlessly spied on, and not compensated for information taken from them. While I would like to see everyone eventually pay for music and the like, I would not ask for it until there’s reciprocity.
What matters most is whether we are contributing to a system that will be good for us all in the long term. If you never knew the music business as it was, the loss of what used to be a significant middle-class job pool might not seem important. I will demonstrate, however, that we should perceive an early warning for the rest of us.
Copying a musician’s music ruins economic dignity. It doesn’t necessarily deny the musician any form of income, but it does mean that the musician is restricted to a real-time economic life. That means one gets paid to perform, perhaps, but not paid for music one has recorded in the past. It is one thing to sing for your supper occasionally, but to have to do so for every meal forces you into a peasant’s dilemma.
The peasant’s dilemma is that there’s no buffer. A musician who is sick or old, or who has a sick kid, cannot perform and cannot earn. A few musicians, a very tiny number indeed, will do well, but even the most successful real-time-only careers can fall apart suddenly because of a spate of bad luck. Real life cannot avoid those spates, so eventually almost everyone living a real-time economic life falls on hard times.
Meanwhile, some third-party spy service like a social network or search engine will invariably create persistent wealth from the information that is copied, the recordings. A musician living a real-time career, divorced from what used to be commonplace levees like royalties or mechanicals,* is still free to pursue reputation and even income (through live gigs, T-shirts, etc.), but no longer wealth. The wealth goes to the central server.
*There are laws that guarantee a musician some money whenever a physical, or “mechanical” copy of a music recording is made. This was a hard-won levee for earlier generations of musicians.
Please notice how similar music is to mortgages. When a mortgage is leveraged and bundled into complex undisclosed securities by unannounced third parties over a network, then the homeowner suffers a reduced chance at access to wealth. The owner’s promise to repay the loan is copied, like the musicians’ music file, many times.
So many copies of the wealth-creating promise specific to the homeowner are created that the value of the homeowner’s original copy is reduced. The copying reduces the homeowner’s long-term access to wealth.
To put it another way, the promise of the homeowner to repay the loan can only be made once, but that promise, and the risk that the loan will not be repaid, can be received innumerable times. Therefore the homeowner will end up paying for that amplified risk, somehow. It will eventually turn into higher taxes (to bail out a financial concern that is “too big to fail”), reduced property values in a neighborhood burdened by stupid mortgages, and reduced access to credit.
Access to credit becomes scarce for all but those with the absolute tip-top credit ratings once all the remote recipients of the promise to repay have amplified risk. Even the wealthiest nations can have trouble holding on to top ratings. The world of real people, as opposed to the fantasy of the “sure thing,” becomes disreputable to the point that lenders don’t want to lend anymore.
Once you see it, it’s so clear. A mortgage is similar to a music file. A securitized mortgage is similar to a pirated music file.
In either case, no immediate harm was done to the person who once upon a time stood to gain a levee benefit. After all, what has happened is just a setting of bits in someone else’s computer. Nothing but an abstract copy has been created; a silent, small change, far away. In the long term, the real people at the source are harmed, however.
CHAPTER 5
“Siren Servers”
There Can’t Be Complexity Without Ambiguity
We are aware of emergent, complex problems like global climate change only because of how much data there is. But there are special challenges in assessing problems that come into our awareness because of big data. It’s hard to confirm that such broad problems definitely exist. Then, even if a consensus emerges about existence, it is hard to test remedies. One truism has emerged in the networked age. The mere existence of big data doesn’t mean that people will agree about what it means.
The problem I am acting on is that a particular way of digitizing economic and cultural activity will ultimately shrink the economy while concentrating wealth and power in new ways that are not sustainable. That mistake is setting us up for avoidable traumas, as machines get much better in this century.
Some will say that the problem I worry about does not even exist. There is a legitimate claim of ambiguity on this point, and that ambiguity is completely typical of how problems present themselves in our modern world of networked big data. For instance, one might argue that some of the hundred-thousand-plus jobs that seem to have been lost in the transition from Kodak to Instagram will be made up for because people will be able to use photo sharing to sell their handicrafts more efficiently. While this might turn out to be true in one instance or another, I argue it is false in the big pic
ture.
My initial interest was motivated by a simple question: If network technology is supposed to be so good for everyone, why has the developed world suffered so much just as the technology has become widespread? Why was there so much economic pain at once all over the developed world just as computer networking dug in to every aspect of human activity, in the early 21st century? Was it a coincidence?
There are a number of different explanations for the Great Recession that can be helpful. Brushing up against fundamental limits to growth is part of it, as is the rise of new powers of India, China, and Brazil, so that suddenly there are more customers with means bidding for the same resource base. There are also a lot more old people in most parts of the developed world, and more ways to spend money on their medical care than ever before.
But there’s something else going on as well, which is that the mechanisms of finance failed and screwed almost everybody. If we acknowledge the extraordinary way in which virtually the whole developed world seemed to go into hopeless debt at once, an explanation is demanded beyond the rise of China, or the expense of social safety nets in southern Europe, or deregulation in the United States.
There’s a simple answer to the mystery: Finance got networked in the wrong way. The big kinds of computation that have made certain other industries like music “efficient” from a particular point of view were applied to finance, and that broke finance. It made finance stupid.
Consider the expansion of the financial sector prior to the Great Recession. It’s not as if that sector was accomplishing any more than it ever had. If its product is to manage risk, it clearly did a terrible job. It expanded purely because of its top positions on networks. Moral hazard has never met a more efficient amplifier than a digital network. The more influential digital networks become, the more potential moral hazard we’ll see, unless we change the architecture.
A First Pass at a Definition
A Siren Server, as I will refer to such a thing, is an elite computer, or coordinated collection of computers, on a network. It is characterized by narcissism, hyperamplified risk aversion, and extreme information asymmetry. It is the winner of an all-or-nothing contest, and it inflicts smaller all-or-nothing contests on those who interact with it.
Siren Servers gather data from the network, often without having to pay for it. The data is analyzed using the most powerful available computers, run by the very best available technical people. The results of the analysis are kept secret, but are used to manipulate the rest of the world to advantage.
That plan will always eventually backfire, because the rest of the world cannot indefinitely absorb the increased risk, cost, and waste dispersed by a Siren Server. Homer sternly warned sailors to not succumb to the call of the sirens, and yet was entirely complacent about Hephaestus’s golden female robots. But Sirens might be even more dangerous in inorganic form, because it is then that we are really most looking at ourselves in disguise. It is not the siren who harms the sailor, but the sailor’s inability to think straight. So it is with us and our machines.
Siren Servers are fated by their nature to sow illusions. They are cousins to another seductive literary creature, star of the famous thought experiment known as Maxwell’s Demon, after the great 19th century physicist James Clerk Maxwell. The demon is an imaginary creature that, if it could only exist, would be able to implement a perpetual motion machine and perform other supernatural tricks.
Maxwell’s Demon might be stationed at a tiny door separating two chambers filled with water or air. It would only allow hot molecules to pass one way, and cold molecules to pass in the opposite direction. After a while, one side would be hot and the other cold, and you could let them mix again, rushing together so quickly that the stream could run a generator. In that way, the tiny act of discriminating between hot and cold would produce infinite energy, because you could repeat the process forever.
The reason Maxwell’s Demon cannot exist is that it does take resources to perform an act of discrimination. We imagine computation is free, but it never is. The very act of choosing which particle is cold or hot itself becomes an energy drain and a source of waste heat. The principle is also known as “no free lunch.”
We do our best to implement Maxwell’s Demon whenever we manipulate reality with our technologies, but we can never do so perfectly; we certainly can’t get ahead of the game, which is known as entropy. All the air conditioners in a city emit heat that makes the city hotter overall. While you can implement what seems to be a Maxwell’s Demon if you don’t look too far or too closely, in the big picture you always lose more than you gain.
Every bit in a computer is a wannabe Maxwell’s Demon, separating the state of “one” from the state of “zero” for a while, at a cost. A computer on a network can also act like a wannabe demon if it tries to sort data from networked people into one or the other side of some imaginary door, while pretending there is no cost or risk involved. For instance, a Siren Server might allow only those who would be cheap to insure through a doorway (to become insured) in order to make a supernaturally ideal, low-risk insurance company. Such a scheme would let high-risk people pass one way, and low-risk ones pass the other way, in order to implement a phony perpetual motion machine out of a human society. However, the uninsured would not cease to exist; rather, they would instead add to the cost of the whole system, which includes the people who run the Siren Server. A short-term illusion of risk reduction would actually lead to increased risk in the longer term.
Where Sirens Beckon
Some of the prominent present-day Siren Servers include high-tech finance schemes, like high-frequency trading or derivatives funds, fashionable Silicon Valley consumer-facing businesses like search or social networking, modern insurance, modern intelligence agencies, and a multitude of other examples.
The latest waves of high-tech innovation have not created jobs like the old ones did.* Iconic new ventures like Facebook employ vastly fewer people than big older companies like, say, General Motors. Put another way, the new schemes, the Siren Servers, channel much of the productivity of ordinary people into an informal economy of barter and reputation, while concentrating the extracted old-fashioned wealth for themselves. All activity that takes place over digital networks becomes subject to arbitrage, in the sense that risk is routed to whoever suffers lesser computation resources.
*This is documented in Martin Ford’s book The Lights in the Tunnel (2009). He sees jobs going away, and proposes that people in the future be paid only for consuming wisely, since they eventually won’t be needed for producing anything. I find that idea inadequately human-centric and overly dismal, but it is an interesting contrast to my proposal.
The universal advice of our times is that people who want to do well, as information technology advances, will need to double down on their technical educations, and learn to be entrepreneurial and adaptable. These are the skills that might win you a position close to a Siren Server.
Planning to get as close as possible to a Siren Server is good advice in the near term. That is how the great fortunes of our age are being made. But there won’t be enough positions close to Siren Servers to sustain a society unless we change the way we do things.
CHAPTER 6
The Specter of the Perfect Investment
Our Free Lunch
The specter of perfect investing haunts Silicon Valley. Wall Street and other theaters where digital networks channel human activity are similarly haunted.
A “perfect investment” in a Siren Server can be arbitrarily small, initially, but will yield titanic rewards, and often quickly. It will require remarkably few early employees or co-investors, and little power sharing. Even once it becomes gargantuan it will remain a rather unpopulated venture.
One needn’t know exactly how the perfect investment will make money in advance, since the point is to channel information. Information and money are mutable cousins, so the investor will become rich without needing to know how. (Indeed, money mi
ght not even be the object, though even in that case, a large number of ordinary people will still lose some of their economic prospects* in order to support the influence and prominence of a Siren Server.)
*Wikipedia and nonprofit share sites have this quality.
The perfect investment presides at an arm’s length from real events in the world, so that it barely takes on liability. It ideally doesn’t do or make anything. The plan is simply to channel the information of those who do act in the world. It is those actors who take risks, not the perfect investment.†
†This goes beyond the traditional idea of cost externalization, to automated, unexamined risk externalization.
For example, it is not YouTube’s job to notice that someone has posted copyrighted video. Misrepresented assets flowed through Great Recession–era funds that were bailed out, but as of this writing most of the beneficiaries have escaped any of the downsides, which were radiated out to taxpayers and ground-level investors. The responsibility for fixing problems enabled by the perfect investment lies with those sorry souls who are fated to act and take risks in the disadvantaged neighborhood that is reality.
The perfect investment will quickly anneal into an impermeable and unchallengeable position, by nature a monopoly in its domain. Competition in a traditional sense might appear, but it will never achieve more than a token status. (I use the term monopoly here not in the legal sense, as in antitrust law, but in the vernacular Silicon Valley sense. For instance, Peter Thiel, founder of PayPal and a foundational investor in Facebook, taught students in his Stanford course on startups to find a way to create “monopolies.”)