Clunky Flow

The news.

Facebook, once again, got smacked on the wrist by its userbase.

Zuckerberg has indicated that the swift and negative reaction to their recent efforts to amend the terms of service had helped him realise it was now time to deal with this.

Facebook plans to prevent this happening again.

They’ve presented their plan as ‘Facebook opens discussion on a ‘bill of rights’ for the governance of their userbase.’

What this really means:

The reality is that this intervention will affect the SOCIAL DYNAMIC on Facebook in a very significant way.

This intervention will:

1. Defuse ‘Stop Energy’.
2. Clear the way for ‘Forward Motion’.

More on ‘Stop Energy’ and ‘Forward Motion’.

‘Stop Energy’:

Most types of collective action organize around ‘Stop Energy’. Facebook users have mobilised and engaged in ‘Stop Energy’ to great success time and again. Its the only effective power available to the users of Facebook. Or any large-scale informally organised collective.

Rerouting ‘Stop Energy’ into a pseudo-democratic consultation process will effectively quench its power. As an act of political hegemony if would be described as the employment of a bureaucracy to make power seem remote and tiresome to engage in for the typical user on any particular issue.

‘Forward Motion’:

”Forward Motion’ is very difficult to initiate or progress in informally organised collectives.

However, ‘Forward Motion’ is the raison d’etre of formal organisations and firms. Facebook, like any other formal organisation is a lean, mean and very effective machine at mobilising ‘Forward Motion’. Naturally, Facebook will leverage this ability to drive forward the Facebook agenda.

Political hegemony:

At large scale, collective action is best mobilised by a simple coordinating signal.
And best extinguished by efforts at large-scale collective conversation.
Facebook now reroutes collective action into collective conversation.

Its a master-stroke of a political hegemony.
Its a classic ‘bait-and-switch’.

Nice stroke, Facebook.

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I proposed the simple idea of ‘internet only’ ‘new banks’ back here in “My friend the economist and my dumb question.”

Since then Buiter, Stiglitz, Soros and Romer have proposed similar schemes. New banks: Did I get the scoop? Did you hear it here first?

But the really good news is that Marc Andreesen is now pushing the idea.
Why is this good news?
Well, Marc Andreessen could carry this idea.

Andreessen’s got all the right credentials ie he is a wunderkind of the industry of wealth-creating technological innovation and has none of the wrong ones ie he is not of the wealth-destroying financial innovation industry.

And Obama and Andreessen are already personally acquainted.

Can Andreessen carry this simple idea to move Obama? I hope so.

And I hope it can be done in time to demonstrate the Irish leaders that there is a smarter and simpler way.

Talk about ‘new banks’ 50 minutes in. Transcript below. But note that as always Andreessen give great value entire way through.

Good banks, bad banks, doesn’t matter. What we need are new banks. And I actually think what we need — and I think the valley can play a role in this, I think there should be a new wave of financial institutions that should be created from scratch today. And they should take the role.

So instead of trying to unwind some big bank that’s underwater, and hundreds of billion dollars insolvent, let’s create a whole bunch of new ones.

And by the way, let’s have them all be new and online.

So instead of having all this infrastructure and all these old systems and these ATM’s and all this stuff, let’s do purely online, purely Internet banks.

Purely virtual, much lower cost structure.

Because it’s going to take — even if you can figure out a way to fix the old banks, it’s going to take a long time. I mean it is a very complicated and involved process. They are deeply broken in very fundamental ways.

Create a new bank. I mean a bank is a simple concept. You can create a bank in software.

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I wrote about my idea of ‘My friend the economist and my dumb question‘ here on 23rd January.

I’m now in very good company.

From Willem Buiter at the Financial Times on January 29, 2009 “The ‘Good Bank’ Solution”

There is an alternative solution to the problem of valuing the toxic assets. It would not involve nationalising the existing banks. Instead the state would create one or more new ’good’ banks - all state-owned and state-funded to begin with.

From Nobel economist Joseph Stiglitz on 02 Feb 2009 at Davos. “Let banks fail” reported in the Telegraph.

“the government should allow every distressed bank to go bankrupt and set up a fresh banking system under temporary state control rather than cripple the country by propping up a corrupt edifice”.

From George Soros on 04 Feb in the WSJ “We Can Do Better Than a ‘Bad Bank’ “

… about $1.5 trillion is likely to be required to recapitalise the existing banks properly. This money could be leveraged a lot more effectively if most of it were injected into the new good banks, unencumbered with the toxic waste of the existing banks.

From Paul Romer in the WSJ on 06 Feb “Let’s Start Brand New Banks”

Everyone agrees that the United States urgently needs a few good banks. Turning bad banks into good banks is a difficult and risky way to get them. It’s simpler and safer to start entirely new banks.

And from Willem Buiter again at the Financial Times on 08 Feb “Good Bank/New Bank vs. Bad Bank: a rare example of a no-brainer” rounding up the ongoing discussion:

I claim no authorship or originality for the ‘good bank’ proposal. The idea is obvious and no doubt was floating around the blogosphere and elsewhere as soon as the magnitude of the insolvency disaster in the banking sector became apparent.

The US, the UK and several other continental European countries are at risk of emulating Ireland, where the government first guaranteed all the liabilities of the banks (other than equity) and only after that began to nationalise the banks. This leaves the Irish government today in the not too enviable position of having to choose between sovereign default and bleeding the tax payer and the beneficiaries of normal public spending to make whole all the creditors of the banks.

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How to make a mug of Guy Kawasaki. And all his friends.

In three easy steps.

For all you haX0rs. Here’s the sxoop.

Step 1: Enter his name (” guykawasaki “) here.

Step 2: Click on Grrrr…GET THE MUG!

Step 3: Crack your knuckles in satisfaction. You’ve just made a mug of Guy Kawasaki. And all his friends.

Bonus step: Put the kettle on.

For the l33ts among you who want to know more. Check http://bit.ly/4Beq6l http://tinyurl.com/bf9tum and Top 5 twitter applications

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To be honest, I’ve baulked at signing up for IGOPeople for a long time. Seemed like JASN.

Today, purely as part of the relaunched Tuesday Push, I signed up.

I have to say. Very impressed.

Got me a personal welcome message from Campbell Scott nudging me over to last weeks highlights to get me started.

There I found a discussion thread on online trust, reputation and identity. My personal geek heaven.

Having left a typically overlong comment (i’ve no discipline) I started to click through and add people as friends.

It turns out there’s a lot of people on here I know. Which, lets face it, is the most important thing in a social network.

All in all. Highly recommended. See you in there.

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I want to tell you a little about a friend of mine.
He’s got a PhD in economics and has been lecturing for years.

From time-to-time I say to him:
“Can I ask you a dumb question?”

He always replies with a wry smile
“Answering dumb questions is
practically my job description.”

We had one of our chats last night:

ME:

I keep hearing:“Strong banks
are essential to our economy.” But
surely, they should be saying: “A
strong banking system is essential to our
economy.”

The 1st statement leads us towards
bank rescues and nationalisations.
While the 2nd gives us more options.

My friend the economist:

Yes that is more accurate.
In fact, I was studying in Finland in 1992
as a series of banking collpases swept
across the Nordic countries. Many of the
possible options were tested with varying
success. Go on..

ME:

Well, I don’t know if this option was
available in the past… Why not establish 2
brand new internet-only banks in Ireland.
And capitalise them with the €15bn.

For that, you get 2 new banks. Each starting
with a clean sheet. Free to borrow.
Free to lend.

The advantages are you get a banking system.
You avoid nationalisation. You embrace pure
competition. And no money gets thrown
into a black hole.

Economist:

Yes. Pure internet banking wasn’t
an option in 1992. It could constitute a banking
system. Such new banks would be able and eager
to lend. The old banks could continue to deal with
cash. But if they do crash..?

ME:

If a physical branch network is important.
Co-opt the post office network.
Or the credit union network.
If internet access is important.
Support internet cafes.
Such an approach would be a snug fit with
the government’s policy of support
rural Ireland and the roll out of the national broadband scheme…

Economist:

Sounds like it could work. But you know the old
joke “If you want 4 opinions. Ask 2 economists”

So that’s it. My dumb question to you is “Why not?”
I’m hoping you can help me understand our options
a little bit better.

16 Comments »

Its a classic Irish problem. You love that cosy little pub. Especially on a Thursday night. But last time you were there. It wasn’t cosy. It was crowded. Which is a whole different kettle of fish.

And its Thursday again. Should you stay or should you go? Will it be crowded? Will it be cosy? Is everyone else wondering the same thing? Is it possible to second guess them?

A classic Irish problem. One of the great imponderables. And negotiated by a typical Irishman with a happy-go-lucky shrug and the following of a hunch.

Except for this Irishman. W. Brian Arthur, who recognised this as a classic problem of complex adaptive systems. And he wrote a famous and highly influential paper on the subject in 1993. And this class of problem has become known as an EFBP, or El Farol Bar Problem.

After the El Farol bar Santa Fe, New Mexico which was especially popular on Thursday nights when they offered Irish music. Meaning that every Thursday, the people who were considering going to the bar were also left wondering whether or not it would be overcrowded that night.

Arthur used this example to draw attention to a certain paradox of deductive reasoning - of the idea that there always exists a “best solution” that can be determined by logic. The El Farol problem cannot have a standard, generally agreed, “rational” solution. There cannot be one strategy, the best strategy, that everyone can use. If everyone uses the same strategy for deciding whether or not to go to the bar the bar will be either full or empty each night. Everyone would lose all the time.

So in summary: If everyone acts rationally. Then everyone will lose. And the pub will go out of business.

What society needs. Is for everyone to act irrationally, in accordance with whatever personal hunch they have at that time. And then, everything will work out in the end. And society will be able to support a vibrant pub scene. Now this makes perfect instinctive sense to an Irishman. But I can’t begin to tell you what heresy this kind of thinking was to your typical economist.

This kind of situation is one where people want to be on the minority side. Modeling dynamics of situations such as those captured by the ‘El Farol bar problem‘ was a new direction in the context of game theory and this kind of game has became known as a ‘Minority Game’.

Minority Games have implications for our understanding of the phenomena of crowding and herding, bubbles and crashes and any situation where the collective behaviour of agents in influenced by the fact that they have to compete through adaptation for a finite resource.

And while the Irishmen were working on how best to decide which bar to visit on which night, Damien Challet and Yi-Cheng Zhang sparked a lot of attention by applying EFBP to financing, creating a new field of study called “econophysics” in the process.

In the Challet and Zhang financing game, the choice between A and B does not involve going to a bar but selling or buying stock. When one makes financial speculations one has to buy before everybody is crowding to buy (thus driving the price up) and to sell before everybody starts selling (thus driving the price down). Thus, the big winners are always managing to be part of the minority.

There has been a lot of interest in developing the mathematics of this game. The reason for this interest is not only practical, physicists trying to get rich, but also theoretical. The models have yielded surprising features showing under which conditions cooperation appears spontaneously in a group, and the field also proved to be a generalization of the type of game theory simulations modeling the Darwinian evolution.

So there you have it. A common problem. Some lateral seemingly irrational thinking. And a surprising solution. Of wide ranging applicability. Very Irish. Don’t you think?

With thanks to David Lane, a sometimes co-author of W. Brian Arthur, for referencing the Irish connection to “El Farol Bar Problem” during his keynote at the Innovation in Complex Social Systems conference yesterday and to Damien Mulley for getting me a ticket.

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I’ve been thinking about the way things change. And the way they stay the same.

I’ve been thinking about the way we think of their physical body as a fairly permanent structure, while we also know that our bodies are undergoing constant renewal. As they say there’s a whole new you every 7 years. But the new you is easily recognizable to almost anyone who knew the old you.

Which means that we ought to see ourselves not as an immutable, permanent structure, but more like a standing wave.

Kinda like this one on the Eisbach river running through Munich’s Englishergarten.

But what is true for the individual. Is true for society and its structures and organisations. Multi-national corporations have emerged and remained highly recognisable as structures and entities over long periods of time.

The same is true of social, political and legal systems. Even though all the people that made up these social institutions have been replaced over and over again the system, like a standing wave has kept its essential recognisable character.

Institutions appear permanent and solidly fixed. But what we are actually seeing is a robust standing wave. Ever changing. Robust and dynamic. Most of the time. But also predictably susceptible to unexpected collapses. Permanent, robust, ever-present institutions are not as solid a rock but as collapsable as a wave.

I suppose, this is what Heraclitus was getting at when he said “All is flux” “Everything flows, nothing stands still.”

I also like to think that the tradition of periodically rebuilding the Ise Shinto Shrines in Japan touches on this view of permanence. The Ise Shrine is a wooden structure that has existed for thousands of years because it is periodically dismantled and rebuilt in a meticulous manner. Making the Shrine forever new and forever ancient. The Shrine stands as a demonstration and testament to the fact that lasting permanence can be supported on the back of a standing wave of social and cultural traditions.

So maybe, the next time we are thinking of building and maintaining something robust and long-lasting. Maybe we should consider adopting a standing wave as a metaphor. Instead of a rock.

1 Comment »

I’m currently reading and re-reading.

The Wealth of Networks. Yochai Benkler. (2006)
A dense and immensely satisfying work from the leading intellectual of the internet age. Bonus link: Its also freely available in many formats including wiki, remixes and formats where you can take and share notes as you read.

Complex Adaptive Systems. Miller and Page (2007).

The focus here is specifically on society as a complex adaptive system. A great romp through the key concepts and experimental approaches demonstrating how complex economic, political, organisational systems emerge ‘bottom up’ from the activity of agents following simple interactional rules.

Social Emergence. R. Keith Sawyer (2005).

Another book focusing on societies as complex dynamical systems. In this book Sawyer presents a critical review of sociological theories through the ages resurrects and redevelops ideas first put forward by Durkheim (swarm intelligence) and combines insights derived from computational agent-based models (more on these below) with insights of his own developed from his work with improvisational theater groups.

Growing Artificial Societies (1996) Epstein and Axtell. The authors both member of the Sante Fe institute bring the reader through groundbreaking landmark Sugarscape model to demonstrate that a wide range of important social phenomena can emerge from the interaction of individual agents following a few simple rules. More on Epstein. More on Axtell.

Generative Social Science (2006) Epstein. A powerful consolidation of the research activity relevant to society as a complex adaptive systems in the decade since the publication of Growing Artificial Societies.

Emergence (2001) Steven Johnson. Popular science book. Very good. For the most part the focus in on physical structures that emerge from stigmergic interaction eg anthills, cities, network structures on the internet as opposed to explaining emergent phenomena that give rise to sophisticated social, political and economical structures. (Bonus link: StevenBerlinJohnson’s blog. where I discovered he is the co-founder of Web2.0 startup outside.in )

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Your a Web2.0 company. You are genuine and authentic. You want to create instant emotional connection. No cheese.

If it’s easy, it must be cheesy. Right? Wrong!!

Dopplr shows that way:

On the anniversary of a trip, it issues you an email reminder.
Cue flashflood of fond memories and reminisces.

That’s pretty goddam simple. And a massive ROI for a genuine and authentic service.

And. Its easy to access for EVERY* Web2.0 company.

*I am so sure that this generalisation holds that I am willing to offer a portfolio of high grade structured leverage funds at a knock down price for anyone who can come up with a Web2.0 proposition that constitutes a true exception ;)

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