The stuff beneath the cloud

The physical location of the Internet has always fascinated me, so I’ve been enjoying reading [amazon_link id=”0262029510″ target=”_blank” ]A Prehistory of the Cloud[/amazon_link] by Tung-Hui Hu (a network engineer turned English professor). The first half of the book is pretty much entirely about the physical infrastructure and the mismatch between our idea of ‘the cloud’ as something dematerialised operating to new social/political rules and its reality in cables and buildings in specific places. The introduction starts: “A multi-billion dollar industry that claims 99.999 percent reliability breaks far more often than you’d think because it sits on top of a few brittle fibres the width of a few hairs.” It goes on to say that the idea of the cloud as a metaphor for society or organising principle for the economy is sometimes uncomfortably at odds with the material, technological platform. Indeed, he points out, the cloud was responsible for 2 per cent of the world’s greenhouse gas emissions in 2008, since when there has been a rapid increase in the number of data centres.

[amazon_image id=”0262029510″ link=”true” target=”_blank” size=”medium” ]A Prehistory of the Cloud[/amazon_image]

The book then starts with the geography of US fibre optic cables, laid under old railroad tracks: an old-economy, centralised network beneath the cloud as “a vision os globalization that follows the dictates of a multinational corporation – a coalition of geographic arease that move capital and resources through the most efficient path.” We have the impression of the internet as a decentralized network, but it is not – the idealised distributed network described in a famous 1962 article by Paul Baran was never built. The idea that the network got its shape because of the threat of nuclear war is a kind of ‘how he leopard got its spots’ [amazon_link id=”1405279613″ target=”_blank” ]Just So[/amazon_link] story. “Virtually all traffic on the US Internet runs across the same routes established in the 19th century.” (The same is true in the UK, with the east and west coast spines.) Interoperability via IP has only increased the concentration of power, the book argues. Six telcos control the US internet; it is fewer in the UK. Yet there is, “A collective desire to keep the myth alive despite evidence to the contrary.” This chapter ends with an intriguing section on the inherent paranoia of seeing the world through a network lens. If the system is a logical construction overlaid on a physical network, anything and everything can become part of it: the cloud has nebulous edges. Therefore anything and everything – or everyone – can cause breaks or errors.

The second chapter discusses time sharing and virtualization in the cloud – the creation of the illusion that we have our own private part of it. The book presents this is part of a shift away from waged labour toward a flexible economy with a nebulous boundary between paid and unpaid: “By positioning users as intimate partners of the computer, time sharing yoked users to a political economy that made users synonymous with their usage and allowed them (or their advertising sponsors) to be tracked, rented or billed.” The concept of multi-tasking developed out of time share computers, and now refers to flexible working more generally. “Real time actually functions as an ideology of economic productivity.” I am intrigued by the link between time and productivity – not new of course; think of EP Thompson’s famous article about industrial time keeping. Still, time spent using the computer is the work time now to be tracked. “The underlying logic of freeware capitalism is consumption – of time.” The chapter goes on to discuss the privacy debate as the result of the transformation of what had been envisioned as a public utility into a set of private ones, or gated communities, albeit only brought about by virtualization software. The book argues that concerns about privacy contribute to the logic of (dread word) “neoliberalism.”

The n-word put me off quite a lot, as it seems a pretty empty concept, and the third chapter vanishes down the rabbit hole of critical theory, although I like (again) its preoccupation with the built structures of the internet, the data centres – some in old military bunkers. “Computers, like horses, overheat when worked hard.” However, the chapter is about the links between cloud computing and the surveillance state. The basic point is the re-emergence (as if it ever went away) of the claims of sovereign territories and state power over the internet.

With the final chapter the book re-emerges from its rabbit hole, opening with a section on the use of big data as a tool of power. He notes: “Targetted marketing came out of the Eisenhower era science of geodemography … GIS was a by-product of the military’s need to convert populations intro targettable spaces.” The chapter argues that opting out of the connected world is nearly impossible, so we ought to start by acknowledging its structural inequalities of power. “The cloud is a subtle weapon that translates the body into usable information.” Well, everything, perhaps. Airbnb turns housing into a housing cloud; we have car clouds drifting around major cities, and labour markets that deliver “humans as a service.” Although I certainly do not see the world through the prism of neoliberalism (which no doubt confirms me as a neoliberal, as if being an economist wasn’t enough to do so), I found this book a very thought-provoking essay about the economic and political underpinnings of our connected lives. We surely need to have more discussion about the ownership of ‘the cloud’, its physical reality and energy consumption, and the political power that flows from its roots in those old railroads.

Thinking, learning and doing

James Bessen’s book [amazon_link id=”0300195664″ target=”_blank” ]Learning By Doing: The Real Connection between Innovation, Wages and Wealth[/amazon_link] is excellent. It strikes a balance between meaty analysis and description of historical episodes of technical change, and is at the same time very accessible.

[amazon_image id=”0300195664″ link=”true” target=”_blank” size=”medium” ]Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth[/amazon_image]

The book argues that it is important to distinguish between ideas, which can be codified and transmitted and know-how attached to workers, which takes experience to accumulate. This is familiar – Paul Romer recently blogged about the role played by this distinction in his famous model. But Bessen adds that the distinction makes it important to consider the incentives for workers to invest in new skills so that new technologies can be implemented – and the part played by these incentives is usually overlooked and yet crucial for forming views about the “future of work” when there are ubiquitous robots.

He uses the historical examples to demonstrate that in the early stages of implementation of a technology, returns to workers with generally high skills will rise. They are able to make the adjustments and minor additional innovations that get the big innovation to work. During that period, the wages of ordinary workers stagnate – as in the famous Engels’ Pause (pdf). However, when the technology is thoroughly bedded in and the technical knowledge needed to work with it is standardised, ordinary workers have the incentive to invest in in gaining skills and experience. A thick labour market develops. Workers are able to threaten credibly to switch jobs. Their real wages rise and the high-level skill premium narrows.

“The specific skills associated with a major new technology are not standardized at first, which limits the market. Initially, these skills are always limited to specific employers.'”

He emphasises the need for the necessary technical knowledge to be standardised too – the example he uses is the periodic table’s invention, standardising the chemical knowledge workers in the growing industry needed, and making it easier to teach.

Bessen then uses some new examples to demonstrate that with digital technologies, this standardisation of technology, tasks and skills has not yet happened. His example is digital publishing, where the specifics of the technology are still changing, and so do the specific technical knowledge and experience needed.

In addition to the development of a standardised know-how labour market on demand and supply sides, Bessen points out that new technologies can also raise demand and employment in existing work. His example here is the continuing increase in the number of bank tellers (still going on) even as the number of ATMs grew rapidly, with the humans’ tasks changing to focus on customer relations, and the number of bank branches and transactions increasing. This is not the case with all technologies – the job market for people making oil lanterns is tiny – but the book suggests it happens more often than one would think.

The book ends with policy reflections, of which the most interesting concerns education. The reasoning about standardised knowledge, and the importance of experience, as a technology matures points to the need for skills-focused education rather than piling as many young people as possible through conventional academic tertiary education. Bessen argues that demands to make vocational jobs such as nursing or medical assistants require a university degree represent a form of job protectionism. He also – along with many other scholars – points to the dysfunctional nature of the patent/copyright system as it operates now, especially in the US.

This is a very US-focused book, but none the less interesting for that. This review has skimmed over the top of the argument; I’d strongly recommend the book to anyone interested in the automation/inequality/employment issues. It is a broadly optimistic perspective but does underline the length of the transition and the likely impact on individuals. All the more reason to pay attention to the policy implications.

Technology paradoxes

I’ve started reading James Bessen’s [amazon_link id=”0691143218″ target=”_blank” ]Learning By Doing: The Real Connection between Innovation, Wages, and Wealth[/amazon_link], and it promises to be very interesting. He starts with a paradox: That “the effects of the new technology are all around us,” but for one place: our paychecks. “Since the beginning of the personal computer revolution, the median wage in the United States has been stagnant.” (I’ve yet to get far enough to know whether the book only talks about the US – phenomena like the stagnant median wage and increased income inequality are at their extreme there.)

[amazon_image id=”0300195664″ link=”true” target=”_blank” size=”medium” ]Learning by Doing: The Real Connection Between Innovation, Wages, and Wealth[/amazon_image]

It set me thinking that actually there is another paradox that’s the twin of Bessen’s: that the main (only?) thing that has benefitted many people in economic terms in the past couple of decades is – technology. People greatly value their smartphones and other ever-cheaper/better consumer electronics, internet access, free online content and services. This consumer surplus story is well-known; among others, Brynjolfosson and McAfee point it out in [amazon_link id=”0393239357″ target=”_blank” ]The Second Machine Age[/amazon_link].

So we have the meta-paradox of limited if any gains in monetary incomes and potentially large gains in non-monetary consumer surplus (although there are some reasons for caution about the scale as ‘free’ is not free), and no obvious way to evaluate these, You can’t eat consumer surplus but people see internet access as a basic right (pdf), a sign that they put huge value on the technology. I’m spending a lot of time thinking about these measurement/welfare questions.

Slightly scary AI

On the whole I haven’t been among the most pessimistic people about the likely impact of a potential Artificial Intelligence revolution on the economy and life – although not blithely optimistic either about the scale of the adjustment that will be needed in labour markets and education. But [amazon_link id=”0300213557″ target=”_blank” ]Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence[/amazon_link] by Jerry Kaplan has made me more apprehensive. This is not because of anything he writes about the economy, which is standard fare, but rather because of something he says about AI in the first half of the book (quite a short and very readable volume).

[amazon_image id=”0300213557″ link=”true” target=”_blank” size=”medium” ]Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence[/amazon_image]

It starts with an account of high frequency trading and the Flash Crash of 2010. This will be familiar to anybody who has read Michael Lewis’s very entertaining [amazon_link id=”0241003636″ target=”_blank” ]Flash Boys[/amazon_link]. It seems pretty clear to me that financial regulators need to rein in HFT – not that they are showing any sign of interest in doing so – and there is even a proposed solution recommended in Al Roth’s terrific book about market structure, [amazon_link id=”000752076X” target=”_blank” ]Who Gets What and Why[/amazon_link], as well as in this volume. That is to regulate to allow computer trading to occur only once every second. This would re-create liquidity in the markets (which are illiquid at the milli- or nano-second timescale) and stop the speed arms race.

However, what Kaplan points out is that other AI applications will have undesirable consequences because they will look like the swarms of computers trading in financial markets, and doing it super-well with no application of judgment. One example is the use of AI to personalize the offers made to shoppers online, which will become so efficient that the synthetic intelligence will be able to price discriminate perfectly, extract all the consumer surplus in each market, and undo the hope that online retailing would lead to less rather than more price dispersion. Nobody will be forced to buy, of course. “But while you may exercise freedom as an individual, collectively we will not. Synthetic intellects are fully capable of managing the behaviour of groups to a fine statistical precision while permitting individuals to roam in whatever direction their predictable little hearts desire.”

The book asks many other thought-provoking questions about social norms and ethics. Will my personal robot be allowed to stand in a queue for me? Or repark my car to avoid tickets all day? How can we ensure robots understand what are the moral boundaries on their actions when they’ve been programmed to fulfil a certain kind of task?

It also has one interesting policy suggestion, the “job mortgage”, a means of allowing people to train and retrain without being tied to one specific employer: the government loans people money and is repaid from their subsequent earnings. This would replace the existing student loan schemes and apprenticeships, which Kaplan sees as too restrictive for the period of upheaval ahead.

There seem to be lots of books on this subject out now, but I thought this one worth a read, especially for an economist like me, as the author’s background is a technical one and he explains the technology trends very clearly.

Machines and humans

A couple of interesting tech-related books have arrived. I’ve started [amazon_link id=”0300213557″ target=”_blank” ]Humans Need Not Apply: A guide to work and wealth in the age of artificial intelligence[/amazon_link] by Jerry Kaplan & am enjoying it. He is a tech entrepreneur now teaching at Standford’s computer science department. The book starts with a useful overview of the history of AI, which is as far as I’ve got. It’s very engagingly written and is good at bringing the subject to life.

[amazon_image id=”0300213557″ link=”true” target=”_blank” size=”medium” ]Humans Need Not Apply: A Guide to Wealth and Work in the Age of Artificial Intelligence[/amazon_image]

The other is [amazon_link id=”0262029510″ target=”_blank” ]A Prehistory of the Cloud[/amazon_link] by Tung-Hui Hu, which looks fascinating, a part of the history of the internet that is rather unfamiliar. For example, there’s a chapter on data centers. I’m fascinated by the relationship between the embodied and the disembodied parts of the networks & we know so little about the buildings and wires. There is [amazon_link id=”014104909X” target=”_blank” ]Tubes: Behind the Scenes at the Internet [/amazon_link], which was a good read but disappointed me in terms of hard information. So I’m looking forward to reading this new book. Paging through, it clearly covers social and institutional issues as well as the technology – or in other words the humans too.

[amazon_image id=”0262029510″ link=”true” target=”_blank” size=”medium” ]A Prehistory of the Cloud[/amazon_image]