Excerpt fromFixing the Digital Economy


June 8, 2013

Dissect almost any ascendant center of power, and you’ll find a giant computer at the core. In the past, power and influence were gained by controlling something that people needed, like oil or transportation routes. Now to be powerful can mean having the most effective computer on a network. In most cases, this means the biggest and most connected computer, though very occasionally a well-operated small computer can play the game, as is the case with WikiLeaks. Those cases are so rare, however, that we shouldn’t fall into the illusion of thinking of computers as great equalizers, like guns in the Wild West.

The new class of ultra-influential computers come in many guises. Some run financial schemes, like high-frequency trading, and others run insurance companies. Some run elections, and others run giant online stores. Some run social network or search services, while others run national intelligence services. The differences are only skin deep. I call this kind of operation a “Siren Server.”

Siren Servers are usually gigantic facilities, located in obscure places where they have their own power plants and some special hookup to nature, like a remote river, that allows them to cool a fantastic amount of waste heat.

Siren Servers calculate actions for their owners that reduce risks and increase wealth and influence. For instance, before big computers and cheap networking, it was hard for health insurance companies to gather and analyze enough data to be tempted to create a “perfect” insurance business, in which only those who need insurance the least are insured. But with a big computer it becomes not only possible, but irresistible.

Giant financial schemes are similarly tempting. It is commonly believed that deregulation motivated financial adventurism, but it can also be argued that Moore’s law, which holds that computing becomes better and cheaper at an accelerating rate, guaranteed that sooner or later the temptations of using computation to displace risk would become irresistible.

Financiers caught the seductive whiff of digital perfection in the 1970s. The first major market crash at least partially attributable to automated trading came in 1987. Big computer-centric schemes like those hatched by Long Term Capital Management and Enron, laid down a pattern that continued with the Great Recession of 2007-9.

Since networking got cheap and computers became enormous, the financial sector has grown fantastically in proportion to the rest of the economy, even though it has done so by putting the rest of the economy at increased risk. This is precisely what happens naturally, without any evil plan, when someone has a more effective computer than anyone else in an open network. Your superior calculation ability allows you to choose the least risky options for yourself, leaving riskier options for everyone else. If the economy were infinite, it would be able to absorb the radiated risk. The inevitable massive public bailouts were needed not because the schemes didn’t make sense, but because they eventually made impossible demands on the world outside of the scheme.

A hip trope holds that privacy is passť, but the loss of one’s privacy to a Siren Server means more than the loss of one’s credit card or Social Security number to a petty online thief. An ordinary person’s choices in music, friends, purchases, reading material and travels in the course of the day are just some of the streams of data that feed into algorithms that compare and correlate the activities of everyone being spied upon.

The motivation for the omni-ogling is that it leads to effective behavioral models of people. These models are far from perfect, but are good enough to predict and manipulate people gradually, over time, shaping tastes and consumption in more effective and insidious ways than even subliminal advertisements do.

Manipulation might take the form of paid links appearing in free online services, an automatically personalized pitch for a candidate in an election or perfectly targeted offers of credit. While people are rarely forced to accept the influence of Siren Servers in any particular case, on a broad statistical basis it becomes impossible for a population to do anything but acquiesce over time. This is why companies like Google are so valuable. While no particular Google ad is guaranteed to work, the overall Google ad scheme by definition must work, because of the laws of statistics. Superior computation lets a Siren Server enjoy the magical benefits of reliably manipulating others even though no hand is forced.

Even friendly, consumer-facing Siren Servers ultimately depend on spreading costs to the larger society. Siren Servers can function profitably only if people aren’t paid for the data that is used to calculate their statistical schemes.

Siren Servers drive apart our identities as consumers and workers. In some cases, causality is apparent: free music downloads are great but throw musicians out of work. Free college courses are all the fad, but tenured professorships are disappearing. Free news proliferates, but money for investigative and foreign reporting is drying up. One can easily see this trend extending to the industries of the future, like 3-D printing and renewable energy.

A Siren Server gains influence through self-effacement. There is a Zen quality to it. A big computational-finance scheme is most successful when the proprietors have no idea what they finance. The whole point is to make other people take risks, and knowledge means risk. The new idea is to have no idea whether the security you bundled is fraudulent or not.

YouTube doesn’t take responsibility for checking if a video, before it’s uploaded, violates a copyright. Facebook isn’t culpable if a tormented teenager is driven to suicide.

The point is to be a computational actor — the more meta, the better — but without seeming, or behaving like, an actor. The digital pursuit of reward without risk happens automatically, at arm’s length. Documents are signed by “robosigners,” and prices are set by “price bots.”

Once this principle is understood, the seeming contradiction — that power is being more and less concentrated at the same time — melts away. An old-fashioned exercise in power, like censoring social network expression, would reduce the new kind of power, which is to be a private spying service on people who use social networking.

Indeed, Sirenic schemes often offer an upfront treat. Insanely easy and cheap mortgages; free music, video, Web search and social networking: all are examples of the trinkets dangled to lure initiates into answering the call of a Siren Server.

Jaron Lanier is the author of Who Owns The Future

Interview with Times of Israel (Lanier's mother is Jewish)