Google + Kurzweil: "What an amazing, slightly terrifying combination"

I disagree with Jon Mitchell's take on the fantastic news that Ray Kurzweil has joined Google in a full-time role in Mountain View as Director of Engineering.

Inventor and futurist Ray Kurzweil joins Google

Pairing the iconoclastic futurist/inventor with arguably the most innovative technology company in the world is not scary but very exciting (although I catch Jon's drift).

Much as it did when it hired Vint Cerf, one of the internet's father figures, Google has once again boosted its nerd/geek street cred with the addition of Kurzweil to its roster of science and tech luminaries.

This is definitely a coup for Larry Page & Co. Not quite on the same level as when Princeton's fledgling Institute for Advanced Study landed Einstein. But after the Pope of Science made his way to New Jersey many of the leading physicists, mathematicians and scientists of the day followed. No doubt Kurzweil's arrival in Mountain View should have a similar effect in drawing today's pioneers in the areas where Ray has made significant contributions, such as speech recognition and artificial intelligence.

Ray begins his new gig on December 17. Congrats to Ray and Google, and we anxiously await the results of your collaboration!

When the UK Previously Looked to a Canadian to Run the Bank of England

Just a quick historical note on the somewhat stunning news that Mark Carney, the current head of the Bank of Canada (and a Canadian citizen), has been asked and has accepted the job of running the Bank of England.

Graham Towers and Montagu Norman 

I say 'somewhat' because students of history may know that as Montagu Norman's 24 year reign at the Old Lady of Threadneedle Street was winding down the then head of the Bank of Canada, Graham Towers (also a Canadian citizen), was considered as a leading candidate to replace Norman.

Norman and Towers worked closely together during World War II to support the price of sterling during the Battle for Britain, and much of the UK's gold (as well as France's) was sent to Canada to protect it in the event of a Nazi amphibious invasion of Britain. However, for reasons possibly lost to posterity Towers was either never offered or accepted the job.

Analogies about how England's national football coach is often  foreigner and how the Carney choice really isn't all that different are of course flooding the media airwaves right now. Perhaps the economic, patriotic, and security considerations that come with heading the national football club and central bank aren't really as far apart as one might think?

An issue which isn't under much doubt is that Mark Carney, like Graham Towers in his day, is simply a very good candidate for the job.

Looking ahead, the one thing that is certain is that Mr. Carney will have very big shoes to fill. Even with the financial crisis and the challenges faced by the City of London over the past several years, there can be little doubt that Sir Mervyn King has proven to be one of the finest central bankers of his age. Sir Mervyn recently gave an excellent lecture at the LSE on inflation targeting, which can be viewed here.

Another point is that the Carney choice further confirms London's status as the most welcoming of the major financial centers to foreigners and capital alike. Take that New York!

Upsetting the Apple-cart: Google Just Torpedoed the iPhone's Profit Margins

Google's Nexus 4

Google just released its latest in-house Nexus branded smartphone and if you read the various reviews of this device over at The Verge, All Things D, VentureBeat, etc. you'd likely come away rather underwhelmed.

Mind you, most of these reviews are on the whole rather positive about the Nexus 4's hardware and Android 4.2 (Jelly Bean) software. But many of the reviewers couldn't see their way past the Nexus 4's lack of LTE 4G data speeds.

For example, here's the conclusion of a Nexus 4 review by The Verge's Josh Topolsky, arguably gadgetdom's #1 geek:

The Nexus 4 is absolutely wonderful, but it's also vexing. Frustrating. Annoying. It's easily the best Android phone on the market right now, and has some of the most powerful software that's ever been put on a mobile phone. It's an upgrade from last year's Galaxy Nexus in every way. It's terrific — save for one small thing. 

In the US, a flagship phone without LTE is like a muscle car with no wheels. For other networks in other countries, and for the lucky T-Mobile customers out there that are getting great speeds on its HSPA+ network — great. No problem. Go get this phone. But for others — many others — it's hard to imagine buying this device when you know it's a generation behind in terms of network technology.

For a phone and an OS built for the cloud, I think it's unacceptable to not offer a version that takes advantage of our fastest mobile networks.

That's a pretty damning indictment from the former Editor-in-Chief of Engadget, and not exactly the kind of endorsement one would be looking for if you're interested in making the case, as I will be in this article, that Google's latest offering represents a very real threat to Apple's iPhone business.

Continue reading the full article at SeekingAlpha here.

The Body Clock: Why You're So Tired All The Time

Full disclosure: as a night owl I am actively waging a campaign to 'debunk the social stigma around late risers'.

For more on this topic here's a good read.

h/t Counterparites

Sandy's Key Lesson Applies to More Than Bad Weather

The NY Times is out with a story today chronicling all the warnings about Gotham's vulnerability to storms and flooding.

Loss of life and economic devastation are made all the more tragic when we realize that these losses were at least in part preventable.

But as an anonymous source close the New York government officials put it:

"until things happen, people aren’t willing to pay for it".

Indeed.

As Nassim Taleb, et al have written about, there are deep psychological and evolutionary roots to our species' tendency to ignore seemingly low probability, catastrophic events until it is too late.

Explain this 'insurance' thing to me one more time?

Perhaps as the human species was evolving and facing a daily battle for survival there was a prohibitive cost to planning too far into the future. Now, however, with the hunting/foraging days long gone for most of us, we're still stuck traveling through life with the same 'Cave Man software' of our forefathers.

With Mother Nature having reminded us what she's capable of there will likely be some changes to storm protection systems along the East Coast. But unfortunately I'm not terribly optimistic that we can extrapolate the lessons of Sandy to other systemic risks, such as asteroid collision, climate change, and number one focus of this blog, financial crises.

Sadly, the Cave Man is still in charge of this joint.

A Good Evening to Stay Indoors and Watch a Movie

Dear East Coast, hang in there and hold on tonight! -TPC

Bob Balaban eyes the shifting weather in Moonrise Kingdom

Video: Mervyn King on Twenty Years of Inflation Targeting

A very accessible, excellent talk from the Governor of the Bank of England on the past two decades of financial and central bank history, and the need to rethink the policy of inflation targeting. 

Podcast with better audio quality here.

Speaker(s): Professor Sir Mervyn King

Chair: Professor Craig Calhoun

Recorded on 9 October 2012 in Old Theatre, Old Building.

Since 2008, we have experienced the worst financial crisis and recession since the 1930's. What challenges does this pose to the intellectual foundations of monetary policy? Do we need a new approach?

Mervyn King is the Governor of the Bank of England. Before joining the Bank he was Professor of Economics at the LSE, and a founder of the Financial Markets Group.

Video: Nobel Prize Winner Al Roth On 'Repugnant' Transactions

Congratulations, Al and Lloyd Shapley!

The below presentation by Al Roth, whose work on kidney exchanges you might recognize from Freakonomics, was made at Google in 2007. The presentation introduces you to Roth's work on repugnant transactions and market design.

Be warned that parts of Roth's presentation are a bit wonkish, but you can skip ahead to 28:12 mark if you're interested in his kidney work.

Adventures in Alternative Currencies: Bitcoin Goes Mainstream

Continuing on with our series covering adventures in alternative currencies, many were quick to proclaim the death of Bitcoin, particularly following the June 2011 bursting of the Bitcoin bubble. For example, here is some doomsaying from the normally reliable Tyler Cowen; and for a pessimistic economic historian's take see here.

But following an undeniably rocky road the little digital currency that could appears to be having the last laugh. A good read can be found here on how Bitcoin is beginning to go mainstream.

At this stage the obvious first question is why has the decentralized, 100% digital currency proven so resilient? Scientific American provides one good answer:

When they (a merchant) finalize a deal in Bitcoin, they do so knowing that the transaction can never be reversed. The Bitcoin network doesn't edit its ledger. As such, merchants no longer have to worry whether they are charging a stolen credit card. 

"'The fraud mitigation is big for Internet merchants, because they are all handling card-not-present transactions. And the business has to eat the loss if the payment is reversed later on,"' Gallippi says. "'Using Bitcoin, a business can receive a payment from any country on the planet, instantly, with no risk of fraud."'

In addition to helping cut down on fraud costs for merchants, Bitcoin is chic. Using Bitcoins to transact business is a mark of digital savvy for both tecno hipsters and the merchants who cater to them.

What the future ultimately holds for Bitcoin is less interesting to me than a more general issue, which is the apparent growing trend in alternative currencies coming into existence.

We have already seen some Congressional saber rattling about Bitcoin prior to its flash crash. Will governments continue to tolerate it, Bristol's new pound note, etc., while they remain small? Or will we see a more formal move in the not too distant future to stamp out these fledgling alternatives to government fiat money? As the article points out, government's might have a hard time shutting down Bitcoin:

But perhaps most consequential for the future of Bitcoin—in order to shut down a peer-to-peer currency exchange, one would have to terminate every node on the network. The few lawyers who have studied Bitcoin all agree that the currency inhabits a legal gray area. No one really knows how governments would react if it gains traction, but many consider the exchanges to be the easiest target for people who want to regulate Bitcoin. Decentralizing the exchanges would make that job nearly impossible. Bitcoin developers are quickly proving that they can design decentralized alternatives to even the most sophisticated financial institutions. 

"It's the asset prices, stupid"

In a good post titled 'Why Obama is Winning' Harold James points out that political strategist James Carville's famous "it's the economy, stupid" quip from the 1992 U.S. presidential election campaign has gained a new twist:

...the lesson about the economy’s electoral salience is being subtly reformulated. It is no longer the real state of the economy, but rather the perception of asset markets, that is crucial. And the perception can be far removed from reality, which means that the more the prevailing political wisdom assigns decisive electoral importance to the economy, the greater the temptation to view monetary policy’s impact on asset prices, and not on long-term growth, as crucial.

What James is basically saying is that people feel wealthier when asset prices - stocks, bonds, real estate, etc. - go up in value. This phenomenon -- the so called 'wealth effect' -- can make those who don't read The PolyCapitalist and the other recommended sites listed on the right side of this blog feel like the real, fundamental economy is doing better than it actually is. Or so the theory goes. 

Further, positive feelings about how the economy is trending due to rising asset prices can in turn drive higher consumer consumption and business investment, which in turn can increase GDP. At least in the short (and possibly) medium run.

For how long can this wealth effect ponzi-esque scheme go on? In other words, are programs like QE3 nothing more than an macroeconomic cheap trick?

No one knows for sure because, like much of modern macroeconomic theory, we are conducting a live, empirical test of the theory. And this test has arguably been running since at least 1987 (the year Alan Greenspan became Chairman of the Fed), if not 1971 (the year Nixon severed the U.S. Dollar's anchor to the price of gold).

What this means longer-term, according to James, is further politicization of the Federal Reserve and other central banks around the world:

Republicans will blame their defeat in November on the Fed’s monetary stimulus (if not on the ineffectiveness of Mitt Romney’s blunder-filled campaign). 

Meanwhile, in Europe, many national leaders, looking at Obama and the Fed, may conclude that they would do better with more direct control over the central bank. Given the difficulty of establishing such control over the European Central Bank, the euro’s next great challenge may be growing sentiment in favor of a return to national currencies.

In other words, expect central banks to remain in the politial bullseye following the 2012 U.S. and 2013 German elections, regardless of the their outcomes.

Will major reform be applied to central banks? For example, there has been open discussion of terms limits for the Federal Reserve Chairman.

Perhaps changes like term limits, greater Fed transparency, etc. are in the cards longer-term. But I am personally skeptical that any significant reforms will be enacted at the Federal Reserve prior to the end of the U.S. dollar's global hegemony.