[mathgenius]

The financial system is a giant message passing algorithm. It is pretty much just a min-sum algorithm [1] whose sole purpose is to answer the question "what should we do?". Anyone who has played around with these algorithms for solving decoding problems knows that they are fabulously powerful.

But these message passing algorithms have two weaknesses:

(A) When there is more than one solution

(B) When there are small loops in the message network

By far the worst problem is (B): it's a kind of a "corruption" of the network and causes it to pretty much go off the rails. I think people already do understand the consequences of these problems in the financial system, but we don't seem to see how we can just change the topology and/or the messages themselves, in particular, to try to fix up these self-reinforcing loops. Or: move away from min-sum towards sum-product (which often works an order of magnitude better) by perhaps implementing basic income. Etc. Etc.

[1] https://en.wikipedia.org/wiki/Generalized_distributive_law

[KirinDave]

Having worked in the financial industry, your view of it is what we'd call, "50,000" feet.

I don't think it reflects reality on the ground, nor does it really reflect how humans in groups make decisions according to research.

The message network loop issue isn't even an issue for message passing systems except in the most pathological cases (where it results in an unbounded growth in messages or an infinite delta on the values the algorithm calculates.

[mathgenius]

I'm not saying the finance system doesn't work, it obviously does, and amazingly well. I'm just pointing out the weaknesses of the system, and these weaknesses could easily cause humanity to walk off a cliff.

I also have a finance background. This idea that the system is a kind of message passing is not a "50,000 feet" idea, it actually came to me from writing algorithms to arbitrage markets. There you really are performing message passing (think of forex legs.) It's Dijkstra's algorithm. So this is the view from 50,000 nano-seconds. But I believe it holds for many other scales. Plenty of people walk into the supermarket and buy the product with minimum cost. Yes? How is this a view from "50,000 feet"? But obviously we are not just min-sum automata: we are all free agents, and so on.

> how humans in groups make decisions according to research

Well this is obviously a huge topic.

> message network loop issue isn't even an issue for message passing systems except in the most pathological cases

I totally disagree with this. Short loops completely screwup message passing.

[KirinDave]

> I'm not saying the finance system doesn't work, it obviously does, and amazingly well. I'm just pointing out the weaknesses of the system, and these weaknesses could easily cause humanity to walk off a cliff.

I actually think the system is fantastically broken and produces nonsensical outputs quite often. For example, it rewards speculation in the absence of measurable outcome but demands measurable value to speculate.

> There you really are performing message passing (think of forex legs.) It's Dijkstra's algorithm.

I think you're confusing a model you use for the reality at hand though.

> Short loops completely screwup message passing.

If short loops screw up your data other than the ways I described then your system lacks idempotency guarantees and has a much larger problem.

If you're that suceptible to replays then your architecture is somewhat antiquated. Even mass market products like SQS and RabbitMQ make it fairly approachable to model a message passing system across a central linearize queue and correct these issues.

If you're not centralizing, then your system needs more sophistication but it is even more important that replays don't cause issues because you're essentially guaranteed to get them.

Don't get me wrong; bugs exist. But it sounds more like design features and flaws you're describing.

[AndrewKemendo]

Great analysis.

(A) When there is more than one solution

And this is exactly why the concept of a "growing pie" is flawed. Markets generally pool around a single solution versus averaging around multiple and there isn't enough capital (labor or dollars). I think it comes back to power law driving behaviors here and everyone wanting a huge win. So in effect markets look like fixed pies in the short term and the winner is the one that grows the pie.

Trouble with this scheme is, the "pie growth", when it happens, is distributed to a very small group of people who have the ability to make big bets - so it compounds.

In terms of (B) those are basically local maxima tied to (A) so that distribution of growth is chaotic and skewed. So while it might seem like corruption of the network, it actually is a function of the "winner take all" nature of any market in the absence of either consumer/user self regulation or some deus ex machina regulator (government etc...).

Bottom line, it's a problem with how humans act (or fail to act) collectively around information sharing.

[AnthonyMouse]

> Trouble with this scheme is, the "pie growth", when it happens, is distributed to a very small group of people who have the ability to make big bets - so it compounds.

It seems like the real trouble is that we've set things up so that "big bets" are required.

Huge tomes of regulations that have one-time compliance costs, so the cost to a tiny shop is the same as it is to Comcast or Microsoft, and regulatory capture to keep it that way.

Tax laws that encourage profits to be kept within the corporation instead of returned to investors, which requires successful companies to become conglomerates.

Laws that allow Hollywood and Apple to control content distribution and reject anything from anyone who poses a competitive threat to them.

Fix things like that and you won't have to be so big to grow the pie.

[platz]

> The financial system is a giant message passing algorithm. It is pretty much just a min-sum algorithm [1] whose sole purpose is to answer the question "what should we do?".

no, no no. To even propose that the answer to the question of "what should we do?" can be solved by the financial system is laughable; that is pure free-market absolutism.

The anwer to the question "what should we do?" is _political_ .

Let us not confuse the market with politics.

[nine_k]

I'm afraid you read "what should we do" in much more general sense than the original author. I think that algorithm answers a narrower question of "what should we do to optimize monetary resource allocation", and it only answers within the boundaries you set, for instance, trust and reputation play major roles.

[platz]

Does "optimize monetary resource allocation" include policies such as basic income, that the author referenced?

[platz]

Downvoters, explain your logic please

[ebcode]

I didn't downvote you, but my best guess to why you're being downvoted is that HN skews capitalist, and confusing the market with politics is, in the capitalist p.o.v., how the game is in fact played.

Myself, I don't think that you can untangle (even in your mind) the mess that is the market (financial system, really) from the mess that is the government. They're called "voting dollars" for a reason.

I prefer to just refer to the whole big mess as "The System".

As for downvotes, I don't think they add any value to the site except to encourage groupthink, and you're better off ignoring them. Or take them as a hint that you might be on to something! :)

[danso]

I assume you're being downvoted because you seem to have misread the author's statement and created a strawman argument. He posited that the financial system's algorithm's purpose is to answer, "what should we do?". You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole.

[platz]

> He posited that the financial system's algorithm's purpose is to answer, "what should we do?".

Yes, That is just re-stating what the author wrote, without providing any clarifying information.

> You seem to have interpreted that as saying that the financial system should answer that problem for society as a whole.

Maybe yes that is a maximalist interpretation; what is the alternative interpretation (it doesn't seem to be present in the author's text)?

> move away from min-sum towards sum-product (which often works an order of magnitude better) by perhaps implementing basic income. Etc. Etc.

Referencing 'basic income' here seems like a whole society problem to me, which has nothing to do with the technical implementation financial payment gateways, no?

[rsync]

"(B) When there are small loops in the message network"

Can you elaborate a real-world example of this for the layperson ? 50k foot view is fine :)

[smallnamespace]

Here's the most important loop that's been driving up staggering wealth inequality in our lifetimes:

- Corporations and the ultra-rich tend to be the ones who try to profit-maximize the most (because people who care about other things, don't work as hard to accumulate wealth, and because corporations that profit-maximize the best tend to survive and grow better)

- National governments since WW2 had done a decent job of redistributing wealth, but since there are increasing returns to scale on investing in tax avoidance/evasion, it is the richest individuals and corporations that are best able to avoid taxes and move wealth offshore

- It is cheaper and easier to cut a sweetheart tax with a corporation or a rich individual to temporarily attract capital to a nation-state than to generate wealth the hard way through education and infrastructure investment

So our global capitalist system for the past few decades has simultaneously selected for the most selfish, profit-maximizing institutions and individuals, while also setting up a race to the bottom between nations (and even cities and states -- see Amazon's bid for a 2nd headquarters or Tesla's Gigafactory) to see who can give the biggest tax breaks to those at the top.

[pishpash]

That's not the result of 'loops in the network'. That's the result of the memory effect of wealth. See, this is the problem with handwavy gibberish.

[naasking]

> That's not the result of 'loops in the network'. That's the result of the memory effect of wealth. See, this is the problem with handwavy gibberish.

I'm not sure if you're intending to be ironic, but you've achieved a gold star for irony nonetheless. Google "memory effect of wealth" to see if you come up with any meaningful, non-handwavy definition if your post was actually sincere.

[nine_k]

> "(B) When there are small loops in the message network"

> Can you elaborate a real-world example of this for the layperson ? 50k foot view is fine :)

[pdfernhout]

A real-world example of such dysfunction happening right now is that most of the money that could be used by all people to signal demand via cash "messages" is now tied up in a small loop of messages sent between the wealthiest people a "Casino Economy". See for example "Money as Debt II": https://www.youtube.com/watch?v=6MwHgpFSQMo

Money can be seen as a form of kanban unit or ration token for signalling demand. Essentially, the richest 1% or less of investors now use their "messaging" tokens (cash) for speculative investments in games against other wealthy investors in the financial sector (foreign exchange, derivatives market, etc.). That starves the rest of the economy for kanban tokens (cash) so it can't function. It would be like you walked into a Toyota factory using Kanban tokens and randomly removed 90% of the tokens -- that would prevent each industrial operation from signalling its need for required parts from other operations, causing all operations to slow down as they wait on all their dependencies to arrive. https://en.wikipedia.org/wiki/Kanban

Almost any economist will agree that if 90% of the money supply suddenly disappeared we would suffer a great economic depression in the USA. But the same economists seem unable to accept the same depression will happen for the 99% if the richest 1% take most of the money supply out of general circulation and just use it to play poker with each other. There are other complexities (including velocity of money message passing), but it seems to me the big issue many people overlook -- it is not just the total amount of money supply but how it is distributed.

Unfortunately, most of the governmental solutions (to satisfy wealthy donors taking part in legalized bribery of campaign donations) are based on supply-side "voodoo economics", like giving trillions of more dollars to the wealthy via bank loans or tax cuts. This is done in a foolish unfounded hope the wealthy will use extra money differently than they already have in the casino economy disconnected from meeting the needs of the 99%.

Even the slightest amount of thought will show how absurd supply-side economics is compared to demand-side economics. Almost anyone who can show a predictable demand for a good or service (like booked orders) can get a bank loan to fulfill those orders -- and to get orders, the customers need to have cash to signal demand. It is demand that makes businesses successful -- not supply.

Markets can work well to meet needs and wants, but they only hear the needs and wants of people who have money. Thus the value of a basic income to ensure all people's needs and wants are heard by the market to at least a basic extent.

Other options for dealing with the cash crisis caused by the triumph of the Casino Economy include strengthening non-market parts of the overall society such as: subsistence production (home 3D printing, home robotics, home gardening, home power via solar panels); the gift economy with more volunteering, freecycling, and sharing knowledge via the internet; and better democratic planning.

Unfortunately, with the big move of women into the workforce in the USA over the past few decades, home production, volunteering, and civic participation have all been reduced. Expanded entertainment options as a form of "Supernormal Stimuli" also distracted many people from physical daily life, also reducing participation in those other three sectors of society. Thus, a growing percentage of total societal interactions take place via exchange in the market instead of via subsistence, gift exchange, or civic planning.

Ironically, the "Two Income Trap" means families have very little to show for the second income between extra expenses involved in working outside the home, two-income families bidding up the price of houses and other items, and an increased supply of workers leading to lower compensation and poorer working conditions for everyone. See Elizabeth Warren's book on that: http://www.motherjones.com/politics/2004/11/two-income-trap/

With an increased supply of workers, there was decreased power of workers to demand wage increases in parallel with ongoing productivity increases. This in turn created the situation whether the owners of capital could take profits and lend them to workers instead of paying them in wages. Richard Wolff talks about in "Capitalism Hits The Fan", (whatever one thinks about his proposals for reform): http://issuepedia.org/Capitalism_Hits_the_Fan

To be clear, I'm not saying women should not have a choice as to what they do with their time. This is just about the societal implications of certain trends given men did not leave the work force to stay at home and be subsistence producers, volunteers, and civic actors in the same numbers as women who joined the work force.

I'm also not saying these "supernormal stimuli" are all bad (see for pros and cons: http://www.paulgraham.com/addiction.html ).

How we deal with that situation is a political question -- but to deal with it, we first need to acknowledge and understand what happened. And beyond a decrease in activity in the non-market sectors of society, one of the consequences of multiple trends has been a concentration of wealth in a smaller number of hands which has made the shift to a Casino Economy more likely.

Automation also has a role to play in that concentration of wealth from a different direction. Marshall Brain talks about that in "Robotic Freedom": http://marshallbrain.com/robotic-freedom.htm

Better technology has also increased options for participation in those three non-market areas (via cheaper tools, cheaper robots, and cheaper communications), so it is hard to say the entire trend has been downward for those non-market sectors. We may yet see them rise again as those other costs continue to fall -- and perhaps if people learn to move beyond the supernormal stimuli of mass-produced entertainment and back to making their own fun and using their own creativity.

While this won't directly break the tight loop of the 1% and the Casino Economy, it may bypass it so it does not matter as much -- in which case all that vast amount of money controlled by the 1% may just becomes like Monopoly money -- meaningless to most people most of the time because their life is built around non-market interactions.

[pishpash]

The gist is right but over all this is some handwavy gibberish.