Googleplexus, Nexus

A quick report on my Google visit. The place didn't disappoint -- it's like the 90's tech bubble never ended there! The cafeteria was great, the buildings are full of bean bag chairs, pool tables, espresso stations, mini scooters, you name it. The employees are surprisingly young and unsurprisingly very geeky. It felt like I was back on the Caltech campus. There was one guy in pajamas in the cafeteria, and lots of people with their dogs. At Caltech one often sees students who look like they just rolled out of bed at midday, staggering across campus in flip flops, gym shorts and t-shirts to hand in a problem set. Google had that feel to me. Interestingly, the ethnic mix is about the same as at Caltech or MIT -- at least a third of employees are south- or east-Asians.

The place has tremendous energy. You can tell people are very engaged in their work, and that Google is straining to keep up with the operational load of delivering search services to the entire planet. I noticed a lot of smaller satellite buildings scattered a few blocks from the main campus. They have a terrible space crunch -- many developers are sitting four to a small office. CEO Eric Schmidt's office is tiny and even celebrity technologists like Kai Fu Lee are sharing offices with several other people. (I suppose Lee might spend most of his time in China.) At one point we walked by what appeared to be an inflatable white tent in one of the open areas in building 43. Joking, I asked if those were temporary offices. My host replied (deadpan, peering into the tent) "No, I think that's a conference room, and it's not temporary..."

Googleplexus

Next week I'm headed down to the valley on another Robot Genius business trip. Among the meetings with engineers, bankers and VCs is a visit to the Googleplex in Mountain View. I'll let you know how the wasabi seared ahi is, and whether I managed to get a free massage ;-)

Seriously though, I'm one of Google's biggest fans, and fascinated by the technical aspects of what they're doing. This extends well beyond search, to things like AI and natural language (they are in a good position to use statistical methods with the large corpus of text they have on hand), massive scaling of computing systems (they have over 500k servers deployed) and even how they hire and manage highly talented technologists. I would consider taking my next sabbatical there! (OK, also in the running are the Santa Fe Institute and possibly KITP Beijing.)

Here's an interesting example of the kind of problem Google has to deal with in its core search business. A Russian hacker managed to create billions of fake Web pages using scraped content. He registered numerous domains and hosted the pages on servers in Russia. Through clever linking he managed to get Google to index his fake pages and made of order $100k in AdSense revenue before being discovered. This type of search engine manipulation is an ongoing problem, which, along with click fraud, threaten Google's core business.

Below is a hint about something we're working on in the Robot Genius labs. Why shouldn't search engines characterize the executables found on Web sites, not just the text or images?

We're also crawling the web in order to find distributors of spyware, and can automatically identify packages installed by bad guys as soon as they are created on the system.

Proof

There's an amusing back and forth (complete with little fables) going on between physicist Dave Bacon and computer scientist Scott Aaronson on their respective blogs. Both work on quantum information theory, and the argument appears to be an old one about physicists' intuition versus mathematical rigor. ("By the time you can prove it, the result will have been obvious to us for a generation" vs. "You guys are just guessing! Real men prove theorems".)

I'd like to add my opinion in the form of the following two quotes from Feynman (whom Schwinger remembered in an epitaph as "the outstanding intuitionist of our age"):

"We know a lot more than we can prove."

"Mathematics is to physics as masturbation is to sex."

I really only agree with the first quote, which, if you think about it, says something quite deep.

For our proof-obsessed brethren, I recommend the book Proofs and Refutations by Lakatos. How is it, exactly, that we "know" things? Can we ever be entirely sure that a given proof is error free? If not, how is it different from having only a probabilistic (e.g., confidence level) sense of truth?

It is their attempts to deal with unwanted and unexpected refutations - to preserve a valuable theory in the face of imperfect axioms and proof methods - that teach mathematicians the true depths of their conceptions and to point the way to new and deeper ones.

Lakatos shows this by an account of the historical development of the concept of proof in mathematics and by showing in historical detail how certain valuable 'proofs' were preserved in the face of refutation. To this point Lakatos shows that the 'proofs' of the truth of Euler's number are no proofs at all. The great mathematician Euler noticed that for any regular polyhedron the formula V-E+F=2 holds where V is the number of vertices, E is the number of edges and F is the number of faces. Euler's and his successors' proofs fall before any number of counterexamples. Does this prove that the theorem is 'incorrect?' Or does it mean... that their concept of what constituted a regular polyhedron was deficient. Lakatos shows how these conceptions were modified over a couple of hundred years as counterexample after counterexample were faced.

Kamikazes and terrorists

Freeman Dyson reflects on kamikaze pilots and Islamic terrorists in the New York Review of Books. (See the very end of the article, which is mostly a review of Daniel Dennett's book on religion and natural science.) I have heard it said many times that men die in battle for friends in their unit, rather than for flag and country.

The best source of information about modern Islamic terrorists that I know of is a book, Understanding Terror Networks, by Marc Sageman.[1] Sageman is a former United States foreign service officer who worked with the Mujahideen in Afghanistan and Pakistan. In chapter 5 of his book, he describes in detail the network that planned and carried out the September 2001 attacks on the United States. He finds that the bonds holding the group together, during its formative years in Hamburg, were more personal than political. He concludes: "Despite the popular accounts of the 9/11 perpetrators in the press, in-group love rather than out-group hate seems a better explanation for their behavior."

To end this review, I would like to introduc another recently published book, Kamikaze Diaries: Reflections of Japanese Student Soldiers, by Emiko Ohnuki-Tierney.[2] This contains extensive extracts from diaries written by seven of the young men who died in suicidal missions or as kamikaze pilots in the closing months of World War II. The diaries give us firsthand testimony of the thoughts and feelings of these young soldiers who knew that they were fated to die. Their thoughts and feelings are astonishingly lucid and free from illusions. Some of them expressed their feelings in poetry. All of them were highly educated and familiar with Western literature in several languages, having spent most of their brief lives in reading and writing. Only one of them, Hayashi Ichizo, was religious, having grown up in a Japanese Christian family. His Christian faith did not make self-sacrifice easier for him than for the others. He had read Kierkegaard's Sickness unto Deathand carried it with him on his final mission together with his Bible.

All of the young men, including Hayashi, had a profoundly tragic view of life, mitigated only by happy memories of childhood with family and friends. They were as far as it was possible to be from the brainwashed zombies that contemporary Americans imagined to be piloting the kamikaze planes. They were thoughtful and sensitive young men, neither religious nor nationalistic fanatics.

Here I have space to mention only one of them, Nakao Takanori, who must speak for the rest. Nakao left a poem beginning, "How lonely is the sound of the clock in the darkness of the night." In his last letter to his parents, a week before his death, he wrote,

At the farewell party, people gave me encouragement. I did my best to encourage myself. My co-pilot is Uno Shigeru, a handsome boy, aged nineteen, a naval petty officer second class. His home is in Hyogo Prefecture. He thinks of me as his elder brother, and I think of him as my younger brother. Working as one heart, we will plunge into an enemy vessel. Although I did not do much in my life, I am content that I fulfilled my wish to live a pure life, leaving nothing ugly behind me.

We have no firsthand testimony from the young men who carried out the September 11 attacks. They were not as highly educated and as thoughtful as the kamikaze pilots, and they were more influenced by religion. But there is strong evidence that they were not brainwashed zombies. They were soldiers enlisted in a secret brotherhood that gave meaning and purpose to their lives, working together in a brilliantly executed operation against the strongest power in the world. According to Sageman, they were motivated like the kamikaze pilots, more by loyalty to their comrades than by hatred of the enemy. Once the operation had been conceived and ordered, it would have been unthinkable and shameful not to carry it out.

Brains, genes, backlash

We posted before about Bruce Lahn's research. Lahn showed that two variants of a gene suspected to be related to brain function exhibit very different distributions in different ethnic groups, and show signs of having been subject to strong selection fairly recently in human history. Today the WSJ ran a front page article on Lahn and the backlash against his research (excerpts below). See also this interview with Lahn from Science.

Last September, Bruce Lahn, a professor of human genetics at the University of Chicago, stood before a packed lecture hall and reported the results of a new DNA analysis: He had found signs of recent evolution in the brains of some people, but not of others.

It was a triumphant moment for the young scientist. He was up for tenure and his research was being featured in back-to-back articles in the country's most prestigious science journal. Yet today, Dr. Lahn says he is moving away from the research. "It's getting too controversial," he says.

Dr. Lahn had touched a raw nerve in science: race and intelligence.

What Dr. Lahn told his audience was that genetic changes over the past several thousand years might be linked to brain size and intelligence. He flashed maps that showed the changes had taken hold and spread widely in Europe, Asia and the Americas, but weren't common in sub-Saharan Africa.

Web sites and magazines promoting white "racialism" quickly seized on Dr. Lahn's suggestive scientific snapshot. One magazine that blames black and Hispanic people for social ills hailed his discovery as "the moment the antiracists and egalitarians have dreaded."

Dr. Lahn has drawn sharp fire from other leading genetics researchers. They say the genetic differences he found may not signify any recent evolution -- and even if they do, it is too big a leap to suggest any link to intelligence. "This is not the place you want to report a weak association that might or might not stand up," says Francis Collins, director of the genome program at the National Institutes of Health.

Several scientific groups have set out to disprove or challenge Dr. Lahn's discoveries. His own university now says it is abandoning a patent application it filed to cover a DNA-based intelligence test that drew on his work.

As scientific tools for probing genes become increasingly powerful, research into human differences has exploded. Most of the time, scientists are looking for clues about the causes of disease. But some research is raising tensions as scientists such as Dr. Lahn venture into studies of genetic differences in behavior or intelligence.

Pilar Ossorio, a professor of law and medical ethics at the University of Wisconsin, criticizes Dr. Lahn for implying a conclusion similar to "The Bell Curve," a controversial 1994 bestseller by Richard J. Herrnstein and Charles Murray. The book argued that the lower average performance by African-Americans on IQ tests had a genetic component and wasn't solely the result of social factors. Referring to Dr. Lahn and his co-authors, Prof. Ossorio says: "It's exactly what they were getting at. There was a lot of hallway talk. People said he's doing damage to the whole field of genetics."

The 37-year-old Dr. Lahn says his research papers, published in Science last September, offered no view on race and intelligence. He personally believes it is possible that some populations will have more advantageous intelligence genes than others. And he thinks that "society will have to grapple with some very difficult facts" as scientific data accumulate. Yet Dr. Lahn, who left China after participating in prodemocracy protests, says intellectual "police" in the U.S. make such questions difficult to pursue.

Scientists believe that a small group of anatomically modern humans struck out from Africa probably less than 100,000 years ago. After arriving on the Eurasian land mass, they continued to split up and eventually humans populated nearly every corner of the globe. One use of genetic research is to probe how each group evolved differently after becoming isolated from the others. Recently created genetic maps of people of African, Asian and European ancestry make that research easier.

For instance, researchers have found that most Europeans have a genetic variant that lets them fully digest milk as adults. The variant is much less common in Africa and Asia, where lactose intolerance is widespread. Scientists theorize that it spread quickly among Europeans because drinking milk from domesticated dairy animals conferred a nutritional advantage. Similar evolutionary reasoning may explain why many people in malaria-prone parts of Africa carry gene variants linked to malaria resistance.

Other research is starting to explain variations in human skin color and hair texture. But scientists tense up when it comes to doing the same sort of research on the brain. Sociologist Troy Duster, who studies the use of racial categories by geneticists, worries that scientists will interpret data in ways that fit their prejudices. He cites the sorry history of phrenology, a study of skull shapes popular in the 19th century, and other pseudoscientific techniques used to categorize people as inferior. "Science doesn't transcend the social milieu," says Dr. Duster, of New York University.

Dr. Lahn traces his interest in human differences back to his youth in China. Foreigners there used to have a special currency that they could use at stores closed to ordinary Chinese. "I wondered why people were different, and why Chinese were at the bottom," he says.

By the time violence struck Tiananmen Square in 1989, Dr. Lahn, the son of two physicists, was an undergraduate at Harvard University. He channeled his curiosity into genetics and built his reputation with a groundbreaking study of the Y chromosome. After taking a post at the University of Chicago in 2000, Dr. Lahn won a prestigious fellowship from the Howard Hughes Medical Institute.

The fellowship pays most of his research bills and has allowed him to pursue creative projects, often on attention-grabbing subjects. One study looked at how promiscuity among female chimpanzees, gorillas and humans affected the evolution of a gene that makes sperm sticky. "Bruce is in a hurry to be famous," says Martin Kreitman, a Chicago colleague who is friendly with him.

Henry Harpending, a University of Utah anthropology professor who recently published a theory for why Ashkenazi Jews tend to have high IQ's, says Dr. Lahn once suggested they co-author an article for Scientific American about the genetics of behavior, in which they could explain why "Chinese are boring."

"I think that Bruce doesn't understand political correctness," Dr. Harpending says. Dr. Lahn says he only vaguely recalls the conversation but confirms that he wonders whether during China's imperial times there was "some selection" against rebellious individuals.

In recent years, Dr. Lahn has become interested in why the human brain is so large and complex. Although humans and chimpanzees share about 96% of their DNA, human brains are about four times larger. Even today, researchers can find a correlation, on average, between people's brain size and their IQ.

Dr. Lahn's group zeroed in on the role of two genes, called ASPM and microcephalin, that are known to have a role in brain size. Humans with defective copies of either gene are born with brains only about one-third the normal size.

Studying DNA from several species, the Chicago team found that, over millions of years, the genes had undergone more rapid change in monkeys, apes and humans than in other animals. Their next step was to determine if evolution had continued in modern humans. Dr. Lahn's graduate students began decoding DNA from 1,184 people belonging to 59 groups from around the world, including Bedouins, Pima Indians and French-speaking Basques.

The data showed that evolution had continued in recent millennia. A statistical analysis of DNA patterns suggested that new mutations in each of the two brain-related genes had spread quickly through some human populations. Evidently, these mutations were advantageous among those populations -- just as the genetic variant promoting milk digestion was advantageous to early Europeans. Dr. Lahn and his team further observed that the new mutations are found most frequently outside of Africa.

What the data didn't say was how the mutations were advantageous. Perhaps the genes play a role outside of the brain or affect a brain function that has nothing to do with intelligence.

While acknowledging that the evidence doesn't permit a firm conclusion, Dr. Lahn favors the idea that the advantage conferred by the mutations was a bigger and smarter brain. He found ways to suggest that in his papers. One mutation, which according to his estimates arose some 40,000 years ago, coincided with the first art found in caves, the paper observed. The other mutation, present mostly in people from the Middle East and Europe, and estimated to be 5,800 years old, coincided with the "development of cities and written language."

That suggested brain evolution might have occurred in tandem with important cultural changes. Yet because neither variant is common in sub-Saharan Africa, there was another potential implication: Some groups had been left out.

The dean of the University of Chicago's medical school, James L. Madara, says he approached Dr. Lahn before the papers were published. They discussed whether the report could be taken out of context. "Let the chips lie where they may," Dr. Madara says he told Dr. Lahn. As long as the ideas and data are clear, "don't worry about the implications," the dean said.

John Easton, head of media relations at the medical school, says his office was worried the work could be misinterpreted and abused by racist groups. Mr. Easton borrowed a copy of "The Mismeasure of Man," the famous attack on IQ tests and brain-volume measurements by the late paleontologist Stephen Jay Gould. Mr. Easton helped Dr. Lahn with talking points about his research. "We said, 'Don't be shy about telling people what it doesn't mean,' " Mr. Easton recalls.

Mr. Easton says Dr. Lahn "makes us nervous" but "with Bruce we know it's not driven by personal bias." That is because Asians "don't score at the top" in the frequency of the brain-gene mutations, Mr. Easton says.

Dr. Lahn's paper and talk at his university -- in which he also claimed the gene variants were probably linked to higher IQ -- provoked a strong reaction both on and off campus. Dr. Collins, head of the federal genome program, obtained advance copies of the papers and circulated them to top population geneticists. He wasn't persuaded by the statistical evidence for evolution and criticized Dr. Lahn's work in media interviews.

The papers won wide attention among researchers, and several responded by setting out to test Dr. Lahn's findings. Scientists at the Broad Institute, a top genetics center in Cambridge, Mass., have been reanalyzing some of the data and say they may challenge Dr. Lahn's finding that evolution acted on ASPM, one of the genes. Broad's influential chief, Eric Lander, says scientists probing recent evolution run the risk of "seeing a difference, and saying there is a story to fit it."

A team at the University of California, Los Angeles, recently tested whether the gene variants actually affect brain size. They studied DNA from 120 people whose brain volumes they had already measured using magnetic-resonance imaging. They didn't find any difference. "It certainly makes you want to look at other explanations" of what the variations mean, says Roger P. Woods, a UCLA brain-mapping expert who reported the results in May.

Some of Dr. Lahn's co-authors are also uncomfortable with the work. Sarah Tishkoff, a geneticist at the University of Maryland who provided DNA from remote African groups, says she is bothered how one paper drew a link between the genetic changes and the rise of civilization. She thinks it is too early to reach any conclusions about why the changes spread and says it is "very simplistic" to imagine that a single gene could have a major effect on complex cultural traits.

Several groups of scientists have sent letters to Science criticizing the papers. Dr. Lahn prepared responses, sending one earlier this month, but Dr. Tishkoff wasn't willing to add her name to them.

"You have to follow the data wherever it leads, but speculating in this field is dangerous," says Spencer Wells, head of the National Geographic Society's Genographic Project, a five-year, $40 million effort to collect DNA samples from 100,000 indigenous people. Dr. Wells says the project team might try to find evolutionary reasons for physical differences such as why Danes are taller than pygmies. But Dr. Wells says National Geographic won't study the brain. "I think there is very little evidence of IQ differences between races," he says.

The accuracy of Dr. Lahn's work and his views on race came up in his tenure review last fall, says a person familiar with it. After debate, his department voted unanimously in his favor, according to another faculty member. A more senior committee agreed and awarded Dr. Lahn the post of full professor, although it wasn't unanimous, this person says.

Dr. Lahn stands by his work but says that because of the controversy he is moving into other projects. Earlier this year, Mr. Easton of the university's media department forwarded Dr. Lahn a paper by two economists looking at the IQ of infants of different races. Dr. Lahn wasn't interested. "I'm surprised anyone studies this," he replied in an email.

Dr. Lahn says he isn't as eager as he once was to continue studying brain differences. P. Thomas Schoenemann, a professor of anthropology at the University of Michigan-Dearborn, says that at Dr. Lahn's request he collected DNA from 25 people whose brain sizes he had studied previously. But the two scientists haven't been in touch recently.

The university's patent office is also having second thoughts. Its director, Alan Thomas, says his office is dropping a patent application filed last year that would cover using Dr. Lahn's work as a DNA-based intelligence test. "We really don't want to end up on the front page...for doing eugenics," Mr. Thomas says.

More recently, Dr. Lahn says he was moved when a student asked him whether some knowledge might not be worth having. It is a notion to which he has been warming. Dr. Lahn says he once tried testing himself for which version of the brain genes he has. The experiment's outcome was blurry "but it wasn't looking good," he says. He hasn't tried testing himself again.

More null energy condition

hep-th/0606091

This is an extension of an earlier paper hep-th/0502203 (see blog post here). We show that in a broad class of models violation of the null energy condition indicates instability. The results are relevant to general relativity and to cosmology.

A paper by Dubovsky et al. (Ref. [6] in the new paper) exhibited a loophole in our earlier results involving superluminal (acausal) excitations. We traced this to an equation in our analysis (Eq. (47) in the new paper) that needs to be solved to find the unstable mode. In models with superluminal excitations this equation is solvable in some frames but not others (this is a sickness of acausality). Correspondingly, in some frames the Hamiltonian has no negative mode. In the appendix of the new paper we show that requiring causality is enough to restore the link between NEC violation and instability.

Coincidentally, the paper posted just before ours, hep-th/0606090 (Creminelli et al.) discusses some effective theories that can violate the NEC and be stable. Our results don't cover these models as they have four-derivative terms in the Lagrangian. We restrict ourselves to models which have classical equations of motion that are second order PDEs. I don't know what to make of third and higher order PDEs -- who knows what initial conditions are well-posed in those models.

However, the Creminelli et al. paper and the Dubovsky et al. paper are examples of how the creativity of model builders tends to evade the results of theorem-provers. No go theorems are only as good as their assumptions!


The null energy condition and instability

Authors: Roman V. Buniy, Stephen D. H. Hsu, Brian M. Murray

We extend previous work showing that violation of the null energy condition implies instability in a broad class of models, including gauge theories with scalar and fermionic matter as well as any perfect fluid. Simple examples are given to illustrate these results. The role of causality in our results is discussed. Finally, we extend the fluid results to more general systems in thermal equilibrium. When applied to the dark energy, our results imply that w is unlikely to be less than -1.

The origin of probability in quantum mechanics

hep-th/0606062

Of related interest, slides of a talk covering the same material, given at the Institute for Quantum Information at Caltech. (Check out Gork the robot!)

Title: Discreteness and the origin of probability in quantum mechanics
Authors: R. Buniy, S. Hsu, A. Zee

Attempts to derive the Born rule, either in the Many Worlds or Copenhagen interpretation, are unsatisfactory for systems with only a finite number of degrees of freedom. In the case of Many Worlds this is a serious problem, since its goal is to account for apparent collapse phenomena, including the Born rule for probabilities, assuming only unitary evolution of the wavefunction. For finite number of degrees of freedom, observers on the vast majority of branches would not deduce the Born rule. However, discreteness of the quantum state space, even if extremely tiny, may restore the validity of the usual arguments.

A relevant passage from a recent article by Steve Weinberg:

Einstein's Mistakes, Physics Today, November 2005

Bohr's version of quantum mechanics was deeply flawed, but not for the reason Einstein thought. The Copenhagen interpretation describes what happens when an observer makes a measurement, but the observer and the act of measurement are themselves treated classically. This is surely wrong: Physicists and their apparatus must be governed by the same quantum mechanical rules that govern everything else in the universe. But these rules are expressed in terms of a wavefunction (or, more precisely, a state vector) that evolves in a perfectly deterministic way. So where do the probabilistic rules of the Copenhagen interpretation come from?

Considerable progress has been made in recent years toward the resolution of the problem, which I cannot go into here. It is enough to say that neither Bohr nor Einstein had focused on the real problem with quantum mechanics. The Copenhagen rules clearly work, so they have to be accepted. But this leaves the task of explaining them by applying the deterministic equation for the evolution of the wavefunction, the Schrödinger equation, to observers and their apparatus. The difficulty is not that quantum mechanics is probabilistic—that is something we apparently just have to live with. The real difficulty is that it is also deterministic, or more precisely, that it combines a probabilistic interpretation with deterministic dynamics.

Outsourcing securities research

Sorry, don't have the link for the article below as it was sent to me by an intrepid correspondent, but it appeared on Bloomberg today. If you think carefully, it means that it is no longer the birthright of only slightly above average Ivy kids to glide into a cushy ($180k average compensation) analyst job. The really talented analysts (who are they? see the previous posts on the myth of expertise ;-) will still be very well compensated, but now the door is open to sharp kids in India, and eventually other countries.

Speaking of Bloomberg, I recommend a recent podcast (June 1) on Bloomberg On the Economy. They interview Robert Engle, a economics Nobelist in econometrics (ARCH models, volatility, etc). Engle was originally trained in physics. He talks about his transition into economics, vol, quants, etc. He mentions that he left the PhD program in physics (Cornell) because he didn't want to be working on something that "only 10 other people in the world could understand" (at the time he was working in a low-temperature physics lab in the basement). He said when he switched to econ he could "solve every problem they put in front of me," but it took a decade for him to understand which problems were the really interesting ones worth solving. Sounds like a realistic view of the technical advantages (but also economic and business naivete) that physicists and mathematicians bring to finance.

Wall Street Gets `Outsourced' as Analyst Jobs Shift to Mumbai
2006-06-05 00:37 (New York)


By Yalman Onaran
June 5 (Bloomberg) -- JPMorgan Chase & Co. had no analysts in India four years ago. Now, the third-largest U.S. bank has 80, including Naresh Bilandani, a 26-year-old London School of Economics graduate hired last year in Mumbai to help provide clients with investment recommendations on European lenders.

The group accounts for 14 percent of New York-based JPMorgan's research staff and illustrates a growing trend. Niket Patankar, who sells research services to investment banks in less-expensive markets, estimates that India's analyst ranks swelled to 5,700 from 300 in 2002. Merrill Lynch & Co., the second-largest U.S. securities firm by market value, and No. 3 Morgan Stanley employ more than 50 of them.

Securities firms are leaning on India's expanding pool of financial talent for number-crunching so they can afford to keep franchise analysts in New York and London. Wall Street's 2003 settlement with U.S. regulators cut off research departments from the revenue they got for helping investment bankers bring in fees. Now institutional customers such as Fidelity Investments are refusing to pay the inflated trading commissions that subsidized analyst reports for decades.

``We got outsourced,'' said Tom Larsen, who lost his job in London covering U.K. companies when Credit Suisse Group moved five of the seven analyst jobs in his group to India. ``Wall Street is aware that the old model, financed by investment banking, doesn't work any more. So it's trying different new models, including outsourcing.''

Larsen, 45, is now a senior policy analyst at the CFA Institute, the Charlottesville, Virginia-based organization that gives the required Chartered Financial Analyst designation to candidates who pass a grueling three-level set of once-a-year, half-day exams on everything from research ethics to discounted cash flow modeling.

CFA Exams

The number of people taking CFA tests in India climbed fivefold since 2002 to 3,178 this year, according to the CFA Institute. U.S. candidates fell by about 25 percent to 30,384. Patankar, co-founder of New York-based Adventity Inc., predicts India will have more than 20,000 analysts in 2011. That would put it ahead of the 15,229 securities analysts working at brokerages and investment banks in the U.S., according to Thomson Financial, a New York-based firm that tracks Wall Street research. The U.K. has 1,228 analysts.

``Research is probably the easiest investment-banking service that can be duplicated in India, where people are just as smart and educated as here,'' said Nejat Seyhun, a professor of finance at the University of Michigan in Ann Arbor. ``Technology has reduced the need for physical presence.''

The trend mirrors past shifts in industries from computers to automobiles, where companies from Dell Inc. to Ford Motor Co. moved production to low-cost centers such as Malaysia and Vietnam.

3,218 Miles Away

JPMorgan is keeping more-experienced analysts such as Michael Weinstein, ranked No. 1 in Institutional Investor's annual poll for his coverage of medical supply and device companies. Weinstein, based in New York, works less than an hour's drive from the biggest company in that industry, New Brunswick, New Jersey-based Johnson & Johnson.

Bilandini's Mumbai office is 3,218 miles from the headquarters of Athens-based National Bank of Greece, one of the companies that he tracks for JPMorgan.

Investment banks are ``salami-slicing their research activities and separating what needs to be at high-cost centers like New York from what doesn't,'' said Chris Gentle, director of financial-services research at Deloitte Services LP in London.
``Pressure to move offshore will grow as investment banks look for ways to cut costs while their budgets are squeezed.''

High-Cost Centers

Wall Street's research spending fell about 35 percent from 2001 to 2005, estimates Brad Hintz, a New York-based analyst at Sanford C. Bernstein & Co. who tracks the securities industry. Hintz's own firm relies mainly on bundling, or billing clients for research and trade execution in a single commission, for the revenue it needs to compensate analysts.

Total commissions paid for trading U.S. stocks dropped to $11.3 billion in 2005 from $13.4 billion in 2002, according to a survey of 239 fund managers by industry consultants at Greenwich Associates in Greenwich, Connecticut. The proportion allocated to research stayed constant at 40 percent, the survey found.

That decline made it impossible for the securities industry to maintain the same research staff in high-cost centers. The number of analysts working for the 10 biggest firms declined 21 percent to 2,641 as of November from 3,364 in 2001, according to Thomson figures.

India is helping to reverse the trend. Analysts in cities like Mumbai make as little as $20,000 a year, according to Absolute Return, a hedge fund newsletter. That compares with an average of $181,000 in the U.S. in 2005, a survey by the CFA Institute found.

Medical expertise

Previously I posted on the myth of expertise. Experts in many fields often perform no better than chance when making predictions.

This Businessweek article claims that no more than 25% of medical recommendations are supported by statistical data. Most of it is done by tradition, or according the doctor's intuition. The article profiles David Eddy, a heart surgeon who spent some time learning mathematics and earned a PhD in operations research. He revolutionized the field by pushing for "evidence-based" medicine. What is amazing to me is that this took so long and happened so recently.

...Even today, with a high-tech health-care system that costs the nation $2 trillion a year, there is little or no evidence that many widely used treatments and procedures actually work better than various cheaper alternatives.

This judgment pertains to a shocking number of conditions or diseases, from cardiovascular woes to back pain to prostate cancer. During his long and controversial career proving that the practice of medicine is more guesswork than science, Eddy has repeatedly punctured cherished physician myths. He showed, for instance, that the annual chest X-ray was worthless, over the objections of doctors who made money off the regular visit. He proved that doctors had little clue about the success rate of procedures such as surgery for enlarged prostates. He traced one common practice -- preventing women from giving birth vaginally if they had previously had a cesarean -- to the recommendation of one lone doctor. Indeed, when he began taking on medicine's sacred cows, Eddy liked to cite a figure that only 15% of what doctors did was backed by hard evidence.

A great many doctors and health-care quality experts have come to endorse Eddy's critique. And while there has been progress in recent years, most of these physicians say the portion of medicine that has been proven effective is still outrageously low -- in the range of 20% to 25%. "We don't have the evidence [that treatments work], and we are not investing very much in getting the evidence," says Dr. Stephen C. Schoenbaum, executive vice-president of the Commonwealth Fund and former president of Harvard Pilgrim Health Care Inc. "Clearly, there is a lot in medicine we don't have definitive answers to," adds Dr. I. Steven Udvarhelyi, senior vice-president and chief medical officer at Pennsylvania's Independence Blue Cross.

What's required is a revolution called "evidence-based medicine," says Eddy, a heart surgeon turned mathematician and health-care economist. Tall, lean, and fit at 64, Eddy has the athletic stride and catlike reflexes of the ace rock climber he still is. He also exhibits the competitive drive of someone who once obsessively recorded his time on every training run, and who still likes to be first on a brisk walk up a hill near his home in Aspen, Colo. In his career, he has never been afraid to take a difficult path or an unpopular stand. "Evidence-based" is a term he coined in the early 1980s, and it has since become a rallying cry among medical reformers. The goal of this movement is to pierce the fog that envelops the practice of medicine -- a state of ignorance for which doctors cannot really be blamed. "The limitation is the human mind," Eddy says. Without extensive information on the outcomes of treatments, it's fiendishly difficult to know the best approach for care.

The human brain, Eddy explains, needs help to make sense of patients who have combinations of diseases, and of the complex probabilities involved in each. To provide that assistance, Eddy has spent the past 10 years leading a team to develop the computer model that helped him crack the diabetes puzzle. Dubbed Archimedes, this program seeks to mimic in equations the actual biology of the body, and make treatment recommendations as well as figure out what each approach costs. It is at least 10 times "better than the model we use now, which is called thinking," says Dr. Richard Kahn, chief scientific officer at the American Diabetes Assn.

WASTED RESOURCES

Can one computer program offset all the ill-advised treatment options for a whole range of different diseases? The milestones in Eddy's long personal crusade highlight the looming challenges, and may offer a sliver of hope. Coming from a family of four generations of doctors, Eddy went to medical school "because I didn't know what else to do," he confesses. As a resident at Stanford Medical Center in the 1970s, he picked cardiac surgery because "it was the biggest hill -- the glamour field."

But he soon became troubled. He began to ask if there was actual evidence to support what doctors were doing. The answer, he was surprised to hear, was no. Doctors decided whether or not to put a patient in intensive care or use a combination of drugs based on their best judgment and on rules and traditions handed down over the years, as opposed to real scientific proof. These rules and judgments weren't necessarily right. "I concluded that medicine was making decisions with an entirely different method from what we would call rational," says Eddy.

About the same time, the young resident discovered the beauty of mathematics, and its promise of answering medical questions. In just a couple of days, he devoured a calculus textbook (now framed on a shelf in his beautifully appointed home and office), then blasted through the books for a two-year math course in a couple of months. Next, he persuaded Stanford to accept him in a mathematically intense PhD program in the Engineering-Economics Systems Dept. "Dave came in -- just this amazing guy," recalls Richard Smallwood, then a Stanford professor. "He had decided he wanted to spend the rest of his life bringing logic and rationality to the medical system, but said he didn't have the math. I said: 'Why not just take it?' So he went out and aced all those math courses."

To augment his wife's earnings while getting his PhD, Eddy landed a job at Xerox Corp.'s (XRX ) legendary Palo Alto Research Center. "They hired weird people," he says. "Here was a heart surgeon doing math. That was weird enough."

Eddy used his newfound math skills to model cancer screening. His Stanford PhD thesis made front-page news in 1980 by overturning the guidelines of the time. It showed that annual chest X-rays and yearly Pap smears for women at low risk of cervical cancer were a waste of resources, and it won the most prestigious award in the field of operations research, the Frederick W. Lanchester prize. Based on his results, the American Cancer Society changed its guidelines. "He's smart as hell, with a towering clarity of thought," says Stanford health economist Allan Enthoven.

Dr. William H. Herman, director of the Michigan Diabetes Research & Training Center, has a competing computer model that clashes with Eddy's. Nonetheless, he says, "Dr. Eddy is one of my heroes. He's sort of the father of health economics -- and he might be right."

..."At each meeting I would do the same exercise," he says. He would ask doctors to think of a typical patient and typical treatment, then write down the results of that treatment. For urologists, for instance, what were the chances that a man with an enlarged prostate could urinate normally after having corrective surgery? Eddy then asked the society's president to read the predictions.

The results were startling. The predictions of success invariably ranged from 0% to 100%, with no clear pattern. "All the doctors were trying to estimate the same thing -- and they all gave different numbers," he says. "I've spent 25 years proving that what we lovingly call clinical judgment is woefully outmatched by the complexities of medicine."

The big bucks

Hedge fund compensation is shocking, although I'll give credit to anyone who can actually generate alpha. The top performers deserve their money, and if the mediocre guys are overpaid, at least their investors are sophisticated enough to know better. Jim Simons and his team actually donated funds to support the Relativistic Heavy Ion Collider, which ran out of money last year. 29 percent net of fees is incredible, considering they do it consistently.

Most studies show that wealth and income inequality in the US are near all-time highs, matched only by the 1920's, just before the Great Depression.

NYTimes: Just when it seems as if things cannot get any better for the titans of investing, they get better — a lot better.

James Simons, a math whiz who founded Renaissance Technologies, made $1.5 billion in 2005, according to the survey by Alpha, a magazine published by Institutional Investor. That trumps the more than $1 billion that Edward S. Lampert, known for last year's acquisition of Sears, Roebuck, took home in 2004. (Don't fret for Mr. Lampert; he earned $425 million in 2005.) Mr. Simons's $5.3 billion flagship Medallion fund returned 29.5 percent, net of fees.

No. 2 on Alpha's list is T. Boone Pickens Jr., 78, the oilman who gained attention in the 1980's going after Gulf Oil, among other companies. He earned $1.4 billion in 2005, largely from startling returns on his two energy-focused hedge funds: 650 percent on the BP Capital Commodity Fund and 89 percent on the BP Capital Energy Equity Fund.

A representative for Mr. Simons declined to comment. Calls to Mr. Pickens's company were not returned.

The magic behind the money is the compensation structure of a hedge fund. Hedge funds, lightly regulated private investment pools for institutions and wealthy individuals, typically charge investors 2 percent of the money under management and a performance fee that generally starts at 20 percent of gains.

The stars often make a lot more than this "2 and 20" compensation setup. According to Alpha's list, Mr. Simons charges a 5 percent management fee and takes 44 percent of gains; Steven A. Cohen, of SAC Capital Advisors, charges a management fee of 1 to 3 percent and 44 percent of gains; and Paul Tudor Jones II, whose Tudor Investment Corporation has never had a down year since its founding in 1980, charges 4 percent of assets under management and a 23 percent fee.

OFHEO Fannie Mae smackdown

The OFHEO report is out. A $400M fine for Fannie... not a whitewash like the previous Rudman report... look for shareholder lawsuits to claw back some of Franklin Raines' $40M in compensation.

See previous posts here and here.

More and more

Last week I had almost identical discussions with several different professors (including a former dean of the business school) about narrow specialization in academia. We all agreed that the way to get ahead is to stake out your turf in one narrow area and defend it at all costs.

I, however, specifically became a physicist in order to think about new and interesting things -- even things not traditionally considered physics! While the typical academic is someone who knows more and more about less and less, I think my motto is to learn more and more about more and more :-)

I don't think I could stand to spend all my time writing the (N+1)th paper on some speculative model (which I don't really believe to be a correct description of Nature), or on some straightforward application of known techniques, just to get citations. Instead, I'll take the quixotic path of working on totally new things every few years. But of course, as noted by everyone I talked to, I can expect only punishment for deviating from the norm!

Marcus Aurelius:
"Or does the bubble reputation distract you? Keep before your eyes the swift onset of oblivion, and the abysses of eternity before us and behind; mark how hollow are the echoes of applause, how fickle and undiscerning the judgments of professed admirers, and how puny the arena of human fame. For the entire earth is but a point, and the place of our own habitation but a minute corner in it; and how many are therein who will praise you, and what sort of men are they?"

The great migration

This discussion (available both as stream and podcast) is one of the best I've heard about what may be the greatest migration in history -- the movement of over 100M Chinese from rural villages to coastal cities over the last 20 years. Discussants include Peter Hessler, the New Yorker writer (and former English teacher in China) whose dispatches have appeared periodically in the magazine, Leslie Cheng, who covers China for the WSJ (I've posted some of her articles here), an academic economist and an anthropolgist who study migration.

Parallels with the industrial revolution in the UK and US are discussed. The plight of migrants in cities where they have limited legal rights... the myth of the sweatshop vs the dreary life of traditional agriculture... the transformative effects on rural China... all are important factors underlying modernization and globalization.

Comments:

1) 100M is a lot of people, but there are plenty more. Over half a billion people still work in agriculture. Although efficiency has improved in the post-Deng era, Chinese agriculture still has a long way to go. Efficiencies approaching modern levels would mean an order of magnitude fewer agricultural workers -- meaning hundreds of millions more migrants to the cities.

2) Factory work may seem unpleasant by US standards (although probably similar to what workers endured here only a century ago), but trainloads of young people in seach of work arrive in coastal cities every day. They obviously *prefer* factory work over life on the farm. The economist in the discussion notes that once migrants are in the city they often want to work as many hours as possible to make more money.

3) Independent city living may be the single greatest pro-feminist force in China. Once young women have made it on their own they are unwilling to submit again to traditional patriarchal conditions that persist in the countryside.

The World, a recent film by Jia Zhangke, does a wonderful job of capturing the urban-migrant zeitgeist -- especially the feelings of dislocation and loneliness. I recommend it highly. (Times review.)

Universal library

Nice article in the Times updates us on how various book digitizing projects are coming along. As usual, lawyers gumming up progress :-)

I look forward in a few years to storing 10 million books (equivalent to, e.g., Widener Library at Harvard) plus an image of the entire Web on the terabyte drive of my laptop. This is completely feasible technically -- the main barriers are legal and economic. Sadly, this does suggest that I have more faith in storage technologists than superfast broadband roll out. If we had really good broadband I wouldn't have to carry any data around with me on my laptop!

See previous post with more numbers here.

Like many other functions in our global economy, however, the real work has been happening far away, while we sleep. We are outsourcing the scanning of the universal library. Superstar, an entrepreneurial company based in Beijing, has scanned every book from 900 university libraries in China. It has already digitized 1.3 million unique titles in Chinese, which it estimates is about half of all the books published in the Chinese language since 1949. It costs $30 to scan a book at Stanford but only $10 in China.

Raj Reddy, a professor at Carnegie Mellon University, decided to move a fair-size English-language library to where the cheap subsidized scanners were. In 2004, he borrowed 30,000 volumes from the storage rooms of the Carnegie Mellon library and the Carnegie Library and packed them off to China in a single shipping container to be scanned by an assembly line of workers paid by the Chinese. His project, which he calls the Million Book Project, is churning out 100,000 pages per day at 20 scanning stations in India and China. Reddy hopes to reach a million digitized books in two years.

The idea is to seed the bookless developing world with easily available texts. Superstar sells copies of books it scans back to the same university libraries it scans from. A university can expand a typical 60,000-volume library into a 1.3 million-volume one overnight. At about 50 cents per digital book acquired, it's a cheap way for a library to increase its collection. Bill McCoy, the general manager of Adobe's e-publishing business, says: "Some of us have thousands of books at home, can walk to wonderful big-box bookstores and well-stocked libraries and can get Amazon.com to deliver next day. The most dramatic effect of digital libraries will be not on us, the well-booked, but on the billions of people worldwide who are underserved by ordinary paper books." It is these underbooked — students in Mali, scientists in Kazakhstan, elderly people in Peru — whose lives will be transformed when even the simplest unadorned version of the universal library is placed in their hands.

...Just as a Web article on, say, aquariums, can have some of its words linked to definitions of fish terms, any and all words in a digitized book can be hyperlinked to other parts of other books. Books, including fiction, will become a web of names and a community of ideas.

Search engines are transforming our culture because they harness the power of relationships, which is all links really are. There are about 100 billion Web pages, and each page holds, on average, 10 links. That's a trillion electrified connections coursing through the Web. This tangle of relationships is precisely what gives the Web its immense force. The static world of book knowledge is about to be transformed by the same elevation of relationships, as each page in a book discovers other pages and other books. Once text is digital, books seep out of their bindings and weave themselves together. The collective intelligence of a library allows us to see things we can't see in a single, isolated book.

When books are digitized, reading becomes a community activity. Bookmarks can be shared with fellow readers. Marginalia can be broadcast. Bibliographies swapped. You might get an alert that your friend Carl has annotated a favorite book of yours. A moment later, his links are yours. In a curious way, the universal library becomes one very, very, very large single text: the world's only book.

...So what happens when all the books in the world become a single liquid fabric of interconnected words and ideas? Four things: First, works on the margins of popularity will find a small audience larger than the near-zero audience they usually have now. Far out in the "long tail" of the distribution curve — that extended place of low-to-no sales where most of the books in the world live — digital interlinking will lift the readership of almost any title, no matter how esoteric. Second, the universal library will deepen our grasp of history, as every original document in the course of civilization is scanned and cross-linked. Third, the universal library of all books will cultivate a new sense of authority. If you can truly incorporate all texts — past and present, multilingual — on a particular subject, then you can have a clearer sense of what we as a civilization, a species, do know and don't know. The white spaces of our collective ignorance are highlighted, while the golden peaks of our knowledge are drawn with completeness. This degree of authority is only rarely achieved in scholarship today, but it will become routine.

Finally, the full, complete universal library of all works becomes more than just a better Ask Jeeves. Search on the Web becomes a new infrastructure for entirely new functions and services. Right now, if you mash up Google Maps and Monster.com, you get maps of where jobs are located by salary. In the same way, it is easy to see that in the great library, everything that has ever been written about, for example, Trafalgar Square in London could be present on that spot via a screen. In the same way, every object, event or location on earth would "know" everything that has ever been written about it in any book, in any language, at any time. From this deep structuring of knowledge comes a new culture of interaction and participation.

The main drawback of this vision is a big one. So far, the universal library lacks books. Despite the best efforts of bloggers and the creators of the Wikipedia, most of the world's expertise still resides in books. And a universal library without the contents of books is no universal library at all.

There are dozens of excellent reasons that books should quickly be made part of the emerging Web. But so far they have not been, at least not in great numbers. And there is only one reason: the hegemony of the copy.

No US topcoders?

TopCoder is a global programming competition with thousands of competitors worldwide. If I recall correctly, in the early rounds you qualify by taking online tests, then advance to regional and global finals. Any competition like this is just a crude evaluator of talent (although I'm sure anyone who can win TopCoder is very talented), and perhaps not entirely predictive of real-world performance. Nevertheless, it is alarming how poorly Americans are doing at the competition. There were similarly poor results in the recent ACM collegiate programming championships, in which no US team made the top 10.

The two Americans mentioned in the WSJ article below are both Caltech guys! (The older brother just graduated, I think.)

Cause for Concern? Americans Are Scarce
In Top Tech Contest
May 10, 2006

The results have been carefully tabulated by a computer and, thus, are beyond dispute: Of the 48 best computer programmers in the world, only four of them are Americans. But what that bit of data says about the state of the U.S. education system is open to debate.

Back in February, I wrote about a computer-programming competition run by an outfit called TopCoder. That event was part of the run-up to the global finals held last week in Las Vegas. If you have trouble putting "computer programming" and "spectator sport" in the same sentence, you haven't been to one of these contests. From the gasps, moans and cheers as the audience watched the scoreboard tracking the contestants, you'd have thought you were at a World Cup match.

As noted in February, these competitions were dominated at their start in 2001 by Americans, but that's no longer the case -- not by a long shot. In fact, of the four Americans who won the top seats out of 4,500 contestants, two were brothers: Po-Shen Loh, 23, a graduate student in math at Princeton University, and his 21-year-old sibling, Po-Ru, now an undergraduate at CalTech. Both were born in the Midwest of parents who had emigrated to the U.S. from Singapore; their father is a professor of statistics at the University of Wisconsin at Madison.

By contrast, there were eight from Russia, and four each from Norway and China. The biggest delegation -- 11 -- came from Poland.

So, is all this more evidence of a sad decline in American education and competitiveness?

Surprisingly, the Eastern Europeans don't seem to think so. Poland's Krzysztof Duleba, 22, explained that in countries like his own, there are so few economic opportunities for students that competitions like these are their one chance to participate in the global economy. Some of the Eastern Europeans even seemed slightly embarrassed by their over-representation, saying it isn't evidence of any superior schooling or talent so much as an indicator of how much they have to prove.

Much of Poland's abundant interest in coding contests can be traced to Tomasz Czajka, who as a multiple TopCoder champion has won more than $100,000 in prize money since the competition began. That has made him something of a national hero back home, and other students have been eager to follow suit.

Each round of competition had three problems: easy, medium and hard. The hard problem of the final round required contestants to figure out the most efficient way of using computer cable to connect different nodes in a network.

Naturally, the actual problem was vastly more complicated than that description makes it seem. John Dethridge, an Australian contestant, said the average computer-science undergraduate might not be able to solve that third problem at all, much less do so in the 90 minutes the contestants had to tackle all three.

The final round involved eight contestants culled during the first two days of competition. None of the Americans made the final cut; instead, there were two Russians, two Poles, and coders from Australia, China, Japan and Slovakia. One of the Russians, Petr Mitrichev, 21, won, taking home $20,000 for his efforts.

Others attending the contest cautioned against reaching any sky-is-falling conclusions about the relative lack of success of Americans.

Ken Vogel, a former TopCoder contestant who was at the event recruiting for his current employer, UBS, noted that in the real world, programmers need many other skills in addition to the ability to solve quickly some discrete and entirely artificial problems. These include, he said, thinking about the big picture, working well in teams, and anticipating the sorts of things that users of computers and computer software might actually want.

It's not at all clear that any of the famous U.S. technology entrepreneurs of the past several decades would have done particularly well at such a contest.

Still, when contemplating how out of place some of the strongly disciplined Russian or Polish programmers would be among American college students, who all too often become either slackers or salary-obsessed careerists out for the easy score, it's hard not to be depressed.

American contestant Po-Shen Loh recalled recently happening upon an afternoon TV cartoon aimed at toddlers, in which a stereotypically brainy student was being teased by his classmates. "They were making fun of the smart one," he sighed. "If this is what American kids are watching even before they know any better, it can't help but affect them later on."

The TopCoder company pays for these events in part by attracting sponsors who pony up for the privilege of recruiting from among the contestants. One of the sponsors was the National Security Agency, which, as keeper of America's state secrets, isn't allowed to hire noncitizens. That makes it one of the few employers anywhere who can't participate in the globalization of the computer industry that the contest represents.

The other sponsors, however, were all smiles.

Social mobility

Andrew Hacker reviews several new books on class and inequality in the NY Review of Books. The table below summarizes both upward and downward mobility from a recent study. I've seen claims that social mobility in the US has decreased, and is now less than in some european countries (particularly Scandinavian countries in which university education is free). Nevertheless, you can see that about a third of kids from the top or bottom quintile will jump by two or more quintiles in their lives (the poor kids moving up and the rich kids falling from affluence). Furthermore, the distributions are relatively symmetric.



(BTW, the article by physicist Jeremy Bernstein on nuclear weapons and intelligence failures in the same issue is very good.)

Crypto and car theft

Ever wonder what kind of handshake is going on between your luxury car and the keyless entry key fob? It seems that this is a solvable problem, although it depends a bit on how much CPU power the fob has.

Gone in 20 minutes

High-tech thieves are becoming increasingly savvy when it comes to stealing automobiles equipped with keyless entry and ignition systems. While many computer-based security systems on automobiles require some type of key — mechanical or otherwise — to start the engine, so-called ‘keyless’ setups require only the presence of a key fob to start the engine.

The expert gang suspected of stealing two of David Beckham’s BMW X5 SUVs in the last six months did so by using software programs on a laptop to wirelessly break into the car’s computer, open the doors, and start the engine.

“It’s difficult to steal cars with complex security, but not impossible. There are weaknesses in any system,” Tim Hart of the Auto Locksmith Association told the U.K.’s Auto Express magazine. “At key steps the car’s software can halt progress for up to 20 minutes as part of its in-built protection,” said Hart.

Because the decryption process can take a while — up to 20 minutes, according to Hart — the thieves usually wait to find the car in a secluded area where it will be left for a long period. That is believed to be what happened to Mr. Beckham — the crooks followed him to the mall where he was to have lunch, and went to work on his X5 after it was parked.

While automakers and locksmiths are supposed to be the only groups that know where and how security information is stored in a car, the information eventually falls into the wrong hands.

...The Leftlane Perspective: Many modern cars now rely on software entirely for security. Gone are the days where microchips supplemented mechanical locks as an additional security measure. In the case of true ‘keyless’ systems, software is the only thing between a thief and your car. As computers become more powerful, will stealing cars become even easier? Never mind future cars with better security — what about today’s cars a few years down the road? With cars as inexpensive as the Toyota Camry offering entirely keyless systems, these concerns a relevant to all consumers.

The sad state of US particle physics

The Economist summarizes the sorry state of hep-ex in the US. Even in the optimistic scenario, in which the ILC is sited here, America will be a backwater for particle experiment for a decade to come. Does anyone other than a few particle physicists care? The NRC panel had to recruit economist and former Princeton president Harold Shapiro to lend gravitas to the report. What does Shapiro know about fundamental science or technology? What does this say about the prestige of physics today relative to its glory days 50 years ago?

A report on the state of fundamental physics in America

NEAR Waxahachie in Texas, there is a hole in the ground. Not just any old hole. This one is almost 23km long and curves in what would be, if it were extended, a circular loop. It is the site of what was intended to be the world's biggest and best particle accelerator, a machine capable of unlocking some of the fundamental secrets of nature itself. Ever since the project to build it was cancelled in 1993, after nearly $2 billion had been spent on construction, America's lead in particle physics has been shrinking. This week, a report by the country's National Research Council (NRC) outlined what America can do to regain its pre-eminence.

The outlook is grim. After decades of making discoveries about the fundamental building blocks of nature, America's particle-physics colliders are to close. The Tevatron at Fermilab, near Chicago, is the world's highest-energy particle-smasher. But that honour will be wrenched from it next year, when the Large Hadron Collider (LHC) opens for business at CERN, the European particle-physics laboratory near Geneva. The Tevatron is scheduled to shut by the end of the decade, and the LHC is expected to dominate international particle physics for the next 15 years.

America's other accelerators are in trouble, too. Work at the Stanford Linear Accelerator Centre is moving away from particle physics and into generating high-energy X-rays. Funding for the Relativistic Heavy Ion Collider at the Brookhaven National Laboratory is so tight that the machine managed to keep running only after a philanthropist intervened. Many American particle physicists have switched their attentions to the LHC. And while physicists dream of shiny new machines, none is scheduled to be built in America. In the review of its top ten research advances of 2005, Science singled out American particle physics for the booby prize.

This is a shame. While particle physics does not produce economic returns in the lifetimes of the administrations that fund the experiments, it is a fascinating endeavour. Over the past 100 years, physicists have succeeded in identifying the fundamental building blocks of the universe, both in terms of matter and of the forces that act on it. Yet the so-called Standard Model of particle physics, which weaves these discoveries together, and which has proved so successful to date, is incomplete. If physicists are to improve on it, they need machines that supply particles at higher energies to probe the nature of space and time. Such machines could provide answers about how the universe began and how it will evolve.

In this light, the NRC report makes interesting if somewhat biased reading. It wants America to retake the lead in particle physics, and to host the next new particle accelerator to be built after the LHC. A decision on whether to build this machine, dubbed the International Linear Collider, will not be taken until the initial results from the LHC are known. If these point to more fundamental physics beyond the Standard Model, as is widely expected, then there would be mileage in building a more powerful accelerator to study these phenomena. Such a decision would not be made until 2010, but America's physicists are keen for their country to host such a facility.

To do so, the NRC reckons, America will need to spend between 2% and 3% more each year in real terms on particle physics. That might not sound onerous, but it amounts to $500m over the next five years.

European particle physicists are also keen to lead the world. A similar panel of experts is close to finalising a European strategy. The CERN Council Strategy Group, as it is called, will meet near Berlin next week to hammer out a consensus. Then, in July, this consensus will be presented to the politicians who decide the funding of particle physics.

At present, Europe is poised to take the lead: it will soon have the world's biggest and best particle accelerator. Whether CERN could afford to host the International Linear Collider, though, is a moot point. The laboratory has had to take out loans to build the LHC, and it is likely that any future money would be spent on upgrading that machine.

Then there is Japan, which has a promising programme in neutrino physics, another area where the report urges America to push forwards. Japan recently lost the fight to host the International Thermonuclear Experimental Reactor, an expensive international project which aims to demonstrate that nuclear fusion could produce power on a commercial basis, so it feels it is owed something. And, depending on the strengths of their economies when the time comes to make the decision, Russia, China and India could all be interested, too.

In any event, American particle physics looks set for a period in the wilderness. Whether the country can recapture its superiority after such a spell depends on whether there is the political will to pour more money into holes in the ground.

Information blackout

Wow, I think I just went an entire week without posting anything. In the last week I've been down to Robot Genius world headquarters (with a stop on Sand Hill road for some meetings), changed a million diapers, covered for a colleague in undergrad QM (four lectures on scattering theory), almost finished a physics paper (I'll post something here when it's ready), given a talk on entrepreneurism at the UO Lundquist School of Business, and next week I'm giving a physics colloquium at U Kansas. Did I mention I changed a lot of diapers? Boy am I tired...

I heard the following story about Sabeer Bhatia, Caltech grad and founder of Hotmail. Apparently Sabeer was seeking funding for another startup idea, got turned down, and as he was leaving the office the VC said something like "Gee, you're a smart guy, Sabeer, do you have any other ideas?" Sabeer replied that he really wished he could check his email via a simple Web interface so he didn't have to wait until he got home. Thus Hotmail, a $400M Microsoft acquisition was born.

Alpha geeks

More nonlinear returns to brainpower.

This Times article, about Google in China, features Kai-Fu Lee, a CS PhD (speech recognition) who was the subject of a bidding war and lawsuits between Microsoft and Google. He now runs Google's Beijing office (he used to run Microsoft research there).

This WSJ piece profiles Goldman's Global Alpha quant hedge fund. Asness has appeared before on this blog (you can search on the right), both for his research on a modified Fed model for equity valuation, and via a Times magazine profile.

In early 1997, Mark Carhart was an academic at the University of Southern California. His big claim to fame was his doctorate work at the University of Chicago on mutual-fund performance.

Today, the 40-year-old Mr. Carhart and another former Chicago-school colleague run a big, secretive hedge fund at Goldman Sachs Group Inc. which, with an estimated $10 billion in assets, is the Cadillac of a fleet of alternative investments that have boosted the earnings at the blue-chip Wall Street firm. And the two men are making millions themselves.

Known as Global Alpha, the Goldman hedge fund was a leading contributor to a surge in "incentive fees," or performance-related fees, that Goldman reported for the first quarter ended in February. In that period, the incentive fees soared to $739 million from $131 million a year earlier, helping Goldman's earnings rise 64% to $2.48 billion, the biggest first-quarter gain of any major Wall Street firm.

Global Alpha's recent returns have been sizzling. In the 12-month period ended in March, the fund returned more than 48% before some fees, according to Goldman Sachs JBWere, an Australian affiliate of Goldman. It was closed to new investors last year. (On Wall Street, the word alpha refers to investment returns beyond those generated by the market.)

The bearded Mr. Carhart and his colleague, Ray Iwanowski, manage Global Alpha. A 50-member team they lead also offers a menu of services for Goldman clients based on statistical models first developed by a group led by Clifford Asness, another former Chicago student.

The Global Alpha fund was seeded in late 1995 with just $10 million, and in its first full year, 1996, the fund returned 140%, one former group member recalls. Mr. Asness left Goldman in 1997 with seven of the group's 13 members, to form his own hedge-fund business, AQR -- short for Applied Quantitative Research.

...The Global Alpha group's lineage traces to a group of students of Professor Eugene Fama, an influential Chicago finance professor known for a belief in efficient markets. In the early 1990s, his former teaching assistant, Mr. Asness, was recruited to join Goldman by a college friend, and in turn recruited numerous colleagues from Chicago.

One of the group's early assignments was to build quantitatively oriented asset-allocation models. Part of the methodology, which underpinned the strategy of Global Alpha, was to select stocks selling at cheap prices based on their book value, earnings or other metrics, while betting on a decline in stocks selling at higher prices based on their growth prospects.

The Goldman group later used similar methods to choose not only stocks but also bonds, currencies, and entire country markets, former group members say. The models also included a "momentum" factor based on which stocks or markets have recently performed well. Although the models have evolved, the underlying "quant" methodology remains similar.

In addition to Global Alpha, Goldman employees manage two other hedge funds specializing in quantitative stock and bond investments with an estimated $8 billion in assets. While some competitors grumble that Goldman traders could gain an advantage based on possible access to client information, the Goldman funds don't have such access, former group members say.

The Goldman "quants" also offer a product similar to the Global Alpha fund known as global tactical asset allocation, which gives pension funds and other institutions the chance to boost returns using statistical methods. Goldman's 2003 annual report featured a team including Mr. Carhart which invested $1 billion for the General Motors Corp. pension fund using "active alpha investing."

The Goldman team continues to rely on the latest work from academia. Maryland's Mr. Wermers recalled a visit to Goldman about a year ago to discuss a paper he had written on whether the flow of investments into top-performing mutual funds could predict whether stocks they held would rise in price.

When he presented his findings in a boardroom filled with about 20 GSAM employees, Mr. Wermers recalls, "it was kind of a high-pressure event. They asked very, very tough questions."

Housing bubble bursting?

Some interesting data from the San Francisco Fed, via Economist's View (another fine U Oregon blog :-)

Rising inequality in Japan

Maximum marginal tax rates in Japan are now comparable to those in the US. Lifetime employment by large corporations is a thing of the past, and expensive private schools are the ticket to success. Sound familiar? Egalitarianism has been replaced by kachigumi and makegumi ("the winning team" and the "losing team"). Previously discussed here.

NYTimes: Today, in a country whose view of itself was once captured in the slogan, "100 million, all-middle class society," catchphrases harshly sort people into "winners" and "losers," and describe Japan as a "society of widening disparities." Major daily newspapers are running series on the growing gap between rich and poor, with such titles as "Divided Japan" and "Light and Darkness."

...Mayumi Terauchi, 38, began receiving education aid when her 7-year-old son, Yuuki, started school last year, to help bear the costs of the backpack, cafeteria lunches and other necessities not covered in public schools. She frets that his place and that of her 1-year-old daughter, Natsumi, are already fixed in the new Japan of winners and losers.

Ms. Terauchi sees a "huge gap" in quality between public and private schools here in Osaka. But she and her husband cannot afford the private schools, or even the cram schools — for-profit supplemental programs — that would raise their children's chances of getting into good colleges and securing their future.

...Until a generation ago, in keeping with the belief that wealth must be redistributed, the highest personal income tax rate was 75 percent. It was gradually lowered, to its current rate of 37 percent in 1999, before Mr. Koizumi took power. Under his government, the capital gains tax on sales of stocks was lowered from 20 percent to 10 percent in 2003, and inheritance laws were changed to make it easier to transfer large assets. Meanwhile, the government decreased health and pension benefits.

...in a country famous for its savers, the number of households reporting no savings doubled to 24 percent — the highest figure since the early 1960's. And the number of households receiving welfare payments rose by more than 37 percent to more than a million households. From 2000 to 2004, the number of schoolchildren receiving aid rose by 36 percent to almost 13 percent of elementary and junior high school students.

...Mr. Yamada, the sociologist, says the disparities are sharpest among Japanese in their 20's and 30's, among whom two groups have emerged: full-time employees and permanent temporary workers.

"The reason that there are no riots in Japan as in France is that most of these young people live with their parents," Mr. Yamada said, pointing out that even 12 percent of Japanese between the ages of 35 and 44 lived with their parents in 2004. With free housing and food, those with temporary jobs can still afford to pursue personal interests.

..."I wonder what kind of country Japan is becoming if you're told you're either a winner or loser," she said. "I don't want to be either. I just want to lead an average life."

Greenspan tells it like it is

Now that he's no longer Fed Chairman he can tell it like it is. Asian currencies to appreciate vs the dollar (evoking the Plaza Accord), a global asset bubble driven by liquidity, and Sarbanes-Oxley an undue burden on corporations.

Financial Times: Greenspan calls for stronger Asian currencies

Alan Greenspan, former chairman of the US Federal Reserve, on Wednesday said that current imbalances in the global economy could be corrected if high-growth countries allowed their currencies to strengthen.

Mr Greenspan’s remarks were in response to a suggestion on whether Asian countries should consider their own Plaza Accord-style agreement, similar to the one the US reached with Europe and Japan to coordinate intervention in the foreign exchange market to weaken the dollar and reduce the US trade deficit.

“The equilibrium is better reached by allowing a number of these countries that show a much higher growth rate than developed countries to allow their currencies to firm,” Mr Greenspan said. He was speaking to the FT Asian Financial Centres Summit in Seoul via satellite.

“I realise what that does to competitiveness, but that’s the way markets work efficiently. Endeavouring to prevent the exchange rates from moving creates all sorts of distortions.”

Mr Greenspan also warned of a potential fall in global asset prices, stressing that the ample liquidity currently in the financial system appeared to be an “abnormal situation” and could not last forever.

He said the source of this liquidity was the market value of assets worldwide, which had been rising faster than nominal gross domestic product globally due to a decline in real long-term interest rates and a significant fall in real equity premiums.

“A good part of this expansion is a direct function of the decline in real equity premiums. That cannot go on indefinitely,” he said.

“I don’t know when the liquidity is going to decline but I am reasonably certain that what we’re looking at is an abnormal situation.”

The former Fed chairman also said he was disturbed over the effects the US Sarbanes-Oxley act – the more stringent corporate governance rules introduced in 2002 - was having in driving away listings of foreign companies.

“The base of Sarbanes-Oxley is a definite advance in corporate governance in the US. There are sections of the bill which were put together rather quickly, in particular Section 404, and which creates a heavy burden on the accounting system and is an anathema to foreign investors who endeavour to list IPOs in the US and have chosen not to.”

50 years of Howl

by Allen Ginsberg

I saw the best minds of my generation destroyed by madness, starving hysterical naked, dragging themselves through the negro streets at dawn looking for an angry fix, angelheaded hipsters burning for the ancient heavenly connection to the starry dynamo in the machinery of night, who poverty and tatters and hollow-eyed and high sat up smoking in the supernatural darkness of cold-water flats floating across the tops of cities contemplating jazz, who bared their brains to Heaven under the El and saw Mohammedan angels staggering on tenement roofs illuminated, who passed through universities with radiant cool eyes hallucinating Arkansas and Blake-light tragedy among the scholars of war, who were expelled from the academies for crazy & publishing obscene odes on the windows of the skull, who cowered in unshaven rooms in underwear, burning their money in wastebaskets and listening to the Terror through the wall, ...

NYTimes: Ginsberg wrote "Howl" in San Francisco and Berkeley; he read the long first section in public for the first time in San Francisco in 1955, and the whole of the poem for the first time in Berkeley the next year. (A CD of that performance is included in this book.) All sorts of divisions, exclusions, restrictive manners and deferences that were second nature in the East were missing in the Bay Area. If the primary terrain of the poem is New York City, the freedom one could find in California in the 50's is crucial to the air that blows through the dank rooms of "Howl," blowing all the way back to New York...

More podcasts

Some more podcast recommendations, all available here. Thanks to the podcast, I never get bored while running anymore. I listened to Suketu Mehta's wonderful talk while on a hotel treadmill, usually the most mind numbing of exercise venues!

You can access these as streams, if you don't have an ipod.

East Meets West

Oded Shenkar, Author, "The Chinese Century" -- The US has the largest, most robust, and most flexible economy in the world, but within twenty years, China will likely surpass the US in at least one of those. In this presentation from PopTech! 2005, Oded Shekar, the Ford Motor Company Chair in Global Business Management at Ohio State University and author of the book The Chinese Century, outlines China's rise and what it might mean for the US in the coming years.

Bombay

Suketu Mehta, Author, "Maximum City" -- Award winning writer Suketu Mehta tells us that his home town of Bombay and other mega-cities foreshadow the future. Bombay juxtaposes hopeless poverty, crowding, and inequity with riches and a vitality that draws a flood of young immigrants from rural villages. Although Mehta paints a grim picture, he sees hope in the exercise of democracy by the poor and a culture where people help each other while expecting little from their government.