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Goldman Sachs

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Big Data

27 August 2013

Big Data

By Gwynne Dyer

Over the past two weeks we have seen the following computer system crashes:

a three-hour network shutdown on 22 August that paralysed the NASDAQ stock exchange, crippled others, and caused a one-third drop in the daily total of shares traded on American exchanges;

also on 22 August, a blackout of Apple’s iCloud that lasted for 11 hours for some customers;

a trading glitch in the Goldman Sachs computer on 20 August that resulted in a large number of erroneous stock and options trades and cost the firm up to $100 million;

a shutdown of Amazon’s North American retail site on 19 August that lasted almost an hour and resulted in an estimated $2 million in lost sales;

on 16 August, a four-minute global outage of Google’s services, including email, YouTube and its core search engine, that led to an 40 percent drop in global internet traffic;

And last month, in another part of the forest, we had the director of the US National Security Agency, General Keith Alexander, admitting that he still did not know exactly which files whistle-blower Edward Snowden had downloaded and taken with him when he fled the country two months before.

Well, General Alexander didn’t exactly admit it; he just declined to say whether he knew, but that comes to the same thing. Two months after Snowden flew the coop, the NSA still doesn’t know how many more of their embarrassing secrets are out there waiting to be revealed.

This may explain something quite puzzling that happened last week. A Brazilian citizen, David Miranda was changing planes in London when he was stopped by British police under the Terrorism Act, questioned for nine hours, and then released – but the police kept his computer, two pen drives, an external hard drive, and various other electronic items.

Miranda is the partner of Guardian journalist Glenn Greenwald, who has been working on Snowden’s documents, but the police wouldn’t have gone to all that trouble just to harass him, particularly since their actions were probably illegal: all their questions were about Snowden and the NSA files, not about terrorism. And why would they even bother to confiscate Miranda’s electronics? Don’t they realise there are bound to be copies elsewhere?

It’s less puzzling if you assume that the NSA asked for the operation (of course it did), and that its goal was actually to find out just how much Snowden knows, and can prove. Maybe it found out, maybe it didn’t – but what it tells the rest of us is that the NSA is not really in control of its own data. If Snowden can take it away with him, so can others.

There are 850,000 potential “others” – Americans with top secret clearance and access to the data – and some of them will not have the same high motives as Snowden for stealing the data. In fact, the NSA even catches an average of one employee a year who has been using the system to track a lover or spouse they suspect is straying. God knows how many it doesn’t catch – but if its inability to figure out what Snowden took is any guide, probably a lot.

What the NSA has built is a system that is too big to monitor properly, let alone fully control. The system’s official purposes are bad enough, but it cannot even know the full range of illegitimate private actions that it permits. And this is not a design flaw. It is inherent in the very size of the system and the number of people who have access to it. Which brings us back to NASDAQ, Apple, Goldman Sachs et. al.

If it can be done, it will be done. Algorithms will be written for automated trading at speeds measured in fractions of a microsecond, and the competition will have to follow suit. It will become possible to store immense amounts of data in a virtual “cloud”, and the cloud will take shape. It will become theoretically possible to listen in on every conversation in the world, and the surveillance systems to do it will be built.

Every step onward increases the scale and complexity of the systems, until they are too big and complex for any one person to understand. They will run without supervision, for the most part, and when they fail (as they must from time to time) the failure will also be hard to understand. And if you give hundreds of thousands of people access to the system, your secrets will not stay secret for long.

The volume of date moving on the internet and private networks is expanding very fast at the moment – from 6 gigabytes for each person on the planet this year to 16 gigabytes per person per year by 2017 – and system design is just not keeping up. Given time, it may be possible to catch up on that front, if the rate of expansion eventually slows. But it will be much harder, maybe impossible, to build leak-proof surveillance systems.


To shorten to 725 words, omit paragraphs 3, 5 and 8. (“Also…customers”; “A shutdown…sales”; and “Well…revealed”)

Alternative Futures

28 July 2008

Alternative Futures

 By Gwynne Dyer

You have to hand it to the economics team at Goldman Sachs. It was they who came up with the concept of the “BRICs”: the four big economies, in Brazil, Russia, India and China, that were going to catch up with and then overtake the big economies of the developed world. More recently they added the “Next Eleven”: middle-sized developing countries like Turkey, Indonesia and Mexico that will also grow fast enough to overtake their old-rich counterparts in the next generation.

Back in 2006, Goldman Sachs predicted that the Chinese economy would surpass that of the United States in the early 2040s, with the Indian economy not far behind. But now the Goldman Sachs team has put out a new set of forecasts.

The Chinese economy, they predict, will overtake the US economy around 2025, not in the 2040s, and will be twice as big by 2050. India’s economy by 2050 will still be slightly smaller than that of the United States, but the economies of Brazil, Russia, Indonesia and Mexico will all be bigger than that of the next-largest old-rich country, Britain.

The changes in the pecking order are equally dramatic further down. Turkey’s economy in 2050 will be bigger than Japan’s, France’s or Germany’s, and both Nigeria and the Philippines will have larger economies than Canada and Italy. Korea, Iran and Saudi Arabia will all have bigger economies than Spain.

The predicted changes in per capita income by 2050 are less radical, though still impressive. The United States and the United Kingdom are neck-and-neck at the top, just as they are now, with Canada only slightly behind. Koreans are substantially richer than Japanese — $80,000 per annum versus $63,000 — and the Chinese still bring up the rear in East Asia with a mere $50,000 a year.

But hang on a minute. $50,000 a year is slightly higher than the present per capita income in the US or Britain. In 2050 there will be around one and a half billion Chinese, and if they have an average per capita income of $50,000 a year then most of them will be leading a fairly lavish middle-class lifestyle. How is this compatible with what we know about the world’s resources of energy, food and other commodities, and about the likely course of climate change?

Goldman Sachs is providing surprise-free projections of current trends. This is a useful exercise, because it sets the larger framework in which the inevitable surprises will take place. But that is all it is, because no forty-year stretch of history is free of surprises.

In the past forty years we have seen the rise to great wealth of the oil-exporting states of the Arabian peninsula, but a crash in the predicted Iranian growth rate after the 1979 revolution. We have seen the disappointment of the high expectations most people held for newly independent African countries in the 1960s, and the sudden high growth rates of most Asian countries in the 1980s and 1990s. We have seen the collapse of the Soviet empire and the expansion of the European Union into Eastern Europe.

Few economic analysts in 1968 predicted any of this, any more than they foresaw globalisation, the internet or the rise of the euro. History does not run on rails, and none of those things was certain to happen (though some had a much higher probability of happening than others). The same applies to the relationship between the present and the future: Goldman Sachs is offering us a point of departure for thinking about the future, not a map of it.

So what are some of the things that could derail this simple picture of a richer future in which the gap between rich and poor has narrowed sharply except for Africa? A mere shortage of oil or other commodities wouldn’t change the pecking order much, although it might lower everybody’s average income (except in the commodity-exporting countries). Local political upheavals might knock specific countries out of the running, like Iran in the 1980s or Russia in the 1990s, but that wouldn’t change the broader picture either.

The one “known unknown” that could do that is large-scale climate change, because it would strike some countries much harder than others, at least in the early phase. And the hardest-hit countries would include most of those that are now climbing rapidly in the rankings.

Countries in the tropics and the sub-tropics are likely to be hit early and hard by climate change, while most of those in the temperate climate zone will suffer relatively little until a good deal later in the process. Countries like Turkey, Mexico, Indonesia, India and Iran will suffer diminished rainfall and declining food production, and even China, although mostly in the temperate zone, will struggle as the glaciers on the Tibetan plateau that feed most of its major rivers melt away.

Since the countries that suffer least, like the US, Canada, Britain, France, Germany, Russia and Japan, are also the ones that produced most of the greenhouse-gas emissions that have caused the current warming, this will probably result in some very bitter exchanges between North and South. But it also means that the economic pecking order in 2050 may be less different from today’s than Goldman Sachs predicts.


To shorten to 725 words, omit paragraphs 8 and 9. (“In the past…map of it”)

Oil: The Party Is Over

17 April 2006

 Oil: The Party Is Over

By Gwynne Dyer

Welcome to the world of $70-per-barrel oil. That’s if there is no crisis in the Gulf over Iran’s nuclear ambitions. If there is, then get ready for $140 a barrel. Oil briefly breached the $70 barrier eight months ago, but this time it is going up for good.

Exactly one year ago the investment bank Goldman Sachs put out a paper suggesting that the “new range” within which oil prices will fluctuate is $50-$105 per barrel. (The old range, still used by most of the oil industry when deciding if a given investment will be profitable, was $20-$30.) The price could surge well past the upper end of the Goldman Sachs range if the United States actually does launch military strikes against Iran, but it’s going up permanently anyway.

Whatever his longer-term plans, President Bush is unlikely to attack Iran before the mid-term Congressional elections in November, for three of the last four global recessions were triggered by a sharp rise in the oil price. But even without a Gulf crisis, the oil price will only stabilise at a price a good deal higher than now, because the major players in the market understand the long-term trends.

Transient events like the Iran crisis and the political unrest in Nigeria (which has cut that country’s exports by a quarter) drive the daily movements in the oil price, but the underlying supply situation is so tight that oil would stay high even if Nigeria turned into Switzerland and Iran opted for unilateral disarmament. “On production, there is nothing we can do. [OPEC, the Organisation of Petroleum Exporting Countries, is] already producing at maximum output,” said Abdullah al-Attiyah, Qatar’s Oil Minister.

This is not about “peak oil,” the notion that we are already at or near the point where total global oil production reaches its maximum and begins a long decline. That may well be true, but the present price rise is just about rising demand for oil as the big developing countries, especially the Asian ones, lift large parts of their populations into the middle class.

Middle-class people buy cars. They also run their air conditioners all summer, and take holidays abroad, and do other things that have big implications for total energy consumption, but above all they buy cars. For the foreseeable future most of the cars they buy will run on some form of refined oil.

The rising demand that drives the oil price up does not just come from the middle-class Americans (and, increasingly, Europeans) who insist on driving enormous SUVs with macho names like ‘Raider’, ‘Devastator’, and ‘Genocidal Exterminator’. It also comes from the new middle class of unassuming Chinese, Indian, Russian and Brazilian families who only want a modest family car for the school run and the weekend. There are just so many of them. This is the first big price rise that has been caused by rising demand rather than some temporary interruption of supply.

Goldman Sachs also predicted last year that in twenty years’ time there will be more cars in China than in the United States — about 200 million of them. Ten years after that, India’s car population will also overtake America’s. Within twenty years Russia and Brazil will each have more cars than Japan. We are headed for a billion-car world (unless all the wheels fall off first), and that means permanently high oil prices.

Good. If the oil price rises gradually from $70 to $100 over the next five years, people and governments will start paying serious attention to energy conservation and alternate energy sources (including nuclear energy). The sooner that happens, the less extreme the global warming that we will have to contend with as the century progresses. But if the oil price leaps to $100 or more in one swift jump we will have the mother of all recessions, and then there will be a desperate shortage of funding for developing alternative sources of energy.

A US attack on Iran is not the only threat to oil prices. If the markets should ever collectively decide that “peak oil” is upon us and that the supply of oil is heading for actual decline, the price would soar out of sight overnight. The oil companies and the governments of OPEC reassure us that oil reserves are ample to cover consumption at the current rate of world economic growth for decades to come, but they would be saying that whether it was true or not, and there is reason to suspect that it is not.

Never mind the geology. Just consider the fact that in the years 1985-1990, when OPEC’s declared reserves grew by a massive 300 billion barrels, no major new oilfields were brought into production. The “growth” was achieved by recalculating existing reserves, and the incentive for exaggeration was provided by OPEC’s decision to set production quotas in proportion to the total size of each member’s reserves. So over a quarter of the world’s total “proven” oil reserves of 1.1 trillion barrels may be no more than an accounting fiction.

The best we can hope for in the coming years, therefore, is a relatively slow and steady rise in the oil price, rather than a steep, fast rise that upsets everybody’s applecarts. The party is definitely over.


To shorten to 725 words, omit paragraphs 3 and 5. “Whatever…trends”; and “This is..class”)


15 October 2003

The ‘Brics’: Back To The Future

By Gwynne Dyer

Thirty-three years after China launched its first satellite, a high-tech boom-box called Mao 1 that broadcast a tinny version of ‘The East Is Red’ to an underwhelmed world, it has finally put a man into space. But the pace is picking up: Beijing is planning to put Chinese yuhangyuan (spacemen) on the Moon in just another seven years. If it stays on course, it will soon overtake Russia to become the second biggest player in space — and around 2040, according to a study released earlier this month by investment bankers Goldman Sachs, it will overtake the United States to become the world’s largest economy.

Even then China won’t be the richest country in per capita terms, but it certainly won’t be poor any more: in terms of GDP per head, Chinese citizens will be at about the same level as the richer European countries are now by 2050, the cut-off date of the Goldman Sachs study. Other big developing countries like India and Brazil will only have reached the same income level as present-day Portugal — but that’s not so terrible either, and there will be an awful lot of Indians and Brazilians by then. The Chinese launch is telling us that the world is changing in a fundamental way.

Five centuries ago, on the eve of Europe’s rise to world empire, average incomes in China and India were about the same as average incomes in Western Europe — and average incomes in the Muslim Middle East were probably higher. Then the Europeans burst out of their continent and overran the planet. They and their overseas descendants ended up far richer than everybody else, partly because of their empires and partly because they took the scientific and industrial lead. The new status quo has been around for so long that it has come to seem natural, but it is ending now.

The Goldman Sachs paper is a sophisticated exercise in prediction that takes into account factors like population growth and changing age structures, capital accumulation and likely productivity growth, rather than just doing straight-line projections of current trends. It focusses on what it calls the ‘Brics’: four lower-middle-income countries — Brazil, Russia, India and China — that have big populations and already have significant industrial and technological skills and resources. And it tells us where it thinks we will all be in 2050.

The world’s biggest economy will be China’s, of course, with the United States in second place (although America may still be China’s equal in technological innovation). India is not too far behind in size — and then, a long way after the Big Three, come Japan, Brazil and Russia. Bringing up the rear, so far as the major players are concerned, are Britain, Germany, France and Italy. With the exception of the US and Brazil, ‘New World’ countries that were not home to modern mass civilisations five hundred years ago, it is a return to the same list, in almost exactly the same order, that you would have drawn up in the year 1500.

That makes a kind of sense. In a globalised society and economy where the West no longer enjoys absolute political control, you would expect the distribution of global power to return gradually to what it used to be, with the big populations on the large land masses having greater wealth and power than small Western European countries. But it will take a lot of getting used to, especially for the Western countries that have had their own way for so long.

Some of these predictions may not come true, of course, or at least they may not happen within the chosen time-frame. China has had two disastrous political adventures in the past forty years, the Great Leap Forward and the Cultural Revolution, each of which cost it at least a decade of growth. What if it has another?

Brazil has been the promised land of the future for at least a hundred years now, but its present never lives up to the promise. India has an abnormally high level of corruption and a ramshackle education system (though it also has the advantage of being the only ‘Bric’ where large numbers of people speak English, the global lingua franca). Even Russia might go off the rails, though it seems least likely to. But these are essentially details: most of the Goldman Sachs predictions will come to pass, even if some do not, and the world will still be a changed place.

What conclusions should we draw from all this, apart from the obvious one that the first human beings on Mars will probably be Chinese? One is that the real environmental crisis is coming at us even faster than the pessimists feared: four or five billion people in the ‘Brics’ and other Asian and Latin American countries who will be consuming at current European levels by 2050 will put huge additional stress on the environment. The time for emergency measures is probably now — not that there is any real hope of such a thing.

`The second is that we desperately need to revive and refine the kind of multilateral global governance for which the existing United Nations system is a sketchy first draft. The prospect of a world that is highly competitive economically and under acute environmental pressure — and where there are five or six nuclear-armed major powers, no longer contained within the old bipolar system of the Cold War — absolutely requires an inclusive international system that works. Rather like the one currently being destroyed, in fact.

And the third conclusion? Westerners had better start working on their manners.


To shorten to 725 words, omit paragraphs 7 and 8. (“Some…place”)