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            Why You Must Not Trust Your Memories – Or Anyone Else’s

By Shlomo Maital   

            memory

    The writer Vladimir Nabokov once said,  “ the more you love a memory the stronger and stranger it becomes.”       Emphasize STRANGER.   Because scientists at MIT have shown, each time we retrieve a cherished memory and relive it,  we alter it.  And if you do this 100 times, the memory itself can bear no relation with what actually happened.   Humans are not elephants, which, as we know, never ever forget anything. 

   Writing in the July 25 edition of The New York Times, * James Gorman reports this:

     “….scientists at the Riken-M.I.T. Center for Neural Circuit Genetics at the Massachusetts Institute of Technology say they have created a false memory in a mouse, providing detailed clues to how such memories may form in human brains.   Steve Ramirez, Xu Liu and other scientists, led by Susumu Tonegawa, reported Thursday in the journal Science that they caused mice to remember being shocked in one location, when in reality the electric shock was delivered in a completely different location.    The finding, said Dr. Tonegawa, a Nobel laureate for his work in immunology, and founder of the Picower Institute for Learning and Memory, of which the center is a part, is yet another cautionary reminder of how unreliable memory can be in mice and humans. It adds to evidence he and others first presented last year in the journal Nature that the physical trace of a specific memory can be identified in a group of brain cells as it forms, and activated later by stimulating those same cells.

   How was this scientific magic done?   Dr. Tonegawa’s team first put mice in one environment and let them get used to it and remember it. They identified and chemically labeled the cells in the animals’ brains where that memory was being formed. The mice were not shocked in that environment.   A day later, in a completely different environment, the researchers delivered an electric shock to the mice at the same time that they stimulated the previously identified brain cells to trigger the earlier memory.   On the third day, the mice were reintroduced to the first environment. They froze in fear, a typical and well studied mouse behavior, indicating they remembered being shocked in the first environment, something that never happened. The researchers ran numerous variations of the experiment to confirm that they were in fact seeing the mice acting on a false memory.   The tools of optogenetics, which are transforming neuroscience, were used to locate and chemically label neurons, as well as make them susceptible to activation by blue light transmitted by a fiber optic cable. With these techniques the researchers were able to identify and label which neurons were involved in forming the initial memory of the first environment, and to reactivate the labeled cells a day later with light.

    Dr. Tonegawa said that part of the importance of the research is “to make people realize even more than before how unreliable human memory is,” particularly in criminal cases when so much is at stake.    That unreliability, he said, prompts a question about evolution: “Why is our brain made in such a way that we form false memories?”

    His answer:   “No one knows, he said, but he wonders if it has to do with the creativity that allows humans to envision possible events and combinations of real and imagined events in great detail. That rich internal experience fuels work in the arts and sciences and other creative activities, he said. “Unless you have that kind of ability, there is no civilization,” he said.

   In a previous blog, I reported on Dan Ariely’s research, showing that creative people are less honest.  Dr. Tonegawa’s theory fits well with this.  Creative people simply invent things – in the past, as well as in the future.  

        Precisely because we can re-imagine the past,  we can also imagine the future. 

        Personally, I find it very helpful to re-imagine the past.  If you are troubled by a memory,  simply reinvent it.  Soldiers suffering from post traumatic stress disorder (PTSD), and there are many thousands of them, relive the traumatic event precisely as it happened, again and again and again.  Perhaps we can help them reinvent it…. Or simply get the neurons that fire up the memory to turn off.    

      Also, many thousands of innocent persons have been sent to jail by testimony of witnesses which proved wrong.  We now understand why.   They are not liars. They simply remember events differently than they actually happened.  The legal system will now have to take this into account. 

* New York Times, July 25, 2013  “Scientists Trace Memories of Things That Never Happened”.  By JAMES GORMAN    

 

 

    

Switching Engines While the Train is Moving:

Mind the Gap!

By Shlomo Maital   

           Mind the Gap

  Two difficult, complex and crucial transitions are underway today, in the world. One is in China. The second is in the U.S.   And possibly a third, in Japan.  There is a big difference between the theory that guides those transitions, and reality.  Mind the gap!

  For the world to endure and prevail, all three must succeed. 

  First the Chinese.  China is shifting from an export-driven capital-driven economy to a consumption-driven economy.  China’s phenomenal growth has been export led, which in turn created an investment boom (the capital formation has gone to building enormous factories, and then doubling their size).   With world export markets slowing, China must shift to internal demand as its growth engine.  China will not likely achieve its 7.5 % GDP growth this year, and even that is  much below the 10% rate achieved in recent years.  This will impact the whole world.  But if China fails in the transition – which is like changing locomotive engines while the train is speeding along the track at 200 km/hr. —  first Asia and then the world will suffer. No country has yet made such a transition. Japan tried and failed.

   Second, the U.S.   America is shifting to weaning Wall St. away from cheap infinite amounts of money, as the Fed gradually reduces its monthly bond purchases amounting today to $85 b. each month.   If Larry Summers becomes Fed head, he will make this shift more abruptly; he doesn’t believe QE (quantitative easing, the euphemism for pumping money endlessly) works.  If it’s Janet Yellen, she’ll move more slowly.  Banks are making record profits; anyone would, if you borrow at zero and lend at high interest.  What happens when interest rates rise?  And will the massive mountain of money the Fed created induce runaway inflation, as the mountain unfreezes and starts to move?

    Two crucial transitions.  Both extremely difficult.  Both have to work.  And in the wings, Japan, with its  national debt of 212 % of GDP (only 168% in 2008); when Japanese interest rates rise, how in the world will the government pay the interest on this massive debt?  Another complex transition.   For contrast, Greece’s debt is only around 120% of GDP, and its government bonds have been downgraded to near-junk. 

    Watch these three countries,  the three biggest economies in the world, each of which is undergoing a complex tricky transition—US, Japan, China.  Will  all three transitions work smoothly and successfully?

   Stay tuned. 

Rearranging the Deck Chairs on the Sinking Titanic:

The Modern Version

By Shlomo Maital  

     Titanic          

 

    History will (and SHOULD rightly) judge today’s world leaders very harshly, for their incompetence in dealing with the global crisis, which really began with the bankruptcy of Lehman Brothers, Sept. 17, 2008.   To use an old metaphor:  They have been rearranging the deck chairs on the Titanic, while it sinks.

   Only, the deck chairs are the massive amounts of debt generated by the crisis.

   To summarize, and oversimplify a bit —    Greedy Wall St. types created massive amounts of new financial assets (mortgage backed securities, credit default swaps, collateralized debt), hidden from the eyes of regulators or nearly anyone, because they were named “swaps” (by US law, hence not subject to regulation).   The value of these ‘assets’ collapsed, as it inevitably would.  But the debt left in their wake remained.  Thus, nearly instantly, many banks and financial institutions were bankrupt (try cutting your assets in half, then leaving your liabilities as they were…net worth becomes negative, which is bankruptcy). 

    The desperate solution was for governments to assume the private debt, because “banks were too big too fail” (translation: the wealthy were too powerful politically to swallow their losses, caused by their own greed and misbehavior). 

   So the “deck chairs” (debt) was not changed, it was simply moved onto the shoulders of us ordinary taxpayers.  And then the crisis shifted from being one of private sector financial services institutions, to one of government, because the capital markets (those folks who got us into  hot water in the first place) placed enormous risk premiums on sovereign government bonds as governments tried to roll over their debt and pay off old bonds with new bond sales.  Why? Because governments were ‘risky’ – precisely because governments had swallowed the huge risk created by the private financial sector. 

   That’s where we stand now.  The deck chairs have been rearranged. The Titanic is still sinking. 

    In the end, that massive debt will have to be wiped out, because the assets balancing it have been wiped out.   American banks have done this most efficiently, because America is superb at creating financial crises and hence terrific at cleaning up the mess.   European banks have barely begun. Their balance sheets still haven’t ‘marked to market’ the losses they will have to swallow.  So Europe is simply deferring the real crisis, in its major banks.

    History will judge world’s political leaders, and many of the financial leaders, very harshly, for all this incompetence and bad behavior.   Meanwhile, all over the world, people suffer because political leaders lack the guts to administer the bitter medicine the world needs.  

       Clean up the mess.   And then let’s move on.   

The World’s Most Incredible Invention

By Shlomo Maital   

                                                                       photosynthesis

Thanks to an outstanding BBC World Service program, “Discovery”, I have new appreciation for what must be the greatest invention ever:  Nature’s invention of photosynthesis, as a lucky accident through evolution.

   The word itself comes from two Greek roots meaning “light” (phos) and “putting together” (“synthesis”).  Plants use light energy from the sun, together with water and carbon dioxide, to produce two vital things:  carbohydrates, e.g. glucose, and oxygen.  The process is mediated and catalyzed by green chlorophyll.  What happens is:  six carbon dioxide molecules combine with six water molecules, using solar energy aided by chlorophyll, to make one glucose molecule and six oxygen molecules:

     6CO2 +    6H2O  =    C6H12O6 +   6O2  

     Photosynthesis does two things for life on earth: It provides all the organic compounds, and most of the food energy needed for life,   and it maintains atmospheric oxygen levels.  

   The rate at which photosynthesis captures solar energy is incredible:  130 terawatts, which is six times greater than the total power consumption of the human race

   We humans are incredibly arrogant.  But to date, we have nothing that comes close to photosynthesis, as a way of capturing solar energy and storing it as food energy.  Photovoltaic cells are a joke in comparison.  If we humans could store energy as plants can, we could produce power at night, when usage is nil, and use it during the day, thus almost halving our daytime production capacity.  But we can’t.  Only Nature can. 

   And just think – photosynthesis originated as an accident of evolution, one that just happened to work nicely, and that made possible life on earth. 

   Now, THAT’s an innovation!

Record Bank Profits:  Good News, Bad News

By Shlomo Maital   

     good news bad news

   Dear readers, you’re probably tired of the old ‘good news, bad news’ format.  But there’s no other way to explain American bank profits.

   The good news:  The net income (profit) of the six biggest American banks (J.P. Morgan, $6.5 b.; Wells Fargo,  $5.5 b.,  Citigroup, $4.2 b., Bank of America, $4.0 b., Goldman Sachs $1.9 b., Morgan Stanley, $1.0 b.) in the 2nd quarter of 2013 (April May and June) totals $23.1 b.  Note: that’s for THREE MONTHS.  For a whole year, multiply by four:  over $100 b.!   

   The bad news:   The banks are raking in the money again, back to what they did before 2008, before the crash,  making piles of money mostly from ‘nostrum’ trading (buying and selling assets for their own accounts), taking advantage of near-zero interest rates that they pay when they borrow, charging relatively high rates to us poor customers.    Big-bank profits are back to what they were before the crash,  in mid-2007.  Way to go, banks! 

    The good news:  Because the banks are making so much money, efforts of U.S. Treasury Secretary Jacob Lew,  and others, to re-enact a version of Glass Steagall (putting a Chinese wall between commercial banking and investment banking, thus keeping banks from illicitly mixing the two, at our expense) are more likely to succeed.  The banks are strong, making money – they cannot plead the legislation will ruin them.  Lew is talking tough.

    The bad news:   The banks are back in the drivers’ seat.  When Fed Chair Ben Bernanke just HINTED he MIGHT at some distant point in the future MAYBE possibly just a tad raise ..perish the thought….interest rates, but ONLY if unemployment fell, GDP boomed, and Pope Francis went on tour with the Rolling Stones…. Wall St. bashed the price of stocks down, so fiercely, that Bernanke had to crawl to Congress and explain he was …misunderstood.  He basically sang that old Animals song,   “But I’m just a soul whose intentions are good. Oh Lord, please don’t let me be misunderstood.”   There is no way, he promised, that the Fed is going to help the banks break their permanent addiction to infinite quantities of near-zero-interest-rate money.  The Fed will continue to buy $85 b. worth of bonds every single month for the foreseeable future.  Buying bonds raised their price and thus lowers their yields. 

    If you find all this very tiresome, believe me so do I.  There seems to be no possible way that we the people can get control of our destiny back into our hands, and the hands of our leaders, away from the banks and Wall St.   With big-bank profits back to their previous highs, before the crash, we the people will probably fall asleep again – until the next big crash, until the next bank cries that it is “too big to fail”.    We ordinary people may be hooked on Ritalin (see previous blog).  But the banks are hooked on cheap money. 

Ritalin  Surpasses Cocaine

By Shlomo Maital   

           Ritalin

   Methylphenidate (brand name  Ritalin) is a psychostimulant drug approved for treatment of ADHD or attention-deficit hyperactivity disorder, developed by Novartis.  For some kids with ADHD it is without doubt helpful.   But the capacity of society to misuse drugs seems limitless.  Illegal Ritalin users outnumber by far those who use cocaine.  Here are some facts, published in an investigative report in the Israeli daily Haaretz:

  *  In 2011, the U.S. Department of Health and Human Services estimated that 5 percent of Americans in the 18-25 age bracket were using the substances illegally. According to a study whose results were published in the online community Her Company ‏(on the Huffington Post website‏), the number of illegal users is more than the percentage that use cocaine and LSD combined.

  *  The increasing use of Ritalin is a phenomenon that is occupying American universities. The extensive research being conducted about the use of the medications we know as Ritalin, Concerta or Adderall has led them to be dubbed “study drugs” or “smart drugs.” A staggering number of college kids in the US (and elsewhere) pop Ritalin before exams.

  According to the authors of the investigative study,   :

  “The present generation, particularly adolescents and children, is constantly subject to attention and concentration disorders. Accordingly, some will argue that this generation requires Ritalin as a steady diet.    In fact, this form of disorder is built into modern life. The extensive culture of screens, working on different subjects simultaneously − which is part of almost every field − the rapid shifting from Facebook to email to news sites and so on: all this requires parallel attention. The phenomenon is well known; in fact, it’s likely that while reading this article, you started to tap your foot nervously, checked your email from time to time and possibly also looked at a newly posted Facebook status.”

    So here is the dilemma.  Modern life involves serious multitasking…multiple screens, smartphones,  computer screens, conversations, all at the same time.  This creates massive stress.  To help us deal with the stress, we pop a pill,  Ritalin.  The pill is widely available, because some kids legitimately need it.  But the rest of us? 

   What about changing the underlying causes  in our lives that make   Ritalin helpful?   The fact you can pop a pill means that fewer and fewer people will bother to think about why they need it in the first place.   

Haaretz,  “Class A drug: Affluent Israeli highschoolers are taking Ritalin without doing their homework”    By Sivan Klingbail, Shay Fogelman, Naomi Darom and Shanee Shiloh.    Jul. 20, 2013

Rethinking GDP: Counting Creativity

By Shlomo Maital   

               GDP            

    We have long known that the key measure of our wellbeing, known as Gross Domestic Product, invented by J.M. Keynes, is flawed.  Now, America’s Bureau of Economic Analysis is rethinking GDP measurement.  Among other things, spending on innovation, known as Research and Development, will now be reclassified.  No longer will it be a mere business expense, as generally-accepted accounting procedures.  Instead, as it should be, R&D will be included in gross capital formation or investment.   As Bloomberg Business Week notes, in its latest edition:

    On July 31, the U.S. Bureau of Economic Analysis will rewrite history on a grand scale by restating the size   and composition of the gross domestic product, all the way back to the first year it was recorded, 1929. The biggest change will be the reclassification—nay, the elevation—of research and development. R&D will no longer be treated as a mere expense, like the electricity bill or food for the company cafeteria. It will be categorized on the government’s books as an investment, akin to constructing a factory or digging a mine. In another victory for intellectual property, original works of art such as films, music, and books will be treated for the first time as long-lived assets.

The effect of the change on America’s GDP will be quite small.  The impact will largely be a morale-booster.   For gross capital formation as a per cent of GDP, America ranks 123rd in the world (!) out of 142 countries, according to the Global Innovation Index 2013.    America invests only 16.2 % of its GDP.  If you account for depreciation and obsolescence, and deduct it from that 16 % (which is ‘gross’,  to get ‘net’), about 15% of GDP,  you find that America barely increases its capital stock at all.  U.S. infrastructure (roads, bridges, airports, public transportation, trains)  all show it.  Now, U.S. infrastructure will still look Third World. But at least the investment number will look a bit better.

Too Many MBA’s in the World?

By Shlomo Maital

          MBA Dilbert

Yesterday’s (Monday July 19 2013)  Financial Times, p. 8, has a report on business schools (Emma Boyde, “A degree of relevance for the 21st C.?”   p. 8).  

   According to FT,    there are 15,673 institutions worldwide offering business degrees at all levels.   “Are many students wasting their money on an irrelevant qualification?”  asks the article.  As someone who teaches MBA students, I am deeply disturbed by this issue. 

   The MBA degree accounts for 2/3 of all graduate business degrees in the US.   Basically, America invented the MBA.  In 2011-12,  some 156,400 students were enrolled in US MBA programs.  Outside the U.S., 110,002 students were enrolled in MBA programs.

   That means that worldwide,  there were a over  a quarter of a million MBA students worldwide.  Assuming the vast majority of MBA programs are now 12 months in duration,  this suggestions that over a decade,  there will be 2.5 million new holders of MBA degrees, added to the millions of existing MBA’s.

    The article asks,  “The world has moved on, the question is have business schools moved on and the answer is, not yet!”.

    The fundamental problem?  In an age when new creative innovative thinking is needed on the part of managers, bizschools all teach more or less the same material, the same tools, the same approach to management.  

   What then is the value of an MBA degree, if the holder has no unique differentiator?  Why study strategy, about creating unique value, if the MBA graduate or his or her expensive degree brings no unique value? 

    Why do we MBA professors teach our students that “this is the right way to manage, the way everyone manages,  read these case studies”,  when we should be teaching them, “here is how everybody manages, now, you can YOU do it better, differently, more creatively?  How can you BREAK the rules, after you learn what they are?”

      

More Fatal Flaws of Capitalism….

By Shlomo Maital

                capitalism

…and, while we’re at it…a few more fatal flaws of capitalism.  (from TIME, July 8/July 15,  2013). 

    *  A third of Americans say they want to earn a lot more money…yet studies show, being free of debt is a far more powerful contributor to happiness.  Capitalism is based on consumer spending financed by debt.  The more you own, the more you owe….

   * One American worker in 10 commutes an hour or longer a day.  Commuting is among the activities Americans hate most.  Yet many continue to do it.  Why? To earn the money to buy stuff they don’t need, that doesn’t bring happiness, so they can continue to squeeze onto stuffed commuter trains.  Makes sense.

 *  One American in 10 takes antidepressants.  Many don’t work.  Many have bad side-effects. Drug companies profit hugely.

  *  People are happier when they spend on life experiences, like travel,  yet the capitalist system is based on buying the latest and greatest ‘stuff’.

 

     The happiness capitalism promises, based on filling our closets and homes with more and more ‘stuff’ we really don’t need or even want,  is nonexistent. 

     One of these days, the people are going to realize it. 

    What happens then?   Don’t ask the economists.  They are still promoting capitalism.

 

Capitalism’s Fatal Flaw: Wealth Makes Us Selfish (and Unhappy)

By Shlomo Maital

             Piff

  I’ve always suspected it.  Now I know.  Capitalism’s fatal flaw is that wealth makes us nastier, more selfish, less ethical and less happy.  (Thanks to Facebook Friend Vic Nurcombe’s post, directing me to this material.)

   In his 2012 article published in the prestigious Proceedings of the National Academy of Sciences *,  Berkeley Scholar Paul Piff (and associates) find the following, based on extensive experimental research:

   “Seven studies using experimental and naturalistic methods reveal that upper-class individuals behave more unethically than lower-class individuals. In studies 1 and 2, upper-class individuals were more likely to break the law while driving, relative to lower-class individuals. In follow-up laboratory studies, upper-class individuals were more likely to exhibit unethical decision-making tendencies (study 3), take valued goods from others (study 4), lie in a negotiation (study 5), cheat to increase their chances of winning a prize (study 6), and endorse unethical behavior at work (study 7) than were lower-class individuals. Mediator and moderator data demonstrated that upper-class individuals’ unethical tendencies are accounted for, in part, by their more favorable attitudes toward greed.

   Piff even found that wealth causes people to literally take candy from a baby (from a dish on a table, said by the experimenter to be for “children in a later experiment”).   Those who drive a BMW are far less likely to stop for pedestrians at a cross-walk than those who drive a Kia. 

    And the key cause of all this?   Something known for many years, from behavioral economics.   The causality fallacy.   Human beings need to understand the world and how it works. So  THEY ATTRIBUTE CAUSALITY TO THINGS THAT ARE INHERENTLY RANDOM.   A great deal of wealth is due to luck.  Was Facebook founder Mark Zuckerburg super-brilliant (he was),  super-astute, super-creative, or did he have a great deal of luck in the viral manner in which Facebook spread, from a local Harvard class project to a global world-changing phenomenon?    People who are wealthy attribute their wealth to their own brains, creativity, energy, innovativeness (even though a huge portion of wealth is simply inherited);  so naturally, they attribute the plight of poor people to the inadequacies of the poor (they are dumb, lazy, stupid, lack hard work, and in general are worthless).  Even in Monopoly game situations, this effect occurs.  Those given favored wealthy positions in Monopoly behave AS IF they were wealthy in real life.  Those given disadvantaged positions in Monopoly behave far more generously and altruistically.

    Everyone knows that poor people tend to help one another a whole lot more than do wealthy people.  Now we begin to understand why.   

   And the ultimate irony?  As Piff notes,  those who are generous and altruistic are happier and live longer.   So all that “greed is good” stuff makes society more fractious, less cohesive, and makes the wealthy less happy. 

   This is the fatal flaw in capitalism.  Either wealthy people need to change their DNA, or we need to find a much better ‘hybrid’ system.     I urge you, dear readers, to download and read the original article in full.

 ——————-

* Paul K. Piff, Daniel M. Stancatoa, Stéphane Côté, Rodolfo Mendoza-Dentona, and Dacher Keltner. “Higher social class predicts increased unethical behavior”.   March 13, 2012.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
July 2013
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