Present Shock: When Everything Happens Now (25 page)

What will be the equivalent of a flash crash in other highly compressed arenas where algorithms rule? What does a flash crash in online dating or Facebook friendships look like? What about in criminal enforcement and deterrence, particularly when no one knows how the algorithms have chosen to accomplish their tasks? Algorithmic present shock is instantaneous. Its results impact us before it is even noticed.

At least on the stock market, participation in this pressure cooker is optional. Many investors are no longer willing to take the chance and have decided not to share their marketplace with algorithms that can outcompress them or, worse, spin the whole system out of control. Stock traders are leaving Wall Street in droves and opting for the dark pools of Geneva where they can exchange shares anonymously. While dark pools may have first served simply to conceal institutional-trading activity from the public, now they are being used by investors who want to conceal their trading activity from algorithms—or simply distance themselves from the effects of algorithmic spring-loading.
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They have resorted to one of the two main strategies for contending with the perils of overwinding in the short forever, which is simply to avoid spring-loaded situations altogether. Traders lose the advantages of superconcentrated, high-frequency trades, but regain access to the accretive value of their investments over time. They lose the chance to cash in on the volatility of the marketplace irrespective of what things may be worth, but get to apply at least a bit of real-world knowledge and logic to their investment decisions. Plus, they are insulated from the chaotic feedback loops of algorithms gone wild.

It’s not a matter of abandoning the present in order to make smart investment decisions and more secure trades. If anything, nonalgorithmic trading represents a return to the genuine present of value. What is this piece of paper actually worth right now in terms of assets, productivity, and, yes, potential? Rather than packing in nine derivative layers’ worth of time over time over time into a single inscrutably abstract ticker symbol, the investment represents some comprehensibly present-tense value proposition.

There are many other healthy examples of businesses, communities, and individuals that have opted out of spring-loading in order to enjoy a more evenly paced world. In Europe, where the leveraging of the long-distance, debt-generating euro currency has proved catastrophic for local industry and commerce, people are turning to alternative currencies that insulate them from the macroeconomic storm around them.

In the Greek town of Volos, for example, citizens are experimenting with a favor bank. Mislabeled a barter economy by most journalists, this effort at a cashless economy is actually an exchange network.
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Everyone has an account online that keeps track of how many Local Alternative Units, or tems, they have earned or spent. People offer goods and services to one another, agree to terms, and make the exchange. Then their accounts are credited and debited accordingly. No one is allowed to accumulate more than 1,200 tems, because the object of the system is not to get individuals wealthy by storing currency over time, but to make the community prosperous by encouraging trade, production, and services.

The man who devised the website for one of these networks says that the euro crisis had rendered the Greeks “frozen, in a state of fear. It’s like they’ve been hit over the head with a brick; they’re dizzy. And they’re cautious; they’re still thinking: ‘I need euros, how am I going to pay my bills?’”
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This is the vertigo of the short forever, present shock caused by absolute dependence on a time-bound medium of exchange. It was so overleveraged that when it broke, it exploded like an overwound spring. The scales of interaction were an almost quantum mismatch: global investment banks and national treasuries do not have the same priorities as tiny villages of people attempting to provide one another the foods and basic services they need to sustain themselves. The macroeconomics of Greek debt—as well as that of the Spanish, Italian, and Portuguese—accumulated and compressed over decades, but unraveled in an instant, overwhelming the real-time economy of people.

The scale and nature of their new form of exchange encourages real-world, real-time interaction as well. Members of the various local networks meet on regular market days to purchase goods or negotiate simple service agreements for the coming week. This is a presentist economy, at least in comparison with the storage-based economics of the euro and traditional banking. Nothing is spring-loaded or leveraged, which makes it harder for these markets to endure changing seasonal conditions, support multiyear contracts, or provide opportunities for passive investment. But this style of transaction still does offer some long-term benefits to the communities who use it. Human relationships are strengthened, local businesses enjoy advantages over larger foreign corporations, and investment of time and energy is spent on meeting the needs of the community itself.

Greek villagers in the shadow of a failing euro aren’t the only ones abandoning time-compressed investment strategies. The town of Volos represents just one of hundreds of similar efforts throughout Europe, Asia, and Africa, where centrally administrated, interest-bearing currencies no longer support the real-time transactions of people—or ask so much for the privilege as to be impractical for the job. These currencies are not limited to struggling, indebted nations but are emerging in the lending economies such as Germany as well, where macrofiscal trends inhibit local transactions.
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Meanwhile, on the other side of the economy—and the world—commodity traders have been present shocked by the real-time nature of today’s agriculture and marketplace. Commodity traders generally buy and sell futures on particular goods. Their function (other than making money for themselves) is to help farmers and buyers lock in prices for their goods in advance. A clothing manufacturer, fearing rising cotton prices, may want to purchase its crop in advance. The commodity trader is hired to purchase futures on cotton, specifying the date and price. Meanwhile, a cotton grower—who suspects that prices on his commodity may actually go down over the next year—may want to get cash at today’s rates. He calls his commodity trader, who makes a deal across the commodities pit with the trader working for the clothing maker.

The traders themselves understand the subtleties of the time compression that they are performing for their clients. Their business is about storing value, wagering on the future, and then using contracts to leverage present expectations against future realities. They may make a lot of money without creating any tangible value, but they do help create liquidity in markets that need it and force a bit of planning or austerity when something is going to be in short supply.

However, new technologies and global supply chains are turning formerly seasonal commodities into year-round products. And consumers’ decreasing awareness of seasons is changing what we expect to find at our local market and when. This longer now of both supply and demand cycles is doing to many commodities traders what twenty-four-hour cable did to the evening news: in a world of constant flow, the ability to compress time becomes superfluous.

The pork belly commodity pits fell to this form of present shock just a few years ago. The pork belly trade—conducted primarily in a trading pit at the Chicago Mercantile Exchange—allowed investors to bet on the ebbs and flows of supply and demand. Hogs were slaughtered in certain seasons, and bacon was consumed most heavily in others. Commodity traders served to spring-load and unwind both sides of the trade. They bought up shares of frozen bellies and stored them in Chicago warehouses, and then sold them off when demand rose in March and April for Easter brunch and then again in late summer for the tomato harvest and everyone’s BLT sandwiches. The traders created storage when there was only flow, and flow when there was only storage. Pork bellies became the most popular product on the Chicago trading floor.

Consumers no longer understand why they should settle for frozen bacon during certain parts of the year, and pork suppliers have learned how to accommodate the demand for constant flow. With no need for their ability to translate flow into storage and back again, commodity traders left the pork bellies pit, and the oldest existing livestock futures contract was delisted. Futures traders became disintermediated by a marketplace looking for direct access to an always-on reality.

So while local merchants in depressed European economies are abandoning storage-based euros because it is too expensive for them to use, the pork industry stopped using futures because their focus on freshness and flow was no longer compatible with a spring-loaded strategy. Still other businesses are learning that moving from storage to flow helps them reduce their overleveraged dependence on the past and to take advantage of feedback occurring in the moment.

Walt Disney’s theme parks, for just one great example, began losing their luster and profit margins in the mid-1990s. Disney’s CEO at the time, Michael Eisner, wasn’t quite sure what was going wrong. He had been milking Walt Disney’s treasure trove of icons and intellectual property quite successfully in media for some time, but back in the real world, competition from Six Flags, Universal Studios, and other theme parks appeared to be moving in on Disney’s iconic theme park business. Walt Disney had died in 1966, long before most of the current staff at the parks had been born. Perhaps a new chief of Disney’s theme parks company could revive the spirit of Disney and teach the park’s people how to exude more of Walt’s trademark magic?

Eisner tapped his CFO, Judson Green, to put the parks on a growth track consonant with the greater studio’s expansion into radio, television, and sports. Could Green release the stored-up potential of Mickey, Donald, and the rest of Disney’s fabled intellectual property? Green took a completely different tack. Instead of relying on Disney’s spring-loaded century of content, he realized that a theme park always exists in the present. The key to reviving its sagging spirit was not to disinter and channel Uncle Walt, but to break the parks’ absolute dependence on the stored genius and brand value of the legendary animator.

Instead, Green turned the theme parks into an entirely presentist operation. This had less to do with updating rides or rebuilding Tomorrowland (both of which he did) than it did with changing the way communication and innovation occurred on the ground. Green’s philosophy of business was that innovation doesn’t come from the top or even from stored past experience, but from people working in the moment on the front lines. Management’s job is not to fill current employees with the collected, compressed wisdom of the ages, but rather to support them in the jobs only they are actually charged with doing. Management becomes a bit like a customer service department for the employees, who are the ones responsible for the business.

For example, a few years ago Disneyworld guests began complaining that they couldn’t fit their rented strollers onto the little railroad train that goes around the park. Traditionally, a company might look to solve the problem from the top down by, say, redesigning the trains. But the company tasked its employees with finding a solution. And sure enough, an employee came upon the obvious fix: let the guest turn his stroller in at one train location and then pick up a new one at the next. Removable stroller name cards were created, and the problem was solved. To the Disney guest, Walt’s magic was alive and well in the continual flow of solutions, and every service metric went through the roof along with efficiency and revenue. Green’s management style differed from Eisner’s, however, and the executive who transformed the parks from historical landmarks to innovation laboratories was terminated.
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Understandably, Michael Eisner was nervous about letting go of his company’s ample hard drive and living completely in RAM. After all, he had begun his tenure at the helm by reviving the
Wonderful World of Disney
television show on Sunday evenings and then introducing the show on camera, in the style of Walt himself. He also licensed Disney imagery, seemingly everywhere, and traded on the Disney name and brand to make business deals that may not have been entirely in keeping with Disney’s tradition of putting quality over profit. His impulse to squander so much of Disney’s stored legacy all at once did boost Disney’s stock price but horrified Disney’s heirs. Roy E. Disney claimed Eisner had turned Disney into a “rapacious, soul-less” company, resigned from the board, and began the process that led to Eisner’s own resignation a few years later.
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In his own book on the period, Eisner still seems oblivious to the fundamental issue at play, preferring to see it as a clash of management styles and personalities than a culturewide case of present shock.

Balancing the needs of the present against the stored leverage of the past is a tricky proposition, and where so many of us get confused. How many generations before our own asked people to earn and save enough money while young in order to accumulate a nest egg big enough to live off for the last third of one’s life? It’s a bit like asking an animal to get fat enough not to have to eat again for the rest of its natural life.

But the opposite (however attractive from a survivalist’s perspective) doesn’t really work, either. Living completely in RAM is a bit like living on an Atkins diet. Everything just goes through you. With no bread, no starch, there’s nothing to hang on to. There’s no storage, no accumulation. There’s never any leverage, just constant motion—all flow. An absolutely presentist approach to business, or life for that matter, is untenable. Except for a Buddhist monk, literally walking the streets with nothing but a bowl in hand, who can live this way much less run a business or organization? No one.

Instead, we learn to spring-load appropriately. We compress and unpack time in ways that support the present moment without robbing from the future or depleting our reserves. We don’t pack so much in that we horde and weigh down the present, but we don’t get so lean that we cannot survive without uninterrupted access to new flow. We learn to spring-load without overwinding.