January 9, 2009

UNDERESTIMATING THE BUREAUCRACY:

The end of a gilded age (Harold James, 1/06/09, Baltimore Examiner)

Innovation is likely to be the long-term answer to banking problems as well.

Algorithms that authorize or prohibit transactions can redress conflicts of interest. In the same way as trading floors are now mostly obsolete, most banking functions can and will be handled by machines. Financial intermediation will increasingly become a function of interacting software systems.

As in previous economic transitions, those who work in the financial industry will try to produce convincing arguments that their business depends on the human touch. Harvesting machines were supposed to lower the quality of grain, as it was no longer subject to immediate inspection by the human eye. British train drivers long insisted that two drivers were needed to ensure safety, whereas some mass transit systems now operate with driverless trains. Advanced automobile plants are now largely composed of robots. Likewise, a personal banker is no longer a necessity, and has become nothing more than a status symbol.

One achievement of the recent application of psychology to economics has been the demonstration of how irrational many human decisions are. The story of the credit crunch often has also been the familiar tale from previous financial crises of the flawed individual or the rogue trader. The application of computer technology would eliminate much of the potential for human errors and flaws. As the financial sector continues to shed labor in 2009, we may well find that slimmed-down finance turns out to be better finance.


Except that the jobs weren't necessary to begin with. You can't be a manager without anyone to manage.

Posted by Orrin Judd at January 9, 2009 1:00 PM
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