What's an Engineer Got That a Banker Doesn't?

We had the crash of 1929 and then the Depression. We had the crash of 2008 followed by who knows what. The reasons for what happened reach far and wide, but "mark-to-market" accounting rules have been postulated by many financial experts as responsible for a fair amount of the blame. Mark-to-market, designed in the 19th century for and by commodity traders, is not a new concept. Put to use in other businesses (notably the banks) in the early 1930s, it was subsequently repealed by President Roosevelt  in the late '30s because economists had figured out it was a culprit in prolonging the Depression. However, the Financial Accounting Standards Board reinstituted the rule in 2007 and the rest is history. Did they learn anything from the previous experience? One would have to say no. Oh, and they just relaxed the rule a few weeks ago, after having wiped out trillions of dollars of investor worth.

What explains the rapid evolution of technology as opposed to finance and social development? Do engineers come from a different gene pool? Do they have better reading skills? Do they eat more veggies or add Wheaties to their diet at an earlier age?  If we do figure out why technology progresses faster can we apply those lessons to financial and social issues?  Or are we stuck with Ponzi schemes forever?

Perhaps first and foremost, technological problems lend themselves to getting a right answer.  And it is easy to figure out when an answer is right because the objective measure is usually straightforward. In the case of DRAM integration, it was how many hours can it run without an error. Three hours was a wrong answer, while 300,000 was the right one. End of story. It is great to be able to say that technique "x" is correct and "y" is a failure.  Meanwhile, we as a species still debate socialism vs. capitalism, mark-to-market rules, executive pay, proper tax rates, etc.

Second, the marketplace is completely unforgiving of bad products. The failure mechanism is a natural occurrence; people just stop buying the product. The manufacturer can either correct the deficiencies or go out of business. That turns out to be a very powerful incentive to get it right.  In the natural course of technological evolution, products go from being innovative to rejected by the marketplace. It is unlikely that buggy whips will reappear in great numbers anytime soon. But why did mark-to-market accounting reappear after its highly unsuccessful debut in the '30s?

The third difference is the way we transfer knowledge from one generation of practitioner to another. There is the written word consisting of books, learned journals, application notes, etc.  This method is common to everyone.  However, technologists have two huge advantages. First, in the case of documents, successful technologies and products have strict revision control, which means that changes as to why and what is done to either enhance the product or fix a bug are recorded. By creating documentation of the changes, the engineer has some confidence that what he is looking at actually represents something that works. Contrast that to the TARP and budget bills recently passed by Congress where many of the members admitted voting for them without ever having read them. There is also the issue of physical reality.  When you design a new system using a released set of parts, you can hook them up incorrectly. But what you cannot do is alter the insides of those parts and negate the work of those who came before you. There is not a whole lot of room for interpretation. Contrast that with the U.S. Constitution, a document subject to judicial interpretation and very much affected by the temperament and mindset of a judge.

In 1929, cars were unreliable and belched all sorts of noxious fumes into the atmosphere. Computers did not exist. Airplanes were slow and unsafe. Movies had just recently gotten sound. TV and FM radio did not exist. The iPod and cell phone were misspellings. DNA was just three letters and genetics non-existent. The stock market crashed and we were on our way to a depression.

In 2009, cars are reliable and produce little noxious gases. There are billions of computers in the world, especially when you count the ones in cars, thermostats, cell phones, etc. Airplanes are fast, safe, and affordable. Home entertainment centers have surround sound and quality so good you think you are in the movie theater. TV is digital and FM is everywhere. Close to 200 million iPods billions of cell phones have been sold. The human genome has been sequenced multiple times, and the stock market crashed.  Many argue that we are headed for a deep recession, if not depression. It seems more than obvious to me that we need to import some of the methods of knowledge transfer from the technologists into the rest of our life structures.

Personally, I think this is a daunting task. First, we need consensus on what works and what does not. Just one week ago, the U.S. was surveyed as to which system is better: socialism or capitalism. Capitalism won by 5%. So if we cannot get a consensus on such a fundamental issue, how do we expect agreement on anything else? Members of Congress enjoy their membership. And because of this, they will do things that enhance their chances for reelection, whether or not they are good for the country as a whole. Apparently, reading bills prior to voting on them is asking too much. We need to revamp our laws and legal system to reduce the number of laws subject to interpretation. Even though Sarbanes-Oxley passed, it has had documented detrimental effects on new company formation. It has also seemingly failed to curtail illegal business acts. More laws will not fix these issues. A rewrite, in combination with careful revision tracking, is in order.

I fully realize that many of the problems we face as a society are far more difficult than the DRAM design problem, but we must start down a different path to address the key issues of today. A well-known definition of insanity is doing the same thing over and over and expecting different results. We really need to change the way we enact policy and the way we write laws and regulations, because we are clearly doing many of the same things over and over.  Otherwise, in the year 2089, the occupants of a mission to Mars, when told that the stock market just crashed, will need to head back to earth immediately to answer a margin call. This lends a whole new meaning to the well-known definition of insanity.