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How the World Sped Up
More change is happening, faster than ever before. Can we keep up? Or will we get left behind, obliterated by catastrophic risk in a world that shifts too quickly?
You probably have a sense that the world has sped up—that more change is happening, and that it’s happening faster than ever before. You’re right: the pace of change has accelerated. For hundreds of thousands of years, the lives of parents and children were largely similar. Now, our lives change from year to year, decade to decade. Just 15 years ago, Siri, Uber, Instagram, WhatsApp, iPads, Pinterest, Tinder, and Snapchat didn’t exist.
Recently, markets were roiled when a cryptocurrency exchange, FTX, run by the disgraced former wunderkind Sam Bankman-Fried, transformed from a multi-billion dollar empire into to a debt bomb overnight. In a blink, he reportedly lost 94 percent of his wealth. (Break out the world’s tiniest violin). But Bankman-Fried’s sudden collapse provides a nice opportunity to explore a question about the nature of change itself. Why has the world sped up?
In modernity, our lives unfold quicker. Stasis is shorter. The accelerated pace of change has embedded catastrophic risk into our precarious world, as most systems are designed for gradualism, evolution by creeps, not evolution by jerks. The world can change in a second, but it can also break in a second.
In his book Slowness, the Czech novelist Milan Kundera writes that “Speed is the form of ecstasy the technical revolution has bestowed on man.” Speed, in Kundera’s estimation, is a blessing and a curse, an ecstasy that is both liberating and dangerous.
For millennia, the challenge of quickly spreading information across vast distances has perplexed humans. The Roman historian Suetonius mentioned that messengers were often dispatched in advance of Caesar to announce his coming. But Caesar “covered great distances with incredible speed…very often arriving before the messengers sent to announce his coming.” Caesar certainly appreciated that the rapid spread of information was crucial to building an empire. What he may have been less aware of, however, is how speed can also be used to build empires of wealth. If you know something before everyone else, it’s easy to get rich.
In 1790, the fledgling United States Congress was deciding how to cope with the massive debts that newly-formed states had racked up during the Revolutionary War against Britain. The debts were crippling state finances. Buying up the debt was risky, as it was unclear if they would ever be paid off. Risk-taking investors began purchasing the debts for pennies on the dollar. They pinned their hopes on Congress adopting a proposal known as the Funding Act of 1790. If passed, the federal government would hoover up all the state debt and consolidate it, thereby reducing the risk and driving up the price of the apparently worthless asset.
If news broke that Congress was even considering that proposal, the value of the state debt would instantly shoot up. It was a race of who could spread knowledge across distance fastest. Whoever could outrun the speed of information could cash in, buying up seemingly worthless debt in America’s hinterlands, just before its value shot through the roof.
Recognizing the potential to make their fortune, a group of speculators hired “three vessels,” fast sailing ships, to outpace traditional messengers traveling overland. Representative James Jackson denounced their greed, calling them “rapacious wolves seeking whom they may devour,” and urging Congress to stop them. With judicious action, there was still hope to “save the distant inhabitants from being plundered by these harpies.” Instead, as worthless pieces of paper were about to become valuable investments, speculators pounced. “The wily hastened to the highways and byways and bought up, at remarkably low prices, the Government 'stock' held by ignorant men who did not dream that it could be redeemed at par.”
In the slow world of the late 18th century, an information edge was measured in days. Over the last 230 years, that edge has steadily been filed down. It’s now reduced to variations measured in milliseconds, one one-thousandth of a second, a measurement so minuscule that between 100 to 400 of them fit inside the blink of an eye.
Since the “three vessels” sought to corner the American debt market, other innovations in financial markets soon followed. Traders established “private expresses” to carry information from New York to New Orleans on horseback, faster than the postal routes which transported much heavier newspapers to the general public. Some investors trained pigeons that could relay information over vast distances. Speculators built an “optical telegraph” between Philadelphia and New York. (The network relied on towers spaced 10 to 20 miles apart, in which operators would peer through a telescope at the preceding tower for a signal to transmit to the next tower in the line. Trading speed became measured in hours, rather than days).
Then, the telegraph arrived. When it did, and its first public demonstration was made, one newspaper essayist in New Jersey remarked that “time and distance are annihilated.” Annihilated, that was, unless information had to cross an ocean. Early attempts to lay telegraph cable across the Atlantic were riddled with mistakes, the wires severed or unusable. That created fresh opportunities for wily opportunists.
In early 1865, a Wall Street speculator named James Fisk was nearly ruined by a bear market in the midst of the American Civil War. “Wall Street has ruined me, and Wall Street shall pay for it,” he vowed. Plotting his revenge, Fisk hatched a plot. Recognizing that the Confederate Army was likely to soon surrender to General Ulysses S. Grant’s forces, he readied fast boats to cross the Atlantic quicker than the ordinary steamers that carried the mail. Typically, it took ten days for information to cross the Atlantic. If Fisk could travel faster, he could short-sell Confederate war bonds after the surrender had happened. He would know that they were already useless, but hapless investors in London would remain in the dark. A few days later, they would learn they had been fleeced by Fisk, but by then it would be too late.
When word finally arrived in the local telegraph offices that Confederate surrender was imminent, Fisk bribed an operator to send his message before any others, to his chosen recipient in Halifax, Nova Scotia. “Go!” it read. With the fastest steamer money could buy, Fisk’s man arrived in London a few days later. For several days, Fisk’s confidante was the only person in the country who knew that a major war had ended. (Racing against Fisk to break the news to Europe was a man named Paul Reuter, the founder of the news service that we know, to this day, as Reuters).
Fisk’s crazy scheme worked. Clueless investors bought millions of dollars’ worth of soon-to-be worthless assets. Fisk made millions, becoming so rich that he bought an opera house, a mansion staffed with butlers and personal chefs, and six horse-drawn carriages. (He was later shot dead by a rival in a love triangle at the age of 37. Fisk lived fast—and died young). A year later, a reliable transatlantic telegraph connection was made, touting its speed with the slogan “Two weeks to two minutes.” It was an information speed revolution, but nobody at the time, not even the speedster and swindler James Fisk, could fathom the pace that would soon follow.
Picture what you think trading on Wall Street looks like. In all likelihood, the images conjured by your imagination are of frantic men in business suits, shouting buy and sell orders, as bells clang in the background. For most trades, there are no suits, no shouting or bells. There aren’t even people. Most trading is done by computers, and much of it is happening hundreds of times faster than the blink of an eye with something known as “high frequency trading.”
Decades ago, the edge—the kind that speculators like James Fisk try to gain over other investors—was to be exploited by getting information between New York (where equities, or stocks were traded) and Chicago (where commodities, like corn and wheat, were traded) as quickly as possible. In 1949, the US telecommunications giant AT&T constructed 34 microwave radio relay towers, allowing what near instantaneous communication. In today’s terms, such transmissions are considered glacially slow. The speed arms race continued. Traders began building networks that aimed to trim milliseconds, using new technologies and buying land that would mean a straighter line of travel for data between Chicago and New York.
The next big leap came in 2010, when a group of investors buried 825 miles of fiber optic cable in a straight line between the two cities. It cost $300 million. For that price, the speed improvement was roughly 3 milliseconds (a hummingbird flaps its wings about once every 18 milliseconds). Anyone who didn’t pay to use this new fiber optic network was left in the dust. Three milliseconds is “close to an eternity in automated trading,” according to Ben Van Vliet, a finance professor at the Illinois Institute of Technology. “This is all about picking gold coins up off the floor—only the fastest person is going to get the coins,” he told Forbes in 2010, shortly after the new fiber line launched.
In New York, closer physical proximity to the New York Stock Exchange data servers became worth millions, even billions of dollars. If your fiber optic cable was even one foot shorter than a competitor, your computers could react quicker, beating competitors and making a killing in in instant. As Michael Lewis notes in his book “Flashboys,” traders would begin asking technicians “Where are you in the room?” They were asking about the physical proximity, within the same room, between the trading computer and the server that processes trades. One foot could make a difference. If a cable was closer to the door than the server, they’d lose out, and someone else would collect the gold coins.
Because computers can trade at such high volumes, fortunes were at stake. To put it into perspective, the economist Tim Harford explains that “in the time it takes Usain Bolt to react to the starting pistol, a high-frequency trading platform could complete about 165,000 separate trades.” The edge of a millisecond may only yield an advantage of a thousandth of a penny per trade, but when millions of trades are executed every minute, fractions of a penny quickly add up.
These days, traders are pushing the limits of physics. Improved microwave technology is being used to send signals through the air, partly because light travels through air about 50 percent faster than through fiber cables, and partly because towers can beam signals in a straighter distance, thereby shaving off a few precious milliseconds along the way.
The absurdity doesn’t stop there. Humid heatwaves can slow down microwave transmissions by microseconds, creating fresh winners and losers. (Some economists now predict that traders will soon even try to take advantage of relativity, in which infinitesimal gains could be had in space because time passes faster the further one is from the gravitational pull of the Earth). But when you deal in milliseconds and, soon, nanoseconds, contingencies and calamities can grow—sometimes out of control.
On May 6th, 2010, a trillion dollars of value on the stock market was wiped out in a few minutes, between 2:42 pm and 2:47 pm. On CNBC, analysts struggled to make sense of what was happening in real time, trying to get their heads around an unprecedented drop, a rapid wipe-out of wealth for no apparent reason. For a few moments, eight major companies—including Accenture, a company with roughly $50 billion in revenues—were deemed valueless, their stocks trading at one cent per share.
As the markets plunged, it triggered an automatic circuit breaker in Chicago, a brief pause in trading that lasted for just five seconds. In automated high-frequency trading, that was a lifetime. It worked. Twenty minutes later, the market had fully rebounded. When trading closed, nobody had a clue what had happened. Why had the market plunged so abruptly?
For years, there were no good answers. Several theories were put forward, but none explained the data. The Securities and Exchange Commission spent months investigating, only to conclude with the bureaucratic equivalent of a shrug at the mystery. Then, in 2015, authorities in England arrested a 37 year-old autistic man in Hounslow, West London named Navinder Sarao. The press dubbed him the Flash Crash Trader, though some took more poetic license and juxtaposed him with the Wolf of Wall Street, calling him the Hound of Hounslow. And for five minutes in 2010, the stock market was caught in his fangs.
Sarao used a complicated digital trading method called spoofing to effectively trick the market into an artificial crash. He was motivated by the intellectual puzzle of digital manipulation more than by the money. After being found out, he cooperated with investigators, pleaded guilty, and got a slap on the wrist (most of the millions he made in the Flash Crash had been lost anyway, swindled away from him by fraudsters).
But this isn’t really a story about Sarao and how he managed to briefly redirect the market swarm. Instead, it’s a story about a market that can crash based on trades executed in milliseconds, but one that doesn’t make sense to us for years. That’s a dangerous dynamic. The world now moves so fast that we can no longer understand it. Speed creates order and efficiency. But speed has also placed a ticking time bomb under the systems that govern our lives.
What we used to measure over three days is now measured in three milliseconds. In October 1953, fewer than one million shares were traded on the New York Stock Exchange—just a few thousand shares per minute. By 1983, that figure had risen to 100 million, or around 250,000 per minute. Today, it isn’t unusual for six billion shares to be traded daily, 15 million per minute, or 250,000 per second. That’s a rate nearly 6,000 times faster, in the span of just seven decades.
That has created a much more contingent system, making big, catastrophic events more likely and more frequent. One man playing with an intellectual puzzle in his bedroom 3,500 miles away can wipe out a trillion dollars of wealth in five minutes. One intellectually incurious cryptobro can ruin millions of livelihoods and create market downturns. What’s the equivalent of that level of contingency for a caveman, a hunter-gatherer, or a medieval prince?
“Speed is the form of ecstasy the technical revolution has bestowed on man.” The question is: are we smart enough as a species to harness that ecstasy without letting it destroy us?
Thank you for taking time out of your busy schedule to read this newsletter. The Garden of Forking Paths is a new Substack, written by Brian Klaas, associate professor of global politics at University College London, contributing writer for The Atlantic magazine, author of Corruptible: Who Gets Power and How It Changes Us, and the host of the award-winning Power Corrupts podcast. New posts will come 1 to 2 times per week, and about half the content will be for paid subscribers only — so please consider signing up and supporting my work.