Ask people on the street what mental image they associate with the words “stock exchange,” and you’ll likely hear about a large imposing building in the middle of New York or Chicago. Inside the building there is a huge space crowded with traders in multicolored jackets screaming and gesticulating to each other.
Until ten years ago, that would have been a pretty accurate description of a stock exchange. Today, however, almost all trading is done by algorithms firing digital commands traveling near the speed of light to rows upon rows of computer servers sitting in nondescript suburban warehouses.
The transition from human to electronic trading came with the promise of using faster and cheaper technology to drastically lower the costs of trading shares and to make it much easier to determine the most up-to-date prices for all market participants (commonly known as price discovery).
Especially concerning business regulations, critics argue, an inside the Beltway mentality prevails. Only the lobbyists and industry insiders are heard.
I am sensitive to this criticism. Five and half years ago, the United States experienced the worst financial crisis since the Great Depression. In response to the crisis, Congress passed the Dodd Frank Wall Street Reform and Consumer Protection Act. One part of the legislation instructed a financial regulatory agency called the Commodity Futures Trading Commission (CFTC) to write rules that regulate “swaps” — the same derivatives that had been implicated in the financial crisis. As the Chief Economist of the CFTC during 2010-2012, I helped with the rulemaking process.
After leaving the federal government in December 2012 to join MIT Sloan School of Management as a finance professor, I set out to study the work that I and other staff members had done on designing new Wall Street regulations.
My goal was to create a scientific tool to evaluate whether thousands of public comments that were delivered in response to the rules proposed by the CFTC were meaningfully taken into account. I wanted to study how responsive the government is to its constituents. Is the government really for the people?
I am 46 years old. The first 23 years of my life I spent in the Soviet Union; the remainder I spent in the United States. I was born and grew up in Ukraine — in Eastern Ukraine, to be exact. In the underbelly of the Ukrainian Rust Belt, called the Donbass, where people work in ginormous smoke belching factories, eat salted pork fat for breakfast and speak Russian.
That was supposed to be my fate too, pork fat and all, but the Soviet Empire collapsed, I got to study economics at an Ivy League doctorate program and am now a professor at the MIT Sloan School of Management. Spending half of my life in Ukraine sort of qualifies me to offer an opinion about recent events there. Being at MIT, my opinion comes with more than a hint of technology included.
If you are reading this, you have probably already seen plenty of pictures of burning tires, exploding Molotov cocktails, bodies with blankets over them, armed men with covered faces, and, most recently, youthful opposition leaders shaking hands with the heads of great nations. What I see is an installation of a new “operating system,” or an OS as they are called in the tech world. An OS is an essential set of common rules that enable different parts of a computer, or in this case society, to interact with each other. Without these rules, a nation state cannot function — just like your computer cannot function without an OS.