From We to Wii

Every now and again, two electronic blips in the fiber-optic miasma of my RSS feed crash into one another, producing something that, in the old days, one used to call insight.

First, this story from David Axe, writing in Wired magazine’s Danger Zone blog, reports on the fast-growing use of drones in U.S. military planning and execution, such that the Air Force can now an envision, as Axe’s ominous headline captures it, an “all-drone future.” Drones, or unmanned aircraft, are already becoming a huge part of ongoing engagements, notably in Afghanistan and along the Pakistani border. Danger Zone reported earlier this year that drones in the U.S. Air Force logged over 400,000 flight hours during 2008, more than double 2006 levels.

Visit here to get a very nice archive of Danger Zone’s coverage of drones in the U.S. military.

That story caught my eye because of several reviews that I have read lately on P.W. Singer’s new book, Wired for War: The Robotics Revolution and Conflict in the 21st Century. I have not read Singer’s book yet, but if the reviews (mostly favorable) are to be believed, it is a magnum opus in the field where public policy and robotics meet. It’s definitely on my list of things to read before the year is out.

Then there is the provocative essay published by Paul Wilmott in yesterday’s Paper of Record. Mr. Wilmott is a so-called quant guy, or someone who makes money in the financial markets by designing fancy mathematical codes telling computers when to buy and when to sell. These algorithms are the drones of the financial world.

But Mr. Wilmott seems to voice some misgivings about the rise of high-frequency trading (HFT), which, at its broadest, is a trading technique that – arguably – allows certain market participants to move the markets all by themselves. The aforementioned algorithms play a central role in HFT. Mr. Wilmott, being a hedge-fund quant guy himself, should know about the effect these things have on the marketplace, even if it makes him a less than ideal messenger for the following kind of warning:

“Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people.”

Warren Buffett called derivatives, like the credit-default swaps that made AIG a ward of the state, “financial weapons of mass destruction.” And over $1 trillion dollars later, it seems he was right. Perhaps we should pay a little more attention to the HFT and flash trading, as they may have the potential to wreak as much damage, if not more. Besides, the only people that benefit from this technique are financial-industry professionals, as Felix Salmon has pointed out in his characteristically even-handed way.

Trading algorithms sifting terabytes of data, flying robots that, like angels of death, can hits targets from worlds away…these are the icons of the new age. Like it or lump it.