Run-off, their feat: Georgia’s Senate races

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Hello and welcome to the Intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. Quantum computing is an emerging kind of number crunching that exploits the rules of physics to solve some kinds of extremely tricky problems. And like many computing advances before it, the finance sector is already looking to profit from it. And for centuries, the ruling ideology in Korea was Confucianism, a philosophy imported from China. It's long since faded from officialdom, but its influence is blamed for both the good and the bad in South Korean society today.

First up, though.

Georgia. The whole nation is looking to you. The power is literally in your hands.

That power in the hands of Georgia voters who went to the polls yesterday will in large part determine how President elect Joe Biden will be able to govern.

Unlike any time in my career, one state, one state can chart the course not just for the next four years, but for the next generation.

Both of the state's Senate seats were up for grabs after tight results in November triggered a runoff. And that in turn triggered a fervent and wildly expensive pair of campaigns pitting incumbent Republicans David Perdue and Kelly Loeffler against Democrats John Ossoff and Raphael Warnock. Votes are still being counted, but one contest has been decided. Mr. Warnock will become the state's first black senator.

We prove that with hope, hard work and the people by our side, anything is possible.

Signs point to a win also for Jon Ossoff, meaning that the Democrats would win what amounts to the slimmest possible majority in the Senate. In a state that has elected Republican senators for two decades, it looks likely to be a stinging loss.

Hello, Georgia. Are we excited to be here tonight? We are going to have a victory.

I went to the Republican Victory Party, which was held in a hotel in a swanky neighborhood in Atlanta.

Idris Kaloon is the Economist's Washington correspondent.

It was mostly filled with staffers, a couple of VIPs. The mood of the room was fairly upbeat. There were loud cheers at the Fox News TV screens, which were all over the place. As they showed the initial phase of the night, which was early sizable Republican leads, the mood palpably sort of dissipated. It became pretty clear as the night wore on that Democrats were very likely to be sending two senators to Washington from the state of Georgia. And that obviously means that the Senate flips control, which is a huge, huge development for Democrats.

And before the race, the polls had it essentially too close to call.

What do you think made the difference in the end?

So you have to understand that for a runoff, typically there's a huge drop off in turnout because this is not an election that most people care about. And in this election, the turnout was probably 90%. When all is said and done of the general election turnout, which was huge. A significantly higher share of voters this time were African American than they were in the general election in which Joe Biden really squeaked by fewer than 12,000 votes. This was probably the real final culmination of years long effort at organizing and making sure that black voters, Hispanic voters, young voters, those who don't often turn out with very high propensity, actually showed up to the polls this time. Lots of money was spent on this race. There was upwards of half a billion that was spent on advertising alone. When all is said and done, the total cost of the race might edge close to a billion dollars. Plus, the national salience of Senate races that determine control of the U.S. senate. And really far a Biden agenda can go, meant that many, many more people turned out than would be expected.

And another factor here is that the campaign was run as President Donald Trump was questioning the integrity of the presidential election.

Georgia, by the way, there's no way we lost Georgia. There's no way.

What do you think that did for the dynamic?

So it probably is not motivating, if you're a Republican voter, to hear that the election that was just conducted in the state was marred by huge amounts of fraud that was snuck under the authority of a Republican governor and a Republican Secretary of state who's the chief elections official. It's hard to believe that story and also be convinced that you must vote in this election despite all the fraud. It's just sort of a tangle of logic that you might get stuck in. We won't know precisely how much Trump's actions cost Georgia Republicans here. Another thing that Trump might have done that could have hurt the chances of the Republican senators is his insistence on a $2,000 stimulus check in defiance of the deal that Republicans cut over Christmas, which was only $600 per person. Democrats wielded that higher figure as a cudgel and said that they would ensure that they would deliver even greater relief than Republicans were able to. That was an interesting controversy that probably wouldn't have existed had Trump not intervened with the stimulus in the way that he did, which may have been just as impactful.

If the results hold here, where does that leave Republicans in the face of what looks to be a stinging defeat?

So there was this theory that after Donald Trump lost the election in November, that the loyalty that Republican elites show to Trump, despite his nor breaking behavior, would break. And then the theory became, well, once we get to Georgia and Trump delivers victories by increasing turnout, then maybe the fever will break. You know, given all that's happening, given that in a few hours we're expecting a major portion of the Republican delegation in Congress to go along with his plan to simply not certify his election loss, it seems premature to insist that now is actually the breaking point at which Republicans and Trump part way. I think that even after he exits the Oval Office, the same principles that have kept Republicans in line now, the fear of primary challenges, the desire to stay in the good graces of the party, are going to remain just the same. And it's tougher now to see a divorce between Trumpism and Republicanism than I think it was even a few weeks ago.

And as for the Democrats, assuming these results hold and they do take the Senate, they'd control both chambers.

What does that mean for Mr. Biden?

Taking control of the Senate gives Democrats a bit of breathing room. It lets Joe Biden confirm his Cabinet secretaries, probably with much more ease, confirm judges, and just control of the Senate floor will give them the ability to debate legislation as opposed to letting it sit and die, as happened when Mitch McConnell was in charge of the Senate. In terms of Joe Biden's first hundred days, things like expeditious stimulus, new funding for vaccine distribution, even something like a green infrastructure bill, these are not guaranteed passage, but their chances of getting through, I think, would be much, much faster and much more real. It'll still be tough to put everything that he proposed during his campaign into action. Right now, the Senate will be probably 50, 50 Democrat and Republican, with the ties broken by the vice president. That means that if Republicans are unified in their opposition to any Biden proposal, which I imagine will happen often, a single Democrat can act as a check and spoil the legislation from becoming reality. And that's to say nothing about the filibuster. So in that case, conservative Democrats become a pretty big check on Biden's ambitions. It's a lot more breathing room than he would have had before, but we're not going to get anything like a new New Deal, which some Democrats were fantasizing about.

Thanks very much for joining us, Idris.

Thanks for having me. J.

The world of finance has a long and profitable history with computing, going back to the 1950s with the Electronic Recording Machine accounting, or IRMA, used by the bank of America to automate check processing. These days, no financial institution worthy of the name doesn't have a Bloomberg terminal, once a cutting edge link to reams of up to the minute market data. And for most of the past decade, more securities trading has been done by complex algorithms than by humans, and done far, far faster. Now the industry seems set to exploit another emerging technology.

Quantum computing is Wall Street's latest shiny technological new thing.

Tim Cross is the Economist's technology editor.

It's a fundamentally new sort of computing that will shake up finance at some point, though it's still a bit unclear exactly how quickly this is going to happen.

Now, we've talked about quantum computing a lot on the show, and certainly a lot more in person, but let's have a little recap about what quantum computing is before we get into what it can do.

Quantum computing started life on blackboards in physics departments in the 1980s, and the idea was to use the sort of counterintuitive and weird properties of quantum mechanics to do some kinds of maths, at least way faster than any non quantum machine could conceivably do. And I'm going to do huge amounts of violence to the concept now. So if any quantum physicists are listening, please have mercy. But the basic idea is that ordinary computers, classical computers, they run on bits, right? These are the ones and zeros that we all know about. It's a switch, it's on or it's off, and you can sort of stack bits together to represent numbers and to do mathematics. Quantum computers have these things called qubits, which are sort of analogous, but instead of being one or zero with no kind of ambiguity about which they are, you can put them into this weird state called superposition, where in some sense they're almost a blend of every possible option between 1 and 0 at the same time, and then to skip massively ahead. The upshot of that is that you can use these qubits to do some kinds of calculation way faster than you could with ordinary non quantum bits.

How much faster, though?

When we say faster, we really do mean much, much faster. So in 2019, Google hit the headlines when they gave the demonstration of quantum supremacy. And their quantum computer spent about three minutes doing something that would have taken the fastest supercomputer we have in the world around about 10,000 years. So that's the scale of the speed up that we're potentially talking about here.

And why is quantum computing so particularly suited then to finance?

I think there are several reasons. I mean, the most fundamental one, I suppose, is that many of the calculations that banks and hedge funds and so on already do in finance essentially boil down to optimization problems, where you've got this really complicated decision that you're trying to make with loads and loads of factors going in, and you're trying to find the sort of best possible decision that you can make. And we know that these sorts of optimization problems, they're one kind of maths where quantum computers are going to be way faster than their classical equivalents. And then there are some other reasons as well. I mean, just the nature of the finance industry. It employs a lot of people who understand this stuff. And when you compare it to some of the other industries that people think could find a use for quantum computing, like drug design or materials design or whatever, if you're designing a new drug, you have to design it, produce it, test it, run it through clinical trials. It's a process that takes years. If you're coming up with a nifty new finance algorithm, you can deploy it within days.

And if the particular strength of quantum machines then is these optimization problems, what do they look like? What's a finance optimization problem?

There was one example from a Spanish company called Multiverse who were looking into this problem of portfolio optimization. So this is when you're trying to pick a group of assets that will maximize your return over a given period. So they looked at a group of 50 assets from which you were allowed to choose seven to start with. When you boil all these things down and you do the numbers, you end up with about 10 to the power of 1,300 different ways of structuring your investment. And this is an absolutely ludicrously huge number. And what Multiverse hope anyway, is that quantum computers will be able to find a better path through this enormous thicket of possibilities than classical ones will.

And so banks themselves are picking up on this idea, are trying to exploit these advantages.

Banks and the finance industry has a history of embracing innovations in computing, I guess. And quantum computing is now one of the ones that's in their sight. So you've seen companies like bbva, which is a big Spanish bank, Citigroup, JP Morgan, Standard Chartered and so on. They've all set up research teams, they've been signing deals with some of the quantum computing startups. They've been hiring people from academia or sometimes from these startups themselves to look at how you could apply quantum computing to the kind of problems that the banks have.

But in a lot of ways, these.

Advantages are kind of possible. In theory, the machines that make all that possible aren't here yet.

Yeah, that's right. And this is the thing that's sort of really holding it all back is that this all works great on paper, but doesn't really yet work in practice. So at the moment, you know, quantum computers do exist, but they're sort of engineering prototypes. They're small, they're not very reliable. They have to keep themselves in these really delicate quantum states to work. And those states tend to break down really quickly. So what you have at the moment is these sort of small machines without many qubits that can maybe work for tiny fractions of a second. And they've been dubbed NISK machines for noisy intermediate scale quantum computers. There are sort of two ways in which things are getting better. One is that the hardware is just improving. So Google's quantum supremacy demonstration that used a machine with 53 qubits, IBM have said they want to have a machine with 1,000 qubits within a couple of years. And both Google and IBM have said they think they can get to maybe a million by 2030. And then. And the other thing that might happen is that sort of algorithm designers might meet the hardware guys coming the other way, because there's a lot of research now going into ways to take algorithms and try and kind of squash them down and see if it's possible to do something useful even with the sort of super limited machines that we have at the moment. And it's an open question whether the answer to that will be yes or no. But there are quite a few people now trying.

So if the smaller scale, the noisier, the crappier machines that we have now can confer an advantage at all, that's still in the finance industry worth chasing, right?

Yes, because just given the sheer size of the market and the sheer amount of money that's sloshing around, even a small advantage can be worth millions of dollars. One person I spoke to thought that you might see simple algorithms in use, maybe as soon as 18 months time, possibly being used in credit scoring, so deciding who qualifies for a credit card and what kind of interest rate to charge them and so on. Other people have said maybe you're looking at more like three to five years. But the crucial point I think is that this is a party that no one really wants to be late to, because whoever does do this first potentially stands to make quite a lot of money from it. One parallel that came up several times with several different people I spoke to was high frequency trading. When that got started, there wasn't a big announcement to the world where banks and hedge funds said, hey, we figured out a new way to make money. It happened quietly and all the institutions that weren't doing it had to sort of work backwards and figure out what was going on. Maybe we'll see the same thing with quantum computing, because of course, the first bank that does figure out a way to actually make money out of this would have every incentive not to tell anyone and not to let the cat out of the bag.

Thanks very much for joining us, Tim.

Thanks Jason.

For analysis that ranges from physics to finance and the occasional story that combines them, take out a subscription to the Economist. Get a great introductory deal@exterator.com intelligenceoffer the link is in the show notes. Two thousand years ago, the teachings of the Chinese philosopher Confucius came to Korea. His system of ethics was intended to create social cohesion, emphasizing loyalty, respect and filial piety. Although Confucianism stopped being Korea's official ideology more than a century ago, its influence is still pervasive. And in recent decades it's been increasingly seen as both the solution to and the cause of many societal ills.

So I went down to Andong, which is a city in central southeastern South Korea, where they have an exhibition called Confucian Land. It was a cultural exhibit.

Lena Shipper is the Economist's sole bureau chief.

And the first thing you see is this room which has a big neon lit sign in it saying, is this the kind of world you want to live in? And it basically shows you today big, big piles of consumer goods, people behaving atrociously in a club, pictures of war, famine, horrible things like that. Then it asks you to travel through a tunnel of time to 16th century Korea, where Confucianism was the ruling ideology and the official philosophy of the court and the virtuous conduct motivated by that underpinned social cohesion.

And so what is it that Confucianism in That regard kind of recommends what is it that underpins the social cohesion.

So it's a very big question, and it's been debated for centuries. But at heart, Confucianism contains a system of social ethics which tells people how to behave. So how you should behave depends on who you are, depends on if you're a man or woman, if you're a parent, a sibling, if you're somebody's friend, if you're the ruler of a country. So every role of that nature has its own set of recommended behaviors, because this is a philosophical tradition that started to be developed more than 2,000 years ago. Obviously, some of the roles that are recommended for people reflect the fact that it's very old and it has a very long history. And some of those prescriptions are at odds with modern ideas.

And how big an impact do all of these ideas from Confucianism have on.

South Korea today, though?

So pupils in schools are taught classical poetry, calligraphy, Confucian virtues. A lot of Korean families still perform Confucian ceremonies to revere their ancestors at both New year and during the harvest festival. One of the ways in which Confucianism has been used, both by South Koreans, but also very much by foreign observers over the past few years and decades is as a kind of trope. People say the lingering influence of Confucianism explains anything you want about South Korea. Rapid economic development, the academic prowess of its students. If you want to go to the negative side, the authoritarianism, the sexism, the stifling hierarchies in the workplace, it's a kind of trope that people reach for and say, oh, this thing happens. It must be because of Confucianism.

But seemingly perceived both as very positive and very negative. I mean, why do you think both poles of that are still around?

One of the reasons is that it is so visible and it still has that influence. And it's also taken on a political tint. So if you go back a few decades to Park Chung Hee, the military dictator in the 60s and 70s, he redefined Confucian virtues or two, particularly two of them, filial piety and loyalty, in a way that meant to legitimize his authoritarianism, that trope that has resurfaced in the pandemic of obedient Asians, you know, the racist stereotype people have reached for to explain why South Korea has been more conscientious in mask wearing or social distancing or that kind of thing. That was essentially the thing he sought to create. And that's also partly the root for the negative ways in which people use it today. So feminists reach for it to complain about women's outsized domestic duties. And a lot of conservatives will say, well, you know, there's deference to elders and humility towards strangers, essentially national traits that are based on Confucian values and that are very sadly being eroded by more modern ideas. So everybody sort of uses it in ways that of sort suits them.

And so in that sense, Confucianism as an idea, as guiding principles is. Well, is there to stay?

Yeah, I think it's something that's going to be around for a while. So in Scholar, I talked about South Korea as a hybrid society which was made up of these influences of old stuff that's no longer the official ideology, but it's still there in some way. And newer ideas about individual freedom, personal autonomy, sexual equality, other types of equality, that social debate will stay, I think, for some time to come. And using Confucianism in this trope like way is not going to make the underlying conflicts any easier to resolve.

Thanks very much for joining us, Lena.

Thanks very much for having me, Jason.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple Podcasts and see you back here tomorrow.