Jeremy Siegel: The Impact of the Brexit Vote on Markets


 

Brexit

Wharton finance professor Jeremy Siegel sees U.S. stocks rising 10% to 12% by year-end, despite any blowback to the world economy resulting from the Brexit – the U.K.’s looming withdrawal from the European Union. Siegel also says, in this Knowledge@Wharton interview, that the swoon in European stocks that followed the vote offers a buying opportunity. “If you were a longer-term investor, you are able to get European stocks … at around 12 [times] price-earnings ratio … an extremely good valuation in low-interest-rate environments.” He does not expect any other countries to leave the EU, and says a Fed rate increase this year remains possible, though not likely until after September.


Knowledge@Wharton: We’re here with Wharton finance professor Jeremy Siegel to talk about Brexit, with the U.K. voting to leave the European Union, and what it means for markets.

Thank you for joining us today, Jeremy.  

Jeremy Siegel: I’m happy to be here.

Knowledge@Wharton: The vote was taken Thursday, but the announcement was made Friday last week. There was the biggest one-day loss in global equities in history — over $2 trillion.

Siegel: And then another trillion [dollars] yesterday. So that was the biggest two-day dollar loss in history — $3 trillion.

Knowledge@Wharton: Not the biggest percentage loss.

Siegel: Oh, by no means. No.

Knowledge@Wharton: Today [Tuesday, June 28], the markets are recovering a little bit. The Dow Jones, at least in the U.S. now, and the S&P 500 are both up about 1%.

Siegel: And Europe is up, actually, quite nicely.

Knowledge@Wharton: It looks like perhaps the dust has settled a little bit, at least for the moment. What are the main takeaways from all of this, and what should people be thinking about as we go forward? It looks like it didn’t turn into a rout or a panic, at least so far.

Siegel: No. There was no disruptive trading, and the [European] Central Bank stood ready in case there was. But foreign exchange trading … was pretty orderly. No real gaps. Liquidity was good.

We’ve had a big price adjustment. The markets react in the short run to uncertainty, and that’s what this bred — a tremendous amount of uncertainty. So we have to stand back and [ask], “Are the fears justified?” We should talk about that.

Knowledge@Wharton: It looks, for the moment, like things have stabilized. But anything could change at any moment. So, let’s talk about that. What are the key [factors]?

Siegel: Having studied these for many, many years, one of the big fears — not the only one, but one of the big fears — is that this will spread to other countries. We’re hearing about Frexit and Grexit, and all sorts of things like that. There will be no other major country that will leave [the European Union], and absolutely there will be no country in the eurozone that will leave. (The eurozone has 19 of the 28 European Union member-countries, including the U.K.)

Getting out of the eurozone is a whole order of magnitude more difficult than just leaving the EU once you have your own currency. We can look at the Greek situation, [in] which the voters were trying to give the thumbs to Germany. They wanted out of every agreement, but they did not want [to be] out of the euro. As a result, the Germans and the Europeans had a stranglehold over them, and there was nothing they could do.

So my feeling is that this is not going to spread. There was a lot of talk about the anti-EU forces. We already had an election over the weekend, in Spain, where the ruling party did better than expected.

After seeing what had happened, there may be some pause on the part of many Europeans. “Is this the direction we want to go?” [they may ask]. But nonetheless, even if those parties do gain strength,

I do not believe at all that there’ll be any other country of any significance [that will want to leave the euro zone]. I’m not talking about tiny, tiny countries here or there. This is something that is extremely unique to the U.K.

Knowledge@Wharton: One of the main reasons for [other countries not wanting to leave the euro zone] is the difficulty that they would have in introducing their own currency?

Siegel: [Yes], their own currency. The public does not want the risk of going to [their country’s own] currency. Because the euro, even though it certainly has been hit as a result of this, is one of the world’s strongest currencies. Any country that goes on its own is going to have to deal with [the fact that they are] going to be discounted. They’re going to be given their own currency at a discount to the euro, and no one wants their banking [institutions]. That was basically why the Greeks couldn’t do anything with the banks. They would have been better off going back to the drachma, honestly. But no one wanted to give up the euro.
Knowledge@Wharton: The first level of fallout, you’re suggesting, seems to be that people are seeing what’s happening in the U.K. as a bit chaotic, because there doesn’t seem to have been much planning. The Economist had a headline, “Britain is sailing into a storm with no one at the wheel.”

Siegel: Well, [British Prime Minister David] Cameron resigned. We don’t know who’s going to take over. There seems to be a lot of regret. People now say if the vote was taken today, the ‘Remain’ [supporters] would win. I don’t think there will be another vote. They will start negotiating an exit.

[What is] interesting is Scotland. With an exit, Scotland will have another referendum. That’s a live possibility. We really could see the breakup of the U.K., more than the breakup of the EU, as a result of this vote.

Knowledge@Wharton: Let’s talk about the economies. What is likely to happen in the U.K., and in Europe, over the coming months? Is this likely to lead to a recession for one or both of them?

Siegel: I don’t think [a recession is likely] for Europe. For the U.K., they’re saying the probabilities are certainly higher. There’s been a big hit on equity values [with the] uncertainty. The question is: will a lot of people put off investment as a result? You don’t want to invest in the future, when the future is uncertain. That would be the major source. With the pound going down so much, [the U.K. will] probably have a tourism boom. They’re going to do probably better for their exports, because their costs have been lowered. From that point of view, it’s very good.

The big uncertainty is how much will investment go down? [This is about] people putting off decisions to put real capital expenditures into the U.K. until the situation gets clarified very much. Believe it or not, I think they will avoid a recession. But certainly they’re going to take a growth hit as a result.

Knowledge@Wharton: I guess there’s the short term and then the more medium-term [and] long-term effects.

Siegel: The euro did go down, too, relative to the dollar. [European Central Bank president Mario] Draghi was a little bit concerned. You know, one of the purposes of the quantitative easing that Draghi introduced nearly two years ago was to bring the euro down. It has been my position for many years, and I’ve voiced it in columns, that the euro at $1.35 and [$1.40] was inconsistent with an economic recovery in Europe, and [that] they would have to bring it down.

Draghi then decided, “Yeah, we’re going to have to bring it down.” Remember, they brought it all the way down.

I think [Draghi] would prefer [the euro to be] between $1 and $1.10 — closer to a dollar. As you know, before the Brexit vote, it had gone up to $1.15-$1.16, which is a little higher than [what] he wanted, because they need that export-led recovery. There were some signs of a recovery. Europe was looking better before this Brexit vote.

The Brexit vote, of course, depressed the pound the most. But secondarily, it depressed the euro down to about $1.10. That must please Draghi. But he wouldn’t mind bringing it down a little bit more. Certainly that would be part of a policy separate from Brexit, if Draghi wants to bring that down more. I don’t think the fall in the euro by just 2% or 3%, [or] 4%, is going to [provide] a significant lift to their exports from Brexit alone.

Knowledge@Wharton: Let’s talk about the effects of all of this on the U.S. One of the first things people started talking about was that the [U.S.] Fed is highly unlikely to have any interest rate increase this year. Before Brexit, there was talk that maybe one to two increases were possible, maybe even likely. Do you agree that [a rate increase] is unlikely this year?

Siegel: Well, it’s not a slam dunk that there will be none. Now certainly, if we look at the Fed Fund’s futures market, it has priced out any increases this year. Certainly there won’t be any increase in July.

And probably not in September. But I would not rule out December. If things normalize again and people say, “Wow, this did not cause a domino effect that’s going to really threaten world economic growth,” you have to look back at what kind of growth we’re going to have in the United States.

Unemployment continues to move down. It was 4.7% [in May 2016]. The Fed basically said 4.8% or 4.9% was the lowest they’re going to go [to].

I would not rule it out [an interest rate increase in the U.S.] Clearly, if things get worse in Europe and everything else [looks bad], then obviously it’s less likely. We have a couple [of] more labor reports [expected this year]. But December — and that will be after the presidential election, so they won’t be accused of trying to manipulate the election — I think is on the table.

Knowledge@Wharton: Is, in general, the low-interest-rate environment in the U.S. the new normal?

Siegel: Yes.

Knowledge@Wharton: Is this where we’re going to be in the foreseeable future — two, three or five years out?

Siegel: Yes. I’ve been stressing this for a while. It was [U.S. bond investor] Bill Gross, who two or three years ago introduced the concept of the “new neutral,” where he [said] the Fed Fund rate [will not increase] to 4%, [but increase] to 2% at most. He thinks interest rates [will be] permanently lower for the next five to 10 years. And I agree. You see the Fed’s long-run dot-plot — it keeps on moving down, down, down.

Following up on your previous question about what the effect could be in the U.S., certainly a stronger dollar is going to hurt our exporters. We already know it has hurt our exporters over the past year. We’ve generally let Japan and Europe devalue, to help their economies, and have been absorbing those shocks. If this does lead to a permanently higher dollar, that is going to be hard for our exporters but great for our consumers and importers, in keeping inflation down. That, of course, will mean the Fed could be on hold for a long, long time [with interest rates].

But again, it depends [on other factors as well]. [Take] Japan, particularly, right after the [Brexit] vote. I saw the yen going to $0.0099, and settle around $0.0102, $0.0103. But that’s still much lower than [what] either [Japan’s Prime Minister] Shinzo Abe or [Haruhiko] Kuroda, the head of the Japanese central bank (Bank of Japan), can tolerate the yen [at]. None of [Abe’s] economic plans really can be realized at $0.0100 or $0.0102.

In fact, Shinzo Abe [had] instructed Kuroda to offset any increased flows. There’s just kneejerk reaction. Whenever there’s an increase [in economic stress] around the world, people go to the Japanese yen. That comes more from history — the fact that many international investors and speculators would finance through the yen, because it’s the world’s cheapest currency. And whenever there would be a risk-off position, they would repay their loans. Therefore, they would buy yens to do that, and cause the yen to rise. So you saw that big spike in the yen right after the Brexit vote.

Knowledge@Wharton: Some people are feeling better today, because the drop seems to have
halted, right?

Siegel: Correct.

Knowledge@Wharton: There’s [also] a little bit of a buy-back. But obviously things are still fragile. They’re still dangerous out there. One crack in the facade might be in Italy, where banks in Europe in general have been seen as being on the weak side. New rules are forcing them to increase their holdings and their reserves. But in Italy in particular, banks are seen as very fragile. This seems to have pushed at least some of them over the edge. Now there is talk of a $40 billion bailout there. Is this the kind of thing that has some danger of sliding out of control and becoming more systemic?

Siegel: Draghi has faced the bank problem. The big ones were two or three years ago. It was the Spanish banks, too. It was not just the Italian banks. Many of them have been [getting capital infusions, but] they haven’t recapitalized the way the U.S. has. The U.S. has a much safer, better cushion. [The Italian banks] never really recapitalized. [The Brexit aftermath] is exposing it. Obviously, Britain leaving, in and of itself, doesn’t have that much of an effect, unless the Italian banks made big loans to the U.K. I don’t know enough about their balance sheet to say that.

But one thing that Draghi is completely committed to [is] not letting a European banking situation turn into a major crisis. He has already prevented two of them, in the first Greek crisis and then [in] the Spanish crisis after that. He is willing to go all out on whatever is needed to do that. So whatever we find, if a few banks have overextended in an area which is now very weak, certainly it’s not a good situation. But Draghi and the ECB [are] committed to make sure that that doesn’t snowball into a general crisis.

Knowledge@Wharton: The ECB changed rules a couple years back, to make it officially the lender of last resort.

Siegel: Yes. Basically, they have become the lender. Draghi has been educated into the same sort of central banking motif that [former U.S. Federal Reserve chairman Ben] Bernanke was — and certainly Mervyn King was, as former Governor, and Mark Carney, current Governor of the Bank of England — is that [the] lender of last resort is critical. It was critical, obviously, during [the U.S.] financial crisis, to prevent the recession [in 2007-2008] from ballooning into a Great Depression again. [Draghi] is fully committed to that.

Knowledge@Wharton: Throughout the EU, there’s a new rule that talks about bail-ins for banks.

Could you talk about that?

Siegel: Bail-in means, “We’re not going to protect you 100%.” Equity holders don’t get bailed out very much. But who does get bailed out often are bondholders or depositors. So saying “bail-in” means you’re not going to get 100% bailed out. “We’re going to put you into the mix, also.” We saw that with Cyprus. When the Cyprus banks went under, the EU forced the depositors and bondholders to take some of the losses.

Knowledge@Wharton: If you have money in an Italian bank and it starts to look shaky, and suddenly you realize you’re subject to bail-in provisions, you’re going to be a little bit quicker about taking it out, don’t you think?

Siegel: Certainly. And that could cause [bank] runs. As I said, the only case was Cyprus, and that’s because there were a huge amount of illegal loans, often financed from Russia, that were placed in the bank. And the EU [said] “no way” on that. But that was a very unique and particular situation. I don’t think it’s going to apply to the major EU members.

Knowledge@Wharton: What else should we be thinking about or talking about when it comes to the whole Brexit issue, and where are things likely to head — for the global economy, for the U.S., [and] for Europe?

Siegel: I don’t believe this is going to spread in any meaningful way. I’ll certainly admit the uncertainty that’s there. Honestly, if you were a longer-term investor, you are able to get European stocks now selling at around 12 [times] price-earnings ratio, which is an extremely good valuation in low-interest-rate environments. Obviously, you’re going to be taking on some risk. But we all know through history it is when the risk is the highest that the rewards have been the greatest. If you have some room in your portfolio and you’re thinking of it, European stocks have been beaten down a lot.

They will be rewarding in the three-to-five-year-hence portfolio.

Knowledge@Wharton: Where do you think U.S. stocks will be at the end of this year?

Siegel: Well, earnings need to increase. That’s been the major problem. We had a stall-out in earnings last year, [and in this year’s] first-half. We’re not going to get much of a rise in the stock market unless we get the second-half earnings doing better. It may take several months for us to see clear. If they do improve, as many expect, we can see the market 10% or 12% higher by year-end.

Brexit’s Blow To Globalization

Carmen Reinhart

Newsart for Brexit’s Blow To Globalization

CAMBRIDGE – The United Kingdom’s Brexit referendum has shaken equity and financial markets around the world. As in prior episodes of contagious financial turmoil, the victory of the “Leave” vote sent skittish global investors toward the usual safe havens. US Treasury bonds rose, and the dollar, Swiss franc, and yen appreciated, most markedly against sterling.
 
When it became clear that the “Remain” camp had lost, the pound’s slide seemed to be on track to match the historic 14% depreciation of the 1967 sterling crisis. But the rollercoaster outcomes that we’re now seeing in global capital markets are not unique to the Brexit episode.
 
What is unique, and particularly far-reaching, is the precedent Brexit sets for other countries (or regions) to “exit” from their respective political and economic arrangements – whether it is Scotland and Northern Ireland in the UK, or Catalonia in Spain. The borders of existing nation-states could be redrawn, or fenced off entirely if disgruntled member states submit to internal nationalist impulses and give up on the multi-decade experiment in European unification. (And, as Donald Trump’s presidential campaign in the United States shows, this impulse extends beyond Europe.)
 
With its systemic negative effects on finance, trade, and labor mobility, Brexit marks a major setback for globalization. The fallout from Brexit probably won’t spread as quickly as in outright financial crises, such as the 2008 financial meltdown or the 1997 and 1998 Asian episodes. But the aftereffects also won’t subside anytime soon.
 
The UK’s trade, finance, and immigration arrangements are far too complex and entrenched to be renegotiated quickly. In the meantime, many cross-border transactions in goods, services, and financial assets are likely to be placed on hold. Even if there are no other “exit” moments elsewhere in Europe, a protracted period of uncertainty in global capital markets seems likely.
 
It’s worth recalling that globalization did not begin with the current generation. The latter part of the nineteenth century, despite its technological limitations, was an era of rising global trade.
 
Major waves of immigration radically diversified the demographic makeup of the US and other parts of North and South America. London was host to a rapidly growing global financial industry, as it had been since the time Britain emerged victorious from the Napoleonic Wars.
 
World War I ended this earlier wave of globalization; and, even with the return to peace, the world never really recovered. The economic depression of the 1920s in Britain, and of the 1930s in the rest of the world, ushered in a global wave of protectionist, inward-looking policies and beggar-thy-neighbor competitive devaluations. The last nail had been hammered into the coffin of globalization even before the outbreak of World War II. While not the original or singular cause of the worldwide slump, there is widespread agreement among economists and historians that policymakers at the time made a bad situation significantly worse.
 
After WWII, global integration finally began anew, first in trade and then, since the 1980s, in finance. During this time, London’s financial center awoke from its long slumber and helped the UK become one of the pillars of a new, deeply integrated international political economy.

Prior to the 2008-2009 global financial crisis, most indicators of global trade and finance had reached new peaks, and European unification contributed significantly this. But, with the onset of the crisis, cross-border finance in Europe shrank as highly leveraged eurozone economies began to lose access to international capital markets, and concerns about private and public insolvency took center stage.
 
The financial crisis resulted in the steepest synchronous drop in world trade since the Great Depression of the 1930s. And global trade still has not recovered its earlier trajectory: since 2008, export volumes have risen at only about half the average annual rate of the pre-crisis period (3.1%, see figure below). Europe itself has experienced an even sharper slowdown.
 
change in global trade

The global financial crisis dealt a significant blow to globalization, especially in terms of trade and finance. Now Brexit has dealt another blow, adding labor mobility to the list.
 
Financial markets do not handle uncertainty well. With the world already facing anemic growth and low levels of investment, any adequate damage-control plan must include prompt resolution of the new rules of the game for Britain and its relationship with the EU. Any delay will cause further frustration and increase the odds of retaliatory policies from EU members.
 
The last thing anyone needs is a tit-for-tat process of political divorce that only serves to deepen the global economy’s already-widening fault lines.
 
 


Brexit: A New Phase in the Global Central Bank Experiment

Brexit has turned the central-bank debate on its head. Lower bond yields signal further tests for monetary policy.

By Richard Barley

   
The idea that the U.S. and the U.K. were talking not long ago about raising rates seems almost quaint right now, with yields plumbing record lows in the wake of the Brexit vote. Globally, the exit from emergency monetary policy has rarely looked further off.

Indeed, just two years ago, the U.K. looked like it might beat the U.S. to raise rates first. Yields on two-year U.K. gilts reached a peak some 0.4 percentage points above those on U.S. Treasurys in mid-2014.

But now, with BOE Governor Mark Carney signaling action to prop up the economy over the summer, yields on gilts have plunged. The March 2018 bond yield briefly turned negative last week, according to Tradeweb, albeit outside official trading hours.

Of course, other bond markets have already been there and done that. The German two-year yield stands at minus 0.65% and its Japanese equivalent at minus 0.33%. Yields on vast swaths of these countries’ bond markets are in negative territory. The U.K. 10-year yield at 0.88% looks relatively high, even though it is historically extremely low. U.S. Treasurys can’t escape the gravity field either. The 10-year U.S. yield has fallen nearly 0.9 percentage points this year so far.

The steep decline in U.K. bond yields is still a remarkable development for a country where deflation hasn’t been a serious threat and inflation, thanks to the plunging pound, is looming.

But the challenge the BOE now faces isn’t an isolated one.

Brexit might be a vote for separation from the European Union, but global central bank policy has become very interconnected. In the eurozone, market-based measures of medium-term inflation expectations have slipped further, and analysts have cut growth and inflation forecasts. The situation is still fragile, and the ECB may face pressure to step up again. The Bank of Japan 8301 -1.35 % is facing its own tussle with a stronger yen and weak inflation.

Swings in currencies are playing havoc by redistributing those global inflationary pressures that exist.

If global policy settings loosen further, investors may judge that, even if the U.S. Federal Reserve does nothing, it represents a tightening of U.S. policy relative to other major developed-market central banks. That would be the opposite of the problem the ECB faced when the Fed held policy steady over 2014 and nearly all of 2015: eurozone monetary policy had to be loosened relative to that in the U.S.

The Brexit vote will push central banks deeper into the unknown of monetary policy. Eight years on from the Lehman crisis, central bankers insist they aren’t out of ammunition. That argument will be tested in the coming months.


Consciousness: The Mind Messing With the Mind

George Johnson
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A paper in The British Medical Journal in December reported that cognitive behavioral therapy — a means of coaxing people into changing the way they think — is as effective as Prozac or Zoloft in treating major depression.
 
In ways no one understands, talk therapy reaches down into the biological plumbing and affects the flow of neurotransmitters in the brain. Other studies have found similar results for “mindfulness” — Buddhist-inspired meditation in which one’s thoughts are allowed to drift gently through the head like clouds reflected in still mountain water.
 
Findings like these have become so commonplace that it’s easy to forget their strange implications.
 
Depression can be treated in two radically different ways: by altering the brain with chemicals, or by altering the mind by talking to a therapist. But we still can’t explain how mind arises from matter or how, in turn, mind acts on the brain.
 
This longstanding conundrum — the mind-body problem — was succinctly described by the philosopher David Chalmers at a recent symposium at The New York Academy of Sciences. “The scientific and philosophical consensus is that there is no nonphysical soul or ego, or at least no evidence for that,” he said.
Michael Graziano, a neuroscientist at Princeton University, suggested to the audience that consciousness is a kind of con game the brain plays with itself. The brain is a computer that evolved to simulate the outside world. Among its internal models is a simulation of itself — a crude approximation of its own neurological processes.

The result is an illusion. Instead of neurons and synapses, we sense a ghostly presence — a self — inside the head. But it’s all just data processing.
 
“The machine mistakenly thinks it has magic inside it,” Dr. Graziano said. And it calls the magic consciousness.
 
It’s not the existence of this inner voice he finds mysterious. “The phenomenon to explain,” he said, “is why the brain, as a machine, insists it has this property that is nonphysical.”
 
The discussion, broadcast online, reminded me of Tom Stoppard’s newest play, “The Hard Problem,” in which a troubled young psychology researcher named Hilary suffers a severe case of the very affliction Dr. Graziano described. Surely there is more to the brain than biology, she insists to her boyfriend, a hard-core materialist named Spike. There must be “mind stuff that doesn’t show up in a scan.”
 
Mr. Stoppard borrowed his title from a paper by Dr. Chalmers. The “easy problem” is explaining, at least in principle, how thinking, memory, attention and so forth are just neurological computing. But for the hard problem — why all of these processes feel like something — “there is nothing like a consensus theory or even a consensus guess,” Dr. Chalmers said at the symposium.
 
Or, as Hilary puts it in the play, “Every theory proposed for the problem of consciousness has the same degree of demonstrability as divine intervention.” There is a gap in the explanation where suddenly a miracle seems to occur.
 
She rejects the idea of emergence: that if you hook together enough insensate components (neurons, microchips), consciousness will appear. “When you come right down to it,” she says, “the body is made of things, and things don’t have thoughts.”
 
Proponents of emergence, who have become predominant among scientists studying the mind, try to make their case with metaphors. The qualities of water — wetness, clarity, its shimmering reflectivity — emerge from the interaction of hydrogen and oxygen atoms. Life, in a similar way, arises from molecules.
 
We no longer believe in a numinous life force, an élan vital. So what’s the big deal about consciousness?
 
For lack of a precise mechanism describing how minds are generated by brains, some philosophers and scientists have been driven back to the centuries-old doctrine of panpsychism — the idea that consciousness is universal, existing as some kind of mind stuff inside molecules and atoms.
 
Consciousness doesn’t have to emerge. It’s built into matter, perhaps as some kind of quantum mechanical effect. One of the surprising developments in the last decade is how this idea has moved beyond the fringe. There were three sessions on panpsychism at the Science of Consciousness conference earlier this year in Tucson.
 
This wouldn’t be the first time science has found itself backed into a cul-de-sac where the only way out was proposing some new fundamental ingredient. Dark matter, dark energy — both were conjured forth to solve what seemed like intractable problems.
 
Max Tegmark, a physicist at the Massachusetts Institute of Physics (he also spoke at the New York event), has proposed that there is a state of matter — like solid, liquid and gas — that he calls perceptronium: atoms arranged so they can process information and give rise to subjectivity.
 
Perceptronium does not have to be biological. Dr. Tegmark’s hypothesis was inspired in part by the neuroscientist Giulio Tononi, whose integrated information theory has become a major force in the science of consciousness.
 
Not everything is conscious in this view, just stuff like perceptronium that can process information in certain complex ways. Dr. Tononi has even invented a unit, called phi, that is supposed to measure how conscious an entity is.
 
The theory has its critics. Using the phi yardstick, Scott Aaronson, a computer scientist known for razorlike skepticism, has calculated that a relatively simple grid of electronic logic gates — something like the error-correcting circuitry in a DVD player — can be many times more conscious than a human brain.
 
Dr. Tononi doesn’t dismiss that possibility. What would it be like to be this device? We just don’t know. Understanding consciousness may require an upheaval in how science parses reality.
 
Or maybe not. As computers become ever more complex, one might surprise us someday with intelligent, spontaneous conversation, like the artificial neural net in Richard Powers’s novel “Galatea 2.2.”
 
We might not understand how this is happening any more than we understand our inner voices. Philosophers will argue over whether the computer is really conscious or just simulating consciousness — and whether there is any difference.
 
If the computer gets depressed, what is the computational equivalent of Prozac? Or how would a therapist, human or artificial, initiate a talking cure?
 
Maybe the machine could compile the counselor’s advice into instructions for reprogramming itself or for recruiting tiny robots to repair its electronic circuitry.
 
Maybe it would find itself flummoxed by its own mind-body problem. We humans may not be of much help.