Sunday, October 12, 2008

Too complex to fail?

Much that has happened in the last few weeks in the markets was shocking in its swiftness even to the financially literate. But it shouldn't have been all that surprising. The explosive cocktail of too much debt and too little energy has now had the effect of toppling the already top-heavy world markets.

When the world economy was humming along, nary a thought was given to its enormous complexity. It is only now when it is disrupted that we are forced to notice where that complexity is breaking down. And, perhaps the biggest disconnect is between the scope of the problem which is international and the response which has been largely national. The cowboy capitalism which spread across the globe in the past 20 years is now looking for a marshall to come to town and straighten things out.

But there is no overarching international financial authority which can order countries to do anything. And the national approach is, of necessity, a political approach as Stratfor writes in a recent piece:
Countries do not want to bail out foreigners, and different governments do not want to assume the liabilities of other nations. The nature of political solutions is always that politicians respond to their own constituencies, not to people who can’t vote for them.
Stratfor goes on to write:
If the United States comes up with a plan which guarantees loans to U. S. banks but not European banks, and Europeans lend to Europe and not the United States, the integration of the global economy will very quickly shatter, leading to significant limitations on international trade, currency convertibility and so on. You will nationalize economies that can’t stand being purely national.

The international just-in-time systems upon which we depend for food, fuel and medicine are starting to seize up. Many in the world could find themselves without enough of one or more of these essentials. The loss of the hallucinated wealth conjured up in the last decade will pale in comparison to the failure of our physical delivery systems if that failure goes on for too much longer. And, for the moment we are stuck with such systems and cannot merely rely on our national systems for our basic needs. We have become too intertwined. In a sense we have become too complex to fail.

This then ought to be the overriding consideration for the present: how to maintain payment systems for essentials moving through the world marketplace. But since those systems have been designed ad hoc by the financial cowboys who are still running the world of finance and since they have no particular government to backstop them, it's not clear how these systems could be administered by anything other than the current frightened private hands. And, given the record so far, how effective will fresh government guarantees be at making those frightened hands more bold?

It is during such times that we come to realize that our seeming mastery of the world through complex systems actually makes our society much more vulnerable to breakdowns. We have power and reach that previous non-industrial societies lacked. But as for resilence in the face of extreme stresses, we are likely to find that we fall short.


SoapBoxTech said...

What a force is humanity. It astounds me, however, that we are so set on the easy yet destructive path. What we have built, pales in comparison to the resources we have used up and the devastation we have left behind, in doing so.

Most of those who seem to understand that we are marching rapidly towards a new Great Depression also seem to believe that we can come out of this one as quickly and perhaps further ahead than from the first. What they don't seem to have a grasp on is that the resources on which was based the escape from the first Great Depression, no longer exist in quantity or ease of availability.

Kevembuangga said...

One of the entries of your blogroll seems pretty weird:
Instead of what you announce (french translations) there is a single "millenarist" post and from what I collect out of the Whois info for the domain name "" the author seem to be one Jean-Michel COULOMB who dabble in UFOLOGY.
I am not so sure it does any good to inject millenarists delirium (of any kind) in the current mess...

Noah Scales said...

For what it's worth, creating self-sufficient, small-scale, simpler systems of food production, housing development, and policing of various kinds could lead to a certain forced self-reliance, depending on how this simplification occurs.

In first world countries, self-reliance is easier, with capital available to provide support networks in case local communities fail. Third world countries, to be saved from natural disasters, global pandemics, and internal wars, require international intervention. Given the current management of their capital, you might think that they should have been left alone, better off as indigenous communities without outside help of any kind, and maybe that's true. However, given the current economic situation, a movement toward self-reliance implies cutting off forms of support for communities unable to provide for themselves. In particular, the romantic ideal of self-sufficiency, taken up to the level of nation-states, has no worth to poorer nation states struck with the same problems (climate change, economic stagnation, pandemics, ethnic conflict) that first world countries face in the future.

So I doubt anyone not already able to support themselves really wants to be doing it, and those that do, probably pursue it for selfish ends only.

Complex or not, the current world system, including the economic and political system, supports a much grander potential than a smaller view could offer the Earth's current inhabitants. A view to keeping the global population alive, for example. Managing that complexity takes work and makes you vulnerable, but it demonstrates a certain resilience as well.

Hopefully people will find an appropriate balance, rather than fearing their frustrations with others so much, and then just fending for themselves.

Kurt Cobb said...

Thanks to kevembuangga for pointing out the change in the TEST site. Jean-Michel previously had up several French translations of English-language peak oil articles including some of mine. I hadn't checked it in a while and see that he's gone on to other things and therefore have removed the link.

Frank said...

Perhaps, in the long run, humanity will be better positioned if global systems fail now. In reading William Catton, Jr's "Overshoot", I conclude that humanity has already "overshot". If we desire to leave a reasonable world to the children of future generations, then we must quickly migrate to low energy styles of living. Our project seeks to demonstrate a nature linked low energy lifestyle, EntropyPawsed
I believe we must begin to develop local economic networks to meet many of our needs if we are to proceed forward with peace and grace.