Complex Human Systems Fail When Based on Monocultures & the Misguided Belief that Economics are Based on Natural Law and Not Created

by Fern Phan


Human made systems don't necessarily follow any kind of natural law. According to ....,  laws are, in actuality, the economic mechanisms of 13th Century monarchs. 

Although it may be subjected to the scientific method and mathematical scrutiny, it is not a natural science; it is game theory, with a set of underlying assumptions that have little to do with anything resembling genetics, neurology, evolution, or natural systems.  Edge

Preventative medicine doesn't quite go down in political and market arenas.  Van Jones resigned from the White House Council on Environmental Quality via e-mail yesterday, Sunday.  His resignation might be related to past remarks against Republicans and that he might be too radical for the mainstream. Yahoo!

He was the "greens job czar."  For him, going green meant major structural changes and not necessarily fashion choice of what he calls the eco-elite.

"What is considered green is usually for the eco-elite," he preached to the assembled solar entrepreneurs, environmental activists, and community leaders (including more than a dozen black clergymen). "But if we are actually going to meet the challenge of global warming, we are going to have to weatherize millions of homes and install millions of solar panels. That's millions of new jobs. We need to connect the people who most need the work with the work that most needs to be done." It's one of his favorite themes: the need to expand the green movement beyond "lifestyle environmentalists," with their hybrid cars and other eco-status symbols. The audience cheered. "Van Jones, he's a rock star," says Tim Rainey, director of economic development at the California Labor Federation.

Also, a mathematical model for presaging tipping points or system cascade netted physicist Kenneth Wilson won a Nobel Prize in 1982 for developing equations to describe transitions that don’t happen in a linear, easily predictable way, but are sudden and massive, such as fluids becoming turbulent and metals becoming magnetized.  

Computer models can replicate their bubble-and-crash behavior, but real markets — buffeted by political and social trends, and inevitably responding to the very act of prediction — are much cloudier.

Tip-offs for tipping points appear when the feedback loops that normally keep complex systems at equilibrium become stressed. Too many trees are cut down, too many cattle are turned out to graze, too many investors sell low. The system takes longer to recover from variations it normally weathers. Its mathematical representations become jagged rather than smooth.

“It is hard to find clear evidence of bifurcations and transitions, let alone find an early warning system to detect an upcoming crash,” said Cars Homme, an economic theorist at the University of Amsterdam.

The most promising evidence of useful early warning signs comes from grasslands, coral reefs and lakes. Vegetation-pattern-based early warning signs have been documented in several regions, and transition theory is alr Wired 

Nassim Taleb: Randomness; Black Swans; Economy; Ecology; Monoculture; Commodities Secular Bull Market

by Fern Phan

Nassim Taleb Books: The Black Swan, Fooled by Randomness, Dynamic Hedging, The Volatility Surface

Mr. Taleb, once the renegade, redheaded stepchild of Wall Street for his disdain of financial models, regularity, and paradigms, has become the new hero as of late. His correct predictions about the market crash and other harbingers of financial misfortune he calls Black Swans has brought him credibility to those he only half mocks.

• In his book Fooled by Randomness, he throws around the idea of monkeys on typewriters. For example, you have a 1000 monkeys banging away on typewriters vs. one monkey doing the same thing, you might end up with interesting prose or maybe even a masterpiece from one out of 1000 monkeys (less likely with one chimp), but to say that a certain result was providence is a spurious conclusion. It's kind of an obvious thing, but that is, according to Mr. Taleb, what happens the majority of the time.  The motif is that central idea of randomness, hence the title of the book.

• Then came The Black Swan, which warns of anything that smacks of a sure thing.  A black swan is a highly improbable event with three characteristics: unpredictability; it has massive impact as in chain reaction; and, after the fact, there are explanation that makes it appear less random and more predictable - usually through modeling by plotting historical numbers or saying I knew it all along. People don't want to admit that most things can be unknowable, uncertainty is involved in anything.  It's too scary and humans don't look very smart when they're proven completely wrong.  He gets into more detail about this, but the take away is that there are many more people in this world wired to be artisans than there are people wired to be architects. People don't see the forest.  They read the tea leaves and extrapolate out from that.

Nassim Taleb's books are enormously entertaining, erudite, and original.There's a lot of another renaissance thinker, Umberto Eco, in how he approaches things.  Through reading his books, one thing that kept popping up was "why isn't this person bringing up the issue of ecology and monoculture?"  He does make sweeping statements of applicability of Randomness and The Black Swan from the Macro to the Micro and it fits very well into Monoculture.  The central premise is that you are left vulnerable because you define your parameters too narrowly, either through lack of foresight (laziness, ignorance) and/or design for increased efficiency and/or leverage increasing cost saving and profit returns (greed).

• Monoculture is the practice of producing or growing one single crop over a wide area.  The term is mostly used in agriculture planting crops with the same patterns of growth resulting from genetic similarity and uniformity i.e. corn fields, forests or orchards. They are uniform in requirements (asset classes) and results in greater yields due to higher efficiency through standardization. This also includes the use of synthesized fertilizers (derivatives), which boost returns even more. What makes monoculture so great is also its Achilles heel. It applies to financial markets as well.

This kind of dependence tends to lead to catastrophic failures when a crop is susceptible to a pathogen or there's a change in weather. The important lesson to learn is not to replace the crop with another variant that might be completely immune to the original pathogen, but has absolutely no resistance to exactly one unknown pathogen, The Black Swan.

A remedy to avoid Black Swans would be in cultivating biodiversity or Polyculture in financial markets. There would still be vulnerabilities to pathogens/Black Swans, but the impact would be muted compared to a Monoculture system. Polyculture, though, can be less efficient, and may have a lower return.  Ideas to transplant would be Crop Rotation, varying varieties of the same plant, Permaculture (includes Polyculture), and Reconciliation Ecology.  We'll explore some of these concepts in later articles.