This week's New Scientist (UK) has an article on the increased complexity and unpredictability of the global economy entitled
Why the financial system is like an ecosystem http://www.newscientist.com/channel/fundamentals/mg20026794.600-why-the-financial-system-is-like-an-ecosystem.html "Existing economic policies are based on the theory that the economic world is made up of a series of simple, largely separate transaction-based markets. This misses the fact that all these transactions affect each other, complexity researchers say. ... So how exactly has the financial system come to be so vulnerable? One key factor is that money can now flow more easily from country to country. This has stimulated trade and prosperity throughout the world, but it also means that an upset in one place can have severe and unpredictable consequences elsewhere. Days before winning the 2008 Nobel prize in economics last week, Paul Krugman of Princeton University published an analysis which concluded that the rapid increase in cross-border investments since 1995 is what allowed a local shock - the collapse in inflated US real estate values - to propagate globally, especially through highly indebted investment firms that can respond to a loss of money in one place by pulling back credit anywhere in the world. Krugman noted that "these channels are not yet part of the standard analysis". This is exactly the kind of linkage that the complexity theorists say economists have been missing. "The source of the current problems is ignoring interdependence," says Yaneer Bar-Yam, head of the New England Complex Systems Institute in Cambridge, Massachusetts." __ Much of the rest of the article dwells on evidence and opinions from Bar-Yam. Good to emphasise complexity and inherent instability. But no hint of strange attractors behind the predicatable unpredictability, and associated with the phase switch from one set of patterns to another. Nevertheless the global shock experienced by the social forces of capitalism is a fact. They cannot explain it, which will now make them even more cautious, even supersititiously so. Just as the powers of the world had to recognise the fragility of the ozone layer, they now have *absolutely* no option than to try to manage the global capitalist system, in the full knowledge that is is fundamentally flawed. Yaneer Bar-Yam's institute is not widely known. *This* reality now is. This is an uterly qualitative change in the progress of political consciousness in recognising capitalism as a highly complex social system, which now needs, if not social ownership, a greatly heightened degree of social control. And on a world scale. Chris Burford ----- Original Message ----- From: "raghu" <[EMAIL PROTECTED]> To: "Progressive Economics" <[email protected]> Sent: Thursday, October 23, 2008 7:23 PM Subject: Re: [Pen-l] Greenspan Finds "Flaw"! | On Thu, Oct 23, 2008 at 10:21 AM, Sandwichman <[EMAIL PROTECTED]> wrote: | > | > "Greenspan said that he had found 'a flaw in the model that I | > perceived is the critical functioning structure that defines how the | > world works.'" | > | > Gosh. A flaw? Who would have guessed? | | | Well, it is a grudging first step towards intellectual honesty. His | testimony today is quite a comedown for the formerly great Maestro: | http://www.bloomberg.com/apps/news?pid=20601087&sid=a_IH5AnCyOm4 | -----------------------------------------snip | Former Federal Reserve Chairman Alan Greenspan said a | ``once-in-a-century credit tsunami'' has engulfed financial markets | and conceded that his free-market ideology shunning regulation was | flawed. | | ``Yes, I found a flaw,'' Greenspan said in response to grilling from | the House Committee on Oversight and Government Reform. ``That is | precisely the reason I was shocked because I'd been going for 40 years | or more with very considerable evidence that it was working | exceptionally well.'' | | Greenspan said he was ``partially'' wrong in opposing regulation of | derivatives and acknowledged that financial institutions didn't | protect shareholders and investments as well as he expected. | | [...] | | The admission that free markets have their faults was a shift for the | former Fed chairman who declared in a May 2005 speech that ``private | regulation generally has proved far better at constraining excessive | risk-taking than has government regulation.'' | | Today Committee Chairman Henry Waxman, a California Democrat, said | Greenspan had ``the authority to prevent irresponsible lending | practices that led to the subprime mortgage crisis.'' | | ``You were advised to do so by many others,'' he told Greenspan. ``And | now our whole economy is paying the price.'' | | Waxman and other lawmakers repeatedly interrupted Greenspan as he | answered their questions, in contrast to deference to his testimony | while he was Fed chairman. | | [...] | | Greenspan reiterated his ``shocked disbelief'' that financial | companies failed to execute sufficient ``surveillance'' on their | trading counterparties to prevent surging losses. The ``breakdown'' | was clearest in the market where securities firms packaged home | mortgages into debt sold on to other investors, he said. | | | | -raghu. | | -- | Confucius say, dirty book rarely dusty. | _______________________________________________ | pen-l mailing list | [email protected] | https://lists.csuchico.edu/mailman/listinfo/pen-l _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
